Pretty much everything to say in personal finance has already been said in a book. The narrow space for originality has been exploited by Sam Dogen, a San Francisco-based personal finance blogger who has written a book called write Buy This, Not That.
Mr. Dogen’s aim is to help people make smarter spending decisions on the way to financial independence. To hear more, I invited him to do an e-mail Q&A. Here’s an edited transcript of an exchange that includes Mr. Dogen’s take on Canadian housing:
Q: Financial freedom is an appealling idea, and we know this because multiple books, blogs and more focus on it. What’s your definition of financial freedom?
A: When I helped kickstart the modern-day Financial Independence Retire Early (FIRE) movement in 2009, I defined financial independence as when your passive income can cover at least all of your basic living expenses. Passive income can come from rental income, dividend income, bond income, and royalties. Basically, any type of income that doesn’t require much if any active energy to generate is considered passive income. However, I’ve noticed there’s been an evolution of different FIRE types to fit the various stages people are at on their financial independence journey. The most practical one is Barista FIRE, where one usually takes on a low-paying job to help bridge the gap between their living expenses and passive income and also to get healthcare insurance. For example, my family of four pays US$2,200 a month in unsubsidized healthcare insurance! Every time I pay the bill, I wish I was Canadian!
Q: You say in your introduction that you want to help people improve their financial decision-making. What’s wrong with the spending decisions people are making?
A: A lot of people are spending without great intention. Instead of spending frivolously on things you don’t really need or want, make it a point to spend intentionally on the things that will give you the most joy and the greatest returns. Treat your investments as an important expense to take care of your future. Otherwise, you’ll wake up one day years from now and wonder where all your money went.
Q: What do you make of the splurge purchases in the pandemic – puppies, Pelotons, food, travel, home renos?
A: They are completely rational. During trying times, we rationally spend money to make ourselves feel better. Ironically, it’s during good times when we don’t have to spend as much money because life is so good. A lonely person would love an adorable puppy or cat. A person who is afraid of working out at the gym would love a stationary bike to reduce stress and help them stay fit. Given we’re all at home more, spending money on home renovations and larger homes is also a logical move. Personally, my hot tub, which I installed years ago, has been my greatest investment yet.
Q: What’s wrong with the traditional approach of money management -- paying yourself first, ie saving, and then spending what’s left?
A: The traditional approach of paying yourself first and spending what’s left is just fine. However, you can only save so much. Saving and budgeting is a defensive strategy that everyone should adopt as a basic standard. If the amount of money you’re saving each month doesn’t hurt, you’re not saving enough. However, to build great wealth, or at least more wealth than the average person, the focus must firmly be on generating more income through work, entrepreneurship and your investments. This offensive part of the equation to wealth creation has way more upside. Working 35 to 45 hours a week is an artificial construct. If we desire to achieve financial freedom sooner, we must spend these precious hours outside of work to earn and learn.
Q: Any ‘buy this, not that’ advice for people who are shopping for a first home (ie, fixer-upper or fully renovated, prime neighbourhood or less desirable but cheaper)?
A: The problem with the Canadian housing market is that valuations are overly stretched. With rising rates and a slowing global economy, I would be patient and look for better deals in six to 12 months. Real estate cycles can take one to two years to turn. My second piece of advice is to buy a fixer-upper if you are in your 20s or 30s. One financial benefit is that you can usually get a discount to market value, even after your expected costs of fixing up the property. Further, you gain the experience of learning how to renovate for future fixer-upper purchases. You may also pick up some handyman skills as well, which will prove valuable for your own house and for future rental properties.
More here: https://www.financialsamurai.com/should-i-buy-a-fixer-upper-property/
I will be on holidays for the next two weeks. Globe personal finance reporter Erica Alini will be writing this newsletter in my absence. Enjoy!
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Rob’s personal finance reading list
Good news for your clothing budget
A poll on clothing preferences shows the work-at-home trend in the pandemic has left us with a strong preference for comfortable, casual clothing. Sneakers over loafers, flats over heels, affordable brands over luxury.
Five steps to take if you lose your wallet
Helpful tips here for getting organized if you lose your wallet. One further thought on this: For good karma, always return a lost wallet you find promptly.
He owes, she doesn’t
What are your responsibilities and risks if you marry someone who has a lot more debt than you?
Forex fees are a tax on travelling.
A thorough look at the foreign exchange fees that apply when you pay for purchases outside Canada, including credit cards, pre-paid cards, and debit cards.
Today’s financial tool
How to use Ontario’s Staycation Tax Credit, designed to encourage residents of the province to travel locally. You can get back up to $200 of vacation expenses as an individual or $400 as a family.
The Money-Free Zone
If you’re a Toronto Blue Jays fan, or just like reading about people who are good at what they do, check out this story on a vital member of the Jays team you may never have heard of, Shannon Curley.
Tweet of the week
Love this – a history of “nobody wants to work anymore.” It’s not a new thing.
In case you missed these Globe and Mail personal finance-related stories
- The important financial steps to take after a spouse dies
- What is your mortgage trigger rate? This calculator helps you estimate it
- Is your mortgage up for renewal? How to lessen the coming sticker shock
More Rob Carrick and money coverage
Subscribe to Stress Test on Apple podcasts or Spotify. For more money stories, follow me on Instagram and Twitter, and join the discussion on my Facebook page. Millennial readers, join our Gen Y Money Facebook group.
Even more coverage from Rob Carrick:
- 🎧 Catch up on Stress Test: Is the middle class dead for millennials and Gen Z? • Gas prices are soaring. Are electric vehicles an affordable solution? • Crypto is booming, but should you invest? • How are young Canadians dealing with soaring rents? • Inflation is squeezing our finances. What can we do about it? • Is a hot housing market squeezing Canadians out of their small towns?
- ✔️ The housing file: How bad is housing affordability? Even a crash won't help • Sell the family home to lock in profit and then rent? Better not • Why young adults can't afford houses: Hard work got you more in the past than it does now • Five reasons you should not buy a house till you're at least 30 • Now more than ever, owning a house is not a retirement plan
- 📈 Investing: The 2022 ETF buyer's guide: Best Canadian equity funds • The 2022 Globe and Mail digital broker ranking: Does the zero-commission revolution flip the script on who's best? • With bonds sinking, conservative investors are waking up to risks they never saw coming • A five-step plan for dealing with the sad fact that almost every investment is falling lately • The best financial advice in advance of retirement? Work on your marriage • One-year GICs are the best deal in town for safety seekers • What to do if the financial plan you paid thousands for disappoints
- 💰 Your money: Are you prepared for the pandemic wealth boom to blow up in our faces? • This hard-working 24-year-old is nailing it financially. But where's the happiness? • Who should and shouldn't worry about the wave of rate increases this year, and what every stressed-out borrower should do right now • Don't make this potentially costly assumption about the CPP Survivor's pension
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