Thursday, January 7, 2016

Resolutionista thoughts about money

I wasn't sure what I'd see going into the pool this morning. Normally the resolutionista's are out in force this time of year. They've decided that by golly, THIS year they're going to get into shape. There were lots of people on the track, and more than usual in the little workout area beside it, and lots in the gym doing some barf-inducing core workout. But the pool, same as usual.

What was funny about it is that the lane marked 'slow' had some actual slow swimmers in it, and the lane marked 'fast' had a bunch of breast strokers in it. Slow ones. The other lane had a couple guys that aren't good about sharing because they split a lane and race their workout. The other lane had 2 people swimming exactly the speed I swim. I joined them and had a great swim! 1500 m in 27:45, with fairly even splits. 3x100 slowing down quick, then 200 easy.

Hot tub, listening to some of the swim kids talking about what they're going to do. Getting laid and buying a motorcycle were the main topics. But it got me thinking about resolutions (which I don't do anymore) and the anti-resolutions.

Think about most people. You, my dear readers are different, I'm not talking about you. Most people sit too much, eat too much, pay far too much attention to the TV, and far too little attention to their money. Then they wonder why they're poor, and die young from preventable diseases.

So the hashtag #healthyish. Yes, eating less meat, more fish, and a lot more plants is good for you. Avoiding fast food almost entirely is really good for you and better for your wallet. It's now 36 years or so since I've eaten McDonalds, and longer since Kentucky Fried Chicken. Even meeting a dear run buddy inside a McDonalds was a trial, and picking up KFC chicken fingers for Linda nearly made me spew just going inside. I told Linda she need never doubt I loved her.

But really, how many (people you know+ people resolving to lose weight) actually do so more than temporarily? That's because they rely on willpower, and try to do stupid things like going against a lifetime of bad habits. It is very, very difficult to go from a lifetime of eating junk, to eating every meal as a perfectly healthy, utterly optimum nutritional dense, calorie load perfect meal. You start by dropping the worst of the junk, and replacing it with healthier food. Little by little, over the weeks, the months, the years, you get rid of the crap food and replace it with good food. You will get healthier, and you will lose weight. Sort of like the "overnight success" bands that worked at it for 10 years.

Now the hard part for most people. One of the reasons they don't eat healthier is because it's more expensive up front, and sometimes takes more time. If you're working 2 or more part time jobs trying to make ends meet, eating healthy is going to be tough. Baby steps.

Now, about the current stock market decline. You might think I've changed topics, but no. Most people, and this might include some of my dear readers, maybe, perhaps, are stupid about money. They've never been taught the important things about it.

Here it is. Money is the only tool that can make more of itself. Most people think of money as a way of buying stuff and if you don't spend it quick on something you'll be forced to spend it on bills or something. If you think that, you are wrong. Wrong wrong wrong. It can be used for that, but that's like using a car's air conditioning system to cool your patio. It can do so much more.

What money really does is insulate you from being controlled by people and institutions that are not your friends. Banks, insurance companies, governments, those payday loan places, and car dealers are the worst ones I can think of off the top of my head. They want to keep you fat, poor, and stupid.

When you think of other tools, there's a good and bad side. Fire can cook your food, and burn your hand. A table saw can cut materials to a desired size very quickly, and remove your fingers even faster. Money, if it's working for you, will make more of itself with very little effort on your part. If it's working against you, it will drain your life away to feed the profit of rapacious corporations. Remember what I said about fat, poor, and stupid?

Most people think of making money as a hard thing to do, and they're wrong. Wrong wrong wrong. This is where the resolutionista thoughts come in. Some people resolve to try to save more money, and  most of them don't succeed. To be fair, they are up against an entire culture that makes it hard to accumulate money. Remember those institutions? They don't want you to have a lot of money because then you wouldn't need them. Sure, you might use a bank, but when you have lots of money the bank pays you, rather than you getting buried in interest, service charges, and fees.

It builds on itself, both ways. When you have money, you can get better deals when you do buy stuff, such as groceries, or a car, or more financial instruments. When you don't have money, you pay more. Even worse, debt is negative money, sucking what little you have away like a remorseless lamprey eel sucking your life blood away. Right now, google an image of a lamprey eel. Those teeth, clamped into you, sucking your life away.

There are two kinds of debt. Good debt is used judiciously to buy things that will appreciate in value, like financial instruments, art objects. A mortgage or home equity loan, or a student loan might be good debt depending on the exact circumstances. Bad debt is a car loan, overdue credit cards, overdue bills of any kind, and lots of other things.

Debt for most people should be treated as an emergency instead of a lifestyle. I'm about to say some unpopular things here. The single smartest thing you can do is stop paying for cable. Completely. No more television. This will do 3 things.

  1. It allows you to put what used to go to the cable company towards paying down debt, worst interest rate first. 
  2. It cuts down on the commercials and stupidity that encourage you to be fat, poor, and stupid. No, you do not deserve the lifestyles and stuff you see on tv shows. Those people are not real. No, you haven't earned it. No, you aren't worth it, at least not now. Not till you have no debt, and can pay cash, without touching emergency funds.
  3. It frees up many hours a week that can be used for any of the following three purposes. Move your fat ass more doing whatever activities are fun for you and your family. Learn how to use money as a tool and that includes figuring out other ways of spending less money. Prepare healthier meals for you and your family.

Your first priority is to get debt out of your life. All of it, gone. It won't happen overnight. The only time you don't pay down debt is if you can invest in a product that makes money faster than your worst debt is sucking it from you. Nothing legal makes money faster than credit card or payday loans suck it from you.

When I say get rid of debt, I mean you have to be effing ruthless. Examine every dime you spend, being especially suspicious of "treats". Treats are rare at the best of times, and rarer still when in debt. Starbucks, well, don't get me started. Lots of people have stuff in storage. If you aren't using it, sell it, get rid of the locker, and apply it to the debt. I guess unless it's a heirloom or something. Buy a cheaper car, and drive it less. Remember what I said about moving your fat ass more? No vacations on the credit card unless you can pay it off in full that month.

There are all sorts of ways to have fun without watching tv, and without spending much money, if any at all. Your local library is a great place to start looking. I'll be really blunt here. When someone tells me "I'm bored", what I hear is, "I'm stupid." I leave. Get such people out of your life. You want to be a winner? Start dumping the losers out of your life.

The financial books talk about saving 10% of your net income, and I laugh! This is the absolute bare minimum. Once the debt is gone, or is reduced to where there are investments that are a better deal, you'll continue your thrifty ways. I don't think there's been a year, 2009 excepted, where I've invested less than about 15% of my gross. I think last year it was half. It's often been 25% or so, year in, year out, and I don't think I'm living some poverty stricken lifestyle. Oh, and all of your income tax refund cheque goes to debt or investment.

Putting your income tax refund into an RSP is the gift that keeps giving, year after year. Why? You can deduct contributions from your taxable income. Depending on your tax bracket, you could get a third of that back. Which, of course, you promptly put into your RSP again, and you get a third of that back. It goes like this, with amounts simplified so you see how it works. The first year you scrounge $500. That's a couple coffee-like beverages a week at Starbucks.
year 1, deposit 500
year 2, tax return 165, + 500 = 665 contribution
year 3 tax return 665*.33 = 220 + 500 = 720 contribution
year 4 tax return 720*.33 = 237 + 500 = 737 contribution
year 5 tax return 737*.33= 243 = 500 = 743 contribution
You now have $3365, plus whatever returns that are generated by that money in the RSP account such as interest, dividends, capital gains, from the $2500 you put in.

This is where it gets good, where your learning about money will start to pay off. You decide where to put money to earn income. At first the amounts are small, but they grow. I thought I was going to break my face smiling when I saw a statement that said I made more from investments in a quarter than I did in salary. Don't expect that to happen all the time, though.

Go look up compound interest. Look at an Andex chart.  These are fascinating, and a superb example of an infographic. This one shows you what $100 would be worth now if invested in various instruments in 1950. Some of them go back to before the depression. The single most important thing you learn from such charts is to hang tough during days like this week. The people that sell off now have locked in their losses and demonstrated why they remain poor. Investing takes smarts and if you do it properly you don't need nerves of steel. You just need that bit of smarts, and some patience. The smarts might be to find someone really smart about money, and pay them to manage yours.

Then what happens?  The single most important thing is you sleep at night when you hear rumors of a layoff at work. In fact you might volunteer to work part time, so you have more time to do the things you want to do. To work on your own stuff. This is pure gold. I essentially didn't work for most of 2009 and the early part of 2010. Our life didn't change in any material way. We didn't worry. Why? Our house was paid for, and we had investments. I've just been offered a chance to work 80% of a regular work week and you can bet I snapped it up.

Having money gives you staying power, or the freedom to walk away from a bad situation. You don't need to take the first job that comes along when you're looking. What else? You smile when interest rates go up, because you make more money. You don't worry about becoming homeless, or having the bank repossessing your car. In fact, if you decide you still need a car, you look for the cheapest way to get it. You decide what you want to spend your money on, and it isn't an emergency. You can look for deals because you can wait. You can afford to renovate your house when you get a break on prices, and you don't sweat a few thousand in extra costs. You can buy those nicer appliances and pay cash. Actually you put them through your credit card to defer paying for them for a month, and you might get points or discount.

What else? When you find a wine you like, you buy a case. You travel where and when you want to go, and don't have to scramble for some cheap ass flight crammed in like a sardine, to go to some crappy room in a tacky all-inclusive resort. You aren't fussed about fluctuations in the exchange rate. When shit happens because this is life, you have so many more options to solve the problem. You can get on with things rather than waiting for an insurance payout. You rent a replacement car. You take that flight to go to a funeral or wedding. You pay the surcharge so the plumber comes right now. Your question isn't "can I afford it?", it's "Do I want to afford it?"

It's possible to have a perfectly nice life without money, but it's more difficult. Money gives you choices, and makes it easier to do the things you want to do with your limited time here. That's why it's worth learning about.

1 comment:

  1. Lots of great stuff here, Keith. Wish you lived closer so we could discuss your investment strategy in more detail. We've only gotten into it in the last few years and were doing okay until recently. Now, I've got the jitters so we're meeting with our guy early next week. We'll see what he says and go from there.

    I couldn't agree more about cable TV. We haven't had it for years now and I don't miss it at all - except during the Olympics maybe.

    Happy running this weekend!

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