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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

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.

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.

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.

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.

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

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.

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.

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.

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.