How I puffed away (some of) my retirement - and other benefits of quitting smoking

Benefits of quitting smoking 3

My history of smoking


Just recently, I’ve celebrated five years of being a non-smoker. Five years ago, I’ve decided to quit this nasty habit, and puffed away my last cigarette. It wasn’t easy, but after some serious thinking about smoking and its benefits (none), amount of money I was spending on it, and countless other benefits of quitting smoking - I’ve made my choice and threw away my last pack of cigarettes along with my lighter.

As I might have mentioned before, I grew up overseas in Russian Siberia. Unfortunately, smoking is much more prominent there as it is in Canada, especially among youth. Just to give you an idea, according to Wikipedia people smoke 3.5 times more as they do here in Canada. Good news for Canada is that smoking rates have been plunging steadily as more young people don’t even try smoking and don’t get hooked on cigarettes.


Benefits of quitting smoking

Benefits of quitting smoking


Unfortunately, I was one of the kids who picked up smoking somewhere in high school. Since almost everybody smokes in Russia (at least this is what it looks like), smoking seems fairly normal, and hence it’s one of those things kids want to try. First it was few smokes in between classes (mostly to look cool). Then it became a social habit of smoking while hanging out with my friends. After becoming an adult, it became an everyday habit. I just had to have a smoke in the morning with my coffee, one at the end of the day “to relax” (which by the way is a complete lie), and countless others in between. By the time I was in my mid-twenties, I was smoking roughly two packs a week. It’s pretty light by most smokers’ standards, but nonetheless it was still a nasty habit, and it was starting to affect my health.

I’ve noticed regular headaches that would always creep up on me towards the end of the day. My blood pressure was above the norm. Sometimes, I had troubles sleeping and would venture outside for a smoke in the middle of the night. On top of everything, I almost always lacked energy and felt depressed. Ask any smoker, they have probably experienced these exact symptoms.

But it all changed as soon as I quit smoking.


Financial benefits of quitting smoking


Since I mostly ramble about financial matters, let’s take a look at how much money I have wasted by smoking. Let’s say I’ve been regularly smoking two packs a week for five years. Presently, the cost of cigarettes is around $9.00/pack.


5 years of smoking = 2 packs @ $9.00/pack * 52 weeks * 5 years = $4,680


This means I puffed away roughly five thousand dollars in just five years when I was smoking regularly. Now, before you say that $5,000 isn’t really a retirement fund, plug that number into any compound interest calculator - and you will find out how much money I’ve really puffed away by spending $5,000 on cigarettes instead of investing this money:


Benefits of quitting smoking

Benefits of quitting smoking


What does it mean? It means that by smoking 2 packs/week for only five years, I’ve puffed away $325,000.34 that I would have had in 40 years if I simply invested that $5,000. Not exactly a retirement, but a very good chunk of it, don’t you agree?

Just in case you need some visualization, here are just some of the things I could buy in 40 years with my cigarette money:


4 bedrooms, 3 bathrooms, 3,100 square feet house in San Antonio:

Benefits of quitting smoking

Benefits of quitting smoking


Lotus Elise (zero to 100 km/h in 6 seconds, baby!):

Benefits of quitting smoking

Benefits of quitting smoking


LeBron James’ engagement ring:

Benefits of quitting smoking

Benefits of quitting smoking


While I wasn’t spending a lot of money on cigarettes, quitting smoking still benefited us financially as it gave us more cash in our pockets without doing more work. It was like getting a small raise without asking for one. More money means we can invest more money towards our goals, and hopefully reach the proverbial financial independence sooner. At the end of the day, quitting smoking is like finding free money every week.


Other benefits of quitting smoking


Aside from financial benefits of quitting smoking, there are myriad of others.

1. I smell nicer (please don’t ask to verify)

2. My wife has one less reason to complain

3. I no longer experience crushing headaches and my blood pressure is perfectly normal

4. Running up the stairs doesn’t make me lose my breath for 10 minutes

5. I don’t have to stand outside in exile while everybody is enjoying a party inside.

6. Food tastes better

7. People no longer regard me as the worst person on this planet when I happen to walk by their kids

8. No need to see scary pictures they put on cigarette packs (seriously, they’re disturbing)

9. I save 5 minutes a day now by NOT coughing my lungs out every morning.

10. I can finally recognize basic shapes and patterns


Why you should quit smoking too


I hope you’ve opened your mind to how much smoking is costing you in the long run. Even if you only smoke for 5 years like I did, you will miss out on huge pile of money at the end of your working career; and the longer your smoke (or the more you smoke) the bigger that pile gets. Every time you light up imagine the house you’re puffing away, or a nice retirement fund. Somebody who smokes a pack a day will smoke through almost $2 million by the time they hit retirement age:


Benefits of quitting smoking

Benefits of quitting smoking

To be honest, I feel like nobody has the right to complain about not having enough money if they still smoke. You can give yourself an instant raise - if you quit this nasty habit. You’ll have more month left at the end of your money, and you can take care of your retirement by simply redirecting your existing funds.

Besides money, think of all the other benefits of quitting smoking. By quitting, you will improve your quality of life tremendously at no cost to you. This is a great investment right in front of you!


Do you smoke? What are you thoughts on this? Please leave me a message below.


How much money do Olympic athletes earn?

What do Olympic athletes earn? 32

Do Olympic athletes earn a lot of money?


With 2014 Olympics in full swing, everybody is talking about sports. While I’m not exactly an athletic person, I’ve always admired people who dedicate themselves to sports; especially if they get to the level of representing their country on the international scale - such as World championships and Olympic events.

At the same time being a huge financial nerd, I’ve always wondered if being an athlete pays anything. This is not exactly a regular job, isn’t it? You don’t work eight to five, you have to train a lot, you get to fly around the world, and quite often you’re asked to pee in a cup for drug testing. But do you make the big bucks?


You might want to get a real job


What do Olympic athletes earn?

What do Olympic athletes earn?


Just being an Olympic athlete doesn’t actually make you a lot of money. Olympic athletes do earn a small stipend ($200-$2,000), and many of your expenses are reimbursed such as travel, hotels, and training camps. Your clothes will also be provided by the official sponsor - Hudson Bay Company in Canada and Nike in United States. Also, being an athlete with higher risk of injury, you are provided a special health insurance that covers sport-related risks and injuries.

So, at first glance being an Olympic athlete isn’t the best way to get rich quick. In fact, you might want to hold on to your day job in order to pay the bills. Being an athlete is far from being cheap as you have to invest a lot of time into training, eat properly, and buy specialized equipment.  But there’s more money in sports!


Medals = Money!


In 2007 Canadian government announced it will be rewarding Canadian athletes financially for earning medals at high-level events such as World championships and Olympic Games. Just for that reason Athlete Excellence Fund (AEF) has been established. Funding comes from government (federal and provincial) and corporate sponsors. In 2012 over two million dollars went into Athlete Excellence Fund to support training, research, and athletes’ compensation.


What you stand to earn by grabbing medals:


$20,000 - Olympic gold medal

$15,000 - Olympic silver medal

$10,000 - Olympic bronze medal

$5,000 - Top 5 position in World Championship.

Canada is not the only country to reward their Olympic athletes for earning medals. In fact, some countries offer much higher rewards for earning gold at Olympic Games. Some of the numbers are truly mind-boggling:


What do Olympic athletes earn?

What do Olympic athletes earn?


- Azerbaijan (I’ll give you $5 if you know where this country is located the prize has been claimed by one of my awesome readers!) will pay $510,000 to their athletes if they bring home gold medal from Olympic Games in Sochi. Out of four athletes from Azerbaijan (have you found it yet?), none are expected to bring any medals though.

- Singapore was ready to pay $800,000 for gold medals in London Olympic Games. No gold medals were earned by their athletes that year.

- In United States, government pays $25,000 to gold winners, $15,000 to those who earn silver, and $10,000 for bronze.

- On top of monetary compensation, some countries offer luxury cars, apartments, and even supply of food to those who bring home medals.

- British Olympic athletes earn absolutely nothing for their medals, but winning has other benefits. From the moment any take gold medal, Royal Mail will begin designing a stamp bearing their image and deliver them to 500 post offices for sale the following day!



Where the big money is!


But the main source of income for athletes isn’t financial rewards for medals. Most of the money Olympic athletes earn come from corporate sponsorships. Larger companies such as Nike, Nokia, Adidas, Gatorade, and many others want consumers to associate their products with high performing athletes. To do this, they sponsor selected athletes and provide them with steady stream of income sometimes reaching millions of dollars. In return, sponsored athletes wear their brands at sporting events, appear on their advertising, and participate in corporate events.


What do Olympic athletes earn?

What do Olympic athletes earn?


Amount of money Olympic athletes earn from sponsorships can reach stratosphere but you must understand far from everybody can earn this. Most corporate sponsorships are much more modest.


Top ‘Olympic’ sponsorship earners (as of 2012):


1. Usain Bolt (Jamaica) - $20,000,000. Sponsors: Puma ($9m p.a), Visa, Gatorade, Nissan, Hublot, Virgin Media.

2. Kim Yuna (South Korea). - $9,000,000.  Sponsors: Kookmin Bank, Nike, Korean Air, Hyundai.

3. Michael Phelps (USA).  - $7,000,000. Sponsors: Speedo, Visa, Omega, and Under Armour.


My wife bought me a motorcycle. Kind of.


For as long as I can remember, I always wanted to have a motorcycle.


I guess it’s one of these things guys like - motorcycles, battleships, machine guns, greasy burgers, and other gender stereotypes. Loud things and complete disregard for safety are very appealing to us - no wonder men don’t live as long as women.

When my wife asks me what I want for my birthday, I always say: “- No need to get me anything, unless you want to buy me a motorcycle.” I’m kidding, of course. And she always says, “- One day, when we have enough money, I’ll buy you a motorcycle for your birthday.”

And we laugh and go back to our daily lives.


However, for my birthday last week my wife gave me this:


My wife bought me a motorcycle


You’re probably now wondering if Mrs. Financial Underdog has somewhat cruel sense of humor. While she does tell me from time to time we’re having pie for dinner just to see me get excited for no reason, she’s generally a very kind non-cruel woman.


Then why would she give me a toy motorcycle?


As she quickly explained, while a real motorcycle is not exactly possible, it’s not always going to be this way.

And I completely agree with her.

See, right now we’re not financially set. We still have to go to work, have to make our own coffee because it’s cheaper this way, have to choose slightly cheaper detergent just to save $0.99. Every month we have to plan our spending - because we don’t have stacks of money lying around -  and have to watch where our money goes.

At the same time, we’re doing everything we can to grow our investments in hopes that one day our money will be working for us harder than we have to work for our money (boy, that’s a bit wordy!). Every month we put a good chunk of our money away towards investments, throw some extra money towards the mortgage (more like bondage), and enjoy our simple lifestyle. No new cars for us, simple pleasures here and there, and a whole lot of dreams of things to come.


But one day it will change.


One day we’ll reach that financial independence everyone is talking about by following our plan. One day our investments will be producing a steady stream of income and work will become something we choose to do - not something we have to do. We will be able to take off and visit cool places once in a while. Maybe we’ll choose to buy ourselves some toys. And one day, I will choose to own that fancy motorcycle - and proudly ride around knowing that we did all the right things in the beginning of our journey, and now it’s time to enjoy the fruits.

We have to keep the future in mind - and stop focusing on today’s problems only. You can’t always look under your feet - once in a while you have to look up and see your destination getting closer and closer. Because this will give you energy and motivation to keep doing mundane “Left foot, right foot” routine every day and say “- Hey honey, we’re almost there. We’ll get there soon!”


My wife bought me a motorcycle


So, for now this little toy motorcycle will sit on my desk and remind me of our destination. Think of it as a symbol of that future, or a small advance against it. To be completely honest, I’m not even sure I’ll want to buy a motorcycle when we get there - maybe by that time flying cars will be all the rage. But it will sit here for now and remind me to keep going.

Left foot, right foot, left foot, right foot…


PS: For those of you who thought this post is way too long to read, here’s a musical rendition of it featuring scenes from TV show “Kings of Queens”:


Three things I wish I knew before investing in mutual funds

Investing in mutual funds 2

Investing in mutual funds is a great idea


One of my core beliefs is that you have to put money aside and invest it to make it grow. Mutual funds were my first choice for investing back when I’ve started educating myself about investing money in general.  Simply saving the money in your bank or purchasing GIC’s is a sure way to lose money because of inflation. Inflation will slowly eat up your savings, and Guaranteed Investment Certificates (GIC) returns are extremely low and won’t protect you.

Investing in mutual funds

Investing in mutual funds

Investing in mutual funds sounds like a great idea for beginners, and in most cases mutual fund investing is a very appropriate choice. Mutual funds are extremely easy to purchase - if you can do online banking, you can purchase mutual funds. They’re diversified and in general it’s hard to lose all of your money with mutual funds. And what’s most appealing to me - you don’t need to manage them. You basically buy into a fund that is managed by a professional team; you personally don’t need to do anything but open up statements once in a while and watch your money grow (hopefully).

These were the reasons why one day I’ve decided that mutual funds are the best thing since cheese you put on sliced bread, and searched for a mutual fund company representative in my area. After sitting down with him, most of my savings that were sitting in the bank were used to buy mutual funds, and for the next little while I felt like Gordon Gekko in the making - after all, I now owned tiny pieces of some very large companies and large pieces of very tiny companies.

And in all honesty, it was a good learning experience for me - but I wish some of the things I’ve learned later were known to me before I bought my first mutual funds.


Mutual fund salespeople have to get paid


When you walk into a brokerage company ready to start investing money in mutual funds and start talking to an agent, make sure you know how they get paid. While it might be an awkward question to ask, I think this is one of the most important questions that need to be answered before any transaction takes place because not all mutual funds sales reps are created equal.

Quite a lot of them are paid on commission - these are usually employees of larger brokerage firms. They won’t charge you anything to do an analysis of your financial situation, and will purchase mutual funds for you through their company. Now, since nobody is working for free, the question is how do they get paid? They might receive a salary from the brokerage company, but in most cases, the majority of their income comes from commission paid by mutual fund companies for recommending their product. In some cases, sales commissions are their sole source of income.

This is where things get interesting -  depending on the mutual fund their commission may vary. Some mutual funds choose to pay a higher commission for recommending their products, which in turns creates a conflict of interest, at least in my mind. If product A pays me $5,000 commission and product B (which may or may not be a better product) pays $2,000 commission, can you trust my opinion? My spider sense is tingling, and so should be yours.

Others are “fee only” consultants which means you pay them an up-front fee for doing an analysis of your financial situation, and making recommendations - which funds to purchase or how to re-balance your portfolio. This is more a “do-it-yourself” approach as then you can purchase recommended mutual funds through an online broker (which isn’t that hard) or your bank. Personally, I’m more comfortable with this approach because one might argue the advice you get from an independent consultant isn’t affected by commission payments.

If I was to go back in time and start investing in mutual funds all over again, I would try to deal with “fee-only” consultants simply because of trust issues. It is my personal opinion (underline “personal opinion”) that when somebody gets paid a set fee, their recommendations will be less biased, and geared towards products that are better for me, not the ones that pay higher commission.

Word of advice: when investing your money in mutual funds, make sure you know how your broker or consultant is getting paid. While it might be an awkward question, you must know this and keep it in mind when making your purchasing decisions. 


The fund management needs to get paid too


All actively managed mutual funds charge for their services. After all, people who make buying and selling decisions around the fund can’t do it for free. They also need offices, marketing budgets, and fancy coffee for visitors. In most cases, mutual funds pay a percentage of their assets to a management team and that amount is called MER (management expense ratio). You can find the percentage paid to management in the prospectus document given to you (or find it online). Here’s a typical breakdown of management fees:

Investing in mutual funds

Investing in mutual funds

You have to be aware of the MER charges when investing your money in mutual funds because they do affect your returns. After all, if your fund gained 10% last year, your actual return would only be (10% - expense %). Some funds have higher expenses, some have lower ones. For example, index mutual funds almost always have lower expense ratios which make them far more appealing than mutual funds pushed by big brokerage companies, sometimes as high as 2.7%. You might not think this is a huge amount, but over the long period of time even 1% difference in MER charges makes a huge difference on your overall portfolio. If you feel like playing around with numbers, check out this calculator to get an idea how MERs can affect your portfolio performance.

Also, keep in mind that fund’s management team gets paid either way. Whether your fund loses money or makes money, the MER amount is being taken out of the mutual fund and transferred to mutual fund management team. While some people might say that actively managed mutual funds deliver better results and thus make up for higher expenses, a number of studies find that only a minority of mutual funds beat the market.

Personally, I wasn’t aware of management expense ratios when I was taking my first steps into investing world. To me all funds sounded the same, and the only number that mattered was their performance. If I was to start investing in mutual funds all over again, I would stay away from funds that charge high MER and instead look into cheaper index funds or ETF funds.

Word of advice: when investing your money in mutual funds, be aware of management expense ratios (MER), look for them in prospectus documents, ask your broker about them, and keep them in mind when choosing between funds.


 Some funds have deferred sales charges (DSC)


Most mutual funds have sales charges associated with them. Sometimes they’re charged right away and taken out of your investment thus reducing your buying power (these funds are known as front-loaded). Others charge you a sales charge when you decide to sell (back-loaded) and the amount  is prorated to the length of time you’ve been holding your investments in this particular mutual fund. Believe it or not, there are also no-load mutual funds that don’t charge sales charges when you sell them.

Here’s a typical deferred sales charge (DSC) schedule for an actively-managed mutual fund (keep in mind that numbers might differ from fund to fund):

Investing in Mutual Funds

Investing in Mutual Funds

What does it mean to you? This means that if buy $10,000 worth of back-loaded mutual fund and decided to sell it the next day, you will get charged 6% of your investment. Most of this sales charge pays for the commission the mutual fund paid out to your broker when you put the transaction through.

Now, is this a big deal? If your investment horizon is several decades and you’re in for a long haul, the deferred sales charge might not be a big deal to you. But if you’re just starting investing in mutual funds and you’re not sure how long you want to hold this particular fund, you might want to go with no-load funds. In my case, I had to pay deferred sales charges when I’ve decided to change my investment strategy and ended up selling my mutual funds.

Word of advice: before you complete the transaction, make sure you’re aware of any DSC charges attached to funds you’re purchasing. Ask your broker - are these funds back-load, front-load, or no load at all? If your investment horizon is short, you might want to look into purchasing no-load mutual funds.