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Young and savvy

Over at My Two Dollars, Diane Hamilton wrote a post decrying how Millennials “have been raised to expect immediate gratification” and that “everyone is bending over backward to meet their needs” (which popular media has been harping on for a while). She proposes adding more financial courses to colleges and K12, developing personal finance books geared towards younger kids, and sharing mistakes and lessons learned with kids.

Heh. Maybe it’s just me, but I can’t help but want to stick my tongue out at popular media when it paints Gen Y with too broad a brush (and yes, that applies even when they’re bringing out the “Gen Y Will Save the World!” stories).

Especially when it comes to Gen Y and money. It’s true that more and more people are struggling with student debt. In many countries, younger people felt locked out of the real estate market because older people had more assets and could bid up house prices. Now they feel locked out of the real estate market because of less access to capital and lower earning power. And of course, there are many younger people who have moved back with their parents in order to save money, a phenomenon much remarked-on in popular media.

Two words: sub-prime mortgages. Who got the economy into that mess, anyway? ;) But this is the world we’re growing up in, so we’ll just have to help fix it.

But you know, it’s not that bad. =) Here’s what I think about money and my generation: Most of us have seen way too many people make way too many mistakes about life, about money, about all sorts of things. It doesn’t mean that we won’t make our own set of mistakes, but it does mean that we’re generally not as clueless as media paint us to be. ;) The Gen Yers I’ve talked to keep tabs on their spending and plan long-term investment, look for ways to be frugal, and are pretty darn good at using all sorts of new tools to manage their money and learn more.

Then again, I’m weird, and maybe many of my friends are weird too. ;)

Schools: while I’m all for introducing more real-life education into schools, parents should take responsibility for teaching their children financial savvy. Children can have the best lessons in school, but if they come home to parents neck-deep in credit card debt and still spending on unnecessary things, or who laugh at the idea of saving for the long-term for people in their twenties, something’s wrong with that picture.

Don’t just share your mistakes. Share the good things you do. Share your decision-making process. Share your goals, too. Lead by example.

I’m really lucky to have money-savvy parents. My mom and my dad set up their own business, funding all of their growth from a little capital they had saved up and from reinvested profits. My mom taught me how to use the envelope method to manage my money without feeling constrained by a fixed budget. She also taught me never to carry a balance on my credit card, to resist the temptation to spend excessively on consumer goods, and to plan for the long term. Both my parents taught me to spend where it counts.

It’s not hard to do something like that too. Instead of getting all worried about Gen Y and immediate gratification, practice conscious spending and reflective action yourself, and you’ll teach people of all generations along the way.

SO:

  • Gen Y isn’t all that bad.
  • People can teach other people through example, and parents should definitely take responsibility for helping their kids learn. And it’s not that hard–just do the right thing yourselves, and share what you’re learning.
  • Try to avoid popular overgeneralizations. It’s easy to take one of the polarized perspectives from popular media (“Gen Y is bad!” “Gen Y is good!” “Gen Y is just the same as everyone else!”), but you can miss out on more thoughtful discussion.

As for Gen Y being spoiled kids at work–you have to wonder how many of the things we ask for are common-sense. ;) Work-life balance is something I think a lot about, but it’s good for everyone. Focusing on results rather than on face-time–again, that’s a business best practice. Wanting opportunities to be engaged, to do work that you’re passionate about? That makes sense for everyone, too.

My team would be the first to tell you that they adapt to me at least as much as I adapt to them, and they’d also be quick to reassure you that this is a Good Thing. ;)

Thinking about making ridiculous amounts of money

You know it’s going to be an unusual meeting when your manager asks you if you can see yourself making ridiculous amounts of money, and how you think you can get there. =)

My manager reads my blog. He knows about my experiments. He knows I like playing around with ideas, and that I’m making good progress on saving up a crazy idea fund. Not that this makes him very nervous about keeping me. I love working with IBMers, I love working with IBM and our clients, and I love the kinds of things that we do.

We talk about this in career planning discussions, too. He asked me before if money was important to me, which is probably manager-speak for “Do I need to keep a close eye on market salaries so that someone doesn’t hire you away?” I told him I’m okay, which is team-member-speak for “That’s not the main reason I accepted this position, but it certainly doesn’t hurt.” I also told him that I’m all for raises and bonuses–not because I need the cash, but because that’s a pretty good way of checking if I’m creating more value for the company and our clients year after year. I want to grow, while staying true to my work-life balance.

So when my manager asked me about making ridiculous amounts of money, I told him that it’s not about making a ridiculous amount of money, it’s about creating a ridiculous amount of value. It would be nice to capture some of that value, of course. That would make it even easier for me to learn, to experiment, and to make a difference. If you create lots of value for other people, getting some of that back makes it easier for you to create even more value. It all works out.

What I’m really interested isn’t making ridiculous amounts of money, but developing and sharing the skills to do so, and creating lots of value along the way. =) It’s the journey, not the destination.

Also, it’s not about making ridiculous amounts of money. A large part is about saving relatively ridiculous amounts of money, and–very important–investing that into making a ridiculously wonderful life for myself and other people.

It helps to have a bit of money and a lot of freedom when experimenting. Not too much money, though. Too much money makes people act weird, and even makes life dangerous. So a little money and a lot of freedom, and I can keep reinvesting or donating money beyond that.

And then, because I’ve thought about this a bit, I told him about some ways I might go about doing it.

Ken Fisher’s book on the Ten Roads to Riches is a good read. There are lots of paths. Knowing about different paths is helpful, because you can recognize them and you can prepare for them. Here are three ways that might fit me:

  • There’s the path that few people talk about with their manager, which is starting one’s own company. ;) There’s no use denying that I think about this. I’m curious about what it would be like. But I really like working with the people I’m working with, so I keep those ideas on file.

  • On the other end of the spectrum, there’s rising up in the ranks and commanding a premium salary. That’s split into two paths: non-commissioned employee and commissioned employee.

    For a non-commissioned employee, there tend to be structural limits on how much you can earn (based on time and hourly rate), unless you manage to get into a position where you directly affect revenue and you get bonuses based on that (which makes you kinda commissioned).

    Commissioned people are affected by how good their product is, how well they know it, and how the market is. It’s important to pick the right company.

    The path to wealth is to save and invest wisely. Slow and steady wins the race.

  • In the middle, there’s continuing to work with the company because that lets me make some of the differences I’d like to make, and having a business on the side so that I can explore other ways to make money. Other people have successfully done this before while still following our business conduct guidelines and intellectual property agreements, so I know it’s possible. Again, there’s more than one way to do this. If I build a business that requires my active participation, I’ll be constrained by the hours in a day and the energy that I have. If I build a business that can grow beyond me, the possibilities are wide open. 

And of course, there are other paths.

So that’s what I think about making ridiculous amounts of money:

  • It’s not the money, it’s what you learn along the way.
  • It’s not something you keep, it’s something you reinvest and share.
  • And there’s more than one way to get there. =)

Making the most of opportunities – tips for managing time, energy, and money

Over dinner at Linuxcaffe last night, my friends and I had a great time catching up and sharing our latest adventures. I learned a lot from that conversation, too! =) In particular: the value of a crazy idea kitty fund.

Nigel asked me if I knew lots of other people who were also experimenting with delegation and virtual assistance. I told him that a number of people were interested, but few people actually took the next step and gave it a try.

It’s understandable. Even in good times, most people don’t experiment with ideas because:

  • they don’t set aside time, energy and money for doing so
  • they second-guess themselves, or
  • they don’t know how to even get started.

In order to make the most of opportunities, you need time and energy–and often, money too.

You can free up more time for experimentation and learning. Trim your passive leisure time, like the time you might’ve spent watching cable television, if you still do. Find ways to do things more efficiently, like occasionally working from home in order to save your commute time. Increase your productivity so that you can get your work done in less time. Reassess how you spend your time and whether you can eliminate some activities or adapt them to include the new things you want to do. Batch your work for more productivity. Buy time back by asking or paying someone else to take care of some tasks.

People often tell me that they’d love to save time, but they don’t have the time to figure out how they can. If you’re running flat out and there’s no room in your schedule for even five minutes to breathe and think, you’re running at an unsustainable pace. Slow down. This may require you to adjust people’s expectations of what you can deliver, at least in the beginning. But you need that time to think and make things better, and you’ll benefit a lot from having a little more control over how you invest your time.

You can manage your energy. Figure out what and who give you energy, and what and who drain it. Figure out if you enjoy starting projects or finishing them, at what times of the day and in which circumstances you’re most productive. Manage around that instead of fighting yourself.

I know my passions and what I can do to pursue them. I’m surrounded by wonderful, supportive people who cheer me on and help me recognize room for even more improvement. I can finish some projects, but I can start many more projects than I alone can finish. I’m definitely a starter, although there are some things that are difficult for me to get rolling. I’m better doing creative work in the morning than in the afternoon. I work well when I’m not worried about deadlines and when I have room to make things better.

How can you go about understanding your energy? Experiment and reflect. =)

You can save up money. Invest in yourself. When coming up with ideas or experimenting with new things, it pays to be able to invest a little on things that may or may not work out.

How do you make space for this? Keep track of all your expenses and see which ones aren’t worth it. Set up automatic savings programs so you don’t even see the money in your bank account. Spend less on things and more on experiments and experiences. Focus on free or low-cost ideas in the beginning, and snowball your savings by reinvesting your profits back into your “crazy idea fund”.

You can explore lots of interesting things when you set aside some time, energy, and money. Good luck and have fun!

Reinvesting

I’m looking forward to receiving the first bonus of my working life. =) Thinking about it, I’m reminded of a story my mom told us a number of times. It goes something like this like this:

Two entrepreneurs each start off with a variety store. The first entrepreneur takes the profits from the business and reinvests practically everything back, growing the store into a larger one. The second entrepreneur takes the profits and buys a television.

Business is good. The first entrepreneur takes the profits from the business and reinvests practically everything back, opening a new branch. The second entrepreneur grows the store a little bit, and then buys a video player.

Business continues to do well. The first entrepreneur branches out into another business. The second entrepreneur grows the business a bit more, and gets a new car.

The first entrepreneur works very hard, and soon owns a chain of stores. The second entrepreneur has a small business and a comfortable lifestyle.

At the end of the day, who’s happier?

My mom told us this story to show us several ways of thinking about business and money. She said that my dad is very much like the first entrepreneur, reinvesting as much money back into the business as possible. My mom and my dad agreed to do it that way. The business has certainly flourished.

She also told us how she helps make sure that it’s not just about that way of doing business, though. Drawing a little bit of inspiration from that second entrepreneur, she made sure that our family gave ourselves permission to spend money to create memories and make life wonderful (and that’s not just by buying stuff). So we went backpacking across the US and Europe, and we had lots of adventures.

A good life is a mix of both: reinvesting for growth, and enjoying the results.

So part of my bonus will go to my retirement fund, because it’s good to plan ahead.

Part of my bonus will go towards investing in myself, further developing the skills that helped me get that bonus in the first place.

Part of my bonus will go to exploring life and sharing experiences with people.

If you think of your life like a business, you can make more conscious decisions about how you spend money.

Finally decided what to do with the tax-free savings account

I finally decided what to do with the tax-free savings account (TFSA) recently introduced by the Canadian government. Because I’ve got $5,000 of contribution room to play around with this year, I’ll move my emergency fund into it in a combination of a regular money-market fund and some GICs. Once I move most of my short- and medium-term savings into the TFSA, I can then start looking at it as a way to save for the long term (say, by holding stocks). In the meanwhile, it makes more sense to save the fairly hefty tax levied on my interest income than it does to hold equities in the TFSA in order to avoid capital gains tax a long way down the road.

PCFinancial offers a slightly higher interest rate for their TFSA high-interest savings account (3% to ING Direct’s 2.7%), but they ding you with a $50 transfer fee if you want to move your TFSA money to a different institution (say, if you want to invest in TD e-series mutual funds). You could withdraw for free and deposit it normally, but that still uses up your TFSA contribution room and you won’t be able to contribute as much until the next year. ING Direct doesn’t ding you with the fee and they have better GIC rates, so I’ll probably go for them.

Thinking about the Canadian Tax-free Savings Account

W- and I picked up a 2008-2009 tax planning guide from the Toronto Public Library, and I was pleasantly surprised to find that the tax-free savings accounts (TFSA) recently introduced by the Canadian government can be used to hold equities which will not incur capital gains tax when sold. Now I’m trying to figure out how I should best manage the $5000 TFSA limit I have this year.

Because I’m young and I have some funds I’m not planning to use for a while, I’m leaning towards considering this as part of my retirement portfolio. It won’t be locked in like my registered retirement savings plan is (RRSP), and it won’t be taxed on withdrawal. Withdrawals from the RRSP are added on top of your income, and capital gains taxes are applied. According to this article on TFSAs and RRSPs, it may make sense to hold income-generating investments in the RRSP (where they won’t get taxed as they grow) and things like equities in the TFSA (where you won’t get capital gains tax on large growth).

Of course, that all depends on whether or not you think equities will stop going down and instead regain some value. Prolonged recessions have happened before. Glass-half-full folks could also see this as a great time to pick up mutual funds or individual stocks at a discount, though. =)

Another alternative is to use it as a high-interest savings account for my emergency fund and short-term goals. $5000 There’s currently no other tax-efficient way to store funds I may need/want to access in a bit.

Or perhaps a mix of both!

Decisions… decisions… Anyway, if you’re going for the high-interest savings account, try PCFinancial For guaranteed investment certificates (GICs), try ING Direct (they’re easy to manage and they have decent rates). If you’re going for a mutual fund, try TD Canada Trust – their index e-series funds have the lowest management expense ratio I’ve come across so far, and they’re fairly easy to manage online. =)

Take this blog post with a grain of salt. I’m not a certified financial planner, just a 25-year-old who likes figuring things out.

UPDATE: PCFinancial offers the Tax Free Savings Account with an interest rate of 3.05% on the entire balance of your account (instead of the tiered system of ING), so it beats ING a little bit when it comes to savings accounts. Although at this point, you’re quibbling over 0.35%, which (given the $5000 contribution room) comes out to less than $20. May not be worth opening another account for over one year, and interest rates tend to fluctuate anyway.