Ads On This Blog

Back on the 100th post contest I had a bit of a surprising topic suggested by Canadian Money asking what I thought of the ads on this blog and were they worth it. I say that is surprising to me since I had never even thought about that as a topic you the readers would like to hear about.

I currently only run Google Adsense ads on my site in three locations. One is on the far left column, one on the far right and one at the top of the middle post column. For those of you not familiar with the program let me give you the basics. For each click on those ads Google pays me a tiny fee which varies depending on what the advertiser wants to pay. Some of the rules involved are I personally can't click on any of my ads for any reason. Also I am not allowed to ask you the reader to click on an ad in any of my posts. Basically the ads are there, but there is no obligation for you the reader to read them or even ever click on them.

In my opinion I keep the ads for two main reasons. One the income for the ads provides me with a minor sense of obligation to get out of my bed early every week day to write these posts. I consider this blog a part time job where I am getting paid (although the pay per hour is well below minimum wage). That minor extra motivation really helps some days in the beginning when I had yet to develop a sense of responsibility to you the reader to write a post every week day because you expect it.

The second reason I keep the ads is the income can be reinvested into the blog itself to fund contests and buy its own domain name. I put $50 of my own money aside as seed money for the blog, but once that is gone the blog has to be self funding (by the way we are almost out of seed money with the 100th Post contest).

Overall I don't mind the ads myself on the blog. I already spend my days saturated in ads everywhere else on the web, so why should I make this blog any different if I can use the income to improve the blog for you the reader.

Enjoy your weekend,
CD

Tracking Every Penny - Part III

Today rounds out our Tracking Every Penny series with irregular expenses. Now in this section I had the following break down of spending.

Kid Clothes = $44.04
Kid Diapers/Wipes = $30.68
Kid Other = $12.70
DVD = $21.79
Clothes = $45.27
Medical = $37.58
Gifts = $84.18

So in summary the kid cost us $87.42 which includes enough diapers to last us about one and half months (the kid wears cloth diapers during the day). Gifts was a bit higher than normal with a high concentration of birthdays in March while medical was also abnormally high (typically it comes in as a zero for most months).

Therefore our total spending in March was $3171.30 which included $400 in furniture I would consider a rare expense, so if I take that off I'm at $2771.30 which is still a bit higher by $122 than I would have predict with my rough budget of 30-30-40.

In the end, I'm spending fairly close to what I thought I should be spending in the month and I learned a few things about my spending that I didn't know like we are going through around 8 L of milk a week (keep in mind my wife does run a daycare). Overall I would recommend this as an exercise to anyone who has never done it. It can shine a light on the world as it is, rather than what you think it is.

100th Post

Well today marks a very special day here at Canadian Dream. This is my 100th post. It almost doesn't seem real that I have been writing for this long now, but we are here never the less. So thanks everyone for the comments, questions and ideas for posts. With out you this blog wouldn't exist.

To celebrate I'm going to have another contest. This time I'm going to give away a $25 gift card for Chapters, so that the winner can pick out which personal finance book they want as a prize. To enter please leave a comment to this post with a topic idea for a post or a reader's question before April 3rd, 2007 at 7 pm CST. Limit one entry per person. Contest only open to residents of Canada and the winner will be picked by a random number generator.

Good luck to everyone and thanks for reading.

CD

Tracking Every Penny - Part II

Today I'll start going through some of our results, but due to the length of the details I'm going to break this up over two days. Today I'm going to looked at fixed and variable expenses while tomorrow I've cover occasional expenses.

Spending for March 2007

Fixed Expenses
Mortgage $1286.90
Mortgage Insurance $21
Phone/Internet/Cable $107.64
Cell Phone $11.10
Gas for Car $60
My RRSP $100
Bank Fee $6
TOTAL = $1601.64

This category expenses were all know to me previously, so there are no surprises here or nuggets of wisdom. What I did find is that I should have put my power, natural gas and water bills also in this section, but instead I just dumped them in Variable expenses when I started this.

Variable Expenses
Books $40.57
Groceries $321.91
Dining Out $83.61
Haircut $17.85
Crafting $25.30
Home Related $522.68
Power $73.80
Water $42.26
Natural Gas $139.05
Misc $35.39
TOTAL = $730.00

This category by far has been the most useful to track. Initially I was concerned with a few of the numbers, but as I discussed them with my wife we came to realize a few flaws in our tracking method. We have a disconnect from what is tracked in the budget and what was tracked here. In the budget there are three main pools of money that are not tracked. Spending cash for the wife and I for $320, cash for the kid $120, and a misc section to cover little things on Visa for $150 (total $590/month). From these funds we buy the milk in the middle of the month or junk food so that ended up in the Groceries section making it look higher than the regular budget amount of $250.

Some notes from the other categories include:
- Books was at a yearly high because we renewed our book discount card
- Dining out was all paid from cash and included a night out at the pub for me
- Home related looks high, but that includes two new chairs for my living room and a set of sheets for my bed
-Power is high because I get two estimate bills followed by an actual reading for the third, so my estimates are always high and then I equal out in the third month to my average of $45/month
-Natural gas was also an estimate bill, so I'm not sure how much my new furnace is going to save me

So overall I would move the water, natural gas and power to Fixed and then add a few more categories to Variable like milk runs, junk food and entertainment (to help separate out pub nights from eating out as a family). What I did like about this tracking exercise was I kept Misc down to a small value for those odd things like shoe polish.

Tracking Every Penny - Part I

During the month of March I've been running a little experiment at home with my wife. I'm trying to track every penny we have spent so far this month.

So far I've found the exercise useful to discover a number of things around myself. First I now know that it is hard to remember to keep every last receipt that you get everyday and the number of places you have to ask to get one. Also I didn't realize the amount of receipts that we get in a month. Case in point, I now have a stack of receipts that is about 1 inch thick.

The second thing I found out about myself is that I'm really not that good at learning a new habit. I've been trying to remember to enter the receipts into this little Excel template I downloaded and I have only managed to do it twice this month. It's not like it is hard to do, but I just find myself pushing it off. So if I were to do this again I would try to get in the habit of entering it in daily rather than weekly. It's easy to push something off during the weekend, but harder to do it when I sit down at this computer every week day to write this blog.

Overall I'm happy with this experiment so far. My goal of this is to try and determine if I really am spending close to my budget or is I'm overspending and not realizing it. My wife's goal is a bit different she wants to be able to answer the question "Where did I spend all my cash this month?"

Investment/Savings Styles by Income Level

Part of the complex issues around saving for retirement is people trying to give advice that works for everyone. The problem with this is there is no advice that always works for everyone. There always seems to be an exception.

So today I'm going to take a crack on suggestions on what do with your money at various income levels. For simplification purposes I'm going to use a person in Saskatchewan as an example.

Income Level 1 ($0 to Basic Personal Deduction)

Well down here at the bottom rung of the ladder it often appears bad at first glance. Despite this weird belief otherwise, having some one in this situation is actually useful for tax purposes and cost savings in a family. If you can claim your spouse as a dependent you can save tax on the working partner's income. Also a person at this level can provide additional tax saving by running a small business out of the home (deduct house bills and expenses for the business). Additionally a person at this level can assist in cost saving to the house by having more time to comparative shop and saving on child care expenses. Also depending on your overall family income you might qualify for extra RESP funding and other helpful government programs like the GST rebate. Obviously a RRSP contribution is useless at this point (no tax savings), but a spousal RRSP might be useful.

Income Level 2 (Basic Personal Deduction up to $37,178)

Now in this income level you will most likely want to avoid RRSP's as you likely to be in the same tax bracket in retirement. So an approach of investing in dividend paying stocks might be more useful since you won't be paying any tax on the dividend income. The other good idea at this level is to try to save something every month. It can be hard, but if you stay out of credit debt and start getting into the habit of saving you will be light years ahead of most people. Also you might want to avoid interest income as if you don't have an RRSP you will be getting taxed at you full marginal rate.

(Note: There is technically another bracket of $37,178 to 38,405, but I'm going to skip this one.)

Income Level 3 ($38,405 to $74,357)

At this stage an RRSP contribution is starting to look useful, especially is you can use it to drop yourself back to Level 2 for income tax purposes. You are also now typically earning enough money to manage a comfortable lifestyle for a family, so if your near the middle to top of this range you can start to practice that old strategy of living below your means. Basically if you earn $50,000 a year, live like you earn $45,000 and you will always have some savings. If you can live like you earn $40,000, better yet for your savings. The trick here is to find that balance point where you are happy with your savings without feeling deprived in the rest of your life.

Income Level 4 ($74,357 to $109,729)

Obviously at this income level you are doing well by most peoples standards, but don't let that go to your head. Any interest/employment income you get marginal tax rate is getting eaten alive at 39%, so you might as well plow money into your RRSP's and spousal RRSP's (if your spouse is in a lower tax bracket) to get you back to Level 3 if possible.

Income Level 5 ($109,729 and higher)

Once you hit this level of income your marginal tax rate on employment/interest income jumps to 41%. At this stage if you can't drop yourself down to income level 4 or lower, you might want to consider discussing your situation with a tax professional to see if any others options like a family trust might be useful. The other thing at this level is to earn as much income as possible from capital gains and dividends which are taxed less than interest income. If it seems like I'm focusing a lot on taxes at this level, it is because it is your worst enemy to your income.

Well that's my suggestions by income level. Obviously I can't cover everything, so if you have a great idea for any of the levels please leave a comment.

Please note I have disabled Anonymous comments on this blog after a steady increase in spam. I apologize to those who do not have a blogger account, but if you take a few minutes to sign up you can continue to leave comments. CD

Trying Domain Change Again

Well I'm giving another shot to changing domains Sunday. So please be aware that this website might be off line for a while during the change over.

I'll have a good long post for Monday.

CD

Book Review: Stop Working

I've had a copy of Derek Foster's Stop Working: Here's How You Can for a couple of years now, but I just realized the other day I have yet to do a book review on it. So here we go.

Derek took retirement to extremes and managed to get out the rat race at 34. His book was self published and cause a bit a stir in the investing world with some of his ideas. Basically he saved $200 a month plus any extra he had into an investment portfolio, with a couple of good trades and some great market timing he has assembled a portfolio which generates enough dividend cash for his family to live off in a typical middle class lifestyle.

Now there has been skeptics, saying how it that possible. Yet in the book Derek outlines he took a big risk and dumped his entire portfolio on one stock because in his analysis it was very undervalued. The result was he doubled his money. That took some serious conviction to do, so I have to give Derek a hand for that one.

The heart of Derek strategy is to buy a good dividend paying stock when it has suddenly dropped in price to get a great yield. Then he holds onto the stock forever to avoid capital gains and with Canada's wonderful treatment of dividend's for low income earners he pays no income tax. Overall I agree with this strategy for people who never leave the lowest income tax bracket. An RRSP is not going to be that much use to you, so you might as well cash in on the excellent tax treatment of dividend income.

So if nothing else the book is a good read for most people to learn about an alternative investing strategy that works very well for lower income earners.

For me personally it is not going to work out. My wife can use some of this strategy, but for me I do very well dumping the cash in an RRSP or spousal RRSP and taking the refund (I have a 8.5% tax spread between my current tax level and the amount I expect in retirement). Also I know I'm not a good stock picker, hence I stick most of my money into a Couch Potato Portfolio (25% Bond Index, 25% TSX Index, 25% S&P 500 Index, 25% International Index).

For more information on Derek's book check out the following:
-Canadian Capitalist book review
-Million Dollar Journey's book review
-Early Retirement forums at Canadian Business Online where Derek regularly posts

Hot Economy + More Money = Trouble?

I was reading Larry MacDonald's blog post yesterday and I just had to comment on it. In summary Larry was talking about what happens when you inject $20 billion dollars into a economy that is already showing signs of overheating. You are almost guaranteed to force the Bank of Canada to raise interest rates to try to keep inflation in check. Which would result in higher mortgage payments, car payments and line of credit payments. So we only get tax breaks to pay more interest in the end.

Larry makes a very good point here, we don't need more economic stimulation at this point. The oil sands are sucking up labour like a vacuum, while the utility industry is starting to enter another construction phase and then our finance minister goes and gives the manufacturing sector a shot of adrenaline. This is not looking very good.

So what can the average person do to protect him/herself? I suggest paying down any non-locked in debt now such as a line of credit and then go buy some bank stock. After all they are the ones who will be collecting the higher interest rates. Just a few ideas, as per usual do your own research.

Pension Splitting: How it changes your retirement plan

I'm not sure I would consider pension splitting the holy grail of retirement, but it is going to be a very useful tool to have. Yet what exactly is 'pension income' according to the government? Basically any income that you can enter on line 115 of your tax return, but you will have to be careful what you claim on this line for example OAS and CPP don't qualify (but you can already split your CPP pensions). See this section at Taxtips.ca for more information.

The great thing about pension splitting is if you read all the fine print on line 314 you might be able claim the pension deduction for both of you then. So with the basic deduction, increased pension deduction and increased age deduction (age 65+) you could deduct up to $15,995 each or $31,990 total for a couple. No wonder people want to retire with tax breaks like this I can save over $2000/year in federal tax for my wife and I.

Does this mean the spousal RRSP is now useless? No, they are still very useful for your early retirement years. Since you can still split your savings between you for a lower tax rate when you withdrawal them. If you try to convert your RRSP to a RRIF and expect it to be pension income you might be in a bit of shock. From what I've been reading that doesn't qualify as pension income if your under age 65.

Therefore my savings plan for my early retirement years is unaffected by pension income splitting, but it will save me some tax after I turn 65.

Things You Didn't Know about the Canadian Fedral Budget 2007

It was a interesting day yesterday for Canada and the budget (The full document is 478 pages). I personally got a bunch of goodies which I liked, such as:

- Child Tax Credit of $2000 per kid (P.226 - Bottom)
- Increased funding the RESP matching program and raising the maximum total contributions to $50,000 (P.22- Bottom)

Seniors also did well with the previously promised pension splitting, increased age deduction (up $1000) (P.25 for both), and two extra years on the age limit to convert RRSP's (P.231). All of these measures should make retirement a lot happier for a lot a baby boomers entering their golden years soon.

Yet the three things I find the most interesting in the budget was barely mention if at all in the media. The first one I won't blame people if they forgot about it, but now that the Bloc has promised to support the budget bill the income trust lobby is now officially dead. Tucked WAY back in the end of the budget document (P.442) is the statement that the government will proceed with the previously announced 'Tax Fairness Plan" which will see income trusts taxed in four years. So for anyone with the faint hope that things would change. Sorry the free ride is over in a few years.

The second very interesting piece of news that again isn't getting a lot of media attention is the fact the government is going to form a national security commission (P.179). Basically the federal government got tired of waiting for the individual commissions to do anything and is going to force them to merge. So Canada is finally getting off of a very short list of countries that lack a national security commission, which should hopefully reduce red tape for investors who get ripped off and also provide a clearer set of national rules on investment information.

Then there is the third piece of news that I read in an obscure part of the budget document was the reduction of red tape for small business owners by up to 20%(P.183). My wife's business manages to be small enough to avoid much of the red tape, but it is nice to know that she can grow it a bit more before hitting paying tax in installments.

Despite the length of the document it's a fairly organized, so I suggest you download a copy and skim the introductions to each section where they highlight the changes. You might find some minor but useful things that will help you personally.

This Blog is Worth...

I came across this tool a while back which shows you What Your Blog is Worth and forgot about for a while. Then the other day I came across it again and gave it a try.

I got this:

My blog is worth $13,548.96.
How much is your blog worth?

This is the funniest thing I have ever seen. You have to be kidding me that my blog is somehow worth around $13,000. Do you realize how tiny of a yield that would be? We are talking about a couple of tenths of percentage point. I wouldn't buy my blog for that kind of money.

So today's lesson is beware someone trying to tell you how much your own assets are worth. For example I recently was told my house should be worth significantly more than I have estimated it at in my last net worth post. I disagree. For the purpose of my net worth I assume a house value that is something I can sell in a week, otherwise it's a dream number that your looking at. You may be able to get more, but unless you can get it fast it is a meaningless number.

Changing Domains

Hello folks. Just a quick note that I'm changing domains from blogspot to canadian-dream-free-at-45.com this weekend. So things might be off line for a while during the change.

Actually the change had some problems so I'm going back to my old blogger domain until I can get this sorted out for next week.

Sorry for the problems.

CD

Ethics and Investing or How I Make Money and Sleep at Night

Generally I come across as a fairly ethical person. I don't believe in hitting people (except in self defense), being cruel to someone or destroying the environment. Yet my wife and I will gladly invest in a stock (EIT.UN) that owns some of the biggest green house gas emitters in this country. Am I alright with this? Yes. How? Now that's a good question.

Investing is the strange word for most people where all the normal rules go out the window. A person may believe in non violent conflict resolution yet hold a mutual fund that owns companies that build guns for the US war in Iraq. How can this contradiction exist? We often don't get into the details of our own holdings. As long as they are performing well, we tend to just ignore them entirely.

Yet in my case I am aware of most of my holdings and I still don't feel bad or have a problem with it. Why? Because I know that investing is one of those weird worlds where ownership matters. If I really dislike something a company I own is doing I will send them a note and vote accordingly at the Annual General Meeting. Companies are accountable to their shareholders, if you are one you at least have the chance of getting your issues to the table. If I don't own them, then they will just ignore me entirely.

So the next time someone tells you they invest in 'ethical funds', have some fun and point out what they are missing by not buying shares in these 'bad' companies.

Reader's Question #4

Nancy left a great comment on Retire Happy - Part III, which I thought really should have a post to reply to the questions.

Q: I enjoyed your ideas. Kinda made me think: what if we all did way more of that? How would it affect our spending? -ie., if we regularly really absorbed, drank in the moment. Would we feel less compulsion to spend?

A: Speaking from experience, working on being happy has been wonderful to my quality of life overall. I've also noticed that my spending naturally dropped off a bit as I stopped buying things that really didn't generate much enjoyment for me and started spending more time with my family.

Perhaps the most useful thing that has come out of my work on being more happy is I don't obsess about savings and retirement planning as much. Retirement is no longer this thing in which my life will instantly be better, but rather now just the next phase in my life after my current one. You have to remember retirement is not a magic pill that will solve all your current problems in life. All retirement allows is the freedom to choose what you do with you time without needing to worry about the monetary compensation. Concentrate on being happy in your current life and you will make your retirement the next phase of your life rather than an escape from your current life.

Also I've come to realize that retirement itself is just a title and can mean many different things to different people. For some people retirement is just a scale back of their current work load, others a change in career and for some a complete absence of work. There is no one answer.

PS: The site over haul is basically done. I've moved some things around and added a new section to the left sidebar near the bottom called 'Tools.' Here I'll be placing some links to useful retirement information and calculators. If you have an idea of something I should add please let me know with a comment or email. Thanks everyone for your patience during this over haul to the site.

Retire Happy - Part III

In Part I we covered making a dream list, while in Part II we looked at how your spending your leisure time. Today we are going to take a lesson from young kids. Yes that's right, kids. Why? Watch a young kid at a park or anywhere for that matter and you will notice they seem happy most of the time. So how do they do it? Simple the just live in the now.

They don't worry about what's happening tomorrow, next week or even the next 10 minutes. They simply just enjoy what they are doing right now. So how can do the same thing? Concentrate on your what your doing during your leisure time and shut out those thoughts about everything else such as: "What should I make for dinner tonight? Did I pay that bill? I should look at the tire on the car. Did I forward that email to my boss about that project I'm working on?"

I know this sounds a bit strange, but it really does work. Think back about the last time you were really enjoying something. Chances are you were thinking about much of anything else at the time. You might also notice that when you are really enjoying an activity how quickly the time passes, which is also a good indicator that you were concentrating.

So how do you improve your concentration? That is a entire book on itself, so I'm not going to get into too many details here. I'll describe a method that works well for me. When I'm doing something that I want to concentrate and I get a stray thought. I merely note that it happened and then gently push the thought to the side. Keep doing that for every stray thought and after a while you will notice the number of stray thoughts will keep dropping when you doing things. This does take a while, but it is worth it in the end.

PS: You might have noticed the site is a little bit messed up at the moment. I'm trying some modifications to my template which has had a few unexpected changes which I'm trying to resolve this week. Don't worry I have a back up of the original template so is I can't get this one working right I will switch back by next week. - CD

Retire Happy - Part II

Alright, you've started your dream list from Part I. Good job. Now it's time to look at your present life and see how your spending your non-work time. Think back about the last twenty four hours. What did you do when you were not at your job?

In this exercise you are trying to isolate your leisure time, so make broad categories for everything else and try to track everything to the nearest half an hour. With you leisure time, stop and replay that time in your mind. Did you enjoy it? How much: a little, some what or for not being sex that was really good? Next try to define if it was passive or active. Passive leisure time takes no input from you (for example, TV or a movie). Active requires you to do something like reading, writing, talking to someone, or building something. Basically most activities outside of TV or a movie are active.

In the end you will have a list like this:

5:00pm to 5:30 Go for a walk with family (really good, active)
5:30 to 5:45 Prepare dinner
5:45 to 6:00 Eat dinner
6:00 to 6:45 Watch news (some what good, passive)
6:45 to 7:30 Read Blogs (some what good, active)
7:30 to 8:00 Put kid into bed
8:00 to 9:00 Play computer game (a little, active)

Now isolate out how much time you spent on passive activities. How much did you enjoy it? If it only ranked 'a little', this is good area to look at. Otherwise, some passive leisure time is good for you, but just make sure your actually enjoying what your watching. If you only like it 'a little', you might want to consider cutting back on the passive and dropping in more time on some you did enjoy a lot. Then you do the same analysis of your active leisure time and start to drop out those items you didn't enjoy that much. Depending how much time you free up you might be able to start working on your dream list.

The above exercise is just to show you where your time goes. We have time management training for our work, but why don't we use that to improve our happiness with our leisure time?

Retire Happy - Part I

In retirement planning there seems to be an abnormal amount of time being spent on figuring out how much you need to retire and not nearly enough on a much more important question: why do you want to retire?

For everyone the answer varies: I want more time to spend with the kids, or more time to travel, or write a book or even just to do nothing. In the end all the answers come down to the same thing: we are looking for more to our lives than just our jobs. We are basically looking to have a happier life.

Yet I keep hearing stories about people who work hard and get the gold plated pension only to find one year into retirement that they hate it! So what happened? They planned their money to no end and complete ignored the question of what are you doing one month after you have retired. If you don't know the answer to that question you better go back and rework that retire plan of yours to include some happiness.

But how do you generate happiness? Ah, that is a good question. Perhaps a better question to ask right now is how can I generate more happiness right now. Why should I even wait until I'm retired to be more happy?

The first step to happiness is rather simple. You have to remember how to dream. Not your typically night time dream, but rather day dream. It's playing that 'what if' game. What if I didn't have to got to work today? What would I do? Let your mind wander, trend down memory lane and recall your childhood dreams. What if you had unlimited time and money? What would you do? Then start to write it down. Your goal is to have a list going of things you want to do: travel, learn a language, learn a new skill or hobby. You don't have to be able to do them right away, the list is only to help you plot your dreams.

Although this seems like a simple exercise some people find it hard to do. A soul crushing job and other responsibilities can suck the life out of you and leave you empty of dreams. It's time to remember how to day dream again. I'll see you tomorrow as we keep looking for happiness.

Early Retirement and the Cash Flow

Over at Common Sense Financial Wisdom From My Wife, there was an interesting post about early retirement being more about having a cash flow to cover your expenses rather than drawing down your nest egg. I believe the point of the article was to point out that if you have the cash flow to retire early it doesn't matter how long you are retired since you won't run out of money.

This is a bit of dangerous idea when it comes to early retirement planning. Yes you can retire that way, but I'll explain what I mean about dangerous. If you assume that your spending will stay the same for your entire retirement your ignoring some studies which seem to indicate this isn't true. Actually it seems your spending goes down in phases in your retirement years. During your initial retirement you will burn through more cash as you travel and do all those things you been waiting to try. Yet as you get older you can't travel as easy and start to want to spend more time with the family, so your spending drops off. After all how many 80 year olds do you know whom still travel around the world every year?

So your asking, how is the cash flow model dangerous? Well it makes you saving up enough to fund your entire retirement like it's your early retirement phase, you will be grossly over saving compared to your entire retirement spending. The net result, you actually spend more time working than you needed to. After all isn't early retirement, about getting started early?

PS: You might notice that I'm posting on a Sat. when I normally don't do this. Well the fact is I'm generating ideas faster than I can write about them at the moment. So I'm going to give Sat. posts a try for a while and see how it works out. Yet a word of caution about this, I can't tell you when the post will be up on a Sat, since I don't set an alarm on the weekend. -CD

My Tax Refund is WHAT?!?

During the last week I have been filling in some of my tax information into QuickTax 2006 to get an idea of what my tax refund will look like. I am still missing one of my T4 slips from my previously employer, but I used my last pay stub to build a fairly accurate estimate. Then I entered in some of my basic deductions like RRSP's and a few T5 and T3 forms I already have.

So far I'm almost at a refund of $5000 and I still have deductions for my move and partial northern living allowance that I can claim for last year to enter in. So I'm currently looking at the single biggest tax refund I have ever gotten.

How did this happen? Well a combination of weird events. First off in Jan 2006 I got a BIG bonus cheque which got taxed to hell. Then I maxed out my CPP contributions for the year at my old job just before moving to my current job. So my CPP contributions started all over again and I ended up almost maxing out again.

Then the icing on the cake is I forgot my wife still had some carry forward credits from last year which should easily drop her under the basic deduction and result in no tax payable.

So the government ripped me off and took far to much of my money. So now I'm waiting for my tax forms to roll and and Netfile to come back up so I can get money back. To summarize today's lesson is don't let the government hang on to your money and if you can fill out any form you can find to legally reduce your tax bill at the source.

Guest Post by Margot Bai

Thanks to everyone who entered the contest to win a copy of Margot Bai's new book Spend Smarter, Save Bigger. The winner is Duane L, who should have an email back from me asking for his address. With this contest I ask Margot if she would be willing to write my first guest post and she graciously agreed. So here we go. - CD

Thanks CD for the opportunity to be your first guest post!

Thousands of dollars spent (I would say lost) following the “advice” of commission-based financial professionals. In our efforts to take responsibility for our financial future, many are paying a high price, locking up their money in high-fee mutual funds, high-interest rate
mortgages and expensive insurance policies.

Mortgage reps recommend we lock in for a 5-year term, trapping us at a higher rate. Insurance salespeople convince us to pour our money into expensive permanent life insurance policies. Financial planners like author David Bach try to distract us from their fees by telling us that
what really counts is cutting back on discretionary spending like coffee and take-out.

When did common sense fly out the window? My message is simple but I believe pivotal to financial success: focus on bigger savings because this will build your wealth much faster than the small stuff. Often these big savings come at the expense of commission-based service
professionals whose livelihood depends on taking a slice of our pie.

While there are certainly many well-meaning financial service providers, their compensation is based on them convincing you to buy their more expensive products. It is a situation that can make one very angry, especially because these people appear to be there to help us. However,
the age-old principle of buyer beware applies to every other area in life. Why should financial services be any different?

I wrote Spend Smarter to inspire Canadians to create an affordable lifestyle that will allow them to live comfortably while saving a significant part of their income. However, a frugal lifestyle alone does not guarantee financial success. When it comes to financial services, we need to educate ourselves so we can see through the sales pitch and make the choice that will help us keep more money in our pocket. At the end of the day, isn’t that what saving money is all about?

-Margot Bai, Author of Spend Smater, Save Bigger

Reader's Question #3

Q: As someone in their mid-20s earning $32,000 in Ontario, who expects to earn more in the near future (~$40,000), is it worthwhile for me to invest in RRSPs, or is it better to save up the unused contributions for a couple of years until the tax break is bigger? I have heard that if you are making less than you expect to make when you're retired, then the tax benefit is lost. Of course the money would be invested, just not in a registered plan. Comments?

A: A quick look at the marginal tax rates for Ontario will show your first tax bracket changes over when you hit $35,488 in income for 2007. So for now there isn't much of a point going for an RRSP since you most likely will be in the same tax bracket in retirement. Yet once you do pass that mark you start to climb brackets again at $37,488 and then again at $62,485. So once you are earning over $40,000 I would try to contribute enough to drop you back under that $35, 488 bracket for the most tax savings. That $4512 RRSP investment could generate about another $1295 in a tax refund. If that's too much to save try to get back under that $37,488 bracket by investing $2512 and you would get about a $879 tax refund.

One very useful thing you should take advantage of with your current low income bracket is the negative taxation on dividends that qualify for the enhanced tax credit. Basically the government gives you a tax credit for your dividends you get, but once your in the lowest tax brackets you actually get a larger credit than your tax bill would normally be, so you actually reduce your regular income tax by an additional 5.97% of what you got in dividends (For example $100 in dividends would reduce your regular tax bill by $5.97). I know it is a very weird idea to wrap your head around at first but this is great thing for investors with low income like yourself since you can actually keep every penny plus some extra on every dollar of dividend income.

As per usual, I'm not a tax expert or financial adviser, so do your own homework. Any additional ideas/comments from anyone else would be appreciated.

When does a Bull become a Bear

After four years of great returns on the TSX this week long losing stretch is bound to get people thinking the question 'is the bull dead and do we have a bear?'

My short answer is I don't think so. Why? What has really changed from last week beyond some numbers in some indexes? Not a whole lot, but I think we could be entering a period of a holding pattern for a while once everyone settles down.

The government looks like it could fall shortly after it introduces its budget or even fall on the budget itself which if the income trust legislation is included in that we could have a problem. Then add in the expected CO2 emission targets that are supposed to be out soon and that could really impact the oil companies depending how far the government decides to push them. Then add in the fact the banks have been getting some negative media coverage for ATM fees. We have a great recipe for an unstable investing conditions in the near future on the TSX.

So what to do? Perhaps some bargain stock shopping as I mentioned early this week is not a bad idea. Otherwise sit tight and review your long term investing plan and stick to it. After all the idea of a long term plan is to keep you from making rash emotional decisions during downturns in the markets.

Book Review: Spend Smarter Save Bigger

I was recently sent a copy of Spend Smarter Save Bigger by Margot Bai which I just finished reading and I have to say it is the best general personal finance book I have ever read.

Overall Margot's book is just full of practical ideas that everyone can use and she explains everything in very basis terms that anyone could understand. She covers life insurance, buying a house, getting a mortgage, buying a car, car insurance, index investing, RRSP's and their role in retirement. She even manages to squeeze in a brief section on estimating your savings for retirement and RESP's.

I find most books tend to ignore certain things like the psychology of how people view their money. Margot uses her degree in psychology to really examine in some cases the our excuses around things and calmly cuts through our internal bullsh!t.

I also noticed in her recommended reading section a number of books that I have read and enjoyed as well such as Stop Working by Derek Foster and Stop Working...Start Living by Dianne Nahirny.

Perhaps my only complaint about the book is the retirement saving section could have been longer, but with all the other great material she covers I really can't fault her for keeping it short in the overall context of the book.

I would highly recommend to anyone that they go out and buy a copy of this book as it great addition to any home library for anyone who doesn't win a copy of the book from me. Yes that's right folks, I'm having a contest to win a copy of the book.

Win a copy of Spend Smarter, Save Bigger Contest. To enter please send me an email at candian.dream.free.at.45@gmail.com before March 7th, 2007 at 7pm CST (You must send me an email to enter, I won't accept just leaving a comment since I don't require email address on my comments). Limit one entry per person. Only open to residents of Canada. The winner will be picked from a random number generator. Your email address will only be used to obtain the winners mailing address.

For additional opinions of this book also check out Million Dollar Journey's Review and the Canadian Capitalist's Review.

When the Market Falls Go Shopping

Unless you have been living under a rock you have noticed that the TSX dropped a heart stopping 400 points or so this week. Has this made me nervous or did I sell off anything. No, actually we went shopping during the drop.

My wife picked up EIT.UN at $6.18, which is a income trust that is comprised of shares of other income trusts in her taxable account. So it is similar to a mutual fund, but have the structure of an income trust. What is nice about this fund is 21% of it is made up of REIT's which won't be taxed under the new law for other income trusts. So the excellent yield of 13.5% at which my wife got it will likely drop to around 9% after the new rules come into play, which is still a great number. The other nice thing is about 40% of the distributions won't be taxable (as return on capital). So overall it was a great deal for us.

The problem with this decision was now I will have to use my line of credit to initially pay for the new furnace going in around the middle of this month until I get my tax return around late April. Yet earning 13.5% on that money for years ahead seems worth it to pay 8.5% on the line of credit for a month and a half.

PS: A reminder that I'm not your adviser and you should do your own research before determining if EIT.UN is right for you.

Saving Money - Part IV

Well I'll apologize in advance if this post makes no sense. The kid last night decided to wake us up not once, or three, but five times. So I'm barely awake and I'm paying more attention to when my coffee maker will stop brewing so I can make it through the day.

The other day I was talking to a few friends at lunch and the topic of making your food came up. One fellow was eating a brownie that he made from a kit, while another was eating a can of pre-made soup for lunch. When I pulled out my lunch of leftovers they were impressed. It was homemade chicken nuggets and this the conversation that followed.

Friend 1: Ooo, where do you buy such small chicken nuggets?

CD: My wife made them.

Friend 1: Well that's a lot of work.

CD: No, it wasn't. Just cut up chicken and coast in breadcrumbs with a few spices and bake for 15 minutes. It was easy.

Friend 2: No making this brownie was easy. Just add water to the mix and bake.

CD: Ok, how much did you pay for your kit?

Friend 2: I'm not sure but about $3.

CD: Well it takes me perhaps five extra minutes and I can make that from scratch for around $0.25.

Friend 1: Ok, but can you make a soup like this?

CD: Yes, how do you think I use up some of my leftovers? I make soup on the weekend.


So this lead me to a thought. People need to get back to their kitchens and remember how to cook (or learn if they don't know). It's cheaper, healthier and it is a skill you will use daily for your entire life.

Unlike the rest of the population I have a special motivation. I used to work for a chemical distribution company, so I have seen all those chemical additives to prepackaged foods. Trust me when I say that once you have seen them in their raw form you will try to avoid those additives for the rest of your life. My skin still crawls when I think about it.