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Friday, August 1, 2014

Change in Savings Plan

Posted by Dave on July 29, 2014

In order to pay off our mortgage at the end of May, my wife and I had to almost zero out our entire cash savings we had. I will be the first to admit that the amount we had sitting in a 1.3% ING (or Tangerine account now) was probably too much. There were relatively safe alternatives to the interest rate we were getting that were just as liquid to access, for example iShares XBB is yielding almost 3x my Tangerine account right now, at 3.2% (previous year trailing yield).

I have what could possibly be described as an irrational angst towards running out of money. As of this April, I’ve worked for the same employer for over 10 years and have no real concerns for my prospects in long-term employment – whether I continue working where I’m at or with a different firm in the city I live in. With no mortgage payments, our monthly bills have been reduced by around 50%, leaving less of a reason to have a significant amount of money set aside.

My largest concern is a significant expense that I can’t pay – something like a furnace breaking, a major car repair or a pipe bursting somewhere in my house. Going forward I think we will still keep some cash on hand in a savings account, but we will lose a majority of the previous “buffer” we had prior to the mortgage being paid off in exchange for hopefully higher returns on our savings account.

The question comes down to how much money is a reasonable amount to keep in cash savings. Is $1,000 enough? Should we even bother keeping any savings in cash, or just invest 100%? I currently have an unsecured line of credit along with a pretty good limit on my credit card. Between the two options, I should be able to manage any significant expenses. I could turn the unsecured line of credit into a secured, reducing the interest rate and monthly insurance requirements prescribed in the agreement.

A couple of years ago, I was very comfortable having a bunch of money sitting around. With no debt, I think I am willing to be a little more risky with my finances. This type of change will initially take me out of my comfort zone, but I have to remember that I’ve kept a bunch of cash sitting around and it’s essentially been losing me money over the past decade or so.

Is there a particular expense that you keep money around for “just in case?” Are you comfortable borrowing to cover emergencies?


Combating Constant Second-Guessing

Posted by Dave on July 22, 2014

Dave is also looking to retire no later than 45, but unlike Tim has no kids and doesn’t want any. Dave is from Ontario and is working towards his CGA certification.

I have a hard time pulling the trigger when it comes to major purchases. I drove my wife nuts a few years ago when we were shopping around for a used car because it took me weeks of reviewing prices, makes, and models before spending the $10,000 the 2008 Nissan Versa eventually ended up costing us (going on 4 years and around 60,000 kilometers).

Most times, I think it’s more I’m worried about buyer’s remorse than I am about the actual purchase and dollars out of the bank. With our car purchase, what finally swayed my decision was we found the model of Versa we wanted at about the cheapest price we could find over the weeks of reviewing different cars of that size. I was basically ensuring that I would not feel ripped off a few weeks or months later.

Sometime in the next month or so, I’ll be starting the “Investment Phase” of my retirement plan. I’m hoping to accumulate enough capital over the next decade or so to retire at or around age 45. For me, one of the major traits I’m going to have to overcome is the feeling of buyer’s remorse after making a stock purchase. It is more than probable that I will make some terrible stock purchases over my investing “career”. I’m hoping that some of these terrible purchases will be balanced by stocks that follow whatever hypothesis I have when I decide to buy.

As with all major purchases, I’ll be discussing it at length with my wife (whether she wants to hear it or not). So far, she hasn’t shown any real interest in much of our financial journey, beyond asking “are we done yet?” I will essentially be teaching my wife what I’m doing while I go, whether she wants to learn or not (I read her this paragraph and she rolled her eyes at me). I hope that we will both learn a lot in this process. I find this kind of new stuff really interesting, and although I’m doubtful it will happen, hope she will gain some level of enthusiasm for it as well.

To a certain point, cautiousness while investing will hopefully help me avoid most large errors I could make that would stop my wife and I from achieving our financial goals, but I need to have some level of confidence in the investment decisions.

How do you overcome second-guessing in your investing? How do you stop the hesitation before pushing the “buy” or “sell” button?

Bad at Being an Adult

Posted by Dave on May 13, 2014

Dave is also looking to retire no later than 45, but unlike Tim has no kids and doesn’t want any. Dave is from Ontario and is working towards his CGA certification.

My wife and I spent the past weekend at her parent’s house, having a barbecue and playing with her nephews to celebrate her dad’s birthday along with Mother’s Day. This trip was exceptionally fun because my nephews have these cool outdoor toys that turned them into beach balls – a perfect gift for an uncle who likes to throw little kids around for a few hours.

We left my in-laws place early Sunday morning, with the intention of going home and getting a bunch of housework done with the rest of our Sunday. When we got home before noon, we took a look outside at the nice sunny and warm weather and went for a huge walk to a bar to sit on a patio for the afternoon (allowing me to take advantage of $4 Ceasar Sunday deals). The downside of our afternoon plan is that, yet again, we have gotten nothing done around the house – hence the title of the post – my wife and I are bad adults.

The good thing about our situation is, that we both realize we aren’t entirely responsible people. We don’t have and never want kids, we live in a condominium so we don’t have anything to look after at home. We don’t even have a pet because we don’t think it would be fair to leave them alone as much as we are away (even though there has been much lobbying by 50% our household to get either a very large cat or a small dog).

The only real adult thing that my wife and I have going for us is a decent financial plan. Other than our finances, our lifestyle remains closer to someone in their early twenties rather than someone in their mid-thirties, but that’s just how we like to live.

Our decent financial plan goes from almost idiot-proof (paying off our mortgage debt as quickly as possible) to a much more involved and grown-up plan of investing consistently and making constant decisions. Our next few years of financial planning will be very interesting for us, especially since our end goal is to achieve significant wealth. I know that I’m both excited and a little concerned that I have to pay attention to at least something in my life, even though it won’t make me any more of an adult.