Two stops on our around-the-world trip were in Italy. From Austria, we took a train to Bolzano. This quaint town right in the Italian Alps is only a short drive away from the UNESCO World Heritage Site: the Dolomites. Of course, its great location for hiking and adventuring in the Alps is not the only reason why we booked a stay there, the great Four Points by Sheraton in town was also a super good redemption. Travel hacking to Europe was a huge plus and honestly, it is the only reason we could afford to stay there for so long. A few credit cards here and there really makes a difference!
The breakfast was great, and the location was ideal for us. Even if it was in an industrial district, it was only 10 minutes away from downtown.
We enjoyed their restaurants and the service was outstanding. Really happy with this free hotel.
On our first day there, we mainly stayed around the hotel, enjoyed the spa, and explored the neighborhood. The second day though, we went into town and walked around the central area before sitting down in a park for lunch.
It was unplanned but we got there right in time for their annual biking festival. The classic rides were cool.
From there, we went on to explore the city by foot. We saw the main attractions, ate a lot of pizza, and took it slow.
The city of Bolzano is beautiful. There are the main tourist spots but also an extended crawl of small streets, spanning for miles and miles, each hiding there own little gems.
What is fascinating is that each building is unique and, unlike in North America: old. The colors are vibrant and construction sturdy.
On another day out, we walked up the Guncina Promenade in Bolzano. These walking paths offer a great view of the city skyline and are lush with greenery. From exotic cacti to local trees, the Guncina had plenty to offer.
Another amazing viewpoint was the gondola ride up to Soprabolzano. For only € 10 each, we took the 12-minute Rittner Seilbahn gondola ride up, starting right in downtown Bolzano, near the train station. With a gondola departing every 4 minutes, there’s practically no waiting time.
It was really nice to see the city from above and walking around the small village up in the mountains. For another € 5, we could have gone to another small village by train but Baby had had enough.
Later that night, we walked to the local Avis to rent a small Fiat for the trip to come. Obviously, we got this car rental for free with credit card reward points. 🙂
The next morning we went on to climb the Italian Alps. This UNESCO World Heritage Site was truly breathtaking. Driving through the Dolomites is something we would recommend anyone traveling through the Italian Alps. Each turn tighter than the previous one, each road narrower than the previous…
So from Bolzano, we drove all the way to Sass Pordoi in the Province of Trento. The drive and the mountaintop offered some of the best views we ever saw.
Once at the parking lot, instead of taking the gondola up, we hiked a little path going up to the viewpoint. It was free (instead of about $30 per person for the gondola) and the hike was amazing.
Our next stop in Italy was Padova, a small town near Venice. We chose to stay there since the hotel was a third the price (in reward points) as in Venice and only a 30-minute bus ride away. With a bus stop almost at the door of our hotel, we could get to downtown Padova in 10 minutes and Venice in half an hour. This travel points redemption was one of the best one so far and the cheapest of all our European journey.
Being a bit out of the action was also a great move on our part since we realized Venice was too much for us. First of all, there at no drivable roads so everyone is carrying their suitcases through the cobblestone paths and a bunch of stairs. That would have been terrible with our stroller.
Secondly, there are just too many tourists in Venice. With the rise of cruises stopping for the day and the romance the city has to offer, way too many people are crowding the paths and attractions. It quickly got overwhelming for us.
However, as a day trip, Venice was amazing. We got to walk the nice tiny roads, watch the boats go by, walk the bridges. We ate some O.K. pizza, drank some good wine, and got some amazing gelato.
If you have never been, we highly suggest you stay around the city and commute in for a few day trips. The hotels are cheaper and the commute is really easy.
For us, one or two days seems plenty. We are not really into these hyper-touristic spots.
After 5 nights in Bolzano and 5 more nights in Padova, we went on to our next stop, Munich, Germany.
Unfortunately, we forgot our passports and wallet in the hotel’s safe and had to put our fate into the hotel staff and the friendly delivery guy at DHL to ship them to Germany but everything ended up O.K., there are still some good people in this world. 🙂
All-in-all we really enjoyed our stay in Italy. The Italian Alps, in particular, were truly breathtaking. We would really like to go back during winter time.
We then stayed at the Westin Grand in Munich and enjoyed German culture, Oktoberfest, and the everything Bavaria had to offer us. Stay tuned for that in our next post.
Last week, we took a train from Switzerland to Austria. Of all places, we decided to stay in Dornbirn, a small city near the German and Swiss border. It is actually the tenth largest in Austria. Since we travel Europe with an infant, we did not want to ride a train for too long and kept things simple.
The train ride took about 4 hours, including a transfer in Zurich. Baby found the ride a bit annoying by the end but still had a blast once at the hotel.
The only reason why we discovered this city is that there was an SPG hotel sweet spot! Since we are using reward points for almost all of this trip, we looked at the Marriott and SPG hotel maps to find the best redemptions in Europe.
Those sweet spots can make the difference between spending a week at a hotel for free or spending the whole month traveling for the same price (in points).
We stayed 6 days at the Four Points by Sheraton Panoramahaus Dornbirn for a total redemption of 35,000 SPG points. This stay would have cost $180 per night, deeming the total value to be over 3¢ per point. All of that thanks to the SPG credit card!
$1080 Saved on hotels ÷ 35,000 points redeemed = $0.03086 per point
With our status with Marriott, we got upgraded to a room on the last floor, with a view of the mountains. We also got a little welcome gift, fresh macarons, which was nice. 🙂
Out of all the hotels we stayed at, this has to be the nicest gym/spa area we ever saw. Not only does it have beautiful views of the mountains, but it was humongous! The gym spans over 2 whole floors, offering every single piece of equipment imaginable, classes, and an outdoor patio to exercise in style. It is centrally located, near the bus line, a mall, and restaurants so we never had any troubles getting around.
With a whole other floor dedicated to the indoor pool and spa area, the outdoor pool offers panoramic views and the perfect spot for Baby to nap.
The spa area, which includes a female only and mixed section, offers dry saunas, infrared saunas, steam rooms, relaxation areas, and showers. There is something for every taste.
All-in-all, we were very pleased with this hotel and really enjoyed their facilities.
It was nice to be able to relax there when spent all day walking around.
We started by exploring the city on foot, walking around the historic neighborhoods. To be honest, though, we did more poolside than exploring on our first day. It was just too easy to lay down and relax!
Restaurant-wise, Austria is pretty affordable. Especially compared to Switzerland.
We were able to eat out for less than $10 per person at every meal. The drinks were very affordable too and groceries were even more. Between the food we made ourselves and the restaurants, we never spent more than $20 per person, per day.
After two days in Dornbirn, we decided to rent a car to enjoy Austria and explore a bit. We searched for tours and, since most guides publish their whole itinerary online, copied their route.
Wherever you are traveling, looking at some tour guide’s itineraries online is a great way to find the scenic routes and explore some country without breaking the bank. Instead of paying $150+ per person for a tour, we simply rented a car for $50 and drove to the exact same spots.
We rented a small Ford Fiesta from Hertz for $50 and drove a few hours around the region. We drove up crazy mountains, the roads were insane! The driving felt surreal, it was like a Gran Turismo. From left to right, up and down, we drove slowly but surely.
If we zoom in the map, you will see exactly what we had the pleasure of driving through. These Alpine roads are super narrow, windy, and fun to drive on! It was an experience we just could not miss.
Unfortunately, we cannot drive for much longer than four hours before Baby gets cranky so we now keep our road trips fairly short and stop often along the way.
After slightly less than two hours on the road, we stopped for lunch in Lech, a super nice ski town up in the Alps. We walked over a 400-year old bridge, ate our sandwiches, drank beers, and headed home.
On this trip, we stopped in Schwarzenberg, Lech, and Burserberg before driving back to the hotel. The views were fantastic and we highly recommend the drive.
On the next day, we visited the city right beside Dornbirn; Bregenz. This quaint lake-front town was an easy day trip, only a few minutes by train from Dornbirn.
It was fun to see the history and the grandness of the buildings. There is something quite magical to multi-century-old constructions. Just to think that some building was build 400, 700, 800 years ago is revealing. The oldest building we found so far was a 1,200 years-old church which was renovated 800 years ago. Pretty impressive.
It makes us think about the whole construction industry today. It is nearly impossible to find a good-quality condo builder nowadays. Most construction will start falling apart right after the warranty runs out!
On top of that, our other days were filled with poolside fun, relaxing spa time, and walks around town.
Overall, we really enjoyed our stay in Austria. Everyone we encountered spoke a little English and was more than happy to help. Public transport was clean, efficient, and cheap. Restaurants were delicious and cheap. Finally, the country-side was simply breath-taking!
Austria definitively makes it on the list of countries we would love to visit again.
Now, we are off to one of our favorite. A country that will always be on the list of revisits; Italy.
Continuing our trip around the world, we have now journeyed to Switzerland. Traveling with an infant can be hard but, thankfully, we planned things right and our trip is going pretty smoothly (for now).
The best is to stick to direct flights and to keep Baby entertained or asleep. We also noticed some moms traveling with their baby carrier on the plane. That seems to be a good idea to walk down the aisle when your little one is too fussy.
We flew in overnight, leaving Canada at 4 P.M. and arriving in Zurich at 6 A.M. after a 7h flight. Then, we hopped on a train to Frutigen to explore the countryside.
Here, everything is expensive! The 2h train was over $100 per person, and that was in a regular commuter train, nothing fancy.
I hope the locals get better prices when buying monthly passes, otherwise, this commuting thing makes no sense. We are all for public transports but at these prices, I am very surprised to see the trains full. Not many seem to drive but, even with the higher gas prices, the highway taxes, and Euro taxes, driving that same distance seems to cost no more than $50. In Canada, public transports are subsidized and they are still fairly unpopular compared to the beloved car!
In Frutigen, we rented a super nice studio on Airbnb. The kitchen really helps save on meals and the view is simply breathtaking! For only $100 per day, this was a steal!
From our studio, we can see the whole town, the fields, and the mountains. It is truly exceptional to see the grandness of all this. The mountains are so high that there is snow near the top while we are down here wearing t-shirts and shorts.
The town is nice and peaceful, not much traffic. Not a lot of tourists either.
Although everything is expensive over here, we do our best to cut down on things we value least. For example, we enjoy eating out and tasting the local cuisines but we are traveling for another 4 months so there will be plenty of other occasions to eat out.
In addition, this is the only Airbnb we booked until mid-October. We will be staying in kitchenless Marriott hotels for the following weeks so we took the occasion to cook our own meals.
For this week, we bought groceries and will enjoy our little kitchen. Most restaurants are in the $25-$35 per person range but we were able to buy enough food for the week for about $70, the price of one single outing. So far, we cooked some delicious chicken, made sandwiches, ate swiss cheeses and sausages… Even without an oven, we were able to make pretty good pizzas on the stove-top.
It has been only 3 days we are in Switzerland and since we are traveling with an infant we are taking things slow. We took the first day to catch up the 6h time difference, slept a lot, did groceries, and stayed in. Everything takes more time when you are traveling with a baby! 🙂
On day two, we visited Oeschinen Lake. Once again, the prices shocked us. The 10-minute train ride cost $20 per person and the short gondola ride was over $25. The very next day we noticed that we could have taken the bus there for free but I guess that is just the way it is when you are traveling in an unknown country. You cannot know everything and optimize every cent when you cannot even speak the language.
At least, the views were amazing and the mountain-top lake was breathtaking.
After a short gondola ride up, we had to hike about half an hour down to the lake-side. Most of the path was gravel but it was not really stroller-friendly.
About 20 minutes in, a little restaurant sat on the hill overlooking the lake. From there, we left the stroller and used our baby carrier to walk down the steep trail down to the lake. It was way easier this way but it got pretty hot having her so close to us.
Once at the lake, we dipped our feet in, the water was surprisingly warm for a maintain lake. The trees, water, and huge mountains in the background were truly picturesque.
The walk back seemed to take forever and the air was hot and steamy but everything ended on a perfect note. We took the train, walked back up the long long hill to our Airbnb, and enjoyed the view.
Baby Xyz enjoying the grand scenic view.
On day three, the sky had turned and the beautiful sunshine had vanished. Looking at the weather report, we knew we could not go too far. The rain was imminent. Since we are traveling with a baby, we did not take any chances and wanted to stay dry.
Just beside our Airbnb, we walked a country road going up in the mountain. Walking parallel to the mountainous cow pasture on one side, and a small river to the other. We got up to a series of dams, holding the riverbed, and ate our sandwiches sitting on the grass.
Once back home, after only two hours or so of walking, the rain started pouring only minutes after we entered our studio. We took it slow and watched a movie instead of adventuring out into the rain. Sometimes, a slow day is just what we need.
It has only been three days since we landed in Switzerland but so far, we are really enjoying our trip. Traveling with an infant was scary at first but I think we manage pretty good so far. 🙂 Stay in touch for our next update once we are in Austria, we will be posting roughly every week with some more pictures and more adventures.
We are spending this whole month in British Colombia. The flight from Montreal was about five hours long, just enough to get Baby excited. We were a bit worried about her first flight since we have half a dozen more planned for this year. Having a crying baby on a plane is the last thing we want on a long flight. Thankfully, our little one mostly slept on the flight. We also used our rewards points to fly for free with Aeroplan so that’s another plus…
Baby’s first airport lounge…
Flying within Canada is surprisingly expensive and our flights turned out to be worth $790 at time of booking. Thankfully, we used our rewards to fly for free with Aeroplan. We had accumulated a lot of points with our American Express cards and spent only 25,000 + 163$ per flight, saving us 1,254$ in total. Calculating our return on points, the 50,000 Aeroplan we spent had a return of 2.508¢ each. That is not the most we ever got per point but it is a pretty good redemption. It is always fun to save over a thousand dollars just by applying for one or two credit cards. 🙂
Once we landed in Victoria, BC, we visited family and friends, enjoying the hot summer and beautiful scenery. It did not rain and the temperature stayed above 25°C for our whole stay. After a week we drove North towards Vancouver.
To get to the city, we took the ferry to Tsawwassen. Then, drove to Vancouver where our trip started at Jericho Beach.
The ocean was cold and the breeze salty. The busy port was pretty entertaining. It was nice to look at the huge cargo barges on the horizon. The beach was clean, sandy, and very welcoming. The official parking lot was paid but we found a free spot right on the street, it was easy to avoid any charges and the entrance to the beach was free so we were able to enjoy the ocean for free.
The sky was hazy and grey because of the 566 forest fires currently burning through the province. We stayed safe and out the most dangerous regions but the sky and air quality were definitively indicative of the hazards surrounding us. As you can see in the picture we took below, there was a constant fog anywhere we looked. The sky was dense with smoke, even though we did not notice any smoky smells, it kept the clouds low.
After a few hours there, we drove through the peaceful neighborhoods towards Granville Island, where we people-watched, ate some pastries and gazed at the water-front.
For the next three nights, we stayed at an Airbnb in North Van we found for about $100 per night. It was slightly off the busy downtown, yet, just a short ferry ride or bridge away. On day two, we decided to leave the car parked in our quaint suburb and walk to the city center. We took the commuter ferry, which was only $4 per direction, and got in town in less than 20 minutes.
In town, we explored the ocean-front, walked through Coal Harbour, and shopped for our next million-dollar-Yacht. 🙂
Mid-day, we stopped at an amazing Mongolian restaurant called Great Wall Mongolian BBQ where we ate, as much as we wanted, for only $13.50 per person. The food was barbequed right in front of us, we simply made our selection and they cooked it. We ended the day with a little walk around North Vancouver, a beer or two, pizza, and a very comfy bed.
On day three, we drove through Stanley Park and strolled through Chinatown. After that, we headed to Lynn Canyon Park and hiked amazing trails. Crossing a suspension bridge, stopping at a beautiful swimming hole, and enjoying the giant trees of the region. The sky-high trees were simply breathtaking and the waterfalls complemented the scenery perfectly. I would have gladly paid to see this but, like most parks in BC, it was free! This outing was a great alternative to visiting the world famous Capilano suspension bridge, which has an entrance fee of almost $50 per person.
We then hit the road towards Whistler along the Sea to Sky Highway, for our final stop in Lillooet. The sky was very smoky, we barely saw anything on the horizon, but it still made some good pictures. The hugeness of the mountains around the region was simply breathtaking. One after the other, peaks seemed to be higher and higher.
On the road, we stopped by a crystal blue lake for a little dip, too bad the view was so murky. Because of a little science and a mix of photons and electrons, the waters are turquoise, almost bright blue. Our picture did not turn out that great because of the forest fire smoke but there are some pretty amazing ones out there if you google it.
The place was full of multi-million dollar cottages along the lake-front. We worried that the whole water-front would be private and drove around a few lakes before finally finding a public beach. The access was small but quiet, had a large dock, and an amazing view of the mountains.
After a few hours on the road, we stopped in Lillooet, a small town in the middle of the deep gorges of the Coast Mountains. This little town, home of fewer than 2,500 residents, was a quaint stop to break up our road trip.
After a good night’s sleep, we visited the town’s museum. It has plenty of artifacts, it was the perfect little activity before our next stop.
Midday, we had a reservation to the Fort Berens winery. After a nice wine tasting, we sat down for lunch. We had some lamb, drank some wine, and enjoyed the smoky view. The wine was delightful and lunch surprisingly refreshing, it is worth the stop if you are ever in the area but make a reservation beforehand since it does get quite busy.
After a delightful meal, we hit the road to make it back to the ferry before 5. The drive through the Fraser Canyon was amazing we highly recommend it to anyone in the Vancouver area. We feel blessed that we can fly for free with Aeroplan and travel pretty much anywhere on very small budgets.
Finally, we would like to send our deepest wishes to anyone near the forest fires or affected by the smoke clouds. Stay strong and stay safe, Mrs. and Mr. Xyz.
Last week, we drove down to Maine to visit the Acadia National park. The 7-hour road trip had to be broken down in two days, now that we have a newborn. We stayed in a bed and breakfast halfway. Once we got to our little New England getaway in Southwest Harbor, I quickly saw the beauty, enormous wealth, and charm of the region.
We drove there so we really had the time to take in the breath-taking views or the forests, ocean, and mountains. Coming in the park was astonishing. The views were well worth the $30 entry-fee we had to pay for the week.
Don’t spend it all on hotels
For accommodations, we rented an Airbnb in the harbor. It was a small cabin, off the main road, with an open concept kitchen-dinning room-living room on the first floor with a tiny bathroom beside the staircase leading to a mezzanine bedroom. The living-space must have been no larger than 500sq. ft. but it was plenty for us. The total cost ended up being around $100 per night.
Where the expenses can really get out of hand is the restaurants. This area of New England (neighboring Bar Harbour) can quickly get really expensive. People traveling there are mostly wealthy and are not shy to spend. Obviously, most places charge more for their goods and services since people are ready to pay more.
Big pockets, small jackets
You know the type, people wearing Polo shirts and S.Perry boat shoes… The ones who just bought everything from the Patagonia or North Face store to go on their first hike… Those are the ones in the fancy restaurants.
We went to one where basically every man had a polo and a half-zip sweater along with loafers or boat shoes.
Aside from that, we mainly ate at small lobster shacks or cooked our own meals at home. We tried to keep it to one restaurant outing per day.
Debt-free living with credit cards
I am taking a wild guess here but I am pretty sure that most people visiting the Acadia park area are not millionaires. My guess is that most of these expensive restaurants and hotels are mainly paid for by credit cards. And most of those expenses stay as debt. Living a life you cannot afford can be disastrous in the long-term but, unfortunately, most people live as such.
For the average American, debt is normal, debt is good; debt is a way of life.
The best way to think of your credit card is a means of payment, not a loan. Debt-free living is not impossible. You just need to see debt for what it is.
If you cannot afford it, don’t buy it. It is a simple as that. Anything that you put on your credit cards needs to be paid back.
We recommend the use of rewards cards for all day-to-day purchases simply to maximize your cashback. However, if you end up spending more than what you can afford and accumulate credit card debt, then you might be better off on a cash-diet.
Talking about diet, check out this delicious lobster dinner we cooked;
For under $10 per person, we were able to have fresh lobster for dinner. In any restaurant, it would be impossible to get anything under $30 – $40. We simply bought live lobsters from the local grocery store. Stocked up on some butter, garlic, and corn. Boiled the everything for about 12 minutes and it was deliciously easy and tasty!
Know where it is all going
For total financial freedom, you need to know where your money is going. If you are going on a vacation without any idea of how much it will cost you, what are the options, or even how will you pay for it, you definitively need a budget.
Back in the days, you would need to do spreadsheets of every single account you had and compile all of it manually but nowadays, you can let Personal Capital do it all for free! With the money-management tools offered now, it is easy to track all your bank accounts, investment accounts, 401k, credit cards, and mortgages, all in one place. It is important to oversee all your accounts as a whole to properly allocate and budget.
Never pay for a trip twice-over
With a better understanding of exactly how much you are spending and where your dollars are going, you will quickly notice the unnecessary spending that incurs each month. Once you have a budget down, you can plan for your next trip without going into debt to pay for it. Living debt-free is all about planning. Without a plan, you will inevitably fall into debt at one point.
You will quickly see that once you start thinking in years, the small things can get really expensive. Assume you pay 2500$ for a trip. Instead of putting everything on your card without even thinking of repaying it, you actually budget and are able to pay it in full on an outstanding credit card; you will save $525 of interest in a single year! (Assuming the typical interest charge of 21%) If you had kept that debt lingering on a credit card for a bit less than 4 years, you would have paid this trip twice over.
Even on the smaller scale, it can get scary. Letting that hundred dollar restaurant bill accumulate on credit can quickly add up.
Of course, you need to know yourself. If you are the kind of person who sees credit cards as an easy way to track your spending, then use them. However, if you are the kind of person who swipes away without seeing the dollars go, then cash might be better for you.
For some, cash is a way to see that they are spending.
Empty houses and ocean-front sinkholes
Driving down North Harbour, we saw some nice mansions and ocean-front estates. Some are ginormous, on endless pieces of land. There again, I doubt everyone paid for those up front.
Most people go into debt to buy houses they can barely afford. Or even worst, cottages they barely use.
This house above, for example, is not even one of the larger one. It is a 4000sq. ft. home on ocean-front property and is currently listed at $1,000,000. It seems like a bargain if you compare to New York or Vancouver but we are talking about a tiny cottage town 10 hours away from NYC and 3 hours away from the closest large city (Portland).
Buying this million-dollar property will likely require a 20% down payment, or $200,000. The opportunity cost for this alone is huge!
This could be invested for retirement or used towards buying a rental property which would generate income instead of putting so much towards a water-front home.
Your interest rate on a 30-year loan would be about 4.0%, which gives you a monthly mortgage payment of $3,800. Using the rule of thumb which states that you should not spend over 20 to 25% of your gross income on your mortgage, you can theoretically afford the house with an annual income of $182,00 to $228,000.
Again, making that much does not mean you can afford that house. It just means the banks will be happy to finance it for you.
All-in-all, we had an amazing trip to Maine. We swam in the ocean, hiked the beautiful trails of Acadia park and really enjoyed our stay there. In the end, we did not get into any debt and did not even spend a lot of money simply because we planned and were thoughtful about our expenses. Not all debt is bad, but living debt-free is just so freeing.
Get out of the hole and Consolidate your debts
Honestly, if you have large balances of student loans or credit card debts, you should shop around for a better rate. Online portals now make shopping for rates much easier and applications more convenient. The best place to start looking would be SoFi. Their online platform is easy to use and they can even help you refinance your mortgage at a lower rate.
Living below your means is not, in any way, living in poverty or eating soup every single day! Live happily, Xyz.
You might have noticed that we have not posted in a while. Not only do we have a little daughter to keep us busy now but up here in Canada, summer has started and we are fully enjoying our free time! For now, we have made it. We are experiencing what is wealth and are truly enjoying it.
What is wealth?
For us, wealth is not calculated by the size of your yacht or the number of cars in your garage. Free time is wealth.
Being able to spend a year full-time with our daughter is wealth. Walking in the park at 1 p.m. on a Monday is wealth.
In a lot of cases, people have the resources but they do not allow themselves the luxury of free time. Our American culture highly promotes the workplace, long hours, and little vacations but even if you are earning a lot, being stuck in the rat race is just not worth it.
Wealth is not his that has it, but his that enjoys it. – Benjamin Franklin
Being able to relax and enjoy summer is our wealth. We created our own riches by allowing ourselves to enjoy some time off with our newborn, travel the world, and spend time with our family.
We are wealthy in that we have a loving family and that makes us happy. Happier than money.
We created our own wealth
In Canada, new parents get paid parental leave but not everyone allows themselves to enjoy this benefit.
Parents can share the time off or take it together. However, few are actually taking full advantage of it. Various social factors like the stigma faced by fathers at work might be keeping dads at the office but it should not be so.
Some might think they are indispensable and that their office will not function without them. Nevertheless, you should still take full benefit of time off. This goes for vacation days too. You are not that important, business will go on, enjoy the luxury of time off.
It is such a shame that in the United States, only 54% of employees use all of their paid time off in the last 12 months, according to Glass Door. The average American worker leaves almost half of there vacation days on the table and a whopping 2 out of 3 employees report working while on vacation.
You are not indispensable, unplug from work and enjoy the luxury of free time.
Typically, dads get only 6 weeks fully paid by the Canadian parental leave program. In my case, my employer offered to top-up my first 6 weeks and I then extended the governmental leave to the maximum. After the 9 months at partial coverage, we decided to extend my paternity leave a few more months at our own cost.
After the 6 weeks I get covered at 100% my salary, my income dropped but the math checks out. We will be able to cover our expenses without touching too much of our savings. Since we saved so much in the past few years and we are living a simple lifestyle, we have the flexibility to take more time off even on a lower paycheck.
That flexibility is our true wealth.
If we had a lavish lifestyle, living paycheck to paycheck, we simply could not afford to take a pay cut for an extended period.
Things are slowly getting better. In Quebec, where we live, 86 percent of recent fathers claimed or intended to claim parental-leave benefits in 2015. That is a huge jump from 28 percent in 2005. Similar results were seen in other countries when they introduced paid paternal leave such as in Sweden where fathers get 480 days of 80% paid paternity leave and Norway where they get 49 weeks fully paid paternity leave.
In the States, the Family and Medical Leave Act of 1993, mandates a minimum of 12 weeks unpaid leave to mothers. However, the guidelines are strict and only 59% of American employees were eligible as of 2012. On the bright side, four states currently offer paid family leave: California, Massachusetts, New Jersey, and Rhode Island. California is the first state to offer six weeks of partially paid paternity leave to fathers.
It is really to the employer discretion to shape their own maternity leave policy. Alternatively, you can create your own wealth with diligent savings and flexible careers. Having a healthy emergency fund, maxed-out retirement accounts, and a flexible budget is the key to freedom.
What is Financial Freedom?
It is not the digits in your bank account that counts.
The days off are the real gold.
You might think that a raise is completely out of the question. Your employer might not even be open to the conversation but negotiating more vacation days is always an option. Allowing you more time off does not cost them anymore but increases your total compensation.
Think about it, if your employer has a budget for your position, giving you more time off will not affect the company’s budget whatsoever. You will simply do less work for the same salary and, therefore, increasing your freedom.
Don’t be the 54% who do not even use their vacation days, enjoy your freedom.
Salary is not the only raise you can ask for. When times are tough, sometimes intangibles are the best option. The best opportunity to negotiate for intangibles is once you have a job offer but it is also appropriate to bring them up when negotiating for a raise.
To help you achieve a healthy work/life balance, ask for things like:
Flexible work hours
Ability to work from home
Shorter work week
Condensed week (like four 10h days)
Feel wealthy with less
Wealth is all relative. You will never feel wealthy if you expect to have the biggest yacht or nicest house on the block. With that attitude, even if you do get the biggest yacht, you will want something else once you do. Even billionaires can feel unaccomplished. If you can find content with that you have, you can be wealthy.
He is the richest who is content with the least, for content is the wealth of nature. – Socrates
We are fortunate to live a minimalist lifestyle and live on only half our income. This allows us to take so much time off now without feeling the hit. We might not save as much as we used to but we can still live the same, simple, lifestyle we used to even on partial salaries,
Take the time to enjoy what you have, the freedom you have, and appreciate wealth.
Being wealthy is simply a state of mind. Once you feel wealthy, you are.
The way you think about money can easily prevent you from building wealth. Making more money can be a great thing but it all comes down to how you perceive it. Your money mindset might be preventing you from attaining your true potential.
Do you resent wealthy people or cast them into a negative stereotype?
If so, you are negatively impacting your relationship with money. Your subconscious mind will block you from attaining any real wealth. If you think money is a detriment in your life and it is pulling you down, you are looking at it from the wrong angle.
Be aware of your money challenges and how you perceive money. Accept your present reality, be open to change, and do your best to improve yourself.
Myth: Money is the root of all evil
Unlike the popular saying, money is not the root of all evil. Money is the root of freedom, endless possibilities, and abundance. Money lets you do what you really want to do with your life. As Justin from The Root of Good puts it; money is good!
Money is the root of all good.
If someone tries to persuade you otherwise, then they probably want some of your money, so watch out! – Justin
There is a big difference between wanting to make money just to have more money and building wealth. If you are just accumulating more stuff, and pursuing a materialistic abundance, maybe more money will not benefit you in the end.
Building wealth buys you freedom. Money can be the root of good when used for good. JL Collins calls it; F-you money. He defines this as; Not enough [money] to retire on perhaps, but enough to say F-you if needed.
There are many things money can buy, but the most valuable of all is freedom. Freedom to do what you want and work for whom you respect. – JL Collins
There is nothing evil about that. Accumulating wealth to gain freedom is a loyal calling. If you love money, you are not a shallow, self-centered and selfish person. You simply know what you want to work towards your goals to achieve them.
Myth: I will never have enough money
Building your wealth and accumulating F-you money is all good but how on earth am I supposed to do get there?
Having an abundance mindset rather than a scarcity one is crucial. Saving money is all in the mindset. I have seen 6-figures earners who were poor because every dollar they earned went right out the window.
Living paycheck to paycheck is drowning. It renders you a slave to your income. However, breaking the cycle is not impossible. If you are in a situation where you are simply not accumulating any wealth, spending every penny that comes to you, it is time to review your finances.
Once your finances are on track and on auto-pilot, compound interest will work its magic and you will grow rich.
You need to believe in your wealth. Even if you are not “rich” yet, your actions and attitude will reflect your mindset. That is when wonderful things happen. You will get that promotion you always wanted, land that big contract, or get the new job you just applied for. When you truly believe you are worth more, you are!
However, true abundance starts with you appreciating what you already have right now. Be grateful for what you have and you will have more but if you are never happy with what you have, you will never have enough.
In addition, saving and investing is awesome but it can make you miserable if taken too far. If you cut too much, you will hate it and fall right back into your old ways. An easy trick we use is to have a Fun fund; money aside just for outings and activities. We suggest using high-interest savings accounts for your Fun fund so, at least, it will earn a little interest in the meanwhile.
Invest in yourself
Your money mindset is your own. You are the only one who can change it and improve it. You need to define what you really want, who you want to be and work towards this better you. Only you can achieve that.
Read more books and blogs
Never stop learning and seeking out new information. Even if paperbacks are not your thing, there are so many amazing blogs out there to help you reach your full potential.
Having a money mindset also means that you work for what you have. You deserve wealth but wealth requires hard work.
If you are unhappy about your situation, work on it. Either on your finances, habits or even at your job, there is no lazying around.
Be in control of your money
No one cares more about your money more than yourself. Take control of your wealth and financial future.
Creating multiple income streams or passive incomes are an awesome way to stay on top of things. Similar to having F-you money, having multiple income streams makes you less dependent on your day job. Once you have the freedom to say no to things you do not feel like working on, you can focus on the amazing things you love.
Finally, to complete your money mindset makeover, you need to forgive yourself for past mistakes and look forward. Being mindful of the long-term is the key here.
Any choice you make today can affect your future-self. Having a long-term vision of your life and finances opens you to a better money mindset. You will make better decisions and smarter moves looking forward.
Once you realize that a dollar spent today could have grown in the future, you might think twice before spending your whole paycheck on a 5-star vacation. (Why pay when you can travel for free anyways?)
To conclude, having an abundance mindset rather than a scarcity one will change the way you live. It might not suddenly increase your income ten folds but it will make you feel wealthier, appreciate your current situation and set you for a better future.
Two months ago, my wife gave birth to a beautiful little girl. Of course, this beautiful little life is priceless but can actually be pretty pricey to raise a child. From diapers to cribs, to strollers, the list can go on and on. Fortunately, there are plenty of ways to save money as new parents.
You must have heard these crazy figures like this one from the Times: The Cost of Raising a Child Jumps to $233,610 but the actual cost of raising kids is only what you spend for them. If you are frugal parents and spend consciously, you can easily provide an amazing and plentiful childhood to your kids without breaking the bank. In the past two months, we have been raising our baby without spending a ton on gadgets and trinkets and it’s been perfectly fine.
P.S. If you are not a parent and do not plan to become one, you might want to skip this.
The first thing you might do before giving birth is to set up a nursery for your future little one. So many people go bananas on this one and can end up spending thousands on their nursery.
Unfortunately, all these things will only get used for a few months and then your newborn will be too big for them. This Ubabub Pod Crib, for example, sells for $2,300! If you set up your whole nursery to match, you will pay upwards of $10,000.
Even the cheaper options are pretty expensive, Costco sells nursery sets anywhere from $1,300 up to $2,000. These come with a crib, dresser with a changing tray, and a nursery glider but are still pretty pricey.
Instead, buy used and look for furniture and accessories that can do double duty. Instead of shopping at specialized baby stores, buy regular furniture or, even better, use furniture you already own.
We got a hand-me-down crib for free from our family
My grandmother made us some sheets.
Some blankets were given to us as gifts and we bought a few more at the thrift store for only $1, total.
Instead of spending hundreds of dollars on a nursery chair, we bought a $70 armchair at Ikea. We can then use it in our living room later on.
We bought a mobile at Walmart for only $5.
A neet discovery (but totally optional) was the boppy newborn lounger. Our little girl loves it and it allows us to put her down anywhere in the house with us.
Instead of spending hundreds on a specialized dresser with a changing tray which will be useless once our baby grows up, we simply got this diaper changing Pad and liners and laid it on top of a dresser we already owned.
The Dollar store sells great little nightlights. We did not find a need to get anything more expensive.
Finally, we found a nice wardrobe storage at the thrift store but can also be bought on Amazon for just $3.
Every store is out there pushing some baby things but half of it is either useless or will be after a month or two. You do not need to buy everything they sell, there are endless amounts of stuff being marketed to new parents but as frugal parents, just get what you need.
All your baby really needs is love, safety, and attention.
Even if we spent about $100 on our nursery, we do not feel deprived. Honestly, we cannot think of anything else we would want.
We did not bother with painting the room or any special decor since she will only be a baby for so long before she will want to choose her own styles.
Don’t buy baby clothes far in advance since they will probably not fit. Our girl came a bit early, at 37 weeks, so even New Born sizes were too big, while my sister was born at 10lbs, which is already at the 3-months size.
Aside from the gifts we received, we bought all her clothes at thrift stores for pennies. Seriously, pennies. They charge per pound so we can get about 5 outfits for $1.
We are already donating back some outfits, after only two months, because she grows up so fast. If we had bought all her clothes brand new, even on the cheaper end, each outfit would have cost at least $10-$15. Instead, we spend as much for her whole wardrobe!
We are just smart about what we buy for our newborn.
Onesies are cheaper than 2-piece outfits and much easier to put on.
Before she starts crawling, our baby does not need any shoes.
Buy a size too big, she will grow into it in a week anyway.
Say yes to free
They say the best things in life are free.
We had a baby shower and got the essentials as gifts. Even without any expectations, people just like sharing this moment with you and are generous.
If you can, try to nurse at least for the first six months. That is another great free trick. Not only is it healthy, but you will save at thousands in formula costs. Breast milk is free, why not use it.
In our case, my wife is breastfeeding but our baby would not latch properly for the first weeks so we had to pump at the beginning. The best deal we found was to rent a breast pump from our pharmacy. A quality electric pump can be expensive (up to $800) but renting was quite affordable. We ended up paying $65 for one month and bought the plastic attachments for $60 since you should not share those. The best would be to borrow a pump from a friend but otherwise, it is still pretty cheap to rent if it is for a short period of time.
We also consulted a lactation consultant at our local clinic. It was free, your local breastfeeding organizations may also offer home visits or phone consultations.
How to save on diapers
When it comes to diapers, we like to think big. Buying in bulk reduced our cost per unit from 33¢ to only 12¢. We buy the Huggies Snug & Dry Diapers from Amazon or when they go on sale at the grocery store. We found them to be the best and cheapest option, aside from cloth diapers.
You can also sign up for company newsletters from Pampers or Huggies and get coupon offers to save even more.
For cloth diapers, we bought a 6-pack from Amazon for about $40 and use them when we are at home. They are not ideal when out and about but they are surprisingly easy to clean and maintain.
To compare, this expense equals roughly a box and a half of disposable diapers (about 300). You would need to use these cloth diapers for a month or two just to break even (yeah, they go through a lot of diapers when they are young!).
And skip the diaper bags. These things are clunky and will only be used for diapers. Instead, we simply use a backpack we already owned and always carry our six baby essentials:
Our travel preparations
For our future travels around the world, we bought a few extra things that are totally optional but will make traveling much easier.
Instead of our clucky all-in-one stroller, we bought a sturdy travel stroller for a hundred and forty dollars. It is super compact and airplane friendly so we will be able to board with it as a carry-on.
The only other thing we got was a foldable crib which will fit in our suitcase. This will double as a playpen during the day and will allow her to sleep alone pretty much anywhere.
To conclude, just remember that kids only cost as much as you spend on them. We try to focus on what you really need to buy and skip what you can do without. If you ignore the marketing and stay frugal, there is plenty of ways to save money and raise beautiful kids in abundance.
We only spent $800 so far and now own everything we need. For the following year, we will need more diapers and wipes. These will run us about $50 per month, although we are using cloth diapers more and more.
As she grows, we are constantly donating clothes that do not fit her anymore and getting new outfits at the thrift shop for a few dollars here and there. I am confident we can end the year 2018 without spending more than $1,500 for our newborn. 🙂
There is no reason to feel peer-pressured or influenced if that’s just not you. Stay true to your frugal-self!
Once you achieve financial freedom, the world might not change but it will definitively change your world. Once your investments can sustain your lifestyle, you’ve made it. You are free.
Once FI, you can then choose to work, or not. You can choose to travel the world or keep working on projects which you are passionate about.
Some reach financial independence and retire early, others simply enjoy the freedom to slow down their work life and live a little.
Choose your financial independence lifestyle
With the FI movement getting more and more popular, we are seeing an array of amazing lifestyles people are creating for themselves. From cruising the world to van life to geo-arbitrage, the possibilities are endless.
If you think outside the box, the world becomes your playground. The structure and limitations society has to offer is not the only possible way of life. In some cases, people live alternative lifestyles to drastically lower their expenses and reach financial independence quicker while others are a way of life they created only once reaching FI. In either situation, these extraordinary people went all in and created a lifestyle around their wants and needs.
Van life, even with a family
If a giant McMansion is not your thing, how about living in a tiny van? That is exactly what Andrew, Stacey, and Rowan chose to do. This family of 3 bought a 1999 Volkswagen Vanagon camper van and designed a lifestyle of family adventures for themselves.
They are not fully financially independent yet but the van life is a great way for them to travel for less and spend more time with their newborn. This is also an amazing way to reach financial independence faster since they are reducing their expenses considerably.
With a van, they are able to have water, cooking facilities, a bed, space to stand up, and plenty of storage for the baby’s stuff like diapers, blankets, a car seat, etc. for a fraction of the price of more traditional travel.
On the plus side, this lifestyle is super cheap, allows you to travel extensively, and to reconnect with nature. However, the downsides include the many material sacrifices needed to fit in such a small accommodation, mechanical issues and power and sewage scarcity.
How about traveling the world in an RV?
If you need a bit more space, you could always start shopping for an RV. That’s exactly what our friend Steve from Think Save Retire did when he retired at 35 years old. He is now traveling in a 200 square foot Airstream with his wife. Exploring the continent, and enjoying these small living quarters.
They saved 70% of their income for several years and has now that they have reached financial independence, they have built a lifestyle around their love of travel.
They have a great post on why you do not need a huge house and they are the perfect preachers of this. They sold their house and now live in an RV fulltime!
It is slightly more comfortable than the van life but still is a radical lifestyle change.
On the bright side, this arrangement can be achieved for a lesser cost than owning a home, allows you to travel extensively, and to reconnect with nature. However, some disadvantages include the smaller living quarters, mechanical issues and the need to connect in campgrounds for power and sewage.
Meet the full-time Cruiser
From down-sizing to grand living, meet Mario Salcedo.
The round-the-world cruise has long been one of those brass rings of retirement but Mr. Salcedo has taken this to a whole other level. Since he reached financial independence 20 years ago, he has been living on cruise ships permanently.
Mr. Salcedo estimates he has been on 950 cruises and logged 7,000 “cruise days” at sea. – The New York Times
It’s not something we would think of doing but that’s what makes him happy so he has built his lifestyle around it. Although full-time cruising costs him roughly $70,000 per year, he has created a lifestyle which makes all of this possible.
I decided I had enough of the corporate world, and I wanted to spend the rest of my life traveling the world – Mario Salcedo
Once he retired from his corporate job, he started an online investment management business which he now operates as he cruises around the world.
Now, if that is not the perfect example of creating a lifestyle around the life you desire, I don’t know what is. He wanted to live on a boat and was sick of wasting time on the things which did not bring value to his life (cleaning up, dishes, cooking…) so he designed a life perfectly aligned with his desires.
The good things about such a life choice are that it allows you to travel extensively, is truly all-included, and maximizes your leisure time. However, the high price tag, lack of stability and connection, and potential monotony of being on a boat all-year-round could outweigh the positives.
Debt free with a tiny home
Now back to earth, housing costs are through the roof and even the smallest condos are far from affordable in most major city centers. People are now taking on huge mortgage debt to pay for guestrooms they barely use and that second living room they so needed.
On the other end of the spectrum, some are building their future in tiny homes, living debt-free, and enjoying their freedom.
Imagine having a cost of living so low that you can actually watch your bank account grow just from your government pension. Well, that is just one of the benefits that Peter Matheson discovered when he built and moved into his off-the-grid, super tiny house on wheels in Grand Forks, British Columbia.
He always enjoyed building and the creativity of trying to fit things into a smaller space. Once he volunteered at a cold weather shelter and helped design some tiny homes for the homeless, he then felt the need to experience it for himself. That’s when he built his own 125 sq. ft. tiny house.
He is now retired debt-free and enjoying a life of leisure in British Columbia, Canada.
It all comes down to priorities. If having two living rooms is not in your priorities, then why pay for that?
This way of living is really cheap, allows you to leave a minimal impact on your environment, and to reconnect with nature. However, one has to consider the many sacrifices needed to fit in such a small accommodation and some municipalities have by-laws against tiny homes.
A homestead instead?
If small is not your thing, how about a 66-acre homestead in rural central Vermont. That’s what Nate and Liz along with their daughter and dog are doing. While working high-paying jobs, the Frugalwoods used extreme frugality to allow them to save 71% of their income and they have now reached financial independence at the ripe age of 32.
If you enjoy hikes in the woods, working on the land, and being close to nature, homesteading is a great way to live in the midst of it all. This rural lifestyle can be a lot of work but it can be very healthy, appeasing, and relaxing.
Another alternative to this is cottage-living. We are thinking of this once we achieve financial freedom. Buying a cottage would be cheaper than living in town and would get us closer to the nature we love. With city home prices skyrocketing, living a bit further from civilization might be the way to go.
On the plus side, this lets you reconnect with nature, disconnect from the busyness of the city, and live from your own land. However, the downsides include a dependence on cars, long hours of manual work, and long drives to get anywhere.
Another option if you are location independent (such as not having a fix work location since you have reached financial independence) is geoarbitrage. This entails living in a lower-cost of living country or city to benefit from a lower-cost lifestyle.
This might mean moving to a cheaper state or tax-free country to cut your spending once retired. Another great life hack (if you can pull it off) is to use geoarbitrage while working remotely. This can drastically increase your savings rate and let you achieve financial freedom faster.
For example, our friend Mr. Crazy Kicks is currently shopping around Central America for a cheap place to live. We really like the idea since, once you retire early, there is no obligation to stay in a high-cost of living neighborhood or even country.
We’ve already investigated retirement destinations in Costa Rica and Spain, so we jumped on an opportunity to fly to Belize for free. – Mr. Crazy Kicks
Why not explore the world and save while doing so?
What is amazing about geoarbitrage is that it lets you live in warmer climates or different cultures than you might be used to, and it can be cheaper than to live than where you come from. However, a major downside is that you might need to give up your citizenship and might be leaving a lot of friends and family back home.
Just never stop exploring
On the same lines, if you are financially independent and like to explore the world, you could become a perpetual traveler.
That is exactly what Jeremy and Winnie over at Go Curry Cracker are doing, even with a kid. They have been to dozens of countries and, just like us, mostly travel for free using rewards points.
This lifestyle is definitely not for everyone since perpetual traveling can get exhausting but if you are an avid traveler, go for it!
Traveling full-time can be fun and eye-opening, can be done cheaply with the help of rewards points, and is a great way to discover the world. However, a major downside is that you might be leaving a lot of friends and family back home and it can get exhausting.
Finally, there is always the option to stay home, exactly where you are, and stay put. But that’s boring! 🙂
We hope you find your own calling and create your ideal lifestyle. If there is anything we missed, please share along in the comments! Mr. and Mrs. Xyz.
Starting investing is not always easy. It can actually be frightening.
Investing is one of the best things you can do to your money and future self so if you are just starting out, or never thought about it yet, this is the perfect beginner’s guide to help you become an index investor. Throughout this guide, you will learn the must-know basics about index investing, how to open a brokerage account, how to build the perfect portfolio and how to start investing like a pro.
First of all, let’s go over a few terms before we start.
An index or stock market index is a measurement of a section of the stock market. In other words, it is simply a bundle of stocks and it tracks the prices of said selected stocks. It is a tool used by investors and financial managers to describe the market and to compare the return on specific investments. The Dow Jones Industrial Average (DJIA) is the most common one and one of the oldest. Other examples across the world are the S&P500, TSX, the Nasdaq Composite, or the Nikkei 225.
An index fund is a mutual fund or exchange-traded fund (ETF) designed to track a specified basket of underlying investments.
An index investor or indexer is an investor who prefers using index funds rather than trying to beat the market. Active investors try to use their skill (or luck) to pick the best stocks or funds but this may take a lot of time, skill, and luck. Statistically, the odds are against them. Out of all actively managed mutual funds, a whopping 82% of them did not constantly beat the index over the last decade. That is why the index investor prefers to be passive. They look to match the market returns instead of trying to pick stocks or time the market, they manage their expected risk and return by diversifying their investments.
Index investing has been around for a while and it has been great to the ones who stuck with it. Trying to pick the next big winner or trying to time the market is, statistically, a loser’s game. The majority (over 80%) of professional actively managed fund managers cannot beat the index benchmark over the long-term. If even a cat can beat professionals three-folds, who to trust?
As an average investor, your chances are even slimmer! This super interesting study found that average investors are often underperforming the market by 4 to 5 percent, often because of failed attempts to time the market. The time, fees, knowledge, and luck involved simply work against you.
The latest study looks at the 20-year period that ended Dec. 31, 2009:
Average investment return = 8.20 percent
Average equity investor return = 3.17 percent
If you had put money into an S&P 500 index fund 20 years ago and just left it there — no buying, no selling, just investing and forgetting about it — you would have earned (minus fees) about 8 percent. – Carl Richards
As a passive investor, you simply buy all of the assets represented in the indexes you chose. In this example above, a passive investor would have grown his wealth, on average, 8.20 percent per year. That’s doubling your money every 8.8 years!
Managers of an index or passive approach believe it’s difficult to outthink the market because markets are highly efficient—at any moment, prices reflect what is known about each security. – Vanguard
The efficient-market hypothesis is a theory that states that stock prices fully reflect all available information. Since no one actually the true value of a certain stock and everyone has all available information, there is an equal chance that stocks are under or overvalued at any point in time.
In other words, it is impossible to “beat the market” consistently on a risk-adjusted basis since market prices should only react to new information. The market should always price stocks correctly.
To summarize the Efficient Market Hypothesis: An investor cannot earn a return without an appropriate amount of risk. A return without risk would be an abnormal return, and this is nonexistent in an efficient market. – Dr. S
Think about it this way; most investors, professionals and individual investors alike, lose to the market.
Therefore, market returns are actually above average!
One of the biggest reasons that index investing is so effective is because it is so darn low-cost. No one can predict the market, no one can control returns, but one thing you can control is your costs. Most companies now offer funds with fees around the 5 basis points.
That is effectively 0.05%. We are far from the 1%+ most active funds charge.
Matt over at Mom and Dad Money wrote a great article about the effectiveness of cost on returns. He mentions that the investment research company Morningstar conducted an interesting study to see which variable was better at predicting a mutual fund’s future return and they found that the lower cost mutual funds in their study outperformed the higher cost ones in 100% of the comparisons they ran.
By controlling your cost, you can save hundreds of thousands of dollars over the next few decades. That’s right, hundreds of thousands!
An annual expenses ratio or management expense ratio (MER) is a fee, shown as a percentage, to pay for the expertise and administration to manage a fund. If you invest $1,000 in a fund which charges a 1% MER, for example, you would pay $10 per year to the fund company. This would be paid whether the fund goes up or down.
According to Morningstar, the average equity mutual fund MER in Canada is 2.35% and the average account over the investment lifetime is $229,000. This tally up to an average management fee of $323,654 over a lifetime!
Think about this figure for a minute.
The average equity mutual fund MER is more than 10 times more than Vanguard’s index funds average expense ratio of 0.18%. This means the average investor losses roughly $300,000 in fees.
Investors wasted more than $100 billion over the last decade on expensive advice. – Warren Buffett
Index funds the very simple job to track the market and they do it without the pros and their big bonuses. That simplicity keeps costs low, and those low costs are passed on to you in the form of higher returns. The other beauty of indexing is that it does not require much of your time and it will let you focus on other things!
The best way to know how much a fund will cost is to look at the fund’s overview or fund fact.
For Vanguard funds lookout for something like this:
Notice the Expense ratio of 0.04%. This is one of the lowest in the business.
For Fidelity funds lookout for something like this:
For Blackrock funds lookout for something like this:
To find this information, and much more, you will need to look at the fund’s Factsheet.
The factsheet is a document provided by the fund manager that gives you an overview of the fund. It includes key information such as the fund’s investment objective, its top 10 holdings and how it has performed in the past.
This can help you decide whether the fund is a good match for your portfolio or not. You can click on the example below for more details.
Apart from the cost, a huge factor in their effectiveness is their diversification. Diversification is just another fancy word to say; don’t put all your eggs in the same basket.
If you invest in your favorite companies, let’s say 10 of them, or even 50 of them, you are not really diversified. Your chances of success are pretty slim.
Even if you would be able to cover most sectors of the economy, such as technology, financial services, consumer cyclical goods, or utilities, you will miss some and/or be overweight in certain ones.
Being overweight in a sector on a particular investment, as part of a three-tiered rating system, along with underweight and equal weight, refers to the balance of your investment portfolio. If you own $80 of bananas and $20 of oranges and the market represents $5,000 of bananas and $5,000 or oranges, you would be overweight bananas, underweight oranges. An equal weight representation in this example would be to own $50 of bananas and $50 of oranges to have a similar weighting as the total market.
An asset allocation is the representation of your portfolio. In the previous example, your asset allocation would include bananas and oranges.
Asset allocation is one of the great tools investors use to lower risk and increase returns without significant additional costs. Harry Markowitz even proposed the idea that diversification is, in fact, the only free lunch in investing.
As Vanguard puts it, indexing is a great way to spread out your investments to avoid losing your shirt to a bankruptcy or a particular sector crashing. Instead, it allows you to participate in the market as a whole.
When an investment is said to be risky, that simply means that there is uncertainty about its returns. Stocks, for example, can swing up and down every day and, over the long-term, can generate double-digit returns but might not be ideal over the short-term.
On the other hand, keeping all your money in guaranteed investments such as a savings account is unrecommended for a long-term objective since inflation will likely wipe out your returns and the opportunity cost would simply be too large.
You can read more about the risks and rewards in investing in this article from Vanguard or this one from The Balance.
Unfortunately, picking an index fund does not guarantee it is diversified. Any Dow Jones index fund will lack diversification, for example, because the Dow is a stock market index that tracks only 30 large publicly owned companies based in the United States. It does not include all the sectors of the economy, only tracks large companies, and is only based in the U.S.
However, a fund which tracks the S&P500 would include 500 companies, but again, focuses on large companies in the U.S.
When choosing index funds, you should consider three main things. Firstly, the total number of stocks held, then, the annual expenses ratio or MER, and lastly, the ease of use, ie. how easily tradable it is, (we will get to this).
A good index fund should hold at least 1500 individual stocks,
should have a low management fee (0.05% to 0.30%),
and should be easy to buy and sell at no or very low cost.
Diversification can be an amazing tool but beware of di-worse-ifying. Having too many funds might be worse than too little. We will cover different portfolios later but try to keep it simple.
Invest in a handful of largely-diversified funds, in investments you understand are ready to hold for the long-term.
Now that we have covered the basic, it must sound so simple to just throw money in these funds and make a quick buck but it is not that easy.
Indexing is not a get-rich-quick scheme, on the contrary.
Index investing takes time, consistency, and perseverance but it can be very rewarding over the long-run.
Index investing is easy to start, but hard to keep up.
As the great Warren Buffett puts it; Put your long-term investments in an index fund, learn to save, and when it falls, buy, don’t sell.
The secret is to start investing early and to stay consistent. Over an investing career, consistency can be the difference between working until 55 or 75 years old! The chart below is the perfect argument for consistency. If you try to time the market, missing only the ten best days of the year cut your average return by almost half!
A long time horizon also amplifies the advantages of tax-differed accounts but we will get to those shortly.
Over and over again, the market had huge run-ups and crashes but high savers with a long-term investment goal should be happy and jump on those bargain prices. Staying on the sidelines will not make you rich.
The best day to start investing is today.
What if the market crashes?
As JL Collins would say; The market always recovers.
He explains in his amazing Stock Series that the market is simply the single best performing investment class over time and it always goes up. Over the long-term of course.
He goes on to say that the market is self-cleansing, the bad companies die off and the new ones appear. When a company goes bankrupt, its stock goes to zero. It is a 100% loss. However, when the winners thrive, their stock can rise 200, 300, 1,000, 10,000% or more. There is no upside limit!
Owning stocks is owning real companies, employing real jobs, making real products. When you invest in index funds, you are investing in thousands of companies. You are investing in the economy.
Even if you where to invest today and the market crashes tomorrow, you will still be fine over the long-run.
There is a classic example of Bob the world’s worst market timer. In this example, Bob invests at every high of the market, just before every major recession. His plan was to save $2,000 a year during the 1970s and bump that amount up by $2,000 each decade until he could retire at age 65 by the end of 2013.
Bob did not invest early, instead, he waited to see huge market run-ups before, finally, investing his savings. The market dropped nearly 50% in 1973-74 and Bob had invested everything at the peak of the market right before the huge crash. The same thing kept happening to Bob but he never sold. He stayed the course, staying constant and saving a bit more every year even if he always waited for run-ups before investing.
Even investing only at the very highs of the market, Bob would still end up with major profits (around 10.1% annualized since 1970) if he simply sticks to index investing and does not panic. He still ended up a millionaire with $1.1 million in investments simply because he did never sold and kept his consistency.
Market crashes are actually healthy for investors. It is very unlikely you will end up investing like Bob but even if you do, it’s fine. We covered in-depth the reasoning behind this in a past article but indexing would not be the same without the occasional corrections and crashes.
The beauty of crashes is that it gives the advantage to long-term investors who are still buying in and reinvest their dividends. When everything is down, everything is on sale!
Step one: Choosing your account
Alright, now that we covered the basics, you can take the first concrete steps towards building your wealth. There are many options you could use such as your bank’s services, mutual fund companies, independent brokers, or robo-advisors but with so many options comes so many price-points and fees.
Just as we mentioned earlier, fees are super important. Keeping your costs low can save you thousands of dollars along the way. Below are the top low-fee options we think are the best for you. They each have their own characteristics but they would all be a fine pick to start your investment journey.
Ally: Best overall broker
If you do not already have a self-managed investment account, we suggest Ally. They are, by-far, the best low-cost online broker available. They offer fixed, low, $4.95 commissions and other bells and whistles such as forex trading and automated portfolio management.
For new clients, they offer a $200 cash bonus or 90 days or free trades. Their customer service is great, fees low, and their online platform was recognized as #1 for usability by Barron’s.
Ally Invest, formerly TradeKing, won multiple awards and recognition over the years.
4-stars from Barron’s “Best Online Broker” review for every year since 2007.
Barron’s distinguished as one of the “Best for Options Traders” and one of the “Best for Long-Term Investing”.
SmartMoney Magazine named them #1 in customer service in 2008, 2010, and 2011 annual rankings and #4 overall in 2011 annual rankings (#1 overall in 2006 and 2007).
They do not require any minimum balance to open an account and the whole process may take you about 15 minutes. The only drawback is that they do not support 529 accounts yet.
The first step toopen your account is to fill out basic personal information. Then, you will be able to fund your account and start trading.
Once your account is open, you can explore the Dashboard and start investing. They offer plenty of information and fun tools but if you are sticking to an index fund portfolio, you will not need all this. We will cover the basics of buying orders in the next section below.
Vanguard: Trade Vanguard funds for free
They offer free trades for their mutual funds and ETFs but do charge almost double than Ally for any other trade ($7) which is much less attractive. However, they do offer the option of 529 accounts not offered by Ally.
The first step to open your account is to fill out basic personal information. Then, you will be able to fund your account and start trading.
They offer a fully-hands-off approach to index investing. They can help you build smart portfolios and can give you advice on how to achieve your financial goals. In only 5 minutes, you can sign up online, answer a few questions, and they will figure out the best investment strategy for you.
They will buy a diversified mix of low-fee index funds optimized for your situation and manage those investments for you. Unlike the brokers discussed earlier, Wealthsimple is a robo-advisor which will rebalance your account to make sure you stay optimally diversified as the value of your investments changes. We will show you how you can do all of this on your own later but if you do not want to spend the time needed for DIY investing, Wealthsimple is a great option.
What we like about them is that their fee structure is simple and low-cost. They only charge a management fee once your account surpasses $5,000 and do not charge any other account management fee or hidden fees.
0.0% fee for accounts below $5,000
0.5% fee for accounts up to $100,000
0.4% fee for accounts above $100,000
If you are looking for a hands-off approach to passive investing, Wealthsimple is the way to go.
For Canadians, both Wealthsimple and Questrade are great options. Questrade is a self-directed broker and offers free purchases of exchange-traded fund purchases (ETF) and super low commissions of 1¢ per share on all the rest.
They do charge an inactivity fee if you do not execute one commissionable trade per quarter (3 months) or hold at least $5,000 in value within your account.
Use the promo code 595806512417973 and receive up to $250 once you’ve opened your account.
To recap, each of the options above has different purposes and different structures but they are all great to start investing. Ally is our best pick overall and Questrade is right up there with them but for Canadians. As for Vanguard, we absolutely love their funds but their trading accounts only offer advantageous commissions on Vanguard products. For a more hands-off approach, Wealthsimple is an amazing robo-advisor and operates both in the U.S. and Canada. If you are still wondering if DIY investing is for you or not, we will cover trading in the next section.
Once you have chosen the option which best suits you can begin your account opening, you will need to choose the type of account you wish to open.
Traditional 401k – This is a plan established by your employer to which eligible employees may make salary deferral (salary reduction) contributions on a post-tax and/or pretax basis. Earnings in a 401(k) plan accrue on a tax-deferred basis.
ROTH 401k -This is also an employer-sponsored plan but where contributions are made with after-tax dollars, investments grow tax-free, and withdrawals are also tax-free.
Traditional IRA – A traditional individual retirement account where contributions are tax-deductible, investments grow tax-free, but withdrawals are taxed as income. The maximum annual contribution limit is $5,500 and eligibility for this account depends on family income (or single income). To qualify for an IRA, you need to make a combined income of less than $186k.
ROTH IRA – Similar to the traditional IRA, the Roth contributions are made with after-tax dollars but the contributions are not tax deductible. Investments grow tax-free, and withdrawals are also tax-free. Just like the traditional IRA, there is a maximum contribution limit of $5,500 with the same eligibility rules.
SEP IRA – This is an IRA for small business entrepreneurs and allows for large lump sums to be deposited into a tax-sheltered account. The guidelines can be found here.
TFSA – This is an account that does not charge taxes on any contributions, interest earned, dividends or capital gains. The contributions are not tax deductible but withdrawals are tax-free. The contribution limit was increased every year since its creation in 2009 and stands currently at $5,500 annually.
RRSP – This is a retirement saving and investment vehicle for employees and the self-employed in Canada. Pre-tax money is placed into an RRSP and grows tax-free until withdrawal, at which time it is taxed. This account has many features in common with 401(k) plans in the United States.
Which account should you start with?
With so many different investment accounts available, you should prioritize and contribute where your dollar will do best.
Investment accounts you should prioritize, in order.
Contribute to your company’s plan (401k, 403b) to get the full employer match.
Participate in your employer’s stock option plan if they offer a match.
Contribute to a Health Savings Account (HSA) if available.
Contribute the maximum to an IRA, traditional or Roth.
Contribute to the maximum limit of your work-based plan for tax advantages.
Contribute to taxable investing accounts.
Investment accounts you should prioritize, for Canadians
Contribute the maximum to your RRSP.
Participate in your employer’s stock option plan if they offer a match.
Once you have chosen a broker, you will need to fund your account and start investing. With all of them except Wealthsimple, you will need to do your own research, build your portfolio, place your own orders, and rebalance your holdings every now and then. Before we dig into all of this, let’s cover a few terms.
A mutual fund and an ETF both represent professionally managed collections, or “baskets,” of individual stocks or bonds such as index funds. Most funds are offered in both options but they do differ. ETFs offer greater flexibility when it comes to trading but usually involve a trading commission. However, they usually have lower expenses than a similar mutual fund and have better tax treatment.
A ticker symbol is used to trade on the exchanges. Mutual funds, for example, usually have 5-letter tickers such as (VTTHX) and ETFs usually have 3-letter tickers such as (VTI).
A stock is a share in the ownership of a company while a bond is a debt security issued by a corporation or government. On the risk spectrum, stocks are considered riskier than bonds.
A dividend is a distribution of a portion of a company’s earnings. In the case of index funds, the dividend represents all distribution from the companies held within the fund.
An asset allocation is a way one splits his portfolio’s assets according to his goals, risk tolerance, and investment horizon.
Before you even start building your portfolio, you need to decide how much you are ready to invest. We discussed the difference between lump sum investing and dollar cost averaging in a previous article and concluded that the best thing to do is to go all in at once. If you have $1,000 to invest, do not try to time the market by investing $100 at the time when you feel the market is low, research has shown that you are more likely to maximize your returns by investing all of your $1,000 right from the start.
Having a strong investment plan and being diversified will not save you from a market crash. It is healthy for the market to correct itself. Ups and downs simply mean that the market is volatile but you can use this volatility to your advantage with dividend reinvestment and consistent investments.Now, once you funded your account, you need to choose the funds you wish to invest in. As discussed earlier, diversification is a great way to manage your risk and returns. We covered example portfolios before but let’s look at a few concrete examples.You would be surprised to find out that the dozen different mutual funds your advisor used to diversify your portfolio could easily be replaced with only 2 funds; a U.S. Total market fund such as VTSAX (ETF ticker VTI) and a bond fund such as VBTLX (ETF ticker BND). JL Collins explains this concept beautifully in his Stock Series, we highly suggest the read. He goes into the details of default risk, interest rate risk, and inflation risk in his Part XII-Bonds.
We have discussed bonds before, they are essentially a debt security issued by a corporation or government. They offer interest and on the risk spectrum, they are considered safer than most other investments, although, they are not guaranteed. Generally, adding bonds to your portfolio tends to lower both risk and potential return.
There are an infinite amount of portfolio combinations but really, the simplest ones are often the best. There is no perfect portfolio but keeping it down to only a few funds will be cheaper, easier to manage and rebalance, an, hopefully, increase your total returns over the long-term.
The simplest portfolio is the one-fund solution. When your portfolio includes a different fund for each asset class, it is easy to dwell on the individual parts rather than the whole and lose sight of your long-term goal.
Some funds adjust their asset allocation over time. Called lifecycle or target-date fund, these are a great one-fund solution. The dates in their names refer to your anticipated retirement dates as these funds start off more aggressive (more stocks) and end up holding a more conservative portfolio (more bonds) by the retirement date.
Another option is asset allocation funds offer varying exposure to stocks and bonds depending on how aggressive a portfolio you want. Unlike target-date funds, they do not change over time. If you invest in a balanced fund, it will keep that allocation.
iShares offers many of these as with expense ratios around 0.46%.
iShares S&P Conservative Allocation Fund (AOK)
iShares S&P Moderate Allocation Fund (AOM)
iShares S&P Aggressive Allocation Fund (AOA)
Vanguard offers similar funds with an average expense ratio of only 0.14%.
This Schwab fund, for example, is composed of American stocks, international stocks, emerging markets stocks, bonds, and cash. This would be a suitable one-fund option but we prefer the Vanguard funds given their lower fees.
In Canada, Vanguard has recently released tree all-in-one funds. The Vanguard Conservative ETF Portfolio (VCNS) holds 40% stocks and 60% bonds, while the Vanguard Balanced ETF Portfolio (VBAL) uses the opposite proportion. The most aggressive version, the Vanguard Growth ETF Portfolio (VGRO), is 80% equities. All three ETFs carry a very competitive management fee of just 0.22%.
Alternatively, you could also try Vanguard’s Investor questionnaire. Knowing your risk profile is the key to a proper investment portfolio. If you take on too much risk for your appetite, you might sell at the wrong time or make rash decisions.
Finally, the Total Stock Market Portfolio is a very popular choice for long-term investors. The Vanguard Total Stock Market Index Fund (VTI or VTSAX), for example, offers great diversity at a hyper-low cost.
It holds over 3613 American companies, ranging from small- to large-sized. The average rate of return on this portfolio since 1972 has been 7.5%.
Some argue that owning only American companies does not provide enough diversification while others argue that most U.S. companies operate internationally anyways. We have talked about global returns in the past and we believe having a global exposer is important to diversify a portfolio. One way to build a globally-diversified portfolio is to follow the relative size of each market across the globe.
Another way would be to own a risk-appropriate proportion in accordance with your own risk profile. Since global markets have, historically, been more volatile than the U.S., your allocation might be slimmer in said markets.
If you want a bit more control over your investments, you can create your own asset allocation. Let’s start with the Classic 60-40 which is comprised of 60% Total Stock Market and 40% Total Bond Market. This often serves as the benchmark in most portfolio discussions and has been around for ages as the go-to portfolio.
Possible fund combinations:
Vanguard Total Stock Market ETF (VTI), expense ratio of 0.04%
iShares Core S&P Total U.S. Stock Market ETF (ITOT), expense ratio of 0.03%
Schwab Total Stock Market Index (SWTSX), expense ratio of 0.03%
Vanguard Total Bond Market ETF (BND), expense ratio of 0.05%
iShares Core U.S. Aggregate Bond ETF (AGG), expense ratio of 0.05%
Schwab US Aggregate Bond ETF (SCHZ), expense ratio of 0.04%
With an average rate of return since 1972 of 5.8% and a low standard of deviation of 11.6%, this portfolio has been a stable winner over the past decades. If you are looking for considerable returns, without taking on too much risk, this is a good option.
Another great option is the Three-Fund Portfolio. It is very similar to the Classic 60-40 but includes in international exposure to the mix. For this portfolio, we include 3 funds; 40% Total Stock Market, 40% Total Bond Market, and 20% Total International Market.
This one shows an average rate of return since 1972 of 5.8% with a low standard of deviation of 11.4%. It is very similar to the Classic since the stocks and bonds allocation is the same.
Possible fund combinations:
Schwab Total Stock Market Index (SWTSX), expense ratio of 0.03%
iShares Core S&P Total U.S. Stock Market ETF (ITOT), expense ratio of 0.03%
Vanguard Total Stock Market ETF (VTI), expense ratio of 0.04%
Vanguard Total Bond Market ETF (BND), expense ratio of 0.05%
iShares Core U.S. Aggregate Bond ETF (AGG), expense ratio of 0.05%
Schwab US Aggregate Bond ETF (SCHZ), expense ratio of 0.04%
Total International Market (VXUS), expense ratio of 0.11%
iShares Core MSCI Total International Stock (IXUS), expense ratio of 0.11%
Schwab International Equity ETF (SCHF), expense ratio of 0.06%
As for us, we the core of our portfolio in 4 index funds; Vanguard Total Market ETF (VTI), Vanguard FTSE Canada All Cap Index ETF (VCN), Vanguard FTSE Emerging Markets ETF (VWO), and Vanguard Total Bond Market ETF (BND). We have a slightly different approach since we are Canadian but you can see our exact asset allocation in our Open Book series.
Once you have found out your risk profile and investment horizon, you can choose your own asset allocation and start placing purchase orders.
A limit order is anorder to buy or sell a security at a specific price or better. A buy limit order can only be executed at the limit price or lower, and a sell limit order can only be executed at the limit price or higher.
A market order is a buy or sell order to be executed immediately at current market prices.
The askprice is what sellers are willing to take for a security. If you are selling a stock or a fund, you are going to get the bid price, if you are buying a stock you are going to get the ask price.
The basics look almost the same with any broker; you open a trade, then, select the ticker and quantity you wish to purchase with the limit price you wish to pay.
You need to go under the trading tab, enter the ticker symbol under quote as shown in the fund’s Factsheet or online. For the Vanguard Total Stock Market ETF, for example, you would enter the symbol: VTI.
Then, it will quote you the current price as well as the bid and ask. If you simply put a market order, you will pay the ask price and if you are selling a stock or a fund, you are going to get the bid price.
There is also an additional risk to putting market orders since you do not know the exact price you will be paying or selling.
We suggest putting a limit order, you can then choose your own price. In the example beside, the current bid is 137.51 and ask is 138.16. If you were to set a limit order to buy at 138.00, you will most likely find a seller willing to meet you at that price and you will have saved 16¢ per share. You could also look at the day’s or 52-week range and enter a lower bid, hoping the price will drop. You would then enter a duration for your trade such as Day if you want your order to be valid for the whole day or select a future date if you are making a low bid.
For the quantity, you will need to divide the amount you want to invest by the price you will be bidding per share. For example, if you wanted to invest $5,000 in VTI at $138.00, you would place a limit order for 36 shares.
With Vanguard, the process is fairly similar but their order screen is much simpler and to the point.
For mutual funds, the whole process is much easier. All you need to do is enter the ticker symbol and the amount you wish to invest. Mutual funds do not trade on the market all day so you will simply get the closing price of the day. All you need to do is say how much you wish to invest and where is the money coming from.
Similarly, Wealthsimple is super simple! They even include it in the name. To start investing with Wealthsimple, all you need to do is fund your account and they will do all the rest. They will help you with financial planning and building the perfect portfolio of ETFs, automatically rebalance your account, and help you make the tough decisions when the markets are going down.
Finally, placing orders with Questrade is just like with Ally. If the process is still unclear for you, we suggest the video below which looks at the whole process in details.
Once you have built your portfolio and are ready to sit it out for the long-term, you still need to make sure things stay within your risk profile over time. At least once a year, but not too often, you should review your portfolio and rebalance if your asset allocation is getting away from your original plan.
As you can see in the above example, our original asset allocation was spread across the major indexes. Over the year the international equity has increased by 5%, while the U.S. index has decreased by 5%.
To rebalance we would simply “switch” 5% of our international equity into U.S. equity. If you would be using ETFs, you would sell some International Index and then buy some U.S. index. By sticking to this strategy we’re essentially selling high and buying low while sticking to our original risk profile.
Congrats! You are now an index investor. Now, the secret is to stay constant and continue investing, no matter what the markets are doing.
The markets are up, great continue investing.
The markets are crashing, great continue investing. It’s on sale!
The markets are flat, great continue investing.
If you keep this up with a long-term horizon in mind, your portfolio will continue growing and you will reach unimaginable wealth.
If you have any questions, anything, don’t be shy to ask in the comment section below.