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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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Work bonus must be sheltered

Posted by mapetitechou on Apr 9, 2015 in saving

Just got the email from the CEO about the company bonus that is coming in 2 weeks! Needless to say, it’s very exciting. And we have the choice of putting it into RRSP. What am I going to do with my bonus? You guessed it, I’m going to put a major portion into my RRSP account. I would’ve liked to put the whole thing in my RRSP, but I would end up over-contributing. So 68% is the appropriate amount after I did some calculation. It’s too bad that the Tax Man still gets to take a big chunk out of the remaining. But I’m not too broken up about it, I will have some mad money to spend on fashion! 😀

The decision to shelter the bonus was a no-brainer. That’s what I’ve always done with my bonuses. I was so shocked to hear from some of my coworkers that they were still debating whether or not to put theirs in their RRSPs. One even said he was not going to put any of it in his RRSP and would rather take the tax hit! That is a huge tax hit. These are all high-income earners, so their marginal tax rate is very high.

For me, sheltering bonuses is a must. It does not matter if you think you need the cash so badly. It is not worth taking the tax hit, especially if you still have RRSP room. Put it in your RRSP, then take your tax refund and spend it however you like. Heck, if you really need the cash now, take out a small line of credit. The interest rate is so low right now, it’s not going to hurt you as long as you pay it off quickly. Save that glorious bonus and let it grow in a tax shelter.

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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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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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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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