Risk, Part 1

Let’s take a break from all the finance stuff! My taxes are 90% done, so I’m ready to move on.

I went to Mount Royal University for an Aviation Diploma and subsequently a Bachelor of Business Administration (BBA), graduating from the latter almost a decade ago. One course that has always stuck with me is an Introduction to Philosophy course. One of those courses you ‘have’ to take to make a well-rounded person.

When we got to the part about Philosophy of Ethics, there were three main branches we studied: Hedonism, Utilitarian and Religion.

At the time, I categorized myself as a Utilitarian. So I was pretty excited when we learned about an “experience machine”, a thought experiment to debunk hedonism or prove how flawed the idea is that “happiness requires pleasure” (i.e. hedonism).

Philosopher Robert Nozick brought this argument forward in his book “Anarchy, State and Utopia”. Basically, the reader is invited into a machine where pleasurable experiences are produced, and – once inside – the reader will not be aware they are inside.

If you’re having trouble picturing this, think of the Matrix movies. I’m convinced they poked fun at this thought experiment, and so is Mazursky in his blog Nozick’s Experience Machine and The Matrix.

You might remember Cipher, who betrays Morpheus (protagonist of the movie). He has a nice dinner with Agent Smith (the antagonist of the movie) and the conversation goes like this:

Agent Smith: Do we have a deal, Mr. Reagan?

Cypher: You know, I know this steak doesn’t exist. I know that when I put it in my mouth, the Matrix is telling my brain that it is juicy and delicious. After nine years, you know what I realize? Ignorance is bliss.

Agent Smith: Then we have a deal?

Cypher: I don’t want to remember nothing. Nothing. You understand? And I want to be rich. You know, someone important. Like an actor.

Agent Smith: Whatever you want, Mr. Reagan.

Cypher: Okay. I get my body back into a power plant, re-insert me into the Matrix, I’ll get you what you want.

Compliments of Matrix Fans

I won’t spoil the movie for you, but as you can likely predict, things don’t end well for Cypher.

You see, most people, even hedonists, when confronted with the choice of whether or not to go in the machine will choose not to. They pick the “non-perfect” world we live in over a simulated reality, and why? If hedonism is true and “pleasure is good”, they’d be climbing aboard. But this proves that some pleasure isn’t good, or perhaps, more importantly, non-pleasure can also be good.

Why?

Risk.

Star Trek drives this point home. Five years before The Matrix came out, Star Trek Generations came out. It was a great cross-over movie with Captain Picard (The Next Generation) going into something called “The Nexus” to get Captain Kirk (from the Original Series). The Nexus is essentially a sci-fi Experience Machine. For Captain Picard, he gets something he always wanted -> a family, and for Captain Kirk, he chooses to stay with his wife versus pursuing a career with Starfleet.

Picard figures out he’s in the machine and wants out, but has trouble convincing Kirk. That is, until Kirk takes his horse riding and jumps over a small stream. He does it two or three times before Picard catches up to him, and Kirk describes how – when he used to do it (in real life) – he would get butterflies. He’d be a bit nervous. The transcript reads “it scared the hell out of me”. Why? Because he didn’t know if he’d make it to the other side. Now, in this pleasure-inducing experience machine, what could possibly go wrong?

Risk!

Side note -> Captain Kirk imparts some wise words to Captain Picard.

“Let me tell you something. Don’t! Don’t let them promote you. Don’t let them transfer you. Don’t let them do anything that takes you off the bridge of that ship, because while you’re there, you can make a difference.”

Compliments of Chakoteya

That was good to hear as a young pilot. Actually, as a young man. Find where you can make a difference. And it doesn’t have to be on the bridge of a ship. It can be, but doesn’t have to be. Captain Kirk made his decision and he did make a difference on the Enterprise, but he could have had he retired from Starfleet and stayed with his wife. For him, it was too late, and no experience machine was going to change that.

But for a young teenager watching the movie, with his full life ahead of him, it gave me some direction.

Beautiful Day. How Captain Kirk greets Captain Picard. I still use this phrase with my wife, she gets the reference. Image from TrekCore

TFSA or RRSP (Part 2)

So the RRSP deadline (March 1st) has come and gone, and I elected to leave my savings in TFSA. That’s where we left off on my last post , where – generally speaking – if you think you’ll be in a higher tax bracket in retirement than you are right now (or think personal income tax rates will be higher), go TFSA. In-terms of after-tax dollars, it’s a wash until the differential on marginal tax rates is taken into account.

Oh, and by-the-way, I’m not a financial advisor. So all the usual disclaimers on that, don’t sue me, do your own due diligence (DD in Millennial). I have no idea what I’m talking about!

But – the other piece to factor in is Canadian Child Benefit (CCB), Goods and Service Tax (GST) / Harmonized Sales Tax (HST) refunds, and the Canada Education Savings Grant (CESG).  Basically, the less “money” you make, the more of these benefits you get. And now that I have a baby, I have to start thinking about at least two of these things (CCB and CESG).

Omololu (2020) writes “because RRSP contributions are considered a tax deduction on your income tax return, they lower your taxable income and can increase the amount of CCB payments you are eligible for!”

Ok but how much?

Like personal tax rates, it depends on how much you make. For 2020, it starts at $6,785 per year (for children under 5, like my 5-month old). Then it rolls back as you make more money and have more kids, per the following schedule:

Number of ChildrenUnder $31,711$31,711 to $68,708Over $68,708**
10%7.0%3.2%
20%13.5%5.7%
30%19.0%8.0%
4+0%23.0%9.5%
Compliments of Omololu (2020)

So carrying on in my 36% marginal tax example from my last post, let’s assume I grossed $100,000 in 2020. My wife grossed $50,000. But the above table uses net (take-home) pay, which was approximately $60,000 for me last year. And approximately $30,000 for my wife. So $90,000 total.

Without any RRSP contribution, my CCB would be approximately $3493.86. Free money from the government, showing up as a cheque each month. Not just a return on the interest-free loan we give the government each pay period (in the form of over-paid tax).

By contributing the $10,000 into an RRSP, my CCB goes up to $3813.87. Because I only made $80000. So an extra $320 a year, or just under $30 a month. Or an effective return of 3.2% on the $10,000.

This is quite interesting because before the TFSA / RRSP debate was solved by looking at your marginal tax rate now versus retirement. But in retirement I don’t plan on having children, so this 3.2% won’t exist.

Now that’s a pretty small number. Especially compared to how much the personal income tax changes as you move up in the brackets. However, if you plan to have more children (which I do), it becomes more exponential. Look at the Scenarios Omololu (2020) uses here.

In my case of $90000, once I have four children the difference becomes almost $1000 by contributing $10000 into an RRSP. So that’s an extra 10%, and (hopefully by then) I’ll be making more money, so I’ll be able to take advantage of the refund in a higher tax bracket.

And Occam’s Razor. I found out last week I was going to be bumped into a First Officer pilot position come April 1st. So having some cash available in a TFSA makes sense (versus locked away in an RRSP), especially with a baby and my wife on maternity leave (and also a cabin crew member who is current laid off). Overall, we are fairing well in these COVID times. Flourishing, actually, but that’s for another blog post.

Btw – I’m happy to pay taxes because we get things like maternity leave. My buddy took a high-paying flying job in overseas but his wife got $0 when they each of their kids. And they had to pay tuition for their kids to go primary school.

Oh, two other things. GST / HST credit -> the max you get back for a married couple is $592, varies with a bunch of variables but the main one is income (by the looks of things). Not a huge potato, less than 5% in our $10000 example. And CESG, you can get an extra 10% (to a maximum of $50) on Registered Education Savings Plan (RESP) contributions if you make less than $98,040. Even a smaller potato when talking about $10000 (less than half a percent).

The other frustrating thing is the RRSP deadline (March 1st) is the day after when your employer is required to get you your T4s (February 28th). So calculating this is quite difficult and timely, so I try to track it as I get my paystubs so I have a SWAG (millennial for estimation) on where I land in all this.

All that to stay, I’m sticking with TFSA for now.

Right now, we are trying to do $208 a month (so roughly double this) and have done so since Elijah was born. This gives us the magical $2500 a year, to maximize the CESG (20% up to a max of $500). We could squeeze a bit more if we dropped our income below $98k a year,

TFSA or RRSP (Part 1)

This is a good one to get out.

Out of my head, that is. As per my blog post two days ago.

I rattle this question around alot. I’ve asked many a person, and there doesn’t seem to be a huge consensus. It’s one of those, it depends.

Can you repeat the question?

Take a very simple example. It’s February 25th and you have $10,000 sitting in a savings account. Should you put that into a Tax-Free Savings Account (TFSA) or a Registered Retirement Savings Plan (RRSP)? If you don’t know the difference, check out an explanation by Adrian at Canadian in a T-Shirt. TFSA here, RRSP here. Full disclosure -> I’m a paid subscriber on his YouTube page.

Oh, and by-the-way, I’m not a financial advisor. So all the usual disclaimers on that, don’t sue me, do your own due diligence (DD in Millennial). I have no idea what I’m talking about!

RRSP. In our simplistic example if you put the $10,000 into an RRSP, you’ll turn around and get a $3,600 tax refund. That’s assuming you’re in (and stay in) a 36% marginal tax bracket. And you didn’t reduce at source. Don’t forget the RRSP contribution deadline is March 1st.

That’s why I’m writing the blog today, just a few days before that deadline. Which (ugh I know we aren’t supposed to start a sentence with that), btw, is really tomorrow, because the last two days of February fall on the weekend.

Fun fact -> February 2021 is a perfectly rectangular month. Full description on that here. And I’m a Christian, so yes, Sunday is the last day of the week.

Stay with me here.

Now, knowing that you are going to get a $3600 tax refund, you can take out a short-term loan for $3600 and invest $13600 into an RRSP. Now, you’ll get a $4,896 tax refund ($13,600 x 36%). You can pay off your short-term loan and still pocket just over $1200.

Or, planning ahead, you can take out a $4800 short-term loan, add that to your original $10000, put $14800 into an RRSP. Now your return is $14800 x 36% or $5328. Pay off the $4800 loan and pocket just over $500. Diminishing returns, yes, but I developed a formula that calculates the exact amount.

Where x = loan amount, y = initial principal, and z = marginal tax rate.

In our example, x is the unknown. Y is $10000, and Z is 36%. Plugging that in, the exact amount for our short-term loan is $5625. So you take out a $5625 loan, add it to the $10000 you have sitting there, and put $15625 into an RRSP. You get a tax refund now of $15625 x 36%, or $5625, and pay off the loan in its entirety.

Great, so if we go the RRSP amount, we can turn our $10000 into $15625. So why not go that way?

Because one day, you’ll retire and pull that out. And if your in the 36% tax bracket, you’ll be back to your original $10000 (plus any interest / growth you make in-between).

If you go the TFSA route, no fancy math and your $10000 grows tax-free since you’ve already paid tax on it. So you end up with the same amount of money.

Ok, so it’s a tie-breaker then? Flip a coin.

Not quite. Where the delta (difference) comes in is if you change tax brackets. I assume all the millennials have exited the chat by now.

Take the same $10000 and assume you’re in a 50% tax bracket now. Plugging that into our formula above, you can put $20000 into an RRSP. $10000, plus a $10000 loan. Your refund will be $10000 ($20000 x 50%), pay off the loan. Now you have $20000 working hard for you.

Fast forward to retirement, pull that $20000 (plus growth) out, but now you’ve dropped to a marginal tax rate of 36%. Well you only get dinged with a $7200 tax bill (only?), so you walk away with $12800. That’s more than the $10000 if you had left it in a TFSA.

Ah.

That is how I understand an RRSP works. It’s a deferred tax vehicle, so you kick your tax obligation down the road until, hopefully (?), you’re in a smaller tax bracket.

So now we can conclude, based on all of this and my non-tax-expert rambling, if you think you’re in a higher tax bracket than you’ll be in retirement, go RRSP. Otherwise, TFSA.

That’s generally what most financial advisors have told me…but.

There’s this thing called Canadian Child Benefit (CCB), Goods and Services Tax (GST) and / or Harmonized Services Tax (HST) refund(s), and Canada Education Savings Grant (CESG). You see, if you lower your taxable income by contributing to an RRSP, the amount you get for those starts to ratchet up as well. But I’m already past a page, so that will have to wait for tomorrow.

Photo courtesty of https://www.mashupmath.com/blog/perfect-february-2021

Motivation

Well, it turns out I might be extrinsically motivated.

I mentioned this to Jesse (same Jesse I mentioned in a previous post) – another millennial – and he responds, “externally?”. Ya, exactly!

All the boomers reading this just said “ha! I knew it!”

Yesterday I installed an app on my phone called “HabitShare”. It’s an extremely simple app. You open it up, login with Google (top-tier feature) and add a Habit. Right now, I have “5AM Club”, “Clean”, “Running Club” and “Blog”. I’m looking at it right now and there’s just little circles that represent each day of the week for the last week. A green dot represents a day where you did said habit, a light grey dot means you have yet to input whether or not you’ve done it, and a dark grey dot is a “skipped” day.

The idea here is to track whether or not you’re doing a habit.

More importantly, perhaps, is you can add friends and add them to a habit. So I have an accountability partner, who’s been in my corner of the ring for almost a year now. He’s changed the trajectory of my life. I texted him yesterday and he installed the app. We give each-other full access to each-other’s lives, so he sees my three above and I seen his four.

I might add more, but it’s a start.

The whole concept here is the psychology of streaks. Now, anyone with Snapchat will be familiar with this concept. And for all you boomers, I had no idea what streaks were until a Captain I was flying with (fits into the baby boomer generation) added me on Snapchat and sent me two messages a day. That’s how you get “streaks” going, at least on Snapchat.

On HabitShare, all you have to do is get green dots in a row. So my 5AM Club has a Streak of +2, Running Club +1 (we only run three times a week), both sitting at 100%.

Now, I totally realize this is an adult-version of your teacher putting gold stars on a calendar.

To say I’m disappointed in myself would be an understatement. I’ve never been the guy who boosts a strangers car and then tweets about it (modern day version of looking around to see who noticed), or posts a picture of me being at the gym on Instagram. I’ve ran many kilometers (I live in Canada) by myself, but I do record most of them on Strava.

Do I really need a bunch of green dots and an accountability partner to get out of bed at 5AM? I’m a grown adult, I should be able to do it. But some of the most disciplined people in my life have it, and some of the world’s leading experts on leadership, habits and discipline.

Instead of fighting this, I’m starting to embrace it. If I take the time to setup the right structures in my life, will I be more motivated to do the right things. Do the ends justify the means?

Photo courtesy of https://my32cents.wordpress.com/2019/05/08/does-god-take-attendance/. Looks like an interesting blog, I just subscribed

Uncluttered

My good friend Jesse recommended a podcast where Carrie Nieuwhof interviews Patrick Lencioni. Check it out here.

I did have to Google both of these gentlemen to figure out how to spell their last names. I’m also an avid fan of Pastor Craig Groeschel, and I’ve managed to memorize that spelling. I did just have to add all three to Word’s dictionary thought.

Anyways, Lencioni recently developed a model called the “Six Working Geniuses” and Nieuwhof interviews him about it. Turns out I have the working genius Tenacity and Wonder. Tenacity was no big surprise, and I predicted I would have it (and “Discernment”, which I scored average on). Wonder, however, is a surprise. Mind you, I’ve always been a very curious person (is that the same thing as Wonder?). And I went and took the Working Genius quiz to learn more about myself.

And my wife. And my friend, Jesse.

For Jesse it was also a thanks for the recommend, and it was his birthday (don’t worry,  I got him ice cream and bacon too).

I’ve done plenty of these quizzes in my life. Just look at my LinkedIn profile (see the contact section on this site). I’m a 3 on the Enneagram, with a 4 wing (corrected from a 2 wing after my wife read this). I have a Gold personality, and I’m an INTJ (Rational Strategist) on the Myers-Briggs

So don’t really see Wonder in there.

However, a month has passed and I see where it fits in.

Learning. I enjoy learning.

In fact, I enjoy it so much its become problematic. I like to learn about everything. I’m an analyzer, and this quickly leads to over-analysis, or paralysis-by-analysis. Hence the title of this blog post, “Uncluttered”.

You see, I spend all my time trying to figure something out, but it eventually feels like squeezing blood from a rock. In my last post, I said I’d talk about my approach to investing. If anyone has dabbled into that, you know it’s a complicated world -> TFSAs, RRSPs, Mutual Funds, Indexes, Inflation, EPS, Stocks, Bonds, ETFs, Percentages, Compounding Interest, etc. How much of that should I try to figure out and learn, or should I just go to an Investment Pro and hand them 15% of my gross pay?

Occam’s Razor. The simplest explanation is usually the right one.

Not always, but often.

At the very least, the simplest answer lets me stop the Wonder and be present in my life. My $30,000+ MBA is, perhaps, the pinnacle of my academic learning. The biggest lesson I learned was the value of being concise, and that sometimes less is more. Or with more, you get diminishing returns. I could spend 40 hours a week on a course and get a 89%, or spend the minimum 10 hours a week on a course and get 86%.

I actually tried this with two back-to-back courses (Operations Management and Project Management Governance). The second of which I was going to drop out of because I was feeling burnt out. So I told myself just do it, but do the bare minimum. And I actually got a higher mark (A+ vs. A). Anyways, that’s ultimately what this blog is about. I was at my Habits life group last night and one of the leaders says she writes “a lot”, so she writes “a lot” to get it out and be done with it.

So this is my journal, a place to offload and dump all my inner thoughts.

Picture courtesy of CUInsight

Part 2

My attempt at joining the 5AM Club is becoming a bit more structured.

I was listening to a mentor last night and he talked about this fascinating study researchers conducted on office workers. They went to a high-rise and offered everyone on a floor everything you could possibly imagine to become fit -> access to a gym (located inside a building), a personal trainer, workout clothes and even went so far as to negotiate with the bosses / supervisors to provide a paid hour during their workday to go to said gym.

Then, the researchers went one floor higher, and simply asked everyone on that floor to – once a day – go up a flight of stairs and back down (and increase that by one step every day).

Who won?

Fast forward a year. The ones that were one floor higher, with a fraction of the tools, had lost an average of 5 pounds and over 90% had complied with the request (with no ‘reward’, aside from physical fitness). The uptake on the resources on the floor below was dismally low -> less than 5% did it and even then it didn’t last.  

Why?

Keep it simple! Once upon a time, I wanted to be a cop and I did a couple ride-alongs. The police department paid cops to take a one hour gym session during their shift, but it was optional. The cop I did a ride-along with explained how it was a “pain in the ***” to drive back to the station, get changed, workout, shower, get changed and go back out again.

But how hard is it to get up from your desk, walk over to the stairwell, go up, go down and back to your desk.

What’s better -> a 45 minute walk everyday, or a 30 minute run once or twice a week.

When I started this 5AM Club (i.e., “5AC”), it was all I could do just to get up out of bed at 5AM. I would often read a devotion, and then go back to sleep. Maybe make it through a cup of coffee, and then back to bed. If I did manage to stay up, I would almost certainly have a nap later in the day.

Fast forward now to just a month later, and I’m slowly starting to get some consistency. Mind you, this AM I hit the snooze 3 times, getting out of bed at 515AM. Spent 5 minutes making a coffee, and then “reading” for 20 minutes. Now, journaling for another 13 (so far). And once this is done, I plan to shovel the sidewalk and driveway.

Just need to get the order -> exercise, journal and read.

All in due time. Sometimes it just starts by getting the reps in, and subtle, gradual growth. I was actually planning to journal about investing but I’ll save that for tomorrow. But as a preview, think of compound interest (or, inversely, paying off a mortgage). It’s that slow climb at the start and then an exponential finish.  

And we’re just getting started!

Photo courtesy of Premium Photo. I picked this because there’s a movie where a character (I believe Ryan Reynolds?) plays a game of chess one move at a time. The board is located in a stairwell, and the character plays it as he walks by at the start and end of his day. Anyways, the study of office workers in a stairwell reminded me of that scene and when I Googled it this showed up.

Blogs > Fountain Pens

Why is when I try to save a Word Document it defaults to the “One Drive”?

I’m nervous it’ll disappear into the cloud, just to be rained out in the form of tears as I re-type all of this.

Maybe the auto-save works? Doesn’t matter, I hit ctrl-s after ever line.

Oh, our new Breville Café Roma Heat light just extinguished. Brb.

Onto cup two of coffee. I’m trying to join the 5AM club. I’ve been trying to join for the past month, since I started attending the “Small Disciplines, Big Results” Small Group with my local church. Affectionately knows as “Habits” for some of us. Why do we always try to make things shorter? Even babe we turn into bae (see more about that in the caption on the “about” page).

Kettle finished boiling, now I have an Americano.

The leaders and some of the members of this “life group” are members of the 5AM club. It appears this gets shortened to “5AC”, according to this other WordPress blog. That actually saves 5 letters, six characters if you include the space. Anyways, you can read more about it there, but basically you wake up early and carve out time to MOVE, REFLECT and GROW. It’s from Robin Sharma’s “Own Your Morning – Elevate your Life”. That middle one is what I’m doing here, journaling.

And Pens are so 1827. At least, fountain pens are (just Googled that fact). Which I do own two of, for the record. Thanks Mat for the Christmas gift. I just need to add a refill to this years’ list.

So instead of cramping up my hand up in the lost art of writing, I choose to hammer away at my keyboard. That’s right, I have one of those.

I don’t put a ton of weight into stereotypes. I do believe it can be a way our minds categorize things for efficient information recalling (I probably gleaned that from some surface-level news story covering a detailed academic article). I also believe they can be dangerous, like anything taken to the extreme.

Here I just want to poke a little fun, and it was a catchy title. I bounced the name “Boomer in a Millenial’s Body” off my sister and her response was “that’s hilarious”. So with that in-depth marketing research complete (conducted on November 26th, 2020), I kicked this thing off just over two months later.

But I got the title backwards. Such a boomer move.

Who knows, maybe one day I’ll write a book. I’ll name the print copy “Millennial in a Boomer’s Body”, and the audiobook “Boomer in a Millennial’s Body”. Appeal to the demographics.

Until then, this is a blog called Millennial in a Boomer’s Body.

Coffee #1