Happy New Year

Well, that's it for December and 2007, so I hope everyone enjoys their New Year's celebrations tonight and tomorrow, and I'll see you all in 2008, with lots of updates, goals, and other bloggy goodness.

Happy New Year!

The aftermath

Well, Christmas has come and gone, and we are now deep in the madness of "Boxing Week". For those who don't know what I'm talking about, Boxing Day is the day after Christmas, and is observed in several countries (including Canada but not the U.S.) as a statutory holiday. Being the day after Christmas, it also kicks off a period of major discounts at most retailers. There's always extensive news coverage of how many people are storming the malls for Boxing Week sales, and just how much they're spending. Ms. Loonie and I are taking it easy, as neither of us is too keen on braving the crowds or spending much more money this month.

Santa was good to the Loonie household this year, and we gave some gifts that really went over well. Ms. Loonie's parents got the Canon PowerShot A460, and just loved it. I spent a good deal of time on Christmas Eve and Christmas Day teaching Ms. Loonie's mother the basics of the camera. We have a couple of gift cards and cheques left to use to fill out our wardrobe and media collection, but basically we had a wonderful few days visiting with family and enjoying good food.

I've updated my goal bars and NCN Network chart with the effects of yesterday's paycheque. Thanks to this month's advertising income, it looks like I'm in good shape for my financial goals for the month. Most significant is the fact that all my gift purchases are paid in full, with no new debt. The blogging goals have gone less well, but I'll have a thorough post-mortem on December's goals next Wednesday.

Merry Christmas

Well, we're one sleep away from the big day, so I just wanted to wish you all a safe and happy Christmas.

We kicked off our visits and celebrations this past weekend, with visits my parents and Ms. Loonie's parents, and we'll continue by visiting Ms. Loonie's extended family tonight, and my extended family tomorrow. Then it's back home on Wednesday for a Boxing Day collapse.

If you're driving over the holidays, please be careful, and be sure to enjoy your time with loved ones.

Has anyone noticed that December is a busy time?

Apologies to everyone for the lack of posts recently. I've been a bit occupied with Christmas preparations, both at work, trying to wrap up projects before the holidays, and at home, trying to balance gift shopping and visit scheduling. I'm doing all right, but the blog has suffered a bit of late, and for that I'm sorry.

Astute readers will have noticed the text link ad at the bottom of the sidebar. Yes, that's right, Loonies And Sense has its first advertiser. That little bit of income was a nice early Christmas present, which will go straight to my line of credit.

In other news, Canadian Dream is running a series of interviews with PF bloggers, and he has included me in the series. I am a big fan of his blog, which has daily posts that are always entertaining and informative. He's also got a great, ambitious goal, namely to retire by the age of 45. We should all be so lucky.

I'm running behind on all my blog-related goals for December, with only 14 of 25 posts to date, and no posts on productivity or Getting Things Done. Will a Christmas miracle help me meet my goals? We'll have to wait and see.

Playing the 0% balance transfer game

It's hard to make it through a day without reading something online about 0% balance transfer offers from credit card issuers. Many bloggers have used these offers to make money using credit card arbitrage, wherein you take your interest-free loan and park it in an interest-earning vehicle until the 0% offer expires, at which point you "cash out" and take your interest winnings. Others use 0% offers to consolidate higher-rate debt, helping to accelerate their debt paydown.

From what I've read, these offers seem to be far more prevalent in the US than here in Canada. However, I've seen a lot of people talking about MBNA Canada's 0% promotional rate, and I thought I'd take a look at it. The offer is not listed on MBNA's website, but if you call a toll-free number and give a four-character promotional code (listed in the thread I've linked), they'll process an application for the card.

I called last night to apply for the card, and was approved on the phone. I was given a $15,000 limit, which I will use to consolidate a big chunk of my current revolving debt (which currently sits on my line of credit). This balance will sit on my MBNA card for 15 months, accruing $0 in interest (there's a one-time 1% fee for transferring the balance), which should save me over $1,000 in interest charges. This will really accelerate my debt paydown.

Obviously, transferring a substantial balance to a credit card is not without risks:

• By opening a new credit account and running it up to 100% utilization, I'll be hurting my credit score. However, I don't plan to apply for any new credit within the next couple of years, so I'm willing to take this temporary hit.


• If I miss a payment (or pay late) during the 15-month promotional period, then the interest rate will jump up to 19.99%. I'm not clear on whether this will be retroactive to the time I first transferred the balance, but either way, it's something to avoid. I need to keep a close eye on my payment schedule.


• Similar to the point above, I need to make sure that I pay off the card balance (or at least transfer it back to my line of credit) before the promotional period ends. I'll be setting lots of automatic reminders to make sure I stay on top of this.


• If I use the card at all for purchases, then those purchases will immediately start to revolve at a 17.9% interest rate, and will continue to do so for as long as there is a balance on the card (because payments are always applied to lowest-rate balances first). This doesn't affect me, as I will never use this card (or, in fact, even carry it in my wallet) for anything other than the initial balance transfer. However, it's an important point to recognize, as it's what MBNA is hoping I'll do.

These are the primary risks, as I see them. By recognizing them, and planning to mitigate them, I think the benefit of faster debt reduction still makes this plan worthwhile.

Have I missed anything? Has anyone else taken this approach, or used this card?

He's here! Quick, drop the rate!

Well, as of yesterday, my Emergency Fund is held at HSBC Direct.

As of today, HSBC's savings APR has dropped from 4.25% to 4.00%.

I'm trying to tell myself that 4.00% is still a good rate. It's 25 basis points above ING (who can't be far behind with a rate drop of their own), and my decision to move was based as much on HSBC's impressive access methods as on their rate, so I still think it was a good move.

I just wish the rate had stayed higher.

Maybe even for a whole week.

Payday and goals update

We got paid today, so my goal bars and NCN Network chart have been updated. With today's payment to my line of credit, I've passed 70% of my 2007 goal for revolving debt reduction. That's good on the one hand, because it represents a nearly $4,000 decrease. However, since there's only one payday left in December, it also means that, barring a Festivus miracle, I'm not going to meet my goal of $22,000 in revolving debt by the end of the year.

It's a little disappointing to know I'm going to fall short of this goal, but this is actually part of the reason I first started setting short-term goals. I wanted to make sure that I stayed motivated even if I didn't hit every one of my targets, essentially getting myself out of an all-or-nothing mindset.

When I look at how far I've come since I started this blog, it's hard to get too discouraged. Yes, it would be nice to have knocked off another $1,300 in debt, but I have to look at what I have accomplished. My goals for 2008 will need to be a little more realistic.

I'd like to buy a piece of mind...

When it comes to language and grammar, the Internet is the ultimate "snobs vs. slobs" battlefield. If you're lucky enough to have a decent vocabulary and a basic understanding of how to use language, then it's hard not to cringe at the atrocities committed online against the written word. By the same token, if you tend to misuse or misspell words, then you can always count on a self-appointed watchdog to jump on your every error.

One of the nice things about reading blogs on a subject like personal finance is that the bloggers take great care with (and pride in) their writing, and their readers are more interested in the actual topic being discussed than in correcting the author's occasional spelling and grammar gaffes.

I admit to having high standards when I read; it pains me to find spelling errors in my favourite writers' work (I love this entrance exam to the Internet, elitist though it may be). However, I also make more than my fair share of mistakes myself, so there's no way I can point to my own writing as a "safe haven" for erudite travelers.

I don't want to be the whiny jerk leaving "I think you mean..." comments (although feel free to leave these comments here when you spot an error), but I really want to comment on a few of the more frequent misuses I've seen. What's a guy to do?

I'll let this sentence sum it up:

"I'm loath to admit that it's the misuse of words that takes its toll on my peace of mind, but I loathe the idea of giving my respected peers a piece of my mind."

Any favourite (or favorite) mistakes you've spotted here at Loonies And Sense? Let me have it!

Choosing an Emergency Fund

After writing yesterday's post about moving my Emergency Fund to HSBC, I was interested to read what Paid Twice had to say this morning in her post describing her family's rationale for choosing a $1,000 Emergency Fund.

$1,000 is the most commonly recommended size for a starting Emergency Fund, largely based on the popularity of Dave Ramsey's 7 Baby Steps:

1. $1,000 to start an Emergency Fund


2. Pay off all debt using the Debt Snowball


3. 3 to 6 months of expenses in savings


4. Invest 15% of household income into Roth IRAs and pre-tax retirement


5. College funding for children


6. Pay off home early


7. Build wealth and give!
   Invest in mutual funds and real estate

The idea is that $1,000 should be enough to cover most emergencies that would otherwise derail your financial plan in the early stages.

I have a $1,000 Emergency Fund. I started building this amount in May of this year, and crossed the $1,000 mark in October. For me, the decision of how much to save for emergencies was largely based on my 2006 tax return. I had under-estimated the amount of income tax I owed for the year, and when April 30 came around, I found myself with a $1,400 tax bill to pay. At the time, I had no savings (aside from my retirement investments), so this amount went straight on my line of credit. This represented an instant 6% jump in my revolving debt, all due to the fact that I was living completely paycheque-to-paycheque. Having a $1,000 buffer in savings would have made a huge difference.

Until this year, I've never had an Emergency Fund. Sure, there have been times when I've had $1,000 or more sitting in my account for a month or two, but it's always been spoken for, with a specific purchase (or debt paydown) in mind. Now, my savings and debt reduction are completely separate from my Emergency Fund. That $1,000 has no strings attached, and will only be used for an unexpected expense that I have no other way of covering. Over time, I'll gradually build this amount (it currently sits at $1,105.28), but I'm largely going to ignore the growth above $1,000, in order to avoid thinking of this as money that I can spend.

The other key piece of my safety cushion puzzle is my Freedom Account. This is the account that I use to cover predictable periodic expenses, such as car repairs, gift purchases, and license renewals. In the past, all of these expenses have generally qualified as minor emergencies, and have gone straight on a credit card. By putting aside money from every paycheque in my Freedom Account, I'm basically redefining what constitutes an emergency, and leaving my Emergency Fund to cover the truly unexpected expenses.

In my mind, I have $1,000 saved up for minor emergencies. That's more than I've ever had before, and it's an incredible boost to my feeling of security to know that I have anything saved up as a safety cushion.

What's your Emergency Fund strategy?

Moving my Emergency Fund

As it stands now, I have my Emergency Fund spread across four institutions:

• $896.46 with ING Direct


• $6.57 with HSBC Direct


• $101.02 with ICICI Bank


• $101.23 with Canadian Tire Financial Services

The reason the funds are spread out like this is that I used a portion of my Emergency Fund to investigate these online savings accounts, and I've simply kept the "exploratory" funds in their respective accounts, rather than transferring everything back into the ING "home base".

I've been doing some thinking about where I want my Emergency Fund to sit, and I've decided that HSBC is a good choice, because of its outstanding access methods, which include ABM, online transfers, and online bill payments. HSBC also has a great rate offering, currently at 4.25% (although this will likely drop in the near future, given the recent drop in the prime rate). Therefore, in the event that I need to get at my Emergency Fund quickly in, well, an emergency, I think it's a good idea to keep it at HSBC. So, I've decided to change the allocation of the fund to the following distribution:

• $0.00 with ING Direct


• $1,003.03 with HSBC Direct


• $51.02 with ICICI Bank


• $51.23 with Canadian Tire Financial Services

I will continue my bi-weekly $25 contributions to the ING account, which will give me a solid $1,000 in one place, with good accessibility, as well as token amounts earning interest in each of the other accounts. The idea here is that HSBC is my "first line of defense", and the other accounts are only touched if I really need them. The goal is for me essentially to forget about the non-HSBC savings, and let them grow until an actual emergency comes up. For my non-emergency savings, I'll continue to use ING as my primary account.

I've initiated the fund transfers, and I'll let you know how the new setup feels once the dust has settled.

'Tis the season for cash flow slip-ups

I'm trying very hard to keep this a "cash-only" Christmas. I've written about this before, but basically I'm trying not to create any new debt with this year's Christmas purchases. So far, I've been managing this well. I've been using my Freedom Account, and diligently tracking my holiday spending. I think I'll pretty much break even.

As a result of this "spotlight" that I've placed on my holiday finances, I've been moving cash between my accounts pretty much constantly. I've mentioned before that I use my line of credit as a sort of money merge account; every time I make a purchase with my credit card, I make a payment in the same amount to my line of credit, reducing the interest-bearing balance on that account, and then I pay my credit card in full using my line of credit at the end of the month. I've been making very good use of this system for the past few weeks.

In addition to my two chequing accounts, online savings accounts, line of credit, and credit cards, I have a savings account with my primary bank. In order to avoid the wait times involved with moving funds between my chequing and online savings accounts, I decided last week that I would use this "extra" savings account as a holding area for my holiday funds in between purchases. This account earns next to no interest, but it's convenient because it's at the same institution as my chequing and line of credit, so transfers are instantaneous.

Yesterday afternoon, as I made my third transfer in as many days from this savings account to my line of credit, I suddenly remembered the fee structure for this account. The account comes with two free debit transactions per month (including transfers to other accounts at the same institution), with additional debits costing $1.25 per transaction. My cash flow shenanigans had just cost me $1.25.

On the one hand, it's only $1.25, and I did catch on before I made more than one non-free transaction. However, it really rankles me that, when I thought I was being so clever and attentive to my finances, I could make a dumb mistake like this. It's entirely my fault, as I have known about this $1.25 cost since I opened the account; it just slipped my mind (mainly because it's been so long since I used the account).

Let's hope that I've learned my lesson, and this will be the last "stupidity tax" I see this season.

Will the six-month milestones never cease?!

I started formally tracking my net worth at the end of April, so my first data point is my April 30 net worth. With my September month-end results, I had six-month s of data to explore. One month later, I had my starting point plus six months of progress to report.

Well, it suddenly occurred to me that today is Loonies And Sense's six-month anniversary. Yes, it was six months ago that I opened my doors to the blogosphere. A lot has happened in that time:

• I've written over 100 posts


• I've hosted a carnival


• I've increased my net worth by $13,124.86 (90%), through a combination of $3,829.86 in asset growth and a whopping $9,835.00 in debt reduction (including $4,621.71 in mortgage payments)


• I've accumulated a $1,000 Emergency Fund


• I've re-allocated my retirement investments into low-cost index funds

I think this pretty much drains the pool of six-month milestones to celebrate, so expect the first round of one-year posts to surface in early April.

Credit card rewards can really pay off

I use a Mosaik MasterCard as my primary credit card. The Mosaik card is a "modular" product: you apply for the basic credit card, and you then select a card design and add features (like a rewards plan) à la carte. For my card, I have selected the "Gold" Air Miles reward plan, which gives me one Air Mile for every $15 that I spend on the card. Air Miles are redeemable for a wide variety of rewards, from travel purchases, to gift certificates, to electronics and kitchen gadgets. One Air Mile typically has a value of $0.12-$0.14, so with the Gold plan, this works out to the equivalent of about 0.9% cash back.

The rewards don't end there, however. With the Air Miles program, I also receive a free Air Miles collector card, which I present when I shop at Air Miles sponsors (including supermarkets, liquor stores, gas stations and several online merchants) to earn additional rewards. This earns me an additional Air Mile for every $20 that I spend at an Air Miles sponsor. By using my Air Miles MasterCard at an Air Miles sponsor, I'm actually "double-dipping" my rewards.

I was surprised to see how much these rewards actually add up. This year alone, I've redeemed Air Miles for the following rewards:

• $50 Chapters gift card


• $50 RONA gift card


• $300 in HBC gift cards


• $50 in Banana Republic gift cards

Obviously, Air Miles isn't the only reward program out there; there are several cards that offer cash back rewards. The point is that I've managed to use my rewards to purchase $350 in gifts ($150 of that for Christmas gifts), where I otherwise would have been out-of-pocket for this amount. If you're careful about how you use the card, and don't get caught up in the "I'm-getting-points-so-spend-spend-spend" mentality, then you can really make out like a bandit.

The 37th Carnival of Money Stories

Welcome to the 37^th edition of Carnival of Money Stories! I'm thrilled to be hosting this carnival. Thanks to everyone who submitted articles; there's lots of fantastic reading here.

Before I start, I'd like to wish a very happy 62^nd birthday to Roberta Bondar, Canada's first woman astronaut, who flew on the Space Shuttle Discovery in 1992.

Here are this week's carnival picks:

Inspiration

• plonkee presents a tale of two men - a guest post posted at plonkee money.


• Homelife presents I dare to win, no matter what posted at I am for Eternity.

Earning More

• Raymond presents Make Money By Letting Scientists Experiment On You posted at Money Blue Book.


• FMF presents Grow Your Career by Promoting Your Work posted at Free Money Finance.

Spending Less

• glblguy presents Why Do I Always Find a Better Deal AFTER I buy it? posted at Gather Little By Little.


• Christine presents Being Frugal in France: Buying Cheap Theatre, Opera and Dance Tickets posted at Me, My Kid and Life: An American Single Mom Living in France.


• paidtwice presents And Now The Spouse Gets Tested posted at I've Paid For This Twice Already....


• JP presents Make coffee at home and save money posted at Watch Me Become A Millionaire.

Investing

• The Dividend Guy presents The Metamorphosis From Mutual Fund Investor to Dividend Investor posted at The Dividend Guy Blog.


• MoneyNing presents The Billionaire Investment Guru within Me Called Billy posted at Personal Finance Blog by Money Ning.

Holidays

• wealthy_1 presents The Giving Tree posted at collectingmycash.


• Ryan Russell presents It’s All Cash For Christmas! posted at My Money Thinks.


• Silicon Valley Blogger presents A Fantasy Shopping Experiment posted at The Digerati Life.

Money Mistakes

• Eric presents My First Debt And A $5 Lobster posted at A Penny Closer.


• David presents Money Mistake Monday - I Didn’t Have Enough Taxes Taken Out Syndrome. posted at My Two Dollars.

Other

• JvW presents Commission Backslide posted at The Good Life on a Budget.


• Mr Credit Card presents Amex Global Assist Experience - Left my car key in the car! (Ask Mr Credit Card’s Blog) posted at Ask Mr Credit Card's Blog.


• Super Saver presents Our Journey To Financial Freedom #9 - The Professionals We Used posted at My Wealth Builder.

Thanks again for all the articles this week; I enjoyed reading all your stories. Be sure to submit your article for the 38^th edition next week.

And the lightbulb goes on...

Last month, I wrote about the allocation of my budget to different categories, and how it differs from my "ideal" allocation. One of the biggest points that stood out for me was that I use 12.9% of my gross income for debt repayment.

Get Rich Slowly has a review today of the book All Your Worth, and there's a point made that really jumped out at me. The target budget allocation recommended in this book is 50% for "needs", 30% for "wants", and 20% for savings. The big eye opener for me is that they include debt repayment in the savings category.

This concept of debt-reduction-as-savings isn't exactly a new idea to me, but it doesn't seem to have sunk in, because I list my debt repayment under my "needs" category. If I look at it as part of my savings, then I am actually saving 22.3% of my gross income (9.4% actual savings; 12.9% debt reduction). I think it's fair to look at it this way, for a few reasons:

• These debts represent money that I've already spent, so I'm really saving up for these purchases retroactively


• Every dollar that I pay toward debt reduction is a dollar that my future self won't have to pay (actually, it's more than a dollar that my future self won't have to pay, because every dollar that I don't pay now will accrue interest over time)


• Once the debts are fully paid off, this is money that can be redirected toward "real" savings

So my budget allocation is actually a bit more in line with my target allocation than I thought.

December surprises

I've written a couple of times about planning for holiday spending. In previous years, I always "planned" my holiday spending by working out how much my year-end bonus would come to after taxes, and ensuring that my total spending did not exceed this amount. While this approach technically adheres to the "spend less than you earn" commandment of personal finance, it isn't exactly the best way to stay in control of your finances.

This year, I've been saving up funds specifically earmarked for the holidays, with the goal of not needing my bonus to pay for any of my holiday expenses. If all goes according to plan, my holiday purchases will all be bought and paid for before my bonus even hits my chequing account. We've done a good chunk of our holiday shopping this weekend, and we look to be on track to keep things under budget this year. That is a great feeling.

This afternoon, we were at a birthday party for a friend's 1-year-old, and we were talking with one of Ms. Loonie's closest friends and her husband. After a little while, the subject suddenly turned to New Year's plans, and what we are planning for ringing in the new year.

When it comes to New Year's celebrations, Ms. Loonie and I generally have a nice dinner with friends (usually at a friend's house), and spend the evening chatting and listening to music. It's pretty low-key, but it can be a lot of fun. Well, Ms. Loonie's friend suddenly decided today that we should all go away somewhere for New Year's. The current proposal is Mont Tremblant (a ski resort in Québec).

Now, our plans for the holiday season have not made any allowances for taking a ski trip to Québec. We simply haven't budgeted for this, and we really can't afford it at this point. It's frustrating that this is being brought up now; if we had known a few months in advance, we might have been able to save up for it, but with less than a month's notice, there's not much we can do.

I think we'll be passing on the ski trip, unless we find a really spectacular deal that will let us do this on the cheap.

It's funny how full of surprises the holiday season always turns out to be.

November update

Well, November is over. Interest has now posted to all my accounts, so it's time for my month-end review.

First off, here's how I did with my November goals:

• Grow my Emergency Fund to $1,100 - I met this goal, ending the month with an Emergency Fund of $1,104.62. Part of this was a $13 referral bonus for referring Ms. Loonie to ING.


• Finish November with $200 in my "short-term savings" fund - Ran into some trouble with this one. I had to use these savings to cover some expenses. This is really meant to be my "fun" money, though, so if I used it to catch up my Emergency Fund or debt reduction, then I don't view that as a failure.


• Reduce my revolving debt to $23,850 - I missed this by about $190. Ms. Loonie was planning to give me some money toward our Michigan trip, but some things fell through, and she wasn't able to. It's a minor setback, but we still made good progress, reducing revolving debt to $24,048.55.


• Blog 30 times in November - I nailed this one with a total of 32 posts in November. Now, whether you would consider all of those quality posts...


• Review two chapters of Getting Things Done - I just snuck this one in under the wire with last night's post. Follow along with my entire review here.


• Continue to blog once per week about productivity - Counting my GTD posts, I had 8 productivity-related posts this month, with 4 of them not involving my GTD review. So, on average, I got one per week, even if there was a week there with no productivity posts.

Now, on to my month-end update:

Assets:
Online Savings - $2,155.74
Self-Directed RSP - $39,479.44
Employer Group RSP - $2,175.00

Debts:
Credit Cards - $3,007.65
Line of Credit - $21,040.90
Student Loans - $30,637.99

Net Investable Assets: ($10,876.36)
Net Liquid Assets: ($52,530.80)

I grew my liquid savings considerably, mainly through Freedom Account contributions. However, the market simply hammered my retirement investments this month, so my investable assets basically held steady. Debts are down by $1,648.07, so I had increases of $1,623.59 and $2,787.94 in my net investable and net liquid assets, respectively. My NetworthIQ profile has also been updated (including loose cash, home, car and mortgage).

Finally, let's get down some goals for December:

• Grow my Emergency Fund to $1,160 (currently at $1,104.62) - I'm not really stretching this one this month, because of the holidays


• Reduce my revolving debt to $23,400 (currently at $24,048.55) - This basically means no new debt from holiday shopping. I'm counting on you, Freedom Account...


• Blog 25 times in December - I was going to repeat November's one-a-day goal, but time will be tighter with holiday preparations


• Finish my review of Getting Things Done - I want to review the other 12 chapters in the book this month


• Continue to blog once per week about productivity

If I can meet these goals, I'll be a happy camper heading into the new year.