Too all my loyal reader, I'm sorry I missed last week. I was in Mexico and while planning to post, didn't quite find the time to pull myself away from the sunshine. Learned some interesting things there and I'll have to gather my thoughts before posting about it. In the meantime, let's carry on...
Seeing as I asked the question about what you plan to do in your retirement, I figure I should try and answer the question myself.
My answer has always been travel. Well it has, since I've been married anyhow, as my wife loves to travel. Have to admit, that it didn't take me long to get on board though! :)
But what does it mean exactly to travel in your retirement? How often will we travel and for how long will we be gone? Where do you go? I have to admit after about two weeks anywhere, I can't wait to get back home. We do live in the most beautiful place in the world after all! Also, my family and friends are here and if I can't take them with me, I'd at least want to run home to see them again.
I think the answer for me, is to go whenever and wherever I want. Probably every few months or so.
I also have plenty to do in between trips. Big assumption here, but I'm sure I'll have my hands full with children and grand children for one. When I'm not traveling or spending time with the family I'm sure you'll find me fishing a lake or more likely playing in a poker tournament somewhere.
On top of all that, I don't actually think I'll ever stop working entirely. I'm planning on having some businesses to over-see as well as a few rental/investment properties. I'm also thinking of working as a financial planner at this point for a few select customers. If they'll have me. ;)
I want to work without having to work. I want it to be my choice. So obviously to make that work I'll need to make sure my investments are capable of taking care of themselves while I'm out playing.
I'll eventually be talking about how I plan to get there, but I think it's helped me at least to get it written down. Let me know what you think.
One last thing....before anyone suggests golf, I'd rather get all my teeth extracted!
Monday, December 28, 2009
Monday, December 14, 2009
Retiring at 45?
I've stumbled across a very interesting blog that I've been following. Tim has decided he's going to retire at 45. That really intrigued me and got me thinking about my retirement plans again.
At first the idea of retiring at 45 seemed just crazy to me. So I was intrigued and had to read on. I thought maybe he was just a little bit crazy and/or naive. I decided to read his blog starting from the beginning and I've only just now gotten to 2007, but already I can tell that Tim has given it some thought and has a viable plan.
The "conventional wisdom" or the notorious "they", recommend 70% of your last years income. The Wealthy Barber recommends 100% and I thought he had some good reasons for it. Tim figures all he needs is 40% and again he has some good reasons for it.
I was already planning on writing about retirement and advocating for the 100%. However, I was falling into that same old trap again. There are no magic numbers and no one should give you a number without knowing what it is you want and plan to accomplish. That number is going to vary for everyone based on the answers to a number of questions.
I know its hard to plan for something so far in advance, but I also think it's necessary. Especially if you have high hopes for your retirement. The younger you are the more options you have. Compound interest is amazing and the younger you start investing the more impressive the results will be. However, deciding you want to retire at 55 when you're 53, might be a tad too late.
I have a hard time forcing myself to go in to work, so retiring at 45 does sound kind of appealing. Tim wants to write full-time and by having enough to pay his expenses through his retirement savings. Allowing him to focus on his writing career without worrying about having to make a living from doing so.
For me, that's the key issue. Why do you want to retire? If you're happy doing what you love to do, why would you want to stop? 45 is still 13 years away for me and I don't think I could handle the software industry for that much longer. Heck 6 more months, is feeling quite painful. That's why I'm studying to be a CGA and at least right now I can see myself working as an accountant that long past the age of 65. Doing what you love has to be the most important thing and I don't think you'd want to put that off any longer than you have to.
I'm not sure how the retiring at 45 plan would work here in the lower mainland though. Tim's home and mine have about the same value. However, he plans to retire in that home. I figure I have at least 2 upgrades to go before I'll have a home to retire in. He's in Saskatchewan by the way.
I think 70% is probably a safe number to throw out to the masses. Especially if you don't take time to determine what you want to do when you retire. I still recommend sitting down and figuring that out. Hmmmm... I suppose I should do that myself too. Maybe something else to blog about. :)
I'm still leaning towards supplying 100% for a few reasons, but I'll get to that on a future post. The point here is to think about what you want to do in your retirement and when you want it to start. Also, I really encourage you find your passion and find a way to make a living at it.
If you want to share your retirement plans, I'd love to hear them!
At first the idea of retiring at 45 seemed just crazy to me. So I was intrigued and had to read on. I thought maybe he was just a little bit crazy and/or naive. I decided to read his blog starting from the beginning and I've only just now gotten to 2007, but already I can tell that Tim has given it some thought and has a viable plan.
The "conventional wisdom" or the notorious "they", recommend 70% of your last years income. The Wealthy Barber recommends 100% and I thought he had some good reasons for it. Tim figures all he needs is 40% and again he has some good reasons for it.
I was already planning on writing about retirement and advocating for the 100%. However, I was falling into that same old trap again. There are no magic numbers and no one should give you a number without knowing what it is you want and plan to accomplish. That number is going to vary for everyone based on the answers to a number of questions.
- Why do you want to retire?
- What does retirement mean to you?
- What do you plan to do in your retirement?
- When do you plan to retire?
- How much money do I need realistically to make that happen?
I know its hard to plan for something so far in advance, but I also think it's necessary. Especially if you have high hopes for your retirement. The younger you are the more options you have. Compound interest is amazing and the younger you start investing the more impressive the results will be. However, deciding you want to retire at 55 when you're 53, might be a tad too late.
I have a hard time forcing myself to go in to work, so retiring at 45 does sound kind of appealing. Tim wants to write full-time and by having enough to pay his expenses through his retirement savings. Allowing him to focus on his writing career without worrying about having to make a living from doing so.
For me, that's the key issue. Why do you want to retire? If you're happy doing what you love to do, why would you want to stop? 45 is still 13 years away for me and I don't think I could handle the software industry for that much longer. Heck 6 more months, is feeling quite painful. That's why I'm studying to be a CGA and at least right now I can see myself working as an accountant that long past the age of 65. Doing what you love has to be the most important thing and I don't think you'd want to put that off any longer than you have to.
I'm not sure how the retiring at 45 plan would work here in the lower mainland though. Tim's home and mine have about the same value. However, he plans to retire in that home. I figure I have at least 2 upgrades to go before I'll have a home to retire in. He's in Saskatchewan by the way.
I think 70% is probably a safe number to throw out to the masses. Especially if you don't take time to determine what you want to do when you retire. I still recommend sitting down and figuring that out. Hmmmm... I suppose I should do that myself too. Maybe something else to blog about. :)
I'm still leaning towards supplying 100% for a few reasons, but I'll get to that on a future post. The point here is to think about what you want to do in your retirement and when you want it to start. Also, I really encourage you find your passion and find a way to make a living at it.
If you want to share your retirement plans, I'd love to hear them!
Thursday, December 10, 2009
In Favour of the HST
I was getting ready for work this morning and watched the news as I normally do. This morning I was watching the Restaurants take on the government as they try to get the HST removed from dining out. I'm actually all for their fight, but I thought some of the scare tactics they used to be little over the top.
I probably won't make any friends saying this, but I'm actually all for the HST in general. I'd like to see a fee more exceptions added like hair cuts and dining out, but on the whole I think it's a good idea.
Combining the GST and PST in it's own just makes sense from a collection and administration stand point. The less government workers we have to pay the better. My apologies to any government workers out there, but from a tax payer stand point it just makes sense.
Also, what most of us don't realize is that you're already paying the PST on a lot of items that are "exempt". If someone has to pay PST on a component somewhere along the line and they're not allowed to claim it back, it becomes part of their cost. They're not going to lose money so they increase the price. Not only that, if that product is bought by a manufacturer, they pay the PST on the component that already includes PST and because they can't claim it back they pass it on to you. So in some cases you're paying PST multiple times over.
Once these companies are able to claim the PST back they'll be able to exclude this from their prices. Now, every time I've said this people tell me that companies won't do this. Well, now that I'm knee-deep in my Economics class, I'm reminded of what these people are forgetting or are unaware of. The Laws of Supply and Demand.
All other things being equal, if the price of a product increases the demand will decrease. Pretty straightforward. People polled are already saying they expect to spend less once the HST is implemented. So, if this happens businesses will start to sell less. Given they have the ability now to lower their prices without an impact to their bottom line, which will in turn increase demand, they'd have to be stupid not to. All other things being equal, if the price drops the demand will increase.
In fact some products like computer hardware and lumber exports are already looking for every opportunity to get their prices lower. This gives them that opportunity and I don't think you'd have to wait that long to see these drops.
On the other hand, services like haircuts and restaurants don't have this cascading tax to draw from. So they're left having to lower prices without the savings, or live with a reduced demand. So I can understand them being concerned.
It's possible that the decrease in prices elsewhere will alleviate the strain people will feel in these areas and they won't decrease their demand. Although I don't really see I have an alternative to getting my hair cut other than doing it myself (like I said no alternative). As for food...
We're still going to have the PST portion exemptions on certain products, not completely finalized yet. Also, if you didn't pay GST on something before you're not going to pay the HST on it either. I'm not going to stop eating out because of an extra $2 on a $30 bill either. Eating out has always been much more expensive than the alternative of eating at home. But we do it when we're in a hurry, to celebrate, to see friends, etc. I don't see those things changing.
I'd still like to see the restaurant exception added, but I don't like the restaurants saying people will be let go, tips will go down, etc. Restaurants will close, carnage, end of the world in 2012!
Like everyone, I'd rather pay less taxes. However, as taxes go, this is probably the best one I've seen.
Love to hear your comments, although I do expect a little backlash. Assuming anyone is reading this ;)
I probably won't make any friends saying this, but I'm actually all for the HST in general. I'd like to see a fee more exceptions added like hair cuts and dining out, but on the whole I think it's a good idea.
Combining the GST and PST in it's own just makes sense from a collection and administration stand point. The less government workers we have to pay the better. My apologies to any government workers out there, but from a tax payer stand point it just makes sense.
Also, what most of us don't realize is that you're already paying the PST on a lot of items that are "exempt". If someone has to pay PST on a component somewhere along the line and they're not allowed to claim it back, it becomes part of their cost. They're not going to lose money so they increase the price. Not only that, if that product is bought by a manufacturer, they pay the PST on the component that already includes PST and because they can't claim it back they pass it on to you. So in some cases you're paying PST multiple times over.
Once these companies are able to claim the PST back they'll be able to exclude this from their prices. Now, every time I've said this people tell me that companies won't do this. Well, now that I'm knee-deep in my Economics class, I'm reminded of what these people are forgetting or are unaware of. The Laws of Supply and Demand.
All other things being equal, if the price of a product increases the demand will decrease. Pretty straightforward. People polled are already saying they expect to spend less once the HST is implemented. So, if this happens businesses will start to sell less. Given they have the ability now to lower their prices without an impact to their bottom line, which will in turn increase demand, they'd have to be stupid not to. All other things being equal, if the price drops the demand will increase.
In fact some products like computer hardware and lumber exports are already looking for every opportunity to get their prices lower. This gives them that opportunity and I don't think you'd have to wait that long to see these drops.
On the other hand, services like haircuts and restaurants don't have this cascading tax to draw from. So they're left having to lower prices without the savings, or live with a reduced demand. So I can understand them being concerned.
It's possible that the decrease in prices elsewhere will alleviate the strain people will feel in these areas and they won't decrease their demand. Although I don't really see I have an alternative to getting my hair cut other than doing it myself (like I said no alternative). As for food...
We're still going to have the PST portion exemptions on certain products, not completely finalized yet. Also, if you didn't pay GST on something before you're not going to pay the HST on it either. I'm not going to stop eating out because of an extra $2 on a $30 bill either. Eating out has always been much more expensive than the alternative of eating at home. But we do it when we're in a hurry, to celebrate, to see friends, etc. I don't see those things changing.
I'd still like to see the restaurant exception added, but I don't like the restaurants saying people will be let go, tips will go down, etc. Restaurants will close, carnage, end of the world in 2012!
Like everyone, I'd rather pay less taxes. However, as taxes go, this is probably the best one I've seen.
Love to hear your comments, although I do expect a little backlash. Assuming anyone is reading this ;)
Monday, December 7, 2009
Emergency Funds
I was planning on posting about something entirely different today, but something came up that I thought I should write about today. I already had the other article written along with several others, but they can wait. Assuming anyone is reading this I don't want to overwhelm you by posting them all. :)
I took the car in for servicing today and I got the bad news that our transmission is shot. He seemed to expect me to just buy a new car. Having talked it over with my wife, we took the advice from the adage "the cheapest car to own is the one you have". I plan to talk about that one day and how we plan to buy a new car with cash up front. But, for now, I thought I'd look at how we're going to pay for these $1500 repairs.
So of course we had to draw from the 3 months of savings from our emergency fund right? I wish! Who has that kind of money sitting around anyhow? The truth is if, I did I'd have better uses for it anyhow. After all why would I want to earn 1% in a savings account when I'm paying over 5% on my mortgage and 3.25% on my line of credit.
Don't get me wrong, I think an emergency fund is a good idea. I just don't think 3-6 months salary is feasible or even smart. Once the other debt is taken care of think it makes sense to save enough for some unexpected repairs. The amount would depend on your comfort level, but I'm thinking a few thousand should suffice for my needs.
I wish I can say that's where I'm taking these funds from this time, but no such luck. I haven't built it up at all. What am I going to do now? What would I do if I needed more than I had, or was laid off for an extended period of time? My answer, is the Home Equity Line of Credit (HELOC).
If you think of it as an insurance plan it works a lot better than any others that I'm aware of. You don't have to pay a monthly premium until you actually borrow the money (also known as interest). The minimum is usually only the interest payment.
You will of course need to pay it off and you can't (and shouldn't) abuse it for non-emergency use. However, it can help you to get through a pinch. Like the one I'm experiencing today.
Just thought I'd share in case you were thinking that saving 3-6 months salary would be next to impossible too. This might be a better alternative.
I took the car in for servicing today and I got the bad news that our transmission is shot. He seemed to expect me to just buy a new car. Having talked it over with my wife, we took the advice from the adage "the cheapest car to own is the one you have". I plan to talk about that one day and how we plan to buy a new car with cash up front. But, for now, I thought I'd look at how we're going to pay for these $1500 repairs.
So of course we had to draw from the 3 months of savings from our emergency fund right? I wish! Who has that kind of money sitting around anyhow? The truth is if, I did I'd have better uses for it anyhow. After all why would I want to earn 1% in a savings account when I'm paying over 5% on my mortgage and 3.25% on my line of credit.
Don't get me wrong, I think an emergency fund is a good idea. I just don't think 3-6 months salary is feasible or even smart. Once the other debt is taken care of think it makes sense to save enough for some unexpected repairs. The amount would depend on your comfort level, but I'm thinking a few thousand should suffice for my needs.
I wish I can say that's where I'm taking these funds from this time, but no such luck. I haven't built it up at all. What am I going to do now? What would I do if I needed more than I had, or was laid off for an extended period of time? My answer, is the Home Equity Line of Credit (HELOC).
If you think of it as an insurance plan it works a lot better than any others that I'm aware of. You don't have to pay a monthly premium until you actually borrow the money (also known as interest). The minimum is usually only the interest payment.
You will of course need to pay it off and you can't (and shouldn't) abuse it for non-emergency use. However, it can help you to get through a pinch. Like the one I'm experiencing today.
Just thought I'd share in case you were thinking that saving 3-6 months salary would be next to impossible too. This might be a better alternative.
Thursday, December 3, 2009
Spending Plans
If I titled this posting as Joys of Budgeting, I wonder how many people would have read on. Most people I've talked to, aren't big fans of budgeting. I think it's because most of us look at budgeting as restricting our spending. However, it's income that restricts our spending, not the budgets. At least we should be restricted by our income. Spending more than we make is a recipe for disaster.
A budget is just a tool to help us to ensure that our money goes where we want it to go. It doesn't mean the end of all fun shopping. You determine what you want to spend the money on. Whether it's movies, clothes, a new car, etc. It's a plan on how to spend the money the way you want and it's only as restrictive as you want it to be, or your income allows. That's why I used the term spending plan, as I think budgets make everyone immediately think of "tightening the belt".
In fact I personally find it quite freeing and not restrictive at all. When money is tight we have a tendency to avoid spending all together and when we do spend we feel guilty. At least I do! With a spending plan in place, I know what I have money set aside for. So if I have a video game budget of $50/month, I don't feel guilty about buying a $40 game with an otherwise tight budget. The savings and the debt repayment were already included when I added the video game budget.
Also, I think it helps to have a little bit of flexibility built into your plan. Wiggle Room, Fudge Factor, Mad Money, or whatever you want to call it. Just some unaccounted extra money, so that if you eat out a little more one month, or spend a little extra on clothes you don't feel guilty. If you start resenting the plan you're not going to want to use it.
Making your plan unrealistic or too restrictive is just going to make you hate it as well. Maybe you'd like to pay off your house in 10 years, but if that means no fun at all, it's not going to last. I've kept a very tight budget for several years while my wife was in school and we both started to go a little bonkers. It just can't last.
If you've tried budgeting before, you probably noticed that the money you planned to put into savings, after all your expenses, never seems to be there. You tell yourself it's just this month and next month will be different, but it never is. I think the reason this happens is because wants often become needs (or feel like needs) and when the money is there you spend it. Therefore, it's important that you pay yourself first.
This doesn't mean that you don't pay your bills, as I think your personal credit is your second most valuable asset beside financial knowledge. What it means is that you put some money aside for your savings automatically. Whether that is off of each pay cheque or at a certain date is up to you. The key is that money is moved so that you don't see it. Out of sight, out of mind. If you're building your RRSPs you're probably already doing this.
So after you pay yourself and you pay your bills, you're free to spend the rest of the money however you want. So if you end up not following the budget exactly, you're still OK. If you eat out more month you don't buy the video game that month for example. As long as you don't exceed your income you're fine.
If you find that your expenses are greater than your income, you are left with two options. You either need to make more money, or you need to reduce the expenses. Either way, the spending plan will be a useful tool in identifying these areas and allowing you to choose what is the most important to you.
If you don't already have a budget in place and you're not sure what things cost, just record your expenses for a month or two with no changes. You might be surprised at how much money is going to different things. Eating out always seems to catch people by surprise. Then decide if that's really the best way for you to spend your money. Keep in mind this is how YOU think you should spend your money, not how anyone else thinks you should. It's your choices and your money!
A budget is just a tool to help us to ensure that our money goes where we want it to go. It doesn't mean the end of all fun shopping. You determine what you want to spend the money on. Whether it's movies, clothes, a new car, etc. It's a plan on how to spend the money the way you want and it's only as restrictive as you want it to be, or your income allows. That's why I used the term spending plan, as I think budgets make everyone immediately think of "tightening the belt".
In fact I personally find it quite freeing and not restrictive at all. When money is tight we have a tendency to avoid spending all together and when we do spend we feel guilty. At least I do! With a spending plan in place, I know what I have money set aside for. So if I have a video game budget of $50/month, I don't feel guilty about buying a $40 game with an otherwise tight budget. The savings and the debt repayment were already included when I added the video game budget.
Also, I think it helps to have a little bit of flexibility built into your plan. Wiggle Room, Fudge Factor, Mad Money, or whatever you want to call it. Just some unaccounted extra money, so that if you eat out a little more one month, or spend a little extra on clothes you don't feel guilty. If you start resenting the plan you're not going to want to use it.
Making your plan unrealistic or too restrictive is just going to make you hate it as well. Maybe you'd like to pay off your house in 10 years, but if that means no fun at all, it's not going to last. I've kept a very tight budget for several years while my wife was in school and we both started to go a little bonkers. It just can't last.
If you've tried budgeting before, you probably noticed that the money you planned to put into savings, after all your expenses, never seems to be there. You tell yourself it's just this month and next month will be different, but it never is. I think the reason this happens is because wants often become needs (or feel like needs) and when the money is there you spend it. Therefore, it's important that you pay yourself first.
This doesn't mean that you don't pay your bills, as I think your personal credit is your second most valuable asset beside financial knowledge. What it means is that you put some money aside for your savings automatically. Whether that is off of each pay cheque or at a certain date is up to you. The key is that money is moved so that you don't see it. Out of sight, out of mind. If you're building your RRSPs you're probably already doing this.
So after you pay yourself and you pay your bills, you're free to spend the rest of the money however you want. So if you end up not following the budget exactly, you're still OK. If you eat out more month you don't buy the video game that month for example. As long as you don't exceed your income you're fine.
If you find that your expenses are greater than your income, you are left with two options. You either need to make more money, or you need to reduce the expenses. Either way, the spending plan will be a useful tool in identifying these areas and allowing you to choose what is the most important to you.
If you don't already have a budget in place and you're not sure what things cost, just record your expenses for a month or two with no changes. You might be surprised at how much money is going to different things. Eating out always seems to catch people by surprise. Then decide if that's really the best way for you to spend your money. Keep in mind this is how YOU think you should spend your money, not how anyone else thinks you should. It's your choices and your money!
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