Friday, June 26, 2009

Pre-order Windows 7 for "cheap"

I've been reading a fair bit about the next version of Microsoft Windows, and it sounds like it's the same sort of "step up" from Vista that XP was from 98 or ME. New functionality, improved performance and a very open and transparent beta-testing process have really piqued my interest in the new OS. The press for Windows 7 has been pretty overwhelmingly positive, and there's currently a promotion to pre-order the upgrade version for a discounted price.

In Canada, that comes to a discounted price of $65 for the Home Premium edition, and $125 for Professional. That's basically 50% off the regular selling price of the software, and the promotion runs until July 11, or while quantities last.

I've foregone Vista entirely, and currently dual-boot a Windows XP/Ubuntu system, and $65 to upgrade from XP seems like a good deal, especially considering Microsoft isn't known for cutting its prices.

Here in Canada, you can pre-order Windows 7 through Amazon, Staples, Future Shop or Best Buy. I've placed my order for Home Premium, and I'm looking forward to installing it when it comes out in October.

You can read more details on the offer, as well as some background on Windows 7 over at Gizmodo.

Tuesday, June 16, 2009

Some times are harder than others

Over the past two years, I've successfully trained myself to spend only the money that I currently have in the bank. I've gone from a mindset of "it's only $20, and I'm getting paid next week" to a strict "cash-only" regimen. I use quotes around cash-only because I actually use my credit card, but I pay off each purchase almost immediately from my chequing account.

The positive result of this change is that, over the same two-year period, my revolving debt has decreased by more than 50%, and my net worth is now more than nine times as high as it was in 2007. I have a small emergency fund, and I save up for planned expenses like birthday and holiday gifts, car repairs and clothing purchases. All in all, although I still have a substantial chunk of revolving debt to pay off, I feel as though my financial house is in order.

The negative result of this change is that, when I deplete my savings to cover significant, unavoidable expenses, I feel as if I'm flat-out broke.

Last week, I took our car into the mechanic for an oil change and general check-up. After various small repairs and some sizable new parts, the bill came in at $1,400. Now, my Freedom Account has a "Vehicle Repair" category, which sat at just over $700. This meant that, in order to pay the bill, I needed to move some cash from some other savings accounts. I was able to pull $180 from my Emergency Fund, and $520 from our wedding savings. We've effectively paid cash for the repairs, but our cash savings are now diminished by $1,400. Our cushion is reduced, and with some other smaller expenses over the weekend, I'm left feeling a little naked.

The funny thing is, I almost enjoy this feeling. I know exactly where we stand financially, and that's a huge change from two years ago. Back then, the repairs would have gone on the line of credit, having the same net effect on our net worth, but a vastly different psychological impact. Shelling out $1,400 from your bank account can feel a lot more painful than adding that amount to your debt, and that pain forces you to be more watchful with your spending.

We'll rebuild our wedding and emergency savings. The vehicle category in the Freedom Account will be replenished, and the line of credit will continue to shrink.

We just have to get through this lean patch first.

Thursday, June 11, 2009

The value proposition of a premium chequing account

Million Dollar Journey has a post today comparing the big five banks' high-end chequing accounts. These accounts charge a substantial monthly fee, and in return provide a number of "value-add" services, including the following:
  • Unlimited transactions

  • Free drafts/certified cheques

  • Discount on safety deposit box rental

  • Discount/waiver of credit card or discount brokerage annual fees
Some of these accounts offer a waiver of the monthly fee if a minimum balance is maintained in the account. For example, BMO's Premium account has no monthly fee if the account's balance never drops below $4,500 (otherwise the fee is $25 per month). The thinking behind these minimum balance fee waivers is that, while the customer avoids paying a fee, they also miss out on interest they would have earned on that balance in a savings account.

I was curious recently as to just how favourable the fee/interest trade-off turns out to be, so I decided to run some numbers. Using the BMO account as an example, I worked out what APR would correspond to $25 per month on a $4,500 balance. Assuming a 40% marginal tax rate (since interest income is taxed at the full marginal rate), I came up with the following:
  • $25 = $4,500 X ((1 + APR / 365)^30 - 1) X (1 - 0.4)

  • APR = 365 X ((($25 / 0.6) / $4,500 + 1)^(1 / 30) - 1)

  • APR = 11.22%
This means that, in order to earn $25 per month after taxes on a balance of $4,500, you would need to find a guaranteed 11.22% APR. Since the market is currently swimming in 11.22% savings accounts, it's a no-brainer, right?

One of the best rates currently available for a Canadian savings account is Canadian Tire's 2.00%. At this rate, a $4,500 balance would earn a mere $4.44 per month after taxes. This means that, with today's interest rates, keeping the minimum balance in this account essentially means that you're "paying" a $4.44 monthly fee for the use of the account. If you take advantage of the features of the account, this can turn out to be extremely worthwhile (a safety deposit box rental can easily run $4 per month).

This doesn't mean that a high-end chequing account is automatically worth it, but it does mean that, at least for the foreseeable future, the cost of such an account is significantly reduced by maintaining the minimum balance.

Wednesday, June 3, 2009

HSBC has stupid account dormancy rules

Back when I first started testing the waters of online savings accounts, HSBC had one of the better rates out there. That, combined with their numerous access methods (including online bill payment and no-fee ATM access at BMO/HSBC machines) made them a strong choice for parking the lion's share of my Emergency Fund. For over a year now, I've basically kept just over $1,000 of my savings in my HSBC account, on the basis of a decent (though far from stellar) interest rate and easy access to the cash.

Fast-forward to today, and HSBC is offering a whopping 1.05% rate on their Direct Savings account, and I decide that maybe I'll move a chunk of that cash over to Canadian Tire, where I can earn twice as much interest. So, I login to my HSBC account (as I have at least once a month for as long as I've had the account), enter the details to transfer money to my primary chequing account, and am met with an error message that they can not complete the transaction at this time.

Wait, what?

This account currently has a balance just over $1,040, and I'm able to login and view the account details to my heart's content. Why are they barring me from making a withdrawal?

A quick call to customer service brings to light that, if you have no debits on the account over a 12-month period, they flag the account as dormant, and you have to re-activate it by faxing them your signature and waiting 24 hours before you can complete a transaction.

Looks like HSBC will no longer be my Emergency Fund container of choice.

I'll keep $150 with them, and set up recurring transactions to churn $15 in and out once every six months to keep the account "active", but I'll be looking to put the bulk of my balance elsewhere.

I realize that $1,000 isn't exactly big potatoes, but my Emergency Fund is growing, and they had been my preferred savings institution. I was willing to overlook their low rate in favour of their access methods, but now they've driven me out the door.

Maybe CTFS will be happier to have me as a customer.

May update

What a difference a bullish market makes! After what felt like ages bemoaning the monthly decimation of my investment portfolio, we've had three straight months of continuous market growth. Combine that with the improving weather we've had lately, and I am one happy camper.

Let's see how I did last month:
  • Reduced my revolving debt to $12,716.58 - Since I started tracking my finances over two years ago, I've only had one month where my revolving debt increased. Otherwise, I've been making consistent forward progress, and although I'm still in "slow-and-steady" mode, I feel as though I've kicked the habit of blind spending on credit. Now whenever I make a purchase, it's effectively a cash purchase whether I use a credit card or not; either way the money is almost immediately debited from my chequing account, so I always know how much I can afford to spend before my next paycheque. I've still got the hangover from my reckless spending days, but I've learned my lesson, and things look better every day.

  • Grew my Emergency Fund to $1,832.23 - I upped my bi-weekly contributions by $10 in May, and I'll continue to do this going forward.

  • Grew our Wedding Fund to $3,160.79 - Steady progress on this front, and I'm crossing my fingers that we'll be able to pay cash for most, if not all, of the wedding.

    NOTE: Since this money is earmarked to be spent on our wedding next year, any valid wedding expense that we pay for from this account will not reduce my progress on this goal. This may seem like funny accounting, but the real goal here is to pay cash for the wedding, so I don't plan to penalize myself for using these funds as intended.
Now, on to my month-end update:

Online Savings - $2,549.22
Self-Directed RSP - $40,635.38
Employer Group RSP - $14,233.60

Revolving Debt - $12,716.58
Student Loans - $19,783.08

Net Investable Assets: $24,918.54
Net Liquid Assets: ($29,950.44)

Once again, my RRSP was buoyed by the market rally this month; along with over $600 in contributions, this rally lifted my investment balance by $5,733.85. Liquid savings took a slight dip, for a net increase of $5,673.38 in my investable assets, accompanied by a $1,183.38 drop in my non-mortgage debt.

Overall, my net investable assets increased by $6,856.76, and my net liquid assets increased by $1,122.91. My NetworthIQ profile has also been updated (including loose cash, home, car and mortgage).

Who knows if this market rally will last, but for as long as it does, I'll enjoy the ride.