Thursday, January 31, 2008

Getting Things Done review: Chapter 3

Getting Projects Creatively Under Way: The Five Phases of Project Planning

Initial expectations

In chapter 2, we defined a project as any "open loop" that requires more than one action to get it "done". This chapter should go into more detail about how to deal with these multi-step projects. At the end of the chapter, I should know what to do when a "project" lands in my inbox.

Chapter Summary

Whereas the previous chapter took a "horizontal" aspect of productivity, by defining a framework for capturing and dealing with all the "stuff" in your life, this chapter delves into the method behind detailed project planning. This requires a more "vertical" view. Here, Allen presents us with the five phases of project planning.

The Natural Planning Model
  • Defining purpose and principles - This is the starting point. Before progressing any further beyond the identification of a project, determine why you are doing it, and the standards and values with which you are ready to work. This step defines success, creates decision-making criteria, aligns resources, motivates, clarifies focus, and expands options. If you don't know why you're working on a project, then it will be difficult to complete it effectively.

  • Outcome visioning - Here, you develop a focus on the outcome you are looking for from the project. Essentially, take a view of the project from beyond the completion date, and then envision a "wild success" outcome, in as much detail as you can imagine. This will develop a picture of what you are working toward.

  • Brainstorming - This is the idea-generation phase of planning. Having defined the purpose of the project, and the desired outcome, start throwing out every idea that occurs to you. This step is really a purge of everything floating in your mind that may be related to the project; you'll evaluate the individual ideas in the next step. Just throw everything out there, without judging or criticizing.

  • Organizing - Here we sort through the ideas that were captured in the previous step. Look for natural patterns and relationships, and sort the information accordingly. The level of detail required here will be different in every case.

  • Identifying next actions - Finally, we get to making decisions on allocating resources to get the actual work done. In some cases, all the "moving parts" defined in the organizing phase will have a clearly defined next action; in others, the next action will be to do more planning.
Allen contrasts this planning model with the unnatural, or "reactive" planning model, which is essentially the exact opposite: start with action, and work your way back to the purpose. This reactive approach is counter-intuitive and counter-productive, yet it is all too often the default method used in business contexts. Following the natural model uses the way the brain is used to working to get a project effectively under way.

Did this chapter deliver?

This chapter seemed fairly dry, but it was very effective at laying out the steps in planning a project. It was interesting to me to see the reactive planning model laid out, as I can think of dozens of cases where I've seen this unnatural approach used at work. Contrasting the natural and reactive models really drove home the effectiveness of the natural model.

It's good to get a sense for the "vertical" aspect of GTD, as I expect much of the book will focus on the horizontal capture-and-action cycle of dealing with work across all your projects.

Want to read more?

Go to my GTD review index page.

Finally checking my credit reports

Well, I've written before about the options for Canadians to obtain a copy of their credit report, and I decided to put my money where my mouth is, and request my own report.

Some quick research online revealed that both Equifax and TransUnion offer the option to request the report by phone. Here are the numbers to call:
  • Equifax: 1-800-465-7166

  • TransUnion: 1-800-663-9980
I've called each of these numbers, and as of today, they do indeed allow you to request your report by phone.

Here's the catch (at least for me): neither of these agencies has my current address on file, so I need to send the old-school paper request to obtain my report. Equifax at least lets you fax the request (514-355-8502), but TransUnion only accepts paper requests by mail. It looks like Northern Credit Bureaus allows you to fax your request as well (1-800-646-5876).

I'm glad that I decided to check my report, because now at least I know my address is out-of-date. The fact that any of my information is inaccurate has been an eye-opener to be more vigilant with checking my credit. I think I'll start doing a review once per year.

Let's see how the rest of the report stacks up.

Staying on top of the Freedom Account

I've written several times about my use of a Freedom Account to budget for less frequent expenses. This piece of my personal finance arsenal has been invaluable in keeping me on track with my debt reduction. I've recently set up an improved spreadsheet to track the funding of my Freedom Account, specifically to track the balances in the individual categories. This has helped me to stop plundering the account whenever something comes up; I now have a clear picture of exactly how much is available in each category, and I can see where I have the ability to "borrow" from myself if something unexpected comes up.

The start of the new year has brought with it a number of subscription renewals and annual fees, and I'm easily able to cover these, thanks to the "Subscriptions" category in my Freedom Account. I'm able to fork over $87 for my passport renewal without batting an eye, because I've saved up for it. I was recently able to buy a new toner cartridge for our printer because I'd saved up for it. A recent bout of preventive maintenance on the Looniemobile was easily managed because I'd saved up for it. All of this is done as part of my regular bi-weekly budget, by paying myself first and diverting funds into the appropriate savings accounts.

I've created my own spreadsheet to track the categories in the account, and this suits my needs perfectly. If you're not inclined to build your own, however, you can check out the resources available at Money Musings. This site has some great spreadsheets available, both for free and for a small price. I recommend checking it out.

Complexity of personal finances

As I've mentioned previously, I'm working to put together a user's manual for our finances. I've stolen liberally from Blueprint for Financial Prosperity in terms of the specific details of the guide. One item in particular that's taken a lot of effort is the development of an account linkage map. Basically, I'm trying to map out in a diagram all of the electronic linkages between our various accounts. Here are some examples of what I'm talking about:
  • Which accounts are set up for bill payments to credit cards?

  • Which online savings accounts are linked to which chequing accounts?

  • Which accounts can be used to contribute to retirement accounts?
At the moment, this map is a bewildering flowchart, with a noodly mass of arrows criss-crossing each other.

As frustrated as I get untangling this mess, however, my list of 25 accounts is nothing compared to My Dollar Plan and her portfolio of 181 financial accounts. That is one seriously pimped system, with fingers in several credit card arbitrage pies. The thought of trying to map out this system in some sort of graphic form makes me a bit nauseous. Kudos to her for making it work, though.

Wednesday, January 30, 2008

Not paying attention can cost you.

Many credit cards offer Extended Warrenty and Purchase Protection as "built-in" features of the card. I've known about these features for years, but I've never really taken the time to investigate the details. Here's what I've found:

Extended Warranty

This protection extends any manufacturer's warranty by up to one year, for most purchases made using the card. If you use your card to buy a product that has a one-year manufacturer's warranty, then the card automatically provides an extra year's warranty after the original coverage expires. This is handy if, for example, you buy a laptop with a one-year warranty, and a manufacturing defect manifests fifteen months after the purchase. It's not covered under the manufacturer's warranty, but your credit card comes to the rescue. In most cases, you don't even have to do anything to register for this extended coverage; just call your card provider when the problem develops, and they'll send you the appropriate claim forms.

Purchase Protection

This protection covers most purchases made using the card against theft or damage within 90 days of purchase. If you drop and break your iPod one month after buying it, the card provider will pay to have it repaired or replaced. The interesting thing about this coverage is that, while Extended Warranty protects you against issues that are the manufacturer's fault, Purchase Protection can protect you against things that are your own fault. There are exclusions and limitations, but basically this coverage ensures that you can enjoy your purchases for at least three months.

About a year ago, I bought myself a 19" widescreen LCD monitor to replace an aging 17" CRT, and sat back to enjoy my newfound desk space. Six weeks after my purchase, however, a cabinet installed above my desk pulled free of its wall anchors, and collapsed on top of the monitor. After the dust settled, I determined that the monitor was still in fine working order, despite significant scratches and scuffs on the screen. I grumbled and cursed, installed stronger wall anchors to re-hang the cabinet, and resigned myself to the fact that, until I could afford a replacement, I would make do with my battle-scarred monitor.

Looking through my MasterCard's terms and conditions today, it occurred to me that this incident likely would have qualified for a Purchase Protection claim. I can't be entirely sure, without having gone through the claim process, but it seems that this kind of accident is exactly what the insurance is meant to cover. If I had been more aware of my rights when this happened, I might have spent the last several months enjoying a brand new monitor.

It's to my credit that I have continued to use the banged-up monitor, rather than running out and throwing a replacement on credit, but it would have been nice to have an immediate "sorry-for-your-luck" payout to allow me to correct my mistake. You can bet that, the next time something breaks so early in its lifespan, I'll be all over the Purchase Protection folks.

Know your rights, and the coverage options that are available to you. You never know when you might need them.

Blogroll update

Well, I think I've answered yesterday's question about CMHC mortgage insurance. Sorry if I caused any panic, but it seems that your CMHC premium provides insurance for the life of the mortgage, so you are only ever required to pay it once.

This makes sense once you really think about it, but I had seen a post in the forums that made me wonder whether this was in fact the case. Fortunately, those forums were also able to provide me with the answer to my question.

I've added a number of blogs to my blogroll. These have been daily reads of mine for a number of months, and I finally got sick of typing the URLs by hand every morning, so here they are for your clicking pleasure.


Tuesday, January 29, 2008

Question for the readers: CMHC at mortgage renewal?

I have a question for those Canadian homeowners and mortgage experts out there.

As I've mentioned in the past, Ms. Loonie and I bought our condo using a CMHC-insured, high-ratio mortgage. We've since paid off our CMHC premium, and are now making progress on the "real" mortgage principal. Our mortgage will be up for renewal in June 2009.

My question is this: is there a possibility that we will have to pay another CMHC premium when we renew our mortgage, if we have less than 20% equity at renewal?

I'm hoping that our initial premium covers us for the entire life of the mortgage, and not just for the initial term. I just haven't been able to find a definitive answer.

I'd appreciate any insight you can provide.


I found the following via Red Flag Deals:

Q: When switching my mortgage to a new lender, will I need to pay CMHC insurance fee again? Are there any expenses I need to be aware of?

When switching an insured mortgage, CMHC insurance number will simply be transfered to a new lender at no cost to you. Typically on a mortgage switch lenders will also cover your legal and appraisal expenses for you.
Based on this, it seems that we're insured for the entire life of the mortgage, based on our initial premium. Does that sound right?


This morning, I realized that yesterday's gloating about my astounding feats of prediction was actually the 150th post at Loonies And Sense. Just over two months ago, I celebrated my 100th post, so the pace has definitely picked up around here. I'm currently aiming for an average of one post per day, and over time, hopefully this will evolve into actually posting every single day. I can dream...

In other news, I received my 50th RSS subscriber yesterday. That puts me, in absolute terms, halfway to my goal of 100 subscribers in 2008. The actual year-to-date increase from 35 readers to 50 puts me at about 23% progress, less than one month in. That's not bad. With any luck, I'll have to revise this goal to make it more of a stretch sometime in the spring.

All in all, not a bad start to the day.

Monday, January 28, 2008

Did I call it, or what?

Behold the awesome foresight of Loonies And Sense! Four days ago, I predicted that other Canadian online savings accounts would follow HSBC's lead and lower their rates. As of today, ING Direct and ICICI Bank offer rates of 3.65% and 4.10%, respectively. That's a 0.10% drop for ING, and 0.15% for ICICI. Canadian Tire is still hanging in at 4%, but I don't know how long that will last.

OK, so it's not exactly rocket science to predict that banks will lower their savings account rates in response to a rate cut by the BOC, but it's interesting to see how the various institutions respond. Since November 2007, here is the trend in Canadian interest rates:
  • BOC down 0.50% from 4.50% to 4.00%

  • Bank prime down 0.50% from 6.25% to 5.75%

  • HSBC down 0.50% from 4.25% to 3.75%

  • ICICI down 0.40% from 4.50% to 4.10%

  • ING down 0.10% from 3.75% to 3.65%

  • Canadian Tire steady at 4.00%
Aside from HSBC, the online Canadian banks seem to be trying to avoid cutting rates as much as possible. I wonder how this will play out?

A not-so-frugal weekend

A friend of ours gave us tickets to Friday's Raptors game for Christmas. We had a great time at the game, and the Raptors beat the Bucks 106 to 75. In addition to being a 31-point lead, this score meant a free slice of pizza for everyone in the audience (if the Raptors score more than 100 points, then you can redeem your game ticket for a free pepperoni slice at Pizza Pizza).

The tickets, being a gift, were free, but Ms. Loonie and I shared four beers and an order of popcorn at the game, which set us back $48. We then met up afterwards with the friend who gave us the tickets, and treated her to drinks, for another $47. Ms. Loonie and I then went out for a nice sushi dinner on Saturday night, which added $200 to the toll.

Saturday's dinner was a planned expense, as a sort of belated Christmas gift to each other. The food was delicious, and it's the first extravagant meal that we've had in months. We really enjoyed the meal, and had specifically saved up for it, so I have no regrets about that.

Friday's incidental costs, on the other hand, have me feeling a little sheepish. It's amazing just how quickly and easily you can blow through $100 when you're not looking.

Thursday, January 24, 2008

Feeling the Bank Of Canada rate cut

By now, I'm sure you've heard that the Bank Of Canada cut its rate by 0.25% this week, and the banks have followed suit with a 25-point cut of their own. Our mortgage and student loans are all fixed-rate loans (our mortgage is up for renewal next year), but my line of credit and savings accounts are subject to the whims of the banks and changes in prime rate.

Here's the impact of this latest cut:
  • My line of credit interest rate dropped from 6.25% to 6%, which will save me money every month.

  • My student loan, currently at 5% interest, remains below the 5.25% that I would be able to get from my bank today; Ms. Loonie's loan is currently at 5.75%, so it may be worth looking into renegotiating this loan.

  • ING Direct, Canadian Tire Financial Services and ICICI Bank have all held steady through this most recent rate cut, with savings account rates of 3.75%, 4% and 4.25%, respectively.

  • HSBC Direct have dropped their rate again from 4% to 3.75%. This puts them on par with ING in terms of rate, so their abundant access methods are now the only reason for keeping my Emergency Fund with them. This is interesting, because they have gone from having one of the highest rates to having the lowest rate out of the primary players in Canada.
Overall, the rate cut is beneficial to me, especially given that my debts are a lot larger than my savings. This really just gives my debt reduction a boost, as more of my payments will go toward principal. I'll be interested to see if the other savings accounts lower their rates to follow HSBC.

Payday update

With the year's second payday under my belt, I am firmly planted in 2008. Today's paycheque shows me exactly what I can expect in after-tax income for the next few months, so I can tighten up the details on my budget. When I estimate taxes on future income, I generally make some fairly pessimistic assumptions, so my net income actually came out a bit higher than I was expecting. Of course, once my 2008 benefits kick in, I'll see some increased deductions, but for now I'm sitting pretty.

My progress bars and NCN Network chart have been updated. I've paid $90 towards my $2,000 goal for charitable giving for the year, and I've already met my January goal for a $1,220 Emergency Fund. My debt reduction is on track so far, with my pre-interest revolving debt sitting at $22,887.60. This is below my January target of $22,900, but when interest posts to my line of credit, it will put me back above target unless I throw a bit more at my debt. This debt total includes the $148 balance transfer fee from my recent 0% MBNA shenanigans, which will need to be paid next month.

So far, so good on the financial front.

Wednesday, January 23, 2008

Building a chequing cushion

I really have a feeling that 2008 could be the Year of the Loonie. I've set my formal goals for the year, but I'm also developing some informal projects as I go along. One of these is to pull myself further out of my paycheque-to-paycheque rut by developing a chequing cushion. I stated last week that I would be building up this cushion, so I thought I'd go into some detail as to exactly what this means, and how I plan to go about it.

What is a chequing cushion?

A chequing cushion is a sum of "extra" cash that I will leave in my chequing account(s). This money is separate from my Emergency Fund, but serves much the same purpose: it is meant not to be touched unless absolutely necessary. This will be useful under the following circumstances:
  • I incur a "temporary" expense, i.e. one for which I will be reimbursed. The cushion funds provide immediate access to the cash I need. For example, if I need to cover a medical expense, I can borrow the funds from my cushion until I file the claim with our insurance company.

  • I incur an unexpected expense. For anything that falls outside the scope of my regular bi-weekly budget or Freedom Account savings, the chequing cushion would be the first place I would look to cover the expense. If the cushion proves too small, then I would look to the Emergency Fund to close the gap.

  • Greater liquidity will give me more flexibility around my cash flow. Having cash on-hand, outside of my Emergency Fund, will allow me to "borrow from myself" to take advantage of opportunities (such as a sale on an already-planned purchase), or survive small crises (such as a delay in receiving my paycheque).
Essentially, this cushion will be looked at either as a temporary Emergency Fund, or as an extension of my formal Emergency Fund. The key to using this cushion effectively will be in training myself to know when my account is "empty", since there will always be funds in the account, even though the cushion is off-limits.

What is my ideal chequing cushion?

Ideally, I would like to have two weeks' expenses as a cushion, in addition to my formal Emergency Fund. This would mean that, without touching the Emergency Fund, I have two weeks to respond to any disruption of my cash flow. When I reach this point, I will know that, if my pay is delayed, or an expense comes early, I can cover it without depleting my Emergency Fund.

How will I get there?

Two weeks' expenses is not a neglibible sum, and it will take a while to get to that amount. I've divided the target into some different "segments", in order of their priority:
  1. Ms. Loonie's expenses - I've already discussed the fact that Ms. Loonie and I approach our credit card payments differently, and I really want to get her ahead of the payment cycle. Therefore, the first priority is to save up one month worth of Ms. Loonie's expenses, in order to get her in sync with my own pay-as-I-go approach. We'll work together to determine exactly what this number should be.

  2. My discretionary expenses - Once Ms. Loonie's expenses are covered off, I'll focus on building up enough to cover my discretionary spending, which includes wardrobe, gifts and "fun". This may seem counter-intuitive, but I'm taking a page from Dave Ramsey's book here, by tackling the less important, but more achievable goal of discretionary spending first, and then moving on to my committed expenses. Obviously, in the event that we hit a major bump in the road, the committed expenses will be given first payment priority, but while I'm building up our cushion, I want to be able to check steps off the list, to mark my progress.

  3. My committed expenses - Once I've got my discretionary spending covered, I'll build the cushion up to the final stage of being able to cover all of our committed expenses, including mortgage and other debt payments, groceries, etc.
As to how long this will take, that will depend on the exact amount that we decide on. The saving approach is basically a savings snowball, where my progress will accelerate as I get closer to the goal. It will be a long undertaking, but it will provide significant peace of mind. This is all about forward progress, and knowing that I'm in a slightly better position with every bi-weekly contribution will be a huge motivation.

Do you keep a chequing cushion? How have you gone about setting it up?

Tuesday, January 22, 2008

Annual benefits enrolment

Today was our deadline to enrol for employee benefits. My employer offers a pretty good health plan, and I've kept my coverage at the same level as last year.

This is one of those "hidden" spending areas, where I make annual choices regarding my level of coverage, and then have the corresponding amount deducted from my paycheque for the rest of the year. It's easy to forget that my bi-weekly benefit deductions represent actual spending on my part, and it's even easier to forget that my employer's contribution to my benefits represents part of my annual compensation.

Our "benefits year" runs from March to February, so starting on March 1, I'm planning to track all of our health-related expenses and reimbursements, in order to determine what sort of value we're getting from our coverage. I suspect that, between our prescriptions, massage therapy and vision care, we're getting more out of the plan than we put in, but I'd like to be sure.

Monday, January 21, 2008

Investing and Taxes

Until this year, I never really considered myself an investor. Even though I have been making bi-weekly contributions to an RRSP for the past seven years, I've only recently begun to think about how my investments are allocated, both across asset classes and across markets.

There are a couple of reasons for this:
  • The Employee Savings Plan under which I make my regular contributions has a two-year vesting period. This means that, until you've been enrolled in the plan for two years, you have to leave your shares untouched, or else you forfeit the employer's matching contributions. As a result, I spent my first two years deliberately ignoring my ESP account, and this habit survived beyond the end of my vesting period.

  • I'm in debt. This has automatically put me in the mindset of trying to reduce my debts, rather than grow my assets.
Because of my limited exposure to investing, I haven't had to deal with tax considerations around my investments, beyond declaring RRSP deductions on my tax return.

As I get my financial machine running more smoothly, I'm starting to see the light at the end of the tunnel, and am beginning to imagine myself having investments outside my RRSP. As a result, I need to wrap my head around the tax concerns faced by investors.

There are several ways to derive income from investments:
  • Interest income from bonds, savings accounts, etc.

  • Dividends paid to shareholders

  • Capital gains from the sale of investments (stocks, rental property, etc.)
These three types of investment income are treated very differently from a tax point of view, and I thought I'd go into the details.

Interest Income

The first type of income has the simplest, but least favourable, tax treatment. Essentially, every dollar of interest that you earn is treated as regular income, and added directly to your taxable income for the year. This means that, if you have a marginal tax rate of 35%, and you earn $100 in interest, you will pay $35 in tax.

In Canada, interest paid on a mortgage for your primary residence is not tax-deductible. In general, interest paid on loans is only tax-deductible if the loan is used to buy investments. There is also a technique, known as the Smith Manoeuvre, which can convert your primary mortgage interest to tax-deductible status through leveraged investing.

Dividend Income

Dividends paid by Canadian corporations have a favourable tax treatment, although the formula for calculating dividend tax is quite convoluted.

Dividend income is "grossed up" by 45%, so that a $100 dividend adds $145 to your taxable income. If your marginal tax rate is 35%, then you pay $50.75 (35% of $145) on every $100 in dividend income. The flip-side, however, is the dividend tax credit. This is made up of a 27.5% credit at the federal level, as well as a provincial credit ranging from 8-18%. The Ontario dividend tax credit for 2008 is 10.15%, so the credit for a $100 dividend would come to $37.65. This means that the net tax on dividend income for our Ontario taxpayer at 35% would be $13.10. In low-income tax brackets, this net dividend tax can actually be negative, which can offset other taxes owed.

Capital Gains

A capital gain results from selling an investment from more than you initially paid for it. 50% of capital gains are added to your taxable income, so if your marginal rate is 35%, then you will pay $17.50 in taxes on every $100 in capital gains.

The nice thing about capital gains is that, with certain restrictions, they can be offset by capital losses (resulting from selling investments at a loss). So if our 35% taxpayer had a $200 capital gain and a $100 in capital loss, they would pay $17.50 on the $100 net capital gain.

Note that, just as mortgage interest on your primary residence is not tax-deductible, the sale of your primary residence does not result in a capital gain (or loss).

Diversified Income

Just as it's recommended to hold diverse investments to control risk, it's recommended to hold your income-generating investments in the most tax-efficient vehicle. Of the three types of income, interest is the least favourable, as seen below for an Ontario taxpayer with a 35% marginal rate:
  • Interest: $35 tax per $100 income

  • Dividends: $13.10 tax per $100 income

  • Capital Gains: $17.50 tax per $100 income
For this reason, interest-generating investments should only (or at least primarily) be held in a tax-sheltered account like an RSP. Since income from an RSP at retirement is already fully taxed at the marginal rate, interest income is no less favourable than dividends or capital gains in this kind of account. In a taxable account, however, dividends are the most tax-efficient type of income, followed by capital gains, so a taxable account is an ideal place for dividend-paying stocks.

Home Show temptation

Yesterday afternoon, Ms. Loonie and I went to the Metro Home Show. We had some coupons for $3 off the cost of admission, so we thought we'd go check out the exhibits. I've never been to the Home Show before, so I wasn't quite prepared for the level of temptation to which I was about to expose myself.

From granite countertops, to hand-made furniture, to state-of-the-art bathroom fixtures, there was no end to the stuff we simply had to buy.

So we bought some crêpes.

We left the show with a book full of business cards for various kitchen and closet installation outfits, and with lots of ideas in our heads for improvements to make to our condo, but we avoided the temptation to make any major impulse purchases.

The costs for the outing:

$18.00 for 2 tickets
$8.90 for 2 crêpes

$26.90 total

That's not too shabby, considering we could easily have spent hundreds of dollars on furniture.

Now, let's see if we can avoid diving head-first into an expensive renovation...

Friday, January 18, 2008

The joys of merging finances

I'm currently on a kick of improving the level of communication between myself and Ms. Loonie regarding personal finance. As part of this, we're looking at combining our finances. Currently, we hold a joint chequing account, our mortgage is a joint account, and Ms. Loonie is an authorized user on one of my credit cards. Aside from that, however, we have separate accounts.

I don't believe that a couple should only hold joint accounts. It's nice, for example, to be able to use our respective credit cards to shop for gifts for each other, without giving away the surprise. However, I absolutely believe that a couple needs to have transparency around their finances. To have one partner hiding debt from the other is a recipe for disaster.

Ms. Loonie and I have decent communication in this area, but it tends to be mostly in the form of short "did you pay the bill?" conversations, just to make sure we're keeping on top of things. Beyond these basic checkpoints, we don't often discuss our respective budgets.

One thing has come up in our renewed discussions around finances: the two of us have different approaches to paying our credit card bills. Although neither of us carries a revolving balance on our cards*, she uses each month's income to pay off the previous month's bill. I, on the other hand, set aside cash every time I make a credit card purchase, and use this accumulated cash to pay the bill when I receive it.

From what I've read, the ideal approach to budgeting is to use last month's income to cover this month's spending. Neither of us is at this point yet; I'm using this month's income, and she's using next month's income. This poses a problem for developing a consolidated budget, and I'm not sure exactly how to tackle this.

One solution, building on yesterday's post, is to build up a cushion of one month's worth of Ms. Loonie's discretionary income, and use this to get "ahead" on her credit card. It won't get us to the one-month-ahead ideal, but it will at least get us in sync with each other. I think we'll try to go this route. Until we get there, I'm not sure how we can put together an effective household budget.

Do any of you have experience with this?

* I currently have most of my revolving debt on a 0% credit card, and the rest is on my line of credit. Our regular-use credit cards are paid in full at the end of the month.

A dose of reality

It's been a bit painful watching the slide in the markets over the past month. So far, my retirement investments have dropped by more than $3,000 in 2008. That's not an easy thing to watch. Granted, I likely have 30 years of market growth to get my money back, but it's hard not to cringe at such a big drop.

Until last fall, I was an extremely passive investor. That's not to say that I had any kind of diversification or strategy; quite the opposite. My approach to investing was to have 6% of my bi-weekly paycheque deducted before taxes, and used to buy my shares of my employer's stock in a group RRSP. I left the shares where they were, so technically I was a "buy-and-hold" investor, but I was really walking a tightrope by holding all of my retirement savings in my employer's stock.

In September, I diversified my investments using low-cost index funds. Since then, I've generally seen better performance than in my old, concentrated portfolio, and I'm very happy with the change. However, it's frustrating to have made a measured, informed decision, and still end up losing so much ground.

John Bogle says that anyone who can't imagine a 20% drop in the markets shouldn't invest in stocks, and my gut reaction to my recent investment performance really underscores this point. I've lost about 8% of my portfolio's value in less than three weeks, and this is turning into a great test of my ability not to panic. I'll be invested in these markets for decades, so I need to learn how to weather some bad times.

The silver lining is that, with dollar-cost-averaging through bi-weekly contributions, I can likely look forward to a period of low-cost purchases in the near future.

Thursday, January 17, 2008

Another look at the treadmill

Back in August, I wrote about my frustration with the paycheque-to-paycheque treadmill, and the feeling that, despite my efforts, I still seemed to be struggling. My question at the time was whether you ever actually step off the treadmill, or simply get used to the effort it takes to stay on.

Since that post, my situation has improved quite a bit. My Freedom Account is doing its job by covering irregular (non-emergency) expenses as they come up. My Emergency Fund can comfortably handle any emergency under $1,000, my debts are shrinking, and I'm generally sticking to my budget.

And guess what: it is starting to feel easier.

Oh, I still worry about coming in under budget, and sometimes the last few days before payday can feel like an eternity, but I definitely feel less pressure now than I did last summer. A few things have contributed to this:
  • I've converted my budget from monthly to bi-weekly, to be in sync with my paycheques. This means that, every time I get paid, the same amount gets paid toward bills, shunted to savings, and left in chequing as spending money. The days of "OK, this is the first pay of the month, so I have to send $400 to my Freedom Account" are over, and the volatility is gone.

  • I've "promoted" more of my regular expenses into my Freedom Account. This means I don't need to remember not to spend that $45 that's sitting in chequing, because it's earmarked for widgets.

  • I've improved the tracking of my Freedom Account balances (inspired by Trent and Michael). This has stopped me from over-using these savings, and gives me a clearer picture of what I can actually afford. Without knowing what your budget is, you can't possibly stick to it. If I want something for which I haven't yet saved enough, I wait. If I need something for which I haven't yet saved enough, I look to the Emergency Fund.

  • Speaking of the Emergency Fund, I've surpassed the magical $1,000 threshold, so my "bare minimum" cushion is in place. That helps a lot with the mindset.
Personal finance is an interesting topic, because it really requires you to walk a fine line. Automation is always encouraged, in order to take emotion and discipline out of the equation, but it's also important to stay engaged enough that you don't become complacent. You should always know what's going on, and look for areas for improvement, but you also want to put things on auto-pilot. That can be a tricky balance to strike.

In the interest of stretching myself out of complacency, I have a few tweaks that I want to make to my finances:
  • Create a chequing "cushion". This will complement my Emergency Fund, and essentially give me a buffer to cover any temporary expenses that may come up. An example is a health expense where I am expecting a reimbursement. Basically, this would be my first line of defense for "out-of-budget" expenses. I have to work out how big this cushion needs to be, and train myself to know I'm effectively "broke" when the cushion is all that's left in the account.

  • Start snowflaking. One idea I've been toying with is to round up my purchases to the next dollar, and snowflake this extra to debt. I'd like to try this for a month, and see what the result looks like.

  • Work with Ms. Loonie to develop a household budget. I currently track only my own spending. Although Ms. Loonie is very responsible with her money, I think I need to stop thinking of our budgets separately. I've already talked about improving our financial communication, so let's put my money where my mouth is.
Let's see if we can get this treadmill to slow down even more.

Stress and the clean slate

2008 marked the first time in my career that I started a new year without a hefty Christmas credit card bill hanging over my head. Thanks to my Freedom Account contributions, I was able to pay for all my holiday purchases with cash. In the past, my January bonus was always earmarked to paying off Christmas debt, but this year it actually ended up having no strings attached. I decided to defer most of it as an RRSP contribution, to boost my retirement savings and help this year's tax return. The tax refund, in return, will be used to pay down my revolving debt.

The feeling of actually being able to decide what to do with my bonus was very empowering. Basically, this is the first time I've received a bonus that was not spent in advance. It makes me see the bonus more as a financial "shot in the arm", and that makes me appreciate it more.

Even with this positive feeling, however, I've had to make a shift in my budgeting and cash flow with the start of the new year, given the renewed CPP and EI contributions. This is hardly an insurmountable obstacle, but it does require an adjustment, and this sort of adjustment inevitably comes with a little stress.

What occurred to me this morning, though, is the power that comes with having a fresh start. Last year, I started my financial makeover in May, and in eight months I was able to pay off $4,572 in revolving debt, establish a $1,000 Emergency Fund, and manage a cash-only Christmas. Just think what I can do when I'm starting a new year with my eyes wide open.

Whenever I start to feel stressed about sticking to my budget or keeping up my debt reduction, I'll think of how much better off I am starting 2008 than I have been in previous years, and realize that I've given myself the tools to get where I need to go.

Friday, January 11, 2008

Transfer complete, pay down when ready.

I wrote in November that I had applied for an MBNA MasterCard with a 15-month, 0% balance transfer offer. Well, I've received and activated the card, and last Friday I requested the a balance transfer of $14,800 into my chequing account.

I've now received the funds, and made a $14,800 payment to my line of credit. This effectively converts $14,800 of my revolving debt to interest-free debt. The terms of the balance transfer are as follows:
  • One-time balance transfer fee of 1% of balance ($148 in my case), which will be part of the balance due on my first payment

  • Monthly minimum payment of $10

  • Provided I keep the account in good standing, my 0% APR will end in March 2009 (at which point I will use my line of credit to pay off the remaining balance on the card)
The $148 fee means that my $14,800 has actually been converted into $14,948, but this move should cut my monthly interest charges by nearly 75%, so in the end I'll more than make up for this one-time charge.

The most important thing now is for me to keep up my reduction of my line of credit debt. If I take this opportunity to rack up new debt, then this will all have been for nothing. I'll be keeping my bi-weekly debt payments at the same level, but with the smaller interest charges, I'll make much faster progress. This is essentially a debt snowball.

If I manage to wipe out the line of credit before the 0% offer expires, then I'll start socking away my debt payments into a savings account, for some short-term credit card arbitrage. In the meantime, however, I'll enjoy the tax-free interest savings on my line of credit.

Thursday, January 10, 2008

Developing a user's manual

Five Cent Nickel and Blueprint For Financial Prosperity have each set a goal for 2008 to develop a user's manual for their respective financial lives. The idea is to have a consolidated list of the accounts and policies that make up your finances (think retirement, savings, investments, debts, insurance, etc.), along with account numbers, passwords, and instructions on how to access the accounts. This is helpful for anyone, to avoid having to remember your own account information, but is particularly useful in the event that something happens to the household's primary financial manager. I'm the one in our household who manages the finances, and I would really like for Ms. Loonie to have easy access to this information if something happened to me.

Interesting Money wrote in November about several approaches to sharing this information with your spouse, and these posts all have me thinking about exactly how to set this up. I'd like to combine this idea with Big Cajun Man's periodic status reports, to work toward a general goal of improving the financial communication between Ms. Loonie and myself in 2008.

How do you make the progress bars?

I've had a few requests from other bloggers on how to set up progress bars like the ones in my sidebar. It's actually quite simple. I use Blogger to host my blog, so I'm not sure if there's another way to manage this using another service like WordPress, but I basically just insert a HTML/JavaScript widget in the layout, and then use the following HTML for each bar:
<b>Debt Reduction</b>
<div style="width:210px; height:18px; background:#e6e6e6; border:solid 1px #555;" class="goal">
<div style="height:18px; background:#5588aa; color:white; width:3.8%;" class="progress"><b>3.8%</b>
<div style="float:left;">$23,397.71</div>
<div style="float:right;">$14,000</div>

For those who aren't as familiar with HTML, let's walk through the details:
<b>Debt Reduction</b>
This is just the name of the goal, in boldface.
<div style="width:210px; height:18px; background:#e6e6e6; border:solid 1px #555;" class="goal">
This is the outer frame of the progress bar. Here, I've set it to be 210 pixels wide, and 18 pixels high. The background colour is coded as "#e6e6e6", which is just a shade of gray. For more on how to interpret HTML colour codes, visit W3 Schools.
<div style="height:18px; background:#5588aa; color:white; width:3.8%;" class="progress">
This is the progress bar itself. Here, I've set it to be 18 pixels high (just like the outer frame), and have a width of 3.8% of the outer frame's width. The colour has been set to "#5588aa", which is a greenish blue.
This is the text label to show 3.8% of progress, in boldface.
This simply closes the outer frame and progress bar objects.
<div style="float:left;">$23,397.71</div>
<div style="float:right;">$14,000</div>

This provides the starting and ending amounts, positioned immediately beneath the progress bar, and followed by a line break (indicated by <br/>).

Payday update

In case anyone hasn't heard, today is payday. That means that I've updated my progress bars and NCN Network chart.

It's nice to see some colour in the 2008 progress bars, which have been empty since last Wednesday. I've made my first debt payment and charitable donation of the year, and I was able to get my Emergency Fund most of the way to my January goal of $1,220. My year-end bonus arrived today, and even after diverting most of it to my employer's group RRSP, I have a little cushion money to work with in January. That's a nice feeling.

Wednesday, January 9, 2008

Foot, meet mouth.

A commenter today took issue with the wording of my post on CPP and EI deductions. Specifically, she was bothered by the following quote:
"Once you've reached the annual maximum, the deductions stop, so you effectively get a pay raise around half-way through the year. The problem is that, if you get used to this increased income, it's a bit of a shock to the system when the deductions start again in January."
This statement makes one fairly major assumption, that an individual's annual income is high enough to max out these deductions. The annual maxima for CPP and EI are based on employment income of $41,100 and $44,900, respectively. Therefore, if you make less than $41,100, then you'll be dealing with these deductions for the entire year, and never see the mid-year "raise" I mentioned.

As the commenter pointed out, more than half of Canadians have an income below this $41,100 threshold, so complaining about the "pay cut" I take every January is very insensitive: I'm essentially complaining about the high salary I make.

That was not my intent when I wrote the post; I was simply trying to look at the start of 2008 and all of the potential considerations that come with it. I wasn't really meaning to "complain" about the change, but rather take it as an opportunity to rein in our budget. However, I realize now that the post did carry a tone of arrogance and entitlement, and I would like to apologize for that.

Tina at Money Smart Life posted recently on the blessing of income tax, and I actually agree with this view. I'm extremely grateful for the opportunities that my job and my salary provide for me. My income gives me the means to correct my past mistakes (for which I am entirely responsible), and I am certainly not looking for pity. I just failed to get that across in this morning's post.

Holding pattern

I get paid every second Thursday, and my employer posts our pay advices online two days before our actual payday. This means that, on the Tuesday of every payweek, I can login to our HR site and check the amount of that week's pay. This is usually constant from one pay to the next, but as I mentioned in this morning's post, the first pay of the year is a bit of a question mark, because I don't know exactly what the CRA deductions will be.

I've already checked this week's pay advice online, so I have a pretty good idea of what to expect for the first half of the year. It's great to be able to check this in advance, because it helps to plan my cash flow over the next two weeks. I've set up my ING transfers, and worked out how much to allocate to debt payments, etc. I know how much is coming in, and I know how much is going out.

I just don't have the cash yet.

It's funny how knowing exactly what to expect can actually erode your patience. I really want to make the year's first update to my goal bars, and it's driving me nuts that I have to wait until tomorrow morning.

Apparently I'm a five year-old on Christmas morning.

Coping with the January pay-cut

For Ms. Loonie and me, tomorrow is the first payday of the new year. In Canada, the year's first paycheque is often substantially smaller than the last pay of the previous year, since it marks the return of our good friends CPP and EI. For those who haven't had the pleasure, these payroll deductions are used to fund government-provided pension and unemployment insurance, respectively. For 2008, the deductions are as follows:
  • CPP - 4.95% of annual earnings in excess of $3,500, to an annual maximum of $2,049.30

  • EI - 1.73% of annual earnings, to an annual maximum of $711.03
Once you've reached the annual maximum, the deductions stop, so you effectively get a pay raise around half-way through the year. The problem is that, if you get used to this increased income, it's a bit of a shock to the system when the deductions start again in January. Even if you have a year-end raise, unless it's an increase of 15% or more, your January paycheque will be smaller than its December predecessor.

How to deal with this "pay cut"? Ideally, you would base your spending around this diminished income, and have the discipline to save the extra that you earn after maxing out the deductions. Then, when January rolls around again, you're already spending less than you earn, and have built up a substantial cushion of savings. This takes a lot of discipline, but it puts you in great financial shape.

As for us, we have some room for reductions in several budget categories, so I'm making small cuts here and there to make up the difference. Since the Emergency Fund is already above $1,000, I'm reducing the bi-weekly contributions to $10. Our (modest) budget for eating out is also being cut. The good news is that, after having a cash-only Christmas, we don't need to spend January playing catch-up. I am also receiving my year-end bonus tomorrow, so that helps to ease the pain of a diminished paycheque.

UPDATE - The January "pay cut" only applies to Canadians who earn more than $41,100 per year. I completely overlooked this point when I originally wrote this post, and I should apologize for that. File this "pay cut" under "problems I'm fortunate to have".

Tuesday, January 8, 2008

Working toward an active 2008

One of my goals for 2008 is to lose 25 pounds. I'm carrying around more weight than I should, and as I move into my mid thirties, taking care of my health will become more and more important. I'm currently trying to put together a plan that will help me meet (and hopefully exceed) my 25-pound goal this year.

Ms. Loonie and I live in a condo that has access to a small gym. The gym has a few cardio machines, a universal-type weight station (for leg curls/extensions, butterflies, rowing, bench/seated press and leg lifts), a cable-crossover machine, free-weights, and a number of stability balls. That's not a bad setup for "free" (obviously we're paying for this indirectly through our maintenance fees), and it's an easy option for me to take advantage of. The key is to make myself use it: I need to make an appointment with myself to get down to the gym at a particular time of day several times a week. I'll have to figure out whether this is a morning time, or an evening time.

Between the gym and our squash court, I certainly have the means to get myself in better shape; it's just a matter of discipline. Over the past several months, I've really improved my financial discipline, and now it's time to do the same with my fitness.

Let's see how I do.

Wednesday, January 2, 2008

A nice start to the new year

I posted last month about a $1.25 mistake in managing my cash flow. Well, as expected, when I checked my bank balances online yesterday, I had been charged a $1.25 fee for going over my allowed debits for the month.

As I was tallying up my balances for my net worth update, I decided that I might as well try to get this fee reversed. So, I called up the call centre, and after a few minutes on hold (it is the first business day of the year, after all), I told my tale to a customer service rep, who was more than happy to refund the fee for me.

Net result: I finished 2007 $1.25 richer than expected.

It just goes to show that, if you want something, you might as well ask.

Goals for 2008

I've already posted my goals for January, so now it's time to post the more mid-term goals that I hope to accomplish this year. Here's what I've got in mind:
  • Propose to Ms. Loonie - I'm living with a wonderful woman, and I think it's time I took steps to upgrade her honorific. It's a little scary to write that one down (how did I become such a grown-up??), but nothing would make me happier than to make her my wife.

  • Reduce my revolving debt to $14,000 - This is a rough number, that should be a bit of a stretch, but I think I can get there. Once I've got my first couple of paycheques (with the renewed CPP and EI deductions), I'll have a better idea of how much I can put toward debt reduction.

  • Grow my Emergency Fund to $1,500 - Since I'm already above the $1,000 mark, my growth here will continue to be slow, but I think if I can make $1,500 by year-end, I'll be in very good shape.

  • Give $2,000 to charity - I have $45 of every paycheque automatically deducted for United Way donations, so this gives me $830 to make up. I should be able to manage that. It's still nowhere near a 10% tithe, but at least it's an increase from the $1,300 that we gave in 2007.

  • Grow the readership of Loonies And Sense to 100 RSS subscribers - This is essentially my "be a better blogger" goal. I don't have full control over this, but there are things I can do to make this happen. I'm currently sitting in the mid-30s, so if I keep writing stuff that people want to read, and keep working the link love, then I think I can get there.

  • Lose 25 pounds - I can certainly afford to lose at least this much, and I think it's a good goal to set. I need to make better use of the gym and squash court maintained by our condo corporation.

  • Adopt and maintain a version of Getting Things Done - I need to be more organized and productive. By the end of 2008, I want to be fully up and running with a personal system that will keep me on top of the tasks in my life, and help me in my career.
That, in a nutshell, is what I'm looking for in 2008. What are your goals for the year?

Goals for January 2008

I've decided that, instead of declaring each month's goals at the end of the previous month's recap, I'll start writing dedicated "this month's goals" posts. This will make it easier to refer back to the goals as I post updates, and it also allows me to go into more detail where appropriate.

Since this is the first month of 2008, I'll also be posting my goals for the year in a separate post.

Here are my goals for January:
  • Reduce my revolving debt to $22,900 (currently at $23,397.71) - I still have to see exactly what my take-home pay will look like in 2008, but I should be able to make this happen.

  • Grow my Emergency Fund to $1,220 (currently at $1,162.96) - This is a tiny stretch above my automatic bi-weekly contributions, but I want to keep some forward progress here, however small.

  • Blog 31 times in January - The holidays are over, so I'm shooting for one post per day.

  • Finish my review of Getting Things Done - I want to review the other 12 chapters in the book this month. For real this time.
That will make a good start to the year.

December update; 2007 in review

Happy New Year! The holidays are over, and we've all rung in 2008, so it's time for my month-end review.

First off, here's how I did with my December goals:
  • Grow my Emergency Fund to $1,160 - I made this goal almost without going above my $25 bi-weekly contributions, but with a small top-up, I ended December with $1,162.96 (including accrued interest). I deliberately set this goal at just above my auto-pilot amount, because of the financial strain of the holidays.

  • Reduce my revolving debt to $23,400 - Once again, I set this as an easily attainable goal, essentially saying "don't get derailed by Christmas". When all is said and done, my revolving debt finished the month at $23,397.71, which makes this my first cash-only Christmas in a long time. That feels pretty good.

  • Blog 25 times in December - Now we move onto the less rosy side of my December goals. I only managed to blog 17 times. I could offer up excuses, but it all boils down to this: I got distracted by the holidays, and by the year-end crunch at work, and I wasn't able to focus as much on my blogging as I would like. The lesson here is to identify busy periods in advance, and plan for them. One option would be to "stockpile" posts, so that when I hit a crazy patch, I can publish my already-written drafts. I'll have to figure this one out.

  • Finish my review of Getting Things Done - As with the 25-post goal, I totally dropped the ball here. No progress on the review. I'm not getting this thing done as well as I'd hoped.

  • Continue to blog once per week about productivity - I've said it all by this point; I didn't manage to write about productivity at all.
December ended up looking a lot like September, in that I met my financial goals, and completely missed the mark on my blogging goals. It's understandable that my first Christmas as a blogger took me by surprise, but I should still try to learn what I can from this, and do better next time. I think the issue is that I put so much emphasis on avoiding new debt from holiday shopping, that I lost focus on the other aspects of keeping the blog running. It was probably unrealistic to expect myself to meet these three goals this month, but that makes a nice challenge for next December. We'll see how I do.

Now, on to my month-end update:

Online Savings - $2,001.63
Self-Directed RSP - $39,630.67
Employer Group RSP - $2,363.00

Credit Cards - $3,573.29
Line of Credit - $19,824.42
Student Loans - $30,098.68

Net Investable Assets: ($9,501.09)
Net Liquid Assets: ($51,494.76)

My liquid savings took a hit, due to holiday shopping. Disappointing market performance meant that my retirement investments grew only marginally. Combined with debt reduction, my net investable and net liquid assets increased by $1,375.27 and $1,036.04, respectively. My NetworthIQ profile has also been updated (including loose cash, home, car and mortgage).

2007 in review

My progress during 2007 has been pretty well documented in a slew of six month updates, so I just have a few milestones to note for my "year" in review (May 1-December 31):
  • My utilization rate on my credit cards and line of credit has gone from 53% to 42%. This is mostly due to debt reduction, although a recent limit increase on my primary MasterCard also helped.

  • We've paid off $4,571 in mortgage principal (plus the remaining $1,472 of our CMHC premium), and $3,589 in student loans. This is all due to our automatic bi-weekly payments, with no lump-sum prepayments.

  • I've increased my retirement savings by $5,906, through a combination of regular contributions and market growth. These savings are now mostly in the form of low-cost index funds, with a small position in my employer's stock.

  • My net worth has increased by $21,234 (254%), while my net investable and net liquid assets have increased by $15,190 (62%) and $9,283 (15%), respectively.

  • I've made a small amount of income from a paid advertisement. While monetization is not my primary goal with Loonies And Sense, it's nice to see some actual dollars generated by my efforts.


Starting this month, I've decided to set out my monthly goals in a separate post, rather than as part of the month-end update. This will make it easier to refer back to them as I update my progress. Look for my goals for the month of January, and for all of 2008, later this morning.