The Best Financial Practices To Set Yourself Up For Success

In this episode of Bare With Us, we explore the essential financial decisions that we believe everyone should be making—or at least seriously considering—throughout their life. Starting with young adults entering the workforce and progressing through various life stages, we highlight the habits and strategies that form the backbone of long-term financial success.

Join Mike Robinson, Scott Richardson, and Finn McKay as they discuss:

• Understanding where your money goes
• Spending less than you earn
• Building savings and emergency funds
• Choosing the right investment vehicles (RRSPs, TFSAs, RESPs, FHSAs, and more)
• Protecting your income with long-term disability insurance
• Planning for the unexpected with life insurance
• And—critically—developing an investment strategy that aligns with your goals

This episode emphasizes that while financial plans are personal, some principles are universal. Whether you're just starting out or reassessing your financial future, these non-negotiables are key to building a resilient and effective financial life.

What is Bare With Us?

We welcome you to “Bare With Us,” the podcast where we Bare Out the latest economic and financial questions that matter to you. Mike Robinson, a Chartered Investment Manager (CIM) from Calgary, Scott Richardson, a Certified Financial Planner (CFP) from Edmonton, and Finn McKay, a Chartered Financial Analyst (CFA) from Winnipeg, engage in an unstructured discussion, bringing you a wealth of knowledge and a diverse experience from the world of finance.

Each episode features an unstructured, unscripted and entertaining discussion where we pursue ideas and concepts as they arise naturally through our conversation. We tackle a broad range of timely topics, from economic or market trends and financial planning strategies.

Whether you’re one of our valued clients, or someone new to our insights, our goal is to provide you with valuable information, from diverse perspectives, that can help you navigate the complex world of finance.

We are experts in our field, but we are new to podcasting, so we invite you to Bare With Us, while we learn, grow and share! Please feel free to reach out to us with any feedback, to suggest any topics, or to learn how to work with us. You don’t have to, but you can!

Mike: 00:00

On this episode of Bear With Us.

Scott: 00:04

I think today's topic is brought to you by our, sound tech extraordinaire, Ed, who who kinda asked the question, what are the things that I should be doing?

Mike: 00:16

Yeah. I'm I'm struggling with verbalizing that. Like, what is this episode? Like, it's not necessarily best practices. It's just sort of the I think it's basics.

Mike: 00:25

Basic. Like, these are sort of the non negotiables that

Scott: 00:29

is a great word for it. It's it's what are these basics that we think everyone should be doing.

Mike: 00:35

And we would advise everyone at some stage of their life.

Finn: 00:39

I mean, it's like it's sort of like the the practices that you can put in play that will set you up for success over your life financially.

Mike: 00:45

I like that. Work that in, Ed, in the editing. Say that again.

Finn: 00:51

I've already forgotten.

Scott: 00:53

Good thing we did

Finn: 00:54

record. Good thing we recorded it. No. The the the best Flashes of brilliance. Yeah.

Finn: 00:59

Gone. Completely gone. Yeah. Yeah. This is what No.

Finn: 01:02

The the the financial The the best practices to set yourself up for financial success over your lifetime.

Scott: 01:09

Yes. Oh. I really like that. That's crazy. Cool.

Scott: 01:13

Well, sure. Let's give

Mike: 01:14

it a whirl.

Scott: 01:15

Yep. Okay. So with the welcome everybody. Welcome everybody. Thank you for joining us.

Scott: 01:22

No.

Mike: 01:22

More.

Scott: 01:22

No? Bigger. I'm too nervous to scream in this room.

Mike: 01:26

Just once.

Finn: 01:29

Just once will make you scream in this

Scott: 01:30

room. Okay. Welcome everybody. Thank you for joining us for episode six of the Bear With Us podcast. My name is Scott Richardson.

Scott: 01:42

As usual, I am joined by Mike Robinson and Finn McKay. And today, well, we had trouble verbalizing this one. And so, Finn, I think you came up a great description for what we're talking about today.

Finn: 01:57

Yeah. It's really about what are the best financial practices to sell your set yourself up for success over your lifetime.

Mike: 02:06

Yeah. I think we'll probably, well, I'm guessing, but it'll probably start with some of the things earlier in life, but these are not necessarily things that are just for young people starting out. It might be at the beginning, but then we'll move into some of the other sort of non negotiables as as for older clients as well. Yeah. Absolutely.

Mike: 02:27

Mhmm.

Scott: 02:27

And I think, like, kinda to start off one of the things Mike, you and I talked about is kind of an analogy that I said to you about how, you know, there's so many things that you can do out there nowadays. And and it's it's really difficult to figure out, you know, which ones you should be doing. The analogy I give is it's it's like going to a restaurant that has a 12 page menu.

Finn: 02:51

Mhmm. Mhmm.

Scott: 02:52

You know, when I started out in the industry, it was like a restaurant with one a one page menu.

Finn: 02:57

Right.

Scott: 02:58

So it was easy to pick the things that you needed to do. But now with the invention of all these other products and all these other things, it's really confusing. Mhmm. And so it's just trying to wade through all that noise.

Finn: 03:10

Well, and I think that I think that also it's it's, the onslaught of information everywhere. Right? Like you go online, you can find a thousand different blogs telling you to do a thousand different things. And the, you know, you know, people trying to sell complexity too on top of that. Right?

Finn: 03:24

Because, you know, you can

Mike: 03:26

Yeah. And, you know, I guess just to add to that as well is we do have more options available than we did twenty or twenty five years ago. And, you know, touching back to one of our earlier episodes, know, people often think that wealthy people exploit loopholes and that's not true. What they do is they use these newly available tools to the best of their ability and most efficient ability and it creates a lot of power.

Scott: 03:54

Mhmm.

Mike: 03:55

So that's kinda combination of Ed's question of, well, where do I start with all this stuff Cause there's so much stuff. Plus, okay, well, what are those cool programs and tools that now exist that maybe didn't exist before?

Scott: 04:07

Yeah.

Finn: 04:08

Maybe maybe the best place to start is just imagine yourself. We can maybe go through the experience of being a person and, you know, you got a you got your first job, you're young, maybe you're starting your career, and it's like, okay, what are the what are the first things that you should start looking at doing and trying to to achieve at the very beginning of your sort of, I guess, financial life?

Mike: 04:30

I think it's a good idea and I think, Scott, you should start with sort of your goal. You have some I'll call them golden rules, but whatever. You have some non negotiables and I agree with them, but I don't verbalize them like you do.

Scott: 04:41

So Okay. So I think it's a mentality thing first is

Finn: 04:44

Mhmm.

Scott: 04:45

For me, I always say there's there's kind of two rules that you always have to follow. And number one is you cannot spend more money than you make. And number two, you have to save money all the time. Mhmm. For the rest of your life, you have to save money.

Finn: 04:59

Mhmm.

Scott: 05:00

And the saving money piece was was tough for me when I was younger because, like, I remember my dad telling me you gotta save money, and I was like, why?

Finn: 05:08

Right. Money is just sad.

Scott: 05:09

I'm like, I have all these things I wanna do. And he's like, well, you might wanna do something later. I'm like, but I wanna do these things now. Mhmm. Why do I wanna save money later?

Scott: 05:17

And so but then you get older and you realize, no, you do need to save money all the time because you can't predict what your future self or what things are gonna happen. And so, you know, I always say to to young people that if you want options in life, save money.

Finn: 05:34

Mhmm.

Scott: 05:35

But if you want life to be dictated to you, don't save anything and you'll have very little options.

Finn: 05:41

Right. Right. Right. If you don't want to ever have any flexibility,

Scott: 05:43

a great way to do that is to so those are to me are the two kind of base things. And and again, you can dive deeper into each of them, but I think at the end of the day, you just you can't spend more money than you make and you have to save money.

Finn: 05:57

Well, and and to to kind of add to that actually, just thinking about like when I was in, high school and I got my first job working at a restaurant and none of my friends and this was maybe a bit lucky for me because a lot of my friends weren't working at the time and so because they weren't working, no one had money, so I by default saved money, because we never did anything. Know, we weren't going to movies, we weren't going out to eat and all that kind of stuff. And, but when you start investing early, like the power of compound interest over, like, from an earlier point in your life is so extreme. And so if you can start by saving earlier in your life and investing earlier in life, it can have a tremendous impact on your wealth over the long term. Absolutely.

Finn: 06:39

So that's the value of of of always saving.

Scott: 06:41

Yeah. And I think for me, the saving thing, if I think of it as a as a hierarchy, like, I want people to start saving even just in a savings account. Yeah. And get used to having cash around and not spending it. You know, there's so many times I hear people that are like, I gotta put my credit card or my bank card in the freezer so I don't use it.

Scott: 07:03

And it's like, well, no. Just get used to having money and not spending it.

Mike: 07:08

Yeah.

Scott: 07:08

And for me, that's a really important piece because there's a lot of people like bankruptcies are climbing right now, and there's a lot of people that all they have is a checking account and let's say their long term RRSP and nothing in between. And so when life happens, they don't have any cash to pay for it, and so they end up going into debt and and and it just snowballs from there. So for me, it's get used to saving and having that money in a savings account. Mhmm. And maybe it's pick a minimum amount that you have to have in there.

Scott: 07:43

You know, then say if you're just starting out, maybe it's $5. When you're, you know, in your thirties, forties, fifties, maybe it's $30.

Finn: 07:51

Mhmm.

Scott: 07:51

You know, I would say bad things that happen happen in threes and every instance is $10, so that's $30. So you need $30 in a savings account. So get used to having that. And when you've got excess above that, then invest.

Mike: 08:06

Mhmm.

Scott: 08:06

And so so that would be like, yes, invest, but start saving first and just get used to having money in a savings account and and then move the hierarchy up there.

Mike: 08:18

You made a good point earlier this morning offline as well, is that a lot of people will say, well, I have a line of credit for those one offs, or if something happens that I didn't expect, I can use my line of credit. But you made you made a good point about, well, that can push you further and further into debt if you don't have cash. So you may you wanna elaborate on that? Because I thought it was it was good.

Scott: 08:41

Well, one of the debt repayment strategies that we talk about all the time is the only way a lot of people believe that the way to get out of debt is to pay off your debt. But it's not. It's to save money.

Finn: 08:54

Right. Because

Scott: 08:57

the debt the debt is already a sunk cost. It's already happened. Mhmm. What you're trying to get prepared for is the next thing that will happen. And so to not be in a revolving door of debt, you have to be able to get off of that carousel.

Scott: 09:11

Yeah. And the way you get off of it is have cash saved aside so that you can not have to worry about paying off debt in the future. Otherwise, you're just going to be in a revolving door. You're going to You'll pay it out and then something will happen and you'll go in debt again. You'll pay it off and then you'll Something will happen and you'll go in debt again.

Mike: 09:31

Well, that's the thing is we we think of these one off. Well, that's a one off. Well, one offs happen four times a year. Like Mhmm. Something happens to the house.

Mike: 09:40

September and you got school fees and bus fees and back to school costs or Mhmm. You know, like Hopefully back to school. Yeah. We're in Alberta. We record this.

Mike: 09:50

So hopefully back to school.

Finn: 09:52

Well, and what what I've done actually is for for myself is I've I've got a Well, as you can imagine, you know, being who I am, I have a spreadsheet. And I'm sure we all do. But but, you know, look at Look. What my annual expenses are every year. And then I divide that.

Finn: 10:08

And when I say annual expenses, I mean, like, these are these are, like, nondiscretionary expenses. Like, I don't put, like, clothes and stuff like that in there or restaurants or whatever. It's like, you know, I need to pay my hydro bill, my water bill, my mortgage, property taxes. Maybe there's, like, non nondiscretionary parking fees at, like, work or something like that. And then what I do is I I what is that amount every biweekly period?

Finn: 10:28

You know, I only pay insurance once a year for my for my house and for my, for my car. And so I amortize that over 26 periods, and then I calculate how much do I have to pull off every paycheck. And then I put that into a separate account. For all those expenses, it comes out of that account. And then I also have a separate account, which is for really big, like, one off fees that you get for, like, random stuff.

Finn: 10:51

Like, the hot water tank needs to be replaced. The boiler needs to replaced. The the roof needs to be replaced. Your car will need to be replaced. Yeah.

Finn: 10:58

And it's like, you know, I so then that's another thing that I'd peel off every single paycheck. And then I just know how much money I have to save, to spend, and it's like I've already dealt with all that stuff. When I do have a big ticket like I had to get my water, tank replaced and also, my water intake, which was original to my house. So it's like from the nineteen twenties. It's made out of lead, which is obviously Nice.

Finn: 11:20

Yeah. I know. Something I should have replaced a while ago. You know, I know, like, I've got money set aside for that, so that that doesn't become a one off. It's like a planned thing that will happen, and then you, you know, throw in another, like, for that for that calculation.

Finn: 11:34

It's like, well, every ten years, I'm probably gonna spend, like, you know, $5,000 at least on random stupid plumbing things that I don't wanna spend money on. And then just put money into an account every every every paycheck, prepare for it, and then you can save. You know exactly what you're saving and what how much.

Scott: 11:50

Yeah. I think you touched on two really good things there, Finn, in the sense that, number one, you have to look at this stuff.

Finn: 11:59

Yeah. There was someone Yeah.

Scott: 12:00

Amount of people that have come to me, whether they're brand new or looking for advice or help. And it's like, I'll ask them a question. What about this? Where's this at? What's going on here?

Scott: 12:13

How much do you spend? And they have no idea. And so the most important piece is you have to know that this stuff is important and you have to look at Mhmm. And you have to look at it regularly. And it doesn't mean that you have to track every single penny.

Finn: 12:28

No. Just have a general idea.

Scott: 12:29

But you have to have a really good idea. Where your

Mike: 12:31

money is going.

Scott: 12:32

Yeah. You need to know where all of your money is going. Yep. And and you have to have that as a habit. You know, there's that that buffet quote of the the chains of habit are too light to be felt until they're too heavy to be broken.

Finn: 12:46

Right.

Scott: 12:48

And that's the thing is you have to get into the habit of looking at this stuff, get in the habit of saving and just planning. There is so many people out there where they are in the habit of spending because that's what you do. You get a job and you spend. But if you haven't started saving, then your chain of spending is too hard to break before you can start saving.

Finn: 13:12

Yeah. It's always such a depressing statistic, like the percentage of, like, Canadians or Americans who are living paycheck to paycheck. And that's that's all because that that doesn't necessarily mean that, they just can't afford their life. It might just mean that they just are not used to saving. And they literally are just living paycheck to paycheck because a paycheck comes in and then they're like, oh, well, now I can go out for dinner tomorrow and Yeah.

Finn: 13:32

Whatever it is.

Mike: 13:33

Agreed. And so on that, you know, sort of some of the non negotiables and you get used to or they're not used to saving is, again, or we'll sort of work through this, guess, age, it's not a bad idea. Mhmm. Is a lot of times when people get their first job, they're in their early to mid twenties, and the pull from their check for the RSP plan at work. Not everyone does it because they feel like the cash flow, they can't give up the cash flow.

Finn: 14:03

Mhmm.

Mike: 14:04

And you have to not do that. You must participate. And you have to treat it like you must participate. And I The example I always use is, without a doubt, the actual physical asset that is most valuable to your average Canadian when they do retire is their house.

Finn: 14:25

Mhmm.

Mike: 14:26

The reason that they have it is because they have to pay their mortgage.

Finn: 14:30

Right. Because the bank will come

Mike: 14:31

and Right.

Finn: 14:32

And drag you out of the house

Scott: 14:34

And you need And then take your

Finn: 14:35

car as well and

Mike: 14:36

So like you have to do it. And if you work for a company, for example, that in the old days that had a defined benefit pension plan

Finn: 14:42

Right. You had to.

Mike: 14:43

You have to do it. Yeah. And you get used to living on the rest.

Finn: 14:47

Yeah.

Mike: 14:48

Now we have plans where maybe it's a DC pension, defined contribution pension plan or an RSP plan, and it is optional. But if you are in that stage of your life, it is not optional. Mhmm. You must treat it like a defined benefit or your mortgage like you have to participate, and you will simply get used to saving and living on what's left after.

Finn: 15:10

I'm always surprised

Scott: 15:11

by In

Mike: 15:12

particular though, there's one more, And, I actually recently encountered somebody who has a group RSP matching plan at work and they're not participating.

Finn: 15:23

You know, was literally when I was about to talk, I was literally about to say, I'm always so shocked when there's like a matching plan and your employer's like, I'll we'll just give you free money

Mike: 15:32

if you want.

Finn: 15:33

So And then they're like, no. I don't need the free money.

Scott: 15:34

You can't say no to free money.

Mike: 15:36

You can't. I I was brutal with the guy. I said, listen, in my business, that's what we call an intelligence test.

Finn: 15:41

Yeah. No. I think I think that, you know, you know, if there's one if there's one takeaway for audiences that just don't say no to free money. If it's free

Mike: 15:50

Which we will get to in as we move up the age scale here and some of the other savings program. There's other free money on the table that people take advantage of. But yeah but yeah, at this stage,

Scott: 16:01

except for be weary of the email that says you have a bunch of free

Finn: 16:04

no. Like like also also, like the the the Nigerian prince stuff. Yeah. You know, be smart about it. But if your employer is like, hey, we'll just give you free money,

Scott: 16:13

you know,

Finn: 16:13

just take it. It's great.

Mike: 16:14

Even if it's not matching though, like Mhmm. Start save start investing, start doing your RSP, and that's your beginning ticket to using some of these programs because you will start getting tax deductions. And when you're 24 years old and your income isn't that high, you may not feel the value of that deduction as much as when you're 50 years old and in a higher income bracket, but it starts but it still is real. Yep. It still is the real deal and you get into that those proper habits and then the value of the compounding, the eighth wonder of the world.

Mike: 16:49

Like, you start doing it at that time and it you won't notice this for a long time, but boy does it work.

Scott: 16:56

Well, we touched on it in the RRSP episode that we did about the the understanding that the tax refund that you get is not free money from the government. It's actually your money That's right. That they took away from you. So do something smart with it. Yes.

Scott: 17:11

And so that becomes one of those other things of, you know, kind of one of my basics is your tax refund is not free money. It is your money that's being returned to you. So do something smart with it. Mhmm. Don't use it to pay for the vacation that you took in January that you were planning on getting a tax refund to pay for.

Finn: 17:33

Right. Right. Well, and Like like, I think that, like, we had a great discussion on, yeah, TFSAs, RSPs, RESPs.

Mike: 17:40

Let's just stop everyone's wondering what is Yeah. So episode three of this podcast, we actually released first.

Scott: 17:48

In February.

Mike: 17:49

In February. We went through a lot of detail on Yeah. Should I be doing RRSPs, TFSAs, R ESPs, etcetera. And we'll retouch on some of that today. But that's what we're talking about when we reference that is

Scott: 17:59

Yeah.

Mike: 18:00

So if you are interested, go back to our first released episode, which was episode three, a la Star Wars.

Finn: 18:06

Yeah. We shouldn't we shouldn't completely rehash that episode. We've got that. But in in a very like, you know, couple sentence summary, what would you say when you're young and you're first starting your career, the priorities if I remember correctly was you should be contributing to your RSP first, TFSA second, and then it well, I guess I guess actually, to back up, if you don't have a home, you should be doing FHSA first.

Mike: 18:33

Yes. Which is a new which is one of those new

Finn: 18:36

Yeah.

Mike: 18:36

Programs, and it is is a very good it is a very good savings program.

Finn: 18:40

Yeah. And and to remember, to remind ourselves also that, like, I there's a lot of those things about how, like, oh, yeah. You know, RRSPs are a tax scam and, or whatever it is. And that we went through that. We talked through it and and the the benefits of of the RSP and the tax free compounding that a lot of people don't really think about, which can be significant over the course of, you know, forty years.

Finn: 19:00

And then, of course, you know, you get the the tax refund, which, most most Canadians probably don't actually, you know, put into. I bet it's a great thing for the economy though, you know, when you think about it like around taxis and people going out and buying like ski doos Oh, But but what they should be doing be doing

Mike: 19:16

Scott's point is that is your money in the first place. And now with this new program, you should, if you don't have a home, you should be looking at a first home savings account.

Finn: 19:26

Mhmm.

Mike: 19:27

Which is an excellent program. It allows you as a contributor to get again another tax deduction.

Finn: 19:33

Mhmm.

Mike: 19:34

So contributions to the first home savings account are tax deductible. You don't have to use that deduction, so you can carry it forward if you're in a very low tax bracket. You can save that deduction for when you're older and the deduction has more meaning.

Finn: 19:49

When you say you can carry it forward, do you mean like like I I could contribute today $5,000 and then five years from now, then claim that Yes. Contribution that I made before?

Mike: 19:59

Yes. You can do that with your RRSP as well.

Finn: 20:02

Really? Yes. I I didn't know that.

Mike: 20:03

You do not need to claim the deduction in the year in which you make it. You can carry it forward for both RRSPs and first home savings account. So if I know

Finn: 20:11

if I know that next year is gonna be a crazy year for some reason and I've contributed all year, I can just be like, we're just gonna save that and do it next year. Save the contribution.

Mike: 20:20

Yes. The deduction.

Finn: 20:21

The deduction. So you

Mike: 20:22

can put the investment in

Finn: 20:23

Yeah.

Mike: 20:24

And use the deduction in the following year.

Scott: 20:25

But it depends how significant that delta is between Yeah. Your current income and the future because it might not be that big. Yeah. Like, when Mike's talking young people, like, the difference between being in a 0% tax bracket or a 25 and going up to a 36, that's significant. Yeah.

Scott: 20:46

But the difference between forty two and forty three Yeah. Isn't. Isn't that big.

Mike: 20:50

In dollars. In dollars.

Finn: 20:51

Yeah. So If I if I, like, sold a business or was selling a whole bunch of shares and, like, you know, you go from let's say, you're making, like $50 a year and then the next year for some reason you have a $200 an hour. Yeah. You could just

Mike: 21:01

Or if you're yeah. Or if you're a professional and you're doing your articling. Yeah. And the next year though, you're gonna be in the firm. Right.

Mike: 21:10

Things like that or residency. If you're in medical, you're doing your residency, but next year you're a full on doc. I don't know the terms. But Yeah. Things like things of that nature as well.

Mike: 21:21

Yeah. Like you could save those. Now, back though to the FHSA, can put in, you can get a deduction or you can carry it forward. And then compounds tax sheltered like an RRSP does. If you do indeed use the funds for a home purchase, they come out tax free.

Mike: 21:40

If you don't use it for a home purchase for whatever reason, you can just roll it to your RRSP. Oh, that's cool. Yeah. Like there's not Yeah. There's no downside.

Mike: 21:49

Yeah. The only downside is your your delayed gratification. You're

Finn: 21:54

Right.

Mike: 21:54

Giving up buying the the the new TV in order to invest in your future. But that's why we're here. Best practices.

Finn: 22:01

Yes. Exactly. Best practices isn't isn't a new TV in every room.

Mike: 22:04

Yeah. Yeah. Exactly. So,

Scott: 22:07

to go back to one of the things that you said, like Yeah. Is the budgeting piece. Like, I think for me, it doesn't necessarily have to be dollar for dollar budgeting, but what you explained of what you do with some of your your higher fixed costs Mhmm. And everything, that's something that I think is a best practice that people really have to understand. And it's not necessarily that you need to, again, budget every single dollar or track every single penny, but understanding the difference between, fixed costs and variable costs.

Scott: 22:40

Like, typically your fixed costs are all of your have to payments that they're not the fun things. They're the boring things that

Finn: 22:48

Every month. Every month. Gotta pay your email.

Scott: 22:51

Yeah. And, you

Finn: 22:52

know, you

Scott: 22:52

Phone bill, your mortgage, you name it.

Finn: 22:55

Like, All the all the all the companies we we generally as Canadians hate. You have to pay them every invest in the portfolio. Yeah. Exactly. Then to be that was some of the better investments.

Scott: 23:04

And so it's like understanding those fixed costs because those come off the top and so all the fun stuff, all of your variable costs are the things that you enjoy doing. And so you need to understand the ratio of your fixed costs against your income so you know how much is left for the fun stuff. Yes. And where people make really big mistakes is they have overcommitted themselves to high fixed costs. They get into a lot of contracts for security contract, this car payment, this payment, everything is monthly.

Scott: 23:38

Nobody thinks about what the total cost of it is. It's just whatever that monthly cost is.

Finn: 23:43

Well, and even

Scott: 23:44

so start saying yes to all these

Finn: 23:46

Yeah.

Scott: 23:47

Yeah. Monthly contracts.

Finn: 23:48

Yeah. Because it doesn't sound like much.

Scott: 23:49

Because it doesn't sound like much. Yeah. Yeah. But you add them all together.

Finn: 23:51

Scott, I'd get you into a new car for $200 a month. New. Brand new. No one's driven it. It's got like 20 kilometers on it for some reason.

Finn: 23:59

I don't know why why is it 20 kilometers on it? That's a weird thing with new cars but and then, but you'll pay $200 a month or maybe biweekly. Biweekly. Yeah. Which is a bit more confusing for most people.

Mike: 24:07

I'll just say quad weekly.

Finn: 24:08

Quad weekly. Exactly. $200, quad weekly. And you'll do that for, I don't know, like

Scott: 24:13

The next twenty three years.

Finn: 24:14

Thirty years or whatever. But it's only $200, quad weekly. So

Scott: 24:19

anyway, the fixed cost piece for me is key because everyone wants to spend the variable.

Finn: 24:26

Yeah.

Scott: 24:26

But if you've got too many fixed costs and you haven't controlled how many of those are

Finn: 24:32

Yeah.

Scott: 24:33

Then then that's where you wind into problems. And we we talked about it a bit in the housing episode, and I think we brought it up earlier today offline is, like, is that house the right house for you? Mhmm. Well, no. If it's gonna eat up all of your money in fixed costs, then you're not gonna have anything for variable.

Finn: 24:48

Well, and this is something that like like one of the reasons why I have two separate savings accounts. One for like my, you know, monthly expenses and then one for like the random big expenses that only have happened every, you know, maybe every five to ten years is because I hate that feeling of being like, I'm out $5 and I have to find the $5. I have to sell some shares of something or take some a bunch of huge amount of money out of my savings. I just hate I one, that's a bad mental experience, you know, of having to kick out that money. And then two, it's it's like this is something you can prepare for.

Finn: 25:24

And then when it does happen, it's just like, oh, I expected this. It's just a way better life experience and you're also financially ready for it. So, like, when I have to get my my roof redone, it's like, it's literally not a big deal at all. Yeah. I already have the money there.

Scott: 25:36

Yep. And to challenge you just because I like to do this Yeah. Yeah. Yeah. Podcast is why two accounts?

Finn: 25:43

You know, it is a mental accounting thing. Okay. Absolutely. Because But it's like it I I because I started with just an expense account, was the monthly expenses or, like, insurance on an annual basis. And then I realized when I got my house, I realized, like, the hot water tank will go in five years.

Finn: 26:00

You know, there's gonna be some random electrical stuff. I'm sure this house has, like, knob and tube or something like that. I'll probably have to, you know, do that. And then I also was thinking, like, well, my car doesn't last forever. And then it just was like, you know what?

Finn: 26:11

Put it all in a one spot and it it could all be one account.

Scott: 26:14

Absolutely. That's where like, for me, the the transition through my my from youth to now is that the savings account, just the dollar, what I call the number zero Yeah. Which maybe it's $30 now. Maybe it was 5 originally. Yeah.

Scott: 26:30

Yeah. But really, all I have to do is just keep increasing that what I consider the number zero

Mike: 26:35

Yeah.

Scott: 26:36

In my account to make sure that it covers everything that you just spoke about.

Finn: 26:40

So here's a question related to this, and we should we should talk about, you know, best we should move from, you know, early life into Yeah.

Mike: 26:47

Know Next day.

Finn: 26:47

House house stuff. But one one question I've gotten before from my friends, and I think that I have my own opinions about this, but I'd love to hear your opinions about this. Like, what's an appropriate amount to have in an an emergency fund? And when I think about emergency fund, to me, it is exactly this, that I've got, for me, twelve months of, of monthly expenses and then also an amortized value for all large expenses. What do you guys think?

Finn: 27:14

Is it like is there, like, a, like, a number of months of income or expenses? How do you guys think about that in terms of an appropriate emergency account size?

Mike: 27:26

Right or wrong for me, it's not a science. It's an art, but I'll put a caveat to that and maybe I'll maybe I'll do me you answer first because then my caveat might transition to the next

Scott: 27:38

Okay. Piece here. And I agree with Mike. I think there is some nuance to it. It depends where you sit.

Scott: 27:44

If you if you don't have other layers

Finn: 27:48

Mhmm.

Scott: 27:48

Then I think the amount is higher. So for me, it might be you need to have more in cash savings.

Finn: 27:56

Right. Like, if I have a million dollar investment account, you probably don't need to have, like, three years of

Scott: 28:02

Well emergency fund. You're gonna layer out. Yeah. And so, you know, like a TFSA, for example, now you're gonna put money where, yeah, you can access it, but you're gonna go try and get more growth. So I think for me, it becomes kind of understanding opportunity cost

Finn: 28:18

Mhmm.

Scott: 28:19

That I don't want so much in cash that I'm missing out on some future growth.

Finn: 28:24

Mhmm.

Scott: 28:24

So I do want a lot in cash to cover off. Like, again, I always say bad things happen in threes, and for a house, of them are $10 each. So there's $30. So so, like, maybe $30 is is the answer for somebody who's well established with kids and

Finn: 28:43

Mhmm.

Scott: 28:43

And, you know, has a home and and again, like cars and so and then depending on what you plan to do. So if you know that you're going to need to buy that car

Mike: 28:55

Mhmm.

Scott: 28:56

In three years, then you gotta start building that even higher. Or you know you're gonna so it's gonna depend on what sort of things you can plan or foresee coming up in the short run. And then, again, if you're if you know that that vehicle is more like five or seven years out, then that's where I'm throwing money in my TFSA, and it's not sitting in cash savings because I'm trying to capture

Finn: 29:21

And growth.

Scott: 29:21

That growth. I'm I'm looking at opportunity cost.

Finn: 29:24

Yeah. Well, I think I think also for for like an emergency fund, it would depend on and the amount you should yeah. It's all it's all it's all gonna be very specific to who you are as an individual, how much money you have, what other assets you have. Right. But also the type of income you have.

Finn: 29:37

Like, if you're if you're a dentist, you know, you have very stable income for your entire life. So you can invest more aggressively. You can have less cash savings. Whereas if you're a, like, you know, currency trader who is likely to get fired at some point in the next two years and then have to, you know, go for six months without, you know, a job and then get another job as a currency trader and your job is tied to the markets and all that kind of stuff, you probably want to have a way bigger emergency fund and a lot less risk in your portfolio.

Mike: 30:05

Right. I'm finding older, more established people, you know, how much should they have an emergency fund? In my opinion, it's almost zero. Like, they have money to do whatever things happen to come up. Yeah.

Mike: 30:19

But they shouldn't have to call me. Yeah. No. Because they need $15 to do something. Right?

Mike: 30:26

Like, they need So the number tends to be 20 to 30,000. Mhmm. But again, I'm talking older, more established people. You know, you're asking, your friends are asking you that. Mhmm.

Mike: 30:36

Like to turn around and tell your friends in their early thirties that they should have 30,000 in cash is not realistic. Mhmm. Well, for most. For most, your average working citizen. So the, you know, the number is probably much closer to 5,000 Mhmm.

Mike: 30:50

Dollars. But my caveat to that, as I said, which is another one of these, sort of nonnegotiables for people working, is that is assuming that you have long term disability insurance.

Finn: 31:03

Right. And this actually is a great like you suggested it would be. Right. A great transition to the into another topic. So so to just kinda sum up what we have already gotten through, you know, when you first graduate from school or you're entering your career, however that is is going in your life, make sure you're taking your matching program because Even if it's

Mike: 31:24

not mat well, matching's the basic. Yeah.

Finn: 31:26

Yeah. Yeah. If if you're doing r yeah. You should be absolutely contributing to RSP and you should think about it as mortgage payment to yourself.

Mike: 31:31

Exactly.

Finn: 31:32

And you should be using all of the accounts in the best way possible and you should start with your FHSA if you don't have a home and then go into your RRSP. If you don't buy the home, you can roll your FHSA into the RRSP. That's right. TFSA also obviously a great option for being able to compound your your capital over the long term tax free.

Mike: 31:48

But typically, you're not gonna get to the TFSA level until you're older.

Finn: 31:51

Exactly.

Mike: 31:52

Yes. Because you've got rooms, so you've got your FHSA and or RRSP. Those are providing the tax deductions.

Finn: 31:59

Mhmm.

Mike: 31:59

The FHSA can become an RRSP Mhmm. If you don't use it. And keep doing that, but at some point, you're gonna get to a level where you need to look beyond RSP, and that's where you're gonna look at the TFSA.

Finn: 32:12

Right. And then critical, obviously, that you you know, the best way to to know if you're saving money is to, track to see if you're saving money because you don't because you could you could also You have

Mike: 32:23

to look.

Finn: 32:24

You could you know, if you own a house and you've gotta you've gotta redo the the mortgage, it's $10,000. Sorry. Redo the roof, that's $10,000. You know, you could you could think that you're saving money for two years, $5 a year, and you actually were just saving up money to spend it on the on the house Well if you're not tracking it.

Scott: 32:39

So And that's the thing is that savings, like, when I talked fixed and variable expenses Yeah. Like in my fixed expenses in my mind Yeah. Is all my savings.

Finn: 32:48

Right.

Scott: 32:49

It has to be there.

Finn: 32:50

Yeah.

Scott: 32:51

And so, yeah, there's long like, again, for me, it's every month there's saving for into that emergency account that

Finn: 33:00

Yeah.

Scott: 33:01

Because it's revolving, you know, when in September when kids fees come and school costs and registering for soccer and hockey and all those registrations, like all of that hits, I have to have cash to pay for it. And so Yeah. Like, if you work backwards like you do in here's all the things that are going to pop up, like, you really have to save a lot of money in cash because life doesn't happen every month. It's there are monthly ones, but there's also those lumpy things. Every Christmas doesn't happen every month.

Scott: 33:31

Birthdays don't happen

Finn: 33:32

every month. Not a bad attitude.

Scott: 33:35

So it's it's really saving for all of that.

Finn: 33:38

Yeah. Yep.

Scott: 33:39

Not a bad attitude. It's a great line.

Finn: 33:43

So so okay. So so critical savings Yes. And when you can start investing, start putting money away, compound interest is a beautiful thing.

Mike: 33:50

Get the tax deduction.

Finn: 33:51

Get the tax

Mike: 33:51

Or carry them forward.

Finn: 33:52

Carry them forward. Great option. And then it really another yeah. The insurance side of it. So, you know, I I've I've read a lot about, you know, reasons why you would wanna have insurance.

Finn: 34:04

Basically, you're trying to insure against the possibility that you might lose your income for the rest of your life, in in the case of a disability.

Mike: 34:12

Well, not even the rest of your life. Right. Like For a

Finn: 34:16

for a

Mike: 34:16

For a period of time beyond Right. A a few weeks to a couple months kind of thing.

Finn: 34:22

Right.

Mike: 34:22

Like your average I don't know what the average length of a disability claim is off the top of my head, but it's not to age 65. Like, it's it's generally less than a year is the average length of a LTD claim. But if people are living check to check, that can sink you.

Scott: 34:44

Can remember a stat back in the day and not exactly remember it, but it was something like the odds of you having a disability that lasts less than two years is over fifty percent. Over fifty percent of people will be off of work for some sort of event or something for less than two years.

Finn: 35:09

Certainly with that attitude. And the It's got one major.

Mike: 35:16

Statistically speaking Yeah. Yeah. The younger you are Mhmm. The higher the probability. Right.

Mike: 35:23

Yes.

Finn: 35:24

Well, and when you're and when you're, you know, it's it's a risk to your career as well. It's a risk to Exactly. Your family if you especially if you So have new kids and

Mike: 35:31

all that stuff and all these expenses. The younger person, which will say, let's just say we're talking to people now in their early thirties, and the whole question of insurance and stuff comes up, my first go to for people in that category is not life insurance, it's disability insurance. Now, most people are covered through some sort of plan at their employer. Yep. And we could debate the merits of how strong those are or not, but it is something and is adequate.

Mike: 36:00

But like you Fins, would prioritize disability insurance over life insurance because you don't have children. Yes, you have a home, but you also have probably one or two times salary employee benefits. But you you need disability insurance because your ability to earn the income that you do is your greatest asset. Right. That's Over your time that diminishes.

Mike: 36:25

I would not say that to a 55 year old. Right. I would say that to a 35 year old because you haven't even hit your peak earning period yet. Like, you're just getting warmed

Finn: 36:36

up. Right.

Mike: 36:37

And your ability to use your intellect and your physical ability to earn an income is invaluable to you, and it should be protected more so even than your actual life.

Finn: 36:52

Right. Right.

Scott: 36:54

Yeah. You ask people that question of what the biggest asset they have is, the majority of people answer their home.

Finn: 37:03

Well, and this is yeah.

Scott: 37:05

Like, most people in a well established career probably earn the value of their home every four to six to eight years.

Finn: 37:13

Right.

Scott: 37:14

Right. But and they'll spend a ton of money to protect the home Yeah. But they won't spend any money to protect themselves.

Finn: 37:20

Right. Yeah. And this is something this was a a concept I remember from, from I think from business school. They talk about like, well, yeah, when you're young, you you you basically, in your entire life, you have a certain amount of like human wealth, like human capital wealth and financial wealth. And throughout your life, you translate your human capital wealth, which is basically the money that you can make as a salaried person or or running a business or whatever it is.

Finn: 37:44

The amount of money you're gonna make as a person and you translate that into financial wealth for your lifetime.

Mike: 37:49

Yeah.

Finn: 37:49

That's right. And then at the beginning of your life, where is your risk? Your risk is in the human human wealth, human capital wealth Yeah. Side of it and the the way that you would insure it would be with disability insurance. Yeah.

Finn: 37:59

So so when like, I because okay. If you if you just get out of school and you're in you're starting your career, at what point is it critical to start really considering getting like, thinking about what kinds of insurance to get and and and how would you recommend that process?

Mike: 38:13

I would, my answer would be, start assessing it right away. Mhmm. If you're talking about your, you know, majority of people begin working for a firm. Yeah. Right?

Mike: 38:25

Most of those firms, not all, but many of them will have an employee benefits plan, which will have long term, well probably short term as well, but at least long term disability and some measure of life insurance. Right away you need to test that. But if you, if your employer doesn't, or if you're self employed, you're doing your own thing, like, I would suggest you need to deal with it right away.

Scott: 38:50

So to that point and touching on something that we said earlier of you gotta look at this stuff, the majority of people get that benefit booklet either emailed to them or physically, and they don't read it. Yeah. Yeah. And so they don't have a clue whether they're really covered. And the biggest thing that people look at from a benefit standpoint is they're just looking at the medical benefits or

Finn: 39:14

Yeah. You're like, oh, I can get massage

Scott: 39:15

or something. I just wanna get, you know, get a massage and while we

Finn: 39:18

laugh I can go see I can go to my

Mike: 39:19

That is that is the biggest pull on all of those plans.

Finn: 39:23

Which is this is I mean, this is a topic for a whole other day.

Mike: 39:27

Yeah. Write it down. Yeah.

Finn: 39:29

Know. Exactly. But but just thinking about how like, yeah, like massage, know, how how do how do different like industries get themselves into the in into the benefits? Like like, because every How can we get? Yeah.

Finn: 39:40

Exactly. Yeah. Like like, I mean, why not I mean I mean, you know, some companies, they have ridiculous benefits. They don't make any sense. Like, you know, well, my girlfriend, when she was at her old company, she had a benefit that was just used for like like, was like a life improvement benefit.

Finn: 39:55

You get like a thousand dollars a year that you can spend on like a random an array of different things. It can be like it can be anything from like faster Internet to like blackout curtains and they just they just give you money. It's just they're just giving you money is all that is. Right. But then but then everyone has like a natural path

Scott: 40:08

It's usually a wellness

Finn: 40:09

benefit or yeah. Like health yeah. Wellness benefit. Yep. Yeah.

Finn: 40:13

But but yeah. Like everyone had a lot of people have naturopath benefit benefits, osteopath, massage therapy. Yeah. And it just seems like totally right. Anyway, so yeah.

Mike: 40:24

That's what Yeah. Know, to I don't, I'm not focused on those things. No. I'm focused on, you need to protect your ability to earn your income. Mhmm.

Mike: 40:33

And then, you also will need to transition into life insurance as well, but depending again, that's not across the board. I would say it's majority of people, but maybe not all.

Scott: 40:43

But I think the reason why you look at it when it's when you're young too is that's typically when the cost to purchase it is the cheapest.

Finn: 40:50

For life insurance?

Scott: 40:51

Or Or disability? Well, yeah. All of it.

Mike: 40:55

Certainly for life

Scott: 40:57

insurance. Certainly for life insurance.

Finn: 40:59

And when you think about

Scott: 41:00

And critical illness.

Mike: 41:01

And critical illness.

Finn: 41:02

And when you think about, like, disability, critical illness insurance, like like, is there sort of a rough idea of how much you probably should have?

Mike: 41:11

Disability is income but it involves part a of the conversation, which is you need to know.

Finn: 41:17

Yeah. What your expenses are.

Mike: 41:19

What your expenses are. Yeah. Because in my opinion, again, I mean other advisors could debate this or whatever, but you I'll use you as a good example because you're a strong income earner for a young person. You don't, in my opinion, you don't need to insure your full monthly income. Mhmm.

Mike: 41:34

Because if you're unable to work, you're not going to live the lifestyle that you live today. But you sure better have enough to cover the, you know, the fixed expenses plus a little bit more Mhmm. As well. Yeah. If you're in an employer benefits plan, they're just going to tell you what it is.

Mike: 41:56

Right. And it's a it's a, you know, two thirds of your

Scott: 41:59

two thirds of your salary up to a max.

Mike: 42:02

Right, and two thirds is a reasonable number. It's that number for a reason. So, if you don't have an employee benefits plan and you're looking at doing it yourself, two thirds is probably an approximate amount that is suitable, but you can run through the numbers yourself. Okay.

Scott: 42:18

And that's as long as you're paying the premiums because then that two thirds is tax free. Yes. That's kind of the math on it.

Finn: 42:26

Right.

Scott: 42:28

Is as long as you're paying the premiums of, disability insurance, then the benefit to you is tax free.

Finn: 42:37

Oh, but if your employer is

Scott: 42:37

paying it If your employer pays it, then the benefit is taxable. Yeah.

Finn: 42:41

Oh, interesting.

Scott: 42:42

And that's why on your pay stub

Finn: 42:44

Yeah.

Scott: 42:44

You always see the highest deduction usually is is for the cost of of your life and disability insurance.

Mike: 42:51

You're paying

Scott: 42:52

for it. Because that's the

Finn: 42:54

most tax beneficial way to do

Scott: 42:55

it. Absolutely.

Finn: 42:56

Oh, interesting. I didn't know why that was Yeah. Like that. Interesting.

Scott: 42:59

Cool. Oh, well, look at that.

Mike: 43:01

So now if you are not working for a company that has a plan, you should be looking at your own individual long term disability coverage, which, you know, for a young person, I will say that it's not the cheapest monthly expense that's out there, but that's because it's your most valuable. Yeah. It's really, really important. And also what you can do is add future protection riders on it. So perhaps your salary at age 28 that you insure won't be adequate for you when you're 38.

Mike: 43:37

But you can build into the policy at 28, at your insurability level at 28, the ability to increase the amount of coverage without going through medical underwriting. You only have to prove that you earn that much money. Right. So you can future protect yourself, get it done early while you're insurable, while you're healthy, and while the premiums are relatively low with that future option built in as well.

Scott: 44:03

Cool. Another thing that for me makes getting it a lot easier, and I I have this personally on all my policies for disability and critical illness, is I built in return of premium. So in your insurance, if you don't use the insurance, they will give you back your premiums.

Finn: 44:25

Okay. Tell me how how that makes sense for them.

Scott: 44:27

Well, you pay more upfront to get it.

Finn: 44:30

Right. Yeah. They they have to make their margin.

Scott: 44:32

But that's that forced savings piece. I I treated it like a mortgage when I was younger that I had to have these forced payments.

Finn: 44:39

Mhmm.

Scott: 44:40

And it was forced savings. And so it made it easier to stomach. Now the the disability, they only give you back half of your money, and it's usually every seven years that you don't use it. You get half Whereas of it my critical illness policy, I don't get the money back until after I cancel it. But the older I get, the less of the odds that I'd wanna cancel it because that's when the odds increase of me getting a critical illness.

Finn: 45:08

Right.

Scott: 45:08

So which are critical illnesses like cancer, heart attack, stroke are the big three.

Finn: 45:12

Okay. Which most people will experience unfortunately at some point in their life. Yeah. Right. Yeah.

Finn: 45:17

Okay. So so we've gone through, you know, get out of school, save money all the time effectively, start investing, make sure you start using the accounts that are available to First home savings, RSPs, you know, critical illness and disability and all that stuff is something you should explore earlier on in your life. And then life insurance.

Mike: 45:38

Well, disability. Critical illness, I'm not gonna be as Okay. Adamant about that. But disability. A debatable issue.

Finn: 45:44

Yeah.

Mike: 45:44

Or a debatable, not issue, but personally, view critical illness as a bit more of a luxury.

Finn: 45:51

Okay.

Mike: 45:51

Disability is like non negotiable.

Scott: 45:53

Absolutely.

Finn: 45:54

Absolutely. Okay. And in life insurance

Mike: 45:56

And then life insurance.

Finn: 45:57

Is that something that you should get? Like, I I I kind of think about it as that's something that you get when you have kids and now you're over the long term of your and over the next, you know, thirty years, you've now as you have had a child and they're gonna know the cost of raising a child is a lot. And, you know, if you die, that would be pretty brutal for for the situation. And you've got, dependence, and you need to be able to provide for them. And but you won't be around to do that if you do pass away.

Finn: 46:24

Is that around the best time to start thinking about getting life insurance? Is that the best way to think about?

Scott: 46:31

I think of it more as when you have an each other. So you don't need you don't have to have kids.

Finn: 46:36

But

Scott: 46:37

you as long as you have a spouse, a partner that, yes, you want life insurance to protect them.

Finn: 46:46

Right.

Scott: 46:46

And and again, like, even if you think about just once you own that home.

Mike: 46:51

Right. That's where I that's where I

Scott: 46:52

would start.

Mike: 46:53

That's where

Scott: 46:53

I would start is is once you own that home, because whether you have kids or not, if you pass away and you don't have life insurance, then now the person who you've left behind has to pay for that house all by themselves Yeah. On a single income Yeah. Which was easy to do when you had two incomes. Mhmm. But is it as easy to do on one income?

Scott: 47:13

Mhmm. And so maybe what you're trying to do is to protect that other person.

Mike: 47:18

Right.

Scott: 47:18

So that's the way that I would look at it. I don't think of it just as a kid's thing.

Finn: 47:22

Yeah. I think Yeah.

Mike: 47:23

I would agree and I'll again, we're we're kind of doing this age base because we're at this level. I keep looking at you Fin. Because you're in this.

Scott: 47:31

Yeah. You're in

Finn: 47:32

this level.

Mike: 47:32

Right? Where you have a partner

Scott: 47:34

Yep.

Mike: 47:34

But you don't have kids, but you're both white collar professionals.

Finn: 47:39

Mhmm. I think Rebecca would find someone so quickly.

Mike: 47:42

She is Well, think very right about that. You're very right.

Finn: 47:46

So I'm not too concerned about her.

Scott: 47:48

Not sure how you landed that.

Finn: 47:49

Yeah. Yeah.

Mike: 47:50

I I think you're right. And so, but if you were coming in and asking me for my opinion as, you know, as a client. Mhmm. I would say, will you work for a firm that provides you with one or two times salary of life insurance? Mhmm.

Mike: 48:07

And at this stage of your life, that is probably adequate because Scott's right. It's the home.

Scott: 48:12

Mhmm.

Mike: 48:12

The home is the issue. Like yes, you know, all jokes aside, Rebecca would move on. She's a white collar, educated woman. She would be fine, right?

Finn: 48:21

But

Mike: 48:22

she might need help with that house because your half of the payment is not there. So, you know, whatever the number is, you know, 100,000, 200,000, $300,000 of life insurance, would be fine for

Finn: 48:35

her.

Mike: 48:36

Mhmm. Most likely. Again, for compliance reasons, we would do a full needs analysis of course, and we would scientifically measure that out. But generally speaking, that would be adequate. Mhmm.

Mike: 48:46

The next level becomes then when you have, then when you have children. Mhmm. Because then, in my opinion, the, you know, one or two times salary is not enough to cover your payments of the house and the raising of the children and future childcare and future education and all that stuff. Now we're getting into the big, the real, the real life insurance need. Mhmm.

Mike: 49:09

So if you ask me flat out said, well I have LTD at work and I have two times salary at work. Isn't that enough? I'd say, yeah. Mhmm. Yeah.

Mike: 49:19

I think it is. Until you move to the next step Mhmm. Which is having a family. Mhmm. But the longer you wait, you also begin to lose insurability.

Mike: 49:30

Right. So having outside life insurance that is not tied to your employer, while you're young and it's very inexpensive, but locks in your insurability also is a really good thing.

Scott: 49:45

So I, yeah, I would always, again, I always argue that it would be get some of your own life insurance while you're young. You may not actually need it as if we did a complete needs analysis. But again, we don't know if you're gonna get cancer or have a heart attack that's gonna affect your insurability. So get it now. It doesn't have to be a huge number.

Scott: 50:11

Like, you don't wanna create motivation.

Finn: 50:15

That is a concern. A real concern for for me.

Scott: 50:20

Don't want Rebecca to be motivated to off you, but but you want a a number that's sizable Yeah. So that it's easy to if you become uninsurable that you can say, okay. You know what? Yeah. We got enough.

Scott: 50:34

Like, we'll be okay.

Mike: 50:35

Yeah. Yeah.

Scott: 50:36

So so I think it is important. And again, it doesn't there's lots of nuances with insurance when you get into it, I don't think we need to touch on all of it today. No. But I think the idea is just make sure you look at it and you get it while while you're young and healthy because it's the most cost effective time to get it.

Finn: 50:56

And what is the best place to get to get insurance?

Mike: 50:59

Yeah. This is a good question too because if I forgot, I want to circle back to what if what if you already have insurability issues? Or And then your question, what is Because you could also get mortgage insurance.

Finn: 51:10

Right. Which basically just covers that. How that works. It would just cover the the remaining

Mike: 51:14

It covers the remaining outstanding balance.

Finn: 51:16

And does that come off your mortgage payment directly? Like, would that be

Mike: 51:20

usually part of it or take it out of your It's a separate d account.

Scott: 51:23

Yeah. Okay.

Mike: 51:24

But I'll start with Yeah. I would prefer that you did not do that. I do not think that's a best practice.

Finn: 51:29

Okay.

Mike: 51:31

First of all, it locks in no insurability. Yeah, they'll insure you, but it is on a declining balance. So as you pay your mortgage down, the amount of the insurance goes down. And does not help you with having maintaining or adding insurance in the future. In my opinion, mortgage insurance is is sort of that last resort if you have insurability issues.

Mike: 51:53

If you if and by insurability issues, what I mean is if you are not as if they would not underwrite you as a standard 32 year old, or whatever your age is. So for example, type one diabetics.

Scott: 52:07

You

Mike: 52:08

know, that's not a lifestyle issue, that's completely out of their control. They have type one diabetes, they're going to have difficulty getting a million dollars of term insurance from a standard insurance company. Okay, well now you might want to look at some mortgage insurance or going to your employer benefit plan and getting what we call non evidence maximum, which is so you get two times salary, let's say, but there will be a clause in there if you read the booklet as per Scott's point. That says you can get actually up to four times earnings. It's just not standard And you have to pay for it.

Finn: 52:42

Right. And they'll just Which is fine.

Mike: 52:44

Yeah. Right? I still don't think it's great insurance because employee benefit life insurance is not transportable. Mhmm. So if you leave your employer, it's over.

Mike: 52:52

Whereas if you have your own insurance, it'll last with you until you cancel it or don't pay the premium. But if you have insurability issues, those are your two avenues to go to is non evidence maximum or NEM with your employee benefit plan or mortgage insurance because it's better than nothing.

Scott: 53:10

Mortgage insurance, and I don't know how much has changed, but it used to be underwritten at the time of claim.

Mike: 53:18

Yes. Yes. And Good

Scott: 53:19

so the the tricky part with that is the and I don't know. Again, I haven't looked at it for a while, but it used to be that it was this big long question that said in the last five years, have you been to the doctor, done this, done this, done this? And if you say no, then you get the insurance. If you say yes, then you don't get it. But the idea is that just qualifies you to pay the premium.

Scott: 53:44

Then when you pass away, they'll take a look and figure out whether or not they would have insured you or not. What?

Mike: 53:50

I don't know if they all worked out.

Scott: 53:51

Well, they it used to way back in the day that

Finn: 53:54

worked like that is absurd.

Scott: 53:55

It used to be like that way back in the day, there were a lot of people there was even a a CBC marketplace about it where Where people got denied claim at the time of claim. Yeah. That's like Because all they did was qualify to pay premiums. So they got their premiums back, but they didn't get the license

Finn: 54:10

They got their premiums back.

Scott: 54:11

They yeah. They they do get their premiums

Finn: 54:13

back. I'm just thinking about a Rick Mercer bit.

Scott: 54:14

No. No.

Finn: 54:15

Do you know which one I'm talking about? The no no claim insurance policies? No. Have you heard this? So he's like

Mike: 54:20

How about I'd like to.

Finn: 54:20

Yeah. Yeah. He's like he's like, you know, we've got a new low cost you know, inflation is so tough. We've got a new low cost insurance option for many people if you promise to never make a claim. You pay on a monthly basis.

Scott: 54:36

But you're never allowed

Finn: 54:36

to make Sounds a

Mike: 54:38

like me dealing with my my home insurance because I had hail damage from the storm

Finn: 54:44

Right. Years ago.

Scott: 54:45

That's what it

Mike: 54:46

Anyways, that's another topic for another day.

Finn: 54:49

Okay. I'll just

Mike: 54:49

So anyway. Yeah. So like to sort of I guess summarize that is you know, you're working, you're saving, you're participating in either first home savings or RSP. You're doing that. You're you're paying attention to where your money is going.

Mike: 55:03

Yeah. You're reading your employee benefits booklet. It's probably not a booklet anymore, but PDFs, something online. And you're part You're making sure that you have adequate long term disability. Mhmm.

Mike: 55:17

I would say also life insurance as well, particularly if you own a home and have a partner.

Finn: 55:22

Here's here's a question because we we should

Mike: 55:25

Move to the next stage.

Finn: 55:26

To the next thing. But are there any before we move into the next stage of life, which would be to me be like more middle of, you know, middle of career, late career period. Yeah. Are there any areas where you see people spending money on things that are just like absolute waste of money and places where, are very like very like low hanging fruit? Like, just, like, try to avoid this.

Finn: 55:49

Like, like, I know, like, for example, like, you know, you don't have to always buy a new car. Maybe it does sometimes make sense to buy a new car, lease some cars, or or anything that you see people do on a regular basis where you're like, this is just a very easy way you can just avoid spending that that money on that type of thing.

Scott: 56:03

The only thing that I would say, and I think we touched on this in one of the episodes before, it was either the the grocery store one or the or the can young people buy a house one was this this fictitious Jones or keeping up with the Jones Yeah. Thing of social media and seeing that, you know, one friend did this, one friend renovated, one friend bought a hot car, one friend

Finn: 56:29

Is in The Bahamas. Did a

Scott: 56:30

did a big trip and all this. And you thinking in your mind that that's what everyone's doing and I have to do that. Yeah. No. You don't.

Finn: 56:38

Yeah. Yeah. The, the biggest expense that people have is their their ego.

Scott: 56:43

Yeah. Absolutely. So I think that's a big one. I think it's being able to understand and and you've touched on it before about understanding the future cost of an expense. Like Mhmm.

Scott: 56:55

You have to know when you're spending money that you're getting value out of that. And if you aren't, then why are you spending?

Finn: 57:01

Just yeah. Exactly. Don't. You know, like if if you have a bunch of friends going on this really expensive trip and you you don't really you you're maybe they're not your best friends. Maybe the trip is, like, very, very expensive, and it's just it's just you you can make you can do that trip, but just make sure that when you're when you are spending money on things that you're not just doing it, because you feel like you have to.

Finn: 57:21

It's it's you wanna make sure you're getting value out of money or something.

Scott: 57:24

So that's the first one is the keeping up with the drone. The second one that I see that people make excuses all the time or things that they say is, like, the idea of not phoning Telus to, you know, argue about their TV or cable price or anything like that. Like, they say it's not worth my time.

Finn: 57:42

Oh, it so is.

Mike: 57:44

It so

Scott: 57:44

is. It so Oh,

Finn: 57:46

the deal that I got from Bell.

Scott: 57:48

I know. Like, spending an hour on there to save Yeah. You know, $60.70 dollars a month Mhmm. Over three years, like, would you make that kind of money in an hour?

Finn: 57:59

Well, and the other thing too people don't think about is like, okay, like, example, I got I got a crazy deal from Bell. I'm saving at, $60 a month or whatever. And it's it's $60 a month of after tax income. It's actually more like a $100 a month over the course of two And it was like a thirty minute call. Like I just I'm not I don't I don't very few people make that much money per hour for that to not make sense.

Scott: 58:20

But the amount of people that will say, it's not worth my time to sit on the phone with them. Well, actually, most people probably don't make that much. Yeah.

Mike: 58:29

The keeping up with the Jones is one, I mean, don't wanna rehash it or repeat it, it does kind of resurface itself with me because you'll get a lot of, you know, the trip, let's say the trip thing. Mhmm. And you go, yeah, but my four, they're all doing it. My four other friends, they're all doing

Finn: 58:48

it. Mhmm.

Mike: 58:49

Right. But part of the point of this discussion or part of the point of all of this is to not be the same as everybody else.

Finn: 58:58

Mhmm.

Mike: 58:59

Do the right things.

Finn: 59:01

Mhmm.

Mike: 59:01

Like your four other friends that are doing that trip.

Scott: 59:04

Mhmm.

Mike: 59:05

Maybe they don't make the right financial decisions. And you, like I didn't, I don't want to be preachy or look at me or anything, but like, I've I've been a white collar professional since I graduated from university. I didn't go on an all exclusive, all inclusive trip to Mexico until I was 35.

Finn: 59:22

Right.

Mike: 59:23

Yep. You know, again, not to be Hoity toity. Hoity toity or holier than thou or anything. But because I would look at it and go, well, I can probably do that later in the meantime. Why don't I focus on buying a house, making sure I have life insurance and

Scott: 59:38

Mhmm.

Mike: 59:38

And then I'm investing in my RSP. And then when I feel like I have a little more freedom, then I can do those things.

Finn: 59:44

Well, and it's just it's mean, I think it was I think it was Charlie Munger who says something like the first $100,000 is like the hardest to get to. You know, may maybe that number is probably a bit higher now because of inflation and something like that. But you just think about like, you know, you get 5% a 5% return on a $100 versus a 5% return on a thousand dollars and it's like that trip is very cheap.

Scott: 01:00:05

Exactly. The future.

Mike: 01:00:06

Well, because your money's working for you. Yeah. Exactly.

Finn: 01:00:09

Yeah. And like, you know, you think about the value of like compounding, money from the age of like 20 to 30. The amount of what you're gonna have by the time you're 30 that you put in relative to what you put in when you're 20 is significantly more. And so whenever I'm making, and this may be not not the best habit because it can kind of create a a weird relationship with money, but is to think that, you know, I think about like, you know, if I'm gonna buy something, like, I'm giving up that compounding into the future. Right.

Finn: 01:00:35

And so it has to be worth it.

Mike: 01:00:36

Delayed gratification. Yep. But the ultimate gratification needs to be better Yeah. Than the immediate.

Finn: 01:00:42

Yeah. Exactly. And it's just it's just being conscious about that stuff.

Scott: 01:00:44

Yeah.

Mike: 01:00:45

Well, know that compounding discussion, I'm maybe jumping too far to the end, but

Finn: 01:00:49

Yeah.

Mike: 01:00:49

We assume sometimes that younger people don't get the benefit of compounding as much as older successful people because because of what you just said. Like, the compounding on a thousand dollars is not a lot of dollars. Right?

Finn: 01:01:07

No. No. Yeah. And you should That's why you should When you're younger, you should be focusing on savings.

Mike: 01:01:10

Exactly. Because But older people kind of forget as well. And I've learned this a lot in the last few years where with our clients in their fifties, sixties and beyond, you start looking at what their estate projections are gonna look like. And they all The immediate reaction from everybody is the same. It's like, well, you've made a mistake in there somewhere.

Finn: 01:01:30

Right. Right.

Scott: 01:01:31

Right.

Mike: 01:01:31

Like there's no way that when I'm 87, I'm gonna have, you know, $10,000,000 in my estate. Well, yeah you are. Mhmm. Because you're 65 today and you have $2,000,000 saved up and 5% on $2,000,000 in a year is a lot of income. Yeah.

Mike: 01:01:52

And you're not spending it all. Mhmm. So the compounding is is real and it's legit all the way along. Yeah. Whether you're 25 or 65, it's a real It's very powerful.

Mike: 01:02:05

Yeah.

Scott: 01:02:05

Yeah. One thing that popped into my head that we were You mentioned offline, Fin, that wanted to bring up that I think is valuable too is you you mentioned, like, line of credit because we we were just kinda talking about house and

Finn: 01:02:18

Oh, yes.

Scott: 01:02:19

Some things. You mentioned line of credit and and getting debt. And I think one of the the really key things for me when you're, you know, you've got a house, you're in your thirties, forties, is make sure that you always have lines of credit available to you. Yeah. And and get that, like, banks are notorious.

Scott: 01:02:44

They will give you tons of credit when you don't need it and your income's great and life is happy. But the minute that you need it and life turns bad, they will not give you the debt. Yeah. And so have it in your back pocket. You don't have to use it.

Scott: 01:02:59

Again, this is get used to having these things around and not use them, but have it in your back pocket. The amount of people, especially and I brought this up because it leads into this older stage of life, but the amount of people that I know that the minute they pay off their mortgage in their fifties and sixties seems to be nowadays, they get rid of all their lines of credit, all their debt.

Finn: 01:03:23

Right.

Scott: 01:03:23

And it's like, no. Keep those around. Like, a line of credit on your keep a HELOC on your house.

Finn: 01:03:29

Yeah.

Scott: 01:03:30

You don't have to have a balance on it, but just keep it.

Mike: 01:03:32

Well, is I I like the HELOC, and I I have personally used a HELOC to my advantage. Well, I'm I'm kind of kind of done now, but to your point is that I still have all that facility available to me. But I like the HELOC. I I mean, I'm not recommending brands per se. I think they all more or less work the same, but I use They

Finn: 01:03:57

it to you, they charge you money for it.

Mike: 01:03:58

Yeah. Exactly. Yeah. They lend it out at a higher rate to make profit on us. But I use manual like one program when I bought the house that I'm living in now.

Mike: 01:04:07

And what I did differently than most people that I encounter that I know who have a HELOC, is I did, and this is hard to describe everyone, you know, for everyone listening, this is hard to describe without visuals, but bear with me, bear with us. I did a laddered term strategy on my bond. So the way the HELOC works is you can get a certain amount of your money that is just what I call sort of an open floating or evolving line of credit. Okay? And then you can have the ability to do terms like you would do with a standard mortgage.

Mike: 01:04:42

And, but instead of me just locking in my balance in a five year term like everybody does, what I did was, I think I started with a seven. Did a seven year, five year, three year, one year kind of thing. It doesn't matter. Call it five four three two one. And the open revolving portion.

Mike: 01:05:02

And I did this because my income can sometimes be lumpy. And so if I get extra money for some reason, if you know, a new client or something like that, it goes into that revolving and it pays down the revolving amount. And my goal over a one to two year period is to get that open floating amount down to zero. Right. Because that two year term that I set up is coming due.

Mike: 01:05:30

So I, you know, let's say I had a seven, a five, a three and a two year. The two year one is now up.

Finn: 01:05:37

So these are different amounts that you're Different amounts. As a mortgage. So if you've like, let's say you have a $100,000 mortgage and you split it into, let's say just for for easy Yeah. Five five terms essentially. Right.

Finn: 01:05:48

You've got $20 in each sleeve Right. Call it, and so in two years, have to you have to you've got $20 coming coming due and then in four years, you might have another $20 and

Mike: 01:05:57

then Exactly.

Finn: 01:05:58

Whatever. Yeah.

Mike: 01:05:58

Exactly. And my objective is the one the one sleeve of the five is the floating one. Where you can pay it off, it's not fixed, right?

Finn: 01:06:08

It's

Mike: 01:06:08

Yeah. Like I can pay it off at once if I if I want, if I have the money.

Finn: 01:06:13

Right.

Mike: 01:06:14

And my goal is to have that paid off down to zero by the time that first, that next sleeve comes due.

Finn: 01:06:22

Right.

Mike: 01:06:22

If I have done that, I can move that sleeve into the floating.

Finn: 01:06:27

Right. And then you're increasing the the amount of capacity in the floating.

Mike: 01:06:31

Exactly. Your float goes up. Yeah. And now you have less locked into a term. Right.

Mike: 01:06:37

If I was not successful, I can turn around and put that into another term five years out from now. Right. And let it come down. But the goal is you pay down that floating bit, so that every year or every two years when one of them comes due, you don't re lock it into another term, you move it into the open float. Right.

Mike: 01:06:59

It increases your capacity and it gives you the flexibility to pay it down. Now if you work as a teacher for example, and your salary is fixed and you know, nothing in your life changes, maybe this is not It's that effective.

Scott: 01:07:15

To do what you did or what you're talking about, like as long as you have a mortgage that gives you the ability to, like, call it a 20 plus 20 or a 15 plus 15 where you can increase your payments by up to 15% a year and do lump sums by. So as long as you have that flexibility, like, again, great strategy is once you've started all of those things, in my opinion, that's when you really start hammering Right. Down your mortgage in your later years.

Mike: 01:07:44

And then to your point though, like I've done all that and my terms all came up and I was successful in moving them into the float and paying it all down. Right? Mhmm. But I still have the facility. Mhmm.

Mike: 01:07:55

Yeah. So if I want to go buy a recreation property, or if my car doesn't start today and I need to walk out and spend, you know, tens of thousands of dollars on a car and don't have it in the bank, like that facility is there and is always available.

Scott: 01:08:11

Or even when it's a transition, like you wanna buy the vehicle and sell this

Finn: 01:08:16

one. Bridge.

Scott: 01:08:16

Well, you can bridge.

Mike: 01:08:17

Bridge. Yeah.

Scott: 01:08:18

And and or if you're buying a house and moving, you have that ability to grab that debt and create a bridge until the transaction completes. So the argument that I always make with clients is a lot of them say, well, it doesn't really matter because my my limit on my credit card is is $25. And that's where I I start to argue with them because a credit card is a payment tool. It's not a debt tool.

Finn: 01:08:46

Oh, yeah. No. You should I mean, it's So a 21% interest rate?

Scott: 01:08:49

Yeah. But a lot of people

Mike: 01:08:50

think It's cash of flow

Scott: 01:08:51

It's cash flow

Mike: 01:08:52

management.

Finn: 01:08:52

Well, and and and the points.

Scott: 01:08:54

Credit card is

Mike: 01:08:55

gotta get the beautiful points.

Finn: 01:08:56

Don't disagree. It's credit card.

Mike: 01:08:57

You know what? We laugh. I don't disagree. Yeah. Yeah.

Mike: 01:08:59

Like, find a program I I use WestJet, but whatever. Find a program that works for you.

Scott: 01:09:02

Yeah.

Mike: 01:09:03

But it is cash flow management.

Scott: 01:09:04

Absolutely. It's not a debt. Yeah. Is not a debt tool. No.

Scott: 01:09:09

So that's the distinction is you need the line of credit. The credit card is not the debt tool. It's the payment tool. Yeah. And it that should probably be a younger person and older person thing is you should never be paying credit card interest.

Finn: 01:09:23

Never. Yeah. Huge difference. Speaking of like low hanging fruit. Yeah.

Finn: 01:09:26

Yeah. Things that you shouldn't pay credit card interest.

Scott: 01:09:29

Exactly.

Mike: 01:09:29

So never never.

Scott: 01:09:30

Mhmm. K.

Mike: 01:09:32

Next, another non negotiable in my view, next stage, if you have children, is RESP. Yep. I'm a big big proponent of the RESP. It provides way more flexibility than I think people realize. But again, it's taking advantage of the tools that are available to you.

Mike: 01:09:52

You make a contribution to an RESP, the government automatically kicks in a 20% grant.

Finn: 01:09:59

Yeah. Free money.

Mike: 01:10:00

Like, it's free money. Yeah.

Scott: 01:10:01

Free money. 2,500 a year.

Mike: 01:10:02

25 if you yeah. If you put in 2,500 a year, which is the the maximum. Well, it's not the maximum, but it's the maximum to get a grant. The max It's

Finn: 01:10:10

the most grant

Scott: 01:10:11

you can get.

Mike: 01:10:11

It's the most the most grant which is $500. But I mean, that is very very meaningful.

Finn: 01:10:16

Mhmm.

Mike: 01:10:17

And then the the flip side of that is, if as long as you do your withdrawal strategy properly, which again should be a non negotiable, is you get the government grants and the growth that you have obtained on the investment account out first, and then all the money that's left is your contributions. So if you're if you have a $100,000 saved in the RESP, and your child goes to let's say they just go locally, like here in Calgary, they go to the University of Calgary or SAIT or something for a three or four year program, and they only spend 50,000. As long as the 50,000 that you've withdrawn, if you've done it right, the 50,000 that's left is your contributions. Right. So you just get it back tax free.

Finn: 01:11:05

Yeah. Yeah. Huge benefit.

Mike: 01:11:07

Huge benefit. And now, with the first home saving plan, or you wanna we were talking about this, you jump in, but we're on the same page is, you've already saved this money for your children. They didn't use it all. Well, okay. You can take it back and get it back if you need it or if you wanna go buy a Porsche or a, you know, whatever.

Mike: 01:11:25

Or you can continue to allocate it to your kids by starting on the first home savings account for them. Yeah. Yeah.

Scott: 01:11:32

Absolutely. I think the key like, we talked a lot about this in that RRSP, TFSA, and and other instrument episode that we did. I think it's the the key for me is looking at all of those tools that are out there where you can basically do wealth enhancement, where you're capturing government grant and low lowering your taxes. Yeah. Like, you have to do all of those things because they're super important and they grow your wealth faster than anything else.

Scott: 01:12:05

A lot of people chase the return. Yeah. But it's not the return that generates all the wealth. It's the tax free component. It's the grant.

Scott: 01:12:15

Those are the things that are significantly greater than a lot of the rates of return.

Finn: 01:12:20

Yeah. Well, it's that whole, like, you know, how fast can you get to that first $100? And, you know, the fast way to get there is to get, you know, tax refunds for contributing to RSP to, you know, get your kids well set up with an RESP so that they're not starting their life with, you know, a bunch of debt from tuition and stuff like that. Yeah. It's I mean, there's a the programs are very useful if you if you use them to the fullest extent.

Finn: 01:12:47

Yeah. So should we move on to the next?

Scott: 01:12:49

Think the other thing too is now that we're in a phase of life where you're pumping money into all of these tools, I think I'd like to kind of spin and lean on you a little bit, Fin. Sure. In terms of now that we're we're we've got good habits, we're we've got insurance to protect protect ourselves, and we're starting to invest money, and we're, you know, in a phase of life where we're paid our mortgage down, we're investing money heavily. What sort of things should people be looking at in terms of an investment strategy? Because I think that's another one of those things that when we talk about how complicated it is, there are so many different investment tools out there that exist nowadays that didn't exist even when I started and even probably when you started too, which is way more longer than me.

Scott: 01:13:43

So, you know, like, you're a portfolio manager. What are some of the things that you would look at as nonnegotiable in terms of just an investment philosophy or investment strategy?

Finn: 01:13:55

Yeah. So maybe to make it as basic as possible is that the thing that you want to achieve in your life is you want to be an owner of businesses generally or or any sort of mean I mean, the way that most investors look at it is you need to own a growing stream of cash flow.

Mike: 01:14:12

Cash generating assets.

Finn: 01:14:13

Cash generating assets. That can mean a business. That can mean some some people do real estate. Generally, real estate. I think we talked about it in the housing episode.

Finn: 01:14:22

Real estate is not not really inherently a great asset class. It's just that you only put $50 down and then you buy a $300,000 property and then you're juicing it with leverage. They wouldn't let you do that when you buy like, you know, you know, equity investments.

Scott: 01:14:38

They wouldn't let you borrow $400 and throw it in the market.

Finn: 01:14:42

Yeah. Yeah. Yeah. Well well, most most places won't, but it seems like now like a bunch of discount brokerages almost encourage it, which is a bit a bit scary to look at. But but yeah.

Finn: 01:14:50

So so you so when we think about the value and also you wanna be paying good prices for these assets. Right? Because if you buy something that let's say you're buying something that is we we call it like a 2% earnings yield or something like that. So let's say you're buying like a million dollar for a million dollars, you're buying something that kicks off $20 in cash flow. You have to wait a very long time to get your money back.

Finn: 01:15:14

Right? So but the only way to figure out what is a good price for that is if it actually has cash flow, which is why something like, you know, when you look at cryptocurrencies or gold or anything like that, it's just really hard to get a good handle of if you are getting a good price on it. Because how how do you know? Like like, if if if the price of Bitcoin is $20 and then it goes to $50, how do you know if it's more expensive or cheaper? I I have no idea.

Finn: 01:15:40

I have no ability to sort of assess that. And you're really it's I mean, they call it greater fool theory, which is where it's like, well, I just I just hope that somebody pays me more in the future. It

Mike: 01:15:48

it's worth what somebody else is willing to pay from one day to the next, which could be more, could be less.

Finn: 01:15:52

Could be more, could be less. And and you know there are certain things that people have consistently always paid a bit more for over time. It doesn't necessarily mean that it will forever, but like you know something like gold people tend to want to pay more for it for some reason. I don't really know why over the last, like, you know, thousand years or whatever it is. But the best way in my opinion about, you know, being able to durably create wealth over the long term is to own cash generating assets, and generally that leads me towards business ownership.

Finn: 01:16:20

And not all businesses are created the same. There are good businesses and there are intensely mediocre, maybe even bad businesses. And so that is the role of the portfolio manager is to be able to understand business models and figure out which companies are have an ability to compound your capital over the long term. And you can think about some of these companies that have been around for a very long time, and they've been able to generate good returns for people over. And it's it's sort of funny actually thinking about some companies like, for example, like Coca Cola, right, which is a a Warren Buffett favorite.

Finn: 01:16:53

And I remember reading about, I think it was in the nineteen thirties, there was like an article, written up about, you know, with some, they weren't they wouldn't been have been called fund managers, but, like, brokers or whatever on Wall Street that were upset because they didn't buy Coca Cola and that they missed it in the nineteen thirties. Right? And they didn't miss it. It was a phenomenal business model, and they were able to compound capital at a phenomenal rate over the next, I guess, almost hundred years. So it's our job to look for those exceptional business models and to assess if the price is good and then to buy them for our clients.

Finn: 01:17:28

And I think that so from a nonnegotiable perspective for myself, it's about finding those durable business businesses with exceptional management team that are also well aligned with you as a shareholder because I've also seen that happen before where, you know, you've got a management team that isn't aligned with shareholders and they make very bad decisions consistently. And so trying to find those companies where the management team is well aligned with you. And sometimes that means that it's it's a it's a company that has, like, family family involvement or a founder shareholder situation or whatever it is, or the management team is compensated in line with you as a shareholder, because incentives drive everything. And so that's important. And, to own them for a very long time because those types of companies are very special.

Finn: 01:18:13

And if you can own them for a long time, you can create significant wealth. And really also that's that's from just a bottoms up individual business perspective. And, you know, you can one of the ways that I kind of describe it is, like, I I try to look for companies that have multiple overlapping and reinforcing moats. Moats is a term that Warren Buffett came up with, if I'm not mistaken, which is really about the competitive advantages of businesses. And that generally over time in the business world, if you have an economic model that is profitable, other companies will come in and try to take market share from you.

Finn: 01:18:52

If you're a business that is making 80% profit margins, there is going to be a lot of and you're you've got a huge market and you're growing. There's gonna be a lot of people who wanna come in and be a part of that that that business, of that industry. Right? So you need to have some sort of moat around your business that protects it from other people that come in. And for me, personally, it's about trying to find those companies that don't just have one moat, but have multiple moats.

Finn: 01:19:17

And the moat could be that you have intellectual property that no one else can find or replicate. It could be the fact that you've got an exceptional performance culture. It could be that you have different regulatory protections around you. So if you think about the most the easiest one to talk about would be like a CN Rail. Right?

Finn: 01:19:34

So CN Rail company has been around for a very long time. There hasn't been a new railroad built in a hundred and fifty years. Right? They might be one of the largest landowners across North America, and they have, it would cost I think the cost to rebuild their network would be something like a trillion dollars, and it that doesn't include the cost of the actual land that they have to buy to do it. And no one would let them do it because you'd have to build railroad tracks through cities, and it just it's not gonna happen again.

Finn: 01:19:59

So you've got the scale, you've got the network effects of the business, you've got the irreplaceable physical assets, and then you've also got the regulatory framework that you can't just like open up a railroad wherever you want, which makes the business very durable over the long term.

Mike: 01:20:13

Now all jokes aside, this isn't a compliance spiel, but that was not an endorsement to buy CN Rail?

Finn: 01:20:21

Yes. That Yeah.

Mike: 01:20:22

This is not an example of a type of durable business.

Finn: 01:20:26

Yeah. Thank you, Mike. I'm

Mike: 01:20:31

gonna go back. We're done. I'm gonna go back too, because you know, you think, whether it's someone who's just getting started, or maybe it's not. Maybe it's someone who's just looking, perhaps for a new advisor, a new situation, you talk about business ownership, real estate, like, I've always lived my life about, you know, what is observable. Yes.

Mike: 01:20:50

And you can observe, and you can document and prove that over, you know, the past hundred, two hundred years, the most successful, wealthiest people in the world bought real estate and profitable businesses. Yep. Like Yep. There are one offs where, yeah, there was an exception where someone hit the jackpot on something, but I mean, if you you look at, all the big family names that we know, you know, In Canada, it could be the Demareys or it could be the Thompsons or the Bromfmans or you could go even further back, you know, J. P.

Mike: 01:21:34

Morgan or the Astors or any of these

Finn: 01:21:39

Carnegies. Carnegies, all of these

Mike: 01:21:41

Uber wealth, why are they Uber wealthy? They owned super high quality durable companies. Now they happen to be their own, for the most part to begin with, but at some point, they also divested some from their own and then invested their money in other high quality durable businesses and real estate. Yep. Yep.

Mike: 01:22:00

Like that's other than one off jackpots that you kinda got lucky on, that is how you grow your wealth in a meaningful and sustainable, repeatable way.

Finn: 01:22:12

Yeah. Absolutely. And it's it's in in it's incredibly consistent. And it is all all, like like, all of those individuals as well as the best investors out there that I can find that consistently provide good returns for their for their clients. Yeah.

Finn: 01:22:25

They all have a very bottoms up fundamental focus on the individual businesses that they're buying. And they don't get distracted by like things like cryptocurrency and all that kind of stuff. And yes, there are people who've made a lot of money in cryptocurrency and But I think that, you know, if you want to have that durable sustainable growth over the long term and the best way is is business ownership.

Mike: 01:22:48

Yeah. And to, you know, to bring it back a little bit too, say, well, okay, I'm gonna be investing money or I have a pot of money I wanna invest. Like, you should start with what's the goal? What is it that we're trying to achieve here? And for most of the people that we're encountering, the goal is, well, want my money to work for me so that at some point I don't have to work at all.

Mike: 01:23:12

And that should be your target. It's not what is the greatest rate of return I can possibly achieve. It's how do I make sure at some point my money will provide for me the lifestyle that I want for the rest of my life without me working anymore? And then within a reasonable risk framework as well. So it it, you know, what's the plan first?

Mike: 01:23:34

What, you know, what income level will this provide for me in the future? And then find an investment strategy that will deliver that with a high degree of confidence because it's a lower risk strategy like owning high quality durable businesses.

Finn: 01:23:49

Said very well.

Mike: 01:23:50

Well, thank you.

Scott: 01:23:51

I agree with that. I think the the key, kinda what you said and and kinda how I tie it in is is this can't be whatever you're looking to invest, you have to tie it to the goal. And usually, it's again, for what we're talking about, if what we've already talked about with RRSPs and all those is those are not the thing where you're trying to strike it rich on an or take a high flyer. Like, really what you're trying to do is generate income over the long term, and that's kind of boring. So It's boring.

Finn: 01:24:28

Yeah. Like owning owning a railroad company.

Scott: 01:24:31

Yeah. It it's not This isn't gonna super exciting. Yeah. And and so I think the idea is it doesn't and I guess the reason why I say this is it I don't wanna poo poo on people and say, no. No.

Scott: 01:24:43

You should never go and try Bitcoin or do whatever. Like, you can do that. Absolutely. And a lot of people do have made a lot of money in Bitcoin and and other things, but you can't do that with your core money. Like, if you wanna take $5 or $10 and and you know, it's it's no different than why people go to the casino and and do things like that.

Scott: 01:25:02

Like, if you wanna do that, go ahead. And you can do that, but you can't do it with all your money. And so for me, it's like what you spoke about is that's your core. That's what you need to do with the majority of your money. And then if you wanna do some of these little fringe things because you're interested in it, you're you think it might be fun, you wanna follow it, you're there's some FOMO potentially, like, that's okay.

Scott: 01:25:29

But you can't do that with all of your core money and your future.

Finn: 01:25:34

This this has made me think of two things. One, Taylor's I believe, if if I'm not mistaken, I've read that Taylor Swift, her her dad is a broker actually, and told her when she was quite young that when she makes money to buy utility companies with it. Talk about a boring investment strategy. Right? If it's good enough for Taylor Swift, it's good enough for you.

Finn: 01:25:52

Yeah. But but the other the other thing too that is important to remember is that like like I think you both said this is is it in a in a roundabout way which is that the goal is not to maximize the return in any given year. The goal is to maximize the return that you can achieve for the longest period of time. And what is the most likely way for you to do that is to not engage in speculative invest you know, risk speculate I I would I I I don't even really wanna call it investing, but like lottery ticket like things. Speculating.

Finn: 01:26:23

Speculating. Exactly. Yeah. And that the best way to do that is to have just own solid companies for a long time who have good management teams who aren't gonna take the money that the company's making and then, you know, do stupid things with it.

Mike: 01:26:36

The term speculating has has sort of developed itself a negative connotation. But if you go back to the late eighteen hundreds, particularly in The US where it was a more sophisticated market. You said earlier like there was no fund manager per se. Yeah. There were people who like pick stocks and play the market and stuff.

Mike: 01:26:54

Like, that was their job title was speculator. Right.

Finn: 01:26:59

Imagine your job title.

Mike: 01:27:00

Mean it as bad.

Finn: 01:27:02

Right.

Mike: 01:27:02

But you are just speculating. Yeah. Like, I'm going to speculate that the price of this Bitcoin We're picking a lot on Bitcoin. I'm gonna speculate that the price of Bitcoin continues to rise. You have nothing to base that on.

Mike: 01:27:17

Yeah. Whereas, if CN Rail gives its profit guidance and we have good, you know, we have good confidence that they're gonna make more money five years from now than they do today. That's not a speculation. Yeah. That's an investment.

Mike: 01:27:32

And I think that's a key distinction is between speculating and investing. And it doesn't mean you can't ever speculate. Yeah. But lock up, shore up, not lock up literally, but like shore up your retirement plan first with investments before you begin speculating.

Scott: 01:27:50

Nailed it. Okay. So yeah. I think those are kind of most of my basics. Everything in this podcast is meant for entertainment and educational purposes only.

Scott: 01:28:09

It is not financial advice. And all the opinions that we express in this podcast are not necessarily the opinions of the companies that we work with or affiliated with. So bear with us while we discuss these topics, and remember that financial and investing decisions are different for everyone and you should consult a financial professional or do your own research before doing anything for yourself.

Mike: 01:28:37

Well said.

Scott: 01:28:38

Thank you.

Mike: 01:28:39

I also like to say, trust me, when I'm giving you financial advice, you will know it. It will be one on one and in person and it will be clear that this is financial advice. This is not.

Scott: 01:28:50

You will know exactly what I'm doing.

Mike: 01:28:52

Yeah.