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.

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