By now just about everyone has heard how wealthy Australian Tim Gurner admonished young people for wasting money on avocado toast while they complain about high housing costs. This has led to a predictable backlash. It seems that avocado toast is easy to mock. As is usually the case, neither side of this “debate” is entirely right or wrong. It’s tough that rents and house prices are so high today. No matter how frugal people are in all other areas of spending, rents and mortgages are still painfully expensive. But wasting money in other areas doesn’t help. David Chilton once wrote that people most underestimate the costs of “(1) cars; (2) dining out; and (3) little things.” Rather than literally discussing avocado toast, we should look at it as a stand-in for “little things.” The cost of little things adds up quickly. Most of us have little idea how much we spend on our habits. For most of us it’s easily hundreds of dollars per month. I’d be willing to bet that if most p...

Here are my posts for the past two weeks: Replying to Emails I Usually Ignore Bad Surveys Pay Yourself First? Here are some short takes and some weekend reading: Canadian Couch Potato discusses socially responsible investing with specialist Tim Nash. It sounds like it’s not possible to fully exclude companies with objectionable practices. Rather you end up with a tilt away from the practices you don’t like and possibly toward greener companies. In a later part of the podcast CCP delivers repeated beatings to Ted Seides over his attempt to explain away his crushing loss on a bet with Warren Buffett. Preet Banerjee interviews Professor Anita Anand to discuss securities regulation in Canada and what needs to change to better protect investors. The Blunt Bean Counter compares Canada’s CPP/OAS pension system to Social Security in the U.S. Robb Engen shares his obsessions with saving money. Big Cajun Man lays out the 5 steps to getting an RDSP. Million Dollar Jour...

“Pay yourself first” is some great advice to help people save money. If you have any trouble with money, as most people do, there are a number of ways to improve your finances including paying yourself first, tracking your spending, and budgeting. Even though I think these things are important, I don’t do them myself. The idea of paying yourself first was popularized by David Chilton in his first Wealthy Barber book. When your pay hits your bank account, the idea is to set aside some chosen percentage for savings before you begin paying the month’s bills and start spending any money on wants. Most people who wait until the end of the month to save whatever is left end up saving nothing. However, my wife and I have saved over 50% of our take-home pay for several years now by using the dangerous save-whatever-is-left method. We don’t bother to smooth out our expenses with equal billing plans and paying monthly for insurance and other things. We don’t spread out big expenses li...

Yet another survey concludes that people are pretty dull when it comes to finances. This time it’s the Teachers Insurance and Annuity Association (TIAA) Institute who asked just over a thousand Americans 28 financial questions. The respondents didn’t do very well. But sometimes, it’s the designers of the study who are dull. A Wall Street Journal article quotes one of the survey’s 28 questions: There’s a 50/50 chance that Malik’s car will need engine repairs within the next six months which would cost $1,000. At the same time, there is a 10% chance that he will need to replace the air conditioning unit in his house, which would cost $4,000. Which poses the greater financial risk for Malik? Anyone mathematically inclined sees instantly that the expected cost is $500 for the engine and $400 for the air conditioner. But the question is which potential repair “poses the greater financial risk for Malik?” In the field of assessing threats and vulnerabilities, “risk” is defined ...

I enjoy feedback from my readers discussing the topics covered in my posts, even when they’re critical of my ideas. However, I get other email as well. Here is another installment of replies to emails that I usually ignore. Dear Andrew, Thank you for the kind words about my “content related to money.” You remind me of book publishers who see their jobs as trying to sell white bricks. I see you have quite a list of different ways to connect your client to topics that appear to be of interest to readers. If I ever decide it would be funny to subject my readers to dreck, I’ll contact you. Sincerely, Michael -------------------- Dear Julia, Thanks you for yet another chance to share in the profits of duping people into losing their money in forex trading. After careful investigation, I’ve determined that I still have a conscience. Better luck next time. Sincerely, Michael -------------------- Dear Jessica, Thank you for your offer to place sponsored guest ad...

Here are my posts for the past two weeks: Nudge Becoming a Millionaire Should You Invest or Pay Down Your Mortgage? Here are some short takes and some weekend reading: Kewei Hou, Chen Xue, and Lu Zhang say that “The anomalies literature is infested with widespread p-hacking.” In plain English, they investigated hundreds of claimed ways to beat the market and found that almost everyone was full of it. For those who know a little bit about statistical testing, the one-paragraph abstract of their paper is worth a read. If correct, the paper is devastating to a huge area of investment research into market-beating anomalies. Meir Statman says it’s possible to make better investment decisions if we recognize that our tendencies sometimes push us in the wrong direction. It’s interesting that he says “Normal people are not irrational.” I’ve seen this statement elsewhere from other thoughtful writers. I can say with certainty that I am sometimes irrational, and I see others ...

“It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest.” ― Adam Smith Fintech holds the promise of greatly reducing the cost of financial services for Canadians. Our big banks have little choice but to keep costs high because they have a lot of capital tied up in real estate, they have a lot of employees to pay, and most importantly, they have shareholders demanding ever-growing profits . Operating primarily online, lean fintech companies give us the hope of reduced banking fees, better interest rates, and other benefits. But it’s important to understand the motivations of fintech companies. People like John Bogle who founded Vanguard are rare. Instead of enriching himself, he created an investment company that serves the interests of its customers. He even had the foresight to create a legal structure that created strong incentives to benefit customers instead of pitting them against Vang...

“It is better to be vaguely right than exactly wrong.” ― Carveth Read. In a good example of how you should be careful where you go for financial advice on the internet, the blog Money After Graduation attempted to tackle a reader question about whether to save money or pay down a mortgage . The analysis and conclusion are not useful. Ordinarily I applaud those who pull out their math skills to answer questions, but in this case, crucial factors were missed. The article simplified the reader’s question by assuming that TFSA investments would provide a tax-free return of exactly 5% each year, that the mortgage interest rate would stay less than 3%, and that nothing bad would happen in the reader’s life. With these assumptions, there is no need for the article’s detailed calculations. We can see that 5% is more than 3%, so investing will beat paying down the mortgage. No need for any further analysis, unless there are problems with the assumptions, like the possibility of stock ...

I recently saw a tweet with a chart showing how much money you need to save each day to become a millionaire at age 65. This was one of those motivational things designed to get young people to start saving. For just two bucks a day, supposedly a 20-year old could become a millionaire in 45 years. I applaud the part of this that tries to get millennials to save money, but two bucks a day won’t make anyone a millionaire. The implicit assumption in the chart was that we can get a 12% annual return from investments. This is just a dream. With a balanced portfolio and slightly lower than average investment fees, the typical investor could reasonably hope for a 5% annual return. But this is ignoring inflation. In 45 years, cash might have only one-quarter of its current spending power. When people imagine becoming millionaires, do they really mean to have only the spending power of a quarter million dollars today? To become a millionaire in today’s dollars, we need to focus on...

As imperfect humans, we often don’t have the time, skills, or information necessary to make good decisions. In their fascinating book, Nudge , Richard H. Thaler and Cass R. Sunstein show the many ways we can help people make better choices about health, investments, and many other areas without taking away their freedom to make any choice they want. One simple example concerns default choices for company retirement plans. Often, if workers take no action, they don’t get enrolled in a company retirement plan. In such a case, an alarming number of workers fail to accept the free money a company offers in matching any contributions workers make to their retirement funds. However, when a company automatically enrolls workers (meaning they would have to take some action to avoid being enrolled), far more workers end up in the retirement plan. It seems that when we are faced with choices, we often just don’t choose. The authors call themselves libertarian paternalists. The “liberta...