I spent a lot of time in my late teens and twenties waiting for my financial life to improve. Buried in debt and not making a lot of money, I’d visualize how much better off I’d be if I could just hold out until my next paycheque, or until I got my next raise. I’d picture paying off one of my credit cards once I got my tax refund. I made the classic mistake of believing the edge of the rut was the horizon.
Today I still daydream about a brighter financial future, but now instead of wondering about a life beyond living paycheque-to-paycheque, I’m using a well-thought-out financial plan to plot out our financial goals. I’m saving and spending with a purpose. But I’m still impatient.
The car-loan that we took out when we bought a new Hyundai Sante Fe in 2012 won’t be paid off for another nine months. The line of credit that we took out to pay for our basement renovation last year won’t be paid off until early 2017.
That means $35,000 going toward debt repayment next year instead of maxing out my RRSP, our TFSAs, the kids’ RESPs, or saving for some other future goal.
Don’t get me wrong, I’m still saving, but I’m waiting for the day these loans are behind me so that I can move on to more exciting wealth building strategies. The waiting is hard, and not just waiting for debt to be repaid. Even saving $200 or $300 per paycheque can feel like a slow march toward millionaire status.
I curb my impatience by tracking my net worth and making sure that the needle is still moving forward. My financial plan also includes projections years in the future – to a time when I can shift those line of credit and car payments into meaningful savings.
According to financial blogger Jeff Rose, fantasizing about having better finances is one of the warning signs that you might be financial unstable:
“Most everyone wants to have better finances. But at the same time, most recognize the need to develop a strategy to make it happen. If you have largely abandoned any practical strategy to improve your finances, and mostly fantasize about how it will feel when things are better, it’s a good indication you’re financially unstable.
You may fantasize about landing a much higher paying job, getting an enormous bonus (or a sweet stock option), coming into an inheritance, or even having a winning lottery ticket. The fact you fantasize about better finances is an unconscious admission you sense a loss of control of your circumstances.”
We make financial improvements one inch at a time and stick with our plans to help avoid impetuous decisions and mistakes. We measure our progress regularly and adjust course if needed. We allow ourselves to dream in a practical way as it relates to our future goals.
It’ll still feel like forever before our debts will be paid off and we can focus on saving again. But this time I see the horizon, and not the edge of the rut.
There’s a disruptive shift happening in the financial industry where nimble technology start-ups are moving in on traditional bank-dominated services such as lending, investing, payments and retail transactions, and everyday banking. Dubbed FinTech, this financial technology renaissance is quickly moving from alternative to mainstream and is something to watch in 2016 and beyond.
We’ve already seen the rise of the robo-advisor in Canada, with new firms like Wealthsimple and Nest Wealth leading the online wealth management revolution. Online lending entered the marketplace this year with startups like Borrowell, Grouplend, and Mogo offering personal loans without the hassle of visiting a branch. Grouplend raised $10 million this year and recently rebranded into Grow in order to better reflect the wider range of products and services it offers.
Mobile payments should finally move to the forefront as Apple Pay made its long-awaited Canadian debut this week. Vancouver-based nTrust is an alternative to PayPal that lets you send and receive money instantly for free within Canada. Knightsbridge Foreign Exchange offers bank-beating exchange rates and free wire transfers. Coming soon – EQ Bank – a digital bank that will combine your chequing and savings into one account and promises to pay market leading rates without any fees.
While many of these companies won’t survive beyond a few years, clearly this technological revolution is here to stay. Banks and investment firms have been put on notice and the hope for consumers is that we’ll get cheaper and easier access to financial services in the future.
This week(s) recap:
Last Monday I shared how I went from credit card abuser to rewards card master.
Last Wednesday Marie explained the real cost of investing.
And last Friday Marie concluded her retirement series with a financial assessment for your retirement.
On Monday I helped a reader who was over-contributing to his RRSP.
On Wednesday Marie shares some useful tips on how to determine your asset allocation.
And on Friday I shared my favourite tips on how to simplify my finances and save money.
Once a month I write a column for the Toronto Star’s new Star Touch tablet edition (for iPad). The app has recently surpassed 100,000 downloads in just two months.
Over on Rewards Cards Canada I compared the top two travel rewards cards in Canada to see how they stack up.
Weekend Reading:
Speaking of banking technology, Big Cajun Man Alan Whitton is on-board with mobile cheque deposits but advises readers not to do so over public Wi-Fi.
A new study confirms that people are unlikely to change their mind, even when facts contradict their views.
At the Wallet Hacks blog, Jim Wang lists 70 essential money skills that everyone must know.
Do you owe your mother $1,000,000? John Ryan at Money Time blog explains.
Today’s good was born from yesterday’s bad. The Motley Fool’s Morgan Housel shares the upside of being miserable.
Jonathan Chevreau confesses seven financial mistakes that still haunt him – including when he impatiently sold his Apple shares in 2002.
That makes a nice segue into how Michael James takes his investment decisions out of the loop.
If left to drift, your portfolio can morph into a different beast.
Preet Banerjee explains why the financial advice industry is moving from an investment-centric view to a planning-centric view. The highlight is that if you’re paying full-service costs but only getting investment advice, that’s a big problem.
Ethan Bloch has some financial advice for his millennial peers: “Just have your f—— latte!”
What you need to know about your credit score in your 20’s and 30’s: Try something called the Netflix and chill loop.
It may be time to let go of the Canadian hang-up that everyone must own a home.
Super seniors may face the danger of outliving their savings.
Rob Carrick has a nine-step boomer retirement planning guide.
Squawkfox is back to share her olive rule: track your spending to prevent the pits.
Million Dollar Journey explains how to save more money with less effort.
Finally, John Heinzl shares a great story about how dividend investing can help you raise your family.
Have a great weekend, everyone!
I challenged readers a while back to take a day off during the week to work on their finances. That means going through recurring bills, such as cable, internet, bank fees, car insurance, and monthly subscriptions to ensure you’re getting the best bang for your buck.
You might also use the time to look for ways to earn more money, exploring opportunities to run a small side-business, switching to a more lucrative rewards credit card, or finding a better return on your savings and investments.
The main reason why I budget and track my expenses is so that I can identify potential areas to save money or simplify my finances. Over the years I’ve tried to come up with budgeting tips and strategies to help manage our household expenses – which can be tough when you’ve got a growing family to take care of!
Here are some of my favourite tips:
Simplify. You can take saving money and optimizing your finances too far where you can’t see the forest for the trees. At a certain point there’s a law of diminishing returns, where the time spent chasing additional savings can’t be justified.
Too many bank accounts, credit cards, investment accounts, and savings hacks can put stress on your time and lead to mistakes. Anyone who’s ever forgotten to pay their credit card bill on time, or had a cheque bounce or their account go into overdraft can attest to this: Sometimes the simple approach, even if it’s not 100 percent optimized, is the best approach.
Insider tip: I used to have a wallet full of rewards cards to try and maximize the cash back from every dollar I spent. I soon realized that, for simplicity’s sake, I was better off using the 1-2 rewards cards that best matched my spending.
Get cash back. Canadians love using their debit cards. Using debit to pay for your purchases sounds innocuous, but can have costly consequences.
Full service chequing accounts that include unlimited debit transactions can cost $15 per month or more. Add a separate account for your spouse and the cost doubles to $30 per month.
Insider Tip: My wife and I switched up our preferred method of payment from debit to a cash back credit card. Instead of paying monthly bank fees, we get cash back on every purchase and earn hundreds of dollars each year.
Maximize every purchase. Pretty much every store offers its own loyalty program or participates in a broader coalition program, but most of us can’t be bothered to carry around a bunch of loyalty cards or store discount cards just to save a few bucks.
However, when you combine a store loyalty program with your rewards credit card, you’re earning twice the rewards or discounts and saving more money.
For example, with a card like the SimplyCash Card from American Express you’ll earn 5% cash back on gas, grocery and restaurant spend for the first six months, and 1.25% on everything else. After six months, you’ll earn 1.25 percent cash back on everything you buy – all with no annual fee.
Insider tip: Gas stations are a great example; let’s say you can fill up at a local station that offers a 7 percent discount on gas purchases. If you subsequently use the SimplyCash Card, which offers 5 percent cash back on gas purchases in the first six months, you can increase your discount to 12 percent off gas!
Spend on things you enjoy. I’m not a big latte fan, but if you enjoy expensive coffee then who am I to criticize? Spend on things that bring you joy (or that save you time) and try to save money in other areas to offset your splurges.
My wife and I like to enjoy a nice bottle of wine (or two) on the weekends, but we’re not that fussed about the type of coffee we drink (we brew it at home). We also save money by planning the majority of our meals in advance and cooking at home, but we’ll splurge on dinner at a nice restaurant or a weekend excursion once in a while.
Insider tip: A great example is to use the cash back that you’ve earned on your everyday spending to treat yourself and splurge on something that you don’t get to do that often.