Let My Experiences Be Your Teacher Get Wealthy Eventually Principles

I wasn’t always an investor. As a young Canadian kid fresh out of university having secured my first full-time (real) job at a major pharmaceutical company in Toronto, I didn’t think very much about my financial future. Sure, I knew enough to “pay myself first” (and I did) to the tune of about $50 per month in my Registered Retirement Savings Plan (RRSP) but I was focused on living for today instead of saving what I could towards a retirement that might happen in 40 years. And who wouldn’t be focused on the present—in their early 20s, living in downtown Toronto, with a decent full-time job, and some disposable cash? You only live once, right?

As you get older in life, you realize more and more that you don’t know what you don’t know. You also learn that experiences can be your greatest teacher. I made some mistakes in my 20s—with relationships, friendships, in the workplace and with finances. Some of them weren’t very pretty, however, I’ve learned from all of them: those experiences have formed who I am today and they shape how I think, act and behave…for the better. When it comes to money management, I believe there is no substitute for experience. That includes lessons learned from your successes but more importantly your failures. Let my experiences be your teacher today: you can get wealthy eventually by following a few of these money management lessons.

Lesson #1

Find The Money You’ll Never See Again

Like The X-Files, the truth is out there (and it costs you money). Over the years I’ve learned when it comes to some investing products, like pricey mutual funds, the money you pay in money management fees for owning investment products is money you’ll never see again. Money paid in front-end charges, back-end sales charges, and expense fees is money you’ll never see again—great for the investment firm, but bad for you. Worse still, for most pricey mutual funds owned, those products have virtually no chance over time to outperform their benchmark. So, it’s a massive double-whammy for the investor: you’re forking over money to own costly products that will underperform the market long-term. Get wealthy eventually by keeping your money management fees as low as possible, as soon as possible, for as long as possible. This could be exercised by buying and owning indexed mutual funds, indexed exchange traded funds (ETFs), dividend-paying stocks that have no ongoing fees or a combination of all three. In my case, I’m largely a dividend-growth investor although I do own a few low-cost, broad market ETFs in my registered accounts for worldwide diversification. By keeping your money management fees low, the money you save and invest stays with you instead of someone else. The first lesson I share with you: stop giving money to other people to manage your costly investment products so you can save more of that money for your future self.

Lesson #2

Stop Sweating The Small Stuff (And Focus On Big-Ticket Items Instead)

No doubt we’ve all heard of “The Latte Factor”—the idea that we look at the small things we spend our money on and see how we could redirect those small expenses to something more valuable, like paying yourself more? Sure, putting aside a few dollars per day for your financial future (rather than spending it) is a good way to save more, to invest more, and to accumulate more wealth over time. But what if you actually like specialty coffees? What if you enjoy the odd meal out? What if you enjoy a nice bottle of wine now and then? Most of us don’t realize how much we’re actually spending on many of life’s smallest treasures but I believe there is a better way to get wealthy eventually: focus on the big stuff and don’t sweat the small stuff. What I mean is: how much house do you own and maintain? How much are those cars costing you in the yard? What are you paying in heat, hydro, insurance and other bills? I believe it makes little sense to cut out your favourite coffee, your favourite magazine or your favourite growler of craft beer (I wouldn’t…) before you look at how much debt you’re servicing for major expenses such as mortgage payments or car payments. My second lesson is to understand how much debt you’re servicing to pay off life’s big ticket items and focus on managing those expenses appropriately first. You can do this by ensuring you never own too much home, too much car or you overpay for home- or car-related expenses.

Lesson #3

Be Sloth-Like When It Comes To Investing

Ever seen a sloth? I saw a few of them on a trip to Costa Rica a few years ago. They are actually kinda cute. These small mammals are named after the capital sin of sloth because they appear to be very slow and downright lazy—and they are for the most part. However, their general idleness is actually a very efficient metabolic adaption, designed to conserve energy. By using and only storing the energy they need, they are able to flee predators usually on demand—pretty good traits in the wild for longevity. The same could be said for your investment portfolio: to be successful it should be very sloth-like. This means you should learn to train your investing brain to avoid market noise, tune out predictions, and, like sloths who move only when necessary, trade as infrequently as possible.

My third and final lesson for getting wealthy eventually is to be lazy when it comes to investing. This means you should favour buying and holding assets with the long-term view and avoid near-term speculation. It has been said the stock market is a voting machine in the short term and a weighting machine in the long run. This means the performance of any one company or the performance of a collection of companies years or decades from now has next to nothing to do with the public’s fickle opinion today. Part of my portfolio is comprised of 30+ Canadian and U.S. dividend-paying stocks, companies I’ve owned for many years. These holdings are very sloth-like for me: I don’t trade them and the dividends paid by these companies flow in with predictable fashion every month and quarter (although some dividends are growing every year, something I won’t complain about). The other part of my portfolio is rooted with the lowest cost, highly diversified ETFs available to retail investors like you and I. This means I earn what the market returns every year (less the aforementioned minuscule money management fees). Over time, my “hybrid” but sloth-like combination of owning dividend stocks and passive assets has grown my portfolio value to well over $250,000. I have full confidence that if I keep my lazy attitude, along with my solid saving and investing rates, that portfolio value will only climb higher, just like our sloth friends who can rest high amongst the Costa Rican trees.

Experiences in life can be a formidable teacher if you allow yourself some time to reflect, understand what went wrong and think about what could have been better. If and when financial mistakes happen to you, give yourself some time to accept your reality and then go dust yourself off and move on. Your money management lessons can help you get wealthy eventually.

Mark Seed is passionate about personal finance and investing and is the blogger behind My Own Advisor. Mark is currently investing in dividend-paying stocks and some low cost ETFs on his journey to financial freedom. He is almost halfway to his goal of earning $30,000 per year in tax-free and tax-efficient dividend income for an early retirement. You can follow Mark on his path to financial freedom here. You can follow him on Twitter @myownadvisor.