What you're forgetting on top of those good points is that someone like the above example likely gets off on being frugal. They get satisfaction from it. So, in some instances it doesn't take "extraordinarily strong self-discipline". Just like the lentil-eating-triathlete you mentioned, who actually enjoys doing that sport and competing. And there's always the satisfaction of a drive-by humblebrag that likely provides additional satisfaction.
That's definitely a real thing. If you've ever read the Mr Money Moustache blog, the guy is talking about how much satisfaction he's getting from biking to pick up his groceries to save $0.75 in gas. That only works long term if you're enjoying it.
Personally, I think frugality makes sense, but within reason. Also, I think it makes sense to prioritize. We love travel, but you can't afford everything. So my wife and I have one vehicle, a 2008 (Korean make). The cost of acquiring an additional vehicle, insurance, registration, and gas easily pays for one nice trip per year.
Other people have different priorities. If you're a car guy/gal, great. Maybe you enjoy that instead of travel. Or maybe you bought a smaller house so you can afford nice cars, or whatever.
The trick is to live within your means, which for the vast majority of people is going to mean not having everything.
What you're forgetting on top of those good points is that someone like the above example likely gets off on being frugal. They get satisfaction from it. So, in some instances it doesn't take "extraordinarily strong self-discipline". Just like the lentil-eating-triathlete you mentioned, who actually enjoys doing that sport and competing. And there's always the satisfaction of a drive-by humblebrag that likely provides additional satisfaction.
Absolutely. Exceptionally frugal people usually get tremendous satisfaction from frugality, and feel tremendous distress when they aren't being frugal. We all know the type - they get an expression of almost physical pain when they have to spend money on something isn't essential or at a rock-bottom price. I don't think people can be taught to feel that way. It's either an inborn trait, or acquired early in childhood. My own kids have demonstrated dramatically different attitudes towards money since they were 6, with my son spending every penny as soon as it's allowed and coming up with wild schemes to become rich, and my daughter hoarding everything she has.
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Quote:
Originally Posted by fotze
If this day gets you riled up, you obviously aren't numb to the disappointment yet to be a real fan.
Did somebody actually recommend buying a Canadian Bank Stock?
Yes. I did.
I suggested it as a "training wheels" stock that's easy to understand and great for a diversified portfolio and gives dividends.
It's not a golden rule. I am not suggesting having a portfolio completely full of bank stocks.
Unlike mutual funds and GICs for which I've seen some individuals use as a starting point but never departing from them because they are so horribly complex that they don't know what they own except "it's a good one". Such risk averse individuals view stocks as more complex and scary and never ever buy them. I suggest bank stocks as a starting point.
Bank stock
- Easy to understand how the operations work for bank to make money. Bank takes interest, NSF fees, credit card income, mortgage interest and also invests on occasion too.
- Brand is well known. Not obscure.
- Company not going to randomly go under as far as everyone is concerned.
- Price moves more logically in terms of news stories. (vs some stocks, earnings down, but price up. Why? Explain other random reasons price fluctuates like stock buy back, outside investors etc... too much in one go to learn)
- Gives dividends. First time investor doesn't feel so bad watching price fluctuate if they get dividends.
- If you hold it super long term, the likelihood of losing money IMO is generally low.
I suggested to some friends $1000 of a bank stock to start off in their TFSA. An amount they should be comfortable with completely losing as "tuition", but enough to learn how a stock works, and the ability to say they own a stock and finally move away from 5-6 years worth of mutual funds and GICs. They're usually ok with choosing that as a starting point vs some other random crazy company they don't understand.
Furthermore, this I use this merely as a starting point to get comfortable with stocks for individuals who often don't understand businesses like you and I may. Once they are more comfortable, I often suggest they talk to a financial advisor (usually a friend) to understand their own finances before they start throwing money into stocks willy nilly. Otherwise, "You're doing something no different than throwing money away at a casino" is what I say.
I suggest bank stocks because it seems like a controlled environment without too much complexity and isn't over whelming.
You realize that the median individual income in Canada is $27 k, don't you? Let's say we have a couple with typical incomes, so $55 k household income. And let's assume this couple takes your advice and lives within their means - so they decide to buy a dilapidated duplex in a sketchy part of a medium-size city for $180 k. Assuming this couple gets together at 25 (which is very young for this day and age), how long until they can save that $180 k and buy a house?
It will likely take several years.
Or maybe they can't ever buy a house. And that's okay too. Not everyone should be, or needs to be, or even wants to be, a homeowner.
Quote:
Originally Posted by CliffFletcher
And what if they want kids at some point there? How does that affect your model? It costs $245 k to raise a child in Canada, and that's before factoring in university. So $500 k for two kids, and more like $600 k if you set aside the recommended amount in RESPs.
I believe that I've said this in the American Politics thread, but if not...
I do not believe that someone should have children until they are fully capable of supporting the child for at least 18 years. I get that people may want to have a child, but that doesn't mean that should have a child.
Quote:
Originally Posted by polak
Didn't it come out in another thread that he got a big inheritance or something?
Perhaps you have me confused with someone else.
Quote:
Originally Posted by ranchlandsselling
And there's always the satisfaction of a drive-by humblebrag that likely provides additional satisfaction.
Honestly, I see no point in trying to brag about anything financial. Money is just a tool, it isn't a measurement of self-worth or superiority.
My entire point and goal is to try to get people to become better savers, to become more financially independent, and to become more financially resilient. The simple truth in life is that you likely won't be able to have everything, and that everyone really needs to plan for the future.
I don't dispute that people should enjoy today and I certainly don't discourage people from spending money on things that they find enjoyable. But if you can save just a bit more money that you currently are, well, won't your older-self thank you more than they would if you spent that same amount of money today on something that you end up rarely using in a few years? And besides, wouldn't you really rather end up having more money than you need, than not having enough and having to work when you are 80?
This is all fine and dandy. I don't disagree with any of it.
The one most important point that you miss though, that makes it all moot, is that "professional advice" in this industry, in 95% of cases, is coming from sales people with very little actual knowledge of investment principles, conflicts of interest all over the place, and no fiduciary responsibility. Which is what the poster I was responding to was talking about and he was bang on.
You guys are going to have a very difficult time convincing me with rational argument otherwise. I should note that I work in the industry and I'm a CFA charterholder. That doesn't mean anything per se other than the fact that I have in-depth knowledge and experience in this industry and I've seen multiple sides of it.
Not to say the industry isn't getting better, with the emergence of index products, more transparency, better and easier access to markets, fees coming down, more fee based advice. But 90% of the industry is still based on the conventional model that is broken.
So, I will continue to argue that the best way for the average retail investor to manage their portfolio is to educate themselves, keep fees very low, build a passive diversified portfolio and stick to it.
I too am a CFA charterholder. However, most people are not.
As for your assertion that 95% of advisors are "salespeople with very little actual knowledge of investment principles, conflicts of interest all over the place, and no fiduciary responsibility" - that is hyperbole, IMO.
I think that, 20 years ago, that wasn't far from the truth. However, I also think it has changed dramatically since then. While there are still plenty of 'professionals' out there that your quote applies to, at least in some ways, the industry as a whole has improved substantially.
But most importantly, while the idea that some advisors are crap is true (to whatever extent you want to believe), it doesn't follow that telling people to do it themselves is good advice. Because the vast majority of people can't (far more people than most would admit).
The proper advice, IMO, is to remind people to do their due diligence to ensure that they have found an advisor that is going to provide proper and sound advice. And yes, that is possible to do.
As a CFA yourself, the idea that you are advising people to educate themselves and do it themselves astounds me. I completely agree that they should educate themselves, keep fees low, and stick to the plan. However, that isn't enough. Most people need more help than that. Also, while fees are a headwind, advice - good advice - has value. Foregoing solid advice, in the pursuit of lower fees, is not sound advice for most people.
(side note: I am finding this conversation fascinating because there was a time that I was as cynical as you are about the industry - and in many ways still am - but the more time I spend on the 'advisor side of things', and the more I deal directly with individual investors, the more I realize that a) there are actually a lot more sound advisors out there than I thought, and b) there is more to advising people than building portfolios)
Last edited by Enoch Root; 02-11-2016 at 10:37 AM.
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Man, Slava gives a good pitch. I take back what I said about the 2.7%, it was an exaggeration!
Its really not a pitch though. I just think that its the cold hard facts of dealing with retail investors!
Quote:
Originally Posted by heep223
This is all fine and dandy. I don't disagree with any of it.
The one most important point that you miss though, that makes it all moot, is that "professional advice" in this industry, in 95% of cases, is coming from sales people with very little actual knowledge of investment principles, conflicts of interest all over the place, and no fiduciary responsibility. Which is what the poster I was responding to was talking about and he was bang on.
You guys are going to have a very difficult time convincing me with rational argument otherwise. I should note that I work in the industry and I'm a CFA charterholder. That doesn't mean anything per se other than the fact that I have in-depth knowledge and experience in this industry and I've seen multiple sides of it.
Not to say the industry isn't getting better, with the emergence of index products, more transparency, better and easier access to markets, fees coming down, more fee based advice. But 90% of the industry is still based on the conventional model that is broken.
So, I will continue to argue that the best way for the average retail investor to manage their portfolio is to educate themselves, keep fees very low, build a passive diversified portfolio and stick to it.
I don't mean any disrespect at all, because I think you're an excellent poster. But you know there are shortcomings with indexing. You yourself post here about loading up on oil stocks because you think that the bottom is in, and other rationale. I'm not arguing that opinion (neither the time nor the place), but that is not indexing in the least!
I want to go through here and list a bunch of reasons why I believe that, but I'm seriously busy contacting all my clients in the midst of the current market issues. (Don't worry, I'm sure the robo-advisors are doing the same thing). But this is my personal annoyance with the index-ideologues. They profess this vision of pure market efficiency and why no one else can possibly do better, and then proceed to make asset and tactical allocation calls with their own money.
Quote:
Originally Posted by HockeyIlliterate
Because I believe that debt should be avoided at all possible costs, as it ultimately restricts your options and reduces your opportunities.
As a simple example, if you do not have any debt and you only need X amount to live and you do not like your current job, you can conceivably quit your job and go do something else that pays X+1 (or just X; or nothing at all, and live off your dividends, interest, and capital gains to recreate X). But if you have debt, you now need an amount equal to X+debt-service-amount in order to live, and the debt-service-amount can be such an amount that makes other lower-paying, or non-paying, jobs not realistically available to you.
I'll tell you this much:
I started working when I was 25, and I'm 39 now. I've worked every year during that period of time, except for about a year when I backpacked around the world and then came back home to look for work (a trip that was paid for in cash entirely out of my own savings). During the period of time in which I've worked, I have consistently saved at least 50% of my gross income (or 70% of my net income) each and every year.
I don't want to get into the whole debate, but that bolded line makes you a complete outlier. So while its something everyone could do, its something that a very small percentage of the population actually does.
I don't want to get into the whole debate, but that bolded line makes you a complete outlier. So while its something everyone could do, its something that a very small percentage of the population actually does.
I am pretty confident it just means he isn't being fully truthful about his money situation.
I'm pretty obsessive about my finances... maybe unhealthily so but sharing some of what I do may help others who are considering starting or wanting to improve their budgeting.
We are a family of five relying upon a single full-time income plus some supplemental work. All 3 kids are 12 and under.
Here's how my monthly finances break down (as ratios):
Income: 109.9%
Spoiler!
Okay, how is my income >100%? Well it's due to employee benefits...
Full-time Job=78.9% (I'm not a 1%-er but do make an above avg income)
Day-home=8.8%
Rental Income=8.8% (have a rental suite above garage)
Hobby job=3.5% (sell stuff on eBay)
Work Benefits
Pension=3.9% (5% of my full-time job income)
RRSP Match= 3.9% (they match up to 5% of my income)
Share Purchase match=2.0% (get 50% on purchases up to 5% of income)
I've not included bonus income but generally split it in 3rds (mortgage, investment, spending)
Expenses: 70.2% gross (60% net)
Spoiler!
Taxes=28.1% (this is what I budget, actual tends to be less; includes Property)
Food=7.3%
Discretionary=6.6% (clothes, other)
Mortgage=5.8% (interest portion only)
Utilities=5.8% (Gas, elect, sewer, Cable, Internet, cell)
Insurance=5.7% (Home, Car, Life, employment health benefits)
Kids Activities=2.8% (Hockey, Gymnastics, school fees)
Auto Fuel=1.4% (take transit to work)
Home/Auto Repair=2.1% (transferred weekly into Tangerine Svgs)
Vacation=4.6% (transferred weekly into Tangerine Svgs Acct)
Savings/Investment: 39.7% Gross
Spoiler!
Mortgage Principal=8.6% (Use a HELOC, principal is immediately available)
Employee Share Purchase=3.9% (receives 50% match; i rotate out as soon as it vests)
Employee RRSP=3.9% (receives 100% match)
Spousal RRSP=4.0%
Personal RRSP=4.0% (this year most has been directed to TFSA instead)
RESP=3.0% (not maxed, probably an area I should increase)
Emergency Fund=2.4% (unused excess gets rolled into RRSPs)
Employer Match=9.9% (detailed in income section as well)
Generally, here are a few things that have helped me...
Know what you have/spend. I use mint.com.
I save before I spend. Have a multitude of Tangerine accounts that get weekly deposits to cover car repairs, vacation, unexpected expenses
No car payments. We have two reliable older vehicles
Disciplined savings. Use payroll deductions whenever you can.
Avoid lifestyle inflation. Can a family making $60k/yr save like the above in Calgary? Absolutely not, but a family making more than 60k/year can easily live like that's all they earn (and save the difference). Right now I could lose half my full-time income and we'd still get by alright - my goal is that within 4 years (age 45) I could lose all my income and we'd be able to survive.
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"Teach a man to reason, and he'll think for a lifetime"
Why's everyone so threatened by someone who has saved a lot of his money?
Nobody's threatened. It's his repeated assertions that everybody can save enormous amounts of money by middle age that strike some of us as absurd and out of touch with reality.
Quote:
Originally Posted by HockeyIlliterate
I do not believe that someone should have children until they are fully capable of supporting the child for at least 18 years. I get that people may want to have a child, but that doesn't mean that should have a child.
So what are you saying? That you shouldn't have kids if it would interfere with the ability to buy a house with cash and set aside 50 per cent of your income in savings?
Is it okay to have kids and fully support them, realizing it will mean you will have to take on a mortgage and save little money until middle age?
__________________
Quote:
Originally Posted by fotze
If this day gets you riled up, you obviously aren't numb to the disappointment yet to be a real fan.
Last edited by CliffFletcher; 02-11-2016 at 12:25 PM.
I am pretty confident it just means he isn't being fully truthful about his money situation.
Shrug. Believe whatever you want. I have no reason to lie, and I certainly don't come here and post my thoughts for validation from others.
Quote:
Originally Posted by CliffFletcher
Nobody's threatened. It's his repeated assertions that everybody can save enormous amounts of money by middle age that strike some of us as absurd and out of touch with reality.
Every avalanche starts with a small snowflake.
Quote:
Originally Posted by CliffFletcher
So what are you saying?
Life is all about choices.
Quote:
Originally Posted by CliffFletcher
That you shouldn't have kids if it would interfere with the ability to buy a house with cash and set aside 50 per cent of your income in savings?
If that is what you want out of life, and if having children would likely interfere with achieving that goal, then I wouldn't recommend having children.
I simply believe that one shouldn't have children unless and until they can financially support the child for at least 18 years. Maybe that means that someone shouldn't have children until they are at least 35. Maybe that means that someone shouldn't ever have children at all.
Quote:
Originally Posted by CliffFletcher
Is it okay to have kids and fully support them, realizing it will mean you will be able to take on a mortgage and save little money until middle age?
Personally, I would try to avoid being in that situation, as I would be uncomfortable with it.
Last edited by HockeyIlliterate; 02-11-2016 at 11:27 AM.
Reason: Added a quote and response
I loath giving generic advice blindly, but all this talk about how much of your money to save, and getting bogged down in the details, is frustrating.
A simple starting point, that virtually everyone should adhere to, is that you should save a portion of your earnings. No, it doesn't have to be 50%. But the key is that you do it, and that you have it taken off your pay automatically, so that you can't simply make other choices whenever your really want to buy something (the 'pay yourself first' principle).
Despite what Polak and others might think, chances are that you will live into retirement. It's called life expectancy for a reason: because that is the statistical mean of how long you are likely to live.
I agree totally that you never know, and that it is important to enjoy the journey. However, the facts are that you probably will be around into retirement age. So you need to save some of your money.
Get in the habit of putting 10% of your pay away from the beginning. If you ask yourself if you can afford it, the short-term answer is always 'no'. So don't ask. Do it. And learn to live off 90% of your pay (just look at it as that is what you make).
If you do that (and keep doing it), that is the best first step you can take towards gaining a better foothold on your financial health.
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I loath giving generic advice blindly, but all this talk about how much of your money to save, and getting bogged down in the details, is frustrating.
A simple starting point, that virtually everyone should adhere to, is that you should save a portion of your earnings. No, it doesn't have to be 50%. But the key is that you do it, and that you have it taken off your pay automatically, so that you can't simply make other choices whenever your really want to buy something (the 'pay yourself first' principle).
Despite what Polak and others might think, chances are that you will live into retirement. It's called life expectancy for a reason: because that is the statistical mean of how long you are likely to live.
I agree totally that you never know, and that it is important to enjoy the journey. However, the facts are that you probably will be around into retirement age. So you need to save some of your money.
Get in the habit of putting 10% of your pay away from the beginning. If you ask yourself if you can afford it, the short-term answer is always 'no'. So don't ask. Do it. And learn to live off 90% of your pay (just look at it as that is what you make).
If you do that (and keep doing it), that is the best first step you can take towards gaining a better foothold on your financial health.
Really good advice for a guy who loathes giving it!
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I don't mean any disrespect at all, because I think you're an excellent poster. But you know there are shortcomings with indexing. You yourself post here about loading up on oil stocks because you think that the bottom is in, and other rationale. I'm not arguing that opinion (neither the time nor the place), but that is not indexing in the least!
I want to go through here and list a bunch of reasons why I believe that, but I'm seriously busy contacting all my clients in the midst of the current market issues. (Don't worry, I'm sure the robo-advisors are doing the same thing). But this is my personal annoyance with the index-ideologues. They profess this vision of pure market efficiency and why no one else can possibly do better, and then proceed to make asset and tactical allocation calls with their own money.
Fair enough, I will concede this to you. If you will concede to me that 90% of investment advisors are horribly underqualified and place their interests ahead of their clients. Okay, maybe 80%? I am not including you in this category from what I've seen.
I would add that this is all really interesting debate and I hope that it provides value for people.
Lastly in response to Enoch I will admit that I've never been directly in a retail client facing role, and perhaps that would change my views as it did his somewhat.
now she needs some financial tips lol
