Apr 152019
 

Actionable Advice – From Rags to Riches

I recently came across Quora contributor Kevin Yue’s response about the best financial advice he had ever received. The surprising answer comes from his dad, who escaped to the U.S. as a broke, war refugee. Over time Kevin’s dad turned his life around and eventually became part of the top 1% richest in the country. So here are some of his financial rules.

1. When making a purchase ask questions from an investment point of view instead of one based on consumption

There are financial ramifications to every spending decision. If you buy that new laptop, will you also need a case for it? What about extended warranty? If you buy that car, will you need to buy premium gasoline every time you fuel up? Will the vehicle hold its value well over the next 5 years? If you buy a house, how will that impact your taxes or gas bill? Will your maintenance and repair costs go up over time?

What is the potential for land appreciation in that neighborhood? The point is just because you buy something once doesn’t mean it will only cost you once.

Kevin warns that people usually ask all the wrong questions when they shop. For example, “when buying a new pair of shoes, do not ask how good they look or what brand they are. Instead, ask how long will they last, and in what kind of weather, and what the warranty is. If you get a good pair of warm waterproof boots with a lifetime warranty, they could literally be the last pair of boots you’ll ever buy. It is much better to buy a $400 winter jacket which will last you 20 years than a $200 one which will last you 6.” And both of those options will be better than the $800 jacket that will be out of fashion in 2 years.

2. A dollar saved is $20 earned

$1 invested will become $20 in 40 years.  “This is the magic of compound interest,” Kevin explains. “In practical terms, it means that your go-to option should always be to tighten your belt. Put away some money every week, and it will eventually pay itself back 20 times over.”

3. Never lose money for free

“Paying extra tax is losing money for free. Never pay your credit card late. Late fees are losing money for free. Paying interest is losing money for free. Always comparison shop. Why pay more for the same product? That’s losing money for free. Turn off your heat when you leave the house. Leaving the heat running is losing money for free.” Kevin’s dad used to turn off the heat entirely, but left his apartment door wide open to steal heat from the hallway.

Although going into debt is generally not advised, “there are some occasions when borrowing money is not losing it for free.” For instance, investment loans, HELOCs, and mortgages in the U.S. can be tax-deductible. “In these cases, sit down with a calculator. Doing the math wrong (or worse, not doing it at all) is losing money for free.” Another thought is to not leave any money on the table when negotiating.

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Jan 242019
 

Putting Household Debt into Perspective

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Canadian households currently owe more than $2 trillion. Our average debt to income ratio increased to 170%, making us number 1 among the G7 countries. 🙂

But do we actually have too much debt? Well perhaps not. Comparing Canada to the G7 group conveniently omits other highly developed countries. Australia’s national broadcaster claims its country has a household debt to income ratio of 200%. And reports of Netherlands, Denmark, and other Nordic countries are even higher than that! So in reality Canada is far from being the most indebted country in the world.

The cost of borrowing also affects the degree to which people will go into debt. For example, in the U.S. a typical mortgage today would cost about 4.5%. But in Canada you can get a mortgage for only 3.0%.  If the debt is cheaper to service then people will be naturally inclined to borrow more. 🙂

There’s a whole slew of other economic, legal, and political variables that make it nearly impossible to accurately compare household debt from one country to another. These kinds of comparisons would never be published as a scientific study because you have to correct for way too many variabilities. But they make for intriguing headlines nonetheless. 🙂

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Sep 102018
 

Billionaire investor Warren Buffett recently celebrated his 88th birthday and told CNBC in an interview that he thinks stocks are still more attractive than bonds or real estate. In fact his company Berkshire Hathaway recently picked up some more shares of Apple Inc (AAPL) making it the largest position in the holding company.

The value of BRK.A shares increased by an astonishing 1,000,000% between December 1964 and December 2015. Meanwhile the S&P 500 market index increased by only 2,300% during that time. This is a testament to the will and dedication by Buffett & his team to create wealth for shareholders. I suppose you can say that if Berkshire has a will, Berkshire Hathaway. 😎

One thing to remember when investing is to keep it simple. You don’t have to be a genius to be good at it. 🙂

When we keep track of something it tends to grow. Building up investment experience is no different. That’s why every investor needs to track their investment decisions. This is going back to basics but it’s crucial to becoming better investors.

Investment Tracking 

This can be done by creating a simple table or spreadsheet like the following, and updating it over time. You can think of this like an investment journal. 🙂 I will demonstrate using the 2 new companies I blogged about purchasing earlier this year.

InvestmentTypeActionReasons for decisionDateExit plan
  • Parkland Fuel Corp (PKI.TO)
StockBuy 100 shares
  • Large network of retailers
  • Stable dividend yield (with growth)
  • Recession resistant
01/02/18Hold into retirement
  • Automotive Properties (APR.UN)
REITBuy 190 units
  • High 7% dividend yield
  • Relatively low payout ratio (60%)
  • Canadians love to buy cars
01/02/18Hold into retirement

 

Here are some additional columns we can add to track our investment decisions even more closely:

  • Timeline horizon (how long we plan to hold something)
  • Current market value of said investment
  • How to measure the success or failure of our decision
  • Any concerns that go against our final decision
  • Does the original reason for buying a stock still apply in the present day
  • What process did we use to evaluate the investment, eg: P/E ratio, Graham formula, or analyst predictions

No matter how good we are at evaluating investments, we’re eventually going to be wrong. Sometimes we may be wrong due to unpreventable reasons. But there are many factors that we can control, such as our own psychology and behavior.

Keeping a detailed investment journal of our decisions is the best way to remind us in the future of the feelings we had at that time to avoid making the same mistakes again. We’ll understand why we made the choices we did, whether or not it was worth it, the process behind our decisions, which strategies worked and which didn’t, and do our best to hopefully replicate past successes. 🙂 Hindsight is 20/20, but only if we remember how we thought and what we did in the past that lead to the current moment.

 

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Random Useless Fact:

What it’s like having a motorcycle.

Aug 292018
 

According to a recent Northwestern Mutual study, nearly 1 out of 3 Americans have less than $5,000 saved for retirement. The average retirement savings for all Americans is $84,821. That’s a far cry from enough. Experts typically recommend building at least $1 million in savings by retirement. So it doesn’t look good for the average American. And we aren’t doing much better up here. A CIBC poll shows that 32% of Canadians between 45 and 64 have nothing saved for retirement. 😮

The 3 pillars of retirement savings

I recently finished reading a book called The Subtle Art of Not Giving a F*ck by Mark Manson, which explains that we can’t possibly care about everything in our lives because that would be too exhausting. So we have to choose what’s actually worth giving a hoot about. For those who are having trouble saving for retirement the best way to get ahead is to focus on a few things that will make a substantial difference. 😀

Below are 3 important factors that are absolutely the mutt’s nuts to building up a retirement nest egg.

Income

This is the number one tool to accumulating wealth. You can’t have savings if you never have income. Prioritize finding new ways to make additional income. This could be through a side job. Investment income is another method that requires patiences but ultimately has extremely lucrative results. For example this is what consistently investing in dividend growth stocks for 10 years can do in a bull market. 🙂

Another strategy that usually gives a lot of mileage is to constantly apply for new jobs. Every month make it a goal to send your resume to a few different companies, and follow up with any interviews or feedback you get. The worst case is you decline a job offer with a lower salary than what you’re currently earning. But if you are offered a better compensation package then you’ll receive an immediate raise in your career, either by joining the new company, or negotiating a higher salary with your current employer. 😉

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Apr 122018
 

The ancient philosopher Seneca once said that, “luck is when opportunity meets preparation.” In other words, the more prepared we are the more chances we’ll have to take advantage of opportunities when they come our way. I believe this is true in many ways. But luck is probably a little more complicated than that.

I’ve recently come across a formula created by author Darren Hardy which breaks down luck into all its individual components. According to Hardy, anyone can become more lucky by focusing on this formula. 🙂

The Formula for Getting Lucky

Preparation + Attitude + Opportunity + Action = Getting Lucky

  • Preparation is all about personal growth – improving our skills, knowledge, expertise, and relationships – so we have the tools to take advantage of opportunities when they arise.
  • Having the right attitude or mindset is also important. Hardy says that, we can’t see what we don’t look for, and we can’t look for what we don’t believe in. Billionaire Richard Branson once said, “we are all lucky. If you live in a free society, you are lucky. Luck surrounds us every day; we are constantly having lucky things happen to us. I have not been any more lucky or unlucky than anyone else. The difference is when luck came my way, I took advantage of it.
  • Opportunity is the only part of the formula that we cannot control. Opportunity is when something positive happens that we didn’t plan for. The good news is that fortune comes to us everyday in many different ways, as Richard Branson said.
  • The last part of the getting lucky equation is taking action, or doing something about the situation that is presented to us. This is what separates self made millionaires from the average middle class citizen.

I can vouch for Hardy’s formula because I have seen it work for me. 🙂 I have been very lucky when it comes to my finances. Here are some moments from past blog posts where I expressed my acknowledgement and appreciation for my luck.

I always had a feeling that I was luckier than most people when it came to personal finance and wealth building. But I couldn’t figure out the cause before. Seeing the breakdown of Hardy’s luck formula really makes it clear. I was engineering my own luck all this time but just wasn’t aware of it until now, lol. I think one thing I can do to improve my luck even more is to focus on improving my preparation. 😀 We are surrounded by luck everyday if we look for it. I hope something lucky happened to you recently. 😉

 

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Random Useless Fact

There’s something not quite right with this family tree.