Since 2010 is almost here, I will review what I do with my spending each paycheque. I call them "buckets" what I put my money into. What I will do is physically grab $300 in cash out and that is my spending money each paycheque. The theory is that this will minimize credit card use. Also it allows me to save for more long range things so that my one time spending is cut down.
Here are the buckets:
Groceries: $100 - pretty self explanatory. I purchase groceries every other week and keep it under $100. If we need something in the meantime (milk, bread, eggs, etc.) it comes out of this bucket as well.
Miscellaneous Spending: $80 - this is spent on whatever I want. I give myself $40 per week as "play money" to do what I want. I am budgeted fairly tight, but there has to be some wiggle room and this is it. As well, if I need to move this money to another "bucket", I can do so.
House: $20 - this are for fix-ups or maintenance on the house, along with any other furniture or purchases for the house. We hope to put new floors in the house this summer. It is much easier for me to save for 6 months than it is to take $600 from MasterCard to do it.
Clothes: $20 - me having a clothes bucket make my fiancee very happy. Coats, shoes, etc. will all come out of this bucket. It is much easier to buy $100 winter boots when the cash is sitting in front of you than saying "I can't afford those boots!"
Gifts: $20 - although this didn't work as well as I'd hoped, this bucket is for people's birthdays, and for Christmas, etc. I had only about $240 saved up for Christmas this year (as you will find out on Saturday when I update my net worth) and for next year I am hoping that all my spending can come out of this.
Video Games: $20 - this may get chopped as the year progresses (and its the first bucket that is emptied if I need the money for something else), but this is intended to limit my MasterCard spending if I need to rent a movie or purchase a new video game (which I would buy used of course).
Vacation: $20 - this is a new bucket. My fiancee is a traveller, so she likes the idea of saving up and going every year or other year to Hawaii (or somewhere else tropical and glamourous). For me, I need to save up for this and if I have the money in an account, I will unfortunately put it towards a loan of some kind, so this is the easiest way for me to do this.
Courses/Donations: $20 - I want to donate more. I am taking two courses this year (one starting in the next week and one during the summer) so I want to save some money towards those. After that, my courses will be done for a while, so I want to also increase my donations. Here is an excellent link on the tax benefits of donation, but now that my finances are coming together I want to try to help others when I can.
Thursday, December 31, 2009
Monday, December 21, 2009
Financial Education This Week
This week in class we did our Financial Unit in my Grade 11 University math class. The intention was to do lessons on series (the summing of a set of terms that are added or multiplied by a fixed rate over a long period of time). This nicely relates to the concepts of compound interest and savings and borrowing, which I would discuss with my class.
One of the things that I wanted to show my class was that small amounts of savings can make huge impacts on the long term. My first example was the classic where there are three brothers/sisters who begin investing at different times. The first person invests $1000 from age 15-24. The second person invests $2000 from age 25-35. The final person invests $3000 from 35-65. You can guess I think with compound interest who comes out ahead. Depending on the interest rates (shown by me in an Excel spreadsheet), you can show the differences between a 5% or a 10% or a 12% interest rate over 30 years what the change will be.
Another example I gave was the "latte" example. Specifically, if instead of going to Tim Horton's you instead invest this $3 per day at 9% for 34 years (I word it that you are 16 today and you do this until you are 50), how much will you have? The idea is to have the students think how this small spending can affect them in the long run. (For the non-students in the audience, the answer is $247,220.76).
The other question that we like is "If _____ has 37 years until he/she retires, and is able to invest at 7.8% compounded weekly and wants to have $1,000,000 at that time, how much must (s)he save each week? How much of this is interest?". The answers are $88.85 per week savings and $829,052.60 interest earned. I like this example for the class because we can discuss the reality of 7.8% interest over 37 years, and how the small savings make an impact.
My final example I give to the class is on borrowing money. I tell them the main ways to pay back loans are to get lower interest rates, to round their payments up to the nearest $20 or $100, and to make lump sum extra payments that will go directly to the principle. I give examples with all of these to show the effect that it has (I have a neat spreadsheet for it).
The numerical example I give them to demonstrate is this: "_____ purchases a house for $220,000 when (s)he graduates high school. If the interest rate is 5.2% compounded monthly and (s)he can afford a payment of $1000, how many months will it take him/her to pay this loan?". This question generates a lot of ooh and aahs because of the answer and the follow-up. The answer is 709 months (or almost 59 years) for this to happen. The amount of interest charges would be $489,000!!!
My continuation is to ask the class if the monthly payments go up to $1100, how much more quickly the loan will be paid off. The answer is it will now take 466 months (or almost 39 years). Still not that impressive, but by raising your payments $100 per month, you have saved $218,400 in interest (charged $292,600 interest)
Here is the rest of the calculations:
Payment: $1200 - Time: 366 months (30 years) - Interest Charged: $219,200
Payment: $1500 - Time: 233 months (20 years) - Interest Charged: $129,500
Payment: $2355.01 - Time: 120 months (10 years) - Interest Charged: $62,601.20
Obviously I picked these numbers for a reason: for the $1000 payment, initially $953.33 is interest (only $46.66 paid against the loan). Additionally, to show the class that even though $1000 sounds like a lot of money on a loan you have to check the numbers.
One thing that sort of shocked me about the class was that they didn't understand the concepts of savings and borrowing and how it is related to a bank. If they are able to give you a savings account at 2% and then loan your money out to someone else at 5%, that is profit for the bank and how it is done.
Finally, the concept of tradition was still alive in my class. That being if they have banked with Royal Bank all their lives, that they will continue to go to get their mortgage through Royal without doing any comparisons of what is available. I used to have an assignment where the students would go to two "traditional" bank, and then one international and one online bank to compare rates and I will go back to this next year.
One of the things that I wanted to show my class was that small amounts of savings can make huge impacts on the long term. My first example was the classic where there are three brothers/sisters who begin investing at different times. The first person invests $1000 from age 15-24. The second person invests $2000 from age 25-35. The final person invests $3000 from 35-65. You can guess I think with compound interest who comes out ahead. Depending on the interest rates (shown by me in an Excel spreadsheet), you can show the differences between a 5% or a 10% or a 12% interest rate over 30 years what the change will be.
Another example I gave was the "latte" example. Specifically, if instead of going to Tim Horton's you instead invest this $3 per day at 9% for 34 years (I word it that you are 16 today and you do this until you are 50), how much will you have? The idea is to have the students think how this small spending can affect them in the long run. (For the non-students in the audience, the answer is $247,220.76).
The other question that we like is "If _____ has 37 years until he/she retires, and is able to invest at 7.8% compounded weekly and wants to have $1,000,000 at that time, how much must (s)he save each week? How much of this is interest?". The answers are $88.85 per week savings and $829,052.60 interest earned. I like this example for the class because we can discuss the reality of 7.8% interest over 37 years, and how the small savings make an impact.
My final example I give to the class is on borrowing money. I tell them the main ways to pay back loans are to get lower interest rates, to round their payments up to the nearest $20 or $100, and to make lump sum extra payments that will go directly to the principle. I give examples with all of these to show the effect that it has (I have a neat spreadsheet for it).
The numerical example I give them to demonstrate is this: "_____ purchases a house for $220,000 when (s)he graduates high school. If the interest rate is 5.2% compounded monthly and (s)he can afford a payment of $1000, how many months will it take him/her to pay this loan?". This question generates a lot of ooh and aahs because of the answer and the follow-up. The answer is 709 months (or almost 59 years) for this to happen. The amount of interest charges would be $489,000!!!
My continuation is to ask the class if the monthly payments go up to $1100, how much more quickly the loan will be paid off. The answer is it will now take 466 months (or almost 39 years). Still not that impressive, but by raising your payments $100 per month, you have saved $218,400 in interest (charged $292,600 interest)
Here is the rest of the calculations:
Payment: $1200 - Time: 366 months (30 years) - Interest Charged: $219,200
Payment: $1500 - Time: 233 months (20 years) - Interest Charged: $129,500
Payment: $2355.01 - Time: 120 months (10 years) - Interest Charged: $62,601.20
Obviously I picked these numbers for a reason: for the $1000 payment, initially $953.33 is interest (only $46.66 paid against the loan). Additionally, to show the class that even though $1000 sounds like a lot of money on a loan you have to check the numbers.
One thing that sort of shocked me about the class was that they didn't understand the concepts of savings and borrowing and how it is related to a bank. If they are able to give you a savings account at 2% and then loan your money out to someone else at 5%, that is profit for the bank and how it is done.
Finally, the concept of tradition was still alive in my class. That being if they have banked with Royal Bank all their lives, that they will continue to go to get their mortgage through Royal without doing any comparisons of what is available. I used to have an assignment where the students would go to two "traditional" bank, and then one international and one online bank to compare rates and I will go back to this next year.
Sunday, December 20, 2009
Net Worth Update - December 20th, 2009
With the purchase of an engagement ring, my assets fell this week, but overall it worked out not too badly (with my engagement and the numbers!)
Every time I get paid (every two weeks), I update my net worth. The idea behind this is that my goals are that my liabilities drop every two weeks, and by tracking them in this way, I am able to get a nice picture of where I stand financially. Its not a perfect balance sheet that I have (because of student loans I have a negative net worth), but the progress is what I am looking for.
ASSETS:
- down $964.66 from December 4th, 2009
- up $7324.60 from December 20th, 2008(one year ago)
These assets include my house (I give it 1% appreciation each year in my appreciation), my RRSP and my TFSA. Despite purchasing a ring, my investments continued to rise quite nicely. The numbers would have been great this week otherwise!
LIABILITIES:
- better $1,047.29 from December 4th, 2009
- better $14,056.73 from December 20th, 2008(one year ago)
These liabilities include my mortgage, student loans and a consolidation loan (mainly for my Masters Degree for teaching). I am now up to four tutoring jobs, where the extra money that I earn goes to paying off my liabilities. This moved nicely because I had three loans all hit on this period (my student loans, my Buffalo loans and my mortgage).
NET WORTH:
- better $82.63 from December 4th, 2009
- better $21,381.34 from December 20th, 2008 (one year ago!)
Once again, automatic pilot means that things will be going in the right direction without major intervention on my part no matter what. Despite purchasing my engagement ring, the numbers still worked out on this week (making me very happy). Once we officially tie the knot, we will combine our finances and my fiance will have her own spot on this blog!
The last thing I am going to track is the value of the TSX. I have some asset allocation goals that are dependent on the value of the TSX.
TSX Graph
Current Value: 11,463.40
Highest Value in Last 2 Years: 15073.13 June 18th, 2008
Every time I get paid (every two weeks), I update my net worth. The idea behind this is that my goals are that my liabilities drop every two weeks, and by tracking them in this way, I am able to get a nice picture of where I stand financially. Its not a perfect balance sheet that I have (because of student loans I have a negative net worth), but the progress is what I am looking for.
ASSETS:
- down $964.66 from December 4th, 2009
- up $7324.60 from December 20th, 2008(one year ago)
These assets include my house (I give it 1% appreciation each year in my appreciation), my RRSP and my TFSA. Despite purchasing a ring, my investments continued to rise quite nicely. The numbers would have been great this week otherwise!
LIABILITIES:
- better $1,047.29 from December 4th, 2009
- better $14,056.73 from December 20th, 2008(one year ago)
These liabilities include my mortgage, student loans and a consolidation loan (mainly for my Masters Degree for teaching). I am now up to four tutoring jobs, where the extra money that I earn goes to paying off my liabilities. This moved nicely because I had three loans all hit on this period (my student loans, my Buffalo loans and my mortgage).
NET WORTH:
- better $82.63 from December 4th, 2009
- better $21,381.34 from December 20th, 2008 (one year ago!)
Once again, automatic pilot means that things will be going in the right direction without major intervention on my part no matter what. Despite purchasing my engagement ring, the numbers still worked out on this week (making me very happy). Once we officially tie the knot, we will combine our finances and my fiance will have her own spot on this blog!
The last thing I am going to track is the value of the TSX. I have some asset allocation goals that are dependent on the value of the TSX.
TSX Graph
Current Value: 11,463.40
Highest Value in Last 2 Years: 15073.13 June 18th, 2008
Sunday, December 13, 2009
Engaged!
I proposed to my girlfriend this afternoon (and she thankfully said "Yes!"). From a financial standpoint, it should just be noted that I saved up for the engagement ring rather than borrow for it, so although my net worth will drop because of the ring, there is really no negatives to it (very romantic I know).
Thursday, December 10, 2009
Financial Education
Earlier this week, we had our first lesson of the year on personal finance. It is part of my unit on series, which is the sum of terms of a sequence. This leads nicely into the mathematics of savings and borrowing on loans.
The main concepts that I went through in the class were pretty much what we mention in here:
- the cost of school (about $16,000 per year with an annual increase of 4.5%)
- OSAP (government loans that are paid over ten years)
- bursaries and scholarships
- how to pay of loans more quickly (lower interest rates, lump sum payments, round up your payments to the nearest $20 or $100)
- good loans versus bad loans (good loans are things that give you the potential for more assets, such as a house, or an education or a loan for a business. All of these give you the potential to make more money. Bad loans are everything else: cars, trips, big screen televisions. Although these things are fine to have, if you are able to save for them, it makes more sense)
- saving and investing (save 10% of your salary and you will be rich. As well, try to save half of your raises. This is an extremely easy way to increase your savings and not notice it)
- the three main ways of getting rich: savings (slow and steady and guaranteed), real estate, and starting your own business.
We will go through the mathematics of savings and borrowing in this class, but the idea for that lesson was the discussions that came out of it. They couldn't believe that banks would give you interest to save your money. I simplified it for them and said that banks will give you 2% interest on your money, and then go loan your money out to someone else for 4%. They have made money on your money. This was unbelievable to the kids in the class, but I hope that logically they got it.
I will post more frequently throughout this unit (if the snow ever stops...we have had two snow days in a row) when the students have good questions or comments. One of the students in the class said that I can be her financial planner, which although I am vastly unqualified for, made me feel good.
The main concepts that I went through in the class were pretty much what we mention in here:
- the cost of school (about $16,000 per year with an annual increase of 4.5%)
- OSAP (government loans that are paid over ten years)
- bursaries and scholarships
- how to pay of loans more quickly (lower interest rates, lump sum payments, round up your payments to the nearest $20 or $100)
- good loans versus bad loans (good loans are things that give you the potential for more assets, such as a house, or an education or a loan for a business. All of these give you the potential to make more money. Bad loans are everything else: cars, trips, big screen televisions. Although these things are fine to have, if you are able to save for them, it makes more sense)
- saving and investing (save 10% of your salary and you will be rich. As well, try to save half of your raises. This is an extremely easy way to increase your savings and not notice it)
- the three main ways of getting rich: savings (slow and steady and guaranteed), real estate, and starting your own business.
We will go through the mathematics of savings and borrowing in this class, but the idea for that lesson was the discussions that came out of it. They couldn't believe that banks would give you interest to save your money. I simplified it for them and said that banks will give you 2% interest on your money, and then go loan your money out to someone else for 4%. They have made money on your money. This was unbelievable to the kids in the class, but I hope that logically they got it.
I will post more frequently throughout this unit (if the snow ever stops...we have had two snow days in a row) when the students have good questions or comments. One of the students in the class said that I can be her financial planner, which although I am vastly unqualified for, made me feel good.
Saturday, December 5, 2009
Net Worth Update - December 5th, 2009
With Christmas gifts on the way, lets see how my spending has gone.
Every time I get paid (every two weeks), I update my net worth. The idea behind this is that my goals are that my liabilities drop every two weeks, and by tracking them in this way, I am able to get a nice picture of where I stand financially. Its not a perfect balance sheet that I have (because of student loans I have a negative net worth), but the progress is what I am looking for.
ASSETS:
- up $312.73 from November 20th, 2009
- up $8524.39 from December 4th, 2008(one year ago)
These assets include my house (I give it 1% appreciation each year in my appreciation), my RRSP and my TFSA. My assets continue to climb, which makes me feel great!
LIABILITIES:
- better $457.25 from November 20th, 2009
- better $12,687.73 from December 4th, 2008(one year ago)
These liabilities include my mortgage, student loans and a consolidation loan (mainly for my Masters Degree for teaching). I am now up to five tutoring jobs, where the extra money that I earn goes to paying off my liabilities. We are back to positive territory (at least moving in the right direction) with my liabilities this update, but the progress is slowing as my expenses rise, leaving me with less extra money to put extra payments on. After Christmas I will hopefully get back to normal though.
NET WORTH:
- better $769.98 from November 20th, 2009
- better $21,212.13 from December 4th, 2008 (one year ago!)
Once again, automatic pilot means that things will be going in the right direction without major intervention on my part no matter what. Just imagining that my net worth has increased by $21,000 this year is wonderful! As my loans continue to drop (really my interest payments) these numbers will get better year after year! Even at the current rate, $20,000 x 30 years = $600,000 net worth (assuming no interest there). Numbers are wonderful!
The last thing I am going to track is the value of the TSX. I have some asset allocation goals that are dependent on the value of the TSX.
TSX Graph
Current Value: 11,510.80
Highest Value in Last 2 Years: 15073.13 June 18th, 2008
Every time I get paid (every two weeks), I update my net worth. The idea behind this is that my goals are that my liabilities drop every two weeks, and by tracking them in this way, I am able to get a nice picture of where I stand financially. Its not a perfect balance sheet that I have (because of student loans I have a negative net worth), but the progress is what I am looking for.
ASSETS:
- up $312.73 from November 20th, 2009
- up $8524.39 from December 4th, 2008(one year ago)
These assets include my house (I give it 1% appreciation each year in my appreciation), my RRSP and my TFSA. My assets continue to climb, which makes me feel great!
LIABILITIES:
- better $457.25 from November 20th, 2009
- better $12,687.73 from December 4th, 2008(one year ago)
These liabilities include my mortgage, student loans and a consolidation loan (mainly for my Masters Degree for teaching). I am now up to five tutoring jobs, where the extra money that I earn goes to paying off my liabilities. We are back to positive territory (at least moving in the right direction) with my liabilities this update, but the progress is slowing as my expenses rise, leaving me with less extra money to put extra payments on. After Christmas I will hopefully get back to normal though.
NET WORTH:
- better $769.98 from November 20th, 2009
- better $21,212.13 from December 4th, 2008 (one year ago!)
Once again, automatic pilot means that things will be going in the right direction without major intervention on my part no matter what. Just imagining that my net worth has increased by $21,000 this year is wonderful! As my loans continue to drop (really my interest payments) these numbers will get better year after year! Even at the current rate, $20,000 x 30 years = $600,000 net worth (assuming no interest there). Numbers are wonderful!
The last thing I am going to track is the value of the TSX. I have some asset allocation goals that are dependent on the value of the TSX.
TSX Graph
Current Value: 11,510.80
Highest Value in Last 2 Years: 15073.13 June 18th, 2008
Wednesday, December 2, 2009
More Ideas For Renting Properties
This is just a post for me to share some of my ideas that I am reading about for my rental properties. The current book that I am reading is how to rent and flip properties to turn into a millionaire. It is fairly dated, but some of the ideas are good ones. The basic premise is this:
- get a mortgage on a property (with 25% down)
- put a small amount in of your own money each month for minor renovations (painting, new faucets, etc.)
- rent the property out
- after two years, sell your property for more than you paid for it and then use the new equity to repeat the process
A few interesting things come out of this. Number one is that you only own one (extra) property at a time. This is different from my other ideas of renting out several properties. He also says that you should pay down the principal relatively quickly, because that equity will turn into a more expensive property to purchase in the future.
He has lots of good ideas about renting out properties, but the major ones are that it is easier to rent your property out if the price is less than average in your area, that you should be looking at demographics and purchasing property in those areas (the Walmart rule...if Walmart is building stores in a community they are growing!).
Finally, the price that you set should be equal to less than one quarter of the average person's monthly salary. The idea behind this is if a person makes say $2000 per month, then paying $500 for rent doesn't seem too expensive to pay. I personally believe that it should probably be a higher ratio (especially for homes to rent or something other than a single room) but that is the ratio that he discussed. As I continue the book (whose title and author I forget at the moment) I will post any other interesting ideas I read about.
- get a mortgage on a property (with 25% down)
- put a small amount in of your own money each month for minor renovations (painting, new faucets, etc.)
- rent the property out
- after two years, sell your property for more than you paid for it and then use the new equity to repeat the process
A few interesting things come out of this. Number one is that you only own one (extra) property at a time. This is different from my other ideas of renting out several properties. He also says that you should pay down the principal relatively quickly, because that equity will turn into a more expensive property to purchase in the future.
He has lots of good ideas about renting out properties, but the major ones are that it is easier to rent your property out if the price is less than average in your area, that you should be looking at demographics and purchasing property in those areas (the Walmart rule...if Walmart is building stores in a community they are growing!).
Finally, the price that you set should be equal to less than one quarter of the average person's monthly salary. The idea behind this is if a person makes say $2000 per month, then paying $500 for rent doesn't seem too expensive to pay. I personally believe that it should probably be a higher ratio (especially for homes to rent or something other than a single room) but that is the ratio that he discussed. As I continue the book (whose title and author I forget at the moment) I will post any other interesting ideas I read about.
Wednesday, November 25, 2009
Financial Literacy In Schools
I am a few weeks late, but it looks like starting in 2011 in Ontario that Grades 4-12 curriculum will involve financial education for all! I can't wait.
Link
Link
Monday, November 23, 2009
The Middle Class Getting Squeezed...and tuition
I was killing time this afternoon before I do my tutoring gig, so here are some good links from Yahoo Finance:
Squeezed - The middle class getting squeezed. A great article showing how us bloggers have it wrong: the problem isn't that the middle class are wasteful spenders with their lattes, it is that housing prices rising and spending power dropping over the past 25 years have finally hit us. An interesting article to say the least!
Who Should Pay For Your Child's Education - Another good article showing people how to save for their children's education. The consensus in the staff room today was that the parents should match what their children save. So if your kids save $5000 for tuition, you give them $5000 to help them out.
How To Teach Children The Value of Money - Another link showing the basics for families and children. It says (as usual) that finance should be taught in the school system, and although I am trying, it still isn't happening on a widespread basis. My finance unit is coming up before Christmas for my Grade 11 class so there will be more updates then for sure.
Happy reading!
Squeezed - The middle class getting squeezed. A great article showing how us bloggers have it wrong: the problem isn't that the middle class are wasteful spenders with their lattes, it is that housing prices rising and spending power dropping over the past 25 years have finally hit us. An interesting article to say the least!
Who Should Pay For Your Child's Education - Another good article showing people how to save for their children's education. The consensus in the staff room today was that the parents should match what their children save. So if your kids save $5000 for tuition, you give them $5000 to help them out.
How To Teach Children The Value of Money - Another link showing the basics for families and children. It says (as usual) that finance should be taught in the school system, and although I am trying, it still isn't happening on a widespread basis. My finance unit is coming up before Christmas for my Grade 11 class so there will be more updates then for sure.
Happy reading!
Saturday, November 21, 2009
Net Worth Update - November 21st, 2009
Just a disclaimer before I begin: with Christmas on the way, I made a few extra purchases this month and I signed up for a course. A course is considered to be good credit (because it will eventually turn into me making more money at my job), so although it is hurting my bottom line this week, in the long term it is a positive.
Every time I get paid (every two weeks), I update my net worth. The idea behind this is that my goals are that my liabilities drop every two weeks, and by tracking them in this way, I am able to get a nice picture of where I stand financially. Its not a perfect balance sheet that I have (because of student loans I have a negative net worth), but the progress is what I am looking for.
ASSETS:
- up $518.23 from November 6th, 2009
- up $8513.19 from November 21st, 2008(one year ago)
These assets include my house (I give it 1% appreciation each year in my appreciation), my RRSP and my TFSA. My assets are continuing to slowly rise as the stock market inches up towards the end of the year. This is making me feel better, even after a really poor end to 2008 that the bounce back happen very quickly. Every book that I have read has confirmed this, but its nice to experience it too!
LIABILITIES:
- worse $63.28 from November 6th, 2009
- better $12,587.47 from November 21st, 2008(one year ago)
These liabilities include my mortgage, student loans and a consolidation loan (mainly for my Masters Degree for teaching). I am now up to five tutoring jobs, where the extra money that I earn goes to paying off my liabilities. As mentioned in the intro, I signed up for a $900 course which hurt my financial statements for this week. As a positive, this is the first time (since I signed up for my last course in May) that my liabilities got worse. I'll have to bounce back next week with a vengeance!
NET WORTH:
- better $454.95 from November 6th, 2009
- better $21,100.66 from November 21st, 2008 (one year ago!)
This is the nice thing about going on automatic pilot for my finances: even in times where I have to spend more (Christmas, courses, etc.) it still goes in the right direction. For me to imagine that I am $21,000 better than I was a year ago boggles the mind!
The last thing I am going to track is the value of the TSX. I have some asset allocation goals that are dependent on the value of the TSX.
TSX Graph
Current Value: 11,579.33
Highest Value in Last 2 Years: 15073.13 June 18th, 2008
Every time I get paid (every two weeks), I update my net worth. The idea behind this is that my goals are that my liabilities drop every two weeks, and by tracking them in this way, I am able to get a nice picture of where I stand financially. Its not a perfect balance sheet that I have (because of student loans I have a negative net worth), but the progress is what I am looking for.
ASSETS:
- up $518.23 from November 6th, 2009
- up $8513.19 from November 21st, 2008(one year ago)
These assets include my house (I give it 1% appreciation each year in my appreciation), my RRSP and my TFSA. My assets are continuing to slowly rise as the stock market inches up towards the end of the year. This is making me feel better, even after a really poor end to 2008 that the bounce back happen very quickly. Every book that I have read has confirmed this, but its nice to experience it too!
LIABILITIES:
- worse $63.28 from November 6th, 2009
- better $12,587.47 from November 21st, 2008(one year ago)
These liabilities include my mortgage, student loans and a consolidation loan (mainly for my Masters Degree for teaching). I am now up to five tutoring jobs, where the extra money that I earn goes to paying off my liabilities. As mentioned in the intro, I signed up for a $900 course which hurt my financial statements for this week. As a positive, this is the first time (since I signed up for my last course in May) that my liabilities got worse. I'll have to bounce back next week with a vengeance!
NET WORTH:
- better $454.95 from November 6th, 2009
- better $21,100.66 from November 21st, 2008 (one year ago!)
This is the nice thing about going on automatic pilot for my finances: even in times where I have to spend more (Christmas, courses, etc.) it still goes in the right direction. For me to imagine that I am $21,000 better than I was a year ago boggles the mind!
The last thing I am going to track is the value of the TSX. I have some asset allocation goals that are dependent on the value of the TSX.
TSX Graph
Current Value: 11,579.33
Highest Value in Last 2 Years: 15073.13 June 18th, 2008
Tuesday, November 17, 2009
Christmas and Money
Today's post is just a few ways that I am trying to cut back a little at Christmas this year. I am one of those people that goes overboard when it comes to giving (or shopping in general) at Christmas time. I will go shopping and come back with a tonne more stuff than I planned to get.
This year will hopefully be a little different, and I'll show you how. The main problem that I get into is that I will go into a store with a goal of what I want to buy for someone, and then come back with that gift, along with other small gifts for other people. I will still buy for those people a major gift, but the small gifts really add up. It is what has made stores like WalMart extremely successful over the years!
This year I will try to make a lot of my purchases online. The advantage of this is that it is more difficult for me to get distracted and make additional purchases. When I have to make a direct purchase, I will just bring cash with me. I have been saving up $20 per paycheque to put towards Christmas all year, so when my cash runs out my spending runs out as well.
You can make a budget for what you want to spend on each person. I know that budgets aren't sexy, but they are effective. If you announce to your family, "lets spend $100 per person this year", no one will be offended. Some people really go overboard and try to be the person who gives the best gifts, so by doing this we all have a limit to be set to.
Finally, I make a list of what I want to purchase. Rather than going to the store and saying "I have $50 that I want to spend on Billy" and then scrambling around to find him something, plan it out beforehand so you can shop around a bit. Shopping with lists makes it more difficult to make some of these small purchases which really add up. Also, planning your shopping in advance rather than waiting to the last minute gives you a chance to check prices as time goes on, rather than paying whatever the store wants you to pay the week before Christmas.
This year will hopefully be a little different, and I'll show you how. The main problem that I get into is that I will go into a store with a goal of what I want to buy for someone, and then come back with that gift, along with other small gifts for other people. I will still buy for those people a major gift, but the small gifts really add up. It is what has made stores like WalMart extremely successful over the years!
This year I will try to make a lot of my purchases online. The advantage of this is that it is more difficult for me to get distracted and make additional purchases. When I have to make a direct purchase, I will just bring cash with me. I have been saving up $20 per paycheque to put towards Christmas all year, so when my cash runs out my spending runs out as well.
You can make a budget for what you want to spend on each person. I know that budgets aren't sexy, but they are effective. If you announce to your family, "lets spend $100 per person this year", no one will be offended. Some people really go overboard and try to be the person who gives the best gifts, so by doing this we all have a limit to be set to.
Finally, I make a list of what I want to purchase. Rather than going to the store and saying "I have $50 that I want to spend on Billy" and then scrambling around to find him something, plan it out beforehand so you can shop around a bit. Shopping with lists makes it more difficult to make some of these small purchases which really add up. Also, planning your shopping in advance rather than waiting to the last minute gives you a chance to check prices as time goes on, rather than paying whatever the store wants you to pay the week before Christmas.
Friday, November 13, 2009
Rental Properties
I will eventually be a landlord. That is my next financial goal (other than paying off my student loans). It has been said that 90% of the world's millionaires got started through real estate. I have been renting out parts of my house since it was purchased and will continue to do so with a second property eventually.
The reason for this post was a discussion in the staff room during my prep yesterday. At least two or three teachers have rental properties, and one of them was complaining about a tenant that he had and said to me, "Don't ever get started in a rental property!". I countered that with on paper it looks really good and the numbers work out and he said "It's not worth it!".
He was getting ready to file the paperwork to get a tenant evicted from one of his properties (he has five that he rents out) who didn't pay the rent. He said that after he filed the paperwork, it would take a minimum of 44 days for them to get out (by law). Plus this would have to be done at his expense (the legal paperwork and the hiring of a "sheriff" as he called it to remove the person from the house if necessary).
He also said that he was selling all of his properties because of this bad experience (we'll see in a few days when he cools down if he still feels the same way...I'll chat with him on Monday). I asked him if he could ask for financial references and be more picky with his tenants but he said that he did ask for financial bank statements, but that he had difficulties with his properties staying vacant for two reasons: the lost income in a month and the fact that insurance companies don't like insuring vacant properties (because there is more chance for vandalism and theft).
Another teacher also chimed in and said that also wouldn't recommend rentals. They have had two really great tenants, and one horrible one, and the horrible tenant has pushed them away from it. I asked the first teacher about renting to students and he said that it was probably a better idea because you know what to expect with students, and that they have more cash and their parents will also sign the lease agreement so you shouldn't get stiffed for money. I would imagine that the maintenance would be much higher on a place like that.
For my own foray into real estate, there is a college in my town, so either I will begin with a house that I will rent to college students, or I will get a duplex or whatever and only post for them at places where me or my friends work at, ensuring that I get people in there with a real salary. The teacher said to me, "Remember, people who are good tenants eventually buy their own houses...the ones that rent forever are poor tenants". A few things for me to keep in mind.
The reason for this post was a discussion in the staff room during my prep yesterday. At least two or three teachers have rental properties, and one of them was complaining about a tenant that he had and said to me, "Don't ever get started in a rental property!". I countered that with on paper it looks really good and the numbers work out and he said "It's not worth it!".
He was getting ready to file the paperwork to get a tenant evicted from one of his properties (he has five that he rents out) who didn't pay the rent. He said that after he filed the paperwork, it would take a minimum of 44 days for them to get out (by law). Plus this would have to be done at his expense (the legal paperwork and the hiring of a "sheriff" as he called it to remove the person from the house if necessary).
He also said that he was selling all of his properties because of this bad experience (we'll see in a few days when he cools down if he still feels the same way...I'll chat with him on Monday). I asked him if he could ask for financial references and be more picky with his tenants but he said that he did ask for financial bank statements, but that he had difficulties with his properties staying vacant for two reasons: the lost income in a month and the fact that insurance companies don't like insuring vacant properties (because there is more chance for vandalism and theft).
Another teacher also chimed in and said that also wouldn't recommend rentals. They have had two really great tenants, and one horrible one, and the horrible tenant has pushed them away from it. I asked the first teacher about renting to students and he said that it was probably a better idea because you know what to expect with students, and that they have more cash and their parents will also sign the lease agreement so you shouldn't get stiffed for money. I would imagine that the maintenance would be much higher on a place like that.
For my own foray into real estate, there is a college in my town, so either I will begin with a house that I will rent to college students, or I will get a duplex or whatever and only post for them at places where me or my friends work at, ensuring that I get people in there with a real salary. The teacher said to me, "Remember, people who are good tenants eventually buy their own houses...the ones that rent forever are poor tenants". A few things for me to keep in mind.
Saturday, November 7, 2009
Net Worth Update - November 7th, 2009
With the first signs of winter on the way, this will be a shivering update to my net worth.
Every time I get paid (every two weeks), I update my net worth. The idea behind this is that my goals are that my liabilities drop every two weeks, and by tracking them in this way, I am able to get a nice picture of where I stand financially. Its not a perfect balance sheet that I have (because of student loans I have a negative net worth), but the progress is what I am looking for.
ASSETS:
- up $198.74 from October 24th, 2009
- up $7579.78 from November 7th, 2008(one year ago)
These assets include my house (I give it 1% appreciation each year in my appreciation), my RRSP and my TFSA. Again, the markets stayed about flat (or dropped), but my regular contributions continued and I continue at an all-time high.
LIABILITIES:
- better $574.63 from October 24th, 2009
- better $12,647.00 from November 7th, 2008(one year ago)
These liabilities include my mortgage, student loans and a consolidation loan (mainly for my Masters Degree for teaching). I am now up to five tutoring jobs, where the extra money that I earn goes to paying off my liabilities. The numbers dropped a bit because I did some charity contributions on my Mastercard this week but the warm feeling that you get from donating will help from my lower numbers than usual.
NET WORTH:
- better $773.36 from October 24th, 2009
- better $20,226.78 from November 7th, 2008 (one year ago!)
Decent numbers once again. I have to keep reminding myself that positive gains each paycheque and consistency is going to get me going in the right direction. My long term goals are to be student-loan free by the time I'm 35 (that being all my bills paid except my mortgage by age 35). I am still on track to do that as I continue to inch along. Christmas is coming around the corner though...
The last thing I am going to track is the value of the TSX. I have some asset allocation goals that are dependent on the value of the TSX.
TSX Graph
Current Value: 11,250.42
Highest Value in Last 2 Years: 15073.13 June 18th, 2008
Every time I get paid (every two weeks), I update my net worth. The idea behind this is that my goals are that my liabilities drop every two weeks, and by tracking them in this way, I am able to get a nice picture of where I stand financially. Its not a perfect balance sheet that I have (because of student loans I have a negative net worth), but the progress is what I am looking for.
ASSETS:
- up $198.74 from October 24th, 2009
- up $7579.78 from November 7th, 2008(one year ago)
These assets include my house (I give it 1% appreciation each year in my appreciation), my RRSP and my TFSA. Again, the markets stayed about flat (or dropped), but my regular contributions continued and I continue at an all-time high.
LIABILITIES:
- better $574.63 from October 24th, 2009
- better $12,647.00 from November 7th, 2008(one year ago)
These liabilities include my mortgage, student loans and a consolidation loan (mainly for my Masters Degree for teaching). I am now up to five tutoring jobs, where the extra money that I earn goes to paying off my liabilities. The numbers dropped a bit because I did some charity contributions on my Mastercard this week but the warm feeling that you get from donating will help from my lower numbers than usual.
NET WORTH:
- better $773.36 from October 24th, 2009
- better $20,226.78 from November 7th, 2008 (one year ago!)
Decent numbers once again. I have to keep reminding myself that positive gains each paycheque and consistency is going to get me going in the right direction. My long term goals are to be student-loan free by the time I'm 35 (that being all my bills paid except my mortgage by age 35). I am still on track to do that as I continue to inch along. Christmas is coming around the corner though...
The last thing I am going to track is the value of the TSX. I have some asset allocation goals that are dependent on the value of the TSX.
TSX Graph
Current Value: 11,250.42
Highest Value in Last 2 Years: 15073.13 June 18th, 2008
Friday, November 6, 2009
Emergency Funds
Until recently, I never really saw the need for an emergency fund. Financial experts (and financial book writers) always stressed the need for three to twenty-four months of expenses to have saved in the case of an emergency (like losing your job). Others call it the "sleep well at night factor", that you feel better about yourself and your finances if you have several thousand dollars at hand.
I have started an emergency fund, which I have yet to touch. It will only end up with a few thousand dollars in it at the absolute most, because I have a tough time conceiving an emergency that will cost more than that. Why did I decide to do this? For a few reasons, but mainly because I always feel it is better to be ahead than behind, and my old emergency fund plan would put me behind financially.
What was the old plan? Probably the same as most peoples: credit cards and lines of credit. What I did several years ago was dip into a line of credit or a credit card whenever I needed money, whether it was an "emergency" or not. If I needed money for something, I would either borrow it (from family or my "emergency" fund) and then be behind financially. By just having a few thousand set aside, if I need this money for anything I will just be able to access it.
My old self would say "how can you just leave the money sitting there? Shouldn't you either be using it to pay off a bill or to invest in an RRSP?". My lines of thought have changed that if you don't have at least $1000, the potential for large hits on a credit card or line of credit in a year are inevitable. My money goes into my Tax Free Savings Account, so it is still invested in low-cost mutual funds, so I'm not losing any savings potential.
I give regular contributions to this fund. When I get significantly over $1000 (or whatever number I choose...I am approaching $1000 now) I can then choose to do something with the excess money (an extra pay on my mortgage, a last minute investment in my RRSPs, a down payment on a second property (hint, hint)). By not having an emergency fund, I open myself up to the possibility of constant borrowing, and we all know that you can only get ahead by savings (and investments) rather than borrowing.
I have started an emergency fund, which I have yet to touch. It will only end up with a few thousand dollars in it at the absolute most, because I have a tough time conceiving an emergency that will cost more than that. Why did I decide to do this? For a few reasons, but mainly because I always feel it is better to be ahead than behind, and my old emergency fund plan would put me behind financially.
What was the old plan? Probably the same as most peoples: credit cards and lines of credit. What I did several years ago was dip into a line of credit or a credit card whenever I needed money, whether it was an "emergency" or not. If I needed money for something, I would either borrow it (from family or my "emergency" fund) and then be behind financially. By just having a few thousand set aside, if I need this money for anything I will just be able to access it.
My old self would say "how can you just leave the money sitting there? Shouldn't you either be using it to pay off a bill or to invest in an RRSP?". My lines of thought have changed that if you don't have at least $1000, the potential for large hits on a credit card or line of credit in a year are inevitable. My money goes into my Tax Free Savings Account, so it is still invested in low-cost mutual funds, so I'm not losing any savings potential.
I give regular contributions to this fund. When I get significantly over $1000 (or whatever number I choose...I am approaching $1000 now) I can then choose to do something with the excess money (an extra pay on my mortgage, a last minute investment in my RRSPs, a down payment on a second property (hint, hint)). By not having an emergency fund, I open myself up to the possibility of constant borrowing, and we all know that you can only get ahead by savings (and investments) rather than borrowing.
Saturday, October 31, 2009
Talking About Money
Why is money still a taboo in our society? I have read countless financial books and all of them say two things: that it is difficult to talk about money and that financial education should be brought into the schooling system. I am trying to do the second (in my own small way), but even among adults (or anyone), discussing their financial situation is a difficult matter.
Why is this? Are people insecure? Maybe embarrassed? For myself, I tell all my students that my goal is to one day be a millionaire. Then whenever the topic of money comes into the staff room, a teacher or two will always say "I heard about your million dollar plan" with a snide remark or comment. Until people realize that money problems or goals cannot be short term but long term progress this will be difficult.
My philosophy is to inch away towards my goals, as anyone who has read this blog will know. Every paycheque I update my net worth and set my goals to always have my assets going up and my liabilities falling. This has worked fairly well for me over the past few years in solidifying my financial position. I don't feel embarrassed that I am still in debt, and am slowly making changes in order to remedy this. I don't feel ashamed or uncomfortable discussing this with other people, in order to receive ideas or give suggestions to people. Money isn't intended to be rocket science, and I truly believe that all can be financially well off in the long run.
So what is causing the financial problems for most people? The concept of instant gratification is a major one. Why wait to save for something when you can borrow for it? Why should I not have a beautiful home and car and big screen television when so many other people have it? If you can't afford it, then you shouldn't have it.
Suze Orman has a personality that I have conflicts with, but she has a few good points about money. She claims that if you are unable to contribute 10% to your retirement and carry a credit card balance, that you are living above your means. She also throws in (in at least the current book of hers that I am reading) that you should also have 8 months of expenses saved up, which may be excessive but very helpful if you lose your job. She claims that the average American from age 35-45 carries $1900 on their credit card. If this isn't instant gratification, then I don't know what is. Personally I try to spend cash whenever I can. Then when my cash runs out, I don't buy anything else.
In my class I talk about financial issues that are important to me (saving, borrowing, financing your education, purchasing your first vehicle, renting your first apartment, buying your first house), and many students say to me that this is far more information then they get from their parents (concerning how expensive things are). That is a scary thought. If you are uncomfortable discussing finances with your family, then how are you going to deal with them when problems inevitably arise?
Finally, I want to point out to people that prosperity is a long term goal. I am writing this post because it is a little frustrating for myself to be inching along towards my financial dreams, but we all must realize that these are 20 year goals. As Robert Kiyosaki said in his excellent book "Rich Kid, Smart Kid", you have to look long term. His example was real estate relating to Monopoly. His "Rich Dad" purchased a piece of property and likened it to buying a property in Monopoly. He asked the kids "How long will it take me to turn this property into four green houses and then a hotel?". The answer was twenty years. Remember that when thinking about your financial goals.
Why is this? Are people insecure? Maybe embarrassed? For myself, I tell all my students that my goal is to one day be a millionaire. Then whenever the topic of money comes into the staff room, a teacher or two will always say "I heard about your million dollar plan" with a snide remark or comment. Until people realize that money problems or goals cannot be short term but long term progress this will be difficult.
My philosophy is to inch away towards my goals, as anyone who has read this blog will know. Every paycheque I update my net worth and set my goals to always have my assets going up and my liabilities falling. This has worked fairly well for me over the past few years in solidifying my financial position. I don't feel embarrassed that I am still in debt, and am slowly making changes in order to remedy this. I don't feel ashamed or uncomfortable discussing this with other people, in order to receive ideas or give suggestions to people. Money isn't intended to be rocket science, and I truly believe that all can be financially well off in the long run.
So what is causing the financial problems for most people? The concept of instant gratification is a major one. Why wait to save for something when you can borrow for it? Why should I not have a beautiful home and car and big screen television when so many other people have it? If you can't afford it, then you shouldn't have it.
Suze Orman has a personality that I have conflicts with, but she has a few good points about money. She claims that if you are unable to contribute 10% to your retirement and carry a credit card balance, that you are living above your means. She also throws in (in at least the current book of hers that I am reading) that you should also have 8 months of expenses saved up, which may be excessive but very helpful if you lose your job. She claims that the average American from age 35-45 carries $1900 on their credit card. If this isn't instant gratification, then I don't know what is. Personally I try to spend cash whenever I can. Then when my cash runs out, I don't buy anything else.
In my class I talk about financial issues that are important to me (saving, borrowing, financing your education, purchasing your first vehicle, renting your first apartment, buying your first house), and many students say to me that this is far more information then they get from their parents (concerning how expensive things are). That is a scary thought. If you are uncomfortable discussing finances with your family, then how are you going to deal with them when problems inevitably arise?
Finally, I want to point out to people that prosperity is a long term goal. I am writing this post because it is a little frustrating for myself to be inching along towards my financial dreams, but we all must realize that these are 20 year goals. As Robert Kiyosaki said in his excellent book "Rich Kid, Smart Kid", you have to look long term. His example was real estate relating to Monopoly. His "Rich Dad" purchased a piece of property and likened it to buying a property in Monopoly. He asked the kids "How long will it take me to turn this property into four green houses and then a hotel?". The answer was twenty years. Remember that when thinking about your financial goals.
Monday, October 26, 2009
Suggestions for Real Estate
I went with my girlfriend to a wedding yesterday afternoon. We were sat at a table for brunch with a younger couple and we asked what they did. Adam said that he was a real estate agent, and he became one because he got his real estate license so he could save himself fees as he bought and sold properties for himself. My ears of course perked right up.
He said that he owned thirteen properties and did so because he started working right out of high school and decided that he didn't want to (work that is). It took him five years to get going but he had his first place by age 24.
I asked him after a bit what he would recommend for someone looking to get started, as far as the type of property. What he said really surprised me. He said to get a fourplex if possible right off the start. The advantage is that he said, as compared to renting out a single family home, is that even if one or two spots are vacant, you won't be taking the entire financial hit. He also suggested that it might be better to purchase a place outside of my local area and hire someone to look after it for me (as that is what he is trying to do now). Again, all logical things that make sense. I was worried about the cost and he said that his girlfriend just bought her first fourplex for $209,000 (which is considerably less than I thought it would be).
He also mentioned the snowball effect that real estate has: that once you start making money off of it, it becomes easier and easier. The more money that you have, the easier that it is to get finance and refinance loans. He also mentioned that it is important to pay for a good team around you: mortgage broker, lawyer, accountant and real estate agent.
This was a good inspirational weekend for me financially and pointed me to the path of success I think. Now its just time to save for some down payments and begin my financial dreams!
He said that he owned thirteen properties and did so because he started working right out of high school and decided that he didn't want to (work that is). It took him five years to get going but he had his first place by age 24.
I asked him after a bit what he would recommend for someone looking to get started, as far as the type of property. What he said really surprised me. He said to get a fourplex if possible right off the start. The advantage is that he said, as compared to renting out a single family home, is that even if one or two spots are vacant, you won't be taking the entire financial hit. He also suggested that it might be better to purchase a place outside of my local area and hire someone to look after it for me (as that is what he is trying to do now). Again, all logical things that make sense. I was worried about the cost and he said that his girlfriend just bought her first fourplex for $209,000 (which is considerably less than I thought it would be).
He also mentioned the snowball effect that real estate has: that once you start making money off of it, it becomes easier and easier. The more money that you have, the easier that it is to get finance and refinance loans. He also mentioned that it is important to pay for a good team around you: mortgage broker, lawyer, accountant and real estate agent.
This was a good inspirational weekend for me financially and pointed me to the path of success I think. Now its just time to save for some down payments and begin my financial dreams!
Saturday, October 24, 2009
Net Worth Update - October 24th, 2009
I truly believe that my listing your goals and tracking your goals it is much easier to make progress. Here is the usual update!
Every time I get paid (every two weeks), I update my net worth. The idea behind this is that my goals are that my liabilities drop every two weeks, and by tracking them in this way, I am able to get a nice picture of where I stand financially. Its not a perfect balance sheet that I have (because of student loans I have a negative net worth), but the progress is what I am looking for.
ASSETS:
- up $233.61 from October 9th, 2009
- up $7652.85 from October 23rd, 2008(one year ago)
These assets include my house (I give it 1% appreciation each year in my appreciation), my RRSP and my TFSA. Even with the markets slipping a bit, my regular contirbutions continue to push me to an all-time high in assets each update.
LIABILITIES:
- better $677.13 from October 9th, 2009
- better $12,949.91 from October 23rd, 2008(one year ago)
These liabilities include my mortgage, student loans and a consolidation loan (mainly for my Masters Degree for teaching). I am now up to five tutoring jobs, where the extra money that I earn goes to paying off my liabilities. I am quite happy with this number each week. We'll see how this continues as Christmas creeps up, although I am saving some money on the side for that as well.
NET WORTH:
- better $910.73 from October 9th, 2009
- better $20,602.76 from October 23rd, 2008 (one year ago!)
The numbers aren't as good as the previous week, but let's face facts...improving by upwards of $20,000 in a single year I think is still phenomenal. I've also had nine straight updates (even before this blog started) when my liabilities dropped, which is all I can ask! In the calendar 2009, I have improved by assets by around $7000 and my liabilities by about $12,000!
The last thing I am going to track is the value of the TSX. I have some asset allocation goals that are dependent on the value of the TSX.
TSX Graph
Current Value: 11,382.13
Highest Value in Last 2 Years: 15073.13 June 18th, 2008
Every time I get paid (every two weeks), I update my net worth. The idea behind this is that my goals are that my liabilities drop every two weeks, and by tracking them in this way, I am able to get a nice picture of where I stand financially. Its not a perfect balance sheet that I have (because of student loans I have a negative net worth), but the progress is what I am looking for.
ASSETS:
- up $233.61 from October 9th, 2009
- up $7652.85 from October 23rd, 2008(one year ago)
These assets include my house (I give it 1% appreciation each year in my appreciation), my RRSP and my TFSA. Even with the markets slipping a bit, my regular contirbutions continue to push me to an all-time high in assets each update.
LIABILITIES:
- better $677.13 from October 9th, 2009
- better $12,949.91 from October 23rd, 2008(one year ago)
These liabilities include my mortgage, student loans and a consolidation loan (mainly for my Masters Degree for teaching). I am now up to five tutoring jobs, where the extra money that I earn goes to paying off my liabilities. I am quite happy with this number each week. We'll see how this continues as Christmas creeps up, although I am saving some money on the side for that as well.
NET WORTH:
- better $910.73 from October 9th, 2009
- better $20,602.76 from October 23rd, 2008 (one year ago!)
The numbers aren't as good as the previous week, but let's face facts...improving by upwards of $20,000 in a single year I think is still phenomenal. I've also had nine straight updates (even before this blog started) when my liabilities dropped, which is all I can ask! In the calendar 2009, I have improved by assets by around $7000 and my liabilities by about $12,000!
The last thing I am going to track is the value of the TSX. I have some asset allocation goals that are dependent on the value of the TSX.
TSX Graph
Current Value: 11,382.13
Highest Value in Last 2 Years: 15073.13 June 18th, 2008
Tuesday, October 20, 2009
Legally Deferring My Taxes
Just an update on my tax situation. A few months ago, I filled out a T1105 form from the Ontario government that would allow me to pay less income tax off of each paycheque. The idea is simply this: rather than get a large cheque back come income tax time, to get a little more for each paycheque throughout the year. Over the course of the year, I will still earn the same amount and pay the same amount, but rather than have the government hang onto my extra taxes paid, I would pay less for each paycheque. The math behind this is that I can use this extra money immediately to either invest, or to pay loans or whatever. It is a better use of my money to have it now rather than to have the government hang onto it for the better part of a year.
So my plan was to have half of my RRSP deductions taken off each paycheque. So if I contribute $200 per paycheque to RRSPs, I would have the government tax me on $100 less of my salary. In this way, I will still get some money back come tax time, but also get a benefit now.
It works perfectly so far (we'll see what happens come income tax time). I went to the bank and got a letter saying what my RRSP contributions were and then the government agreed to reduce my taxes each paycheque. If I want to do this for 2010 (which I do) it was recommended that I get all my paperwork in by November 1st of 2009 (which I will immediately do).
Some people like getting a big cheque back at tax time. It's almost like a Christmas bonus or a lottery winning. I would much rather have more disposable income throughout the year and have more control of my money, so I will continue to do it this way.
So my plan was to have half of my RRSP deductions taken off each paycheque. So if I contribute $200 per paycheque to RRSPs, I would have the government tax me on $100 less of my salary. In this way, I will still get some money back come tax time, but also get a benefit now.
It works perfectly so far (we'll see what happens come income tax time). I went to the bank and got a letter saying what my RRSP contributions were and then the government agreed to reduce my taxes each paycheque. If I want to do this for 2010 (which I do) it was recommended that I get all my paperwork in by November 1st of 2009 (which I will immediately do).
Some people like getting a big cheque back at tax time. It's almost like a Christmas bonus or a lottery winning. I would much rather have more disposable income throughout the year and have more control of my money, so I will continue to do it this way.
Friday, October 16, 2009
Contribute to your RRSP or Pay Off Consumer Debt
A question was put to me the other day is it better to contribute to your RRSP or to pay off your consumer debt. The benefits to RRSP contribution are clear: more money for yourself when you retire, tax-free growth in these investments, and the most immediate: a tax deduction. If I contribute $1000 immediately, I will get $350 (approximately) back at income tax time. All of these factor lead you to believe that you should contribute to your RRSP as much as possible (up to 18% of your salary I believe is the most up to date figure).
But what about consumer debt? What should you do if you owe $50,000 on personal loans (non investment and non-mortgage loans)? My philosophy is always to make small changes based on when you have extra money coming in. I personally have a lot of school debt, and although the interest rates are low now, it still burns me to have to pay so much out of each paycheque towards loans.
I believe that some debt is fine. If you are purchasing an asset that will leave you with positive cash flow (ie. a rental property, or a cottage or a loan to an RRSP, etc.) then that debt is fine and will take care of itself in the long term. But consumer debt (credit cards, don't pay for 18 months, etc.) should be paid immediately. When I retire I want to make sure that I have plenty of assets and no debt of any kind to show, giving me total freedom to do what I want.
I believe that people should contribute to their RRSPs and get rid of their debt whenever possible. For me, when I get a raise, I always up my RRSP contributions and also increase my debt repayments. Doing exclusively one or the other won't help as much. Only repaying your debts may make you feel slightly better, but getting money back at RRSP time or looking at your portfolio and smiling will encourage you to continue.
But what about consumer debt? What should you do if you owe $50,000 on personal loans (non investment and non-mortgage loans)? My philosophy is always to make small changes based on when you have extra money coming in. I personally have a lot of school debt, and although the interest rates are low now, it still burns me to have to pay so much out of each paycheque towards loans.
I believe that some debt is fine. If you are purchasing an asset that will leave you with positive cash flow (ie. a rental property, or a cottage or a loan to an RRSP, etc.) then that debt is fine and will take care of itself in the long term. But consumer debt (credit cards, don't pay for 18 months, etc.) should be paid immediately. When I retire I want to make sure that I have plenty of assets and no debt of any kind to show, giving me total freedom to do what I want.
I believe that people should contribute to their RRSPs and get rid of their debt whenever possible. For me, when I get a raise, I always up my RRSP contributions and also increase my debt repayments. Doing exclusively one or the other won't help as much. Only repaying your debts may make you feel slightly better, but getting money back at RRSP time or looking at your portfolio and smiling will encourage you to continue.
Saturday, October 10, 2009
Net Worth Update - October 10th, 2009
I truly believe that my listing your goals and tracking your goals it is much easier to make progress. Here is the usual update!
Every time I get paid (every two weeks), I update my net worth. The idea behind this is that my goals are that my liabilities drop every two weeks, and by tracking them in this way, I am able to get a nice picture of where I stand financially. Its not a perfect balance sheet that I have (because of student loans I have a negative net worth), but the progress is what I am looking for.
ASSETS:
- up $450.53 from September 25th, 2009
- up $7777.54 from October 8th, 2008(one year ago)
These assets include my house (I give it 1% appreciation each year in my appreciation), my RRSP and my TFSA. I put a little more aside this week (see a future post on how I lowered my taxes and increased my paycheque for 2009).
LIABILITIES:
- better $678.26 from September 25th, 2009
- better $12,479.33 from October 8th, 2008(one year ago)
These liabilities include my mortgage, student loans and a consolidation loan (mainly for my Masters Degree for teaching). Once again, my four tutoring jobs help in this. It is a little worse than usual because of prescriptions carried forward on my Mastercard.
NET WORTH:
- better $1128.80 from September 25th, 2009
- better $20,256.87 from October 8th, 2008 (one year ago!)
Excellent statistics as usual. Of course I am a numbers guy, so this looks great. To think that my net worth has increased by $20,000 in a single year makes me tremendously happy. As well, in 2009 I have decreased by liabilities in every paycheque but two (when I paid for my summer school course and when we went on holidays). For me right now, where paying down my debt is a high priority, this is extremely exciting.
The last thing I am going to track is the value of the TSX. I have some asset allocation goals that are dependent on the value of the TSX.
TSX Graph
Current Value: 11,436.92
Highest Value in Last 2 Years: 15073.13 June 18th, 2008
Every time I get paid (every two weeks), I update my net worth. The idea behind this is that my goals are that my liabilities drop every two weeks, and by tracking them in this way, I am able to get a nice picture of where I stand financially. Its not a perfect balance sheet that I have (because of student loans I have a negative net worth), but the progress is what I am looking for.
ASSETS:
- up $450.53 from September 25th, 2009
- up $7777.54 from October 8th, 2008(one year ago)
These assets include my house (I give it 1% appreciation each year in my appreciation), my RRSP and my TFSA. I put a little more aside this week (see a future post on how I lowered my taxes and increased my paycheque for 2009).
LIABILITIES:
- better $678.26 from September 25th, 2009
- better $12,479.33 from October 8th, 2008(one year ago)
These liabilities include my mortgage, student loans and a consolidation loan (mainly for my Masters Degree for teaching). Once again, my four tutoring jobs help in this. It is a little worse than usual because of prescriptions carried forward on my Mastercard.
NET WORTH:
- better $1128.80 from September 25th, 2009
- better $20,256.87 from October 8th, 2008 (one year ago!)
Excellent statistics as usual. Of course I am a numbers guy, so this looks great. To think that my net worth has increased by $20,000 in a single year makes me tremendously happy. As well, in 2009 I have decreased by liabilities in every paycheque but two (when I paid for my summer school course and when we went on holidays). For me right now, where paying down my debt is a high priority, this is extremely exciting.
The last thing I am going to track is the value of the TSX. I have some asset allocation goals that are dependent on the value of the TSX.
TSX Graph
Current Value: 11,436.92
Highest Value in Last 2 Years: 15073.13 June 18th, 2008
Sunday, October 4, 2009
The Rebalancing Act
In today's post I am going to try to explain my long term plan for rebalancing my portfolio. I find it easier (financially) to have things planned out, so that even when my portfolio runs hot (or cold) if I stick by the rules that are decided long beforehand everything will work out well in the long run.
Rebalancing your portfolio (in my case) is just making sure that I have a certain percentage in each asset class. In my simple portfolio, I have two asset classes: stocks and bonds. Stocks would be considered to be the more risky asset (as those who have had money in the stock market lately would agree with me) and bonds would be considered to be more conservative.
One of the old financial sayings is the 90 minus your age rule. That is, the percentage of your portfolio that should be in stocks is 90 minus your age. I am currently 31, so that should mean that I have 59% stocks and 41% bonds. This is far too conservative for me, so I decided to make my own splits that will become more conservative over time, allow me to reap the gains of the stock market (regardless of my age) and even in the case of an economic down turn (if one hits 20 years from now when I am planning to retire) I will still be able to retire when I want.
My basic rebalancing act is this. Each paycheque I deposit 90-95% of my investment money into stocks and 5-10% into bonds. The reason for this is that in the long term, I believe that there will always be money to be made in the stock market. When the Toronto Stock Exchange hits a two-year high (that is, the highest value in the last two years), I will rebalance by portfolio to a 50-50 split of stocks and bonds. My doing this, I will still have money in the stock side of my portfolio, but I have claimed a lot of the profits along the way.
Will this be maximizing my profits along the way? Probably not. If the stock market were to rise nonstop for 5 or 6 years (pretty much from 2002-2008) I would not have as much money in this scenario as if I had all my money invested in the stock market. But, I will be less affected by a 10% drop in the market in one year, as I have taken a lot of my profits along the way. All investment books that I read say that you should be buying when people are selling (obtaining stocks when the prices are low) and selling when others are buying (selling stocks in a hot market). This plan will allow me to keep money in the market always, and minimize my chances of risk in the long term (as the money will tend towards 50% stocks and 50% bonds).
Rebalancing your portfolio (in my case) is just making sure that I have a certain percentage in each asset class. In my simple portfolio, I have two asset classes: stocks and bonds. Stocks would be considered to be the more risky asset (as those who have had money in the stock market lately would agree with me) and bonds would be considered to be more conservative.
One of the old financial sayings is the 90 minus your age rule. That is, the percentage of your portfolio that should be in stocks is 90 minus your age. I am currently 31, so that should mean that I have 59% stocks and 41% bonds. This is far too conservative for me, so I decided to make my own splits that will become more conservative over time, allow me to reap the gains of the stock market (regardless of my age) and even in the case of an economic down turn (if one hits 20 years from now when I am planning to retire) I will still be able to retire when I want.
My basic rebalancing act is this. Each paycheque I deposit 90-95% of my investment money into stocks and 5-10% into bonds. The reason for this is that in the long term, I believe that there will always be money to be made in the stock market. When the Toronto Stock Exchange hits a two-year high (that is, the highest value in the last two years), I will rebalance by portfolio to a 50-50 split of stocks and bonds. My doing this, I will still have money in the stock side of my portfolio, but I have claimed a lot of the profits along the way.
Will this be maximizing my profits along the way? Probably not. If the stock market were to rise nonstop for 5 or 6 years (pretty much from 2002-2008) I would not have as much money in this scenario as if I had all my money invested in the stock market. But, I will be less affected by a 10% drop in the market in one year, as I have taken a lot of my profits along the way. All investment books that I read say that you should be buying when people are selling (obtaining stocks when the prices are low) and selling when others are buying (selling stocks in a hot market). This plan will allow me to keep money in the market always, and minimize my chances of risk in the long term (as the money will tend towards 50% stocks and 50% bonds).
Friday, October 2, 2009
Happiness for the future...
At the end of math class, one of the girls in my class was complaining that all she had to do is work this weekend at Tim Horton's. She said that she had to work from 6am - 4pm every day this weekend and had tonnes of hours in the week. I asked her if she was saving any of the money, and she said that her mother made her put a percentage of it into savings and a percentage into saving for school and some she was allowed to spend. I told her that if she would save 10-20% out of every paycheque, she would be very rich in the future. I didn't get into the math of it (that will come later in the semester), but it sounded good that her mother was helping her get a head start in her financial life.
Saturday, September 26, 2009
Net Worth - September 26th, 2009
Another decent two weeks for my net worth. Here is the usual update.
Every time I get paid (every two weeks), I update my net worth. The idea behind this is that my goals are that my liabilities drop every two weeks, and by tracking them in this way, I am able to get a nice picture of where I stand financially. Its not a perfect balance sheet that I have (because of student loans I have a negative net worth), but the progress is what I am looking for.
ASSETS:
- up $306.21 from September 11th, 2009
- up $6559.30 from September 26th, 2008(one year ago)
These assets include my house (I give it 1% appreciation each year in my appreciation), my RRSP and my TFSA. The markets are continuing to rise (who knows for how long) so my assets continue to slowly rise.
LIABILITIES:
- better $827.08 from September 11th, 2009
- better $11,403.78 from September 26th, 2008(one year ago)
These liabilities include my mortgage, student loans and a consolidation loan (mainly for my Masters Degree for teaching). I am now up to four tutoring jobs in a week so all my money that I get from that will go towards decreasing my liabilities. As last weeks liabilities were low (because of spending on MasterCard for prescriptions), as I got my cheque back from my prescriptions I was able to really improve my liabilities this week.
NET WORTH:
- better $1133.29 from September 11th, 2009
- better $17,963.09 from September 12th, 2008 (one year ago!)
Another good set of two weeks. Even just by tracking this (and having a constant reminder of where you stand) really seems to help out. This is like constant goal tracking (which I think is great). Since I started (publicly) tracking my net worth on this blog, all updates have had positive growth in assets and my liabilities have dropped (which is awesome). Let's hope that this continues (I am making it happen so it really isn't hope...its action!)
The last thing I am going to track is the value of the TSX. I have some asset allocation goals that I will share in future posts, and they are dependent on the value of the TSX.
TSX Graph
Current Value: 11,212.39
Highest Value in Last 2 Years: 15073.13 June 18th, 2008
Every time I get paid (every two weeks), I update my net worth. The idea behind this is that my goals are that my liabilities drop every two weeks, and by tracking them in this way, I am able to get a nice picture of where I stand financially. Its not a perfect balance sheet that I have (because of student loans I have a negative net worth), but the progress is what I am looking for.
ASSETS:
- up $306.21 from September 11th, 2009
- up $6559.30 from September 26th, 2008(one year ago)
These assets include my house (I give it 1% appreciation each year in my appreciation), my RRSP and my TFSA. The markets are continuing to rise (who knows for how long) so my assets continue to slowly rise.
LIABILITIES:
- better $827.08 from September 11th, 2009
- better $11,403.78 from September 26th, 2008(one year ago)
These liabilities include my mortgage, student loans and a consolidation loan (mainly for my Masters Degree for teaching). I am now up to four tutoring jobs in a week so all my money that I get from that will go towards decreasing my liabilities. As last weeks liabilities were low (because of spending on MasterCard for prescriptions), as I got my cheque back from my prescriptions I was able to really improve my liabilities this week.
NET WORTH:
- better $1133.29 from September 11th, 2009
- better $17,963.09 from September 12th, 2008 (one year ago!)
Another good set of two weeks. Even just by tracking this (and having a constant reminder of where you stand) really seems to help out. This is like constant goal tracking (which I think is great). Since I started (publicly) tracking my net worth on this blog, all updates have had positive growth in assets and my liabilities have dropped (which is awesome). Let's hope that this continues (I am making it happen so it really isn't hope...its action!)
The last thing I am going to track is the value of the TSX. I have some asset allocation goals that I will share in future posts, and they are dependent on the value of the TSX.
TSX Graph
Current Value: 11,212.39
Highest Value in Last 2 Years: 15073.13 June 18th, 2008
Friday, September 25, 2009
Taxes Now or Later
I just received a letter from the government approving my request to have my taxes reduced at the source. My theory is that since taxes are earning no interest anyway, that if I take half of what my last year tax return was and reduce it from my taxes this year, then I will get the money back sooner.
An example to clarify: If I got back $2600 last year on my tax return (for ease of calculation), I would want to get back this year an extra $1300 over the year on my paycheque and still get $1300 back on my return.
The way I calculated this was to use my tax bracket (38%), and divide the $1300 by 0.38 to get $3421.05. I tell the government that I want to be taxed at a level$3421.05 lower than I am actually getting paid (over the year), giving me an extra $1300/26 = $50 per paycheque. In theory this is good, but my brother discussed two potential problems with this.
First is the timing. My claim is to be taxed at a level $1950 lower. What the government did is approved this, but asked the $1950 to be taken off my last six pays of the year. I anticipated this over the entire year (giving me an extra $28.50 per pay using the 38% above), instead of $123.50 that it will work out this way. Money is money I guess, but it is a nice luxury for the rest of the year.
Second is the wording. My brother thinks that instead of my taxable income dropping (which is what I want) that my taxes will drop $1950 for the rest of the year. Divide this by 6 and you get an extra $325 cash each paycheque and the likelyhood that I will have to pay into taxes in March. I still don't think this is the case, but the seeds of doubt have now been planted.
I will post two weeks from now (when my paycheque has been changed) and let you know how it worked out from me. If it works the way I think it will, I will do this every year, as a few extra bucks during each pay make the cash flow (and loan payments/etc.) nicer and I don't think I need that huge cheque from the tax office each spring.
An example to clarify: If I got back $2600 last year on my tax return (for ease of calculation), I would want to get back this year an extra $1300 over the year on my paycheque and still get $1300 back on my return.
The way I calculated this was to use my tax bracket (38%), and divide the $1300 by 0.38 to get $3421.05. I tell the government that I want to be taxed at a level$3421.05 lower than I am actually getting paid (over the year), giving me an extra $1300/26 = $50 per paycheque. In theory this is good, but my brother discussed two potential problems with this.
First is the timing. My claim is to be taxed at a level $1950 lower. What the government did is approved this, but asked the $1950 to be taken off my last six pays of the year. I anticipated this over the entire year (giving me an extra $28.50 per pay using the 38% above), instead of $123.50 that it will work out this way. Money is money I guess, but it is a nice luxury for the rest of the year.
Second is the wording. My brother thinks that instead of my taxable income dropping (which is what I want) that my taxes will drop $1950 for the rest of the year. Divide this by 6 and you get an extra $325 cash each paycheque and the likelyhood that I will have to pay into taxes in March. I still don't think this is the case, but the seeds of doubt have now been planted.
I will post two weeks from now (when my paycheque has been changed) and let you know how it worked out from me. If it works the way I think it will, I will do this every year, as a few extra bucks during each pay make the cash flow (and loan payments/etc.) nicer and I don't think I need that huge cheque from the tax office each spring.
Monday, September 21, 2009
Debt and Freedom
A few days ago my friend left his job. He was offered a different job at his place of business and turned it down and now decided that he isn't going to look for a job for the rest of the year.
The first question that he was asked is how can he afford to do this. He stated that he has enough money put away that he can handle two years of expenses. His life was set up though to have minimal expenses: no education loans, no mortgage, no vehicle, etc.
How does this affect me? I have lots of expenses/bills/loans and would never have the freedom to take four or five months off to re-evaluate my life because of this. I guess what I am asking (or wondering) if I should stop saving and put all my money into paying off loans to achieve this freedom?
I know that long term you have to look at the potential returns, but by paying off loans you are paying off a fixed rate, and thus its a fixed investment that you are paying. This year, with my raise, I put 25% into investments, and 50% into debt repayment (leaving 25% float for myself), so I think I am concerned about paying off my debt, and I have decided that any tutoring money that I get this year will also go towards debt repayment. Realistically though, I am about three and a half years away from this kind of freedom. The only difference between my friend and me is that I have decided to take on a mortgage, and because of this my net worth is better, but my short term freedom is reduced.
The first question that he was asked is how can he afford to do this. He stated that he has enough money put away that he can handle two years of expenses. His life was set up though to have minimal expenses: no education loans, no mortgage, no vehicle, etc.
How does this affect me? I have lots of expenses/bills/loans and would never have the freedom to take four or five months off to re-evaluate my life because of this. I guess what I am asking (or wondering) if I should stop saving and put all my money into paying off loans to achieve this freedom?
I know that long term you have to look at the potential returns, but by paying off loans you are paying off a fixed rate, and thus its a fixed investment that you are paying. This year, with my raise, I put 25% into investments, and 50% into debt repayment (leaving 25% float for myself), so I think I am concerned about paying off my debt, and I have decided that any tutoring money that I get this year will also go towards debt repayment. Realistically though, I am about three and a half years away from this kind of freedom. The only difference between my friend and me is that I have decided to take on a mortgage, and because of this my net worth is better, but my short term freedom is reduced.
Saturday, September 19, 2009
My first money lesson of the year...
In my Grade 11 University math class, we are in the sequences unit. A sequence is an ordered list of numbers. Specificially we deal with sequences where each term in the sequence is multiplied by a common number to get the next number in the sequence. An example is 2, 4, 8, 16, 32, ... (the sequence is doubling each time).
A great application of this is compound interest. If you multiply the interest each time, you can find out the future value of your money. So in our class yesterday, we started talking about savings and borrowing and compound interest.
First of all, the class quickly discovered that this is the way to get me off topic, as I got a lot of great questions from the class and happily answered them all to the best of my ability. We talked about more frequent compounding periods than annually, although the interest rate is listed as annually and how the more frequent that compound period, the more money that is charged/earned. When I explained that credit cards charge daily interest, it prompted the response, "those guys are jerks...I'm never getting a credit card!". We'll see if this person in the future lives by these words, but not getting a credit card immediately should be good advice for any teenager.
Then we talked (briefly) about purchasing a car. I told the class that I don't have a car, getting a cheer from the vegan in the class. We talked about a person that I know that purchased a fancy automobile immediately after getting their first job, and then was saddled with lease payments, insurance and all the rest, when they really couldn't afford it. I didn't have time to get into much more than that, but hopefully they will think about that (I'll return to planning and deciding if you can afford something when I get to the finance unit in the course).
Then I wrote on the board that the interest rate on mortgages is charged every six months. A student asked "what's a second mortgage". After first explaining what a first mortgage was, I explained that a second mortgage is borrowing against the equity in your home. Then I (quickly) explained this was one of the problems in the United States, where people would leverage their homes and end up borrowing more money than their home was worth. Then when they tried to sell their home, they wouldn't have enough money to cover their loans. Someone asked, "If you lose your job, and you still owe half the money on your house, or on your farm, what happens?" I answered as honestly as I could, and I'm not sure if this is exactly right, but I would think that you would be forced to sell your house if it got foreclosed. The portion that you owe the bank would be taken out of how much money that you got for the sale of your house.
My last math lesson of the day was in the staff room when a fellow teacher asked me what a reverse mortgage was. I tried to explain that it was when the bank gives you money in exchange for equity in your house. It is intended for retirees who have a lot of assets in their house, but have little or no cash. The problem is that when they die, a large amount of the value of the house can go to the bank.
All in all, it was a fun lesson for me, and although I have an excellent class, there may be some financial strain at home for me to be getting questions about foreclosures and second mortgages. I explained to them that one of my goals was to be a millionaire and that I would explain how I would do that when we talked about savings and borrowing later in the course. Every year I hope that some of this financial stuff sinks in, and I hope that because I am passionate about it that some will take an interest.
A great application of this is compound interest. If you multiply the interest each time, you can find out the future value of your money. So in our class yesterday, we started talking about savings and borrowing and compound interest.
First of all, the class quickly discovered that this is the way to get me off topic, as I got a lot of great questions from the class and happily answered them all to the best of my ability. We talked about more frequent compounding periods than annually, although the interest rate is listed as annually and how the more frequent that compound period, the more money that is charged/earned. When I explained that credit cards charge daily interest, it prompted the response, "those guys are jerks...I'm never getting a credit card!". We'll see if this person in the future lives by these words, but not getting a credit card immediately should be good advice for any teenager.
Then we talked (briefly) about purchasing a car. I told the class that I don't have a car, getting a cheer from the vegan in the class. We talked about a person that I know that purchased a fancy automobile immediately after getting their first job, and then was saddled with lease payments, insurance and all the rest, when they really couldn't afford it. I didn't have time to get into much more than that, but hopefully they will think about that (I'll return to planning and deciding if you can afford something when I get to the finance unit in the course).
Then I wrote on the board that the interest rate on mortgages is charged every six months. A student asked "what's a second mortgage". After first explaining what a first mortgage was, I explained that a second mortgage is borrowing against the equity in your home. Then I (quickly) explained this was one of the problems in the United States, where people would leverage their homes and end up borrowing more money than their home was worth. Then when they tried to sell their home, they wouldn't have enough money to cover their loans. Someone asked, "If you lose your job, and you still owe half the money on your house, or on your farm, what happens?" I answered as honestly as I could, and I'm not sure if this is exactly right, but I would think that you would be forced to sell your house if it got foreclosed. The portion that you owe the bank would be taken out of how much money that you got for the sale of your house.
My last math lesson of the day was in the staff room when a fellow teacher asked me what a reverse mortgage was. I tried to explain that it was when the bank gives you money in exchange for equity in your house. It is intended for retirees who have a lot of assets in their house, but have little or no cash. The problem is that when they die, a large amount of the value of the house can go to the bank.
All in all, it was a fun lesson for me, and although I have an excellent class, there may be some financial strain at home for me to be getting questions about foreclosures and second mortgages. I explained to them that one of my goals was to be a millionaire and that I would explain how I would do that when we talked about savings and borrowing later in the course. Every year I hope that some of this financial stuff sinks in, and I hope that because I am passionate about it that some will take an interest.
Monday, September 14, 2009
Kids and Money
As you have probably read, I teach high school, and last week I had cafeteria duty. Generally, this involves telling grade 9's to pick up their garbage and to push in their chairs and such, but I started looking at the lines and doing some calculations.
There was a lineup of at least 200 students at the beginning of lunch going to the cafeteria, assuming that they spend $5 there (pretty reasonable considering the food there), that is $1000 per day that the cafeteria earns (or the students waste). On top of this, there is a 25 cent fee for using Interact at the cafeteria.
This pains me when I think of the future of our economy. Teenagers have more disposable income than anyone (if you don't believe me check out the number of hats, cell phones and ipods that the vice-principal confiscates and then aren't even collected at the end of the year). Perhaps some thought should be to teaching them about savings.
Theoretically, what's wrong with getting your kids to save 10-20% for their retirement already (no matter what their age). You don't have to tell them that, just tell them its a savings account, and then when they are 18 years old, roll it over to an RRSP. In this way, they will have some RRSPs started for themselves when they get started (and even potentially for their First Time Home Buyers credit if it is still there in the future), and they get a big tax break for their first income tax that they pay.
In all my math classes, I try to give these sorts of ideas to the kids, of the power of savings, and that they can save $40 per week at their age to be a millionaire, when I have to save $100 per week for it to happen at my age. Some are wowed by the numbers, but I hope that these ideas stick with at least one from each class. I also talk about credit cards, mortgages, buying your first car, how much university will cost, and how much it costs when you finally move out on your own. These are things that I enjoy discussing with the class from time to time, but ultimately these are lessons that if they aren't shown at home, you have to experience for yourself before you really understand.
There was a lineup of at least 200 students at the beginning of lunch going to the cafeteria, assuming that they spend $5 there (pretty reasonable considering the food there), that is $1000 per day that the cafeteria earns (or the students waste). On top of this, there is a 25 cent fee for using Interact at the cafeteria.
This pains me when I think of the future of our economy. Teenagers have more disposable income than anyone (if you don't believe me check out the number of hats, cell phones and ipods that the vice-principal confiscates and then aren't even collected at the end of the year). Perhaps some thought should be to teaching them about savings.
Theoretically, what's wrong with getting your kids to save 10-20% for their retirement already (no matter what their age). You don't have to tell them that, just tell them its a savings account, and then when they are 18 years old, roll it over to an RRSP. In this way, they will have some RRSPs started for themselves when they get started (and even potentially for their First Time Home Buyers credit if it is still there in the future), and they get a big tax break for their first income tax that they pay.
In all my math classes, I try to give these sorts of ideas to the kids, of the power of savings, and that they can save $40 per week at their age to be a millionaire, when I have to save $100 per week for it to happen at my age. Some are wowed by the numbers, but I hope that these ideas stick with at least one from each class. I also talk about credit cards, mortgages, buying your first car, how much university will cost, and how much it costs when you finally move out on your own. These are things that I enjoy discussing with the class from time to time, but ultimately these are lessons that if they aren't shown at home, you have to experience for yourself before you really understand.
Saturday, September 12, 2009
Net Worth Update - September 11th, 2009
An unimpressive week for my net worth and an unimpressive week for my blog. Nonetheless, here is an update for both.
Every time I get paid (every two weeks), I update my net worth. The idea behind this is that my goals are that my liabilities drop every two weeks, and by tracking them in this way, I am able to get a nice picture of where I stand financially. Its not a perfect balance sheet that I have (because of student loans I have a negative net worth), but the progress is what I am looking for.
ASSETS:
- up $332.15 from August 28th, 2009
- up $6321.34 from September 12th, 2008(one year ago)
These assets include my house (I give it 1% appreciation each year in my appreciation), my RRSP and my TFSA. My index funds continue to rise, and I increased my deposits with my pay raise.
LIABILITIES:
- better $145.35 from August 28th, 2009
- better $11,305.61 from September 12th, 2008 (one year ago)
These liabilities include my mortgage, student loans and a consolidation loan (mainly for my Masters Degree for teaching). My excuse this week for the only small improvement is that I have an extra $500 on my mastercard that I purchased this week for insulin supplies (I am a diabetic), which will come off for my next net worth update, so the numbers will eventually look better. I also increased my payments on a loan and my mortgage with my pay raise so this will incrementally help my liabilities.
NET WORTH:
- better $477.49 from August 28th, 2009
- better $17,626.94 from September 12th, 2008 (one year ago!)
I am actually feeling really good about these results (as usual). For the last two years, the first week of school brought about increased spending (materials for the class, new clothes, etc.), but this year while the spending increased, the money just came out of the buckets, so I didn't need to spend extra. As I am saving for Christmas in this way as well, there won't be a huge negative jump at Christmas. This is highly recommended for everyone!
The last thing I am going to track is the value of the TSX. I have some asset allocation goals that I will share in future posts, and they are dependent on the value of the TSX.
TSX Graph
Current Value: 11,253.23
Highest Value in Last 2 Years: 15073.13 June 18th, 2008
Every time I get paid (every two weeks), I update my net worth. The idea behind this is that my goals are that my liabilities drop every two weeks, and by tracking them in this way, I am able to get a nice picture of where I stand financially. Its not a perfect balance sheet that I have (because of student loans I have a negative net worth), but the progress is what I am looking for.
ASSETS:
- up $332.15 from August 28th, 2009
- up $6321.34 from September 12th, 2008(one year ago)
These assets include my house (I give it 1% appreciation each year in my appreciation), my RRSP and my TFSA. My index funds continue to rise, and I increased my deposits with my pay raise.
LIABILITIES:
- better $145.35 from August 28th, 2009
- better $11,305.61 from September 12th, 2008 (one year ago)
These liabilities include my mortgage, student loans and a consolidation loan (mainly for my Masters Degree for teaching). My excuse this week for the only small improvement is that I have an extra $500 on my mastercard that I purchased this week for insulin supplies (I am a diabetic), which will come off for my next net worth update, so the numbers will eventually look better. I also increased my payments on a loan and my mortgage with my pay raise so this will incrementally help my liabilities.
NET WORTH:
- better $477.49 from August 28th, 2009
- better $17,626.94 from September 12th, 2008 (one year ago!)
I am actually feeling really good about these results (as usual). For the last two years, the first week of school brought about increased spending (materials for the class, new clothes, etc.), but this year while the spending increased, the money just came out of the buckets, so I didn't need to spend extra. As I am saving for Christmas in this way as well, there won't be a huge negative jump at Christmas. This is highly recommended for everyone!
The last thing I am going to track is the value of the TSX. I have some asset allocation goals that I will share in future posts, and they are dependent on the value of the TSX.
TSX Graph
Current Value: 11,253.23
Highest Value in Last 2 Years: 15073.13 June 18th, 2008
Wednesday, September 9, 2009
Links and Thoughts
I was walking home from the first day of school and it just hit me, no matter where you live how can you consider your town to be poor? There are 22,000 people living in the community that I am in. Let's assume (for the sake of easy calculations) that there 5000 houses in my community. Let's also assume that each house is worth $200,000. That makes the assets just in real estate to be one billion dollars. Something to think about...
Check out the Carnival of Money Hackers here as well.
Check out the Carnival of Money Hackers here as well.
Monday, September 7, 2009
Links (some money and some math)
Here are a few good links that I found around the web:
Internet Teens Failing Math - The basis of this article is that with the compressed time schedule in high school (four years of high school math rather than five) that students aren't learning as much and having a much more difficult time in University math programs. Additionally, less time leads to less practice of the fundamentals.
Be Suspicious When Managing Your Money - Just good common sense advice, that you have to rely on yourself (and think!!!) when managing your money. Do some reading, use some common sense and if something sounds too good to be true it likely is!
Flipping Houses for Profit - One of my favourite blogs, MillionDollarJourney discusses flipping properties and if it is worthwhile and the difficulties that can arise. A related link (from the same site) is Converting Your Residence into a Rental Property. I hope to have some rental property in the next five years and one of my philosophies is to be well read upon the subject so posts like this peak my interest.
What are REITs - For those that are interested in real estate, but less risk (and less cash), Real Estate Investment Trusts are another option for you (to diversify your portfolio). One of my fears with a rental property is that all of a sudden $200,000 of my portfolio is in real estate, and with that chunk in there it is difficult (impossible) to be diversified. This is a good way to test the waters.
Internet Teens Failing Math - The basis of this article is that with the compressed time schedule in high school (four years of high school math rather than five) that students aren't learning as much and having a much more difficult time in University math programs. Additionally, less time leads to less practice of the fundamentals.
Be Suspicious When Managing Your Money - Just good common sense advice, that you have to rely on yourself (and think!!!) when managing your money. Do some reading, use some common sense and if something sounds too good to be true it likely is!
Flipping Houses for Profit - One of my favourite blogs, MillionDollarJourney discusses flipping properties and if it is worthwhile and the difficulties that can arise. A related link (from the same site) is Converting Your Residence into a Rental Property. I hope to have some rental property in the next five years and one of my philosophies is to be well read upon the subject so posts like this peak my interest.
What are REITs - For those that are interested in real estate, but less risk (and less cash), Real Estate Investment Trusts are another option for you (to diversify your portfolio). One of my fears with a rental property is that all of a sudden $200,000 of my portfolio is in real estate, and with that chunk in there it is difficult (impossible) to be diversified. This is a good way to test the waters.
Friday, September 4, 2009
Donations
The one part of my investment plan that I haven't followed through with that much yet is donations. In Canada, if you donate up to $200 you get a tax deduction at the lowest rate, and then get a tax reduction at the highest rate for any donations over $200.
My plan would be to pick my favourite charity and then (like everything else in my financial life) to make it automatic. Every month (or every paycheque more likely) I will automatically donate to my favourite cause. Being frugal I will also get some money back in tax time.
My other suggestion is that whenever you donate to a charity, please check the "Send a tax receipt" check when you register. Even if the receipt is for $20 or whatever your donation is, it will help yourself in the end. The Canadian government is encouraging us to donate so we should take advantage.
Check out the website for more information.
My plan would be to pick my favourite charity and then (like everything else in my financial life) to make it automatic. Every month (or every paycheque more likely) I will automatically donate to my favourite cause. Being frugal I will also get some money back in tax time.
My other suggestion is that whenever you donate to a charity, please check the "Send a tax receipt" check when you register. Even if the receipt is for $20 or whatever your donation is, it will help yourself in the end. The Canadian government is encouraging us to donate so we should take advantage.
Check out the website for more information.
Tuesday, September 1, 2009
Planning and Spending and Back To School
This post will be a bit of a rant. In this morning's local paper, I read that it will be difficult for parents to send their children back to school because of the expenses related to the beginning of the year (notebooks, calculators, etc.).
I am a big believer in a few things when it comes to money. #1) if you realize that expenses will come up, you should plan for them. That is, Christmas, back to school shopping, birthdays, etc. I have a bucket dedicated to "clothing", so that when I need a new pair of winter boots this winter I won't need to go to MasterCard. As well, I am a teacher so I bought myself a new shirt and tie and pants for the school year out of this. I have another bucket dedicated to "XMas", so I will be able to comfortably give around the holidays and not feel financially burdened by it. I don't contribute that much to each bucket ($20 every two weeks), but it is nice to have that cash set aside so when I do need to make a purchase I can easily do so.
#2) If you aren't saving 10% of your income you are living beyond your means. What does that mean? Simply, if you paycheque is $500, you should save at least $50 out of it. If you can't afford to do it, you may have to make some changes in your life: another part time job on this side, finding a cheaper place to live, going down to one (or no) vehicle, cutting some discretionary spending. I try to do most of these things: I tutor, where all this money goes toward paying off bills, and I also worked summer school. I had renters for the last two years in my condo to help defray the costs. I have no vehicle, and knew this would be the case so I purchased my condo close to my school. As far as discretionary spending goes, I set aside $200 every two weeks that goes towards groceries, gifts, clothing, video games, courses and upgrades on the condo, and leave $80 for me to spend on what I want. Once I run out of money, I have to stop spending. My lifetime goal is to have my MasterCard at $0. Is it easy to do this? Not at first, but it gets easier every paycheque to do.
I am a big believer in a few things when it comes to money. #1) if you realize that expenses will come up, you should plan for them. That is, Christmas, back to school shopping, birthdays, etc. I have a bucket dedicated to "clothing", so that when I need a new pair of winter boots this winter I won't need to go to MasterCard. As well, I am a teacher so I bought myself a new shirt and tie and pants for the school year out of this. I have another bucket dedicated to "XMas", so I will be able to comfortably give around the holidays and not feel financially burdened by it. I don't contribute that much to each bucket ($20 every two weeks), but it is nice to have that cash set aside so when I do need to make a purchase I can easily do so.
#2) If you aren't saving 10% of your income you are living beyond your means. What does that mean? Simply, if you paycheque is $500, you should save at least $50 out of it. If you can't afford to do it, you may have to make some changes in your life: another part time job on this side, finding a cheaper place to live, going down to one (or no) vehicle, cutting some discretionary spending. I try to do most of these things: I tutor, where all this money goes toward paying off bills, and I also worked summer school. I had renters for the last two years in my condo to help defray the costs. I have no vehicle, and knew this would be the case so I purchased my condo close to my school. As far as discretionary spending goes, I set aside $200 every two weeks that goes towards groceries, gifts, clothing, video games, courses and upgrades on the condo, and leave $80 for me to spend on what I want. Once I run out of money, I have to stop spending. My lifetime goal is to have my MasterCard at $0. Is it easy to do this? Not at first, but it gets easier every paycheque to do.
Saturday, August 29, 2009
Net Worth Update - August 29th, 2009
Every time I get paid (every two weeks), I update my net worth. The idea behind this is that my goals are that my liabilities drop every two weeks, and by tracking them in this way, I am able to get a nice picture of where I stand financially. Its not a perfect balance sheet that I have (because of student loans I have a negative net worth), but the progress is what I am looking for.
ASSETS:
- up $373.82 from August 14th, 2009
- up $6009.10 from August 29th, 2008(one year ago)
These assets include my house (I give it 1% appreciation each year in my appreciation), my RRSP and my TFSA. The market went up a little bit in these two weeks, and I went to the bank to raise my contributions so this should continue to rise at a nice rate.
LIABILITIES:
- better $461.33 from August 14th, 2009
- better $10,978.26 from August 29th, 2008 (one year ago)
These liabilities include my mortgage, student loans and a consolidation loan (mainly for my Masters Degree for teaching). My credit card is now slightly higher than zero (because I forgot that I had to pay condo insurance). This should impress upon me the importance of having an emergency fund.
NET WORTH:
- better $835.15 from August 14th, 2009
- better $16,987.36 from August 29th, 2008 (one year ago!)
I am hoping that these nice numbers can continue as school begins again. I am no longer getting extra paycheques because of summer school, but in a previous post I mentioned that I am lowering my taxes on each paycheque. This money will go to a loan. Looking forward, I am feeling pretty good about my finances. My net worth continues to be at an all time high and my goals of my liabilities always dropping each paycheque has worked pretty well so far (although my statistics say this only happens 72.2% of the time since I bought my house two years ago).
The last thing I am going to track is the value of the TSX. I have some asset allocation goals that I will share in future posts, and they are dependent on the value of the TSX.
TSX Graph
Current Value: 10,977.97
Highest Value in Last 2 Years: 15073.13 June 18th, 2008
ASSETS:
- up $373.82 from August 14th, 2009
- up $6009.10 from August 29th, 2008(one year ago)
These assets include my house (I give it 1% appreciation each year in my appreciation), my RRSP and my TFSA. The market went up a little bit in these two weeks, and I went to the bank to raise my contributions so this should continue to rise at a nice rate.
LIABILITIES:
- better $461.33 from August 14th, 2009
- better $10,978.26 from August 29th, 2008 (one year ago)
These liabilities include my mortgage, student loans and a consolidation loan (mainly for my Masters Degree for teaching). My credit card is now slightly higher than zero (because I forgot that I had to pay condo insurance). This should impress upon me the importance of having an emergency fund.
NET WORTH:
- better $835.15 from August 14th, 2009
- better $16,987.36 from August 29th, 2008 (one year ago!)
I am hoping that these nice numbers can continue as school begins again. I am no longer getting extra paycheques because of summer school, but in a previous post I mentioned that I am lowering my taxes on each paycheque. This money will go to a loan. Looking forward, I am feeling pretty good about my finances. My net worth continues to be at an all time high and my goals of my liabilities always dropping each paycheque has worked pretty well so far (although my statistics say this only happens 72.2% of the time since I bought my house two years ago).
The last thing I am going to track is the value of the TSX. I have some asset allocation goals that I will share in future posts, and they are dependent on the value of the TSX.
TSX Graph
Current Value: 10,977.97
Highest Value in Last 2 Years: 15073.13 June 18th, 2008
Friday, August 28, 2009
What I Did With My Pay Increase
Today I did the first two steps in what I will do with my pay increase: I increased my RRSP savings by $25 every two weeks and I increased one of my loans $40 (to just come out at the beginning of the month).
I expect to get a raise of about $100 per paycheque (as a teacher in a union it is quite predictable to what I will get), and I will also increase my mortgage once my property taxes rise (that will be the third step). I decided to just increase at the beginning of the month for my loan rather than every two weeks to give me a bit more float cash at the middle of the month. I always find the 15th of the month to be a bit tighter because all of my monthly bills (heat, hydro, internet, etc.) come out at that time and I don't have my rent coming in to buffer it.
Summarizing, at the beginning of the month I have spent an extra $90 and at the middle of the month I have spent an extra $50 (or will once I raise my mortgage). Also, I currently have 12.5% going into a bond fund and 87.5% going into a Dividend fund. Long term, I want my deposits to be between 5-10% each deposit into the bond fund and the rest into an index fund, then I will balance them when the markets are at a good time.
Hopefully this will inspire some people to plan what they will do with their raises (rather than just have extra spending money altogether). Please note that I left myself an extra $10 at the beginning of the month and $50 at the middle of the month, so not all money was accounted for. My long term goal will be to save 50% of my raise and to hang onto 50% of my raise.
I expect to get a raise of about $100 per paycheque (as a teacher in a union it is quite predictable to what I will get), and I will also increase my mortgage once my property taxes rise (that will be the third step). I decided to just increase at the beginning of the month for my loan rather than every two weeks to give me a bit more float cash at the middle of the month. I always find the 15th of the month to be a bit tighter because all of my monthly bills (heat, hydro, internet, etc.) come out at that time and I don't have my rent coming in to buffer it.
Summarizing, at the beginning of the month I have spent an extra $90 and at the middle of the month I have spent an extra $50 (or will once I raise my mortgage). Also, I currently have 12.5% going into a bond fund and 87.5% going into a Dividend fund. Long term, I want my deposits to be between 5-10% each deposit into the bond fund and the rest into an index fund, then I will balance them when the markets are at a good time.
Hopefully this will inspire some people to plan what they will do with their raises (rather than just have extra spending money altogether). Please note that I left myself an extra $10 at the beginning of the month and $50 at the middle of the month, so not all money was accounted for. My long term goal will be to save 50% of my raise and to hang onto 50% of my raise.
Thursday, August 27, 2009
Less Taxes
I have finally filled out my Form T1213, Request to Reduce Tax Deductions at Source, where the government will tax me less each pay cheque because of my RRSP deductions. The math behind this is because they are over taxing me I get back several thousand dollars at income tax time. If I get a little bit more each paycheque, they will hold onto less tax on my behalf, and I will be able to earn interest on this money (or pay off loans...which is what I plan to do with it).
I have thought about this a bit, and am only having them deduct half of my RRSP deductions, leaving the other half for myself at income tax time. The reason for this is threefold: first, I like getting a little bit of money back at tax time, second, I wouldn't want to try to plan it to the nearest cent and then owe money in March and third, because I took advantage of the Home Buyers Plan, I will start repaying it this year, so I need some of my RRSPs to do so.
I will know in 2-4 weeks if this actually goes through, but I expect that it would. All I needed to send them was a copy from my bank (you can get it from your work if they take RRSPs from you) of my regular payment plan. Once it goes through, the government sends notification to your work and your taxes get lowered. It’s as easy as that! I'll repost on here when it actually goes through.
I have thought about this a bit, and am only having them deduct half of my RRSP deductions, leaving the other half for myself at income tax time. The reason for this is threefold: first, I like getting a little bit of money back at tax time, second, I wouldn't want to try to plan it to the nearest cent and then owe money in March and third, because I took advantage of the Home Buyers Plan, I will start repaying it this year, so I need some of my RRSPs to do so.
I will know in 2-4 weeks if this actually goes through, but I expect that it would. All I needed to send them was a copy from my bank (you can get it from your work if they take RRSPs from you) of my regular payment plan. Once it goes through, the government sends notification to your work and your taxes get lowered. It’s as easy as that! I'll repost on here when it actually goes through.
Wednesday, August 26, 2009
Investing Theory
I'd like to discuss today an investing theory that I was discussing the other day that will guarantee conservative growth over time. It is based on the theory that most of your portfolio should be conservative with a small percentage (some say 5%) in something aggressive.
The theory behind this is that all of your deposits should be in something safe, be it a bond fund or a GIC or something with guaranteed growth. At the end of the year, any profits that you have made on this investment will be put into something more aggressive, even if it is just a Canadian Index fund.
Let's use a few numbers to get an idea. Assume that your GIC earns 5% per year and that you deposit $10,000 into it each year.
After 1 year: $10,000 in your GIC, earning $500 interest. This $500 gets put into your more aggressive fund.
After 2 years: $20,000 in your GIC, earning $1000 interest. This $1000 gets put into your more aggressive fund, making $1500 total.
After 3 years: $30,000 in your GIC, earning $1500 interest. This $1500 gets put into your more aggressive fund, making $3000 total.
...
After 10 years: $100,000 in your GIC, earning $5000 interest. This $5000 gets put into your more aggressive fund, making $27500 total.
Of course, the more aggressive fund can fluctuate making that $27500 total be able to go up or down with ease. As well, the initial deposits doesn't just have to be into a GIC, you could do 75% conservative deposits, 25% aggressive deposits, with still the interest earned on your conservative investment going into the aggressive investment.
There is one fundamental problem I have with this investment style, and that is that it gets *less* conservative as time goes on. If I have been saving for 20 years, I want to make my portfolio potentially more aggressive when I am younger (to maximize growth) and less aggressive as time goes on. This does the opposite. In this guaranteed system though, there is no potential for loss as you are only "gambling" (if you want to call investing a gamble) with your interest gained.
The theory behind this is that all of your deposits should be in something safe, be it a bond fund or a GIC or something with guaranteed growth. At the end of the year, any profits that you have made on this investment will be put into something more aggressive, even if it is just a Canadian Index fund.
Let's use a few numbers to get an idea. Assume that your GIC earns 5% per year and that you deposit $10,000 into it each year.
After 1 year: $10,000 in your GIC, earning $500 interest. This $500 gets put into your more aggressive fund.
After 2 years: $20,000 in your GIC, earning $1000 interest. This $1000 gets put into your more aggressive fund, making $1500 total.
After 3 years: $30,000 in your GIC, earning $1500 interest. This $1500 gets put into your more aggressive fund, making $3000 total.
...
After 10 years: $100,000 in your GIC, earning $5000 interest. This $5000 gets put into your more aggressive fund, making $27500 total.
Of course, the more aggressive fund can fluctuate making that $27500 total be able to go up or down with ease. As well, the initial deposits doesn't just have to be into a GIC, you could do 75% conservative deposits, 25% aggressive deposits, with still the interest earned on your conservative investment going into the aggressive investment.
There is one fundamental problem I have with this investment style, and that is that it gets *less* conservative as time goes on. If I have been saving for 20 years, I want to make my portfolio potentially more aggressive when I am younger (to maximize growth) and less aggressive as time goes on. This does the opposite. In this guaranteed system though, there is no potential for loss as you are only "gambling" (if you want to call investing a gamble) with your interest gained.
Friday, August 21, 2009
Paying Down Your Mortgage
As September rolls around, my property taxes will rise on my condo. This always makes me think about my mortgage and how I can improve it.
Before I begin, here is a list of TD's mortgage rates. Here are BMO's. Here are Scotia's. Here are Royal Bank's. Here are CIBC's. Here are ING Direct's.
Fixed vs. Variable - a Fixed mortgage is a mortgage where the interest rate is locked in for a set amount of time. If you get a five-year fixed mortgage, with a term of 25 years, you pay the mortgage over 25 years, but the interest rate will stay the same for the next five years. The advantage to this is that when rates are low (like now), you can lock in a nice low rate for a relatively long time. These rates are mostly on average higher than a variable rate mortgage. A variable rate mortgage is generally prime plus a percentage (now most banks have prime +0.4%). Historically there have been far better deals with variable rate mortgages, but if mortgage rates shoot up, you can end up paying more (although this rarely happens). Your payments will not increase until the interest that you are charged is more than your payments.
Open vs. Closed - An open mortgage is a loan where you can make extra payments (or increase your regular payments) with no penalty. A closed mortgage you have your payments and you cannot increase them or make extra payments without paying a penalty. The interest rates on closed mortgages tend to be lower.
What You Can Do To Pay Down Your Mortgage More Quickly - The harsh reality of mortgages is this: if it takes you 25 years to pay off, you will be paying more in interest than the value of your house. A quick example, a $200,000 mortgage at 5% over 25 years (with monthly payments) charges 1169.18 per month, which is a total payment of $350,754 or $150,754 in interest!
Pay A Big Down Payment - You can get away with putting down only 5% of the value of your home according to the Canadian Mortgage and Housing Corporation, if you pay less than 20% of the value of your home you must take out CMHC housing insurance which is added onto the principle of your house. In order to help people with this, if you have RRSPs take advantage of the First Time Home Buyers Plan where you can withdraw up to $25,000 from your RRSP to go towards the purchase of your home. This money must be repaid back into your RRSP over 15 years.
Get A Lower Interest Rate - feel free to renegotiate with your mortgage company (or another company) when you hear that interest rates drop. If it is financially beneficial to you to switch mortgages because rates fall, then do it!
Pay Your Mortgage Whenever You Get Paid - if you get paid once a month, then it is fine to make monthly mortgage payments. But if you get paid every other week, why would you only pay your mortgage at the beginning of the month (other than habits from renting). The cost savings can be tremendous because of the savings in interest. If you use my previous example of a $200,000 mortgage over 25 years at 5%, the bi-weekly payments drop to $539.32, saving you only $200 over 25 years, but you have lowered your payments as well!
Each Time You Get A Raise Increase Your Payments - This is what I do. Since I have other loans on top of my mortgage I don't do this as aggressively as I should, but I will describe my scenario. I will get my property tax increase, which goes directly to my mortgage. Let's say it goes up $10 (as it did last year), I will then top up my mortgage $15 (for a total increase of $25 each pay). Since I do this when I get a raise, I don't feel the pinch at all! By doing this last year (I haven't run the numbers this year because I don't know what my increases will be), I saved 2 and a half years on my mortgage!
If you have an open mortgage, make a lump sum payment - If money falls into your lap (be it tax returns, inheritance, good fortune at work), putting down a lump sum payment goes right against the principle of your mortgage. As described previously, I work summer school in the summer and always put a few hundred bucks towards my mortgage extra.
Finally a word on purchasing a house and how you know if you can afford it. My recommendation is to take whatever you are paying for your current rent and double it for the next six months. Lets say you are paying $900 in rent. Take the extra $900 and save it towards your down payment for the next six months. If you are able to do this, you will be able to comfortable afford your house and there will be no pinch. If you are unable to do this (or hope that your mortgage and insurance and utilities and all that will work out to about the same as renting) you probably aren't ready for home ownership yet.
Before I begin, here is a list of TD's mortgage rates. Here are BMO's. Here are Scotia's. Here are Royal Bank's. Here are CIBC's. Here are ING Direct's.
Fixed vs. Variable - a Fixed mortgage is a mortgage where the interest rate is locked in for a set amount of time. If you get a five-year fixed mortgage, with a term of 25 years, you pay the mortgage over 25 years, but the interest rate will stay the same for the next five years. The advantage to this is that when rates are low (like now), you can lock in a nice low rate for a relatively long time. These rates are mostly on average higher than a variable rate mortgage. A variable rate mortgage is generally prime plus a percentage (now most banks have prime +0.4%). Historically there have been far better deals with variable rate mortgages, but if mortgage rates shoot up, you can end up paying more (although this rarely happens). Your payments will not increase until the interest that you are charged is more than your payments.
Open vs. Closed - An open mortgage is a loan where you can make extra payments (or increase your regular payments) with no penalty. A closed mortgage you have your payments and you cannot increase them or make extra payments without paying a penalty. The interest rates on closed mortgages tend to be lower.
What You Can Do To Pay Down Your Mortgage More Quickly - The harsh reality of mortgages is this: if it takes you 25 years to pay off, you will be paying more in interest than the value of your house. A quick example, a $200,000 mortgage at 5% over 25 years (with monthly payments) charges 1169.18 per month, which is a total payment of $350,754 or $150,754 in interest!
Pay A Big Down Payment - You can get away with putting down only 5% of the value of your home according to the Canadian Mortgage and Housing Corporation, if you pay less than 20% of the value of your home you must take out CMHC housing insurance which is added onto the principle of your house. In order to help people with this, if you have RRSPs take advantage of the First Time Home Buyers Plan where you can withdraw up to $25,000 from your RRSP to go towards the purchase of your home. This money must be repaid back into your RRSP over 15 years.
Get A Lower Interest Rate - feel free to renegotiate with your mortgage company (or another company) when you hear that interest rates drop. If it is financially beneficial to you to switch mortgages because rates fall, then do it!
Pay Your Mortgage Whenever You Get Paid - if you get paid once a month, then it is fine to make monthly mortgage payments. But if you get paid every other week, why would you only pay your mortgage at the beginning of the month (other than habits from renting). The cost savings can be tremendous because of the savings in interest. If you use my previous example of a $200,000 mortgage over 25 years at 5%, the bi-weekly payments drop to $539.32, saving you only $200 over 25 years, but you have lowered your payments as well!
Each Time You Get A Raise Increase Your Payments - This is what I do. Since I have other loans on top of my mortgage I don't do this as aggressively as I should, but I will describe my scenario. I will get my property tax increase, which goes directly to my mortgage. Let's say it goes up $10 (as it did last year), I will then top up my mortgage $15 (for a total increase of $25 each pay). Since I do this when I get a raise, I don't feel the pinch at all! By doing this last year (I haven't run the numbers this year because I don't know what my increases will be), I saved 2 and a half years on my mortgage!
If you have an open mortgage, make a lump sum payment - If money falls into your lap (be it tax returns, inheritance, good fortune at work), putting down a lump sum payment goes right against the principle of your mortgage. As described previously, I work summer school in the summer and always put a few hundred bucks towards my mortgage extra.
Finally a word on purchasing a house and how you know if you can afford it. My recommendation is to take whatever you are paying for your current rent and double it for the next six months. Lets say you are paying $900 in rent. Take the extra $900 and save it towards your down payment for the next six months. If you are able to do this, you will be able to comfortable afford your house and there will be no pinch. If you are unable to do this (or hope that your mortgage and insurance and utilities and all that will work out to about the same as renting) you probably aren't ready for home ownership yet.
Thursday, August 20, 2009
Inflation and Pensions
At about Christmas, when there was a shortfall in pension funds, the Ontario Teachers Pension Plan announced that retired teacher's pensions would no longer be indexed to inflation. Depending on the assets held by the Pension Plan, from years after 2009, it may only be indexed to half of inflation.
Lets run some numbers to see how damaging this could be. To make the numbers convenient, I will use a salary of $100,000 at retirement (it sounds like a lot, but 30 years from now when I retire that probably is what it will be at). As well, we will use various inflation rates, all indexed to half of that. What the index means is that your money that you get will be increased by half of inflation. So if inflation is 2%, you will get 1% extra money. The problem is that the cost of everything has gone up 2%, so that although you are making more money, you have less money to spend.
Scenario 1: $100,000 at retirement and 2% inflation
- after 5 years: salary is $105,101.01
- spending power (relative to $100,000): $95,193.22 (you can purchase five years from now the same as if you made $95,193.22 in the first year)
- after 10 years: salary is $110,462.21, spending power: $90,617.49
- after 20 years: salary is $122,019.00, spending power: $82,115.29
- after 30 years: salary is $134,784.89, spending power: $74,410.81
So after 30 years, your salary will only purchase about 74% of what it did when you started retirement. If the average teacher retires at 55 or so, this is at 85 years of age, where people will still be around (as we continue to live longer).
Scenario 2: $100,000 at retirement and 4% inflation
- after 5 years: salary is $110,408.08, spending power: $90,747.39
- after 10 years: salary is $121,899.44, spending power: $82,350.90
- after 20 years: salary is $148,594.74, spending power: $67,816.70
- after 30 years: salary is $181,136.16, spending power: $55,847.66
So after 30 years in the second scenario, you will only be able to purchase about 56% of what you could when retirement started. This is where things start to get scary. Since the early 90s, governments have tried to keep inflation at 2% (or less), but any period of hyperinflation (in the 8-10% range) and this could cripple lots of people's retirements.
Scenario 3: $100,000 at retirement and 6, 8, 10% inflation
- after 30 years at 6% inflation: salary is $242,726.25, spending power: $42,261.10
- after 30 years at 8% inflation: salary is $324,339.75, spending power: $32,232.02
- after 30 years at 10% inflation: salary is $432,194.24, spending power: $24,768.43
OK, this is starting to get a bit ridiculous. No one expects 10% inflation over the next 30 years. It is possible though to expect inflation in the 2-4% range, where at least one third of your money will have eroded.
Even if you aren't a teacher, please take a look at your pension to see if this holds true. Inflation is very dangerous to your spending power in retirement, where it can be difficult to make more money (unless you have saved for your retirement outside of your pension).
Lets run some numbers to see how damaging this could be. To make the numbers convenient, I will use a salary of $100,000 at retirement (it sounds like a lot, but 30 years from now when I retire that probably is what it will be at). As well, we will use various inflation rates, all indexed to half of that. What the index means is that your money that you get will be increased by half of inflation. So if inflation is 2%, you will get 1% extra money. The problem is that the cost of everything has gone up 2%, so that although you are making more money, you have less money to spend.
Scenario 1: $100,000 at retirement and 2% inflation
- after 5 years: salary is $105,101.01
- spending power (relative to $100,000): $95,193.22 (you can purchase five years from now the same as if you made $95,193.22 in the first year)
- after 10 years: salary is $110,462.21, spending power: $90,617.49
- after 20 years: salary is $122,019.00, spending power: $82,115.29
- after 30 years: salary is $134,784.89, spending power: $74,410.81
So after 30 years, your salary will only purchase about 74% of what it did when you started retirement. If the average teacher retires at 55 or so, this is at 85 years of age, where people will still be around (as we continue to live longer).
Scenario 2: $100,000 at retirement and 4% inflation
- after 5 years: salary is $110,408.08, spending power: $90,747.39
- after 10 years: salary is $121,899.44, spending power: $82,350.90
- after 20 years: salary is $148,594.74, spending power: $67,816.70
- after 30 years: salary is $181,136.16, spending power: $55,847.66
So after 30 years in the second scenario, you will only be able to purchase about 56% of what you could when retirement started. This is where things start to get scary. Since the early 90s, governments have tried to keep inflation at 2% (or less), but any period of hyperinflation (in the 8-10% range) and this could cripple lots of people's retirements.
Scenario 3: $100,000 at retirement and 6, 8, 10% inflation
- after 30 years at 6% inflation: salary is $242,726.25, spending power: $42,261.10
- after 30 years at 8% inflation: salary is $324,339.75, spending power: $32,232.02
- after 30 years at 10% inflation: salary is $432,194.24, spending power: $24,768.43
OK, this is starting to get a bit ridiculous. No one expects 10% inflation over the next 30 years. It is possible though to expect inflation in the 2-4% range, where at least one third of your money will have eroded.
Even if you aren't a teacher, please take a look at your pension to see if this holds true. Inflation is very dangerous to your spending power in retirement, where it can be difficult to make more money (unless you have saved for your retirement outside of your pension).
Tuesday, August 18, 2009
RRSPs vs. TFSA
This post will help me to organize my ideas about whether it is better to invest in a Registered Retirement Savings Plan or a Tax Free Savings Account. Of course, it is best to maximize them both, but this post is for those (like myself) who are unable to do so).
RRSPs
- can hold any investment (within reason) within your RRSP
- get an immediate tax rebate from your deposits (so if your marginal tax rate is 40% and you invest $1000 into your RRSP, you get $400 back from the government)
- interest grows tax free inside your RRSP
- you must begin withdrawing at age 65
- you get taxed on any amount that you withdraw (you are deferring your taxes on this money...instead of paying them now (when you probably have less money), you will pay them later (when you probably have more money)
- maximum contribution rate is 18% of your previous year's income up to a maximum of $21000 less the Pension Adjustment on your T4 slip
TFSAs
- even though it is called a "Savings Account" you can still hold most investments within your Tax Free Savings Account (I have a bond index fund for mine)
- interest grows tax free inside your TFSA
- you have already paid taxes on your money now, so no immediate tax benefits, but when you withdraw the money, you do not have to pay taxes on it
- maximum contribution is $5000 (although this is expected to go up slightly as time continues)
From a mathematics standpoint, lets show what is the best deal for people to do, and then the reality:
My example will be a single $5000 deposit, earning 5% per year, at a tax rate of 35%, grown over 10 years.
RRSP:
- $5000 invested, $1750 credit now,
- if you reinvest this $1750, you will end up with $10,995.04 at the end of ten years
- assuming the tax rate is still 35% when you withdraw, you will have $7146.78
TFSA
- $5000 invested, $0 credit now
- valuation after ten years is $8144.47
So what is the better option? It is different for everyone, but this is how I see it:
RRSP - great having a tax break now! Even though it ends up as a little less money in the long term, most adults are in a worse current financial situation than they are in the future. The other sad reality is that the $1750 credit I don't think is always reinvested, making the TFSA a much better plan. The final benefit to an RRSP is that the money is locked away (at least until you buy a house), so that you don't have access to it.
TFSA - financially this makes the most sense, but there is the human factor to consider. This money is not locked in. There is never a penalty to withdraw, so if you need money you can go into this fund. As long as you consider this money in your TFSA to be retirement money that you cannot touch, this is the better option.
RRSPs
- can hold any investment (within reason) within your RRSP
- get an immediate tax rebate from your deposits (so if your marginal tax rate is 40% and you invest $1000 into your RRSP, you get $400 back from the government)
- interest grows tax free inside your RRSP
- you must begin withdrawing at age 65
- you get taxed on any amount that you withdraw (you are deferring your taxes on this money...instead of paying them now (when you probably have less money), you will pay them later (when you probably have more money)
- maximum contribution rate is 18% of your previous year's income up to a maximum of $21000 less the Pension Adjustment on your T4 slip
TFSAs
- even though it is called a "Savings Account" you can still hold most investments within your Tax Free Savings Account (I have a bond index fund for mine)
- interest grows tax free inside your TFSA
- you have already paid taxes on your money now, so no immediate tax benefits, but when you withdraw the money, you do not have to pay taxes on it
- maximum contribution is $5000 (although this is expected to go up slightly as time continues)
From a mathematics standpoint, lets show what is the best deal for people to do, and then the reality:
My example will be a single $5000 deposit, earning 5% per year, at a tax rate of 35%, grown over 10 years.
RRSP:
- $5000 invested, $1750 credit now,
- if you reinvest this $1750, you will end up with $10,995.04 at the end of ten years
- assuming the tax rate is still 35% when you withdraw, you will have $7146.78
TFSA
- $5000 invested, $0 credit now
- valuation after ten years is $8144.47
So what is the better option? It is different for everyone, but this is how I see it:
RRSP - great having a tax break now! Even though it ends up as a little less money in the long term, most adults are in a worse current financial situation than they are in the future. The other sad reality is that the $1750 credit I don't think is always reinvested, making the TFSA a much better plan. The final benefit to an RRSP is that the money is locked away (at least until you buy a house), so that you don't have access to it.
TFSA - financially this makes the most sense, but there is the human factor to consider. This money is not locked in. There is never a penalty to withdraw, so if you need money you can go into this fund. As long as you consider this money in your TFSA to be retirement money that you cannot touch, this is the better option.
Saturday, August 15, 2009
Net Worth Update - August 15th, 2009
Every time I get paid (every two weeks), I update my net worth. The idea behind this is that my goals are that my liabilities drop every two weeks, and by tracking them in this way, I am able to get a nice picture of where I stand financially. Its not a perfect balance sheet that I have (because of student loans I have a negative net worth), but the progress is what I am looking for.
ASSETS:
- up $268.23 from July 31st, 2009
- up $5980.29 from August 14th, 2008(one year ago)
These assets include my house (I give it 1% appreciation each year in my appreciation), my RRSP and my TFSA. I put a few extra dollars in my investments this period, but it is still a nice raise from a year ago.
LIABILITIES:
- better $655.96 from July 31st, 2009
- better $11,524.47 from August 14th, 2008 (one year ago)
These liabilities include my mortgage, student loans and a consolidation loan (mainly for my Masters Degree for teaching). Additionally, my credit card would be on here near, but it has had a (near) zero balance in 2009.
NET WORTH:
- better $924.19 from July 31st, 2009
- better $17,504.76 from August 14th, 2008 (one year ago!)
Those are excellent numbers once again! A few realities about my current situation though:
1) I am currently teaching summer school, basically giving me double paycheques throughout the summer. My second (and final) paycheque was for about $1000, so a net worth increase of $924 isn't that impressive. I have been spending a little more freely for the summer because of the extra cash though.
2) We should be back to normal for my payments and bills coming up for the next paycheque. My raise will take effect September 11th and I hope to have my taxes dropped as well giving me a little more disposable income, so I can keep my credit cards at zero. I have been pretty pleased with how the summer has gone financially, and hope to keep it up throughout 2009.
The last thing I am going to track is the value of the TSX. I have some asset allocation goals that I will share in future posts, and they are dependent on the value of the TSX.
TSX Graph
Current Value: 10,848.01
Highest Value in Last 2 Years: 15073.13 June 18th, 2008
ASSETS:
- up $268.23 from July 31st, 2009
- up $5980.29 from August 14th, 2008(one year ago)
These assets include my house (I give it 1% appreciation each year in my appreciation), my RRSP and my TFSA. I put a few extra dollars in my investments this period, but it is still a nice raise from a year ago.
LIABILITIES:
- better $655.96 from July 31st, 2009
- better $11,524.47 from August 14th, 2008 (one year ago)
These liabilities include my mortgage, student loans and a consolidation loan (mainly for my Masters Degree for teaching). Additionally, my credit card would be on here near, but it has had a (near) zero balance in 2009.
NET WORTH:
- better $924.19 from July 31st, 2009
- better $17,504.76 from August 14th, 2008 (one year ago!)
Those are excellent numbers once again! A few realities about my current situation though:
1) I am currently teaching summer school, basically giving me double paycheques throughout the summer. My second (and final) paycheque was for about $1000, so a net worth increase of $924 isn't that impressive. I have been spending a little more freely for the summer because of the extra cash though.
2) We should be back to normal for my payments and bills coming up for the next paycheque. My raise will take effect September 11th and I hope to have my taxes dropped as well giving me a little more disposable income, so I can keep my credit cards at zero. I have been pretty pleased with how the summer has gone financially, and hope to keep it up throughout 2009.
The last thing I am going to track is the value of the TSX. I have some asset allocation goals that I will share in future posts, and they are dependent on the value of the TSX.
TSX Graph
Current Value: 10,848.01
Highest Value in Last 2 Years: 15073.13 June 18th, 2008
Wednesday, August 12, 2009
Emergency Fund
The question that I am posing, and hoping to answer, is how much money is enough for your emergency fund. An emergency fund is intended to be used, of course, in an emergency. My definition of an emergency is a) when you lose your job, b) when something unexpected happens, c) a cushion in case of unintended expenses.
A good suggestion that I got from Million Dollar Journey is to begin by having $1000 in an emergency fund, then pay off your loans, etc. By having $1000 set aside, you should never need to go to your credit card, or lines of credit or anything like that in the case of an emergency. If your motor goes on your car, or you need to buy a new roof or whatever, this money is intended for stuff like this, so you don't need to borrow in order to cover it.
In these tough economic times, there is a threat for everyone of losing his or her job. Of course, you are saying, "This could never happen to me", but for everyone that is a realistic concern. I would recommend having at least three months expenses saved up in an emergency fund in case of job termination. What are three months expenses? Basically these are your fixed expenses (less investments): mortgage (or rent), food, monthly bills, loans, etc. If you lose your job, likely investments and variable expenses will be pulled back. In three months, you should be able to recover financially and find another job (one would hope).
In the same way, if you have a rental property, you should also have an emergency fund set up. What this fund will be is at least three months worth of rent. This should cover if there are unexpected vacancies, as well as some money left in case of emergencies (or maintenance). You don't want to have to tip into your personal finances in order to maintain your property, or if a month or two goes by without any renters, so if you are going this route, please make sure that you have enough float cash to cover.
Some people use a line of credit for an emergency fund. I would recommend against this as a shift in mentality. If you have money saved for your emergencies, it is much more positive than having to borrow money for emergencies. It is another level of freedom that you wouldn't otherwise have. If you lose your job, do you really want to have to pay back a line of credit?
My recommendation to everyone is to open up a Tax Free Savings Account and put $1000 in there (or at least contribute every paycheque until you are there). Then if something bad happens and you need some cash, you will have it. Remember to try to minimize your consumer debt!
A good suggestion that I got from Million Dollar Journey is to begin by having $1000 in an emergency fund, then pay off your loans, etc. By having $1000 set aside, you should never need to go to your credit card, or lines of credit or anything like that in the case of an emergency. If your motor goes on your car, or you need to buy a new roof or whatever, this money is intended for stuff like this, so you don't need to borrow in order to cover it.
In these tough economic times, there is a threat for everyone of losing his or her job. Of course, you are saying, "This could never happen to me", but for everyone that is a realistic concern. I would recommend having at least three months expenses saved up in an emergency fund in case of job termination. What are three months expenses? Basically these are your fixed expenses (less investments): mortgage (or rent), food, monthly bills, loans, etc. If you lose your job, likely investments and variable expenses will be pulled back. In three months, you should be able to recover financially and find another job (one would hope).
In the same way, if you have a rental property, you should also have an emergency fund set up. What this fund will be is at least three months worth of rent. This should cover if there are unexpected vacancies, as well as some money left in case of emergencies (or maintenance). You don't want to have to tip into your personal finances in order to maintain your property, or if a month or two goes by without any renters, so if you are going this route, please make sure that you have enough float cash to cover.
Some people use a line of credit for an emergency fund. I would recommend against this as a shift in mentality. If you have money saved for your emergencies, it is much more positive than having to borrow money for emergencies. It is another level of freedom that you wouldn't otherwise have. If you lose your job, do you really want to have to pay back a line of credit?
My recommendation to everyone is to open up a Tax Free Savings Account and put $1000 in there (or at least contribute every paycheque until you are there). Then if something bad happens and you need some cash, you will have it. Remember to try to minimize your consumer debt!
Monday, August 10, 2009
More Links about Education and Money
I am just going to post a few links (with a running commentary) for people who want more information about where money matters are taught in schools. Some say that they are, some say that they aren't. I teach Grade 11 math and that is my favourite unit. We generally discuss the mathematics side of compound interest and mortgages, but I always leave one lesson open to discuss financial matters (saving for university, how you will pay it back, budgets, loans, mutual funds, why not to go to a "Cash Mart", etc.). There are also high school electives in business and marketing, but I am not sure if they talk about saving and spending.
Learning How To Avoid The Debt Trap - a post from the Toronto star explaining how an MBA ended up with a high paying job and in his parents basement at 30 years old. They also talk about the importance of talking about compound interest (which is done in the mandatory Grade 11 math course).
Money Instructor - A link for all teachers showing how they can put financial ideas into their classrooms. These are for youngers students generally, but these sound financial ideas (save some money, spend less than you make, if you can't afford something you have to save before you can buy it) can be reinforced from a young age and hopefully will stick.
Young and Out of Work - A depressing article stating that for young people the unemployment rate is 21%. For a comparable read, check out "The Tipping Point", who discusses that unfortunately when you graduate school and how the economy is doing can greatly contribute to your success. They discuss in this article that you can ride out the recession while in school. As well, students think that because they have a University degree in whatever and a $20,000 student loan that they are entitled to a high paying job. Unfortunately, those days are over.
Tips To Teaching Money Management Skills - a nice post and suggestions on how to teach financial management to your children and students.
A Cartoon Buffett, Teaching Children About Money - Finally, Warren Buffet is creating a cartoon starring himself teaching children about money. I can't wait for the action figures!
Learning How To Avoid The Debt Trap - a post from the Toronto star explaining how an MBA ended up with a high paying job and in his parents basement at 30 years old. They also talk about the importance of talking about compound interest (which is done in the mandatory Grade 11 math course).
Money Instructor - A link for all teachers showing how they can put financial ideas into their classrooms. These are for youngers students generally, but these sound financial ideas (save some money, spend less than you make, if you can't afford something you have to save before you can buy it) can be reinforced from a young age and hopefully will stick.
Young and Out of Work - A depressing article stating that for young people the unemployment rate is 21%. For a comparable read, check out "The Tipping Point", who discusses that unfortunately when you graduate school and how the economy is doing can greatly contribute to your success. They discuss in this article that you can ride out the recession while in school. As well, students think that because they have a University degree in whatever and a $20,000 student loan that they are entitled to a high paying job. Unfortunately, those days are over.
Tips To Teaching Money Management Skills - a nice post and suggestions on how to teach financial management to your children and students.
A Cartoon Buffett, Teaching Children About Money - Finally, Warren Buffet is creating a cartoon starring himself teaching children about money. I can't wait for the action figures!
Sunday, August 9, 2009
Tips to Spend Less Money
Here is a list of things that I try to do in order to minimize my spending. Please note that these will not work for everyone, and I know that there it lots of room for improvement, but these are the things that I actually do and I will comment on them.
1. Cut down the cable/internet - This goes for the phone as well, but by looking at how much you are spending on Cable and Internet and lowering this down can save you significant money in a month. I rarely watch television, so just have the lowest 20 channels on, and in the summer I haven't hardly watched any television. In the winter, this may change though. I used to live with a roommate who was a gamer and needed ultra high speed internet, then my sister moved in and worked from home and connected to her work computer so she also needed a good connection. Now I still have high speed internet, but saved almost $40 per month by switching down.
2. Minimize your phone bill - I pay about $50 per month for my Bell phone bill. There is no call-waiting, call answer or any of those features that do not come free with the line. I also do not have a cell phone, where from what I hear the prices can become huge in a month. Similarly, I do not text message (not having a cell phone prevents this nicely). I realize that this is much more difficult for people who have already had these "luxuries" to go without them (or if you have teenagers), but it is something that I have done.
3. Stop going out to eat - My family will note that this happens occasionally, but this is just a question of mathematics. No matter where you go to eat, it will cost 2-10 times more than if you cook it yourself. I can hear what you are thinking, "I can't make a lasagna for less than $10 and I can get that at such and such a restaurant for that". That may be true, but you won't be cooking yourself an individual sized lasagna. It’s true that preparing your own foods takes time, and after a hard day at work it is much easier to go out, but financially it doesn't make sense. As well, everyone in the world pretty much got a lunch packed for them as a kid going to school. Please try to do the same thing for yourself at lunch at work. I also walk by a Tim Horton's everyday going to school, but have got in the habit of taking a travel mug of my own coffee with me so the temptation isn't there. I will admit that my new habit is to bring a travel mug with me for a long car ride and stop for a coffee after a few hours, but no one is perfect.
4. Never buy something when it immediately comes out - If you wait six months (or longer) after a product comes out, it will be significantly cheaper (almost no matter what the product). The negative comes that you have to wait this time, but financially it makes sense. If it is a car, wait until a year and buy one used (and save yourself huge money). If it is a television, you can buy the brand new 58 inch flat screen, or buy last years 32 or 44 inch model for a fraction of the cost (I do not have a flat screen television by the way, but am dreaming of one). The point is, when a product comes out, it is much more expensive, so feel free to wait for a bit for a price drop.
5. Minimize your car expenses - I do not own a car (although my girlfriend does), so my car expenses are pretty much at zero. If you are in a family and can go down to one car, the savings are huge. If you are unable to go down to one car, feel free to buy a used car. The savings are tremendous.
6. Shop around - The quote from one book is "a dollar saved is two dollars earned". Ignoring the tax implications for now, if you are purchasing a product, why not try to get the best deal on it? Try not to be an impulse buyer (although I totally am and if I see the sign that says "Sale" or "Limited Time Offer" I usually fall for it). I try to say to myself "In the next month I will need a new _____" and then look at 3 or 4 stores every weekend for the next month to find the prices and then look for when the price drops and pick up the product then. If you purchase things at the end of season and out of season, great deals can be had as well.
7. Pay cash - This is for people with no willpower like me. I set myself a budget. I take out ____ for spending every two weeks. When I run out of money, I stop spending. It's as easy as that. You can be as harsh or as lenient as you want in this manner, but by changing your spending from a variable expense (that changes week to week) to a fixed expense (that is the same each week), you can more easily plan to save and pay things off. This has probably been the best thing that I have done to limit my spending. I will rarely use my credit cards now(except when purchasing medical supplies), and the savings have been tremendous.
1. Cut down the cable/internet - This goes for the phone as well, but by looking at how much you are spending on Cable and Internet and lowering this down can save you significant money in a month. I rarely watch television, so just have the lowest 20 channels on, and in the summer I haven't hardly watched any television. In the winter, this may change though. I used to live with a roommate who was a gamer and needed ultra high speed internet, then my sister moved in and worked from home and connected to her work computer so she also needed a good connection. Now I still have high speed internet, but saved almost $40 per month by switching down.
2. Minimize your phone bill - I pay about $50 per month for my Bell phone bill. There is no call-waiting, call answer or any of those features that do not come free with the line. I also do not have a cell phone, where from what I hear the prices can become huge in a month. Similarly, I do not text message (not having a cell phone prevents this nicely). I realize that this is much more difficult for people who have already had these "luxuries" to go without them (or if you have teenagers), but it is something that I have done.
3. Stop going out to eat - My family will note that this happens occasionally, but this is just a question of mathematics. No matter where you go to eat, it will cost 2-10 times more than if you cook it yourself. I can hear what you are thinking, "I can't make a lasagna for less than $10 and I can get that at such and such a restaurant for that". That may be true, but you won't be cooking yourself an individual sized lasagna. It’s true that preparing your own foods takes time, and after a hard day at work it is much easier to go out, but financially it doesn't make sense. As well, everyone in the world pretty much got a lunch packed for them as a kid going to school. Please try to do the same thing for yourself at lunch at work. I also walk by a Tim Horton's everyday going to school, but have got in the habit of taking a travel mug of my own coffee with me so the temptation isn't there. I will admit that my new habit is to bring a travel mug with me for a long car ride and stop for a coffee after a few hours, but no one is perfect.
4. Never buy something when it immediately comes out - If you wait six months (or longer) after a product comes out, it will be significantly cheaper (almost no matter what the product). The negative comes that you have to wait this time, but financially it makes sense. If it is a car, wait until a year and buy one used (and save yourself huge money). If it is a television, you can buy the brand new 58 inch flat screen, or buy last years 32 or 44 inch model for a fraction of the cost (I do not have a flat screen television by the way, but am dreaming of one). The point is, when a product comes out, it is much more expensive, so feel free to wait for a bit for a price drop.
5. Minimize your car expenses - I do not own a car (although my girlfriend does), so my car expenses are pretty much at zero. If you are in a family and can go down to one car, the savings are huge. If you are unable to go down to one car, feel free to buy a used car. The savings are tremendous.
6. Shop around - The quote from one book is "a dollar saved is two dollars earned". Ignoring the tax implications for now, if you are purchasing a product, why not try to get the best deal on it? Try not to be an impulse buyer (although I totally am and if I see the sign that says "Sale" or "Limited Time Offer" I usually fall for it). I try to say to myself "In the next month I will need a new _____" and then look at 3 or 4 stores every weekend for the next month to find the prices and then look for when the price drops and pick up the product then. If you purchase things at the end of season and out of season, great deals can be had as well.
7. Pay cash - This is for people with no willpower like me. I set myself a budget. I take out ____ for spending every two weeks. When I run out of money, I stop spending. It's as easy as that. You can be as harsh or as lenient as you want in this manner, but by changing your spending from a variable expense (that changes week to week) to a fixed expense (that is the same each week), you can more easily plan to save and pay things off. This has probably been the best thing that I have done to limit my spending. I will rarely use my credit cards now(except when purchasing medical supplies), and the savings have been tremendous.
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