Rule #28 Pay No Bank Fees.

Nickel and Dime: verb. To drain or destroy bit by bit, especially financially

People complain about banks and their fees ad nauseam.  You know what I mean.. "The greedy banks are being greedy."  "I'm getting screwed by the banks in fees."  Blah blah blah.  But these folks do very little to change the fact that they're paying all these fees.... You know what I call these people?  Whiners.  Don't be a whiner.  If you don't like paying bank fees then stop paying bank fees.  

Here are some strategies we use to avoid paying any bank fees or make it so the benefits of membership outweigh the fees (as is the case in a Credit Union).

1. Use/Join a Credit Union.  Simple eh?  Well some people have been with the same bank forever and yet there are Credit Unions all over the place that you can join and get reduced rates on fees and quite often they offer profit sharing that returns some of the profits to members/shareholders.  We've been members/shareholders of a Credit Union for about 11 years and we've gotten back more in profit-sharing annually than we've ever paid out in fees.

2. Don't use Bank Machines that are not owned by your bank.  I bank at TD and I will always travel the extra distance to save on the transaction fees.  Never in a bazillion years should would I use a "While Label" machine.  White label machines are the worst! They can take a buck or two from each transaction and then YOUR bank will also charge you a buck or two on the other end.... So if you take out $20, you could pay $2-$4 in fees.  There is nothing like a 20% fee taken out with your withdrawal to erode your bank balance.  I occasionally get caught a couple times a year (usually in a pub) without any money and the bar will have a white machine instead of taking debit payments.  The pub is getting a cut of every transaction so they can squeeze you a bit more.  In this case I will pay with a credit card and then pay the bill off when I get home later that night.  Those Bank Machine fees are easy to avoid if you just make the effort.

3. Maintain the minimum balance to waive the monthly account fee.  As mentioned above I bank at TD. We have an Infinity Account with them that allows infinite TD bank machine transactions along with some other fancy perks all for the monthly fee of $14.95.  Thats about $180 a year.  They will waive the monthly fee if we maintain a balance of $3500 or more.  So that's exactly what we do.  To save $180 on a $3500 balance is about a 5% return on your money.  This is a guaranteed saving... much better than the crappy 1-2% you get on GICs these days... Before you start putting money into GIC and other pay-nothing "investments", why not play by the rules and reduce the amount of fees you're already paying.  Of course it takes some discipline to maintain that bank account at or above the right balance, but thats what managing your finances is all about... Discipline.

4. Use Pay As You Go Overdraft Protection instead of a monthly fee.  I used to pay a monthly fee of $2-$4 (the price rose over time) for the protection in case I wrote a cheque that I didn't have the money for.  Since we now maintain a balance of over $3500, we never use the overdraft anymore and if we do get ourselves in a situation where we are overdrawn, we pay a one-time fee of $5.  It's certainly a better deal than paying for something we're not using.  Add this $2-$4 we're saving on overdraft fees to the $15 we're saving from maintaining a $3500 balance and the savings are beginning to become material.

So there you have it.  Last month we paid absolutely nothing in bank fees so it definitely is possible to use a big bank and yet not pay any fees and it was actually pretty easy to do.  So while other people are moaning about paying their banks what are essentially voluntary fees, I'm financing an extra 12-pack of premium beer from the monthly savings.  Here's mud in your eye!

Rule #27 No Financial Advisor.

”Everyone has the power to follow the stock market. If you made it through fifth grade math, you can do it.” – Peter Lynch

We had a financial advisor that came highly recommended from a fairly high-net-worth friend of ours.  We gave him a try for a couple years and it didn't work out. We lost significantly more money than we made, and then on top of that paid this person 1.5% of our portfolio value each year to manage our money.  I'm not a fan of paying someone to lose me money.  I can do that myself for free.  We've since moved on to an investment style that's a better fit for us and doesn't require a lot of "management" on either our side or a "professional's" side.  I'm not philosophically against Financial Advisors in general and it would be wrong of me to say anything bad about them based on our experience because we have only had one in our lifetime and it was at a time when the economy was moving into a recession.  With that said, for our investment style, paying for an FA for portfolio management is not a good deal.  Our style is to buy solid blue-chip stocks that pay safe and growing dividends and then hold them forever.  Because our plan is to buy the stock once and hold forever the only cost we incur is the commission price to buy the stocks in the first place.

If you have the confidence to go it alone, and I am not making any recommendation here that you do that, there is a lot of information on the web to help you build a solid portfolio on your own.  A basic "couch potato" style portfolio can be constructed fairly simply and get you similar returns to one a FA will build for you with minimal Management Fees.  Many FA offices are however great for offering one-stop shopping for many other types of financial instruments such as life insurance, estate planning, tax planning, purchasing annuities etc.  We got our life insurance from our FA and we feel we got it at a reasonable price, but thats not enough reason to woo us back to letting them manage my investment money going forward.

Here are the main reasons we dont use a financial planner:

1. I need to know where my money is and what its doing at all times - this is more about me and not about the advisor.  I generally don't trust others to look out for my best interest... I believe that is my job.
2. I don't believe in across the board diversification in our portfolio... so that rules out many mutual funds or ETFs.  I like to invest in what I understand. Investing in big diversifed funds makes it difficult for me to understand whats going on.
3. Most Financial Advisors do not outperform the market.  There have been lots of studies done out there that suggests that upwards of 70-80% of advisors either match the market or do WORSE.  (as stated before beating the market is not my goal anyhow but I threw this in because it matters to most people)
4. Management fees slowly erode your portfolio value.  Many Advisors charge 1-2% management fees over and above any fees the mutual funds themselves charge you.  Compounded over time this melts down your profits.
5. Most Advisors dont get paid based on the performance of your portfolio.  If your portfolio loses 10% in one year, they still get their management fee.  
6. Many advisors work for a company that restricts the products they can sell you.  You could argue that they are essentially salespeople for the products they sell.  Try going to an advisor who works for Company X and ask to buy mutual funds from Company Y.  Most won't or can't do it.
7. I know what I want to be invested in and what investment vehicles I want to stay clear of.  It makes no sense for me to go to an advisor and tell them what to buy for me.  The feeling is probably mutual.  I would think people like me would probably drive Financial Advisors nuts!
8. Our investment style doesnt' require 'management' or annual 'rebalancing' so why pay someone else to do it? 

In short, I don't think hiring a Financial Advisor is good value for us.

There are other reasons to be cautious about when giving your money to FAs but those would involve discussing things like "fiduciary" responsibilities etc, which I would prefer not to discuss here.... but I would add this: Some Financial Advisors do not put your interests first, and some do.  Stay away from the ones that do not.

Now these are the main reasons I prefer not to use a Financial Advisor.  I'm also a bit of an anomaly because I have the time, energy and keen-ness to do my own research and the confidence to buy and sell my own stocks.  If you don't have the time, energy or keen-ness to do all the work on your own, or to pull the trigger when it comes time to buy or sell stocks, or you need some hand-holding when the market is correcting, then a Financial Advisor might be in order.  I know a few who do a good job and will be upfront with you about how they get paid, what you can expect from them by dealing with them, and are quite open to challenge.  If you do go to a Financial Advisor, make sure you ask lots of questions around how they get paid.

The biggest challenge I have for others is: Is the cost of an FA worth it to you once you know: how they operate, how they get paid, what products they can and can't sell you, what incentives they themselves have to recommend you buy/sell a product, and how much time / desire you have to work on these things if you were to do it yourself?  If after you've addressed these points and you still prefer a professional to manage your money, make sure you get a good advisor - one who looks out for you interests.  If you do go it alone, make sure you are comfortable with your own abilities, understand your risk tolerance and have the ability to manage that risk.  We have found it to be quite financially rewarding. 

Rule #26 Create/Develop Multiple Income Streams

"It is better to have a permanent income than to be fascinating." - Oscar Wilde.

What would you do if you lost your job?  Do you have any additional monies coming in from other types of income that could help you get by until you get a new job?  I used to work in the resource sector, and if you know anyone who works in that sector, you've probably heard that it goes through violent boom and bust cycles.  A job and career this year does not guarantee a job and career the following year, so it became a high priority for us to create multiple income streams in case I found myself without employment.  You've also probably heard the phrase "Don't put your eggs in one basket" right?  Well, in my mind if you only have one type of income, you essentially have your income eggs in only one basket.  For example, if your employment income is discontinued for some reason such as an injury or a layoff, you may have nothing to fall back on.

I would think single people, or couples who both work in the same industry, are particularly at risk to this scenario.  If their jobs disappear and the household income is so concentrated in one sector, it can have significant impact on your savings if employment income is your only source of income and it goes away.  Having a second or third income stream is the akin to building up addition skill-sets that you can use when the need comes, or separate income you can use to fund your retirement when you stop working.  Some examples of second income streams are: investment income, a second job, trading income, a home or personal business, freelancing, royalties from music or a book that you produce, blogging income, income-producing real estate, pensions or annuities that you buy and so on.

Developing multiple income streams is typically not something you can do overnight.  People who take on this strategy often go to work during the day, and then come home at night after toiling away in teh salt mines and then do further work or research in their time off.  There is no shortcut or get-rich-quick strategy that works, so don't expect the payoff to occur until well into the future.  Any extra money you generate could help you fund your current lifestyle, your retirement savings, or can be reinvested to make even more income in the future.  If your secondary sources of income become great enough, you can choose to work part-time instead of full-time.... or possibly not at all.

There are lots of online sources giving you advice on how to start new income streams, but before diving into any of them, I would advise you to choose something that you are already keen on.  If you are into sports perhaps try refereeing high-school games.  If you like to write, try writing an ebook on a topic you enjoy.  For me, I chose to build passive dividend investment income and then juice that up with some conservative income-producing options-trading strategies.  Money management and financial strategy is something I've been pretty keen on since I was in high school, so these types of income were right up my alley.  Learning these strategies involved study, study and more study early on, but eventually they became like a second language.

Over time our second and third income streams have increased significantly and have contributed to our financial confidence and security.  We've been working on these streams of income for some time now, to the point where we can see ourselves being able to live a spartan lifestyle solely on them within the next 5-10 years if we needed to.  Our trek to financial independence has certainly gotten a boost from having these additional incomes.  Having multiple income streams has given us significant flexibility and control over our finances as the income continues to grow.