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Friday, April 30, 2010

Students and Money

This week we started our Finance unit in MCR3U at the school that I teach at. I decided this year to began our unit with a discussion of how much University would cost, what the ways would be to obtain money for school, and how much debt you could have and how you can best deal with it.

University tuition has jumped on average 4.5% per year over the least decade, to the point where it is expected to cost almost $17000 per year for residence, books and tuition. This should be frightening for parents and their teenagers alike.

We then talked about the ways to get money for school: gifts, working, OSAP, personal loans and so on. The students sat in disbelief as I explained about OSAP and how it would be paid back and how much their loans would cost them on a monthly basis (and in return why I cannot afford a car).

We then spent the second day talking about more positive things: how to save your money to be a millionaire, how real estate and starting your own business have fundamentally been the most successful ways to become rich. Finally, the big picture is if you spend less than you make, you will end up being rich. We talked about stocks, bonds, RRSP, TFSAs, mutual funds and all the rest of the jargon.

Finally we talked about ways to reduce your debt. I gave the example of a mortgage, and by increasing your mortgage by any amount shaves the time and the interest off what you owe. I hope every time that I do this that at least a few people get something out of this and that students learn to save.

Sunday, April 11, 2010

Net Worth Update - April 10th, 2010

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.

- up $350.09 from March 26th, 2010
- up $7898.81 from April 10th, 2009(one year ago)

These assets include my house (I give it 1% appreciation each year in my appreciation), my RRSP and my TFSA. The stock market continues to inch up, helping me out.

- better $1450.99 from March 26th, 2010
- better $15,969.18 from April 10th, 2009(one year ago)

These liabilities include my mortgage, student loans and a consolidation loan (mainly for my Masters Degree for teaching). I got my tax return this week and that is what really helped this segment of my net worth improve!

- better $1801.08 from March 26th, 2010
- better $23,867.99 from April 10th, 2010(one year ago!)

Things have really been moving in the right direction for me, especially with my tax return giving me a nice boost. I have to remember to keep the positive momentum and the plan in place nad good things will happen in the long run for me financially.

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: 12,176.84
Highest Value in Last 2 Years: 15073.13 June 18th, 2008

Wednesday, April 7, 2010

What To Do With Your Tax Return...

So tax season is pretty much over now and people are starting to get some money back from the government (if you have been reading this blog and have put some money into RRSPs and donations and education anyway). So the question is, what are the best options to do with your tax return?

Option 1: Get a lower tax return next year

Remember that when you receive a return from the government it means that the government has overtaxed you in the previous year. They have hung onto an extra chunk of each pay, with you getting no benefit. So next year, get less taxes taken off each paycheque, so your cash flow improves.

Option 2: Reinvest in RRSPs (or an RRSP loan)

The next best option is to re-invest in RRSPs any money that you get back from the government. So if you get back $1000, immediately contribute that into your RRSP for next year. If you do your taxes (or estimate them) and find out that you will be getting $1000 back, take out an RRSP loan from your bank for $1000 and pay them this back with your return. The advantage to doing this is that you will get an extra $350 back on your return (depending on what your marginal rate is) so you have extra money regardless. I haven't tried this yet, but "fatcatc" has this planned for the future. Don't just pick a random amount though: make sure that you only borrow what your previous potential tax return was, so that this loan can be repaid immediately, rather than linger over the year.

Option 3: Pay off bills

If you have credit card debt, that is another option for your tax return (although still less preferable than options 1 and 2).

Option 4: Build an emergency fund/planned spending

What can also be done is to build an emergency fund with your return or planned spending. What planned spending means is if you know that you spend $500 for Christmas each year, rather than putting it on your credit card this upcoming year, pocket aside $500 from your return so that money is available to you at this time.

Option 5: Upgrades on your house

I rate this a little higher than my last option because this is something that is building value. Although I always think of "Christmas Vacation" where Chevy Chase is counting on his Christmas bonus to put in a pool. You can't really plan "in 2011 I will spend my return on a new deck and in 2012 I will spend my return on hardwood floors", etc. in case things don't happen as expected.

Option 6: Random spending

Some people decide to buy a big screen television or new furniture with their tax return...they treat it like a lottery winning each year. If all of your bills are paid, your TFSA is maxed and your RRSPs are maxed out, then I say "go ahead", but for the other 99.999% of Canadians (at least that I know), there are better fiscal ways for this.

As far as what I did with my tax return, most of mine went to bill payments, although about 10% of my return went to emergency fund contributions and 10% went to "random spending". "frugala" is planning to take her money and "throw it on the pile", which is her way of saying that she will keep it in her emergency fund.