When You Are Temporarily Broke

So for most of this month due to a series of circumstances I’m abnormally broke. Well not really broke, I still have all our investments but I have spent most of my spending cash already this month. I’m currently under $2 in cash on my person and I have no further plans to get cash until the start of next month. Which to me isn’t that big of a deal. I’ve been here many times before by choice and I’ll be back here again some time in the future.

The issue is that some people don’t know how to deal with this state of being.  How exactly do you live your life if you don’t have any money to spend on a coffee out, going to a movie with some friends or getting a snack while out during errands?

The solution is actually very simple: focus on what you can do and plan ahead. You see people often get into habits with spending money so being broke for a few weeks is good reminder to myself that I can in fact have a good life without spending any money. It really isn’t that hard but it does take some adjusting.

The first adjustment of focusing on what I can do is the easiest for me to do. So this means I look at my current hobbies and purposely focus on the ones that don’t require any additional money. So for example, I previously had picked up some yeast and have some fruit in the freezer so I can make a batch of wine with what I already own. Or I can use the crafting materials that I recently picked up to make some terrain trees for my D&D game. And I can finish up a few books I’ve got borrowed from the library and also finish watching those two seasons of TV shows I’ve also borrowed from the library on DVD. Then finally I can finish off some research that I’ve been working on and start writing my sequel to Free at 45. So in short, I’m not lacking on things to do.

The second part to dealing with being low on cash is to simply plan ahead. This isn’t difficult to do but does take a moment of thought. For example, if I’m planning on being out of the house for the majority of the afternoon I need to remember to grab a snack prior to leaving the house and make sure I have a full water bottle. That way when I need a drink or get hungry I’m ready to go. Or if I want to have supper with a friend I would make sure to invite them to our house and cook with what I already have in the house. So if I have shrimp in the freezer I’ll plan the meal around that rather than chicken if I’m running low on that.

I really don’t mind being broke for a few weeks as it does help me to recall it is okay to make do with what you already own. We often get so caught up in getting the next thing on our want list we can forget to bask in what is already at hand. It almost creates a sense of gratitude for the life I already have when this happens to me.

Then finally I keep an ace in the hole: I know I can cheat if I really need something. Not want, but need. So if my shoes fall apart and I can’t make do for a few weeks I can always buy a new pair on the credit card and pay that back next month. I really avoid doing this but it does put my mind at ease that the option exists.

In summary, I don’t mind choosing to be broke for a few weeks. It helps me remember that most of life really isn’t about the money. Happiness is possible with very little and I find it good to remind myself of that periodically.

So what tricks to you use when your are short on cash for a week or two?

How to Build a $100K TFSA

Okay by popular request I’m going to dive a bit deeper into how on I managed to build my TFSA to almost $100K balance since I started it back in 2009 despite only contributing $57,500. My annual return has been 10.5% since 2012 (I would have to dig in my archive to pull out the earlier years but you get the idea).

Honestly the first thing you should do to get an high TFSA balance is to use your full contribution limit each and every year as soon as possible.  Letting the contribution room build up is like letting dust bunnies grow behind your furniture.  It doesn’t help anyone.  If you don’t use it it won’t have compounding growth which keeps the balance growing.

You also have to decide what exactly your TFSA is going to be for your overall financial plan.  You can use it to park your emergency savings but that will result in your having less growth.  In my case, both my wife and I decided that the TFSA would be for income purposes.  We wanted to generate a steady stream of income from our accounts to help fund our retirement.  So while it grew fairly quickly since 2009 we do expect it to slow down going forward as we start to take money out of the accounts.

Now the third key thing to is to accept that if you want a big balance you are going to have to take some risks.  Using your TFSA as a high interest savings account or GICs is dooming your balance to stay low.  There is nothing wrong with those investments depending on your objectives for your money just don’t be so conservative that you are losing to inflation each year.  As I mentioned above our objective was income so we started off with individual stocks of dividend paying companies.

To find the companies that we would end up investing in we looked at our own bills we paid each month and bought in similar sectors.  After all monthly bills often mean long term clients that pay regularly into the business which gives the company cash to pay out dividends.  So we ended up looking at banking, insurance, telecommunications, utilities,  oil and gas, and real estate income trusts.  We then looked to have at least two different companies for each sector we invested in as we didn’t want to have all our eggs in one basket.  Also we tend to look towards higher yield companies as we planned the TFSAs as our highest risk accounts so we expected to be compensated for that risk (we typically looked at companies with about a 5% or higher yield).  Please note yield for a stock is just the dividend payout annually divided by the share price shown in percentage.  A high yield can be the result from a company having a period of bad news that temporarily drives down the share price.

Once we identified a potential company in a sector by yield we would then pull open its last annual report and flip to its asset and debt balance sheet and look for its retained earnings.  A good value here usually indicates the company is sitting on some cash so in event of a downturn in their business they can keep paying their dividend.  If the retained earnings were low and the debt levels were high we would often avoid buying the company.  Also at this time we would take a look at how long has the company been paying a dividend and how often they increase it.  Steady dividend growth often means a decent growth in the company overall which is good for the share price in the long term (and your TFSA balance if you buy shares in the company).

Later on we added an ETF of preferred shares to our TFSAs instead of bonds to give a bit more balance to the risk profile of the accounts but still focus on producing income.

Then the last factor in getting a high TFSA balance is: luck.  You occasionally will pick a company that does REALLY well the spikes your balance.  For me it was AQN (Algonquin Power & Utilities Corp) which I managed to buy when it was under a cloud of doubt due its debt level but the overall numbers looked fairly good and utilities have very dependable cash flows. My yield based on my purchase price is somewhere above 10% now.  For my wife, she bought MFC (Manulife Financial Corp) and the share priced increased by around 30%.  So yes, that is hard to predict but it does occasionally happen.

So what do you use your TFSA for and are you happy with your return?

July 2018 – Net Worth

Welcome to my net worth posts where I try to prove to myself and you that I wasn’t crazy for leaving work in the fall of 2017 to start my early retirement.   A few important notes:  we are mortgage free and our goal is have our income/investment gains exceed our spending on a 12 month rolling average (please note this metric is still under development).

Investments

Accounts

RRSP $65,820
LIRA $17,960
TFSA $96,460
Pension $173,700
Wife’s RRSP $94,110
Wife’s TFSA $88,860
Wife’s Taxable $46,140
High Interest Savings Account $34,480

Investment Net Worth $617,530 ($4630 increase over last month from investments)

Home Equity

Estimate $395,000

Income

To keep things simple I’m only going to track what income comes into our main ‘house’ chequing account.  I won’t be tracking my wife’s or my businesses income as those don’t really matter until the money moves over to the ‘house’ account.  Also I won’t track investment gains since that is covered above.

  • Wife’s Monthly Payment to House: $712
  • Child Tax: $341
  • Interest $30
  • Total Income: $1083

Our Child Tax Benefit went up slightly starting in July and my wife owed a bit more to cover her liability insurance which is included in our house insurance policy which we paid last month.

Spending

Last Month $3824

Ugh, that was WAY more expensive of a month than what I wanted. But in all honesty it included several one off expenses like my tent broke and we had to buy a new one ($325), our car finally got fixed from a hit and run so we paid our deductible ($700),  we took vacation (~$550) and my wife and I did a special overnight trip to Saskatoon to celebrate both of us turning  40 in the last year ($250).

Then to top it off I broke down and took part of a Kickstarter for Reaper Bones 4 miniatures for our D&D game for $244.  Which seems like a lot but I am getting 172 minis in 2019 so the average cost works out to $1.42 per mini which is cheap compared to the $8 for two you pay at a local store.  In essence I just did all my game shopping for the next two years all at once.  The trade off of this decision is I’m parking my all grain beer brewing equipment purchases for several months to balance things out.

Results

Net Worth ~$1,012,530

This Month Investment Gains & Income/Spending Ratio = (4630+1083)/3824 = 1.49 (Target 1 or higher)

Sept to July Invest Gain & Income/Spending Ratio = (17669+17472)/34709 =1.01

Just a note on the multiple month ratio I stripped out all income related to my old job from the early months to provide a more realistic picture for retirement.

Commentary:

Okay I’m officially I’m fine. Our multiple month ratio shows our income  just over our spending for the last 11 months.  The concerning part to me of those numbers is our spending is pushing $35,000 and I still have one more month left which is bit higher than my planned spending (which was ~$32K).  Partly I know the reason for that is the $32K target didn’t include vacation spending and we had some odd one off things in the last year (eg: new tent and new glasses for my wife).  So the plan for August is very simple.  Keep our spending down for the month to try and bring the numbers back in line.

I should also mention when I modeled our retirement for the next five years I knew the first year contained the most risk.  At best I was to keep the net worth about the same over the year and depending how bad the markets did I could have seen a small loss.  But in 2019 things will turn around as our Child Tax Benefit will spike in July 2019 and I should see more income from my projects.

Any questions?

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A blog about early retirement and happiness