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.

A Personal Story of the Market Correction

Since I just did my last net worth update at the end of June I'm in a nice spot to have a good look at what the world wide market correction did last week to my holdings. So using my RRSP account as a model I had a value at the end June of $12,800.

The account current market value today is $13,200 with a book value of $13,300. I did recently add some money to this account in the last month. So overall I lost all my yearly profit and $100 of my own money during the correction. So I would estimate I'm down around $500 at the most or 3.8% in this account.

So given all the media coverage of the event and the coverage in various blogs you would think this correction was a bit bigger. Yet this is the reason you diversify your portfolio. So if the markets tank they will be hard pressed to take you portfolio too far down.

Overall my net worth change I would bet would be less than 2%. So next time they tell you the 'sky is falling' do try to keep the long view.

The Dangers of More

It's an interesting ideal in our culture, the constant drive to get more and better. It drives new cell phones, books, cars, clothes, houses and just about every product out there in a constant need to sell people more junk they really don't need.

Just how bad is all this. Well the other day I thinking about what was the last thing I bought. It was a chocolate bar. The strange thing about the purchase was the fact I 'felt' like buying something. Like somehow we can't live without buying something for days on end. This awoke a interesting debate in my head about how much of everything I buy is driven by some marketing rather than an actual need.

So after a few days of observing my own shopping habits I determined I'm not heavily driven by marketing. Actually I fairly good at ignoring it most of the time, yet it still manages to get to me. For example, my last grocery shopping trip we had a coupon that if you spend over $250 you could save $30 off your bill. So like a good consumer we loaded up on stuff we didn't need to get the deal. I have to wonder how much cheaper would my bill had been if I didn't worry about the coupon in the first place?

You see that is the danger of more. You surrender your reason and get things you really don't need and even don't want all that much. You end up wasting money just to get 'the deal' or you get the larger house because you think you need the room. So after an additional $50,000 of mortgage you realize what you need to do if sort through your junk and toss 50% of it and then you could have saved $50,000.

More is dangerous because you often don't see what it is doing to you until after the fact. The SUV looks all shiny and nice until you start paying for the gas bills every week. So next time you go shopping just try and pause for a second and ask, "Why am I buying this? How often will I use it?" If you can't give yourself a good reason to buy it, other than 'It's on sale' then perhaps you should just put it back.

Reader Question #7

Alex from Montreal is in a bit of housing problem and sent me an email on it.

Q: I read one of your blog posts titled "Living in a hot housing market" and it brought up some questions. I'll give you a brief resume first:

I currently own a rental property in Montreal that is definitely in a hot sector. I was lucky to purchase it 2 years ago for under 110k even though it's evaluated at $250k. Add the mortgage cost, condo fees and taxes and it comes up to roughly $800/mo. It is currently being rented
for $1000/mo, which means I actually make profit from this (that's a good thing, right?).

My questions:
- Would it be a *waste* of money to rent an apartment (for myself) at $650/mo?

I ask this because everyone has to live somewhere. I understand that my *real* cost of owning would actually be $450/mo, but doesn't that defeat the purpose of having a rental property in the first place? If i'm renting for $650/mo, then i'm not making any profit, anymore.

I hope that makes sense because the $250k evaluation seems rather interesting.

A: Ah yes that wonderful question of should I cash out in a hot house market. It does get bloody tempting to do it. I should know it's crossed my mind as well recently.

The answer really depends on do you view the condo as an investment or a home. If you think of it as an investment selling it becomes an obvious choice. After all if you sell it at market price of $250,000 less fees (~8%) should easily have $230,000 left over. Assuming you have a 100% mortgage of $110,000, you could clear $230,000-$110,000 = $120,000. If you took that and invested it, you could skim off around 4% a year leaving the capital mostly in tact and you could have an extra $400/month which you could apply against your rent. Leaving you with a $250/month true cost for a place to live. Lets face it you don't get much cheaper than that and it would be providing more income than your condo currently does.

Yet if you view as the condo as a home, you might want to consider hanging onto it. Since you are going to need a place to live somewhere and if you sell and try to move in somewhere else in the same market you new place is likely to be just as overpriced. Leaving you with no real gain by moving. When looking at your primary residence there is a significant advantage of owning your own home in retirement. Any future house value increases become meaningless beyond your property tax bill, unlike renting where it tends to follow the market a bit closer for costs.

In the end it depends on your viewpoint and personal situation. For example, my wife is currently sick of moving, so regardless of my house value, I'm very unlikely to sell it. So that's my ideas on the topic, I wish you the best and let me know what you decide.

Have a good weekend,
CD

Wander Reading #6

Here we go again a few items on the net I liked in the last while.

First up I've got one from Violent Acres on calculating profitability for a rental property. I liked this one since it shows you should determine your rent first and your minimum profit and then back calculate what you can pay for the property.

Middle Class Millionaire has an interesting post on Bicycle Trusts which I found very useful, but it appears to be US based, so I'm not sure how applicable it is to Canada.

Then over at Get Rich Slowly their were two great posts on living in a small town or smaller city. Very entertaining to see the debates on those.

Last but not least, Growth in Value has a great post on the pitfalls of being a bit knowledgeable on personal finance.

Hope you enjoy reading,
CD

Reader's Question #6 - Part II

During last week I started to answer a long reader's question. Here is part II of that question.

Q:My father-in-law wanted to gift each grandchild $25,000 while he was alive. Due to a sudden decline in health he never got around to doing this. We are going to gift the money as per his wishes even though it is not in the Will. Our initial plan was to put it in an Informal Trust with the Financial Planner. Now I want to avoid him and do any future investing ourselves. I am very interested in Index Funds and not confident enough to jump into Exchange Traded Funds yet. But my understanding is that they are not great for taxable investment money because as the Index changes and the Fund is updated, Capital Gains are earned. Given that this money will belong to our children, we don't want it subject to tax in our hands.

In your opinion, how would an investor best take advantage of the Market to set up an investment on behalf of their children(ages six and four years and two months old). RESP's are already in place.

A: Really good question. How do you invest for your children if you already got the RESP in place and got enough in there to max out your Canada Education Savings Grant? An Informal Trust could be a good option yet they do present some issues you need to know about and fully understand (See this page from the Canadian Banker's Association - you will need to scroll down to near the bottom).

An informal trust is set up to provide taxable invests to a child which they will receive control of those assets once they hit the age of majority. To set one up you need three people: one person to donate the money, one to administer the money and the third person is the child which will benefit from the money. The trust income is taxable, but depending on what type will either be taxable in the donor's hand or the child's. Since the child can use the basic personal tax deduction they can typically get the invest income tax free or with low tax. The trick to all of this to ensure the income is coming in the correct form to avoid being taxed in the donor's hands. For example interest and dividend income is taxed in the donor's hands, while reinvested interest and dividend income and capital gains are typically not taxed in the donor's name if the trust is set up properly.

So overall the informal trust is a good format since you don't have any limits on money you can invest and if you keep the income from it low you can avoid tax in the donor's hands. Also the trust can be used for anything, it is not tied to the child's education. Yet there is also bit of downside that after the child is the age of majority you have no legal say on what they spend the trust money on.

As on how to setup the investments within the account I suggest you step back a minute and look a the big picture. You have two accounts for each child. One tax deferred (RESP) and one taxable (Informal Trust). So you want to take advantage of this fact to child's benefit. The best way to do this is make sure all the stable interest portion of the child's money is put in the RESP account to defer tax on that interest and then have all your capital gain and dividend income in your informal trust. Why both the capital gain and dividend income in the trust? They are often hard to separate. If you have one, you typically have the other in a fund. So the risk is the donor may get taxed on some dividend income, yet if you place this in the lowing income spouse's name there shouldn't be too much tax paid overall.

Generally this is complex issue that you will need to seek some professional consul on to ensure you minimize everyone's tax bill. As to the exact blend of investments to use, it is always a bit of challenge picking them out for kids. Since there is typically a shorter time horizon involved (less than 20 years) you want to ensure you stay fairly conservative overall. Index funds can be used, but keep in mind you will also have to be adjusting the balance on the account to become more conservative over time. I'm currently in a Dividend Mutual Fund for my son and we are going to start shifting over part of it to more conservative investments by age 5. At that point 25% of the account will be changed over. After that I'll move an additional 5% a year to more conservative investments, so by the time he turns 18 most of his RESP money will be in low risk investments. In your case you will need to do something similar, but over two different accounts.

I hope all that helps.

Finanical Implications of Global Warming

Global Warming is generally agreed by most people to have some serious implications to everyone's lives. Often experts explain things like more severe weather and shifting rainfall patterns (for example see the latest from Environment Canada).

Perhaps this is the wrong approach after all I can't really understand things unless you talk in terms I can relate to. For example, why can't they take the information and hand it off to an economist and have them come up with some changes your personal spending. Now that is something I could relate too.

For example, if we take Environment Canada's rainfall map and do a little creative thinking about Canada's crops you are forced into some interesting conclusions. Like yes likely we will get a longer growing season overall with more rain, but not where we need it most ( the southern prairies). Instead that is going to dry out and we can kiss goodbye some great farm land. Which will force farming towards the north with poorer soil and more natural lakes and rivers which could flood with increased rain. So overall we would lose farmland. That would result in reduced wheat and canola yields which would be further reduced to do severe weather which could destroy crops in various areas. Overall your baking is going to cost more and your cooking oil is likely to cost more. If you add in the severe weather factor then the price is likely to be significantly more unstable as it will be hard to tell if you have a good crop until you can get it off the field and sold before bad weather strikes.

So imagine they did that for not just Canada, but the world? How expensive would your coffee get if growing conditions change in South America? How often would go to your timeshare if the warm island you knew was now a barren desert? Could you afford flood insurance in Canada if it happened more frequently everywhere?

For me that would be useful climate data and likely get a much better response from the general public that just rainfall patterns.

So You Want to Do Your Own Investing?

A comment on my last post got me thinking about how to determine if you can do your own investing. After all if your constantly chasing the latest 'hot' investment or selling off at the slightest dip, you can do a lot of damage to your own money.

So what do you need to do your own investing? Surprisingly not a lot, but it does require some honest self assessment.

Step 1 - Are you an active or passive investor? If you are stock geek and can honest say you will read every little bit information about every company you own (and any company that you are thinking about owning) and also be willing to do additional industry research. Then congratulations you might have the knowledge base to do active trading in individual stocks. Yet you will also need to assess your ability to handle loss and your emotional involvement. So if you can't sleep at night with a 10% loss to a stock you own then you should not be an active investor.

So if you failed the above test you are a passive investor. Don't worry this isn't a bad thing, its just realizing your own limitations and working with them. Your goal in being a passive investor is to use index stocks and ETF's to remove much of the emotional decision from buying a stock. I think every one likes to think they can be an active investor, but the reality is very few people can do it well.

I had a fortunate experience when I was a teenager to do a stock invest project in school where a group of us actually bought a penny stock and watched it come up and then crash down. So I learned the hard way. I'm not an active investor.

Step 2 - Research your strategy. Now investing weather it is active or passive can follow many different paths depending on your risk tolerance and your goals. Now you have to look into your local library's personal finance section and start reading. Your immediate goal is to read at least 10 books before deciding what will work for you (for suggested reading check out the book review posts on this site and other blogs).

Step 3 - Remove emotional issues. Review the strategy to remove as much emotional decision making out of it as possible. After all your number one enemy will be yourself in doing your own investing. That's why I use a series of index funds and balance them once a year. There is no emotion in the decision. I just sell and buy to get myself back to my original investment targets.

Obviously I can't cover everything about doing your own investing in one post, but for most people I think it can be a good thing for one main reason. No one in the world care more about your money than you. At the same time if you know you are emotional and lack the discipline to execute you own investment plan, then you should seriously consider using a advisor. After all those fees might be worth it if it keeps you from losing too much money.

Reader Question #6

I recently go the single longest email question I have ever got from a reader. It's so long in fact I've had to break it off into two parts and do a bit of summary on it.

Colleen a reader from Ontario got a bit of windfall of some money. She ended up investing with Financial Planner in Spring 2006 and is now has a large amount of money in DSC (Deferred Sales Charge) type funds. So if she pulls them out early she gets hit with a large charge to get out of under performing funds. That's the bad news. The good news is she has taken this lesson is learning about investing herself and getting educated. As such she has two questions. Today we will have a look at the following question.

Q: Given recent creation of a Military Reserves Pension Plan, we have the opportunity to buy back all my husband's previous military service. For his twelve years or so of service, the buyback cost is in the ballpark of $70,000. The Financial Planner says to make sure we invest the money in our RRSP's first (through him of course) since we have the room and then transfer it to the military RPP. Reason being, we could take full advantage of deferring tax on that money through an RRSP. Now my understanding is that my own pension contributions through work defer taxes the same way. That is, whether in an RPP or RRSP, the contributions have the same tax advantages.

My concern is that this advisor has some financial incentive for himself in mind.

A: You are correct. When you put money into a pension plan your money has the same treatment as an RRSP for deferring taxes. So I would be questioning any advise this Planner is giving you as he seems to want to line his pocket with your money. If you feel the pension plan can offer a good rate of a return with low fees, then go for it.

Otherwise you might want to stick with a RRSP, but this time invest the money with someone else. You could start with a simple Couch Potatoe type portfolio made up with index funds from you local bank (shop around for who has the lowest fees (MER) on their funds) if you think you will be contributing on a monthly basis.

Either way I would stop giving your planner any more money and then have a hard look at the fee structure for the DSC and decide what would it cost you to get out of these funds sooner than later and take your money elsewhere. Often the emotional pain of living with those DSC funds can be an incentive to take your losses and move on to better things. After all if your funds are not doing well how much more money will you lose hanging onto them waiting for your DSC to drop.

I hope that helps. Any other ideas from other reader's would be welcome. I'll get to Colleen's second question about investing for her kids next week.

Living Car Free?

The Money Diva recently had a post on how much a car was costing her. It turned out to be a huge $8000 per year.

This got me thinking back to the number of times people have asked me why I don't have a second car. I reply I don't really need one and I'm barely using the first car. You see I get a ride to work most days and those few I don't get a ride I take the bus. Why the bus? Well parking downtown will cost me at least $8/day plus gas and the bus with tickets only $3.40 round trip. Then my wife works at home so she doesn't need the car. Overall I would estimate my car sits in the garage at least 3 days a week without moving. So you see I really don't need a second car.

Yet MD's post got me thinking how much is my car costing me. It was in the beginning a lease vehicle which we bought out. So overall lease payments and buy out cost me about $24,000. If I keep the car for ten years I estimate my average insurance cost will be about $1000/year and we spend about $1400/year on gas. I would then guess around another $200 on oil changes and let's add another $400/year for other maintenance (ie: replacing a windshield, tires, etc).

Overall my operating costs and purchase would average about $5400/year if I keep the car for ten years. Ouch, that is a lot of money. Yet if I got rid of the car I would need to spend money on taxi rides and bus fares and road trips would be a problem to visit some of our family who don't live near anything with bus service. So in the end you could likely save some money, yet what are you losing? I know some people who can easily exist without a car, while others just can't manage it. It depends on where you live and what you use nearby.

Overall I'm going to keep the car, but I do now appreciate what it is costing me to keep the thing. So next time I drive somewhere I'm going to be a bit more grateful I have a car and stop taking it for granted.

Saving Money on Cooling

A friend of mine recently told me that they estimated that out of their last power bill half of it was due to using their air conditioner in the summer. He noticed my house was fairly cool, but I didn't have mine on.

I have to confess. I have central air in my house, but I almost never turn it on since I know it is such an energy hog. This summer for example, I don't think I have used it yet. I typically only turn it on with the house temperature gets above 27C (80F) and then I only use it to cool down the house so I can sleep at night.

So how do you live without air conditioning? Fairly easily, but there are a few steps.

Step 1 - Plug leaks - Most people wait until fall to install weather stripping and prevent air leakage in your house. I have never understood that. I did as soon as I move in because it keep the heat in the house during winter and also keeps the cool in during the summer. Plug every little leak you can and watch your power bill drop in the summer.

Step 2 - Overnight Cooling - If you overnight low gets down to under 21C (70F) make sure you open all the windows you can in your house. If you have a basement door open that as well before you go to bed. This will create a natural draft in the house which will dump out the hot air from your top floor and bring up the cool air from your basement. I can typically get my house down to the overnight low if I open up my windows an hour before sunset and close them first thing when I wake up the next morning.

Step 3 - Manage Daytime Heating - Close all your drapes/blinds that get sunlight on them. For example I close off the north side of my house first thing in the morning since that when I get sun there. In the afternoon the south side of the house gets baked so I close those off too. Try to avoid drying laundry, using the oven and stove top to produce extra heat during the daytime. Summer is about BBQ season for a reason, you want to keep the house cool. Also try to use the microwave more if it saves turning on your stove top.

Also if you haven't switched to Compact Florescent Light bulbs I suggest doing it now. As regular bulbs are the worst in hot weather. You pay extra power to run a regular bulb which generates extra heat in your house (since 80% of the energy is converted to heat) and then you pay more money to use your air conditioning to cool off the house to get rid of the extra heat.

Step 4 - Cheap Man's Air - My last trick I use before turning on the air is just a modification of step 2. Except I use it during the day. I open up my basement door and turn on a fan at the base of the basement steps to blow cool air up. Then I go upstairs to the top floor and turn on both bathroom fans to suck out the hottest air in the house. The again creates a draft to cool the house, but this time I'm helping it along with a fan in the basement. The trick here is to avoid opening a window which could move the hotter outside air into your house (since heat tends to move from a hot area to a cool area). Powering fans is MUCH cheaper than running an air conditioner compressor. I recall reading on a website that you can run a ceiling fan for an entire month for about $3 to 5 dollars.

So best of luck to everyone as you keep cool this summer.

The CPP/EI Max Out Raise

Recently while looking at my pay stub. I realized I'm closing in on maxing out my Canada Pension Plan (CPP) and Employment Insurance (EI) contributions in the next few months. So the question becomes what I'm going to do with my increased take home pay for the last few months of the year?

I thought about saving it towards my early retirement plan, but instead I think I'm going to bank up the money for something else. I haven't decided what exactly, but it will be something for my family or myself. Perhaps some extra money for a vacation or a renovation to the home.

So why am I planning on spending this little pool of extra cash? Well first off I didn't plan for it anywhere so it is just an unexpected bonus. I was already a good little saver early this summer when I got a small bonus from work and put it directly on my RRSP account. So I think it is time to get some balance and take this little 'raise' and spend it.

After all we can't be good little savers all the time. It drives you a little crazy after a while if all you do is save. So don't ever feel bad about the occasional complete selfish moments in your life. We all have them at some point.

Back to the Grind

So after fourteen days of not working I'm heading back to the grind this morning. I wish I could say that I'm ready to go and looking forward to it, but the truth of the matter was I really liked my time off. I wish I could enter semi retirement right now.

Yet this is not going to happen. This becomes the true problem with early retirement as a goal. I am constantly wanting it even if I know that I will be working for about another sixteen years.

So how do you get over this? There is no recipe or formula that works for everyone. I suggest most people make their lives as happy as possible right now and that takes out some of the sting. Remember money is nice, but try to focus on what really makes you the most happy for the least money. Playing with your kids or sex with your spouse don't cost a cent and can often be better for your health than many other forms of relaxation.

In the end, early retirement should be just the evolution of your life rather than your sole goal of going to work each day. Otherwise you can find your retirement a lonely place with few friends and enjoyments.

Cutting Out Clutter

Like most homes I have far too many things. I have junk and clutter hiding around every closet it seems and it has been getting worse since we last moved to a bigger house almost a year ago. So for the last few days I've been on a war with my house getting rid of clutter.

The reason for this sudden change was I just got sick of all the stuff taking up my time. Then I realized it was costing me to actually keep this junk/clutter. I have to move it, clean around it, worry about it, avoid it and then pay my insurance company money to insure it while I make up my mind. All this time for clutter and junk? What have I been thinking?!?

To start we started with our closet upstairs I purged the excess clothes and then moved onto the bathroom and got rid of all of those small bottle of lotion and shampoo we seem to collect for no reason. Then I hit up my study which I have been avoiding. I finally filed the last six months of phone bills and then my wife got a much needed second file cabinet for all her daycare business files. I'm not done yet, but I already feeling about 300% better going back to work next week with a much cleaner study. I can finally stop feeling guilty every time I sit down in the room about not getting to my 'to file' pile.

So next time you start avoiding some clutter I suggest you don't avoid it and just get it over with. You will feel better and be saving yourself some time down the road and perhaps a bit of money by not having to pay someone else to clean up your junk.

Taking a Long Vacation

I'm into my second week of vacation here and I have to say I really am enjoying this second week at home. I'm not relaxing as much as my first week off, but I'm getting a ton of things done around the house and I'm not in a big rush to get in done in two days like a normal weekend.

This will result in me going back to work recharged since I had a week away from everything last week and I also get the benefit of having less to worry about at home since I clear off much of my to do list. Not to mention the house will be cleaned, the fridge will be full and the grass will be cut as I head back to work next week.

Perhaps the only drawback to a vacation at home would be the fact if you don't get away for a while it might not feel like a vacation. The upside of coarse is the home vacation is cheap. In total for two weeks off I will spend $500 on my vacation including gas, shopping and entertainment.

So next time you book time off considering taking a long period off. You might be able to sample the best of both a vacation away and at home.

When Avoiding Risk is Too Much

During my last net worth update you might of noticed I had a fair amount of cash sitting in our ING account. The reason was I was expecting some news which would have let me use that cash in a private investment. Well that information was delayed and then delayed again, so I was talking to my wife about what we should do and she suggested just investing the cash elsewhere. She made one comment that really hit home for me "What's the worst that could happen? You lose some cash, but if you make a good return in the mean time you could off set that. At least it would be making more than the 3.5% in the ING account. " I was so focused on not losing that money I lost track of the bigger picture.

So we moved around $4500 over to her investment account and picked up some more EIT.UN shares last week with a yield of 12.5%. With that current yield being 3.5 times greater than the ING account we really only need about 2 months of distributions to break even as compared to the ING account (after trading fees). After that point, it is all increased yield (also note that about 40% of the distributions will be treated as capital gains when my wife sells the shares which will be taxed less than the interest in the ING account). Also this plan provides a nice investment right now in case the other one falls apart.

I also thought about the fear of lose of capital. If I'm truly that scared of it we can always put a sell order on the shares and get out if the value drops too much. Overall risk can be managed, you just have to know your objectives and what you can tolerate and then plan accordingly. Don't let the fear of lose cause you to make bad decisions like I was doing.

I'm BACK

Ok, I'm not really back. I'm still on vacation, but I'll be putting some posts up this week.

Thanks to Frugal Trader from Million Dollar Journey for looking after my blog while I was gone. It was most appreciated!

I've just finished looking at the comments while I was gone, but if you sent me an email it might take a few days for me to get back to you.

How to Feed a Family on $300/month

On a recent post Jordan Clark asked me how I managed to feed my family of three for about $300/month including our house hold goods like garbage bags and paper towel. I thought this might be an interesting post, so I ran through my last grocery bill to see where that money goes.

First off I should explain the basics of how things work for us. We do one big grocery run at the start of the month and try to keep it around $250. Then with my wife running a daycare we get some leftovers from the business that get passed along into the house. I would estimate that gives us around an extra $50/month in ‘free’ food. Then during the month we get milk, fruit, and a hand full of other items for perhaps $50 total. So in reality we spend about $350/month on food, but I only pay for $300.

Perhaps some of the most important things we do with our food are buy in bulk where ever possible and make as many things as possible from scratch. I bake all my own muffins and cakes. I’m fairly fearless with trying new things in the kitchen and I have found you can substitute or not use many of those exotic ingredients in some recipes. For example, skip the cinder vinegar just use apple juice with a spoonful of white vinegar.

We also tend to eat lots of fresh fruit and veggies and we only buy things when they are reasonably priced (in season). So I tend to freeze some of favorites for use later in the winter (mango, blueberries, raspberries, Saskatoon berries). We also keep a small garden out back and enjoy fresh salads in the summer months and I have fresh herbs growing in the front room.

I’ve also gotten good at finding out who grows what where. For example, my one neighbor is an old lady with a huge apple tree. She can’t possible eat them all so I met her last year when she gave use two bags full of apples. My mother keeps a huge garden at the lake so I go picking there frequently and freeze beans and other veggies when they are at their peak. My sister in law’s grandma has a huge garden as well so I got two bags of berries last year from her. I also learned another friend has a huge apple tree in his yard I will go picking later this year.

I tend to them freeze what we can in our little apartment sized deep freeze and then can some items as well. For example, last year I made a huge batch of apple sauce and canned it. The kid and I ate that off and on until after Christmas.

We are also very good at watching for sales and loading up on items when they are dirt cheap. We also tend to avoid ‘name brand’ and prefab food items as they are often very over priced. We do keep some prefab items in the house, but we use those when we don’t want to cook and save the cost of eating out. For example, we always have a frozen pizza in the freezer for that once in a while feeling of I want a pizza, but don’t want to make the dough for it.

Basically I eat very well, but I just refuse to pay huge amounts of money for it, so we watch what we buy and cook at home.

Interveiw with The Money Diva

As bloggers goes the Money Diva has been a refreshing blast onto the Canadian Blog scene. She has a huge net worth, well written posts and a good sense of humor. Overall her blog is a joy to read and I was very grateful she recently took some time to let me interview her.

CD: On a recent visit to your blog I noticed a little redesign on the layout with some obvious sex appeal. So how much fun do you have being one of the few female personal finance bloggers in Canada?

MD: My new site design is meant to be sexy without taking it too seriously. I think that you have to have fun with what you're doing or there's no point. There do seem to be far more men than women in the PF blogosphere, but I rarely write from a specifically "female" perspective. I actually get very few comments that relate to my gender so I'm not sure how much people care.

CD: Good point. I have to admit once in a while I look at your net worth and feel a touch of envy. How did you manage to accumulate such a high net worth at your age?

MD: I got lucky and had good habits. I was able to keep my spending down when my income shot up, and I made a couple of good real estate purchases. I don't think that accumulating net worth is the smooth curve that the books show. Life throws good stuff at you sometimes and if you seize the opportunity then the effect can be significant. And conversely, you have to be able to manage when things don't go as planned.

CD: So are more into the idea of financial independence or early retirement? Why and when do you expect to get there?

MD: I suppose financial independence because I enjoy certain parts of working and I don't think that I want early and permanent retirement, although early mini-retirements are certainly an attractive option. I'd say that by age 45 I should be at a point where working becomes completely optional - you have the right idea there, I'd say!

CD: Thanks, I’m always glad to find people with similar goals. So far your blog has been going well, what's the most important thing you learned so far from blogging?

MD: Blogging has introduced me to a lot of people who have great intelligence and insight! My favorite part of blogging is the community.

CD: So with the community do you find it difficult to balance your business/blog/personal life like some of the other blogger have run into?

MD: Yes, balance is always difficult. Ironically when one part is going poorly another will often go well because I use it as an avoidance technique.

CD: Well that’s interesting. So to finish off what do you think the one thing people really need to do if they want to become better with their own finances?

MD: Spend less than you earn. It all starts from there....

CD: Well folks there’s another PF blogger interview for you. Thanks again MD for your time and best of luck with your blog.

Reader's Story: "What Do You Really Want?"

A while back I had the following comment by Turney left on my post about Living Below Your Means.

(LBYM)What a quaint idea! All kidding aside, my husband and I have done this all our working and non-working lives and we've been able to do all sorts of things most people only dream of. While we fully retired when we were 50, we're now 55 and we've been semi-retired since we were 40. We are very conservative investors but pay minimal tax due to those dividend paying stocks and limited withdrawals from our RRSp's. Consequently our investments are growing not decreasing. It's too bad more investment advisors don't give you the scoop on actual taxes payable with a conservative portfolio. Forget those mutual funds that have high MER's and trade stocks incessantly.

Another key to LBYM is that as Canada is one of the richest countries in the world, we can live very easily with items that have been discarded by people. Second-hand stores are abound with wonderful almost new items. And you are helping the environment. We have a lot to learn from our parents who never threw anything useful out.

It's all about making choices. What do you really want? You can't have it all but you can have many adventures. Last winter, we took a month and travelled by local bus through Mexico at for the cost of one week for two at an expensive resort. What memories!

In response to this I asked Turney to provide some more details about how they semi-retired at 40. She was kind enough to provide a wonderful story that I hope you will enjoy.

First, we paid off the mortgage on our first $28,000 house in 5 years. This was done by living on one income , mine, even though I only worked as a piano teacher at home. My husband was only taking home $150 a week at the time and the mortgage was $250 a month at 13% interest rate. We then saved for our next home for 3 years and bought a nice 2 bedroom bungalow in a small town. My husband could walk to work , so we only needed one small car and I worked at home. No babysitters for our son, either.

After buying the new house, I went to university and got a 4 year degree in 3 years and then my C.A. designation. Commuted with friends and bought very little. However, we always traveled, usually camping. Since our 40's we have taken extensive trips. I worked part time and my husband was now working part time also.

Our hobbies or interests are very inexpensive, hiking, biking and in the winter cross-country skiing.
We now travel in the winter but our 5th wheel is 30 years old and in very good shape. However, we carry kayaks, bicycles and a small motorcycle. We use solar panels so that we don't need to pay exorbitant camping fees. The total cost of a Dodge truck, 5th wheel and all our equipment is under $25,000. and we will probably be able to sell the 5th wheel for what we paid for it when we decide to sell. My husband is very capable of fixing and maintaining what we own, so we have saved a small fortune over the years. I also love cooking, so we eat out very little.

The C.A. designation has enabled me to keep our taxes low and choose the right investments for our situation. Dividend paying stock and capital gains split between us keep our income very low.
We live very well for under $30,000 a year. But don't think we have really sacrificed everything to reach this goal. We had had a lot of fun too even when we were saving.

It really means that you need to keep your expenses as low as possible. Living close to our work really helped us. Having inexpensive hobbies helped us. Travelling on the cheap helped too. Being self-sufficient was a huge help. No debt was a big factor. Waiting and saving for what we wanted was very important too.

Hope I don't sound too preachy. Good luck to you in your endeavour. I'm sure it will work out if this is what you want.

-Turney

So there you go folks a story of how anyone can really retire early. All it takes is answering one question, As Turney said, “What do you really want?”

Interview with JD Roth of Get Rich Slowly

I recently had the chance to interview J.D.Roth of the incredibly popular personal finance blog, Get Rich Slowly.

CD: Get Rich Slowly is considered one the most successful personal finance blogs out there with a staggering 24,000+ subscribers and 8000+ visitors daily. What do you think makes your blog so popular?

JD: I don't know. I've wondered this myself. I suspect that it's because I mix things up. I post some moderately technical things ("how to open an IRA"), but I also post anecdotes from my daily life. I post about bank interest rates, but I also post tips for hosting a garage sale. It also helps that I post frequently, and that I write well.

Another aspect that probably helps is that I'm willing to engage my readers: I post questions from them, I reply via e-mail, etc. I really do try to make Get Rich Slowly a site that can deal with readers' personal finance issues.

CD: Your blog often includes personal references to your own life and your own struggle with debt. Do you ever have the problem of keeping your personal life separate from your blog because of this?

JD: Interesting question. I'm not a private person. I've always been open and public. Obviously there are certain things that I'm not going to share with anything but my wife, but my personality is such that I don't mind sharing what happens in my life, even when these things are bad. I'm not going to publish my social security number are publicize my bank accounts, but I'm perfectly willing to talk about the sorts of financial choices I make.

CD: You post with an almost inhuman output (for example 10 posts in the last 5 days). Do you find that pace exhausting at times, if so how do you deal with feelings of burnout?

JD: ABSOLUTELY! It is very exhausting. This is probably the top issue I've wrestled with over the past few months. My wife and many other people I respect have suggested I cut my posting rate in half, yet my gut tells me to continue at the present pace. But continuing at the present pace is causing some degree of burnout.

When I experience fatigue, I've found it's best to just get up and do something else for a day or two, something completely unrelated to money or to personal finance. For example, one night when I was feeling burned out, I went roller-skating. It was a cathartic experience. For hours I didn't think of my writing, and when I came back the next day, I was more productive than ever.

CD: On top of the excellent blog you have also started a forum for your readers recently. Why did you start the forum and are you happy with the results so far?

JD: I started the forum for several reasons. First of all, I was sinking beneath a mass of e-mail. As you can tell from how long it took me to reply to this message, I'm buried in the stuff. I'm beginning to dig my way out, and the forum is largely responsible. When people write with questions, I can now shunt them to the forum. It's great.

Second, some of my readers were asking for more information. They wanted to talk about personal finance even more. A forum seemed like an ideal place to do this. Finally, I was hoping that the forum might generate some good story idea. So far it's worked like a charm!

CD:Your posts are always so well written and edited that I have to ask if you are considering writing a Get Rich Slowly book? If so, when would you like to have it out?

JD: Yes, I've considered a Get Rich Slowly book. I don't have any timeline for it. The real problem is deciding what to write about. There are so many personal finance how-to guides that it's difficult to separate oneself from the pack. I do actually have a couple of unique angles in mind, and I'd like to pursue them. Maybe when I cut back to part time at my day job I can begin to focus an hour a day on the book.

CD:What are you long term finance goals? If they include retirement, when do you want to retire?

JD: My single long-term financial goal is to generate enough semi-passive income that I can semi-retire. I know that's vague. What I mean is that I want to be generating enough income outside a traditional job so that I don't have to hold one down. This basically means developing my writing to a point that I'm able to live off the income it generates. When I reach that point, I can quit and stay home to write all day. This isn't the same as retirement, but it's close enough for me -- it's doing something that I love every day.

CD: Personal finance as a topic tends to have an almost unlimited amount of ways to present the same core information. Do you find it difficult to come up with new ways to examine those core principles such as living below your means and index investing?

JD: Excellent question. Yes, some days I find it difficult to find new information to present, or difficult to present the old information in a new way. On other days, though, I think that I'll never run out of things to write about.

CD: Do you have any goals for the Get Rich Slowly blog?

JD: I do. My aim is to have 100,000 subscribers and 1,000,000 monthly visitors by the end of 2009. Those are lofty goals, I know. But they're also really ancillary to my primary aim. Mostly I just want to write about money in a way that helps others. I had a hell of a time with my finances over the past decade, and if there's anything I can do to help others avoid the same sorts of trauma, that pleases me. My real goal is to be of service to others.

Oh yeah -- as I mentioned, I would love to be able to make my living from my blogs, whether just GRS or all of them combined. I'm on my way there, but still have a ways to go.

CD: Well thanks for your time JD. It’s been a pleasure chatting with you.

Million Dollar Journey is Taking Over the Blog World!

Catchy title hey? Canadian Dream gave me, Frugal Trader of Million Dollar Journey, the honor of taking care of his popular blog during the week that he's away. I've been following Mr. Dream's blog ever since it started and I must admit that I'm a big fan. What's not to like? Early retirement is a popular topic as most people in the working world want to leave the rat race well before they are eligible for old age security (65). With Canadian Dream being in his late 20's with a current net worth of around $200,000, there is no doubt that he will reach his goals. Especially if you're as stingy frugal as him (hope he doesn't read this).

We have a great week of articles lined up, among them include interviews with popular personal finance blogs and other personal finance ramblings. If you have any questions, leave them in the comments, or you can contact me directly by visiting my blog.

Frugal Trader
MillionDollarJourney.com

Net Worth - June Update

How the time flies, it seems that I just did my last update. Anyway here we go.

Assets
House $294,400
RRSP $12,800
Old Work Pension $11,700
New Work Pension $1300
Wife's RRSP $5500
Wife's Investment Account $5000
ING Savings Account $6800

Debt
Mortgage $147,500
Line of Credit $0

Therefore my net worth now stands at: $190,000. Overall an increase of +$58,500 or 44.5% from my last check up.

Before anyone gets too excited I do need to remind you my house value has shot up a lot in the last four months which is driving these insane increases. I decided to use my home value as market value -8% to account for closing costs and fees if I cashed it out. That way I've got a set formula I use to determine my house value rather than just taking a conservative guess.

For those of you who may be doubting my local crazy house market I would like to point out that I know someone whom just sold their home for an over $100,000 profit after owing the house for just seven months and trust me when I say they just painted it, added some hardwood and put in a new furnace. That's it, that all they did. Talk about lucky timing that they previously bought an investment condo at the same time as the house and can move into that.

The result of all this is I'm 2.3 times my net worth from Dec 2006, which is almost completely driven my house value. If you strip out the house, I'm only up $3200 or 8% from April's net worth to now.

Overall the number looks good. I have to admit I'm curious to see how far this housing market will shoot up before crashing down. Could I end up living in a $500,000 house by the end of three years? If so it will be interesting, but in the mean time I'll just enjoy the ride.

Upcoming Vacation and Idea

Well folks, sorry for not having your regular wandering reading post this week. I've been very busy lately as I'm trying to clean things up so I can head out on my vacation for the next two weeks starting on this Sat.

The good news is I got someone to look after this blog next week while I'm gone. Frugal Trader from Million Dollar Journey has agreed to look after things. I'm putting together several posts so next week you will have interviews from J.D. Roth of Get Rich Slowly and the Money Diva from A Canadian and Her Money plus what ever else FT wants to use out of my list of draft posts. If you ask nicely he might even write a guest post for you all.

The week after next, I'll be around somewhat. So that week the posts may be a bit erratic as I'm planning on doing some renovations around the house.

Now that you are all informed about my vacation plans, I've got an idea I want to run pass you my loyal readers. I've been approached to be part of a group blog on personal finance, since this is only in the idea stage, I'm not going to name with whom. Yet if I joined the group blog I would likely stop posting here and merge this blog into the group one. The idea would be to provide great posts from several writers on a wide world of personal finance all on one blog. You would still get posts daily, but I would likely drop back to just three posts a week. So what I would like from you is your opinions on the idea. Do you love it, hate it, or don't care as long as I don't stop writing somewhere? Thanks in advance for your feedback.

Communication Before Retirement

If your married you know that some days despite your best intentions you just forget to mention something to your spouse once in a while. Typically in my case, it is a fairly minor issue. My wife found me an interesting article while I was gone along those lines. It was about how well couples communicate about their retirement plans or their lack there of.

In a survey done with over 500 married couples with at least one spouse just about ready to retire they were both asked the same questions and it was found each spouse often had different ideas about some fairly basic issues around retirement (For your reference the average age of those surveyed was 53 to 54 and they on average were married for24 years).

For example, more than 1/3 of those couples did not know when the other wanted to retire. They also found more than 2/5 of couples give different answers on weather one spouse will continue to work in retirement. Also more than 1/3 expected a different standard of living in retirement.

In my mind this is just shameful. If your married you have to discuss your retirement dreams with your spouse. I know I do discuss it with mine, but she is still skeptical if we can retire by my 45th birthday. That's fine. As long as she know what I would like to do in a general sense and understands the standard of living that we are going to have in retirement.

A good example of this communication was my wife let me know not to long ago that she wanted to travel more in retirement. I was fine with this, but I wanted to know how much traveling she wanted to do. So after discussion we came up with the idea of the travel slush fund. She would earn a bit more with her daycare and we would put the money away and it would be our slush fund for travel. Overall it will be enough to give us some great trips, at the same time there is a finite amount set aside, so I know it won't mess up the rest of my retirement calculations.

So if you haven't yet. I suggest you sit down with your spouse and talk about your retirement dreams. You might find out a few surprising facts.

How I Bought a New Laptop for $140

Recently I had to spend some time out east away from my family. I wasn't too happy about the deal, but it did have one interesting fact to it. I got paid a flat rate for my food expenses of $50/day while I was gone.

This provided an interesting opportunity for me. How much could I save from that daily money to make a little extra profit on the deal? So after moving to a hotel room with a little fridge and microwave and finding out the hotel offered a free breakfast. I found a grocery store and bought some items for making lunches and a few frozen dinners for a couple of suppers. I ate very well overall and even got a few beer for my fridge. I even managed to walk a lot and lose a couple of pounds while I was at it.

Just before leaving on this trip I decided to get a new laptop to assume myself with in the evenings. Hence the reason you had blog post for the last three weeks. I bought a floor model which had a tiny damage in the case. So I got a nice system with a wide screen for just $800, which included taxes and a two year extended warranty.

So after saving my butt off for three weeks on food. I managed to save $660 so after that my new laptop cost my just $140 of my money. I still didn't like being away from my family that long, but at least I got a great deal on a new laptop out of it.

Living in a Hot Housing Market

Recently I ran into my real estate agent who sold me my house last July. I like the man because he is honest and to the point. He doesn't pull your chain or embellish the situation into something it isn't. So with all this in mind, he is one of the few people I feel that can honestly tell me what my house is worth. He told me and I had a hard time standing up.

According to him, and assuming I haven't done much to the house. I could list and expect the sell my house for at least $320,000 in the current market. Which would mean if I sold and cash out of this market I could, after all the fees, make $100,000 profit on my house or a 250% gain on my initial investment in just under one year.

I was excited about this information for exactly 30 seconds. I justed wanted to enjoy that feeling, but I know that in reality that information means nothing. I don't want to sell my house and even if I did I would have to buy back into the same market meaning I would not make much if any profit, since the profit on the first house would just go into the second one.

So my suggestion to anyone who lives in a hot market is to ignore it as much as possible unless you are selling and moving to another cheaper market. Yet for those who like to speculate in real estate a hot market does provide an interesting option to flip a house. If your even entertaining this idea, I will warn you. It is not an investment, so don't think of it that way. You are just gambling with a house.

PS: Sorry for no post last Friday. I was tied up with the family.

Wander Reading #5

Recently I had a post about vague retirement studies and I asked for someone to provide a link to a recent one if they find it. Well one reader,Richard Cleaver, was very kind and here is that study. I only got to page three before rolling my eyes. They keep their wording very vague through the report and then don't provide any backup data in an appendix to show how they arrived at the numbers. In my line of work if you presented a report like this you would be fired by the client.

Yet here are a few links around this study from other blogs, in case you missed them.

Canadian Capitalist provides two posts on this study. See #1 and #2.

Canadian Financial Stuff adds his thoughts on it all here.

Last, but not least, Canadian Financial DIY, weighs in with his thoughts.

If I missed anyone else, please leave a link in the comments. Also a reminder that tomorrow's post will be up very late in the day as I'm traveling for most of the day.

Ok I'm Ready to Retire, Now What?

If your one of those people getting very close to your retirement date, you are very lucky and perhaps a bit over whelmed by it all. After all, how does one actually retire? Well before you hand in your notice to your boss. I suggest a few things you need to get in line.


Make use of any health benefits you have currently, because you won't have them in retirement. So see your dentist and get everything that needs to be done. Then your optometrist and also make sure you get a full physical with your family doctor before leaving work. Also talk to your doctor about getting a longer perception if you take something regularly. You basically want to max out every benefit you can before leaving.


Apply for any lines of credit, credit cards or any other type of credit you might need for the next twenty years as your income is going to drop and that doesn't look good when applying for new credit.


If your old enough to get Canada Pension Plan and/or Old Age Security you want to apply about six months or more before you want that first cheque.


Start planning your time in retirement. What hobbies are you going to do? Are you planning on some work in retirement? If so, doing what and where? Ask yourself a lot of questions.


Avoid handing in your retirement notice early. You might be cutting yourself out of a nice early retirement package or other buyout if it comes up before you leave.


Once you have given notice make sure all your company paperwork is up to date, especially understand what you can do with your pension money. Also if you have any stock options, make sure you understand what happens to them before you leave.


Last but not least, make sure you know where all your money is and you might want to consider adjusting your portfolio to a much more conservative setup focused on protecting your capital. After all once your out of work you don't want a stock market correction to wipe out half of your retirement funds.


You might also want to consider getting any expensive home maintenance issues dealt with before you stop working. The last thing you need to start a retirement, is a renovation job that goes way over budget.


Well that's my list. If you have something to add please share.

Extented Leave from Family

During the last few weeks I've recently got my first idea of what an extended leave from my family feels like. I have to admit I'm not crazy about it so far.

To give you all some background I have travelled a lot with my various jobs before this, but never for this long of a period. I'm going to be just shy of three weeks when I get onto a plane later this week (by the way, this is your fair warning that Friday's post will be up very late). Being away has never bothered me that much before until this time. Why? I have to admit I think it has to do with the kid.

Before leaving my wife was difficult, but I knew she could handle it. Now she has been stuck playing single parent for the last few weeks and I feel guilty leaving her to handle all of that. Also I find after being home for a long period of time that the being away is hard for me as well. Overall it just isn't worth the lose of my personal time being away this long.

So in light of all this I've been laying some ground work with the bosses and the IT people about doing remote projects. As of right now almost everything I have done down here that needed to be done in person could have been done in a week. After that they could have saved a small fortune and shipped me home early and worked out of my Regina office. Phone calls, email, internet and scanning documents could have easily covered the rest. I guess the big issue about this is getting people used to the idea of remote working. I'll keep you all posted on how I do with getting them to accept the idea.

Over Insurance on Record Keeping

At what point is keeping a record of something holding you back? Is it really useful to keep your bank statements for the last seven years? If so what for? Are we getting too much insurance for ourselves with our paperwork which will likely never use again. Ever.

I thought of those questions a while ago and I've started a program to reduce the amount of paperwork in my house that requires me to do anything. First most of my bills now come automatically out of my account. Then I signed up for electronic bank account statements and Visa bill statements.

So far I would estimate I have eliminated about 1/3 of the paperwork I used to deal with at home. The more interesting fact is I have yet to need one single piece of paper that I am no longer keeping a hard copy of.

Now I've been thinking of taking it to the next level and stop keeping Visa slips and bank slips for longer than one month. One month should give me enough time to check that the slip in question did show up in the account. After that they will be shredded and tossed out. The only exception to this rule will be any slip that could be used in taxes. Those slips will stay on file regardless until seven years have passed.

I aware I might run into a situation where I would wish I did not get rid of some of this paperwork, but in the end I feel the risk is well worth getting my time back.

Once this phase is done I'm not sure what is left to reduce. Does any one have any ideas on how to further reduce paperwork at home? If so please share.

Retirement Studies Are Smoke and Mirrors

I recently saw this article in The Star and I have to admit it made me laugh. It claims that 2/3 of Canadians who want to retire by 2030 are not saving enough money.

Basically the article is a rewording of the official press release (see here). They mention all this information they went through and all their hard work, yet they don't provide one single number of useful data in the press release other the headline. What do you assume for inflation? What are 'basic household expenses'? Out of this 72 profiles what factors did you take into account? Where did you assume they are living?

In the end this news article is not very useful other that getting people frightened and trying to get them to save more. They just don't provide enough information in a press release to tell if the report is useful or just full of holes in their logic. What really makes me mad is they never include a link to the actual report so I can read it myself and determine if it is useful.

Have a good weekend,
CD

Wander Reading #4

I have to say I've been ignoring the online media a bit lately since I've been busy with other items, so I don't have any fantastic obscure articles for you this week. Yet I did enjoy a few blog posts this last week.

Financial Jungle has an interesting post on if money can buy happiness.


Four Pillars looks at the emerging markets and finds they are not some attractive.


Money Diva looks at seven ways to dummy proof your auto payments (some good ideas).


Canadian Money write a response post to my recent post on the latest market dip.

Regardless if you didn't like The Four Hour Workweek book, Tim Ferris is now teamed up with google Adwords to provide a $25 free trial to any one who has read the book. Heck I'm likely to check it out to just see about some free advertising.

How Not to Go Broke After Having Children

Well my fellow blogger, Middle Class Millionaire recently became a parent. So I thought I would share some things I've learned about raising kids and money so far.

Kids accept anything they grow up with as normal. This is your key to raising a happy child without going broke. For example, my kid mostly wears clothes from Walmart. Why? I don't need high quality when the out grows it before wearing it out. So why spend the money, unless your wife is having a 'It is SO CUTE' moment and the item is on sale at the Please Mum store.

The fancy looking crib is really for yourself and not your kid. Otherwise you would just accept the fact it doesn't have to look good to any but you 95% of the time for only a few years. Try to find one that converts to a toddler bed so you can really get some use out of it.

A cradle is a waste of money for most people. The kid doesn't need to be in there in the first place. A few rolled up towels gives the same effect in the crib. Also the change table is a complete waste of money, because if you were really worried about their safety you would just change them on the floor on mat. You can also skip the baby tub, since a foam mat in the bottom of your regular tub works just as well for under $5.

Cloth diapers are WAY cheaper in the long run, so try to switch when you can. Bottle baby food is useful for the first try at anything, then wash the jars and get a blender and make your own.

If you want a cute custom receiving blanket, go to your fabric shop and buy 1 square meter (1 square yard) of fabric and hem the edges. My wife got a set of these from a friend and loved the extra big size.

One thing to really put some money into is a good chair in the kid’s room for the first while (if your really smart you might be able to just borrow one from elsewhere in the house). You will be in there a lot until the kid is sleeping through the night, so make sure you can get comfortable.

Other than that, buy a digital camera, as then you can take a few hundred pictures and just print what you need rather than everything.

One last thing, remember that your kid is more important than anything in the world to you, so get some life insurance for both of you and make sure you get the kid a SIN number ASAP so you can open a RESP account right away.

The Sky is What?

My wife complains that I’m too sound of a sleeper. I can sleep through any short of a nuclear explosion, with the exception of my kid crying for more than five seconds. Don’t ask why I wake up for my kid, because I don’t know other than perhaps some sort of primitive look after offspring instinct that lay buried in me until I had a kid. Anyways, apparently I can also sleep through a minor market correction. I didn’t realize the TSX had three bad days of trading recently until the Moneygardener mentioned it in his blog which I finally read last night.

My selective ignorance plan is working very well. Case in point. Look at a one month chart for the TSX.

Ok, a fairly big shift, then change to the five year view. Can you even see the correction at this level?

Yes, but looking back there has been a hell of a lot worse. Therefore, it is nothing to worry about.

When the sky is falling burying your head a little under the sand will keep you happily asleep until the big parts start falling in and wake you up so you can truly decide if it is important to deal with.

The Enemy Within

Despite my best intentions I find my mind wondering at times if I should be doing something different with my investments. Perhaps it is the engineer in me that constantly wants to improve things or perhaps it is all the personal finance blogs and books I read that give me ideas.

Regardless of the source one of the single biggest enemies to your portfolio doing well is yourself. If investing was completely a numbers game it would be easy to do, but instead we have a market place where real people react to things with their emotions and that drives all the dips and peaks in the market on the day to day basis. Over the longer term there is a certain reward for companies that do well as value investors deem them worthy of their price.

So how do you keep on track and not fall victim to changing your investment plan constantly? You have two main options for defense: ignorance and keeping yourself busy.

Creating a selective ignorance around the financial market is actually a very good idea. You don't really need to know everything that each company you own is doing every second of every day. So if you can limit yourself to checking out news only once a week you will find yourself with more time to do other things and you will sleep better not knowing every little thing about the market that just happened. Perhaps the only exception to this approach is if you are watching a stock for a specific buying opportunity, otherwise you really don't need to check your portfolio's performance on a daily basis.

The second method of defeating yourself consists of keeping yourself busy with other things. Some people find if they drive that restlessness towards something else it tends to go away. So when your mind if wandering try filing your papers or checking your bank to see if you can lower your fees or even spend some more time with the family.
In the end, you have to be honest with yourself and find what works for you. Each person is a bit different, so if you've got another idea I didn't touch on please share with a comment.

Book Review: The Four Hour Workweek

With a title like The Four Hour Workweek, author Timothy Ferriss has hit an interesting new point for a book. Essentially Tim combined time management with economics and a slash of small business sense and a pitch of retirement to create a very entertaining read.

First Tim shows us his currently lifestyle, he spends less than four hours a week running his business which uses about 200 to 200 people to run with very little input from him. Basically Tim is the owner, but not the manager of his own business. He delegates everything so that he can have the maximum amount of time to chase his own dreams.

Overall this is a hard book to summarize since there is so much different material that he covers, but I'll try to hit the high points for you. Tim is using the 80/20 rule, where 80% of your results come from 20% of your effort. First he applied it to his business and then every other part of his life. Basically he did a huge edit to his life of what was working and starting gutting the rest, he calls this lifestyle design.

For example, Tim suggests that we are all over consuming information. We swim in it everyday and it's eating our time up slowly but surely. He suggests that to really free up your time, you stop reading all that extra material you don't really need in a day. For example, Tim doesn't read a newspaper or online news. Why? It is really important someone will talk to him about so he can get the 20 second summary rather than lose 30 minutes to a news show.

Then Tim outsourced his own life to India and other locations to virtual assistants to ensure he is only working on the stuff that adds the most to his life. Everything else is outsourced from paying bills to booking a hotel room. All for the low price of $5 to $20/hour depending on where you hire your assistant and how skilled they are. Overall it isn't a bad idea. For example I could outsource my editing of this blog to someone else since I know I suck at it and make my reader's more happy.

One other item I particularly liked was the idea of the mini-retirement. If you can manage to outsource most of you life, then you can manage to stop dealing with it for a month fairly easily, this basically allows you then to move to a city of your choice worldwide for a month and rent an apartment for the same cost of a hotel for a week or two. If you can manage to give up or rent your current place during this time you end up actually living on less elsewhere than you would at home, so you end up saving money and having a great time.

Overall this was a fun book, I may not take everything Tim suggested to heart, but it did make me think a bit about my our life and where I want it to be going.

Have a good weekend,
CD

Work to Live, Not Live to Work

Perhaps it is just me or have you noticed the vast majority of people have appeared to lost their minds around their jobs and their personal lives. We book every second of every day with things to do and people seem to forget how to sit down and relax.

Currently I’m out east and I was discussing some of my co-workers with one of local people in the office. I heard the story of the older gentleman with a nice office on the top floor. Basically he lives to work, he works on the weekend and late during the week. When he isn’t at the office he is constantly on his crackberry checking email. If you asked what he did outside of work he would give you a blank stare. My co-worker just commented how we would likely find the man dead at his desk one day. That is a sad life. Would anyone even mourn him longer than a second or two? Would his tombstone say, "Here lies X, he was a good worker"?

I prefer things a bit different. I don’t do overtime unless it is a make or break project that has to be done and then I only do the minimum required. I believe that being a dad is the greatest gift and challenge in my life and I won’t let anyone do that job for me. I believe the dishes can wait and the bed can be unmade if I get more time to play with my wife and kid. I believe the happiness moments in my life didn’t involve any money. I believe to truly make a difference in the worls I need to do more than write a cheque to a charity. I believe that people should stop talking and start listening to each other. I believe that people are more important that things. I believe that everyone should spend at least five minutes of each day in complete silence doing nothing. I believe in living over working.

What do you believe?

Book Review: Juggling Dynamite

In a sea of personal finance books it is nice to see something a bit different once in a while and I was nicely surprised when I was recently sent a copy of a new one called Juggling Dynamite by Danielle Park.

Danielle first breaks us of our concept of risk. She lays out how many of us are juggling dynamite and we don’t know it. We talk of risk tolerance, but unless you have lived through a major market down turn it is really hard to know how you will react. The plan seems good when the good times are rolling along, but the drop off is very painful and many people can’t follow through with the buy and hold method. Actually the drop off is typically so painful that she suggests a bit of different idea, we should time the market a bit.

Let me first put of the truce flag. She is not suggesting any as silly as day trading, but rather timing the market to the larger cycle that occurs approximately every five years. When the world is hitting record highs everyday and people are getting leveraged in to get even more gains, it is logically good idea to pull back to cash holdings and wait for the drop. Once the drop has occurred, you go in and pickup some of bargains. So how do we know when you hit the top or the bottom? You don’t. You just accept your choice and realize it is always better to sell a bit early and buy in a bit late. You make less, but you still make money. The trick of coarse is having a strong enough conviction to wait years in some cases for the market to drop back down.

To make our choices easier she suggests sticking to Exchange Traded Funds (EFT) and index funds to provide easy access to sectors and geography of the world markets without getting pulled into the game of picking individual stocks which is a losing game for most of us mortals.

Last but not least she provides a rare glimpse into the mind set of someone like myself who realizes true wealth is not your balance sheet, but rather the ability to have the freedom to do what is right for you regardless of what others think.

Overall the book was well written with some interesting insights into how investors think. I would suggest you pick up a copy if nothing else to see her interesting ideas on market timing. For more information check out her blog and the publisher's website.