Have a written plan

Why bother writing this down, it’s not like we would forget about our financial assets.

From going through the process myself not only have I learned more about myself, what do I want with my future, about different funds and investment option, but the most important is how much more I have still to learn.

The reason we need an IPS (Investment Policy Statement) is to have directions, thinkings and ideas on paper where it’s plain to see and easy to revisit and/or revise. When the ideas are just floating in our heads it’s impossible to scrutinize in detail because there is nothing solid. Once written down we can refer back to it when we need guidance and never have to run into any “I think that sounds about right.” or “I can’t recall but it might be part of the plan.”.

Directions and Targets

The first we should do is set up short term, medium term and long term directions, and set some realistic goals without which we would be lost.

I decided for me short term is 1-2 years, medium term is 5-8 years and long term is 10-15 years, this is entirely up to you, only you can decide the ranges that work best for you.

For my short term I want to buy another cheaper car, currently we have a lease (bad) that is coming to an end this year, it’s time to switch to a much more reliable and cheaper car. Medium term would be to have a kid or kids, maybe move, but that’s merely just a thought. The long term of course is to save enough money work becomes optional.

Financial Information

Once we know where we are going it’s time to decide what are we willing to do, by that I mean how much and how often are we going to contribute. I personally have decided to put aside $500 per pay towards investing, something you need to think about is of course the more you save, the more it grows the better it is for the nest but also it would limit your ability to have a disposable income. It is up to you to decide what is the number you are comfortable with. The idea is: invest early, and invest often.

Asset Allocation

Once we have decided where we are going and speed, we have to pick the vehicle that will help us get there and ones to avoid. It is also important to know the best investment you could make is to pay off high interest loans, such as credit cards, payday loans or any short term loans that have exceedingly high interests. Most investment “gurus” would tell us use low fee index funds and hold.

Also we have to decide what is our risk tolerance and what are we willing to be exposed to. With lower risk tolerance we would favor more bonds and money markets rather than equity. Exposure means are we looking for US market or global market? Do we want to invest in oil and gas, tech, manufacturing, consumer staples or financial services, there are many many areas to choose from, it is up to to us to decide what we are most comfortable with. I have chosen for myself a 100% equity portfolio including total market of US, Canada, europe and emerging markets, with an emphasis on US and Canada.

I picked 100% equity because I don’t have short term need for this money, I can afford to be a bit more risky. With total market funds I get diversity. Geographical diversity was considered as well, although Canada and the US is closely linked together, I might chose in the future markets that are not so closed linked.

Canadians it’s also important to consider RRSP, TFSA or taxable accounts. I have decided it is paramount to max out TFSA and then RRSP, you on the other hand might be in different situations and would adjust accordingly.

Review and Rebalance

For the average home gamer investor there is no need to pay attention to the market, make changes yearly or every six months, do not try to time the market or predict the market, many have tried, many have failed.

I have gone for a six month review and yearly rebalance regiment. It seems to make the most sense to me, reviewing every six month would give me a good idea of how my investments are doing and catch it fairly early if i made a bad call. Yearly rebalance would give me enough time to let the investments settle down a bit before i make any changes.

Final Thoughts

I am certain the document will be modified as I learn more.

We are all different, with different situations, it is up to us to add and subtract things as we see fit. The important thing is to have a written document with clear plan for our financial future so we have something solid to fall back on when the going gets tough. If the first iteration wasn’t as successful as we had hoped we can modify and change instead of starting again from nothing, keeping what works and throw away what didn’t.

This is the guide I followed (and general good resources): https://www.bogleheads.org/wiki/Investment_policy_statement

Ask yourself

I came by the idea of active question in the book Triggers by Marshall Goldsmith.

Active questions are questions that put you in the driver seats, questions like “Did I do my best to define a career goal?” instead of questions like “Do I have a career goal?” that puts you in the passenger seat instead, making you someone going along for a ride with no control over where you end up.
When “Do I have a career goal?” is asked it sets in our mind a black and white situation with no shades of grey in between. What if I’m just setting up a goal or I don’t have a goal and is working on one? “Did I do my best to define a career goal?” is a much more involving question, it makes you think about your career goal, not only whether or not you have one but to think even if you have one is it the best for you? Could you improve on it? Is it time to change it? What’s the current situation with your career? It is a question that provokes and promotes active participation instead of a passive yes or no.
I’ve always thought and told myself that I have the power to change my situation because I can change the way I act in different situations and control the way I respond to the world.
Active question is a great way to have me ask myself or rather, remind myself that I am in the driving seat of my own life. Sometimes, maybe very often times it’s hard to realized you are actually the master of your own destiny. The world overwhelms us, could be too much to bare and it’s just easy to go with the flow and let the world take you wherever it decides. Active question is a good way to tell yourself “I may not be able to control the world but I can do something to get closer to the desired outcome.”.
I want to from now to set up a series of active questions to ask myself at the end of each day and I could score how well I did on each one. I don’t expect myself to be able to ace each question everyday, just trying, however, isn’t enough, not only would I have to try have to try hard, effort counts here.
I will score myself on how much effort I put in to each category and overtime I should be able to see if I’m heading in the right direction. The hard part would be to be honest with myself, and face the harsh reality that I may not be putting in as much efforts as I had hoped.
The questions:
“Did I do my best to eat healthy today?”
“Did I do my best to write today?”
“Did I do my best to be a better husband?”
“Did I do my best to learn something today?”
“Did I do my best to exercise?”
Start with the basics, I will be adding more as I find out more about myself and gain more experience. I am scared of these questions in part because I might not end up liking the answers I’ll have to give and in part am worried if I had just wasted my life before this. It is never too late to start, journey of a thousand miles starts with the first step.

Savings are brewing

I’ve been making my own coffee for a few years now, because my coffee is better and I assumed it would be cheaper than buying.

I’ve never done the math of how much it cost for a home brewed cup of joe, under a dollar for sure thus saving me around a dollar each time without versus paying for slightly coffee flavoured hot water.

Not contempt with guessing, I did some numbers over the past few weeks to facilitate me with a better estimate of how much it cost to make my mor

ning drink. I personally use 18% cream which increases the cost substantially, you, a more sensible person would just go with 10% saving a few cents too.

Consumables:

For each 1 litre carton of cream makes 17 coffees, at $4.59 each carton (no tax on those, yay!) it comes to $0.27 per coffee. 16 grams of coffee beans is used ( grind just before brewing, for best flavour of course). Each 454 gram bag of beans costs $9.99 plus tax which come to $11.29. For each 454 grams 28 coffees can be made gives us $0.40 in beans per coffee. According to this site: https://www.canstarblue.com.au/energy/electricity/boiling-kettle-costs-think/ because I am way too lazy to actually see how much energy my kettle sucks out of the wall and time it for to boil, I would take their number of $0.05 (round up) to boil my 1.7 litre of water.
Consumable cost: $0.27 + $0.40, + $0.05 = $0.72

Hardwares:

Great! Now we have the number of consumables for each coffee, we should also factor in the cost for the french press, coffee grinder and the thermos mug. For some reason I tend to destroy my french press about once a year, costing me a good $20. Coffee grinder, about $150 when I bought it 4 years ago. Thermos mug with paint chipping off but still good costs $15 from walmart. I make coffee just about everyday, 365 coffees a year, a french press costs about $0.05. The coffee grinder costs about $0.10 and my thermos I’ve had for 2 years now costs about $0.02 (these two costs gets lower the longer it gets used, I’m doing the calculation at current date).
Hardware cost: $0.05 + $0.10 + $0.02 = $0.17
All together: $0.72 + $0.17 = $0.89

Interesting number, a large coffee from tim hortons costs exactly $1.89 plus tax which means I am saving somewhere around $1.00 per coffee. This saving does not include: decreased misery due to not waiting in line for watery coffee, increased responsibilty due to no one else to blame and a sense of accomplishment first thing in the morning.

Growing money

We’ve heard it all too many times to count, “money don’t grow on trees”. It’s true, money certainly don’t grow on trees, there is somewhere money does grow: money.

I was reading an article about someone who amassed a million dollars before he was 30 not through some lottery or inheritance, or stroke of good fortune on the stock market. One of the key he said was to remember you make money to invest, not to spend. The idea is to “plant” that money so it can grow instead of spending the money. The money you spend becomes a leaf in the wind—lost forever, you don’t want that, you want to keep the leaf on the tree, and it will feed more nutrients to the tree, help grow the tree even bigger.

No tree ever start out with a full plume, they all grow from a tiny seed. Your tree also need sunlight that is investing. Only saving is like growing a tree in the dark, sure it will grow but slower than with the help of sunlight, but make sure you have emergency fund set aside, and NEVER invest money you are not willing to lose.

let’s say you invest $1000 a month (about $30 a day, not that much money) into a investment with 6% return, by the end of first year, starting from 0, you would end up with $12,326. Your money made $326 for you while you do nothing! Doing the same over 10 years your money would make you close to $42,500!

What have I done? I’ve put some money in my RRSP (for non-Canadians it’s a tax-deferred savings account designed to encourage Canadians to save up for retirement, basically, it reduced taxable income.) account with an investment firm. Currently it’s returning a 0.7% yield but I’ve only had it for about 2 weeks. How much? $6500.

“It takes too long!”

Sure it takes time, Rome wasn’t built in one day, I’m sure you have heard of that one too. Usually, at least with the people I talked to, it means “I’m worried about a decrease in quality of life.” perhaps the problem is living way above your means, that is unsustainable (of course if you got 2 kids, 2 elderlies and a single income it should be expected to have little left over, but I’m talking about the pretty well off, young professionals with no dependents). It would take a whole other article on how to keep lifestyle in check.

If you want to see how much money you could make with investing and saving, you try this calculator to see for yourself: http://www.calculator.net/investment-calculator.html

Would it help?

 

 

Have you watched bridge of spies? The movie with Tom Hanks as someone who had to negotiate with the USSR regarding the exchange of a spy and a pilot. In the movie Tom Hanks’ character on multiple occasions asked the spy “why aren’t you more worried?” “Would it help?” replied the spy.

Springing to action seems like a good idea until that action doesn’t seem to contribute to anything, and often would make it worse. “Would it help?” ask yourself. Screaming out in pain when I burnt my hand seems like a great idea, would it help? Absolutely not, not only would that not help it would probably scare my wife and cause all sort of unnecessary concerns and undue stress, rinsing it under cold water and put some lotion/healing cream on it would be the thing to do.

“You missed the turn!” not much I can do now, I’ve already missed it. I could swerve and cut other people off to try to make my turn, but would that help? It would probably cause some traffic accident and that definitely does not help, calmly, take the next exit or street, make our way back on track. It might have taken a few more minutes but it sure as hell beats getting into an accident, not only waste hours not going anywhere but also risk getting someone hurt.

Most events allow for a few seconds or even a few minutes for us to think it through, remember how you were told “count to three before saying anything”? That is basically it. Give yourself a bit of time to ask “would what i am about to do help the situation?”

Value Village Ventures

I tend to buy books at the value village, they have such good deals on books, sometimes you even find books that are interesting.

This book seems like a fantastic bit of information. I like stews, who doesn’t? I’ve been cooking out of it for 2 weeks now, one recipe for week and make enough to pack lunches for 2 or 3 days for my wife and I.

It only costed me $2, sure the same information can be obtained on the webs, but when the book is sitting there staring at you makes cooking from it much easier and it also serves as a constant reminder.