Blessed by the Potato

One thing I struggle with is convincing people of the importance of certain elements of personal finance. I’m pretty sure it is important, and the struggle is not that I need to change minds per se, but that I need to find a way of conveying the message that resonates so people follow-through. In particular just convincing people of the very basic need to take some time to learn a bare modicum of this stuff for themselves. After all, time is at such a premium, and personal finance can be so dull.

So consider this: if you aim to be retired sometime around 60-70, and will live into your 90’s, you could be retired for 30-some years. The money to support you will in large part come from your investments. In a way, investing is going to be your career – it’s where the money to live off is going to come from in retirement. Indeed, of all the careers you will have over your life, being a professional investor/retiree will likely be the one with the longest tenure.

That’s not to say that it will be the most intensive career: you’re not going to be sitting in front of a trading desk 9-5 in your golden years. If you follow a passive strategy it might only take a few minutes a month while you sell down investments, move cash to your chequing account to spend, plus a few hours at tax time. But in terms of putting food on the table, it will be nearly as important as whatever it is you’re supposed to be doing now when you’re reading this.

It’s going to be so important, and you’re going to be at it for so long – isn’t it worth spending the time to get some education on your future career?

Now of course this side career will become important long before retirement starts, when you’re in the accumulation phase, so you don’t want to wait until your retirement party to start looking into some good reads and continuing education. Think of it this way: you’re going to spend nearly 2000 hours/year working, for four decades of your life just to save the money you’ll need to live the rest of your life in comfort. How much of that time should be spent on learning the ins and outs of investing, saving, and retirement? Taking a full weekend (16 hours) and devoting it to reading and planning how you will manage your savings is a pretty miniscule amount of time compared to even a single year’s time spend accumulating said savings.

I know, there are always excuses: while you’re young (especially if you can get freelance work) you can always say that those hours could be better spent working to get more money to save, and doing just about anything else is more entertaining. Yet taking the time is an investment in its own right. So come on, give me a weekend.

It’s summer, you’re going to spend some time reading by the pool/beach/lake anyway (I hope), so let’s start with the reading. Here’s a really quick curriculum for you (and I welcome tweaking and book recommendations in the comments). Start by identifying what “year” you’re in for the summer curriculum.

Year 1: Budgeting and Debt. You need to get your household budget in order and tackle outstanding debt before you get into worrying about saving and investing. Dave Chilton’s The Wealthy Barber Returns covers a number of topics, including paying yourself first. “Debt gurus” abound with their books — I can’t make any personal recommendations (because they haven’t sent me review copies and it’s not my area of interest) but it’s a big market and a decent one shouldn’t be hard to find. For something lighter, maybe try Findependence Day by Jon Chevreau.

Spend your weekend skimming through one or a few of these. Dig up your statements to see where your money is going. Draw up your family budget, make a plan to pay down your debt. Call your bank (most have 24/7 phone lines) and set up a pay-yourself/your creditors-first plan if you need to. Take the rest of the year to get this right, get your emergency fund in place, and we’ll see you next summer for year 2.

Year 2: Saving and Investing. Not to be too self-promotional, but start by reading my book. It barely takes an afternoon to read all the way through, and from there you can decide if you need to read more, and in which direction (it has further reading recommendations inside). Exercises: determine your risk tolerance. Set up an investing account (brokerage or mutual funds, hopefully somewhere with low-cost index funds; non-registered, TFSA, and RRSP) — you can fill out the paperwork and place some calls, though opening an account from scratch may involve waiting a few weeks. Call to set up an automatic investment plan if needed.

Year 3: Planning. What will you do in retirement? How much will you spend, how long will you live, and what do you want to leave behind for family and charities? What’s a reasonable set of assumptions for rate of return? What are your tolerances and sensitivities? What’s your backup plan, and what signals will tell you you have to cut back on spending? Have you logged into Service Canada to see what your CPP benefit will be? You can get some books and spreasheets, but at this point there’s no shame in reaching out for a consultant/planner to help. I fully believe that most people can do this on their own with a reasonable time commitment and some reading material; but I recognize that can and will are different things so many may need to hire help (even if only because writing the cheque makes it painful enough to pay attention). Just be sure that you get value for money. Remember that at the end you should have a plan with multiple plans inside of it, including how you will adapt to various future possibilities.

As the years go by set aside some time (perhaps continue with a summer weekend each year) to review your plans and progress, and adjust course as needed. Consult: join forums, as talking will stimulate ideas. If your friends and family don’t view anything remotely related to money as taboo then discuss with them, it may even help spur them to get with the program and start training for their final career.