One way to move forward in life is to observe the mistakes others make, then learn not to make them yourself.
It allows us to educate ourselves inexpensively. You don’t have to stick your tongue to a metal pole in the schoolyard to learn not to do it.
An instructive example was recently offered to us by the news during the teachers’ strike.
As we all know, tens of thousands of teachers saw their general strike drag on in December. Result: many of them missed 22 days of work, the equivalent of two paychecks and dust.
Many experienced stress, in addition to seeing their financial lives derailed due to this unexpected event that occurred just before Christmas.
A couple of teachers in their forties told the Duty that he would experience a “catastrophe” if he was not paid in December. “Sleep is very rare,” said a teacher with 15 years of seniority who requested debt consolidation, and postponed the financing of her vehicle at great expense. “The next step is bankruptcy,” she said.
Strikers began delivering meals for Uber Eats or DoorDash. “Currently, our salary is Uber,” he told Duty a teacher with around twenty years of seniority.
I waited before writing on the subject, because I didn’t want to give the impression of hitting on people who were going through difficult times.
I want to be clear: I am not criticizing teachers. My father was a teacher. My uncle, my aunt and my childhood neighbors were teachers. Teachers are no better or worse with money than nurses, politicians or journalists.
This is because, unwittingly, teachers have just shown us what happens when we are hit by an unexpected financial event without having prepared for it.
Ordinary life, extreme life
A person who works for a full-time employer receives 26 paychecks per year. After five years, 130 direct deposits will have taken place in his bank account. Ten years ? That’s 260 deposits. Fifteen ? It’s 390.
Whether we are a gas station attendant or CEO, if after having received 130, 260 or 390 direct deposits, our financial life is derailed because of the absence of 2 direct deposits, we have adopted – probably without realizing it – extreme behavior.
Historically, giving up on keeping part of your income for yourself is completely out of the norm. No farmer would take the risk of living without putting part of his harvest aside. During the industrial revolution, savings were scarce, but that’s because wages were barely enough to survive. Things like eating meat, buying clothes, or taking time off work to travel were reserved for bosses.
In the 1970s, Canadian and American families were still saving more than 10% of their income on average. Today, this rate has halved, to stand at 5%.
We often have the impression that life costs more than before, and that spending 100% of our salary is inevitable. In fact, when inflation is taken into account, many basic expenses are lower today than in the past.
For example, according to Dalhousie University, the percentage of income spent on food has fallen by half in Canada since the 1960s1. Canadians spent 19.6% of their income on food on average in 1969, compared to 11% today.
What about housing? Of course, housing costs more than before. But our housing choices have also changed significantly: in Canada and the United States, new homes are twice as spacious today as they were 50 years ago2.
We often like to tout the 1950s as a golden age of income and the economy. But three children sharing a room was common in the 1950s. In proportion to the salary, clothes cost a fortune compared to today. And vacations ? If you had the means to take your family to spend a few days in Saint-Gabriel, Oka or Ottawa, you were one of the privileged ones.
Also, we often think that we work more today than before, and that we are too stressed to take the time to think about our finances. Again, the opposite is true.
In 1870, Canadians worked 2,845 hours per year on average, or 55 hours per week, according to data from the Our World in Data site. In 2017, the average worker in Canada worked 1,696 hours, or 33 hours per week, a decrease of 40%.
Some will say that teachers’ working conditions did not allow them to put money aside.
My answer is that the most important word in the phrase “personal finance” is the word “personal”.
I know people who freelance in theater and have six months’ worth of expenses in savings. When they work less, they draw on their savings to live. And when they go back to work, they replenish the coffers before spending the surplus.
In fact, it is because they work freelance that they have this habit.
I think that many government employees rely on the fact that they have a secure job with little or no savings.
But the flaws in this plan quickly become apparent. No need for a strike to reveal them.
Does your teenager need $7,000 orthodontic treatment? For many, the solution is to draw on the line of credit, to go into debt.
However, an amount of $50 invested per pay cycle in financial investments gives $17,000 after 10 years, and $45,000 after 20 years, if we calculate a very ordinary return of 5% per year, which will be tax-free in a TFSA.
For a person who works hard, has been earning a salary for 10, 15 or 20 years, and who invests a small part of it, things like orthodontic treatment or a stay at a summer camp are expenses that can be incurred. pay quickly by drawing on your investments.
Canadian financial author Andrew Hallam became a millionaire at age 36 on a salary as a high school English teacher.
What he did ? Simple things like using your legs and your bike to get around when possible, and never spending money that belongs to the bank to buy a vehicle. He also lived in smaller and more modest accommodation than those chosen by his colleagues.
Above all, Andrew understood that earning a salary is only the first step to financial success; the second is to save and invest. Not doing so means betting everything on your next paycheck – whether you earn $50,000 or $750,000 a year makes no difference.
Andrew has long since resigned. He now gives financial conferences around the world, in addition to traveling full time. He and his wife are millionaires many times over, but still budget and write down every expense so they know where their money is going.
Meanwhile, an acquaintance of mine who works in a large organization is surrounded by older colleagues who are a few years away from being able to collect their full pension, and who are only working because the schedule tells them they have to work. They have zero desire to be there.
These people earn several times the teaching salary that Andrew earned. But they didn’t invest. So they spend precious years in good health in their “golden prison”.
If you find that you have built a life that sucks up every dollar you earn, take the time to look at where your money is going.
The size of your salary doesn’t matter. I assure you that people earn 10% less than you, spend 10% less than you, and find a way to be happy.
It is sometimes said that every society is three meals away from chaos.
Let’s manage so as not to be two paychecks away from chaos.