I’ve always had an interest in money and how to best manage it, going all the way back to when I was a kid.
Over the dozen or so years that I’ve been in the working world full-time, I’ve become semi-obsessed with personal finance. The proliferation of online resources and blogs dedicated to the subject have only served to feed this fixation.
By reading as much as I possibly could on the subject (which I still do to this day), I developed something of a system and some guiding principles for my personal finances that I feel have worked out quite well for me.
Similar principles carried over into my management of our family finances and have allowed FM and I to stay on pretty solid financial footing through the major milestones we’ve gone through as a couple including paying for a wedding, buying our first (and second, third, and fourth) vehicles, buying and upgrading our first home, and of course, becoming parents.
These principles have always been important to me, but even more so since I became a dad. Kids are expensive and adjusting to life with a child (and then a second one), has easily been the most significant jolt to our finances since we left home to attend university more than 15 years ago (HOW IS THAT POSSIBLE?!?!).
Since I know I’m not the only one experiencing this kind of adjustment as a new(ish) parent, I figured I’d share a basic overview of the principles and process that I utilize to keep my personal and family finances on track.
I’ve been absorbed in this idea of financial independence since long before I came across the term and the countless blogs and books dedicated to the subject – I simply didn’t realize there was a phrase for what I had been thinking about.
Financial independence (having more income generating assets than we do expenses) is the overarching goal of our financial journey and it’s what drives all of my decision-making when it comes to our money.
I want to put FM and I in a situation where we’re not entirely dependent on our day jobs in order to get by. I want to work because I want to, not because I have to.
I haven’t calculated a specific date that we’ll achieve this scenario; life is simply too unpredictable to be bothered with that at the moment. There’s the yet to be determined final tally on how many kids we’ll end up having; the inherent unreliability of our careers with layoffs always being a possibility; and the unknowns about our future place (and cost) of residence. These things and more make calculating a definitive date or number of years seem rather pointless at this early stage of parenthood.
In my mind though, I’d like to be in this position by my 55th birthday. That gives me just under 20-years to get us to our position of financial independence. It also gives me a reason to stick to some sort of a plan.
To get us closer to our goal of financial independence I focus on these principles:
- Accelerate the elimination of debt. FM and I are extremely averse to carrying debt. While we’re comfortable with an affordable mortgage and low-interest loans to purchase vehicles we need for getting to our jobs and carting around our kids and all the stuff that come with them, we’ve always made it a point to pay off debt as quickly as possible. We prioritized paying off our student debts after finishing university, and now accelerate our mortgage and vehicle loan payments by taking advantage of pre-payment opportunities whenever possible (this is less frequent at the moment due to the reduced income that comes with FM being on maternity leave).
- Follow my 3 Rs of Saving by setting aside as much money as we can for rainy days, retirement, and rewards (i.e. indulgences like vacations, home renovations, and entertainment). More on this in a future article.
- Maximize our money at every opportunity both in terms of our spending and with our savings and investments. Again, more details about this will be covered in future posts.
- Create multiple income streams. This is a very minor focus of our efforts at the moment, but something we plan to explore more seriously in the future. Some options we’re either already executing or considering exploring include:
- savings and investments that produce dividend and distribution payments;
- selling unwanted items on platforms like eBay, Kijiji, or Facebook Marketplace;
- utilizing websites like Swagbucks where we can earn points for our already planned online shopping and redeem those points for cash through Paypal;
- more actively participating in referral programs with websites like RateSupermarket and through our Tangerine bank and credit card accounts;
- generating money through affiliate income.
To execute these principles, I follow this simple process:
- At the end of each year I go through a process of establishing sets of goals and objectives in a variety of categories, including a “Financial” category. These goals and objectives serve as something of a roadmap to help keep us on track throughout the year.
- I also develop a cashflow forecast for the year so there’s predictability to our daily finances. I do this in place of the more traditional, categorized formal budget. Years of trying that approach taught me that it wasn’t the best approach for me. I create this forecast using years-worth of past spending on our bills, debts, and investments that I’ve been tracking. This ensures that we’re never surprised by the current state of our financial affairs.
- At every opportunity, I put our finances on auto-pilot. From bill and loan payments to our investments and ‘adult allowances’, I keep things simple and predictable by automating as many payments as I can. It also helps make that cashflow forecast very easy to generate since I know exactly when money will be going in and out of our accounts.
- Monitor and measure
- The final step is to monitor and measure our progress on a regular basis. I’m tracking things in my cashflow spreadsheets on an almost daily basis and watching the big picture items found in my annual goals and objectives spreadsheets monthly (at a minimum).
So there you have it: my blueprint for staying on track financially and working toward my long-desired state of financial independence.