Loonies And Sense

August update

2009-09-08T15:30:00.001-04:00

I'm not quite sure how it happened, but yesterday was Labour Day. I'm still trying to figure out where the summer went, but even so, it was very nice to have such a beautiful long weekend to cap things off. We're now well into September, with fall on the horizon.

Let's take a look at how I did last month:

Reduced my revolving debt to $10,940.26 - At this rate, I'll likely be a few hundred dollars shy of my $7,500 target for year-end, but progress is progress, so I'll take it.

Emergency Fund grew to $1,781.57 - I had to move some funds around for a few reasons last month. Citizens Bank, which I had joined last winter to take advantage of their welcome bonus, is shutting down its deposit-taking business, so I had to withdraw my funds from that account. I also decided that I would start carrying $100 in emergency cash in my wallet. This gets treated as part of my Emergency Fund (I don't spend it if I can avoid it, and I replenish it as soon as I can when I do), and provides me with a buffer if I need some cash before I can get to a bank machine. This amount is denominated in $20, $10 and $5 bills, so I can also make change if needed.

Wedding Fund grew to $4,026.73 - Nothing too exciting here; just slow, steady progress toward what we hope will be a cash-only 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.

Reduced our mortgage to $294,437.11 - Ever since we renewed at 2.65%, we're burning through the mortgage much more quickly. It's nice to see such strong progress on this loan, especially with all the news coverage of "upside-down" mortgages.

Now, on to my month-end update:

Assets:
Online Savings - $1,919.02
Self-Directed RSP - $43,737.55
Employer Group RSP - $19,762.56

Debts:
Revolving Debt - $10,940.26
Student Loans - $18,070.60

Net Investable Assets: $36,408.27
Net Liquid Assets: ($27,091.84)

The market recovery of 2009 continued in August, with my RRSP increasing well beyond my monthly contributions. Liquid savings were basically flat, for a net increase of $3,228.53 in my investable assets, accompanied by a $1,144.15 drop in my non-mortgage debt.

Overall, my net investable assets increased by $4,372.68, and my net liquid assets increased by $1,199.36. My NetworthIQ profile has also been updated (including loose cash, home, car and mortgage).

ING Direct $25 Referral Bonus

2009-08-24T10:50:00.002-04:00

I've written before about my experiences with ING Direct. I actually attribute much of the credit for my financial turn-around to ING, since it was their no-fee, high-interest savings account that gave me "somewhere else" to put my money. This is what got me started with partitioning my money in order to develop an emergency cushion and shrink my debts. In 2007, I wrote a series of three posts on the subject:

Canadian High-Interest Savings - A New Hope - I opened savings accounts with four Canadian institutions, and compared the experiences

The Canadian High-Interest Savings Strike Back - I compared the web interface and money transfer experience at the four institutions

Return Of The Canadian High-Interest Savings - I compared the other features of savings accounts at each institution, including bill payment, online banking and ABM/branch availability

The end result of this analysis was that, in terms of features and user experience, ING was a winner. Its interest rates are currently middle-of-the-pack, but they are a pleasure to do business with, and offer a full suite of savings products (including RRSP and TFSA options, as well as GIC and mutual fund accounts). Transferring funds is simple and fast, with a one-day turnaround in either direction. I can't say enough good things about ING, and they will always hold a special place for me as the first tool in my financial toolbox.

If you're looking for a no-fee savings account to add to your portfolio, I have a referral code that you can use to get started with a $25 sign-up bonus. Here's what you have to do:

Fill out the online application for a new account.

In the "Orange Key" field on the application form, enter my referral code: 17093935S1

Send ING a cheque, made out to yourself, for at least $100. This accomplishes two things:
- It creates a link between ING and your chequing account, so that you can move funds back and forth between institutions
- It qualifies you for the $25 bonus, since you need to make an initial deposit of at least $100 to qualify

Note that existing ING customers can not use the Orange Key to get the $25 bonus; this offer is only available to new clients.

The great thing about savings accounts is that there's no downside to opening them up and trying them out. Getting started with a $25 bonus just sweetens the deal, since ING is a great bank to deal with.

Disclosure: Since I'm providing the Orange Key, I will also receive a bonus for every new customer who signs up with an initial deposit of $100 or more.

July update: In which our blogger takes his sweet time posting

2009-08-10T13:00:00.000-04:00

Happy August. Sorry to be posting this so late (theoretically, it should have gone up over a week ago). At any rate, I hope you enjoyed Civic Holiday last Monday. Toronto residents should also be enjoying the fresh air now that the CUPE strike is over, and basking in the afterglow of Caribana and Taste of the Danforth.

As we head into the home stretch of our Canadian "summer", let's see how I did last month:

Reduced my revolving debt to $11,511.39 - Good, solid progress here. We had no real unexpected expenses in July, so I was able to stick to my debt reduction schedule.

Emergency Fund grew to $1,730.07 - After the cash outlay for car repairs in June, I'm back on-track with forward motion in my Emergency Fund. $2,000 by year-end still looks achievable.

Wedding Fund grew to $3,662.86 - July was a strong month on the nuptial front, getting us back in the black with our wedding savings. We're also starting to finalize some of the details of next summer's affair, and we should be able to hit the $6,500 target by year-end.

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.

Reduced our mortgage to $295,673.67 - Make no mistake; this is still a freaking big amount of money to owe. The important thing to note, though, is that this is a drop of $1,135.84 from a month ago. Compare that to the $794.73 in monthly principal reduction that we've been averaging over the last two years, and you can see why I'm happy. The new rate on our mortgage has everything to do with this jump. When we renewed in June, we basically cut our interest rate in half, but kept our payments the same. This sends a lot more of our payment toward principal on the loan, and represents the first time that we've really been "ahead" on the mortgage. In three years, when it's time to renew again, we will have made some very strong progress.

Now, on to my month-end update:

Assets:
Online Savings - $1,863.81
Self-Directed RSP - $42,719.10
Employer Group RSP - $17,607.69

Debts:
Revolving Debt - $11,511.39
Student Loans - $18,643.62

Net Investable Assets: $32,035.59
Net Liquid Assets: ($28,291.20)

This is getting repetitive, but I won't complain. Once again, my RRSP was buoyed by market growth. Liquid savings were basically flat, for a net increase of $3,505.19 in my investable assets, accompanied by a $1,242.07 drop in my non-mortgage debt.

Overall, my net investable assets increased by $4,747.26, and my net liquid assets increased by $1,164.64. My NetworthIQ profile has also been updated (including loose cash, home, car and mortgage).

More milestones this month, as my net investable assets cracked $30,000, and my net worth crossed the $80,000 mark. Things may not always move forward as quickly as I'd like, but I've made tremendous progress over the last two years, and I'm looking forward to the day in the not-so-distant future when my only debt is our mortgage.

Good timing, for once

2009-07-02T13:57:00.001-04:00

I've bragged in the past about my market timing acumen, which tends to favour the party sitting opposite me in any transaction. I tend to dwell on my past decisions, but only to the point of nodding sadly in lament of my knack for choosing the wrong time to pull the trigger. These decisions don't consume me, but I can easily count them off for you on a moment's notice.

Not this time, however.

The Loonie household mortgage was up for renewal last month, so Ms. Loonie and I checked out the rates available to us. We were able to renew with our current lender for a 3-year fixed rate of 2.65%, more than 2% lower than our previous rate. The day after we signed the papers, rates jumped by 50 basis points, so we literally slid in just under the wire, and guaranteed ourselves three years of low-rate home ownership. I'm sure a strong negotiator with excellent credit could still have secured a lower rate, but given the ease of the transaction, I'm pretty confident in saying that we locked in "at the bottom".

But that's not all. Since I was at the branch anyway, I decided I would talk to the bank about managing our own property tax payments. Since our mortgage is high-ratio (more than 80% loan-to-value), the bank has been collecting property tax payments from us, and paying the city on our behalf. Now that we've mastered the art of partitioning our savings, we decided that we'd rather pay the city directly, and have more control over the balance in this account (and hey, why not earn some interest on it while we're at it?). This change turned out to be very straightforward as well. The tax portion of our bi-weekly mortgage payment has been eliminated, and I've set up a bi-weekly transfer of the appropriate amount to a dedicated savings account.

We're now making much faster progress on the mortgage, and we're in control of our property tax payments. Easy as pie, right?

Until I realize that, as a side-effect of the CUPE strike currently underway in the GTA, there's nobody manning the phones in the city revenue office to take our lender off the tax account.

Great timing.

June update

2009-07-02T13:30:00.000-04:00

Happy belated Canada Day! We're now halfway through 2009 (today is the 183^rd day of the year), Canada is 142 years old, and the country has mourned the passing of a pop icon.

Now that summer is well under way, let's see how I did last month:

Reduced my revolving debt to $12,182.64 - We had some financial hiccups this month, so progress was slower than we might like, but we still managed to carve away more than $500 in revolving debt.

Emergency Fund dropped to $1,678.36 - Some car repairs and other expenses needed to be paid from savings. My Freedom Account was able to bear most of the burden, but the Emergency Fund took a small hit as well. We should still be able to hit $2,000 by year-end.

Wedding Fund dropped to $2,958.88 - I had to pilfer the wedding account for some of the car expenses. We should still hit the $6,500 target by year-end.

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:

Assets:
Online Savings - $1,941.24
Self-Directed RSP - $40,640.05
Employer Group RSP - $16,104.12

Debts:
Revolving Debt - $12,182.64
Student Loans - $19,214.44

Net Investable Assets: $27,288.33
Net Liquid Assets: ($29,455.84)

Once again, my RRSP was buoyed by the market rally this month, although the stumble in the third week of June kept the investment growth in check. Liquid savings took a substantial hit, for a net increase of $1,267.21 in my investable assets, accompanied by a $1,102.58 drop in my non-mortgage debt.

Overall, my net investable assets increased by $2,369.79, and my net liquid assets increased by $494.60. My NetworthIQ profile has also been updated (including loose cash, home, car and mortgage).

One additional metric that I track (on top of my net worth, net investable assets, and net liquid assets) is my after-tax net investable assets. Since my retirement investments would be taxed at the full marginal rate if I withdrew them, I assume the maximum Ontario MTR of 46%*, and only count 54% of the value of my retirement accounts. This essentially adds 54% of my retirement savings to my net liquid assets number. This month, for the first time since I've been tracking my finances, my after-tax net investable assets are actually positive, coming in at $1,186.01. That means, if I were to sell everything in my RRSP and use it, along with our cash savings, to pay off our student and revolving debts, we would end up with nearly $1,200 in the bank. That's another milestone on the road to solvency, a step up from when I first came out of the red last April.

* I'm not actually in the top tax bracket, but using the current maximum of 46% gives me a "worst-case" scenario for the taxes I would have to pay if I cashed out my RRSPs.

Pre-order Windows 7 for "cheap"

2009-06-26T11:00:00.000-04:00

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.

Some times are harder than others

2009-06-16T15:55:00.004-04:00

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.

The value proposition of a premium chequing account

2009-06-11T12:39:00.001-04:00

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.

HSBC has stupid account dormancy rules

2009-06-03T12:45:00.001-04:00

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

2009-06-03T12:00:00.001-04:00

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:

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

Debts:
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.

Credit defined

2009-05-12T12:22:00.004-04:00

We're all about the metaphors and similes here at Loonies And Sense. A few months back, I posted about another blog that had described easy credit as a bottomless cookie jar. Well, a recent post at Consumerism Commentary once again has me all revved up with a "new" way of thinking about credit.

Smithee's post on credit cards that already follow the rules laid out in the new Credit Cardholder's Bill Of Rights in the US discusses the practice of double-cycle billing:

Avoid double-cycle billing (imagine paying your rent for May based on how many days you lived there in May and April)

Maybe this is grounds for me to turn in my PF-blogging credentials, but the concept of credit as renting money really hit me when I read this. Interest is the rent that you pay for the use of the money, and heaven help you if you don't return the money in good condition when you're done with it.

This is an incredibly simple concept, and it strikes me how differently people tend to think about debt than about other items they might rent. Nobody would refer to a rented DVD, a rental car, or a rented apartment as their own property, but try to convince someone that the new car they just financed isn't strictly their own property, and you've got an uphill battle ahead of you.

This concept of renting money also underscores the difference between "good" and "bad" debt: just as we derive utility from the tangible things we rent, we can derive utility from the money we rent. With leveraged investing, it's possible (though by no means guaranteed) that you will earn enough money to pay the interest and repay the borrowed amount. Of course, we can also use this rented money to dig ourselves into a hole. If you spend the money on something that you are not able to convert back into money (i.e. depreciating assets, consumables, etc.), then you no longer have the money to return to the lender. Kind of like handing the keys of a rented apartment to a complete stranger: it makes it kind of tricky to get out of your lease.

It's hardly groundbreaking insight, but it's a new way for me to think of credit and debt, and I found it really interesting.

Two years of progress: How am I doing?

2009-05-06T13:30:00.001-04:00

Although I only started the blog 23 months ago, I've been tracking my finances to the penny since April 30, 2007. That means that, as of today's recap of April 2009, I have two years of progress to report. Just as I posted charts of my various metrics when I had built up one year's history, I thought I would post a graphical review of my progress to date.

Net Worth

As before, the fluctuating curve in my Net Worth represents my actual monthly numbers, while the smooth line represents the best straight line approximation of my progress over time. As you can see, the straight line doesn't do too badly at fitting the curve; it's still a generally increasing trend, although for the first half of 2008 I appeared to be over-performing, and for the last several months I've been under-performing. This can be tied to the market performance during this period, but it's interesting that my most recent month falls right on the line.

Retirement Savings

A look at my Retirement Savings confirms that most of the "off-trend" variation in my net worth over the past year can be explained by swings in market performance. Although I've been contributing steadily to my RRSP accounts over the entire period, this chart shows just how volatile the market has been over the past twelve months. The late-2008 crash is particularly evident, as is the current rally that has been buoying my bottom line for the last two months. A straight line turns out to be a terrible approximation of my retirement savings.

Cash Savings

Cash savings fare better in adhering to a straight line, although some periodic events still throw the curve off the linear approximation. You can see the build-up in October and November, followed by an abrupt drop in December, due to that constant annual surprise, the Christmas shopping season. Although I've successfully navigated through two cash-only Christmases, the impact of the holiday season can still be seen in my cash balances. It's interesting to see how, after my Emergency Fund hit $1,000 in October 2007, my cash savings have never dropped below this value, and since I set my sights on $2,000 last year, this has become my new effective cash "floor".

Revolving Debt

In spite of (or perhaps because of) its status as my most important goal, Revolving Debt has the most boring chart of the bunch. It's almost a perfect straight line, improving by a consistent $20 or so each day over the past two years. It's thanks to this trend (and two very similar trends in my Student Loan and Mortgage repayments) that my net worth has increased so consistently despite substantial fluctuations in my retirement and cash savings. This serves as a terrific illustration of the importance of focusing on the factors you can control: if I can throw $20 a day at my debt, that will always improve my net worth, no matter what the markets are doing. It's a risk-free return on investment, and more than you'll get in any savings account or GIC.

The Last Twelve Months

Over the past year, the overall trends have been comparable to what I see in these two-year views: net worth increasing, and all debts steadily decreasing over time. However, when I look at my retirement and cash savings over the last twelve months, I see something different:

Both these charts show a negative trend over the last year, although the trend is very slight for cash savings. Now, this is not really cause for alarm, since both charts show me currently outperforming the trend, and the trend for my retirement savings is clearly driven by market performance. However, it does indicate that I should continue to keep an eye on my liquid savings. Spending too much on holiday shopping, or dipping into the Emergency Fund to cover some car repairs, could leave me in a bit of a tight spot if I'm not careful.

April update

2009-05-06T12:00:00.002-04:00

Well, this is a bit late. We're almost a week into the month of May, and I still haven't posted my April numbers. I don't really have a good reason for the delay, aside from a full plate at work and enjoying the nice weather we've been having. At any rate, let's see how I did last month:

Reduced my revolving debt to $13,333.48 - This means that I am finally below 50% of the $27,610.74 that I started with two years ago. It also means that it's taken me twice as long as expected to pay off my revolving debt, but I've had two years of consistent, strong progress, and there's nothing wrong with that.

Grew my Emergency Fund to $1,780.85 - This progress is very slow and steady, but until the debt is gone, this fund is more of a "nice-to-have" cushion than a true Emergency Fund, so it can't be my priority at the moment. Still, I'll continue throwing $25 into it every two weeks, until I'm able to get more serious about building up a few months' expenses.

Grew our Wedding Fund to $2,643.23 - We should be in good shape for our wedding next summer, at the rate we're saving for it. Ms. Loonie has been building up her own wedding cache on the side, which is not reflected here, and we're pretty much neck-in-neck at the moment.

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:

Assets:
Online Savings - $2,609.69
Self-Directed RSP - $37,831.13
Employer Group RSP - $11,304.00

Debts:
Revolving Debt - $13,333.48
Student Loans - $20,349.56

Net Investable Assets: $18,061.78
Net Liquid Assets: ($31,073.35)

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 $4,530.09. Liquid savings also rose, for a net increase of $5,138.56 in my investable assets, accompanied by a $1,581.23 drop in my non-mortgage debt, helped along by April being a three-pay month.

Overall, my net investable assets increased by $6,719.79, and my net liquid assets increased by $2,189.70. My NetworthIQ profile has also been updated (including loose cash, home, car and mortgage).

Not a bad month.

The more things change...

2009-04-30T15:27:00.003-04:00

I haven't written much about it here, but I've had a number of frustrations in the past with Rogers, especially their website. If you've been fortunate enough to avoid dealing with their customer-facing website, then I envy you. Personally, I find their site to be a bloated, unstable, convoluted mess that is very difficult to navigate.

In addition to the pain involved in visiting their site, I've been constantly annoyed by how long it takes them to post their monthly statements online. My billing date is the 26^th of the month, and my statement is never available online before the 30^th. It seems to me that, if banks can report the interest accruals on my accounts on the first of every month, then Rogers should be able to post my balance online more or less immediately. Sadly, this doesn't seem to be the case.

Although this month was no different (my April bill finally posted this afternoon), I was surprised and impressed by a change they've made to their notification e-mails. The message now contains the total amount of the bill, where previously you needed to click through and login to the site in order to get any specifics. Now I can get the amount owing from the e-mail, and login at my convenience to check the specific details.

I was really impressed by this innovation, and decided that, since I've delivered scathing criticism on numerous occasions using their website feedback form, I would let them know that I approve of this new feature. So, I punched up the Rogers URL, clicked "Contact Us", and made the appropriate selections to leave "Website Feedback".

Here's what they gave me in return:

I forget, how many words is a picture worth?

Experian discontinuing Canadian operations

2009-04-14T11:50:00.000-04:00

I recently requested copies of my credit report from the three reporting agencies in Canada. It took a few weeks to get al three reports, with Experian's report finally arriving last Thursday. When I looked over the package from Experian, I was surprised to see their cover letter stating that they will cease operations as a Canadian credit bureau effective April 17. Here's the notice from their website (emphasis mine):

Effective April 17, 2009, Experian will unfortunately discontinue its Canadian consumer credit bureau operations as a result of the very difficult economic environment in Canada and around the world, which Experian believes will persist for some time. This means that as of April 18, 2009, Experian will no longer be providing credit reports out of its Canadian database regarding any consumer in Canada.

We will continue to respond to ongoing consumer requests for copies of credit reports, as well as handle disputed items and other consumer assistance until April 17. After that date and upon completion of any disputes in process, all consumer information will be deleted from our database and will no longer be available to consumers or creditors.

If you have not previously obtained your credit report from us or initiated a dispute on your Experian credit report, you may wish to contact one of the other credit bureaus for assistance.

So, after this Friday, Experian Canada is closing shop and destroying its records.

That's too bad; their report was by far the slickest-looking of the three that I received this time around.

I've updated my credit report post with this information.

Payday update - rolling over

2009-04-02T15:15:00.001-04:00

OK, so this is kind of cool.

I got paid today (as I do every second Thursday), and in typical data-addict mode, I've been updating my financial spreadsheet. This is where I keep track of monthly net worth, as well as monthly and bi-weekly progress toward my various financial goals. Looking at the numbers, I noticed that a whole slew of balances crossed key thresholds today.

Here's the run-down:

Revolving Debt - Crossed the $14,000 mark, dropping from $14,069.07 to $13,853.02. This finally puts me below my year-end target for 2008.

Student Loans - Crossed the $21,000 mark, dropping from $21,195.20 to $20,913.86. This gets even cooler when you realize that the two loans making up this total went from $4,023.47 to $3,945.06 and $17,171.73 to $16,968.80, respectively.

Mortgage - Finally crossed the $300,000 mark for the last time. At $299,116.04, we are at last beyond the reaches of accruing interest. Look out, $200K, here we come!

Rising Above the Powers-Of-Ten Bias - Most significant of all, my Emergency Fund and Wedding Fund crossed the $1,732 mark and $2,127 marks, respectively, currently sitting at $1,733.86 and $2,160.11!

I've updated my progress bars, as well as the NCN Network chart for my revolving debt, bringing my Total % Paid to 49.83%. I'm so close to half-way I can taste it.

March update

2009-04-01T15:00:00.000-04:00

April has arrived, and we're firmly into spring, so let's see how I did last month:

Reduced my revolving debt to $14,069.07 - Still chipping away... I'm within spitting distance of $14,000 (my 2008 year-end goal), and almost half-way through my debt elimination. Over the next month, I'll be ramping up my bi-weekly payments to get a bit more aggressive with paying this off.

Grew my Emergency Fund to $1,718.86 - Slowly but surely closing the gap to my $2,000 goal for the end of the year.

Grew our Wedding Fund to $2,110.11 - I owe less income tax than I was expecting, so I was able to transfer some cash from the tax savings bucket in my Freedom Account over to my Wedding Fund. Ms. Loonie is working on her own savings account for the wedding, so by the end of the year we should have a nice bundle built up.

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:

Assets:
Online Savings - $1,875.90
Self-Directed RSP - $35,174.22
Employer Group RSP - $9,430.82

Debts:
Revolving Debt - $14,069.07
Student Loans - $21,195.20

Net Investable Assets: $11,216.67
Net Liquid Assets: ($33,388.37)

For a change, my RRSP actually grew this month, thanks to the recent market rally and over $600 in contributions. Liquid savings are down a bit, for a net increase of $3,879.42 in my investable assets, accompanied by a $905.41 drop in my non-mortgage debt.

Overall, my net investable assets decreased by $4,784.93, and my net liquid assets increased by $569.97. My NetworthIQ profile has also been updated (including loose cash, home, car and mortgage). I recently re-checked the Canadian Black Book® value of my car, and found that it has dropped substantially since I last checked two years ago. I've reflected this change in my overall net worth calculation going forward.

Drawing a blank

2009-04-01T09:36:00.004-04:00

If there's anything more lame than a note in your calendar that says "come up with something funny on Wednesday", it has to be a flat-out failure to produce said funny. I had the best of intentions to follow up last year's sale of the blog with another bit of tomfoolery, but it just wasn't in the cards.

So, for anyone who came here this morning looking for some chicanery, "April Fools!" Remember to keep a handful of salt handy as you peruse the Web today.

300 bits of sense and counting

2009-03-30T13:30:00.000-04:00

When you start a blog to chronicle your journey out of debt, odds are your emotions are running a bit rampant. In a highly sensitive and impressionable state, you create an online profile, and have to choose a title for your project. If you're like me, you try to get clever and invoke some wordplay when naming the blog, and you end up with something like Loonies And Sense, hoping like hell that it will still seem even a little bit witty in a year's time.

Of course, having chosen a "clever" title, you also feel the need to revisit the play-on-words from time to time, referencing the pun in your post titles. This leads to posts like these, with milestone posts being especially heinous offenders. Eventually, you find yourself writing your 300^th post, and may decide to buck tradition by focusing on the sense rather than the Loonies.

All of which is to say that this post is the 300^th that I've written here, starting when I burst onto the scene back in 2007.

Let's take a look at the highlights of posts 201-299:

Canadian Stuff

Loonies And Lexicons: Part 2 - I followed up my initial cross-border cheat sheet with some additional comparisons between Canadian and U.S. financial terminology.

The P2P Lending Minefield - This industry still has yet to get off the ground in Canada, with at least one false start last year. In this economic climate, it will be interesting to see whether this idea gains any traction in the Canadian market.

Comparisons In The Air - Four Pillars posted comparisons between Canadian and American retirement accounts and education savings plans, as well as comparing the TFSA to the American Roth IRA. Some good information here to complement my own cross-border comparisons.

Deposit Insurance at Canadian Credit Unions - With the number of American banks that failed over the past year, deposit insurance has become a real hot topic. I've written in the past about insuring deposits and securities using CDIC and CIPF, respectively, but this post covers the insurance available on deposits at credit unions in each province.

Blogging

376 Days And Counting - A slightly belated celebration of my first blogaversary.

The Worst Financial Advice I Ever Gave - I've been pretty light on the memes here at Loonies And Sense, but I liked this post about all the ways I led myself astray.

Income From Blogging - I've also been pretty light on the blogging revenue, since I consider it my hobby and don't really run it as a business.

Milestones

One Year Of Progress: Charting The Trends - I decided to chart my financial progress graphically, and the trends turned out to be very interesting.

Payday Update: Under $300K Edition - The Loonie mortgage dropped below $300,000 for the first time this month. Since then, accruing interest has twice brought the balance owing back above this threshold, but with this Thursday's payment, we will owe less then $300K, at least for as long as we stay in our condo.

Taxes

Making Sense Of Income Tax - This is one of the longest posts I've ever written. It takes a very detailed look at how income taxes are calculated, and explains the impact of credits and deductions on taxes payable.

Getting The Most From A Group RRSP - I make the lion's share of my RRSP contributions into a group plan provided by my employer. As a result, the tax benefit of these contributions is immediately reflected on my paycheque, and I don't wait until April to get my refund.

Claiming The Tax Credit For Charitable Donations - I took a look at how to optimize the tax benefit of donating to charity.

Start Getting Your 2008 Taxes Ready Today - Whether it's setting up a folder to hold all your tax-related documentation, or setting aside cash to cover your tax bill next April, you'll be much more relaxed when preparing your next return if you've started thinking about it a year in advance.

Feeling Some Property Tax Relief - After building up a surplus in our property tax account, the tax portion of our bi-weekly mortgage payment was reduced last August. We're up for renewal this year, at which time we'll look into paying the taxes ourselves.

Investing

The Market Can Make You Crazy - With the toboggan ride the stock markets have been enjoying, sometimes you just need to step back, breathe, and tell yourself why you're investing in the first place.

Time Changes Everything - A big rally can actually be as unnerving as a big drop. It's hard to keep your emotions in check.

Some Perspective On A Month Of -38% Returns - A "terrible" (remember, this was written prior to October 2008) month in the market prompted me to check the data point against a trend line. Turns out it was actually right on target.

The Loonie Portfolio: Asset Allocation And Half-Year Performance - I took a look at the allocation of my retirement investments, and how they stacked up through the first half of 2008.

How Much Are You Up Or Down? One Ugly Chart, And One That's Not So Bad - Everyone's investments have taken a beating. That's part of the reason that I put so much emphasis on paying off my revolving debt: $500 of debt repayment will increase my net worth in any market.

Looking Back

Remember The Tape Deck: A Lesson In Delayed Gratification - When I was 12, I saved up $100 (plus tax) for a dual cassette deck. To this day, $100 stands in my mind as a significant-but-attainable amount of money.

Financial Archaeology: Unearthing Past Behaviour - A detailed look at the outstanding balance and accrued interest on my credit accounts before I "saw the light" in April of 2007.

How Do You Think Of The Stock Market? - Gordon Korman introduced me to the stock market in his novel Go Jump In The Pool. It confused me at the time, but I think I'm finally getting the idea.

When you can afford to make the "wrong"choice

2009-03-26T12:30:00.001-04:00

Trent at The Simple Dollar recently bought a new 2009 Prius, and took out a loan at 4% to cover the majority of the purchase price. Those who have been reading Trent's blog over the years know him as an advocate of frugality and paying cash, so this decision to finance the purchase has generated a lot of discussion among his readers. He addressed these concerns in a post today justifying his decision.

A lot of the thinking behind the pay-cash-don't-finance argument follows the line of "Won't it feel great when you walk into the dealership, write a cheque for the negotiated price of the car, and drive off the lot without a new loan hanging over your head?" The planning and discipline that it takes to save up enough cold, hard cash to pay for a new (to you) car are the same traits that help people get out of debt, plan for retirement, and become financially independent. When you look at the number of people who still live well beyond their means, spending more each month than they earn and mortgaging their future for today's wants, it's not hard to see that "save up and pay cash" is well-needed advice.

The difference here, though, is that Trent had saved up enough to pay for the car, and chose to finance the purchase (at a very low rate) in order to keep cash on hand for emergencies and any other opportunities that might come up along the way. This is very different than someone living paycheque-to-paycheque signing on for a 7-year loan at 12%. The interest on the loan may well cost him in the long run, but he's worked to put himself in a position where he can find a compromise rather than needing to make the perfect, by-the-numbers decision.

Much like the idea of getting ahead of the treadmill as opposed to getting off it, the message here is that, when you plan and save, you put yourself in a position of choice, and it can be surprising just how many options become available to you.

My life as a hamster

2009-03-24T13:15:00.000-04:00

Back in 2007, a post by Trent at The Simple Dollar introduced me to the concept of the financial treadmill. The idea is that, if you're living paycheque to paycheque, and spending every dollar you make (or, worse, dollars you haven't made yet), you're basically running in place (or even falling behind).

I've written about this a couple of times, looking at my financial progress to see whether I can "get off the treadmill". So far, I still feel the treadmill spinning away, even though I've brought my cash flow out of the red, and built up a small savings cushion.

A post today at Generation X Finance put the treadmill dilemma in a slightly different light. The focus here is to "stop running in place and start making progress."

That "start making progress" piece is a subtle but important difference in the approach to the problem. It really suggests that, instead of looking to get off the treadmill (which really only happens at retirement), you should look to keep ahead of the treadmill. When you look at it this way, it takes "no, I'm not off the treadmill yet, but I'm getting closer," and turns it into "yes, I've come so far, and I'm getting better every day."

Forward motion is success, and helps to motivate future success. My debts (consumer, student and mortgage) are getting smaller every month, and my savings are growing consistently over time. If I have an off week, I may lose ground, but I still end up ahead of where I could be.

I'm still on the treadmill, but I'm running at my own pace.

Ah, to be young and naïve again...

2009-03-19T16:20:00.000-04:00

Today was payday, and I've updated my progress bars and NCN Network chart. In looking at the chart, I noticed the "goal date" I set for myself when I started the blog.

My goal at the time was to be free of revolving debt by April 30, 2009.

At the risk of spoiling the ending, I have to say I'm not going to make it. A two-year payoff turns out to have been a bit unrealistic. On the one hand, I'm kind of bummed to see myself so far off this goal (I'll still have nearly half of the $27,610.74 I started with when the goal date rolls around). My shortfall is due to the choices I've made; it was possible to meet this goal, but I haven't made debt elimination enough of a priority to get there.

On the other hand, I've now reached a point where I always know exactly what my credit balances are, and I track my (ever increasing) net worth on a monthly basis. I've brought my credit usage under control, and have managed to pull off two consecutive cash-only Christmases. I have a small Emergency Fund, and Ms. Loonie and I are well on our way to saving up for our wedding next year.

Could I have been farther along if I'd made different choices? Absolutely. However, I'm miles ahead of where I was financially two years ago, and that counts for a lot.

The price of micro-managing

2009-03-05T12:20:00.003-05:00

Back in 2007, I opened online savings accounts with ING Direct, HSBC Direct, Canadian Tire Financial Services and ICICI. I wrote a series of posts detailing the process of opening and using an account with each of the four institutions, including the transfer and hold times involved with moving funds to or from the savings account.

At the time, Canadian Tire was the only institution to credit the savings account immediately after initiating a transfer in. The other three banks credited the account on the following business day. This is the assumption I've since been using in planning my fund transfers between institutions.

This past Monday, I was working through my beginning-of-month financial shuffle, and I mistakenly requested a transfer of $600 from my chequing account into my ING Freedom Account. I quickly recognized my error, and tried to cancel the transaction. With the one-business-day turnaround time, I should have been able to do this, as the transaction would still have been pending. However, ING had immediately credited my account, so there was nothing for me to do but ensure that the $600 in question was in my chequing account to keep the account from NSF when the transaction went through.

Now I find myself in the slightly annoying position of having $600 that should not have been in my ING account in the first place, which is now on hold for five business days before I can move it back to where it belongs.

I've made my share of money mistakes in the past, and although this one hasn't really cost me anything, it's an annoying "open loop" that I have to keep in mind until it's resolved, and it illustrates the value of automating your finances to prevent errors that come from this kind of financial micro-managing.

Payday update - under $300K edition

2009-03-05T12:00:00.000-05:00

I haven't done one of these in a while, but with today being payday, I thought I'd provide a quick update of my financials. My NCN Network chart has been updated with my latest revolving debt numbers.

Revolving debt is down to $14,212.71, which means I've paid off over 48% of the $27,610.74 I had when I started keeping track in April of 2007. Another $407.34, and I will have paid off half of my revolving debt. That's highly motivating.

Student loans are also dropping nicely. I recently renegotiated Ms. Loonie's interest rate, so both our loans are now at a fixed rate of 5%. Two more payments will bring my loan under $4,000, and hers under $17,000. Compare that to the respective $7,687.35 and $26,000 that we started with, and you can see the progress we've made over the past two years.

Finally, the really exciting news is that today's mortgage payment brought our principal down below $300,000, and we currently owe $299,883.42 on our mortgage. Granted, two weeks' accrued interest will boost the amount owing back up above $300K, but this is a huge milestone for us. It seems like only yesterday we finally bid adieu to our CMHC premium, but now we have a new first digit, and with our renewal date approaching and rates at all-time lows, we are in better shape every day.

I think it's safe to say that I'm happy with our progress.

February update

2009-03-02T14:45:00.000-05:00

For such a short month, February seemed to last forever. Between work and personal commitments, I felt like I was being pulled in about fifty directions, but I did accomplish a few things since last month:

Reduced my revolving debt to $14,413.42 - This was just keeping up with my regular bi-weekly payments. The drop of $377.82 was a little lower than last month, because I had to pay off my 0% credit card. This ended the "interest amnesty" I've been enjoying on my revolving debt since last January, and meant that the banks carried more heft in the tug-of-war of my debt reduction. Still, less than $30 in interest is nothing to gripe about. I'm looking into starting a new round of 0% offers this month, so let's see what I can find.

Grew my Emergency Fund to $1,686.35 - Just a $33.06 increase this month, but even in slow-and-steady mode on this goal, I'm still on track to make $2,000 by year-end.

Grew our Wedding Fund to $1,684.29 - I have just over $600 of this in a TFSA with ING, but the rest is available for any deposits we need to make over the coming months.

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:

Assets:
Online Savings - $2,211.34
Self-Directed RSP - $32,949.57
Employer Group RSP - $7,440.61

Debts:
Revolving Debt - $14,413.42
Student Loans - $21,756.26

Net Investable Assets: $6,431.84
Net Liquid Assets: ($33,958.34)

My liquid savings (which don't include our Wedding Fund, since this money is already pretty much spoken for) grew slightly, mostly through contributions to my Freedom Account. This month saw yet another slide in my RRSP, in spite of over $600 in contributions. These changes translated to a net decrease of $2,057.05 in my investable assets, along with a $936.74 drop in my non-mortgage debt.

Overall, my net investable assets decreased by $1,120.31, and my net liquid assets increased by $1,397.63. My NetworthIQ profile has also been updated (including loose cash, home, car and mortgage).

Credit reports information updated

2009-02-10T11:30:00.000-05:00

With the recent news that Experian is ending its relationship with myFICO in the US, I decided to check the information in my free credit reports post.

Turns out that Northern Credit Bureaus (formerly an Experian-owned company) now operates in Canada as Experian Canada. The top-level URL remains the same, but my links to the credit report request forms were broken, so I've updated the post. There's now a one-page PDF form that you can print, fill out and mail to Experian's offices in Toronto.

The information for Equifax and TransUnion has not changed.

Updated: Free credit reports in Canada

A look at my accounts

2009-02-03T17:30:00.000-05:00

Putting together my January recap, it occurred to me that it might be a good idea to post a summary of how my financial accounts are set up. I've already discussed my cash flow setup in some detail, but I haven't looked at the individual accounts that comprise the gears of my money machine.

Don't take this as a recommendation of how you should set up your own finances; in fact, I may very well see this exercise as an excuse to simplify my own financial life. At any rate, here's the rundown:

Chequing Accounts

Joint chequing account at a brick and mortar bank - This is the account into which my pay is deposited every two weeks, and our mortgage and loan payments all come out of this account automatically. You could call this the "hub" of my finances, as this is where money enters my life, and then moves out to the appropriate accounts and expenses.

Individual chequing account at a brick and mortar bank - I keep this account as my own personal spending money. After all of my savings and fixed expenses come out of the joint account, what's left of my paycheque is transferred into this account to be used for groceries, gas, etc.

Savings Accounts

Individual savings account at a brick and mortar bank - This account is currently empty, as it pays virtually no interest. I haven't used this in several months, and should probably just close it down.

Emergency Fund at ING Direct - This used to be my primary Emergency Fund account, until I moved the majority of my emergency savings to HSBC. I still keep a few hundred dollars in this account, and I have a bi-weekly automated transfer of $15 into this account from my payroll account.

Emergency Fund at HSBC Direct - Thanks to the myriad ways of using HSBC's savings account (you can essentially do anything short of writing a paper cheque), I decided to keep $1,000 of my Emergency Fund with them. I have an access card that gives me access to this account, and I can even pay bills from it if necessary. The balance has been slowly growing thanks to the $2-3 in interest that it earns each month, to the point that I now have nearly $1,040 in this account.

Emergency Fund at Canadian Tire Financial Services - I opened this account when I was reviewing high-interest savings accounts, and I basically hold $20 in the account just to keep it open. The rate is comparable to ING and HSBC, but it doesn't really serve much purpose in my financial life.

Emergency Fund at ICICI Bank - As with Canadian Tire, I opened this account just to see how it stacked up against the others. I have no complaints, but it's really a redundant account, with $20 earning pennies in interest each month.

Emergency Fund at Citizens Bank of Canada - What is wrong with me? Yet another duplicate account. I opened this to take advantage of a $50 promotion in the fall, and now I'm just keeping a balance of $150 in this account until they remove the hold in March.

Freedom Account at ING Direct - This is my most actively used savings account. This is where I stash money that I know I'll need in the near future, but not before my next paycheque. Condo fees, car insurance, cable and hydro bills are all paid from these savings, as well as clothing, subscriptions and car repairs. I use a spreadsheet to keep track of how much I have saved up in each category. $300 goes into this account every payday, and I transfer funds back out as needed.

Giving Account at ING Direct - Really just an extension of the Freedom Account, this is where I save up for birthdays and Christmas, as well as charitable donations. $100 gets socked away in this account every payday, and I also keep track of the categories in a spreadsheet.

"Fun" savings at ING Direct - Actually the first online savings account I ever opened, this is where I save up for "treats." I set aside $25 each payday in this account, and periodically wipe it out on something fun.

Wedding Fund at ING Direct - This is a regular ING savings account, and I have an automated transfer every payday into this account, as well as any ad hoc savings I manage to set aside for our big day.

Wedding Fund TFSA at ING Direct - Saving for a wedding represents a fair chunk of change, so I opened this account to take advantage of the tax-free interest earnings and flexible withdrawal rules.

Investment Accounts

Self-Directed RSP at discount brokerage

Group RRSP through my employer - This is where I purchase my employer's stock by payroll deduction. I set aside 6% of my paycheque in company stock, and they match 50% of my contribution.

Group DPSP through my employer - This is where my employer's matching contributions go, again purchasing company shares.

Group RRSP through my employer - This is a separate savings plan from the group RRSP listed above, with more flexible investment options and contribution methods. I defer a portion of my year-end bonus into this account to reduce my taxes owing (and save for retirement, of course!). I can hold company stock, index funds and cash in this account.

Non-registered trading account at discount brokerage - I'm still deep in the hole thanks to my consumer debt, so this account has been empty since I opened it. One day, however, I hope to enter the world of non-retirement investing.

Credit Cards

BMO Mosaik MasterCard with Air Miles - I've mentioned before that Air Miles are my reward program of choice. This card gives me one point for every $15 I spend, and it is my primary card, and the one with the highest limit.

VISA from a brick and mortar bank - I subscribe to the "have one of each" philosophy when it comes to credit cards, so I have this card for the rare situation where MasterCard isn't accepted.

American Express with Air Miles - AmEx is the only credit card accepted at Costco, so Costco ends up being pretty much the only place that I use this card. However, since these transactions usually come in at $150-300, being able to rack up rewards under the same reward program as my primary card is a nice benefit.

MBNA MasterCard with 0% prmotional APR - This is where most of my revolving debt currently sits. I'll have to pay this off within the next month when the 15-month promotion ends, at which point I'll either look for another 0% deal, or simply close down the account.

Line of Credit

Unsecured line of credit at a brick and mortar bank - Once the promotion on the 0% MBNA card ends, I'll pay it off with this account. I use this account to hold my revolving debt at a low interest rate. As I mentioned in past discussions of my cash flow, every time I use my credit card to buy something, I transfer that amount from my chequing account to this line of credit, and then pay the card from the line of credit at the end of the month. This saves me a fair amount in interest charges each month, since my line of credit balance is artificially lowered (essentially small-scale credit card arbitrage).

Term Loans

Mortgage at a brick and mortar bank - This is the original mortgage on our condo, which we're slowly chipping away at. It's up for renewal this summer, so we should be able to lock in a better rate than what we currently have.

Mr. Loonie's consolidated OSAP loans at a brick and mortar bank - I consolidated my student loans into a low-rate, 5-year loan back in 2006, and I'll be saying a fond farewell to this debt in February of 2011.

Ms. Loonie's consolidated OSAP loans at a brick and mortar bank - In the summer of 2007, we also consolidated Ms. Loonie's student loans, which will be paid off about a year after my own loans. By that point, we should be chugging along with nothing but a mortgage, and that is just fine by me!

Summary

Wow. I have a lot of accounts. Two chequing accounts, eleven (!) savings accounts, five investment accounts, four credit cards, a line of credit, a mortgage and two loans. That's 26 accounts in total. However, most of these accounts serve a very specific purpose. The only place I could really simplify is by closing down some savings accounts. Even here, I don't trust my money management quite enough to throw all my savings in a single pot, so I would want to maintain my Freedom Account separate from my Emergency Fund, and so forth.

The good news here is that I can account for every penny of my savings and my debt, and I have current login information for each account. I've even put together a "road map" that provides the relevant information for every account on this list. Still, I can't shake the feeling that I'm doing some significant juggling here, so I may need to look for ways to trim this system down over the next couple of years. I've put myself on the path to financial recovery by swinging pretty far to the OCD end of the spectrum, and now it may be time to start loosening my grip.

January update

2009-02-03T15:30:00.001-05:00

January is over, and we're into the second month of 2009. Let's take a look at how I did with last month's goals:

Reduce my revolving debt to $14,800 - Bingo. I ended January at $14,791.24, a drop of over $400. Not a bad start to my year of debt reduction.

Grow my Emergency Fund to $1,650 - Another triumph: I'm currently sitting at $1,653.29. Not a huge growth from December's $1,589, but it's moving in the right direction.

Grow our Wedding Fund to $1,260 - I hit this one, too, ending the month at $1,318.03. We'll likely need to put down a deposit for a photographer within the next month or two, so it's nice to have this cushion set aside.

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.

Run an average of twice per week, and play squash at least once per week - Whoops. I did manage to play squash once a week, but only ran once, and briefly at that.

Try two new recipes, with a focus on doing as much as possible from scratch - Another flop. Our weekends ended up being far more chaotic last month than we anticipated, and although we weren't too bad about eating out, we didn't get to be creative in the kitchen.

Write detailed posts on three subjects - I did manage to churn out three posts (besides my update posts), but hardly the treasure trove of insight I was hoping to produce. Shall I now throw down the gauntlet and attempt to redeem myself during the year's shortest month?

Now, on to my month-end update:

Assets:
Online Savings - $1,750.45
Self-Directed RSP - $29,744.12
Employer Group RSP - $13,164.00

Debts:
Revolving Debt - $14,791.24
Student Loans - $22,315.18

Net Investable Assets: $7,552.15
Net Liquid Assets: ($35,355.97)

My liquid savings (which don't include our Wedding Fund, since this money is already pretty much spoken for) held steady, with some expenses coming out of the Freedom Account offsetting the Emergency Fund growth. This month saw a jump in my RRSP, due to my year-end bonus and some payroll contributions. These changes translated to a net increase of $4,590.72 in my investable assets, along with a $987.62 drop in my non-mortgage debt.

Overall, my net investable assets increased by $5,497.34, and my net liquid assets increased by $850.72. My NetworthIQ profile has also been updated (including loose cash, home, car and mortgage).

Four Things

2009-01-26T11:30:00.002-05:00

There's a bit of self-tagging going around these days, and I liked this one, so I thought I'd chime in.

4 Things I'm Passionate About

Family
Music
Wine
Reading

4 Words or Phrases I Use Often

"Ça va, et toi?" (my French is limited)
"Supposably"
"Halfway under the bus"
"That's what she said."

4 Things I Want To Do Before I Die

Have children
Build a house
Spend at least six months in Italy
Learn to play the drums

4 Things I Have Learned From The Past

I'm not as smart as I think I am.
Starting late is better than not starting at all.
Loving someone doesn't mean they're perfect.
The fourth in a list of four profound insights is always the most elusive.

4 Places I Want To See Or Visit

Giza
Ayers Rock
Iguaçu Falls
Stonehenge

4 Favourite Restaurants

Bâton Rouge
Ki
Fred's Not Here
Any good Irish pub

4 Things that Happened Yesterday

I stuck (pretty much) to my shopping list at Costco
I nailed "My Name is Jonas" by Weezer in Guitar Hero III
I finally updated my computer to Ubuntu 8.10
I played guitar for more than two hours

4 People I Tag

You, you, you, and... you.

Big day

2009-01-20T14:00:00.000-05:00

There was something significant that was supposed to happen today, but I'm having trouble remembering what it was. :)

Congratulations to our friends in the US on your new president. Whatever your political leaning, it's a fascinating time to be alive. The next four years should generate some great discussion, and hopefully a good deal of positive change in North America and the world at large.

Back on our side of the border, the Bank of Canada today cut its interest rate to 1.00%. In the fastest response I've seen to date, all five of the big Canadian banks immediately matched the rate drop, lowering their prime rates by 0.50% to 3.00%. This puts the banks 0.25% behind overall in terms of passing on the rate cuts to the customer. Not too shabby, when you consider that interest rate spread is a bank's bread and butter.

As always, interest rate news is good for some, and bad for others. Borrowers are finding that their cost of borrowing is reduced even further (my line of credit currently sits at 3.25%), but savers will no doubt also be hit with a drop in the APR on their savings accounts. Now might be a good time to lock in any mid-term savings in a GIC before the rates get any lower.

An excellent metaphor for credit

2009-01-16T11:30:00.000-05:00

For a while now, I've been a fan of the show 'Til Debt Do Us Part. It's a highly addictive reality show about couples trying to right their financial ship and salvage their relationship in the face of out-of-control spending and spiraling debt. The host, Gail Vaz-Oxlade, is a very entertaining, no-nonsense personality, who also maintains a great blog with tips, tricks and diatribes on all things financial. Scanning through her articles this morning, I found a fantastic post likening the age of easy credit to having a bottomless cookie jar:

The problem with the bottomless cookie jar is that eventually you begin to take the cookies for granted. It’s human nature. And so when a couple of weeks passed and none of the cookies had been eaten, I stopped filling the jar. Several weeks later, after the jar had been emptied, washed and put back in place, Alex dipped her fingers into the jar to find it empty. She was very disappointed. The cookies were gone. It was the end of the world.

This serves as a very effective metaphor for people's relationship with their credit. Just look at the mystery surrounding the calculation of credit scores and credit limit assignment criteria, and it's not hard to see why most of us don't really understand how we got the credit we have. When a bank first hands you a $10,000 credit line, it's difficult to imagine how you could ever spend that much money, and you can develop a false sense of your ability to manage the ensuing debt. "They wouldn't have given me the limit if I couldn't handle it!"

I remember when I first started digging my way into my hole of consumer debt, I looked into the option of getting a line of credit to pay off my credit cards. At the time, my utilization was so high that I didn't qualify (thankfully), and I spent a good deal of time thinking over how to approach the problem of my debt. I'm a smart person, but I found myself grappling with the idea of whether consolidating my cards onto a line of credit would solve the problem. A small voice in the back of my mind tried to explain that shuffling and adding to the pile wouldn't get me anywhere, but I still didn't get it.

I find this disconnect fascinating. The "math" of personal finance really couldn't be simpler: you need to earn more than you spend, and you need to pay off more than you add to your debts. There's not even any multiplication or division here; it's straight addition and subtraction. Heck, you can even reduce it to the point of "is this number bigger than that number?" All the same, however, we all seem to struggle at some point with this dilemma. We just don't understand how the cookie jar works.

Goals for January 2009

2009-01-02T17:00:00.001-05:00

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 January:

Reduce my revolving debt to $14,800 - Since my CPP contributions and EI premiums are about to start again, my cash flow will drop a bit over the next several months. This means less money to throw at debt reduction (especially given my focus on saving for our wedding), but a $400 reduction in my revolving debt should be realistic.

Grow my Emergency Fund to $1,650 - I have an incentive bonus coming into my Canadian Tire savings account this month, so this target should be in line with my regular contributions.

Grow our Wedding Fund to $1,260 - I was fortunate enough to receive a year-end bonus this year, and when it arrives later this month, I should be able to get this "seed" amount set aside, and then go from there in the coming months.

Run an average of twice per week, and play squash at least once per week - I really need to get back into an exercise routine, so let's start here.

Try two new recipes, with a focus on doing as much as possible from scratch - I have a few slow cooker recipes that I'm excited to try out, so we may be hosting some dinners this month as I experiment.

Write detailed posts on the following three subjects:
1. My TFSA plans
2. My pension contribution plans
3. My asset allocation

That should get me nicely back on track this month.

Goals for 2009

2009-01-02T15:00:00.002-05:00

Last January I posted a set of goals for 2008, so here is my list of what I hope to accomplish this year:

Save $6,500 toward our wedding - Ms. Loonie and I will both be aggressively saving for this throughout the year, and I should be able to pull this together without hampering my other financial goals. A cash-only Christmas is one thing, but I really don't know how well we'll do with having a cash-only wedding. Only one way to find out, I suppose...

Reduce my revolving debt to $7,500 - With the increased savings in our Wedding Fund, there will be a bit less cash to throw at my debt, but this number should be manageable. That will leave me with 27.3% of my $27,610.74 starting debt.

Grow my Emergency Fund to $2,000 - I really just want to repeat the success that I had in 2008, and get this savings cushion back up to where it was in October.

Give $2,000 to charity - I'm not increasing this from my 2008 goal, but I want to make sure that we give at least as much as we did last year.

Weigh 195 pounds - I've got the hunger for getting in shape. I have shoes that are kind to my feet, convenient access to a gym and a squash court, and a fiancée who's also excited to get back into an exercise regimen. With all that going for me, losing some weight should be child's play.

Write at least three "researched" posts each month - My posting frequency really fell apart in the last half of 2008, so this is an attempt to get things back on track. In addition to my month-end and payday updates (which are highly cookie-cutter affairs), I intend to have at least three posts each month for which I need to do some background research. Hopefully, this will lead into far more than three a month, but it's a manageable goal that will get me started.

Be promoted to the next job level - I usually prefer to list goals over which I have control, so this one is a bit of a stretch. This really puts a concrete success measure around my wishy-washy "be productive" goal. I've recently transitioned into a sort of "pre-management" role at work, and I can leverage this opportunity by showing my aptitude for the next job level (i.e. actually leading a team). It will take a lot of work on my organizational and project management skills, but I can do it. Even if I don't actually get the promotion, I'll be very well positioned in my career development.

That's what I'm looking to get done in 2009. What are your goals for the year?

December update; 2008 in review

2009-01-02T14:30:00.001-05:00

Happy New Year! I don't know about you, but I'm happy to see the end of 2008, and I certainly hope that 2009 has a little more sunshine to offer.

This is the my second New Year's post, and the end of my first complete year of blogging, so let's take a look at how I did with my 2008 goals:

Propose to Ms. Loonie - I did this in November, and we are now engaged to be married in 2010. We couldn't be happier; this was probably my most important goal for the year, and the only reason it took so long was that I really wanted to pay cash for the ring. Long story short, I now have a beautiful fiancée with a paid-for ring, a tentative wedding date, and a whole lot of planning to do.

Reduce my revolving debt to $14,000 - Not quite. I ended the year with $15,204.77 in revolving debt, a drop of $8,192.94 that put me at 87.2% of my debt reduction goal for the year. I would have liked to hit this target, but 87% is a lot better than the 75% of progress I made last year. The good news regarding my debt reduction is that I managed to have my second cash-only Christmas, thanks to my Freedom Account. It's amazing how good it feels to start the year without a holiday debt hangover.

Grow my Emergency Fund to $1,500 - My Emergency Fund is meant to be small for the time being, until I pay off my revolving debt. However, I'm still looking to make continuous, small contributions to this cushion, just to keep the saving-for-saving's-sake habit alive and well. I closed the year with $1,588.90 in emergency savings, an increase of $425.94 that put me at 126.4% of my savings goal for the year. This is the net increase in my Emergency Fund, after taking out a few hundred dollars toward the end of the year to top-up Ms. Loonie's engagement ring fund and some car repairs.

Give $2,000 to charity - I don't buy into the notion of a religious tithe, but I definitely believe that it's important to give. I contribute to a number of United Way charities through bi-weekly payroll deductions, and also make monthly donations to a local listener-supported radio station. On top of this, we sponsored a few friends in fundraising activities, and bought into casual Fridays at work. All told, we made $2,002.00 in charitable donations this year, which nails my goal for the year, and is a big improvement over the $1,300 we gave in 2007.

Grow the readership of Loonies And Sense to 100 RSS subscribers - At this point, it starts to look as if I simply stopped reading my list of goals. I currently have 54 RSS subscribers, which is a far cry from 100. That's really my fault, however, because my posting schedule really fell off in the second half of the year.

Lose 25 pounds - Things looked so promising, as I started running and playing squash on a regular basis, as well as walking consistently to and from work and eating a healthier diet. However, I got laid up with some really bad heel blisters just before the holidays, and coupled with a bounty of Christmas treats I'm back to square one. All is not lost, however; I received a digital scale as a prize through work, and I'm well-equipped to get back into the saddle in January. Let's see those pounds disappear!

Adopt and maintain a version of Getting Things Done - D'oh! I'm well shy of having this system in place. I have made some improvements in my organizational system at work, including using more folders to manage my paper, but I still struggle with staying on top of my to-do list. This really needs attention in 2009.

A few significant misses on this list, but my finances made significant progress in the right direction, and I've taken my relationship with Ms. Loonie to the next level, so I'm happy with what I got accomplished (especially considering how much bad news was flying around throughout the year).

Now, on to my month-end update:

Assets:
Online Savings - $1,887.35
Self-Directed RSP - $31,092.25
Employer Group RSP - $7,169.25

Debts:
Revolving Debt - $15,204.77
Student Loans - $22,889.27

Net Investable Assets: $2,054.81
Net Liquid Assets: ($36,206.69)

Holiday shopping and car repairs put a $1,661.98 dent in my liquid savings this month. However, my retirement savings finally had a flat month, growing by $2.57 after three straight months of multi-thousand-dollar drops. Combined with debt reduction, my net investable and net liquid assets decreased by $415.59 and $418.16, respectively. My NetworthIQ profile has also been updated (including loose cash, home, car and mortgage).

2008 in review

Besides the financial progress detailed above, here are the rest of my 2008 milestones:

I knocked off 35% of my revolving debt from the beginning of the year. This leaves me with only 55.1% of the $27,610.74 in debt I had in April of 2007. That's a significant chunk of cash, averaging $682.75 per month.

We've paid off $9,646 in mortgage principal, and $7,209 in student loans. This is all due to our automatic bi-weekly payments, with no lump-sum prepayments.

My retirement savings have dropped by $3,732, in spite of over $11,000 in RRSP contributions. This rather sizable black cloud has two silver linings: 1) I'm getting my first taste of a serious bear market, and a chance to see how I react to a period of horrible market performance; and 2) I've spent a good chunk of the year buying stock and mutual funds at a deep discount, holding up the "buy-low" side of the investor's mantra. Since I have no need of these investments for at least two decades, I'm content to sit back and enjoy the ride. Besides, it's hard to imagine 2009 being any worse in terms of market performance.

My net worth has increased by $21,396 (72%), while my net investable and net liquid assets have increased by $11,750 (124%) and $15,482 (30%), respectively.

Goals

I'm getting back on top of posting my monthly goals. Over the next couple of days, I'll be posting my goals for January, as well as my year-long goals for 2009. Stay tuned!

How much are you up or down? One ugly chart, and one that's not so bad

2008-12-03T12:45:00.001-05:00

When I calculate my net worth for the month, the data get fed into some dynamic charts that I've created, to provide a visual representation of my progress over time. I've posted these charts a couple of times, but this month's output really stopped me in my tracks. Behold the majesty of my retirement investment performance since I started tracking in April of 2007:

Despite contributing roughly $18,500 to my retirement accounts since April 2007, my investments have gained only $2,171.50 in value.

Yippee.

Now, I need to point out a couple of things here:

This chart only shows the month-end value of my investments - I haven't done any adjustments to show "what $10,000 invested on April 30 of 2007 would be worth today", or the like. This is a very basic "what was my investment portfolio worth on X date?" view of my RRSP's value over time.

This graph starts at a value of $36,087.43 - Although a quick look at the chart makes it look like I've come full circle, there is actually another 6 years of progress prior to April 2007 that got me up to that point. I have to keep in mind that I'm really "up" by $38,258.93 over where I was at the beginning of my career (namely $0).

Since the beginning of the year, my retirement investments are down by 7.9%. I'm OK with that, since this money is for the long term, but it still hurts to see such a pronounced drop-off over such a short period.

A post at Clever Dude made me stop and think about how I'm really doing this year. True, my investments are down (by a lot), and my net worth has been slowly declining the last couple of months as a result. However, I've been making consistent progress on paying off my revolving debt, and tucking some cash away in my Emergency Fund and Freedom Account. As a result, my net worth is actually up by 71.8% over where it was at the end of 2007, my revolving debt is down by 32.1%, and my cash savings are up by 96.0%:

There's no question in my mind that I'm moving in the right direction, and although net worth has been stagnant the past few months, I'm laying a very solid groundwork for the future. By starting with a small base, and sticking to the plan, I've survived a huge drop in the market and actually grown my net worth by over 70%. That's not too shabby.

How is your big picture looking? Is market performance overshadowing the rest of your financial life, or are you seeing small changes add up to something better?

November update

2008-12-01T12:00:00.001-05:00

Somehow, December is already here. I'm not entirely sure how this happened, but the holiday season is upon us, and we're in the final stretch of 2008. How are your holiday savings coming along? Have you been planning ahead for the shopping season? Are you scaling back on your purchases this year?

I didn't set specific goals in November (two months in a row equals a big slap on the wrist for Mr. Loonie), but here's a summary of my progress for the month:

I reduced my revolving debt to $15,892.86 - This $498.99 drop pales in comparison to the $1,041.94 I paid off in October, but it's still a good-sized chunk of debt that's now gone. Not much new to see here, but it's movement in the right direction.

My Emergency Fund dropped from $2,067.70 to $1,701.46 - What happened??? Did I have car repairs? Did I need to cover a health emergency out of pocket? No, things are fine in the Loonie household, which brings us to the third point...

I proposed to Ms. Loonie, and she said yes! - The slowdown in debt repayment and the slight dip in my Emergency Fund are due to my purchase of an engagement ring last month. For most of the year, I've had some money stashed away in a savings account, and I finally put it to good use to pop the question to the woman of my dreams. We're looking at dates in early 2010 for the actual wedding, but for now we're just basking in the glow of being engaged.

Now, on to my month-end update:

Assets:
Online Savings - $3,549.33
Self-Directed RSP - $31,128.93
Employer Group RSP - $7,130.00

Debts:
Revolving Debt - $15,892.86
Student Loans - $23,445.00

Net Investable Assets: $2,470.40
Net Liquid Assets: ($35,788.53)

My liquid savings grew slightly in November, which reflects some substantial contributions to my Freedom Account, offset by the withdrawal from my Emergency Fund. This month had a much smaller drop in my RRSP, which shed only $2,789.20 (as opposed to $6,200.26 in October). Still, the last time my retirement savings were this low was July 2007. These changes translated to a net decrease of $2,590.82 in my investable assets, more than offsetting the $1,066.52 of progress I made in reducing my non-mortgage debt.

Overall, my net investable assets decreased by $1,524.30, and my net liquid assets increased by $1,264.90. My NetworthIQ profile has also been updated (including loose cash, home, car and mortgage). The market took a much smaller bite out of my retirement savings this month, which is a relief. The continuing forward motion in my net liquid assets is good to see, considering that the Loonies have a wedding to plan. Let's keep building those savings and shrinking that debt!

October update

2008-11-03T08:30:00.000-05:00

Hello there. Remember me?

I don't know if you've noticed this, but a lot has been going on during the past month. Between the bailout in the U.S., the injection of cash into the Canadian mortgage market by the CMHC, and the rest of the turmoil going on in the markets, it's been really tough to keep on top of everything that's going on. Frankly, it seems to have turned me from a commenter to a spectator, as I try to wrap my head around it all. It's taken all my "finance sense" just to reassure myself while watching the decimation of my retirement accounts, and I just haven't had the wherewithal to post on any of the financial goings-on in October.

In spite of my complete radio silence this month, I have still been bringing in a paycheque, and I have been doing things with that money, so let's take a look at how I did. I didn't get around to posting any goals for the month, but I can still post my financial progress:

I reduced my revolving debt to $16,391.85 - A three-pay month is always welcome when looking at my debt elimination progress. I was able to knock more than $1,000 off my debt, which feels good. I'm not sure whether I'm going to hit my $14,000 target for the end of the year, but at least I'm maintaining forward momentum.

I grew my Emergency Fund to $2,067.70 - I'm well above my year-end target of $1,500, so I have a nice cushion for the days between my payday and Ms. Loonie's paycheque.

Now, on to my month-end update:

Assets:
Online Savings - $3,350.95
Self-Directed RSP - $32,794.73
Employer Group RSP - $8,253.40

Debts:
Revolving Debt - $16,391.85
Student Loans - $24,012.53

Net Investable Assets: $3,994.70
Net Liquid Assets: ($37,053.43)

My liquid savings grew substantially in October, thanks to the three paycheques that fell during the month. However, my RRSP shed another $6,200.26 in value, bringing my retirement savings below where they were one year ago. I'm thankful that I'm dealing with this market crash so early in my saving process; as long as the markets do rebound, the coming years should provide some very favourable rates of return. It still hurts to watch my balance sheet decrease by thousands of dollars each month. These changes translated to a net decrease of $5,270.17 in my investable assets, which dwarfs the $1,888.72 of progress I made in reducing my non-mortgage debt.

Overall, my net investable assets decreased by $3,381.45, and my net liquid assets increased by $2,818.81. My NetworthIQ profile has also been updated (including loose cash, home, car and mortgage). I'm glad that I calculate my net liquid assets each month, because this metric keeps me focused on the items I actually control: debt reduction and cash savings. Other than setting an asset allocation I'm comfortable with, my investment performance is largely out of my hands, so being able to see the impact of my behaviour on my bottom line is very important. It's been well over a year since I had a month-over-month drop in my net liquid assets, so I must be doing something right...

September update

2008-10-01T10:30:00.000-04:00

For a month with only 30 days, September seemed to go on forever. Now we're into October, and the Christmas merchandise is already starting to crop up in stores everywhere. Have you been setting aside cash for holiday shopping? If not, now might be a good time to start.

Let's take a look at how I did with my September goals:

Reduce my revolving debt to $17,500 - I nailed this one, closing the month at $17,433.79 in revolving debt. That's still a lot of revolving debt to have, but it's $644.41 less than I had a month ago, so I'm happy with the progress.

Grow my Emergency Fund to $2,000 - Done. After interest posted to my accounts, my Emergency Fund balance was $2,018.33. That puts me at a point where I can ease off my emergency savings and focus on other areas that need the funds.

Run at least twice per week - Not quite. I did get out running five times this month, which is more than once per week, but unless my math is wrong, it falls short of twice a week. We also played squash a few times, so my activity level wasn't bad, but I didn't quite get there.

Try two new recipes for foods that we would usually buy prepared - Not so much. We've been a tad lazy on the cooking front this month, and haven't been flexing our creative muscles in the kitchen.

Now, on to my month-end update:

Assets:
Online Savings - $2,420.86
Self-Directed RSP - $38,853.91
Employer Group RSP - $8,394.48

Debts:
Revolving Debt - $17,433.79
Student Loans - $24,859.31

Net Investable Assets: $7,376.15
Net Liquid Assets: ($39,872.24)

Due to some items being paid out of savings this month, even with the growth in my Emergency Fund, my cash savings dropped by $187.45. Also, thanks to the shenanigans on Wall Street this month, my retirement investments once again showed a month-over-month decrease, dropping by $4,343.09 in spite of over $600 in RRSP contributions. This translates to a net decrease of $4,530.54 in my investable assets, which more than offset the $1,205.93 of progress I made in reducing my non-mortgage debt.

Overall, my net investable assets decreased by $3,324.61, and my net liquid assets increased by $1,018.48. My NetworthIQ profile has also been updated (including loose cash, home, car and mortgage). Over the 17 months I've been tracking my progress, this is only the fifth time I've had negative growth in my net investable assets, and each time this has been driven almost entirely by a drop in investment value. The silver lining to this is that I'm maintaining forward progress on the items I can control (like debt reduction and cash savings), in spite of the factors I can't control (like investment returns).

Payday update

2008-09-04T12:00:00.001-04:00

I never did get around to posting payday updates in August, what with vacation and a generally hectic schedule. Today was payday, though, so I've brought my progress bars and NCN Network chart up to date, and I'm making continuing to make headway on my revolving debt and Emergency Fund.

As of today, my revolving debt currently sits at $17,778.20, which is less than two-thirds of what it was when I started tracking last April. That's not bad progress. I'm working toward a goal of $17,500 by the end of the month, and I'm well-positioned to hit that target.

My Emergency Fund is at $1,927.41, spread between a few online savings accounts, an account at my primary bank, and some cash in an envelope stashed at home. Hitting the $2,000 mark for September shouldn't be too much of a stretch, so it will be nice to have that buffer in place.

Nothing too exciting, but I'm continuing to move forward, and I'm a lot better off than I was when I started this blog. That feels really good.

Goals for September 2008

2008-09-04T10:00:00.000-04:00

At the beginning of every month, I post my update for the previous month's progress, and set goals for the month to come. I'm a bit late this month, but I've still got a few things in mind for August:

Reduce my revolving debt to $17,500 (currently at $18,078.20) - I've missed the last two months' "stretch" goals, so this amount seems right in line with my progress to date.

Grow my Emergency Fund to $2,000 (currently at $1,912.41) - Getting the fund to this level will comfortably cover the delay between my own payday and Ms. Loonie's paycheque, and lets me ease off this goal for a bit and focus on debt elimination.

Run at least twice per week. My exercise schedule was virtually nonexistent in August, so it's time to pick up the pace. Twice per week should be manageable, so let's stop talking about it and get running.

Try two new recipes for foods that we would usually buy prepared. We had a lot of fun making gazpacho last week, so I'm eager to try this again. I'm looking at ideas like from-scratch pasta, salsa, and some other items, so I'll keep you posted.

September is a month for new beginnings, so it's time to get things back on track.

Deposit Insurance at Canadian Credit Unions

2008-09-03T12:40:00.001-04:00

Nickel at Five Cent Nickel posted recently about protecting credit union deposits in the United States. Nickel points out that the NCUA is a federal agency that adminsters the NCUSIF, which insures deposits at credit unions in a way similar to the protection provided by the FDIC.

I've written before about the equivalent insurance available to Canadians and Americans for assets held at a bank (CDIC / CDIC) or brokerage (CIPF / SIPC). I was interested to see yet another kind of asset protection, and I immediately started wondering whether Canada had equivalent protection for credit union members.

It turns out that there is similar protection in Canada, but it is structured differently.

Canada's credit unions and caisses populaires (as they are known in Quebec) are provincially incorporated, whereas credit unions in the U.S. are federally chartered entities. As a result of this, regulation of Canadian credit unions is almost exclusively at the provincial level. The CUCC is federally chartered and regulated, and receives some liquidity support from the Bank of Canada and the CDIC, and several provinces (Alberta, British Columbia, Manitoba, Nova Scotia, Ontario and Saskatchewan) have credit union centrals that are registered under both federal and provincial legislation.

Each province provides its own insurance on deposits at credit unions. The details by province are as follows:

Alberta - Unlimited deposits protected under Credit Union Deposit Guarantee Corporation (CUDGC)

British Columbia - Deposits protected up to $100,000 under Credit Union Deposit Insurance Corporation (CUDIC)

Manitoba - Unlimited deposits protected under Credit Union Deposit Guarantee Corporation of Manitoba (CUDGC)

Newfoundland - Deposits protected up to $250,000 under Credit Union Deposit Guarantee Corporation (CUDGC)

New Brunswick - Unlimited deposits protected under Credit Union Deposit Insurance Corporation (CUDIC)

Nova Scotia - Deposits protected up to $250,000 under Credit Union Deposit Insurance Corporation (CUDIC)

Ontario - Deposits protected up to $100,000 under Deposit Insurance Corporation of Ontario (DICO)

Prince Edward Island - Deposits protected up to $60,000 under Credit Union Deposit Insurance Corporation (CUDIC)

Quebec - Deposits protected under l'Autorité des marchés financiers (AMF - I couldn't find details on a limit to the coverage)

Saskatchewan - Unlimited deposits protected under Credit Union Deposit Guarantee Corporation (CUDGC)

Note that, as with protection provided by CDIC, eligible deposits must be in Canadian currency. There are some intricacies that vary by province, but in general the protection is comparable to that provided by CDIC (with the exception of the $60,000 limit in P.E.I.).

August update

2008-09-02T13:39:00.000-04:00

August is over, Labour Day has come and gone, the CNE is closed for another year, and the 2008 school year has begun. How did last month treat you?

Let's take a look at how I did with my August goals:

Reduce my revolving debt to $18,000 - I missed this one by nearly $80, coming in at $18,078.20. August had us hosting friends from the U.S. for a week, as well as spending some time up at the cottage, so there were a number of exceptional expenses that needed to be covered. Excuses are all well and good, but the end result is that I paid down the debt by less than I was hoping for. Still, a $576.02 reduction is nothing to sniff at.

Grow my Emergency Fund to $1,900 - Once again, things look rosier on the savings front than on the debt reduction front. I ended August with an Emergency Fund of $1,912.41 in total. This gives me a nice cushion between my bi-weekly paycheque and Ms. Loonie's semi-monthly payday, while also putting me comfortably above the $1,500 target I set for the year.

Run at least twice per week - Fail. Between hosting our friends, traveling to the cottage, and getting caught up at work, my exercise plans were thoroughly derailed. I did do a fair bit of waterskiing and swimming at the cottage, but I didn't manage to fit in any running.

Try two new recipes for foods that we would usually buy prepared - I'd call this a success. Ms. Loonie and I made gazpacho this weekend, and I whipped up a few batches of guacamole throughout the month. The soup was delicious, as well as being easy (and fun) to make, so I think we'll be making it again soon. I think I'll be setting more goals like this, to give myself some "project" meals to prepare over the months to come.

Now, on to my month-end update:

Assets:
Online Savings - $2,608.31
Self-Directed RSP - $44,073.75
Employer Group RSP - $7,517.73

Debts:
Revolving Debt - $18,078.20
Student Loans - $25,420.83

Net Investable Assets: $10,700.76
Net Liquid Assets: ($40,890.72)

A number of irregular expenses and gift purchases hit my Freedom Account this month, so even with the growth in my Emergency Fund, my cash savings dropped by $245.55. However, thanks to a market uptick at the end of the month, my retirement investments finally showed a month-over-month increase, growing by $1,290.77, for a net growth of $1,045.22 in my investable assets. I was able to knock $576.02 off my revolving debt, in addition to progress made on our student loans.

Overall, my net investable and net liquid assets increased by $2,180.39 and $889.62, respectively. My NetworthIQ profile has also been updated (including loose cash, home, car and mortgage). It's nice to see my RRSP grow by more than my monthly contributions for a change, and the substantial growth in all three net worth metrics is encouraging.

Goals for August 2008

2008-08-08T10:51:00.000-04:00

Reduce my revolving debt to $18,000 (currently at $18,654.22) - I fell short of my July goal, so let's pick up the pace a bit this month.

Grow my Emergency Fund to $1,900 (currently at $1,713.67) - With the change in Ms. Loonie's pay schedule, I'm beefing up my Emergency Fund to provide more of a buffer during the days between my paycheque and hers. Getting the fund to around $2,000 should give me lots of room to manoeuvre.

Run at least twice per week. I've recently invested in some good "moisture-wicking" exercise clothes and a good pair of running shoes, so I really need to get on top of this fitness thing. I went for a run on Tuesday, and it felt good. Let's keep it up.

Try two new recipes for foods that we would usually buy prepared. I'm thinking along the lines of making our own salsa, or preparing a batch of gazpacho. I think it will be fun, frugal and healthy to start preparing these sorts of foods ourselves.

I'm off on vacation next week, so I'm a little light on goals, and don't have any post-count-related items here, but I'm hoping it will still be a strong month.

Happy Civic Holiday

2008-08-01T14:44:00.003-04:00

Whether you're getting out of town, taking in some local festivities, or just relaxing around the house, have a great long weekend. Be safe, and have fun.

I'll see you Tuesday.

July update

2008-08-01T10:00:00.001-04:00

Well, we're into August now, and I have to wonder where the summer has gone. It seemed just yesterday we were celebrating Canada Day, and now here we are heading into the Civic Holiday long weekend. August should be a fun month, but I can't believe how fast everything's moving!

Let's take a look at how I did with my July goals:

Reduce my revolving debt to $18,500 / Grow my Emergency Fund to $1,450 - I'm grouping these two together today in order to tell the full story. I fell $154.22 short of my debt reduction goal, which is not great (although it still represents a $582.23 reduction in revolving debt). However, I managed to push my Emergency Fund up to $1,713.67, which simply blew this goal out of the water. The reason for the focus on my Emergency Fund is to build a cushion of a few hundred dollars to manage the float between my payday and Ms. Loonie's. As a result of this, my Emergency Fund came in $263.67 over target, which means that I beat my overall financial goal by more than $100. Not too shabby.

Decide whether I will convert my retirement portfolio to ETF versions of the index funds I currently hold - I've decided to wait until early 2009 to make this switch, and make rebalancing an annual task. Expect an update on how this goes next February.

Update my Equifax credit file with my correct postal code - This is finally done. I was putting this off for no good reason whatsoever, and when I finally tackled the task, it was easy as pie, and I had my updated report in my hands within just over a week. What exactly took me so long? Dunno. But at least it's done, and I can move on.

Continue to walk to and from work every day, and pack my lunch at least 20 days this month - Done and done. There's not much more to say than that. I don't even think of hopping on the subway in the morning anymore, and making lunches has become very much a part of the morning routine. I like this; it saves money, and it's healthier.

Blog 31 times in July - So close. I came in at 28 posts for the month of July. Still, this is the most I've had since February, and it's almost as many posts as April, May and June combined. Thanks to everyone who's stuck around over the past few months.

Now, on to my month-end update:

Assets:
Online Savings - $2,853.86
Self-Directed RSP - $43,511.10
Employer Group RSP - $6,789.61

Debts:
Credit Cards - $17,506.73
Line of Credit - $1,147.49
Student Loans - $25,979.98

Net Investable Assets: $8,520.37
Net Liquid Assets: ($41,780.34)

This month's movement was due to a $302.93 growth in my cash savings, primarily through increased Emergency Fund contributions, and a reduction of my revolving debt by $582.23. My retirement investments took another dive this months, shedding $1,162.90 in value despite over $600 in RRSP contributions.

Overall, my net investable and net liquid assets increased by $279.04 and $1,441.94, respectively. My NetworthIQ profile has also been updated (including loose cash, home, car and mortgage). It's nice to see my net investable assets increase again, if only by a couple hundred dollars, after last month's drop.

Income from blogging

2008-07-31T13:00:00.000-04:00

In addition to the enjoyment I get out of writing, Loonies And Sense has actually generated a (very) small amount of money for me, by way of advertising income. The idea of generating alternative income was one factor that motivated me to set up the blog last year, and I'm hoping for more opportunities in the future for the site to make me some cash.

A recent post at The Shark Investor has got me thinking about exactly what I'm expecting in terms of blogging income. The gist of this article is that, if the reason your blog exists is to make money, then

your blog will be boring, and

you won't make much money from your blog.

However, if you develop your blog out of your passion for the subject matter and a joy of writing, then you will have a more interesting blog that has the potential to earn more money.

These are great points, and I like this idea of growing an audience "organically", with income as a secondary bonus rather than the primary motivation. With over 250 posts and one advertiser, I think it's safe to say that I'm not blogging "for the money". Granted, I'm not going to turn down any reasonable advertising offers, and I have some kooky money-making ideas from time to time, but the main thing pushing me to keep writing is a desire to learn (and share) as much as I can about personal finance.

It's a nice surprise when something makes you question your motivation, and you end up happy with the answer.

To close, let me just share the best advice I've read on how to make money blogging.

Being honest with yourself

2008-07-31T12:00:00.000-04:00

Over at The Simple Dollar, Trent has a great post today on how to stop lying to yourself about money. I think this is a really astute observation about how people get into financial trouble: if people were really honest with themselves about the state of their finances, would they continue to take on debt and spend more than they earn? I doubt it.

I've been guilty of this in the past. I wrote recently about the bad advice I've given myself in the past, and this really amounts to lying to myself about where I stand financially. I've committed many of the warning signs Trent describes:

If you don’t recognize a problem, you’re going to go on deceiving yourself and digging yourself into a deeper and deeper financial hole. Here are some of the big warning signs to look for:
Do you often feel like you have to "justify" purchases because your brain tells you you can’t afford them?

Do you avoid looking at bills and financial statements?

Do you tell yourself that your "future self" will take care of this bill?

Do you try to block thoughts of your debts and budgeting out of your mind when you want something?

Are you often "surprised" by your credit card bills, but you don’t even think about the bills when you bust out the plastic?

Do you tend to believe you’re more well off than you are when you’re out in public buying stuff than when you’re looking at your bills?
If any number of those are true, you’re either directly or indirectly misleading yourself when it comes to your financial state, and that directly leads to financial trouble.

In particular, I've avoided opening bills, I've rationalized purchases while knowing deep down that I couldn't afford them, and I've left bills for my successful, affluent "future self" to pay (when is that guy going to show up, anyway?).

During my days of keeping myself in the dark, not only did I carry around an overwhelming sense of guilt any time I thought of my finances, but I was also consistently caught unprepared when it came time to pay my credit card bill: "The bill is how much??" When I started my turnaround last year, one of my biggest steps was to draw a line in the sand, and say, "This is my debt." I identified my $27,610.94 in revolving debt, and started to pay it down. By knowing how much I was starting with, and committing to not creating any new debt (by sticking to cash-only spending), I was able to make good progress in reducing the size of my revolving debt.

There are still months when I don't knock down my debt by as much as I'd like, and I don't always come in under budget, but I'm making steady progress toward my goal of eliminating my revolving debt, and perhaps more importantly, I know exactly how far I've come and how far I have to go.

Until "future me" swoops in to clean up the rest of this mess, that will keep me moving forward.

Well that's embarrassing.

2008-07-30T18:36:00.000-04:00

Last Monday, I posted that I had finally contacted Equifax to correct my postal code (a matter of replacing a "6" with a "5"), after four straight months of meaning to get around to it.

Once I finally looked at the paperwork in detail, it turned out to be as simple as faxing them a form with some supporting documentation. No stamp for snail mail, no waiting on hold with their customer service department. Just filling out a form, photocopying some statements and identification, and sending a fax.

Today I received an updated copy of my credit report in the mail, and my postal code has been correted.

For those keeping score, consider the following:

Loonies And Sense's turnaround time: five months from receiving initial Equifax report to sending fax with updated information

Equifax's turnaround time: three days from receiving fax to updating records and sending out new copy of report

Canada Post's turnaround time: six days to deliver updated credit report

My math may be off, but I think I might just be the weak link in that chain.

As embarrassed as I may be, at least it's something I can officially check off my goals for the month. That's got to count for something.

The Loonie Portfolio: Asset allocation and half-year performance

2008-07-29T17:15:00.001-04:00

The bloggers over at TheMoneyWriters have been posting their investment portfolio performance for the first half of 2008, in many cases including their asset allocation as well. I thought I'd throw together my own data, to share my own performance over the last six months.

Allocation

My entire investment portfolio is in RRSP accounts, one self-directed account at my discount brokerage and a group RRSP through my employer. These accounts have the following asset allocation:

Self-Directed RSP

Canadian Equity Fund (S&P/TSX Composite): ~50%
US Equity Fund (S&P 500): ~10%
International Equity Fund (MSCI EAFE ND): ~20%
NASDAQ Fund (NASDAQ 100): ~10%
Canadian Bond Index Fund: ~10%

Employer Group RRSP

Employer Stock: 100%

I contribute to the employer group RRSP on a bi-weekly basis through payroll deduction. Note that my employer's stock is not factored into the percentages in the self-directed account.

Performance

I started the year with a portfolio value of $42,266.23, and the following asset allocation:

Canadian Equity Fund (S&P/TSX Composite): 47.1%
US Equity Fund (S&P 500): 9.0%
International Equity Fund (MSCI EAFE ND): 18.4%
NASDAQ Fund (NASDAQ 100): 9.5%
Canadian Bond Index Fund: 9.7%
Employer Stock: 6.3%

In the last six months, I have contributed $10,478.82 to my RRSPs, including direct contributions, employer matching contributions, and DRIP payments. Excluding these contributions, the "organic" current value of my portfolio is $40,991.66 (the June 30 value of the shares I held on December 31). This represents a loss of $1,274.57 (3.02%), due to an across-the-board decline in the value of my investments.

When I include my recent contributions, my portfolio value increases to $51,799.51, with the following asset allocation:

Canadian Equity Fund (S&P/TSX Composite): 45.8%
US Equity Fund (S&P 500): 8.0%
International Equity Fund (MSCI EAFE ND): 16.6%
NASDAQ Fund (NASDAQ 100): 8.7%
Canadian Bond Index Fund: 8.1%
Employer Stock: 12.9%

My employer's stock now makes up 12.9% of my total investment portfolio, so I'll have to keep an eye on how high this proportion gets. Overall, I'm down $945.54 from where I would be by adding my $10,478.82 in contributions to my starting balance of $42,266.23. If I take $47,505.64 = $42,266.23 + $10,478.82 / 2 as a proxy for my starting balance (basically assuming that half my contributions were invested for the full six months), then this represents a negative annualized growth of -3.94%.

Impressions

4% negative annual returns aren't too great, but there are a few mitigating factors here:

Only $8,803.48 of the $10,478.82 in contributions was actually out-of-pocket money on my part; the other $1,675.34 came from employer matching and DRIPs, so that makes me feel a little better about the $945.54 loss.

When I compare my current portfolio to where I would be if I had kept my concentrated position in my employer's stock, I'm up by over $2,500. This alone is enough to make me feel better; I'm a lot better off than I could be, and it's as a result of a conscious choice I made.

All the markets are down. In fact, the S&P/TSX Composite has dropped nearly 4%, and the Dow Jones, S&P 500 and NASDAQ are all down more than 10% over the last 6 months. My 2% loss over the same period doesn't look too shabby.

I'm still buying. By continuing my bi-weekly contributions, I'm getting some great dollar-cost-averaging going on, so I'm picking up some great bargains on stocks.

How are your investments doing so far this year?

Comparisons in the air

2008-07-29T12:00:00.002-04:00

Over at Four Pillars, there have been a couple of great posts recently comparing Canadian and American investment accounts. So far, the following comparisons are available:

Canadian RRSP Vs. U.S. 401(k) Retirement Account Comparison

Education Investment Accounts: Canadian RESP Vs. American 529 Comparison

Updated: Canadian TFSA Vs American Roth IRA

~~The next post will compare Canada's new TFSA to the American Roth IRA.~~

This sort of cross-border comparison is exactly the kind of content I was looking for when I decided to start this blog. In fact, I've posted similar comparisons in my own lexicon series, as well as a post dedicated to comparing retirement and education accounts. Although I didn't go into as much detail with specific rules on the accounts, it's nice to see that I at least got my general facts straight (not surprising, considering I pulled a number of my RESP facts from Four Pillars' series on RESPs).

I have to hand it to the folks at Four Pillars for posting the content in a more Google-friendly format than my own comparisons; I'm frankly a little embarrassed to see my "Loonies And Savings Plans" title next to the likes of "Canadian RRSP Vs. U.S. 401(k) Retirement Account Comparison" and "Education Investment Accounts: Canadian RESP Vs. American 529 Comparison". Which do you think is more likely to come up in a Google search?

It's great to see this sort of analysis being posted. I think it's useful for people on both sides of the border to see how the other side has structured things. Knowing the similarities and differences between the two systems helps to understand how to get the most benefit out of your own investments.

Lease no more?

2008-07-29T09:45:00.001-04:00

The decision of whether to buy or lease an automobile just got a lot simpler for Canadians, as GM Canada announced yesterday that it is getting out of the leasing business effective August 1. This is in response to the fall in resale values of SUVs and pickup trucks with the recent surge in oil prices: off-lease vehicles are becoming a hot potato, and GM doesn't want to be the one that gets burned. So far, Chrysler Canada will continue to offer leasing, although their U.S. counterpart announced on Friday that they are exiting the leasing market.

An interesting aspect of GM's announcement involves the alternatives that they are suggesting:

Instead, the sales leader in the Canadian market will offer alternatives such as interest-free loans for as long as six years in hopes of keeping monthly payments on vehicles purchased with loans close to what monthly payments would have been if the vehicles were leased.

This represents a major change in the way consumers "buy" vehicles. My thoughts on GM's product offering aside, taking away the option of a low monthly payment will likely keep a lot of potential customers out of the new-car market. I think this is a good thing, in the long run, if it gets people out of the monthly payment mindset and forces us to rethink what we can really afford, but this benefit won't come without some initial pain.

Like the rest of the easy-credit business that has been blowing up recently, we have some rocky times ahead of us before we get past the consequences of our poor choices.

The SUV's latest victim: Leasing

The ETF dilemma

2008-07-28T16:00:00.001-04:00

One of my goals for this month was to decide whether to switch my retirement investments from the index funds I currently hold to an ETF-based portfolio. For the uninitiated, here's a quick rundown of the two types of funds:

Index Funds - These are mutual funds that track a specified stock index. You can purchase these funds either directly from the company that manages the fund, or through a broker, and the price of the fund is updated at the end of each day. Since these funds have fairly low turnover, their management expense ratio (MER) is lower than for actively managed funds. Index funds are not usually subject to loads or trading commissions, although they often have a minimum purchase amount. Because there are no transactional costs to purchase these funds, they are popular for dollar-cost-averaging.

Exchange Traded Funds - Like index funds, ETFs track a stock index, but the funds are traded directly on the stock exchange, and must be purchased through a broker. The price of an ETF fluctuates with its associated index throughout the trading day. These funds have even lower MERs than index funds, but they are subject to the broker's trading commissions, so there is a cost to buy or sell the funds. As a result, ETFs are more popular for lump sum investing, since they save money when transactions are less frequent.

It's taken me a while to get my head around the index fund vs. ETF debate, and I've got a few factors to consider:

Cost - This really gets to the heart of the difference between the two investment vehicles. The index funds I currently hold are reasonably low-cost, with a blended MER of 0.39% for my whole portfolio. However, if I were to switch into the ETF equivalents of these funds, I could reduce this further to 0.19%. On a portfolio of $50,000, that difference translates to a savings of $100 per year. In order to switch over to ETFs, however, I will have to pay the commission for each fund that I buy. At the current size of my portfolio, it will take 1-2 years for the reduced MER to offset the trading commissions.

Tracking - The price of my current index funds remains fixed throughout the trading day, but ETFs have intra-day fluctuations as they track changes in their associated index. This means that ETFs would facilitate a more real-time tracking of my portfolio's value. While this appeals to me from a dataholic perspective, it scares me a bit to be able to track to-the-minute variations in my long-term investment value.

Timing - Although I use the innocuous word "switching" to describe what I'm contemplating here, what I'm really considering is cashing in all my investments, and then immediately buying back into the market. This exposes me to market fluctuations between when I sell and when I buy. I know that the difference is not likely to be significant, and you can never guarantee that your timing will be perfect, but I'm uneasy with the prospect of performing this switch on my entire portfolio, especially in our current market conditions.

Choice - The decision of whether to switch aside, I also need to decide which ETFs I'll buy if I make this change. Fortunately, there's lots of discussion on this topic, and a handful of Vanguard and iShares (for Canadian indices) funds should work just fine.

My portfolio is right on the verge of making this change worthwhile from a cost perspective. With the MER savings paying back my commissions within 2 years, it seems like the right time to make the switch. However, I just rebalanced my portfolio a few months ago, and given the volatility in the market at the moment, I really don't want to "cash out" with this much uncertainty.

I think the best thing to do is to hold off until early 2009, and make the switch then. This will put me on an annual rebalancing schedule, and will also allow me to incorporate my year-end bonus (if any) into the transaction. Of course, I'm making the assumption that I'll be more confident about my decision six months from now, but by committing to this plan today, I have time to research my choices, and a deadline to complete the transaction.

So, in the interest of checking off another goal this month, my decision is to switch my retirement investments to an ETF-based portfolio by February 28, 2009.

On an unrelated note, I'd like to apologise in advance to the author of next February's Loonies And Sense posts for any stress he may feel over the next several months.

How do you think of the stock market?

2008-07-25T14:00:00.001-04:00

The first time I heard of the stock market was while reading Gordon Korman's novel Go Jump In The Pool when I was eight years old. The story is about students at a boys' boarding school trying to raise money to install their own swimming pool. The students <SPOILER> finally make it happen when "George Wexford-Smyth III", the token rich boy, uses his stock market wizardry to grow their meager earnings to the $64,469.64 they need for the pool</SPOILER>.

This resolution to the plot confused the heck out of my young mind. Where did all this extra money come from? What's a stock? What does a silver mining company have to do with building an olympic pool?

I asked my parents about this, and they gave me a brief explanation of the stock market: you buy part of a company, and when people get excited about that company, the part you own gets more valuable, so you can sell it for more than you bought it for, and that means you've earned extra money. They also focused pretty heavily on the downside: if people lose confidence in the company you own, you might lose money if you have to sell for less than you paid for it. The message I took from this (reinforced by the fictional headmaster in the book) was that stock market investing is basically gambling, and you shouldn't invest money that you can't afford to lose.

It's amazing how truths you learn as a child can stick with you: this is how I thought of investing all through my university years. While I was in university, cell phones really started to become popular, and Qualcomm was a rising star of the NASDAQ. My roommate at the time was watching this stock with a keen eye, and explained to me the concept of a stock split (Qualcomm split 16:1 between 1994 and 2000). He discussed his plans to invest in the stock, and I asked what he would do if the stock went down after he bought it (in my mind, this scenario meant that you sold your investment at a loss to stop the bleeding).

He countered that he would simply buy more of the stock at the lower price. This concept was completely foreign to me: why would you buy something when it was dropping in value? He explained that when the stock rebounded, he would make an even bigger return on his investment, since he had acquired additional shares so cheaply.

That conversation with my roommate was my first practical exposure to how to buy low and sell high. Granted, he was loading up heavily with a single stock, which was amplifying his risk considerably. While you don't expect every piece of a diversified portfolio to collapse completely, a concentrated position in a single stock can quite conceivably lose most or all of its value in a matter of months or even days. Still, where I had always seen the "buy low, sell high" strategy as a total crapshoot, here was an approach to at least managing the buying side of the plan.

Qualcomm has gone from under $4 to nearly $50 in the last ten years (a 29% annual return). My roommate was right about this stock, and although his strategy was very risky in its lack of diversification, he introduced me to the idea of dollar cost averaging.

I think that an investor's ability to ride out an uncertain market depends on how they see the market. Is it all a house of cards that could come crashing down at any moment, or is it a robust, ever growing system that can be expected to provide consistent positive returns over the long run?

I happen to believe the latter, and I owe it all to Gordon Korman.

The worst financial advice I ever gave

2008-07-25T08:30:00.003-04:00

I have a confession to make.

I have a blogging man-crush on Big Cajun Man. When I started thinking about creating my own personal finance blog, his was the first site I found while investigating the niche of personal finance blogs with a Canadian focus. Reading his blog (and its companion site) really inspired me to find my own voice on the internet, and he was one of the first bloggers to add me to his blogroll. I'll always think of him as a sort of big-blog-brother.

(On a side note, I believe the above paragraph holds the world record for most occurrences of the word "blog")

So when he e-mailed me with a challenge to post the worst piece of financial advice I've ever given, I was excited to get on board. I immediately started racking my brain for that one disastrous piece of advice that I've inflicted on a friend or loved one. Surely there was a shining example that would stand out as a beacon to all other bad advice.

It wasn't as easy as I thought. It turns out that I haven't given a lot of financial advice (good or bad) in my day. I'm sure I've hinted and nudged from time to time, but rarely in the form of active or formal advice. I'm quite new to this personal finance thing, and haven't had the opportunity or confidence to dole out a lot of financial wisdom. Fortunately for me (and my friends), this means I haven't created disasters in many financial lives.

Except my own.

I've written before about my financial fall from grace, and a major theme of this blog is my climb out of the financial hole I've dug for myself. Well, I couldn't have got to where I was a year ago without lots of lousy advice from yours truly. Here are a few of the gems I've come up with over the years:

"You can afford it." - Ah, the old standby. Close cousin of "It's only $20", "You'll get paid on Thursday" and "The sale ends tomorrow!", this one alone must account for a third of my revolving debt. Small moves add up and make a huge difference over time; it's up to me which direction I want them to take me.

"Lots of people are in debt; it's normal." - The sad thing about this one is that it's not untrue. Still, justifying my situation to myself in this way really showed a lack of maturity and ambition. Now that I've set a goal to get out of debt, I feel like I'm expecting more of myself, and that encourages me to rise to the task.

"You deserve it." - Yes, I've also consistently fallen into the entitlement trap. Why shouldn't I drive a brand new car? Of course I should buy the latest season of The Simpsons! What do you mean, I shouldn't go out for dinner again? I can't say I've put this completely behind me, but I have developed some patience and learned to set priorities.

There you have it: the worst financial advice I've given myself over the years, and the lessons I've learned from it.

What's the worst financial advice you've ever given?

Knowing your limits

2008-07-24T14:27:00.000-04:00

I recently received a piece of unaddressed mail from a new BMO branch that just opened in our neighbourhood. The gist of the piece was a welcome bonus of $100 for new chequing customers who open an account at this branch, upon completion of their first payroll deposit or pre-authorized debit.

I looked into the accounts offered by BMO, and was strongly considering taking them up on the offer. My plan was to open the account, and set up our bi-monthly hydro bill as a pre-authorized debit. Then, after the next hydro bill gets processed in September, I would switch the debit back to my primary bank account. The deal requires the account to stay open for six months, so at the end of January I would close down the account. At the lowest level banking plan of $4/month, I would be out $24, for a net income of $76. Not bad for an hour's effort.

I started thinking hard about this, however, and realized that the whole idea of starting a new banking relationship (with a monthly fee) just for the purpose of gaming the company out of $76 feels like a bit of a stretch. This feels to me like the idea of running credit card arbitrage on a low-rate offer rather than a 0% offer: true, you come out ahead, but the margin is pretty slim, and with the possibility of something going wrong, not exactly a no-risk proposition.

I'm going to pass on this offer. I don't want or need a new chequing account, and that's really a showstopper for me. If I were in the market for a new account, this would probably sway me to BMO, but I'm not going to let this offer create the need for a new banking product.

This might very well be worthwhile for someone else, but it falls outside my own comfort zone, and doesn't seem worth the effort or the risk.

Where do you draw the line when it comes to bonus offers and arbitrage strategies?

Payday update

2008-07-24T13:11:00.000-04:00

Money isn't everything, but it's sure nice to get paid. After allocating my paycheque to savings and debt reduction, I've updated my progress bars and NCN Network chart with the current totals. I'm making some decent headway with my goals this month, so let's take a quick look at how I'm doing:

Reduce my revolving debt to $18,500 - I'm currently sitting at $18,586.45, which puts me a bit short of my target. However, this does still put me at more than 50% of the way to my year-end goal of $14,000, and with 12 out of 26 paycheques still to come, I'm pretty confident I can hit this mark by December.

Grow my Emergency Fund to $1,450 - Take a gander at the progress bars off to the right, and you'll see that my Emergency Fund is at 118.8% of my 2008 target. Huh? Well, with Ms. Loonie's new job and modified pay schedule, I'm beefing up my Emergency Fund to provide a buffer in between my paycheque and hers. The Emergency Fund currently sits at $1,563.28, and I'm aiming to get it up around $2,000 over the next couple of months. This focus on expanding our cash cushion is part of the reason I'm falling short of my debt reduction target this month.

Decide whether I will convert my retirement portfolio to ETF versions of the index funds I currently hold - I'm still working on this one. The recent market volatility has given me pause, and I'm leaning toward leaving things where they lie for the next couple of months.

Update my Equifax credit file with my correct postal code - Good news, everybody! You won't be hearing any more moaning about this one, because I've finally faxed the form! Thanks to the commenter who provided the much-needed kick in the pants that got me from talking about this to actually doing it.

Continue to walk to and from work every day, and pack my lunch at least 20 days this month - Going strong so far. I'm on track to meet both of these goals.

Blog 31 times in July - I'm a bit behind the curve on this one. I'm well ahead of the last few months' posting frequency, but I don't know if I'll hit the 31-post mark. We'll see what happens...

It's actually shaping up to be a pretty strong month. Taken as a whole, my debt reduction and savings goals are being met, and I've made good headway on the other tasks I set for myself.

Here's to keeping on track, and having a good news story to tell next Friday.

Keeping Things Undone

2008-07-21T15:51:00.000-04:00

An anonymous commenter pointed out last week how much I've been prattling on about updating my address with Equifax to reflect my correct postal code, something I've been planning to do since April. This task seems to have found a permanent home in my monthly goals, without ever really being addressed.

There are a few of reasons I've been slow to act on this:

The impact of the change is minimal. Other than the postal code, all the information in my report is accurate. Not only that, but the report was successfully (and promptly) delivered to my home address in spite of the incorrect postal code, so this is really having very little effect on me.

The mechanism for making the change is unclear. The last page of the report is a "Consumer Credit Report Update Form", but the layout of this form seems more geared toward disputing incorrect items (such as judgments, invalid trade lines, etc.) in your report than updating personal information.

Credit bureaus have a reputation for being difficult to work with. I really don't know how much resistance I'll encounter when I make the request, and this uncertainty is making me procrastinate.

These three factors have been keeping me from biting the bullet and getting this thing done. However, thanks to Anonymous' comment, I have decided to suck it up and make the change.

This afternoon, I faxed the update form to Equifax, along with copies of two credit statements with my current address, and a photocopy of my driver's licence and credit card. We'll see how smoothly the process goes from here.

This is a small, small, small victory, but it's an item that I can finally cross off my to-do list.

Welcome to KTU: productivity, the Loonies And Sense way!

Hats off to my brave colleagues

2008-07-17T12:10:00.001-04:00

As I mentioned last week, Jeremy at Generation X Finance has a new series of posts called "From The Front Lines", in which he chronicles his first-hand experiences with investors' reaction to our current market conditions. So far, he has two posts in the series:

From the Front Lines: Investors Selling Stocks in Favor of Fixed Accounts

From the Front Lines: Changing Your Risk Tolerance Based on a Bear Market

A lot is being written these days about this being a buying opportunity, but I've recently heard a lot of talk from a few of my colleagues about aggressively timing the market.

I'm sure that, with all the ups-and-downs we've had recently, there is a lot of money to be made (and lost), but I just don't have the courage or recklessness to keep getting in and out and making big wagers with my retirement savings (which currently form the vast majority of my investable assets). I won't go quite so far as to call this a stupid move on my colleagues' part; they're all in their late-20s or early 30s, and have time on their side if they make a misstep. However, I personally can't handle the stress of day trading, whether in a bear or bull market, and I don't have the energy to track stock prices as closely as they do.

No, I think buy-and-hold index investing is right for me. I'm happy with my asset allocation, and I'll keep paying off my debts and dollar-cost-averaging my RRSP contributions.

I wish my colleagues well with their investing adventures, and look forward to some vicarious thrills over the next few months.

When did I become a Luddite?

2008-07-11T12:00:00.000-04:00

The iPhone came to Canada today.

Canadians are now getting their first (legal) taste of Apple's iPhone, with the release of the new iPhone 3G through Rogers Communications.

Walking to work this morning, I passed a long line of early adopters crowding the entrance to a Rogers store waiting to sate their techno-lust. Watching these people mill around in anticipation, I couldn't help but wonder when I became such a Luddite. I'm only 32; I should be trembling with excitement over the release of a new technological marvel, not shaking my head in exasperation at all this ruckus over a cell phone.

I have to admit, part of my lack of excitement is financial. According to CBCNews.ca, Rogers is offering the world's second-most expensive iPhone, with a three-year cost of $2,176 for early adopters, or $2,572 if you wait until after August 31 to sign up. CBCNews.ca has an interactive map of the participating countries' iPhone costs, if you're interested in comparing.

The prospect of surfing the web on my phone just doesn't do that much for me. Some of the "location-aware" features are pretty cool, like searching for restaurants in your vicinity, but my cell phone is still very much a "when needed" tool, and I have no interest in making it such a core part of my day-to-day life.

Call me old-fashioned, but I think I'll be hanging onto my perfectly serviceable 4G iPod and Samsung D807 a while longer.

Now get off my lawn, you kids!

ING leads the pack, yet again

2008-07-11T09:10:00.001-04:00

Well, after Wednesday's announcement of changes to mortgage insurance in Canada, ING has already changed their rules. Although the tighter requirements don't take effect nationwide until October 15, ING's mortgage glossary currently indicates the following:

Amortization Period

The amount of time it would take to repay a loan in full based on the payment amount at the selected payment frequency and current interest rate. At ING DIRECT, you may choose mortgage amortizations from 1 to 35 years. Remember: the longer the amortization, the less each payment will be but the more interest you will pay overall.

...

Down Payment

An amount of money you put towards the purchase of your home, which influences the mortgage amount you require. A down payment of 20% or more will determine whether your mortgage needs mortgage default insurance. If your down payment is less than 20% of your purchase price, your mortgage is high-ratio and needs mortgage default insurance. If your down payment is 20% or more of the purchase price, your mortgage is conventional and does not need mortgage default insurance. At ING DIRECT we require a minimum down payment of 5% from non-borrowed funds.

ING was the first bank to acknowledge the TFSA, and they're out front again on this new development.

Whatever else you may think of the company and its practices, they are outstanding at differentiating themselves from the competition.

Changes coming to Canadian mortgages

2008-07-10T13:00:00.001-04:00

The Finance Department announced yesterday that it would shorten the maximum amortization on government-backed mortgages from 40 to 35 years, in an effort to prevent a housing bubble in Canada. The maximum was raised in 2006 from 25 to 40 years, in response to the boom in demand for Canadian real estate. In addition to shorter amortizations, the minimum down payment required will be raised from 0% to 5%.

These changes come into effect on October 15, which means we can likely expect an uptick in home purchases over the next few months, as buyers look to sneak in under the wire with the old lending rules. After that, things may cool off a bit with the tighter rules.

I think this is a good idea in principle, but I wonder a bit if it's too little, too late. We've essentially had two years of relaxed lending rules to rack up a lot of long-term, high-ratio mortgages, and drive up housing prices. Will this change really work to make buyers think twice about the costs of homeownership? Also, although the new rules will be tighter, they still allow a 35-year, 95% mortgage, which is still a pretty highly leveraged position.

In Canada, the saving grace of our real-estate situation is the near absence of sub-prime lending (the Finance Department pegs this at about 5%). Most of the people who take out a mortgage to buy a home in Canada actually meet prescribed lending criteria, and they know the terms of their mortgage (as opposed to ARMs and negative-amortization loans). So we're likely not looking at the same default and foreclosure situation that we've seen in the U.S. over the past year.

The future of real estate prices in Canada, however, is far from certain. It should be an interesting ride.

Payday update

2008-07-10T10:30:00.000-04:00

Well, I got paid today. Ms. Loonie has switched to a twice-a-month pay schedule, which means that her next paycheque will come on July 15. At that point, we'll finally know for sure what her net income looks like, and we can modify our automatic funds transfers as needed.

I've updated my goal bars and NCN Network chart, with my revolving debt finally breaking the $19,000 barrier. It looks like I'm roughly on-track to hit $14,000 by year-end, although the April 2009 target that I set last summer to eliminate the debt completely is looking less and less likely. I knew this was an ambitious goal when I started, so let's see how close I can actually come.

With the bear market we find ourselves in these days, the only way I can maintain forward progress is to keep chipping away at my debts, and keep socking away cash in my Freedom Account and Emergency Fund. Along with continuing my bi-weekly contributions to my RRSP, these are the elements of my financial picture that I can control directly.

Intestinal fortitude: living with a bear market

2008-07-10T08:30:00.001-04:00

Jeremy at Generation X Finance has started a mini-series of posts detailing his first-hand experience with investors' reactions to current market conditions (Jeremy's a retirement planning specialist). His first post is on investors fleeing stocks in favour of bonds. He points out the well-worn truth of how much this can hurt your portfolio's long-term performance.

There's no denying how painful it is to watch your investment returns seemingly evaporate as the market takes a dive. It's understandable to want to do something to "stop the bleeding." However, the strategy of dumping your stocks and moving into bonds to ride out the slump is exactly the opposite of "buy low, sell high." Meg at The World Of Wealth illustrated this in a post about her grandparents selling some bonds to help her finance the closing on her new investment property without cashing out her investments at the bottom of the market.

It's still early days, but so far I seem to be able to follow this advice of staying the course. I'm anxious about what the next several months have in store for my investments, but I'm fortunate enough to have decades to recoup any "losses" during this and other down periods. As much as I hate to see my balances drop, the thought of cashing out and moving into "safe" investments at this point makes me physically ill. So I'll be hanging on by my fingertips, and doing my best to enjoy the ride.

On a lighter note, The Consumerist posted this advice today on surviving a bear market:

Investopedia says the best thing to do when you see a bear in the market is the same as when you see one in the woods: "Tuck in your arms and play dead!" In other words, don't go crazy selling stocks at a loss. In both cases, fighting back can leave you bleeding, although toughing it out won't be a pleasant experience either. And if you have money leftover after filling up your car, it's actually a buying opportunity. Which I guess is like playing dead in front of the momma bear while your buddy gathers up all the cubs while mamma is occupied and then later you and your buddy train them to harvest honeycombs for you.

I couldn't have said it better myself.

My financial vice

2008-07-08T16:50:00.000-04:00

Five Cent Nickel recently wrote a post identifying his biggest financial vice, and several bloggers have taken the challenge and posted their own vices.

Being in the midst of my debt elimination process, it's a bit hard to narrow down the habits and purchases that hold me back the most. I know I've managed to rein in a lot of bad habits over the past year, and my spending on things like lunch at work has dropped dramatically. I think there are really two "vices" that are tied for the number one spot:

Collecting - I am a rampant completist when it comes to music, movies and books. Once I have a few albums by a given artist, it becomes a mission for me to pick up their entire catalogue. Similarly, I've filled my bookshelves over the last few years with dozens of graphic novels, and hundreds of comic books (I'm sure J.D. can relate). I've managed to get myself on a strict budget for this sort of thing, but the urge is most definitely still there.

Tracking my investments - I confess that I keep Google Finance open in my web browser throughout the work day, and I check my investment account balances at least once a day. This is unhealthy, and dangerous, especially with respect to my retirement accounts. The more closely I watch these investments, the bigger the chance that I'll react emotionally to a market jump, and make a stupid decision that affects my long-term outlook. One of the differences between index funds and ETFs is that index fund prices only change once a day, whereas ETFs fluctuate throughout the day. To me, the real-time tracking of ETFs is one of the most appealing things about switching to an ETF portfolio, but it's also one of the dangers that's keeping me on the fence.

There you go. One spending problem, and one risky behaviour.

What's your biggest financial vice?

Taking the road less optimized

2008-07-07T14:10:00.001-04:00

I'm a numbers guy.

I love numbers. I actually enjoy working with spreadsheets, and I love the challenge of working out the mathematically optimal way of doing things. Flexo at Consumerism Commentary has a great post today on the power of a "mathematically correct" solution, and I have to say I agree with his logic.

That doesn't mean, however, that I always use the optimal solution.

Take my bi-weekly cash flow, for example:

Money comes into our joint chequing account on payday

Fixed expenses, including mortgage payment, student loan payment and line of credit payment, come out of chequing

Emergency Fund and Freedom Account contributions are transferred from chequing to online savings

Leftover cash gets transferred into my secondary chequing account, as my spending money for the next two weeks

As I spend money on groceries, entertainment, etc., I either pay cash, or use my credit card and immediately transfer the corresponding amount from chequing to my line of credit

When my credit card payment is due, I pay the bill with my line of credit

Steps 5 and 6 are my attempt to perform small-scale credit card arbitrage with my monthly spending. Because the credit card is paid in full every month, each purchase essentially represents an interest-free loan until the next payment due date. By making a corresponding interim payment to my line of credit, I'm actually using my credit card to defer interest accrual on the LOC, and saving myself some money.

I'm pretty proud of having devised this system, but I can't ignore the fact that, if I skipped steps 4 and 5, and instead just transferred all my leftover cash onto my LOC on payday, I would save even more interest. Even though this might be the "right" way to structure my cash flow, I've learned from experience that it's much easier to lose track this way than it is with the method described above. I find that transferring funds every time I make a purchase gives me a much more concrete feel for how much I've spent, and how much I have left before the next payday. The extra interest that I accrue by leaving that money sitting in the chequing account ends up being the "fee" that I pay for having a system that works for me.

True, I could be paying less interest, but I could also be paying a lot more, and I'm happy to find some middle ground.

This is partly about having training wheels on our financial bicycle, but it's also about priorities. I keep $200 of my Emergency Fund in physical $20 bills, earning no interest, so that we have cash immediately available in an emergency. Both Ms. Loonie and I have income tax withheld by our employer so that we don't have to worry about making up a shortfall at the end of the year, and also to keep us thinking of our income in net, rather than gross terms.

As the size of our Emergency Fund grows, it will become more important to optimize the vehicles we use for these savings. Similarly, as the gap between income and expenses grows, the impact of where I keep my "in-flight" cash will become more significant. However, for now, I think the small dollar amount we give up in order to have a convenient, manageable system is worth it.

Starting a new career: changes for Ms. Loonie

2008-07-04T11:30:00.000-04:00

I've mentioned a few times that Ms. Loonie has a new job. Today is her third day at her new employer, and so far she is very happy with her decision. She's in a very collaborative environment, and the work seems, even at this early stage, to be engaging and challenging.

There's also the minor matter of a 67% pay increase, but let's not dwell on small details.

With the new job, there are a few changes that have to be managed:

Transportation - Her office is a half-hour subway ride away. Previously, we were both able to walk to work, so this represents an added monthly expense, in addition to the extra time spent commuting. We've budgeted for a monthly TTC Metropass, which is cheaper than purchasing the equivalent number of tokens, and also provides a tax credit.

Clothing - The dress code in her new office is more professional than what she is used to. This means that, for the first time, she needs to have a selection of "work" clothes to wear. She and I may not quite see eye-to-eye on whether this is a pro or a con, but either way, we have a new expense to maintain her business wardrobe.

Pay schedule - As I mentioned previously, her new employer is on a twice-a-month pay schedule, as opposed to her previous bi-weekly system. This means that each paycheque represents 1/24 of her annual take-home pay, so she ends up being paid slightly more per pay, but on a less frequent basis. We need to make sure that we can cover our fixed bi-weekly expenses during mis-matched pay periods. On July 10, our mortgage and student loan payments will be debited from our joint account five days before her July payday, so this will be our first trial.

New payroll deductions - Not only has her salary increased, but the type of income she earns has changed. She was previously paid from a variety of research fellowships, and she is now earning employment income. This means that she will have income tax withheld, in addition to paying CPP contributions and EI premiums. She's actually quite excited to start paying into CPP and EI "like a grown-up".

Better benefits - Her new employer has a good defined-benefit pension plan in addition to strong health benefits. We'll have to have a long look at our respective benefit plans in order to determine how to allocate our coverage.

Tax withholding - although her new employer withholds income tax, her previous income was not taxed at source, so she will likely have a tax bill to pay come April 2009. After that, however, she should be able to enjoy some nice tax refunds in future years.

We're both very excited about this career change. It's an exciting opportunity, and has a number of strong financial benefits. I can't wait to see how we navigate the transition period, and what sort of long-term change this represents for the Loonie household.

Happy Independence Day to our neighbours to the south

2008-07-04T08:30:00.004-04:00

To those of you south of the border, I hope you enjoy your nation's birthday. Today the American markets and blogging community will be taking the day off, just like we did up here on Tuesday. There are only a handful of days during the year when the Canadian and American financial systems find themselves at odds with each other, and it's always interesting to see how one market moves when the other is closed for business.

Light up the sky, enjoy time with family and friends, and don't let any bloody-minded Canadians get to you with their stubborn insistence on spelling neighbor with a "u".

Happy Fourth Of July.

How cool am I?

2008-07-03T09:00:00.000-04:00

So yesterday morning, I demonstrated to the world at large just how cool I am in the face of punishing market drops. My take? The recent slide is nothing to worry about, and we're still in line with long-term forward movement.

Then the S&P/TSX Composite index drops 3% in one day, and I watch my retirement savings shed another $1,300 in market value.

Ouch.

Feeling some property tax relief

2008-07-03T08:30:00.005-04:00

Both Paid Twice and Make Your Nut posted recently about changes to their property tax payments. Like many new homeowners, they make escrow payments to their mortgage lender in order to cover their periodic property tax expenses, and like many new homeowners, they started off with an escrow shortage, and subsequently saw their payments jump to cover the shortfall.

Ms. Loonie and I have been in a very similar situation. We make a property tax payment to our bank every two weeks along with our mortgage payment, and this is meant to cover our property tax bill when it arrives. Because we had a tax bill to pay shortly after closing on our condo, we initially found ourselves behind on our tax payments, and the bank hiked our bi-weekly contribution as a result. Now that we've got two years of payments under our belt, however, we're finally getting caught up on our initial shortfall, and I've been thinking of talking to the bank to get the payments adjusted back down.

Well, it turns out the adjustment letter we received last summer was just part of an automatic review the bank does on the account every year, as we received an almost identical letter from them this year. The only difference is, this time around the payments are being reduced rather than increased.

It's nice to see that the bank is actually proactive with managing the property tax account. I'd still prefer to pay the taxes ourselves (and I think we'll look into this when we renegotiate next summer), but it was a nice surprise to see the lender adjust our payments down without having to ask.

Like Paid Twice and Make Your Nut, we'll have a bit of extra cash injected into the budget once the payments readjust (effective August 21). It amounts to about $100 per month for us, which is certainly welcome. This was a nice instance of seeing something I read on a couple of American blogs relate directly to my own situation here in Canada. Another illustration that, although the terminology may differ, our financial systems operate in very similar ways on either side of the border.

Goals for July 2008

2008-07-02T13:47:00.000-04:00

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.

I got side-tracked from my blogging duties in June, and didn't end up posting monthly goals, so let's see what I've got in mind for July:

Reduce my revolving debt to $18,500 (currently at $19,236.45) - This is not a big reach; I'm just trying to keep my progress strong, and avoid any delays to my debt elimination.

Grow my Emergency Fund to $1,450 (currently at $1,405.76) - I'm getting close to my year-end goal of $1,500, so I think a little pressure is in order to accelerate this one. $1,500 would cover our fixed expenses for one pay period, and although that only represents two weeks, it's still a very significant milestone in the climb off the treadmill. If I hit $1,450 this month, I should be able to make $1,500 by the end of the summer.

Decide whether I will convert my retirement portfolio to ETF versions of the index funds I currently hold. My portfolio is pretty much at the point where lower MERs would offset the commissions from buying ETFs, so I need to come to a decision on whether this is the time to re-configure my investments.

Update my Equifax credit file with my correct postal code - This one is nagging at me, so let's just put it to bed.

Continue to walk to and from work every day, and pack my lunch at least 20 days this month. This month has 22 business days (including today), so I'm basically giving myself a little leeway, and allowing myself two days of buying lunch. This will allow me a couple of social lunches out with colleagues, which is a good step in maintaining the social side of my career development.

Blog 31 times in July - With a grand total of 12 posts in May and June, I have some ground to make up. Let's get back to an average of one post a day.

This looks a lot like my May goals, but I'm trying to get back on track, so I have to start somewhere. A month of housekeeping should put me in a good position to try some new challenges in August.

Some perspective on a month of -38% returns

2008-07-02T09:45:00.000-04:00

From May 31 to June 30, the market value of my retirement savings dropped from $53,547.77 to $51,463.61. That's a decrease of $2,084.16, or 3.9%, which represents an annualized rate of return of -37.8%. Let's ignore, for a moment, the fallacy of predicting annual returns based on one month's performance. Let's also overlook the fact that I added $642.10 in contributions to my RRSP during this period, which actually makes this an even larger negative return.

The point is, June was not a great month for someone invested in the stock market.

When I look at a chart of my retirement savings over time, however, I see something interesting:

I have already commented on the fluctuations in my retirement and liquid savings, but this past month's performance is worth singling out.

The straight line approximation of my retirement savings growth over time goes right through the middle of the June 2008 point. That means that, based on data starting in April 2007, last month's performance was entirely consistent with the rate of growth I've seen over the past year.

This view is a bit simplistic, since I've really only got just over a year of history on which to base my rate of growth. However, it does serve as a good illustration of the fact that my savings growth is dependent on both contributions and investment growth. I need to manage both of these factors in order to stay on track.

Make no mistake: June still sucked from an investment return point of view. However, it was not nearly the deathblow that the -3.9% monthly growth would suggest.

June update

2008-07-02T08:30:00.001-04:00

Well, I hope everyone had an enjoyable Canada Day, and that those of you south of the border are gearing up for Independence Day on Friday. Let's see how the month of June treated us.

First off, you may have noticed that I didn't post any goals for June. This was an oversight, as I was lapsing pretty badly in my posting schedule. By the time I hit mid-month, I figured it was too late to post meaningful goals, so I figured I'd wait for July to come. However, I did accomplish a few things last month, so I'll give a quick run-down:

Reduced my revolving debt to $19,236.45 - This was a drop of $586.62 from May 31, which is fairly typical for a two-pay month.

Grew my Emergency Fund to $1,405.76 - I'm still slowly chipping away at the goal of a substantial emergency savings cushion, and with bi-weekly contributions of $15, I'm on track to beat my $1,500 goal by year-end. The Emergency Fund currently consists of $1,021.75 at HSBC Direct (with debit card access), $84.01 in other online savings accounts, $100 in a separate account at my primary bank, and $200 in cash hidden at home.

Walked to and from work every day - I've thoroughly beaten the habit of taking the TTC to work in the morning. A ride on the subway costs $2.25, and the cars are always so packed that the ride is really miserable in the summer heat. That, plus the fact that it cuts less than ten minutes off my travel time, has made me a dedicated foot commuter.

Brought my lunch to work almost every day in May - I had two days this month where I needed to buy lunch at work. Other than that, I either brought my own lunch from home, or had a work lunch that was provided for me. I do have to admit that I've been frequenting Tim Hortons a little more often during the workday this month, so that's something to keep an eye on.

Nothing really out of the ordinary here. I'll be posting some goals for July sometime this afternoon.

Now, on to my month-end financial update:

Assets:
Online Savings - $2,550.93
Self-Directed RSP - $45,102.86
Employer Group RSP - $6,360.75

Debts:
Credit Cards - $17,988.59
Line of Credit - $1,247.86
Student Loans - $26,536.76

Net Investable Assets: $8,241.33
Net Liquid Assets: ($43,222.28)

This month, in spite of a trip to the U.S., my cash savings increased. However, my retirement savings got positively hammered by the slide in the stock markets. Despite over $400 in RRSP contributions, my retirement balance decreased by over $2,000. This is the first time since last November that my retirement savings actually dropped from one month to the next.

Overall, my net investable assets decreased by $1,213.96, although my net liquid assets increased by $870.20. My NetworthIQ profile has also been updated (including loose cash, home, car and mortgage). Despite the slide in my retirement investments, I'm happy to see my net investable assets stay positive.

Happy Canada Day!

2008-07-01T08:30:00.002-04:00

Unlike last year's rather tardy Canada Day greeting (which also happened to be the first echo of my "Hello World" post), this year I thought I'd offer my wishes for the nation's birthday in a timely fashion.

Happy Canada Day, everyone. Be safe, have fun, and I'll see you back at work on Wednesday.

Enter the TFSA

2008-06-30T12:10:00.001-04:00

Checking my account balances online this weekend, I noticed a link on ING's front page to information on the Tax Free Savings Account that will make its debut in Canada in 2009. The folks at ING have included a top-10 FAQ on the TFSA, and their tagline for the product, "Great news. Now even the Government wants you to save your money!" illustrates the reason I love this company: they want to get people excited about saving.

I'm not so naïve that I can't see ING's financial motivation here (I do work in the banking industry, after all), but they really seem to put a lot of effort into making these saving products attractive to the consumer. I personally consider opening an ING account one of the most important steps I took to start my financial turn-around last spring. Saving for saving's sake was something new to me, and I have to say they've got me hooked.

One of my favourite things about ING is the way their products "cooperate" with accounts at other institutions. It's dead simple to move funds between your brick-and-mortar accounts and your ING account, and this gives their products a clear place in your financial portfolio. Their focus (at least in Canada) is not on meeting your chequing and day-to-day spending needs, but they do a great job at providing a convenient savings product.

ING is the first bank I've seen openly promoting the TFSA, and I can't wait to see when and how the other institutions start to promote their own accounts.

Payday update: Decisions to make

2008-06-26T16:07:00.000-04:00

Today was payday in the Loonie household, and I've updated my progress bars and NCN Network chart to reflect my current debt reduction and savings progress. No big changes this month, as I'm largely treading water on my ongoing goals. However, there is a significance to today's paycheque that I need to consider.

Today marks the last time (at least for the foreseeable future) that Ms. Loonie and I will be on the same pay schedule.

When she starts her new job next month, Ms. Loonie will switch from our current routine getting of paid every two weeks, to a two-paydays-per-month system. There will be times in the future when our respective calendars will line up and we'll both be paid on the same day, but these will be few and far between.

It's easy to dismiss this as a negligible change, as this really only means that she will be paid slightly more on a less frequent basis. However, our mortgage and student loan payments are currently synchronised with our pay schedule, so that the payments come out of our accounts on the same day we get paid. This means that, two weeks from today, our payments will be due a few days before Ms. Loonie's paycheque goes into her account.

This serves as a huge reminder of the importance of having some liquid savings on hand. Between Ms. Loonie's student loan and her contribution to our housing/utilities expenses, she shells out about $850 every two weeks. That translates directly to a $850 shortfall in our income that we need to cover on July 10.

When I started this blog, we would have had little choice but to use my ULOC to cover this interruption of cash flow. Today, however, we have a few more options:

Ms. Loonie can "borrow" from her tax savings account to cover the shortfall. When she gets paid mid-July, she can then move the money back into savings.

I can "borrow" from the Emergency Fund, for the same short-term period.

I can postpone some of my Freedom Account contributions for a few days to cover the shortfall.

Ideally, we'll use the first option, and leave all of her pre-authorized transfers in place. However, any of the three options simply represent a temporary re-allocation of cash savings to fill a gap in our income.

Once she has a couple of paycheques under her belt, Ms. Loonie will have more than enough savings cushion accumulated to cover future mismatched pay periods, and this will cease to be an issue. In the interim, however, it feels good to know that we have a choice in how we'll address this issue.

Just goes to show the difference that even $1,000 in liquid savings can make: borrowing from yourself feels a lot better than borrowing from the bank.

The importance of maintenance: a near miss

2008-06-26T12:35:00.000-04:00

Ms. Loonie and I live in a high-rise condominium complex. The units in our building are all equipped with en-suite laundry machines, and our washer and dryer are approximately four years old. These appliances are the first we've ever actually owned, as we rented an apartment before purchasing our current home. As a result, this is the first time we've ever had to worry about household maintenance.

So far (touch wood), we've had a pretty smooth run with our condo. Our corporation's reserve fund covers the bulk of the maintenance to the common elements, and our appliances are really our chief concern when it comes to keeping things in good working order.

Over the past month or so, we watched our dryer become progressively less effective at drying a load of laundry. It continued to generate plenty of heat, and spin the clothes quite well, but it was taking much longer than usual to get the clothing completely dry. We had checked the lint screen and a few other things, and we were starting to think that something might be wrong with the unit's moisture sensor.

So, we got on the phone to Sears, and scheduled an appointment with a technician. This being our first service call, we were a bit surprised to hear that the cost would be $80 just for the diagnosis, and then the cost of labour and parts would be added on top of that when the actual repairs were carried out.

I was annoyed to have an expense like this to deal with, but gradually managed to talk myself into tapping our Emergency Fund (sitting at the time just below $1,400) to cover the repairs. I knew this was the sort of thing that money was meant to cover, but it was painful to think of so much of it going out the door.

I decided to get the laundry area tidied up to facilitate access to the dryer, and while I was doing this, I noticed our in-wall dryer trap panel. I already knew it was there, but since it spends most of its time obscured by our cache of household cleaning products, I had mostly forgotten about it. This trap essentially filters the air coming out of the dryer hose before venting it into the building's common exhaust system.

We clean out the dryer's built-in lint screen after every load, so I wasn't expecting to find a lot of lint build-up in this secondary trap. However, when I pulled it out to inspect it, I found a thick layer of very damp lint coating the exhaust screen. I quickly cleaned out the trap, and replaced it in the wall, and lo and behold, the next load of wet laundry to go through the dryer was finished (and bone dry) in record time.

After a few more dryer loads to confirm the improvement in performance, we called up Sears to cancel our appointment.

I don't know how much the technician would have charged us to scoop some wet lint out of the wall, but given that we were looking at a minimum $80 charge before any work was done, and the possibility of some unnecessary repairs due to a misdiagnosis, this five minutes of basic household cleaning saved us a nice chunk of money, and left our emergency savings intact for the time being.

From now on, I'll be checking this secondary lint trap at least once a month.

376 days and counting...

2008-06-17T10:23:00.000-04:00

Ten days ago, with little fuss and no fanfare, Loonies And Sense turned one year old. I celebrated this occasion by waiting ten more days before even logging into my Blogger account.

I guess you could say I've fallen off the wagon.

This omission might not bother me if I weren't such a fan of recognizing milestones. However, I am a fan, and it does bother me. There's been a lot of competition for my attention recently, and I haven't done a good job of balancing my commitments. I'm realizing that, if I'm constantly writing about how I'm going to do a better job of posting on the blog, then I'm really just going through the motions, and that's not what I want to do.

I want to write, and I want you to read, and the only way to do that is to sit down at the keyboard and post my thoughts.

I realize it's only been just over two weeks since my last post, but it feels like about a hundred years have gone by, so I appreciate the number of you that have kept the RSS feed in your readers. It means a lot that you've stuck around. I've got some exciting developments on the horizon, with Ms. Loonie's upcoming career change, and I hope you'll stay and listen to what I have to say.

I've been here a year. I've had times where I've posted several times a day, and I've had times where it's been a struggle to get one post up in a week. I've had months of breezy budgeting, and spent months getting hammered by unexpected expenses.

Let's see what year number two has in store.

May update

2008-06-02T15:20:00.000-04:00

May has come and gone, and we're heading toward summer. Although this past month has been a nearly complete hiatus for me, I'm back and ready to tackle the decisions that come with Ms. Loonie's upcoming career change.

To start off the month, let's look at how I did with my May goals:

Reduce my revolving debt to $19,850 - I managed to beat this goal, coming in at $19,823.07. It's nice to nail this goal for a change, given the number of times that I've fallen just short of my debt reduction targets in the past few months.

Grow my Emergency Fund to $1,370 - Once again, I made this one happen, ending the month with $1,372.95 in dedicated emergency savings.

Update my Equifax credit file with my correct postal code - I got pretty badly sidetracked in May, with Ms. Loonie going through her interviews for her new job, and a hectic month of my own at work. I've got the paperwork on my desk, so I'm planning to check this one off this week.

Walk to and from work every day, and work out at least three times a week - I've got the walking thing down, but I need to work on actually getting some real exercise on a regular basis.

Lose 4 pounds - I got half-way to this goal, dropping two pounds to 205lbs.

Blog 31 times in May - I've fallen off the wagon. I posted 7 times in May, with only two of those being actual topical posts, rather than monthly/bi-weekly updates. Fortunately, Ms. Loonie's job decision will give me lots of material to write about this month, as we work through the implications of switching careers and getting a salary bump.

Bring my lunch to work every day in May - I nailed this one. I prepare a lunch (usually a simple sandwich, some fruit and yogurt) every day before leaving for work. Combined with free coffee at work, I don't feel the need to spend on lunch or snacks during the workday.

Now, on to my month-end update:

Assets:
Online Savings - $2,821.77
Self-Directed RSP - $47,149.56
Employer Group RSP - $6,398.21

Debts:
Credit Cards - $18,038.55
Line of Credit - $1,784.52
Student Loans - $27,091.18

Net Investable Assets: $9,455.29
Net Liquid Assets: ($44,092.48)

Thanks to a three-pay month, my cash savings received a nice bump of $939.25 this month, mostly in contributions to my Freedom Account. The three paydays also translated into nice debt reduction, with $947.16 going toward my revolving debt. My retirement savings were helped out by market performance, increasing by $3,250.48 from their April 30 balance. Overall, I saw an increase of $4,189.73 in my investable assets, and a decrease of $1,774.37 in my non-mortgage debts.

Overall, my net investable and net liquid assets increased by $5,964.10 and $2,713.62, respectively. My NetworthIQ profile has also been updated (including loose cash, home, car and mortgage). I've widened the gap nicely since my net investable assets first became positive last month, and if I keep up my debt reduction, I should be able to keep this number above zero from here on out. That's a good motivator.

Loonies And Fortnights

2008-05-29T08:29:00.001-04:00

Well that has to be a record for me. Since my last payday update post two weeks ago, I haven't managed to write a word for the blog. There's a reason/excuse for this, but whatever you want to call it, the drought should soon be over.

Ms. Loonie has just accepted a job offer. That's the "big news" that's been brewing for us over the last several weeks, and now that it's official, I can finally talk about it. It sounds like a great opportunity. It means a career shift for her, but she's been stuck in a rut at work for a while, so that can only be a good thing. The salary is pretty competitive, which is definitely welcome, and she'll be a short subway ride from work, so it's also very convenient. We have some planning to do and decisions to make over the next several weeks, and I'll be sharing the details with you as we go along.

Beyond that news, it is Thursday, and I did post a payday update two weeks ago, so it looks like it's time for another update. I've updated my progress bars and NCN Network chart, and the big change this week is that I've finally dropped below $20,000 in revolving debt, with my current debt sitting at $19,800.22.

I actually have to run to the airport (we're spending a few days in the U.S.), so I need to sign off, but I'll be back next week with some musings on the implications of Ms. Loonie's new job.

Payday update from an MIA blogger

2008-05-15T10:13:00.000-04:00

Greetings, all. I apologize for my radio silence this past week. A lot has been going on in the Loonie household, which you might think would mean more stuff to post about, but I honestly just haven't had a lot of mental energy to devote to blogging. I should be able to go into more detail in a few weeks, but in the interim I'll have to ask you to bear with me.

The injection of a paycheque into the old chequing account always seems to reinvigorate me, so I'm happy to pick up the reins of the blog today, and update you on my progress so far. My progress bars and NCN Network chart have been updated with today's payday changes, and I'm so close to bringing my revolving debt under $20,000 that I can taste it. I'm well positioned to hit my target of $19,850 at the end of the month. My Emergency Fund will also come in easily above the target of $1,370, provided it's not needed for an actual emergency this month (touching wood as I type).

I've brought my lunch every single day so far this month, and have also walked to and from work without fail. Both of these behaviours have now become basic habits by this point, which feels good. Making a lunch and walking to work are just parts of what I do in the morning, and I don't even really need to think about them. We'll see how well I stick to the walking thing once the summer temperatures really hit (my thermoregulation is much better suited to winter than summer), but for now I seem to have cracked the nut on these two.

Mid-way through the month, things are looking good.

Time changes everything

2008-05-07T11:52:00.000-04:00

Back in March, I posted about the dismal returns I was seeing on my retirement investments. When taking into account my bi-weekly ESP payroll deductions, my investment performance from April 2007 through February 2008 represented a 0.98% annualized growth rate. When I added in my employer's matching contributions, this actually dropped to -4.29% annualized growth.

Well, that was before the market rally that began in mid-March. Since February 29, my retirement balance has increased by $3,383.21, with only $856.12 in contributions during the intervening two months. When I put this in terms of a one-year growth rate, I now come out ahead whether I include the employer match or not. Without the match, my growth rate for the past 12 months is 6.86%, compared to 1.19% when I include the match.

It's unnerving to see such a wide swing in market performance during a one-year period. Two months of bullish growth has taken my annual growth rate from 0.98% to 6.86%. In order to turn around the previous slump, my annualized growth rate during those two months was actually 36.62%. That's a big change from the decline we saw earlier in the year.

I find it fascinating that your view of market performance can vary so widely based on the window you look at. Canadian Capitalist has a great post today about looking at your response to the recent market dips as a gauge for your actual risk tolerance. If your gut reaction to the widespread price drops was to sell, then you should probably consider a more conservative portfolio.

Personally, I was content to ride out the market swings. This may be because these investments are largely academic to me at this point. Since this is all strictly "future money", I'm able to stay relatively cool about my investment performance. As I get closer to actually planning to use this money, however, and when I eventually build up a non-retirement investment portfolio, we'll see just how calm I remain through future market adjustments.

One year of progress: charting the trends

2008-05-05T23:17:00.001-04:00

In last week's post of my April month-end status, I noted that, for the first time since I've been tracking it, my Net Investable Assets became positive. During the month of April, my NIA went from ($1,100.67) to $3,491.19. This is a significant milestone, and it's fitting that it should come at exactly the one-year mark. I've only been blogging my progress since last June, but I've been keeping detailed Net Worth records since last April 30^th.

I was curious about the pace of my Net Worth growth, so I though I would throw together some charts plotting my progress over time. My NetworthIQ profile includes a graph like this for the overall Net Worth, but I wanted to dig a little deeper and look at the components that make up the metric.

As I touched on in an earlier post, there are several things that go into my Net Worth calculation:

Assets
- Liquid savings - All my chequing and savings account balances, as well as any cash I have on hand, get lumped together here. This includes my Emergency Fund and Freedom Account, as well as my day-to-day chequing accounts.
- Retirement savings - My group RSP and self-directed RSP get added in here. At the moment, this is the bulk of my life savings, since I've been throwing a good chunk of money in here ever since I started working.
- Non-financial assets - I include a rough estimate of our home value, as well as a slightly more informed estimate of our car's resale value. I don't update these estimates on a regular basis; they're really just placeholders to represent our most significant possessions.

Liabilities
- Revolving debt - This is my credit card and line of credit debt. Basically all of the debt that I would really call "consumer" debt; this is the "what was I thinking??" souvenir from my spendthrift days.
- Student loans - Ms. Loonie and I each have student loan debt, which we have both consolidated with my bank at a very good interest rate. We're slowly but surely chipping away at these loans.
- Mortgage - Our mortgage is my main justification for including our home value in the calculation; the estimated value of the condo really just serves to offset the huge liability represented by the mortgage. If we didn't have the condo, we wouldn't have the mortgage, so it makes sense to me to include both.

The Net Worth number is simply calculated as the total of all assets minus the total of all liabilities. I also calculate a couple of variations on this metric:

Net Investable Assets excludes the home and car as assets, and the mortgage as a liability, leaving me only with my true "financial" holdings.

Net Liquid Assets goes one step further, by excluding retirement savings from the asset side, leaving only the truly liquid portion of my financial position.

After one year of trying hard to make smarter choices, I've managed to increase my Net Worth by $37,364.61, my Net Investable Assets by $28,372.85, and my Net Liquid Assets by $14,162.99. Here's a representation of my Net Worth over this one-year period:

The irregular curve represents the actual month-to-month variations in my Net Worth, while the straight line represents a straight-line approximation of my Net Worth growth. The equation on the chart shows how the straight line is calculated: for every day of the past year, my Net Worth has increased by $96.30 on average.

Although it's not shown on the chart, there's a statistic called R², which shows how closely the actual observed fluctuations are represented by the straight line. The closer the R² gets to a value of 1, the more "accurate" the straight-line approximation is. This line has an R² of 0.98, which means that my Net Worth progress is matched quite well by a consistent upward trend of $96.30 per day.

This is all well and good, but where is this $96.30 increase actually coming from? I decided to plot the components of Net Worth individually, to show how each piece has contributed to the overall growth. Note that, because my estimated home and car value have not changed in the past year, I will not include them in this trend analysis.

My biggest asset is my retirement savings, so let's start there. By plotting my savings over time, I see that my investment balances have fluctuated quite a bit over the past year, with market movements. The market dips in July and the November-December time frame are clearly visible. However, despite these variations, the fitted line of $33.67 per day still has a respectable R² of 0.9, so the consistent upward trend is once again a reasonable approximation of the actual investment growth. This balance growth accounts for 35% of my Net Worth increase.

Cash savings are another story. When I plot my liquid savings over time, I see much more of a boom-and-bust cycle. This is partly due to the fact that I include my Freedom Account, which is really meant more for planned spending than actual saving, in this number. You can see that, during our trip to the US last June, and my brother's bachelor party in October, I really depleted cash savings. The upward spike in November is also interesting: this was me gearing up for holiday shopping. The R² for this chart is only 0.56, so this is the weakest straight-line approximation. Still, the daily growth of $3.45 indicated here does represent real forward progress, and the trend is consistently positive.

There is less to say about the progress against my debts. Revolving debt has been diminished at a pace of $17.34 per day. The R² for this chart is 0.98, which indicates a very good linear approximation. In fact, comparing the charts for Net Worth and revolving debt, the two appear to move almost completely in concert. This suggests that revolving debt is the factor most closely tied to Net Worth progress: when one goes up or down, so does the other. Student loans and mortgage have diminished at paces of $16.95 and $24.90 per day, respectively, and since these loans have fixed payments, they each follow a virtually perfect straight line.

The upshot of this is that, by maintaining a focus on paying down my revolving debt and contributing to my retirement savings, and by gradually growing my cash savings, I should be able to continue this Net Worth momentum. These three factors contribute 56.5% of the Net Worth growth, so it is very important that I keep moving on these fronts.

It's nice to know how far I've come, and it's even nicer to have a clear idea of how I got here.

Payday update

2008-05-01T12:59:00.001-04:00

Well, I've posted my April update, and with today as the first payday of a three-pay month, I've also updated my progress bars and NCN Network chart.

I've crossed another milestone with today's payment against my revolving debt: I have now paid off more than 25% of the $27,610.94 that I started with a year ago. 26.11% of my revolving debt has now been paid off. That's a big portion of the debt, but it's also a little discouraging when put in the context of my stated goal of an April 2009 payoff deadline. It's looking like this debt will be with me longer than I had hoped when I set that goal.

That's something I can live with, though, because of the progress that I continue to make on an ongoing basis. I have a cushion of savings ($1,333.02 in the form of a no-strings-attached Emergency Fund, and more money socked away for planned spending like car repairs, taxes and licence renewals). I've paid off $7,210.51 in revolving debt, and our mortgage and student loans are also on the way down. I'm definitely moving forward; I just thought the destination would turn out to be a little closer.

Goals for May 2008

2008-05-01T12:49:00.000-04:00

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 May:

Reduce my revolving debt to $19,850 (currently at $20,770.23) - This is consistent with my usual rate of debt reduction. Let's see if I can beat this number.

Grow my Emergency Fund to $1,370 (currently at $1,318.02) - Still keeping the increments small, but I want to keep making forward progress here.

Update my Equifax credit file with my correct postal code - I missed this one in April, so let's get it wrapped up early this month.

Walk to and from work every day, and work out at least three times a week - The walking is already part of my routine, so let's add some actual visits to the gym.

Lose 4 pounds - I need to start moving the dial on this if I want to hit my 187lbs target for the end of the year.

Blog 31 times in May - I trailed off about midway through April, so I need to get back into the swing of things, and get myself back into the daily posting routine.

Bring my lunch to work every day in May - This was a nice goal to have in the back of my mind last month; it keeps my focus on preparing lunches as part of the morning routine, and avoids the simple "I don't feel like it" cop-out. Let's see if I can do even better this month.

There's not much new here, but I'm trying to build some habits, so I'll keep things simple for now.

April update

2008-05-01T12:40:00.000-04:00

Well, we've survived the month of April. Hopefully, your taxes are all sorted out. How did you make out with your 2007 taxes? Do you have a plan to do better next year?

Let's look at how I did with my April goals:

Reduce my revolving debt to $21,250 - I was able to reduce my revolving debt to $20,770.23 this month. However, this includes the $500 lump-sum payment that I made from my tax refund. When I back this out of my debt reduction, I come up just shy of my goal, at $21,270.23. Still, the fact that I knocked $1,071.63 off the total is nothing to sniff at.

Grow my Emergency Fund to $1,310 - My focus at this point continues to be on debt reduction rather than building savings, so these savings goals look pretty trivial. I easily met this goal again this month, finishing with $1,318.02 in my Emergency Fund. However small my contributions to these accounts may be at this point, I still don't want to lose sight of the importance of a safety net. Every little bit counts, and I'm well on my way to having a $1,500 cushion by the end of the year.

Update my Equifax credit file with my correct postal code - No progress here, I'm afraid. As you can likely tell by my posting frequency this month, I've had a lot of things competing for my attention. Although the incorrect postal code is nagging at me, it's not as pressing as an incorrect balance or an account I don't recognize. Still, I should get this fixed. Let's bang this one off in May.

Walk to and from work every day, and work out at least three times a week - I slipped once early in the month, but since then I've stuck to my walking routine, and have not used public transit once to get to or from work. This comes in handy with the spectre of a TTC strike hanging around, as I'm fairly self-sufficient in my daily transportation needs. I didn't do as well with actually getting to the gym, so I know I need to focus on this going forward.

Lose 4 pounds - Nope. Still holding steady at 207. See the previous goal for details...

Blog 30 times in April - Wow. Apparently this month was a little hectic, because I only managed to muster up 18 posts for the month. That's 60% of what I was hoping for. Not too bad, but not exactly providing reliable daily reading, either.

Bring my lunch to work every day in April - Two weekends ago, we simply didn't have a spare moment to get out to buy groceries, and there was literally no lunch-worthy food in the condo come Monday morning. As a result, I paid $8.48 on soup and bread downstairs from the office. Other than that (and two instances of dropping $2.34 on coffee and a doughnut in a moment of weakness), I nailed this one. The result: I ate more healthily, and didn't blow money in the food court.

Now, on to my month-end update:

Assets:
Online Savings - $1,882.52
Self-Directed RSP - $45,390.35
Employer Group RSP - $4,906.94

Debts:
Credit Cards - $17,078.14
Line of Credit - $3,692.09
Student Loans - $27,918.39

Net Investable Assets: $3,491.19
Net Liquid Assets: ($46,806.10)

The most noteworthy result this month is my positive net investable assets (I didn't realize how much I love the colour green). That's right: I officially own more than I owe! Well, at least in a hypothetical world where I have full tax-free access to my retirement savings. This milestone was achieved through an increase of $2,971.68 in my investable assets, and a decrease of $1,620.18 in my debts.

Overall, my net investable and net liquid assets increased by $4,591.86 and $1,604.93, respectively. My NetworthIQ profile has also been updated (including loose cash, home, car and mortgage). I owe a good chunk of this forward progress to the rally in my retirement investments, but consistent debt reduction is also playing a huge role. More than half of my movement this month came from debt reduction, so if I keep this up, then I should be able to avoid dipping back into the red.

Net worth and retirement savings

2008-04-24T12:45:00.000-04:00

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

2008-04-24T11:17:00.000-04:00

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 25^th 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.

Weekly Wednesday weigh-in: Tax deadline coming up

2008-04-23T13:50:00.001-04:00

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

2008-04-23T13:37:00.000-04:00

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?

Another rate cut: will the banks follow suit?

2008-04-22T10:27:00.000-04:00

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.

Payday update (and belated weigh-in)

2008-04-17T12:47:00.000-04:00

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 13^th post this month, and today is April 17^th. 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.

The P2P lending minefield

2008-04-10T14:35:00.001-04:00

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

2008-04-10T13:43:00.000-04:00

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:

TFSA: 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.
BoC: 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.
CIPF: 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.
CPP/QPP: 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.
OAS/GIS: 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.
EI: 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.
ULOC: 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.
CAA: 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.

Return of the weekly Wednesday weigh-in

2008-04-09T12:45:00.001-04:00

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.

Mortgage options: is Cash Back a good deal?

2008-04-07T16:25:00.001-04:00

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.

Example

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.

Conclusion

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.

Claiming the tax credit for charitable donations

2008-04-04T17:43:00.000-04:00

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

2008-04-04T11:48:00.000-04:00

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.

Financial Archaeology: Unearthing Past Behaviour

2008-04-03T17:09:00.000-04:00

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.

Conclusion

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

2008-04-03T10:15:00.000-04:00

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 3^rd 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.

Another look at my NetworthIQ chart

2008-04-02T09:35:00.000-04:00

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!