December 12, 2017

Experience Living with Only 75% of Your Salary

Could you live with only three-quarters of your salary? Extreme savers may find this quite easy as they probably already save more than 25% of their actual income. But let’s face it; they are still exceptionally rare individuals.

Heck, many can’t even get by with their full revenue.

I’ve been experiencing it first hand myself for the last 2 years. As some of you might know, my working conditions allowed me to take a differed 6-month leave of absence in 2017 and to spread out income deductions over a longer period so I’ve been paid 75% of my salary since 2015.

So today, we’ll talk about financial and psychological implications of having your salary amputated and how my family and I fared with it. We definitely think the broad benefits are worth the hassle.

I’ve been doing it for real but everyone has the option to at least artificially implement it. For instance, by using pre-authorized transfers to automatically put aside a significant portion of their paycheck. It can be a great way to discover if you have the financial means but also the stomach to live with less money. If you prefer, gradually doing it could give you a chance to learn to slowly cope with it. 

Is Living with Less That Hard?

You might say it’s should be quite easy for me because of my saving nature and high-earning spouse. Just to remind you, we made the choice to prioritize my wife’s career when we got married. My role is to focus more on family matters and to manage our finances. We had about the same salary then. She now makes more than double my salary, my standard full salary. My leave of absence has widened to gap even more.

In general, I’m still ok with it but I must admit it can be a little tough on my ego from time to time. I sometimes get the feeling I’m not doing enough and maybe I should be doing more. Not necessarily more money but rather more of an impact on others.

Financially, living with only 75% of regular salary may not be realistic for the millions buried in debt or living paycheck to paycheck. For many others already saving, it should be a much more attainable goal. For instance, we have been saving more than 13% of our family’s income on average for almost 10 years as reported on our Investing Goals Page. Applying those good habits made it much simpler to cut into my individual work-related income. In our case, the next step will be to see if our entire family salary can be reduced.  

Having your paycheck directly deducted also makes it much easier as many will only spend or burn money if they have it in their pocket. You also have to consider that some payroll deducted items like income tax are not always proportional. In that sense, 75% of your gross income may finally translate into 77-78% of your net income depending on your situation.  

So, for me, the whole process has been comfortable money-wise yet much harder psychologically. I’m not a person who needs to make a lot of money but I can now relate more about the insecurity associated with not having or earning enough.

Financially Prepare for Unforeseen Events of Life

Many have or will learn the hard way that life can sometimes throw you a curveball or even worse, a knuckleball. It often happens when you least expect it and it may be difficult to deal with the financial aftermath of those unforeseen yet inevitable events of life.

Sometimes, it will directly impact you like contracting a serious illness, being injured in an accident or getting laid off. Other times, indirect matters will force you to take time to take care of family and loved ones. You will never hesitate to help your child, your spouse or your parents. You could even fork out some cash to get them out of their misery.

Having already experienced living with less can prepare you to cope with those unpleasant occurrences. You’ll at least know you can financially get through it.

You’ll be able to concentrate on the psychological aspect of those bad situations.

We think 75% is a significant figure because most safety-net programs will provide you income replacement of that magnitude. For instance, most Canadian disability insurance will pay you 70% of your gross salary. The net result should be around 75%.

Employment insurance only pays 55% but your net payout should similarly raise to about 75% if you factor in deductions that won’t be applicable like EI premiums and non-proportional ones like income tax.  

If you take into account both family incomes, the overall impact should also slide under 25%.

To remain on the safe side, let’s crunch the numbers to see if our household would hold up if both revenues were trimmed down to 75%. Our actual net income in the 90-100K$ range would fall to about 70-75K$. Which should be plenty enough to cover our present expenses around 65K$ including regular mortgage payments, trips and private school, budget items that will either soon disappear or could be shaved off. These expenses exclude all savings.

So, this remains possible despite our somewhat high level of expense. The numbers add up. However, knowing emotions can play you tricks, we still would have to put all this through the real-life test.

Forgive the interlude but I can’t resist entertaining you with a little 12-Minute math. In base twelve, 75% equals 9/12 = 0.9 which is really easy to add and subtract. In the same fashion, 25% is equivalent to 3/12 = 0.3, again something easier for basic arithmetic. Yet another example of the powerful potential of the 12-Minute Method.

Take Your Saving Discipline to the Next Level

Living with only 75% of your employment income is also an amazing way to discover how much you could be saving. Forced to live with less, you can indirectly learn to put money aside.

When you reinstate your full salary, you’ll know you can manage to amount substantial savings of at least 25% of your income. That’s no small accomplishment!

Knowing you can survive with significantly less will also provide you a margin of safety, both financially and emotionally. It could even entice you to push back your saving boundaries, popping out the cap that previously limited your saving capability.

A lot of those limitations come from our mind. Ironically, our insecure subconscious takes us away from security that additional savings could provide. Unless you possess the ability to earn and generate a lot of cash, financial freedom is mostly accessible through saving and spending less.

Your subconscious loves the short-term feeling associated with buying. It makes you crave for that rush you get inside. But as we already mentioned earlier this year in our Budget Series, buying and wasting your hard-earned money on unnecessary things will ultimately limit your long-term financial security and freedom. The crucial question will always revert to something like this: Do you really need all that stuff?

Just remember you don’t require to spend a lot of cash to be happy.

Because quality of life is important to us, we personally decided to split our saving power between time and money. Without making big sacrifices, our saving discipline still allowed us to gradually Escape 9-to-5, to go on inspiring trips and to plan for early retirement. That’s our definition of financial freedom!

Retirement Rehearsal

Speaking of retirement, enjoying life with just 75% of your salary and taking time away from work like I did can be an effective way to prepare for full retirement, down the road in only a couple years.

You could take some time off by choice. You don’t always have to wait for a bad occurrence to occur. You could take time to satisfy an unfulfilled passion, to stay healthy or simply, time for yourself, to appreciate what life has to offer at a slower pace.

From personal experience, I strongly recommend taking an extended maternity or paternity leave if you have the opportunity to do so. That type of quality time with your children will never come back later. Staying at home for 6 months with Baby C sure created a special bond between my daughter and me that we will treasure forever.

This time around, I was a bit shocked to find out I may not be that ready for retirement, mentally that is.  Emotionally drained and very tired before all of it started, I didn’t plan ahead that much except for our Exciting Summer Trip Around the UK. I managed to rest but with not a lot of activities in my schedule, I often ended up being bored at home. That sentiment surprised me quite much being a lone wolf that usually cherishes time alone.

I’m feeling better these days but there was a phase where I missed seeing people and the ones I saw irritated me. It seemed I could only find comfort with close family but they had occupations of their own. Don’t dismiss you still need to motivate yourself with projects and activities when you have time off or retire.

I would suggest as well to try to develop friendships with people in a similar situation to yours. It may be difficult because despite the fact everybody talks and would like to retire early, almost no one will take the necessary steps to get there.

In the end, with all lessons learned during my 2017 leave that still passed in a flash, I’m already looking forward to the next one in 2019.

Photo Credit

December 03, 2017

12-Minute Balance (Revisited)

The 12-Minute Series was originally posted in 2012.

We’ve decided to republish it integrally because we believe it can still help as everyone aspires to make things better.

Let’s hope it stirs up the discussion and stimulates you to change the world 12-Minute at a time!

This article was originally posted on May 12, 2012

Many believe that one of the most important keys to happiness is balance. Sadly, many lives equate to a never ending juggling act struggling in search of that so elusive concept.  

The 12-Minute Approach offers you simple yet powerful ways to achieve that so precious balance in your life.

Let’s hope that, by focusing on rhythm, order and harmony, these 12-Minute Ideas help you strive toward that balance so essential to your happiness and well-being.

Equal Balance between Needs and Activities

In order to stay happy yet still be effective, your life should be equally balanced between your needs and your activities.

November 24, 2017

Preparing to Take Assets Out of RRSP

Early in the year, we talked about taking time to think and analyze the possibilities surrounding future withdrawals from our investment accounts. In the initial stage, our reflection concentrated on questions like how? And how much? At this point, we will sadly report that our efforts have not significantly paid off. We have not demystified the 4% rule yet. Neither did we develop or stumble upon a better alternative.

All that analysis still eventually oriented us towards the when?

Too Much RRSP May Equal Too Much Tax

As a result, we recently discovered our RRSP value may be too high and are now considering withdrawing money from it sooner than expected. In that context, it looks like we will deregister an important portion of our RRSPs to avoid future tax problems. Essentially, we discovered that too much money in our RRSPs may result in paying a lot more tax later in life or having a big tax bill attached to our heritage, mostly destined to our lovely daughter.

We will admit having too much money is a good problem to have. But it’s important to start taking measures now to possibly avoid wasting an important chunk of it later. With retrospect, investing more in TFSAs instead of RRSPs would have been a better choice, from a fiscal standpoint at least. Fortunately, it’s not too late for some type of gradual rebalancing.

Our RRSPs grew up faster with larger contributions and higher returns than projected. In that regard, part of the credit can be attributed to our successful DIY investing approach.

Changes in our pension plan conditions also greatly impact our future financial situation. Unfortunately, planning for an early retirement kind of goes against the grain. Consequently, we made very conservative assumptions during the last round of negotiations as initial talks amputated pension benefits by almost half for early retirees like us.  

The final agreement was better or less bad than anticipated, we will only lose about 10% of our retirement payouts. Again, this will probably end up generating additional taxable income later.

With all those factors combined, the perspective of paying more tax during retirement than in active life unexpectedly becomes very probable.
As an example, you can see from the Leaving Money in RRSP Chart that, just a 100K$ portion accumulated in your RRSP today, at 45, could generate a nasty tax bill of more than a million bucks 40 years down the road. RRSPs can be a great tool to avoid paying taxes now as it differs your fiscal obligation. But if your ultimate tax rate is high like in this example at 50%, you might end up paying a big chunk of that deferred tax back.

Now that we know we are going to take money or stocks out of our RRSPs, it’s time to explore related technicalities.

Gradual Transfer to Tax-Friendly TFSA

Let’s briefly get back to how much? Projecting income and corresponding tax levels over an extended period is far from exact science. You can still have a general idea of fiscal implications and take actions that should improve the situation.

November 12, 2017

Portfolio Update November 2017

Once again, it’s time for another update of our DIY Portfolio. As usual, our following update can be expected in about 12 weeks, in February 2018.

Meanwhile, you can have a look at previous portfolio updates here:

The weak US dollar is still hurting our DIY Portfolio a bit, but the bleeding at least stopped in early September and we have seen signs of a meaningful turnaround since. As we talked about before, we can still expect more interest rate hikes from the Bank of Canada that should put additional pressure on the relative value of US vs CAN dollar.

November 09, 2017

Wacky Golf Fact (Revisited) – Getting Lost in a Bunker

The Wacky Golf Fact Series was originally posted in 2016.

Our initial plan was to add new articles to this fun series but the Rules Modernization proposed by the golf authorities caught us of guard.

Even though these new rules won't be in effect till January 1st 2019, they still propose major changes and will completely revolutionize they way we play golf and enforce the rules. Don't get us wrong, we welcome these changes and they should be great for golf! We are just not ready to talk and write about them yet. 

So you will note that our article still refers to the actual and soon to be thing-of-the-past golf rules.

This article was originally posted on December 18, 2016

Everyone has heard about getting lost in the desert. In some countries, it’s even considered a common occurrence, especially when a violent sand storm is raging.

But have your ever heard about getting lost in a bunker (or on the beach as some say)? Not in a military bunker but rather a golf bunker a.k.a. a good old sand trap!

Many clumsy or impatient golfers lose a lot of strokes in them...but actually losing your ball in a bunker is rare.

Beware these special bunkers that seem to act like quicksand and swallow your ball.

November 03, 2017

Housekeeping The 12-Minute Way (Revisited)

The 12-Minute Series was originally posted in 2012.

We’ve decided to republish it integrally because we believe it can still help as everyone aspires to make things better.

Let’s hope it stirs up the discussion and stimulates you to change the world 12-Minute at a time!

This article was originally posted on April 12, 2012

Living in a clean environment can contribute to your well-being and happiness but proper housekeeping takes time.

So, here are some 12-Minute Ideas to keep your house neat and tidy. Hope this helps make your home more peaceful, relaxing and inspiring.