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Friday, April 29, 2016

Getting Everything You Want

Posted by Tim Stobbs on January 13, 2016

So over the holidays I was a bit shocked to realize I literally got just about everything on my wish list.  The only missing items were socks and a bottle of scotch (which no I didn’t go Boxing Day shopping for instead I waited to almost the new year to buy when the stores were less busy…oh its official my scotch is now as old as my career at 15 years *grin*). I think it helps that my wish list in the first place was small, but it did occur to me that despite getting just about everything I wanted I wasn’t suddenly like ten times happier.  In fact, things went on very similar to how they went on before over all for my happiness.  Within a week I wasn’t any much happier than when I got it all.

That of course is a minor example, but the same thing does end up applying to those that have sudden windfalls of money.  The lower amount you might easily miss it, but the effect does kick in regardless of how much you win (yes even the poor soul that will win the $1.5 billion dollar lotto in the US).  Because of one very simple little fact: money doesn’t change who you are.  In larger amounts it just more obvious to see your personality based on your spending.  So if before you have a windfall you can’t keep track of your spending and suck at understanding you taxes, then afterwards it will be the same.  Just you will buy bigger things and not keep track of them and get even more confused on your taxes.  The shift just may be more obvious with a sudden windfall of money.  Feel free to search out a few documentaries on this fact, they tend to be rather interesting to see how someone can blow through several million dollars in less than five years.

Saving to retire early is a very similar process, it just takes longer to have it happen and smaller amounts.  So before having a lot of savings, I tended to value quality items and not buy cheap things that break easily.  I also tended to keep things until they actually break or can no longer be used.  And now with over $400,000 in investments, I tend to buy things that last and avoid cheap crap that breaks easily. And despite it all I still tend to save money, even when I really don’t have to it.  For example, most of the time I don’t spend all my spending cash in a month.  Savings is a habit with me that I fully expect not to really break even when I don’t have to do it anymore. Why? Because something always comes up…good or bad and the cash is usually handy to have at that point.

This isn’t to say you never change, because saving for retirement has changed me. Just not my core values and beliefs in life.  Rather I just seem to become more of myself as I get older and have more saved.  I dislike kissing ass to people in charge and I even dislike it more when I’m in charge of something.  Now I just be honest with people and tend to push the edge of what would be socially acceptable when someone is trying to make themselves look good or be impressive.  I’m not mean about it, but I just won’t put up with it. Or the fact, I tend to judge people less for their spending choices now.  I get some people REALLY value that annual trip to Mexico, so if that is what they love so be it.  I just personally don’t have that much interest in it (or more precisely I don’t get going to the same location every time).  People just value different things and that is okay.

In the end, you can get everything you want in life and be happy or miserable because the money or things really don’t matter too much.  It’s what’s going on in your head that matters the most.  So yes, please save something for your retirement, but more importantly ask yourself what exactly you plan to do with it.  Start a business that you had in your head for years with no pressure of making a profit.  Or perhaps learning some skills you never had time for.  In short, you need a why…why am I doing this…without that it’s just a big old pile of money.

Retirement Basics: Spending

Posted by Tim Stobbs on December 5, 2015

When planning your retirement you need certain basic things that just really can’t be avoided if you want to have a good plan.  This isn’t to say your plan needs to be a 332 pages bound document with appendices, but rather you need to have an idea of what you want to do, how you will get there and what everything will cost.

Ironically when starting planning most people start the the wrong spot.  We want to think about all the wonderful things we would like to do with our new found free time or we want a savings target to work towards. Wrong. Stop. Halt! Wrong idea folks.

What you really need to start doing is so basic it isn’t even funny. You need to answer the following question:

Where does your money go right now?

Yep, that’s it.  Not hard right? Well expect it seems that most people don’t have a bloody clue where all the money goes each month. So let’s start with how many dollars did you save last month?  Do you even know or have a clue on how to find out? I suggest starting to look at your transactions in your chequing account.  What investments do you normally make and what do you save for? Kids RESP, did you put money aside for a house down payment? Also did you remember to include your pension deduction or group RRSP that came off your cheque prior to going into your bank account?  After a bit of effort you should be able to find out that number, just don’t include any delayed spending such as saving up for a vacation or your annual house insurance bill.

Now the second part, what on earth are you spending your money on?  If you look at your credit card do you even remember all that times you used it?  After a month it can get a bit fuzzy, which is why I signed up for Mint Canada which pulls all that information together for me.  Then I sit down with my wife and we classify the spending about once a month.  It doesn’t have to be perfect, but it should help give you an idea on where the money is going.

The last part of your spending is going to be hard if you use it: cash.  Cash is so easy to spend and not keep track of, so I installed a basic spending tracking app on my phone and then enter in a note when I spend cash.  Other people like paper and keep a notebook.  So people just keep receipts for everything and enter them in a spreadsheet once a month.  Try out several different means to track your little spending.  Just don’t worry if it isn’t perfect.  I still miss the odd transaction myself, but typically it is under $5 in a month.

Now armed with this information you can do some fun calculations like: your after tax savings percentage.  To calculate add up all your savings and divide it by your take home pay plus any pension savings.  A month of data for this is okay, but a year is even more accurate.

So it would look like this: (savings including pension)/(take home pay + any pension savings taken off on your pay stub).

This one number is basically all you need to start your retirement planning as it will tell you how long you have to continue to work at your current lifestyle assuming you have nothing saved already or very little.  The results go something like this (see here for more data points):

  • 5% or less – I hope you like slavery because your job is going to feel like that for the next 66 years.
  • 15% – You have a 43 year career ahead, so if your twenty this may be okay otherwise that could suck.
  • 25% – It’s now down to 32 years which is actually potentially okay even if your 30 years old.
  • 50% – Now we are talking, you are down to a mere 17 years of work.
  • 75% – Holy cow, you are good at savings you could be out in a mere 7 years.

So now you can see the consequence of having a low amount of savings %, you will be working for a VERY LONG TIME! Of course if you already have some savings you can divide that by your yearly savings rate and deduct that off your years to work total.  So if you save $15,000/year and you already have $30,000 saved you can deduct two years off your result ($30,000/$15,000 = 2).  So if you got 32 years as your result, you would actually have only 30 years of work left.

The point here is to realize that by choosing not to save you are also choosing a long working career.  Most people never realize this is the case and so you need to start here when you plan your retirement.  That way you can actually see the results of your choices regarding spending.  Now you can really look at your spending data from above and ask the question: is this worth it to me?  The one thing made a huge difference to myself on what I spent my money on.  Hopefully it can help you too.

Lack of Value

Posted by Tim Stobbs on July 6, 2015

Perhaps the most common question I get about our financial situation is something along the lines of: how do you save so much?

Well to be honest saving 65% of your income gets easy after a while, so perhaps the easier way to answer the question is simply: I value what I’m saving for.

People often have good intentions with savings so about once a year around RRSP time they think a bit more about it and consider if they are saving enough.  Yet they fail to realize something critical….if you aren’t saving now that shows me you can have good intentions until the end of time and won’t save you a dime.

Look where you are spending your money now and they shows me what you value.  Do you value comfort over convenience?  So you might end up buying more comfortable furniture rather than meals out. Or the other way?  Perhaps you value your appearance over your substance?  Then maybe you buy a knock off designer purse rather than saving for a real one.  Either way isn’t right or wrong, but merely shows you what you value in life.

Me?  I value freedom over comfort, honesty over appearance and love over convenience.  Yes it sounds a little bohemian, but it is true.  These values drive my habits and thoughts more than a spreadsheet to live the life that I do.

Which is perhaps why I drive people I little nuts when they try to understand my success.  They get confused by my willingness to spend over $300 on some higher quality wine kits, but I will rarely buy a book even when I love them.  Or the fact we only have one car when it fact it is a bit of an inconvenience once in a while.  On the surface the issues can look odd, but mainly because the values the under pin them are likely different then your own.

For example, I dress moderately nice at work, but I refuse to wear a suit.  I hate wearing suits so even when I present the highest people in the company I still wear a only a tie, not a suit jacket.  I don’t care about appearance to others that much.  Or the fact I love good food, but rarely eat out…I like to cook instead.  I value quality over convenience.

This of course leads a person to consider who exactly they are.  What are you values?  Then after that painful process of self discovery you can then push yourself to align your spending with your values.  At this point something utter fantastic happens: life gets easy.

Pardon?!?

Yes, when you are spending with your values (rather than the values of others) the decisions you make become obvious.  You know what you value so the choice to save now or spend later is obvious to you.  You spend enough to be happy in life, but know that you wants will exceed your income on a permanent basis.  So once you have arranged your spending to align to your values, saving the remainder isn’t a chore or even an effort….it merely makes good sense.

The real difficulty I’ve found is combining your family values into something that everyone can life with.  So you learn the art of compromising….a LOT.  In my case, it means we spend much more on hot water than I would ever like to, but my wife gets to enjoy her luxury of very long hot showers.  Rather than debate it every day, I got her to agree to a lower flow shower head and now shut up about the water bill.

On the flip side she has put up with my odd little projects like collecting raspberries from the backyard all summer long into a bag in the freezer so I can make a little five bottle batch of raspberry wine from scratch.  It would have been much easier to just buy the bloody berries in the first place, but I wanted to make my wine from local ones.  So we agreed, we would save half the berries.  She rolled her eyes and did it anyway…then proceeded to roll her eyes again when she tasted the first bit of the wine.  It was one of my best yet and now I’m saving berries all over again this summer.

The real trick to combining values is to know the core ones are in agreement. They don’t have to be the same, but enough alike for you to both be happy with the spending that you do.  After nearly 15 years of marriage my wife and I have that down to an art form, which is reason we stay married.

So what do you value?  Does your spending align with it?