I swear half my job is to convince my frugal clients to spend a bit more money. I’m not talking about making a complete 180 degree turn to become a different person. But if you’ve always stayed at a Best Western, then an upgrade to the Ritz every once in a while won’t kill you. Heck, you might even enjoy it!
Part of this push to spend more comes from my work with hundreds of retirees who don’t (or cannot bring themselves to) spend up to their capacity. After years of frugal living, never exercising those spending muscles, it’s next to impossible to turn off the savings taps and turn on the spending taps in retirement.
Seeing this firsthand caused me to reevaluate my own priorities. I always prided myself on a high savings rate without necessarily looking down the road at what I was saving for. How much money was enough? As John D. Rockefeller famously quipped, “just a little bit more.”
We’re also fortunate as business owners to get to decide (for the most part) how much we pay ourselves. It’s common advice for business owners to shelter as much income inside their corporation as possible and pay themselves just enough to pay their personal expenses.
That’s pretty much what we were doing until 2022, when we decided to make a big change and upgrade our house. Our larger mortgage payments, increased desire to travel, and our growing children meant life was more expensive on the personal side of our ledger.
We needed to give ourselves a raise, and so that’s exactly what we did last year and again this year.
We also needed a system to strike the right balance between enjoying life today and having a comfortable retirement.
Very loosely, we’re saving about 20% of our personal income (TFSAs and RESP), setting aside 20% for taxes (paid in quarterly instalments), spending 20% on total housing costs, 20% on daily living (groceries, transportation, health, kids’ activities, etc.), and 20% on travel and guilt free spending.
Yes, the 20-20-20-20-20 budget. I should patent that!
In the past, it was tempting to limit some of the spending categories by either allocating more to personal savings, or by simply paying ourselves less and leaving more in the corporation to invest. In fact, it was typical for us to invest 25% of our business income.
The problem was that trajectory was reducing our standard of living today while kicking a big ol’ tax can down the road in retirement when income sources like corporate dividends, RRIF and LIF withdrawals, and CPP and OAS collided.
And, as I’ve learned, if I didn’t start exercising those spending muscles a bit now there’s a good chance I couldn’t bring myself to live it up in retirement.
I decided it would be better to introduce some lifestyle creep now to make sure we could maximize our life enjoyment today, tomorrow, and throughout retirement.
So, we’re paying ourselves more while still investing 15% of our business income. That allows us to meet our desired spending needs on the personal side while also investing 20% of our personal income to catch-up on our TFSA contributions.
It’s a nice balance, and it’s freeing to know that we can enjoy life to the fullest today and still have a secure retirement.
Don’t get me wrong, I’m still a saver at heart. But tomorrow is never promised. My wife has MS. Our kids are getting older. If we have the chance, we’re going to take the trip, attend the concert, eat at the restaurant, splurge on the nice Airbnb, and still try to max out our TFSAs.
The trade-off? We might take 15 years to pay off our mortgage instead of 10. We’ll have a smaller corporate investing account balance and may have to work part-time as a way to ease into retirement. That’s okay, I might have done that anyway!
Perhaps no book has influenced people’s behaviour when it comes to money and lifestyle creep more than Bill Perkins’ Die With Zero.
And while I’d take the advice of a multi-multi-millionaire energy trader with a grain of salt, the concepts of building memory dividends and maximizing life enjoyment will truly cause you to reflect on what really matters, and whether it’s about enjoying life or watching numbers go up on a spreadsheet.
To summarize, we’ve had some intentional lifestyle creep over the past two years and I don’t regret it one bit. We’re still saving appropriately for retirement with a good system in place – and this trajectory strikes a better balance between living for today and saving for the future.
Promo of the Week:
There are still a few days left to take advantage of Wealthsimple’s 1% transfer bonus. I’ve spoken with several readers and clients who have already taken advantage. One deposited $500,000 from the sale of a rental property and secured a $5,000 cash back bonus. Another transferred $2M(!) from Questrade to secure a $20,000 cash back bonus.
Note that the bonus is paid into a Wealthsimple Cash account (their high interest savings account) in 12 monthly instalments to encourage you to keep your funds at Wealthsimple. Still, it’s an incredibly lucrative offer if you’re in the mood to move your savings and/or investments.
Open your Wealthsimple account today, and download the mobile app. Login and in the upper righthand corner you’ll see a picture of a present. Click on that and you can enter my referral code: FWWPDW to tell them Robb sent you and we’ll each get another $25.
Then, register before October 1st and you’ll have 30 days to transfer or deposit a minimum of $15,000 to get a 1% cash back matching bonus.
It’s that easy!
Weekend Reading:
Short and sweet this week.
A Wealth of Common Sense blogger Ben Carlson compares this bull market run against the epic bull market of the 80s and 90s. Pretty close!
Here’s how to move Locked-In Retirement Account (LIRA) funds to another institution without tax consequences.
Mark Walhout answers the top 10 probate and estate planning questions in Canada:
Here’s a surprising fact. The most common outcome from buying a stock is that you lose all your money:
“The stock market is NOT a rising tide lifts all ships story. It is a haystack with unknown, but required, needles story. So buy the damn haystack.”
How will Canada’s new mortgage rules affect your plans to buy a home? Erica Alini and Rachelle Younglai answer your questions.
In many ways, index funds have effectively “solved” investing. Yet many people continue to delegate their investment management and financial decision-making to financial advisors. PWL Capital’s Ben Felix answers the question of why you’d hire a financial advisor:
You might be surprised to hear that if something happened to me, my wife has been instructed to hand everything over to PWL Capital. That’s how much I believe in the good work that group is doing.
Finally, Shawna Ripari couldn’t resist a spending spree, so she tried a no-buy challenge. Here’s what she learned.
Have a great weekend, everyone!
