Debt, Cash-Flow and the Good Life

Here is my post on debt, cash-flow and the good life!

It’s no secret that record low interest rates have sparked one of the largest debt binges in history.  Year after year, studies show that people are getting more and more in debt and that this trend won’t change anytime soon.

Last week a report by the Canadian Payroll Association mentioned that half of all Canadians live paycheck to paycheck and those people would face hard times if their pay were delayed by just one week!  Nearly 25% said they would be hard pressed to cough up 2k in an emergency, while 40% say they spend all or more than their net pay!

This week, the credit agency Transunion reported that if interest rates rise by 1% almost 1 million people would be hard up to make ends meet and service their debt.  Raise rates by even a mere 0.25% and 718k people would face a personal financial crisis.


What’s the big problem here?  Most people will see the obvious and say that it’s that dirty little four-letter word, D-E-B-T, and the fact that people simply have too much of it.  But another, equally important, problem is that most people lack any kind of cash flow beyond their bi-weekly paycheck.

After all, having debt isn’t really an issue if you have the cash flow to cover it along with the other monthly expenses.  The real problem as I see it is that record low interest rates over the past 8 years have sent our society on a huge spending binge where people have spent big on things like houses, vehicles and a bunch of other “stuff” that doesn’t put money into their pockets.  That’s what “bad” debt is.  Those items don’t produce any extra monthly cash flow; instead they’re added expenses that drain away monthly cash flow.

My advice to people is to not follow the herd and keep piling on additional “bad” debt because, sooner or later, rising interest rates will come back to bite you.  Rather, consider paying down some of that debt so you won’t be over exposed when interest rates rise.  If you’re in a cash crunch, you have 2 choices: cut expenses or make more money.  Once you’re in a decent financial position consider using debt to increase your monthly cash flow by investing in income generating assets.

Remember that good debt is used to buy assets that pay you every month.  Things like dividend stocks, real-estate investment trusts (REITs) and rental properties.  Increasing the monthly cash flow is what financial freedom is really about so that’s why I focus on buying assets that pay me every month.

I haven’t had a pay raise from my job in years but my dividend stocks give me raises at least once a year and my rentals should at least keep pace with inflation.

Like most people, I used to think that the key to the good life was simply getting a good paying job.  Get a good job, buy a house and for the rest of your working life pay down debt and build up savings to retire.  That’s what we’re taught and that’s the path that most people follow and that’s precisely why most people can’t stomach a measly 0.25% rate increase and why they can’t pay the bills on time if their pay was delayed.

Now more than ever, I think the key is to own assets that pay a regular income.  Not only do they add to the monthly cash flow, but they also provide some level of financial security in the event that I lose my job or I have unexpected monthly expenses etc.  As I wrote in an earlier post, my approach has been to grow my assets and my income over time.

The funny thing is, is that no one ever told me to buy dividend stocks or rental units or anything else that adds extra money to the monthly budget and positively affects my financial well-being.  Instead, society teaches us to buy expensive houses and cars and big screen TVs – all things that eat up a large portion of the monthly cash flow and, in the case of vehicles and gadgets, negatively impact someone’s financial well-being.

For all those suffering under the burden of debt and the daily grind, it’s important to remember that it’s never too late to start building wealth and you can do it for as little as $25 a month!

If you’re a little bit weary of the stock market then you should take a bit of time to do some research about investing.  In the meantime, consider a High Interest Savings Account from Tangerine: More Is Always Better Become A Client And Earn Triple Interest Of 2.40% For Six Months!

If you’ve enjoyed reading this, check out my other posts on building wealth and growing passive income sources:

5 Steps to Growing Your Wealth

Why I Keep Growing My Passive Income

Photo Credit: Photo by renjith krishnan/

August 2016 Investment Income

Welcome to my August 2016 investment income report.  This report helps me track all of my investment income from rental properties, dividend stocks, index funds and exchange-traded funds (ETFs).

June 2016 Investment IncomeI was pleased to see that our net worth continued to rise in August, hitting 880k.  The increase in net worth had to do with the strong performance of global stock markets.  This brought the value of our financial assets to an all time high at just over 400k!  This is why I think that it really pays to stay invested and not try to time the market.

I got word that 2 of my rental units will be vacant as of September 1st, so It’s been a challenge to get the units cleaned up for showings and have them rented for Sep 1st while the current tenants are in the midst of moving out.  Vacancies can be a real killer in the rental business so I’m trying very hard to get them rented out.  I managed to get 1 unit rented for Sep 1st, but the other one will need some work…so maybe by mid-month it will be rented.  Once the units are rented at the current market rate, this will give the monthly rental income a nice boost!

While I was pleased to see our net worth rise this month, I was a bit disappointed that our overall investment income was much lower than the previous 2 months.  As I’ve said before, having a high net worth is great and all, but unless it’s backed up with some solid investment cash flow it’s not really all that impressive.  To my mind, cash-flow is KING!

The reason for the weak performance is that I don’t own many companies that pay a dividend in August and, of course, there was some weak performance on the part of the rental properties due to some maintenance and tenant turnover.

Monthly Investing Activity

As usual, I’m sticking to the same old investment plan.  I continue to buy up blue-chip Canadian dividend stocks and keep making extra cash purchases in my DRiP account to buy more shares of great dividend-paying companies.  I like to save and invest automatically because it’s a proven strategy for building long term wealth.  In addition to the stock purchases, I’m also investing in low-cost index funds in our retirement accounts.

One of the great things about being a dividend investor is that all of my dividend income is automatically re-invested.  Every month this income buys more shares in my favourite companies that will, in turn, produce even more monthly income for me.  This is how compounding works and is why it’s such a powerful force…what Einstein called the “Eighth Wonder of the World”!

This month, reinvested dividend income bought more shares in Bank of Montreal (BMO), Emera (EMA), and RioCan (REI).

January’s dividend income report made me realize that the majority of my dividend income comes from Canadian banks.  While I love the banks, I recognize the need to diversify a bit more.  So I’m focusing on building up my positions in Telus (T), Bell Canada Enterprises (BCE) and my pipelines and utilities companies.

The problem is that these shares are trading at or near all-time highs!  So I haven’t been able to bring myself to pile a lot of money into them just yet.  I’m waiting for a big pullback before I invest any serious amount of money.  That said, I did purchase more shares in BCE, Telus, Emera, Bank of Montreal and sent money to buy more shares in Enbridge and Fortis on September 1st.

While I love income producing investments, I also recognize the need to add some insurance to my investment portfolio.  To that end I bought a small amount of physical gold in the form of a Royal Canadian Mint pure gold bullion coin that you can read about here.

Dividend Raises

I was happy to see that Scotiabank (BNS) raised its dividend by about 2.8%.  I have lots of Scotiabank shares so this will add approximately $60 to my annual income.  Slow and steady wins the race!

Monthly Passive Dividend Income

August is a weaker month for dividend income.  This month’s dividend income has grown by nearly 6.5% from that of August 2015 ($327).  As always, a large part of that increase came from investing my own personal savings, while the remainder was due to the regular reinvestment of my dividend income and from companies periodically raising their dividend payout.

Here is the breakdown of the numbers for August:

Dividend Stocks

Emera (EMA) – $24.56

Bank of Montreal (BMO) – $65.17

Citigroup (C) – $4.09

Procter and Gamble (PG) – $85.60

Potash Corp of Saskatchewan (POT) – $33.84

RioCan Real Estate Investment Trust (REI) – $4.27

Mutual Funds and ETFs

iShares S&P/TSX Canadian Preferred Share Index ETF (CPD) – $55.53

iShares S&P/TSX Capped REIT Index ETF (XRE) – $38.69

Canadian Short-Term Corporate Bond Index ETF (VSC) – $20.85

Canadian Short-Term Bond Index ETF (VSB) – $16.48

Total = $349.08

Rental Income

This month, all units were rented and the properties are cash flowing.  2 units are on last month’s rent so I’m trying to fill them by September 1st.  August’s profit on the rental units was $572.02.  This was after all expenses but is over $300 less than I’ve been receiving since June.

One reason I decided to invest in rental property is that it offers a decent amount of cash flow relative to the initial investment.  I expect that in the next few months I’ll be able to increase the rental income by about $200/month by fixing up my latest rental purchase.  I’m hoping to average about $1,100/month from my rental properties.

Total Monthly Rental Income = $572.02

This brings the grand total for our August 2016 Investment income to $921.10!

I was hoping to rake in at least $1k this month, but it was a weaker month all around.  The rental properties will get sorted out and I expect they’ll be performing better next month, while I’m hoping to build out my dividend income for Feb, May, Aug and Nov, so that I’ll at least hit the $400 mark from this source.

Our new annual passive income goal is $18,000 and we have so far received $11,097.22.  So we are already 61.5% of the way there.

Both the dividend portfolio and our rental properties are adding a considerable amount to the monthly investment cash flow.  On an annual basis, we manage to get roughly $1,000 / month from both sources.  Hopefully I can increase this amount further.

Photo by sscreations/