Intro to Adulting: My Money

I've been 2 years removed from graduating from University so I felt it was about time I did a quick guide to adulting based on my performance and what I've learned so far. I also think it will be helpful for any new adults like myself, maybe we can start a discussion about our strategies, struggles and triumphs so far.

First, I admit that I know nothing. Worse still, I don't know what I don't know.

What that means is, I do as best as I can with the information available to me and I try to gain new information along the way. That said, let us begin. 

What I started with

I came out of University with zero Debt. (Shout out to My parents). I also had a credit card but that was fully paid off. I never had a balance up to $300 all through school and never missed a payment. I had pretty great credit coming out of school, not close to what it is now and it was good then.

My money philosophy

Money is like a plastic bag. In the hands of an adult, packaging, in the hands of a child, a suffocation hazard. It is firmly up to you to determine what you do with it.

Your biggest wealth building tool is your income and the largest wealth destroying tool outside of you is debt. You go into debt the moment you believe you should have something you can't afford today. I strongly suggest you avoid debt other than a mortgage if you can. My largest bill outside my home is my car note which I don't think was worth it knowing what I know now. 

Also at some point in your life, you would have controlled at least $1million. Say you earn a modest $24,000/year over 40 years of your working career. That is an almost guaranteed $960,000. Most of us will easily out-earn that. So while that might be a long span of time, you might have already spent it all, I'll get back to this in a second.

Credit allows you control your future earnings and isn't all bad. With it, you create debt. Credit is simply a promise to use your future earnings on a present expenditure. So if you are promising to use the money 30 year old you will earn to buy a TV today that will be obsolete by that time, I'm happy for you. With that in mind, credit can be a powerful tool for wealth creation if you monitor it VERY closely.

In every good board game, the very best players have a long term strategy that guides their short term play. Life is financially set up the same way, if your long term strategy for wealth is via your business, your financial thought process should not follow the neighbours who intend use the stock market to achieve their goals. Each financial product is a vehicle that carries you to different destinations at different rates. It makes no sense to take a plane to work 10 minutes away. If your goal is to buy groceries a street away, a porsche and a camry will both get the job done in the SAME TIME even though the porsche is a faster vehicle. I could even argue walking is faster if you introduce street traffic. The point is, know your money goals, and plan the most effective route there for you.

My Money Strategy.

Step 1. Educate yourself.

In my first year out of school, I was out of control with money. I really was. Luckily, in my recklessness though, I bought 3 books on money. "Deal with your Debt", "The Intelligent Investor" & "Robert Kiyosaki's Guide to Investing". These books started my curiosity into personal finance and I still review them every once in a while. 

I have since gone on to listen to a bunch of audiobooks; "The millionaire next door", "The total money makeover" are probably the best of the bunch.

After learning those basics, it was time to start putting the lessons to practice.

Step 2. Know your goals (Why are we even doing this?)

This is the most fun part. Be honest with yourself. If you lie to others never lie to yourself.

For me, I would really love to be a millionaire before or by 35. Why? To know I did it really. Something cool about getting that label. No other reason. In my journey, I've already found that isn't a lot of money like that, I probably know too many millionaires since they won't tell me if they were.

I'd like to have paid off my first mortgage at 33. I'm pretty sure I can do this sooner but that will severely limit the diversity of my portfolio.

Also, I'd like to have a non-active net income of 24,000K/year in 4 years. This means, whether I sleep or work, I want that sort of money to come to me. This number is because I project that will be sufficient to cover my monthly expenses of $2000/month when I'm 27. I would not HAVE to work but choose to. This will then allow me to fully use my entire active income to fully invest. 

Step 3. Control & Plan yourself. (How will we do this?)

Remember how I said your biggest wealth destroying tool outside you is debt. This is the 'you' part. 'You' is the reason you keep getting into debt. 

  • 'You' is the reason you keep buying food when there is rice at home.
  • 'You' is the reason you keep trying to flex when that paycheck hits but have too much month left to go when the money finishes.
  • 'You' is the reason you have an empty fridge but your closet is leaking zara clothing everywhere.

To stop 'You' from killing all your wealth before you even have a chance to have it;

You need a budget, a budget is your mid to short term plan built to achieve your goals. 

So, first step, I know my income, I first deduct my wealth building tool, we'll call it the money shovel. Let's say I use $1000. This means every year, I have about $12000/year to use to achieve my money goals. After this, I now have to deduct, my expenses and living costs. 

For example, 

Income = 2000, money shovel = 1000.

This means I need to find a way to live on $1000 every month. I will now budget my expenses based on this $1000, not the $2000 I make. Allowing me peacefully grow my wealth with my money shovel and not worry about other stuff. So if a flashy new couch comes along and I buy it on credit for $5000, I have lost the opportunity to invest for 5 months if I pay cash. Sorry but I can't be working 5 months for a couch.

But what if the payment is low if I use credit, like $200/month?

First of all, Still paying for a couch after 2 years? Come on!

Also this means, I have only $800 to invest for the next 25 months. Not Bad, but that's not as exciting quite frankly.

If you have $200 in your budget for expenses that you somehow weren't using, then I guess go for it, but I mean, 25 months to pay though?? 

But if you're using the same $5000 for school, that would make more sense. You're investing in yourself with a potential to increase your money shovel.

Warning: don't use 25 months of work to pay for a degree in papier mâché!! 

If you realize you have no space for a money shovel in your income, either your income is too small or your expenses are too high. Either way, something needs to change.

Step 3.5. Get out of consumer debt (If you have no debts other than a mortgage skip this)

I'm currently in this phase, I pay just under $600/month on items that don't grow in value, worse yet, they lose value the more I use them. I've temporarily suspended using my money shovel for investments, I am now fully trying to pay these off. Like I said if I knew what I know now, just two years ago, I would be in SO much better shape, alas no time for regrets. Get out of debt and stay out of debt.

One thing I noticed with myself, my mind can't be at peace claiming I'm investing when I know payments are coming. If for some reason I'm in need of money, I'll withdraw from investments to cover the need. Depositing money in investments cost money. Withdrawing from investments cost money. So I'm paying to put money there, paying to take money out?? UGH!!!! 

To stop going forward and taking two steps back in my investing, I'd like to pay all debts. Multitasking on investing and paying debts is a waste of time, do one at a time and focus on it. Also, if my money shovel grows by the monthly payments I spend on debts, I might just be able to make my goals on time, a slim to tiny chance but with God all things ....

Step 4. Get Ready for Life

Life is interesting, when you are unprepared for it, it will throw curveballs at you. When you are ready, it leaves you alone. This is Murphy's Law. What can go wrong WILL go wrong! 

But Tolu be optimistic. I'm excited to inform you, you are not dead, Life happens!

Get an emergency fund. Most likely enough to carry you through a few months of expenses. 3-6 months is a good range. 

So 6 months worth of expenses just chilling in an account somewhere. Do not spend it, Pizza is not an emergency, hunger is not an emergency, there is rice at home. Put it in another bank account that your card can't spend.

Step 5. Pay your taxes.

I feel like this should be step 1.

For most of us, taxes will be deducted long before we get a chance to touch our income, but let me mention briefly. If you become a business owner, a contractor or self employed you will have to do this yourself.

So now that is out of the way, lets talk about pre-tax dollars and after tax dollars.

In order for me to pay for a $1 drink. I need to earn almost $1.4 pretax dollars.

Your pretax dollars are your gross income, that number you tell your mother and close friends you make. The thing makes people shallow if they end the date for being too low.

After tax dollars are what you get in the bank that you actually do stuff with.

So say you are in a 25% income tax bracket, paying 13% sales tax. A $1 product after tax requires that I make about $1.33 pretax. The government will take some 21 cents in income tax and then 13 cents in sales tax. These taxes will get higher as you make more money.

All I'm saying, you might want to start keeping these things in mind when you're buying a new car. It is also your job to legally pay as little tax as possible, it is the government's job to legally collect the most amount of money from you. If for any reason they overcharge you, they WILL NOT give you back until you find the mistake OR file your taxes.


Mistakenly owe the government one minute and watch how quickly they discover interest calculators. 

Step 6. Learn Investment paths.(I only know some canadian ones... for now)

Another fun part. Investing is super fun and surely gives the best pleasure when your money grows.

Alright so some financial products allow you tap into pretax dollars, others tap into after tax dollars. The main goals of them are to help you increase your money.  You pay the fees necessary to do this investing so I strongly suggest, you NEVER EVER use a financial product you don't understand.

Tax sheltered Accounts

  • RRSP (Registered Retirement Savings Plan) - An account that allows your investments grow TAX-FREE. The way it works you invest with Pre tax dollars but you withdraw with after tax dollars. So say I'm in a higher bracket, for this example If I make 50,000/year in a 30% tax bracket, if I invest $10,000 here, this money will grow tax free.

When I file my taxes, the government will assume I made $40,000 that year, because I invested $10,000 in my RRSP and will refund the taxes I paid on that $10,000.

BUT, if the next year, I now make $200,000 and my tax bracket is about 40%. If I withdraw my $10,000 from my RRSP(maybe I don't like that it didn't grow), I will have to pay 40% taxes on the $10,000 because that is now my tax bracket instead of the 30% I was on before.

There is a limit on how much each individual can invest in this per year as determined by the CRA. Please check before you use this. It is up to you to not go beyond your yearly limit, no financial institution will monitor this for you.

  • TFSA (Tax-Free Savings Account) - Another account that allows your investments grow TAX-FREE. The way this one works, you invest with after tax dollars and NEVER pay tax when you withdraw. In a way, the government pretends it never saw this money when you withdraw.

So using our last example you invest $10,000 after making $50,000 in the  30% tax bracket, you won't get the refund on the taxes you initially paid to earn the $10,000. You will pay the full taxes on your $50,000 you made the first year.

You move up to a new 40% bracket, You will pay no tax when you take your money out. Lets say you now have $15000 for investing in the next apple. You will pay zero tax when you take out the money. 

There is a limit on how much each individual can invest in this per year as determined by the CRA. Please check before you use this. It is up to you to not go beyond your yearly limit, no financial institution will monitor this for you.

There is a RESP which is for investing for your child's education. I have no business there so I haven't bothered to learn about it yet. I'll bet it is a similar concept to the above.

Non- Registered Accounts

Say you are an investment machine and have fully maxed out your limit for the year on these and/or don't care about minimizing your taxes, you can always invest with non - Registered accounts. 

The Government will happily collect capital gains tax and investment income tax from any vehicles you have in the accounts.

Valuable items

Say you buy an artwork by Picasso, its value will continue going up as time passes. However, you are hoping someone else will buy that piece of art for more than you did initially. Some will collect baseballs from memorable games. These game balls will be significantly worth more in the future if the games they were used in were legendary contests and can be authenticated. You can collect vintage cars too, whatever floats your boat.

 If you are about that collector life, by all means, this is a valid means of investing. 

Income producing Assets

Say you buy a house and rent it out, that is an incoming producing asset. You can also buy office buildings, you can buy a business that turns a profit. The income from these will require you to pay taxes though. You will have rental income tax, corporate tax or whatever tax guidelines you need to meet. 

Step 7. Learn Investment Vehicles.

The reason, I called the previous step paths, is because you can have multiple vehicles in each path. So the same way, we can take a bus on the highway or a car on the highway, or a speed boat or a cruise boat on water is how I intend to explain these. Financial vehicles vary from one to another, they have different uses, different benefits etc.

Stocks(also called shares), Bonds, ETFs, REITs, GICs, Index Funds, Mutual Funds, Savings Accounts, Money Market Accounts, Commercial Real Estate, Residential Real Estate & some collectibles like valuable artwork or historic pieces are all investment vehicles. Some we use, most we ignore. We'll discuss these in another post some other time.

Step 8. Start building your portfolio

Now that you know what does what, start building your empire. Remember if you stick with your budget, your shovel will be available to help you build. If you have no shovel, you will in essence spend your entire career's $960,000 on expenses. 

I suggest 15% - 25% of your shovel goes to knocking out your mortgage if you have one. Use the rest on your chosen mix of investments based on your goals.

Having a paid off mortgage frees up SO MUCH money to add to your money shovel to continue building your empire later on.