Posted by Canadian Dream on July 16, 2009
Well I’ve had one of those weeks recently were you shake your head at yourself. I’ve managed twice recently to toss money down the drain by my own fault.
The first one was simple enough the clerk at the grocery store accidently scanned the next person’s in line item onto my bill. So she goes about reversing it. Yet while doing this she keeps passing the item over the scanner adding more copies of the same item to my bill. So after watching her do this several times and trying to fix the issue she said “I think I got them all removed.” The word ‘think’ should have been my red flag to check the bill afterwards, but I just took the bill and walked away grateful to be away from that mess. It’s only at home did I examine the bill in detail to realize she scanned the item on 7 times but only took it off 3 times so I paid for $5 of juice that I never got.
Then my second mistake was even bigger. I finally got around to looking at all my e-statements for my TFSA account and noticed something odd. At one point I contributed $510 instead of $500 that I thought I had. So after doing the math over several statements it became clear. I’ve over contributed to my TFSA account and have been at that point for several months now. So now I get to find out at tax time exactly how that penalty works and how much tax I own. I’m not clear on what the 1% penalty per month is calculated exactly since I’ve read references to it in two different ways. I either owe about $60/month that I was over (the penalty is calculated on the highest balance during that month) or $0.10/month (if the penalty is calculated only on the over contribution amount). Hence all this lovely tax savings I’m suppose to get from this account might be flushed down the drain this year from my own fault of not checking these statements earlier.
So my lesson from this week is pay attention to what you are doing. There are literally thousands of ways to lose money by not paying attention and doing something stupid. So if you are feeling brave, feel free to share how you have recently lost money by not paying attention in a comment.
Posted by Canadian Dream on July 15, 2009
The most important things for those dreaming of financial independence (FI) is manage your cashflow. In the beginning people often get too bogged down in worries about if they have invested right or tax considerations or how much money they need, when in reality managing your cashflow is much more important.
You see in the beginning you likely have a small amount of investments so optimization of your investments and related taxes is a minor issue. A 1% lower rate of return on $50,000 is a mere $500 a year or equal to about $42/month. So you could either do a ton of research and self learning on taxes and investments to get that extra 1% return or just stop buying a coffee everyday on the way to work. Guess which one is much easier to do?
So that’s why I’m suggesting don’t worry about everything else in the beginning. Your first priority is to start using frugal ideas and reduce your spending to increase your amount of money for debt repayment and future savings. You start with the big stuff of paying off your credit card debt and work you way down to $2/month savings here and $5/month there. Every dollar counts so look at everything and ask yourself does this make me happy for the dollars I’m spending on it or do I require this. Not “would like” or “kindda enjoy it” but rather “I love doing this” and “I need to eat something to keep breathing” kind of thing.
In the beginning you will likely go over kill and cut back too much. That is fine, once you find those areas you really miss spending on go back and put some cashflow back in. Afterall FI is a nice goal, but no one should be misrible on the way to getting there. Life is a once through processes so you might as well enjoy the ride.
In the end you will find out how much you really need to spend to make you happy which then you can use to build a real estimate of how much you need to get to FI. Also after this much time you would have likely had some time to slowly learn a bit more about investments and taxes so now you can go back and investigate doing better there. Just don’t try to take on too much all at once, it is recipe to fail to get anything done.
That’s my thoughts on what’s most important when starting towards FI. What did you focus on in the start and did it work for you?
Posted by Canadian Dream on July 14, 2009
It seems like a simple question: what do you want? Yet under the surface of the obvious answer of “a Coke please” in some situations, there is the second deeper one “what do you want out your life?”
At times I think that answer to that question is simple, other times I’m not so sure. The answer depends on the day and what I’m in the mood for. Yet in early retirement the question is far more important. After all what does a man do with a limited budget and nearly unlimited time?
Simple: what ever he wants. So the question sudden becomes more pressing to me lately and I’m starting to realize the implication of the question. In retirement I won’t just be or just do anything one thing. I will follow where my passions lead that day, week, month or year.
So one year I might finish a book. Another year I might travel a bit more. Another year I might learn a new language. Another year I might run for an elected office. Another I might actually get a job to just learn something new and get paid for it. Another year I might just build one beautiful piece of furniture. Another I might finally get better at my paintings.
You get the picture. Retirement isn’t a single picture or moment but rather an on going journey to find out today: what do you want? So what’s your answer right now if you want unlimited time and a modest budget?
