Well, my shares of company stock have now been transferred from my Employee Savings Plan into my self-directed RSP. Now I'm just waiting for the cash to come in from the other group RSP, and I'll have all my retirement savings in one account.
Then I can start hacking away at my diversification plan.
I hope you all have a great Labour Day, and I'll see you after the long weekend.
Friday, August 31, 2007
Thursday, August 30, 2007
Are your goals really goals?
I found a great post at The World Of Wealth about the difference between projecting your progress and setting actual goals.
Take, for example, my goal of having $1,000 in my Emergency Fund by December 31. I came up with that "goal" by figuring that my bi-weekly $100 contributions to the account would total $1,000 by the end of October. I know that, barring any major changes, I will hit this target well before the end of the year. This is very different from my long-term debt reduction goal, where I have set a target of April 30, 2009 to pay off my credit card debt. I set this goal without first consulting the current rate of my debt paydown. This is actually a goal that I will likely need to make substantial changes to achieve.
This is an important distinction to make. Ideally, the process for setting goals should probably lie somewhere between these two extremes. No one wants to set themselves up for failure, so it's important that the goal be realistic. However, if it's already an all-but-foregone conclusion that the goal will be met, then it doesn't really leave anything to strive for. An effective set of goals should represent a "stretch", while still being achievable.
This is a hard balance to find. How much of a stretch is too much? How close do you need to be to your goal to stay motivated? The answer will differ widely from person to person, and also from goal to goal.
What do you think? How do you go about setting your own goals (financial or otherwise)?
Take, for example, my goal of having $1,000 in my Emergency Fund by December 31. I came up with that "goal" by figuring that my bi-weekly $100 contributions to the account would total $1,000 by the end of October. I know that, barring any major changes, I will hit this target well before the end of the year. This is very different from my long-term debt reduction goal, where I have set a target of April 30, 2009 to pay off my credit card debt. I set this goal without first consulting the current rate of my debt paydown. This is actually a goal that I will likely need to make substantial changes to achieve.
This is an important distinction to make. Ideally, the process for setting goals should probably lie somewhere between these two extremes. No one wants to set themselves up for failure, so it's important that the goal be realistic. However, if it's already an all-but-foregone conclusion that the goal will be met, then it doesn't really leave anything to strive for. An effective set of goals should represent a "stretch", while still being achievable.
This is a hard balance to find. How much of a stretch is too much? How close do you need to be to your goal to stay motivated? The answer will differ widely from person to person, and also from goal to goal.
What do you think? How do you go about setting your own goals (financial or otherwise)?
Wednesday, August 29, 2007
How paperless can you go?
I can't blame you if you thought that my promise of a post even obliquely related to productivity would go unfulfilled for a while, but here I am with offering number one.
I'm a huge packrat. I hang onto souvenirs, I keep product packaging, and I hoard paperwork. I still have the receipts for every single credit card purchase I've made since July 1997. As you can imagine, a large portion of my household expenses involve storage and shelving of one kind or another.
There's been some talk recently in the blogosphere about "going paperless" with your personal finances, and this idea really appeals to me. Some simple steps, such as opting for paperless record keeping from financial institutions, are virtual no-brainers. Why receive and keep paper statements for something that you can track in real-time online? I'm already paperless on my primary bank accounts, and am working to convert the rest of my relationships to paperless.
The idea of digitizing paperwork using a scanner is very interesting. Storing paperwork as PDFs seems like a really slick and elegant alternative to keeping stacks of physical paperwork around. However, I'm not sure to what extent one can rely on electronic copies of paper documents. Will stores accept scanned receipts as proof of purchase when making a return or exchange? Some documents, like stock certificates, deeds, etc. obviously need to be kept in their original paper format, but can recent tax returns be converted to electronic documents?
Where's the line between what can be stored digitally and what must exist as a physical original?
I'm a huge packrat. I hang onto souvenirs, I keep product packaging, and I hoard paperwork. I still have the receipts for every single credit card purchase I've made since July 1997. As you can imagine, a large portion of my household expenses involve storage and shelving of one kind or another.
There's been some talk recently in the blogosphere about "going paperless" with your personal finances, and this idea really appeals to me. Some simple steps, such as opting for paperless record keeping from financial institutions, are virtual no-brainers. Why receive and keep paper statements for something that you can track in real-time online? I'm already paperless on my primary bank accounts, and am working to convert the rest of my relationships to paperless.
The idea of digitizing paperwork using a scanner is very interesting. Storing paperwork as PDFs seems like a really slick and elegant alternative to keeping stacks of physical paperwork around. However, I'm not sure to what extent one can rely on electronic copies of paper documents. Will stores accept scanned receipts as proof of purchase when making a return or exchange? Some documents, like stock certificates, deeds, etc. obviously need to be kept in their original paper format, but can recent tax returns be converted to electronic documents?
Where's the line between what can be stored digitally and what must exist as a physical original?
Tuesday, August 28, 2007
Personal finance, frugality and... wait, I know this...
It's right there in the blog's subtitle: "Exploring personal finance, frugality and productivity... from a Canadian perspective." In the last two months, I've had plenty of posts on personal finance, and a few on frugality. There's lots more to be said on both these topics, but I've definitely touched on them. The one area where I am seriously under-delivering is in talking about productivity.
This has a lot to do with just how badly I scared myself with the state of my finances in April. I suddenly found myself deep in debt, with no signs that I was about to stop digging, and I became determined to reverse that trend. Since then, my focus has been on stopping the haemorrhage, and getting serious about debt reduction. I've been so wrapped up in the dollars side of things that I simply haven't put any thought toward the productivity angle.
It's a little humourous that I've been procrastinating in writing about productivity ("I'll read Getting Things Done next week! I promise!"), but the joke's run its course, and I think it's time I devoted some time and thought to this important subject. I really do think that productivity is a crucial topic in personal finance, as it is so closely linked to the "make more money" side of the equation.
So, the gist is that I will be adding some posts on productivity into the mix. I don't claim to be any kind of expert on this topic, and, as with personal finance, I'll be learning as I go. By reading and writing about productivity, I'm hoping that I will increase my own productivity, and generate some interesting and informative posts in the process.
This has a lot to do with just how badly I scared myself with the state of my finances in April. I suddenly found myself deep in debt, with no signs that I was about to stop digging, and I became determined to reverse that trend. Since then, my focus has been on stopping the haemorrhage, and getting serious about debt reduction. I've been so wrapped up in the dollars side of things that I simply haven't put any thought toward the productivity angle.
It's a little humourous that I've been procrastinating in writing about productivity ("I'll read Getting Things Done next week! I promise!"), but the joke's run its course, and I think it's time I devoted some time and thought to this important subject. I really do think that productivity is a crucial topic in personal finance, as it is so closely linked to the "make more money" side of the equation.
So, the gist is that I will be adding some posts on productivity into the mix. I don't claim to be any kind of expert on this topic, and, as with personal finance, I'll be learning as I go. By reading and writing about productivity, I'm hoping that I will increase my own productivity, and generate some interesting and informative posts in the process.
Inflation can be your friend.
JLP at AllFinancialMatters has a very interesting post on the impact that inflation has on the true cost of a mortgage. He argues that, because of inflation, the dollars used to make a mortgage payment ten years from now will be worth far less than the dollars used to make a payment today. Therefore, assuming that the amount of the mortgage payment remains constant over those ten years, the cost of the mortgage essentially goes down over time.
This is a great observation, and it has really got me thinking. I was curious what the impact would be on our own mortgage, and found that adjusting for a 3% inflation rate takes our actual cost of borrowing (total payments minus starting principal) from $190K down to $54K. That's a huge difference!
As I played around with these numbers, it occurred to me that this principle can also be used to accelerate a debt paydown. If we were to increase our mortgage payments by 3% each year, we would shorten the life of our mortgage by six years, while further lowering the adjusted cost of borrowing to $44K. Obviously, the challenge is in actually finding that extra 3% each year, but by really making a commitment and developing a sufficiently lean budget, this may very well be manageable.
I'll be looking very seriously at implementing something like this in the new year. I'll let you know how it goes.
This is a great observation, and it has really got me thinking. I was curious what the impact would be on our own mortgage, and found that adjusting for a 3% inflation rate takes our actual cost of borrowing (total payments minus starting principal) from $190K down to $54K. That's a huge difference!
As I played around with these numbers, it occurred to me that this principle can also be used to accelerate a debt paydown. If we were to increase our mortgage payments by 3% each year, we would shorten the life of our mortgage by six years, while further lowering the adjusted cost of borrowing to $44K. Obviously, the challenge is in actually finding that extra 3% each year, but by really making a commitment and developing a sufficiently lean budget, this may very well be manageable.
I'll be looking very seriously at implementing something like this in the new year. I'll let you know how it goes.
Monday, August 27, 2007
More on the Freedom Account
I mentioned on Friday that my cousin was in labour. Well, she had her baby; it's a boy, and mother and son are doing just fine.
Last Friday's post comparing Canadian financial terms to their American equivalents certainly seemed to be popular. I've added a link to this post in the sidebar, and I think I'll update the post from time to time as needed. Thanks to everyone who commented, and thanks to my new RSS readers.
I've had some comments recently on the specifics of my Freedom Account, so I thought I'd take some time to go over how I use this account, and how I went about setting it up.
The Freedom Account is essentially a place to plan and save for these expenses, so that when the bill needs to be paid, the required cash is available, and ready to be spent guilt-free.
There are a few things to keep in mind with the Freedom Account:
Last Friday's post comparing Canadian financial terms to their American equivalents certainly seemed to be popular. I've added a link to this post in the sidebar, and I think I'll update the post from time to time as needed. Thanks to everyone who commented, and thanks to my new RSS readers.
I've had some comments recently on the specifics of my Freedom Account, so I thought I'd take some time to go over how I use this account, and how I went about setting it up.
Why a Freedom Account?
Everyone has recurring expenses that come up every few months. Cars need tune-ups, licenses and passports need to be renewed, and birthday gifts need to be bought. Because these expenses are so far apart, many of us tend to assume that we'll have the money on hand to pay for them when they occur. However, unless we're extremely disciplined, these expenses still manage to catch us unprepared, and more often than not, we end up either using credit to cover them, or calling them "emergencies" and dipping into our Emergency Fund (if we have one).The Freedom Account is essentially a place to plan and save for these expenses, so that when the bill needs to be paid, the required cash is available, and ready to be spent guilt-free.
What expenses do I save for?
The short answer is, any recurring expense that occurs less than once a month. To answer this question, you need to know your expenses. Create a list of your categories of spend that meet these criteria. For each category, note the number of months between occurrences, and the amount of the expense each time it occurs. Here's a sample of some categories from my list:- Vehicle service - $500 every 4 months
- Vehicle registration - $74 every 12 months
- Driver's license renewal - $75 every 60 months
- Passport renewal - $89 every 60 months
- Christmas gifts - $840 every 12 months
- ... etc.
How much do I save?
Take the list of categories you created above, and divide the amount of the expense by the number of months between occurrences. This becomes the per-month amount that you should set aside for this expense. For example, with my $500 every 4 months for vehicle service, I would set aside $125 per month for this category. Add up the per-month amounts, and that's the total amount that you should transfer to your Freedom Account at the beginning of the month. If you make this transfer automatic, then you can simply forget about it, and know that the cash will be there when it's needed. In four months, for example, you'll have $500 saved up for vehicle service. In 12 months, you'll have $840 saved up for Christmas shopping.How can I super-size this strategy?
If you take the per-month amount calculated above, and save half that amount every two weeks, then you'll end up saving an extra month's worth of Freedom Account contributions each year. You can use this money as a cushion in your Freedom Account (earning interest, of course), or you can use it to add to your Emergency Fund or pay off debts. It's your money, so put it where it's needed.There are a few things to keep in mind with the Freedom Account:
- Review your categories. When you first set up the Freedom Account, you will be using rough estimates for a number of the categories. Every few months, do a review of your spending, to see if there are any new categories that need to be added, or to change the per-month amount in some categories.
- Keep track of your withdrawals. In order to use the Freedom Account effectively, you should know how much cash is available in each category. You don't want to hurt one category in favour of another, so pay attention to how much you've spent.
- You may have some shortfalls early on. I started contributing to my Freedom Account in May, and had to renew my driver's license and vehicle registration in August. This meant that I only had $30 saved toward this $149 expense, so I was still out-of-pocket by $119. However, the next time these expenses come up, these categories will be fully funded, and I won't miss a beat.
Friday, August 24, 2007
Loonies And Lexicons
I've been perusing the Google Analytics reports for my site over the past few weeks, and have found some interesting facts:
For the most part, Canadian financial "rules" are pretty much equivalent to their American counterparts; names, limits and percentages may be different, but the fundamental concept is the same. However, there are some key differences between our countries:
- I average 8 unique visitors per day
- 79% of visits are from referring sites
- 58% of visits are from Firefox users
- I am far too eager to draw inferences on my little blog's tiny readership
Canadian-to-American Personal Finance Lexicon
- Loonie
- Canada's $1 coin, named for the loon engraved on the back of the coin. The loon was actually not the original design for the coin, but the original dies were lost en route to the mint, and an alternate design had to be used
- Toonie
- Younger sibling to the Loonie, this is our $2 coin. This coin is known for having "the Queen with the Bear Behind"
- Cheque
- Canadians write cheques and use chequing accounts, but we check our e-mail. Clear as mud?
- CRA
- Canada Revenue Agency. This is the equivalent of the IRS in the USA. This agency is pretty flighty with its naming. A few years ago, it was simply called "Revenue Canada", which became "Canada Customs and Revenue Agency", and then finally settled on the current moniker. The funny thing is, though, the signs outside the CRA office in Ottawa (our nation's capitol) all still say "Canada Customs and Revenue Agency". I guess they didn't get the memo...
- RRSP
- Registered Retirement Savings Plan. Also referred to as an RSP, this is equivalent to a traditional IRA in the US. Contributions to this plan can be used as deductions on your tax return. A big difference between the RRSP and the IRA is that RRSPs often have much higher annual contribution limits
- GIC
- Guaranteed Invesment Certificate. This is equivalent to CDs in the US
- HBP / LLP
- Home Buyer's Plan / Lifelong Learning Plan. Plans that allow the annuitant of an RRSP to withdraw retirement savings pre-retirement, without paying a tax penalty. Withdrawals must meet certain criteria (eg. valid student status), and must be paid back over time, or else they will be treated as taxable income
- CDIC
- Canada Deposit Insurance Corporation. This is equivalent to the FDIC in the US. CDIC generally covers up to $100,000 in Canadian-currency savings at member financial institutions
- CMHC
- Canada Mortgage and Housing Corporation. This is the agency that insures high-ratio mortgages against default. I believe this is roughly equivalent to PMI in the US. If you have a down payment of less than 25% when purchasing a home, then you pay a premium (usually 2-3% of mortgage amount). This premium is added to the mortgage, and generally takes about one year's worth of mortgage payments to pay off
For the most part, Canadian financial "rules" are pretty much equivalent to their American counterparts; names, limits and percentages may be different, but the fundamental concept is the same. However, there are some key differences between our countries:
- Mortgage interest is not tax-deductible in Canada
- Lottery winnings are not taxable in Canada
- In Canada, online savings accounts do not have a government-mandated maximum on the number of withdrawals per month
Breathe...
My cousin and her husband are having a baby. She was induced at 8:00 last night, and is still in labour. We're expecting to hear news sometime this afternoon, so I'm finding it a little difficult to concentrate on mundane details like work.
While my cousin works through her breathing exercises, I find myself breathing more easily as my retirement portfolio continues to recover. My Employee Savings Plan balance is currently the highest it's been since I started tracking its performance in May. Since April 30, I've contributed about $2,700, and the market value is up about $3,600. Since the index funds I've got my eye on are currently down from when I first started watching them, it's looking like I may actually end up buying into them at a good time.
Finally, I find that I've eaten up some of my breathing room this month, as I had a higher-than-expected wireless bill (roaming charges from our June vacation in Illinois), and also had to renew both my vehicle registration and driver's license. The latter two are meant to be covered by my Freedom Account, but since I only began contributions in May, I only had about $30 saved up toward the $149 fee. Next time around, these expenses will be quite comfortably covered. As a result of the hits in August, my debts have increased slightly (by $184.11).
This debt increase is frustrating, but it is mostly a "hangover" from my previous irresponsible behaviour. Had I been contributing to the Freedom Account a year ago, I wouldn't have batted an eye at the license renewals. The roaming charges indicate that we'll need to keep a closer eye on cell phone usage while traveling, but this will be more than reversed with next month's debt reduction payments, so I'm not too concerned.
I'm learning as I go, and as long as I take a lesson from each mistake, I'm OK with making a few here and there.
While my cousin works through her breathing exercises, I find myself breathing more easily as my retirement portfolio continues to recover. My Employee Savings Plan balance is currently the highest it's been since I started tracking its performance in May. Since April 30, I've contributed about $2,700, and the market value is up about $3,600. Since the index funds I've got my eye on are currently down from when I first started watching them, it's looking like I may actually end up buying into them at a good time.
Finally, I find that I've eaten up some of my breathing room this month, as I had a higher-than-expected wireless bill (roaming charges from our June vacation in Illinois), and also had to renew both my vehicle registration and driver's license. The latter two are meant to be covered by my Freedom Account, but since I only began contributions in May, I only had about $30 saved up toward the $149 fee. Next time around, these expenses will be quite comfortably covered. As a result of the hits in August, my debts have increased slightly (by $184.11).
This debt increase is frustrating, but it is mostly a "hangover" from my previous irresponsible behaviour. Had I been contributing to the Freedom Account a year ago, I wouldn't have batted an eye at the license renewals. The roaming charges indicate that we'll need to keep a closer eye on cell phone usage while traveling, but this will be more than reversed with next month's debt reduction payments, so I'm not too concerned.
I'm learning as I go, and as long as I take a lesson from each mistake, I'm OK with making a few here and there.
Thursday, August 23, 2007
Adjusting my Freedom Account goal
Look in the "Goals for 2007" section of the sidebar and you'll see that I'm shooting for a balance of $3,000 in my Freedom Account by December 31. In my earlier post, I explained the Freedom Account concept. Essentially, I tally up all my predictable periodic (i.e. less frequent than monthly) expenses, and determine how much I need to save per month in each category. For example:
The $3,000 goal is essentially just the sum of all the individual "fully funded" amounts. That is, $500 for service plus $74 for registration, and so on. However, since stating this goal, I've realised that the true purpose of this account is not to reach a certain balance, but rather to ensure that these expenses do not interrupt my cash flow when they occur. The balance in this account is actually meant to fluctuate widely, as I contribute to some categories while simultaneously withdrawing from others. Therefore, the true goal for this account is simply for me to use it for these expenses. It's unlikely that I will ever actually reach $3,000 in this account, but by keeping me "ahead of the curve", the account will be doing its job perfectly.
I'm going to keep the $3,000 goal in the sidebar, but don't expect it to hit 100%.
- $500 for vehicle service every 4 months = $125/month
- $74 for vehicle registration every 12 months = $6.17/month
- $75 for license renewal every 60 months = $1.25/month
- $89 for passport renewal every 60 months = $1.48/month
- ... etc.
The $3,000 goal is essentially just the sum of all the individual "fully funded" amounts. That is, $500 for service plus $74 for registration, and so on. However, since stating this goal, I've realised that the true purpose of this account is not to reach a certain balance, but rather to ensure that these expenses do not interrupt my cash flow when they occur. The balance in this account is actually meant to fluctuate widely, as I contribute to some categories while simultaneously withdrawing from others. Therefore, the true goal for this account is simply for me to use it for these expenses. It's unlikely that I will ever actually reach $3,000 in this account, but by keeping me "ahead of the curve", the account will be doing its job perfectly.
I'm going to keep the $3,000 goal in the sidebar, but don't expect it to hit 100%.
Stuff keeps happening...
Readership
I don't mean to brag, but check out the legions of readers my RSS feed has. That's four whole people who like what they've read enough to follow up on a regular basis. Assuming, of course, that they're not all me (I'm still getting the hang of this Web 2.0 thingy).Retirement Savings
This morning, I requested the transfer of my final "chunk" of retirement savings into my brokerage account. For those keeping score, I have the following (as of July 31):- Brokerage self-directed RSP account: $5,752.77
- Employee Savings Plan Group RRSP: $27,135.99
- Employee Group RRSP:$4,740.82
The Spending Struggle
I've been thinking more and more about my recent issues with a "paycheque-to-paycheque" mindset. Ultimately, I think I'm not planning and tracking my spending adequately. A big problem area for me (and for many others) is grocery spending. I tend to look at this category as a single, contiguous "block" of necessary expense, and I believe that there's plenty of room here for better planning and prioritization. It seems to me that I have a choice: either live paycheque-to-paycheque, or live "purchase-to-purchase". By taking the latter mindset, every expenditure will be evaluated to answer the following questions:- Is this a necessary expense?
- How much money will this leave available until the next paycheque?
- What will I need to sacrifice to accommodate this expense?
Wednesday, August 22, 2007
Small victories
Well, after yesterday's claim that I never have any money left over on payday, I have decided to tackle this issue. I think the key here is that, after I set aside savings and pay my bills, I tend to look at the money that's left and think "I have to spend all that somehow." This is not a particularly frugal way of thinking, but I don't think it's that uncommon. I need to lose this mindset and focus on having as much of that money left over as possible at the end of the pay period.
Well, I've taken a step toward this goal: today I transferred the remaining $27.50 from my chequing account into savings. I get paid tomorrow, so this is essentially a commitment not to spend any money today. The difference between this and how I usually operate is that I have made this commitment up front, rather than keeping that cash on hand and "hoping" that I won't spend it.
I know that $27.50 isn't exactly going to change my life, but if I get into the habit of making and keeping these commitments to myself, I will be in a much better place.
Another bit of progress this week: I submitted a request to transfer the balance of my Employee Savings Plan (ESP) into my brokerage RSP account. Since the ESP only allows me to hold my company's stock, this move will allow me to diversify my holdings. I've found some index funds that I like, and once the transfer is complete, I will be selling my stocks and buying into these funds.
When this is taken care of, I will be able to sit back and put on my "long-term investor" hat to ride out this market correction.
Well, I've taken a step toward this goal: today I transferred the remaining $27.50 from my chequing account into savings. I get paid tomorrow, so this is essentially a commitment not to spend any money today. The difference between this and how I usually operate is that I have made this commitment up front, rather than keeping that cash on hand and "hoping" that I won't spend it.
I know that $27.50 isn't exactly going to change my life, but if I get into the habit of making and keeping these commitments to myself, I will be in a much better place.
Another bit of progress this week: I submitted a request to transfer the balance of my Employee Savings Plan (ESP) into my brokerage RSP account. Since the ESP only allows me to hold my company's stock, this move will allow me to diversify my holdings. I've found some index funds that I like, and once the transfer is complete, I will be selling my stocks and buying into these funds.
When this is taken care of, I will be able to sit back and put on my "long-term investor" hat to ride out this market correction.
Tuesday, August 21, 2007
How will I know when I'm off the treadmill?
When I looked at my finances at the end of April, I realised that my savings would not be able to cover the loss of a single paycheque. I've often heard numbers thrown around about how many North Americans are "less than a paycheque away from living on the street", but it was shocking to say the least to find myself in that position.
Trent at The Simple Dollar has a great post on getting off the paycheque-to-paycheque treadmill. The gist is that, when you have at least one paycheque saved in the bank, and are spending less than you make, you are "off the treadmill", and no longer living paycheque-to-paycheque. I really like this post, because although the goal he describes would not exactly make one financially independent, it represents a huge step in the right direction. I've found that that first step, from doing nothing to doing something, makes all the difference.
I'm not yet at the point that Trent describes, but I am spending less than I make, and I have several hundred saved in my Emergency Fund. I'm on the right track. However, I still find myself "riding out" the last few days before my next paycheque, and counting the pennies until that next influx. Although I have a positive savings rate, I still feel like I'm living paycheque-to-paycheque, and I'm wondering whether this feeling will ever actually go away.
I think the problem is as follows: with every paycheque, I first transfer my savings to ING, and then earmark the money that needs to go to bills and debt repayment. Good so far. Then, with what's left over, I cover my expenses for the next two weeks. In this "other expenses" category, however, I always spend every dollar, so there's never anything left over, and I'm always counting down the days until my next paycheque. I'm technically following the rules, but I still feel as if I'm spinning away on that treadmill.
I believe that, as I get more and more practice with frugality, and as my savings grow and my debts shrink, I'll feel this pressure lift, as the habits become more ingrained. I just hope I'll recognise the feeling when I get there.
What's been your experience? Have you lost that paycheque-to-paycheque feeling, or have you just learned to manage it better?
Trent at The Simple Dollar has a great post on getting off the paycheque-to-paycheque treadmill. The gist is that, when you have at least one paycheque saved in the bank, and are spending less than you make, you are "off the treadmill", and no longer living paycheque-to-paycheque. I really like this post, because although the goal he describes would not exactly make one financially independent, it represents a huge step in the right direction. I've found that that first step, from doing nothing to doing something, makes all the difference.
I'm not yet at the point that Trent describes, but I am spending less than I make, and I have several hundred saved in my Emergency Fund. I'm on the right track. However, I still find myself "riding out" the last few days before my next paycheque, and counting the pennies until that next influx. Although I have a positive savings rate, I still feel like I'm living paycheque-to-paycheque, and I'm wondering whether this feeling will ever actually go away.
I think the problem is as follows: with every paycheque, I first transfer my savings to ING, and then earmark the money that needs to go to bills and debt repayment. Good so far. Then, with what's left over, I cover my expenses for the next two weeks. In this "other expenses" category, however, I always spend every dollar, so there's never anything left over, and I'm always counting down the days until my next paycheque. I'm technically following the rules, but I still feel as if I'm spinning away on that treadmill.
I believe that, as I get more and more practice with frugality, and as my savings grow and my debts shrink, I'll feel this pressure lift, as the habits become more ingrained. I just hope I'll recognise the feeling when I get there.
What's been your experience? Have you lost that paycheque-to-paycheque feeling, or have you just learned to manage it better?
Monday, August 20, 2007
Tweaking my savings... again!
When I overhauled my finances in May, one of the biggest changes I made was the creation of my "Freedom Account", which is what I use for periodic expenses such as scheduled car maintenance, license/passport renewals, etc. On the first payday of every month (I'm paid bi-weekly), I've been transferring a fixed amount into my ING Freedom Account, and this has built up nicely to provide for these less frequent expenses. The once-a-month scheme was set up so that each month's first paycheque would cover the Freedom Account contribution, and the second would cover the bills that are due at the end of the month.
Because of this difference between a typical month's two paycheque distributions, my money has been going to different places every payday. When I refer to my Excel budget document, it's easy enough to sort out, but it's hard to keep track of this back-and-forth in my head. Therefore, I decided this weekend that I would "even out" my budget, so that I'm making the same transfers and allocations every payday. This has two benefits:
Another change I'm making regards my Emergency Fund goal. Teaspoon Finance has an interesting post on the merits of a "Credit Emergency Fund". Although there's some stuff in the article that I don't agree with, it got me thinking. I have a low-rate, unsecured line of credit with my bank. While I don't like the idea of having credit as my only contingency plan, I think the ideal solution for me, at least at the moment, is a combination of cash and credit. Therefore, I am reducing my longer-term Emergency Fund goal from $4,000 to $2,000. This will give me enough cash on-hand to cover most likely emergencies, and I can use the available credit on my LoC as a "worst-case" fund.
This will likely change once I've paid off my debts, but for now, I think that this "hybrid" Emergency Fund is what will work best for me.
Because of this difference between a typical month's two paycheque distributions, my money has been going to different places every payday. When I refer to my Excel budget document, it's easy enough to sort out, but it's hard to keep track of this back-and-forth in my head. Therefore, I decided this weekend that I would "even out" my budget, so that I'm making the same transfers and allocations every payday. This has two benefits:
- I can set up automatic transfers for the same amount every two weeks, dramatically reducing the amount of manual intervention that's required
- By putting myself on a bi-weekly scheme (i.e. half the monthly amount every two weeks), I take advantage of the tried-and-true "13-month year", giving me an extra month's worth of savings every year
Another change I'm making regards my Emergency Fund goal. Teaspoon Finance has an interesting post on the merits of a "Credit Emergency Fund". Although there's some stuff in the article that I don't agree with, it got me thinking. I have a low-rate, unsecured line of credit with my bank. While I don't like the idea of having credit as my only contingency plan, I think the ideal solution for me, at least at the moment, is a combination of cash and credit. Therefore, I am reducing my longer-term Emergency Fund goal from $4,000 to $2,000. This will give me enough cash on-hand to cover most likely emergencies, and I can use the available credit on my LoC as a "worst-case" fund.
This will likely change once I've paid off my debts, but for now, I think that this "hybrid" Emergency Fund is what will work best for me.
Sunday, August 19, 2007
My One Money Advice (MOMA) Meme
Well, it's official. I am now a part of the PF blogging community.
Sure, I've been blogging about personal finance for a couple of months, I'm listed at pfblogs.org, and I've already started to receive some link love from other PF blogs. My site even comes up as the number one result in a Google search for "Loonies And Sense". However, even with all this good stuff, it felt as if there was something missing.
Well, no more am I a fringe-dweller. I am now in this thing whole hog.
I've been tagged.
Paid Twice has tagged me to continue Moolanomy's My One Money Advice (MOMA) Meme. The aim of this meme is to help promote financial responsibility and awareness in our hyper consumption society.
The question: If you can give one advice, tip, or story related to money, what would you share?
Now, I'm new to this blogging thing, and I'm also new (check the stats in the sidebar) to responsible financial management. On the one hand, I'm inclined to doubt the value of any "advice" I could provide at this point. However, if I think back to what made me start this blog in the first place, I remember how much the idea of regular people sharing their experiences and opinions in an open forum appeals to me. So with that in mind, I'm game to provide My One Money Advice:
"Take control, and do it now."
I spent far too long haemorrhaging money and failing to save a dime, simply because I didn't think I had the means to change directions. By taking the time and effort to educate myself and make changes to the way I handle my money, I now feel, for the first time in years, that I am actually the driving force behind my finances. My debts are shrinking, my savings are growing, and I'm finding myself feeling better about money than I have in a long time. I still have a long way to go, but at least I know how I'm going to get there. I only wish that my 25-year-old self had taken these steps, so that we'd be in a better position today.
So there you go. That's my advice.
Now, let's hear from five more. Canadian Financial Stuff, Give Me Back My Five Bucks, Grad Money Matters, Irregular Payments and My Open Wallet...
You're it. What's your "One Money Advice"?
Sure, I've been blogging about personal finance for a couple of months, I'm listed at pfblogs.org, and I've already started to receive some link love from other PF blogs. My site even comes up as the number one result in a Google search for "Loonies And Sense". However, even with all this good stuff, it felt as if there was something missing.
Well, no more am I a fringe-dweller. I am now in this thing whole hog.
I've been tagged.
Paid Twice has tagged me to continue Moolanomy's My One Money Advice (MOMA) Meme. The aim of this meme is to help promote financial responsibility and awareness in our hyper consumption society.
The question: If you can give one advice, tip, or story related to money, what would you share?
Now, I'm new to this blogging thing, and I'm also new (check the stats in the sidebar) to responsible financial management. On the one hand, I'm inclined to doubt the value of any "advice" I could provide at this point. However, if I think back to what made me start this blog in the first place, I remember how much the idea of regular people sharing their experiences and opinions in an open forum appeals to me. So with that in mind, I'm game to provide My One Money Advice:
"Take control, and do it now."
I spent far too long haemorrhaging money and failing to save a dime, simply because I didn't think I had the means to change directions. By taking the time and effort to educate myself and make changes to the way I handle my money, I now feel, for the first time in years, that I am actually the driving force behind my finances. My debts are shrinking, my savings are growing, and I'm finding myself feeling better about money than I have in a long time. I still have a long way to go, but at least I know how I'm going to get there. I only wish that my 25-year-old self had taken these steps, so that we'd be in a better position today.
So there you go. That's my advice.
Now, let's hear from five more. Canadian Financial Stuff, Give Me Back My Five Bucks, Grad Money Matters, Irregular Payments and My Open Wallet...
You're it. What's your "One Money Advice"?
Friday, August 17, 2007
Debt reduction chart up at NCN Network
I've created a chart for my CC/LOC debt reduction at No Credit Needed. I've set myself a fairly ambitious goal of wiping out this debt by April 30, 2009. At this point, our student loans should come to around $20,000, meaning that we will have eliminated around two thirds of our non-mortgage debt. This is a very exciting goal to work toward, so let's see how we do.
Wednesday, August 15, 2007
Canadian High-Interest Savings - Redux
One of my first posts was a brief run-down of a few Canadian high-interest savings accounts and their rates and features. I referred to an old review I'd found of the big players in the high-yield savings arena.
Today I found the CANOE Money summary of Canadian interest rates. These lists should prove useful:
Savings Account Rates
Credit Card Rates
Their list shows that ICICI Bank has the best rate (4.50%) of all the Canadian players, and after taking a tour of their website, it looks like they're a strong option. In fact, the review I posted previously has been updated to reflect that ICICI is probably the best choice for anything but a full chequing account replacement.
Another option I've found is Canadian Tire Financial Services, which offers an everyday 3.80% rate, with a 90-day teaser of 4.50%. Their everyday rate beats ING Direct, and they give a $10 gift card as a welcome gift.
I think I'll be trying out Canadian Tire and ICICI. I'll let you know how it goes, and whether I make any changes as a result.
Today I found the CANOE Money summary of Canadian interest rates. These lists should prove useful:
Savings Account Rates
Credit Card Rates
Their list shows that ICICI Bank has the best rate (4.50%) of all the Canadian players, and after taking a tour of their website, it looks like they're a strong option. In fact, the review I posted previously has been updated to reflect that ICICI is probably the best choice for anything but a full chequing account replacement.
Another option I've found is Canadian Tire Financial Services, which offers an everyday 3.80% rate, with a 90-day teaser of 4.50%. Their everyday rate beats ING Direct, and they give a $10 gift card as a welcome gift.
I think I'll be trying out Canadian Tire and ICICI. I'll let you know how it goes, and whether I make any changes as a result.
Tuesday, August 14, 2007
Innovation is a wonderful thing
So, have you heard of this thing called a "snowball"?
Of course you have. Next to the Emergency Fund, it's probably the most discussed financial tool in the PF blogosphere. For the uninitiated, here's the gist:
However, there's a really cool off-shoot of this technique, which I found over at I've Paid For This Twice Already... (a great blog). The idea is to make additional "snowflake" payments to debt whenever possible. I love the approach used by this blogger, and I love the addition to the snowball metaphor.
Just an example of how constantly impressed I am by the ingenuity and creativity of the PF community. Keep up the good work!
Of course you have. Next to the Emergency Fund, it's probably the most discussed financial tool in the PF blogosphere. For the uninitiated, here's the gist:
- Pay the minimum amount on all but one of your debts; attack this last debt with all your extra cash.
- Once the first debt is completely paid off, take all the "extra" that was previously going toward that debt, and apply it to the next debt in line, continuing to pay the minimums on the others.
- Repeat.
However, there's a really cool off-shoot of this technique, which I found over at I've Paid For This Twice Already... (a great blog). The idea is to make additional "snowflake" payments to debt whenever possible. I love the approach used by this blogger, and I love the addition to the snowball metaphor.
Just an example of how constantly impressed I am by the ingenuity and creativity of the PF community. Keep up the good work!
Did I say "dip"?
In last Thursday's post on my July progress, I mentioned that my RSPs had dropped with the recent "dip" in the market. Well, as everyone else has noticed, this downward slide continues. Since I ran my update last week, my RSP holdings have dropped by another $963.61. It hurts to take such a big hit, especially as I'm planning my re-allocation. If I continue my switch to index funds, I stand to get far less out of my existing stock holdings than I intended. Granted, I'll also get a lower price for the new funds, but I'm less than thrilled about the feeling of "cashing out" my holdings during this market downturn.
Monday, August 13, 2007
Playing the waiting game
I posted recently about my plan to use ING to hold "unused" cash from each paycheque, and as I implement this plan for the first time, I've noted some tweaks that need to be made:
- Planning ahead - I made my first "unused funds" transfer to ING after receiving my pay last Thursday. However, since I requested the transfer on Thursday morning, ING didn't actually process the transaction until Friday, meaning that the funds are on hold until this coming Friday. If I had scheduled the transaction in advance, then ING would have processed it on Thursday, clearing the funds a day earlier.
- Having a buffer - Since this is my first time implementing this approach, the available balance in the ING sub-account is currently $0 (the rest is on hold). This means that this money is effectively trapped at ING until Friday morning. Transfers are only delayed when ING is receiving funds; when I transfer funds from ING, my brick-and-mortar bank makes the funds available the day after ING processes the transaction. Therefore, I am planning to build up a $600 cushion in this ING account, so that there will always be adequate funds available to cover regular expenses.
Thursday, August 9, 2007
Emergency Fund targets
As I navigate the first few months of turning my finances around, I'm following the common Emergency Fund recommendation of starting with a goal of $1,000 during the debt reduction period. This will do in the short term, as I expect to reach this target in early October. Once I've done this, I'll focus most of my "extra" cash on attacking my line of credit balance, while still continuing the gradual building of my Emergency Fund. The question becomes, how much do I want in this account?
The most common recommendation for this is to have 3-6 months' expenses saved up. That represents a good solid fund, that should cover most unexpected expenses or income reduction that are likely to crop up. However, I'm currently so far away from this target that I need something more "mid-term" to focus on. I've decided on having one month's expenses comfortably covered. I've worked this out to be around $4,000, so that's the goal that I've added in the sidebar. This goal is likely at least a year out, but at least I've quantified it, and I have something to work towards.
The most common recommendation for this is to have 3-6 months' expenses saved up. That represents a good solid fund, that should cover most unexpected expenses or income reduction that are likely to crop up. However, I'm currently so far away from this target that I need something more "mid-term" to focus on. I've decided on having one month's expenses comfortably covered. I've worked this out to be around $4,000, so that's the goal that I've added in the sidebar. This goal is likely at least a year out, but at least I've quantified it, and I have something to work towards.
Back to work... with updates!
Well, we're back from the cottage. We had a great week of fun and sun, and the weather was simply unbelievable. The closest we got to bad weather was actually on Monday morning as we were packing up to leave. That virtually never happens; our "go home" time usually happens during the best weather of the holiday.
I took my best shot at a frugal holiday week, but between gas and alcohol purchases, I pretty much maxed out my budget.
Anyway, here's the scoop for the end of July. First, I'll lay out the results excluding the joint consolidation loan, to allow an apples-to-apples comparison with last month's numbers:
Assets:
Online Savings - $1001.40
Self-Directed RSP - $5,752.77
Employer Group RSP - $31,876.81
Debts:
Credit Cards - $1,144.27
Line of Credit - $24,778.69
Student Loans - $7,256.97
Net Investable Assets: $5,451.05
Net Liquid Assets: ($32,178.50)
Assets are down $1,111.29 from June, driven by the stock market dip at the end of July, while debts are down $814.56 from June. Overall, net investable assets are down by $296.73, while net liquid assets are up by $1,180.16. I'm happy with the debt reduction and with the cash savings, and I'm hoping that my stocks will improve soon. If not, then I'll simply get a better price on the funds I buy when I re-allocate my portfolio.
Now, for my "true" current standing, including the joint consolidation loan:
Assets:
Online Savings - $1001.40
Self-Directed RSP - $5,752.77
Employer Group RSP - $31,876.81
Debts:
Credit Cards - $1,144.27
Line of Credit - $24,778.69
Student Loans - $33,036.73
Net Investable Assets: ($20,328.70)
Net Liquid Assets: ($57,958.30)
I won't compare these numbers to June, but my August month-end update (and each subsequent month) will track my progress against this "complete" snapshot.
I took my best shot at a frugal holiday week, but between gas and alcohol purchases, I pretty much maxed out my budget.
Anyway, here's the scoop for the end of July. First, I'll lay out the results excluding the joint consolidation loan, to allow an apples-to-apples comparison with last month's numbers:
Assets:
Online Savings - $1001.40
Self-Directed RSP - $5,752.77
Employer Group RSP - $31,876.81
Debts:
Credit Cards - $1,144.27
Line of Credit - $24,778.69
Student Loans - $7,256.97
Net Investable Assets: $5,451.05
Net Liquid Assets: ($32,178.50)
Assets are down $1,111.29 from June, driven by the stock market dip at the end of July, while debts are down $814.56 from June. Overall, net investable assets are down by $296.73, while net liquid assets are up by $1,180.16. I'm happy with the debt reduction and with the cash savings, and I'm hoping that my stocks will improve soon. If not, then I'll simply get a better price on the funds I buy when I re-allocate my portfolio.
Now, for my "true" current standing, including the joint consolidation loan:
Assets:
Online Savings - $1001.40
Self-Directed RSP - $5,752.77
Employer Group RSP - $31,876.81
Debts:
Credit Cards - $1,144.27
Line of Credit - $24,778.69
Student Loans - $33,036.73
Net Investable Assets: ($20,328.70)
Net Liquid Assets: ($57,958.30)
I won't compare these numbers to June, but my August month-end update (and each subsequent month) will track my progress against this "complete" snapshot.
Subscribe to:
Posts (Atom)
