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.
Showing posts with label Planning. Show all posts
Showing posts with label Planning. Show all posts
Thursday, July 2, 2009
Tuesday, June 16, 2009
Some times are harder than others
Over the past two years, I've successfully trained myself to spend only the money that I currently have in the bank. I've gone from a mindset of "it's only $20, and I'm getting paid next week" to a strict "cash-only" regimen. I use quotes around cash-only because I actually use my credit card, but I pay off each purchase almost immediately from my chequing account.
The positive result of this change is that, over the same two-year period, my revolving debt has decreased by more than 50%, and my net worth is now more than nine times as high as it was in 2007. I have a small emergency fund, and I save up for planned expenses like birthday and holiday gifts, car repairs and clothing purchases. All in all, although I still have a substantial chunk of revolving debt to pay off, I feel as though my financial house is in order.
The negative result of this change is that, when I deplete my savings to cover significant, unavoidable expenses, I feel as if I'm flat-out broke.
Last week, I took our car into the mechanic for an oil change and general check-up. After various small repairs and some sizable new parts, the bill came in at $1,400. Now, my Freedom Account has a "Vehicle Repair" category, which sat at just over $700. This meant that, in order to pay the bill, I needed to move some cash from some other savings accounts. I was able to pull $180 from my Emergency Fund, and $520 from our wedding savings. We've effectively paid cash for the repairs, but our cash savings are now diminished by $1,400. Our cushion is reduced, and with some other smaller expenses over the weekend, I'm left feeling a little naked.
The funny thing is, I almost enjoy this feeling. I know exactly where we stand financially, and that's a huge change from two years ago. Back then, the repairs would have gone on the line of credit, having the same net effect on our net worth, but a vastly different psychological impact. Shelling out $1,400 from your bank account can feel a lot more painful than adding that amount to your debt, and that pain forces you to be more watchful with your spending.
We'll rebuild our wedding and emergency savings. The vehicle category in the Freedom Account will be replenished, and the line of credit will continue to shrink.
We just have to get through this lean patch first.
The positive result of this change is that, over the same two-year period, my revolving debt has decreased by more than 50%, and my net worth is now more than nine times as high as it was in 2007. I have a small emergency fund, and I save up for planned expenses like birthday and holiday gifts, car repairs and clothing purchases. All in all, although I still have a substantial chunk of revolving debt to pay off, I feel as though my financial house is in order.
The negative result of this change is that, when I deplete my savings to cover significant, unavoidable expenses, I feel as if I'm flat-out broke.
Last week, I took our car into the mechanic for an oil change and general check-up. After various small repairs and some sizable new parts, the bill came in at $1,400. Now, my Freedom Account has a "Vehicle Repair" category, which sat at just over $700. This meant that, in order to pay the bill, I needed to move some cash from some other savings accounts. I was able to pull $180 from my Emergency Fund, and $520 from our wedding savings. We've effectively paid cash for the repairs, but our cash savings are now diminished by $1,400. Our cushion is reduced, and with some other smaller expenses over the weekend, I'm left feeling a little naked.
The funny thing is, I almost enjoy this feeling. I know exactly where we stand financially, and that's a huge change from two years ago. Back then, the repairs would have gone on the line of credit, having the same net effect on our net worth, but a vastly different psychological impact. Shelling out $1,400 from your bank account can feel a lot more painful than adding that amount to your debt, and that pain forces you to be more watchful with your spending.
We'll rebuild our wedding and emergency savings. The vehicle category in the Freedom Account will be replenished, and the line of credit will continue to shrink.
We just have to get through this lean patch first.
Thursday, March 26, 2009
When you can afford to make the "wrong"choice
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.
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.
Tuesday, July 29, 2008
The Loonie Portfolio: Asset allocation and half-year performance
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.
Self-Directed RSP
When I include my recent contributions, my portfolio value increases to $51,799.51, with the following asset allocation:
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 Stock: 100%
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%
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%
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.
Monday, July 28, 2008
The ETF dilemma
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:
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.
- 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.
- 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.
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.
Thursday, July 24, 2008
Knowing your limits
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?
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?
Thursday, July 17, 2008
Hats off to my brave colleagues
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:
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.
- 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
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.
Thursday, July 10, 2008
Intestinal fortitude: living with a bear market
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:
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.
Monday, July 7, 2008
Taking the road less optimized
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:
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.
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
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.
Friday, July 4, 2008
Starting a new career: changes for Ms. Loonie
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:
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.
Thursday, July 3, 2008
Feeling some property tax relief
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.
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.
Thursday, June 26, 2008
Payday update: Decisions to make
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:
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.
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.
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
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.
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.
Thursday, April 24, 2008
Start getting your 2008 taxes ready today
With less than a week to go, many Canadians are scrambling to complete their 2007 tax returns befor the April 30 deadline. Million Dollar Journey is among these last-minute folks, and he has a great post today on keeping your paperwork organized to make tax season as painless as possible.
It would be easy to dismiss this kind of tip by simply saying "OK, I get it, I need to get more organized!" However, let's not forget the core piece of advice here: the best way to be organized a year from now is to get organized today.
Taxes are a fantastic example of something that happens at the same time every year, yet somehow manages to find a large section of the population completely unprepared. Whether they don't have their paperwork in order, or don't have the cash on hand to pay their tax bill, lots of people seem to be caught by surprise by their taxes. With some planning and some basic organization, this can be avoided.
Another example of this is Christmas shopping. Christmas falls on December 25th every year, but there always seems to be a last-minute scramble to buy the presents (usually on credit). Last year, I started saving for my Christmas purchases at the beginning of May, and I was able to pay for all my gifts with cash. This year, I've been saving since January, which should give me even more breathing room when the holiday season arrives.
It can be hard to force yourself into thinking so far ahead, but once you make the initial time investment to put the plan in place, it should save you having to think about it when tax time comes around next year. In 2008, I need to start repayments to my RRSP under the HBP and LLP, which means that, with my projected income and deductions for the year, I'll owe about $1,000 in taxes. Starting with my next paycheque, I'm contributing $40 every two weeks to my Freedom Account, specifically so I can cover this tax liability. Knowing I've planned for this will save me lots of stress a year from now, and I should be able to pay the bill without missing a beat.
There's really no better time than today to start planning for next year's taxes. Well, maybe six months ago would have been better, but today's certainly better than next April.
It would be easy to dismiss this kind of tip by simply saying "OK, I get it, I need to get more organized!" However, let's not forget the core piece of advice here: the best way to be organized a year from now is to get organized today.
Taxes are a fantastic example of something that happens at the same time every year, yet somehow manages to find a large section of the population completely unprepared. Whether they don't have their paperwork in order, or don't have the cash on hand to pay their tax bill, lots of people seem to be caught by surprise by their taxes. With some planning and some basic organization, this can be avoided.
Another example of this is Christmas shopping. Christmas falls on December 25th every year, but there always seems to be a last-minute scramble to buy the presents (usually on credit). Last year, I started saving for my Christmas purchases at the beginning of May, and I was able to pay for all my gifts with cash. This year, I've been saving since January, which should give me even more breathing room when the holiday season arrives.
It can be hard to force yourself into thinking so far ahead, but once you make the initial time investment to put the plan in place, it should save you having to think about it when tax time comes around next year. In 2008, I need to start repayments to my RRSP under the HBP and LLP, which means that, with my projected income and deductions for the year, I'll owe about $1,000 in taxes. Starting with my next paycheque, I'm contributing $40 every two weeks to my Freedom Account, specifically so I can cover this tax liability. Knowing I've planned for this will save me lots of stress a year from now, and I should be able to pay the bill without missing a beat.
There's really no better time than today to start planning for next year's taxes. Well, maybe six months ago would have been better, but today's certainly better than next April.
Friday, March 28, 2008
That was a close one.
As many of you know, I've had some issues in the past few months with overengineering my finances. At times feel like a financial Icarus, flying too close to the sun on wings of automated transfers. I've been burned twice by my financial fiddling, once when I forgot how many free withdrawals I was allowed in a month, and once when my auto insurer charged me $0.01 more than they said they would.
Well, yesterday I had a close call with ING. Due to Friday being a holiday, last Thursday's Freedom Amount contribution didn't clear until this morning (there's a five-business-day hold on deposits). When I checked my ING balances yesterday afternoon, I saw that my monthly donation to Jazz.FM91 had just come out of my "Giving" account, leaving me with a balance of $81.75, $80 of which was still on hold.
I have to admit I don't know the NSF rules at ING, but I can only assume that the outcome would not have made me happy. I'm a little unnerved that I only avoided the sordid details by $1.75.
Paid Twice has a post today on the pros and cons of automated finances, which really hit home for me after yesterday's close encounter.
Well, yesterday I had a close call with ING. Due to Friday being a holiday, last Thursday's Freedom Amount contribution didn't clear until this morning (there's a five-business-day hold on deposits). When I checked my ING balances yesterday afternoon, I saw that my monthly donation to Jazz.FM91 had just come out of my "Giving" account, leaving me with a balance of $81.75, $80 of which was still on hold.
I have to admit I don't know the NSF rules at ING, but I can only assume that the outcome would not have made me happy. I'm a little unnerved that I only avoided the sordid details by $1.75.
Paid Twice has a post today on the pros and cons of automated finances, which really hit home for me after yesterday's close encounter.
Thursday, March 27, 2008
The market can make you crazy.
Interesting Money posted recently about his nasty habit of obsessively checking his investment balances. I have to admit that I share this tendency to over-track my retirement accounts, whether out of excitement, concern, or morbid curiosity.
In spite of my daily ritual of checking my account balance, I've generally been able to keep a cool head during the market turmoil that started last summer. I haven't done anything drastic like selling off my investments or switching to an all-bond portfolio. In fact, I seem to have been pretty lucky with my timing in diversifying my asset allocation using low-cost index funds. Given my still-negative net investable assets, the single biggest factor in my net worth trend over time is my ongoing debt reduction. As a result, although investment performance does have an impact on my overall financial picture, this effect is often overshadowed by my progress in paying down my debts.
I was looking at my history of monthly snapshots at NetworthIQ, and thought I'd have a look at my retirement account history. Since I started tracking my monthly progress, my retirement balance has gone from $36,087.43 to $46,914.08, an increase of $10,826.65. That's not a bad balance growth, but let's not forget that I've been steadily contributing to my RRSP during this time. In total, I've added $10,487.76 in book value (meaning actual out-of-pocket contribution value) to these accounts, so my actual investment "returns" really amount to $338.89. If I factor in my employer's matching contributions of $1,856.03 over the same timeframe, I'm actually behind by $1,517.14.
To get a (very rough) idea of the rate of return represented by these numbers, I'm adding half my contributions to my April 2007 balance, and using that as my starting amount. Therefore, I get the following 10-month rates of return:
Even the positive 0.98% is not exactly kicking inflation's butt.
As I look at these numbers, I remind myself constantly of the words of encouragement offered to any long-term investor:
In spite of my daily ritual of checking my account balance, I've generally been able to keep a cool head during the market turmoil that started last summer. I haven't done anything drastic like selling off my investments or switching to an all-bond portfolio. In fact, I seem to have been pretty lucky with my timing in diversifying my asset allocation using low-cost index funds. Given my still-negative net investable assets, the single biggest factor in my net worth trend over time is my ongoing debt reduction. As a result, although investment performance does have an impact on my overall financial picture, this effect is often overshadowed by my progress in paying down my debts.
I was looking at my history of monthly snapshots at NetworthIQ, and thought I'd have a look at my retirement account history. Since I started tracking my monthly progress, my retirement balance has gone from $36,087.43 to $46,914.08, an increase of $10,826.65. That's not a bad balance growth, but let's not forget that I've been steadily contributing to my RRSP during this time. In total, I've added $10,487.76 in book value (meaning actual out-of-pocket contribution value) to these accounts, so my actual investment "returns" really amount to $338.89. If I factor in my employer's matching contributions of $1,856.03 over the same timeframe, I'm actually behind by $1,517.14.
To get a (very rough) idea of the rate of return represented by these numbers, I'm adding half my contributions to my April 2007 balance, and using that as my starting amount. Therefore, I get the following 10-month rates of return:
- Without Match: $338.89 / ($36,087.43 + $5,243.88) = 0.82%
- With Match: ($1,517.14) / ($36,087.43 + $6,171.90) = -3.59%
Even the positive 0.98% is not exactly kicking inflation's butt.
As I look at these numbers, I remind myself constantly of the words of encouragement offered to any long-term investor:
- The real asset at this point is the stock/fund shares themselves, not their dollar value. These investments are generating dividend and interest income, which is in turn being used (through a DRIP) to buy more shares.
- The 4.29% "loss" I see when I take into account my employer's matching contributions is currently only a loss on paper. Provided I don't get cold feet and sell now with prices at their current lows, there's a very good chance that I'll more than recoup this drop over the next couple of decades.
- Even though my investment returns over the past 10 months have been poor, I'm still nearly $11,000 ahead of where I was last April. That's nothing to sniff at.
- I wish, oh how I wish, that I had some extra cash lying around to snatch up some of the investments that are currently "on sale".
Tuesday, March 18, 2008
Remember the tape deck: a lesson in delayed gratification
When I was a kid, one of my favourite pastimes was browsing the Consumers Distributing catalogue. The pages of this catalogue were always teeming with unimaginable treasures, from the latest G.I. Joe action figures and assault vehicles, to sporting equipment, to keyboard synthesizers and children's drum sets. Every November, my brother and I would gather around the catalogue to put together our wishlists for Christmas, which invariably took the form "CD page 72, item Q; CD page 89, items L-P..."
Just after I turned 12 years old, I spotted an item in the electronics section of the catalogue that I just had to have: a Panasonic dual cassette deck. Feast your eyes on this list of features, and tell me you can get through another day without owning this bad boy:
I asked my parents to buy the tape deck for me, but they balked at the price. They agreed to give me extra chores around the house to earn some extra money, and said that I could buy it once I had saved up the purchase price. I was a bit downcast at the monumental task put before me, but I decided to soldier on and earn my way to my all cushion ejecting, all high-speed dubbing prize.
For the next several months, I cleaned bathrooms, dusted and vacuumed the house, helped paint the garage, and babysat neighbourhood children, and little by little, my pile of savings grew. I jumped at any opportunity to earn some extra cash, and I clamped down on my spending, because every quarter that I spent on candy or arcade games was a step away from my goal of kicking back and listening to my freshly dubbed cassettes.
After months of saving, the day finally came, when I had $114 ($100 plus taxes) in cash in my hot little hands. My mother drove me to Consumers, and I excitedly filled out the catalogue slip to request the tape deck. The cashier brought the box out to the counter, and I proudly handed over five twenties, a ten, and four ones (this was in the days before the Loonie had completely replaced the dollar bill). The transaction complete, we got back in the car and headed home with my spoils.
I loved that tape deck. Over the next few years, I spent many an evening basking in the dulcet chipmunk tones of high-speed dubbing, as I put together countless mix tapes. I felt a sense of pride every time I looked at it, knowing that I had earned it through hard work and careful planning. When it finally kicked the bucket in my third year of university, it was like saying goodbye to an old friend.
These days, when I'm suffering from a bout of technolust, I think back to the day I bought that tape deck, to the intense pride I felt being able to pay in cash, and to the years of use that I got out of my purchase. If I can't pay cash, I either move on, or save up until I can. The lesson of the tape deck is a powerful one: delaying gratification can make it much sweeter, with the feeling that you've unequivocally earned your new toy.
My thousands of dollars of consumer debt are a constant reminder that I've strayed from the path of delayed gratification in the past.
I'm glad I've found it again.
Just after I turned 12 years old, I spotted an item in the electronics section of the catalogue that I just had to have: a Panasonic dual cassette deck. Feast your eyes on this list of features, and tell me you can get through another day without owning this bad boy:
- One-touch, high-speed dubbing
- Cushion eject
- Auto reverse on recording deck
- Auto stop on playback deck
- AM/FM radio with telescoping antenna
- Built-in condenser microphone
I asked my parents to buy the tape deck for me, but they balked at the price. They agreed to give me extra chores around the house to earn some extra money, and said that I could buy it once I had saved up the purchase price. I was a bit downcast at the monumental task put before me, but I decided to soldier on and earn my way to my all cushion ejecting, all high-speed dubbing prize.
For the next several months, I cleaned bathrooms, dusted and vacuumed the house, helped paint the garage, and babysat neighbourhood children, and little by little, my pile of savings grew. I jumped at any opportunity to earn some extra cash, and I clamped down on my spending, because every quarter that I spent on candy or arcade games was a step away from my goal of kicking back and listening to my freshly dubbed cassettes.
After months of saving, the day finally came, when I had $114 ($100 plus taxes) in cash in my hot little hands. My mother drove me to Consumers, and I excitedly filled out the catalogue slip to request the tape deck. The cashier brought the box out to the counter, and I proudly handed over five twenties, a ten, and four ones (this was in the days before the Loonie had completely replaced the dollar bill). The transaction complete, we got back in the car and headed home with my spoils.
I loved that tape deck. Over the next few years, I spent many an evening basking in the dulcet chipmunk tones of high-speed dubbing, as I put together countless mix tapes. I felt a sense of pride every time I looked at it, knowing that I had earned it through hard work and careful planning. When it finally kicked the bucket in my third year of university, it was like saying goodbye to an old friend.
These days, when I'm suffering from a bout of technolust, I think back to the day I bought that tape deck, to the intense pride I felt being able to pay in cash, and to the years of use that I got out of my purchase. If I can't pay cash, I either move on, or save up until I can. The lesson of the tape deck is a powerful one: delaying gratification can make it much sweeter, with the feeling that you've unequivocally earned your new toy.
My thousands of dollars of consumer debt are a constant reminder that I've strayed from the path of delayed gratification in the past.
I'm glad I've found it again.
Wednesday, March 12, 2008
Enhancing the Emergency Fund
Flexo at Consumerism Commentary wrote earlier this year about a five-point emergency plan, which takes the concept of the Emergency Fund beyond a simple cash balance in an online savings account. Flexo's emergency plan consists of the following:
This has got me thinking about my own Emergency Fund, currently a $1,270 balance in an online savings account (actually spread across four separate institutions). If I had to, I could get at this money within 24 hours by transferring it into my primary chequing account, and I have immediate ABM access to a portion of this amount via my HSBC access card. However, I like the idea of a more diversified approach to preparing for emergencies, and this has me thinking of ways I could spread out my funds a little more. I won't be pursuing the investment avenue (beyond my retirement savings) until my revolving debt is paid off, but there are a couple of ideas I'd like to explore in the short term.
The "under the mattress" cash is an idea that appeals to me. In the event of a power outage or natural disaster, it would be good to have a couple hundred dollars in cold, hard cash that I can grab at a moment's notice. Trent at The Simple Dollar has written about doing exactly this, and I think it's a smart move. With this in mind, I plan to pull $200 out of my Emergency Fund this week, and stash it at home. A year ago, I would have been hesitant to do this, not trusting myself actually to keep the money "for emergencies only". However, I feel that I've successfully cordoned off my Emergency Fund from my other finances, and I'll be able to use this cash responsibly.
I've also been thinking about other forms of currency, like stamps and public transit tokens. Now that we can buy "permanent" postage, both of these items are essentially protected against inflation. A stamp will always be good for mailing a letter, and a token will always be good for one ride on the TTC. Having a handful of stamps and tokens set aside (with the emergency cash?) could make things easier in the event we had to get out of town quickly.
Another emergency investment recommended by Flexo is to use your pantry as part of your Emergency Fund. Just keep a stockpile of staples on hand, and you know you won't have to worry about groceries during a temporary emergency. This could also apply to other non-edible staples, such as shampoo, deodorant, etc. Another twist on this is to redeem rewards points for grocery or pharmacy gift certificates, and keep these for use in an emergency. For example, I can redeem 1,400 Air Miles for $200 worth of gift cards at Dominion. That's a handy weapon to have in the emergency planning arsenal.
These ideas, along with building a chequing cushion, are things that I can act on in the short term, with minimal impact on my debt reduction progress.
What other elements do you have in your emergency plan?
- "Under the mattress" cash
- Liquid savings
- Investments
- Credit
- Loans/gifts from friends and family
- Frugality (bonus item)
This has got me thinking about my own Emergency Fund, currently a $1,270 balance in an online savings account (actually spread across four separate institutions). If I had to, I could get at this money within 24 hours by transferring it into my primary chequing account, and I have immediate ABM access to a portion of this amount via my HSBC access card. However, I like the idea of a more diversified approach to preparing for emergencies, and this has me thinking of ways I could spread out my funds a little more. I won't be pursuing the investment avenue (beyond my retirement savings) until my revolving debt is paid off, but there are a couple of ideas I'd like to explore in the short term.
The "under the mattress" cash is an idea that appeals to me. In the event of a power outage or natural disaster, it would be good to have a couple hundred dollars in cold, hard cash that I can grab at a moment's notice. Trent at The Simple Dollar has written about doing exactly this, and I think it's a smart move. With this in mind, I plan to pull $200 out of my Emergency Fund this week, and stash it at home. A year ago, I would have been hesitant to do this, not trusting myself actually to keep the money "for emergencies only". However, I feel that I've successfully cordoned off my Emergency Fund from my other finances, and I'll be able to use this cash responsibly.
I've also been thinking about other forms of currency, like stamps and public transit tokens. Now that we can buy "permanent" postage, both of these items are essentially protected against inflation. A stamp will always be good for mailing a letter, and a token will always be good for one ride on the TTC. Having a handful of stamps and tokens set aside (with the emergency cash?) could make things easier in the event we had to get out of town quickly.
Another emergency investment recommended by Flexo is to use your pantry as part of your Emergency Fund. Just keep a stockpile of staples on hand, and you know you won't have to worry about groceries during a temporary emergency. This could also apply to other non-edible staples, such as shampoo, deodorant, etc. Another twist on this is to redeem rewards points for grocery or pharmacy gift certificates, and keep these for use in an emergency. For example, I can redeem 1,400 Air Miles for $200 worth of gift cards at Dominion. That's a handy weapon to have in the emergency planning arsenal.
These ideas, along with building a chequing cushion, are things that I can act on in the short term, with minimal impact on my debt reduction progress.
What other elements do you have in your emergency plan?
Getting the most from a group RRSP
Canadian Capitalist has a nice post on the benefits of participating in an employer group RRSP. The gist is that, if your employer provides a match to your contributions, then you are leaving money on the table by not signing up for the plan. Many personal finance experts list this as a priority even while paying off debt: contribute enough to your employer's retirement plan (group RRSP for Canadians; 401(k) for Americans) to get the maximum employer match.
My employer has a group RRSP in which they match half of employee contributions, up to an annual maximum. In my case, the employer match is only available for purchases of the company stock. We also have a portfolio of low-MER mutual funds that we can contribute to through payroll deductions, but there is no match on these funds. Still, having an immediate return of 50% on my investment every two weeks is a great deal, even if it is all invested in my employer's stock. Unless the value of the stock suddenly drops by more than 30%, I end up ahead.
One of the benefits given by Canadian Capitalist is the up-front tax refund you get if you contribute to your employer's group RRSP through payroll deduction. Because you're making the RRSP contribution directly from your paycheque, your employer withholds less income tax, so the impact of the deduction is lessened. Plus, you aren't making the dreaded interest-free loan to the government.
Of course, this up-front tax refund also means you aren't in for a juicy refund cheque when you file your taxes in the spring, because you've already realized the tax savings. The RRSP advertising through January and February of every year is counting on the appeal of a big tax refund resulting from a lump-sum contribution to bring your money through the bank's door. However, if you've been contributing a portion of each paycheque all year long, you may not have this lump sum available.
There is a way you can "trick" yourself into giving yourself a refund for your group RRSP contributions. If you multiply your paycheque deduction by your marginal rate, and set up a recurring transfer of the resulting amount to an online savings account, then when tax season comes around, you will have a virtual tax refund sitting in this account.
For example, if you contribute $150 every two weeks to your employer's group RRSP, and your marginal tax rate is 40%, then you would set up a bi-weekly transfer of $60 to an online savings account. At the end of the year, not only will you have $3,900 (plus applicable employer match) in your RRSP, but you'll have $1,560 sitting in a savings account, as your reward for saving so well.
My employer has a group RRSP in which they match half of employee contributions, up to an annual maximum. In my case, the employer match is only available for purchases of the company stock. We also have a portfolio of low-MER mutual funds that we can contribute to through payroll deductions, but there is no match on these funds. Still, having an immediate return of 50% on my investment every two weeks is a great deal, even if it is all invested in my employer's stock. Unless the value of the stock suddenly drops by more than 30%, I end up ahead.
One of the benefits given by Canadian Capitalist is the up-front tax refund you get if you contribute to your employer's group RRSP through payroll deduction. Because you're making the RRSP contribution directly from your paycheque, your employer withholds less income tax, so the impact of the deduction is lessened. Plus, you aren't making the dreaded interest-free loan to the government.
Of course, this up-front tax refund also means you aren't in for a juicy refund cheque when you file your taxes in the spring, because you've already realized the tax savings. The RRSP advertising through January and February of every year is counting on the appeal of a big tax refund resulting from a lump-sum contribution to bring your money through the bank's door. However, if you've been contributing a portion of each paycheque all year long, you may not have this lump sum available.
There is a way you can "trick" yourself into giving yourself a refund for your group RRSP contributions. If you multiply your paycheque deduction by your marginal rate, and set up a recurring transfer of the resulting amount to an online savings account, then when tax season comes around, you will have a virtual tax refund sitting in this account.
For example, if you contribute $150 every two weeks to your employer's group RRSP, and your marginal tax rate is 40%, then you would set up a bi-weekly transfer of $60 to an online savings account. At the end of the year, not only will you have $3,900 (plus applicable employer match) in your RRSP, but you'll have $1,560 sitting in a savings account, as your reward for saving so well.
Monday, March 10, 2008
Wrestling the Costco beast
Whereas February began with a trip to Costco to replenish our non-edible household items, yesterday's expedition had us stocking up on food staples. From flatbread, cheese and breakfast cereal, to peanut butter, olive oil and milk, we seemed to buy something from just about every aisle. Add to that the cost of our membership renewal, and you've got one impressive Costco bill.
We stuck to our list, but the sheer bulk of our purchases translated to a very hefty bill. The membership fee comes out of an already accumulated balance in the Freedom Account, but even so, it was a painful bill to pay.
Yesterday was an hour shorter than most Sundays, and very nearly found us short of funds, as well. We need to get ahead of the curve on grocery spending; I think I may finally have identified a starting point for my chequing cushion. If I can set aside one pay period's grocery budget as a cushion, then I'll be better equipped to absorb these periodic overages.
We stuck to our list, but the sheer bulk of our purchases translated to a very hefty bill. The membership fee comes out of an already accumulated balance in the Freedom Account, but even so, it was a painful bill to pay.
Yesterday was an hour shorter than most Sundays, and very nearly found us short of funds, as well. We need to get ahead of the curve on grocery spending; I think I may finally have identified a starting point for my chequing cushion. If I can set aside one pay period's grocery budget as a cushion, then I'll be better equipped to absorb these periodic overages.
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