Limits Are Healthy

Categories Simplicity

One attains better health by limiting their consumption of alcohol and junk food. It may prove true that limiting unhealthy financial behaviours probably has the same effect. The analogy may be conspicuous consumption and fueling credit card debt.

Limit Entertainment

Entertainment and distraction are useful to occasionally serve as a break from the workaday world. I tend to enjoy watching something humourous everyday on Netflix. I find the ability to have a good laugh beneficial to my mental health. Plus I really love comedies.

That’s not the entertainment I am talking about. I am speaking more of the expensive tickets to sporting events and other highly marketed forms of entertainment. Firstly, entertainment can be free or almost free. Good music, movies, books and lectures can be enjoyed from your local library and all you need to do is have the patience to wait for it. Secondly, adopting a habit of creating and improvement is more rewarding than seeking to be constantly entertained. Activities such as writing, running, gardening, playing instruments…you get the picture.

Limit Work Hours

I believe in limiting your time at work. Take half a day off during the week on a regular basis. This allows you to enjoy the off-peak lifestyle. You get to enjoy all the best things in your city when most people are still at work. I regularly go for walks on the beachfront in my city with maybe a dozen people on the entire beach. It is usually packed during weekends and evenings. Life starts to feel abundant when you can enjoy it during off peak hours.

Furthermore, working long hours has diminishing returns. Have you ever noticed that you tend to work slower as the day progresses? Setting limits on work hours allows one to regroup and recharge and work more efficiently. I used to give myself a plan to finish all work within a certain number of hours. I would set an alarm to it. That way, I never allowed work to “drift” into my home time. I found that I was supremely efficient at work when my kids were young. I really wanted to get home to them and I made certain that I was done as efficiently as possible.

Limit Conspicuous Consumption

I am confused as to the need for conspicuous consumption in this day and age. In the past, it might have been a signal of wealth when one could buy expensive cars and travel to exotic locales. But nowadays anyone with a credit card is able to afford the same items. Therefore I believe that displaying such luxury goods does not even carry high prestige. I prefer stealth wealth rather than any obvious displays of consumption. I would much rather review my investment portfolio than a stable of fancy cars or a closet full of shoes.

I agree when I see a candy coloured lamborghini rolling around our neighbourhood, I get it, it’s gorgeous. But that is not what the masses spend their money on. They spend it on luxury goods such as clothes, jewellery, handbags, etc. These items can easily be racked up on a credit card which means someone with NO money can attain them. I argue that you should save your money since these common luxury goods are easily attainable and does not signal status or wealth to anyone. And isn’t that the whole point of why you would go into debt for it?

Limit Investment Options

Having a plethora of choices can easily lead to analysis paralysis. Keep your investing life simple. Keep one bank account for personal use and another for business use. The same goes for credit cards. Do not commingle your business expenses with personal ones.

Stay with low cost, broad based ETF’s. I use the Canadian Couch Potato portfolio recommendation of their 3 fund portfolio.

Here is a general breakdown of my investment accounts.

TFSA & RRSP VGRO
Taxable account ¼ VCN, ¾ XAW Laddered 5 year GIC’s for fixed income portion

This is what I will do. I do not tell anyone what to buy since I am not even sure how all this will work out for myself. I tend to have a buy, hold and pray attitude when it comes to equities. However, I do not underestimate the need to keep pace with inflation and that is the role equities serve for my portfolio.

But the first rule for money management is to be able to save. Eliminate any non- mortgage debt. Figure out what your financial top priorities are and start attacking it. You might find paying off your mortgage is all you want to start doing.

I have invested in many individual company stocks, REITs and a few investment real estate properties. Vanguard was not available to Canadians when I began investing in 1998.

If I were to choose again, I would have stayed with investment real estate and ETFs. That’s essentially it. In fact, I would have invested in a multiplex and live in one unit while renting out the other units. I would have learned how to manage this asset well. And once the multiplex became positive cash flow, I would have simply bought another one and repeated the process.

If you do not like rental real estate, there is nothing wrong with the buy and hold approach of ETFs since it is the essence of simplicity. But just be prepared for the gut wrenching draw downs when they happen.

Keeping things simple with these limits allow you to more easily track your investments. More complexity does not breed success. I wrote about my two investment wins recently but I will write about all the investment fails at a later date. I learned a lot about investing with those fails.

Everyone begins their investment lives believing “that won’t happen to me”. I am old enough to have insight that if it can happen, it might likely happen to me. I review investments by looking for all the ways I could lose money with the investment. I have certainly become a safer investor at this stage in my life by following that one practice alone.