Rule #30 Live where you Work, Shop and Play

There is a conventional wisdom these days that says "Buy a house in the suburbs of a city because you get more house, sometimes more yard, and the taxes are lower.  The nice neighbourhoods in the inner city tend to be more expensive and people practically live on top of each other."  When it came time for us to buy a house, we only looked in the inner city with the main (but not only) reason being...

I hate paying for parking.

I also generally don't like driving at all if I can get about by some other means.  When we lived in Calgary, I asked one of my work colleagues how much they paid for parking.  At that time, she was paying about $425 per month for a personal, reserved parking spot.  I couldn't believe people would pay that much for parking, but people love their cars I guess.  She lived in McKenzie Towne, which is a suburb of the city, and is about a 20 minute drive, if there is no traffic, from downtown Calgary.  During rush hour it can easily take twice that time to commute that distance.  I can't imagine spending 45 minutes commuting to work by car one way, only to then have to go through the hassle of either finding a parking spot or paying hundreds of dollars to reserve one.  Add in the cost of gas, car wear and tear, road rage, not be able to go for a few beers after work etc and all those negatives look pretty bad in my mind.  No thanks. The cost must be in the 5-figures annually.  Pretty expensive no matter what your paycheque is.

Since I've been a driver, I've never been a fan of long driving commutes.  It started in University where I lived within a few blocks of classes and could walk to everything such as pubs, groceries and other friends places.  For about 9 of my adult years, I either couldn't afford or chose not to own a car, so living close to where I worked, shopped and played was pretty important..  As time passed and I began to make more money, I continued to live inner city and not relocate to the 'burbs, choosing a bike as my main mode of transport.  It is a lifestyle choice that is not without sacrifice.  We pay more in property taxes, have a smaller home and yard, and live pretty close to our neighbours, but none of these have been dealbreakers for us.  We enjoy meeting a socializing with other people so the more opportunity to meet people the better.

The financial and social benefits of living inner city have been significant.  We both work downtown, so we can both walk to work.  We have significantly more time than our friends and most likely less stress.  On the walk/bike home, we are able to stop off at the pub to meet with friends or pick up dinner ingredients at the local grocer.  We are close enough to one of the shopping districts that we rarely need to get in the car to go shopping.  What we have noticed is that this way of living can save you lots and lots of money.  We've only ever had one car which we barely drive in the city. We pay nothing for parking other than what we paid for our house driveway.  If we ever fell on hard times and had to get rid of our car altogether, it would be no problemo because our lifestyle doesn't require or rely on personal motorized transport.  Public transit is always way better in the inner city and there is usually more to do there.  Walking to work gives me a half hour walk in the morning and another in the afternoon.  When does anybody make time to go on two half hour walks per day these days?

When it came time to sell our first house, it had appreciated quite a bit because it was in a desirable walkable neighbourhood.  As energy prices go up, people who live in the suburbs further and further away from where they work, shop and play will pay more and more for car costs that will leave less and less for saving and investing.   Not exactly a road to riches.

What we have done is chosen a lifestyle that on the surface looks more expensive because of higher housing costs (taxes, more upkeep for older housing, higher mortgage), but makes up for it in savings on the transportation costs.... and I have found people tend to underestimate how much transportation actually costs.  I would estimate that we save at least $10k per year and have a less stressful lifestyle but choosing to live inner city where we can walk to everything that we need.  While not for everyone, this lifestyle choice has allowed us to cheaply maintain our existing car and avoid buying a second vehicle, and the savings we've experienced has allowed us to save and invest significantly more that other families in our age and income cohort.

Rule #23 Automate all Monthly Payments

I have no idea when our bills are due.  I know they are due sometime during the month, usually near the end of it, but I dont fuss with checking the exact due dates anymore.   We have automated all but one of our bills.  When I say automated, I mean that we have set up an automatic payment either through the company itself or through our main bank to ensure the bills are paid on time.  We dont need to go stand in the long lines at bank tellers or ATMs to pay our monthly bills anymore because they come directly out of our accounts on the same day each month.  This way, we never have to worry about missing payments.  The payments are approximately the same every month, and the payment always comes from our checquing account, so we just make sure there is always enough in our account to cover the payment.  I find with money and bill management,  the path of least resistance with the highest amount of certainty usually makes the most sense, so making things automatic is the way to go for us.  No muss, no fuss.  This means we can focus our energy on other aspects of our financial planning instead of spending a couple hours a month in line-ups.

We do this with bill payments, debt payments (when we have any), rent, mortgage payments etc.  We have also applied this automating to investment contributions.  This is essentially the same concept of paying yourself first, automatically.  Each month, a set amount comes out of our account to go into our investments, and/or our savings accounts.  We have coordinated the timing of these particular withdrawals to coincide with our paydays.  The day that our paycheques go in our accounts, is the day the money comes out to make the contribution.  One thing about automating all our bills, debt payments, mortgage payments, and now investment contributions, is that when we look at our bank account balances, we know that most of the money in there is ours... it is essentially our discretionary funds... because all of our non-discretionaries (minus food) is, for the most part, already paid for.  We have learned to live without that contribution money in the first place so it never feels like the money is being taken out of our pockets.

By applying the Automatic Payment method to investments, we never have to choose how much we are going to save or invest that month, because we have already arranged for it to come out automatically.  The automating of the process of investing contributions essentially makes it a compulsory contribution.  It makes it habitual.  Inertia is huge in making a contribution, and anything that will increase the probability that you will continue investing in your financial security is a good thing in my book.

The benefits of automating one's payments are a plenty.  We never pay late fees because we are never late with payments.  If we go away for a week, we don't have to pre-pay any bills or dig through our mail when we come back to see which ones need to be paid right away.  Since our investment contributions are automatic, we know our future is being funded and don't have to carve off part of our paycheque because its already done.  Our credit rating is never in jeopardy because we didn't get a bill in the mail, made the wrong payment amount, or because it somehow got misplaced among the junk mail and went unpaid.  Lots of good reasons.

A the the end of the month, right about when I do our charting, I also leaf through the bills and see if there are any irregularities that may need addressing, but thats the only time of the month that I look through the bills.

There is one exception to this rule around automating, and that is with our credit cards.  Our credit cards may have additional items/services purchased on them from time to time and so an automatic payment doesnt suit us well in this case.  I check the balance every couple of days and pay it off completely.  I dont even wait for a bill to come in.... We treat our credits cards at 1-2 day loans, paying them off right away.  you can read more about how we use our credit cards here.

Rule #5 Know your Monthly Expenses!

Know your monthly expenses!

We don't really have monthly budgets - we pretty much pay everything off every month - thats about our only rule regarding budgeting we have.  If we can't pay off something in one month, we've spent too much and its time to cut back our spending.  We do however know where our money goes because we've tracked our spending 3 times in the last 8 years, and thats my rule... know where your expenses are and what you spend on them... but how can you really know what you spend your money on?

At least once in your life, the earlier the better, keep detailed records of household expenses for a three month period.  Three months are better than one because it lets you smooth/average out expenditures such as groceries if you do the odd Costco run for example.  Diligently tracking your expenses is one of those exercises that is a royal pain-in-the-ass when you are doing it, but it can really be an eye-opener and a very useful tool to determine where your money is going.  Whats that? You already know where you are spending your money? I did too until we did it for the first time about 8 years ago.  We thought we were spending about $500 a month for the two of us for groceries.  The thing was, we were both buying groceries so we weren't always aware of what the other was spending.  In the end we were actually spending about $700 a month on groceries.  It wasn't a bad thing to spend that much each month for groceries - the point was we were spending 40% more than we thought we were spending.  We talked it over and said to ourselves "Is that a reasonable amount for a couple to spend each month on groceries?" In the end we changed a few things and settled on a number that we were prepared to pay and adjusted our spending habits.

We noted a few expenditures and then challenged ourselves whether we thought the money was well spent... I discovered I was spending about $80 a month for coffee at work.  I didn't realize I was spending so much on coffer for me and for other people.  People who know me, know that I am a very frugal man so spending $80 for coffee at work sounds like an excess, and on paper it was.   The thing is the industry I worked in had a coffee culture - one where relationships were usually built over a cup of coffee - and in that business, relationships were often just as important as technical ability.  I saw this as an investment in my career and work satisfaction so the $80 coffee budget stayed in.

The great thing about tracking expenses is that if and when you do decide to save and invest more, you know whether you even have left-over money to save, or whether you are going to need to make some adjustments.  Some of monthly expenses will be fixed such as rent or mortgage payment, but others will be variable such as spending on entertainment, booze, gasoline, heating costs etc...

Tracking your spending also has an interesting side effect.  Knowing that you will be documenting your purchases, I am pretty sure it will make you think more about what you are buying.  It actually makes you more conscious about what you are buying while you go through the exercise.  Give it a try.

Here are some of the buckets we group our spending into

Fixed Housing (Rent)
Variable Housing (Utilities, Heat, landline, internet)
Groceries
Entertainment
Booze
Car (gas, insurance etc...)
Clothing for Work
Clothing for our Kids
Gifts