Cars Are Terrible Investments

Here’s what one journalist wrote about Tesla cars: ‘Tesla fans are crazy advocates. They attach deep emotional significance to the car. They’re not just paying for a mode of transportation, they’re paying for a slice of the future.’

Yup. There’s a whole lot of wildly passionate car lovers out there. People whose emotions drive them to buy a cool, fast or stylish car. People who see their car as a reflection of them self, an object that reinforces their self-image. People who want a visible status symbol broadcasting to others that they’ve arrived, have dough, care about the environment, or lean left or right in the political sense.

Then there are the folks who don’t get caught up in the hype. These people don’t quite understand why others form an emotional bond to a 4,000-pound hunk of steel, aluminum, glass and rubber.

They see cars as utilitarian objects, the purpose of which is to efficiently transport you from A to B, from home to the office, school, the grocery store, kids soccer games. And just like the dreamy car lovers, the emotionally-detached-from-cars types let the world know who they are through choosing a car based on safety ratings, fuel efficiency, and price.

Still, no matter who you are or what your reason is for owning a car, be it a luxury or economy model, cars are terrible, horrible, no good investments.

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Virtually Guaranteed To Lose Money

Question: Name an investment that loses 25% of its value immediately upon purchase, and even more value down the road?

Answer: Your Car.

As soon as you sign the transfer papers for that $30,000 car, its resale value drops about $7,500. Because a car is what’s known as a depreciating asset, meaning it loses big value, fast. Own a collector’s classic that has held or exceeded its original sticker price? That’s all fine and good, and your car would be an exception. But for the overwhelming majority of owners, cars are a non-stop money burn.

Question: Aside from a lower resale value, will I incur other car ownership costs?

Answer: Oh ya, a whole lot more!

We’re talking annual insurance payments, licensing and registration, repairs not covered by warranty, and ordinary maintenance costs including gas (or electricity), new tires, brake pads, etc.

Question: How else will I lose money from car ownership?

Answer: Finance your purchase.

Look, if you don’t have enough money to buy the car, then don’t buy it. Think about it: if you borrow funds for the purchase, just like taking out any other loan, you pay interest. So if you’re paying interest for, say, five years, you’ve not only shelled out 30k, you not only incur ongoing expenses, but you also pay even MORE than the sticker price thanks to interest payments.

Question: What’s even worse than financing your purchase?

Answer: Leasing.

Leasing is renting. You’re renting the car for several years. At the end of the lease term, you have zero equity in the car. Yes, when the lease expires you’ll have the option to purchase the car but don’t expect to get any sort of deal. You’ll be paying full price. And usually, you’ll end up paying more for the car than if you had purchased it at the outset.

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So What Do You Do?

Cars are expensive. Cars are money pits. But a bicycle, scooter, or hoverboard doesn’t suit your needs. So what do you do?

Ideally, make an all cash purchase of a used vehicle sporting high resale value. And keep the car forever.

By not shelling out for a new car every three to five years (and remember that the resale price of your old car will not even come close to paying for new wheels), you’ll save serious dough that may be put toward saving and investing. That’s the beauty of cutting expenses: more money in your pocket, more financial stability, more freedom today and down the road.

If an all cash purchase isn’t possible, then hold your breath and go the financing route.

Borrow the least amount necessary and no more. Don’t get sucked into the ‘low monthly payments’ sell job. Fact is, with any sort of financing you’ll end up increasing the bottom line price for your car. And work out the money details before you commit to the buy, i.e., know what you can afford, and know that you will pay off the loan within a fixed time period.

Finally, do your best to negotiate cost downward. Because in the car sales business there’s a few things you absolutely need to know:

  1. You can always negotiate on price. And if the dealership refuses, then take your business elsewhere. That said, they all negotiate. It’s part of the game. But the onus is on you to insist on a better deal.
  1. Car dealerships are not in the business of losing money. Keep this in mind when they’re tossing sales pitches your way. You know, stuff like ‘$2,000 cash back offer!’ or ‘employee discount available for a limited time!’.

The usual nonsense where dealerships try to make you believe (‘make believe’ being the key phrase) that you’ll get the car for less than dealer cost. The thing is, dealerships are profiting on every sale. And they should. I mean, if they didn’t turn a profit, then they wouldn’t be in business for long. But instead of fattening their profits, you should be looking to minimize their take by driving the best bargain possible.

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Pad Path To Wealth By Keeping Emotions in Check

Car ownership is a lifestyle choice. And it would be wise to make choices that do not hamstring your finances, negatively affect your way of living, or interfere with your financial goals. With more money in your pocket, those leisurely Sunday drives will have you smiling.

 

Avocado Toast Ruining Retirement

Avocado is a pear shaped, alligator skinned nutritional powerhouse, a veritable stand-in for your one-a-day multivitamin. Humble, ordinary, unassuming, The Avocado is packed with protein, carbohydrates, healthy fats, fiber, zero sodium and a teeny amount of sugar (0.7 grams per 100 grams of avocado); boasts more potassium than the mighty banana; is high in antioxidants such as Lutein and Zeaxanthin, both beneficial to eye health; is loaded with heart healthy fatty acids such as Oleic Acid; and is chock-full of other vitamins and minerals, including calcium, iron, magnesium, copper, manganese, phosphorous, zinc, vitamins C, B6, B12, A, D, E, K, thiamine, riboflavin, and niacin. [big thanks to healthambition.com for providing the link to The Avocado – yes, minor plug here, bit of a positive energy exchange, with no money changing hands].

As extraordinary as this fruit is, spread avocado on toast and you better buckle up. Prepare your self to enter the fifth dimension. A dimension above and beyond sustenance and dietary needs. A dimension indifferent to price, but focused only on what is hip, trendy, and fashionable.

 

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YOU PAID HOW MUCH?

A super food if there ever was one, in the USA average cost for one avocado is about $1.30 (USD). As for Canada, land of minimal corporate competition and resulting higher prices, you’re looking at about $2.25 (CAD) per avocado.

But … once the green on the inside avocado is slathered on a piece of toast, gussied up to induce maximum salivation, and served at a stylish cafe/restaurant, the price rockets to $7 (USD). Sure, bread adds to the total cost and the bread is pricier when artisanal. Still, bread doesn’t add much since you could buy a whole loaf of most breads, artisanal or not, for $7 or less. Assuming a conservative estimate of 15 slices per loaf, that works out to about $0.47 per slice.

Tallying up the numbers, we’re looking at $1.30 for the avocado and no more than a buck for two slices of toast. Grand total cost: $2.30, but that’s only if you dare to toast your bread at home then mash up the avocado on the toast.

Yet, people are more than willing, to fork over more than 3x cost for avocado on toast. Why?

Maybe the following online review of a certain café will give a glimpse of the what’s important for the I-Don’t-Care-What-It-Costs-Because-I-Love-It-And-Toast-Is-Way-Cool crowd:

Their avocado toast is amazing. A clever balance of soft and crispy textures that appeals to both sweet and savory taste palates.”

Okay. Whatever gets your eyes and stomach dancing, I suppose. Although, I can’t help but think that when you pay that much money for simple food requiring so little preparation, you have to rationalize cost somehow.

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Hold The Toast and Choose to Salivate Over Your Growing Wealth

The preceding paragraph was completely judgmental. But not in the way you may think. I’m not judging the ways in which people spend their money. It’s their money to do with as they wish.

What I am judging is the choice to make a habit of dropping $7 on toast. Because small discretionary purchases add up. Just like the $5 specialty coffee adds up when you’re a regular customer. And if purchases like these are part of your budget, you should be aware of the downside. You should know that this sort of spending cuts into savings, and lessens the odds of financial freedom today and down the road.

This is the spiel I gave to my 26 year old Toronto dwelling niece. And she shot back,

‘I like going to cafes. I like getting my coffee on the outside. And if I indulge in avocado on toast now and then, I’m okay with that too. Besides, it’s not like I’ll ever be able to afford a house in this city so this is what my friends and I spend our money on.’

Have you done the math? Coffee $5/day, 30 days/month x 12 = $1800. Add in trendy toast, say twice/week for 52 weeks working out to about $730. Total bill: more than $2,500 per year.

‘Sure, I get it. That’s a fair bit of money. Still, you know much the average home costs here. Almost one million! Trust me, abstaining from toast and coffee is not enough for me to accumulate a down payment.’

She’s right. But the thing is, it’s not just about the toast, avocado and coffee bill. Rather, it’s about a way of thinking, it’s about perspective and goals.

As for perspective, if you’re only thinking about the here and now, not the future, then odds are savings is not a priority. And if indulging now is the priority then, without a doubt, large purchases, such as a home, will not happen. As well, current debt, such as student loans or credit card debt, will not be paid down, and financial strain will weigh heavy on your shoulders.

But if you have one eye toward the future, if one of your goals is to become financially independent and free, then it makes sense to sacrifice some small pleasures.

These sacrifices yield immediate results in the form of increased savings. Savings may be invested. Investments grow. And, eventually, you just may have enough for that down payment. And your future self will thank you for your foresight, for your balanced approach to life.

As for avocado on toast? No need to fret; you can still indulge. But at home. With you and your friends taking turns at the toaster, spreading on the avocado, and making coffee. Try it. You never know, this way may be even be more fun.


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Enter Buddha

Ordinarily, our minds impatiently grumble about that which has not happened. Instead, learn to be patient. Express gratitude for that which has already happened, and patience for that which will happen.

 

Millennials Money Mistakes

Mistakes. We all make them. To err is human … and all that jazz. And when your perspective includes understanding that ‘mistakes’ are not failure by any means, rather an opportunity to learn, then you dust your self off, pick your self up, and continue tweaking your approach until desired results are achieved.

Just ask Confucius, who said that, ‘our greatest glory is not in never failing but in rising every time we fail.’

More contemporary example? How about Michael Jordan, the phenomenal basketball magician: ‘I’ve missed more than 9000 shots in my career.
I’ve lost almost 300 games. 26 times I’ve been trusted to take the game winning shot … and missed. I’ve failed over and over and over again in my life. That is why I succeed.’


Learning To Crawl

As they continue to shape our world, Millennials (folks who arrived on this planet sometime in the 1980s and 1990s) are manufacturing their fair share of mistakes, no different than past generations.

Consider my Twenty-Something Nieces: independent, ambitious, career oriented, single (with doe eyed beau in tow), no kids, no car, renting, socking away some earnings into savings, and tackling whatever life throws their way. Except personal finances. In this category, they’re somewhat at sea. Not that it will make The Nieces feel any better, but there’s a whole lot of other Millennials who are also scrounging around to find solid financial ground.


Don’ts and Do’s For TwentySomethings

I’m not pointing my finger or tsk tsk-ing the Millennial crowd for their general lack of financial savvy. There’s a learning curve for whatever we do in life. But I am saying, hey, it’s helpful to take stock, assess the current state of your finances, and consider how to improve.

For starters, there are some basic actions you can take to boost your balances for today and tomorrow. These actions (listed below) will not only make you ‘feel’ more financially stable, but will actually improve your net worth.


  1. Budgets Are SO Boring!

A budget is a roadmap, a guide, a friendly reminder as to what you may afford. Without a budget, spending is less disciplined and debt is more likely.

Sure, drafting a budget is not uno numero on your list of things to do on a sunny Saturday afternoon. Or any day for that matter. But I’m guessing that having a positive balance, and growing net worth, ranks high on the list of life goals. If yes, then set aside next Saturday for the boring task of budget drafting.

  1. Blind Eye To Debt

You carry debt. Okay, fine. Now, what are you going to do about it?

Whatever you do, don’t make believe that the debt does not exist. I bring this up because there are some folks who abstain from reality, choosing instead to live under clouds of illusion. Debt can be a tough issue to manage. I get it. But avoiding the issue only makes your situation worse and lessens the likelihood that you’ll achieve good financial health.

Figuring out a plan to pay off your debt, that’s what is necessary. Include this plan in your budget (oh, look, the budget is already coming in handy), and determine the monthly amount to be paid toward debt reduction. Sure, the faster you can pay down debt the better. But even if you’re paying a only small amount each month, that’s something. It’s building constructive financial habits. And as long as you keep on chipping away at debt, eventually it does disappear and you won’t regret it. No one regrets paying off debt.

  1. Sneaky Plastic

Airline Miles! $500 Cash Back! Free Hotel Night!

Financial institutions trip over themselves to offer an array of enticing credit card inducements. Why? Because they earn outrageous sums of money from interest charges.

As for you, the consumer, fact is that unless you pay the balance owing by the due date, you’ll be accumulating debt. Fast. And making financial institutions richer.

Plastic makes it too easy to give in to temptation, to buy something because you WANT it NOW. Financial institutions know this, they employ experts advising on human behaviour. And they know that there are millions of folks who have a terrible time trying to exercise self-discipline. And these folks buy STUFF they can’t afford, and they rationalize that they’ll be able to pay off the purchase before the bill arrives, and they get the bill and stick their head in the sand by making the minimum payment of ten dollars or so each month, and then incurring exorbitant interest charges.

Oy! Under NO circumstances is credit card debt a smart play.

Am I going too heavy on the chicken little act? I don’t think so. This is an issue that only seems to get bigger and bigger. Credit card debt, debt of any kind, can be a hefty psychological burden. Of course, financial too. And given enough time with too few payments, it bankrupts people.

So unless it’s absolutely essential to use plastic AND you know the full balance may be paid by due date, avoid credit cards. Instead, use a bank debit card, or a Visa / Mastercard debit card. This way, you spend only what you have since payment is debited directly from your bank account. And for you old-fashioned types, last time I checked, there’s no chance of going into debt when you pay with cash.

  1. Dormant Dough

THE NIECES, they’re accumulating savings but they’re either not investing or investing wayyyyy too conservatively. This is a problem. And this absence of risk tolerance is unique to this generation. Some researchers posit that it’s related to the deep recession of 2007-2009, and the resulting stock market meltdown.

Whatever the reason, Millennials would be wise to loosen up. I’m not saying to roll the dice on high-risk investments. But I am saying that the 0.25% savings rate offered by your local bank isn’t going to contribute much, if any, to your financial independence.

And you would be wise to consider the stock market. Yes, it’s a volatile venue. But volatility doesn’t necessarily mean you’re walking on the wild side of risk. Especially if you’re a BuddhaMoney wise investor who doesn’t pay much attention to daily financial news headlines. Instead, focus is on the long term (5+ years), knowing that stock market returns historically beat other asset classes.

Consider that, during the past 40 years, the S&P 500 index has averaged total returns (capital gains and dividends) of close to ten per cent. Let’s say the index returns about the same for the next forty years. If so, and you invest $100 / month, in forty years your account will be worth close to $600,000.

How do you get that $100 / month? You plan for it in your Budget (see, it’s a handy little document). It doesn’t matter if it’s $25, $50, $100, or $1,000 investment account contribution. Every dollar adds up. And the thirty-something YOU, the forty-something YOU, etc, will thank twenty-something YOU for being so wise and planning for your future.

For those who do not have the time or inclination to operate a discount broker investment account, find yourself a Robo-Advisor or skilled financial advisor (not all financial advisors are cut from the same pin-striped cloth) to help manage your investments. And definitely place a healthy portion of your investment dollars in equity based Index funds, such as the Vanguard 500 Index Investor for US investors, and the Blackrock S&P/TSX 60 Index for Canadian investors.

  1. High On Spending

In your 20s, you’re likely to start earning real money. And maybe you’re salivating at all the STUFF you can buy knowing it’s within reach: a new car, luxury condo, designer clothes. Right. But within reach doesn’t mean you may afford to buy the luxury condo.

Rather, it likely means you’re the lucky winner of a whopper of a mortgage, get to stress over making monthly payments, and go light on furniture because daily spending is tight now that housing costs eat up more than half your take home pay. Sure, you want a materially comfortable home like your parents. But you’re forgetting that your parents likely worked five, ten or twenty years before being able to afford all the cozy extras.

So for all you Impulsive Izzys, slow it down. Bring Patience into the mix. Only buy what you can afford without taking on unmanageable debt. And when you get that raise at work, this doesn’t mean you should go all ga ga and run out and buy more STUFF, or more expensive STUFF.

Instead, it means it’s time to review your Budget, allocate more money to debt reduction and investing, and then determine how best to spend discretionary funds. This is a Balanced approach to finances, one that reduces debt, increases net worth, and lets the shine sun on your financial health.


 

unknownEnter Buddha

A jug is filled with water drop by drop. There is no other way.

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.


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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.