IPad Contest

OK, 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/

My Whereabouts

On 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.

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.

Spelling Assume (Ass-u-me)

On a personal note I just got my Economics grade back and thankfully I passed with 83%. One less thing to stress about!

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".

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.

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.

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.

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.

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.

Anyone have any speculating experiences? Any investing ideas to throw to the pile? How about just an experience with people misusing the English language?

Not Always Frugal

While 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.

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.

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.

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.

So what are the things that you don't worry about saving a little on?

Missing the Beautiful Beaches and Sunny Days

Last 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!?!

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?

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.

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.

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.

Those are my thoughts on tipping. Any one care to fire back?

Debt Snowball

OK, 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.

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.

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.

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.

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.

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.

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.

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.

Debt Snowball Example:

Let's say you have the following debts and for simplicity we'll ignore the increase with interest:

Visa - $225 balance - $25/month minimum
MasterCard - $1000 balance - $30/month minimum
Car Payment - $3000 balance - $175/month minimum
Line of credit - $5000 balance - $250/month minimum

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 ;)

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.

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.

Anyone else tried this or willing to give it a try? Love to hear your experiences.

Dollar Cost Averaging Part II

In part I 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.

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.

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.

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.

The suggestion for this post came from the comments on here. 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.