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 #35 The Main Goal is Financial Independence, Not Retirement

"Let your money work for you. You don't work for money. That is exactly what Financial Freedom is..."

-Manoj Arora, From the Rat Race to Financial Freedom

My father asked me last month if I was retired for good.  Recently I started using the term 'retired' when people ask me what it is that I 'do".  I find it hard to answer the question to most people as I am not employed and I am not looking for work.  I have extended family members who, every time we meet, ask me if I've found work yet.  When I remind them that I'm not looking for work I get the feeling that they feel sorry me.  They shouldn't.  I quit my Professional Geologist career almost 3 years ago, at first to take a break from working as I was feeling a little burnt out, and then while off I decided I wanted to try something else... something with a slower pace.  I've taken up part-time Stay-at-Home-Dad and part-time Options Trader as my new vocations.  One doesn't pay well (at all!) and the other is an "Eat what you kill" type of income generation.  Both are certainly not as well paying or as predictable in their pay-out as my previous career.  While I do not have traditional work or income, I do have some growing dividend income and I can generate a modest return on my Options Trading account.  That coupled with Kim's paycheque provides a pretty good living for our family as it still allows us to save and grow our "save for later" investments.  With that said, we've never been focused on retiring in the traditional sense. We have no intention of working at the same job or career for 30-40 years and then stop working forever and spend our days golfing.  Thats just not what we want.  We've both taken mini-retirements to be home with our boys and we wouldn't have been able to do that if we socked all our money away for retirement at age 60.

Our focus rather, has always been on Financial Independence.  We define Financial Independence as having enough passive income now to cover a lifestyle that we are happy with without having to go to work for someone else.  We actually don't plan to stop "working" once we reach Financial Independence, but rather we will work when when want, where we want, and if we want as opposed to having to work to sustain a certain lifestyle.  Our plan is to have our investments pay our way.  This is in contrast to the typical pension most people strive for.  In order to get a standard retiree pension, employees are generally required to work for decades, in sometimes soul-crushing work, in order to get a pension for the last third of their lives.  By focusing on cash-flow producing assets such as dividend paying stocks in place of a pension, we do not need to wait til age 55-65 to turn a lump sum investment into a pension.  We've been building our non-employment cash-flow each year by buying what we sometimes refer to as "mini pensions" that we can turn on right now.   Since we've been aggressively saving and investing for over a decade now, we're well on our way to our goal and we hope to meet that goal at or ahead of schedule even as I pare back my employment income.  By aggressively saving and investing early, along with living on only one salary for over a decade, it has allowed us to transition from working for a living to working when we like.

Rule #34 Find Yourself a Money Mentor.

"Try never to be the smartest person in the room. 

And if you are, I suggest you invite smarter people … 

or find a different room." - Michael Dell.

I never had a Money Mentor.  I've had a handful of technical and career mentors throughout my working career, some of whom have given me financial advice, but I've never had a formal mentor specifically for money.  By Money Mentor I mean someone who has been through the trials and tribulations of money management, specifically saving and investing, who can give a biased opinion of what to do with your money.  Unbiased opinions are nice, but biased opinions usually indicate experience and perhaps some specialization.  Their specialization usually comes from experience, training and real world dedication to a specific topic.  These people are the ones I want to learn from.  I wish I had had a Money Mentor early in my investing phase, about 15 years ago, to avoid the smacking I took during the "Dot Com Meltdown".  Someone who focused on slow steady cash-flow growth and not the buying and selling of in-fashion stocks or mutual funds.  It probably would have helped me not lose two thirds of our money in the 2000 big tech meltdown, assuming I would have listened of course.  While I feel like I've learned a ton by personal experience, someone there to point me in the right direction and help me cut through the bullshit would have been a huge asset.  I have mentored a couple of people in the last 7 years on the topic of money, pointing them towards specific investing styles and regularly discussing stocks, sectors and ways to invest their money efficiently.  Ultimately though, they have to own their own financial decisions.

My experience has been that most people like to talk about what they do.  Money may be a bit of a taboo subject at dinner parties, but I've found that one-on-one, people who understand money principles are usually generous in sharing what they know, especially if they know you are serious and you have done a bit of homework before approaching them.  Good mentors of any sort won't hold your hand or give you solid "must-do" recommendations.  They will help you sift through good and bad options but they wont tell you what to do.  Taking personal ownership over your finances is very important and a good mentor will emphasize this.  The mentor is there to bounce ideas off and he or she will lay out the pros and cons of such decisions, but ultimately you need to own the financial decisions you make.

My advice to young adults, or even older ones starting to invest, is to look around your network (both friends and professional) and even your parents network and identify people who have their shit together with regards to money.  Are they a savvy Real Estate investor? Stock investor? Trader? An Entrepreneur? Do any of those appeal to your interests?  Have they been doing it for awhile and have they experienced a downturn in the market?  The Downturn in the market thing is huge.  This is where the Experience is a very big asset.  Its relatively easy to make money in an upwardly trending market, but its what we do in downturns that make the difference in the long run.  Its where the opportunities are and where people tend either lose the most or make the most.  A sober second opinion can really make the difference.

Find yourself a mentor.  You'll be glad you did.

Rule #20 Set Financial goals

Goals in writing are dreams with deadlines - Brian Tracey

Do you have financial goals?  I just finished Millionaire Upgrade by Richard Parkes Cordock - a great book by the way - and it reminded me of one thing that we have found to be very important for our progress towards Financial Independence and that is:  Setting Financial Goals.  One quote from the book is "A goal without a plan is a dream".... I'm going to memorize that line because I think its a great line.  Back to us... Every year, we set or revisit goals for our annual investment cashflow growth, goals for our savings account, goals for debt reduction, goals for RRSP contributions, and goals to reduce our spending (cut the fat).

For us, there are three things you need to have figured out before you can call your dream a goal:

1. What do you want to do with your money?  Do you want to become a mulit-millionaire or do you just want live a minimalist work/debt free lifestyle?  Do you want to work part-time halfway through your adulthood or full-time til you kick the bucket?  Do you want to go an a big vacation this year?  Saving for a new car?  Is your goal to reduce debt or become debt free?  If you don't know what you are saving for, you are almost surely destined to fail.  While you could argue the why is just as important as the what, I think the what is probably the thing to keep posted on your fridge as a motivator.  
2. Why do you want to do this with your money? Here is the deep soul-searching part of having a goal.  Are your goals inline with your values?  Do you want to work til you are 75 or are are you trying to leave the workforce as soon as you can so you can do other things?  Do you really really want what you are saving for or are you doing so because you feel its what you should do?  For us, we like to be in control of our lives.  We want to leave no debt to our children and we dont want to be a burden on them as we age.  Thats why we choose to invest and save the way we do. We want to be good role models to our kids and walk the talk.  That is the Why for us.
3. How are you going to get there?  Here's the part where you need a plan, or your goal is just a dream.  This part is where you discuss or ponder the sacrifice you are going to make.  Thats right, financial planning involves sacrifice.  Are you going to manually save that money or have it automatically deducted from your account to make it easier?  How much do you need to save? Are you going to increase you income, or decrease your spending to meet the goal.  Will it be a monthly contribution or a once a year event (like at RRSP or tax season).  If you have a spouse, how will you keep this all straight?  Will one partner keep track or do both need to be involved?  

Your goals obviously need to be realistic, but we like to have stretch targets that may be reachable but require some additional sacrifice or creativity.   We assess and set these goals usually around New Years and revisit them at tax-time in March.  Then, we do what almost nobody does... we write it all down.  Thats right, we write it down every year.  There is a saying in the Geologist Community that goes: "A map is just a sketch until it is coloured" or "A map becomes truth once you colour it in".  For us, its the same thing about goals - writing them down makes that goal more official... not just some talk we had over coffee.  Some friends of ours think we should lighten up over this point, as if we're kooks for treating our goals with this kind of official discipline.... but there is never an argument in our house over what we are saving for.  We are always on the same page because the goal is there for us see.   We are committed to it.  We have personal financial goals and we have family financial goals.  We both know what they are and are both commited to those goals.

We've had this approach to setting financial goals for about 10 years and we've missed a few yearly targets, but its not because of lack of trying.  The odd expense has come up that we weren't expecting that threw us off.... but it actually led to us creating an emergency fund as one of our goals the following year.  After doing if for 10 years, we are better now at setting those goals and it has become significantly easier to meet or beat them.

Some of our past goals were:

Max out our RRSP when it makes tax-sense to do so.
Grow our Investment cash-flow by 8% per year
Build an emergency fund in case the car craps out and we have to buy/fix
Pay off our non-tax efficient debt
Save up enough to buy a new bicycle.

The last aspect around having a goal is about executing point #3.  Executing point #3 relies on how committed you to points #1 and #2.  I think its pretty self explanatory from here on so I won't bother you with motivational speak.  Either we follow through on what we say we are going to do or we do not.  Having serious and reasonable goals, and our ability to follow-through has been perhaps the most important thing for our personal finances.  For our age cohort, we are in pretty good financial shape, and I credit a large part of that to having achievable goals and executing the plan.  Do You have Goals or do you have Dreams?