Yoga Makes You Wealthy

Here’s some news to light up the BuddhaMoney smile: in less than two months of blogging, BuddhaMoney has cracked the top 100 of…

Here’s some news to light up the BuddhaMoney smile: in less than two months of blogging, BuddhaMoney has cracked the top 100 of personal finance sites [http://blog.feedspot.com/top-50-personal-finance-blogs-wor…/], debuting at #88.

Well, we could not be more humbly appreciative of all our enthusiasts who are spreading the good BuddhaMoney word about how to achieve Balance and Wealth. Thank you.

And now, back to our regular feature …


Yoga Rocks!

Yoga is trendy. Yoga is fashionable. Everyone is into yoga! You do practice yoga, don’t you? Oh my goodness! You’ve never stood on your head, pretended to be a tree, or pretzled yourself into Gumby worthy contortions? How is this possible?

Well, you must, you absolutely must try yoga if for no other reason than the clothes. Have I mentioned the clothes? Oh, the outfits you can buy! They’re reason enough to join a yoga studio. The fun part is that you get to spend silly sums of money on insanely over-priced tops, shorts and pants stamped with the corporate brand identifier of your choice. And the brand, naturally, tells us to which group you belong, reveals your status, and informs others what they should think of you. Wearing the right brand in itself is enough to get endorphins flowing and make you feel good. Never mind you’re blowing up your monthly budget and setting back your wealth achievement goals. See what I’m saying? What’s not to like about yoga?!

Breathe In … Breathe Out

Uh oh. Right off the top, I’ve slipped into sarcasm. Was that necessary? Hmm, maybe it’s best if I take a time out here, and defer to my wise friend who will calmly, rationally, tell you a little something about the true meaning of yoga:


unknown

Enter Buddha

Expansion of awareness is the primary goal of yoga. As consciousness expands, so does our ability to deal effectively with the concerns of everyday life.


Right. And one such concern is money, which allows for putting a roof over your head, food on the table, and reasonably priced clothing on your body: the necessities. In a moment or two or three, I’ll talk more on this point, how yoga leads to expansion of awareness that, in turn, leads to increased personal wealth. But first, I’m getting the shoulder tap again:


unknown

Enter Buddha

The yoga tradition acknowledges the realities of material existence. In this regard, yoga encourages us to skillfully cultivate all four components of a fulfilling life: spiritual growth, meaningful work, pleasure, and prosperity.


A Visit to the Nunnery

Some eight years ago, I attended my first yoga class. The type of yoga being taught was Hatha Yoga: a gentle system that includes yoga poses and breathing exercises designed to bring peace to the mind and body.

Class was held in a room located in a wooden building home to a nunnery. A perfect setting, with the quiet spiritual element evident immediately upon entering.

There I was in my no name sweatpants and t-shirt. Feeling out of place, I intently watched the soft-spoken teacher for clues as to what I should do next. She would perform each pose and explain what we should be doing, how we should position our hips this way or move our torso that way.

The different poses we went through made me feel like I was playing a one person version of Twister, marketed in the 1960s (ya, I know, I’m going way back here) as ‘the game that ties you up in knots’.

Struggling to imitate the teacher’s movements, and increasingly confident that I had no idea what I was doing, I welcomed the announcement to lie on our backside for the final pose, Savasana.

We were instructed to place hands away from our body, feet shoulder width apart, and eyes closed. Within maybe 30 seconds, I felt the sensation of my body sinking into the ground. I was so, so, so relaxed.

My body limber, mind quiet, no stories bouncing around my head, no thinking about past events or planning for the future. I was purely focused on the moment without even trying. It was a strange and awesome feeling. This, I imagined, is what inner peace feels like. How nice.

After class ended, I watched others press the palms of their hands together in front of their heart, then approach the teacher with gracious words of appreciation for her instruction. I did the same.

And ever since my first and only yoga inspired nunnery visit, I’ve made practicing yoga a part of my life. Because I thoroughly enjoy the unbelievably peaceful feeling that consumes my mind and body both during and after each class, improved flexibility and posture, muscle strength, deeper sleeps … the benefits go on and on.

Expanding Awareness, Building Wealth 

Okay, fine. Good for me, you may say. But how exactly does yoga make you wealthy? Do yoga teachers freelance as money managers, offering stock market tips after class? Ha ha, hilarious.

Here’s the thing: practicing yoga is all about nurturing positive mental energy. Enhancing clarity. Sharpening focus. Taming disruptive emotions. Cultivating discipline.

When we walk this kind of path, we expand our awareness. And expanding our awareness means we better understand what is coming at us, be it our own thoughts, our emotions, other people or circumstances. Then, we find greater balance. Our judgment improves, we make smart decisions, we are better positioned to deal with everyday life, including investing and money management issues.

Now, I’m not saying that balance cannot be found through other activities. Of course, there are a thousand and one ways to find balance and if you have found one or more, then good for you (please share your stories on Community Forum).

I’m just saying that yoga helps me stay grounded, helps me bring my best game to investing and money management. Meaning, I make calm, rational decisions about my holdings. I do not react impulsively. I do not get caught up in stampedes when markets are whip sawing one way or another. I do not panic when recession strikes, stock market falls off a cliff and my statement shows a whopping decrease in value of my portfolio. I objectively review information, assess the big picture (i.e., macro-economic climate and company specific fundamentals) and make decisions in a patient manner, keeping the long term in mind.

Retroactive Justification

Oh, and, you know that sarcastic diatribe I started this post with? Well, in the spirit of full disclosure, I have to admit that I did buy a pair of $75 yoga branded shorts. That said, I’ve had these same shorts for more than five years, they’ve seen many a yoga class, and they’re still in one piece. So, I’m retroactively justifying this purchase based on the value I’ve received from the shorts ($75 for 5 years = $15 / year). Ahhh, the power of rationalization! Well, while I aspire to be more like Buddha, for now I have to deal with the challenges of my own humanity. Namaste!

Build Wealth. Buy Real Estate.

My grandmother (let’s call her NaNa), a shrewd businesswoman with a big heart, invested her family’s minimal excess income in real estate.

She started by buying a duplex. Her family lived in one part of the duplex and rented out the other half. Rental payments covered her mortgage, general expenses, and allowed for a bit of extra cash. Maintenance costs were held to a minimum, as my grandfather took care of repairs.

In time, NaNa saved enough for a down payment on a second duplex. With much of the rental income being deposited into a savings account, she soon had enough to buy a third property. Eventually, the family was rewarded the luxury of not worrying about taking care of their basic needs.

Nana Teaches The Son

Ever a keen and interested observer, my father learned from NaNa. She taught him a whole lot about property investing, including:

  • What issues to consider when evaluating a potential purchase.
  • Benefits of maintaining a property’s value.
  • Importance of being fair and respectful to tenants.
  • How to draw a budget.

Having the advantage of NaNa’s tutelage, a university education, and an extraordinary work ethic matched by ambition, by the time my father reached middle age, he had assembled a decent-sized portfolio of apartment buildings that he referred to as his retirement fund.

And all of this was accomplished in his spare time, outside of regular work hours. That’s just who he was. Some people play tennis for fun, others get their kicks out of working, building, creating.

The Next Generation Adds A Twist

In my late twenties, starting to accumulate savings, I considered following in my father’s footsteps and buying apartment buildings as a way to build wealth. But I didn’t. Not because I didn’t want to but because the cost of apartment buildings had rocketed out of my financial league.

Small, independent property owners like my father had been bought out by deep-pocketed corporations who owned and managed thousands of rental units across the country. These corporations are known as Real Estate Investment Trusts (‘REIT’).

The Beauty of REITS

Instead of taking on the risk of a huge mortgage to finance the purchase of an investment property, and spending time learning the nitty gritty of property management, I turned to REITs as a way to dive into real estate investing. But before I chatter on about why REITs are an excellent investment, one worth getting to know better, I’d like to offer a few chewy bits about this asset class:


Chewy Bits

  • A Real Estate Investment Trust (short form: REIT, rhymes with ‘eat’), is a company that owns or finances income-producing real estate.
  • Most REITS trade on public stock exchanges (i.e., New York Stock Exchange; Toronto Stock Exchange).
  • REITS are income oriented and usually offer a higher dividend yield than most common stocks (the income component is one part of their attraction).
  • REIT shareholders earn a share of earned income, and participate in capital gains (yahoo!) or losses (boo!) just as with any other company trading on a stock exchange.
  • Commonly, REITS have a specific focus, such as apartment buildings, hotels, industrial facilities, office buildings, retirement homes, shopping malls, storage centers and student housing.
  • REITs typically provide investors with a monthly income stream; most paying dividends anywhere between 2.5% – 9%.
  • Think of REIT investing this way: the monthly dividend you receive is like collecting rent without the attendant headaches of managing your own property. Really, after you click to buy the REIT stock with your online broker, you can just sit back and watch your monthly dividend be deposited into your account each month. Sweet.
  • Since 1991, as a group, U.S. REITs have outperformed the S&P 500, 11.2% to 9.1%.
  • REITs are not highly correlated to the price of stocks and bonds. Meaning, since the price of REITS do not necessarily follow stock or bond market movements, they may play a part in smoothing out portfolio volatility.

For all these reasons, you may want to start a love in with REITs, in the wealth building sense that is. Ahem. That said, know that, like other asset classes, the finance gods did not create all REITs equally.

Hint, Hint: Be patient, and diligently research which REITs are a good fit for your portfolio.

Apartment Building REITS

Personally, I’m a big fan of Apartment building REITS, and not just for sentimental reasons. Rather, my crystal ball brings up images of a North America that is heading in the same direction as some Western European countries, where home ownership is much less prevalent.

Look at Switzerland, with home ownership at 38%, Germany at 41%, France at 55%, compared to about 68% in the US and Canada. Why the difference? Because property is so, so, so expensive in these countries that most people cannot afford to buy. And for a good percentage of those who do own a home, it was passed on to them by their parents, or grandparents or great-grandparents, etc.

So people rent. And that’s just fine. In European countries, there is no stigma to renting like there is in some pockets of North America where ‘the dream’ of home ownership in a white picket fence neighborhood is relentlessly marketed to us by the usual suspects: banks, mortgage lenders, home builders.

Not to mention the social pressure we feel from friends and family (after all, we are encouraged to live our life in a similar if not the same manner as those who came before us). And, our own dark angel contributes to the desire for home ownership: the human propensity to covet thy neighbor.

Now, this isn’t to say that there are not thoughtful, legitimate, excellent reasons for owing a home such as:

  • Control. The house is yours. Do whatever you want with it, repairs, renovations, etc.
  • Stability. Unless you go into default on your mortgage, no one can force you to move.
  • Capital Appreciation. You benefit from any property value increase.
  • Forced Savings. Each mortgage payment gives you more equity in your home. Especially important for those who are challenged in the … I Really Don’t Want to Think About Investments Because It Hurts My Brain department.

Okay, so you see, I’m not anti-homeowner. Not one bit. To borrow a phrase from two creatures who live with me known as ‘teenagers’, I’m ‘just saying’ that renting is a viable alternative, sometimes a preferred alternative depending on several factors including how pricey property is in your town.

And as property values continue to increase, outrageously in some urban centers such as San Francisco, Vancouver, Manhattan and Toronto, more people turn to renting. The result being that apartment buildings maintain high occupancy rates, which is good for apartment building REITs, and puts a smile on the face of REIT shareholders as they reliably collect monthly dividend payments.

Crunch, Crunch, Crunch the Numbers

My friend, Condo Lover, doesn’t agree. He says the better investment is a condo that you rent out. With a small down payment and mortgage financing to cover the balance of the purchase price, you’re now the proud owner of a condo.

But you don’t live in the condo, you rent it out. The rent payments cover your mortgage, maintenance and repair costs, and property tax. If you’re lucky, there’s change left over for spending money. So cash flow to cover condo costs isn’t a problem, and you sit and wait until property values increase to the point where you can sell the condo and cash out a sizeable capital gain.

I get it. I see the potential benefits of buying a condo as an investment. But if the condo is used solely for investment purposes, not as a second home, then I would take a pass.

Here are the primary issues, and the risks, I see:

  • Assuming I don’t have enough in the kitty to pay all cash for the condo, I’m taking out a mortgage. What if I can’t find a solid, upstanding tenant who pays their rent on time each month, or who pays their rent at all? Will I still have enough to cover mortgage payments?
  • If I’m going in with my eyes open, I’m factoring in repair costs, general maintenance, property tax and increases in property tax. Ideally, a steady stream of rent checks pays these expenses. But what if they don’t? Do I have other resources to cover expenses?
  • What if I want to sell the condo but the real estate market is weak, the timing of sale is unknown, and I have to drop my asking price, possibly taking a loss? Am I prepared for this scenario? Could I absorb the financial hit without breaking stride?

Compare this to being a property owner via a REIT. I buy shares in the REIT with cash held in my investment account. I don’t borrow to pay for the purchase.


Chewy Bit

Buying on Margin. This is an investment term that means you pay for a certain percentage of your stock purchase and borrow the balance owing from the investment brokerage. DON’T DO THIS! EVER! Leave buying on margin for the speculators. It’s not for reasonable investors.


As a REIT shareholder, I don’t have to worry about bad tenants destroying my property or not paying any expenses associated with the property. And when it comes time to sell, well, I only buy fundamentally sound REITs, meaning there is always a liquid market (i.e., sufficient volume of buyers and sellers), so I can sell any time I like. I collect a monthly, purely hassle-free dividend (amount of dividend dependent on the individual REIT), and if I purchased a REIT when it was out of favor (i.e., price was down; we here at BuddhaMoney love buying investments on sale), there’s the opportunity for capital gain when I sell.

Now, tell me, what’s not to love about REITs?

Frugality is Over-Rated

First off, let’s get this out of the way: ‘frugal’ and ‘cheap’ are two different animals. A ‘cheap’ person (known by the scientific name, Cheaposaurus) is single-mindedly focused on spending as little as possible without regard to other costs or benefits (i.e., value, quality, time). As for someone who is ‘frugal’ (otherwise known as Homo Frugalis), think of them as an evolved Cheaposaurus.

Darwin’s Theory of Homo Frugality

Similar to Cheaposaurus, Homo Frugalis (HF) also watches spending and likes saving money but – and here’s the leap up the evolutionary ladder – these folks possess an advanced brain capable of processing a big picture, holistic view of money.

Meaning, low price alone does not determine what to buy or whether to buy. Rather, infused across the synapses of each spending decision are thoughts of whether the intended purchase lines up with personal values.


Enter Buddha

Between the extremes of indulgence and denial lays a path known as The Middle Way. This is a path of moderation; one that brings freedom and wisdom. Homo Frugalis consciously lives The Middle Way, striking a prudent balance between spending and saving.


Okay, let’s get more specific here and convert spiritual proclamation into a real world example.

Cutting the Cord and Loving It

Three years ago I cut the cable cord, figuratively speaking. My kids would click through tens of channels, complaining that there was nothing good to watch. When I stepped back and actually listened to their complaints, and considered that I rarely watch television, this allowed the proverbial light bulb to click.

Then I asked myself: why am I paying close to $1,000 annually for cable (do the frightening math – that’s $10,000 over 10 years!) when it’s hardly being used and certainly isn’t needed? The next day I informed the kids that I would follow through on my frequently invoked threat to get rid of the aptly named idiot box.

After allowing the kids to free fall into panic and various states of contortion for several minutes, it was then revealed that I, Maker of Rules of the Home, would allow Netflix to satisfy the all too common craving to sink into a passive vegetative state. The new cost for gluing eyeballs to screen: $9.99 per month or about $120 per year.

In shaving the cost of home entertainment by 90%, was I being cheap? Would I now be slotted into the category of the lesser evolved Cheaposaurus, knuckles scraping ground and all? Well, if I truly enjoyed watching shows on cable television and the only reason I cut the cord was to save money, then I would rightfully be relegated to roaming among my Cheaposaurus brethren.

But if I loved watching one or more shows aired on cable television, or let’s say that my job required me to review a variety of television shows, then a cable subscription would certainly have more value for me, the cost may be justified, and I could make a fine argument for maintaining HF ranking.

That said, cable offered me little value. And total cost (aside from dollars) was excessive because product quality was judged poor (by all supremely qualified judges in our household) and was of marginal importance (read: value).

So now, every year I have $900 more in my pocket that may be put toward savings and investments or spent on items that align with my values, safe in the knowledge that my knuckles comfortably rest a few feet from the ground. And that makes me happy. Knowing that I’m giving thought to how money is being spent, that I’m maximizing savings, not wasting money, and moving forward toward my financial goals.

Homo Frugalis Splurge

  • Clip coupons? Good for you. Take in $10 worth of coupons to the grocery store once a week for 52 weeks and you’re looking at an additional $520 to your name.
  • Bringing lunch to work? Then you now exactly what you’re eating and are likely eating healthier (feeding your brain leafy greens has been known to increase investing prowess, according to my unscientific study). Oh, and saving money. Right. Lots of money. If an inexpensive lunch on the town costs $10 and you’re dropping that money 5x/week, thats $50/week. Stretch out the work year to 48 weeks (hey, you have to take breaks, vacations, they’re good for the soul) and we’re talking $2400/yr. Sure, you’ll spend money on groceries that are used for lunch but not nearly as much as you will spend eating out.
  • Make coffee/tea at home and not buy $5 coffee concoctions at the local café? Let’s see … 30 days per month, one cup of coffee/day @ $5 works out to $150/month or $1800/year. Hmmm.
  • Bottled water. Even if saving the environment isn’t your thing, think about the savings to be generated for funding your financial freedom by buying your own water bottle and filling up at home. Give or take $20 for a good stainless steel water bottle that should last many years versus $2.50 for store bought bottled water times say 10 bottles/month = $25/month or $300/year.
  • How about growing your own food in a garden? I assure you, the taste and nutritional benefits of garden grown food is so, so, soooooo superior to store bought fruit and vegetables. And, of course, with the California drought five years in the making and counting, fruit and veg costs are only going up.
  • Maybe you prefer to dry clothes on a laundry rack or outside on a line instead of a drying machine. Good for you. Cut down on your power bill. More money for you. Kudos!

All of the above activities, and this is just a teeny, tiny, sampling of ways in which to reduce your spending, build your inner wealth (because your activities align with your personal values) as well as your material wealth (through more savings).

And the bonus is not only more money for you to invest, build your wealth, and get closer to your goal of financial freedom, but more options for splurging once in a while.

Splurge?

Can I do that?

What about staying true to frugality, true to the HF tribe?

Ach! The BuddhaMoney way is about balance, moderation, the Middle Way. Yes, frugal is good. Yes, fewer expenses is good. And yes, you can splurge once in a while. It’s not a crime and you will not be ex-communicated from the HF tribe.

In fact, you will be celebrated! Because HF folks live a conscious, balanced life, they align their actions with their values and their budget, which leads to a general sense of well-being and gosh-darn-blow-your-horn-the-sun-is-shining-life-is-good-happiness.

So if you want to buy that fancy shmancy pricey new camera, gemstone earrings, or front row seats to a show by your favorite performer, go ahead, do it! And feel good about your spending because you’ve earned it by making little changes in your lifestyle, by cutting out the fat in your budget, and by deepening your pockets and your spirit at the same time.

Avoid Silly Car Rental Fees

In late summer, my wife and I flew into San Francisco airport where we rented a car and drove north of the city on Highway 101 for ninety minutes to a charming rental cottage located just outside of Point Reyes National Park in Marin County, a stone’s throw, and a deep, exhilarating inhale from the Pacific Ocean.

If you haven’t visited this part of the USA, and you appreciate nature, well, it’s kinda super fantastic beautiful. The morning fog, rolling grassy hills populated by cows and horses and sheep doing their Zen meditation, imposing Redwood and Douglas Fir and Garry Oak trees, wildflowers, farmland, ranches, coastal grassland, hiking trails, beaches, along with friendly, easy going locals made for a peaceful, hugely enjoyable experience.

And all this phenomenal nature was an added bonus to the primary purpose of our trip: to further our learning and understanding of meditative practice and, in the process, our self. For this, we participated in classes and talks at Spirit Rock Insight Meditation Center in Woodacre, a pleasantly slowwwwww fifteen-minute drive from our cottage on a two lane winding road. Oh, and in case you’re wondering, the rental car, it operated just fine.

Blowing in the Wind

Right, the rental car. When out of town and in need of a car, I typically rent a compact or sub-compact vehicle depending on how much highway driving I expect to do. If I’m mostly keeping to city streets, I’ll rent a sub-compact because the rental and fuel cost is lower. But if there is more highway driving expected, then I’ll go with a compact. Though the rental and fuel cost is higher, the difference is usually negligible. Having driven sub-compacts on the highway and feeling the car being pushed from side to side by the wind or  a draft created by a semi-truck passing, I justify the added expense of a compact by factoring in the security I feel (whether real or imagined) in a larger, heavier car.

My Not So Excellent Rental Car Experience

Okay, let me now tell you about my rental car encounter which, I’ll take a wild guess here, is not much different from the experience of many other people. In an attempt to provide you with the full effect, I’m thinking I’ll try to re-create the dialogue, not all of it, but the parts that illustrate why we consumers need to stay on our toes when renting a car, otherwise it will cost us:

Rental Car Guy: “Now, Mr. BuddhaMoneyLama, let’s talk about the insurance you need.”

BML: “Need? What do I need? Who says I need insurance?”

Rental Car Guy: Well, sir, I could not recommend more strongly that you be fully insured for accidents causing any damage to the vehicle and/or injuries to you that result in medical costs incurred by you and/or passengers in the vehicle; theft of the vehicle or any belongings inside of the vehicle; or damage that the vehicle may cause to other persons and/or their property.

BML: “Thank you but I’m covered.”

Rental Car Guy: “You are fully covered?”

BML: “That’s right, fully covered.”

Rental Car Guy: “What are you covered for, sir?”

BML: “What am I covered for? All the things you just recited.”

Rental Car Guy: “May I see the documentation?”

BML: “What documentation?”

Rental Car Guy: “The insurance documentation of course.”

BML: [slightly bewildered] “Why do you need to see the documents? I just tick a box that says insurance declined and that’s that. Who carries car insurance documents with them when they travel?”

Rental Car Guy: “Unless you can prove that you have coverage, then you have to buy insurance.”

BML: “Since when?”

Rental Car Guy stands there, not saying anything.

BML: [fatigued from travel, impatience rising despite efforts to maintain balance] “May I speak with your supervisor?”

Rental Car Guy: [looks down at computer for several seconds, then resumes eye contact] “Oh, you know what, it looks like you’ll be fine without documentation. As long as you’re certain that you have insurance for all possible risks.

BML: [Rental Car Guy’s unrelenting sales pressure has the desired effect, causing me to doubt myself. Am I covered? My home insurance broker told me I’m fully covered? But what if there’s some risks I don’t know about? Maybe the safer bet is to pay the extra money and buy their insurance? Nah. Rental Car Guy is doing his job by messing with my head and he’s good at it]. “I’m certain. May we move forward please?”

Rental Car Guy: “Sure. If you’ll just sign here, initial here and here, and sign here, oh and here, and don’t forget to initial here and there, and sign here … all of which indicate that you are fully and completely responsible for any loss or damage to the vehicle, all vehicle contents, and injuries to yourself and passengers in the vehicle.” [he says in a grave tone, trying one last time to touch my emotional insecurities, expecting this will cause me to seek safety under the insurance umbrella]. Alright then, now, if you’re traveling over the Golden Gate bridge, you will want to buy a pass to avoid paying the toll charge.”

BML: “What does that cost?” (Unfortunately, I didn’t do my homework on this before arriving).

Rental Car Guy: “$49 for the duration of the car rental.”

BML: “At most, we’ll be traveling over the bridge twice. That will cost $49?”

Rental Car Guy: “That’s right.”

BML: “Seems a bit pricey. Are there any alternatives?”

Rental Car Guy: “This is the recommended alternative.”

BML: [Oy! I think but don’t say. You have to keep pushing these people to get information] “But there are alternatives?”

Rental Car Guy: “You may pay online. Just go to their website.” [Rental Car Guy, sensing he is losing the sale, is not entirely helpful, and does not offer the website address until I push for that as well].

BML: “What’s the one time crossing rate?”

Rental Car Guy: “$7.50”.

BML: “Then why would I pay $49?”

Rental Car Guy: “It’s a matter of convenience and planning for the unexpected since you don’t know how many times you will cross the bridge.”

BML: “I already told you: twice. At most, we will cross the bridge twice.” [tiring of the game, my frustration percolated to the surface].

Rental Car Guy: “Then you would like the pass?”


Enter Buddha

Patience is the antidote to aggression. If you experience the feeling of aggression and act upon it, aggression will escalate and you will hurt your self and others.

When you are patient, you are smart. You stop and wait. You remain quiet because your words and actions will reveal an aggressive state of mind.

There is no need to criticize or blame Car Rental Guy; he is simply doing his job. Recognize this and try to let go of the fact that these moments are not transpiring as you would like; you do not need to resolve this encounter according to your agenda. If you practice patience, aggression will dissipate and you will no longer suffer.


BML: [Yes, I do hear Buddha’s voice in my head at times. So I did my best to be patient and kind] “No, thank you.”

Rental Car Guy: “Alright. We’re almost done here. Just have to ask you about gas. Would you like to prepay for a full tank of gas? This way, you don’t have to concern yourself with filling the tank before returning the car. If you do not choose to prepay, then you should return the car with a full tank. If we have to fill the tank, then you’ll pay a premium, typically a few dollars per gallon above the going rate for gas.”

BML: “So I’m clear here, if I choose the prepay option, no matter how much gas is in the car when returned, it could be near empty or half full or anything else, I’m charged for a full tank now?”

Rental Car Guy: “That’s right.”

BML: [The advantage of agreeing to the prepay option is the peace of mind I get from not having to run around looking for a gas station before returning the car to the airport, especially if we’re running late. The disadvantage, odds are I will not return the car with an empty tank. If the tank is empty, all is good because I’ve paid for the gas I’ve used. But if there’s gas in the tank, it’s like leaving money on the table because I’ve paid for that gas and will not use it, which is a bonus for the car rental agency. With Buddha still whispering to me, I said …] “No, thank you.”

Rental Car Guy: “You’re sure about that, sir? You do understand what the cost will be if you do not return the car with a full tank?

BML: “Yes.”

Beware High Pressure Sales Tactics

It’s the same high pressure sales tactics with car rental agencies every time I rent a car. Usually, I know what to expect and decline their numerous offers with a smile. This time, however, I was thrown off my game by Rental Car Guy asking for insurance documents and whether I would purchase the bridge toll pass. Oh well, I learned and I’ll know for next time.

And, just in case you’re wondering, the car was returned with a full tank. On the downside, we did cross the Golden Gate bridge twice but forgot to visit their website to pay the toll. Cameras being everywhere, snapshots were taken of our license plate number and, a few weeks later, we received a notice in the mail from the car rental agency stating that they charged my credit card a total of $15.00 for the two toll crossings. Though I wasn’t thrilled with the extra charge, my post-vacation, post-meditative mindset allowed me to say, ‘oh well’. For my next visit, I’ll be better prepared.

The Extinction of Financial Advisors

It was raining. Nothing torrential; more like gentle spitting rain. This was last month, December, and accompanying the rain was the cold. It was chilly outside, moreso as Hiker Friend and I made our way up a small mountain (there’s no shortage of these geological marvels in the Pacific Northwest).

The higher we climbed, the deeper the purple shade of my hands. Ach, so what, I thought. So what if my extremities are being drained of blood? If my fingers are becoming stiff and immobile? Small price to pay for being outside, in the forest.

Forests are amazing. Losing your self (or finding your self) in nature, craning your neck to gaze up the length of 150 foot tall Fir trees, being mesmerized by sounds of gurgling water flowing through narrow creeks, smiling at the sound of harmonies sung by Robins, Finches and Stellar Jay birds, and all the while chatting with Hiker Friend. We shared thoughts and ideas, discussed the happenings in our lives, the good, the challenging, the downright mind boggling hold your head and run away screaming, and the not so trivial matter of whether feeling would eventually return to my fingers. Gloves, we both agreed, would be useful.

That’s the way it is with friends. You listen to each other, you share stories, you connect, empathize, sympathize, support, joke around and laugh. No airs, no trying to be a certain way, no costumes, no masks. You get to be your self, your whole self, and you get to be accepted for who you are. Unconditional acceptance, letting people be as they are, not trying to bend anyone in your direction … this feels good, feels right, and it’s a recipe for minimizing needless conflict, leading to more happiness.

We need friends. They keep us healthy. They enrich our social/emotional life. They give us financial advice? They …

What? Excuse me? Pardon? Huh? Did you say financial advice?

Whoa! Guess I got carried away there. Friends and money, it’s a difficult topic for most, similar to religion and politics where it’s best, for the sake of the friendship, not to go deep, or even not to go there at all, if you are not of like minds. If you do want someone to bounce ideas off of, or someone to guide you through the crowded financial arena, then it’s best to hire someone in the business.

Financial Advisors Are Not Your Friend

First off, let’s get something straight. A Financial Advisor (FA) is not your friend. A FA is, or should be, a professional money manager, someone with whom you have a business relationship, someone who provides objective advice when looking out for your best interests AND making money for you.

Why am I insisting that a FA is not your friend? Because I’ve known too many good people who pay good money for the services of a FA who doesn’t get the job done. These good people complain of poor portfolio performance, shrinking nest eggs, delayed retirement owing to investment losses … but refuse to end the relationship.

Instead, they choose to grin and bear it, to shrug, to suggest there is nothing that may be done to improve the situation (Hello? Hello? Keeping your head in the sand only serves to make the problem bigger). When, trying not to show my exasperation, I ask why they don’t end ties with FA, the most common response is, ‘well, he/she is a nice person and they are doing their best’. Agh! Really? Really?! Come on people, time to step up and take the reins.


Enter Buddha

You have entrusted someone to care for you and your money. This money represents your financial security, mortgage payments, children’s education, future retirement, financial freedom.

If you and your money are not properly cared for, not properly nurtured, then you suffer, your family suffers.

Though he/she may be sympathetic to your loss, the FA will not otherwise suffer. In fact, no matter how poorly your portfolio performs, the FA earns money from you. For performing poorly at his/her job.

Though you may rightfully extend empathy, the FA is ineffective and, as a result, is causing you harm. Your primary responsibility is to remove your self from harm’s way, to care for your self and your family.


Well said, oh wise BuddhaMoney.

Here’s the takeaway: Do not, under any circumstances, make your relationship with FA personal. Recognize the boundary dividing personal and business, and don’t cross it.  And if FA is not doing the job they were hired to do, then for your sake, for your family’s well-being, end the relationship.

Should You Hire a Financial Advisor?

The most common reasons why people hire a FA include:

  • No time to manage investments.
  • Would rather pull your own teeth than spend time thinking about investments.
  • Lack confidence in ability to choose suitable investments.
  • Believe that someone else will do a better job than you.
  • Not being taxed with the responsibility translates to less stress, more balance.

For those of you who tick the box next to one or more of the above worthy reasons, then a FA or a Robo-Advisor (welcome to the 21st century – keep reading, more discussion and explanation follows) may be suitable for you.

If you do choose to hire a FA, please, please, please take your time, be cautious, and do your homework before hiring someone to care for your hard earned life savings. Like any occupation, you have good and bad apples. Unfortunately, the FA occupation has ridiculously low entry hurdles as far as background, education, and credentials are concerned. So, in the FA universe, you have qualified FAs working alongside poorly qualified, and are-you-kidding-me-you-don’t-even-know-how-to-button-your pants-unqualified FAs.

My Unfortunate Detour Into the Financial Industry

For a short period of time, some years ago, I worked as a FA for one of the largest North American financial institutions. Measured in months not years, my stay was short for two reasons:

  • Corporate culture and I do not fit.
  • First and foremost, FAs are salespeople.

I would have walked off the path sooner had I been quicker to understand that without sales skills you do not survive in this industry. Having suffered through the training process, I can tell you that the bulk of your time is spent being trained in sales, understanding what pushes peoples emotions, and how emotions affect financial decision-making.

Now, let me be clear here: I am not denigrating those who sell products/services to earn a buck. When you think about it, in our consumer society we all sell products or services, in one form or another, to varying degrees. So, ‘selling’ in itself is not an issue. Rather, the issue is that the financial industry can be less than forthright (i.e., mislead, obfuscate and lie) about what they are selling.

For anyone who has watched the movie, The Big Shorthttps://www.netflixreleases.com/big-short-2015/, or read the book (I strongly recommend the book, much more informative, just as engaging as the movie) you know that the industry has a history of irresponsibly packaging and selling financial products that, for the most part, benefit only the salespeople and their financial institutions.

Take mutual fund fees as an example. A FA who makes their living on transaction fees (i.e., money earned on every purchase and sale of a security), may want to place clients in a mutual fund instead of an index fund. Why? Because they earn much more money from mutual funds.

Here’s how Mutual Funds work:

  • Mutual fund company charges a management fee.
  • This fee is listed as a Management Expense Ratio (MER).
  • Charging a fee is to be expected. People should get paid fair value for their work. No problem there.
  • However, what most people don’t know is that the MER is shared with the FA. So if the MER is 2.5%, then FA typically receives 1.25%. Basically, it’s a kickback. So the more client money invested in the Fund, the more FA earns.

To use a dollars and cents example, lets say FA has $1 million of client money invested in Mutual Fund. Based on an MER of 2.5%, this $1m generates an annual fee of $25,000, half of which is paid to the mutual fund company for managing the Fund, the other half paid to FA for placing client in the Fund.

Now, after a few years working as a FA, you’ll have about $40m of client assets under management. If you don’t reach this magic number within a certain time frame, you’re fired.

If FA is managing $40m, and that $40m is in Mutual Funds charging 2.5% MER, then FA is collecting $500,000 every year (the other half million is paid to Mutual Fund company). Wow. Just for steering their client toward the Mutual Fund and making sure they hold it, FA sits on his/her ass and  collects half a million bucks every year.

Compare the Mutual Fund MER to an Index Fund, that typically has an MER of between .10% (which would equal an annual payment of $20,000) and .60% (which would equal an annual payment of $120,000), and you see why FAs are chomping at the bit to place clients in Mutual Funds. And why not, this would earn them more money.

Right. Why not? Well, how about something called ethics? How about this seemingly dated notion called duty to the client? Here’s what is outrageous about the industry: the absence of a legal obligation on the FA known as a Fiduciary Duty.

Fiduciary Duty is legal mumbo jumbo for, ‘FA has no responsibility to place their clients interests ahead of their own’. In other words, what is most important is that FA earn a living off client’s money. Client’s interests place second.

Go ahead, read that part again. Now for those of you who are not sufficiently incensed, let me be more clear: if FA chooses to ratchet up his (for better or worse, likely worse, the industry is overwhelmingly testosterone based) take home pay by placing clients in high MER mutual funds primarily to make more money for himself, that’s okay. Legally, absolutely nothing wrong with this.

I recall watching two FAs high five one another after sharing the news of how much money one of them made on a $250,000 mutual fund purchase. There was no talk about the merits of the Fund or the suitability of the Fund for the client. It was all about the money earned by FA.


Enter Buddha

Greed. When one feels hollow within, there is the effort to fill your self with stuff, including money. The effort will fail because whatever you accumulate remains outside; it does not enter within. To become full, one must seek solutions within.


Not all FAs place their own interest ahead of their clients. But too many do. Ultimately, it’s the industry that must shoulder responsibility since heavyweight corporate players are the ones who have the heft to fight against, and prevent, adoption of an across the board Fiduciary Duty.

Regardless of who should bear responsibility or what legal obligations are placed on FAs, as an investor, you would be wise to take matters into your own hands. This means informing your self, educating your self, learning how the game works. And if you have any doubts, well, that’s what BuddhaMoney Posts are here for, to guide you down the path that is best for you.

Golden Rule of Investing: Protect Your Self

Like I said, there are good and bad apples everywhere. And despite the somewhat negative portrayal of FAs (hey, I’m calling it like I know it and see it) in the preceding paragraphs, there are good FAs out there who will compassionately and honestly care for your money. That said, if you hire a FA, protect your self by starting with the following:

  • Remember that you’re the boss. FA works for you. Do not be ‘sold’ on their ideas without fully understanding what they want to do with your money. A good FA will take time to explain their decisions and will not proceed with any investments if you are not comfortable.
  • A good FA will place your interests ahead of his/her own. They will act as if a Fiduciary Duty does exist.
  • žInsist on full written disclosure of all fees on a monthly basis.
  • žStarting premise: only Index Funds will be held in your portfolio. If FA wants to add mutual funds, stocks, bonds, etc, have them explain to you, in exhausting detail, how and why these will benefit your portfolio.
  • If fees are charged as a percentage of the portfolio, negotiate this fee. Shop around and compare fees; see what the competition is charging. Typical annual FA fee equals about 1% of total portfolio value.
  • If your gut is telling you that FA is not the right person to care for your life savings, then end the relationship and move on.

Save Yourself the Hassle: Hire a Robot

Which do you choose?

HUMAN ADVISOR, replete with human frailties working within a regulatory system that facilitates unfairness.

or

ROBOT

What? A machine will manage my money?

Okay, let me back up here.

In an attempt to capture internet savvy consumers demanding lower investment fees, Robo-Advisor was created.

Robo-Advisor’ is a term used to describe automated, algorithm based investment advisory services.

Robo-Advisors are kind of a middle ground between do-it-yourself investors and those who use a FA. It’s a middle ground because Robo-Advisory services offer a combination of automated online (and through apps) and personal (i.e., human) online guidance. Though one size does not fit all when it comes to investing advice, beginning investors and those with somewhat uncomplicated portfolios may be best suited for the Robo-Advisor option.

As more financial institutions offer Robo-Advisory services, more people are turning away from the animal known as Human Advisors and entrusting their investment dollars to Robots.

Robo-Advisor Advantages

  • Efficiency. All business is conducted online.
  • Lower Fees. Generally, half of what a traditional brokerage will charge, partly because the financial institution does not have to pay for a legion of FAs to sell products (the primary reason why human advisors are on the path to extinction; fewer employees, more automation, means higher corporate profit).
  • žClient First. Client’s financials interests always placed first.
  • Fully transparent. Online access to current list of all fees.
  • žConvenience. For those who are comfortable cozying up with the Internet (statistics show that more than 60% of Robo-Advisor clients are of the Millennial Generation), access and manage your accounts 24/7.

How Robo-Advisor Works

First, Robo-Advisor gets to know you by asking questions related to your current savings, assets, investment goals, details of any mortgage, loans or other debt, children, education costs, charitable giving, etc.

Second, questions related to determining your investment risk tolerance and investment time horizon (i.e., when do you expect to draw money out of the account).

Once you’ve provided Robo-Advisor with all relevant information, numbers are crunched, your profile is sketched, and a portfolio comprised of Index Funds is recommended. After your money is invested, Robo-Advisor monitors your portfolio and automatically rebalances assets to target allocations.

Who Are These Robo-Advisors?

The independents got the game running. Currently, the two leaders in this space are:

https://www.betterment.com

https://www.wealthfront.com

A little later, financial behemoths adopted the technology:

https://intelligent.schwab.com

https://investor.vanguard.com/advice/personal-advisor

https://us.etrade.com/investing-trading/guidance-advice/adaptive-portfolio?gclid=CKDkj9zapc0CFYQ2gQodTu8CsA

For Canadians, there are two large blue chip institutional options:

http://www.bmo.com/smartfolio

http://www.questrade.com/portfolio-iq

… and several independent companies, such:

https://www.wealthsimple.com

https://www.nestwealth.com

Other players who recently entered the Robo-Advisor space or intend to do so in 2017 include:

  • Wells Fargo
  • Bank of America
  • Capital One Financial
  • US Bancorp
  • TD Ameritrade

Recent Robo-Advisor acquisitions of independents by large financial institutions include:

  • Fidelity acquires eMoney
  • BlackRock acquires FutureAdvisor
  • Northwest Mutual Insurance acquires LearnVest
  • Invesco acquiring Jemstep
  • UBS acquires SigFig.

Robots Rule

Robo-Advisors are the future of money management. If your future is now, when deciding whether to choose an independent or an established financial institution, keep in mind that some independents have been swallowed up by large financial institution (see above) who prefer to move into the Robo-Advisor space at potentially less cost and time than would be incurred if they built their own.

My guess is that, in the next five years, more independents will cease to exist, either because they don’t attract sufficient business to turn a profit or are acquired by deeper pocket financial institutions.

 

 

 

 

 

Millennials: Beat Debt, Get Wealthy

It took me several hours to write this post. Once the final draft was complete, I was reviewing for edits when,…

Bear with me here … I’m going to share a short story with you before getting to the feature article.


It took me several hours to write this post. Once the final draft was complete, I was reviewing for edits when, before my eyes, the characters instantly morphed into gibberish. My first thought: what the *@%?

Initially calm, I checked other files for infection. Thankfully, all was fine. So I ruled out a virus as the cause and focused on fixing the one corrupt file. An hour later, the file remained corrupt.

As calm dissipated and frustration grew at the thought of losing my work, I took a break, heading to yoga class with the intent to regain my balance. Driving to the studio, I obsessed, my head looping the same story over and over: How could this happen? Hours worth of work gone. And it was a damn good piece! Now what I am going to do? I’ll take my laptop in for repair; maybe someone else can figure out how to recover the file. But what if they can’t? What then? … blah, blah, blah, whine, whine, whine, me, me, me.

Arriving at the yoga studio, totally self-absorbed in my earth shattering problem, I was anything but balanced. After checking in with reception and removing my socks and shoes, I looked at the wall in front of me and saw an 8×10 photo with a caption written underneath. In the photo was a woman with her two young children. I recognized the woman, she teaches yoga at the studio. One of her children, a nine-year old girl, was recently diagnosed with brain cancer and is undergoing intensive chemotherapy. By way of the photo, the yoga teacher was asking her fellow yogis to share positive energy and, if so inclined, supportive donations.

Smacking myself in the forehead, my eyes finally opened. I realized the absurd insignificance of my concern. Here I am complaining about losing a teeny, tiny creation in the form of a written article, and here’s this gentle woman justifiably anxious, to say the least, about losing her daughter. Her beautiful daughter.

Whoa. I check in with my inner Buddha as I’m about to enter class. I remember that we are most out of balance when too focused on our self. Only when we practice gratefulness, when we shine light on all our good fortune, and extend compassion to those who are truly suffering, do we regain balance, and tap into our sense of generosity toward others, and our self.


and now, we invite you to join our regular programming

Niece One and Niece Two

My lovely sister blessed planet Earth with two daughters, my nieces, otherwise known as Niece One and Niece Two. Both are twenty-something Millennials (i.e., born between 1982-2000, or thereabouts). Both are university graduates. Both are industrious. Both want a meaningful life. Both want to make use of their unique talents and contribute to society. And both are concerned that the deck is stacked against them and their fellow Millennials.

Niece One lives in Toronto (Canada’s claim to a ‘world class’ city for those who like to compare and rate and judge … oops, I just judged the judgers). Following graduation, she spent more than six months searching for work in her field of expertise. Eventually, she landed a job with a non-profit organization. She was thrilled. The position allowed Niece One to put her skills to use and learn alongside an eclectic, stimulating mix of co-workers. The downside was salary. Niece One was paid enough to rent a small apartment with a roommate, buy groceries, slowly pay down her student loan, and go out on the town once a week.

A few years younger, Niece Two opted to stay in her home town of Ottawa, Canada’s capital city, after graduating. She would love to live with big sister in Toronto but, more practical minded, the thinking was that Toronto is too expensive.

Niece Two endured about eighteen months of hunting for a permanent job. During this time, she worked a variety of odd jobs, including part-time waitressing, a position that, to my knowledge, does not require a university degree. And, until recently, she lived at home with Mom and Dad (members of the baby boom generation, through no fault of their own), because she couldn’t afford to move out. Today, at age 25, she and a roommate rent an apartment.

That Was Then

She didn’t move out of Parent’s Home until age 25? Well, Niece Two is far from unusual in this regard. Get this: in the U.S., about one-third of all Millennials live with their parents. It’s the first time that living with Mom and Dad has outpaced living with a spouse for this age group since The People Who Are Charged With Recording These Statistics began keeping score in 1880.

Okay, it’s time to inject more perspective here. Just for fun, let’s time travel to a not too distant past. A time when our society looked different, and was different from many perspectives, including economically.

My father started his career in the early 1950s. Having graduated from university in his early twenties, he was courted by several employers because, hey, this was the Golden Age. This was a decade in which annual economic growth registered above 7% four times, and above 5% twice. If you wanted to work, be it white collar, blue collar or any other category, opportunities were there for the taking.

So he gets his first job and moves out on his own almost immediately after graduating. Within two years, he finds another job that pays better and offers more responsibility, becomes engaged to marry, buys a house, and is nine months away from pushing baby in a stroller. Oh … and no debt after graduation. What’s that, you say, no debt?! How is this possible?

Two reasons. First, government assumed responsibility for the bulk of education financing, rightly rationalizing that an educated workforce was beneficial on many fronts for society. The result being that tuition fees were a token amount, i.e., a few hundred dollars. Second, students were able to finance education costs with summer jobs, which were plentiful.

That Was After Then

Close to forty years later, the cost of education had changed but not a whole lot when you factor in inflation. When I graduated from a public university law school in 1990, my final year tuition fee was $1,750. And I marvel at the fact that I was able to live the entire academic year, from September through April, on less than $10,000; this included tuition, rent, food, clothing, bus pass, beer, pizza, you know, the usual university expenses. Sure, I borrowed some money to pay for school and that money was repaid after graduation. But most of my expenses were paid for with wages earned from summer employment. Lucky me.

This Is Now

Today, in 2017, I have three family friendly words for you about the cost of education: Oh … My … Goodness!

The same law school I attended, offering the same degree within the same time frame, now charges tuition of close to $22,000 per year. That’s just tuition! Add on the usual living expenses and you’ll see a final annual tally of between 30-40k. What about undergraduate tuition costs, you ask? In the mid-1980s, I paid $880 annual tuition to attend a well regarded public university. Today, the same school charges more than $5,000.

How, in the name of BuddhaMoney, could anyone who does not have a parent bank rolling their education complete their course of studies without racking up serious debt in the form of student loans?

As for getting a job to help pay for school costs, of course this is an option. But even if you could find work during the school year and/or summer break, the going rate is likely minimum wage which, while helpful, would not relieve you of the need to borrow big against your future. That said, finding work may be easier said than done as the economy simply doesn’t grow anywhere near as fast as it once did. And jobs, especially well paying jobs, are fewer and farther between.

Consider This: The year 2000 was the last year the U.S.economy achieved +4% growth (compare this to the 1950s growth rate, previously mentioned, or even the 1990s where 4% growth was achieved four times). Wait, it gets more troubling. In the aughts, the economy surpassed 3% growth only twice, in 2004 and 2005, before the so-called Great Recession. Since then, we’ve been mired in a slow growth, low interest rate, low inflation world where economic growth in our part of the world has not exceeded 2.5%. This isn’t good for jobs, for wage growth, or for future generations.

Albatross

In the The Rime of the Ancient Mariner, a poem by Samuel Taylor Coleridge, a sailor shoots a friendly albatross. As punishment, the sailor is forced to wear its carcass around his neck.

Well, I’m guessing there’s not too many students sporting a bird’s carcass around their neck but, today, the albatross that students wear is a lengthy debt sentence. And while past generations of college/university graduates didn’t have to contend with debt, or at least the kind of debt that slows the spring in your step, Millennials have no choice.

Because tuition costs are not getting any lower. In fact, they keep going higher. And governments have no plans to resume financial responsibility for higher education, graciously preferring to allow private citizens to shoulder more and more financial burdens.

So, what’s the consequence of loading down students, future taxpayers I might add, with excessive debt? Coupled with an economy that doesn’t generate enough well paying jobs?

A generation that rightfully believes the deck is stacked against them. A generation (we’re talking 83 million Americans and close to 10 million Canadians; a larger group than the Boomers) that puts off, maybe permanently, starting a family or buying a home because the overriding concern is paying their bills at month end. When that’s your predicament, guess what else gets kicked down the road? Building savings and investments, putting away enough for a rainy day, and contributing to retirement accounts.

Even if you, a Millennial, do pull down a good size salary, you’re still likely to start down the path of wealth building at a comparative disadvantage. Because if you’re carrying a burdensome debt load straight out of school, income must be diverted to debt payments. The result being that savings contributions are delayed until a later date or are less than what they would have been if the debt load was lighter.

Add to this a low interest rate environment that leaves banks paying next to nothing on savings accounts and high rated bonds dribbling out meager interest payments and, unlike past generations, building wealth is a more complicated process. It now involves learning about stock market investing if you want to generate any sort of meaningful return on your money.

Get Smart

Oh … I’ve painted a grim picture haven’t I? Okay, first, let me say that when it comes to getting a handle on your financial situation, its best to know your starting point. Fact is, Millennials have it tougher than the past few generations. No question.

Still, while this generation faces a tougher slog than their parents and grandparents, this doesn’t mean financial success is out of reach. Not at all! When I said something along these lines to Niece One, she shot me a bewildered look.

“Then … what do we do? I mean, I know there’s no turning back the clock and complaining is a useless exercise. But how do we make the system work for us? I hardly know anything about money management. As for investing, forget it. I wouldn’t know where to start so I just keep my money in a bank savings account.”

Bingo! (uh oh, showing my age … do people under 30 even know what bingo is?) Um, look, this is huge. I mean, money issues are with you your entire adult life. If money smarts aren’t taught at home and, unfortunately, they’re certainly not taught to any depth, or at all, in primary and secondary school, then how do you learn? Well, once the school bell has rung for the final time, you’re on your own. If you want financial knowledge, you have to go looking for information.

If you’re hungry to learn fast, then there are soooo many resources out there, from personal finance websites to books to meet up groups. For beginners, here’s a few good financial knowledge primers to snuggle up with on a Saturday night:

  1. Cary Siegel’s, Why Didn’t They Teach Me This in School?: 99 Personal Money Management Principles to Live By.
  1. Ruth Soukup’s, Living Well Spending Less: 12 Secrets of the Good Life.

If you want to go a bit slower, you know, mellow out in BuddhaMoney time, then that’s what we’re here for: to empower you about money issues and help you become wealthy in every sense of the word. And we do recommend that you visit often, not only because we love visitors but also because you get to discuss money issues with your BuddhaMoney enthusiasts at our community Forum.

Now that we’re done promoting our self in our own low key way, have a read through the following section, and learn what you can do right now to improve your financial situation.

Why You’re Reading This Post … To Learn How to Become Wealthy

  • The Basic Rule. Here’s what hasn’t changed since your grandparents day: spend more than you earn, and you’ll suffer from debt. Save more than you earn, and you’ll build a solid foundation toward financial freedom.
  • Freedom Plan. You gotta have a plan. A savings plan, spending plan, investment plan, debt plan, buying a home plan, retirement plan … whatever your goals, you have to draw a roadmap detailing how you’re going to get to where you want to go.

Why? Plans lay the ground work for direction. Plans set boundaries for saving, spending and investing. If you don’t plan your finances, money is so much more likely to go wayward and just … disappear. Or it will seem that way. In this regard, here’s a wise quote to chew on:

“Until one is committed, there is hesitancy, the chance to draw back, always ineffectiveness. Concerning all acts of initiative (and creation), there is one elementary truth, the ignorance of which kills countless ideas and splendid plans: that the moment one definitely commits oneself, then Providence moves too. All sorts of things occur to help one that would never otherwise have occurred. A whole stream of events issues from the decision, raising in one’s favor all manner of unforeseen incidents and meetings and material assistance, which no one could have dreamt would have come their way.”

William Hutchison Murray

  • Rainy Day Fund. Life is uncertain. Things happen. We can’t plan for everything. Common refrains, yes? And true. So as a form of self-insurance, do your self a favor and open a separate account that holds enough funds to cover 3-6 months of living expenses. If you can’t afford to do this right away, not a problem. What’s important is that you open the account and start contributing whatever you can afford today. Set a goal, say 5% of your monthly income. And keep contributing until you’ve built enough of a cushion to cover 3-6 months of living expenses.
  • Slay Evil Debt. Set aside a percentage of money from each pay check that goes towards paying down debt. If you owe money to more than one creditor, be sure to prioritize debt payments. The creditor charging the highest interest rate should be paid first. And if you don’t have debt, then the general rule is not to volunteer to take on debt. I say ‘general rule’ because you’ll likely take on debt to finance big ticket purchases such as a home. That’s all fine and good as long as you’ve worked out a budget detailing how you will afford to make mortgage payments and pay home related expenses.
  • Credit Cards. One credit card is all you need. A no-fee, boring, void of bells and whistles, status-less Visa or Mastercard with a reasonable credit limit. And don’t even think about using the card unless you have funds to pay off the full balance by the due date. If you can’t pay the balance in full, then you’ll be charged interest bordering on criminal … and you’ll be throwing money away. By the way, throwing money away is not part of any good plan.
  • Savings. If you sign up for the Freedom Plan, you absolutely have to save. If being disciplined is a challenge, set some ground rules for yourself, such as taking 10% of every pay check and depositing it into an investment account. And cut spending. Absolutely cut spending. Especially  the non-essentials. Like the daily $5 coffee or tea concoction you buy at a trendy cafe (do the math: at $5/day, that’s $35/week or $1,825/year!); pack your lunch; buy clothes on sale, buy anything you can on sale. The more spending you cut, the more you save, the closer you travel toward your goals, your freedom to do as you please, in a money wise sense.
  • Put Money to Work. When you invest money, your money is going to work, not you. This is what you want. Sure, it takes money to earn money. Still, even if funds are tight, if you’re earning a pay check, put some of that money to work for you so one day you don’t have to work for money. The more you can afford to invest the better. And, similar to being disciplined about contributing to savings, be disciplined about building your investments. Set aside a certain amount each month that makes its way directly to the investment account.
  • How To Invest. Niece Two said to me, “I’m making a good salary for the first time ever and I have extra money each month. I want to invest it but … help?”

Right. So, step 1 is getting the money to invest. Niece Two has done that.

Step 2 is setting up an investment account. You could do this with your bank, and they would then put your money to work in mutual funds owned by the same bank. Generally speaking, not being a fan of mutual funds because of their high fees, I wouldn’t pursue this option. That said, close to 70% of investors do choose this option. Why? Not even Buddha knows. But the wise guess is that they trust the bank and they don’t know any better.

Best option: if you’re a beginning investor, set up an investment account with a financial institution that offers a Robo-Advisor.

Um, what?

Having seen its popularity grow in the last five years, the Robo-Advisor simply refers to a way to automate how your investments are chosen. Just like a flesh and blood financial advisor, the Robo-Advisor plugs in your relevant information (i.e., risk tolerance, goals, time horizon for investing) then chooses investments that best suit you. Typically, your money is placed in low fee Index Funds. And unlike a human financial advisor, you’ll pay a whole lot less in management fees.

To point you in the right direction, Canadians should check out the Robo-Advisor service at Bank of Montreal: https://www.bmo.com/smartfolio/?icid=bd-FEAT752IL4-AJBMO16.

For American residents, take a look at Charles Schwab: https://intelligent.schwab.com.

In an upcoming post, I’ll be talking til’ the cows come home about the benefits of investing with Robo Advisors. Until then, give a good pondering to this information and if you have questions, well, post on the BuddhaMoney Forum and bat around ideas with other BuddhaMoney enthusiasts, or send me a message and I’ll do my best to answer.


Enter Buddha

The second Noble Truth teaches that trishna (thirst or craving) is the cause of stress of suffering. Wanting to own a home, wanting to be financially secure is perfectly fine and good. The challenge is to avoid clinging to these wants such that wants become obsessive cravings and we forget what’s important: to be grateful for our life, for who is in our life, and for what we have.