I know the trend on financial blogs is to tell you to pay off your debts… but what if this advice is wrong?
A rich person is an individual with no debts. I’ve often heard that quick line explaining that paying down your debts is the universal financial advice. Since the beginning of 2012, I’ve embarked on a quest against my debts. At the end of the year, I quit on paying debts and decided to turn back to what I do best: make money.
This doesn’t mean I’m not paying off my debts. In fact, my latest net worth statement shows that I’m now attacking my consumer debts with success. I’ve also mentioned on this blog that we are concentrating on paying off our corporate debts at a fast pace recently. Over the past 12 months, we have paid down about 30K of our corporate debts and we should pay another 20K this year to finish paying off our debts towards the end of 2014.
Quick accounting tip: you are better off paying your corporate debts over a few years since you need to use after tax money to pay it. Therefore, if you pay everything in 1 year, you will have a big fat check to write to the tax guy!
My partner was quite happy to see my perception of debts changing over the years. After all, I was the one who mortgaged his house to buy our first site 4 years ago…
While most people like using a conservative approach regarding debt, I usually think that using other’s people money is the best way to make money. I’ve been thinking this way since I was a kid. I guess it’s in my genes. My life has been covered by leverage stories:
Back in high school, I was 12 when I first borrowed money (it was school money) from my friends to play dice. While it was a very bad idea to borrow money to gamble, I won a lot more money than I lost and was able to quickly reimburse my friend and run with my own money (and keep winning).
Back in College, I was thinking of applying for a student loan to invest in the stock market. Unfortunately (or fortunately), I was too lazy to fill in the paperwork in order to get the loan. Instead, I borrowed $5,000 on my credit card to buy a new car and fund enough cash to move into an apartment. Overall, it was an awesome move since I got a super nice deal in a great area of Montreal for cheap. My car was new and therefore I had never to go to a garage. Within 12 months, I cleared my credit card debt with my first day job.
Right after paying off my credit cards, I bought some land with a personal loan. I wanted to build my assets as fast as I could. Since I didn’t have many payments going on, I thought of borrowing 25K at a bank to buy a piece of land. I sold the land a year later with a profit of $4,000. That’s pretty nice considering I didn’t use my money!
Borrow to invest in the stock market. At the same moment, I wanted to start investing in the stock market. I was following several stocks daily and thought I could make a few dollars out of my new hobby. I borrowed 20K in 2003 and turned it into a profit of 50K in three years. This was the cash down payment for my house.
Borrow to buy the house of my dreams. I borrowed from my parents the amount of 25K a few years ago because I absolutely wanted to put 20% cash down on the house of my dreams. I knew I had to pay back the 25K (plus interest) after 5 years. But I also knew that my career was booming at the time and my income was set to be a lot larger 5 years later. I struggled a bit to pay them back on time, though I did it. In the meantime, I lived in an awesome house where I made a nice profit to buy my third house. I actually used a part of my profit to pay off my parents. This was definitely a great move. From a loan of 25K, I made a profit of $75,000 in four years.
Remortgage my house to buy a website. In 2009, I decided to borrow almost $30,000 using my house as collateral to inject into my online company. This transaction opened the door to many other deals and was definitely one of the pillar moments for our business. Since this purchase, we have been making over $100,000 in annual gross income. I took about 23 minutes to decide to buy the site or not and to remortgage my house. In fact, 3 minutes was for thinking about it and 20 minutes was to explain to my wife why she had to sign all the paperwork .
After all these great stories about leveraging, I can say that borrowing money is definitely a good idea. I would not be worth 250K at the age of 31 while affording to have a stay-at-home wife + three kids without my leveraging abilities.
However, it’s been over a year that I’m focusing on debt repayment. My goal in 2013 is to drop under $300,000 of debts and would like to clear all my consumer debts other than my mortgage by the end of 2015. Our online company went up to nearly $100,000 in corporate debts last year and we are now down under $70,000 and counting.
Both my personal and corporate finances have been growing year after year due to several leverage maneuvers. Nonetheless, I’m taking the decision to clear my debts in the upcoming years. By the end of 2015, I should only have a mortgage over my head and my company will be free of debts. Can you see me coming with this?
That’s right: I’m preparing for financial freedom. In two and a half years, I’ll be 34. By the age of 35, I wish to be financially free. This doesn’t mean that I won’t have any debts but if I can clear everything and have just a mortgage to take care of; I can basically live from any kind of income and still be able to make it.
While leveraging has been the only solution to generate income over the past 10 years in my life, it’s time to clean my balance sheet in order to move forward a lot faster. You know I’ll start borrowing again at the age of 35 to grow my income & assets to a whole new level. I’m just preparing my balance sheet for another big jump in two years…
What about you? Have you ever borrowed money to accelerate your asset building?Google+ Comments: 15 Read More
There are things that you should be doing with your money but just aren’t at the moment for one reason or another. It’s time to revisit my piece on 30 financial moves before 30.
Where does the time go? Over two years ago, back in January of 2011, I wrote about 30 financial moves to make before 30.
I wanted to start off with your contributions to this article and will follow up with a few additional thoughts…
Joseph added a great insight:
“I would like to make a comment about climbing the ladder (#7 & 8). As last year I took a promotion to a level just a step below the executive level at my organization. My career goals were always to make it to the “C” suite, and for all intents was on my way.
However, after working in this position I’ve began to realize the toll an executive level of job will take on a new marriage and starting a family. So might I humbly suggest to those setting career goals to also set family goals too.”
Megan joined the discussion with:
“This is a great list. I’ve done many of these (I’m 28) and others aren’t going to happen before I turn 30 (my student loans and my mortgage are going to be around for a while, especially because I’m going back to school).
But it’s good to be thinking about these things, and it’s nice that someone has summed them up so well.”
Ken summed things up nicely:
“All good points, but the reality is, and what you’re actually getting at is the same as my own philosophy with life and money. Be debt free at all times unless the debt has a very high chance of returning more profit than the debt itself, live modestly and within our means, share, give, treat yourself every so often to the things we enjoy most in our lives, and put all our love into our children and family at all times. That’s my philosophy anyways…”
What’s your progress with this bucket list of financial moves?
I wanted to add a few items to this list today. Let’s add a few financial moves worth pursuing before you hit 30…
31. Master paying yourself first.
Have you figured out how to pay yourself first yet? If you ever want to get better at saving money, you need to learn how to pay yourself first and then stick to it. How do you do this? Go to your employer or your bank and ask them to take out X amount from every single paycheck. Then let the money accumulate. Eventually, you’ll be impressed with your savings from paying yourself first.
The trick is to master this. It might not be easy at first because you’ll be tempted to touch this money. Over time, you’ll come to appreciate this easy formula.
32. Figure out how to cut $100 from your monthly budget.
Most of us aren’t saving as much money as we should be. I recently went on a mission to cut $100 from my monthly budget as a starting point. I was impressed with how easy this was. You’ll be surprised by how much you can cut from your budget if you actually try.
What can you cut out from your monthly spending? Any useless subscriptions?
33. Invest in a small startup.
Do you believe in small business? Are you a fan of innovation?
You can take a small bit of money (or large) and invest into into a business startup. This is one thing that I’ve been meaning to do for a long time now. I just haven’t found an opportunity that’s the right fit for me yet.
Have you thought about investing your money into a new business idea?
34. Stretch a dollar to the max.
Are you getting the most out of your money? Sometimes I try to stretch a dollar to the absolute maximum just to see what I can do. This can be pretty fun if you give it a try.
35. Network as much as possible.
We all talk about networking, but so few of us actually do this properly. We just meet up with random friends and get wasted. It’s time to take networking and building relationships to the next level.
How can you improve your networking?
You should really build as many relationships as possible in your 20s when you’re full of energy. You never know how mutually beneficial these relationships can be until you jump in.
Those were a few additions to the original list. Did we miss anything? Is there anything that you would like to add?Google+ Comments: 6 Read More
Some say money is the root of all evil, I say money is the root of all dispute…
I’ll tell you upfront, I love money. Nah! That is not completely true, I don’t love money, I love what it brings: freedom, entertainment, comfort, security and good wine! My biggest financial goal is to be able to spend whenever I want. This is what I call financial freedom; living your life without having to worry about what’s left in your bank account.
I don’t expect to live an extraordinary lifestyle with a lot of expenses. But I don’t want to restrain my budget to the basics for living either. This is a balance that is quite hard to reach and I’ve been battling to find it lately. For the past 18 months or so, I’m on a crusade against debt. I’ve updated my net worth statement last week showing the first sign of real progress in almost two years. I’m proud of what I accomplished recently yet not proud of the time it took me to realize my problem.
I’ve been aware that I was living over my budget for almost the past four years. This is exactly when my wife quit her job to stay home. At that time, I was working a project of mine called The $1,500 project. The goal was to generate an additional $1,500 in net revenue stream so my wife could quit her job and we could live a better life. I did find the money but additional expenses came into play as well. I didn’t budget that part properly.
I haven’t accumulated too much debt over the past four years for a guy who lives beyond his means. The reason is quite simple; I also generated some sizable bonuses since I work in the financial industry. My average bonus over the past four years is $37,750. Even after taxes and RRSP contributions, I still have about $12K in my pocket each year to tackle my budget. That’s another $1,000 per month. With this money, I was able to pay back a part of my debts. My total debts are showing $312K and the highest I was in the past four years was when I bought my RX-8. In June 2010, I had $334K in debts. So in the past three years, I’ve paid down 22K in debts while I increased my assets from $480K to $565K.
When I look at my situation over the past three years, I can’t say that I’ve headed in the wrong direction. My net worth has jumped by 100K in 36 months, that’s pretty good! But the problem remains the same: I have to count on my bonus to bring my debt level down. I’ve been working on this problem for a while and found it very hard to find a solution until I had a discussion with my wife at the beginning of the year.
After we came back from Disney, I realized that I had to speak with my wife about a touchy topic; money. Since I work in the financial industry and my wife has little interest in finance, I manage all the financial aspects. I don’t update her very much about our situation since she is very insecure about money. Since I’m a big leverage fan and used our line of credit several times in the past to fund projects (trading on the market, start my online company, etc), I thought we were better off this way.
The problem is that she didn’t know that I was actively battling against our debts and that I was looking for a way where I can pay down my debts on a monthly basis within our budget instead of waiting for my year-end bonus. She is definitely not the type of woman who spends without counting. She is very careful with the household expenses. Still, managing a household of five can lead to more expenses when you don’t keep a close record of them.
It wasn’t easy to tell her that we had to take a closer look at our budget and cut down on our own expenses. We used to go out to the restaurant once in a while and treat ourselves; this time is over for now. It sucks to tell your wife that you are not going to go to the restaurant or the spa next weekend, nor in the following weeks months.
Since I’m the only income earner of the family, I feel a pressure to bring in enough dough for everybody. We can’t complain as we are living a great life. But I live the pressure of maintaining the same level of lifestyle alone. Having this discussion with her felt like I haven’t been able to complete my part of the deal. I wasn’t making enough money so we could spend as we want. In the end, it was admitting a failure on my part.
I also tend to enjoy life and rarely think twice before spending. This is why it was so rough to explain my wife that I changed and wanted to slowdown with our expenses. However, my wife didn’t take it badly at all. At first, she was worried about our financial situation. But I explained to her that it wasn’t that bad but we needed to take control of our budget today and not wait for bad luck to happen!
I now feel better about this whole story since we are now a team facing our debts, I’m not alone anymore and this makes a big difference for me! We are now working together to find alternatives and ways to save money and the results are showing already. I should have definitely not taken that long to speak with my wife about money management!
Google+ Comments: 15 Read More
I was half excited, half scared to write this article. Since I don’t track my debts anymore, I was hoping that my balance sheet would look better after the first three month of 2013. Since we have come back from Disney, we are very cautious about our budget. I’m glad it’s paying off! Here’s my net worth statement:
CHANGE (%) CHECKING ACCOUNT $1 000 $1 000 0,0% EMPLOYER STOCK
$2 507 $3 853 53,7% RRSP ACCOUNT $35 573 $37 734 6,1% RESP $2 003 $2 633 31,5% PENSION PLAN $26 131 $26 131 0,0% HOME $351 640 $351 640 0,0% COMPANY SHARES $131 521 $131 521 0,0% MAZDA TRIBUTE $12 586 $11 284 -10,3% MAZDA RX-8 $800 $- -100,0% TOTAL $563 761 $565 796 0,4%
I must admit that my assets were helped by the great bull market. My RRSP gained 6.1% in value since I made my contribution in January. This is all paper profit but we are going to take it for now J. I’m very happy about my Dividend portfolio and my investing strategy is now paying off big time.
My employer’s stock keep going up as I invest $603 per month in them (part of it is paid by my employer). My goal is to wait as long as possible before cashing them out and paying off more debt with them. I’m allowed to withdraw 75% of the total of my shares annually and still keep the plan up and running. If I can make till the end of the year, I should have around $9,000 in this account. At 75% of the value, this is another $6,750 I could put on my debts. So this is obviously a big part of my plan of paying down $16,000 in debts this year.
I didn’t update my pension plan as I will probably receive my “employee booklet” in May with the new value. As for the online company shares, we will use the same method to value them in a few weeks (3 times the annual gross income – debts). I expect the value to be similar as our gross income slightly dropped over the past 12 months while our debts are down too.
As for my house, my biggest asset, I do not plan on increasing the value in 2013. I’m definitely concerned about the housing market in Canada and I would not be surprised if we take a 10% hit during a price correction. This is why I keep my house undervalued in my balance sheet. If I had to put it for sale today, I would probably list it around 375K and sell it around 365K.
CREDIT CARD $6 831 $5 092 -25,5%
LINE OF CREDIT $19 597 $19 918 1,6%
HELOC $263 015 $262 803 -0,1%
CAR LOAN $12 586 $11 284 -10,3%
Personal Loan $8 333 $7 916 -5,0%
Pool Loan $5 370 $5 290 -1,5%
TOTAL $315 732 $312 303 -1,1%
Yippee! I’m down by almost $3,500 since my last update! The original plan is to pay off $16,000 this year. This makes for an average of $1,333 per month to pay off. After three months, I’m only $500 behind my main goal while I’m putting money aside in my employer stocks. Technically, if I can keep up and not use my employer’s stocks until the end of the year, I only need to pay $770 of debts per month to reach my objective. With this number in mind, I’m way ahead of my debt repayment plan!
I must admit that my tax return had played a great deal in the equation this year. I’ve accounted for the checks I’ll be receiving in a few weeks in this update as I received confirmation from my accountant about two weeks ago. I will be using my whole tax return to pay off debts and this is why I show such strong figure. If I forget about my tax return, I would be showing a smaller debt repayment of about $1,200.
When I take my tax return out from the equation, my debt repayment plan seems to be in a slump. But this could be explained by the fact that my income in this beginning of the year is a lot smaller than last year. Since we are aggressively paying down our corporate debts, I haven’t taken any dividends from my company. I used to pay myself a few hundred per month to keep up with my budget. I don’t have this money anymore. So I’m spending less, but I’m also earning less money too!
The good news is that starting in May, I’ll be done with a part of my taxes taken from my pay check. I will reach the maximum for pension and unemployment contributions. Therefore, my pay check will bounce up by $200 net bi-weekly. In addition to that, a small raise should be coming in June. This should be enough to bring back my budget on track and add more money to my debts.
I will also start a TFSA account to fund my kids private school tuition. I want to send my kids to a private high school and my older son will reach high school in 5 years. I wish to put $100/month in this account for now so I can have a small buffer of two years when he enters school.
Another of my goals for 2013 was to lose weight. On January 1st, I stepped on the balance and showed 196 lbs. This is definitely way too much for a man who’s 5’9’’! My plan to lose weight was similar to my plan to pay off my debts: concentrate on doing more activities (or more cash) and try to improve my eating habits (and my spending habits!).
I can say I’ve done a better job at dropping down my debts and eating less! I’m now trying to be careful throughout the week and eat what I want over the weekend. However, I’m darn steady with my workout program. My goal is to run 500 miles in 52 weeks. Considering vacations, it’s like running 10 miles per week.
After 12 weeks, I’m showing a total of…. 126 miles ran! It was hard at first since I was lagging with my plan due to my Disney vacation but I didn’t want to bring excuses on the table. Now that I’ve stabilized my running schedule, I started to lift weights again. I now run 3.2 miles 4 times a week + 25 minutes of weight lifting each time.
I weight myself each week to have an idea of where I’m heading. My weight is going up and down mainly due to my eating habits (plus wine over the weekend obviously!). However, I’m proud to say that I’m now showing 186lbs so I’m down 10 lbs in12 weeks. Ultimately, I would like to reach 170-175lbs. Another 16 pounds in 40 weeks seems achievableJ.
If I can simply cut down on wine I would probably reach 2 objectives at the same time: losing weight… and losing debts! Hahaha!Google+ Comments: 9 Read More
Do you have a lazy kid?
At one point or another there’s going to be the need for hustle. This is time that I could be spending on anything else but writing. Yet, I love doing it.
Your kid is going to have to hustle hard at one point. There will be the phase where they’re forced to work hard. This will hopefully be followed by the stage where they enjoy working hard. Take it from me personally, I never imagined that I would look forward to working. Now I don’t even want to call it work because I enjoy working on my projects so much.
I have a feeling I know what you might be thinking:
My son watches TV all day, there’s no way he’s going to hustle.
My daughter hangs out with her useless boyfriend all day, I can’t picture her working.
My kid’s biggest accomplishment is reaching the highest level in a PS3 game.
All I have to say is that my parents probably said this about me and my brother at some point. We all go through our lazy phases. We all also wake up eventually and realize that we need to work if we want to get anything done.
Let’s get right into the important stuff. How can I get my kid to actually work?
Let me ask you a quick question: if you don’t know where you’re going, how do you know when you get there? I find that the main problem with saving money in your 20s is that you really don’t know what you’re saving for and why you’re saving money.
I didn’t start saving my money until I got the idea to purchase a condo. We all need goals. Goals are essentially a dream with a deadline (I remember hearing this in some corny movie, but it’s still true!).
We need some sort of goals to strive towards. A lot of my friends don’t care for saving money because they don’t think that they have anything to save for. Once you develop this type of an attitude it will kill any saving bone left in your body.
What’s the point of saving for something if you don’t feel the need to?
This is why I always stress the importance of setting money-related goals. This can be something as simple as saving $1,000 for a trip or something a little more complex like saving $5,000 for a new car down-payment.
This is why I suggest that you sit down with the young person in your life and discuss the idea of setting money goals. You can ask the following questions:
What do you want to have in X amount of time?
How much money do you need for your dream trip?
How much money would you like to have in your bank account?
These are just a few quick questions that I thought of from the top of my head. I’m sure you can come up with many more.
The end point is to help the young person set some money related goals. Then we can move on to the next part.
There has to be a clear reward somewhere down the road. If we don’t see any results we’ll either just give up or stop caring. Why save money or work on something if there’s no reward? This is why cheat days are so huge with most diet plans.
This is why I believe in tangible rewards. Storing money so that you can keep it in a savings account is cool, but it’s not all that exciting for the typical 20-something.
This is why I gave the two examples in the paragraph earlier: saving for a trip or a car. When you see the reward for your financial goal it entices you to get into the habit of saving money.
What young person wouldn’t want to go on a trip? By saving up for their first trip or major expense, they’ll learn the important of setting goals and how they can be rewarded.
Once goals are met and rewarded, a new challenge needs to emerge or else money management will become boring again.
I recommend constantly looking out for new financial goals so that your kid will always feel challenged. You can also create a challenge within a current goal.
For example, I’ll do this by trying to find ways that I can make some more money or cut back on useless expenses so that I can meet my goals quicker, and reap my rewards sooner.
If I want to go on a trip sooner (after a huge snow storm) I’ll see if I can pick up more shifts at work or sell more of my crap to have more cash available to me. It’s really amazing to see how much momentum you can capture from a few quick wins.
Keep the challenge alive! I’m sure that this is the same advice that relationship experts and personal trainers offer.
That’s all I have to say about getting the college kid in your life to actually work and save money. It’s time to get working and saving!Google+ Comments: 8 Read More
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