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.
Monday, September 21, 2009
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
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