So what is the new plan anyway?

Earlier I wrote a little about how I’d previously tried to take care of my future.  Mostly that involved making money, seeing how much we didn’t spend, and dumping chunks of it on our rental property mortgages a few times a year.  It was a good plan, and helped us get further ahead than a lot of people (statistically, we’re further ahead than most people in Canada our age).

We didn’t really have an end game though.  At some point in the future the two rentals would be paid off and we’d have more income to play with.  I never really thought about retirement, or the idea of what it would mean to not have to work if I didn’t want to.  That’s not how life went- you worked until you were in your 60s.

Then I had my epiphany and after doing a tonne of research on investing, came up with a new plan.  This one meant putting large chunks of your income into investments before you have a chance to spend it.  And investments?  Wow, did I ever get an eye opener there.

The most important thing I learned was that given enough time, the stock market always goes up.  Always.  When you look at the market as a whole, it has weathered world wars, plagues, terrorist attacks, and multiple recessions, and always recovers.  It’s volatile, to be sure, and there are no short term guarantees, but given 10-15 years, the stock market as a whole will go up.

The second most important thing I learned was that individual stocks are unpredictable.  The best so-called financial geniuses in the world are not able to consistently predict which stocks will earn the most money over time.   For the most part, you want to stay away from individual stocks.

The way you take advantage of the stock market while avoiding stocks is a wonderful thing called an index fund.  Index funds are, by my very inexpert definition, groups of stocks that try to match the market.  When you buy a share in an index fund, you’re buying tiny parts of dozens or hundreds of businesses across a broad spectrum of the market.  Some of them might fail, but on average, most of them will succeed.  When that happens, both your index funds and the stock market itself will increase in value.

Much smarter people than I have written about it.  If you want to really learn about the math and magic behind this, I strongly suggest going through J L Collins blog, especially his Stock Series.  The Millennial Revolution Investment Workshop was also extremely helpful to me.  In addition to explaining how it all works, it includes a step-by-step guide that showed me how to get accounts set up with Questrade so that I could start investing myself without having to pay anyone to take my profits.

As a result of this, I’ve gone through and emptied a decent portion of our chequing accounts (because, yes, the majority of the cash we kept on hand was sitting in chequing accounts earning about 0.01% interest.  Shame!) and the few RRSP savings accounts (earning a whopping 1% interest), and opened investment RRSP and TFSA accounts.  As I got each chunk of money in those, I started buying index funds.  I have automatic transfers set up to put more money on those accounts every time I get paid.  I’m going to do my best to forget that money exists.  I’m going to be looking at my spending each month to see what I can cut out without major hardship, so that I can save more and more money.  While all this is happening, for the first time in my life, my money is going to earn more money for me.

How awesome is that?

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