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

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 #25 Live like a student as long as you can.

"The essentials of life are cheap. Only the luxuries are expensive." - Ron Muhlenkamp

Remember when you were a student at college or university? Remember how much fun it was and yet how broke you were? You didn't have a luxurious place to live in, or a car, and you walked to everything, or maybe skateboarded everywhere?  The TV you had was the TV the previous tenants left behind because it was too bloody heavy to move... you know.. the Radiation King with the wooden case, and you certainly couldn't afford cable TV.  You stayed in and hung out with friends, choosing potlucks instead of going to fancy restaurants.  You made coffee at home, and brought sandwiches for lunch instead of buying it.  Cheap Poutine and Pitcher of Beer night at the local pub was the best night of the week because you and your friends could nurse your drink and wax poetic all night long at discount prices.  Life was simple.  You had few financial liabilities and it was fun living this way.

But then something happened.  There was this temptation that with a new career must also come a car, new furniture, fancy clothes, an expensive watch or phone, a big flat-screen TV,  and instead of frequenting the local watering hole, you feel compelled to hang out in the more expensive places with the foreign or micro-brews on tap instead of the cheap domestics.   Your big adult paycheque deserved a big adult lifestyle.   That big TV meant a cable-TV plan, and high-speed internet and a phone with a big data-plan.  Whoa! This is starting to sound expensive.

I always tell young people I meet to resist this temptation as much as possible, for as long as possible.  It is extremely difficult to save, pay down debt, and generally get ahead if you jump into a higher standard of living without the financial base to make it happen first, and that is just what many recent grads do.  Once people get used to a high-status high-consumption lifestyle, it is often very difficult for people to reign in that spending if needed, so the longer you can prolong your student lifestyle, the better.  I can not emphasize enough how much financial sacrifice plays in to financial well-being and resisting many of these adult lifestyle trappings can be a boon to your bottom line and mental well-being.  In my opinion, spending money on luxuries in life such as cars, expensive clothes, and expensive monthly liabilities such as Cable-TV should only be done once the basics are covered such as eliminating bad debt and having some savings.  Another thing I've noticed is that people with high standards of lifestyle without a financial base often worry a lot about maintaining that lifestyle...  and I generally like to sleep at night, so a simple carefree lifestyle suits me just fine.

When I was in grad school, we lived just like in the first paragraph.  My wife and I lived in a very modest apartment, we didn't own a car, and we didn't have have a TV let alone cable TV.   When I got my first employment position as a technical professional, there was a temptation to buy all the fancy things people come to expect with such a position.  But we resisted.  We did however buy a house after  I had been working for 3 months only because we were going to be evicted from our apartment due to a coming renovation.  While we did own a house, it would be another 4 years before we would buy a car.  It wasn't that we couldn't arrange for a car-loan to get one, it was that cars are money pits, and we weren't interested in digging new financial holes while we were trying to pay off our student loans.

With two adult salaries, but without many of the liabilities many adults take on, we were able to slay both our student loans ($58 thousand worth) in just over 3 years, save up enough to pay for a used car four years after I started working, begin to max out our RRSPs, and give to worthwhile charities.  We were essentially saving 50% of our take home pay.... By comparison to many in our field and experience level, our standard of living was modest, but we were very happy because we maintained that interactive social face-to-face lifestyle by continuing pot-luck get-togethers and Cheap Beer and Poutine nights.  We still lived with "student" quality furniture because it still met our needs.  It was still functional, though certainly not fashionable.  We only bought stuff out of necessity, not because of some feeling or self-imposed obligation around keeping up with others.    We never focused on what status items we were missing out on, but rather focused on relationships and building a solid financial base to give us more flexibility and freedom as we got older.  Once the essentials of living have been taken care of, then we focus on adding the luxuries.

At our current stage in life, which is late-thirties with young kids, we have adopted many of the liabilities that come with adulthood: A nice car, high-speed internet, club memberships etc, but we only added these lifestyle choices when we could afford them.  To this day we still walk or bike everywhere we can, we do not have Cable-TV, dont frequent fancy restaurants more than once a year, and Cheap Beer and Poutine are still our favourite nights out.

Rule #14 Live on one salary.

I'd like to live as a poor man with lots of money.  ~ Pablo Picasso

This post is mainly relevant for couples working towards saving or paying down debt. We live on only one salary when we have two coming in. If you are not part of a couple, I would still recommend living well below your means if you can.

So if you are following along, you've probably guessed that we are very aggressive savers. When we started our careers 14 years ago, we were living in a small one bedroom apartment. I was in Grad School TAing Undergraduate classes and Kim was working an entry level front line position at a Social Services Agency.  We werent making very much money but we were very happy.  Our lives were simple and we didn't define happiness by how much stuff we had.  Pretty much all of my TA income was going to servicing and paying down our Student debt, and we were living on Kim's small salary.  We have always believed in NOT living beyond our means, and believe certain types of debt are anchors that weigh you down, so becoming debt free was a priority for us.  By the time I was done Graduate School in 2002 and had only worked about 3 years, we had tackled $58000 in joint student debt and were debt free.  I had entered my "adult" career phase and began making a fairly decent salary in 2002.  After out debt was paid off, we began saving every dollar of my take home pay.  Its amazing how much you can save if you don't let the cost of your lifestyle creep up as your income goes up.  We were still living a lifestyle that was paid for with only one salary.

We were informed that our apartment was being turned into condos so we were required to move, so we bought a house in 2002.  It was a very modest house on a very walkable inner city neighbourhood.  It seemed expensive at the time, but today it would be a screaming bargain.  Even though we could have "afforded" to take on a car loan, we chose to do without a car for another 4 years until we had saved enough to pay for it in cash.  My employer paid well so we began living solely on my salary and banked Kim's.  I worked in a boom-bust industry so while I was employed at the time, there was no guarantee that I would always have work, so we established a general rule that when both of us were working, we lived on only one salary and we saved the other, just in case one of us found ourselves without work or income.  We've done that every year since about 2002 unless Kim or I were taking some time off from working either for a Parental Leave or a personal Leave of Absense.  There was never a need to change our lifestyle since we were accumstomed to living on only one salary.  Easy Peasy.  The other great thing that happened is that as we saved and bought cash-flow producing assets, those assets began providing us income as well.  That investment income started small, but over time has compounded to a meaningful amount of income.  Its not easy to live this way if you are accustomed to a high consumption lifestyle, so it wont work if you aren't prepared to make sacrifices now.  If you haven't began keeping up with the Joneses, don't start.  

This "Live on one salary" strategy obviously works when you, as a couple, have two good sources of income.  If you don't have two good sources of pay, then getting two good source of pay is probably a bigger priority.  Once you are at that point, imagine how quickly you could amass a large nest egg if you as a couple saved half of what you brought home. To this day, we bank/invest about 40% of our joint net take-home income. We do not live lavish lifestyles so there is no shock to the system when either Kim or I, or both, are not employed. Since we've been living this way for about a decade, we have built up a substantial financial base as a cushion and we maintain a lifestyle that is somewhat modest compared to others in our age and income cohorts.

I've heard a lot of people say that they couldn't live on just one salary.   I believe most people can do whatever they set out to do, and that most couples choose to live on both salaries.  They have adjusted their consumption and lifestyle level to their joint income level which leaves very little wiggle room if one of the earners loses a job or wants to do something else like go back to school, or start up a business.  You are now trapped in the "I must work to sustain my lifestyle" vortex.  This is fine if it works for you, but don't use it as a crutch for why you can't save.

Rule #10 Thumb your nose at the Joneses

One book that has influenced me a lot, with respect to finances, is  The Millionaire Next Door by Thomas Stanley and William Danko. In it the authors discuss how American Millionaires accumulate their wealth, how they handle their money, what neighbourhoods they live in, what cars they drive, what beer they drink and so on....  Its a bit dry and it states and restates the same basic themes over and over, but it has loads of useful data and anecdotes that show the true self-made-millionaire way of living.  I have it on audiobook so I listen to it on my iPod when I'm out for a walk or a skate.  Yeah, I'm just that cool, longboarding down the street listening to self-help tapes.

Anyways... a significant amount of the book focusses on lifestyle choice, and how "Keeping up with the Joneses" makes it very difficult to accumulate wealth.  There are those that live like millionaires, to impress friends or colleagues, who cant afford it (The Jones keeper-uppers), and then there are those who really are millionaires.... and they dont get that way by buying a new iPhone every time Apple makes an upgrade.  They get that way be being frugal and not buying crap to impress other people.  The book shatters all the typical stereotypes that the wealthy drive expensive cars, live in big swanky houses, and drink expensive champagne.   All these perceptions are typically not true for the truly wealthy... People who do live like that typically have lousy balance sheets.

Impressing other people seems like one of the stupidest reasons to buy or upgrade things that are fully functional or still modern.  I know a couple that bought a really big $1000 barbecue when they had a 4 year old fully functional one already.  The catalyst for that purchase was that their neighbour backing on to their yard had just bought a fancy barbecue himself, and our friend just couldn't live with the barbecue they already had once he saw his neighbours... He was being outdone.   So now they have a shiny fancy new barbecue, yet all they do is grill meat with it... well, their old barbecue already did that and it was in fine shape.  So there is $1000 spent on a needless item.  I wouldn't tell them how to spend their money - the earned it, they can do whatever they want with it - but for us, impressing others is very low on what motivates us to buy anything.

A rule-of-thumb that we live by is that we don't compete with friends of family on things we own.  We dress, drive and live in what's comfortable or what our profession dictates is a minimum - that's it.  Why drink expensive wine, when beer is what we like to drink?  Have we been financially successful? We've done okay.  But we don't flaunt it and we don't try and meet a standard of a particular social class... that's just not our scene.  This "not looking the part" is one of the best ways to save money.  In general, a consumption-based, status-driven lifestyle makes it very difficult to accumulate assets , no matter what your paycheque is.