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
Saturday, September 26, 2009
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.
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