During my last net worth statement, I was completely ashamed of myself. How can I make so much money and spend it all? It’s one thing to reward yourself (I’m a big believer in behavioral psychology!) but you ain’t doing anything good if you finance your rewards through your credit card! So this is how I went on an austerity plan (feels like a Greek guy!).

My austerity plan has 1 objective: cut on dinning out!

We are tired, we want to celebrate or we simply have this obsessive image of a BBQ chicken with fries and sauce (my favorite is the combo double chicken legs! Hum…. So tasty!). I love to eat and I know I spend a lot of restaurants and ordering food when it’s Friday and we don’t feel like doing supper. Well for the past 6 weeks, we haven’t ordered anything and we didn’t go to the restaurant either!

The second important source of expenses in my household is my cost of transportation for work. I live 85 km away from my job (that’s a 1 hour drive on the highway for US readers ). While I really enjoy driving (after all, I did Montreal – Virginia Beach in one shot, no stops ), it cost me a ridiculously high amount to make this distance. There is gas, parking (yup, I don’t even have free parking!) and a higher cost for car maintenance. With the price of gasoline rising, it is now a $10,000 expense per year in my budget. The most disgusting part is that since I’m at a marginal tax rate of 42%, my last $17,241 earned on my notice of assessment goes to transportation… Even if this year I’ll reach a total income of about $150,000 (more on that later on), it is 11.5% of my total income going to transportation!!!! I can’t do anything about this right now, but I will in February. I can’t tell you more right now, but let just say that regardless of what is happening until then, in February, I’ll be working in the same city I live. So I’ll go from 10k to $500 per year for gasoline to go to work ;-D.

My Halloween Horror Story

I’ve delayed my net worth statement on purpose to get it on Halloween’s day because I have a horror story regarding my personal finance. I feel like living the sequel of an old horror movie of a story that happened 11 years ago (I would have preferred the tragic number “13” but it’s only 11 years…). For the very first time in 11 years; I wasn’t able to pay my credit card in full! I have municipal taxes and school taxes coming in November and I needed to leave a few more hundreds in my account. This is how I was able to pay only a part of my credit card statement. I could have taken the missing amount from my company’s account but I wanted to act different this time.

For a while, I’ve been taken resources right left and center to pay off my lifestyle. This time, I’ve decided to stop counting on the fact that I’ll be making more money later on and take the hit. I guess that if you really want to change your behaviors, it needs to hurt. Pain is probably the biggest motivation factor I’ve ever experienced in my life. I felt the pain a few weeks ago when I paid partially my credit card.

The pain of paying interest.

The pain of feeling like a slumbag who’s not able to manage his budget properly.

The pain of publicly writing this article you are reading this morning.

But when it hurts, you do something about it. This is why I decided to take a deep breath and take out the stitch one shot!

But there is still a good news ;-D

My “austerity” plan actually worked though, my debts have decreased by $300 or so this month. This was the very first time since a while that I’ve actually decrease my debts instead of taking more money out of my line of credit. While $300 is not an incredibly high amount, it is definitely a good step in the right direction!

So my net worth has slightly declined (thx to the value of my 2 cars!) but my debts has slightly reduced as well. This is what the most important part is for me right now!

Assets:

Liabilities:

Total Net worth: $177,889 (-0.2%)

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Ouch!

And…

Poor me!

That’s exactly the 3 words I thought when I pulled out my assets and liabilities last week to write this post. In the span of a single month, I dropped my net worth by $9,000… how can I lose 9K within 1 month?!? OMG!

When a big movement in your net worth occurs, you need to find out what happened!

I knew that this wasn’t going to be a nice month since I was taking my vacation right after writing my latest net worth statement but I didn’t expect to see such a dramatic change in my personal finances… as I didn’t expect to go to New York for my birthday the same month either!

So Where Does all My Money Go? (that’s also the title of a great blog authored by Preet ).

First there was my vacation when we went to Virginia Beach,

then there were both municipal and school taxes,

then there was a crazy weekend in NYC for my birthday (I turned 30 ;-D ),

then there was the tire that blew on the highway the day I got back from vacation,

then there was another great supper at an expensive restaurant for my birthday with friends,

then there were “back to school” expenses for my 2 kids,

then there was private daycare for my youngest one as we want her to play with other kids her age to be ready for school next year,

then there was the market dropping like a rock…

all right, so out of all the reasons describing why I feel poorer there is only one reason that was out of my control: the stock market and its mood swings! As for the rest, I have no excuses. I just hit a bigger wall this time as everything happened during the same month. Maybe I needed this to finally put some action behind my words. This is when I decided to take my finances in hand… with real moves!

#1 Review my insurance coverage

Believe it or not, you can’t trust anyone. And when I say “anyone”, I also mean the people that you can trust… in fact, you can’t really trust them . When I took my term insurance 3 years ago, I knew my needs and I knew what kind of product I was looking for. That’s one of the main advantages of being a financial planner . However, I don’t know much about insurance pricing and I should have shopped around. Instead, I trusted my wife’s cousin… big mistake!

When I reviewed my insurance coverage this month and realized that I could get $500,000 more in coverage while paying $30/month less (without counting the fact that I am 3 years older than when I first signed my insurance policy!). So, the tip of the day: shop around once every 2-3 years for your insurance coverage and you’ll probably discover a few bucks hidden under the mattress!

#2 Drop my electricity bill

When I moved in last year, I was on a monthly plan at $300/month. Even though I have a big house, I didn’t expect to see my bill go so high. During past 12 months, I’ve been working on dropping this bill down and having a small monthly plan. I got my electricity spending reduced to $250 per month for the upcoming year. So this is an extra $50/month in my pocket!

#3 Restaurants are my Arch Enemies!

When I need to cut down on something to make some room for my budget, I know exactly where to look: restaurants! I really, really, REALLY enjoy food. This is why I always end-up going to good restaurants and picking among the most costly plates. On top of that, I’m a bit lazy when it comes down to cooking over the weekend. I have a bad tendency of ordering pizza or chicken on an almost regular basis…

For the past 2 weeks, I’ve made some modifications in my habits. #1 I didn’t go to the restaurant at all. #2 I cooked instead of ordering unhealthy food! Last Friday, I cooked duck and made a shrimp risotto. Instead of paying more than $100 in a restaurant to have the same thing, we had everything done for less than $30!

Communication is the key!

When you are getting a little bit tight in your budget, you might have the reflex to keep it to yourself and without discussing this with your spouse. For example, I’m the only one working and managing the finances at home. On top of that, I know that my wife is a bit insecure about money. I used to tell her that everything is fine all the time but now, I had to tell her that we need to slow down at least for a few months.

It wasn’t fun to tell her that we need to slow down but I obviously need to get my spending under control. The days where I can only spend and never look back are over. I’m still in a pretty good financial situation, but I’ve been running from one excess to another lately. This has to stop. Since we can easily save $500 per month in restaurant and activities, we’ll adjust to that for a few months and see how it goes.

The good news is that I can always count on my bonus to pay off some debts… but here again, this is a habit I should quit along the way. I should be able to live with my main income and put the bonus aside.

So here are my assets and liabilities! (you’ll notice that my RRSP account grew by 9K but it’s because I took at 10K loan to invest in the market dip… the leverage loan is currently breaking even but the rest of my investments had suffered the wrath of the market!).

Assets: $524,424

Liabilities: $346,138

Total Net worth: $178,286 (-5%!)

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We all want to retire early and live the life. We all want to have a high quality of life in our golden years. We all have different plans for saving towards retirement.

It’s solid personal finance advice to suggest to a young person to save money towards retirement. We all should have retirement savings on our minds, regardless of our current age. There are many ways that one can go about saving up for retirement and it all depends on what opportunities are available to us. The dilemma with retirement saving for most of us is surrounding the idea of the amount of money that we should be putting aside for our retirement right now.

How much of your current income are you saving towards retirement? How serious are you about your retirement?

I’ve recently had many mixed feelings on saving money for retirement. I wanted to present two different scenarios that got me thinking differently about retirement planning:

Scenario #1: My friend’s father passed away sadly at the beginning of the year. He worked a job that he didn’t like up until his last few days because he never planned for his retirement. Since he never saved money and had three children, he had to work way past the point where his body could function properly. He would hate his job and waking up every day for work dreading it.

Scenario #2: A rich older man that I knew of passed away just as he retired. He planned and saved for his retirement meticulously. He was so aggressive with his savings that he was able to retire at 55. His sacrifice and dedication paid off as he reached his goal of early retirement.

As you can tell the first scenario has me worried about retirement and the idea of saving enough money. I really don’t want to end up working a job that I don’t care for until my late-60s. Especially if I can start planning for this in my 20s.

On the other hand I don’t want to live like a hobbit and save every single penny. There’s no fun in staying home and not going out much. I could never be one of those people that brag about saving money by not going out or traveling at all.

What’s my solution to my mixed feelings on retirement planning?

Setting long-term financial goals while still finding ways to enjoy the present moment. You don’t have to go in one extreme or the other.

You can escape the rat race without being completely careless and quitting your job without a backup plan. There are many ways that you can enjoy today without losing out on tomorrow. I believe that it all comes down to conscious spending and prioritizing. You can have the nice toys that you want as long as you make the money and manage to save a decent amount of change. It’s cool to spend your money on trips if you plan for it and earn in.

I really believe that we can have what we want right now while still planning for the future. We just need to plan ahead and find that perfect balance. It might take a long time before we find that perfect balance, but I’m sure that it’s possible to hit eventually.

If you want more detailed help then you should check out Mike’s newest eBook launch: The Rat Race: 1 Year From Now, Will You Still Be A Rat? This small investment can help you get out of a viscous cycle that’s taking a toll on your health and your happiness.

What are your thoughts on saving for retirement? How aggressive are you? Would you rather spend more money now to enjoy life?

(photo credit: john walker)

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Okay, I won’t take long to answer this simple question. In fact, chances are that you don’t even know who Frederik Meijer is. To be honest, I didn’t know before writing this article either .

So here’s a quick description of each guy :

Name: Warren Buffet

Occupation: CEO & Chairman of Berkshire Hathaway

Net Worth: $50B

Name: Carlos Slim

Occupation: Business man (mainly active in telecom, real estate & mining companies)

Net Worth : $74B

Name: Ingvar Kamprad

Occupation:  Founder of IKEA

Net Worth: $6B

Name: Frederik Meijer

Occupation: Businessman (Meijer Supermarkets)

Net Worth: $4.7B

All right, you guessed it… they are all rich!

Nope, think again.

They are also known for their frugality. While Buffett and Slim live in their very same house as 40 years ago, Ingvar drives a 15 year-old Volvo.

But that’s not my point either. In fact, it is only half of the story. Some people pointed out in one of my latest posts (Why Cutting Out Your Starbucks Won’t Make You Rich) that frugality pays off over time and that some of the richest men on Earth are frugal.

All right guys, you made a point: there are frugal billionaires out there. But, seriously, do you really think that these guys amassed their fortune by saving 50 cents on toothpaste?

What they really have in common is the following: they are all creative businessmen. And this is really how they made their money: by founding a company.

In fact, it appears that there are only few ways to become a billionaire:

#1 Inherit a huge fortune (such as M. Stefan Quantd who owns 17% of BMW… my favorite car constructor!).

#2 Be part of the first Facebook collaborators (such as Mark Zuckerberg, Dustin Moskovitz, Sean Parker and Eduardo Saverin).

#3 Be an incredibly awesome entrepreneur (like most people on the Forbes Billionaire’s list).

So I told you last week and I’m yelling this proudly again: frugality won’t make you rich. My theory is that frugality will slow you down and prevent you from becoming rich. Forget about being billionaires like these guys. Just think about living the good life without having to budget because you make more money than you spend anyways. This is financial independence:

Working because you want to instead of needing to

Living in the same house for 40 years if you want to instead of having to

Making money from your passion not from a measly bi-weekly pay check

And how do you reach financial independence? By not restraining your passion, your guts, your brain. Get rid of this old set of restrictions indoctrinated in our minds since youth. Open up your mind and see further than the 2 for 1 coupon stuck in the wallet in your back pocket.

I think these frugal billionaires are an exception. And I also consider that there should be a balance between living frugal and over spending. This balance is what I call “financial independence”. As long as you can spend money as you wish and that you don’t have to budget, that’s the real life, regardless how much you spend.

Then, it’s only a matter of earning more than you spend… and doing it through passive income . In the end, I would rather look like Richard Branson than Ingvar Kamprad but that’s probably because I prefer driving cool cars than sitting on a nice chair in my kitchen .

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Wow… this is nice! The stock market is down and I’m still able to show a 7K growth for my monthly net worth statement! Nope, I didn’t increase my house value or my company shares (this is being done annually). In fact, I received my pension plan update, yeah!

However, what I am the most proud is to see my debt level increase by only $500 while I hosted 2 birthday parties and booked my vacation (Virginia Beach, here we come!) since my last update. The parties along with the hotel in VB have probably cost more than $1,250. Therefore, the increase is less than the money I have spent over my monthly regular budget. I know that other expenses will make my task of lowering my debt difficult in the upcoming months as I have municipal and school taxes along with… my B-Day in September .

Why looking at your net worth on a monthly basis is a good thing?

I used to think that looking at my net worth month after month was kind of a waste of time. Some people do it on a yearly basis and they are just fine with it. However, I have noticed that since I follow it on a monthly basis, I’m being a little bit more cautious about my spending.

I’m not going to cut down on my Starbucks, but I will be more patient for bigger spending. For example, I have been going crazy to buy a pool this year. However, buying a pool also implies buying all the equipment and building a deck around it. Since this year I have spent enough money on my house (I added a central A/C and did my landscaping), buying the pool would be totally irrational. Therefore, I’ll wait until next year when I can pay cash for it. I have recently mentioned that I am expecting a big bonus in January. This bonus will be used to pay off my debts, maximize my RRSP and pay for my pool ;-D. If my bonus is not big enough, the pool will simply have to wait another year.

If I wasn’t looking at my net worth on a monthly basis, I might have thought that I could borrow some more as all pool dealers offer generous financing options. However, I would have jumped at the time of my yearly net worth statement. Since the beginning of the year, I have seen my debt level grow from $328K to $333K this month. While my assets are evolving faster than my debts, it is still not a good sign to see them growing! This is exactly how the US Government got into debt troubles; they didn’t care about their debt enough…until it hit them in the face harder than a shovel swung by Alex Rodriguez!

Then again, my plan is to eventually use my employer stock to pay off my debts. While it is growing on a steady basis (besides this month obviously!), it is also paying a 4+% dividend (which is double the interest I pay on my debts). This is why I let my employer stocks grow at the same pace as my debts do .

So here’s the statement for the month:

Assets: $520,742

Liabilities: -$333,035

Total net worth: $187,707 (+3.7%!)

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