Net Worth Update

For those whom have been reading me for a while you might wonder why it takes me a while to post an update on my net worth. After all my last one was in Dec, 2006. To be honest I find tracking it on a monthly basis just a bit too mind numbing for my taste, but in the interest of knowing how I'm doing I have decided to update it every two months. So here we go.

Assets
House $200,000 (I raised this up a bit to cover some recent house improvements and also to reflect my most recent market survey of house prices in my area.)
RRSP $12,200
Old Work Pension $10,500
New Work Pension $500
Wife's RRSP $5000
Wife's Investment Account $4400
ING Savings Account $2000

Debt
Mortgage $149,150
Line of Credit $0

Therefore my net worth now stands at: $85,450.

Overall a nice little increase (+$5,250 or 6.5%) from my last check up. As you might have noticed my new work pension has kicked in so that should help out the savings nicely. I will note here that these numbers were from Feb 26 when I started pulling them together and don't count in yesterday's slide on the markets (but my guess would be that slide dragged me down around $500 total).

Keeping Up with Jones

Over at the Middle Class Millionaire, he has a great post on Keeping Up with the Jones, which got me thinking: How do you stop this?

One of the more obvious interim solutions include the Wait Game, where you have a mandatory wait time for all major purchases. Some people use 24 hours, others a week, while some go for 30 days. The point of this method is to get your brain time to process your initial emotional response to see if you really do want this or feel that you do.

Yet to truly get past this envy issue you have to find your own happiness with your life that doesn't require outside approval. You have to understand yourself so that you can honestly assess that critical moment when you have 'enough.' Enough books, food, and love. Happiness should not be a reason for trying to have early retirement, otherwise when you get there you will be disappointed to learn that happiness has everything to do with the now rather than the future. If you can't be happy now, you won't get any happier in early retirement.

So what makes you happy? Are you happy now? If not, why? Those are the questions that will help you get past the keeping up with the Jones attitude.

Book Review: How I Stopped Worrying About Retirement

During the weekend I finished reading How I Stopped Worrying About Retirement (without alcohol, nicotine, caffeine or other artificial stimulants) by Bruce McDougall which was an entertaining read. As you can tell by the title there is a fair amount of humour in the book which is a nice change from the typical personal finance book.

The other two thing that really sets this book apart from its peers. They are:

1) The entire book is told as a series of conversations between friends, similar to the Wealthy Barber. So it's easy to read as compared to the typically dry reading some personal finance books can be. Perhaps what is more amazing is there is a plot to the story rather than just a nice way to present information.

2) The author uses the characters to show different points of view and allows the reader to make up their own minds. Also the characters don't have perfect retirements. One had to cash in $50,000 of his RRSP's to cover the legal defense for his son's run in with the law, while another lost a pile of money with a junior mining company fraud.

As much as I enjoyed reading the book I'm left with a few problems with it. First the cast of character is large and you are dumped into a scene with all of them fairly shortly, so it's a bit confusing in the beginning to remember who is who (For example, is Richard or Cecil the penny pincher?). The second problem is the conversational style doesn't let the author touch on too many details for each topic so your left wanting more in some cases.

Yet despite the flaws, overall its a good read. It must be if my wife is thinking about reading it, since she almost never touches my personal finance books.

House Costs Over 40 Years

So if I retire at 45 I do have a bit of problem. I could potential own a home for over 40 years, which means I'm going to be facing some long term costs. Will this ruin my retirement dreams? Let's try to figure that out.

Below is a list of things you need to replace over a long period of time with a house. I've also included an estimate of a lifespan of each item and how many times it needs to be replaced in 40 years.

Water Heater - 15 year lifespan - need 2.5 in 40 years
Furnace - 20 year lifespan - need 2
Water Softener - 20 year lifespan - need 2
Roof Singles - 20 year lifespan - replace twice
Paint (outside and interior) - 8 year lifespan - paint 5 times
Plumbing fixtures - 15 year lifespan - need 2.5
Windows & Doors - 25 year lifespan - replace 1.5 times
Carpet - 15 year lifespan - replace 2.5 times
Appliances (washer, drier, dishwasher, fridge stove) - 25 years - replace 1.5 times

Now here are a few estimates at some costs for each item.

Water Heater - $800 each
Furnace - $3500 each
Water Softener - $500 each
Roof Singles - $2500 each
Paint (outside and interior) - $1000 each
Plumbing fixtures - $500 each
Windows & Doors - $ 5000 each replacement
Carpet - $5000 each replacement
Appliances - $5000 each replacement

Therefore my total costs would be:

Water Heater - $800 x 2.5 = $2000
Furnace - $3500 each x 2 = $7000
Water Softener - $500 each x 2 = $1000
Roof Singles - $2500 each x 2 = $5000
Paint (outside and interior) - $1000 each x 5 = $5000
Plumbing fixtures - $500 each x 2.5 = $1250
Windows & Doors - $ 5000 x 1.5 = $7500
Carpet - $5000 x 2.5 = $12500
Appliances - $5000 x 1.5 = $7500

Total = $48,750 or rounding up to $50,000

Ok, that looks like a lot of cash, but you've got 40 years to spread out the cost. So let's say we put $50/month into bonds that yield 3.5% (today's dollars) over 40 years that would grow to just over $50,000. To include other home maintenance issues like changing a light bulb to redoing your roof a good number to include in your retirement planning is $1000/year. So it looks like home maintenance shouldn't ruin your retirement dreams as long as you include a buffer in your spending costs.

Have a good weekend,
CD

Damn $@%$*! Furnace

Well much to my wishing otherwise I have to replace my furnace. It's not serious at least right now. I have some hair line cracks in a few pipes, so at least I can shop around a bit before getting it replaced.

We have a few quotes in and I'm now just trying to decide if the extra money to upgrade to a two stage high efficiency furnace is worth it. The price difference between a 80% efficiency two stage and 92% efficiency two stage is $850.

I'm not sure my exact spending on gas for a full year, but I'm estimating around $120/month. So over a year that's $1440. Therefore a 12% difference between the options would mean a savings of $172.80/year or a payback period of (850/172.80) 4.9 years. Not a bad payback for a capital expenditure and since I'm planning on being in this house for around 10 years I should do alright over the longer term.

While researching my options I did come across some other good ideas on saving heat. Did you know for example that you can often improve the distribution efficiency of your heating system by around 20% by just buying some foil tape and going around your heating system in the basement and fixing all those little air leaks between duct sections? Another good one is installing weatherstripping around your doors. For those with a bit more time on their hands you can enter your attic and plug all those little holes around your light fixtures and wiring as they make your ceiling like an over sized piece of swiss cheese for heat loss. While your up there you might want to consider upgrading your insulation. Just a few ideas for you.

Parents Influence Over Their Kid's Money

Over at Get Rich Slowly, the author had an interesting post on how parents influences a child's view on money and how that carries over to their adult life. I have to admit this got me thinking a bit about my own family's views on money.

I grew up in the middle class so I never felt deprived of anything, yet at the same time I wasn't spoiled. Now as I can see my parent's over spending habits, I have to wonder why I don't overspend at all. I know that I'm their son (actually I was the only baby in the hospital, so I couldn't have even been switched at birth), but when it comes to money genetics I might as well be a different species. I always have lived below my means, saved money and avoided debt before I even knew those were good things to do.

Perhaps the two events that shaped me most weren't even noticed by my parents. The first was one day I was taken to the bank to buy some Canada Savings Bonds. Upon getting to the bank I was informed that I had enough to get a term deposit instead and get a higher interest rate. In that moment I learned something important: Having more money give you even more choices to make your money work for you. So $100 to invest is good, but $10,000 is better.

Then other thing my parents did for me that really hit home was during my second year of university they stopped paying the bills. They had decided to buy a cottage instead of funding the remainder of my education. So they co-signed some loans and I was now living off debt to pay my school. I hated it, but it taught me to pay attention to my spending. Needless to say I reduced my spending at school by 10% the next year and I started paying down the debt with every dollar I could after leaving school. So I learned, debt can be good tool, but don't depend on or think for a second it is your friend. Debt truly is a master/slave relationship, you get to pick which one you will be.

So what's your story, did you pick up terrible spending habits from your parents or did you learn to save early on? If you feel like sharing leave a comment or send me an email (candian.dream.free.at.45@gmail.com).

Reader's Question #2

Q: Maybe someone could comment on a strategy I'm developing. My wife is older then myself (She is 55 and I’m 47), and she has stopped working. We plan to start withdrawing from her spousal RRSP account in three years to reinvest it in a Corporate Class Fund. Is this a sound investment plan? I figured it would be taxed lower at this point. When the RRIF point approaches we won't be forced into taking larger sums of money at a higher tax rate. Some details that might help are I’m in the $40,000 tax bracket and I will retire at 55 with a full pension. My wife worked part time and earn around $15,000. I will continue adding to my own RRSP although the tax break isn’t that large. The tax saving probably won’t be that large from this plan, but the concept interests me.


A: By the way in the interest of full disclosure I'm not a tax or investment professional, I just read a lot about personal finance and these are just my suggestions and should not be considered recommendations.

Pulling money out of a spousal RRSP would be a good idea if she isn't working since you can pull out up to the personal income tax deduction with no tax at all (provided she has no other income). So from now until you turn 55 you could pull out around $8000/year for a total of $8000 x 8 years = $64,000. (Check you province limits on www.taxtips.ca to confirm the exact number and any limits on spousal withdrawals) When you make the withdrawals do it in amounts of less than $5000 to reduce the withholding amount to 10% (or 5% in Quebec). You should get the amount back when you file taxes, but you will still have the withholding amount up front.

Once you turn 55 and start taking your pension you will want to reassess your situation. With the new pension splitting rules you might find it more useful to split your pension and take the tax hit on any RRSP withdrawals. You will have to do your own math on that one since I'm not sure exactly how that all works yet.

As for your choice of investment, Corporate Class Funds tend to have expensive fees with them so you might want to shop around for other options and make sure it makes sense for your situation. Some good dividend paying stocks might be a better option if they are invested in your wife's taxable account and they make sense in your overall allocation and comfort level. Check out the taxtips.ca web site to make sure you understand how each investment type will be taxed.

So follow reader's any additional comments or ideas on what to do please feel free to leave a comment.

Book Review: Smoke and Mirrors

I recent sat down and read Smoke and Mirrors by David Trahair and I found myself a little disappointed. This little book is a mere 148 pages, so I was able to polish it off a few hours and it was not that great.

It 'exposes' five myths about retirement savings which include:

-The 70% of your current income is required in retirement
-RRSP's are the holy grail of retirement
-Don't worry about your investments, you be fine in the long run
-We have met the enemy and he is the tax collector
-Buy life insurance for financial security

Perhaps it's me reading too many personal finance books, but there were very few things of interest for me in this book. It's things we have all seen before and discussed in a much better detail in other books.

Yet there were a few things that I did like. First off he discusses the fact if you pay off your mortgage first prior to contributing to RRSP's you are buying yourself a little bit of disability insurance. If your completely debt free, you can live a lot less money and survive problems that would wipe out the average person's finances. Good point.

Also he includes a CD with some excel sheets which you might find useful, but I find he tends to go on a bit about using a computer to track your expenses. After all a note book will work if you don't want to get complicated.

So if you've read a lot of personal finance books you might want to pass on this one, but if your new to the game it could be a good short introduction.

PS: Thanks to Larry MacDonald for mentioning me in his blog last week. Also thanks to the Canadian Capitalist for featuring one of my book reviews in his latest This and That post. Also happy Family Day to all those who have it off today like me and my post Now You're In Trouble is part of the 88th Carnival of Personal Finance.

The Spectre of Inflation - Part II

As pointed out by George in yesterday's comments, the CPI might not apply as well to your personal situation if you don't buy the entire basket of goods that it covers. For example the CPI has mortgage interest rates included, but if you own your home this doesn't apply to you. So this does tend to mess up the results a bit if your looking at your personal rate of inflation.

As I mentioned in closing of yesterday's post, the Bank of Canada admits the CPI bias tends to be about 0.5% high to real inflation. What is interesting is the IMF mentions that our inflation bias tends to run 0.5 to 1%, which is still better than the US which runs over 1%. So if you look at the data from 1995 to present the core inflation rate averaged a mere 2.0%, which a maximum of 4.6% in Feb 2003. So if you assume a 0.5% bias is correct we actually only averaged 1.5% inflation during the last 12 years.

During the my research for these posts I came across an interesting paper that looked at seniors spending in relation to the CPI. It analyzed data from the 1970's and 1980's and found the that the CPI overstated inflation by 50% for seniors. Which means that 12.1% inflation back in 1981 was actually closer to 6% for seniors during that time. The paper does go on to state the CPI was fairly accurate during the 1990's, but the 0.5% bias still applied.

What is perhaps the most interesting about inflation is what the Big Five Banks use for their default inflation number is all their online retirement calculators.

TD = 3%
RBC=2 to 4%
Scotia = 3%
CIBC = 3%
BMO = 2.7%

Doesn't that seem odd that if the CPI has averaged 2% for the last 12 years with a 0.5% high bias that all the banks are near 3%? I thought so. So what does that mean if you cut your inflation estimate in half to 1.5%? Then you would need a lot less to retire. Yet a word of caution here, if you cut back your estimate here, you should increase your spending estimate with some extra padding. You need to have some extra in your calculations to account for various things that can go wrong, but I often find most people get a little crazy about padding the numbers. So much that they end up with such an over padded estimate that you might as well be living in a bubble than facing real life.

Of course a conclusion like that will have disbelievers, saying 'what if inflation goes up to 9%?' Well I would expect my yields to follow suit. After all if your truly frightened of spectre of inflation you can always invest in Real Return Bonds from the government of Canada. They will adjust your base amount according the CPI and still give you a couple of points interest beyond it. I would caution anyone who is interested to do your homework first on these bonds are they are taxed in a rather unique way.

Have a good weekend,
CD

The Spectre of Inflation - Part I

For the last week or so I've been a bit of dog with a bone about inflation. It comes up in every retirement calculator and I started wondering how much of a concern this really is in retirement spending. Is inflation a real concern or just a spectre of fear that the investment industry uses to get you to save more?

Since this topic ended up growing a bit more than I had first planed on I've had to break it up into a couple of posts. Today we will start off with a little education session for those not familiar with inflation. Inflation is the measured with the Consumer Price Index (CPI) which consists of a basket of good which the government tracks on a monthly basis to track the tendency of prices to increase over a long period of time. In Canada, the data comes from Statistics Canada, but the Bank of Canada is the one using the data to determine if inflation is being controlled within their set target range which is currently 1 to 3% over an entire year.

Since the CPI consists of several volatile components (like fruit, veggies, gas and heating oil) the Bank of Canada likes to strip those out to get a better idea of the core inflation. The core CPI consists of 84% of those items in the total CPI. This core rate is used as a operational guide to ensure the bank is keeping inflation with in their target. For example the core rate of inflation was measured at 2.0% in December 2006, while the total CPI was 1.6% (see here for more data).

Now in general the CPI is useful since Canada Pension Plan (CPP) and Old Age Security (OAS) benefits are adjusted to reflect changes in the CPI rate. Yet despite it's almost universal acceptance of the measure of inflation in Canada, it does have some problems when using it for personal calculations such as retirement estimates.

The CPI's basket of good goods is based on the national average of a an urban Canadian's spending habits. The spending habit data is only updated every four years, which means the CPI's basket of goods lags the current average Canadian's spending habits by up to five years (four year between gather data and 1 extra year to process it). Another problem of using the average Canadian is it tends to skew the spending to those in the upper middle class, since their larger incomes tend to shift the average spending up. Another problem with the CPI's basket is it only uses urban data, which means it doesn't reflect any rural spending habits. Also using a national number doesn't reflect your regions inflation particular issues. For example, Alberta's inflation is significantly higher than Nova Scotia's due to current regional economic conditions.

All of these issue contribute to the bias of the CPI and on average it is estimated it is 0.5% higher than real inflation. Which means if your using a calculator with a 3.0% inflation rate, your overshooting the average by at least 0.5% a year. Tomorrow we will look at some more data to try and come up with a better inflation number.

Reader's Question #1

Well Canadian Money Blogs Reviewer asked me a question over at Million Dollar Journey and when I didn't get back fast enough I got the same question here.

Q: I'd really like to retire by 45 too :-) What would you say are the main strategies to use to get there? How much money will you need by then? Is your strategy also to live on dividend paying stocks?

A: First off if you want an idea of how much money I think I need to retire at 45 please go back and read my Retirement Calculation posts (Part I, Part II, Part III and Assumptions). I'll update those calculations after I get my tax return back, but for now you will get a good idea of what I'm planning. From those calculations you might be able to tell that I'm not planning on living off of just dividend paying stocks like Dereck Foster. I plan to have some blue chip dividend income, but also at least one REIT and some fixed income investments within an RRSP. I'm still working out the exact mix of investments as I go along.

My main strategies are fairly typically of most people looking for early retirement. I always live below my means (ie: live off of $30K even if you earn $60K), never pay any attention to trying to keep up with the Jonses and never pay attention to what anyone thinks about me for the most part.

I also avoid debt like it is a plague. I paid off my wife and mine student loans ($60,000) as fast as possible and then got saving for a house down payment and the car buyout on our lease. Now I'm 28 and the only debt I have is my mortgage which I'm going to accelerate paying down to hopefully get rid of it within the next ten years.

Perhaps the most useful strategy that I have is I hate wasting money on things I don't care about. Reading my saving money posts (Part I, Part II and Part III) you may notice that I don't like to pay more for my utilities. Also I don't pay full price retail on anything unless I have too. Most of my books I buy at sales (By the way I just found out my library sells old books they no longer need for $0.50 for a paper back!). I have no problem buying a nice shirt from Walmart if I like it and its on clearance for $5. I always check out the clearance section of any store I go into to see if there is anything I could use/like (For example, my wife got a piece of her china pattern that retails for $30 for $3.)

This isn't to say that I'm cheap. I also own a 32 inch wide screen LCD TV with surround sound. My wife owns some very nice china and crystal glasses. I also sleep in 400 thread count sheets during the summer. I just know what brings me the most happiness for my dollar. If you can master that, then everything else will fall into place fairly easily.

Book Review: The Naked Investor

I recently finished a book that chilled me to my bones with some of its stories. The Naked Investor by John Lawrence Reynolds has the subtitle 'Why Almost Everyone But You Gets Rich on Your RRSP.' It's a good description for the book.

The book starts with a near near miss by the author with a financial advisor whom could have wiped out half of his RRSP's savings with his proposed investment plan. The incident got the author thinking and it produced a scary look at the investment industry in Canada. The book tells several tales of advisers investing in completely inappropriate funds for clients to line their own pockets. The real scary part is when the clients try to get some money back when their instructions were ignored or out right fraud took place.

Often they never see a dime or they end up with a tiny portion of their money back and a gag order with the settlement agreement. But that's only for the investors who take the time to chase justice through a labyrinth of self regulated agencies and slow acting government regulators who make a sloth look like a sprinter. We are talking about a decade in some cases for a retired person to get any results.

I have to admit I always was a bit nervous around financial advisers for some reason I could never explain. This book has firmly changed the nervous feeling to out right paranoia about some things, but to be fair the author does point out there are some good financial advisers that are out there. They are just hard to find.

Perhaps the only draw back to this book is a lack of advice on what to do about the problem. The author repeatedly mentions the industry should go to a fee based structure rather than commissions, but offer no pratical advice on solving the issue. The only useful advice the author does provide is some general RRSP tips of buying index funds.

Overall I thought it was good read, but I would suggest you borrow a copy from your libaray rather than buying the book. The book lacks the content that would make it a useful reference.

Should I Go to Work When I'm Sick

During the later part of last week I started to feel a bit sick. Nothing too bad so I continued to go to work. Now I'm looking down at a Monday with several meetings and wondering if I should call in sick.

I remembered an article on this recently in the news and I dug up a copy (see here). What really got my attention is than half of all people believe they got a bug from their office. So why do we go to work when we know we are not well? In a nutshell, we feel guilty to let down our 'team.' My question are you really letting anyone down when you infect everyone else and cause even more production loss for the office as a whole?

So today I think I'm going to try and break a trend and call in sick.

How to Blog as a Business

As I stated early, once of my goals for 2007 was to investigate other streams of income. I have to admit I wasn't really thinking about this blog at the time, but a recent comment from Larry McDonald got me thinking about it a bit more seriously. How would you set up a blog as a business?

First off I would suggest a sole proprietorship as the business structure in your own name. That way you don't have to register the business name (check you local provincial law to make sure this is correct), but your personal assets are up for grabs if you ever get sued. I personally don't think this is likely in blogging as long as you cover yourself well by not making recommendations. A suggestion or what you personally do are one thing, but a recommendation is an invitation to be sued.

Then make sure you have a separate bank account that you pass all the blogging money through. Next keep your accounting records. When you deposit a cheque from Adsense you must log it in your general ledger. As when you have an real business expense, you deduct it out of your general ledger.

Read the fine print on your friendly neighbourhood taxman's webpage on which home related costs you can deduct. This is typically includes mortgage interest, power, water, and insurance but not your phone in Canada (unless its a dedicated line for the business). This is based on the usage of the room so again make sure to do your reading over at taxman's webpage to calculate the deduction correctly. Personally I can estimate since I know what my wife deducts for the daycare in the house. I could realistically write off about $10/month based on the amount of time on average I spend blogging. So basically I have to average over $10/month Adsense revenue to make setting up the blog as a small business pay off.

So why do all this work? Let's for example say I managed to earn $15/month and I can deduct $10/month. That means instead of being my full marginal tax rate for the extra $180/year of income I would only be taxed on $60 of it, so at my marginal tax rate (35%) I would save $42 in tax. So unless you earn a lot of money from blogging and spend a lot of time doing it, it may not pay for you to setup your blog as a business.

Have a good weekend,
CD

Sometimes You Have to Suck It Up and Take The Hit

Well yesterday after long consideration and discussion with my spouse we took a loss and sold the losing income trust from her account. The stock, HTE.UN, was drowning in debt and giving out huge dividends that I don't see being sustainable even in the near future.

So if was time to admit to ourselves, we messed up and it was time to suck it up and take the loss. In order to have some exit strategy, we collected enough dividends to cover the selling and buying fees and then watched the market. As the stock was heading up this week, we thought a sell price of $26.50 would be fair. Enough cash to cover some of the loss, but not so high as to be unreasonable.

Much to my surprise the trading day yesterday drove it up past our sell price by $0.09 and it was sold. Then I watched the price drop down to $26.30 and that was when I starting to feel a familiar feeling. It was the feeling of predicting anything and being right. Yes folks, it was pride. As soon as I realized that I gave myself a little hit upside the head. Idiot, you got lucky and we still lost around $500.

That ends the lesson for the day. I can not predict the stock market and even with your best intentions sometimes things go very wrong. So be smart and know when to take a hit.

Tax Time in Canada

Most likely by now you have your paper work for your taxes or your access code if you e-file, so it is time to think about doing your paperwork for your taxes. I was thinking about mine and I thought perhaps I should share a few ideas on dropping that tax load.

1) Know your deductions that you could claim. Some of the often overlooked ones are:
- moving expenses if you move to a new job more than 40 km
- medical expenses which can be claimed in the name of the lower income earner of your household
- keeping taxable investments in the lower income earners name (see a few great articles on the types of investment income over at Million Dollar Journey - Part I, Part II)
-if you live in anywhere fairly far north check if you can claim northern living allowance (they have two zones which qualify, and you would be surprised how far south it goes)
-Using Spousal RRSP's to get the biggest tax break possible if you and your spouse are in different tax brackets
-donations to a political party offer a better break than a charity

2) Consider doing the bookkeeping on anything you do to earn money beyond your day job. If you claim it as a small business ( sole proprietorship) you can write off reasonable expenses from the income you earned and don't have to register the business (check you local Provincial law to make sure). This takes a bit of setup work, but can often be a big saver if you do the work up front.

3) Learn which tax credits can be transferred between you and your spouse and run both sets of numbers to ensure the biggest return.

4) Pay attention to those Federal/Provincial budgets and find out which tax breaks start in the current tax year if your not sure check out taxtips.ca(they often update everything at least once a month).

That's just a few simple tips. If you have your own favorite, please share with a comment.

Now You're in Trouble

Have I mentioned before how much I love the RRSP season (Janurary to March)? I really do love all the ads/articles that show up during this time and the message they are trying to get across.

This year you might have noticed that your seeing something new in the ads. Fear is now being used to sell investment products. My personal favorite right now is the one with the old man flipping burgers with the tag line of 'Your first job shouldn't be the same as your last.' Please do I look like an idiot? Just because you can work past age 65 now doesn't mean that people are desperate enough to take a burger flipping job, when they have way more marketable skill sets to offer. Trust me when I say you likely have a better chance of getting struck by lighting than ending up there as long as you pay off your debts and have some savings built up.

Here's another great article, which gives investors praise for putting money in, but then gives them crap for not having an investment plan. I personally like to point out I even get confused with all the products out there and I read a lot on investments. If you stick a two year old in front of a table full of food they go for the first thing that they like. Investing tends to be the same. You don't have time to read about every product out there, but if you hear about one you might do some reading on it.

So if your confused by it all, don't worry. Take a deep breath and remind yourself "I am not a sheep, I can think for myself and I'm going to retire before the idiot who came up with that ad or article."

This post is now part of the 88th Carnival of Personal Finance.

Book Review: Your Money or Your Life

As I mentioned on Friday's post, I was reading a new book. The book was Your Money or Your Life by Joe Dominguez and Vicki Robin and I have to say this should be mandatory reading for anyone looking at early retirement or financial independence.

The authors start out with overhauling your ideas about money and all the emotions we have around it. They introduce the concept that money is exchanged for a part of your life energy (or the time you have on this earth). Then they get you to calculate your 'real' hourly wage by getting you to deduct your work related expenses from what you earn and then include the extra time it takes you to commute to work and unwind from work in your hours worked. This significantly drops your hourly wage and makes sure if your job is actually earning more than $4/hour.

The one concept they introduced that I really enjoyed was the Fulfillment Curve. This explained to me something I always knew, but could never really explain. It explains why people who buy every new gadget and toy are never happy. In a brief summary, you get your requirements for survival and have a small measure of fulfillment, but as you get past comfort items and into luxuries you hit a point of optimum fulfillment. If you keep buying stuff you actually start to have your fulfillment level go down. The trick to riding the curve is to know when you have enough and stop near the top, which they cover in another chapter.

A great section for anyone trying to reduce your cost of living is chapter 6 where they present 101 ideas on saving money, which I figure I'm already using over half of them.

I actually enjoyed almost the entire book. My only problem with the book was the last chapter where they suggest your entire early retirement nest egg should be in long term government bonds, which might be an option for someone living in the US (since they can be tax free), but a completely useless one for those living in Canada (since we get taxed at our marginal rate).

Overall I still felt it was a great read and suggest you find a copy from your local library.

Saving Money - Part III

Ok, I didn't really mean to turn this into a series this week, but I'll blame the book I'm reading on this (I'll do a book review next week on it). Today on saving money I'm going to touch on suggestions for housing and what makes up a really great place to live that will save you money.

1) Rent or buy near where you work, if possible. That way if you can walk to work think about all the cash you can save.

2) If you can't rent/buy near work, can you do it near public transportation. In my case I'm only two blocks from a cross over point of several bus routes of which one runs with in a block of my work building. I currently car pool to work, but some days I still take a bus when the pool isn't running. (A note for renters, if you always pay on time and have a great set of references ask for extras. I once got an apartment held for me for two months rent free because the landlord really wanted me in the apartment block).

3) Buy in a neighbourhood where you feel comfortable. If you don't feel comfortable when your viewing the place, trust yourself to find something else.

4) Never buy in the 'best' part of town. Prices tend to be high and you don't get a lot more house. Your basically paying more for a home for the name of its neighbourhood.

5) Layout is more important than the number of sq feet. My current house is only 186 sq feet bigger than my first home, but it feels huge all because of the open layout and the smaller bedrooms (where I never spend any time when I'm awake anyway). Also excessive sq feet just cost money to heat and more time to clean.

6) Buy the worst house on the perfect block for you. You can usually get it 10% cheaper than the rest of the neighbourhood and then you can fix it up to what you like for 5%.

7) Use an real estate agent when buying, but avoid one when selling. Real estate agents are very handy for buying a home because they cause you nothing, but don't forget to check out private deals on your own. Obviously avoiding an agent when selling saves you thousands of dollars in commissions.

8) When you do sell your home. Make it spotless and clean up the clutter. Remember your not actually selling your house, your selling the dream of a perfect show home. 80% of people can't see past the furniture to realize they are only buying the walls. If you do it right you can sell your home faster and for more money.

9) Also when selling your home don't get greedy with the list price. A lower list price can spark bidding wars and ensure you house is off the market faster. Remember it does you no good to have a house on sale for a extra month just to get a few more thousand dollars. Your time is worth something.

10) Take your time. Find good housing is difficult, so don't rush into anything if you can avoid it. Every problem I ever had with a place was due to me rushing in. So now I like to take it slow if possible.

Have a great weekend,
CD

Saving Money - Part II

Today on this little series of saving money I'm going to present a few ideas about food.

The biggest savings of food out there is growing a garden. Yes it has some up front costs, but after that in the middle of summer you are eating fresh herbs/veggies/fruit for nearly free and depending on what you grow you can also freeze some for the winter.

Even if you are in an apartment and have at least one sunny spot by a window you can grow herbs and save a boatload of cash compared to buying them. I currently have a basil and chives plant in my living room. I'm not very good at growing anything, but if I can manage it, it isn't all that difficult. Another option is to grow herbs in a pot outside if you have a balcony or any sunny spot in your yard.

If your lucky enough to have somewhere in your yard where you can grow a small garden, then I suggest growing things you like to eat (in my case carrots, beans, lettuce and strawberries). Start small and you can always rip up lawn to make it bigger. If your clueless about growing anything, head down to your library and ask for help finding a book about what grows in your area. Another great resource is talking to your neighbours with gardens, which also might prove useful if you over plant something and can trade it off to someone for some other produce.

After growing a garden my next food suggestion is simple: avoid eating out and prefabricated foods. If you cook at home from scratch, you will also be saving money. Obviously this can't be done all the time, so don't worry about the rare fast food run or deciding that you make horrible pies and you buy one from the store. It's the habit of eating out all the time and using prefabricated food all the time that costs a lot.

So those are my suggestions around food. I like to keep this simple and eat well. If you have any other ideas please share.