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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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Wooo I got dividends!

Posted by mapetitechou on Mar 8, 2015 in Investing

Towards the end of last year, I finally made the jump from low-cost index mutual funds to even lower-cost ETFs, a step not without trepidation. But what an exhilarating feeling it was. I had been contemplating the switch for a good part of year 2014. Because I hadn’t traded any stocks before in my life, the idea of opening an account with a discount brokerage and buying ETFs on my own was sort of intimidating. So I prepared myself by watching lots of Youtube videos on how to buy ETFs, reading books on ETFs, and of course my go-to reference Canadian Couch Potato blog.

I felt like such a newb when I purchased my first ETF fund. I forgot that it takes 3 business days for the purchase to settle because I was so used to seeing the funds show up in the account in mutual funds the next day. The day after I made the ETF purchase I went to check the account and I saw the fund was not “settled”. I panicked and thought I must’ve made a mistake somewhere during the transaction. I emailed the support team at my brokerage right away and they said my order was accepted. Then I realized “duh! You have to wait 3 days.” I told my husband about it and we had a good laugh. Since then I’ve purchased a few more ETF funds. I cannot tell you how awesome it feels. I feel like a real pro.

Lo and behold, on one of the mornings back in January when I checked my account, I saw two new transactions labeld “DIV”.  Dividends! They were a tiny amount, but man was I excited. Hurrah my money is generating money! Now if we could add a few 0’s to the end of those numbers, I could retire early :D.  Honestly I will not forget that feeling and I hope that feeling will not diminish over time when those lovely dividends keep coming in.

Any of you own any ETFs and share the same feeling as mine? I’d imagine even if you have been an old pro at this for years, the great feeling does not diminish when you see dividends show up in your account right?

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I hate debt

Posted by mapetitechou on Mar 6, 2015 in debt, saving

How do you feel about debt? I have an extreme aversion to debt. I hate any kind of debt, some more so than others. Having the belief that you are responsible for yourself and nobody owes you anything drilled into my head by my parents when I was young, I’ve always had this attitude towards debt. “If you owe money to somebody and you don’t pay back right away, they are going to come after you and break your arm.” I know it’s extreme. (Unless you owe money to the mob then it’s a very real possibility.) But the sentiment is the same. It is not okay to have debt and not pay it off right away, whether you owe a person or a bank. As a kid, I always hated borrowing money from friends. If I did have to borrow $5 for whatever reason (say I forgot to bring money for lunch), I had to pay it back the very next day. Now I don’t think I ever had a personal loan from anyone in my adulthood life.

So with the same thinking, I hate any form of consumer debt the most, like credit card debt. I could probably count on one hand the times I was late on my credit card bill and had to pay the subsequent interest charge. And I would scold myself to not let that happen again. I see any interest charge as money down the drain. That is money that I could’ve spent somewhere else that’s more useful. I never took out a line of credit because I just could not stomach the fact that I had to pay interest on it. The one time I made the mistake of buying my first card with a monthly payment, I saved almost all of my paycheque every month for about 6 months so I could pay off that car so fast as if my hair was on fire. After that, I always paid cash for a car. Never ever financed again.

Mortgage was a necessary evil. I don’t like it, but in this day and age, not many people can buy a house with cash. So my husband and I had to take on a mortgage like everyone else. But I was not okay with just making the minimum payment every month for the next 20 years. We again worked very hard to maximize the payments by doubling up every month and making that 10% lump sump every year. Luckily our mortgage wasn’t a huge one to begin with. We bought our modest house before housing prices started going crazy. So within 5 years, we paid it off completely. That was the best feeling ever when we made the final payment. I felt so free and powerful because no matter what happened we always had a roof over our heads. When you don’t owe anything to anybody, life just has much more possibilities.

Now my “debt” is to my children and to ourselves. I want to set them up for success as early as possible. That’s why we are building their education funds. I’ll chat about education funds in another future post.

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Sad news about Thomas J. Stanley the author of “The Millionaire Next Door”

Posted by mapetitechou on Mar 5, 2015 in books

I was very saddened by the news about the author of “The Millionaire Next Door” Thomas J. Stanley died in a car accident on February 28. He was only 71. I still remember vividly the time when I first read his book. That book played a huge part of changing my thinking on wealth and financial independence. I first set out to read this book as pure entertainment because I was just curious. But it turned out to have a much bigger impact me than I had anticipated. It dawned on me that I could become the millionaire next door. That I could become wealthy and financial independent. That I could retire early. I learned many lessons from his book. Such as just because a person seems or acts rich, doesn’t mean he/she is rich. The real wealthy people aren’t the ones what I thought they were. And that you can make a high income and still be broke if you try to act rich. And financial independence gives you power and freedom to do what you really want to do. There were so many enlightening moments in the book that I can probably re-read it now and still go “Yes! That’s so true!”.

I still haven’t read all of his books. I think he has 6 books in total. I’m going to read “Millionaire Women Next Door” next. I’m sure I can learn many lessons from it too. I will continue to read his blog. I’ve heard his daughter is going to continue his work. That is very heartening.

Thank you Thomas J. Stantley for enlightening me and helping put me on the right path to wealth!

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Balancing between my fashion “addiction” and saving money

Posted by mapetitechou on Mar 4, 2015 in saving

The fact that I have a fashion blog that is devoted to beautiful clothes and shoes and bags and where to buy them is pretty obvious that I am a fashion addict. So I get this question a lot from people: how do you keep your expenses on your fashion stuff from getting out of control? How do you budget your expenses?

I don’t really have a monthly budget per say. But I strongly, strongly, believe in Pay Yourself First. I have money automatically taken off my paycheque to go into my RRSP (that’s the Canadian equivalent of 401(k) I believe) account. I have a portion of it go to a separate account that’s for accumulating money for my various ETF funds. When there’s a certain amount that warrants an ETF purchase I can just transfer that money to my my discount brokerage account and buy some ETF shares. That’s the exciting part for me. So I never budge on this. And of course you have your monthly expenses and what not. In the end, whatever is left in my everyday chequeing account that month, I can spend it on anything my heart fancies. So you can see that I don’t use a budget. I don’t give myself an allowance at the beginning of a month. I don’t try to control my fashion spending. I just make sure I take care of all the other areas first. The money goes to those important places first. Also, our monthly expenses are fairly predictable. I always tracking everything in a spreadsheet so I have a pretty good idea where most of the expenses are. Overtime they’ve become very predictable. Sometimes we get a month where we take a few extra day trips somewhere or we have more dinner parties than usual. Then maybe at the end there isn’t that much left over for my fashion buys. That’s totally fine with me. Also sometimes I can go a long time without doing any shopping. Just ’cause the money is there doesn’t mean you have to spend it. And sometimes I let it accumulate long enough I go on a binge shopping trip…usually online at some of my favorite stores (Hello Shopbop! :).

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What is your saving rate?

Posted by mapetitechou on Mar 3, 2015 in saving

I’m curious…what is your saving rate? What is a high saving rate for you? 5%? 10%? The conventional wisdom that you hear from financial planners/advisers is you should save 10% of your income. I always thought this was way too low of a saving rate if you ever want to get ahead in life in terms of financial flexibility and ultimately financial independence.

Being Chinese, it was always distilled in me by my parents that you need to save some money for the future. You must live within your means and have some money put aside because ultimately you are responsible for yourself if anything happens and you need extra cash. So I’ve always saved. Not a lot when I was younger, but I have improved over the years and I continue to try to do better. If you asked any Chinese parents (first-generation immigrants especially), if you aren’t saving 50% of your paycheque, you are not saving enough. My parents never actually told me how much I should be saving. I don’t think they have a hard number that they live by either. They just led by example by living way below their means. They are not misers by any means. But you can really tell where their priorities lie by watching how they spend their money. They don’t spend a lot on themselves, but they sent me to university debt-free. They contribute to my kids’ college funds. Education is extremely important to them. And of course they put money away for their retirement. They don’t expect to count on anyone else when they are really old.

I think when young people first start out, they should try to save as big of a chunk out of their paycheque as they can. Aim for 30%, 40%, 50%, even 60% if you are in a high-paying field. If you have any kind of student debt, you should put that money into the debt and squash it. Because you want to get a jump on life as quickly as possible, start saving for a down payment for a house, saving for starting a family. The only way to do that is squash any debt and start putting away gobs of money right away. A measly 10% of your income is not going to get you there. Not in the time frame that most people desire, say 3-5 years. In the beginning you really have to aggressive. My goal is 50%, and it is pretty aggressive for us because we have 2 young children. Some months, we actually hit. And other months it’s harder when I’m writing gobs of cheques for my son’s camps, piano lessons, Kung Fu school, etc etc. But if I average them out, I’m doing pretty well, much better than the 10% that we are so used to hearing.

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Never thought I’d root for a market downturn

Posted by mapetitechou on Feb 25, 2015 in Investing

Or even a market crash! Yep years ago if I saw my mutual funds drop in value, that would scare the crap out of me. Now when I want to buy an ETF, I always hope for a drop in its price, the bigger the drop the better. It’s interesting how your mindset shifts the more you learn about investing and the better of a bigger picture you have about your financial plan.

When the market is going up, I lament the fact that I cannot purchase as many shares as I was hoping for. Sure the market value of my other ETFs are up, but that’s unrealized gain. If I’m not going to sell those shares, the unrealized gain does not mean much to me. Similarly, when the market value is down, the unrealized loss does not mean much to me either. I only care about how much the shares are going to cost me when I buy and I want them to be cheap. But, as the experts always say, you cannot time the market, you can never know for sure when is the best time to jump in, so the best time to buy is now. It’s better to get in the market than to have cash idling in your chequeing account. That’s the opportunity costs that pros refer to.

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My lofty financial goals

Posted by mapetitechou on Feb 19, 2015 in financial goals

I may not be a finance expert, but one thing I know for sure is you must have financial goals, like most things in life if you want to live a satisfying and meaningful life. I don’t have a whole lot of long-term goals. I call them lofty in jest because they are such huge goals, but I’d like to think they are achievable if we work hard at it. So the two goals that I have are:

1. The biggest one, the holy grail of our financial journey, is early retirement. I don’t have a specific year or age by which we want to retire. But we know we do not want to work until we are 65 (actually now the new retirement age in Canada will be 67 by time my generation of people retire). It all comes down to our income earning capacity, saving rate, and return rate of our investments. We are working on all fronts. If we can make more money, save more money, and put more money into your investments, our retirement will come sooner. It’s pretty simple. But not easy to do.

2. To save enough money for my children’s university education so that they can have the option of going to any university they desire and are accepted into without having to worry about student loans. It would be nice if they had scholarships, but we still need to plan accordingly. I hope they stay within North America just because I don’t my babies to be too far away from me. But I cannot dictate when the time comes. So if they want to go to Harvard or Yale or Standford, I want to have the funds available to support that. Education is very important to our family. Both my parents had university education, my dad holds a Ph.D. Both my husband and I have a Master’s degree. So it’s a given that our kids shall have university education, Master’s degrees at a minimum. I always say the kids can do anything they want, but they must have a Master’s degree. They want to go to Hollywood to be a movie star? Sure! Get a Master’s degree first then go to Hollywood.

I have various short-term goals at any given moment depending on what’s going on in our life right now, such as family vacations and stuff, but they are kind of covered under the big goals ’cause they all affect each other, like you can take that expensive vacation or you can put that money in your ETF. It’s all part of daily life. You are always making choices and tradeoffs right?

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Welcome!

Posted by mapetitechou on Feb 19, 2015 in Uncategorized

Welcome to my new blog! If you clicked from my fashion blog Ma Petite Chou to get here, thank you so much for reading my fashion blog and thank you giving this new personal finance blog a try. And if you simply randomly landed on this blog, thank you for visiting and I hope you stay for a while.

As I said in my introduction on Ma Petite Chou, personal finance is one of my interests that I’m passionate about. I will talk to anyone who will chat about it with me. I’m interested in all aspects of personal finance, from savings, debts, looking for deals, to investing, financial planning, taxes, relationship and finances, etc. It is such a vast subject, there is just so much to learn about it. I love reading finance books and blogs. Business and Financial sections are the first ones that I jump to when I read a newspaper. I would like to share my daily musings with you. Let us keep it fun and light and informative. So please stay tuned.

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