Kicking Financial Ass: A Practical Money Guide That Doesn't Suck

Kicking Financial Ass

Copyright © 2019, 2021 Paul Christopher Dumont. All rights reserved.

No part of this book may be used or reproduced in any manner whatsoever without written permission, except in the case of brief quotations embodied in critical articles and reviews.

ISBN 978-1-9991326-3-7 (Paperback)

ISBN 978-1-9991326-4-4 (eBook)

LEGAL DISCLAIMER

The views expressed by Mr. Dumont in Kicking Financial Ass are solely his and not intended as investment advice nor a guarantee of any financial return. Mr. Dumont is not an investment or tax professional, so the information contained in this book is not a substitute for professional advice. The contents of this book are accurate to the best of his knowledge at the time of printing, but rules and laws are ever-changing. Please do your research to confirm that you have the current information.

To anyone who has ever struggled with debt.

Contents

Note from the Author

Introduction

Part One: Foundations

Chapter One: Be More with Less

The Story of the Mexican Fisherman

What Makes Us Happy?

The Happiness Equation

Focus Your Spending

Learn from the Best

Summary

Chapter Two: Know Where Your Money Is Going

Find Out Your Net Worth

Budgeting Techniques

Savings Tips

Be Frugal but Not Cheap

Summary

Chapter Three: Save 25x Your Annual Spending Rate

How Much Do I Need to Retire?

When Can I Retire?

The Power of Saving vs. Spending

Summary

Chapter Four: Build A Small Emergency Fund

Why You Need an Emergency Fund

Building an Emergency Fund

Summary

Chapter Five: Take Back Control of Your Debt

Focus on Your Credit Card Debt First

Know Your Credit Score

4 Steps to Managing Your Debts

Keep Yourself Accountable

Student Loan Relief

Avoid Payday Loans

Summary

Chapter Six: Minimize Your Car Expense

The True Cost of Commuting

Reality Check on New Cars

Buy Used and Use the 10% Rule

Avoid Leasing

What if You Paid Too Much for a Vehicle?

Ride Sharing Advice

Money-Saving Tips

Save on Car Insurance

Summary

Chapter Seven: Have Insurance Just in Case

Recommended Criteria

Renter’s and Homeowner’s Insurance

Car Insurance

Life Insurance

Long-Term Disability

Health Insurance

Dental Insurance

Long-Term Care Insurance

Travel Insurance

Summary

Part Two: Growth

Chapter Eight: Negotiate Salaries & Raises

Salaries

Raises

Summary

Chapter Nine: Have a Side Hustle

Anyone Can Make Extra Income

Create a List Of Ideas

Making Money with Products

Making Money with Services

How to Rank and Select Your Idea

Validate Your Top 3 Ideas

Side Hustle Checklist

Summary

Part Three: Investing

Chapter Ten: Invest in the Index

Stocks

Investing 101

Index Funds

Advice on Financial Advisors

How Do I Buy?

Alternative Investments

What About Robo-Advisors?

What About Bonds?

Summary

Chapter Eleven: Use Your Tax-Advantaged Accounts

Why Tax-Advantaged Accounts are Important

Canadian Accounts

Rrsps

Tfsas

Tfsas Vs. Rrsps

Resps

The Money Allocation Order

Avoid Withdrawing

Summary

Chapter Twelve: The Perils & Benefits of Real Estate

Home Ownership

Renting vs. Buying

Real Estate Can Be a Poor Investment

Investment Alternative to Owning a Home

10 Factors to Consider When Buying a Home

Other Mortgage Considerations

Home Equity Line of Credit (Heloc)

Summary

Part Four: Living Your Life

Chapter Thirteen: Find a Purpose in Retirement

Filling the Void

Finding a Purpose

Get Over Your Fears

Summary

Chapter Fourteen: Happiness

Appendix

American Accounts

401(k)s

IRAs

Summary

Recommended Reading

Acknowledgements

About The Author

Endnotes

Note from the Author

I published Kicking Financial Ass in 2019 because I, like many Millennials, struggled with the challenges that our generation faces including enormous student debt, lack of economic opportunities, and competitiveness in the job market. This was a direct result of the 2009 financial crisis and now we are living through the COVID-19 pandemic. When can we catch a break?

The advice in this book is sound and is applicable even now during COVID-19. After receiving feedback on the first edition I made the following changes to make it even more robust and useful. In this edition I have:

Included how to get F-You money by getting your financial S.H.I.T. together;

Included my recommended reward credit cards to get more cash back and travel more often for less;

Included 10 different index funds to choose from depending on your risk tolerance;

Answered what to do if you want to retire early and lack health insurance (for Americans);

Included advice on RESPs (Registered Education Savings Plans) and how you can best save for post-secondary education for your child;

Expanded on the tax-advantaged retirement accounts chapter adding further clarity on the different accounts available and how to maximize their usefulness;

Clarified examples I previously used to make them more clear;

Included more side hustle ideas to help you increase your income;

Included a recommended reading section for books and blogs I found useful on my journey;

And more!

As it was true in 2019 and still is true today, most books fail to address how our values toward money influence our buying decisions. We chase happiness by trying to buy our way there. Furthermore, most books do not definitively answer the key questions: How much money do you need to retire? Why use tax-advantaged retirement accounts? Should you buy or lease a car? Is real estate a good investment? This book tackles those questions by condensing a wide breadth of material into simple concepts you can apply in your daily life.

This work rests heavily on the shoulders of countless other books, blogs, studies, and articles written about financial affairs and the contributions of individuals acknowledged at the end of the book. Moreover, I have been interested in personal finance for over 15 years, investing in the stock market since I was 18, and have applied all I learned from my finance undergraduate degree, M.B.A., and CFA charter. From this research and experience, I consolidated the best financial advice into an easy-to-read how to guide on retiring earlier and living your life to the fullest. As a side note, I work 9 to 5 like most of my readers, but I am on track to retire in less than 10 years even though I had $50,000 of debt seven years ago.

Why Should You Read This Book?

This book is not a boring lecture on money but rather a roadmap and tool you can use for your situation. It does not need to be read in order, so start at the beginning and continue to the end or flip to the chapter you feel will be most beneficial. Each chapter has actionable advice you can apply immediately to improve your finances.

You will come away with strategies to help you save, even if you are barely scraping by today. You will receive clear advice on paying down your debts—credit cards, student loans, or mortgages. I provide transportation advice on whether you should buy a new or used car, lease, or use ride sharing. You will discover the differences between RRSPs and TFSAs for Canadians and 401(k) and IRA accounts for Americans. I also discuss tricky situations such as negotiating salaries and raises. You will learn what to invest in and whether it is better to rent or buy a home. You will also learn the most crucial lesson of investing: Start early and why that matters. But most importantly, you will learn how to retire in as few as 10 years if you so choose.

Take your time when reading this book and reread sections when necessary. For example, focus on Chapter 8: Negotiate Salaries & Raises when you start looking for a new job to maximize your income. I discuss financial concepts and stats throughout the book but in a way that anyone can understand. After reading this book, you will be much more confident with your finances instead of being overwhelmed when trying to balance a budget.

While some of the examples are extreme, they illustrate how saving even $10 a day allows you to retire years earlier. This book is not about being a hermit, saving every dollar you possibly can, and eating Kraft Dinner every night in hopes of a better future. It is about maximizing life’s fun at minimal expense by using a simple, effective investment strategy of investing in index funds.

So, whether you choose the sections that most apply to your life or read the entire book, I hope you take away a few ideas that you can use to improve your personal finances and are prepared to retire in as few as 10 years.

Now, it’s time for you to start Kicking Financial Ass!

— Paul Christopher Dumont

Introduction

Saving money is hard. We want to budget, but we spend more than we realize—or admit to ourselves. For most, money seems to come and go, and we are left wondering why we are in debt. Life gets in the way, and unexpected expenses pop up. At the same time, costs for education, housing, and healthcare tend to increase every year, outpacing the raises we receive. The media does not help either. We turn on the TV and are overwhelmed by the flood of information. We ask ourselves where to even start. Between investment accounts, budgeting, and what to invest in, there is a lot to take in. Not only that, but the media portrays happiness as being for sale, and modern life pressures us into overspending with new cars, new watches, and new iPhones. It is no wonder that it is hard to save. We keep postponing saving money until later, thinking once we get that promotion or raise then we can start.

I used to think this way, especially when I was younger. I remember buying a new MacBook Pro for school and spared no expense getting the 15-inch version with bumped-up specs when I only needed the 13-inch base model. I upgraded my iPhone every year when my current iPhone still worked fine. I bought the latest and greatest TVs to keep up with technology. And, I spent countless hours looking at new cars when I could afford them the least. Fortunately, common sense and the thought of having a seven year car payment reeled my car fantasies back in. This behavior did not mean that I was a bad person. Most people live life this way.

Growing Up Without

As a child, my brother and I grew up with a single mom. Our dad left when I was nine, so we did not have a lot. During the day, my mom worked multiple jobs to try and make ends meet. I remember on more than one occasion seeing my mom walk in the door with a box of food, knowing she had gone to the food bank. In school, I was picked on for having odd clothes and glasses because we could not afford what the other kids were wearing. Through it all, I thought that if only I had what the other kids had, then I would be popular, happy, and normal. My urge to impress others came from this. I thought if I worked hard and bought everything my mom could not afford, then I could impress others in school, be liked, and have more friends.

Why am I sharing such a personal story right off the bat? Because coming from nothing, I know how hard it is to get your life on track and how it is easy to feel frustrated, exhausted, scared, resentful, or guilty over your financial situation. My experience growing up also taught me that happiness is a state of mind and how the insecure boy wanting to keep up with everyone else to be happy was wrong. I only became happier when I was satisfied with what I had.

Growing up without money meant I had an odd fixation on it. I did not have money to manage, and, therefore, I wanted it. For years, I dreamed of what it would be like to have money and believed that once obtained then I would finally be secure in myself and have something to offer others. This became a problem because my self-identity revolved around money and how insecure I felt not having it. Little did I realize that money should be the process of obtaining more but not the end goal.

My life changing-moment came after graduating high school when I decided to live with my dad for a year in the Philippines. While I was there, I saw little children with literally nothing, whose parents made less than $100 a month, running around in the streets laughing. I thought to myself, How can they be happy? Here I am working hard at my job at McDonald’s spending money on videogames and electronics, and these kids are happier than I am. I needed to change my focus, so I studied how those children could be happier than most people I knew back in Canada, including myself. No longer was I trying to impress others. Relationships, volunteering, and making a difference in the world became my focus. The good news is that you can make those fundamental changes right now like I did.

Who Is This Book For?

I wrote this book to make a positive impact on others concerning financial security. It is written to teach a new way of thinking about money—to help readers learn the fundamental skills they need to become debt-free and retire comfortably. This book is for anyone, of any age and income, who wants to learn how to better save their money and change their mentality regarding their finances. The ideas in this book are not taught in the classroom, although they should be, and come from real-world experience. I have an undergrad in finance and an MBA and still had to learn everything from scratch.

I specifically wrote this book as a guide for my peers, Millennials. We tend to focus on experiences instead of financial security, mostly because we believe having both is not feasible. We may wonder why even try when faced with seemingly insurmountable odds. The principles of this book, however, teach everyone the monetary fundamentals and demonstrate how financial security is achievable no matter where you come from.

Tackling Debt

Household debt was at record levels and that was before the COVID-19 pandemic. According to the OECD¹ the average household debt in Canada is at 186% of net disposable income, the eighth highest in the world and higher than the United States which is 19th in the world.

Given so much debt it’s no surprise that savings rates have been low with the one-off exception of the savings rate hitting a historical high of 28% in the second quarter of 2020 as widespread fear paralyzed consumers due to COVID-19. However, the savings rate is dropping back to historical lows as the economy recovers from the pandemic. The United States has almost the identical trend.

If you are one of the 99% of the people out there, you fall somewhere on this financial spectrum:

Retired comfortably with no money issues.

Working, saving the maximum in tax-advantaged retirement accounts, and have no debt other than a mortgage.

Same as above, but add car loans and/or student loans.

Same as above, but not able to max out your tax-advantaged retirement accounts due to expenses.

Same as above, but have credit card debt.

Living paycheck to paycheck, cannot always make payments on time, and have a troubled credit history.

Near bankruptcy, likely to lose the house and personal possessions, cannot find work, and debt is higher than your ability to pay back.

Your goal is to move up this spectrum, one rung at a time. My goal is to help you get climbing!

For full disclosure: I am in the #2 category with my goal of obtaining #1, which is a far cry from where I was growing up. What qualifies me to write a book about personal finance when I am not myself retired? Good question. First off, I started from the bottom with literally nothing. I was not born into a rich family. I had to work and claw my way up out of poverty.

Second, I am now debt-free other than my mortgages, and believe me, it felt like a long road from being over $50,000 in debt and making mistakes along the way to now having a sizable six-figure retirement fund and owning multiple properties. It is all about saving, budgeting, investing in the market, using compound interest, and the time it takes for your money to work for you.

The truth is that for most people it is not one single event that puts them into debt but rather hundreds of small financial decisions every day—one transaction at a time, each swipe of the credit card, nothing that sets off alarm bells on its own. These small purchases add up over time, though. While my debt primarily came from a single life decision, I show you how changing my daily spending habits allowed me to pay back my debt and save a sizable amount in a short period of time.

The 14 chapters in Kicking Financial Ass, which are divided into four parts—Foundations, Growth, Investing, and Living Your Life—will transform your relationship with money, help you achieve your goals, and enable you to become financially independent. This is not a book about money as much as it is about changing your perspective on life.

By the end of this book, you will:

Spend less money and be happier.

Save more money.

Lower your debt.

Focus your time on what matters.

Overcome your past money mistakes and start investing for the future.

Save for retirement and retire earlier.

Discover what values you hold dear.

After reading this book, you will feel empowered to change your habits and routines, focus on debt reduction, and ultimately retire. You will feel free to travel the world, take multiple vacations a year, and live life how you want to and feel secure in your financial future. Many of us never received financial training in school. Most, if not all of us, had to learn it on our own. This book is a short-cut to teach you everything you need to know.

PART ONE

FOUNDATIONS

Now that you are motivated to make changes, which ones should you make to take control of your finances to keep them on track?

This section of the book focuses on the foundations of money management that will teach you the essentials to take control of your finances, walk you step by step on how to rethink your money habits, build your confidence, eliminate your debt, and start saving, allowing you to live your life to its fullest potential. Do this by:

Being satisfied with what you have and spending money on the things that make you the happiest,

Knowing how much you need to retire and determining how much you can afford to spend,

Learning how to budget and be frugal and not cheap,

Learning strategies on how to tackle your debt in the most efficient way,

Building a small emergency fund in the shortest time,

Minimizing your car expense so that you can focus on growing your money,

Having insurance to protect you from unexpected life events, and

Learning how to say no to overspending.

These essentials allow you to propel your finances to the next level so get ready to level-up!

Chapter One

Be More With Less

THE STORY OF THE MEXICAN FISHERMAN

A businessman was sitting at the pier of a tiny coastal Mexican village when a fisherman docks a small boat. The businessman compliments the fisherman on the size of his fish and asks him how much time it took to catch them.

Not very long, replies the fisherman.

The businessman then asks why the fisherman did not stay out longer and catch more fish?

The fisherman says he has enough to support his family and does not need more fish.

What do you do with the rest of your time if you’re not catching more fish? the banker asks.

I sleep late, fish a little, play with my children, take siestas with my wife, and, in the evenings, I go into the village where I drink wine and play guitar with my friends. I have a fulfilling life.

The businessman is not impressed.

I have an MBA from the top business school in the world and can help you, he says.

You should catch more fish, and with the profits, buy a bigger boat. With the profits from the bigger boat catching more fish, you could buy more boats and eventually have an entire fleet of boats other fishermen can use to fish for you. Instead of being the middleman, you could sell directly to the fish processor, eventually opening your own processor. You could own and control the entire supply chain, everything from owning the product to the processing and distribution of the fish. Complete vertical integration, he says. You could then move from this little village to New York City where you would run your growing business.

The fisherman, intrigued, asks, Seems like a lot of work. How long would that take?

If everything goes well, at most 25 years, replies the businessman.

Then what? asks the fisherman.

The businessman laughing says, That’s the best part, when the time is right, you sell your business to the public by doing an IPO and make millions!

Wow. Millions, I can’t even imagine. Then what’s after that?

After that, you’ll be able to retire, live in a tiny village, sleep late, play with your children, catch a few fish, take a siesta with your wife, and spend your evenings drinking and playing guitar with your friends.

The moral of the story is that you can become more with less. The Greek philosopher Epictetus said, Wealth consists not in having great possessions, but in having few wants.

The fisherman already achieved his end goal, so pursuing wealth for the sake of money was futile and frankly a waste of time. If you are going to pursue money, pursue it for a reason. Money should only be a process in obtaining your goals, not the means in itself. The first thing you should do then is to determine what your reasons are when wanting to make money.

Too often, people get wrapped up in wanting more, more, more, thinking, If only I had more money, I’d be happy..., believing, consciously or unconsciously, that the next purchase will be the cure-all to their problems. In the 1943 influential paper, A Theory of Human Motivation, American psychologist Abraham Maslow proposed that healthy human beings have a certain number of needs, and that these needs are arranged in a hierarchy, with some, such as physiological and safety needs, being more fundamental than others, like social and esteem