tag:blogger.com,1999:blog-85534372991873047342024-02-20T16:35:57.531-08:00Straightforward FinancesThe opinions expressed here are just my own. I'm not a certified financial planner or an accountant. Please don't look at this as professional advice. I'm just passionate about finances and I research it whenever I can.Financial Studenthttp://www.blogger.com/profile/07519965779821871616noreply@blogger.comBlogger61125tag:blogger.com,1999:blog-8553437299187304734.post-10872203716751868782013-07-04T22:46:00.000-07:002013-07-04T22:46:11.209-07:00Wealth Through DoorsI haven't posted here in awhile as I'm sure you may (or may not) have noticed. This will however be my final posting in this blog.<br />
<br />
I thought this blog would be helpful to people that found finances confusing and wanted a more straightforward explanation. In reality though I don't think most people are all that interested in taking control of their personal finances. The people that do take the interest spend the time reading over the subject at length and would find little value in my blog.<br />
<br />
So, I have decided to focus on my real estate investing passion instead. This is the year that I will buy my first investment property, and I have decided to create a new blog <a href="http://wealththroughdoors.blogspot.ca/">Wealth Through Doors</a> to focus on that instead. The challenges, the research, and the experiences, as I build my wealth "one door" (investor lingo) at a time.<br />
<br />
I haven't changed anything on here, so I imagine this message will end up on my Facebook page. I decided for the new blog, not to force the posts in your face, so if you are not interested in my blogging, you will be happy to hear this is the last blog announcement that will appear on my wall!Financial Studenthttp://www.blogger.com/profile/07519965779821871616noreply@blogger.com0tag:blogger.com,1999:blog-8553437299187304734.post-61133506929761248652011-03-30T13:32:00.000-07:002011-03-30T13:32:37.538-07:00Corporate Tax Cuts vs SpendingI try not to get too political and focus on personal finances, but a lot of my personal finance thoughts are up in the air at the moment. Also, this ad playing in the background is driving me nuts. I've recently begun to take a more active interest in politics, but at this moment I haven't chosen my desired federal party. So I in no way mean this as a pro-conservative rant.<br />
<br />
The Liberal party (and previously the NDP party) were accusing the Conservative government of spending billions on corporate tax cuts. Taxes are income for the government, not an expense, so to say the government is spending more money is clearly just wrong. I equate this to saying you are "saving" money by buying a TV on sale. You aren't saving money, you are spending less. The distinction is important, because instead of buying the TV you could instead buy a mutual fund or put it into a high interest savings account. That is saving money. <br />
<br />
The real question is why a government would chose to receive less income. I don't think anyone (a corporation or an individual) is excited to pay any taxes. Although, I think most of us realize that they are a necessary to provide the services ourselves and our fellow citizens rely on. We're both upset when services are cut and when taxes are raised. We want our government to do as much as it can with as little funds as it requires. Its a bit of a balancing game as our spending decreases and taxes increase and vice versa. The country lives on our gross domestic product (GDP) and our taxes.<br />
<br />
Corporations differ from individuals because they actually provide jobs. A corporation spends its money on new technologies, human resources, expansion, etc. while individuals buy consumer goods. So it stands to reason that the higher the corporate taxes are the less growth and hiring a company will do. Less jobs in turn means less individual taxes to be taken from the government and less purchases and therefore less sales tax. So if a government can produce more income with a tax cut, it would be in their best interest (and ours) to do so.<br />
<br />
Another thing to keep in mind is that a corporation, like an individual, can move. While not easy to do, it can (and has) been done. So lower taxes may draw corporations here, while higher ones can send them south. <br />
<br />
These proposed cuts are designed to lower unemployment and boost GDP which would help pull us out of this recession. I tried to find evidence one way or the other to see if these tax cuts have been proven to actually do that, but the information is hard to come by. I believe mostly because these tax breaks are always discussed when the country is already struggling and the effects don't happen over night. Also there would be some limit to where these breaks would be efficient. If the economy was hot and employees were scarce, then the tax cuts would raise wages and increase inflation without actually improving the GDP. However, at least theoretically, in a slow economy these breaks just make perfect sense. <br />
<br />
Regardless though, we're not talking about spending more money. We're reducing taxes to induce more business to come here or start up and give more people jobs. You should then have the exact same amount of money to spend on services as you did before if not more. Not giving the tax breaks doesn't mean you have billions more to spend. You have the same or less. Much less if the corporation shuts down or moves.Financial Studenthttp://www.blogger.com/profile/07519965779821871616noreply@blogger.com0tag:blogger.com,1999:blog-8553437299187304734.post-56210203780845083432011-03-17T23:11:00.000-07:002011-03-20T13:45:23.847-07:00BC Minimum Wage IncreaseI guess in my excitement to have completed my exam, I guess I forgot to post last week. I'm sure you are all dying to know how I did. Well... me too. Two more months before I'll get the results. I <b>think</b> I passed, but at the moment I'm just enjoying having some time off.<br />
<br />
I'm sure I've made it quite clear about my feelings on minimum wage in the past, so it won't be a big surprise that I'm not ecstatic about Christy Clark's recent announcement. It appears that it will be increasing by 75 cents every 6 months starting May until it reaches 10.25 by May 2012. As well the training wage will be abolished.<br />
<br />
Minimum wage is always such a political topic, but I don't understand who it truly helps. I don't know a single person earning minimum wage so I don't understand who exactly is shouting for an increase. We always hear it is to help the poor people, but are there people truly starting at minimum wage and then waiting for it to go up? I always thought you worked hard and you are given raises. Generally we start young and gain experience and trade that experience for higher wages, but maybe I'm wrong.<br />
<br />
What I do know is that I haven't had a raise in over 4 years. I also know that higher wages means higher costs, which means my expenses are going to go up accordingly. Having run a business (although admittedly for a very very short time), I also know that businesses have limited resources and can only afford to hire so many people. The higher the cost, the less individuals get work.<br />
<br />
I guess one benefit (or downside depending on your view) of a higher wage is that it makes replacing people with technology more feasible. I'm sure you've noticed the self-check out lanes and pay at the pump gas stations. Sure, the low skilled workers will be without work, but these technologies provide more jobs for the skilled and highly educated work force like engineers.<br />
<br />
Not only are you getting an increase if you make $8.00 an hour, but basically anyone earning less than $10.50 an hour will be getting an increase by law. Hopefully the companies can afford to give the people above that a raise too. Imagine the people that have worked hard to earn that $11.00 an hour, only to see a 16 year old just hired at $10.50 an hour with no experience.<br />
<br />
Everything has consequences, and this is so obvious to me that it will increase everyone's costs to the point that the raise is meaningless. In the end, cost increases will follow the wage increases until $10.50 buys the same that $8.00 did and everyone is back in the same situation all over again.<br />
<br />
Why are we rewarding those that don't gain skills or experience? Wouldn't it make more sense to provide incentives to go to school, learn a trade, to work harder?<br />
<br />
I'm sure there are some exceptions. A mother, suddenly single, with no skills, forced into the work force for the first time perhaps. However, these groups are identifiable, unlike the masses receiving minimum wage including 16 year old boys and girls. Wouldn't childcare assistance for single parents be more cost effective in this situation? I have no issues with a lot of these ideas.<br />
<br />
Maybe I'm wrong. There do seem to be a great deal of people that agree with a minimum wage. I just find it frustrating that it is used for political purposes, when I don't know who it is that we are truly helping.<br />
<br />
I'd love to hear your views on this, especially if you disagree. What I really want to hear is who these people that we are supposedly helping are. Do you know any poor earning this wage personally? Is there a reason they need this help? Is raising the minimum wage the only way to help them?<br />
<br />
<hr><b>Update:</b> On my search to see who these people are I stumbled across these stats: <a href=http://www.statcan.gc.ca/studies-etudes/75-001/comm/5018829-eng.pdf>http://www.statcan.gc.ca/studies-etudes/75-001/comm/5018829-eng.pdf</a><br />
<br />
Summary:<br />
<ul><li>Just over 6% of workers in BC earn minimum wage. </li>
<li>The lower the minimum wage the less people earning it or less.</li>
<li>The average hourly rate is much higher than the minimum.</li>
<li>Over 56% of those earning minimum wage are 19 or younger.</li>
<li>Almost 25% of those earning minimum wage were part of a couple with the other earning more than minimum wage.</li>
<li>For most it is a transitional period.</li>
</ul><br />
Well there are clearly some people who truly need the money and are earning minimum wage will be struggling. However, does it make sense to raise the amount for everyone involved when most don't need to live off of that money. Choices have consequences, so should we as country take away those consequences? Approximately 2.6% of BC's population chose not to get a post secondary degree, chose to work in the service industry, and haven't been able to excel in that industry to achieve pay raises. Why should small businesses be forced to pay higher wages to 16 year old kids because of this small group? If the average wage is $19/hours, why are they earning $8?Financial Studenthttp://www.blogger.com/profile/07519965779821871616noreply@blogger.com2tag:blogger.com,1999:blog-8553437299187304734.post-44102463774933737052011-03-04T12:59:00.000-08:002011-03-14T13:06:10.557-07:00Random ThoughtsOK, another final exam is coming up yet again, and I'm totally not ready for this one. I've obviously burnt myself out, by taking too many semesters in a row without a break in an already accelerated program. So I'm looking forward to taking the next semester off! So I haven't really had any time to think about some of the topics I planned to write about. So, instead of slapping something together or writing nothing, I thought I'd just update you on some things I've been thinking about.<br />
<br />
First, I really appreciated the comment about the unexpected expenses from FieryCanuck77 last week. I have started to budget $100/month to go into a contingency fund that I'll max out at about $2000-$3000. I don't think I really need to build it faster because the car and tires are new, the TV and appliances are fairly new (plus I plan to move soonish), and I'm prepared for most expenses. Lets face it, most expenses are predictable. Just because we ignore them doesn't mean we didn't know the tires would die one day. Rather than putting money aside for each individual item though, I decided a group contingency fund would work just as well.<br />
<br />
Second, soon after writing about having all the expected items covered, I got a letter saying I owe my Water and Sewer bill. I was a little embarrassed to admit that I totally forgot about this one yet again. Actually I added a monthly amount to the budget, but when I noticed we never paid it, I assumed it was a mistake and removed it. Oops! However, we are okay, due to another mistake I made, which brings me to...<br />
<br />
Third, while I was trying to determine where the money was going to come from when I take a pay cut, I noticed I had under estimated my wife's salary. Now, that was a happy mistake, I was glad to find. Before you question my math skills, let me explain. When I set it up, I didn't know what her deductions would be, or how the pay works. She gets night time premiums, weekend premiums, overtime, etc, etc. You need a math degree just to calculate an average. So until I had some real data to go on, I purposely budgeted the numbers lower. Now that I have 6 months of data to base this on, I have a much better picture of what to expect and thankfully it should be enough to cover my pay cut.<br />
<br />
Finally, I'm looking into buying an investment property and I've come to the conclusion that buying in BC is not going to happen anytime soon. However, I did join the <a href=http://www.reincanada.com/>Real Estate Investment Network</a> and there are a lot of investors that invest in properties of the province (or country). I'm still short the funds to make an investment anywhere, but at least this gives me a lot more options and will require a lot less time to come up with the funds.<br />
<br />
Wish me luck on my exam! Now.... time to study hard!Financial Studenthttp://www.blogger.com/profile/07519965779821871616noreply@blogger.com4tag:blogger.com,1999:blog-8553437299187304734.post-19049893664729192082011-02-25T12:49:00.000-08:002011-02-25T12:49:47.024-08:00Flipping the Spending CircleIn the old days, or so I'm told, people used to save up for something before they bought it. Sometime between the good old days and now though, society has shifted to a buy now pay later model. Don't pay for 3 months, credit card use, etc, etc. Unless you have at least a quarter million lying around, you probably still need a mortgage for a home, however, I believe its possible to save first and spend later.<br />
<br />
The problem with all our borrowing is that there is a cost to it called interest. Even if you don't see it, its there. For example, I'm paying for a car with 0% financing. However, if I had paid cash for it they would have taken $2,000 off the price. So, that tells you even at 0% I'm going to pay $2,000 in interest over the 5 year loan.<br />
<br />
Not only is there a lot of self-satisfaction in having the money to buy something outright, there are also a few extra benefits. One, you earn interest instead of spending it. Don't think of it as just what you're making, but also what you're saving. Getting 2% instead of spending 6% gives you an extra 8% in your pocket. Less taxes of course, but that is what I'm using the TFSA for currently. Another benefit is that you think about what you are going to spend your money on. It may turn out that when you do this you don't actually need it. I'm sure there are other benefits, but the biggest one for me is that you'll always be able to afford your payments this way. If you lose your job or some other financial difficulty strikes you'll have savings to pull from and won't have debt to pay other than a mortgage.<br />
<br />
I've talked about it before, and this wasn't exactly a new goal, but is one that I've been working on for awhile. The frustrating thing is that there always seems to be something new coming up. Something that I hadn't budgeted for that forces me to search for ways to get the money together. The most recent example of that was my wife's CRNBC dues coming due this month. The good news is that it becomes easier and easier to do as time goes on. The only real challenge left in this goal is to figure out how to pay cash for the next car, but I'll discuss that more later. <br />
<br />
The biggest challenge I faced was trying to catch up. Using credit cards meant I was using this months income to pay for last months bills. Which also made the budgeting a much more challenging process. We eventually got caught up by using our tax return, which alleviated a lot of my stress.<br />
<br />
So now I look forward to Christmas and vacations knowing, the money is already in the bank waiting. It was a tough goal, years in the making, but I think we're basically there. Things still crop up, and they probably will continue to do so, but they happen much less frequently now. So hopefully this is encouraging to anyone else trying for the same goal. I definitely think it is worth it.Financial Studenthttp://www.blogger.com/profile/07519965779821871616noreply@blogger.com2tag:blogger.com,1999:blog-8553437299187304734.post-31736582796507934422011-02-15T13:02:00.000-08:002011-02-15T13:02:21.085-08:00The Retirement GoalOK, time for the far into the distant biggest goal... retirement. It is easy to say I don't want to take a pay cut when I retire, but how much is that going to cost me now. After some number crunching, the news seems better than I expected.<br />
<br />
I've gone back and forth over the RRSP vs TFSA and while still struggling with the concept, I've decided at least for now to continue to contribute to RRSPs. I'm using the TFSA for other investments and savings so if I used it for retirement as well I'd quickly run out of room and be taxed on my savings interest (mind you not a lot). Also, with my current tax bracket vs predicted future bracket calculations I've done, the taxes will end up being pretty much the same whether I pay them now or later. I may change my mind yet, but that is where my head is at currently.<br />
<br />
Rather than trying to figure out what I need and working back from there, I decided to start with what I can afford. At first, I came up with $400/month. Given that I'm using an RRSP vehicle though, I have the advantage of getting a tax break now. After crunching the numbers for a bit, I found I could drop $200/month from my savings and replace it with the tax return. That was the perfect number and any more than that and I ended up increasing my expenses. So time to see what $600/month does to get me to my retirement goal.<br />
<br />
Anyone that has ever tried to do retirement planning knows that it is full of assumptions, so here are mine:<br />
<ul> <li>I'm going to retire at age 65. I could aim for earlier, but I'd rather just get a job I love to do.</li>
<li>I want the funds to last at least until I'm 85. More about this below.</li>
<li>I'll receive 10% on average on my funds up until retirement. The funds I've selected are so far on track with this.</li>
<li>I'll receive 8% on average on my funds after this. Actually I expect to continue to earn 10% on much of the funds while earning much less on the funds needed immediately. No calculator I've found accounts for this though.</li>
<li>Inflation will increase on average about 2% per year and my contributions will increase with inflation.</li>
<li>Income required using today's numbers is $60,000. I don't actually know what my income at retirement will be and maybe I should be using a higher number, but my contributions will also increase as my income increases. So for now I think this is a fair assumption.</li>
</ul><br />
According to the <a href="www.servicecanada.gc.ca/eng/isp/common/cricinfo.shtml">Service Canada site</a> I should have $13,017/year in my OAS and CPP income. Assuming I don't have additional income above my RRSPs (which I hope is a bad assumption). I'll use that number for now though and I'm already almost a quater of the way to my goal.<br />
<br />
That site also tells you the income from the RRSPs, but it presumes I'm going to die at 78 and won't need any funds after that point. With that assumption, I'd have over 95,000/year. Assuming I do have additional income and I'm less mobile at 78 I probably could use their number, but I'd hate to be at 78 with increased medical costs and be forced to lower my income. I'd rather error on the high side and leave money to my family though than to out live my funds. I realize I could do an annuity, but I'd hate to give my money to an insurance company if I die early.<br />
<br />
Using <a href="http://www.mackenziefinancial.com/calc/jsp/RRSPcalculator/RRSPcalculatorResults.jsp">Mackenzie Financial's calculator</a> I see that with my assumptions my funds will actually last until I'm 100 (more than enough!) with me drawing out $60,000/year (in today's dollars). So I could probably give myself a raise and still be OK. I'll discuss this more as the day approaches, but my best bet may be to use a combination of an annuity and a RRIF. That way I can draw more from my RRIF expecting it to last until I'm 85 and if I live longer I'll have the annuity to fall back on, and if I die sooner I won't give all my money to an insurance company.<br />
<br />
Not bad considering it was just a first pass with only what I can afford now. There is a little room to play with too in case some of my assumptions go sideways.Financial Studenthttp://www.blogger.com/profile/07519965779821871616noreply@blogger.com0tag:blogger.com,1999:blog-8553437299187304734.post-11402483192551541102011-02-09T12:14:00.000-08:002011-02-13T09:18:55.552-08:00Worldmark Points and the Goal Making ProcessPart of me feels like I should have it all together before I start writing a particular article. I want you to feel like I'm at least informed on the topic of which I felt inclined to communicate to the world about. On the other hand, I never implied that I knew it all and I'm in fact just a student trying to learn as I go. So, the other part of me doesn't mind fumbling along and sharing my experiences with the learning process. If you have an opinion on this though, I'd love to hear it.<br />
<br />
The reason I stated the above is that I'm really seeing the benefit to writing out my goals and coming up with a plan to achieve them. One of the biggest lessons I learned so far in this process is that something I may have initially desired and set as a goal may become less important as I write out what that goal truly is and what it will cost to get it. That became very apparent as I sat down and tried to figure out how to reach my WorldMark goal.<br />
<br />
For those of you that don't know, <a href=https://www.worldmarktheclub.com/>WorldMark</a> is a vacation ownership company. I can practically hear you groaning now, but this is different than a time share in several ways. Time shares generally give you one location, one property size, and one time of year. Also when you die (or even after some time period like 20 years) you lose access. WorldMark has many locations, beautiful properties, you can will it, and choose the time and number of rooms as you need them. My parents are members and I've gone with them several times and the rooms are just beautiful.<br />
<br />
To get started you need to buy credits which are not cheap. The maintenance cost after that is about the cost of a normal hotel room a year (depending on the number of credits). Instead of a normal hotel room, though you get a beautiful home away from home. Washer and Dryers that allow you to cut down on the luggage you bring on a plane (expensive nowadays) and a fully equipped kitchen so that you don't need to eat out every night.<br />
<br />
We love to travel, so this seemed like a good fit. I figured I needed about 10,000 credits/per year in order to book a 1 bedroom at most places. However, at the prices that WorldMark was charging I didn't think I could ever justify it. That is until I found <a href=http://www.vacationcredits.com/>Vacatation Credits</a>; a site that people are selling their credits at a reduced rate. So I came up with the plan to use our vacation budget to buy the credits and use them to go somewhere local next year.<br />
<br />
Here is where the planning process started to change my mind. First I noticed that even with our healthy vacation budget and the cheaper credits we could only afford 7,000 credits after 1 year of saving. So that means delaying the next vacation as well or borrowing more money. Second, it means giving up on a trip now when we're without kids and are more easily able to travel. The savings won't be recognized for some time, so its hard to justify giving up that trip just now. Especially when my parents so graciously invite us along occasionally and we can also buy credits through them for some short getaways.<br />
<br />
Once we have children, I think the credits make more sense as we'll need a larger place and the hotel rooms and dining will start to get more and more expensive. In fact I don't imagine we'll be doing a lot of vacationing at all while my wife is pregnant or the baby is young. I can't believe I'm talking about kids I don't have yet! So, why not put the vacation money away at that time when we can't travel, so that when we're ready to go again we'll have the option of staying at these gorgeous condos.<br />
<br />
For now though, this goal has been postponed, but hasn't disappeared. If you're interested in my experience with WorldMark, or want to comment on anything I've written here, please ask away.Financial Studenthttp://www.blogger.com/profile/07519965779821871616noreply@blogger.com0tag:blogger.com,1999:blog-8553437299187304734.post-17744688714038548222011-02-03T21:05:00.000-08:002011-02-03T21:05:43.864-08:00My Mortgage GoalOK, finally got that second assignment out of the way! What a relief. So many formulas swimming around in my head and I'm feeling slightly nervous about the fast approaching final exam. So calculating my mortgage plan seems like a break in comparison.<br />
<br />
Looking at the difference between a $315,000 town home and a $350,000 town home, I couldn't really see that much of a difference. So I've decided to modify the goal a little bit and shoot for $315,000 in 2 years instead of $350,000. The goal should be much more easily attainable. Even if I could afford the $350,000 place, I'd prefer to still buy the $315,000 place and have that much smaller of a mortgage.<br />
<br />
Currently I have a 20 year amortization with a variable rate and I'm making approximately $800 in monthly payments. For these calculations, I'm going to assume that the variable rate will remain unchanged. I realize that is unrealistic, but I have no idea when the rates will increase and by how much, so I need to make some simplifying calculations in order to come up with some reasonable estimates. I'm also going to assume a 3% increase in value per year, in both the home I have and the one I want to buy. Finally, I'm going to assume about $10,000 in realtor fees based on some guidelines found on the web.<br />
<br />
Given the above assumptions, the current home will be worth approximately $220,000 and the desired home will be worth about $334,000 at the end of year 2.<br />
<br />
If I was to leave the payments as they are, at the end of two years, I should have approximately $143,000 remaining on the mortgage. Leaving a difference of $69,000 (less realtor fees) as the down payment for a new home. Which would be a 20% down payment on a $295,000 home ($59,000/20%). So, that doesn't quite get me to my goal.<br />
<br />
I think I can comfortably afford to increase the monthly payments to $1,350. So, let's see how that changes things.<br />
<br />
The mortgage at the end of 2 years now becomes approximately $129,000. That leaves $73,000 for a down payment after realtor fees. Assuming that is 20% of the purchase price, the price of the new home is $365,000. That leaves a bit of a cushion for rate increases and possibly renovations of the new home.<br />
<br />
This may look pretty straightforward now, but I had to do a lot of re-working on this article to come to this conclusion. I'm definitely seeing the need to have a plan in place to get to where I want to go. I struggled with several aspects of this, but I'm now pretty happy with the result. According to conventional wisdom I should be able to afford $2500 a month on the mortgage, but I'd have to change things drastically to make that happen.<br />
<br />
OK, another goal set in motion and the payments are already increased. Onto the next goal.<br />
<br />
Love to hear your thoughts and stories.Financial Studenthttp://www.blogger.com/profile/07519965779821871616noreply@blogger.com0tag:blogger.com,1999:blog-8553437299187304734.post-87676324837273026812011-01-26T23:44:00.000-08:002011-01-26T23:44:20.899-08:00First Net Worth UpdateOK, here's the first of my net worth updates. I'm thinking of posting this annually to see how I'm doing. <br />
<br />
First, some comments about the information given:<br />
<br />
I'm including my home because I plan to use the equity to buy up and to eventually borrow against for investing. The value is somewhat subjective until we sell, but is based on the mortgage approval I recently had done. It is above the assessed value, but not by much and other apartments in the area have sold for about 10,000 more than what I have listed.<br />
<br />
I'm excluding the car both as an asset and a liability because I have no intention of selling the car or borrowing against it. Recording the loan without the asset doesn't truly represent my net worth, because if I was unable to make the loan payments a very large portion of the loan would be repaid with the sale of the car. Mostly though, it is because I don't want to have to constantly check the blue book value of the car to see what it is worth in comparison to what is owed.<br />
<br />
I'm also not going to include things like Jewellery or savings that are earmarked for future purchases. I have a TFSA to save for Christmas gifts, vacations, etc. It would be misleading to include that in my net worth statement to see how healthy my finances and retirement planning is doing. I do have some investment money in it at the moment though until I can figure out a better place to put it.<br />
<br />
Finally, my wife's pension, if she works until 65 is 70% of the average of her 5 highest earning years. I'd just be guessing if I included an accumulated amount in her pension, so I'm excluding it as well. Although, I'm not too worried about her retirement plan due to this. We may decide to supplement it with RRSPs at some point though.<br />
<br />
OK, enough chat, let's get to it.<br />
<br />
<b>Assets:</b><br />
<br />
House: $200,000<br />
RRSP Savings Account: $800<br />
RRSP (as of Dec 31, 2010): $1000<br />
TFSA: $200<br />
<br />
Total Assets: $202,000<br />
<br />
<b>Liabilities:</b><br />
<br />
Mortgage: $155,500<br />
Student LOC: $8,100<br />
BC Student Loan: $6,200<br />
Canada Student Loan: $9,600<br />
Scotia BC Student Loan: $500<br />
Scotia Canada Loan: $1000<br />
<br />
Total Liabilities: $180,900<br />
<br />
<b><i>Net Worth:</i></b> $21,100<br />
<br />
Even with all the student loans I'm happy with that number. At least its positive. So now I have a yard stick for measuring against. Now its time to work on achieving my goals and hopefully boosting this number up for next year. <br />
<br />
If you have any questions about my calculations or think I missed something or just generally have a question, please let me know.Financial Studenthttp://www.blogger.com/profile/07519965779821871616noreply@blogger.com0tag:blogger.com,1999:blog-8553437299187304734.post-30222660855780168222011-01-19T12:44:00.000-08:002011-02-03T21:06:19.078-08:00Time to get SeriousIts fun and interesting for me to discuss what is going on in the rest of the world, but its time to get serious about my own financial life. To start with, I need to set some goals, make sure they are measurable, and most importantly actually measure my progress. I've read and believed in the importance of writing down your goals, but I've never actually gone to the effort of actually doing it... until now.<br />
<br />
I'll start with my goals this week, and over the next few weeks I'll post my debt levels, my net worth, and so forth so that I'll have a benchmark to mark my progress with. I'm not doing it to be boastful (and at this point I don't have much to boast over). So hopefully no one takes it as such. Perhaps it might help someone else to see the progress and be willing to take the same steps. Share your advice and perhaps we can help each other make this journey together.<br />
<br />
<h2>My Specific Goals:</h2><br />
<ul><li>Apply for at least one job every day and hopefully be working as a full time accountant by the end of 2011. Starting this after this semester is over.<br />
<li>Buy 8000 WorldMark Credits by the end of 2011.<br />
<li>Increase mortgage payments in order to pay down the mortgage enough to have enough equity to put at least a 20% down payment on a $350,000+ town home by the end of 2012.<br />
<li>Invest $200/month for 4 years in order to start a home-based (non-accounting) based business when I'm done school.<br />
<li>Flip the spending circle, so that I save first and spend after. Including unexpected car maintenance, vacations, property tax, Christmas presents, etc.<br />
<li>Pay cash for my next new car.<br />
<li>Have no student loan debt by the end of 2014.<br />
<li>Have a single detached home by 2017 without selling the town home purchased in 2012.<br />
<li>Have the detached home above fully paid for by 2022.<br />
<li>Create enough passive income and wealth, that working becomes optional by the time I turn 45.<br />
<li>Retire at the age of 65 with 100% of my last years salary.<br />
</ul><h2>My Generic goals:</h2>I believe that goals need to be specific to be successful. I have a few goals though, that I still need to nail down the details. So rather than leave them off the list entirely, I thought I would write them down here and recognize that some more work is required. <ul><li>Write an accounting software package. For obvious reasons I can't go into a lot of details here. However, I still should come up with a reasonable time line. Is this just a hobby, or can this make money?<br />
<li>Travel the world. Go to places I've never been before, and revisit some of my favourites. I'm not talking about at the age of 65 either!!<br />
<li>Start a family.<br />
</ul><br />
I'm sure these goals will be tweaked and added to over time. I may also need to make some adjustments after I do some number crunching to see if these are all feasible. Any advice? Questions? Thoughts? Care to share your own goals?Financial Studenthttp://www.blogger.com/profile/07519965779821871616noreply@blogger.com0tag:blogger.com,1999:blog-8553437299187304734.post-25869608175606320202011-01-13T12:57:00.000-08:002011-01-13T12:57:54.223-08:00Financial VocabularyThe author of the Rich Dad, Poor Dad series, Robert Kiyosaki, states the importance of expanding your financial vocabulary on the journey to becoming rich. I tend to agree with him on this point, even though, ironically he misuses words like assets and liabilities (at least in a financial sense). An asset is a past event that has a future economic benefit, while a liability is an obligation arising from a past event. So to say that a home is a liability because it costs you money rather than making you money is incorrect.<br />
<br />
A home contains many components that would end up in a financial statement. The mortgage is a liability, the home itself is an asset, any rental income received would be income, and maintenance would be considered an expense. Even if the home decreases in value and you spend money maintaining it, it is still an asset because it has a future economic benefit. Either you can borrow against the equity (home value less the mortgage) or you could sell the home.<br />
<br />
That isn't to say that all assets are good investments though. I think that was the point Robert was actually trying to make. With the amount of interest spent, repair costs, etc, and if you're not planning on selling the home or using the equity for other investments, it may not be a very good investment after all.<br />
<br />
Another term used in the financial world is an "investment vehicle". I like to use that term just because it drives my brother nuts! He insists that it is a bad term because it is clearly not a vehicle. No tires, no steering wheel, etc.<br />
<br />
The <a href=http://www.thefreedictionary.com/>Free Dictionary</a> defines a vehicle as:<br />
<ul> <li> A medium through which something is transmitted, expressed, or accomplished: His novels are a vehicle for his political views. </li>
</ul><br />
So to me, the term investment vehicle makes perfect sense. It is a vehicle designed to accomplish your financial goals. You put your investments in your vehicle and hopefully move that vehicle closer to your financial freedom. I also like the term just for the analogies you can draw from it. Just like you wouldn't take a sports car the same places you'd take an all terrain vehicle, not all investments are used to accomplish the same goals.<br />
<br />
A common misconception with the Tax-Free Savings Accounts (TFSA) is that they are just savings accounts. A TFSA is an investment vehicle, just like a Registered Retirement Savings Plan (RRSP) is. You can choose what investments you want to put inside that vehicle, including stocks, bonds, saving accounts, T-Bills, etc.<br />
<br />
Any misues you'd like to share? Any other terms that bug or baffle you? Have I misused any? Love to know what you think.Financial Studenthttp://www.blogger.com/profile/07519965779821871616noreply@blogger.com0tag:blogger.com,1999:blog-8553437299187304734.post-65283732321887914132011-01-05T12:35:00.000-08:002011-01-05T12:35:29.708-08:00Art ConnoisseurEvery now and then I like to day dream of a day when I'm very wealthy and don't need to worry about where my next pay cheque is coming form, or how much dinner is going to cost. Also, from time to time, I like to wander into an expensive art gallery in Whistler or Vegas and imagine that I could actually afford to purchase one of the pieces without needing a second mortgage on my home. The problem though, is that I guess I'm not that imaginative as I can't even bring my imaginary future self to make such an outrageously priced purchase. <br />
<br />
I realize art isn't exactly a practical purchase, but I don't think all our purchases need to be. There is some worth in having a piece in your home that lifts the heart and makes you proud of the home that you live in. I have a sculpture in my home that we purchased in Mexico that instantly reminds me of those beaches and the great times we had spending it with friends, as some great friends came together in marriage. I have another that my sister-in-law painted that always reminds me of her and her family that we don't get to see as often as we'd like. Other pieces we bought (probably at Sears or something) that just make me smile and I couldn't even tell you why. However, even though I don't think it is a wasteful purchase, and I've seen some beautiful art in those show rooms, I can't imagine myself ever spending tens of thousands of dollars on a single item. <br />
<br />
That got me thinking, that I'm surrounded by a lot of talented people. I'm not truly an art connoisseur, and I couldn't even tell you the name of the artists galleries that I was in. However, it did occur to me that they must have started out as my artist friends and family are now. One day very much unknown, but sometime in the future they may very well be recognized for their brilliance.<br />
<br />
Because I don't care about keeping up with the famous Jones, I don't need to tell people I have an original of Charles Burton Barber. In fact, I take pride in saying, "my cousin painted that", or I picked that up in a bazaar in Cancun. Besides art speaks to people differently, and I think it is more important to have a piece you find beautiful and speaks to you, than just to have a piece because it is expensive or made by someone famous.<br />
<br />
So next time you're thinking of decorating a new room, why not ask your artist friends and family what they have available for you to purchase. You can help them out and get a beautiful work of art at the same time. If you're not as blessed as I am to have talented artists in your inner-circle, here are a couple of links for you to check out:<br />
<br />
<a href="http://www.redbubble.com/people/amandagwright">http://www.redbubble.com/people/amandagwright</a><br />
<a href="http://walterhelenaphotographycatalogue.blogspot.com/">"http://walterhelenaphotographycatalogue.blogspot.com/</a><br />
<br />
If anyone wants to send me some art just because you love me, this is one of my <a href="http://www.redbubble.com/people/amandagwright/art/5590784-1-pieces-of-me">favorites</a>.Financial Studenthttp://www.blogger.com/profile/07519965779821871616noreply@blogger.com1tag:blogger.com,1999:blog-8553437299187304734.post-76554293651048041252010-12-31T13:51:00.000-08:002010-12-31T13:51:07.648-08:00Reading the Fine PrintHere is a money saving tip I just learned the hard way: <i>Read your contract closely before signing!</i><br />
<br />
My wife really wanted an iPhone for a long time now. I had grown tired of Bell for several reasons and when I got my Blackberry I did so through a friend of mine at Rogers. I figured I'd save some money by getting a couples plan, but because we signed a 3 year contract with Bell, I knew getting out of it was going to be expensive. <br />
<br />
I was told that canceling even 1 day early was going to cost me the minimum cancellation fee. So I waited until the contract expired (November 27th) before getting a couples plan and an iPhone at Rogers. Rogers took care of the phone switching which is supposed to cancel the contract, so you can imagine my surprise when I got notice that my phone was cancelled on December 27th.<br />
<br />
I called to ask what this was about and it turns out that after the 3 year contract expired it automatically went into a month to month contract. To get out of the month to month contract I needed to give them 30 days notice. As hard as I tried (maybe threatened a little) I realized I wasn't going to get out of paying 2 phones in one month. Even though I couldn't use the Bell service if I wanted to because the number was switched over.<br />
<br />
I'm usually pretty good at reading my contracts before signing, but in my defense it was 3 years ago that I signed. Plus this was the second contract with them, so I didn't read the second one as close as the first. Also, it just didn't make sense to me that if I transferred my number the number <b>after</b> the contract expired, I'd automatically be in a new contract.<br />
<br />
I knew a year before the contract expired that I wasn't going to renew with them, so I guess I should have double-checked what I needed to do to end the "expired" contract. Still boggles the mind, but lesson learned!Financial Studenthttp://www.blogger.com/profile/07519965779821871616noreply@blogger.com0tag:blogger.com,1999:blog-8553437299187304734.post-50312730233703235872010-12-23T13:00:00.000-08:002010-12-23T13:00:40.600-08:00My WhereaboutsOK, I suppose I should explain why I stopped writing, so here goes my list:<br />
<br />
1. Running out of post ideas.<br />
<br />
Intermediate Financial Accounting I & II didn't really lend themselves to topic ideas that I could share with the general public. Calculating the future value of bonds is fun for me, but I doubt any of you really care. I was also hoping to feed off of the comments, but I wasn't receiving as many as I had hoped for.<br />
<br />
2. Tougher courses.<br />
<br />
I'm no longer into level 1 courses and it is obvious to me. About the time I stopped writing a final was approaching, I had fallen behind on studying, and was seriously close to failing that exam. I dropped everything and even took a sick day to buckle down so I could pass. For the other reasons I'm mentioning I didn't pick it up again after the exam was done.<br />
<br />
3. Lack of comments.<br />
<br />
I realize this is mostly a one-sided conversation, but I was hoping for a little more participation. When I stopped writing it felt like no one was going to notice, so I didn't bother to explain myself then. I was pleasantly surprised to receive a lot of verbal communication to continue writing. So thank you all very much, and I will try not to take it personally in the future.<br />
<br />
4. Depression.<br />
<br />
After 8 years of schooling, my wife was finally about to graduate as an RN. However, it appeared that the best she could hope for was going to be part-time work. From what I was hearing from her and all her classmates, was that there was no work to be had. That meant I was stuck at my job indefinitely! Writing about becoming an accountant didn't seem to be all that important anymore.<br />
<br />
Now she is working full-time and they call her on every day that she has off asking her to come do another shift! I'm still at the same job for now, but at least we're not solely reliant on my income.<br />
<br />
---<br />
<br />
So hopefully you can forgive my absence. I probably won't write as regularly anymore, but I'll aim to have one of these a week (less around exam time).<br />
<br />
If you ever have any financial questions you'd like me to try and research and tackle, please send me a comment or e-mail. If you ever disagree with anything I write, I'd love to hear that too! Honestly!<br />
<br />
Thanks again to everyone for the support. Merry Christmas and happy new year everyone!Financial Studenthttp://www.blogger.com/profile/07519965779821871616noreply@blogger.com0tag:blogger.com,1999:blog-8553437299187304734.post-3558825681914450042010-12-09T11:22:00.000-08:002010-12-09T11:22:18.894-08:00Stop the HSTI've had a lot of people ask me where I've been and to urge me to continue, so here I go. I'll explain where I disappeared to shortly, assuming anyone is still listening. Before I do though, I have to throw out a quick blog on something that has been bothering me.<br />
<br />
I made it pretty clear before that I was pro-HST. That still hasn't changed, but recently I've taken a greater interest in our political system now. Its a very interesting time to do so with two leadership races on the way here in BC. So, I now have a better understanding on what the anger is all about, and I honestly don't think it has anything to do with the actual tax being a good or bad idea. I know its not a political blog, but it is hard not to discuss politics when trying to discuss the HST. Please bare with me and we'll get to my point at the end.<br />
<br />
The government is supposed to be our elected representatives. Meaning they should represent what we want. When the premier of BC decides unilaterally to introduce a tax without MLA approval it violates how the system is supposed to work. Gordon Campbell lied to get elected, but that isn't surprising for a politician. What is surprising is his disregard for the democratic process. I'm sure if it had been taken to a vote it would have been struck down.<br />
<br />
I still insist it is a better system, and I'm not trying to say that the general public is stupid for fighting it. However, no one can expect the general public to just take a politicians word that something is good for them. Or for that matter, any salesperson. I'm convinced that if the public was educated first and then asked to vote for it, it would have gone through.<br />
<br />
Regardless, a wrong has been done and needs to be corrected. Is remove the HST really the best solution though?<br />
<br />
Something just dawned on me today though. I think the Anti-HST movement is asking for the wrong thing. HST is just a harmonizing of the PST and GST taxes. We could reverse the HST, but without adding back the PST exemptions we had before the HST was introduced the changes would be irrelevant. Imagine how happy you'll be when the HST is reversed and now you pay 7% PST and 5% GST at the restaurant instead of 12% HST. Woo hoo!<br />
<br />
In reality, I assume if the tax is reversed, these exemptions will be put back. However, what we really care about is paying more tax on services (maybe a few other things). A lot of companies have gone to a lot of work to get the HST introduced (the software company I work at for one). So, is it fair to penalize them for the Premier's mistakes? We already have a few exemptions on the HST, and adding a few more will leave a lot more people happier overall. I mean, do you really care what they call the tax?<br />
<br />
Curious on your thoughts.Financial Studenthttp://www.blogger.com/profile/07519965779821871616noreply@blogger.com0tag:blogger.com,1999:blog-8553437299187304734.post-21286722186810655942010-05-27T10:32:00.000-07:002010-05-27T10:32:07.497-07:00IPad ContestOK, sorry again, but I haven't had time to get anything ready for today. So instead I will just send you a link for a chance to win a free iPad. I do not see myself buying one anytime soon, but I would not complain if I got one for free. So here it is: http://wheredoesallmymoneygo.com/im-giving-away-an-ipad-enter-contest-here/Financial Studenthttp://www.blogger.com/profile/07519965779821871616noreply@blogger.com0tag:blogger.com,1999:blog-8553437299187304734.post-90114066005828658842010-05-20T16:56:00.000-07:002010-05-20T16:56:57.949-07:00My WhereaboutsOn the off chance that anyone noticed I didn't post anything in awhile, I thought I should let you know what I have been up to. The Intermediate Financial Accounting course was a little rough given the introduction course was over ten years ago for me. That and this last assignment, while worth a measly 5%, was massive and in depth. I got it in only just in time and have no delusion of high marks for it. Also, because of this assignment, I fell behind on my reading and now need to catch up on that. That and prepare for my final which is in three weeks.<br />
<br />
I am taking Monday off for the holiday and I am going to enjoy my long weekend. Having said, all that I should be back on my regular programming schedule starting next Thursday.Financial Studenthttp://www.blogger.com/profile/07519965779821871616noreply@blogger.com0tag:blogger.com,1999:blog-8553437299187304734.post-4206585955886167952010-05-06T09:00:00.000-07:002010-05-06T09:00:03.666-07:00Spelling Assume (Ass-u-me)<i>On a personal note I just got my Economics grade back and thankfully I passed with 83%. One less thing to stress about!</i><br />
<br />
I'm sure you've all heard the cute saying that "Assuming makes an ass out of you and me". While I think this is a great way to remember how to spell the word, it is not all that helpful in life. Sure, wrong assumptions can be embarrassing, but you couldn't get through the day without assumptions. You assume the power is still going to be on at work, that you still have a job, and so forth. Webster defines assume as "to take as granted or true".<br />
<br />
I think speculate is another one of those words that has gotten a bad wrap. Speculating in investments is considered a no-no by many investors. In fact the latest CMHC rules were done in part to try to reduce the amount of speculating in the housing market. So what does it really mean to speculate? Webster defines this as "to assume a business risk in the hope of gain". Notice the word assume in the definition.<br />
<br />
So just like you can't make it through the day without some assumptions, you can't invest without speculation. After all you wouldn't start a business that you speculated would fail. You wouldn't invest in a stock unless you assumed it was going to increase in value.<br />
<br />
So why has speculation received such a bad reputation? It has to do with how it is used. Some investors invest all of their available funds on a risky speculation. Buying a condo before it is finished with funds that they can't afford to have tied up for long periods of time and can't afford to lose. This can be a profitable venture, but what happens if the market slows before the building is finished? What happens if the project is delayed? Really, it is bad assumptions and risky speculation that are the problem, but they've both been thrown around in generalities.<br />
<br />
The reason this came up is I'm getting ready to start investing for my retirement. While I was thinking of some ideas, I began to worry that I was speculating too much. I have always been frustrated with how assume is misused, so it didn't take long for me to draw that connection. Now that I have that clear in my head, it is time for me to continue to speculate. Hopefully I'll have something to share next month.<br />
<br />
I think it is necessary to research your investments and have at least a semi-active role. Do not be so concerned about wording, but make sure you're comfortable with the investments and are prepared if things do not go quite as planned. I would love to get into real estate, but I know I do not have the funds to make that happen right now. I will probably be looking at RRSPs or TFSA for now.<br />
<br />
Anyone have any speculating experiences? Any investing ideas to throw to the pile? How about just an experience with people misusing the English language?Financial Studenthttp://www.blogger.com/profile/07519965779821871616noreply@blogger.com1tag:blogger.com,1999:blog-8553437299187304734.post-5001585532275386392010-05-03T09:00:00.000-07:002010-05-03T09:00:03.278-07:00Not Always FrugalWhile I was filling up at the gas station the other day I was thinking about how I'm not very frugal with certain items. How I spend my money and time is very important to me and I don't want to waste very much of it. However, there are a few things where I won't search for a bargain and will even sometime intentionally pay more.<br />
<br />
I've heard a lot of people complain about the price of gas. Some people make the trip down south whenever they can to fill up and others drive out of their way to save a few cents a litre on gas. To me it has never made much sense. If you calculate the savings on a 2 cent difference, you end up saving 80 cents on a 40L fill up. Yes, I admit that adds up over time, but my time is also valuable to me and I don't want to spend it stressing about saving a few cents. Granted, I also have a pretty fuel efficient car, so I'm not filling up that often anyhow. When there are price wars, I typically go to the more expensive station just so I don't have to wait in line.<br />
<br />
Don't get me wrong, I do believe in saving in the small things. In fact I think it is the small things that you have the best potential for reducing your spending. You could save more cutting out your coffee purchases at Starbucks than reducing your mortgage payments for example. However, I do have to draw the line somewhere. The cost benefit has to be there.<br />
<br />
Also, this shouldn't be confused with quality. I believe in buying quality items, but not wasting money on things I don't need. I research my bigger purchases so that I know I'm going to be happy after I spend the money and so that I get it at the best price.<br />
<br />
So what are the things that you don't worry about saving a little on?Financial Studenthttp://www.blogger.com/profile/07519965779821871616noreply@blogger.com0tag:blogger.com,1999:blog-8553437299187304734.post-32067883771683954102010-04-29T09:00:00.000-07:002010-04-29T09:00:02.501-07:00Missing the Beautiful Beaches and Sunny DaysLast December we went to Mexico for a wedding. It was absolutely beautiful there and I loved every moment. Great friends, great food, and lots of tanning. I still look pasty white though by the way. However, there were a couple of culture shocks. First, the policemen with machine guns on the side of the road. Second, the expectation of tipping. That got me thinking more about tipping. How did I get from sun and sand to tipping!?!<br />
<br />
I have to admit, I have always hated the concept of tipping. However, I give in to the social pressure that it is expected of me. Essentially it is a self-enforced tax. A tax under the honour system you could say. However, I'm not really sure who determines the amounts and what jobs are included. After all no one tips the cashier at Shopper's Drug Mart or Save-on Foods. Aren't they in the service industry too?<br />
<br />
In Mexico, it is more than just supplicates income though, in some cases it is their entire income. While this really made me appreciate how good we have it here, it also made me wonder if tipping was part of the problem.<br />
<br />
Waitresses have told me I don’t understand how hard it is to work in a restaurant. That they need those tips to survive. They are right; I don’t know what it’s like, because I didn’t want to work in the restaurant business. Well that’s not entirely true, they just didn’t hire me. Regardless, the reason they put up with what they do is for the money in the form of tips. If the tips stopped, they’d look for work elsewhere. Restaurant owners would be forced to pay more money to keep the good employees and they’d pass the cost on to us. The food prices would increase, but the tipping would stop. Essentially we're telling restaurant owners and bars that it is OK that they pay their employees less, because we'll take care of it ourselves. <br />
<br />
Maybe it is because we don’t want to see those higher prices and can somehow justify the food tax (tips), but can’t pay a little more for food and drink. You might even pay less. I wouldn’t have fun on a resort in Mexico with no Margaritas, no servers, no cooks, and making my own bed. I’m going to pay for it all anyhow, so you might as well put it in my bill. It was all-inclusive after all.<br />
<br />
Those are my thoughts on tipping. Any one care to fire back?Financial Studenthttp://www.blogger.com/profile/07519965779821871616noreply@blogger.com2tag:blogger.com,1999:blog-8553437299187304734.post-616260040078311542010-04-26T09:00:00.000-07:002010-04-26T09:00:02.360-07:00Debt SnowballOK, my wife got offered a casual postiion as a nurse. So it's finally time to speed up the debt repayment. Don't worry, we plan to enjoy a little of the extra funds too ;). So how do I plan to dig out of this hole? I'm going to use a little technique called a debt snowball. A debt snowball is actually better than it sounds. Don't blame me, I didn't come up with the name.<br />
<br />
I've heard it discussed several times with different names. The first time I heard it was several years ago in a free budgeting program offered at our church. It was more recently discussed by Primerica when I chatted with them and since then I've read it in several books.<br />
<br />
So, what is it? It's a debt reduction strategy used to pay down multiple accounts. If you only have one debt to pay down then, this isn't going to help, but good for you! However, if you have multiple credit cards or student loans, or lines of credit with amounts owing, this could be a good strategy to help you out.<br />
<br />
I'm sure you've heard people say that paying the minimum on a credit card balance is just stupid. The reason for that, is because you're paying almost all interest and have no hope of paying the card down. So, you might currently be paying more than the minimum on multiple loans. This can get quite discouraging as the debts never seem to go away.<br />
<br />
With this strategy though you will be paying the minimum on all of your debts except for the smallest one. Anything extra that you were putting towards the other loans, or any other money you were planning to use to pay down the loans, should now be put towards this smallest loan only. You can see how this loan would get paid off fairly quickly.<br />
<br />
Once this loan is paid off the payments are then applied towards the next smallest loan. Only this time the debt repayment has grown because it includes the minimum payment from the first loan and the minimum payment from the second loan. Like a snowball rolling down hill (hence the name). By the time you get to the larger debt you're applying a much larger payment.<br />
<br />
Not only does this help to pay off the loans more quickly, it also give you a much greater sense of achievement as each loan disappears. I think the emotional response is the most important aspect of this concept. After all if you lose motivation, even your best intentions will fall by the side. So while you're technically better off paying the highest interest rate loans first, it is no where near as satisfying. However, if two debts are similar in size, you probably want to pay the one off with the higher interest rate first.<br />
<br />
This only works if you can afford to pay more than the minimums though. If you can't afford to make all your minimum payments, then you need to fix that problem first. Hopefully you can do that on your own by adjusting your budget and sticking to it, or getting help by a professional if need be. I reached this point a few years ago and consolidated the loans into a home equity line of credit. This eased the burden, but now left me with a big loan to pay off. I'm saving this one for last.<br />
<br />
<b>Debt Snowball Example:</b><br />
<br />
Let's say you have the following debts and for simplicity we'll ignore the increase with interest:<br />
<br />
Visa - $225 balance - $25/month minimum<br />
MasterCard - $1000 balance - $30/month minimum<br />
Car Payment - $3000 balance - $175/month minimum<br />
Line of credit - $5000 balance - $250/month minimum<br />
<br />
Assuming you have an extra $200 to use above the minimums, you put that towards the Visa and it's paid off in one month. Yes, I made that simple on purpose ;)<br />
<br />
Then the next month you apply the extra $225 towards the master card (note it's now $25 more already). Four months later the MasterCard is paid in full. Fast forward 14 months and everything is paid in full.<br />
<br />
I'm going to put up my net worth as soon as my wife starts full time. Then if you're interested you can see a real life example of the debt snowball. Although, my balances are much higher than in the example given.<br />
<br />
Anyone else tried this or willing to give it a try? Love to hear your experiences.Financial Studenthttp://www.blogger.com/profile/07519965779821871616noreply@blogger.com0tag:blogger.com,1999:blog-8553437299187304734.post-27971627884069735422010-04-20T00:07:00.000-07:002010-04-21T12:47:26.726-07:00Dollar Cost Averaging Part IIIn <a href=http://sf-finances.blogspot.com/2010/03/dollar-cost-averaging-part-i.html>part I</a> I discussed putting money away every month for investing. Dollar Cost Averaging in this case is just a side note, as really you don't have a lot of other choices other than not investing at all. Given the choice, I'd always recommend investing. In this part I'll discuss what to do when you receive a large amount of money that you want to invest. A problem I'm sure we all wish we had.<br />
<br />
In the Wealthy Barber, he suggests that you use the same dollar cost averaging technique. Rather than putting the money in one lump payment, you can avoid the instability of the market by spreading it out over the year or longer. Again this just made sense to me and until recently it was what I was planning to do if money ever happened to fall into my lap.<br />
<br />
However, in my search for real number, rather than the make believe ones always given as an example, I stumbled across a few interesting articles. This method has been taught for a very long time, but in reality it is not as effective as you might think. First off every transaction you make has fees associated with it. So multiple transactions is not in your best interest, if you can avoid it. Second, if the return on the investment is greater than your banks interest (which it almost always is), then you're losing out on potential income.<br />
<br />
Just like a fixed rate mortgage there is some piece of mind associated with dollar cost averaging. Also, just like the fixed rate mortgage you're paying for that piece of mind. Almost every time you're better off investing in a lump sum amount.<br />
<br />
The suggestion for this post came from the comments on <a href=http://blog.canadian-dream-free-at-45.com/2010/03/12/your-stock-price-doesnt-matter/>here</a>. I'm sure it's not exactly what he was hoping for, but unfortunately it's all I have time for right now. If anyone else has any suggestion, feel free to drop me a comment or e-mail.Financial Studenthttp://www.blogger.com/profile/07519965779821871616noreply@blogger.com0tag:blogger.com,1999:blog-8553437299187304734.post-17492056972615955612010-04-19T09:00:00.000-07:002010-04-21T12:22:34.579-07:00Dollar Cost Averaging Part I<i>Doesn't help to stay up late to make sure I have a post for Monday and then not set the date correctly. Sorry for being late again.</i><br />
<br />
Markets have ups and downs and its near impossible (if not impossible) to predict the swings. People often panic when the markets crash like they did in 2008. In fact if not for panicking and greed there probably wouldn't be very much money to make on the stock market. So with this volatility, how can we safely invest in the market.<br />
<br />
When I first heard about Dollar Cost Averaging (DCA), I was impressed with the simplicity and power of it. For simplicity I'll talk about stocks, but I'm more likely to hold mutual funds myself. What you are investing isn't that important when discussing this technique. By investing a set amount every month, you buy more stock when the price is low and less when the price is high. You don't need the stock to rise above what you initially paid. It only needs to rise above your average.<br />
<br />
Here's an example (modified example from the Wealthy Barber):<br />
Let's say you decide to invest $100 a month in XYZ company.<br />
Month 1 the stock price is $10/share, so you buy 10.<br />
Month 2 the stock price is $5/share, so you buy 20.<br />
Month 3 the stock price is $7.50/share, so you buy 13.33 (Yes, you can actually buy 1/3rd of a share).<br />
<br />
So, even with the share lower than your original purchase price you have 43.33 shares at 7.50/share. You spent $300 and your stocks are now worth approx. $325. Even with the share price down, you've still made money.<br />
<br />
The theory sounded great, but I wanted to know how it works in real life. I found an online calculator for dollar cost averaging and ran it against several different stocks and they all came out ahead in the end. I should have bookmarked it, but it didn't really interest me because I don't invest in common stock and it didn't work with mutual funds. My personal funds are doing OK, but I don't have any numbers for 2008 as I wasn't investing at that time due to limited funds.<br />
<br />
The biggest benefit to knowing this method is the piece of mind it brings. When the market goes down, you're picking up stocks for a bargain. While others are panicking, you're profiting off of their sales. If you're investing though, you really don't have much of a choice other than to invest in a small fixed quantity. We're not going to come up with our retirement money all in one deposit, so we have to do it in small increments. You can tell people you're dollar cost averaging, but really you're just investing the only way you can. Just keep your head and stick to the plan and you'll come out fine on the other end.<br />
<br />
Keep in mind we're talking long term investing here. If you need the money in the next 5 or so years, this probably isn't the best place for you and it's time to move at least what you need, into something less volatile. <br />
<br />
Next I'll talk about dollar cost averaging when you come into a larger sum of funds.<br />
<br />
Anyone continue putting money in through the recent crash? How are your funds doing now? Did Dollar Cost Averaging work for you?Financial Studenthttp://www.blogger.com/profile/07519965779821871616noreply@blogger.com0tag:blogger.com,1999:blog-8553437299187304734.post-84682965702466008712010-04-15T09:00:00.000-07:002010-04-15T09:00:03.947-07:00TithingI mentioned in my last post that I ran into a problem with the <a href=http://sf-finances.blogspot.com/2010/04/ten-percent-solution.html>Ten Percent Solution</a>. Well the problem, I encountered is that while 10% is quite easy to do (providing I use it for debt right now), 20% is quite out of the question. So I have to make tough decisions about where that money goes. That is where the discussion with tithing came up between my wife and I.<br />
<br />
I wasn't planning on writing about my religious beliefs, but I think it's going to become unavoidable. It's not that I'm embarrassed about it, or don't want to discuss it, but I just wanted to keep the posts and discussion accessible/applicable for everyone regardless of their beliefs. However, it is a big part of my life and I was pretty naive to think it wouldn't come into the picture. So perhaps some of you may find this only as a curious glance into the finances of my Christian life.<br />
<br />
If you're Jewish or Christian, you've probably seen the 10% recommendation before, but in another context Tithing. As a Christian I believe that God is the ultimate owner of everything I own. In fact Christian often refer to this as stewardship, which I was recently reading about in my accounting book. A steward is responsible for the careful and responsible management of something entrusted to his or her care. So we believe the money isn't truly ours, but it's only in our care. While many people think a discussion of money is almost un-Christian, I think the mismanagement of funds would be considered more so.<br />
<br />
Many non-Christians I talk to seem to think that religion is all about rules. So to clarify this is not a requirement about being a Christian. Its a decision I choose to make because of the impact God has had on my life. The specific amount to tithe is not a rule either, but 10% is often used as a guideline. In fact though, we're encouraged to give much more than that. I'd love to say I'm doing that, but sadly that's not the case.<br />
<br />
Just like I've post-poned building wealth until the debt is repaid, I've also post-poned tithing until that same time. I'm sure some would disagree with that concept, but I feel that having the debt for longer than necessary would also be a mismanagement of funds. The plan is to be out of debt in 2 years at which point I'll need to make a decision of what to do with that 10%.<br />
<br />
I suppose the decision should be obvious, but I must admit here is where I struggle. While I do believe God provides for us, I'm also a strong believer that he gave us brains to use as well and we can't expect things to be handed to us. I believe it's important to use the skills that we've been given and I believe mine is financial aptitude. My struggle is that I know it's the starting out that is the hardest part and by giving 10% in tithes, my wealth building then becomes extremely difficult to accomplish.<br />
<br />
So this is my struggle and in the end I think I know what I'm going to do. I'm going to put my trust where it belongs and rely on God to take care of the rest. If He does want me to be wealthy, then it will happen regardless. However, I just wanted to share in the hopes that maybe it will help someone else with similar struggles. God said that we can only serve one master, either Him or money, and it feels like this depicts that dilemma clearly.<br />
<br />
Anyone else with the same struggles? Any tithe levels greater or less than 10%? <br />
<br />
If you're interested in any of my other beliefs feel free to comment or send me an e-mail.Financial Studenthttp://www.blogger.com/profile/07519965779821871616noreply@blogger.com2tag:blogger.com,1999:blog-8553437299187304734.post-90925128323705646262010-04-12T09:00:00.000-07:002010-04-12T09:00:06.302-07:00The Ten Percent SolutionIn The Wealthy Barber, David Chilton suggests a solution to building our wealth. He calls it the Ten Percent Solution. The concept is actually quite simple. Invest ten percent of all you make for long-term growth and you'll wake up one day very wealthy.<br />
<br />
Most people of course react to this with sceptism. The biggest objection, is being able to afford to put 10% away. If that money come right off our pay cheques though I'm pretty sure most of us wouldn't even notice. I remember once when I receieved a fairly nice raise of 5% and I couldn't tell you how my spending changed at all. It doesn't take long for the money to be used up. The opposite is equally as true. If we took a 10% pay cut, most of use wouldn't even notice (except for the bad attitude at work).<br />
<br />
This isn't in lieu of your retirement planning either. He's actually suggesting this on top of any retirement planning you have. Your retirement plan is to enable you to stop working, while the ten percent fund is to enable you to have more fun while not working. Trips you wouldn't otherwise take, a boat you wouldn't otherwise buy, etc. <br />
<br />
Seeing as I don't like talking about things I'm not doing myself, you're probably wondering how its going for me. Well, truth be told, it's not. The problem with this concept is that Chilton doesn't tell you what to do when you're in debt other than to stop using credit cards. Obviously none of us want to be in debt (or stay there very long), so it's my goal to get out of debt as quickly as possible. So to do that I've been using the ten percent solution to pay off my debts. Once my wife starts working, the debt repayment should speed up nicely. The plan is to also start putting money away for retirement once again after she starts working.<br />
<br />
Once the debt is paid off I can continue on with the payments to build wealth. I did run into a little snag with this plan though which I'll touch on more next post.<br />
<br />
Anyone already doing this? Any success or failure stories? Do you think Chilton and I are crazy?Financial Studenthttp://www.blogger.com/profile/07519965779821871616noreply@blogger.com5