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Wednesday, April 1, 2015

A History of Labour – Part IV

Posted by Tim Stobbs on February 27, 2015

UnemploymentWelcome to the Wasteland (Year 2 AD – After Degree)

Overall in my life I don’t actually regret much.  I’m fairly happy with where I am and what I’m doing but I have to look back at this particular period of my life as a bit of an exception.  After all, I was free from my soul eating employer wasn’t I?  No work to go to, lots of time to relax and kick back and guess what…I blew it.

What the F*&%$?!?!? You say.  Yes, I blew it.  I didn’t sleep in everyday, I didn’t read lots of books or catch up on watching movies…instead like a trained slave that was used to the beatings, when the master wasn’t there I flogged myself instead.  My two major mistakes were:

  • I worried the entire time I was unemployed about money.
  • I treated my job search as a job.

The first one was somewhat defensible.  I didn’t have a whole lot of savings at that point in my life and I owned a LOT of money between my wife and I.  After all we had just under $60,000 in debt from university and I signed a $18,000 car lease which was also draining us monthly.  So in fact, if I didn’t get a job when my Unemployment Insurance checks finally stopped coming in I would rapidly go from treading water to screwed in a matter of weeks.  Yes my wife had a job, but given our expenses and limited savings we didn’t have a big cushion (and I wanted to avoid tapping our limited RRSP savings).

Aside: Also when looking back at these months I realized something….this was the genesis moment of my dreams of early retirement even before I found out about the concept.  How? I realize now I never wanted to be in the situation of worry about money like that ever again.  So later on in life when I did come across the idea of early retirement, it was extremely appealing to me.

Yet I do think I worried about this way more than I needed to, which lead me to my second mistake.

I had previously read some well meaning advice on job hunting that you should treat your job search as a job, which being young I assumed meant work on it for like 6 to 8 hours a day.  So I got up each week day and pretend I had a job of finding a job.  So I gave myself a few coffee breaks and a lunch hour but overall spent most of my days looking at job ads and writing up job applications, cover letters and redoing my resume.

Yes, I can see you shaking your head at the stupidity of it because frankly looking back I agree.  I didn’t know that spending more time at something doesn’t always increase the productivity of the activity.  In fact, I could have likely done just as an effective job search in perhaps 2 to 3 hours a day, but I manged to drag out the misery out to six or eight hours a day.  See what I mean by flogging myself.

Then of course because of my worry about running out of money I would feel guilty when I did stop looking early any given day and it would just fall into a negative feedback loop.  I won’t do fun things because of fear of running out of money, feel worse, still not have a job, feel even more guilty and clamp down even harder on our spending.  Fairly sick eh?

Of course I as didn’t realize that engineer jobs looking for 2 to 3 years experience was particularly an endangered species, and I felt I was under qualified for the jobs that were looking for 5 to 7 years experience.  Also keep in mind that after my last job, I was being a hell of lot more picky about getting a new job.  I wanted to avoid oil and gas, which when you live in Alberta cuts out a LOT of jobs.   So this likely went on much longer than it had to.  In the end, what broke me out of this cycle was I decided to widen my job search to pick up just about any decent paying job (ie: higher pay than minimum wage) and I applied for a Customer Service Desk job at a chemical distribution company.

I still actually recall the exact moment I decided I wanted to work at that company.  It happened just before the interview before I knew what the job involved, what it paid or even what the hell was a chemical distribution company.  While I was waiting for the interview of the reception area I watched the staff come up the receptionist and chat with her.  They joked, told stories and smiled a lot more than my previous workplace.  It actually gave me a powerful sense of deja vu to how my immediate family treated each other.

So after two rounds of interviews I was thrilled to be offer a job and finally move out of my self imposed wasteland.

Summary

Lessons Learned

  • Working longer on something doesn’t make it better.
  • Worrying about things you can’t control is rather pointless.
  • Fear of running out of money can be a powerful fear.
  • Learn to have some fun once in a while regardless of your financial situation.  You don’t have to break the bank having a good time.

Financial

  • Progress was non-existent at this point in life.  If anything we went backwards for a few months.

What’s It For?

Posted by Tim Stobbs on February 18, 2015

You have likely already been reminded you should be investing some money in your RRSP today.  How do I know that?  It’s the season for it so most people via the 1000s of ads out there are told they really should be investing their money.

Yet I’ll offer you a more basic question than: RRSP or TFSA, stock versus bond, or even index fund or actively managed…..the question is: why?

Pardon?!?

Why are you saving and investing the money at all? What is the purpose of the investment?

*silence*

Need a hand? Perhaps the answer is: to retire.  Which is a good idea, but what does that look like?

*longer silence with confused look*

Far too often we save blindly because we fail to really understand what sort of lifestyle you want in your retirement.  After all, depending on the lifestyle you want that will drastically change how much you should be saving and how early you can retire.

For example, let’s say you have a couple who is in their 50s and they have been really good savers and have $500,000 in investments and a paid off house.  Do they need to work any longer?  Perhaps it depends on the lifestyle they want.

If they choose a modest life of mostly hanging around the house, being involved in the local community helping out with a few organizations, reading a lot of books and playing with the grand kids, they don’t really shop a lot and when they do they tend to buy high quality items that last a long while…well depending on the exact numbers they could retire in a just a year or two.  Yep, if they don’t need much income, perhaps $24,000 a year, they could potentially retire shortly.

But if they want to travel the world for four months of the year, enjoy shopping a lot and are real foodies that enjoy all the finer things in life.  Again it depends on the exact number, but if they spend like $5000/month.  They may very well have to keep working until they turn 65 or later.

It all depends on the why.  Why are you saving?  What sort of life do you want to lead and what is stopping you from doing that at least in part right now before you even consider retiring?

The illusion is that someone one choice is better than the other, when it fact, what matters most is which one appeals most to you.  If you have never really spent on $5000/month when you were working, what on earth do you think you will be doing when you retire?

What do most retirees end up spending? It varies but on average they spend $30,000 to $40,000 a year.  That’s it.  No huge lifestyles of the rich and famous, but rather a modest but happy life having lots of time to do those things you enjoy.

You could do less than that if you want, especially if you consider your mortgage was paid off.  So if you aimed for $30,000/year target you could be retired rather easily on $750,000 in investments.  Yep, that’s it. Forget about the million dollar mark, you don’t need it.

So if someone tells you they need at least $2 million or more to retire…I would ask why?  It won’t change the answer in some people’s cases, but more often than not they don’t understand the why and end up with overly large targets.

Instead, take the quicker way out…think about what you really want from your retirement and then plan around that.  The more detail you can provide the better plan you can make.   It won’t also be easy to do, but in the end you at least know exactly why you are putting money into your RRSP or TFSA.

What are you saving for?

Saving Contributions 2014

Posted by Tim Stobbs on January 23, 2015

So this week I should have finished maxing out one of our TFSA already.  If you recall in December’s net worth update I pointed out I put some of that money aside.  Then by Feb we should finish off the other TFSA account contribution for the other account.  So where do I put the money for the other 10 months of the year?

Well you see that is actually turning into a small issue as I’m running out contribution room on where to put it.  We made an effort last year to finish off as much as my RRSP contribution room as possible into my wife’s spousal RRSP.  Now the only tax sheltered account contribution room we will have left is about $20,000 in my wife’s name.  So I have to play around with the tax implications of her buying RRSP in her name as she doesn’t make much money per year so I’m not sure if the tax savings are really worth it.  After all if we drive her income to zero with RRSP contributions, I don’t know if her basic income deduction will transfer to me…I’ve literally never tried that before.  So if anyone knows, I would appreciate some advice.

So we will be back to non-registered investment accounts at some point in the year, which is just fine. Overall I expect by age 40 we should have approximately $100,000 in non-registered savings (give or take a bit). The longer term plan for the non-registered money is fairly simple, after I stop working at my day job I will drawing down the non-registered accounts first and also move what we can over to our TFSA accounts for anything that produces taxable income (like a GIC).  The idea is to keep our income tax bill as low as possible so we will likely keep dividend paying companies in the taxable accounts and any cash savings will eventually end up the TFSA (even if they don’t start there).

Perhaps the only thing I’m debating in my head is where do I open up the non-registered accounts?  On the one hand I like to keep our fees low and the other hand there is a certain ease of access if I put the accounts with our existing bank.  So I’m curious what other people have done and why did you pick that option?