FIRST THINGS FIRST

My entrance into the world of work was not a smooth
one. I thought my best job prospects were in Toronto,
specifically at one of the handful of Bell Canada offices there.
I knew Bell had a generous stock option plan for its employees,
and I wanted to take advantage of any opportunity to increase
my wealth through an employer. While I waited for an opening
there, I stayed with an uncle and aunt, who generously
accepted a minimal rent until I became more established.
For me, the fastest route to a job was through a temporary
agency. Within a few days, I was employed by a large insurance
company in downtown Toronto. I had a clerical
accounting position that consisted mostly of adding up batches
of numbers all day. The pay was very low after the agency's
fees were deducted, but the job was just a stepping stone to
something better, and essentially it was paying for my expenses.
After a month there, I applied to a small accounting firm and
was hired as a secretary. The major partner expected that I
would further my accounting education and become a greater
asset to the company, but that wasn't my plan. The earnings
from this job were an improvement, though.
For extra income, I taught remedial reading to the bookkeeper's
young son, since I had experience from a grade 13
English course. Even so, I waited apprehensively for the call
from Bell. I was still living in my relatives' home and keeping
purchases to a minimum. I went with my aunt for groceries
and discovered discount warehouse food shopping! My focus
remained on acquiring basic assets as quickly as possible, and
every bit helped in accumulating some savings during this
time. I put any money left over into savings vehicles because
they allowed low deposit amounts, and interest rates in 1980-81
were relatively high, making the return especially good in relation
to my low cost of living and tax bracket.
Finally, I was interviewed at Bell Canada and secured a
position in the collections department. I wasn't keen on that
type of work, but the salary and benefits were substantially
better than those at the chartered accountants' office. I also
began to realize that my aunt and uncle would have preferred
a higher-paying tenant, so I needed to find another place to
live. I didn't really like living in Toronto, but I had a good
source of income (the first step of my plan). The easiest option
was to live as close to my job as possible. I didn't want to
keep renting, because the next step was to secure shelter and
minimize its cost while still building an asset base. Owning a
home, eventually free and clear, was the only way.
On my lunch hour, I would walk around the residential
area near the Bell office and take note of the properties for
sale. Then, in the evening, I'd meet with a real estate agent
to view the homes. I soon learned that, although I'd been
saving every penny and had a substantial down payment, I
couldn't obtain a mortgage for the balance. I might have been
able to manage a mortgage on a home in an outlying area;
but, to be honest, I felt scared when I went by bus to some
of those areas. A reassessment of my position was in order.
It was the spring of 1981, and I had just turned 21. I didn't
like the high cost of living in Toronto. I didn't like working
in collections. I didn't have any debts, I had savings of about
$13,000, but I couldn't buy a home in an area where I felt
safe. I was becoming frustrated and discouraged. Was nothing
ever going to work out? Was I never going to reach my goals?
The plan had seemed so simple, but it wasn't coming together.
Stymied, I decided to take an extended vacation to regain
perspective.
I quit my job at Bell and moved my belongings back to
my parents' house. I flew to a horse ranch in Missouri, then
stayed in Oklahoma, then went on to Texas. After spending
those months in the States, my disappointment vanished, and
my optimism returned. I concluded that financial achievement
required flexibility and time. Just because my plan wasn't
unfolding in the way I'd expected didn't mean it would never
happen. I only had to make some adjustments.
The first two strategic steps of generating income and then
buying the basics were sound. I was living at my parents' home
in Hamilton that fall and took a job within walking distance
at a dental lab. I assumed that making dentures wouldn't be as
stressful as collections. It was a relaxed atmosphere, somewhat
artistic, but so many hours of close work strained my eyes, and
objects at a distance became blurry. The salary was exceptionally
low as well, hindering my ability to amass savings. To
supplement my income, I sold Avon door to door in my neighbourhood.
One blustery winter evening, a young woman invited
me into her home to display my wares. I was shivering, and
my nose was running, detracting from the perfect Avon Lady
image. Her husband wandered into the living room, and I
introduced myself. He shook my frozen hand, looked out the
window at the swirling snow, and said to me, "You've got guts,
Dianne." I might have had "guts," but I didn't make a sale.
My mother likes to say that "The good are rewarded," and
a former schoolteacher was fond of reciting that "Patience is
a virtue," but I don't give credence to either. I was approaching
my zznd birthday, and I still didn't own a home. It was time
to focus harder on finding a good source of income.
Fortunately, a job became available with the provincial government.
Unfortunately, it was in collections. The starting
salary was mediocre at about $16,000 a year, but the benefits
package and job security couldn't have been better, considering
my previous job experiences. The determining factor, though,
was that I would be able to buy a home within a couple of
years. Could I stand collections again? I convinced myself I
could. This type of job, after all, was the key to my future of
financial independence. Wealth from collecting taxes. The
irony of that was still to come.
I think every employee is enthusiastic at the beginning of
a new job, and I plunged in, even happier on paydays. I joined
the payroll savings plan for Canada Savings Bonds as a painFIRST
less way to save. I moved into a tiny apartment on the 26th
floor of an upscale highrise, again within walking distance to
work. I probably should have weighed the new expense of rent
against board at home plus transportation costs. I knew I
wanted to buy a home as soon as possible, but I didn't think
it would happen that year, either way. I also felt "entitled" to
an apartment as compensation for working, and I didn't want
the responsibilities or costs involved in buying a car. From the
marketing course at college, I should have recognized the folly
of rewards and entitlements used by advertisers to establish
consumer buying patterns. Fortunately, my existing moneyhandling
habits offset the potentially damaging consumer
behaviour. I wasn't perfect; occasionally, I succumbed to subliminal
messages and other marketing ploys, but I had been
following a sound financial path for some time, and it had
become automatic and effectively blocked the lure of advertising.
I also believe that some rewards are needed to keep the
motivation and momentum going to achieve any goal — the
key factor being moderation. Occasional rewards. Quality over
quantity. Apportioning limited resources (time, effort, income)
to cover needs, goals, and a few wants. Unknowingly, I had
kept a balanced approach in handling money with respect to
my future goal, my current survival, and the all too human
desire for unlimited wants. In July 1982, my net worth was
about $20,000, which included Canada Savings Bonds, gold
bullion, silver, and antiques. By October of that year, I could
almost afford to buy a condominium!
Since my rejuvenation in the United States, I had replenished
my savings to about $11,000. I reserved this amount for
a down payment on a home and lawyers fees. Since the bonds
returned 19% interest, I decided to keep $1,000 aside for an
emergency fund. My father owned a real estate company in
1982, and he had a special interest in helping his new "purchaser"
to find the best home. I decided on a three-bedroom
condo, built in a desirable area, with a ravine view. The unit
had been owned by a busy single mother, and it needed a few
repairs and redecorating. The sale price was $42,000, and I
used $10,000 for a down payment. At that time, Canada
Mortgage and Housing Corporation had a first-time home
buyers' program in which I qualified for a $3,000 grant. I
assumed the existing mortgage of $12,000 at 9.5% interest, and
the vendor agreed to take back a second mortgage of $8,000
at 12% interest. The remaining $9,000 was a third mortgage
obtained from my parents, interest free for a term of five years,
to be paid monthly. The total mortgage debt was about 45%
of my disposable income. Before I made my offer, my father
calculated the three payments, taxes, and maintenance fees; the
total cost for housing came to 63%, and he asked me if I could
afford it. I'd been making personal balance sheets to watch my
assets grow since 1980, but I'd recorded my income and expenses
only in a notebook. Using those figures, I estimated that it
would be possible to cover basic expenses with my remaining
net earnings of $370 a month. Since my parents held the third
mortgage, I knew they wouldn't foreclose if unforeseen circumstances
forced me to miss a payment, and there was enough
in my emergency fund to cover two or three months of total
mortgage costs. Without their help, though, I wouldn't have
been able to get such an early start in the real estate market.
At 22, I was a homeowner! So far, I had been following
my plan, learning from experiences, making the necessary
changes, trying again, and muddling through. Combined with
new household, daily living, and renovation costs, the mortgages
were a sobering challenge, but achieving every small step
in my plan was exhilarating. I would go from room to room,
marvelling that the whole condo was mine! It was large, and
the big rooms diminished what little furniture I had. The living
room suite was my parents' well-kept 25-year-old sectional sofa
and chair, which my father reupholstered 17 years earlier. The
end tables and window sheers were handed down in perfect
condition from other relatives. I bought a marked-down brass
headboard from the Sears Clearance Centre for the guest room
and rescued a 19005 dresser with an oval mirror destined for
the city dump. It only needed a coat of glossy white paint.
When I mentioned to my mother that I needed to buy more
furniture and drapes, she exclaimed, "Buy? Buy? You can sew
drapes yourself! As for the furniture, we'll see what we can do."
All my mother's side of the family exude great confidence, and
they've done quite well financially. I recall that one of the few
English words they regularly spoke with emphasis was "Sure!"
as in "Sure I (you) can do it!" immediately followed by a rhetorical
"Why not?" My father's side had gentler, more practical
personalities. WTien I suggested to my mother that I didn't have
her talent for sewing drapes, Dad smiled down at the floor and
quietly took a step back as Mom began her evangelistic "Sure!
WTtiy not?" speech: "Of course you can make your own drapes!
You're from this family — you're one of us. You can do anything
you set your mind to." In jest, my father snapped to
attention behind her, while I pictured petite Brigadier-General
Mom commanding her soldiers "Onward brave troops —
charge!" Making drapes seemed to be an easy task after an oration
like that.
I had my mother's old sewing machine, and, as I began to
make the window coverings for each bedroom, I repeated
to myself that they didn't need to be perfect, they just had to
look good. I gleaned coping skills from a library book called
Diana Phipps's Affordable Splendor. It was subtitled An
Ingenious Guide to Decorating Elegantly, Inexpensively, and
Doing Most of it Yourself. This designer had her decorating
featured in Architectural Digest and House Beautiful. The book
jacket listed royalty and a well-known author as clients. If her
techniques were good enough for them, then they were good
enough for me. My mother expected perfection in her sewing,
but my home would have remained bare if I'd shared her
viewpoint.
One room became a den. My father panelled the walls in
knotty pine while I sewed cushions for comfortable seating on
a borrowed deacon's bench. For the master bedroom, I made
two fabric hanging lamps from a kit, each one coordinating
with the Dresden plate quilt my mother had sewn for the bed.
I inherited a suite of two walnut dressers and bed from my
grandparents. Round bedside tables were made from inexpensive
plywood and covered with homemade matching
tablecloths and square lace toppers cut from a piece of old
curtain and dyed to match. The ensuite bathroom had white
fixtures and walls decorated with a delicate blue-and-white
paper. I simply added a wall-to-wall piece of white fake fiir,
which cost about five dollars at a textile outlet, for the feel of
luxury beneath my feet.
The kitchen needed the most attention. It had an old
linoleum floor and dated, dark green, imitation wood cabinets.
I picked out a discounted end piece of new flooring, and
my father laid it for me. The countertops were an acceptable
off-white arborite, but all the cupboard doors were replaced
with new solid pine fronts, the wood fashionably "detailed"
and finished by my father as well. The eating area consisted
of two wooden farm chairs and a card table with a piece of
plywood cut in a circle for the top. I made a tablecloth,
matching chair cushions, and a grass-cloth hanging lamp. My
mother sewed coordinating placemats.
Since the appliances weren't included in the purchase price,
I had to find a refrigerator and a stove. We found a stainless
steel stove that was old but free, and it worked well. For $235,
I bought a used gold refrigerator advertised in a newspaper.
The only other purchases were an oak dining room set for
about $150, again from the Sears Clearance Centre, and a new
microwave from a discount appliance store for an extravagant
$600. Adding the renovation and redecorating costs into the
housing expense brought the total up to 67% of monthly net
income, or $670 a month.
The remaining $330 per month covered food, transportation,
property insurance, personal care, clothing, households,
furnishings, and gifts. There weren't any spare funds for savings,
so I considered the upgrades to my home as my investment
plan, which amounted to four percent of disposable income.
Medical and dental expenses were paid for by my employee
health plan. There was no money for entertainment, vacations,
hobbies, or recreation, but to me the sacrifice was justified. I
owned a home. Basic costs were covered. I had an emergency
fund. I was on track for my goal. Despite this logical reinforcement,
I still needed ways to ebb occasional feelings of
deprivation. Lifestyle was important: if I didn't feel poor,
I would stay motivated and pursue my financial objectives. I
needed some balance.
To alleviate the problem of having no cash for fun activities,
I used the indoor pool and tennis courts at the condo
complex for free recreation. Instead of paying for classes, I read
library books and magazines on my various hobbies. For entertainment,
I had "bring your own" parties, visited with friends
and family at their homes, and enjoyed free local events. My
father found and fixed a colour TV for me, and, while my
stereo was perfectly adequate, I did buy a cassette deck. I had
been to Florida, Jamaica, Missouri, Oklahoma, and Texas in
the past two arid a half years, so I was satisfied for a while
with the travelling I had done. Even so, there was more I could
do to improve my quality of life for free.
By keeping costs to a minimum for items that were necessary
but gave me little pleasure, and by cutting out what I
considered to be automatic and unnecessary purchases, I could
splurge on the things I really wanted and never feel deprived
financially. There were four benefits from getting accustomed
to buying very little: I avoided the expensive habit of automatic
buying, my home was uncluttered, I differentiated
between the things that would bring lasting pleasure and those
that would bring momentary pleasure, and I saved a lot of
money. I continued to save by using public transportation
instead of buying a car, which for me would have been a lowpleasure
purchase. Transportation was a necessity, but I paid
the least possible amount for it. I had money for what I determined
to be high-pleasure-generating purchases. Microwave.
Oak dinette. Cassette player. Brass headboard. Fur carpet. I
didn't buy these desired goods on credit, so I avoided potential
money problems. I had the cash to buy them by saving
money many times over through (a) cutting costs on low-pleasure-
generating items, (b) choosing cheaper alternatives, (c)
getting things free, and (d) not purchasing some items at all
My income was a precious limited resource, so I spent it
according to my specific priorities (goals, needs) and preferences
(pleasures). It was a new turn on the principle of value for
money I saw the purpose of my fridge as simply cold storage,
so I had the most value for the least money by buying it used.
Almost 20 years later, that fridge is with me, and I'm still waiting
for its demise. Most of my furnishings were handmade, used,
or free. I wasn't buying much of anything except quality. I
bought a few expensive things, paid for by not buying little
ordinary things such as kitchen gadgets, magazines, decorating
trinkets, housewares, and hundreds of other rarely used items
of minuscule value that simply waste space. Anyone who has
ever had a garage sale will know the next-to-worthless value of
ordinary clutter and gadgets. What someone else will pay for
rarely used or unwanted items is one determination of value.
The items that I did buy had inherent value — to me and to
others. Recently, I sold my dining room suite for a higher price
than I paid for it 17 years earlier. I still use the microwave and
50
cassette deck, and they have never needed repairs. Quality, not
quantity. One reward, not multiple rewards. Interior designers
advise having one focal point, one outstanding or oversized
piece as opposed to many insignificant little furnishings. I
applied that rule with one more major indulgence.
In November 1983, I bought a beautiful piece of antique
jewellery. My parents had received an invitation to a national
travelling show of antique jewellery. It was closed to the general
public, but my mother felt justified in extending the
invitation to her immediate family. It was on a Saturday
evening, and long-stemmed roses were handed to each lady
upon arrival. An abundant buffet of delicacies had been laid
out, and uniformed older men, looking like butlers, offered
champagne to the guests. The champagne was very fine, and,
when my brother asked for the name of the vintner, one butler
intoned haughtily, "It's Mum's, of course."
There were so many unusual heirlooms on display,
including an Egyptian gold ring embossed with hieroglyphics.
An enamelled gold locket, from 1870, caught my eye — and
I wanted it. When I started discussing the price with the store
manager, my mother looked worried, but I could feel that
inherited Old Country confidence. The locket was something
I really wanted, so I bought it. I was able to negotiate for a
heavier, longer chain to go with it but not for a lower price.
Since it was valued not only as jewellery but also as an antique,
the store guaranteed to buy it back at any time for what I
paid. That was another example of inherent value.
I didn't know exactly where the money for the locket would
come from, but I did know I'd be sorry if I left the store
FIRST THINGS FIRST
without it. I just had to find the money for it. My mind was
racing. Three mortgages. I wasn't spending money even for an
occasional magazine. But I wouldn't feel poor with a piece of
jewellery like that! The manager solved my problem by offering
interest-free payments over four months. I left the first cheque
and went home to figure out where the next three payments
would come from.
I would have to do a more intense cash flow analysis than
I did before I bought the condo. In that case, I estimated
many of my expenses; however, when it became apparent that
I had $370 per month to budget, allocating the money among
the different expense categories made the condo purchase feasible.
Now, with this unexpectedly large purchase, I had to
make new calculations. During 1983, my salary was raised to
$18,000 a year, increasing my disposable income by about $125
a month. Also, the renovations were finished, so that expense
was eliminated, and two months before the jewellery purchase
I decided to rent one of the condo rooms to a student. The
additional income and the reduced total expenses would cover
the price of the antique locket. Just. Perhaps I was putting
myself in a precarious financial position, but I still had the
$1,000 bond plus 19% accrued interest for an emergency. If I
was careful, I could handle the next jewellery payments.
Unfortunately, renting out the room was not a success.
Four months into the term, my student tenant left by mutual
agreement following her invitation one day to the university
football team to use the shower after a rainy game. When I
came home from work that day, I stepped in wads of mud
on the broadloom and found filthy wet towels strewn
throughout my home. The student wasn't there, and I decided
I liked it better that way.
But that made the money situation very tight for the last
two jewellery instalments. I paid the mortgages, kept the savings
bond intact, and ate wherever I was invited. With
transportation a fixed expense, the only adjustment I could
make was to the food category. I didn't need money for any
other area since I'd already learned to stockpile bargain-priced
staples, and I had enough in supplies to last a few months.
Cutting food costs was difficult but not impossible, and my
nutrition actually improved when I eliminated expensive convenience
foods. I took my lunch to work every day, and I didn't
buy snacks at the coffee cart. I bought enough groceries for
two months of breakfasts and lunches, and the money left over
paid for slightly more than a month of suppers. I ate chili on
weekdays for a month, dined out with my boyfriend on
Saturday evenings, and visited my family on Sundays for dinner.
It sounds like poverty living, but I saw it as a challenge, and
it was only for two months. My mother suggested I delay their
mortgage payment, but I decided not to. This was a test for
me. If I could survive a difficult money situation now, surely
I could handle any future problems. Then, just as I was really
getting tired of eating chili, I had some good fortune.
One night while I was reading the area's free newspaper, I
saw a cartoon game in which two drawings looked identical
but in fact had some obscure differences. The skill was in
finding as many of those differences as possible. For fun, I
started solving the puzzle and then realized it was an entry for
a contest. A new Kentucky Fried Chicken restaurant was
opening nearby, and in celebration it was holding this contest.
The winner would receive a huge barrel of chicken! I could
almost taste it. Could that contest have been heaven sent? All I
knew was that I needed to win it. I listed every discrepancy
I could find, even those likely to have been print irregularities.
In the end, I found over 25 differences and mailed in my list.
Maybe the good really are rewarded. I won the barrel of chicken.
Although the two months were financially restrictive, I was
motivated to follow through by knowing that they were a temporary
pain for a pleasurable gain. I trusted my ability to
control money and reaped the reward: I was healthy, happy,
and had a new treasure.
Meanwhile, many changes were taking place at the tax
office. A number of older employees were reclassified or offered
early retirement packages, or their positions simply became
redundant, allowing a flood of young people with university
degrees into newly created positions. It was another example
of having far less control over incoming money than outgoing
money. I had thought unionized government jobs were completely
secure. At the same time, my supervisor encouraged me
to take a degree course in credit management. He indicated
that a promotion would likely follow, along with a move to
the head office in Oshawa. I signed up for the course, seeing
the change of residence as a temporary concession that would
further my goal of building assets through a higher income.
Shortly into the course, though, I realized that the shine on
my job was quickly losing its lustre, and I wasn't enjoying
studying similar material at home. So one night I sat down
with my calculator and compared the pros and cons of the
additional education. My job was only a means to an end, not
a career. It was a necessary evil to be endured for as short a
time as possible. If I didn't pass the course, I wouldn't be compensated
for the tuition. I was able to move to Oshawa, but I
didn't want to. My income would be higher, but so would my
cost of living. Then I came up with the figures that decided
my path. After I did calculations on a tax form both before and
after the raise, I discovered that the increase in my disposable
income would be negligible. Then, when I considered the additional
costs I would incur, along with the effects on my personal
goals and enjoyment of life, I decided that the designation and
the promotion would be a hindrance, not a help.
When the first course on credit counselling was over, so
was my participation in the program. That was my first important
lesson in taxation. It was ironic that my wealth (after
increased work-related costs) would have remained almost the
same while the government would have reaped more from me
in taxes since I would have moved into a higher tax bracket.
My extra time and effort would have improved the government's
coffers better than mine. In all my financial transactions
from then on, I checked the numbers and did the math before
making any decisions.
By March 1984, I had been living in my condo for over
a year. Although the spacious interior had been upgraded and
all the windows had a treetop view of the ravine, I was finding
the long bus ride to work tedious. I still didn't want a car, so
I considered moving closer to downtown. I hadn't been able
to buy an apartment near work before, but real estate was
taking an interesting turn. My father provided me with a curFIRST
rent market evaluation of my home, and I was pleasantly surprised
at the increase. It was the beginning of an inflationary
real estate market and what proved to be my ticket to a more
convenient condo.
I was serious about moving, but as a trial I listed the condo
for $59,900. There was an immediate response, and it rapidly
sold for $58,000. I had paid the mortgages down by about
$2,000, leaving a total still owing of $27,000 to be discharged
with the proceeds. That left $31,000. My father waived his real
estate commission, saving me about $1,700, and once the other
realtors and lawyer's fees were paid I had $29,000 in cash.
The condo's value had risen by 38% in a year and a half.
However, the return on my $10,540 investment (down payment
plus renovation costs) was 155%, calculated as follows:
Proceeds from sale: $29,000
Less down payment plus costs: (10,540)
Balance: $18,460
Less difference in 15 months of
payments if I had rented: (2,115)
The increase in sales activity and resale value seemed so extreme
that I thought prices would stagnate for a while. I was almost
24 and knew I wanted to live downtown. I had three months
until the closing date, and I chose to move back to the upscale
apartment building where I was a tenant prior to buying my
condo. I would think about my next move there.
^ H I ff°n d*> °& J? &§ £ 813 Total profit: 516,345
Since I assumed real estate values couldn't possibly keep
increasing to the extent they already had, I thought the best
financial course of action was to rent and invest my proceeds
for a superior return. I also expected to save a greater portion
of my income since the monthly rent of $488 was much lower
than the mortgage payments, property taxes, and maintenance
fees of $629. As a percentage of net income, my rental housing
costs would be about 40%. Therefore, I reasoned, I could
amass an even greater down payment for the next property
and continue to indulge in a few big luxuries, ignoring any
small ones, as I did before.
My expenses for 1984 and 1985 averaged about $900 a
month. I had recorded a bank survey showing the average
persons spending habits, and the total monthly expenses came
to $1,035. The biggest difference was that my cost of living,
not including housing, was 33% of total expenses, while the
average person spent 67%. Even as a tenant, my spending
habits were opposite the average of one-third housing and twothirds
living costs. Even though my disposable income had
risen and my shelter costs had declined, I was keeping other
expenses to 33% of total expenditures, just as I did in the previous
two years. I was able, therefore, to use the extra money
for savings. According to that bank study, the average person
saved less than five percent of disposable income, whereas I
saved about 25% in 1984. Those figures reinforced belief in
my ability to build capital, but I was about to learn a good
lesson in predicting future economic conditions.
Using historical data that showed the degree of increases
in housing prices over time, I concluded that the recent rise
in real estate values had created an overvalued market and that
prices in the near future might decline. So I thought that I
should rent for a while and keep track of downtown real estate
values. By the fall of 1985, I had a net worth of about $55,000.
I was enjoying luxuries and accumulating money, but my numbers
weren't coinciding with the current market data. Although
my assets were growing as planned, real estate prices continued
to escalate. I quickly decided to look for another condo, this
time closer to my workplace. My father suggested two luxury
buildings in the downtown core. The first building had oneand
two-bedroom apartments, mostly owned by others my
age. The second building had two- and three-bedroom apartments
with a much older clientele. I preferred the first location,
and I made my best offer on a one-bedroom unit with a
storage room. The vendor didn't accept my offer, but it was
all I could afford.
My second choice was a two-bedroom unit in the other
complex. This time, my offer of $74,000 was accepted. I
decided on $30,000 for the down payment and kept $10,000
aside for an emergency fund, renovations, savings, and cash.
The mortgage payment at $424 per month was less than the
rent I was paying. I chose a smaller down payment because
there were still taxes and monthly maintenance fees to consider.
My job was also becoming more of a strain, and I
thought I might need the cash in case I quit. Even so, the
down payment was a hefty 40%, and, since I didn't have any
other consumer debt, I was able to obtain a mortgage for the
remaining $44,000 easily.
I had never applied for a bank mortgage before, but after
comparison shopping for rates I decided on a major trust company.
I made an appointment, and I was a little nervous, not
knowing what to expect. The loans officer sat behind a huge
mahogany desk, and I felt dwarfed in my chair. She was looking
over the agreement of purchase and sale, the mortgage application,
and my proof of income. Then she pulled out a list
and started asking questions about my financial position.
"Do you have any other outstanding debts?"
"XNTo ."
She eyed me and asked me more specifically, "A car loan?"
"XNTo ."
"Are you making instalment payments for anything?"
"No."
"Any other mortgages?"
"XNTo ."
"Are you carrying a balance on your credit card?"
«-\T 53 No.
"Have you ever declared bankruptcy?"
"XNTo ."
"Well, that was easy," she said.
It took less than ten minutes to approve the mortgage.
Since I was so security conscious, though, I opted for a 25-
year amortization, which had the lowest monthly payment.
The mortgage contract also allowed for monthly "double up"
payments and a 10% repayment on the anniversary date. Those
payments were applied directly to reduce the outstanding principal
on the loan. By now, after years of practice, my
money-handling skills were efficient and cost effective. I could
safely handle the monthly mortgage amount even with unex-
pected financial problems, and if everything stayed the same
I would be able to take advantage of the double-up payments
and the yearly 10% reduction, instead of depositing the money
into savings vehicles as I did before. I was covering all eventualities.
In the worst case, I wouldn't likely lose my condo or
equity. In the best circumstances, I would eliminate my debt
as if I had taken a much shorter amortization simply by making
extra payments at the beginning of the mortgage, effectively
lowering the principal faster and in turn the total interest paid.
I had my mortgage, and the process had been painless.
The complete housing cost of $693 now represented about
50% of my disposable income, which increased to $1,400 per
month in 1986. This cost for shelter was only $64 a month
more than what I was paying for my first condo four years
earlier, yet it represented 67% of total expenditures for 1986.
All other expenses remained at 33%. As a percentage of new
disposable income^ however, other costs of living amounted to
20%, and the remaining 30% became savings, which included
mortgage-reduction payments. It had become an unconscious
habit to keep my costs of living to about one-third of total
expenses, regardless of any increase in disposable income. When
I received a raise in income, it automatically became savings,
simply because I maintained my expenses at the same level as
before. I didn't budget a set percentage ahead of time, but I'd
focused on monthly expenses for years, and I'd become very
efficient at keeping the costs down without feeling deprived.
Even as a tenant, my living costs (without rent) remained at
the same level: 33% of all expenses.
While setting limits on budget categories never worked for
me, knowing my goals and spending priorities did work. After
I put savings toward paying down the mortgage, the rest was
for RRSP contributions and luxuries. Transportation costs were
almost nonexistent because I was still within walking distance
to work and shopping. An underground parking spot came
with my unit, but since I didn't have a car I was able to rent
the space for $20 a month. The other budget categories were
relatively low because I didn't need to look beyond my home
environment for recreational activities.
The condo building's indoor pool and Jacuzzi opened onto
a patio with lounge chairs and umbrella tables, all enclosed
by a high brick wall. There was an exercise room full of equipment
and a library for less strenuous pursuits. Since the
building was filled with older residents, they would be in their
units by 9:30 p.m., which meant I had the pool and other
facilities virtually to myself in the evenings. A penthouse party
room contained plush furniture, a kitchenette, and a bar for
entertaining. My own unit had central air conditioning, an
ensuite laundry area, and an enclosed balcony that I made
into a tropical sunroom. I sewed white sheers for the large
window; then I laid green outdoor carpet on top of a scrap
piece of broadloom for underpadding, and I applied white
stucco to the concrete wall. I painted my wrought iron sewing
machine cabinet white and placed it against one glass wall.
The seating area contained two rattan chairs, which I bought
at a garage sale, placed around a table constructed of a milk
can for its base, a plywood circle for its top, and a colourful
Caribbean-print sheet for a full-length tablecloth. A large white
glass ball lamp, another garage sale find, hung over the table.
FIRST THINGS FIRST &
Then I filled the room with exotic plants, most of which I
had started from cuttings.
Again I was paying the least or nothing at all for items of
low value whenever possible. I had all the same furniture as
before except for the living room suite. I bought a tweed sofa
and a leather sofa bed, both in taupe tones. Small accessories
and soft furnishings were inexpensive to change, so I followed
the interior design rule of buying the most durable and expensive
furniture in neutral colours. I also bought a floor-model
wing chair, priced to clear, and a coffee table with two end
tables on sale. I made these purchases over three years, only
after I had saved enough money first. That way I knew exactly
what they cost, and I could accurately judge their value in
exchange for my money or, stated another way, for the time
and effort given up to make the net income. If I'd charged
the furniture on my credit card and then carried a balance,
it's staggering to think what the true purchase prices would
have been. And, regardless of the additional interest costs, I
wouldn't have been controlling my money The store or finance
company would have had control over my present and future
dollars. It was far better for the asset value (cost of the item)
and other asset accumulation (savings) to simply wait for a
few months, buy exactly what I wanted for cash, and then use
the money I would have lost (interest charges) to buy the next
pleasure-generating item. That was controlling my money.
My aversion to debt was reinforced by working in a field
that brought me face to face with people in dire straits. I saw
firsthand what happened to people who couldn't meet their
financial obligations. When their income didn't cover expenses,
they borrowed money (illegally in the case of Sales Tax) month
after month and then became grossly overextended. My job
duties included instigating wage garnishments, seizing assets
and bank accounts, and registering liens. It was real life and
real people. I wanted to make sure I would never be on the
receiving end of such actions.
While it was a difficult part of my job to see the consequences
of the desperate financial moves people made, it was
interesting to see the results of the money decisions made by
those in my workplace. In the 19805, conspicuous consumption
was in high gear. I wasn't immune to it, and I bought my share
of luxury goods while I was renting. Psychologically, I took the
set mortgage payments more seriously, even though I could
expect a yearly increase in my rent, which effectively lowered
my disposable income. However, I still maintained my principles
of buying with cash, acquiring goods that had inherent
value, and only making purchases that gave me the greatest satisfaction.
My idea of indulgences, though, didn't match average
consumption trends. I didn't use credit to buy a popular car or
pay for regular winter and summer vacations. I didn't buy
everyday lifestyle products as others automatically did, even if
the products were inexpensive. But I did buy a large wardrobe,
jewellery, and a fur coat. Although no one believed me, I really
did want the fur for warmth. It was so cold walking to work
in the winter, and I refused to wear a down-filled coat and look
like a huge quilted pillow tottering down the street.
As for vacations, ever since I'd been to Jamaica, I didn't
understand the attraction my fellow employees had for going
en masse to inexpensive hot destinations such as Cuba, the
Dominican Republic, and Mexico. I still don't. To me, frequent
jaunts to popular places offer short-lived satisfaction,
whereas infrequent luxury vacations provide greater happiness.
It's simply a matter of personal choice. The most economical
holiday is the one that provides the best value in terms of
lasting pleasure. My brother and sister-in-law travel to Mexico
frequently because it's their favourite vacation spot, so it's the
best financial choice for them. Likewise, when I had the chance
to meet a friend in France during the summer of 1987, I took
it. I arranged for time off work during the first three weeks
of August. However, since I'd been to France before, I was
concerned about the long flight from Canada and my susceptibility
to travel sickness. My father jokingly said, "You
could always take the Concorde." I liked the idea, so I did.
The chance to travel throughout France with my friend, then
on to England, where I had always wanted to visit, was too
good to miss. The total cost for my trip, including the airfare
on the Concorde, was the same as three vacations to Mexico.
I wouldn't have traded that trip for six trips to Mexico.
I flew first class from Toronto to La Guardia airport and
then continued on in a waiting limousine to JFK airport. Air
France covered the cost. Once at JFK, I was cordially greeted
at the door. My suitcase was whisked away, and my hand luggage
was graciously carried for me as I was escorted to the
Concorde lounge. It was like a large, plush living room, with
subtle lighting and a long bar at the end. Glistening silver
trays of puff pastry hors d'oeuvres were set out, and the bartender
waited patiently for me to select a drink. He looked
amused when I asked for a cup of tea. I'd had a full breakfast
in first class, but it was still morning, and tea was what
I wanted. I sat down on a soft chair, noticing the expensive
glossy magazines and the latest issue of Sotheby's auction catalogue
on the coffee table in front of me. My tea was served
with a plate of fresh croissants, flown in that morning from
France. Everything was complimentary, and I was treated like
a queen. The ladies' room was elegantly decorated with touches
of gold and wall-to-wall glass shelves filled with French perfumes.
I caught the bartender smiling again when I came out
surrounded in scent.
When it was time to board the Concorde, the man who'd
escorted me to the lounge accompanied me and along the way
offered me a variety of world newspapers and magazines. On
boarding, I was introduced to my host, who was to look after
me for the duration of the flight. He had handsome French
features and was young and striking in his Air France uniform
and gloves. He would have looked great on the cover of the
magazine I was holding. Could it get any better? It did.
The take-off was a roar of engines one second and a surprisingly
inclined lift the next. It did not taxi down the runway
like other planes. Once airborne, there was no turbulence at
the altitude we were flying, and I couldn't even tell that the
plane was in motion. Menus announcing a five-course meal
were handed out to whet the appetite. Complimentary cocktails,
liqueurs, wines, and champagnes were also listed. I chose
Dom Ruinart, 1979. To start, I had the canape appetizers, followed
by a lobster-and-vegetable salad. The main course was
medallion of lamb with Madeira and chapped truffle sauce,
chanterelle mushrooms sauteed in olive oil, and potatoes gratin.
For dessert, a Grand Marnier genoese cake. As the final course,
a luscious fruit salad plate was served. When the china was
cleared, my host invited me to meet the pilots and view the
cockpit. He suggested I bring my camera, and when I entered
the tiny cabin area the pilot motioned for me to sit in the
seat behind him while my French host took my picture. When
I returned to my seat, the other flight attendants were busy
giving out Concorde portfolio cases and toiletry bags. It had
been just over three hours, and the flight was coming to an
end. My host charmingly asked if there was any final thing
he could do for me. I thought of all kinds of things but simply
thanked him for his attentions.
The final approach to Charles de Gaulle airport was like
being in an air show. The plane banked fiercely on one side
and then on the other in a nose-dive. Just before landing, the
back end flattened down first, and then the front, where I was
seated, gently rocked forward to meet the tarmac. The engines
roared in a great reverse thrust, violently shaking the insides
of the plane, and like an anticlimax it simply stopped.
French Customs was a short distance from where we disembarked,
and I was immediately led to a congenial official
who actually smiled and waved me through. I didn't remember
my last time at French Customs being like that.
I felt no ill effects from the trip over, and I was able to
spend a few days in Paris, stay with friends in the French
Alps, spend a week at the Riviera, travel back to Paris, then
fly to London for a long weekend, all without feeling tired.
For me, it's quality, not quantity, that matters. One great trip
occasionally rather than three mediocre vacations regularly. At
the same time, I'd accumulated the money not spent on the
ordinary trips to pay for the luxury trip, and I could enjoy
myself in Europe freely.
Another spending behaviour I didn't share with my
coworkers was participating in the workplace lottery pool. It
just didn't seem to be proactive to me. They all hoped for a
windfall of money by making weekly payments. My windfall
of money would come from making regular payments to a
savings plan. Over the six years I worked there, none of the
lottery crowd ever came away with a pile of money, but I did.
And what kind of fun was that, losing money, week in, week
out, for years on end? I, not chance, controlled my money,
and in the end I had a sure thing.
My spending patterns seemed to differ, in fact, in almost
every area from those of my peers. One friend had a flashy
new car complete with expensive lease payments, but it didn't
bring her the most happiness. She wanted her own apartment,
but with the hefty monthly payments on the car she
couldn't afford her own place and had to keep living with
her parents. And a new bride complained to me when the
couple bought a run-down house. On my visits to their home,
it looked like they were living in poverty, but my cousin loved
shopping, and she rarely went into a store without buying
something. It seemed to me that her recreational shopping
was an escape as she happily went from store to store. That
is, until the day I witnessed her tearful pleas while her husband
locked up her credit cards. Whenever I slipped into the
behaviour of buying low-value treats as rewards for enduring
unsatisfactory conditions (working), I quickly corrected it by
noticing the unhappy results that the habit produced in others
around me.
The principles of my plan kept me from going astray as
well. At the beginning of 1988, I was focusing on the time
and the effort of earning money and their relative value to
me, carefully examining any automatic or externally conditioned
thinking patterns. I'd been doing collections since 1982,
and I knew I couldn't do it much longer. My financial position
was good: I had about $24,000 in my RRSP and
nonregistered investments (still in gold, silver, bonds, and certificates),
about $35,000 left on rny mortgage, and no other
debts. My net worth was now at $145,000 due to a surprising
real estate evaluation that estimated my condo resale price at
$140,000. However, after almost two years, even with some
early repayments, I had lessened the mortgage liability by only
$9,000. I knew I'd have to be more aggressive in paying it
down. A retroactive pay increase in the form of a lump-sum
payment was due to me at any time. The union's settlement
would mean that I could look forward to an extra $9,000,
which I'd apply to the mortgage.
In the meantime, my luxury condo was affordable, and it
was completely furnished to my satisfaction with enough new
items to keep me happy indefinitely. I had travelled to Las Vegas
and Europe within the past six months, so I was content to
delay travel for a while. But I would still need another job to
achieve early retirement. I thought of my grandmother, who
couldn't speak English well yet managed to find work
throughout the Depression. She once told my mother, "You
can always get a job; you can always do something." So, in the
spring of 1988, just after I turned 28, I left my government job.
LAYING A SOLID FOUNDATION
Spend consciously and determine priorities.
Do the math before making any money decisions.
Employers are for net income and stock option
plans.
Take advantage of moonlighting opportunities.
Set aside an emergency fund.
Buy a home in a good area with a 25%-40% down
payment.
Use home buyers' plans and vendor take-back
mortgages.
Stay debt free, except for a mortgage.
Do it yourself or get it free.
Once basic furnishings are acquired, spend
disposable income as follows:
Housing 34%
All other expenses 33% (maximum)
Savings 33% (minimum)
When disposable income goes up, keep all other
expenses at the same level and add the whole
increase to savings.
Savings priorities are mortgage reduction and RRSP
contributions.
Shop at discount stores for all types of purchases.
Buy goods with inherent value.
Select preferred luxuries and enjoy them
occasionally.
Don't count on historical market data for
forecasting.
Jobs and spending habits must never hinder financial
goals.