Personal learnings from a bath room renovation

October 7, 2010

I’m renovating two bathrooms that are long overdue for an update.  I really do enjoy doing a lot of the work myself – it’s a good distraction from my real job.  I have learned a few things about renovations over the years that I thought would be worth sharing:

1 – There is always a more expensive toilette – and it is better.

2 – There is always a more expensive tile – and its not really better.

3 – Nothing beats natural stone (qwartz, granite or marble) for a counter.

4 – Everyone says a bath tub is important to have in a bathroom but nobody actually takes a bath.

5 – Customizing anything is twice the time and money of anything ‘off the shelf.’

6 – Your son and daughter won’t help as much as they say they will.

7- It always takes 2-3 times as long, and as much, as you plan.

The Boomer Apocalypse

September 30, 2010

We know its coming, but what will it mean?  With the boomer population currently between the ages of 44 to 59 and representing about 1/3 of the population, we can’t ignore the impact we’ll have on the economy  over the next 20-30 years.

The following article spells out a few of the challenges us boomers may have to deal with in the coming decades.   I caution “expecting” all of the predictions described to occur as future predications are rarely perfect.  However, the final mantra of the author – “Freedom not stuff!”  strikes a nerve.

Living within our means

There are many stresses we deal with throughout our lives, but money worries don’t have to be one of them.

The last few decades was the age of consumption.  Many of us have more and do more than our parents ever did – and we’re also more stressed. 

Of life’s stressors, financial stress seems to be top of list.  Reducing financial stress can’t be based on having more money.

 It starts by living within your means.

Reality is, you probably don’t have unlimited funds so living on the income you have is the only option.  I’m also guessing, you don’t just want to survive but enjoy and thrive for as long as you have.  Spending your money where it really counts can make that difference.  In other words, making conscious spending decisions and using money for true priorities – on what you really need and on what you believe is important.  Matching up what you really want with what you can afford is the route to true happiness and less stress.

Here are my rules to living within your means. 

Debt management is the first thing to get your arms around.  There are two types of debt: 1 – consumption debt and 2 – investment debt. 

Consumption debt is from stuff that hasn’t really been paid for and probably isn’t worth what was paid.  You’ve been coerced, wooed, cajoled and sold by advertisers to buy stuff to make you feel good.  Okay, you’ve bought into that concept for awhile – but for the sake of your health, your relationships and your future financial security you need to stop thinking – “more stuff = happiness”.

Living within your means starts with internalizing the idea your parents or grandparents had – that consumption debt is bad debt and must be scorned once again.  Everything you buy depreciates.  Concert tickets, a plasma TV and a new car.  You may feel all these things provide you with great memories or freedom or relaxation and for those reasons may be worthwhile.  But you need to weigh the short term gratification of having these things against the long term stress of spending your limited resources on them.

You need to consolidate consumption debt onto the lowest cost credit card or line of credit available and pay it off before you buy anything other than what you need.  Then you have to decide you won’t ever have consumption debt again.  You save the old fashioned way and pay for your wants with the money you have saved.  That’s all I have to say about that!

Rule #1 – Buy only what you need and can pay for now – like your grandparents did.

Investment debt is often considered good debt – its money borrowed for investment.  A mortgage is investment debt and it helps purcashe a tax free investment – your home.  Real estate appreciates and when you sell it for more than you paid for it – you keep all the money! Its not taxed like other investment gains.  Real Estate has appreciated at about 6% over the last 20 years in Ontario. However, too much mortgage used to purchase too much home can be a stressor.  When interest rates increase (and they will!) you may find yourself paying a lot more to finance a big and expensive to maintain home.  I’m not so sure that “buying the biggest home you can afford” is the best long term strategy anymore – not if it means you’re strapped for cash for other immediate needs.  We may see a few decades where smaller, more affordable homes will continue to be in demand while demand for larger homes decline as baby boomers downsize.  A more prudent strategy may be to purchase a smaller home so you can spend the right amount on other priorities.  Regardless, when it comes to a mortgage, the best strategy is to plan paying off that mortgage by retirement or sooner.

Rule # 2 – Buy a home you can comfortably pay for to be able to do the other things you need and want to do.

Many of us see retirement so far off we can’t give it much attention.  Believe me, the years go by quickly so decide today you’ll “pay yourself first” and begin investing in your retirement.  Plan on not being a burden to your children or society.  Other than if you have the most lucrative pension, you’ll probably need to have savings to cover retirement expenses and large purchases – a car, vacation, potential healthcare bills etc.  Begin by creating an automatic withdrawal from your bank account to long term savings – be it an RSP or TFSA.  Speak to a financial advisor to figure out how to make this work.

Rule #3 – Invest in your retirement by making sure you’ll have one!

Since you probably don’t have unlimited income, you will need to decide where and how much to spend in all the areas that are important to you.  The sooner you decide, the sooner you’ll be living your life the way you really want.   For example, if family is important to you, you need to decide on the areas you want to spend your money on to fulfill your priorities.  Vacations and activities are important but so are education funds, life insurance and long term financial security. Decide consciously how much you want to spend in all the important areas of your life.

Rule #4 – Make sure you spend the rest of your money on what’s really important

No business, family or person can manage their finances well without tracking money coming in and money going out.  I know this is tedious and not fun – but deep down, you know you have to do this.  I’ve reduced it to a simple one page spreadsheet you can use for the entire year.  The spreadsheet allows you to track your money with as much or little detail as you want.  The important thing is to track it so you know less money goes out than comes in.  Send me an e-mail and I’ll send you the excel spreadsheet.

Rule #5 – know what’s coming in and what’s going out.

After tracking the money going out, you may find a significant amount can’t be identified.  The money is spent, but you’re not sure where.  This is called the “latte factor” – money spent on day to day “stuff” that really isn’t a priority.  Spending is so much a part of us, we often spend small amounts throughout the day that add up to large amounts.  Although it may seem trivial, watching this spending can help you save big.

Rule #6 – Watch the latte factor.

 Living within your means may mean spending less in some areas but it can also mean spending more where it really counts.  You just need to decide and live with less stress.

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