Thursday, April 24, 2008

Net worth and retirement savings

At the beginning of every month, I tally up my assets and liabilities, and calculate three financial snapshot numbers:
  • Net Worth - This is my total assets, including home, car, retirement investments, and liquid savings, minus my total debts, including mortgage, revolving debt, and student loans. I use this to represent my "full" financial picture, and it tells me how much I really "own".

  • Net Investable Assets - This is my total financial assets, including retirement investments and liquid savings, minus my total non-mortgage debt, including revolving debt and student loans. This represents my full financial picture in monetary terms, and basically tells me how much money I really have available, without selling off possessions like our home or our car.

  • Net Liquid Assets - This is my total liquid savings, minus my total non-mortgage debt, including revolving debt and student loans. This represents my full financial picture in liquid monetary terms, and basically tells me how much money I really have immediately available, without liquidating my retirement savings or selling off possessions like our home or our car.
There's a lot of talk about exactly what assets belong in the calculation of net worth. This discussion seems to center around how you intend to "use" your net worth number. For example, if you want the number to express how much money you really have on hand today, then you probably won't consider your home as an asset (or your mortgage as a debt), since your plans likely don't include liquidating your home for extra cash. If, on the other hand, you want the number to represent your progress toward early retirement, then you likely would include your home (and mortgage), as well as your retirement investments.

I've seen some people estimate the tax penalty they would pay for immediately liquidating their retirement savings, and enter the post-penalty balance remaining as an asset in their net worth. This helps to represent retirement savings as a "right now" number. If you were facing financial ruin, and needed to liquidate everything you own, then you might very well sell your home and take the tax hit for cashing in your retirement savings.

This has got me thinking about my own calculations. I currently include my retirement accounts in my net worth and net investable assets, but not in my net liquid assets. I'm wondering if it makes sense to include an after-penalty retirement balance in my net liquid assets, to represent my total "immediate cash available".

I realize that most of the value in tracking net worth comes from keeping the calculation the same, and watching the trend over time that results from your financial behaviour. Therefore, it would seem that I'm better off keeping things as they have been, and excluding retirement accounts from net liquid assets. I still think I'll work out the after-tax balances, however, to feed my own personal hunger for data.

What do you do? How do you account for your retirement savings when figuring your net worth?

Start getting your 2008 taxes ready today

With less than a week to go, many Canadians are scrambling to complete their 2007 tax returns befor the April 30 deadline. Million Dollar Journey is among these last-minute folks, and he has a great post today on keeping your paperwork organized to make tax season as painless as possible.

It would be easy to dismiss this kind of tip by simply saying "OK, I get it, I need to get more organized!" However, let's not forget the core piece of advice here: the best way to be organized a year from now is to get organized today.

Taxes are a fantastic example of something that happens at the same time every year, yet somehow manages to find a large section of the population completely unprepared. Whether they don't have their paperwork in order, or don't have the cash on hand to pay their tax bill, lots of people seem to be caught by surprise by their taxes. With some planning and some basic organization, this can be avoided.

Another example of this is Christmas shopping. Christmas falls on December 25th every year, but there always seems to be a last-minute scramble to buy the presents (usually on credit). Last year, I started saving for my Christmas purchases at the beginning of May, and I was able to pay for all my gifts with cash. This year, I've been saving since January, which should give me even more breathing room when the holiday season arrives.

It can be hard to force yourself into thinking so far ahead, but once you make the initial time investment to put the plan in place, it should save you having to think about it when tax time comes around next year. In 2008, I need to start repayments to my RRSP under the HBP and LLP, which means that, with my projected income and deductions for the year, I'll owe about $1,000 in taxes. Starting with my next paycheque, I'm contributing $40 every two weeks to my Freedom Account, specifically so I can cover this tax liability. Knowing I've planned for this will save me lots of stress a year from now, and I should be able to pay the bill without missing a beat.

There's really no better time than today to start planning for next year's taxes. Well, maybe six months ago would have been better, but today's certainly better than next April.

Wednesday, April 23, 2008

Weekly Wednesday weigh-in: Tax deadline coming up

Today's weigh-in once again showed no forward progress. I'm holding steady at 207lbs, which is frustrating but not surprising. I've really been watching the caloric intake side of things, but I haven't been as successful as I would like with keeping up my exercise schedule. By walking to and from work, I'm getting an hour of walking nearly every day, but what I really need to do is get down to the gym and/or squash court on a regular basis. If I can get into this schedule, then I should really start to see some consistent progress.

For those of you who haven't filed yet, next Wednesday is the deadline for filing your 2007 taxes if you owe. This time last year, I was forking over $1,500 from my line of credit to the CRA, and panicking about how I would ever pay it off. This year, I was able to put $500 of my tax refund toward debt reduction, above and beyond my regular bi-weekly payments.

Guess which one of those scenarios made me a happier camper?

A question about interest rates

Well, although they took their time, the Canadian banks have indeed dropped their prime lending rate in response to yesterday's Bank of Canada rate cut. With the overnight rate at 3.00%, and bank prime at 4.75%, let's see what happens with online savings account rates. Will we see an ING rate below 3%?

In previous discussion about the impact of rate cuts on mortgage and loan rates, I've seen a lot of talk about LIBOR as a benchmark for the cost of lending. This seems to be a more universal version of a central bank interest rate, and I've heard reference to loans and mortgages that are actually indexed to LIBOR as opposed to bank prime.

I don't know a lot about this, so I put the question to you: do you know of any institutions in Canada that offer loans indexed directly to either LIBOR or the BoC rate?

Tuesday, April 22, 2008

Another rate cut: will the banks follow suit?

As expected, the Bank of Canada announced another interest rate cut this morning, taking the key interest rate from 3.50% to 3.00%.

The BoC cites a "deeper and more protracted economic slowdown in the U.S. economy", which is expected to continue to hit our exports. This rate cut is hardly a surprise, but there is some question as to whether the Canadian banks will balk at lowering their own prime lending rate. We've grown accustomed to seeing the banks adjust their own prime rate whenever the overnight rate changes, but the banks may be looking to change this expectation. Shrinking spreads on the borrowing business certainly make the banks less enthusiastic about lowering their prime rate, so I'm curious as to how they'll respond to this latest announcement.

Will borrowing rates drop by the full 0.50% to stay in lockstep with the BoC, or will they see a smaller drop, or even hold steady at their current 5.25% level? What will savings account rates do in the next couple of weeks? I think the most interesting thing to see will be the contrast between the two. If lending rates stay put, and deposit rates drop, then the banks will be in for some serious backlash.

As for the impact this change will have on the market, the TSX is down following the announcement, so at least things are staying interesting.

Thursday, April 17, 2008

Payday update (and belated weigh-in)

Apologies for the lack of posts so far this week. Things have been a bit hectic, and I haven't had the mental bandwidth to put together a coherent post. Anyway, today was payday, and if there's one task I'll always show up for, it's that of updating my progress bars at the side of the page.

My NCN Network chart has also been updated, so here's the rundown of my progress toward my April goals:
  • Reduce my revolving debt to $21,250 - I'm on track for this one. My revolving debt actually currently sits at $20,741.86, which should put me well past my stated goal for the month. However, I stated that I wanted to hit the $21,250 target without touching my 2007 tax refund, which I received yesterday. $500 of my debt reduction progress this month is a lump sum payment from my tax cheque, so I'm really at $21,241.86. When I take month-end interest into account, I still need to throw another $25 or so at my debt in order to meet this goal. That should be manageable.

  • Grow my Emergency Fund to $1,310 - I've already beaten this one, with a current balance of $1,315 in my Emergency Fund. So far I've received 8 out of 26 bi-weekly paycheques in 2008, which puts me at 31% of the way through the year, and 45% of the way to my year-end Emergency Fund goal. This one's looking good.

  • Update my Equifax credit file with my correct postal code - No progress yet. I really need to look at this one, and figure out what form to fill out to make this correction.

  • Walk to and from work every day, and work out at least three times a week - I've been doing well on walking to work (only one morning missed), but the workout schedule isn't looking as good. I've had some lower back pain that's been keeping me from running. I'm hoping to get to the gym tonight, though, so as long as I don't let the last ten days derail my exercise plan completely, I'll be happy.

  • Lose 4 pounds - Still sitting at 207lbs, so no progress yet this month. Even so, I still haven't backtracked this month, so that's something.

  • Blog 30 times in April - This is my 13th post this month, and today is April 17th. Room for improvement here.

  • Bring my lunch to work every day in April - I've been really good about this. I was weak last Friday afternoon, and went down to Tim Hortons for a coffee and doughnut, but other than that $2.38 expenditure, I've been on a strict only-what's-in-my-bag lunch and snack regimen at work.
So there's some good progress, but still some room to step things up. I have nearly two weeks left, so let's see if I can stage a comeback.

Thursday, April 10, 2008

The P2P lending minefield

Social lending has been in the news a lot in the past few months. Canada's first P2P lending community launched in February, and was promptly shut down pending resolution of some regulatory issues. As of today, the IOU Central platform is still "operating with limited functionality".

This week has seen some more interesting news on the P2P lending front. On Monday, Lending Club announced that they would suspend the ability to invest using their site, while keeping the borrowing functionality intact. Yesterday, I received an e-mail from CommunityLend, stating that they are getting close to a launch, and are asking for input on forming "borrower groups", presumably to assess the demand for loans so they can attract sufficient investors when they launch.

I imagine that, given the issues that have hit IOU Central, CommunityLend is being extra cautious, trying to avoid any false starts. This seems to be a prudent approach to take, particularly in such a new and untested (at least in Canada) industry. I'll be keeping an eye on this site; I have a feeling that when they open their doors, things will get interesting.

Here's the text of CommunityLend's e-mail:
Hello and Good-day from CommunityLend

If you are new to the CommunityLend mailing list, welcome to the family and thank you! Your support means everything to us. If you have been around for a while, you will remember that about four months ago we sent out an email with a few major announcements, including our funding and expanded team. We have kept relatively quiet over the past ten months while we have been consulting with the Canadian regulators. At the beginning of April we decided it was time to begin the ramp up to our launch.

Today we want let you all know that our site has received a major overhaul. The new look and feel is based on our launch design and we would love to hear what everyone thinks!

As you may have guessed we are now getting close to launching our service. In the next few months we will be regularly posting on our newly launched blog and making important announcements in our press release section. Our most recent announcement is on the formation of our Board of Advisers. We are very excited to have so much active support from such a fantastic group of people.

We would also like to draw your attention to our expanded management team, which is constantly growing as we move closer to full operations.

Finally, we would like to request that anyone who is interested in setting up a borrower community on CommunityLend contact Dave Coleman, our Community Advocate. Communities can be a great way to connect with people who share similar interests and help each other out financially. Examples are ethnic groups, interest groups, or even industry groups that want to use CommunityLend as a way to help finance their clients; the list goes on. If anyone is interested in starting a community, please do not hesitate to contact us.

Please note however that at this time, we are looking for borrower groups only. We will hold off on the creation of lender groups until our regulatory applications are approved and we are closer to launch.

Once again thank you for your interest in CommunityLend. Your help and support is invaluable!

-The CommunityLend Team

Loonies And Lexicons: Part 2

It's been a while since I wrote my Loonies And Lexicons post. Since then, I've noticed that I'm using the <acronym> tag an awful lot to translate the acronyms and abbreviations that I use. While I plan to continue to define these abbreviations for clarity's sake, I thought it would be worth taking another look at the Canadian terms and short forms that I use on the blog, in order to spell out their meaning in a little more detail (and all in one place). So, to readers on both sides of the International Boundary, welcome to the second edition of my cross-border glossary:
Tax Free Savings Account. Coming in 2009, this was one of the most exciting items in this year's federal budget. Similar to the American Roth IRA, the TFSA will allow Canadians to contribute after-tax money (up to $5,000 per year) and have that money grow tax-free. The money can be withdrawn at any time, and withdrawals free up contribution room, so you can "refund" your withdrawals over time. This account is basically the mirror image of the RRSP, which offers a tax break at the time of contribution; the TFSA instead offers a break at the time of withdrawal.

Bank of Canada. Equivalent to the Federal Reserve in the US, this is Canada's central bank. The BoC sets monetary policy, issues currency, and manages funds for government and banks. The BoC tends to make the news whenever it announces changes to the prescribed interest rate.

Canada Investor Protection Fund. Where the CDIC (or FDIC in the USA) insures bank deposits against bank failure, some limited protection is provided to investors holding non-cash securities. This protection is provided by the CIPC in Canada, which is equivalent to the American SIPC.

Canada Pension Plan/Quebec Pension Plan. These pension plans are funded by contributions by employers and employees. Your pension at retirement is determined by the amount you contributed to the plan during your earning years, as well as how long you contributed to the plan, and this income is taxable. This is equivalent to Social Security in the United States. Employees working in the province of Quebec contribute to the QPP, while employees working outside Quebec contribute to CPP.

Old Age Security Pension/Guaranteed Income Supplement. The Old Age Security Pension is a monthly payment eligible to most Canadians 65 or older. This pension is not based on contributions to a fund, but is rather based on the number of years you have lived in Canada. OAS income is taxable, while GIS is not. If your income is above the maximum ($64,718 for OAS or $15,240 for GIS), then a portion of these benefits is subject to a "claw-back". For OAS, the claw-back is 15% of every dollar of income over $64,718, and for GIS, it is 50% of every dollar over $15,240.

Employment Insurance. Formerly UI, this program provides income support to cover temporary loss of employment income. This covers people who are between jobs, or are unable to work for various reasons, including parental leave. Employees contribute to this program through payroll deductions, and benefits are determined based on premiums paid and employment history.

Unsecured Line Of Credit. As far as I've been able to tell, this is a product that does not exist in the United States. This is essentially a middle ground between credit card and a HELOC. The product works exactly like a HELOC, but does not have any collateral against the loan. ULOCs often provide free cheques and unlimited free transactions, so for the financially savvy, a ULOC can actually serve as a no-fee chequing account.

Canadian Automobile Association. Exactly equivalent to the AAA, this is our roadside assist/travel planning club of choice. With a CAA membership, we get free AAA maps and tour books whenever we need them, as well as member discounts at select hotels and other merchants.

Wednesday, April 9, 2008

Return of the weekly Wednesday weigh-in

It's been over a month since I last checked in on my weekly weight loss progress. Having taken my eye off the ball for so long, I had expected a significant backslide, but it turns out that, during the month of March, I managed to lose 7 pounds, dropping from 214lbs to 207lbs. With my starting weight of 212lbs, this took me 20% of the way to my year-end goal of 187lbs.

I weighed in this morning, still at 207lbs. That means no progress from last week, which isn't really surprising. I've been laid up with a sore back for the last few days, so I haven't been able to do much in the way of cardio. However, I have been responsible about my eating habits, and I think this is the main reason I've held steady. I'm hoping that my back feels better soon, so that I can get back to my running. I've just bought a new pair of shoes (paid for by the ol' Freedom Account) to replace my two-year-old Sauconys, and I'm excited to try out their fresh new cushioning. Other than my one slip last Friday morning, I've kept up the foot commute every day this month.

I'll need to pick up the pace to make my goal of losing 4 pounds in April, to finish the month at 203 or lower.

Monday, April 7, 2008

Mortgage options: is Cash Back a good deal?

With this weekend's balmy double-digit temperatures, we Canadians have finally been given a taste of spring. The sun is rising earlier and setting later, temperatures are rising, and our SAD is finally lifting.

And, of course, the mortgage advertising is once again beginning in earnest. With the majority of home sales closing between April and August, spring is the prime season for banks to push their mortgage lineup. Now that we've survived RRSP season, and are wrapping up our tax returns, it's time to be bombarded with mortgage rates and special promotions.

One of the products I've seen advertised this year is a "cash back" mortgage. Basically, when your bank advances the mortgage, you receive a percentage of the principal as a cash reward. You can then use this money for whatever you want. The banks want you to use this to pay for furniture, renovations, or vacations, but you can also use the full cash amount as a lump sum mortgage payment.

The typical trade-off with cash back mortgages is that you have a longer term and higher rate than a standard mortgage, so although you get some immediate cash in hand, you end up paying more in interest in the long run. I thought I'd have a look at the numbers, to determine just how good or bad this offering really is.


To illustrate the trade-off between a cash back and standard mortgage, I'll look at the costs of the cash back mortgage, and compare them to the costs for a standard mortgage with a lower rate. For my calculations, I made the following assumptions:
  • $300,000 mortgage, with 25-year amortization

  • 5-year term, with 7.20% posted rate

  • 5% cash back vs. 1.50% discount on mortgage rate
Note that, since I'm looking at a Canadian mortgage, I'm using the Canadian convention of rates being calculated semi-annually, not in advance. The calculations would work out slightly differently for homeowners south of the border, but the basic idea is the same.

Assuming that the borrower is making bi-weekly rapid payments (i.e. paying half the monthly amount every two weeks), the principal remaining at the end of the term will be $256,132 for the standard mortgage holder (5.70% rate), and $258,710 for the cash back borrower (7.20% rate). When you factor in the $15,000 cash reward, the cash back borrower ends up $12,422 ahead of the standard mortgage holder. If the $15,000 amount earns 3% interest in a savings account during the 5-year term, this increases to a $14,842 spread. If, on the other hand, the full $15,000 is used to make an immediate lump sum payment on the mortgage, the spread is even higher, at $18,600.

On the face of it, cash back seems to be an attractive option.

However, we're only looking at one side of the picture. The higher interest rate paid by the cash back borrower translates to a higher bi-weekly payment. In this example, the cash back borrower has made a total of $138,999 in mortgage payments, whereas the standard mortgage holder has paid only $121,307. That means the cash back borrower had to pay $17,692 more than the standard mortgage holder, which puts them behind by $2,850 unless the $15,000 was used as an immediate lump sum payment, in which case cash back comes out ahead by a mere $909. Even that $909 spread is barely a 2% return on the extra $136.09 in payments made every two weeks throughout the term.


Clearly, when you take into account the larger minimum payments that come with a cash back mortgage, it becomes a lot less appealing. The only way to come out ahead versus a standard, lower rate mortgage, is to throw in the whole cash reward as a lump sum payment at the beginning of the term. Even if you do this, however, you're not likely to keep up with inflation, so it's a far better idea to take a standard mortgage with a lower rate.

If you can afford the extra payments that would come with the cash back mortgage, then you can always increase the bi-weekly payment amount on your standard mortgage, and make even faster progress in paying off the principal.

Friday, April 4, 2008

Claiming the tax credit for charitable donations

Canadians can generally receive a non-refundable tax credit for charitable donations up to 75% of their net income (i.e. income minus deductions). I wrote a long post last month on the calculation of Canadian income tax, and in this post I mentioned that, for couples filing jointly, charitable donations should be pooled onto a single tax return.

The reason for this is that the first $200 of donations that you claim generate a credit at the lowest marginal tax rate (21.05% in Ontario for 2007), while anything over $200 is credited at the highest rate (40.16% in Ontario for 2007). If a husband and wife each donated $300 to an eligible charity this year, and claimed the donations individually, then each person would receive a 21.05% credit on the first $200, and a 40.16% credit on the last $100, for a total credit of $42.10 + $40.16 = $82.26 each. If, on the other hand, the entire $600 were claimed on a single return, then the the total credit would be $42.10 + $160.64 = $202.74, or $101.37 each. That's $38.22 in extra tax savings for the couple, just for claiming the donations jointly.

Until recently, I was under the impression that it doesn't matter which return you claim the taxes on, provided both returns have taxes against which to apply the credit. However, as I discovered while going over our own taxes last week, it does make a difference. The main reason for this is the provincial surtax, which is added if your provincial taxes owing are over a certain amount. In Ontario, for 2007, the surtax is 20% on taxes between $4,101.01 and $5,172, and 56% on taxes over $5,172. Because the surtax is calculated after applying any credits, the benefit of a tax credit is greater for taxpayers in higher provincial income brackets.

If your Ontario taxes (before credits and surtax) come to $4,000, then a $1 provincial credit saves you $1 in taxes, since you are below the surtax limit. However, at $5,000, your $1 credit saves you $1.20, and at $6,000, it saves you $1.56. For the $600 donation example above, the $202.74 credit is made up of $146.00 federal and $56.74 provincial. This means that someone with $4,000 in provincial taxes would save $56.74, while someone paying $6,000 would save $88.51. Clearly, it makes sense for the donations to be claimed by the person with higher total taxes.

By claiming our $1,300 in 2007 donations on my own return instead of Ms. Loonie's return, we end up saving an extra $75 in taxes as a couple. That's $75 that we can divvy up between us however we want.

Who are we to turn down free money?

First test failed; second passed

This morning, I had a meeting with my "one-up" boss (i.e. my manager's boss) at 9:00. Due to some late-night reading last night, and the general dreariness of the morning weather, I was rather slow to respond to my alarm clock. As a result, I found myself about ten minutes late leaving the condo, and had to jump on the TTC to get to work in time for the meeting. Not exactly a shining moment, when I look at my ongoing goal to walk to and from work every day.

I feel somewhat redeemed, however, by the fact that I brought my lunch to work today, despite a planned outing by several colleagues to a favourite Szechuan restaurant. Now, I loves me some spicy Szechuan food, but I really want to stay focused on my goals for the month. The restaurant is a half-hour walk from the office, so we generally end up taking a taxi to lunch, and walking back from the restaurant. All told, the excursion generally costs about $15 a head, including the cab. By passing on today's lunch, I save myself some money, and I get to stick to at least one of my behavioural goals for the month.

I'll have to see what I can do to make up for the missed walk to work this morning.

Thursday, April 3, 2008

Financial Archaeology: Unearthing Past Behaviour

I've been looking through my historical bank balances online, and I've noticed some interesting trends. I've already written about the trends in my overall net worth, but I thought I'd go a little deeper into the details for individual accounts. Whereas my net worth growth indicates whether I'm getting "richer", these finer details should be more indicative of changes in behaviour.

I'm a paper packrat, so I have years' worth of paper statements stockpiled at home. Over time, I'd like to go through old credit card statements to get an idea of where and how I spent my money before and after April 30, 2007 (this date is significant because it represents my first comprehensive balance sheet, and the date when I decided I had to right my financial wrongs). My online account history only goes back to the beginning of November 2006, but this is enough to get us started.

The metrics

In this analysis, I'll be looking at three metrics:
  • Monthly credit card statement balance - Since I use my credit card for most of my monthly spending, my monthly statement is an excellent indication of how much I've spent in a given month. This will basically represent my monthly cash outflow.

  • Month-end line of credit balance - I use my line of credit to pay off my credit cards every month. Before you bristle at this statement, and tell me that I'm not "paying off" anything at all, merely moving debt around, remember that I make a corresponding payment to my LOC for every purchase I make with my credit card. For example, if I spend $40 at the supermarket using my credit card, I come home and transfer $40 from my chequing account into my LOC. Because I manage my cash flow this way, my LOC balance represents the amount of "old" debt I'm still carrying around. As I dig myself out of debt, this number should go down.

  • Monthly line of credit interest - As my LOC gets paid off, the amount of interest I'm charged each month will also go down. There's an added wrinkle here in that I've got the lion's share of my "LOC" debt sitting on a 0% credit card, but this really just means that more of my monthly LOC payments actually goes toward principal. My monthly LOC interest represents the amount that my "old" debt is costing me each month.
With these three metrics in mind, let's have a look at the history I have available. I currently have data from November 2006 through March 2008, so I really have two options:
  • Compare the Apr'07-Mar'08 numbers to the Nov'06-Oct'07 numbers - This will provide me with two "year-in-review" summaries that I can compare to each other. The concern here is that I have substantial overlap between the two periods being compared (Apr'07-Oct'07), so I'm not comparing distinct time periods.

  • Compare the Nov'07-Mar'08 numbers to the Nov'06-Mar'07 numbers - This gives me two distinct time periods to compare, but I'm not looking at a full 12 months' history.
I prefer the second option, since it gives me a "clean" comparison of this year vs. last year, even if it's not a full 12-month picture.

The numbers

Now let's see how the three metrics stack up year-over-year.

Credit card spending

From November 2006 through March 2007, I spent $19,229.60 on my credit cards. As I type that number, I get a bit of a queasy feeling in my stomach. That's an average of $3,845.92 per month in credit card purchases, sustained over a 5-month period. I wish I could at least attribute this to one event skewing the results, like Christmas gifts or major car repairs, but the lowest monthly spending I had during this period was $2,818 in January, so this was indeed a consistent trend.

Fast forward to the past few months, where my total spending from November 2007 to March 2008 came in at a mere $10,163.05, or 53% of last year's spending over the same period. Note that the numbers for both years cover the Christmas shopping season, so this represents a huge change in behaviour.

Whatever challenges I may still have with sticking to a budget, my habits have clearly changed a lot from a year ago.

Line of credit balance

Throughout most of 2006, my LOC balance had held reasonably steady, in the low teens. Then, from November 2006 through March 2007, the balance started a period of rapid growth, going from $12,446.82 to $18,260.50, an increase of $5,813.68, or 47%. Comparing this number to my $19,229.60 in credit card spending during the same period, I'm actually amazed that this balance increase wasn't a lot higher.

Looking at the same period this year, my LOC balance dropped from $21,040.90 to $20,044.16, a reduction of $996.74, or 5%. That's another huge improvement.

Line of credit interest

Finally, let's look at how much my revolving debt has actually been costing me. Every dollar that I pay in interest on my LOC is a dollar subtracted from my debt payments, so minimizing this number is important in paying off the debt as soon as possible.

From November 2006 to March 2007, I paid $425.24 in interest on my LOC. Compare this with the $366.68 that I paid during the same period this year, and I'm making good headway. With more of my payments going toward principal, my debt reduction will move a lot more quickly.


There are really three conclusions to be drawn from this dig into my recent financial past. Strangely enough, this works out to be one conclusion per metric:
  • My credit card spending (and therefore my general spending) is dramatically reduced from this time a year ago. Forcing myself to spend less than I earn has really paid off. Even though I'm still using my credit card for the vast majority of purchases (as well as some utility bills), my current spending is just over half as high as it was last year. No matter how you slice it, that is a major step in the right direction.

  • My LOC is being steadily paid off. The beginning of 2007 was really the time when the balance started to skyrocket, and I've managed to reverse that trend, and actually bring the balance down. This is due to a consistent focus on debt reduction, combined with some basic saving for the unexpected (as well as the expected). Balances are moving consistently in the right direction, which is a great motivation to keep things that way.

  • I'm paying far less in interest on my revolving debt. This is largely due to moving the bulk of my debt to a 0% card, but regardless of the reason, it means that the majority of my debt payments are going directly toward principal. By taking steps to slow my interest accrual, I've really accelerated my debt paydown.
As I unearth more history over the next little while, I'll try to dive a little more deeply into the credit card spending in particular, but this quick analysis of my recent past has really opened my eyes to some significant behavioural changes that I've made.

Payday update

I had to delete three spammy comments today. That's the most I've ever had to clean out in a single day. I guess in a way it's a nice sign that my blog's "on the radar", but it's annoying having to patrol the comments for this kind of junk. I can only imagine what Trent and JD deal with on a daily basis. I've added a CAPTCHA to validate commenters; let's see if this does the trick.

Ms. Loonie and I got paid today, so I've updated the progress bars and my NCN Network chart.

I think the 3rd of the month may be too early to make much of a forecast on my April performance, but I've made my regular savings contributions and debt payments, so I currently sit with $21,541.86 in revolving debt and $1,300.00 in my Emergency Fund. Provided I stick to the plan, this puts me on track to meet my financial goals for the month.

Of course, there are still 27 out of 30 days left to go, so stay tuned to see how I do with all my April goals.

Wednesday, April 2, 2008

Another look at my NetworthIQ chart

Back in October, I posted a review of the first six months' worth of data from my NetworthIQ profile. With my March results added to the list, I now have twelve month-end snapshots on file with NetworthIQ. Here's my current chart:

I thought I'd follow up my earlier review with a look at the changes in my finances since the end of September.
  • October - Ms. Loonie and I took a road trip with friends, and I hosted a bachelor party, both of which put a dent in liquid savings and revolving debt paydown. However, overall debt reduction led to a 14% increase in net worth.

  • November - A three-pay month helped to build up a cushion of savings, and stay on top of debt reduction, while market volatility ate away at my retirement savings in spite of continued bi-weekly contributions. In the end, net worth grew by 12%.

  • December - Bring on the holidays! My first-ever cash-only Christmas drained my liquid savings, but debt reduction kept me on track. Net result: 7% growth.

  • January - My year-end bonus came in this month, so retirement savings saw a bump, as I deferred a big chunk of the incentive into my RRSP. I also moved the bulk of my ULOC balance onto a 0% credit card. Markets dove in January, but I ended up with a 20% increase in net worth.

  • February - The market staged a late-February comeback, which bolstered my retirement savings. Good movement on debt reduction gave me a 7% net worth boost.

  • March - The markets held on by their fingernails this month, so most of the 6% growth in March was due to debt reduction.
Overall, my net worth has increased by 85% since September 30, finally breaking the $40,000 mark. A couple of things stand out from this analysis:
  • I continue to see large percentage growth, although not as high as in my first few months. This is more or less common sense: as my net worth increases, a $2,000 increase in a given month becomes less and less significant in percentage terms. However, I'm still at the point where I'm growing by about 10% each month, which is very encouraging.

  • "Special" spending takes its toll. As I saw before, vacations, special "night out" activities, and holiday shopping can really put a dent in my cash savings. However, this can be looked at as a good thing, since I'm managing to pay for these things with money I've saved, rather than relying exclusively on credit. That's a big change from where I was a year ago.

  • You have to love those three-pay months. Being on a bi-weekly pay schedule, there are two months a year where I get three paycheques. This has proven to be an absolute godsend in accelerating my savings and debt reduction. This year, May and October are three-pay months, and I'm really looking forward to them.
In addition to the dollar growth in my net worth, I've seen a number of positive changes in behaviour that are really helping me to turn my financial ship around. Almost a year into this financial revolution, I'm ecstatic to see such consistent forward progress.

Bring on the next six months!

Tuesday, April 1, 2008

Goals for April 2008

On the first business day of every month, I post my update for the previous month's progress, and set goals for the month to come.

Here are my goals for April:
  • Reduce my revolving debt to $21,250 (currently at $21,841.86) - At my usual rate of payment, this should be pretty much where I come out. If I reach this goal, it will put me at 23% of my total revolving debt paid off. Note: I'm expecting a tax refund this year, but I don't know when I'll receive it, so I'm not counting on my refund to meet this goal. Any lump-sum payments that I make from my tax refund will be ignored when I determine whether I hit my April debt reduction target.

  • Grow my Emergency Fund to $1,310 (currently at $1,283.16) - All I'm looking for here is to keep up my bi-weekly $10 contributions, with a little gravy.

  • Update my Equifax credit file with my correct postal code - Equifax has an incorrect digit in my postal code, so this should be a fairly simple thing to change (famous last words). By April 30, I aim to have this one error fixed.

  • Walk to and from work every day, and work out at least three times a week - I'm really on a push to get in shape, and with spring upon us, I think I'll be able to meet this easily.

  • Lose 4 pounds - I actually lost 7 pounds in March, so if I continue regular cardio exercise (walking, running, and playing squash) as well as picking up my strength training, I'm guessing the trade-off between fat loss and muscle gain should come in at about 4 pounds.

  • Blog 30 times in April - With tax season wrapping up this month, I have a feeling there will be plenty to write about. One post per day shouldn't be a problem.

  • Bring my lunch to work every day in April - There's not a lot of new or exciting stuff in the goals above; they're mostly repetitions of previous months' goals, so I thought I'd try something new. Similar to Krystal's February-March Lunch Challenge, my goal is not to spend any money on food at work during the month of April. We get free coffee at work, so this basically amounts to not snacking during the work day on anything I haven't brought from home. Let's see how it goes...
That list should make for a productive month.

March update

March has come and gone, which brings us to April Fool's Day, and all the associated shenanigans that flood the internet every April 1st. Apologies for this morning's lame attempt at humour, and thanks to Brian Biggs at BBspot for his creation, Esenam Ayele. Be sure to remember to take any financial "advice" you received this morning with the appropriate grain of salt.

Let's look at how I did with my March goals:
  • Reduce my revolving debt to $21,800 - I missed this one by $41.86. Costco continues to be a thorn in the side of my grocery budget, repeatedly forcing me well above my allotted amount for food. We were actually pretty circumspect this month with respect to eating out, but I wasn't quite able to meet the $21,800 mark. Still, this month I crossed both the 20% mark and the $22,000 mark, so I definitely made some headway.

  • Grow my Emergency Fund to $1,280 - Once again, I hit this target without relying on interest. Once interest had posted to all my accounts, my Emergency Fund stood at $1,283.16. One change this month is that $200 of this money is now in the form of around-the-house emergency cash, tucked away in a safe hiding spot.

  • Walk to and from work every day, and work out at least three times a week - I came close to this one, but didn't quite make it. I had three days where I needed to take the TTC to work (due to tardiness), and I only averaged just over two workouts per week. However, I've started running again the last couple of weeks, so that should help this goal in the future.

  • Lose 4 pounds - Given that I missed the mark on the walking/workout goal above, I was sure I had missed this one as well. However, when I weighed myself this morning (for the first time in a while), I was shocked to see that I currently weigh in at 207lbs. That's 20% of my weight loss goal for the year! 207lbs puts me at a BMI of 27.3, which is down from my start of 28.0 in February. This unexpected success is a great motivator to keep this up in the months to come. Look for my weekly weigh-ins to resume next Wednesday.

  • Blog 31 times in March - For the first time in 2008, I missed my target post count: only 27 posts for the month of March. Still, that comes to 0.87 posts per day (or 1.29 posts per weekday, since I rarely post on weekends). Room for improvement, but still not a bad result.
Now, on to my month-end update:

Online Savings - $1,897.43
Self-Directed RSP - $43,271.32
Employer Group RSP - $4,039.04

Credit Cards - $16,575.74
Line of Credit - $5,266.12
Student Loans - $28,466.94

Net Investable Assets: ($1,101.01)
Net Liquid Assets: ($48,411.37)

There wasn't a lot of movement this month. My liquid savings dropped slightly, and my retirement savings once again grew by less than my monthly contributions. My investable assets increased by $374.65, and my debts decreased by $1,061.60.

Overall, my net investable and net liquid assets increased by $1,436.25 and $1,039.97, respectively. My NetworthIQ profile has also been updated (including loose cash, home, car and mortgage), showing that my net worth finally cracked $40,000 this month. A nice little milestone to cap off the month.

Sell the blog: pay off the debt

I've seen lots written about different ways to monetize a blog, but other than a single text ad sale, I haven't had much luck with generating passive income from Loonies And Sense. Yesterday, however, I found a link to a tool to calculate the value of a blog, based on its Technorati authority. A quick URL submission, and here's what I saw:

My blog is worth $23,710.68.
How much is your blog worth?

Nearly $24,000 for my little blog? It sounded too good to be true. However, some quick Googling showed me that this was not out of line for a blog with a decent number of posts. This amount would more than wipe out my revolving debt, so who am I to turn up my nose at such a sure thing? The only task that remained was to find a buyer.

I wasn't sure how easy it would be to track down someone with $23,710.68 to burn and a penchant for blogging, so I hit the social networks with my proposed sale. After less than half an hour of making my pitch, I received an offer for more than double my asking price. Needless to say, I accepted; I would have been a fool not to. The buyer is a Nigerian philanthropist, and once my cheque for $15,000 is deposited into his bank account, he'll be wiring me the agreed-upon purchase price of $65,000, for a cool $50,000 profit. I can't wait!

Starting next week, your host here at Loonies And Sense will be Mr. Esenam Ayele. He has a wealth of personal finance tips and tricks, and I'm sure you'll enjoy what he has to say. I just need to take care of some April business before I hand over the reins.