The End

Sorry folks this is the end of my backup blog. I've finished the install on the new site and I'll be changing the Feedburner feed over tomorrow morning.

Please update your bookmarks to: http://blog.canadian-dream-free-at-45.com

There will be no more posts to this site.

Thanks,
CD

Riding the Drop of Doom

The last few weeks have been a little nerve racking for just about everyone. I don't think many people like riding roller coasters that the markets have become in the last few days. Up 200 points by noon and closing down another 30 points by the end of the day. Or just up 50 points by 10 am and down 200 points by the end of the day and so on.

If you are sitting on a pile of cash it does present some tempting buying opportunities now and again if you can handle seeing your brand new investments swing around. I'm currently down to a small amount of cash and I'm thinking I'll sit here waiting for things to calm down a bit before I put in anything else.

This does present a good time for me to start my mortgage acceleration plan. As a 5% after tax rate of return is starting to look fairly good compared to the swing my RRSP accounts have been taking in the last while.

If nothing else I'm curious to see where the markets end up by the end of the year: up, down or just sideways.

Confessions of a Personal Finance Blogger

Perhaps there is something in the air or perhaps my frustration at working on switching to a new hosting service that has me thinking about my limitations and failures. So in the interest in proving I am not a personal finance guru all the time I present a brief list of confessions.

1. With the recent market correction even I have had the thought "Did I make a mistake and is this investing with index funds a good idea?"
2. I bought a stock when I was a teenager with no knowledge of what the company did or anything else other than I liked the name of the company. Sad but true. In the end the stock fell so much that I could barely cover the trading fee to get out of the stock.
3. I've gotten to the point of reading so many personal finance books over the years I can now pick up new ones and skim entire chapters after reading two paragraphs in a chapter. You can only read about this great concept of 'living below your means' so many times before your brain starts to turn to mush.
4. I do enjoy investing and personal finance, yet I very much dislike the paper work that comes with it (bank forms, account statements and booking appointments during my lunch hour to sign forms).
5. Some days even I think "Am I too obsessive about all this personal finance stuff? Am I the only one who thinks that most people are strangely reckless with their money and still manage to turn out relatively fine some how?

Houston, We Have a Problem

Well actually there were several problems so far with changing domains over the weekend. So I'll be posting at the backup domain location until further notice.

Actually all these little technical issues reminded me of life in general, it doesn't ever seem to go according to plan. This is why many people often say you need an emergency fund. As many of you know I don't keep a fund, but rather a line of credit which I can tap into instead.

Why don't I keep a fund of cash? Partly it is I keep enough cash floating around various saving accounts that I have about $1000 slush fund at all times which can cover my insurance deductible if I truly have a major problem. Also because I don't consider the car or house insurance coming due an emergency. Actually I don't consider anything you can plan for in day to day life an emergency.

So what is an emergency? This will depend entirely where you live and possible costs you might face. For example, if you live in the US and have co-payment health insurance you are going to need a large cash fund to cover a major medical emergency. Yet in Canada the truly major costs are bulkly covered by health care, so if becomes a bit overkill to keep the same amount. Basically the idea of a one size for all emergency fund doesn't work, it depends on your own situation.

So what is an emergency you have faced and how much did if cost you? If you want to share leave a comment. My story went something like this. I had a baby come ten weeks early, a leaky house roof and my lease buy out on my car all within three months for a total of $17,000 (ok I had planned for the lease buy out but the other two wiped me out before I could pay for it, so it became part of the emergency).

Domain Jumps

Hold onto your hats everyone I'm going to try to jump over to my own host this weekend. As such I'm switching this blog back to it's old blogspot domain this weekend to act as a back up.

So check your bookmarks to determine which one you have.

http://canadian-dream-free-at-45.blogspot.com - This one will be the backup copy by Monday.

http://blog.canadian-dream-free-at-45.com - This will be the new host by Monday.

I'm going to try to import all the previous posts and fix the RSS feed as well by Monday. So check the new host address first on Monday, if there is a new post the transfer went well. If the transfers has issues I can't resolve by Monday I will post an update to the backup blog.

I'm begin the switch first thing on Aug 11, 2007.

How to Kill A Mortgage

Yesterday I had a comment by Telly asking if I intend to be mortgage free by 45 (my retirement date). Yes I do want to have that gone by then. I was actually playing with a few calculators earlier this week so I will outline a few different ideas.

1) Do Nothing

This first plan is the easiest. I don't pay down a extra cent until I turn 45 and then I pay out the remaining balance with some of my retirement savings.

2) Mild Acceleration

My current time line to be mortgage free is 19 years which isn't too far from my plan to retire at 45 (16 years). So another option is to save myself a lot of interest costs and prepay just enough of the mortgage to ensure it is gone by the time I'm 45. I estimate I would need to pay off approximately $9000 in the next two years which is completely doable.

3) Completely flatten the mortgage

Of course this option was a bit fun to figure out. If I put every spare cent I have against the mortgage I can be complete debt free in just over 8 years. Which also has some appeal since then my cost of living drops off the deep end and I could look at doing semi-early retirement perhaps by age 40.

Conclusion:

Right now I'm thinking about doing option 2, since I'm very close to trigging my mortgage equity plan with my bank. So if I drop the mortgage fast and decide I need some money to invest I can pull it out and if I use it to invest in a taxable account we can right off the interest against our taxes (Basically I could do a small version of the Smith maneuver).

I must admit option 3 also has some appeal. Yet for now I think I'll try for option 2 for now. Any one else been in a similar situation, if so what did you do?

The Retirement Experiment

I recently was talking to a couple that are rapidly closing in on their retirement date. They have been planning a bit around their retirement. They got a new place to live, a new car and replaced anything that was getting old to ensure they would have reduced replacement costs in retirement. Now they are completely debt free and are starting up an interesting experiment.

They plan to live on their new lower income for six month prior to their retirement date to adjust themselves to their predicted spending in retirement. They call this their retirement experiment. I rather like the idea myself, so I did a little digging into my own spending.

Currently after tax and deductions we take home around $3700 a month. If I deduct my current mortgage payments (principle and interest) I'm down to about $2600 and then if I drop off my extra retirement savings I'm down to $1900/month. If I convert that to a yearly amount I'm already living off just $22,800 with a small child. So if I can split around $27,000 a year between my wife and me prior to tax in retirement I should end up with a higher standard of living than I have now.

So to all people who say "You can't live off $25,000/year after tax" Your right. I'm living already on less than that right now. So what would your retirement experiment look like?

How Much House is Enough?

Recently I've been reading a few architecture books and interior design books on a quest to answer the question: How much of a house is enough?

After all if you are in a larger house than you need you will have higher mortgage payments, heating bills as well as other utilities. Basically buying the wrong house will potentially cost you $1000's over the years for a few extra rooms you might not even use. Yet for the average person, how do you know what is enough? Here is a few steps to help you determine that.

Step 1 - What do you do?

First off we need to determine what you use your current space for. Do you nap on the weekend on your family room couch? Do you watch two hours of TV every night? Can you remember the last time you ate in your dining room? Write down a list with what you typically do in a week and how much space you need to do it and how long you do it for. This is a necessary step to determine what you actually use your house for rather than what you think you use it for. I've often seen people get a house with a particular room and they think they will use it more. After two months they realize they never needed the room in the first place (the classic example of this is a formal living room which sits unused for 97% of the year).

Step 2 - Purge junk

People often cloud their idea of how much space they need to live with how much storage they need for their junk. The simple solution is get rid of the junk and then you can honestly say weather you need 1200 sq feet of living space or can get by on just 1000 sq feet. A good guideline is if you haven't used the item in question in two years then get rid of it. Or another way of looking at it is everything in your home should fall into two main categories: is it useful or do you find it beautiful? If it doesn't fall into either category then it is usually a good idea to get rid of it.

Step 3 - Change your thinking about rooms

Often a fatal flaw with people and their homes is they think they need a different room for each activity. Most of the time all you need is a different area for each activity. For example, watching TV really doesn't take up much sq feet to do. So why can't you also put in a space a small chair and a lamp for reading and perhaps a corner space for the family computer in the same room as the TV? Basically in this step you take your list from step 1 and review your house in terms of activities and areas. Be honest with yourself here. For example, I don't have a formal dining room. Why? I'm likely only going to use it twice a year and everyone would end up not fitting at the same table anyway. So I save the sq feet and just keep a folding table in the basement which I can fit between my regular eating area and my kitchen when I do need extra seating at a dinner.

Step 4 - Retreating and Gathering

Perhaps one of the most useful concepts I came across in my research for this post was the idea of retreating and gathering. Basically a home to work well needs space for people to be together (gathering - like a seating area or the kitchen table) or be apart (retreating - working on the computer by yourself or reading book in a corner chair). Yet to do this you don't need different rooms. You can create spots in a the same room all you have to do is define the areas a bit. Area rugs and furniture placement work well for this, but just about anything can help define a space (for example, a bookshelf, a lamp and a chair in a corner for reading).

An example of where this is useful for me was realizing I needed a second TV watching spot in my home. My wife and I usually watch completely different TV or movies so after the kid goes to bed it we can retreat to different areas and not want to steal the remote out of the other one's hand. Up until this house that second TV area was always in our bedroom or my study area.

So hopefully this post got you thinking about your space a bit. I obviously can't teach you everything in a few hundred words when it took me a few thousand words to get it myself. So for some additional reading I'll list a few different resources:

Living in Style without Losing your Mind - Marco Pasnella - At a 167 pages with lots of pictures this a short, but highly useful read on interior design is a must read for everyone. The book is funny and answers that eternal question of why does that paint color look so different on my wall than on the paint chip?

The Not So Big House: A Blueprint for the Way we Really Live - Sarah Susanka - At 193 pages this is another great book that is short with lots of pictures. Written from the view of architecture this book provides some basic insight into why those McMansions in the suburbs never feel like home.

Switching High Interest Savings Accounts?

Earlier this summer Royal Bank tried to tempt me over to their new high interest savings account yet at the time their rate was going to be dropping to 3.25% after the introduction period. So I told them no thanks I have a higher rate with my current ING account.

Now it is the opposite. Royal is now at 3.75% while ING is trailing at 3.5% and I recall the last time interest rates when up it took ING a very long time to raise their rate up. Royal also has the advantage of being my primary bank at the moment, so going over to them would be very easy.

Perhaps the only thing I would like to know from anyone with a RBC high interest savings account is how fast do the transfers take place? (I can't find anything on this on their website). Since that is the only thing that vaguely annoys me about ING.

Or perhaps I should look beyond Royal to someone else entirely? I can do the research into other options, I'm just curious for a current customers viewpoint on the service at each place.

Thanks for any feedback you can provide and have a good long weekend (no post on Monday).

Site Redesign Questions

Well after playing with my current blog design for months I'm ready to move along to another design. So this post has two main functions. One to warn you that I'm going to be playing with other templates so at times the blog will look horrible as I work out the bugs. The other function is to let you have your say on what you would like to see or what you currently dislike about the blog.

So if you dislike where the menu or links are let me know. If you like a particular template you have seen elsewhere also let me know. Do you like the three column format or do you prefer a two column format? I'm take suggestions via comments on this post or by email at candian.dream.free.at.45[at]gmail.com. Feel free to be brutally honest about everything as I'm not really attached to much of anything.

Thanks for your help,
CD

The Water War - Part II

A while back now I started working on ideas on how to reduce my water bill. So far the bulk of what I have done was change my habits around water. Yet just last week I changed out my downstairs toilet to a 6L flush model from my old 13L flush model.

I had originally planned to install a dual flush toilet downstairs due to the daycare, yet I changed my mind. Why? The capital costs involved were not really worth it. For example, I bought a 6L flush at Rona for $129 + tax, while a dual flush would have cost $225 + tax. The difference between the lower flush setting on the dual flush is 6 L - 4.1 L = 1.9L for the extra $96. Now given my water consumption charge is $0.88 per 1000L, that would mean I would have to use the lower flush option about 57,400 times before I would break even on the cost. So if I assume a generous 9 flushes a day I would have to use the toilet for about 17 years to break even. So you get the idea. It's not really worth doing unless you are going to live in a house for 20 years or more.

On another front I finally got most of the pieces I need to build my rain barrels. I was a bit stuck on what to use to the overflow system when I watched a rainstorm last month and saw how much water can fall in a short period of time. My downspouts looked like fire hoses. I've settled on using some PVC piping to do the job. So now I just need some time to put it all together and install them.

I'll keep you all posted on the savings on these changes make on my next water bill. Oh, yes, for those who want to know the 6L, white toilet from Rona flushes down everything with no problems in one flush.