On The Money

A few posts ago on this weird little blog of ours, we made the claim that home ownership, even when it goes up, does not make the homeowner money. On the contrary, it makes everyone else money: the real estate agent, the bank, the government. Just not you. We then crunched the numbers and proved our point with cold, hard math.

I know, right? Math from…gasp…a GIRL!

Ever since then our inbox has been clogged with haters. How dare we attack such a sacred taboo topic like home ownership, they clattered from their keyboards. Of course people make money with real estate! I mean, it’s not like an entire GENERATION could be wrong, right? The Mainstream Media then chimed in, demanding that we explain ourselves!

So we did. On National TV.

When we we were first interviewed on CBC, we honestly thought no one, other than our parents and close friends, would watch it.

Boy, were we wrong. That video has since garnered over 4.47 MILLION views!!!

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That’s as many views as our PM got on his Canada Day address, and he’s a certified dream-boat!

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Oh PM Dreamboat, you can address my loins any day.

Since then even the media has been following our journey and reading this blog. It’s as if we actually have something important to say. Ha! Jokes on them!

So somehow we’ve turned from a dinky little place for us to vent about unaffordable housing and share investment knowledge into an actual Big Blog ™. Huh. Does this mean I have to actually start watching what I say?

…nah…

So to our new readers coming in because of that TV spot, the offending posts we’re referring to are here:

Update: To our subscribers, the issue that was stopping email delivery (which was apparently caused by TOO MANY SUBSCRIBERS) has now been resolved. You should be now be getting updates delivered as normal now. If you don’t, please shoot us an email and I will whip my IT guy (i.e. Wanderer) until it gets fixed. kthxbye!

Let’s Go Exploring! Switzerland: Forget Heaven. Just Go Here.

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“Oh for FUCK’s sake!” Wanderer yelled, kicking the bus stop sign so hard I heard his foot crack.

We were at the Engleberg train station, a city 2 hours away from Zurich, situated at the base of the Swiss Alps. On the way here, Wanderer kept reminding me over and over again that we had only a 15 min window between trains and we couldn’t afford to make a mistake. Apparently, the FREE (woohoo!) shuttle to the lift only runs every 2 hours, and if we miss it, we’d have to take a cab…

In Switzerland.

*cue scary music*

Good God. I already HATE taking cabs, but cabs in SWITZERLAND?! I’d probably have to sell a kidney just to pay for the tip, never mind the ride itself. Just thinking about it gave me heart palpitations.

Luckily, 2 subway rides and 2 train rides later, we’d made it to the shuttle stop with a whopping, LUXURIOUS 10 whole minutes to spare. Aaaaah. Sweet success. Mission Accomplished.

Well, here’s the thing. Switzerland, the land of precision watches and precision pocket knives, prides itself on it’s…well…precision. And what that means is while Swiss buses definitely run on time, they also depart on time. Which means your window for getting on one of these things is approximately one and a half seconds.

Which for us, unfortunately, occurred while our back was temporarily turned and we were studying our hiking trail map. No sooner did we hear the bus squeal to a stop, we spun around and watched it pick up its one passenger and speed away, leaving us in a cloud of confusion.

“Cab?” Wanderer asked.

Glare, I responded.

The walk, according to the stupid map that had put us in this predicament, predicted it would be an hour and 20 minutes. That’s quite some distance, especially considering when we got there THEN the hiking trail would have started. But judging by the price of a bar of chocolate in Switzerland, I didn’t even want to think what a half-hour cab ride would cost. So walking it was.

As it turns out, this ended up being the single BEST thing that could’ve happened to us.

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Our treacherous, grueling trek towards the Swiss Alps

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Gawking at the snow-capped mountains, the obscenely green grass, the adorable mooing cows, my head was exploding from the sheer wonder of it all. To be honest, I was actually a little sad when our walk was over.

We’d reached the base of the FÜRENALP lift, which was going to take us 1850 vertical meters straight up. From there we would hike a trail that passed waterfalls, ravines, and scenery so beautiful even a heathen like me started believing in a higher power. There’s no way science and math could make anything that breathtaking.

Here’s a video I took as we went up:

Judging by the scenery on our walk there, my expectations for the actual hike were pretty much unmatchable at this point. And yet, Switzerland, somehow managed to take those expectations and blow them to smithereens.

Here’s what we discovered at the mountaintop:

Here’s what the rest of our hike looked like:

 

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The whole time all I could think about was the Sound of Music. But my leaky head could only remember the one line “The Hills are Alive with the Sound of Music…”, so I spent the whole time singing that line and ONLY that line, over and over again.

Wanderer was NOT impressed.

“BABE! If you don’t stop singing that line I swear to GOD I’m going to jump off this mountain,” He said, grabbing me by the shoulders and shaking me hard.

I’m not allowed to watch the Sound of Music anymore.

I can’t quite describe the wonder and majesty of those peaks in words. You have to be there to understand what I’m talking about. And this is coming from a Canadian, who’s been to Vancouver and Banff.

There is no comparison. There really isn’t.

Let me put it this way. I no longer see the point of going to Heaven. Simply pick up and move to the Swiss Alps and you’re set.

Just don’t take any cabs.

Cost Breakdown (in CAD dollars, per couple):

Category Cost/couple/day (CAD) Thoughts
Accommodations $87 Fantastic deal for Switzerland, considering hotels start at $300/night. Once again AirBnB saved our butts. If you're interested in trying it out, click here for a $40 credit. "
Food $20 Food was painfully expensive, but luckily we planned ahead by smuggling dried noodles and pastries in from Germany. The Alps were the main attraction for us, not the food.
Attractions $23.50 Since we can’t just parkour our way up a mountain, we had to pay 25 Swiss Francs each to ride the lift. Over 3 days, this worked out to be $23.40/couple/day.
Transportation $78.80 Zurich isn’t actually close to the Alps, so we had to pay 110 Swiss Francs to get to the Alps by Train. Getting around the city was expensive too, around 4.80 Francs per person for a short 2 stop ride.
Total: $209.30 OUCH. Not great but could’ve easily been $350-400 if we didn’t bring food in and stay in an AirBnB.

Rating: 6/5 Swiss Alps ( I know 5 is the max so 6/5 makes no sense. Shut up. I don’t care)

Despite the hefty price tag, Switzerland was hands-down my favorite place in the WHOLE world. I’d gladly pass up heaven if I could go live there for all of eternity instead.

Don’t take my word for it. Just go! And make sure your wallet knows about the pounding it’s going to receive. WORTH IT!

Doing the Deed

A Twitter follower recently sent us this article on Yahoo Finance.

Yahoo Finance: Lack of knowledge leads to big regrets for Ontario’s first-time homebuyers

 

Awww, they should be sad!

Awww, they should be sad!

First of all, I love how the stock photo model in that picture is somehow simultaneously looking sad AND flexing subtly for the camera. “My home purchase went so bad, the only thing that can cheer me up are tickets to the GUN SHOW!”

But aside from that, here are a few highlights from the survey done by the Real Estate people:

  • 32 per cent of first-time homebuyers did not “feel prepared or knowledgeable about buying a home.”
  • 20 per cent are blindly offering more than they’ve budgeted without knowing if they can get the financing.
  • 45 per cent of first-time buyers wished they had done things differently when buying their homes
  • 69 per cent of people have “no idea what they’re doing when they’re signing those deals”

OK. Good…

So we have a real estate market in this country where two thirds of people admit they don’t know what they’re doing, and about half came away from the buying process regretting what they just did. This is, by the way, the biggest purchase most people will make in their lifetime, and the consequences of which will remain with them for the next 25 years. Canadians LOVE to feel smug when comparing themselves to their American counterparts, but I’m starting to think that smugness may not be entirely justified.

As we’ve yammered on about in the media, our turning point when we finally became disgusted with the real estate markets came when we were looking at a house in the neighbourhood of East York in Toronto. A house that had been getting run-down and dilapidated for many years, one whose owner was an obvious hoarder with mental issues (he kept painting UFO on the windows with what I can only hope was red paint) went on the market for sale. We laughed and thought “What idiot would buy that thing?” A few weeks later, the house was sold for $500k.

We then watched as the buyer (a flipper, obviously) moved his contractors in and proceeded to perform the most half-assed reno we’ve ever seen. Done in a month, it was obviously just a cosmetic rush-job that didn’t bother addressing the obvious structural issues that come from being owned by a crazy tin-foil hat hoarder. The floors weren’t even, the tiles in the bathroom weren’t lining up with each other, and the stairs into the house weren’t even the same size (everybody who went into the open house kept tripping). Even a cursory home inspection would have thrown up more red flags than China.

A month later: Sold over asking for $800k.

During our house hunting days, the home inspection clause was always the first one that the seller demanded we drop. Yeah, that sounds legit. I’m going to plop down hundreds of thousands of dollars on this place and I’m not allowed to even look at it? If someone was selling you a sandwich, and when you asked what was inside they got offended and insisted you weren’t allowed to look before you bought it, what would you do? You’d rightfully tell them to fuck off and then promptly report them to the Health Inspector.

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That buyer of the $800k snake pit is screwed. They’re going to be screwed for the next 25 years as they realize their house is unliveable, and unsellable. And in a red-hot seller’s market where every condition is being dropped to participate in a manufactured bidding war, anyone who buys anything in this country is getting equally screwed.

Now it’s no secret that we have a few opinions on house ownership, but if you for whatever reason have to buy a house:

  1. Make sure your real estate agent represents you and you alone. If they represent both the buyer AND the seller, that is a massive conflict of interest.
  2. Insist on a Home Inspection. This is non-negotiable.
  3. Never sign an offer when you aren’t 100% sure about the financing. If you later can’t get that money for whatever reason, the seller can and will sue you for damages. A friend of mine got caught in this trap, and the resulting flameout caused a messy and expensive divorce.
  4. And if you find yourself having to drop one or more of these conditions in order to “buy now or buy never,” walk. Staying a renter while getting rich, retiring in your 30’s and travelling the world ain’t such a bad alternative.

How Much is Your Time Really Worth?

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“Wanna come ride the subway with us?”

“Nah, I’ll just catch a cab.”

Are words I have literally never spoken in my entire life. My friend Nat, however, not so much. She takes taxis constantly, even though she has a transit pass. Besides, why would she bother waiting for a subway that takes a whole 30 minutes to go home, when a cab ride only takes 15 minutes? Saving 15 minutes is well worth the extra $25 cab fair, right? “Time is money”, she chirps, as if that hand-wavingly justifies her decision.

Now, the statement “Time is money” is often thrown around as justification for spending money on convenience. That being said, “Time is money” isn’t wrong. Money IS a proxy for time, after all. It’s just not the whole picture, and the problem is if you just use “Time is money” in isolation to justify your spending habits, you end up making some bone-headed decisions.

Like Nat, for example. So let’s break this shit down, shall we?

Nat makes $75,000/year or $35/hour as a business analyst. Not a bad salary, so what’s wrong with spending some money to save time? With a relatively demanding job, she wants to squeeze out as much time as possible. Besides, since she makes $27/hour after tax, she can easily earn that in less than an hour. No biggie, right?

That’s how a normal person thinks. But not Revolutionaries. Revolutionaries know that becoming FI means being able to exchange our hard earned money for time.

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And in this case Nat is not saving herself time at all. In fact, she’s losing it.

How?

In order to passively generate the extra cab fare, Nat would need to add an additional $625 to her portfolio. That’s $25/year x 25, using the 4% rule. (Dividing by 4% is the same as multiplying by 25.)

And assuming a $27/hour after tax salary for Nat, that’s $625/$27 = 23 hours. So every time she spends $25 for a cab ride to save 15 mins, she has to work an extra 23 hours to pay for it!

Working an extra 23 hours (or 3 days) to save 15 mins?! Um. Okay.

But here’s the even bigger issue. Out of the $27/hour Nat makes, she needs to pay rent, food, phone bills. All those “needs” eat up 70% of her take home pay, leaving 30% for her “wants”. This means only $8 will be available for her cab rides. This means to save $625, she would need to work 78 hours (or 10 days)!

And that’s not all. Nat doesn’t just take cabs once a year. She does it every time she goes out with friends. This ends up being 4 times a month, which ends up being 48 times a year.

That’s an extra $1200/year just on cab rides! This means an additional $30,000 needs to be added to her portfolio to cover this cost. That’s 3750 hours or 1.8 YEARS of extra work just to pay for cabs!

And that’s what happens when you simply say “Time is money.” You end up accidentally costing yourself even MORE time and MORE money down the road.

Why is that?

Because there’s an additional question that nobody ever talks about, and that question is “What kind of Time?”

Because Time spent being miserable is not worth anything. An extra year in a corporate prison is the same amount of time as an extra year travelling the world, but is one worth more than another? Hell Yes!

Every money decision you make is basically buying some form of time. But the difference between a regular person and a Revolutionary is that we understand the value of buying the right kind of time.

Nat saved 15 minutes, at the cost of an extra 1.8 years of misery. Was that a good deal? She might say yes. The rest of us would say NO!

And here’s where we break rank with the rest of the “Frugality” blogs when it comes to spending money. I’m not one of those people who sit on their pedestal and just DISAPPROVE of every spending decision people make. “Hey, stop spending! Are you spending? You’re spending aren’t you?”

I say: Spend money when it buys you Time being Happy.

Want to buy a new Xbox? Go for it! As long as you get many hours of happiness out of it, without needing to work an insane number of hours to pay for it, why not? Want to splurge on that fancy vacation? Sure! We sure as Hell did when we were working, and we don’t regret a single Margarita.

But there are certain expenses that make absolutely NOBODY happy. Is a 15 minute cab ride in of itself fun? No, it’s not!  It’s stressful trying to hail one down, you get stuck in traffic, and God only knows what the last people were doing on that leather. And for that expense that doesn’t increase your happiness, you pay for it with 1.8 YEARS of corporate servitude. Or put another way, NOT spending that cab fare money buys back 1.8 years of traveling the world. Which one would you rather have?

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Spending money is fine, but not like this. Cab rides are just a shitty deal. And there are TONS of these expenses in everyone’s daily life. Let’s take a look at a few of Nat’s.

Bank fees

Quick show of hands. Who LOVES paying bank fees? Anyone? Yeah, that’s what I thought. Bank fees make precisely NOBODY happy (well, except the bank, but fuck THOSE guys). And with the advent of no-fee checking accounts everywhere, not paying them is simply a matter of filling out a few forms and transferring your money over.

At $290/year, that’s $7250 to be added to the portfolio. Which ends up working out to 906 hours or 5 months of extra work.

VIP Cable Package

Some people might enjoy the Hell out of their cable package, and that’s fine. But Nat doesn’t even watch hers! She comes home from work exhausted and binge-watches Netflix. So what’s the point of paying for this?

That’s an extra $100/month or $1200/year. That works out to $30,000 extra in the portfolio, forcing her to work an extra 3750 hours or 1.8 years!

Pointless Gym Membership

Again, not all gym memberships are bad, but one you don’t use is definitely bad. Nat’s situation is even more bone-headed because she spent all this money buying a condo, and the condo has a gym in the building! So she has a free gym, plus a private gym membership, neither of which she uses because she’s too busy at work to pay for the gym membership she doesn’t use! ZUH?!?

$100/month, $1200/year, another 1.8 years tacked on.

Paying for flights instead of using frequent flyer miles.

There are so many credit cards out there willing to throw welcome bonus miles at you that simply by paying attention and filling out the occasional form, you can accumulate enough miles to cover your vacation flights easy. We saved $6000 travelling the world by doing this.

Using frequent flyer miles saves her as much as $1000/year, so by not doing this, she requires an additional $25,000 in her portfolio or 3125 hours of work/1.5 years.

Activity Cost (per year) Portfolio needed to support it Extra years of work
Cab rides $1200 $30,000 1.8
Bank fees $290 $7,250 0.4
VIP Cable Package $1200 $30,000 1.8
Pointless Gym Membership $1200 $30,000 1.8
Full-price flights $1000 $25,000 1.5
Total $4890 $122,250 7.3

Extra years of work due to BS costs

By making these 5 minor changes, Nat can reduce the portfolio needed to retire by $122,250! Which means she can retire 7.3 years earlier than she normally would! And what does she sacrifice? Nothing. The only thing she’s done is cut out spending which gives her ZERO happiness, so this is complete, 100% upside.

Again, we are not the Frugality Police. Frugality is not the point. It’s about realizing that every dollar you spend is used to buy Time Being Happy, and that you want to get the best deal possible in every purchase you make.

If something doesn’t add ANYTHING to your happiness, get rid of it. You won’t miss it (since you didn’t care about that thing anyway), but you’ll find yourself buying back YEARS in Early Retirement that WILL make you happy. Like Nat, you may even realize how easy it is.

What are some things you can get rid of that doesn’t add to your happiness? How much sooner will it get you to financial independence? Chime in below!

*Site Update: So apparently, MailChimp sent us a message saying we have “too many subscribers” and turned off email subscriptions …*blink blink* well, okay then. For those subscribers who are not getting our posts, we’re working through this (translation: paying MailChimp to upgrade). As always, we want to keep this site free forever, so please share and retweet so we can continue to run this site. Thank you!

Are You Hard-Working or Smart-Working?

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photo credit: Jo Naylor @ Flickr

Back when I had a 9 to 5, my co-workers kept trying to see who could work the longest without dropping dead first.

It was the WORST Olympics ever. Bronze comes with a blood clot. Silver—a trip to the E.R. And Gold? A, big, fat tombstone…with you very own name on it.

And everyone participated, no matter how old you were.

My 26-year-old intern: “Oh I’m so swamped, I wore mismatched shoes into my manager’s office today! Too exhausted to think! Look how HARD WORKING I am.”

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My 35-year-old project manager: “I have 3 laptop screens open and I’m on 2 conference calls right now. I haven’t taken a vacation in 3 years! Look how HARD WORKING I am.”

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My 42-year-old boss: “I haven’t gone home for a month. I can’t remember what my daughter looks like, but hey, at least she has all those nice things I bought her. Look how HARD WORKING I am!”

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And when I went back to visit them a year after I retired? They were still working the SAME crazy hours, on the SAME project, firefighting the SAME issues, and getting screamed at by the SAME senior executives. And they did all this while accomplishing nothing.

Why was everyone running around like crazy, but getting nothing done?

They were all Hard Working.

They were putting in the MAXIMUM amount of work for MINIMUM gain.

But what they really needed to be was “Smart Working”.

 Smart Working means you put in the MINIMUM amount work for the MAXIMUM gain.

What does this mean?

Smart Working means you put smart systems in place that keeps working even when you aren’t.

Now don’t get me wrong. I’m not saying working hard is for suckers. We all have to work hard at some point in our lives, trading time for dollars, especially early on in our careers. And that’s only natural, since at the beginning of our careers we have our brains, we have our skills, but we have no money. So we gotta do what we gotta do.

But working hard for 30-40 years? Now, that IS for suckers. What if you get sick or bed-ridden and never get to enjoy your retirement? What was the point of it all?

And besides, when you work hard:

Your Company Screws You

It’s no secret that companies LOVE it when their employees work hard. More hours at the grindstone mean more revenues for the company which means more profit for the shareholders! But do the employees get to share in the money they helped make? For the most part, no. You ever try to ask for a raise after a big success? It’s always “We’ll see come year-end,” or “It’ll be reflected in your bonus, we promise!” or “You’re a shoo-in the next time someone’s up for a promotion!” And sometimes you do get rewarded as promised, but more often than not something comes up like a recession or a lost customer, or a bad quarter and then it’s “Yeah, sorry, you did good work but conditions just aren’t right for a promotion right now. We’ll see next year.”

When your company wants something, it’s now Now NOW! But when it’s time for your reward, it’s always later, later later. They do this because they know they can. You need the job. And besides, you’re such a hard worker!

The Bank Screws You

Think the banks are doing you a big favour, lending you cheap money to buy a house? Well, here’s the thing. You’re the one who works hard, putting in all those extra hours, and pouring your blood, sweat, and tears into owning your own little slice of the American/Canadian Dream. Well guess what? They’re not doing you a favour.

They’re doing it because if your house goes up, the bank gets their cut. As much as 25% if you’re not careful! But if it goes down? They still get their cut because your loan doesn’t take a haircut even when your home equity does. You do all the hard work, and the bank always wins no matter what! Who’s doing who a favour now?

Your Government Screws You

If I were an alien looking down from ten thousand feet up (and I’m apparently a really boring alien who likes reading over other planet’s tax codes instead of blowing them up), I’d be wondering why the government hates employees so much. Businesses get so many tax breaks from car allowances to entertainment costs to mortgage interest deductions. Investors get so many tax breaks that this year we’re projecting our tax bill to be less than $300 despite making over $50k in dividends and unrealized capital gains. But employees? They get hit with the maximum tax bill and, with a few exceptions that each and every reader should be using to their full capacity, there’s not a whole lot they can do about it.

Working Hard Sucks

There’s a recurring theme here, by the way. In all three cases, the Hard Working Joe is getting taken advantage of because the Company, the Bank, and the Government know they don’t have any other choice. Any rational person would tell these bozos to take their deal and shove it, but they can’t because they need the money.

Working Smart is WAY Better

The key here is that when you don’t have money, it can be used against you. But when you have it, nobody can make you do anything anymore. Money is power. Which is why I get so frustrated when people don’t pay attention to where their money goes, or gives it away to scheming assholes in exchange for shiny rocks or useless leather bags. Why would you do that? You’re giving away your power!

Because when you have enough of it, you can build a portfolio that generates passive income, even when you’re not working. Passive income keeps paying you even when you’re sleeping, sitting on a beach, or jet setting around the world. And sure, it takes years to build this income-generating machine, but once it’s done, it keeps going. Forever and ever, without needing to constantly feed it.

And once you have this, you can work smart. You can choose where to put your hours rather than have them dictated to you by some Manager who’s just worried about looking bad to his superiors. You can devote your time to causes you actually care about rather than whoever pays the bills. And the rest of the day? You can do whatever you like!

Like, say, hiking the Santorini cliffs:

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Driving an ATV around and visiting red-sanded beaches.

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And watching the sunset from my balcony, over looking the Aegean sea:

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The Boomers are always touting the value of Hard Work. But when all you’re doing is Hard Work but accomplishing less than Smart Work, it’s time to make a change.

Stress is not a badge of honour people! It’s a sign that you’re not doing something right.

Stop trading hours for dollars, stop giving all your hardworking money to taxes, and stop being so Hard-Working! Be Smart-Working instead!