Things Financial - 08 The equivalency of Cash – Money is Time

When I was in my teens I used to hear the expression “Time is Money.” It was usually heard in close proximity to, “Get back to work!”

For a long time I interpreted the saying as something like, “I’m paying you to work, please honour your part of the contract.” That made perfect sense to me. It wasn’t until years later (when I was a better employee) that I had a rethink about it.

The winter was cold and dark and business was slow. I thought, “I need a vacation. All my bills are caught up. I’ve got a few dollars in the bank. I can afford it. I’ll just ask the boss for a little unpaid time off and go south for a few days.” And so I did.

A few years earlier I’d had a different job, been living hand-to-mouth, lucky to have twenty bucks left after paying my monthly bills. Now I was making closer to the Canadian Median Wage after more than half a decade of being one of the working poor. Now I could afford a vacation. Now I could take the time.

About then is when the phrase came back to me, ‘Time is Money,’ and I realized that in some ways it could be taken as literally true. And if Time is Money then Money is Time. Having the money in the bank allowed me to take the time away from work.

Maybe that’s not a big revelation to most people but it was to me. Having a few dollars in the bank grants a lot of freedom.

I’ve never objected to working. I’m not one of those guys who dreamt of striking it rich and retiring at 30. I had friends with those dreams, but they weren’t mine. I like working. That wasn’t the kind of freedom that I was looking for.

The kind of freedom that I found the most satisfying came when I looked for a new job. Knowing that I was in no hurry and knowing that I didn’t need to take the first job I was offered. It was a super good feeling going into a job interview saying, “This is what I can do for you. What can you do for me?” rather than hoping to not blow the interview. I became a negotiator, not a supplicant. I could be choosy about whether the job would be a good fit for me.

A job that is a ‘good fit’ generally makes a happier, more productive employee. A good boss will notice that and make an effort to keep you happy.

But Time is not really Money – Work is Money

On the internet I sometimes see people claiming that money is useless and without value; that it is created out of nothing. I guess things could appear that way if you are far removed from its creation. (A lot of these same people will be more than willing to give you their ‘vary valuable’ crap and take away your ‘completely useless’ cash. How generous!... The offer should tell you something about their true beliefs.)

Money isn’t created from nothing. Value is created by valuable work and money is the thing (the place holder) that we choose to represent that value. So money is an artificial creation, true, but it doesn’t come from nothing. It is an offshoot of both created value and a societal agreement to accept this place holder that we use to represent that value.

Credit doesn’t come from nothing either. Credit is created by the borrower’s promise, and demonstrated ability, to do valuable work.

Credit and money both spend exactly the same way. You can’t tell the difference between them in the economy.

What I am trying to say with all of this is that if you want a comfortable amount of wealth be prepared to work for it. And try to do ‘high value’ work. Your earliest investments should be in yourself. The investment doesn’t need to be money, it can be time and work. Improve your skills. Improve your knowledge. Use the library, it’s free.

Starting out is the hardest part. It took me years to get the ball rolling.

Things Financial - 07 Pay Debt or Save Cash?

Pay off your debt.

That’s really all I have to say about this topic. I can explain my reasoning for those who need a little convincing.

In an earlier blog I mentioned my preference for reducing expenses rather than increasing income. There’s nothing wrong with increasing income. I’m all for it. However, I really like my time off so decreasing spending is a way to spend less time in the office or at the job site. A relatively easy way to decrease expenses is to not pay interest on your purchases. Interest on debt is an expense with no material return. It’s money you spend and get (almost) nothing for. You do get a thing sooner rather than later, but at a cost.

A few years ago a co-worker, who made just as much money as me, bought a car. He went to a used car franchise with “on site” financing. The car he bought was not super expensive, $5,000, but they gave him a 5 year loan for it with a 28% interest rate. This gave “Easy Payments” and increased the final price of the car to about $8,800.

I’ll say this another way which I hope will make it clearer to some folks:

My co-worker and I made $32 an hour. We took home about $25 an hour after taxes. That means that he had to work for 200 hours (5 full weeks) to pay for the car. Then he had to work another 152 hours (just about 4 more weeks) to pay for the “Easy Payments.” That’s 152 hours of work for which he got nothing more than he already had. You could think of it as him working 4 weeks without getting paid for it, because that’s how it looked to his bank account.

This is the same pattern that many sellers of credit will use. “Easy Payments” in exchange for increased cost to you. In general, the easier the payments the longer you’ll take to pay off the purchase. The longer you take to pay it off the more it will cost you in the end.

If my co-worker had less debt at the time he may have been able to get a bank loan at 10%. That loan would have cost about $900 rather than the $3,800 he paid. Better yet, if he’d had the money in the bank to just buy the car he could have saved the full $3,800 cost of the loan.

“Then shouldn’t I be saving rather than paying debt?” you might ask.

Don’t get me wrong. Saving is great. I encourage you to do it. Just not at the expense of carrying debt one day longer than you must. Pay off debt first. The simplest reason is because interest on debt generally adds up faster than interest on savings.

Example: $1,000 in a GIC might pay $40 interest in a year. If, at the same time, you carry $1,000 on a VISA or MasterCard it will cost about $220 in interest. Saving that $1,000 will make you $180 poorer by the end of the year. In Finance Speak that difference would be a ‘net loss.’

Worse than that, if you have the GIC in a Non-registered Account you’ll have to pay income tax on it. You’ll probably end up with just $30 after taxes. At year’s end you’ll be $190 poorer. Also, some card companies will increase your interest rate if you carry a balance for a few months thereby charging more from the people who can least afford it. The poor get poorer.

It might feel good to see money in your bank account but it can cost you in the end. Save only your Emergency Fund then get working on debt repayments.

Whether you pay off your smallest debt first (snowball style) or your highest interest debt first (avalanche style) is up to you. Just pick one and start there.

A couple of other reasons to pay down debt are because it makes you a ‘better credit risk’ and it frees up space to borrow. Not that you should re-borrow after paying off a debt.

The eventual goal of your financial plan should be to get into a position where you never have to borrow money again. Where you can just buy the things you need and not worry about making payments into the future. But near the start, if you aren’t in that position yet, you may have to borrow – but only for the things you need, never borrow for what you could do without.

These days a lot of people seem concerned about Credit Scores. In the olden days of my youth it was only institutional lenders that were interested in such things. Now I hear of landlords and prospective employers asking after Credit Scores. Paying your bills regularly, on time, and paying your debts off will greatly improve your Credit Score.

If your Emergency Fund is weak (like $500) and you haven’t started your Hard Times Fund but you have been paying down your debts, during an emergency you might be able to re-borrow at a lower interest rate than you were previously paying.

Now I hear you ask, “If it’s better to pay debt than save money why have an Emergency Fund at all?”

The answer is, “Because the Emergency Fund is for small emergencies.” A bank, with its lower rates, is unlikely to lend you $500 or $1,000. If you need to borrow that amount of money you’ll be looking at a cash advance on a credit card or a payday loan. Credit cards frequently have cash advance fees and higher interest rates than for purchases. This makes them a poor choice for borrowing. And you should never, EVER borrow from a payday loan place. I personally would rather go to the States and sell my blood.

Debt today means a poorer tomorrow. Pay that stuff off now! Build a better future.

Check out “CBC Marketplace Payday Loans” on Youtube

https://www.youtube.com/watch?v=Ea2-qytKw6Q

if you like (financial) horror movies.

Things Financial - 06 Ways to economize when you’re just starting out

Economizing, reducing expenses and saving money, comes naturally for a few people but not for many others. Dave Chilton in his book The Wealthy Barber Returns argues that it is unnatural and evolutionarily unwise to save for a tomorrow that may never come. He’s probably right.

Our society has largely removed us from survival-in-the-wild situations and placed us into a situation where the competition is for dollars, which can be saved and grown, rather than for food, which must be consumed before it rots and becomes useless.

Once you’ve made the decision to put some money aside for the future how do you start?

It’s always easiest to make money when you already have some. After all, the rich get richer. Savings have a way of ‘snow-balling.’ Things start slowly at first but, over time, they build and pick up speed.

But what if you don’t have any money? You’ll have to get some by doing some extra work or cutting some expense. Which method you use may be forced by circumstance or be a personal preference. My choice was to cut expenses. (I figured I already worked enough and most of the jobs that I worked at figured that they didn’t want to pay me over-time.)

Cutting expenses will feel unpleasant at first but look for something that you might be better off without. Vices are a good place to start. If you smoke or drink you already know that these things are bad for you in the long run. You don’t have to cut them out completely (‘cause they’re fun) but set yourself a limit. Ration yourself. Aim for, say, two thirds of your habitual consumption. When I started cutting expenses it started by cutting down trips to the bar and beer consumption.

If you don’t have vices, congratulations. Look for other places to cut expenses. Coffee shop drinks, restaurant lunches, extra drives to the store, entertainment expenses (movies, streaming services, book & magazine purchases), anything else you can think of. Spend less than you bring in. And be honest with yourself.

I’ve known people with money problems and people with weight problems. One of the things that I’ve seen in common with many of them is failure to accurately track their own behaviour. One might spend or eat without noting the action. When asked, they might deny that it happened or say that it’s so small an amount that it’s not worth worrying about.

It’s all worth worrying about. Especially if you have a problem with it. If you truly want what you claim to want, count everything. Don’t fake yourself out. It will only cause failure and stress.

Learn to do tasks that you might pay others to do. If you have a vehicle, learn to change your own oil. Learn to install your own winter tires. If you’re not a renter learn basic plumbing & electrical. Changing one light switch or unplugging one drain or changing one toilet valve can sale hundreds of dollars. None of these skills are hard to learn and once the neighbours know that you’re capable they may call on you. I get beer and food for small repairs all the time. Those both reduce my expenses, too.

You may choose to work more to increase your income. This is a good idea if it seems best to you. Just make sure that you save the extra income. On the rare occasions that I took extra work I would save half and spend the other half. This gave me both money in the bank and a small reward for the extra work. This may be a good plan for you to follow once you’re already living within your income.

If you have spare space in your home consider taking in a roommate or border. If you live by yourself consider moving in with a friend. Either of these is a big step that can produce, or expose, relationship problems so think carefully before you take the leap. With housing being a major expense, sharing costs can also produce major savings over an extended period.

I’m pretty easy going so I had roommates, until my mid 20’s, who helped pay the rent. When I was mid 30’s and bought my home I brought in borders who helped pay the mortgage. To me it felt like a Dire Straights song – Money for Nothing.

After a month of following one or more of the suggested approaches to economize/save you should have a few dollars. Even $20 is a start. $100 is better. More yet is better yet. You can use this money to start saving more.

Some of these ideas will seem simple, and they are. These are things that worked for me and should work for you too.

Everyone eats and supermarkets put things on sale on a rotation. Watch for specific items going on sale every 3 weeks, every 4 weeks, every 6 weeks, every 13 weeks, semi-annually and annually. Learn the rotation at your favourite store. If something non-perishable comes on sale buy enough of it to last until the next scheduled sale. Concentrate on shopping the sales. Learn to tell the difference between needs & wants. Try not to pay full price for anything that you need and never pay full price for things that you want.

Never pay full price for toilet paper, it’s on sale a lot and keeps indefinitely.

Use the money you saved to economize on your weekly purchases and remember to bank the money you save this way, too.

Never buy something just because it’s on sale. Make sure it’s something that you really need and will use. - Shortly after I left high school a friend of mine bought a truck tire...Because it was on sale. More than 50% off. It was a good deal for that truck tire. Unfortunately my friend didn’t have a truck. And the tire didn’t fit his car. And it’s really hard to re-sell a single tire....True story. The moral being that it’s not a good deal if you can’t use what you bought or if it goes to waste.

If you’re someone who makes a lot of short drives by yourself, get a bicycle (or use the one you’ve already got). Ride the bike for any trip less than 10Kms. You can frequently find a bike at a garage sale for less than the price of a tank of gas. I ride my bike between 500 & 2,000Kms a year. Even if you drive an economy car with today’s fuel prices you can save over $100 a year and be healthier, too.

Don’t use credit for any of your daily needs or any of your wants.

If you have debt, pay it off. Get that monkey off your back. Anything other than a mortgage needs to be gone as soon as you can make it go away. Don’t even think about investing in anything beyond a bank account until you’ve cleared all other debts.

Debt sucks the money out of your pockets. Interest gets added every month and that is just an over-payment for something that you bought in the past and may not even own anymore.

Paying off debt saves interest charges. Interest charges are a constant drain on your resources. It’s spending for nothing and it’s money that you might not have had to spend if you’d started with a little money in the bank...which you should have soon.

Concluding:

Set your mind straight and accept that saving feels unnatural to some people. Maybe it feels unnatural to you. That’s not a reason to not do it.

You can’t spend all the money you make and still have money. Once you’ve spent it it’s gone. Find a way to decrease your spending or increase your income, even if only temporarily. Get comfortable with having money sitting in the bank.

As soon as you’re a few bucks ahead start investing in yourself, your knowledge, your health and your groceries.

Work to get and maintain a bank balance of at least $500. A lot of people will say that you should aim to get $1,000 in the bank before moving on to the next step but I’m going to say that if you are used to being broke then $500 is good enough. Just work to maintain that bank balance. Emergencies happen and you’ll be glad you have it

Pay off any non-mortgage debt.

Once you get this far you are started on your way. There is still a long way to go but if you can make it this far you have proven to yourself that you are capable of controlling money and can have a financially better life than those whose money controls them.

Things Financial - 05 Where does my money go? – Canadian Account types

Once you get the flow your money under control. Once you’re spending less than your take-home pay, you will need something to do with that extra money. Every financial advice book will tell you build an Emergency Fund. I’m telling you to do the same thing. Put away some money. But where? You’ll need a place to put it.

There are more than a few choices of places to park extra money. And there are more than a few people who would be glad to take your extra money for themselves. Beware of people who offer plans to get-rich-quick or who offer easy money. Many such ideas are scams that result in you getting-poor-quick.

The first place you should think of putting your money is in a bank.

Banks get a bad rap. (That’s Old-People-Speak for “nobody like them.”) There are some expressions that show how people feel about them. I’m sure you’ve heard a few. Expressions like, “Arctic winters are as cold as a banker’s heart.” And the true statement from my-mother-the-farmer, “The only way a bank will lend you money is if you can prove to them that you don’t need it.”

The above refer to a bank lending money (and wanting it back). But if you have money on deposit at a bank they will guard it zealously. And if they fail in their duty the Canada Deposit Insurance Corporation (CDIC) will cover deposits & interest up to $100,000 per depositor. If you have less than $100,000 your money is safe in any CDIC insured bank. If you have more than $100,000 you can probably skip the rest of this Post.

Ask if the bank of your choice is CDIC insured.

If you prefer a Credit Union over a bank, they have ‘Credit Union Stabilization Funds’ which function in a similar way to the CDIC. These funds seem to be province by province rather than national. I’m not as familiar with credit unions so be sure to ask for details at the Credit Union of your choice.

Once you’ve picked where to put your money, then WHERE do you put your money?

This next bit can get confusing because some investments are also referred to as ‘accounts.’ (The English language isn’t always the best for communicating ideas.) I’ll use a capital “A” (Account) for a bucket that has special tax rules & a small “a” (account) to indicate an investment type.

There are different types of Accounts and different kinds of investments available inside those Account types. I like to think of the the Account types as buckets that you can put different kinds of investments into. I haven’t used every type of Account that’s available so I won’t talk about all of them, I’ll only talk about a few of them here.

There are Registered Accounts and Non-registered Accounts. Non-registered doesn’t mean that nobody knows about them or that they aren’t safe, it just means that there are no special tax rules when you use one.

The main purpose for using a Registered Account is that, if you use it correctly, you can pay less Income Tax. There is a lot of information on the Canada Revenue Agency (CRA) website about various Registered Accounts including their requirements, benefits and restrictions. Check the CRA site for the most current information.

Some Account Types:

Most people have Non-registered Accounts. This is the sort of thing that you’ll be offered when you walk into a bank as a new customer. Unregistered Accounts are the usual kinds of accounts like chequing accounts or a savings accounts by various names. You may also get offered a Market or Trading account if you ask about getting into the financial markets (stocks, bonds, mutual funds and such). Don’t do that yet.

Your bank can also offer Registered Accounts (see the CRA site). Common ones are Registered Retirement Savings Plan (RRSP), First Home Savings Account (FHSA), Tax Free Savings Account (TFSA), Registered Education Savings Plan (RESP), and Registered Disability Savings Plan (RDSP). If you or anyone in your family has a disability I hope you already know about that last one, most banks aren’t quick to suggest it.

These different Account types (buckets) have different tax rules as well as rules about who, when & how much can be contributed (deposited) and who, when & how much can be (or must be) withdrawn. In many cases you swap restrictions on your money for a lower Income Tax bill.

Of these Registered Account types my favourite right now is the Tax Free TFSA. I think every adult should have one. There are very few Government Imposed restrictions on your money. You can have more than one as long as you don’t exceed your maximum contribution limit for all of them combined. (As of 2025; $102,000 for most Canadians. If you turned 18 in 2010 or later your contribution room will be less.) Use a TFSA for any money that you don’t have a plan to use in the following 90 days. Use it for your Emergency Fund. Use it for your Hard Times Fund. Use it for any long term savings that wouldn’t be better in a different Registered Account.

There is no special deduction when contributing to a TFSA but any growth in you investments are tax free and withdrawals don’t count towards income. To compare; interest earned in a Non-registered Account is taxed at the Ordinary Income rate, which is the worst (highest) tax rate most people pay.

Some Investment types:

There are many kinds of investments plus many other places to put your money that people will call “investments” but that don’t fit the dictionary definition.

When you are just starting out and don’t have a lot of money the first investment you should have is a Savings account. It’s just a place to park your money where you can get at it quickly & easily and that pays (usually) a small amount of interest. Your bank may offer more than one kind of Savings account. Read the pamphlet or website before choosing an account. Banks may limit withdrawals & transfers in exchange for higher interest. There may be fees for things that you don’t expect. The fact that a Savings account pays interest is what makes this an investment.

You might also use a Chequing account but in these days of low inflation many don’t pay interest, so they don’t really meet the definition of an investment. Many times a Chequing account is just a convenience.

Your bank will also deal in Guaranteed Investment Certificates (GIC’s). These normally require a you to ‘lock in’ your deposit for a given period of time in order to receive the highest interest rate. The bank may also have GIC’s that don’t require a ‘lock in‘ period (“cashable,” “redeemable” or “pre-encashable” GIC’s). They will pay less than a ‘locked in’ GIC and should pay more than a Saving account.

If you invest in a GIC be sure to specify where your money should go at the end of the contracted term. If you don’t give instructions many banks will automatically lock it in for a further year at the then-current interest rate. Don’t ‘lock in’ your Emergency Fund or Hard Times Fund. That money should be available on short notice. You don’t want it where you can’t get it. Using an analogy: You don’t want your plunger locked in the neighbour’s safe while your toilet overflows, you want it where you can get your hands on it immediately.

And that’s about as far as you need to go until you’ve paid off any non-mortgage debt: Savings & Chequing accounts plus a TFSA for your Emergency and Hard Times Funds with those 2 funds in cashable GIC’s.

In future articles I’ll give more detail on some of the Account types; the advantages and disadvantages of the different buckets. I’ll also talk more about different types of investments (bonds, mortgages, some stocks, etc.) and things that are sold as investments that don’t quite fit the dictionary definition (metals, options, crypto, collectibles, etc.).

Things Financial - 04 Have a Plan for Your Money

Whether you’re making it, spending it, saving it, investing it, giving it away; you should have a plan for your money. Without a plan money tends to drift away from people. It seems to evaporate. So make a plan.

Make a realistic plan.

It’s easy to imagine fabulous wealth or abject poverty. But most people will never have one and will work hard to avoid the other. Try to come up with a realistic plan for that middle ground that so many people occupy. - A lot of people end up in the middle ground so you should have a plan to make the best of it.

I may be able to help frame things with a little bit of math.

If you work 40 hours a week and 50 weeks a year (2 weeks holiday, yipee!) that’s 2,000 hours a year. If you’re ambitious and start working from your 15^th birthday to your 65^th you’ll work 100,000 hours. As I write this (near the end of 2024) a tradesman in my area can expect to make about $32 per hour and could make $3.2 million in a life time. Try figuring how much you might make in a life time.

It may look like a lot when you see it written like that but the number needs paring down. First, you’re unlikely to work 100,000 hours. You’re unlikely to start working full time at age 15. You could start at 18 and work until you’re 68, but good paying, steady employment for 50 years will be hard to find. Even the most employable people have down times. There will be economic downturns and lay-offs and down-sizings. Unemployment will cut into lifetime pay. Or you might go to university and not start working until you’re 23 or 28, perhaps graduating with substantial debt.

Whether you go to university or straight into the workforce you can expect to fall short of the 100,000-hour mark. 80 to 90,000 hours is more realistic and 70,000 wouldn’t be out of the ordinary. I’ll say 85,000 hours for this example. (Which is pretty close to the number given at moderngov.com.)

With the reduced hours our tradesman makes $2.72 million in his lifetime. Of that he can expect to hand 20% or so over to the government for income- and various other withholding taxes. Now he’s left with $2.17 million with which to live most of his life. This amount is about 2/3’s of the first number that we worked out, $3.2 M. How much is 2/3’s of the number that you worked out for yourself?

We can toss in a little over $200,000 for Canada Pension and Old Age Security during the expected 16 years of retirement. The tradesman now has $2.4M has to last him from 18 to 81 years old (Eighty one years being the average life expectancy in Canada; but half of all Canadians live to 90).

The money has to stretch out for 63 years (or 72 years for half of Canadians). It has to cover food, heat, light, phone, housing (rent or buy), transport (vehicle + fuel + maintenance + insurance or public transit), clothing, entertainment (restaurants, movies, vacations, toys, electronics, hobbies), raising the kids, charity (if he can afford it) and geriatric care when he gets old. If you just divide out the numbers it comes to around $3,800 per month. It’s better than minimum wage but still not very much in today’s economy. The tradesman needs a financial plan to make sure that he won’t run short of money.

Everyone needs a financial plan. It doesn’t need to be elaborate or be cast in stone but you need some sort of a plan. The oldest and most basic is the “pay yourself first” plan. It’s been around, in some form, for centuries.

“Pay yourself first” is just another way of saying that you can’t spend every cent that you make as you make it. You have to save something for the future. Hold back some amount from every pay-cheque. Ten percent has been the recommended amount for many years. Recently some folks are calling for 15 or 20% but I don’t believe that is possible for most wage earners. When I started saving I started at about 4 or 5%. It was hard but got easier. And the percentage went up over time.

Once you have some money put aside some portion of that (but not all) should be invested for long-term growth. This is also a system that has been around for some hundreds of years. If done properly it can lead to a better life for you and Generational Wealth for your descendants.

Start by thinking about a plan to put some money aside. Plan how you’re going to get it. Plan how you’re going to keep it. Your future self will thank you.

Things Financial - 03 Standard advice – Everybody says the same things

Most financial advisors and financial advice books will tell you same thing and I’m pretty much going to repeat it in this article. If you already know to spend less than you take home, if you already know to build an Emergency Fund if you already know to pay off debt if you already know to build a Hard Times Fund, all before you look to longer term goals, if you already know all of that then you might want to skip this....but you may not.

First, a story.

The very first thing you need to do, before you can save a dime, is figure out what you have spent your money on in the past. And don’t ‘fake yourself out.’ Be honest.

When I was 20ish I spent more than I earned. I had no money and had bills coming in. I guess that made me pretty normal for my age. The first time a bill came in that I couldn’t pay immediately, I just delayed it. Made a partial payment and went about my business of being young.

The next month the bill was larger and there was an interest charge that I didn’t like the look of. I felt I had to do something about this. I mean, I was spending money and getting nothing for it! That’s no fun.

I was short on funds, again, and made only a partial payment, again. I realized that I didn’t have a clear idea of where my money was going...except for that interest charge.

I guess I knew that I paid rent & heat & light & groceries but those things didn’t add up to my whole pay cheque. I needed a system of tracking my spending. It turned out to be pretty simple.

I put a basket on top of the fridge and got a paper receipt for every dime I spent. I tossed the receipts into the basket every night....Well, that’s not perfectly true but it was effectively true. I did have to make some receipts myself if I bought something from the ice cream truck or such like. I’d jot a number on a piece of paper with a one-word note for what I’d bought and toss that into the basket.

And going to the bar was a special case. Since I was unlikely to keep perfect track of my spending as the beers flowed I devised a slightly different system. Before going out I’d count the money in my wallet and write the amount on a scrap of paper (Usually the torn off corner of an envelope that a bill came in.) and put the paper in my wallet. In the morning, after I’d had enough coffee, I’d recount the money in my wallet and subtract it from the number on the paper. That told me how much I’d spent, even if I didn’t have a clear memory.

I’d write the new number on the paper scrap along with the word “bar” and toss it into the basket. Oh so easy.

At the end of the month I totalled the receipts in broad categories; home expenses, groceries, transport, bar, restaurant, cloths, etc. I found the physicality of going through the actions and seeing the pile of receipts in the basket made the exercise more real for me.

What was the result? I was really quite surprised. I was spending about a quarter of my take home pay at the bar and another big chunk eating lunch at cafes.

The bar was the big expense and I didn’t want to give up drinking. Fortunately I never thought of the bar as a place to meet women (there are better places for that) I went there to socialize with my friends. A work-around turned out to be easy. It turned out to be cheaper if I just bought a case or two of beer, cooked up a big pot of spaghetti and invited anyone who wanted to come over to my place every Saturday evening to watch Hockey Night in Canada.

It worked out well. I got to socialize. I got to drink beer. I didn’t have to drive home. Everybody thought I was a great guy (at least as long as the beer lasted). And I saved money.

I would still go to the bar on special occasions. I’m not a monk.

I also knocked off the cafe lunches. That was harder. My supervisor called me “cheap” in front of some of the other guys because I wouldn’t go for lunch with the crew. There was social pressure to conform but after a couple of weeks of eating bag lunches it went away.

It took about 4 months to catch up on my bills but after that things got easier. I kept up the receipts-in-the-basket thing for a couple of years, just to keep myself honest.

Society is going mostly cashless these days so counting money in the wallet may not be practical any more. If you buy with a charge card you should be able to reconstruct your spending form the bill, it lists where you spent. If you shop with a debit card you may not know where you spent the money. Get receipts or write notes. It may take a couple of months to get the hang of it.

So here comes the standard advice:

Track your spending. Don’t fake yourself out. Every dime that leaves your hand needs to be accounted for. Sometimes the mere act of tracking is enough to get you to spend less.

If you have money left at the end of the month, great! You’re on the way. If you’re short of money then look for places that you could reasonably cut down. If you spend all that you make you’ll never ‘have’ money. And paying interest charges is like taking a pay cut.

Now put aside an Emergency Fund. Most people will tell you $1,000 is what you should have. I’m going to say that if money is so tight that it will take you months to save that much then aim for $500. Keep your Emergency cash in a place that you can get it reasonably quickly. Don’t lock it into a GIC or Retirement Account. Don’t buy Options or Crypto (more on those later). Put it in a bank or credit union savings account, a high interest one if possible but in a savings account. A Tax Free Savings Account (TFSA) is best.

Next pay off any non-mortgage debt that you have. No taking on new debt. Stop using your charge cards. No new loans from the payday loans place. No new rent-to-own contracts. No new debt.

For paying off existing debt there are 2 systematic methods. The common names are ‘snowball’ and ‘avalanche.’ Both methods involve making a list of all of your debts.

To ‘snowball,’ list your debts from lowest to highest. Make minimum payments on them all then take every spare cent and pay down the the debt at the top of the list, your smallest debt. Do that every month until it’s gone. Then do it with the next debt on the list. You’ll be making larger payments than you made on the first because now you are free of that first minimum payment. Pay off the second debt. Now you have eliminated 2 minimum payments. Move onto the third and keep going. Each paid off debt releases more money to deal with the next. It’s like getting a small raise every time you pay off a debt.

To ‘avalanche,’ list your debts from highest interest rate to lowest rate then follow the same pattern as the ‘snowball,’ making minimum payments on all, then putting every spare cent against the debt on the top of the list.

Psychologically the ‘snowball’ is more satisfying and probably the most successful. ‘Avalanche’ is slightly faster and slightly cheaper but too hard for many people to stick to because progress may not appear as obvious.

Once you’re out of debt you can start on truly saving for a better future.

Pump your Emergency fund up to $1,000 if it’s not already there. Then build your Hard Times Fund to carry you through job loss, lay offs and economic down turns.

Lucky people might make it this far in a year of two. Others may take 3, 4 or 5 years. Or, like my friend in a previous post, 20 years. But I haven’t met anyone who told me that the effort wasn’t worth it.

Things Financial - 02 Getting Started; the Hardest Part

I’m sure you’ve heard it said that “it takes money to make money.” But for most people that isn’t true. For most it takes work to make money. And for many of those people their money is gone by the time the next cheque arrives.

Why is it so hard to save money?

Well, for some people there is no money to save. Some folks truly live hand-to-mouth with no wiggle room at all. It’s a hard situation to be in. For these people the only advice that I can give in a financial advice blog is to invest any free time that you might have into yourself. Study, ask about, research and practise the things that will help you improve your employment situation - anything that will help you get a raise or a promotion or that will make you more valuable to your present employer or to the next one. Or the one you hope to have.

Good luck.

There are other people who aren’t in this hand-to-mouth situation but think that they are.

Bloomberg did a study in 2023 among people who each made at least $175,000US per year, placing them all in the top 10% of earners in America. They were asked to rate their personal financial situation. About one quarter of them rated themselves as “Poor,” “Very poor” or just “getting by.”

Are these people really living hand-to-mouth?

If this group of people, who make more than twice the median income in America, see themselves as suffering financial hardship what does that suggest about people’s spending habits and their ability to save? Clearly the possibility or ability to save isn’t just a matter of income. For perhaps a quarter of the population it is a matter of psychology, discipline and self image.

It’s hard to be a saver. It’s an unnatural act. Our human instincts tell us that having something now is better than having it later. There is uncertainty in waiting to get that ‘something later.’ It’s natural to think, “What if it’s not there? What if someone else gets it first? What if I miss out?” Why delay gratification?

Human beings, by nature, are not inclined to save for a rainy day.

There are no songs that go, “Hey, big saver!”, but there are lots about big spenders. Western culture celebrates spending. Big gifts, new cars, monster houses, pool parties, exotic vacations. Whatever is new & trendy gets screen time and the new & trendy is shown as coming with social validation. Advertising would have you believe that if you drink the right beer, the Beautiful People will love you. What an ego boost that would be!

People who are not willing to spend as much money as their friends can sometimes be socially ostracized. Sometimes they remove themselves from their group for fear of being ostracized. Have you ever been called (or called someone else) cheap? It’s deflating to the ego.

If you’ve ever bought an impulse item at the supermarket checkout, bought a lottery ticket, drank a pop instead of water when you were thirsty, bought a luxury car or taken an all-inclusive holiday then you have the capacity to save money. Fear-Of-Missing-Out (FOMO) or absent-minded consumption drains the money from your wallet and from your future self.

If you’re going to start saving you don’t have to give up all of your small or pleasurable purchases. You should just spend consciously and with purpose.

Saving is the conscious act of waiting until later and trusting that when ‘later’ arrives the thing that you will have in the future is at least as good, and probably better than, what you could have today.

Without the realistic belief that saving will make your tomorrow better, there is little purpose in saving.

No one can predict the future no matter what they may tell you. The best anyone can do is study the past and try to make an educated guess about what the future may hold. Using the past as a guide we can say that hard times are coming. Hard times always come. Historically, saving (and investing) money has generally been a better plan than not doing so. Cash on hand won’t prevent every hardship but it can help you weather the storm.

So why is it so hard to save money? It goes against human nature. It goes against social norms. It’s a conscious decision to pass up today’s opportunity when FOMO is screaming “Grab it!” It is a conscious decision to believe that a better future doesn’t just happen, you make it happen.

I have an eight word saying that seems to apply to most things in life: “Hard now, easy later. Easy now, hard later.” Remember that, if you choose to save for a better tomorrow.

It takes work to make money but it’s hard to save. The reasons why include:

Truly living hand-to-mouth.

Psychology, discipline and self image.

Saving is the unnatural act of trusting in the future.

Saving is socially awkward. No one wants to miss out.

Advertisers know how to push psychological buttons.

Absent minded consumption. (We all do it.)

https://www.cnbc.com/2023/08/22/fewer-americans-consider-themselves-wealthy-report-finds.html

Things Financial - 01 Why Save? Why Invest?

 

In the story “The Ant & The Grasshopper” during the summer the ant stores grain while the grasshopper plays the fiddle. In the winter the ant eats while the grasshopper starves.

My mother, the farmer would say, “Make hay while the sun shines and save for a rainy day.”

...And some philosophy for the Biblically inclined:

Ecclesiastes 7:12 - “For wisdom provides protection, just as money provides protection.”

I know that that last one might surprise a few folks. People mostly seem familiar with the Biblical misquote, ‘money is the root of all evil.’ The Bible doesn’t say exactly that. It says “...the love of money is the root of all evil.” (1 Timothy 6:10) It’s not the money that’s evil but a person’s attitude towards acquiring it that might cause them to do evil.

Money has a use, it’s a tool. It provides some form of protection. Having it won’t solve all of your problems but there are some problems that money can make go away, just like a toilet plunger can make some problems go away. Whether your problem calls for cash or a plunger it’s good to have the tool handy when you need it. Why deal with crap when you can make it go away?

One reason to save: Having money saves money.

Maybe this sounds odd but it’s expensive to be broke.

Everybody eats and buying groceries in smaller, less expensive, packages tends to cost more per ounce (or kilo) of food. If you can only afford the small package you’re paying more for the meal than a person who can afford the bigger package.

If you get an unexpected, unbudgeted, bill you’ll have to find the money somewhere. If you don’t have it saved you’ll have to sell something, borrow somewhere or delay paying some other bill. If you’re forced to sell something in a hurry you almost always get a bad price; there is a ‘desperation discount.’ If you borrow cash or put off some other bill there will be interest or penalty charges or both. And once the emergency expense is paid you still have to pay back the loan or catch up on the other bill you skipped...plus those extra charges.

To make your loan payments or catch-up payments you have to make sacrifices elsewhere in your life or work extra to come up with the extra cash. And the sacrifices and extra work after the emergency will be larger, greater and more than if you had done it before the emergency. You have to pay the extra charges. Saving beforehand doesn’t charge penalty fees. Saving beforehand doesn’t charge interest, it pays interest.

Working to pay for an emergency before it happens makes you richer. Working to pay for an emergency after it happens makes somebody else richer.

It’s cheaper to save than to borrow. It’s less work to save than to borrow. It’s less sacrifice to save than to borrow.

And nobody goes through life without surprise expenses.

Another reason to save: Having money relieves money anxiety.

In my early twenties I had a roommate who was always broke. He never had a lot of debt but his money always seemed to arrive the week after he spent it. One day I asked him why he was always broke. He didn’t really spend more than he made, he just never had any cash on hand and was always borrowing from friends for emergencies or surprise expenses. And he could always come up with money to pay it back the next month. He told me that if he were to die that day and hadn’t spent every cent he had made and every cent that he could borrow then he would feel like he missed some opportunity.

I understood his choice. I didn’t agree with it, I thought it was short sighted, but at least it was thought out and not impulsive. I’ve always been inclined to save. Even if it’s only $20 a month. I get nervous if I spend every cent that comes in. I told him that the worst thing that could happen to him was to live beyond his working years.

We’re still friends.

About 20 years later we were chatting. He told me that for the first time he had looked at his bank account and seen enough to cover all of his expenses for the next month. “And it just hit me. It feels really good. It’s like there’s no pressure. I can relax. Is this what you were talking about all those years ago?”

“Yup.”

Another reason to save: Having money pays. If you have money in the bank it pays interest. Not much interest these days but a small amount of interest is better than none. If you look around you might find a bank that will pay more than your present one does. And some banks will pay more if you have more on deposit.

The more money you have the more options you’ll be offered for investing. I’ll talk about that later.

So the reasons to save are:

Money is a tool that can solve some sorts of problems.

Having money saves on unexpected expenses.

Having money relieves some sorts of anxiety.

It pays to have money, like getting a tiny raise in pay.

Things Financial - 0 Intro

 

Intro

    Most of my life I’ve worked for an hourly wage as a skilled labourer. I’m a child of the 50’s, a Boomer. I’ve reached retirement age. I’ve never worked for a company or organization that offered a pension. I recall one of my school teachers, back in the late 1960’s, telling the class that the country would be broke by 1980 and there would be no government pension for any of us. As old folks we would starve if we didn’t look out for ourselves.

    The ‘no government pension’ prediction didn’t come true. As for the country being ‘broke’, there is still some debate about that. ‘Looking out for ourselves’ turns out to have been a wise strategy just the same.

    The generation previous to mine grew up in a time when it was considered rude to talk about money, politics or religion. The ‘not talking about money’ seems to have been a thing that was passed on to my generation and damaged the financial lives of many of my contemporaries and their children. I would like to do something to stop the financial pain. I just don’t like seeing people stressed by financial problems when there are other things in life that need our attention.

    People under stress tend to make bad decisions. If there’s a way to relieve one area of stress in their life it may allow a person to make better decisions in other areas of their life.

    Of course most of the Boomers are near or into retirement age. There is a limited amount that they can do to get their financial houses in order. (There’s almost always something that can be improved, if only slightly.) This series of articles is aimed more at the following generations. I hope there will be something of value here for anyone from 15 to 50, but even if you’re 70 there may a tip or two along the way.

    I’ll explain my philosophy on money and along the way you’ll get an idea of my outlook on life. The stories I tell and the advice I give will be from the point of view of an hourly-wage worker, because that’s the life I know. There will be talk of things that I’ve done and not done, things I wish I’d done or not done, as the case may be.

    It’s hard to suggest financial advice without also suggesting or implying a financial philosophy. My approach has been one of debt avoidance and the slowish, safe-ish accumulation of wealth during my working years. In retirement I have tried to turn my savings into an income stream that will preserve those savings for as long as possible while providing the greatest amount of spendable cash over my expected (or at least hoped for) life time.

    I hope you find these brief articles helpful and maybe a bit entertaining.

Tariffs in 2025. Here We Go Again.

 

I thought that I should have another go at this.

During Mr Trump’s first term I wrote regarding his comments on tariffs and that the things he said were incorrect. Lies actually.

With Mr Trump again assuming the office of the Presidency he is calling for import tariffs from 10% to 60%, depending on the country of origin. Just so that we’re clear, TARIFFS ARE A SALES TAX WHICH IS ULTIMATELY PAID BY CONSUMERS.

In case just pointing that out is insufficient, perhaps walking you through the steps will make the point easier to see:

Suppose that a manufacturer (say, Chinese) makes an item and needs to sell it for $10 in order to keep his factory open. Before tariffs he arrives at the border and sells it to an importer for the $10 that he needs and goes away. The importer adds his standard 100% mark up and sells it to a retailer for $20. The retailer adds his standard 100% mark up and sells it to the final consumer (you) for $40.

Now let’s take a second look.

Suppose that same manufacturer (still Chinese) makes that same item and needs to sell it for $10 in order to keep his factory open. After tariffs, he arrives at the border with the intention of sailing away with $10. He’s told that there is a 60% import Tariff. What happens now? The manufacturer isn’t going to drop his price. He needs that $10. Ten dollars is a fair price and cheaper than the same thing can be made in America.

It is going to cost $16 to get this item across the border and that’s what the importer will pay if he still wants it. At this point it doesn’t really matter whether the extra $6 Tax is paid to the manufacturer who then pays it to the Government or whether it’s paid directly by the importer to the Government. Either way, $16 comes out of the importer’s pocket. That’s $10 for the manufacturer (who could sell the item to another country if you don’t want it.) and $6 Tax for the Government. The importer adds his standard 100% mark up to the $16 he paid and sells it to a retailer for $32. The retailer adds his standard 100% mark up and sells it to the final consumer (you) for $64.

The end result of a 60% tariff is that the final customer (you) have to pay 60% more for that imported (Chinese) item. Something that had cost $40 last week costs $64 this week.

Now let’s look at who this affects.

A few years ago it was true that WalMart was China’s 5^th largest customer. WalMart bought and imported more Chinese goods than all except 4 countries. And one of those countries is the USA, which has other companies that also import Chinese goods. Other companies like Dollar General, Costco, Target and Amazon.

So what sorts of people shop at places like WalMart & Dollar General? Folks like Donald Trump? Steve Bannon? Linda McMahon? Elon Musk? Steve Mnuchin? Mark Zuckerberg?

Billionaires all.

How about any other members of Mr Trump’s cabinet & inner circle?

I don’t think you’ll see any of them pushing a cart through the aisles of your local Target store.

No. The folks who will be hit hardest by this Tariff (sales Tax) will be the people who can least afford to pay. The folks who need to shop at discount stores in order to scrape by. The ones who will never be able to afford to buy a home.

I don’t want to talk anybody down (particularly because I fall into the demographic most likely to have voted for Mr Trump) but, statistically speaking, people with lower levels of education are more likely to be poor (and hence shop at discount stores) while people with higher levels of education are more likely to be wealthy. You can easily find a video on-line of Mr Trump smiling and saying “I love the poorly educated” while at the same time asking for their votes.

So why does he want to increase the taxes on the people that he “loves” and who voted for him, while in his last term he gave tax breaks to non-Costco-shopping billionaires?

The guy went to business school. He knows how this works. So why does he lie about who ultimately pays the bill for his highest tariffs?

I just thought I’d ask.

What do you think is the answer?