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How I managed my finances in my 20s

Posted by mapetitechou on Jul 22, 2015 in financial planning, lifestyle

I was suggested to do a post on this topic, which is a great topic. I always get questions from people on whether or not I was financially “savvy” — so to speak — when I was younger. You know what, I wasn’t. Besides the advice that I got from my parents, work hard and save your money, I didn’t know anything about investing and I didn’t know anything about financial freedom.

To our conventional standards, you could say I was a good kid in my 20s. I was good at my job. I lived below my means and saved my money. I always maxed out my contribution room for my RRSP. I was very religious about that. And I always had a good size emergency fund. I bought my first car (a used Mazda Protege) with cash. I remember one time when I was banking at CIBC, this older teller lady took a look at my balance in my chequeing account and said “why do you have so much cash in your account?” I said “I’m saving it to buy a car soon.” She was like “Good for you. You don’t see many young people with a good size balance their bank accounts anymore these days.” Because I come from an immigrant family, it was just second nature to be a saver. I thank my parents for that. When I graduated university and started working, I did not inflate my lifestyle as much as other young professionals. Don’t get me wrong, I was not deprived. I went out with friends, I went on vacations. But I was always mindful about not to live it up so much so that I lost track of savings. I always put my bonuses into savings.

It’s interesting that a lot of people it felt like people didn’t want to see me saving my money. One time my parents’ accountant was doing taxes for us, he saw how much I was saving for my car, he said “you don’t need to save so much cash for a car. Just finance. You live in Canada, you should live like a Canadian person. It’s totally normal to borrow money.” Mind you, the accountant himself was Chinese, maybe he was speaking from his own personal experience. Maybe he went from being a saver to a spender in a process of assimilating himself into Canadian society. I think I mumbled something about not wanting to be in debt. Now looking back, it is kind of shocking to hear that from a financial professional.

My then-boyfriend (now hubby) and I lived in an apartment until we got married, then we bought house together. He wasn’t as big of a saver as I was. So I had to kick his ass a little bit on that. Fortunately we got on the same page. Because we had both been diligent about saving for a house, we were able to use our RRSPs plus savings to put down a 25% down payment.

So throughout my 20s, I was a very good saver, but I did not take full advantage of putting my savings to work. I wish I had known what I know now and had started investing in index funds as soon as I started working. But I had a complete lack of understanding in investing. I thought investing meant buying stocks and I was scared of stocks. I thought “I don’t understand stocks so I’m not going to touch that.” And because of it, I concluded that I had very low tolerance for any kind of risk. I put my money in GICs and mutual funds (little did I know, the mutual funds that I was buying carried a lot of risk, and they had huge fees). I didn’t get into index fund investing until I was almost 30 when I had my first baby and I was on my mat leave. I finally decided that I should no longer stay ignorant and started learning as much as I could about investing.

Still, I’m pretty happy that I had some really good habits that helped me to be financially stable in my 20s. They helped me greatly in terms of saving and staying out of debt, which is a positive aspect in wealth building considering a lot of people my age are in a lot of debt that they can’t seem to get out of. I think for young people, saving and accumulation of cash is so much more important than trying to figure out which ETF fund you to buy. If you are in your 20s and you still have some debt aside from a mortgage, you should try to get rid of the debt as fast you can. Don’t inflate your lifestyle. Live below your means. This is your accumulation stage. Then learn as much as you can about investing and put your money to work for you.

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I’m the “Villain”

Posted by mapetitechou on Mar 26, 2015 in financial planning, philosophy, relationsips, saving

Apparently in my in-laws’ eye, I’m the “villain” because I am an iron-fisted wife with our money — I don’t let my husband spend any. I knew that they thought of me as “frugal” or “good with money”. But recently I think I got a better idea of what they really think. I find that quite amusing. I’m a private person so I don’t usually broadcast our financial situation, unlike some other family members. So I suppose it’s easy for them to speculate what’s going on in our family’s finance. For some reason all my husband’s family think that we have oodles and oodles of spare money laying around, especially my mother-in-law, according to my lovely youngest sister-in-law (my husband has three sisters). She and I get along very well and she’s very open about her life and her opinions and she appreciates that I’m a good listener, so we often chat. Personal finance is one of those topics.

When I explained to her, I basically said every dollar is accounted for. Ha, I wish we had a ton of spare money laying around for us to spend! If we did, I’d definitely let my husband get his dream car. He’s always complaining about having to drive my old Corolla because his Tiburon (a sport coup from his pre-children days) died last year and it was just not feasible to get a new sports car anymore. And my MIL thinks I’m holding him back somehow. There are quite a few aspects to our finance that she does not understand.

Because of my “pay yourself first” rule, basically for every paycheque some of the money is redirected to our RRSPs, TFSAs, RESPs and other investment accounts. These have to be taken care of first. I am very firm on not shirking our responsibilities because you are ultimately responsible for yourself, present and future. So if you don’t take care of your future self, nobody else is going to do that for you. I think because she and my father-in-law did not live this way, she cannot even comprehend it. They are living on government pension. They never saved for their retirement. They don’t have any investments. They live a very simple life in a small town in Newfoundland. So their living expenses are very low, except for my father-in-law’s penchant for a new car every several years (that’s a whole other issue for another post). So the question of why you are putting your money in all these places is pretty complicated to grasp.

Also, my in-laws (and all my guy’s siblings for that matter), seem to forget that my husband has been in school for as long as we’ve been together. And that university education costs A LOT of money. My husband is a very smart and hard-working person. He did computer science in college. Then when we were dating, he did electrical engineering. And after we got married, he decided to do a business management degree while working full-time. And after he got that degree, he went on to do his MBA also while working full-time. He also had size-able student loans during early years of our marriage that we managed to pay off quickly. Essentially we invested a lot of money in his schooling. Every month a portion of our income was going to his tuition. I told my sister-in-law it’s like paying two mortgages every month. We just don’t broadcast that, it’s not in my nature to complain about it. If it was any of other siblings, we would be hearing about constantly. Again, this speaks to my philosophy about taking responsibility for yourself.

And furthermore, because we feel so strongly about education, we are saving for our children’s education. And somehow that’s hard for my MIL to understand too. She thinks when we talk about saving for their university education, it’s something that might or might not happen in the distant future. It’s not! My son’s 5, my daughter’s going to be 3 soon. In only 12 years my son will be going to university. 12 years will be gone in a blink of an eye. If you don’t start preparing for it now, you’ll run out of time. Time is your biggest ally in investing. So to my MIL, it’s money that’s being not used right now and being wasted. Well, again, I understand it’s a concept hard for her to grasp because they didn’t save for their children’s post-secondary education. My guy and his youngest sister are the only ones that have university education and they paid for it themselves. Massive student loans. My parents saved for my education. I had a jump start on life after school. That is something so valuable for your children to have.

We have our fun money obviously. Traveling is our biggest hobby. We go to China regularly. We take beach vacations every year. We’ve been to Europe a few times. My kids are seasoned travelers. My son has traveled more and further distance-wise in his 5 years of life than my in-laws have ever traveled in their entire life. It’s a gift that I want to keep giving to my kids for as long as they will let me (we will see how that goes when they are teenagers). The vacation funds have to be allotted and these aren’t inexpensive vacations. My MIL doesn’t seem to understand that either.

So essentially, every dollar is accounted for. And if somebody thinks it takes an iron-fisted wife to manage that, so be it. I sleep very well at night.

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How we save for our kids’ education fund

Posted by mapetitechou on Mar 10, 2015 in financial planning, saving

I kind of have a reputation in our extended family that I’m fairly money-savvy. So sometimes they will ask me advice on things that sound too technical for them. Just the other day I was how RESPs work and how we save for our kids’ education fund. To our non-Canadian readers, that is a government incentive program that helps people save for their children’s education fund. Basically you can contribute up to $2500 a year for one child and the government will match you 20% of your contribution up to $500. So if you put $1000 in your child’s RESP, you will get $200. If you put in the maximum $2500, you will get $500. This lasts until your child turns 17. Moreover, the money grows tax-free. That’s $51,000 without even considering the interest it should be earning. That is a pretty sweet deal.

It still shocks me how many people do not take advantage of this. And even when people do have RESP accounts, they do not contribute the max amount. You want to get the $500 from the government EVERY SINGLE YEAR. I opened RESPs for my kids as soon as they were born. I’ve always made it a priority that I have $5000 ready to be put into their accounts as soon as January rolls around every year. My sister-in-law was saying she finally opened a RESP account recently. She has two daughters, one is starting Junior Kindergarten this year, the other one is 9 months old. I applauded her on opening the RESP account. But I also felt a tinge of regret that she had lost almost 4 years of growth if she had done it when her first daughter was born. She said she’s putting the $200 university child care that she gets from the government every month (every child gets $100 a month in Canada) into the RESP account. That’s only $1200 a year, so she won’t get the full $500 from the government. That also makes me sad because that is just free money being thrown away!

So this brings me to the question people ask me – how we save for the RESPs. I simply tell them I make sure they are maxed out. No buts and ifs about it. That goes with my belief pay yourself first, “myself” being my kids. It is simply an obligation that I must fulfill. I believe people should treat it this way. If you are not able to save quickly and put down the lump sum like I do, then you can do the $208 automatic transfer every month. That’ll add up to almost $2500 in December. And you will have done the job for the year. You live on whatever money that is left after that $208 is taken out of your bank account. That is how strongly I believe in education fund. You skip those dinners out. You skip going to the movies a few time. You skip getting your nails done. Basically you cut out the fluff that is taking money away from the RESP money. Of course if the money is way too tight, then it’s a much bigger problem than RESPs. Your whole financial situation probably needs to be re-evaluated. For most people in my immediate world, I know they can afford it. They are just not making it a priority.

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