How I did it (Runners-up): An abundance of riches

Entries poured into the “How I Did It” contest. By the time we finally called a halt to the incoming envelopes, we had more than 300 submissions. It took us a week of careful reading to select the four finalists you see in this issue. But that still left us with hundreds of interesting, thoughtful stories. It seemed a pity to waste them. So we decided to pick five of the closest runners-up and pay then $200 each for briefer accounts of how they, too, have achieved their financial goals. We hope you’ll find their stories as fascinating as we do.

One day last summer my husband and I totaled up our finances and realized that we had, at the age of 37, with middle-class salaries, hit the million-dollar mark in net worth.

We were surprised. It all happened so silently and unobtrusively. We hadn’t consciously planned to amass a million dollars before 40, but somehow we had. Looking back, I think five strategies have made all the difference:

We budget
Many people think “budget” is a four-letter word, but Quicken is our friend. Budgeting allows us to see at a glance when our restaurant spending is getting out of hand, when we have to cut back on vacations because of other large expenses, and how much money we can put away.

We say no to debt
Excepting our house, we never pay for anything on credit that we don’t have the cash to cover. In the case of our mortgage, we made it a mission to pay off the loan as quickly as possible. We doubled our monthly payments most years and also put down a lump sum payment. As a result, we paid off our house by the time we were 30.

We don’t drive our money
By doing two simple things, we manage to spend far less than most people on transportation. First, we always pay cash for cars. Second, we buy cheap, reliable used vehicles and we drive them until they die. Until recently, we were a one-car family and that has helped as well.

We do things ourselves
Labor on most repairs and renovations dwarfs the cost of materials. This is particularly true for car and house repairs. My husband just fixed the brakes on the car for the cost of materials—approximately $150. To get the same repair done in the garage would have cost us about $700.

We sweat the small stuff
Paying attention to small expenses adds up to big savings in the long run. We look for deals at the grocery store, don’t pay for services we don’t need, like call waiting, and say no to extended warranties. We always research big purchases to find the best quality for a reasonable price. And we invest through low-cost index funds rather than expensive mutual funds.

That’s it in a nutshell. What did we do after realizing we were millionaires? We didn’t rush out to buy champagne, because that’s not how we live. Instead, we looked at each other, said, “Wow, I can’t believe it. That’s cool.” Then we went downstairs to make dinner.

CHARLENE WALKER, 39, Nepean, Ont.

I built a nest egg worth over $85,000 for my child — and I did it all with government money.

When my daughter was born in 1985, I began to receive monthly family allowance cheques. I deposited these cheques in a separate bank account for her. Seven years later, her balance had grown to just over $4,000. I then transferred one of my shares of Bell Canada (BCE) into her name and enrolled her in the company’s DRIP (Dividend Reinvestment Plan), which allowed her to use her dividends to automatically buy new shares at no cost. Every time the family allowance money in her bank account grew to a few hundred dollars, I would purchase new BCE shares with the money. Meanwhile, all her quarterly dividends were being re-invested automatically through the DRIP plan.

By the end of 1999, my 14-year-old daughter had 401 shares of BCE worth a total of nearly $32,000. When the company spun off its Nortel subsidiary, she received 633 Nortel shares. In June 2000, I sold 100 shares of her Nortel at $102.50. In hindsight, of course, I wish I had sold all of her Nortel then, because it tumbled to less than a dollar after that!

That’s when I realized that it was time to diversify a little. I sold some of my daughter’s BCE shares and used the proceeds to invest in six new DRIP accounts that I had opened for her with Imperial Oil, CIBC, TransAlta, Dofasco, Enbridge and Moore. She was now diversified into eight different companies. While Nortel was a disaster, seven of the eight companies continued to grow well and all her dividends were continuously re-invested.

Today, her portfolio is worth over $85,000. She is 23 years old and has a very well balanced nest egg—all from investing her monthly family allowance cheques. The secret? Nothing more than regular saving and low-cost investing. Anybody can do the same, and it’s actually simpler these days, because of discount brokerages that allow you to re-invest dividends for nothing, or buy new shares for as little as $9.99 a transaction.

LUCY ANGLIN, 51, Stittsville, Ont.

In just over a year, I racked up $10,000 worth of credit card debt. My bank account was always in overdraft, and I used cash advances from my credit cards to pay bills, buy groceries and make rent. I felt that I was in a black hole that would never end.

Then I met my future husband. He helped me see the damage I was doing to myself. Slowly, I turned things around

I began by setting a realistic lifestyle for myself. I moved to a cheaper apartment. I declined invitations to dinners that I couldn’t afford. I stopped buying gifts for other people that were beyond my means. None of this was easy, but I persevered.

Then I got control of my consumer debt. I contacted all of my current credit card companies and asked for a reduction in my interest rate. All of them agreed, but some did so only on the condition that I closed my account — which I was happy, at that point, to do. As a result, I was able to reduce my interest rate by about four percentage points.

I paid as much as I could towards the credit card that was charging me the highest interest rate, and made a minimum payment on the rest. Once the first was paid, I applied my free cash to the next most expensive one and so forth. I’ll never forget the elation I felt when I cut up the first credit card that was completely paid off.

I would have loved to consolidate my loans, but because of my low credit score, no bank would look at me. So I began to keep track of my credit score, requesting free credit reports through Equifax. I made it a habit to pay all my bills on time, even if it was just the minimum. I didn’t open any new credit accounts — I just kept putting as much as I could towards my bills. After about a year, I was finally able to get a line of credit through a bank. I used it to pay off all my credit cards, which further reduced my interest rate. Then I applied all of my credit card payments to my line of credit each month.

Finally, I started saving. It sounds like a weird thing to do when you’re in so much debt to start saving, but once I had my credit cards consolidated I wanted to see numbers in the black, not just smaller numbers in the red. I took $50 each month and put it into a high interest savings account. Once it got to a certain amount, I put it into an RRSP.

It took two years to eliminate all of my consumer debt. During that time, my credit score increased from a lowly 430 to a respectable 680. Best of all, I had money in RRSPs and no longer had a bank account in overdraft.

Since then, I have married the wonderful man who helped me confront my financial issues. We paid for our wedding in cash. We have bought a house and are expecting a baby. Life has completely turned around for me.

MARGARET PROPHET, 31, Midhurst, Ont.

When I read that the average university graduate leaves school with $25,000 in debt, it makes me realize that my own experience is unusual. I graduated from school last year with money in the bank.

I didn’t do anything extraordinary, but I did start planning in high school. In grade 10, I landed my first job, at Canada’s Wonderland, making $6.40 an hour. I forced myself to save a couple of thousand dollars each year.

When I got to the University of Ottawa, I read a column in the student paper by someone complaining that she had spent $500 during frosh week on alcohol. I resolved not to follow her path. My simple formula: I didn’t spend more money than I had. Rather than rent an apartment for $900 a month, I settled for a room in a private house at $375 a month. Glamorous? No. But it helped me maintain control of my finances.

I learned that if you want to get ahead, you have to be creative. It turns out there are thousands of scholarships, bursaries and awards out there for students, but many are hidden. I spent many hours on the Internet looking for them and it worked out very well — I landed a $4,000 award, scholarships of $2,000 and $250, and a $350 bursary.

In my experience, most young people have no idea how much money is available. If you’re from a small town or city, contact city hall and see if there are awards available for residents of your town who want to go to university. Ethnic organizations sometimes offer funds for members of certain ethnic groups and community organizations often give out awards basedon campus involvement.

Don’t get discouraged if there is a long application form for an award or if the application requires you to write an essay. Those are your best opportunities. Most people won’t bother to enter, so you face less competition and have a much better chance of winning.

ROBERT WALKER, 22, Toronto

When people tell me how lucky I am to have been able to retire from my flight attendant job at 52, I tell them that luck had nothing to do with it. By reading widely and questioning every area of my spending, I uncovered some valuable insights into how anyone can make the most of what they have.

For instance, why buy when you can rent? I’ve discovered that borrowing books and magazines from my local library can save me hundreds of dollars a year.

In other cases, though, the opposite is true: Why rent when you can buy? I realized one day that by the time I drove to my fitness club and back, I could have finished a workout at home. So I bought a small gym and exercised whenever my odd hours allowed. The savings in time have more than compensated for the expenditure.

I’ve become a big believer in traveling light. I think most of us need luxuries — but only in small doses. My philosophy is that I would rather have one sheet of fine linens on my bed than a closet full of mediocre linens. The same goes for clothing, shoes and handbags.

My biggest conviction? Anyone can manage a frugal lifestyle as long as it is only for a fixed period. I took on numerous financial challenges in spurts, like working hard to pay down my mortgage. To accomplish this goal, I worked not only my regular job, but sometimes a part-time job or two as well. The saving grace was that I always knew that the sacrifice was only for a limited period. Everyone needs to see the light at the end of the tunnel.

HEATHER ZORZINI, 53, Toronto