Thursday, March 26, 2015

Lumbergh agrees! The first 40 rules.

Hey, here's the first 40 of Ryan's Money Rules.

Rule #1: The Power of Compounding - Earlier is Waaaay Better!
Rule #2: "Lotteries are taxes on the stupid"
Rule #3: Defining Assets and Liabilities
Rule #4: Never Carry a Credit Card Balance... Ever!
Rule #5: Know your Monthly Expenses!
Rule #6: Forget the Latte, Its the Car/Vacation/Renovation Factor
Rule #7: Maximize income in AFTER TAX money
Rule #8: Your Home is not an Asset
Rule #9: Spousal Financial Compatibility is VERY important
Rule #10: Thumb your nose at the Joneses

Rule #11: Dividends - Buy Stocks for the Cash Flow
Rule #12: Use Leverage for MORE positive cash-flow!
Rule #13 Take Accountability. Stop Whining! Go Read a Book already
Rule #14 Live on one salary
Rule #15 Don't try to "Beat the Market"
Rule #16 Plan on Financial Independence without CPP
Rule #17 Save/Invest ALL windfalls or bonuses
Rule #18 Don't Diversity... too much
Rule #19 No Fixed Income
Rule #20 Set Financial Goals

Rule #21 Chart your Progress!
Rule #22 Pay your bills on time.. Every Time!
Rule #23 Automate all Monthly Payments
Rule #24 Borrow money for things that appreciate, pay cash on things that depreciate
Rule #25 Live like a student as long as you can
Rule #26 Create/Develop Multiple Income Streams
Rule #27 No Financial Advisor
Rule #28 Pay No Bank Fees
Rule #29 Talk about money. Ask about money.
Rule #30 Live where you Work, Shop and Play

Rule #31 Out of Chaos comes Big Opportunities. Be Ready!
Rule #32 Take Full Advantage of Employer Matches
Rule #33 Don't spend all of that salary increase
Rule #34 Find Yourself a Money Mentor
Rule #35 The Main Goal is Financial Independence, Not Retirement
Rule #36 Owning a good company is are better than working for one
Rule #37 "Hedge" against price inflation by investing in staples you use
Rule #38 Use good debt wisely, get rid of bad debt completely.
Rule #39 Adopt an Entrepreneur/Investor mindset
Rule #40 One week wait time for impulsive purchases over $100

Plus there's these two gems:
Dividend income growth... 16 months in review
Buy vs Rent. Why we're okay with renting today

Wednesday, March 25, 2015

#40 One week wait time for impulsive purchases over $100

About 3 months ago, a friend of mine showed me her new juicer.  I had just watched Fat, Sick and Nearly Dead a few days prior and I was feeling all jazzed about juicing and wanted to see one in action.  It looked a bit like a mini rocket ship, all stainless steel and fancy-like.  That night, I went home and fantasized about what a juicer would look like in our kitchen.  I thought about how we could get a blender/juicer combo machine and replace our 15 year old, still fully functional, blender with something much more modern looking.  I scoured for the best deal on the blingy-est juicers imaginable.  I didn't realize blenders and juicers were so popular... and so expensive.  There were lots and lots of options.  I could have clicked buy button a few times, but I didn't.  I waited a few more days, fantasized about it some more... then after about a weeks time, I forgot all about it.

I recently began thinking about it again, but this time thinking that I'm not so sure I'm ready to get into juicing, and that blender we have still works just fine.... good enough for smoothies at least.  Phew! We saved ourselves about $400 and didn't end up with a shiny new 25 pound paperweight.  I'm sure glad I didn't rush out and impulsively buy one.  In our modern society, there are many many ways that businesses, organizations, and governments try to separate us from our money, and slick sales pitches and the latest rage suck people into buying all sorts of things they don't really need or want.  I believe that if we all exercised a little patience, and gave sober second thought time to work, we wouldn't buy so much "stuff" which leads people away from meeting their financial goals.

If we are out and about and we come across something that we want to buy but weren't planning on purchasing at that moment, we wont buy it without our standard waiting period of 1 week.  Impulse spending is something that we have pretty much cut out of our day-to-day shopping.  I can think of numerous times where I've been out shopping, seen something I was convinced that I really wanted but did not buy because it was over $100.  I've gone home and thought about it for a couple of days, chatted about it with Kim, and by the end of the week, I had forgotten about the product altogether.  The juicer is a perfect example of that.  Obviously this was a product that I could live without.

We as a couple have had this rule for over a decade and I can't think of an instance where we've broken the rule.  Of course there are times when we've spent money on things that were not in the plan because something came up... like a surprise $300 mechanic bill for the car for example, but we've never gone out for a walk in the shopping district with no intention of buying anything, seen a $200 lamp, and then bought it without giving it more significant thought.  This has stopped us from spending money on many things that we didn't need or didn't really want.  I would say that 80-90% of the things that we impulsively think about buying, we never buy.  This sober second thought check that we have in place prevents us from buying things we don't need or even want after a week or two.

This is not the same as going out, intending to spend $500 on work clothes, yet not knowing exactly what we are going to buy, but still coming home with $500 in work clothes.  In this case, it was part of our plan to go out and purchase $500 in goods.  If we need the clothes, we go out and buy them with conviction.  Its the impulsive purchases we want to eliminate.

Think about it.  

Some of the things we've thought about buying but after parking the idea for a week, we have not acted on, saving ourselves lots of money, are: various exercise machines, a juicer, fancy knives that can cut through a metal can, a motorcycle, bicycles, vacations, home improvements, furniture etc..

With that said, its not like we haven't bought some of the things that we've thought about for a week or more.  Its just that the extra week's time gave us enough time to think it over, ensure we had the money for it, and made sure it was aligned with our priorities.  Some of the things we HAVE bought after the 1 week wait have been: an exercise machine, bicycles, a motorcycle, home improvements, furniture.

We certainly are not doing without, but this added check we mentally have in place makes sure we don't buy stuff on a whim.  There is nothing magical about the $100 threshold.  We chose it as an arbitrary minimum that works for us.  The rule is, if its over $100, we wait, we chat about it, and if after a week we believe its worth getting, then we take action which may involve buying the item or adding to our sale watchlist.  Its not to say that we don't give everything we think about purchasing a similar level of scrutiny, but it does allow Kim or myself to go out, see a pair of shoes we like, and buy them without feeling the wrath of the other spouse.  I believe the value in the wait time is not so much the money value, but preventing buyers regret later on.

Tuesday, November 4, 2014

#39 Adopt an Entrepreneur/Investor mindset

Having worked in the oil patch for a decade, I know quite a few wealthy people.  My father asked me the other day how most of my wealthy friends made most of their money.  My response was that the overwhelming majority of the wealthy people that I know, became wealthy by either starting a business or by taking a financial interest in a company by buying or owning company shares.  I struggled to name anyone I know who is wealthy who got that way from being an employee.  I believe this is a important learning and it reminds me of a few books I read by Robert Kiyosaki.

I first tried reading Rich Dad, Poor Dad by Robert Kiyosaki in 2002.  Tim, a co-worker of mine, had leant the book to me after reading it himself.  He was excited about what he had learned and suggested I should read it to learn how to become wealthy.  I got about halfway through the book and thought "Where is this recipe to building wealth that Tim talked about?".  The book doesn't specifically lay out what kind of investments to go into, it just went on talking about owning real estate and building businesses.  "Hell, I don't need this, I have a good job making good money... I don't have the time to do shit like buy rental properties.  This books sucks!"  I didn't finish the book.

The next time someone recommended I get into Kiyosaki's stuff was in 2007. By then Kim and I were well into into aggressively saving and investing our money so I was looking to maximize our investment dollars.  Another co-worker, another Tim oddly enough, was listening to self-help books and podcasts on his MP3 player and he recommended I try out Kiyosaki's book "Rich Dad's Cashflow Quadrant".  I listened to it. Then listened to it again.  This time I 'got' what Kiyosaki was saying.  The Rich Dad series is really about mindset and how you look at, and earn, money.  There is no recipe.  You create the recipe.  The focus of the book is in how somebody earns money, with emphasis on financial risk and reward.  In Cashflow Quadrant, there are 4 main earner mindsets.  They are summed up as:

Employee - You earn an income by working for someone else. You have no financial interest or risk in the success of the business.  If you stop working the money stops coming in.

Self Employed - You earn an income by working for yourself.  You take on the financial risk of your business but you also do ALL the work.  If you stop working, the money stops coming in.

Entrepreneur (Business Owner) - You earn an income by building and (possibly) operating a business.  You take on the financial risk of the business but you do some work and pay other people to do work to make the business a success.  At some point, your business may run on its own.

Investor - You earn income by investing your money in other people's business or in publicly traded businesses, such as those listed on the stock market.  You take on the financial risk of the business, but have no active role in running it.

Cashflow Quadrant from Kiyosaki.

Many people fit in to multiple earner mindsets or quadrants as Kiyosaki calls them.  The biggest learning I got out of Kiyosaki's Cashflow Quadrant book was that in order to become Financially Independent, you need to move towards the Entrepreneur/Investor side of the spectrum.  Being an employee or being self employed earns you a paycheque but often gives you nothing more once you stop working.  It is when you get your money working FOR YOU in the form of a business or investments that you are able to step back from working.  By moving to the E/I side of earning income, you begin to detach yourself from being dependent on other people to look after you, whether that be an employer or the government.

We were naturally moving towards that mindset on our own in the early 00's but after reading Kiyosaki's Cashflow Quadrant book, we ratcheted it up and were ready during the 08-09 financial meltdown to take advantage of investment opportunities and use leverage to buy quality stocks in the same way real estate investors/landlords buy rental properties.  We went directly to the Investor quadrant early while still in the Employee Quadrant, investing in dividend income and growth stocks.  By using our employee income to build our Investor income, we have gradually moved from one side of the quadrant plot to the other.  At present, about half our income comes from the Employee quadrant, and half come from the Investor quadrant.  At some point our investor income will be all we need to meet our monthly liabilities.  At that point we will be financially free.

By taking on an Entrepreneur/Investor mindset I believe a person takes on more risk, but acquires more freedom.  They are more in control of their life and less dependent on others.  It takes more discipline and motivation to take that path, but I believe it has been very worthwhile for us. While I do not suggest everyone go out and start a business, stocks are available to everyone once you have some savings to put to use.