The very best for your money

It’s in the headlines: the newspapers, the magazines, on books, radio, and television, the Internet. It’s on our T-shirts! It’s this idea of a number, the magic number. Formulas get calculated, and then adjusted, a little to the left, a little to the right. No one agrees.

How much money do I need to retire?

Will I have enough? Do I have enough? Will I make it?

Don’t laugh, but our friend Margaret says it reminds her of the little train, “I think I can, I think I can, I think I can, all the way up the hill.” Obviously it’s a struggle, this number, and apparently only a few people can help us.

Her friend Paul is visiting and he’s going on about how lucky Margaret is to have started investing for dividends at an early age so she doesn’t have to worry about The Number. You’ll recall that Margaret invests in companies that pay dividends and increase those dividends consistently over time. She lives off these dividends and enjoys annual income increases of 10% to 25% a year. She knows she’s got it made!

“Flattery will get you nowhere,” Margaret retorts. “I was well into my 50s when an article I read confirmed what my money manager had insisted on. I thought it was too late to start. It wasn’t.”

The companies making up Margaret’s portfolio have predictably paid out an annual percentage of their revenues to their shareholders. Moreover, they’ve raised those dividends such that in as short a time as 5 years, an initial investment earning 3% now earns 6% based on the original cost.

What does this have to do with The Number?

“It’s easy,” Margaret sips her coffee. “And the hardest part doesn’t even have to do with investing. It has to do with how much you spend. Do you know how much cash flows out of your pockets every day, every week and every year?”

Paul’s a little sheepish. “Well, I have an idea, sort of. Utilities include hydro, the phone, and cable. There’s gas for the car, insurance, clothes and food. That’s about it.”

Margaret’s eyes turn sharp, and ever so not baby blue. “You have to do better than that,” she’s quick. “To the penny, every cent of it.

“Look, getting to the magic number of how much you need to retire starts with how much you need and want to spend. It’s probably even more important during retirement to track expenses so that you’re able to at least match your income, or start looking at a job at McDonalds.” She stifles a giggle. “Imagine you Paul, getting up at 2 in the morning to run your paper route. You did that when you were 10!”

Paul takes Margaret’s jab lightly. She likes to have fun yet when it comes to money, she’s a no-nonsense person.

“Here, let me show you,” Margaret opens a drawer and pulls out a spreadsheet. “Here, on the left column running down is a list of the things on which I spend my money. The top row running left to right are calendar days. Every day, when as little as a penny is spent, I note it in the appropriate box.

“You can get real fancy with this, putting it into Excel, or any personal accounting software, but I like to see the numbers right there in front of my nose. I get a sense, a solid feel for where my money’s going.”

She’s on a roll again, “See here, at the bottom of every day, I add up the dollars spent on coffee, food, rent, whatever, and get a running total of daily expenses. It’s addictive. I record every single cent. I am so proud of it.” She is indeed beaming. Paul can’t help but shake his head. His friend is either taking things a little too far, or else she’s really latched onto something.

“And this isn’t just for people like you and I. It’s for anyone, with or without money. Even the richest people hire others to keep track their dollars!”

After several months, Margaret had collected quite a bit of data on her spending habits. She gave this to her money manager, who in turn made decisions regarding specific investments in Margaret’s account

“She did a superb job,” Margaret said, referring to her money manager, “balancing short and long-term, safe and growing dividends. An elegant job.”

Paul is quiet. “But you didn’t answer the question completely, Margaret. “How exactly did you calculate what you needed on which to retire?”

“For that answer,” she replies slyly, “you’ll have to come back next month, ok?”

If you’d like a sample copy of Margaret’s spreadsheet, send us an e-mail or call Pina Tria at 514-394-3771 and mention Margaret’s spreadsheet from The Montrealer and we’ll be happy to forward it to you.

The Adena Franz Group has over 16 years’ experience of successful portfolio management and is with the independent firm
MacDougall, MacDougall and MacTier Inc.
1010 de la Gauchetière West, Suite 2000
Montreal, Qc H3B 4J1
Phone: 514-394-3771
Email: ptria@3macs.com

The information contained in this article is for general information purposes only. It does not account for specific investment objectives or the financial situation of any person reading it. Opinions expressed are those of the author and do not necessarily represent the opinions of MacDougall, MacDougall & MacTier Inc. Investors should seek professional advice regarding the appropriateness of investing in any securities discussed or recommended here and should recognize that statements regarding future prospects may not be realized.

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