categoryExpenses

My Low-Cost Travel Plan

Are you getting as restless as I am about travelling?

My last trip was in October 2019 for a short stay in Los Angeles. I was supposed to travel again in April 2020, but you can guess how that went down. So it’s been a year now that I’ve been putting off this trip reluctantly.

Well, that gave me plenty of time to think about it! Since then, I’ve been working out how I plan to travel on a budget. I’ll be able to do this through the use of specific credit cards, the use of points and miles and a generally frugal lifestyle.

I know I’ve said it before, but I have to give a shout out to the excellent travel hacking resource that is Milesopedia. For anyone who wants to travel on a budget, and is interested in signing up for credit cards to earn bonus points and miles, you’ll find answers to your questions there. They also have a Facebook group where you can ask questions or simply discuss!

However, beware. There is a lot of information. Seriously, it’s overwhelming, but absolutely worth spending some time there. Personally, I’m more than happy to have spent an hour or two exploring that website.

On another note, please be advised that this present article contains some affiliate links. If you click on some of my credit card referral links, I’ll get a few extra points. That’d be much appreciated! 🙂

My Points and Miles

So, I’ll start by giving you my points and miles balance for my main travel programs. I signed up for my first credit card to earn bonus points back in March 2020. That’ll  give you a rough idea of how many points and miles one can earn in about a year.

I’ll break down below what I can get with these points. 🙂

I could have done even better, but I started slowly with one card at a time. I was slowly getting acquainted with the concept. Now, I subscribe to two or three cards  at a time, every three months. Let’s just say it adds up a lot faster!

Let me reassure you. It hasn’t been at the expense of my credit score. It’s doing just fine. 🙂

My Next Trip

So, what will my next trip be? I’ll actually go exactly where I was supposed to go in April 2020. I was supposed to go to Hawaii for two weeks with my sister. Initially, we would have spent a week on Big Island, then a week in Maui.

However, I am more inclined to slow-travel now, especially once I’ll be FI. In that spirit, I want to give it a try for that my next trip. So, to avoid feeling rushed, my next trip will be two weeks on the same island: Big Island.

There will be another time to visit Maui just as slowly. 🙂

I’ve actually been to Hawaii before with two friends. We had been on Big Island, definitely my favourite, and on Oahu. Everything felt kind of rushed, and I told myself that I wanted to go back one day to see more.

From memory, that trip cost me around $4,000. I wasn’t necessarily that frugal back then, and I didn’t have any points or miles to cut down expenses. Let’s see if I can do better this time. 🙂

So, I’m going to go over the major travel expense categories and see how I can cut costs.

Flight

For very hypothetical dates (that I don’t even dare say out loud, for fear of jinxing it), a round trip flight from Quebec City to Kailua-Kona currently costs around $850, according to Google Flights. Instead, I could use my Aeroplan points to pay for the flight. It would cost me 35,000 Aeroplan points. I would only have to pay the taxes, about $200.

I did the simulation with AIR MILES for the same hypothetical dates. It would cost me either 8,500 miles during the low season or 11,000 miles during the high season. In either case, I don’t have the exact required number of miles currently. Honestly, I doubt that it’d be the best value for AIR MILES, anyway.

In reality, I’ll most likely use my United credit granted to me after cancelling my April 2020 plans. However, you get the idea.

Accommodation

Personally, I love booking on Airbnb. It’s clearly cheaper than hotels, plus it offers a lot more amenities.

Not all travel programs include Airbnb bookings. One that does is American Express Membership Rewards. I’m currently earning them with my Cobalt American Express.

It’s important to note these points convert at a rate of $10 per 1,000 points. I currently have 27,000 points, and the Cobalt current promotion allows me to get up to 45,000 points in bonuses. That means $450 applicable on an Airbnb reservation! That’s a lot of (free) money.

Of the Airbnb places I’ve looked at for Big Island, the average cost seems to be about $2,000. With my current point balance, I’d be able to reduce the bill by $270. That would leave $1,730 left to pay, which I would split with my sister. That means $865 each for a two-week stay in Hawaii!

Alternatives

Of course, there are other options than Airbnb. If I were to prefer hotels, I could transfer my American Express points to the Marriott Bonvoy loyalty program. This way, I could reduce my Marriott hotel bill with my points. Of course, the Aeroplan and AIR MILES programs also allow using points and miles for hotel bookings.

It’s just not a frugal enough option for me, but it sure can lower the bill for those who prefer that option!

There is also house-sitting, which I had already mentioned in a previous article. It’s something I might consider, but I doubt there are many opportunities in Hawaii. Plus, if there are, I’m sure they get picked up pretty fast! Still, I’ll definitely look into it. I won’t admit defeat until I’ve tried! Even if it’s only a few days of house-sitting, it’d still help reduce the bill. 🙂

Food

As a rule, I don’t eat out very often. In fact, I prefer to know exactly what’s in my plate, and I also love to cook! So, eating a restaurant dish I could have made myself for a fraction of the cost feels more insulting than anything else. 😉

Of course, I understand that this is one of the small pleasures of travelling. However, like everything else, it’s good in moderation. The advantage of booking through Airbnb is getting options like a functional kitchen. Then, you can buy some groceries so you can prepare a few meals at a lower cost. You can buy local produces as much as possible in farmers’ markets and cook them yourself!

During my previous trip to Hawaii, we tried to limit ourselves to one restaurant meal per day. Other meals, we made them ourselves at our rental place. By doing this, we saved a lot of money. We also reduced restaurant bills by eating at lunch time, rather than at dinner time. More often than not, lunchtime menus are more affordable.

Otherwise, my ultimate hack to reduce food costs on vacation, or anywhere, is intermittent fasting. I already practise it on a daily basis, and have done so for several years. When I travel, it’s basically a superpower.

In fact, I usually eat between one and two meals a day, no snacks. If I prepare half my meals at my Airbnb, it’s definitely cheaper than eating three meals a day in a restaurant, plus snacks.

Transportation

Big Island, you guessed it, is not small. It’s actually impossible to explore without a car. It’s also pretty rural, so public transportation is not ideal.

According to Milesopedia, car rental is actually one of the best uses of AIR MILES.

For some reason, the AIR MILES car rental feature is down right now. However, if I look on Kayak, Expedia and Costco Travel, a 2-week car rental on Big Island runs around $1,400.

Since Milesopedia estimates the mile value at 20.24 cents/mile for car rentals, that’d add up to about 7,000 miles. That would leave only taxes and fees for me to pay. Clearly, this is a much better use of those miles, compared to the flight mentioned above.

For this particular expense, I actually don’t plan to use all of my precious miles. I want to keep them for a future trip to Disney (another great use of those miles). But again, you get the idea.

The Aeroplan program also covers rental cars. For the same two weeks, it’d cost me about 50,000 points. That could be an alternative.

Of course, if I were travelling to a place where public transit was a good option, that’d be my first pick. 🙂

Activities

I don’t necessarily have points-related tips for this category. It’s more a matter of choices.

On Big Island, there are many free activities to do, including hiking and soaking up the sun on a beach. Personally, my favourite routine during my first trip was a nice balance between the two. This time, though, I’d love to rent a bike and explore the island differently. 🙂

There are also different museums and national parks that don’t cost much. For example, the entrance to the Volcanoes National Park was, from memory, $25 per car, not per person.

In fact, the big spending comes with typical tourist activities, like participating in a luau. However, if I decide to such things, I’ll plan ahead and make sure to look for discount coupons, deals on Tuango or promotions of any kind. Basically, I’ll avoid paying full price as much as possible.

Insurance

For this part, I’m lucky enough to have a great group insurance policy that includes travel insurance. For all those who have group insurance, start by looking at your coverage before getting additional travel insurance!

Next, you should know that many credit cards offer travel insurance as well. For example, my American Express Aeroplan card offers Lost/Stolen Baggage Insurance and Travel Accident Insurance up to $500,000.

In addition, my American Express AIR MILES Platinum card offers Auto Rental Insurance, Travel Accident Insurance up to $100,000, Purchase Protection, and more.

I won’t list all the coverage offered by my different, but you get the idea. With all of these coverage combined, I certainly won’t be subscribing to an additional one. Just go through all the coverage and see if everything is there. It’s really up to your personal needs. I know some people who travel without even being insured, so all risk tolerances are out there.

Mobile Plan

For some, this category is not even up for debate. They’ll simply use Wi-Fi when it’s available. Otherwise, they’ll do without. These days, apps like Messenger and Whatsapp allow us to write messages and make calls, as long as we’re connected to a Wi-Fi, with no additional fee.

However, if you insist on having data at all times and want to use your own phone number, then you have to pay extra through your mobile plan provider.

During my first trip, I remember my provider charging $7 a day for me to use my usual monthly plan over there. For the 15 days, it ended up costing me $105.

Fortunately, I found that my current provider, Fizz, offers much better options. You only need to buy add-ons on top of your regular monthly plan. This way, you can mix and match minutes, texts and data as you wish. The whole package adds up to $38 for the whole month. This includes 2 GB of data, 60 minutes of calls and 200 texts. The price difference is pretty shocking!

Parking, Luggage, etc.

Considering that I’ll be gone for two weeks, it’s quite possible that I’ll need to check a bag. A checked bag often costs about $30 per flight. Fortunately, my American Express Aeroplan card includes a free first checked baggage for me and up to 8 travel companions, when flying with Air Canada. Convenient, isn’t it?

Otherwise, considering that I’m more likely to fly with United by using my travel credit, and not Air Canada, I won’t be able to take advantage of that. Another option would be signing up for the NBC World Elite Mastercard and get up to $250 in travel credit per calendar year, applicable on parking, baggage and seat selection fees.

Let’s just say that solves a few problems. 🙂

I Can’t Wait!

So there you have it, that’s how I see my next trip, which I hope will happen sooner rather than later. With these tips and travel hacking, I should be able to spend less than $4,000 this time around. 😉

All that’s left is to be patient until it’s safe to travel again. Yes, it is what it is.

I’ve gone over the major travel expense categories, but if you have any tips on how to save money that I haven’t covered, feel free to bring it up in the comment section! That way we can all benefit from it! You know I’m always happy to save money. 😉

Finally, I’d be curious to hear about your next travel plans! But mostly, I’d love to know if you have any travel points waiting to be spent. I sure hope you do!

March 2021 Review

Hello!

I don’t know about you, but I’ve had a pretty busy month.

Among other things, the new job is keeping me very busy. Compared to my previous job, it’s the complete opposite. I need to justify that raise increase, huh? After every workday, my brain is just mush, and I still feel like I need to learn a million things. Thankfully, I see a progression. Until then, fake it ’til you make it, they say.

I also participated in the Quebec podcast 20 ans, pas l’temps?, as my Facebook page subscribers may have noticed. I actually participated in three different parts. Although I was apprehensive, as any introvert would have been, I absolutely loved the experience! 🙂

On top of all that, spring has arrived and with it, sunshine and warmth! I’m not mad about it. I feel like I’m slowly coming out of hibernation.

In short, I’ve had a little less time and energy to write, but I’m not giving up on this blog. The frequency of publication may slow down a bit, but don’t worry. My motivation towards my FIRE goal is still very much alive! 🙂

Now, let’s see if the numbers are also motivating.

Net Worth as of March 31, 2021

Assets
Checking Accounts:
Questrade TFSA:
Questrade LIRA:
Questrade RRSP:
FTQ RRSP:
Fondaction RRSP:
Non-registered:
$1,109
$38,978
$45,376
$35,456
$5,752
$13,427
$2,053
Total assets:$142,151
Liabilities
Car loan:
Line of credit:
Credit cards:
$6,577
$0
$56
Total liabilities:$6,578
Net Worth$135,518
Difference+$9,432

We can see a very nice progression this month! This increase is mostly due to an exceptional savings rate, which will be detailed below. Also, the car loan continues its slow descent, which increases my net worth at the same rate.

My crypto portfolio is growing rapidly, as much due to the rapid increase in value of the various cryptos I hold, as well as due to the $30 bonuses I received thanks to my Shakepay referral link. Thanks again to everyone who used it. 🙂

You may have noticed my crypto portfolio value has already surpassed 1% of my overall portfolio. While I’ve invested $1,400, the value is already quite a bit higher. In fact, I must admit that I am already very tempted to increase my “psychological limit” of 1%. The next big correction might convince me to put in more. Stay tuned. 😉

However, as far as the stock markets are concerned, it was an up and down kind of month. I’m glad I was able to put so much money into the market this month, while it was kind of at a standstill. The next big leg up will be all the more appreciated. 🙂

Savings

Here are the details of my March savings:

  • March 11: $975.00 out of $1,789.71
  • March 25: $4,103.45 out of $5,077.03 net
  • March 26: $331.83 out of $331.83
  • March 29: $964.72 out of $964.72
  • Total savings: $6,375.00 out of $8,163.29 in March or a 78% savings rate

Of the $6,375 I saved, I contributed $5,700 to my TFSA and bought $675 worth of cryptocurrency outside a registered account.

As I mentioned earlier, this was truly an exceptional month in terms of savings, thanks to so much money coming in! Indeed, in addition to my two regular paychecks, I received my annual bonus and both tax refunds.

In addition, I’m happy to see that I’m in a good position to reach my savings goal of $25,000 in 2021. I’ve already saved and invested $9,700 this year, or 39% of my goal, in just 3 months. That leaves me with $15,300 to save to reach my goal at the end of the year. That means I’ll need to save an average of $765 per pay until the end of the year to reach it.

Considering my annual raise next month (3.5%), the maxing out of QPP before the end of the year and my car loan paid in full in November, I should be able to do it. 🙂

Expense Report

DateAmountDescription
2021-03-01$497.50Rent
2021-03-02$26.43UFile
2021-03-04$11.60Pharmacy
2021-03-05$48.04Car Insurance
2021-03-07$3.40Starbucks
2021-03-07$3.76Amazon
2021-03-09$29.50Hydro-Québec
2021-03-10$112.42Groceries
2021-03-10$23.07Gas
2021-03-10$18.53Mondou
2021-03-12$403.85Car Payment
2021-03-13$3.40Starbucks
2021-03-17$64.45Indiegogo
2021-03-21$3.40Starbucks
2021-03-25$6.89Pharmacy
2021-03-25$23.22Gas
2021-03-26$403.85Car Payment
2021-03-27$102.47Groceries
2021-03-29$27.02Home internet
2021-03-29$64,38Mondou
Total:$1,877.18

In March, I spent $1,877.18, which is $22,526.16 annualized. If we take out my car loan payments, it comes down to $1,069.48, which is $12,833.76 annualized.

I had very few expenses this month, and I’m very happy about it! This has actually been one of my best months since I started tracking my expenses! One of the reasons for this is that I did some expenses in advance in February in order to unlock bonus points on my credit cards.

Also, I’ve noticed another benefit to very low spending. It’s much less time-consuming for me to track and prepare the tables for this blog. 😉

Other than the usual stuff, the one out of the ordinary expense was on Indiegogo. I helped fund the upcoming Star Trek Voyager documentary, while also getting a nice T-shirt of my favourite Captain. 😉

Next month, I already know about an out of the ordinary expense. I had the nice surprise of a speeding ticket in the mail. Long live those photo radars.

Reading List

Despite a busy month, I’m still reading as much as I can! It’s really important to me, both for learning and entertainment purposes. 🙂

I would like to thank my Facebook subscribers who share their book suggestions with me every weekend. You really give me great book ideas!

So, my March reading list goes like this:

Beat the Bank is truly a must-read. Contrary to my expectations, it was not just theoretical and educational about the questionable practices of the big banks. There are also many concrete examples, such as portfolio models that you can build yourself, etc. Really an excellent Canadian resource!

I also really enjoyed 5 years to freedom. Although a bit of a typical FIRE book, the simple fact that it is a Canadian book is a huge bonus! Also, unlike books like Quit Like a Milionnaire and La retraite à 40 ans, it really shows how it’s possible to reach financial independence in a frugal way, even with children. Without hesitation, I added it to my recommendation page in the Canadian books section.

Otherwise, I want to make a special mention of The Autobiography of Kathryn Janeway, just because. I actually took advantage of the audiobooks.com free trial period to listen to Kate Mulgrew, herself, read it. What a treat! 🖖

Conclusion

I love this moment of reflection these monthly reviews give me. It’s a great exercise to see my progress, see where I am in relation to my goals and to start planning the month ahead.

By the way, I scheduled my appointment on April 30th for my corrective eye surgery. Another 2021 goal I want to get done! 🙂

The company seems to offer financing up to 24 months at 0% interest. I might go for that, if they don’t boost the price to make up for the 0% interest, of course. That way I wouldn’t be slashing too much of my immediate cash flow.

I’ll have the exact figure on that day, but I’ve been told it should be between $3,200 and $4,200. Of that amount, my workplace health account will cover $800.

Therefore, it’s possible that the April monthly review will come out a little late, while my eyes recover. 😉

Finally, I am already working on my next article about travel hacking and how I intend to travel at low cost. Although it is still impossible to predict when we will be able to travel again, it also doesn’t hurt to dream (and plan)!

See you next time and enjoy that spring!

My Worst Financial Decision

I don’t think I’ll surprise anyone by saying that buying a new car was my worst financial blunder. Who am I kidding? I even bought two! Yes, I made the mistake twice! As a matter of fact, I talked about it recently on the 20 ans, pas l’temps? podcast (french only). 😉

Shortly after my second purchase, which seemed quite reasonable at the time, reading En as-tu vraiment besoin? (english version: Do You Really Need It?) by Pierre-Yves McSween was like a slap in the face. It especially stung as I had had my new car for only about a month. Suddenly, the purchase seemed much less reasonable. Unfortunately, the damage was done and the car was already worth less than the balance of the new financing, as soon as I left the dealership lot.

I’d fallen into the lifestyle inflation trap. I was earning a good salary for my age and I felt that I “deserved it”.  That’s not to mention how much the auto industry goes out of its way to make sure we fall in that trap. McSween explains it especially well in his book (loose translation):

The auto industry fights vehemently to push the consumer out of the world of rationality. We use a fraction of the car’s useful life, but we pay the greatest annual cost. In fact, the price of a car is so high that, we prefer to forget its real price. What is being sold is a monthly, biweekly, weekly, or simply a lifestyle payment.

The many other personal finance books I read afterwards all had a fairly similar opinion. It only confirmed how wrong I had been. Besides not being too proud of myself, I felt stuck with my new car, since getting rid of it would mean selling at a loss, not to mention that I actually needed a car.

So for anyone thinking of buying a new car, let me tell you why it would be better to buy a (relatively) old car.

Those Damn Car Payments

Let’s take a look at how much my last seven years of car payments really amounts to.

To start, I bought my first new car in May 2014, which was a month after I finished college and landed a high-paying job. Classic, right?

Then, I switched in December 2016, after an aggressive offer from the dealership. The new loan included a portion of the previous car’s balance, since the value of the previous car was not enough to pay off the entire old loan. Crazy, huh? They’re passing this off to customers who think it’s just normal or fair. Everyone else is doing it!

In order to get a complete picture, I reviewed my bank statements. I calculated that I have spent about $35,000 in car payments so far. Add to that my current balance of about $7,000 as of today. So once the loan is completely paid off in November, I’ll have paid a total of $42,000.

Now, what will I have seven years and $42,000 later? A 5-year-old car worth less than $10,000 that will continue to depreciate and will require more and more maintenance.

Depressing, isn’t it?

If you had any doubt that a car was not a good investment, I hope this confirms it. In fact, it proves perfectly how a car pays a guaranteed negative return. Ironically, it’s often the people who buy new cars over and over again who’ll say the stock market because it’s too risky. 😉

The Opportunity Cost

Let’s now analyze the opportunity cost, i.e., the return I did not get by making my payments on these two cars, rather than investing the money. To do this, I will use this compound interest calculator.

Yes, we’re not done being depressed. I’d even say that it is a borderline masochistic exercise.

So, that $42,000 in car payments over about 7 years averages out to $460 per month. If I had invested those payments in the stock market with an 8% return (which was absolutely realistic from 2014 to now), I would have gotten :

So instead of a car worth roughly $10,000, I could have $51,572 more in my nest egg. We’re talking about a difference of $41,572. Of course, this difference takes into consideration that I wouldn’t have had a car at all. If you add in the purchase of a used car and its maintenance, the gap narrows. But you get the picture. It would never have cost me $42,000 over seven years for a used car.

Let’s Push the Torture Further

That was a good reality check, wasn’t it?

Let’s cry some more. Let’s add to this the compound interest on that $51,572 until I’m 65, which is 30 years after I finish financing my car. That’s without adding a dime to it.

Ouch. It’s getting quite expensive for that new car smell.

And finally, if I were to continue investing $460 a month until I was 65, as if I was continuously changing cars every couple of years:

Now, you can see the huge opportunity cost that comes with car payments over several decades. I will stop the torture at 65, but you get the idea. It’s not going to get any better by adding more years.

We all know someone who changes car every 4-5 years once the financing ends or the lease is up. Well, those people might need to do that kind of math to see how much that new car smell really costs.

Especially since, at the end of the day, the result is always the same, no matter when you decide to break the cycle. All we’re left with is a used car that will continue to depreciate (and leave us depressed).

A Good Learning Opportunity

If you decide to do the same exercise I did, you may find it hard to see the positive side of this.

Personally, I’m just glad I learned my lesson. It’s a shame I literally wasted so much money, but what’s done is done. It’s unfortunately irretrievable, so let’s not dwell on it and move on. 🙂

We make mistakes, but we’re human – and maybe that’s the word that best explains us.

– Captain James T. Kirk

If I’d never gotten into personal finance, maybe I’d have continued repeating the cycle over and over again, like most people. So I’m glad I’m getting away with only seven years of car payments, rather than decades. I’m also glad I didn’t fall into the luxury car trap. All the previous calculations would be much worse if I’d purchased a more luxurious car.

Also, fortunately, I now only have 17 bimonthly payments left to make! At the end of the financing, my 5-year-old car should be faithful to me for several more years. I will try to maintain it religiously so that it’ll last me as long as possible. After that, the next car, if I still need one, will definitely be used and certainly not financed.

The other great news about the imminent end of my car loan is that I will then allocate these funds directly to my savings. My savings rate should then increase… by about 20%! This will be very beneficial in achieving my goal of financial independence. 🙂

Conclusion

That was it. That was my worst financial mistake and all that it implies or could have implied in terms of opportunity cost. I advocate being honest as much as possible on this blog, and that means talking about the good moves as much as the bad ones. I’m not perfect, far from it, and maybe some less glowing examples will comfort you about your own missteps.

And that’s not all, I could give you other examples. Particularly, I haven’t (yet) touched on all the money I’ve spent at Comiccons or the various official Star Trek conventions in the US that I’ve attended. These are wonderful memories, but it certainly wasn’t free. 😉

What about you? Have you made similar bad financial mistakes? Have you calculated the opportunity cost, or are you not as masochistic as I am? And have you made peace with your mistake?

Please let me know!

How Relevant Is an Emergency Fund?

No, I don’t have an emergency fund.

Don’t throw tomatoes at me, please. I already know all the financial gurus of this world would be outraged.

Actually, I’ve had a funny ongoing thought process about emergency funds. Like any good average Quebecker, I’ve lived from paycheque to paycheque. At the time, I had no spare change between my income and my expenses and, of course, no emergency fund.

Then, when I started getting into personal finances, I followed Dave Ramsey’s baby steps, among others. So, I started by building up a small emergency fund of about $1,000, and then started working on paying off my student loan. Once the student loan was paid off in full, I built a proper emergency fund.

Then, with the influence of the FIRE movement, I began lowering my expenses, increasing my income and investing my savings massively. Suddenly, my emergency fund felt like a dead weight. After the pandemic was declared in Mars 2020, falling interest rates certainly did not help this sentiment. Not long after, I decided to invest the entire thing in April 2020.

Since then, I no longer have an emergency fund. And you know what? I can still sleep soundly at night.

What Is an Emergency Fund?

As for many other personal finance notion, opinions differ widely about the emergency fund, especially its size. However, we often hear about having the equivalent of 3 to 6 months’ worth of expenses in cash or at least easily accessible. Of course, the more unstable our income or employment situation is, the more we need to stack in our emergency fund. For some, it might be safer to have up to 12 months’ worth of expenses, for example.

The goal here is to be able to cover expenses for a certain period of time following hard times or to absorb an unexpected specific expense.

In my case, I have a very stable job with a predictable and secure income. Accumulating more than 3 to 6 months would really be overkill. Currently, my monthly expenses are around $2,000, including my car payments. Therefore, you would expect for me to have between $6,000 and $12,000 in cash, easily accessible. By “easily accessible,” we generally mean a simple savings account.

As always, it’s on a case-by-case basis.

Who Should Have an Emergency Fund

Think about it. Who really needs an emergency fund? Who would be at risk of going bankrupt after a major unexpected expense? Who might lose their home after losing their job?

Ironically, these are the people who live paycheque to paycheque. For them, the slightest problem could very well break down their cash flow. In such a context, an emergency fund is essential. However, since these people are already living from paycheck to paycheck, it is very difficult to build one in the first place.

However, for a person who already regularly saves a large portion of their income, an emergency will not compromise their basic needs.

As mentioned earlier, my monthly expenses are about $2,000 compared to an average monthly income of $3,500. That means I already have a good amount of leeway in case of an emergency.

Opportunity Cost

What I don’t like about the emergency fund is the return I don’t get while the money is not invested. I really like for my money to work for me.

As we all know, interest rates on savings accounts are currently at historic low levels. For example, Tangerine generously gives me an incredible 0.10% interest rate right now.

Of course, I am aware that some online banks offer (temporary) promotions of maybe 1 to 2%. However, this implies that you have to constantly move your money from one bank to another once the promotion expires. Personally, I find that it takes too much time and energy for a meager 1 or 2%.

In a single year, my hypothetical $6,000 to $12,000 emergency fund would earn $6 to $12 in interest in my Tangerine savings account. On the other hand, if it were invested in an index ETF, it could make a much better return. Even with a rather conservative hypothetical return of 6%, I would be making about $360 to $720. That’s 60 times more than my savings account at Tangerine!

Add to that compound interest from one year to the next and the opportunity cost only increases exponentially.

I don’t know about you, but the difference pains me.

Inflation

Add inflation to the mix and I may start to cry. Because while my hypothetical emergency fund is earning its meager 0.10% interest, inflation is wreaking havoc at an average of 2% per year. Probable more in the years to come.

So, if I let my emergency fund sit there too long, it will only lose purchasing power, year after year.

To keep the same purchasing power and have an equivalent emergency fund from one year to the next, I would theoretically have to add to it every year. Each additional amount added each year would in turn be subject to the opportunity cost and inflation.

As you can see, inflation keeps me awake at night more than stock market fluctuations. To me, money that is not invested is 100% guaranteed to lose value.

Can the same be said for money that is well invested in the stock market?

Safety Nets Already in Place

In 2018, I was already questioning the relevance of my emergency fund. In December, more precisely, I was briefly off work after a case of appendicitis. Despite a month without working, I never had to dip into my emergency fund. Indeed, I was lucky enough to have a short-term disability coverage through my employer.

However, even if I didn’t have such coverage, my expenses were low enough to be almost entirely covered by EI Sickness benefits.

This made me start thinking about all the systems already in place for emergencies. You have to think about all these safety nets that you may already have. You’ve probably guessed it, but insurance plays the main part. After all, why do we buy insurance in the first place? Usually, it’s to cover unexpected and random events. In other words, emergencies.

Some examples of such systems include the following:

  • Private insurance:
    • Home;
    • Automobile;
    • Loan;
    • Critical Illness;
    • Pets (it’s a thing!);
    • Travel;
    • Etc.
  • Group insurance :
    • Short Term Disability;
    • Long Term Disability;
    • Critical llness;
    • Extended Health;
    • Etc.
  • Public programs
    • Employment Insurance;
    • The Commission des normes, de l’équité, de la santé et de la sécurité du travail (CNESST);
    • The Société de l’assurance automobile du Québec (SAAQ);
    • Disability Pension from QPP or CPP;
    • Etc.

We cannot deny it. In Canada, we already have many safety nets. Since March 2020, we have even seen how generous our governments can be in times of crisis.

Add to that our own private or group insurance and we start having a lot of backups against emergencies.

Of course, if you don’t have any private or group insurance, then an emergency fund could really be relevant. This allows you, in a way, to self-insure.

What Is an Emergency

Think about it. What could go so wrong in your life that you would have to dip into an emergency fund?

The main emergencies that come to mind are, but are not limited to :

  • Job loss;
  • Disability;
  • A sick family member;
  • A major home expense;
  • A car problem;
  • Veterinarian fees;
  • Etc.

We’re really talking about emergencies here. Not Christmas expenses or a can’t-miss discount on a trip abroad.

In short, imagine what kind of emergency could happen in your life. Which of these scenarios would be covered in part or in full by insurance that you already have, directly or indirectly?

Finally, what kind of emergency would you really have to cover exclusively with your emergency fund?

Now, if you didn’t have an emergency fund, would you be able to take pay for it with a credit card or with a line of credit, temporarily? Would you be able to pay it back fairly quickly with your excess cash flow normally dedicated to savings?

Of course, this kind of strategy requires excellent credit management. If you carry a credit card balance from one month to the next and are already choking on astronomical interest charges, this strategy is definitely not for you. In fact, go back to Dave Ramsey’s baby steps.

Finally, if the worst that can happen to you is to temporarily reduce your savings to cover an emergency, you’re really not in such a bad situation.

The Ultimate Loophole

Finally, underconsumption and frugality are, in my opinion, the ultimate loophole to exploit in order to survive an emergency.

Earlier, I mentioned my average monthly expenses of about $2,000. That’s already pretty frugal to some people. However, if a real emergency occurred, I could cut some non-essential expenses (SAQ, Netflix, Spotify, charitable donations). I could also sell my car to pay off my loan in full, in addition to no longer having any expenses related to my car (licence, plates, gas, maintenance). If I brought this down to the bare minimum, it could total about $1,000 in monthly expenses.

Then, in the event of a job loss with EI eligibility, I could have weekly taxable benefits of $595 or approximately $450 net. This would actually be enough to cover my expenses.

What if I lose my job without EI eligibility? With such low expenses, even a minimum-wage job would be enough to support me.

If there’s an urgent expense without job loss (visit to the vet, an appliance broke down, etc.), then the difference between my income and my expenses could easily pay for it.

Keep in mind that having a frugal lifestyle, even if only temporary, can help make a difficult situation much more tolerable.

Worst-Case Scenario

I know that some anxious or pessimistic people tend to imagine the worst.

Thus, they may bring up worst-case scenarios. For example, what happens in the event of job loss, in addition to a critical illness with no insurance coverage?

First of all, I wouldn’t wish that on anyone. Furthermore, anyone facing this kind of situation will not get away with a mere 3 to 6-month emergency fund, unfortunately.

However, Employment Insurance does pay 15 weeks of sickness benefits, and then QPP (or CPP) provides a disability pension in the case of a serious and permanent illness, and this, at any age.

After that, well you might need to dip in your nest egg. But then, at least you do have a nest egg, huh?

More importantly, what are the chances that this type of situation will really happen? No one is entirely protected against that, I agree. However, I don’t see the added value of living in fear of such a scenario.

Like Mr. Money Mustache himself said pretty recently about the advice he would give to his younger self:

Yeah, I thought about that a lot. I do have an answer and it’s just, “You don’t have to worry.”

I lost some sleep over that situation and then I just described and I was stressed out and there was nothing to worry about. In the very-very worse situation, I still have way better financial situation than the average person does today, even with a really good job. […] I think most people, especially analytical people, they just worry too much about everything.

To Each Their Own

I thought long and hard about all of the above before I fully invested my emergency funds last year. With the pandemic, I think we’ve all had to envision many worst-case scenarios. Personally, it made me realize that even in some of the worst cases, I didn’t really feel the need to have so much cash on hand.

So that’s why I don’t have any emergency funds at the moment. This way, I can inject 100% of my savings in the stock market and I don’t have any money that is prone to lose purchasing power due to inflation.

However, I am well aware that this strategy does not apply to everyone. Some people sleep better at night knowing that they have a cash cushion in case something goes wrong. Others have many more variables in their equation than I do that can cause emergencies (children, sick parents, a house or rental properties, etc.). These people have their very own thinking and analysis to do.

In fact, once I reach FIRE, I will probably have no choice but to change my mind. Since my income will depend mostly on the moods of the stock markets, not to mention no longer having a group insurance, I believe that I will sleep better with a certain amount of money set aside.

Ultimately, having an emergency fund has a positive effect on a psychological level, much more than on a financial level. Ed Rempel’s research conclusions explains it perfectly well:

The study showed that holding cash does not protect you. In fact, it often increases your risk of running out of money.

There is an argument that holding cash has a good behavioural effect on investors. With some cash, they may stay invested and avoid the “Big Mistake” of selling their equities while they are down. To the extent this is true, holding some cash may be beneficial for the behavioural effect only.

But cash does not actually protect you. It’s safer not to hold cash.

Considering all of this, I’m aware that I will have to re-evaluate my situation when I get there.

That being said, I would be curious to hear your point of view on the subject. Do you have an emergency fund? How big is it? Have you had to dip into it for an emergency? What kind of emergency was it?

Don’t hesitate to let me know! 🙂

February 2021 Review

Hello!

I just knew February was going to go by very fast. 🙂

Seriously, between finalizing my old job’s last few files, starting my new position and writing my withdrawal strategy article, time just flew by! It’s quite a good thing for someone who doesn’t like winter too much. During a lockdown, on top of it! I’m also quite glad to see that we’re gaining a few more minutes of daylight every week. That’s a very positive thing in my book. 🙂

I’m also happy to report that things are going really well in my new role. I have a lot to learn, since I’m far from my usual field of expertise. So that usually means my brain is mush at the end of the day, but I’m confident I’ll handle the work fairly quickly.

Now let’s get down to business.

Net Worth as of February 28, 2021

Assets
Checking Accounts:
Questrade TFSA:
Questrade LIRA:
Questrade RRSP:
FTQ RRSP:
Fondaction RRSP:
Non-registered:
$1,228
$34,983
$44,969
$35,135
$5,752
$13,427
$976
Total assets:$136,470
Liabilities
Car Loan:
Line of Credit:
Tangerine Master Card:
Amex Air Miles:
BMO Air Miles:
Amex Aeroplan:
$7,384
$3,000
$0
$0
$0
$0
Total liabilities:$10,384
Net Worth$126,086
Difference+$4,968

What a weird month in the markets! Seriously, how many days in a row were the markets green at the beginning of February? It was not rare to see clickbait articles predicting an imminent crash almost every day. Reaching all-time highs every day, week (and even month) was obviously cause for concern. So it wasn’t too surprising to see the second half of the month rebalancing things.

However, I would like to emphasize that the recent decline has not completely erased the bullish rise that preceded it. In fact, both the S&P 500 and the S&P/TSX show an overall increase in February. 🙂

Personally, I try to remove all emotion from my transactions. Mr. Spock would be proud of me. 🖖

My plan is to save as much as I can on every paycheck I get. I invest on every second Thursday, whether it’s green or red. It doesn’t matter. I invest, no matter what happens in the short term. Anyway, what matters is long-term.

Bonus

Good news! My employer confirmed our annual bonus. It will be paid out on March 25th. Knowing the amount in advance ($6,000 gross), I have decided to take the net amount ($3,000) out of my personal LOC and invest it right away while the markets were down.

I was already planning to save and invest my entire bonus anyway. So I just got ahead of the curve.

Once I receive my bonus on March 25, I will simply pay off my LOC. For your information, it’s a personal LOC offered by Tangerine with a 5.45% interest rate.

Cryptocurrency

Contrary to my very boring index investments in the stock markets, I allow myself to speculate a bit more with crypto. Actually, I only allocate a small portion (1%) of my portfolio that I intend to hold for the long term. I am looking into the mechanics of cryptocurrency and the blockchain, and I place my pawns as I go along. It is a very wild ride. Faint of hearts beware. 😉

I also got three $30 bonuses on Shakepay this month. Thanks to the readers of this blog who used my reference code. 🙂

Also, thanks to Shakepay’s feature that allows me to stack Satoshis (a subunit of Bitcoin) every day by shaking my phone, I have now accumulated 0.0004352 BTC for a series of 47 consecutive days. At the price of the BTC as it is now, it means about $26 only for shaking my phone. I have also deposited all my BTC in BlockFI which allows me to earn 6% interest on it.

Savings

Here are the details of my February savings:

  • February 11: $700 out of $1,710.66 (41% savings)
  • February 25: $840 out of $2,017.17 net (42% savings)
  • Total savings: $1,540 in February or 41% savings

Of the $1,540 I saved, I contributed $1,050 to my TFSA and purchased $490 worth of cryptography outside a registered account.

It could definitely be better on the savings rate front, but I had some spending to do to unlock my credit card bonuses. I’ve made some expenses ahead of time by buying Spotify, Netflix and SAQ gift cards. I also made my annual donation all at once, rather than spreading it out on a monthly basis. Since these are already paid for, I should be able to save a little more in the next following weeks and months.

These expenses have allowed me to get my bonuses of 3,950 Air Miles and 10,000 Aeroplan points (as well as the Buddy Pass). Now, I just have to wait to actually travel. 😉

With my promotion, my March bonus and my yearly raise in April (3.5%), I expect a slight increase in my average savings rate. I should be on track to reach my savings goal!

Expense Report

DateAmountDescription
2021-02-01$497.50Rent
2021-02-01$89.15Groceries
2021-02-01$25.00SAQ
2021-02-02$7.15Spotify
2021-02-02$10.00Donation
2021-02-03$160.00Passport
2021-02-04$62.38Mondou
2021-02-04$29.50Hydro-Québec
2021-02-04$13.33Pharmacy
2021-02-04$100.00Donation
2021-02-04$25.00Netflix
2021-02-04$30.00Spotify
2021-02-05$48.04Car Insurance
2021-02-06$3.40Starbucks
2021-02-11$168.94Amazon
2021-02-12$403.85Car Payment
2021-02-14$3.40Starbucks
2021-02-14$8.04Groceries
2021-02-18$102.93Groceries
2021-02-20$20.83Gas
2021-02-20$3.40Starbucks
2021-02-23$6.14Subway
2021-02-26$403.85Car Payment
2021-02-27$3,86Starbucks
2021-02-28$27.02Home Internet
Total:$2,315,94

In February, I spent $2,315,94, which means $27,791,22 annualized. Excluding my car loan payments, it comes down to $1,508.24 or $18,098,82 annualized.

In addition to my travel hacking expenses, I had to renew my passport and I bought a Valentine’s Day gift for my mother and my grandmother.

I also had a somewhat big expense on Amazon for a treadmill that I had been looking to buy for a while. Luckily, my employer reimburses a fair amount for sports activities. That means I only had to pay $168 out of my own pocket. Considering that the treadmill should be good for a couple of years, that’s much cheaper than a gym membership. 😉

Finally, I still don’t have a mobile phone bill to pay this month. Thanks to everyone who used my Fizz promo code (N5MMB)! As things are right now, I won’t have to pay anything until June. That’s very much appreciated!

Reading List

February was another great month to read. I’m not at all a winter sports fan, so I’ll be found more often cuddled in a blanket with a book, rather than out playing in the snow.

At the same time, although I’m outside much more often in the summer, you’d probably still find me with a book in my hands. Once a nerd, always a nerd.

You can see that it would be totally unprofitable for me to buy every book I read! There’s a reason why I love the public library so much. 🙂

So, my reading list for February looked like this:

From this list, I highly recommend the book on Elon Musk. Whether you like him or not, he is undeniably a genius and human beings will benefit from his long-term vision.

I also liked Courage, Vision, Passion after I stole this reading idea from L’investisseur caféiné. I don’t necessarily plan to invest in real estate, but it was still a fascinating read. The focus on the millionaire mindset, the importance of thinking big and controlling our fears were the highlights for me. That goes to show that a success starts in the mind!

My Favourite Season

Of course, with March comes tax season. 😉

Seriously, I can’t wait to get started. I already have my T4 and Relevé 1 in hand, but I won’t have the form for remote work (detailed method) until mid-March. Only then I’ll be able to do my tax return, plus my sister’s and my brother’s. At the very least, I want to send my sister’s tax return as early as possible. She boosted her RRSP and she’d like to avoid paying interest on her loan for too long. 🙂

For my part, despite the fact that I filled out the T1213 form for my employer to withhold less tax in 2020, I still expect a tax refund of about $1,500. Guess what I’m going to do with it?

For future articles on this blog, I’m thinking of writing an article on my worst financial mistake (I’ll let you guess which) and the associated opportunity cost. I’m also planning an article on the emergency fund, or my lack thereof. If you have any specific topics to suggest for a future article, please feel free to let me know in the comments section.

I look forward to hearing from you!

January 2021 Review

Hello!

Already one month behind us! Even though it’s a rather boring time of the year, even without a pandemic, I feel like time went by pretty fast. My blog and Facebook page keep me pretty busy, on top of the overtime I did at work and the time I’ve spent preparing for a job interview!

It just goes to show that the best way to survive this never-ending pandemic is to stay busy. 🙂

So here we are, already starting a new month. Let’s see how my net worth has grown in this past month!

Net Worth as of January 31, 2021

Assets
Checking Accounts:
Questrade TFSA:
Questrade LIRA:
Questrade RRSP:
FTQ RRSP:
Fondaction RRSP:
Non-registered:
$1,369
$32,176
$43,405
$33,916
$5,752
$13,427
$307
Total assets:$130,352
Liabilities
Car Loan:
Line of Credit:
Tangerine Master Card:
Amex Air Miles:
BMO Air Miles:
Amex Aeroplan:
$8,192
$1,000
$0
$0
$31
$11
Total liabilities:$9,234
Net Worth$121,118
Difference+$3,313

My net worth is now $121,118! That’s a $3,313 increase since December 31, 2020. It had been a good month for the stock market, right up until last week, when everything went haywire. It doesn’t matter much, since I continue following my savings and investment plan and as a result, my investments slowly but surely keep going up. 🙂

As a matter of fact, a reader wrote to me recently and wondered if the monthly portfolio value was the best way to track one’s net worth. She thought that it fluctuates excessively from one month to another, and it could be discouraging during periods of decline.

I have to agree that tracking my net worth so closely involves a lot of fluctuations. However, I am aware that this is part of the game and I have an excellent risk tolerance. Since I already track my net worth in my spreadsheets on a monthly basis, I decided to include it on my blog on the same basis, along with my expense reports.

However, I realize that I will eventually have to compress the data on the graph (due to lack of space) on my net worth page, possibly to three-month intervals. This should smoothen the curve a bit. 😉

Portfolio Changes

I decided to start the year with a few small changes to my portfolio. As I mentioned in previous articles, my main investments are with Questrade, split between a LIRA, an RRSP and a TFSA. In all three accounts, I held only XEQT, an all-in-one ETF by iShares made up of 100% equities, 22% of which are Canadian.

Reducing Home Country Bias

After doing some reading, notably Ed Rempel‘s blog, I decided to reevaluate my home country bias, i.e. being too widely exposed to one’s own country’s stocks. Indeed, Canada represents about 3% of the world economy and is primarily based on resources and banks. Knowing this, how is it good diversification to hold 22% of my portfolio in Canadian stocks?

Especially since I have (unfortunately) about 15% of my portfolio in labour-sponsored funds that invest only in local companies. That means my home country bias is actually quite high. It actually amounts to about 33% of my total portfolio in Canadian equities.

After some thought, I chose ZGQ (graciously brought to my attention by one of this blog’s reader) to reduce my home country bias a bit, in addition to getting a bit more exposure to emerging countries. This ETF actually seeks to replicate the performance of the MSCI All Country World High Quality.

However, I only made the change in my TFSA, where I want to get the maximum return. I still hold XEQT in my LIRA and RRSP. This will gradually reduce my portfolio’s total exposure to Canadian stocks as I continue contributing to my TFSA.

A Healthy Dose of FOMO

Yes, I joined the Bitcoin train (or rocket?). It finally went down after its all-time high in early January. So I took the opportunity to learn a bit more about Bitcoin, then invested a small amount of money. Initially, I decided to do this by buying a few units of the new Bitcoin ETF QBTC. This way, I can take advantage of the possible gains of Bitcoin in my TFSA, which cannot be done by the traditional method.

Afterwards, I continued to read up on Bitcoin and learned about the Montreal application called Shakepay and decided to actually buy Bitcoin this way. In fact, by using a referral link, I was getting $30 by buying $100 worth of cryptography. So why not? An instant return of 30%. 😉

More seriously, I prefer to set myself a limit of 1% of my portfolio with regard to cryptocurrency. I think setting a limit will prevent me from going overboard on this. What’s more, it’s an amount I’m willing to lose. And if I ever make a  sizeable profit, even better! I just don’t intend to speculate, but to buy and hold it like with my other holdings.

Savings

Here are the details of my January savings:

  • January 14: $750 out of $1,710.67 (44% savings)
  • January 28: $1,035 out of $2,005.17 net (52% savings)
  • Total savings: $1,785 in January or 48% savings

Of the $1,785 I saved, I contributed $1,550 to my TFSA and added $235 to Shakepay.

The higher pay is justified by a few extra overtime hours in January.

Also, starting at the end of February, I’ll start getting bigger pays because I got a promotion! Before the holidays, I had applied to a higher-level position within another team. I didn’t necessarily have a lot of hope to get a call, as I didn’t know anyone on that team. You know it: it’s better to know someone than to know something. Luckily, I got the call and a few days after the interview, I was offered the job. 🙂

So, I will go from a base annual salary of $71,180 to $76,600, which is a 7.6% increase. There will also be a yearly increase in April, which should be around 3%, which would bring my salary to $78,898.

I’m not just talking about increasing income. Trying to walk the talk!

Finally, my $25,000 savings goal for 2021 will be slightly easier to achieve than I thought. You know me well enough to know I plan to save 100% of my raise. 🙂

Expense Report

DateAmountDescription
2021-01-01$120.00American Express Annual Fees
2021-01-01$6.79Starbucks
2021-01-02$7.15Spotify
2021-01-02$10.00Donation
2021-01-02$18.39Mondou
2021-01-02$13.41Gas
2021-01-03$96.42Groceries
2021-01-04$497.50Rent
2021-01-04$403.85Car Payment
2021-01-05$14.39Home Insurance
2021-01-05$48.04Car Insurance
2021-01-07$14.23Subway
2021-01-07$12.50SAQ
2021-01-09$7.70Netflix
2021-01-09$3.40Starbucks
2021-01-13$29.50Hydro-Québec
2021-01-13$71.95Home Insurance
2021-01-15$403.85Car Payment
2021-01-17$3.40Starbucks
2021-01-17$101.00Groceries
2021-01-21$25.21Pharmacy
2021-01-23$3.40Starbucks
2021-01-25$11.09Pharmacy
2021-01-28$20.82Gas
2021-01-28$15.29Groceries
2021-01-28$2.70Starbucks
2021-01-29$403.85Car Payment
2021-01-30$27.60Home Internet
2021-01-31$3.40Starbucks
Total:$2,396.83

In January, I had $2,396.83 in total expenses, or $28,761.96 annualized. Excluding my car loan payments, it comes down to $1,185.28 or $14,223.36 annualized. The big difference between the two is explained by three car payments I had this month, instead of the usual two.

Otherwise, one month look like the next! I should be ashamed: $23.09 in Starbucks coffee. Just think about it! That’s $277.08 a year! It would take $6,927 invested to generate enough passive income to pay for this bad habit! I just can’t wait to do anything other than car rides. 😉

Also, there are some transactions related to travel hacking, such as the $120 annual fee on my Prestige Aeroplan American Express. I also paid my home insurance policy balance in full to help me reach the required spending on my BMO AIR MILES Mastercard to unlock the 850 bonus miles. Once again, I didn’t spend more to earn points, I spent money I was going to spend in the future. 🙂

It’s ironic, really. My biggest challenge with Travel Hacking right now is to find a way to reach the spending thresholds necessary to unlock my bonuses. Luckily, Milesopedia gives good tips on how to do this.

Reading List

My Facebook page followers may have noticed: I am an avid reader. I often read several books in parallel, in addition to the occasional audiobook. Who knows, maybe one day I’ll reach Warren Buffett’s level:

Read 500 pages like this every day. That’s how knowledge works. It builds up, like compound interest. All of you can do it, but I guarantee not many of you will do it.

In addition to reading, I also like to share about the latest books I’ve read and know what others are reading. In that vein, I thought adding this section to my monthly reviews could be interesting to my readers. 🙂

So, my January reading list looked like this:

I have to admit it: I’m a Self-Help junkie. I still try to balance a bit between fiction and non-fiction. By the way, don’t be surprised to see a Star Trek novel in it from time to time.

Of this list, the one I recommend the most is definitely The Psychology of Money. For me, it was a perfect mix of two subjects I love.  Also, anyone who is struggling to make lasting changes in their lives would also benefit from reading The Power of Discipline.

February Is Going to Fly By!

February only has 28 days, after all.

Next Monday’s article will focus on job interviews and how to prepare for it, especially when you’re an introvert like me. The following week, I’m going to take a little break. I’ll start working on my new position then, and I want to be able to focus mostly on that. 🙂

So I’ll still have two weeks to put together an article on my withdrawal strategy once I’ve reached FIRE. Many of you are asking me to do an article on this, so I’ll try not to disappoint.

I will also have access to my T4 & RL-1 on February 16. This nerd will be very happy to get started on doing tax returns ! In addition to mine, I always do my sister’s and brother’s tax returns. 🙂

I’m especially looking forward to doing my sister’s tax return to apply the method to boost her RRSP contributions as perfectly as possible before March 1st.

As a matter of fact, do you have any suggestions for a good software to do multiple tax returns? I’ve been using UFile since 2014 without looking too closely at what others offer. I’m open to suggestions!

See you next time!

 

My Future Retirement Expenses

Those of you reading this blog’s articles every week may have been startled a few times whenever I mentioned how I am aiming for $15,300 (in 2021 dollars) in annual retirement expenses. One loyal reader even told me once that he was afraid I’d run out of money before the end of the year.

Also, you have access to my monthly reviews and you’ve probably noticed that I am far from the mark.

I have therefore decided that it’d be relevant to write an article about my current annual expenses. I will also break down how I plan to optimize everything, in order to make $15,300 in annual expenses realistic once I retire.

My Current Expenses

As already detailed in my article about lowering expenses, here is an estimate of my current expenses.

ExpensesAmountAnnualized
Housing
- Rent
- Hydro-Québec
- Home Insurance
$497.50/month
$29.50/month
$14.48/month
$5,970.00
$354.00
$173.76
Car
- Payment
- Auto Insurance
- Gas
- Registration
- Oil Change
- License
$403.85/2 weeks
$48.12/month
$10.00/week
$230.43/year
$100.00/6 months
$86.34/year
$10,500.10
$577.44
$520.00
$230.43
$200.00
$86.34
Food
- Groceries$50.00/week$2,600.00
Subscriptions
- Mobile Phone
- Home Internet
- Spotify
- Netflix
$31.57/month
$28.75/month
$7.15/month
$7.00/month
$378.84
$345.00
$85.80
$84.00
Donation
- CanadaHelps$10.00/month$120.00
Cats
- Food
- Litter
$30.00/month
$10.00/month
$360.00
$120.00
Total:$22,705.71

You’ve probably noticed that some expenses are not what one might really consider fixed. However, since I track my expenses every month, I can easily estimate a fairly representative average.

Optimizing Budget Items

You’ve probably noticed that I am currently almost $7,500 overbudget. I am well aware of this. Let’s see how I could optimize my expenses to live on $15,300 per year. 🙂

Housing

For this budget idem, I’ve already talked about what my plan is shaping up in my article about my 2021 goals.

Currently, I am renting a 2-bedroom apartment with my sister. I live about ten kilometres from my workplace. Once I retire, I’ll no longer need to live near the workplace. Although my retirement plans involve quite a bit of travel, I’d still like to have a place to go back to in Quebec.

Thus, the most logical choice for me would be to buy my mother’s house in my small hometown. Since she lives far from civilization, the house is definitely a cheap deal. With the interest rates as they are now, a mortgage on the house would cost me about… $250 per month.

I very freely estimate insurance, taxes and electricity at about $1,000 each per year.

The ideal scenario would be for my mother to continue living there. That way, there would always be someone in the house, even when I’m out exploring the world. My sister is aiming for FIRE as well and could opt for the same kind of arrangement. I could then take care of paying the mortgage, while my mother and sister take care of paying the other house-related expenses, or any other arrangement that would involve sharing expenses.

Car

This particular budget item, as you already know, will be automatically optimized in November 2021 at the latest, when my car loan is fully repaid. This means $10,500 less in annual expenses. 🙂

While I still have a loan on the car, the bank requires I have full insurance. Once the loan is repaid, I may consider changing my insurance shortly thereafter and drop collision and comprehensive coverages. I called my insurer to find out how much my premium would be and I learned it would go down from $577 to $336 per year.

As far as licence and registration are concerned, it won’t change. Obviously, it’s more likely to increase slowly but surely.

Gas could very well increase at times (both the price and my consumption), just as it could remain very stable at other times. I’ll estimate double what I’m paying right now, just to be on the safe side.

Finally, for all maintenance, including oil changes and repairs, I’ll have to plan for a larger amount. My car is starting to age and when I reach FIRE, it may start to need some love! I think it would be reasonable to budget for about $750 a year.

Food

On that front, apart from the normal food cost increase, there should not be a big difference. Fluctuations will mostly happen according to where I’ll be in the world. Food is ridiculously cheap in Southeast Asia, for example. However, feeding myself in Europe could be a whole other story. While I am in Quebec, it will be more or less the same price I am paying now, plus inflation.

I am already careful to buy groceries on sale, in large quantities (economy of scale), I avoid restaurants, I meal prep and I make sure I don’t waste anything. These are all good habits that I intend to maintain. Furthermore, I have been eating keto for three years and I don’t plan to change my diet.

Tentatively, I’ll keep the same amount that I am currently paying.

Subscriptions

I don’t see much change happen here.

For my mobile phone plan, I don’t see any major changes. I currently have a $27 (plus taxes) plan with Fizz that suits me perfectly. Abroad, there is always WhatsApp that will allow me to call or send text messages at no charge, as long as I have access to a wifi.

As for home internet, little change is expected. I find that I am already paying a fair price. Actually, it could even get lower if we ever share the bill with my mother.

For Spotify and Netflix, I don’t think I’m going to unsubscribe, since I use these services extensively and it’ll be useful to me no matter where I am in the world. 🙂

Donations

For this expense, I already donate very little. I certainly don’t think I’ll decrease the amount. At the moment, I also give through deductions at source at work, to the tune of $10 per two weeks. There is therefore a better chance that I will increase my donations to reach an equivalent total of donations.

Cats

For your information, my two cats are immortal. Therefore, this expense item will never change.

Hypothetical Retirement Expenses

So, after all these changes, here is a hypothetical retirement budget:

ExpensesAmountAnnualized
Housing
- Mortgage
- Home Insurance
- Taxes
- Hydro-Québec
$250.00/month
$1,000.00/year
$1,000.00/year
$1,000.00/year
$3,000.00
$1,000.00
$1,000.00
$1,000.00
Car
- Gas
- Maintenance
- Auto Insurance
- Registration
- License
$20.00/week
$750.00/year
$28.00/month
$230.43/year
$86.34/year
$1,040.00
$750.00
$336.00
$230.43
$86.34
Food
- Groceries$50.00/week$2,600.00
Subscriptions
- Mobile Phone
- Home Internet
- Spotify
- Netflix
$31.57/month
$28.75/month
$7.15/month
$7.00/month
$378.84
$345.00
$85.80
$84.00
Donation
- CanadaHelps$30.00/month$360.00
Cats
- Food
- Lititer
$30.00/month
$10.00/month
$360.00
$120.00
Total:$12,776.41

This is actually a very conservative assumption, as I include all the house-related costs, as if I am not going to split anything with anyone (which I highly doubt). In all honesty, if I am to pay for everything on my own, I would probably choose to rent instead, in the same small village.

Thus, if I were renting, or, as mentioned above, if my mother and sister were paying for the house-related costs, it would be about $3,000 less per year for me.

Accordingly, here is a more optimistic (or realistic) scenario:

ExpensesAmountAnnualized
Housing
- Mortgage or rent$250.00/month$3,000.00
Car
- Essence
- Entretien
- Assurance auto
- Immatriculation
- Permis
$20.00/week
$750.00/year
$28.00/month
$230.43/year
$86.34/year
$1,040.00
$750.00
$336.00
$230.43
$86.34
Food
- Groceries$50.00/week$2,600.00
Subscriptions
- Mobile Phone
- Home Internet
- Spotify
- Netflix
$31.57/month
$28.75/month
$7.15/month
$7.00/month
$378.84
$345.00
$85.80
$84.00
Donation
- CanadaHelps$30.00/month$360.00
Cats
- Food
- Lititer
$30.00/month
$10.00/month
$360.00
$120.00
Total:$9,276.41

Now, do you understand why I think it’s realistic that I can keep my annual expenses under $15,300? 😉

My current expenses are already quite low. As I write this article, I notice how housing and car-related expenses change everything. Once these two big expense items are optimized, I’ll be able to reach a realistic level of spending to achieve my goal. 🙂

Lean FIRE

Also, let’s take a closer look to my hypothetical retirement budget. Whether you take the conservative assumption ($12,776) or the more optimistic assumption ($9,276), it is still a pretty tight budget for many people.

It reminds me a bit of Lean FIRE. Financial 180 explains the concept as follows:

Lean FI is what my wife and I call the point where you can passively cover all your essential expenses, perpetually. Think food, shelter, and bills. This leaves off all the discretionary frills such as travel, eating out at restaurants, Netflix, etc. It wouldn’t be a super fun lifestyle, but you technically could quit work right now and survive forever. I like to think of Lean FI as an emergency fund that can cover infinitely many months of essential expenses.

For those who are intrigued, there is a full Subreddit about Lean FIRE.

In my case, Lean Fire could actually be reached at around $200,000 (or $8,000 in annual expenses), when I leave out Netflix, Spotify, mobile phone plan, etc. It could even be less, if I were to forget about the car and the associated costs, for example. You get the picture.

Not very glamorous, but with some extra income, it’s starting to look like freedom!

Buffer

Of course, I would like to actually do something with my time once I’m retired. Lean FIRE is not my goal. So, I think a buffer is of the utmost importance. By aiming for $15,300 a year, I am therefore planning for a buffer somewhere between $2,500 (according to the conservative assumption) to $6,000 (according to the optimistic assumption). Let’s meet somewhere in the middle with a $4,000 buffer.

In my opinion, this would allow me to do enough activities to keep me busy, in addition to my favourite hobbies that are already inexpensive. That’s the equivalent of $333 a month or $76 a week for activities, restaurants, or others. Considering my current lifestyle, this would be fine with me.

This amount could also absorb other needs, such as clothing, for example. Considering that I already buy most of my clothes used, I don’t foresee big expenses on this front. The buffer could therefore absorb it.

In terms of major expenses that I plan on having during retirement, such as travelling, Travel Hacking will be my friend. My points and miles will allow me to travel at low costs. 🙂

Geographic arbitrage will also be a powerful ally. The beauty of early retirement is that I will have the freedom to go where I want, when I want. It’s getting a little too expensive in France? Perfect, let’s go visit Eastern Europe. I’m starting to bust my budget in Japan? Next destination: Thailand! It’s all about balance. 😉

Never Forget About Inflation

Of course, this $15,300 is in 2021 dollars. I have already mentioned this in other articles, but we must never neglect inflation while doing projections. For example, by applying 2% inflation until 2026, which is the year I expect to reach FIRE, I get :

  • 2021: $15,300
  • 2022: $15,606
  • 2023: $15,918
  • 2024: $16,236
  • 2025: $16,561
  • 2026: $16,892

I can’t wait to see how accurate those projections will be. Many bloggers have actually noticed that their expenses changed very little from one year to the next, either before or after FIRE. So, I may even be too cautious in my projections. Can’t wait to find out! 😉

Killing Two Birds With One Stone

The main advantage of having a low level of annual expense is that I won’t need millions of dollars to cover it. With the 4% rule, that means I would only need a nest egg of about $382,500 in 2021 dollars.

Whereas if I were to start splurging and have to estimate my expenses at $40,000 a year, for example, then I would need literally over $1 million. In fact, to cover $40,000 in annual expenses, I would actually need $50,000 in gross income. And still using the 4% rule, to withdraw $50,000 per year, you need…  1 250 000 $.

Let’s just say that would move up my FIRE date by several years. Personally, I prefer to lower my expenses.

Of course, that’s a worst-case scenario where all income comes from an RRSP and is taxed accordingly. There would be a way to lighten the tax bill by making withdrawals from a TFSA (which I don’t recommend at first) or from a non-registered account. Still, we must always take taxes into consideration.

Which brings me to the second advantage of having low annual expenses. By aiming for $15,300 in annual expenses, I make sure that I pay as little taxes as possible. This amount is actually quite close to the basic personal amounts ($13,808 at the federal level and $15,728 in Quebec in 2021). The tax payable would therefore be really minimal. In fact, it would be $187, according to this calculator.  Of course, that’s if I were to withdraw it all from my RRSP. If I do a happy mix of withdrawal from an RRSP and a non-registered account, then there’d be zero dollars in taxes to pay. 🙂

Long Live Frugality!

So that’s how I plan to live on $15,300 once I retire. Personally, I think it’s realistic according to my personal needs. I spend very little and I don’t think that will change once I retire. The small nest egg needed to cover this amount and the tax advantages encourage me even more to maintain my frugality.

Also, if I ever run out of money in October, like my faithful reader fears, I’ll improvise. I consider myself resourceful and creative enough to find a solution!

I am very curious about how much you expect to spend in retirement. 🙂

Lower Your Expenses

As promised, here is my first post in a series of five which will focus on the steps towards financial independence. Let’s kick things off with a big one! We will talk about lowering our expenses.

I’m already starting to lose you, aren’t I? In Quebec, we are so afraid of being perceived as cheap that we spend money like there is no tomorrow. Want proof? The average household debt in 2018 was 170%. You understand, as I do, that this means that for every $1 of disposable income, $1.70 is being spent. This is insanity!

In addition, these indebted people will tell you how much better it would be if they made more money. Yet, when they get a raise or a promotion, what do these people do? Instead of trying to get out of debt or save, they spend even more. They finance a car. They go on a trip, paid with their credit card. They Buy Now, Pay Later for a Home Theater System. So they struggle to keep their head above water again, with no money to spare, and they’re already anxious for the next raise.

When, in fact, we should start by applying a very simple concept: spend less than we earn. The statistics cited above unfortunately confirm that people spend (way) more than they earn.

Where to Start

Now that I made it clear that earning more does not solve the problem, let’s get down to business. What if we start by lowering expenses? When you think about it, it makes sense. Every $100 we don’t spend is $100 more in our bank account. On the other hand, working more to get an additional $100 ends up being $60-70 after taxes and deductions, in addition to costing you additional time. It’s easy to see which method is the most effective.

So, what should we cut back on? Here’s a rough translation of something Daniel Germain said in his recent article L’épargne, une déclaration d’indépendance!:

“It doesn’t mean giving up on a car, a house, children, a cat and a lawnmower. That doesn’t mean giving up on fun either. On the contrary: independence means knowing how to recognize what gives us true pleasure, not illusions and disappointments. Only what’s essential, really.”

To focus on what expenses are essential, we first need to know where our money is going. It’s a good start to make an approximate budget and assume it’s accurate enough. However, have you ever bothered to track each one of your expenses? And I really mean each and every one. Every morning coffee at the drive-through, every $50 bill at the grocery store while we were “just getting milk”, every lottery ticket bought while paying for gas, and so on.

If you want to try tracking your expenses, I invite you to read my monthly reviews to see what my own expense tracking looks like.

It’s Optimization Time!

Once this exercise is done, it will be much easier for you to target what can be eliminated or optimized. It’s a bit like the principle that Marie Kondo applies to tidying up: we only keep what sparks joy, and we get rid of the rest.

Does it spark joy to pay $100 a month for your cell phone plan? No. So switch carrier for one that offers a better price.

Does it spark you joy to know that your neighbour is paying $50 less than you for the same TV service? No. So call your provider and negotiate a lower price (or just cancel the service, because is that really essential?)

Does it spark you joy to see your car insurance premiums increase year after year? No. So ask for quotes from other companies, increase your deductibles and reconsider your need for collision insurance.

Does it spark you joy to travel? Oh, that it does! What about the bill, though? A little less. So learn about travel hacking (or how to travel the world on points).

Once you’ve screened and optimized all expenses, you should be left with more money in your bank account at the end of the month.

My expenses

So it’s all good, but what do optimized expenses look like? I don’t pretend to have a perfect level of spending, far from it. However, I’ve already done some optimization over the last few years and I wanted to share the results with you. Additionally, sometimes we simply have no clue that the price we’re paying for service X is way higher than it should be. So, by comparing your expenses with mine, maybe it’ll prompt you to make a few phone calls.

Currently, my fixed expenses look like this:

Expenses Amount Annualized
Housing
– Rent
– Home insurance

$497.50/month
$14.48/month

$5,970.00
$173.76
Car
– Payment
– Auto Insurance
– Gasoline
– Registration
– Oil Change
– License

$403.85/2 weeks
$48.12/month
$10.00/week
$227.57/year
$100.00/6 months
$86.34/year

$10,500.10
$577.44
$520.00
$227.57
$200.00
$86.34
Food
– Grocery

$50.00/week

$2,600.00
Utilities
– Cell phone
– Hydro (power)
– Home Internet
– Spotify
– Netflix

$31.57/month
$29.50/month
$28.75/month
$7.15/month
$7.00/month

$378.84
$354.00
$345.00
$85.80
$84.00
Donation
CanadaHelps

$10.00/month

$120.00
Cats
– Food
– Litter

$30.00/month
$20.00/month

$360.00
$240.00
Total:   $22,822.85

This does not include impulsive, unforeseen or exceptional expenses, but it does provide a good picture. If some amounts seem abnormally low to you, you must understand that I live in a 2-bedroom apartment with my sister. This way, most expenses are cut in half. Had I decided to live alone, I would have to cover the full expenses myself. It is a financial choice I made that allows me to lower my expenses considerably.

You’ll notice that $22,822 in annual expenses combined with a net income estimated to $49,000 at the end of the year leaves me with extra money ($26,178) for savings and other expenses.

Other Optimization Possibilities

Of course, there is always room for more optimization. Here are a few examples.

My current expenses for my car are extremely high at the moment. Fortunately, it will optimize itself once my car is paid in full in November 2021. As I mentioned in my September 2020 Review, I increased my payments to the maximum allowed by the bank to pay it off faster. This expense adds up to $10,500 per year, which is huge (46% of my fixed expenses). However, it also means that once the car is paid off, my fixed annual expenses will go down to $12,322!

Housing is also subject to optimization. It is already somewhat optimized considering that I live with a roommate, instead of on my own. The current price I pay for rent seems to me quite favourable compared to a mortgage on a condo or a single-family home and other related costs. However, moving further away from my work would be additional optimization. Now that we can work from home, I can’t help but reconsider the relevance of paying more on rent to be live near my workplace, even though I have not set foot there in seven months. Even in a post-COVID world, it would be very surprising if I was ever recalled full time in the office.

Of course, living close to my workplace will be useless once financially independent. At that time, this expense would benefit from Geographic Arbitrage. 🙂

The 4% Rule

I really have to insist on this particular step, since lowering your expenses really is the cornerstone of your path to financial independence. Even if you were to earn $200,000 a year, if you spend it in full, or God forbid, 170% of it, you won’t have a penny left at the end of the month. Remember our goal here is to be able to withdraw enough money from our investments to cover our annual expenses. So the fewer expenses we have, the less money we need to withdraw. Therefore, we’ll need a smaller amount invested as well!

In fact, the 4% rule should be calculated on expenses, not income. Never heard of the 4% rule? In this case, let me direct you to excellent resources on the subject:

Long story short, 4% is what experts consider the safe withdrawal rate. In order to know how much we need in investments to cover our annual expenses (which we previously calculated) at a safe withdrawal rate of 4%, we have to do the reverse calculation (100 / 4 = 25). That means we need to multiply our annual expenses by 25.

For example, if we use my annual expenses previously mentioned, we come up with:

$22,822 – $25 – $570,550

This means that to cover my current annual expenses (which include payments on my car loan), I would need $570,550 in investments. On the other hand, once my car loan is paid off the calculation will go as follows:

$12,322 – $25 – $308,050

See the huge difference? I would need $262,500 less to cover my expenses at a 4% withdrawal rate! If you look at it this way, financial independence suddenly seems much more accessible, doesn’t it?

To get an idea of what an expense really represents in your quest for financial independence, I find it eye-opening to calculate the amount required in investments to cover one particular annual expense. For example, your cell phone plan costs you $100 a month, or $1,200 a year. With our simple rule, we understand that you would need $30,000 in investments just to pay your cell phone bill. However, if we manage to reduce the bill to $50 a month, then we only need $15,000 in investments. Food for thought! 🙂

You get it now why I insist on lowering expenses, don’t you?

Of course, the 4% rule is not completely foolproof. There are many factors to consider, including retirement age, life expectancy, asset allocation, risk tolerance, etc. Some might want to use a more conservative withdrawal rate such as 3%, for example. You would then need the equivalent of 33 times your annual expenses. However, I think the 4% rule is a good enough rule of thumb. From there, you can make your own calculations based on your situation and needs.

We Need to Take Action

Of course, you don’t go from a debt ratio of 170% to a savings rate of 50% overnight. It’s a long-term job. Each action you make has a cumulative effect over time (not unlike compound interest!). So one thing at a time, but the important thing is to take action. The sooner you start to lower your expenses, the faster you will reach your goal. Keep in mind that Rome wasn’t built in a day.

Finally, I leave you with a loose translation of an excerpt from Pierre-Yves McSween’s latest book, Liberté 45, which particularly appealed to me (rough translation):

The path to financial freedom is theoretically simple. In practice, it takes an iron will to stay the course. Above all, the false sense of deprivation must be transformed into a positive impression, bred from our quest for freedom. It’s all there. It is not deprivation to seek to leave the prison of the mad race to nothing. You just have to change your mindset, let your neighbour go to work in his $50,000 SUV while you’re secretly preparing to leave your prison. Free of charge.

Bye-bye, neighbour! I’m off to my cottage… Forever!