It was Halloween last weekend. I spent quality time with my family as we had the chance to go to the zoo, eat a Halloween supper and trick or treat with my sister-in-law and her husband. I noticed that when you are young, your worries seem bigger than an adult’s concerns and they are very basic. Youngsters are scared of monsters, storms and noises at night. We all know monsters don’t really exist, but your kids are very scared of them. So this morning I am wondering if we don’t carry some of this irrational fear of the unknown into adulthood. So I know I lack a bit of timing but I really wanted to write this post and ask you; are you scared of something financial?

Are you afraid of losing your job?

Some people may have better jobs than others. Some may think that they are irreplaceable (for them, I can tell you that you are living in a fairy tale and this is why you are not scared). But in general, most of us are afraid of losing our job at one point or another in our careers.

I was part of this group when I first started my career. Then, I was scared each time I switched job and changed managers. I thought that each time, I was losing my “protection”. Today, I realize that I was living in fear for nothing. In fact, losing my job could be the best opportunity of my life. I currently don’t have the guts to leave my comfortable 9 to 5 (which is more like 7:30 to 4!) to jump with both feet into my online adventure.

So losing my job would be the “solution” for my irrational fear. When you think about it, losing your job is not that bad. It gives you the opportunity to rethink your life, to do things that you were afraid of doing and also to get a better job at a higher level. Go read Smart Passive Income Blog story and tell me about it!

Sure we would become financially insecure, but a job is a job, nothing else. I think that losing your job could be the opportunity of your life, as long as you don’t sit down and start the “poor me” song for months.

Are you afraid of losing your home?

Another factor that makes people feel financially insecure is the fear of losing their house or going bankrupt. Many times, we avoid making financial moves because we are scared to lose what we have. When you think about it, this financial insecurity comes from the fact that we have worked hard for what we have earned and we don’t want to risk it (the poker theory). This might also be because of our financial education that tells us to get a good job, pay off our debts and retire happy. The only problem is that the last part of this advice doesn’t really happen to those who don’t take risks. In fact, it doesn’t fit at all for those who aspire for more.

When I was 14, my parents declared bankruptcy. We lost our house and our lifestyle. While it wasn’t the nicest part of my financial life, it wasn’t that bad either. This is when I realized that losing material things is not the end of the world. When we started the company, I didn’t hesitate to remortgage my house and put 20K of my own pocket in something that wasn’t earning more than $500 per month (excluding the time both my partner and I put into it!).

Since I started working in 2003, I have borrowed several times to buy more assets. Each time, my wife was financially insecure and I was excited by the challenge. Recently, we thought of investing another 75 – 100k in the company. I freaked out both my partner and my wife… but in the end, I have a feeling that we will come up with a huge project and end-up doing it. Once again, the irrational financial insecurity is based on our beliefs and not on something that exists.

Are you afraid of losing money?

Most financial insecurity is lived through someone’s portfolio. Remember the “good” times of 2008? Those were the best investor tests you will ever go through in your life . On this part, I have never been financially unsecure in front of my investment statement. I don’t really care if I love money or not as I know that, in the end, I will retire with money in my bank account.

Having said that, I totally understand that older individuals would become financially unsecure. If I was 50, I would think differently. The only thing that you must be careful about, is not to make money moves based on fear (like selling in October 2008!). If you can’t handle the pressure, leave your money in the hands of someone more rational that will make good decisions.

What about you, are you financially insecure?

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A good number of us cannot keep track of our expenses effectively. A greater number run out of money and rely on credit then subsequently get into debt. One reason is that an emergency fund was not effectively put into place. Another reason is that overspending is a prevalent issue in the debtor’s life. And still another reason could be disasters that happen along the way: unfortunate events, things breaking down, environmental calamities, investments losing money with market crashes, etc. Either way, there are a million possibilities in which you may need provision ASAP, and while emergency funds are an imperative, there are other options that may also work for you.

While this option won’t likely work with the major store chains, this could potentially work with mom and pop stores and smaller enterprises. It’s actually a pretty common arrangement between customer and merchant in many other countries around the world (particularly Asia). This bright idea is to pay the store a certain amount in advance for goods you would consume in times when you are pretty low on cash. The idea is to have a “debit line” in a store, for a certain amount that you pay them in advance. Much like a debit account, indeed. You can always use cash of course, and doing this sort of thing will prevent you from earning any interest on your savings, but it’s an arrangement that’s still in practice in certain communities.

This could work if you know a store’s owner. This could also work in smaller towns or in communities where everyone knows everyone else. There are two ways to use debit:

1. Talk to a store owner, preferably a grocery store, dry goods store, or deli owner, and ask if you could deposit, say $100 or $200 in advance, and then when you need it, you can come over and gradually consume that amount. It sounds like an odd set up and is an old-fashioned way to transact with a store that you frequent. It’s probably more common in areas where the idea of using plastic or extending formal credit isn’t as widely accepted.
2. Get a prepaid Visa or Mastercard. This is the typical way we see ourselves using credit or debit. If you’re thinking of picking up this type of card, why not get a cash back debit card to also get rewards? Store a certain amount in it: $20, $100, $200, $500, $1000 — it’s up to you, and then only use it when you need to. It’s one option you can use instead of banking on cash for your expenses.

These measures are for the incorrigibly spendthrift. Teens and young adults who have yet to grow out of the consumerist and financially dependent lifestyle could use measures like these to help control or manage their outflow. Parents should not do this for them; rather, they should be encouraged to do this for themselves. If you’re a parent of a teen who loves to spend, spend, spend, then let your child know that as much as possible, you won’t be there for him or her if they burn their allowance to ashes before you hand them their next installment. Thus, they should learn how to set aside a bit of their money.

You may want to think twice about the decision to start a child with those credit cards for college students if they tend to use plastic too liberally. A debit card can put a limit on your child’s spending while a secured credit card may be useful for them to build credit while also controlling the amount of credit that’s extended to them. If you’re going to introduce the use of credit to your kids, make sure they are aware of the consequences of falling into debt. Teach them to only use cards if they know how to pay off their balance in full each month.

Now regarding the “store credit” strategy where you ask a merchant to extend you credit based on some amount of money you give them in advance: should you want to use this method, don’t ever forget to get receipts or anything that resembles a certificate, in writing, that you have left money with that establishment. Again, it may make much better sense to keep your funds in a traditional emergency fund, but the “store credit” approach may work for those who find it a challenge to trust themselves with their money.

Some of these measures sound quirky, odd and so old school. But if worse comes to worst, extreme measures may be required. Some people may actually find that some of these unusual suggestions for managing credit could work for them, especially if they are truly finding it hard to save and even manage cash on their own.

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Yesterday, I was talking about the reason why I finance everything I could during my entire life so far and how this habit has become even more obvious during the last 10 months. Today, I’ll explain why I look to finance so often and why I am different than most people who load their credit cards and lines of credit. Remember; the key is not how much you borrow but what you do with your money.

Looking forward

Since I started working, I have always believed that I could make more money year after year. I started with an annual salary of $30,000 in 2003 and reached $106K last year. This corresponds to a 23% annualized increase in income. This year, I am expecting to make about $130k. While I don’t think I will be able to keep up this pace forever, I have felt comfortable in what I could achieve year to year. This is why I started to borrow a little bit more each year, knowing that I would be able to pay back my debt later on with future income (I know, so far it sounds like a great going-to-be-bankrupt-one-day story ).

What I have done with my borrowed money so far

This is where it gets interesting. Besides gifts and cars, I have used all my borrowed money to make more money. During the last 7 years I have:

- Borrowed 25K to buy land (making 4K profit within a year)

- Borrowed 20k from a line of credit to play the stock market (and generating my initial cash down for my first house)

- Borrowed 25K from my parents to buy my 2nd house (making 75K profit within 5 years)

- Borrowed 30K from the equity of my house to invest in my online company (you can guess how much profit this has generated)

- Borrowed as much as I can on my line of credit (at a ridiculously low interest rate) while I purchasing my employer’s stock (8% of my salary in earning a 25% bonus from my employer, plus stock growth, plus dividends over 3%).

Financing everything that I can so I can make some real money

When you look at my net worth statement, you notice that the bulk of my net worth is in my house and in my company shares. Both result directly from my financing strategy. The problem with financing is not the fact that you borrow money, it’s how you use it. Some call it good debt, some call it leveraging, I call it playing with other’s people money.

Can I fail? I surely can. But I have learned one thing from my parent’s bankruptcy: it hurts, but you don’t die from it. In fact, it makes you stronger. So I don’t plan to go bankrupt, but I know that if it has to happen, I would rather lose everything in my late 20s – early 30s than at 55.

Looking at 2011

This whole introspective about my finances got me thinking of my projects for 2011. I know that I will receive a significant bonus (about 10K net… maybe more). Since my RRSP contributions are already maxed out, I was hesitating either on buying a spa, going on vacation or preparing to build a garage. But now that I have written these 2 articles, I think that I am going the wrong way if I finance “bad debt” and that I would rather pay off my accumulated debt with this 10K so I avoid any bad luck on the financial side .

What do you think? Have you taken any risk by borrowing money in order to make more money?

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2 weeks ago, I told you about my bad Future Shop experience. That post started when I got declined for the 36 interest free payments via their credit card. In the comments, a fellow blogger, Financial Uproar, ask me why I was borrowing so often. My partner pointed out this comment asking me the very same question. This got me thinking about how I manage my personal finances since I started working back in 2003; I keep financing all the time!

Interestingly enough, I have grown my net worth from $0 in 2003 to $150,000 7 years later. How I was able to build such wealth while financing often and seeking more and more credit? Here’s a hint; the key point is now how much you borrow but what you do with your money. I have always believed that you can do much more money with other’s people money than only your own (especially when you don’t have much in your pockets ).

This year is particular

Before I go on & on with my theory of financing stuff and leveraging, I would have to look back on what has happened this year. It was quite a challenge to manage my budget as I had 4 significant expenses and a huge debt payment to make this year:

#1 My best friend’s wedding (2k)

#2 My wife’s 30^th birthday (1k)

#3 My sister-in-law’s wedding (2k)

#4 Buying a 2^nd car (12k)

#5 Reimbursing my parents (31k)

I could debate about buying a smaller car, giving smaller gifts and concentrating on paying off my parents sooner (I held this debt for 5 years) but those are the choices I made and I had a way to finance everything.

The good news is that I also sold my house. Since I made a good profit from it (about 75K), I was able to buy a new place and finance a part of my expenses. This is why I didn’t really feel the car and gift expenses as they went through my account without hurting my monthly budget too much.

Sure financing a car through your 25-30 year mortgage doesn’t sound like a brilliant finance plan. Sure financing your gifts and debt payment to your parents through low balance transfer credit cards doesn’t sound right either. Actually, it all sounds like postponing the problem until later on. In fact, this is how most people get into financial trouble because there is always a limit of what and how much you can postpone. Sooner or later, you have got to make your payments.

So what’s up with my personal finances? Shouldn’t I be more reasonable?

I guess that you may be right. I guess that there are other ways to manage one’s personal finances in order to avoid borrowing constantly and having a comfortable emergency fund. It surely does sound better from a personal finance blogger / banker, doesn’t it?

I actually think that I have managed my finances the best possible way! Say what? But I won’t tell you how come today… I’ll wait until tomorrow

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One of our TFB readers, Ottawa Guy, asked me a few weeks ago what is the difference between living in Quebec and the rest of Canada. His main question was how can he cope with the high level of taxes in Quebec?

For those who don’t know, we are probably the most taxed province/state in North America. Therefore, most sane folks will think twice before moving to The Belle Province to start a new life here. Why would you bother with the ridiculous level of taxes when you can live in Ontario or Alberta? First, you can’t be a Leafs fan so we will forget about Toronto . Now, let’s go with the reason why it is nice to live in Quebec:

$7 Daycare

We have an amazing program where kids aged between 6 months and 5 years old can go to Government controlled and sponsored daycare. They offer high quality daycares at only $7 per day. Plus, if you can’t find a place right away, private daycare costs are partially reimbursed by the government.

Parental leaves

The Quebec government sponsors parental leaves up to 1 year for the mother and 5 weeks for the father. How cool is that to be more than one month with your spouse to take care of the kids? I have benefitted from this program and I can tell how much smoother things go when your newborn arrives.

Cheap power

Depending on where you live, this could be of great interest to you. In Quebec, we have nationalized our hydro electricity power company. The whole province is powered with hydro electricity and it is really cheap. For example, I have a 3,600 square foot house and I pay about $200 per month for my power bill (including heat during winter).

Cheap properties

While the cost of living is similar, property costs is by far cheaper than any other province (compared to other big cities). You can have a very nice cottage with a garage for $300k in the Montreal suburbs. In my case, I preferred to move further from Montreal (80km away) in order to have a much bigger house and a lot more land. However, even living in Montreal is affordable when compared to Toronto, Vancouver or Calgary. Since salaries are about the same (slightly lower), you can easily afford a property in Quebec!

Montreal Canadiens!

All right, this is far from being a financial argument. But cheering the Habs at the Bell Center is an amazing feeling .

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