How do you fit everything into one life? (And how do you pay for it?)

It seems like no matter where we are in life, we are waiting for something else. Generally, two things are holding us back from that “something else”. Time and money. But what if we weren’t in debt? Could we pursue the dream job we so desperately desire but can’t afford to take because it’s risky? Do we get mad at our past selves for bad decisions that put our future selves in financial straits?

tumblr_inline_mla13iE9gD1rnvwt1 tumblr_inline_mla13r0XNa1rnvwt1

I struggle a lot with forgiving my past self for getting into so much debt as I told y’all in It’s All My Fault. I know what you’re thinking. “But Erin, you’re amazing! You’re pretty and smart and witty and I accept you as my god.” I know, I know. But sometimes it’s hard to not get down about the fact that I have so much debt to pay off because it’s holding me back from doing things that make me happy. Like having a job where I get to look out the window or moving to Munich.

While it’s hard to deal with how long my debt payoff will take, the time is going to pass anyways. And a year from now, I would have wished I had started today.

How do we find balance in a place that encourages putting work above all else for forty years, then if you make it out alive, you can enjoy your life once your body and mind are in the midst of decline? (Whoa, that was depressing.) Even if we rebel against it, is it realistic for all of us to avoid the rat race? No, it isn’t.

Sometimes it feels like our options are

  • (a) being miserable but with fat savings accounts and the acceptance of society or
  • (b) enjoying your life but barely scraping by and ostracized by society for being lazy.

How do you find that balance that allows you to look back on your life with no regrets?

I think it is crucial that we figure out what we love and we do it. Whether that means it is your day job or something you do on the weekends. Work is not the most important thing. It’s not even in the top five (unless it’s your passion). It’s probably number six for the rest of us because food and shelter is still really important. As is Internet.

I guess that all we can do to create the life we so desperately want is to really look at our lives and prioritize what is important – from both financial and emotional standpoints. If you are mindlessly spending in an attempt to fix something that makes you miserable, you need to focus on cutting out that thing. Whether it be a job or person. Because spending on material things is not the solution, it’s a quick fix that doesn’t last. The truth is, most of us aren’t in need. Survival is not something the majority of us have to worry about. We have the ability to create the lives we want so one day we can look back with no regrets.

As for me, I’m going to continue to plug away at my debt while still not depriving myself of life-enriching experiencesI also pledge today to actively work towards my professional goals and dreams and not accept the status quo. I truly believe I can create a life worth living and come out ahead financially. I guess we will see…

How do you find balance between work and play? Do you ever get down on yourself for going into debt? What’s one positive change you could implement today to start living the life you dream of?

Life Fail: Muhammad Ali Jabbar

Ok, this story on Money Sense’s main page really pisses me off.

I read it when it first came out, and it annoyed me then, but I thought I could get over it. But alas, they’re throwing it in my face every day so I feel the need to address what a dumbass this kid is and how ridiculous it is that the Money Sense writers try to drum up reader sympathy for what can only be described as a classic example of being young & stupid. The guy in the story, Jabbar, is painted as an unlucky student that merely graduated at the wrong time. Now the old people are getting richer and the young people have the odds stacked against them. Boohoo!

What’s that you say, Universe? Everyone has financial obstacles to overcome?

I might be an oddball in the sense that I don’t worry about the market, inflation, or discrepancies in income when it comes to getting rich. While I know those things do have their influence on wealth accumulation, I refuse to regard any of them as any sort of insurmountable barrier that will prevent me from achieving my goals. At the end of the day, what I have is still going to be the product of what I saved — not the era I was born in or what career I pursued.

I don’t feel sorry for Mr. Jabbar. Frankly, he’s a dumbass. He’s not unlucky, he just made the wrong choices and now he’s paying for them. Why the hell did he need $30,000 in student loans if he worked during the summer and lived at home? Why does he have a line of credit at $15,000? Why would you get a mortgage if you are newly graduated and $45K in the hole? Furthermore, given this track record, I bet there’s a credit card or two in there they just didn’t bother to list. These are all bad decisions — though most people won’t see that, since such displays of debt accumulation are commonplace. What we accept as “normal” is our most destructive financial fault of all.

This guy did not get ripped off — the article states he has a good job! His problem is living beyond his means. What he should have done is delayed purchasing a home, and used his working income to pay down his debt and save money for a down-payment. If he did it that way, not only would he have no collections agencies calling him, he’d have been able to put more down on his mortgage and thus reduce his monthly payment. Instead, the poor kid’s ruining his credit score, crumbling under the stress of his obligations, and — worst of all — squandering the years when he could be stuffing his bank account with cash for his future self. FAIL.

Oh, but I bet he has a really nice car!

Investing your money means getting a raise at work

Alternatively titled: why I’m richer than my friends

I’m going to write this entry using a hypothetical example, because it’s the easiest way to get the point across. Also, my entry I’m paid $26/hr to take the bus was the most popular post of this blog so far, so I think do-the-math entries are going to be a regular reader favorite. In this example, I’m using simple numbers and not bothering with tax or inflation because the amount is not the point, the principle is, so please take this example in context to get the most of it!

Let’s say a friend and I work the same job, where we each make $20/hr. However, I save 30% of my income and invest regularly so that it earns roughly 5% (the market still sucks), and my friend skips saving (they’re going to do it later, a la future self) and uses their credit card. Now, to be fair, friend reads my blog so is not drowning herself in debt, but does carry roughly a $2500 balance at all times at 20% interest, costing her $500 per year.

So friend earns $800 per week, 50 weeks of the year giving her an annual income of $40,000. Then she pays her credit card interest of $500, bringing her net take-home pay down to $39,500. That amount divided over her work hours now only makes her $19.75/hr. Seems trivial, right? Maybe, it’s only a 1% pay cut after all.

Hold on!

I also net $800 per week, 50 weeks per year giving me $40,000. But I invest 30% of this, which is $12,000 at 5% return, and this earns me an additional $600 every year. Now I actually make $40,600 per year, which works out to $20.30/hr — fifty-five cents more per hour than my friend makes for the same job.

But wait, it gets better…

Let’s say we do this for 5 years. Friend keeps from increasing their debt, so is still paying that $500 per year in interest — good for them for not digging the hole any deeper. Unfortunately, their wage is still working out to $19.75/hr. I on the other hand have continued to invest $12,000 per year and after 5 years with compounding interest is now over $60,000. This $60K+ earns over $3000 per year in interest, boosting my income to $43,000 which is about $21.50/hr — now $1.75 more per hour than my friend makes, even though we continue at the same job. My extra $1.50 per hour nets me the same as if the company had given me a 7.5% raise, meanwhile poor friend is still at her 1% pay cut.

So will it be easier for me to save for a down-payment on a home? Yes. What about retirement? Yes. Go on vacations? Yes. Cope with an emergency? Yes.
Why? Because my money is already doing some of the work, so there’s less pressure on me to fill on the gap between where I’m at and what I want to achieve.

If my friend wanted to match my total income — earning an extra $3500 — she’d have to work an additional 175 hours or approximately 4 weeks to do it. In this scenario, this isn’t even possible since she’s already working 50 weeks of the year! Poor friend.

Alternatively you can look at it in reverse: I can take 175 hours off work and make the same salary as my friend. Yes, friend would work 50 weeks of the year and I would only have to work 45 for the same income. Furthermore, because I’m already used to saving such a significant portion of my income in the first place, I probably wouldn’t even feel the pinch — I wouldn’t even have to stop saving!

The lesson here is the classic mantra, “a penny saved is a penny earned”. When your money is in savings & investments, it’s not sitting there doing nothing, it’s working for you. I encourage everyone to stop spending needlessly and give yourself a raise instead!

Procrastinating to Future Self

Procrastinating to future-self is my personal pet peeve. It’s also a student’s — or any young person’s — token method of waging financial war against themselves. It’s the easiest justification for exorbitant spending because we all think that when we’re graduated and gainfully employed, we’ll be able to pay it all off.

Now, that is probably true, but there’s a good chance that future-self will be a little bit pissed that so much of their disposable income has to go towards past-self’s poor decision making. $500 or $1000 will still be a lot of money 5 years from now, regardless of what you’ll be earning. Trust me, your future-self does not want to make a dozen extra student loan payments because you spent two spring breaks in Mexico. Future-self probably has their own vacations they’d really like to put that money towards.

There seems to be a large disconnect between present and future selves. I’m not sure if this is the direct result of our desperate desire to fulfill immediate wants, or because it’s difficult to picture oneself in such unfamiliar territory as the future, let alone determine a way to make that future as nice as possible. Being a cash-strapped student can make you feel like anything will be better than your current financial situation — which, ironically, tends to ensure you’ll make it a whole lot worse. It’s important to remember that future self is YOU, and you’re the only one looking out for their financial well-being. If you’re screwing yourself over, you’re going to be the only one responsible for picking up the pieces later, no matter how many of your friends helped you spend that money along the way.

I loathe hearing people procrastinate to future self. They’re all going to save later, make more money later, put money away for retirement later, pay off their debt later. I have no idea why anyone imagines themselves as a savvy saver with their investments under control and their debt gone in a few years if they don’t have the habits ingrained in their behavior now. The reality of the matter is, wealth isn’t nearly as dependent on what you earn as it is on what you spend, and no amount of income is going to transform you into a person with new financial habits. Becoming debt free and saving money is a decision you make, not a product of your paycheque. Furthermore, such financial security is accessible to everyone at almost any income, so there’s no excuse for any delay.

Why not cut future-self some slack? Instead of saddling them with debt, make sure they have a few grand tucked away. Future-self is older and wiser than you, trust their judgment when it comes to spending your cash.

Today I put away $1056 for retirement

Just kidding… sort of. Let me explain:

I turn 25 this month, which puts me 40 years away from “retirement age”. I put that in quotations because I actually think our increased lifespans will encourage bumping that age 65 up to 70+ in my lifetime. Also, the idea of me ever getting old is a laughable thing I can’t really picture, even if logically I know it’s going to happen eventually.

So I’ve been saving money for about two years now, but none of it was earmarked for retirement. I have some mutual funds that were sort of kind of in my mind for this purpose, but I might like to use those for other significant grown-up investments, like a home. Consequently, I needed a solid back-up plan so my 20 year old self doesn’t screw my 60 year old self over. Enter: RRSPs.

I’ve been hesitant about RRSPs for awhile, which is why I never bothered to start one up. I worried that I might just get a job after school with a great employee-matching program. I also considered that the contribution was completely useless as far as taxes go because my income is so small. Lastly, I just straight up felt I had so much time because I am so young, and I thought maybe this was something future-Bridget could manage later.

After all, I actually don’t spend any time thinking about when I’d like to retire from my career — I’m still trying to decide when I’d like to start my career, and what that career will be. I didn’t calculate how much I’ll need in retirement and I didn’t even bother to check how much I should or need to save. Like my other investments, savings for retirement is something that will come up for re-evaluation when I have a change in circumstance, income or lifestyle. I can always contribute more but for now I figured I just needed to get over the hurdle of starting an account. I’ll be honest and tell you I wasn’t all that motivated until I actually did the math. Then I realized that, not only can I spare a few bucks in my monthly budget for this purpose, but that now is the best time to put that cash away.

Check this out:

The sooner you start saving, the more time your money has to grow. I opened my new RRSP account with $150. If we assume very conservative growth (the stock market will recover someday, right? maybe?) at only 5% per year, that $150 will cash out at $1056 in the year 2050 — even if I never make another contribution. Sure, $1056 isn’t much and probably worth even less in 2050, but it’s way more than the $150 it took to earn it.

Furthermore, the sooner you start, the less you have to save. Maintaining my $150 per month contribution for each month until I’m 65 will bring me over $385,000 at the same conservative 5% growth estimate. If I wait 5 more years, and don’t start my RRSP until age 30, I will only get $293,000 with the same contribution and return. Yes, you read that right: the latter half of my 20s is worth nearly $100K — yours is too!

Anyway, I feel I’ve made the right decision for right now. I know I’m not maxing out my contribution room, but I actually can’t do so on my income and with taxes that’s not the best use of my money (stick with the TFSA first, always!). If an employer-matching program comes along in my future or a better place to stash my cash appears, I’ll stop my contributions and switch. In the meantime, I feel a tremendous peace of mind knowing that I get to have my fun now AND have something for retirement too. Future-Bridget thanks me also, I’m sure.

I also get to feel just a little bit more grown up, which I get the impression is something turning 25 asks more of.