By reading this title, you must think: “man, this guy has guts! He writes about getting out of the rat race and then, he’s telling us that debt is a good thing”. Well… I must admit that at first glance, I don’t make much sense. The whole purpose of reaching financial independence is to generate enough cash flow to sustain your lifestyle. Therefore, the less debt you have, the easier it is to reach financial independence. So tell me, how come borrowing is one of the best moves you could ever make?

Why Do You Fear Debt?

I’ve been thinking about why people are so afraid of debt. Here are the possible reasons I have found so far:

a)      Educational background (we have been told by our parents, by school and by the Church that debt is evil and that we should always spend within our means).

b)      Financial Gurus (most “great financial gurus” are literally preaching a frugal lifestyle and to avoid debt at all cost even if it means using half a tissue paper)

c)       Fear of losing (this is more understandable: if you have too much debt, you could eventually default and lose your house/car/lifestyle. Nobody wants that)

d)      Hate to pay interest (that is another good point: when you borrow money, it always costs more to pay it back than paying cash in the first place. Interest sucks!)

I might have forgotten one or two more reasons why people fear debt but in general, you probably fall into one of these 4 categories. When you think about it, they are not dumb reasons. In fact, some of them are easily defendable points. In front of this info, most people would agree that having debt is a bad thing and someone that is debt free is to be considered “rich”.

Well, I completely disagree with that. Debt can be so useful that if you are trying to pay them off ASAP, you are missing something.

What is the worst that can happen?

If you have too much debt, the very worst thing that can happen is going bankrupt. This is the worst case scenario; losing everything. I might have a different point of view on debt because I have a different background than most people. At the age of 14, my parents went bankrupt. It is important to say that, back in the 90’s, my dad was making over 100K already. My parents were spending their money as it was coming in. While there was lots of money coming in, there was lots of money going out! When my dad lost his contract, it took only 3 months until there was no money left and had to declare bankruptcy. We lost our big house, big cars, no more vacations, we lost everything… in fact, I even remember my mom looking for spare change under the cushions of the couch to buy a pint of milk at one point!

However, losing everything is not as bad as it seems. It sucks big time but you just get over it. You learn to live with less money in your pockets and you start working hard again. Surprisingly, 4 years later, my parents had started a new company and were making even more money than back in the 90s! You couldn’t tell they went bankrupt and had lost everything a few years back!

What have I learned from this?

I’ve learned 2 things from going bankrupt as a teenager:

#1 don’t overspend and make sure you have a backup plan (I have my budget under control and I can always rely on my online company to pay my bills if I lose my job)

#2 losing everything is not that bad (so I don’t have to fear debt)

Now, it’s not because I don’t fear debt that I should go to the bank and fill my pockets with loans! In fact, one should only borrow to build assets and avoid consumption related debt. For example, don’t finance your vacation . Make sure you have a budget for it!

Where I’m a bit different than others is that I always calculate where my money will generate the most benefits. Then, since my mortgage is at 2% and I can easily generate more than a 2% yield, I invest in the stock market and my company. Therefore, instead of focusing on paying down my debt, I think I should focus on creating more assets.

Over the past 3 years, I have noticed that my spending habits have increased significantly. Unfortunately, not all my debts and expenses are related to creating assets. I have also increased my lifestyle a lot. This is why I am now trying to pay down my debt as I consider that if anything happens right now, I will definitely run into a tough time even if I can count on my online company to cope with my salary loss. My other goal is to drop my debts to eventually give me the option of quitting my day job. I really like what I do right now but just having the option possible would make my day!

Are you afraid of debt? Do you sleep well at night? As long as my interest rate is low, I do!

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An older friend came out for drinks with us the other night. He was being very generous, he kept on ordering rounds, and would refuse to let anyone else order the drinks or pay for them. I finally got fed up with this because I don’t like it when someone spends money on me. He explained to me that he worked hard his whole life so that he can be in a position where he earns lots of money and can afford the simple pleasures in life (covering drinks for everyone).

Mike reviewed his 2011 financial goals the other day. He mentioned that he wasn’t stressed out about his credit card debt because he knew he would get a nice bonus at the end of the year.

What I’m getting at is that when you work hard and earn a good chunk of change it’s really easy and rewarding to increase your lifestyle and enjoy yourself.  When you’re successful and making lots of money, it’s feasible to spend money.

I wanted to play Devil’s Advocate today and look at the other side here. My question to you guys today is could you decrease your spending/lifestyle if you were to lose your job or if you were forced to?

This is a tough one to answer. I know personally that it would be challenging for me to cut out certain things from my lifestyle if I needed to right now. It’s simply to theorize about cutting down on certain expenses. The reality is that most cutbacks would have a negative impact on my lifestyle that would be difficult to accept. Let’s go over the factors involved in decreasing your lifestyle spending:

Could you embrace frugality?

Could you be frugal if something were to happen and you really had to save money? When you’re making good money or have few responsibilities you don’t exactly have to be frugal and tight with your finances. What if you had to be frugal? Would you be ready?

I would consider myself to be frugal in some areas of life. I don’t like to pay for things if I don’t see any value. I don’t like to  feel like I’m being ripped off either. On the other hand, when I see value in something (a trip for example), I don’t mind spending the big bucks.

Could you cut out the luxuries?

I really enjoy my luxuries. I enjoy my fancy smart phone. I enjoy my trips. I enjoy my MMA gym membership. What if you had to decrease your lifestyle spending by cutting back on the luxuries? Which luxuries could you cut? Which ones would you really miss?

I think that I would really miss my smart phone and driving every where. I’ve taken the bus around town for many years. I’ve spent many cold winter mornings freezing at the corner waiting for the bus hoping that it comes before I freeze to the ground. Now I enjoy being able to drive wherever and whenever I want.

Is spending money the reward for making big bucks?

Do frugality zealots just not earn enough money? I find that the harder I work to make more money, the more rewarding it feels to spend some of this money. What would be the point of always working if you can’t have a decent lifestyle? Working hard for your money would definitely make lifestyle deflation tough.

Sam of Financial Samurai once wrote that there’s no point to making money if you don’t spend it. I agreed with the article because life really is finite. Once you take care of your expenses and main savings, it’s okay to splurge money on yourself. This is why I might not be so good at decreasing my lifestyle spending.

Time to ask the readers: What do you think? Would you be able to decrease your lifestyle spending? or would you find other ways to make more money?

(photo credit: rawartistsmedia)

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Last year, I wrote down my 2010 financial goals and followed up during summer to know if I was in line to make it. You know what? I crushed all my 2010 goals! This year, I’ve established 3 financial goals :

#1 Paying off all my credit cards (22K!)

#2 Increase my net worth past 200K (from 152K)

#3 Get in the Top 3 Financial Planners in Montreal and Make 150K

Those were pretty ambitious goals as they required both lots of effort and money! This is also why it is very important to follow-up today with my goals and see where I stand:

Paying off my debts

I suck!!!! Back in January, I was at 22K in personal loans and credit card debt. As of last weed, I’m at 28K!!!! How can I be so bad? The first reason is called central A/C that cost $7,000! The second reason is because I didn’t use my employer’s stock yet to pay off my debts. Since I’m paying a very low interest rate on my debts and the stock is going well, I’m waiting . I should be able to pay down my debts faster in the second half of the year. But let’s be honest, I definitely count on my year-end bonus to clear this mess… I’m still not worried about my situation as things seem to be under a better control now ;-D

Increase my net worth

I don’t know why but creating assets and making money always sound easier for me when compared to paying down my debt! I started the year at 152K and I’m already at 180K. The last $20,000 doesn’t seem to be quite a challenge since my house and pension plan values should cover this. In addition to that, I will max out my Jan 2012 RRSP contribution by 9K so aiming 200K is like a done deal .

I’ll actually concentrate on pumping my net worth a little bit higher and try to reach 250K by the end of Jan 2012. I can’t wait to see if I’ll be able to make it! If worse comes to worse, I guess that with our next share valuation update in May 2012, I’ll be going over 250K!

Top 3 Financial Planners in Montreal, Making 150K

Well this is another great challenge! As of today, I know I am part of the top 10 for sure, but the top 3 is always hard to determine until the fat lady sings . Everything can change until the very last minute, so I’m still in the dark to know if I’ll make it or not. I know that I’ll have a record year in 2011 compared to my previous 3 years as a financial planner. However, it doesn’t mean that others won’t have a record year too! I still have about 3 months (our financial year ends on October 31^st) to work on it and I have a few good deals on the table. At this point, I can tell you that the difference between 10^th and being top 3 is about luck. If you get the right timing to bring in the numbers and another planner doesn’t, you go through and make THE year .

The good news comes when I look at my potential bonus and overall income. Last year, I had a record year at $135,000. If I don’t make the 150K, I’ll be darn close! I was able to manage an interesting income raise last month and I should be looking at a bonus between 30 and 40K. So if I keep working the way I do for the next 3 months, the 150K will be mine this year!

Final thoughts

Overall, I’m pretty happy about what I see over the mid year. Reviewing my financial goals is helping me keep focused and I know now that I need to put more emphasis on paying off my debts while my net worth and income goals will be reached simply through following what has been implemented so far.

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After so many months of seeing my debt rising due to my stupid habit of pimpin’ my lifestyle, I’ve finally put my money where my mouth is. I have started to pay off my debts! You know what is the toughest thing to do with your budget? It’s not making more money, it’s slowing down your spending habits!

But to be truly honest, I wasn’t able to slow down my spending in June. In fact, it was just a regular month ‘finally’ without extra expenses. The good thing is that I don’t expect to have extra expenses for the rest of the summer. My children’s birthday gifts are done (it’s a huge cabin in the woods!) and we don’t have any big summer vacation plans either… hey one guy has the right to get that it’s time to stop spending .

Expenses are under control; what’s next?

I’m currently concentrating at the bank, on finishing my year with a big bang! I closed several deals in June and I am now in line to get a bonus over $30K… possibly 40K if I’m lucky enough! This bonus is payable in January… it will be the perfect time to pay off my credit card debts in full! Unfortunately, even if the bonus is pretty chunky, once the Government is paid and I max out my RRSP contribution, there won’t be much left after I pay off my debt! I guess this is what happens when you spend money you expect to earn… there are no personal rewards when paying it back!

I don’t expect to increase my company shares value until the end of the year. The only things that will increase will be the value of my house at the end of the year (by 3%, following inflation) and my pension plan (which I still have yet to receive my updated employee booklet). Both assets should pop $20 to 25k more on my statement. Therefore, I should be able to reach the $200K net worth mark without too much effort this year. If I’m lucky, I’ll reach $250K by January when my next bonus gets deposited!

Learning something from this

This is probably the most important thing I’ve learned from spending money that I am expected to make in the future; it’s not as fun when you get your bonus. You don’t even feel “proud” or happy since you see the money in your bank account one minute and gone the next.

Will I continue to spend money? Yup! But I’ll make sure that I spend money earned and not expected!

Here’s the details of my net worth statement for June:

 
Assets:

Liabilities :

net worth: $180,888 (+2%)

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All right, I realize that we are almost done with June but this month just flew by with the launch of my dividend investing ebook (I’ll share with you the results next week!). So it’s about time that I provide my net worth statement.

The good news is that my assets are growing faster than my debts. The bad news is that my debts are still growing. On another positive note, I’m done with my major expenses for summer (A/C has been paid, baby showers are history, municipal taxes have been paid and the birthday gifts for both my children are paid for). On the other hand, I didn’t receive my mid-year bonus yet. I am hoping that I will get it in July, yet the news is that the bank is very conservative and I won’t be receiving much (as compared to what I will be getting at the end of the year!).

I have increased the value of my house by 7K which was the cost of my central A/C. Perhaps I should not increase the value by the full 7K but I swear it’s worth it . Since I only attribute a 3% increase annually on my house (while the market is growing faster in my town), I don’t feel too bad about it.

I still haven’t received my pension plan update, I am starting to think they forgot about us . This will also see a big jump (as I am still working with 2008 numbers). We are now about to enter a cool period in terms of spending as I don’t have many expenses coming up this summer. Therefore, I should benefit from 3-4 months in a row where I should be able to drop my debt level. It is definitely about time!

I also got a good income increase (which starts this week!) so  I will use this extra income to work on reducing my debts. So far, I’ve been able to switch my debts around so I don’t pay more than 2% interest on any of my debts. This is probably why I keep spending; the impact of the interest rate on my budget is minimal. However, things won’t always be this way so I had better start cooling down .

I’m really looking forward to next month’s update, as I should be able to drop my debt by 1 or 2K. Let’s concentrate on my goal to pay off my credit card debts by the end of the year!

 Assets:

Liabilities:

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