Well Canadian Money Blogs Reviewer asked me a question over at Million Dollar Journey and when I didn't get back fast enough I got the same question here.
Q: I'd really like to retire by 45 too :-) What would you say are the main strategies to use to get there? How much money will you need by then? Is your strategy also to live on dividend paying stocks?
A: First off if you want an idea of how much money I think I need to retire at 45 please go back and read my Retirement Calculation posts (Part I, Part II, Part III and Assumptions). I'll update those calculations after I get my tax return back, but for now you will get a good idea of what I'm planning. From those calculations you might be able to tell that I'm not planning on living off of just dividend paying stocks like Dereck Foster. I plan to have some blue chip dividend income, but also at least one REIT and some fixed income investments within an RRSP. I'm still working out the exact mix of investments as I go along.
My main strategies are fairly typically of most people looking for early retirement. I always live below my means (ie: live off of $30K even if you earn $60K), never pay any attention to trying to keep up with the Jonses and never pay attention to what anyone thinks about me for the most part.
I also avoid debt like it is a plague. I paid off my wife and mine student loans ($60,000) as fast as possible and then got saving for a house down payment and the car buyout on our lease. Now I'm 28 and the only debt I have is my mortgage which I'm going to accelerate paying down to hopefully get rid of it within the next ten years.
Perhaps the most useful strategy that I have is I hate wasting money on things I don't care about. Reading my saving money posts (Part I, Part II and Part III) you may notice that I don't like to pay more for my utilities. Also I don't pay full price retail on anything unless I have too. Most of my books I buy at sales (By the way I just found out my library sells old books they no longer need for $0.50 for a paper back!). I have no problem buying a nice shirt from Walmart if I like it and its on clearance for $5. I always check out the clearance section of any store I go into to see if there is anything I could use/like (For example, my wife got a piece of her china pattern that retails for $30 for $3.)
This isn't to say that I'm cheap. I also own a 32 inch wide screen LCD TV with surround sound. My wife owns some very nice china and crystal glasses. I also sleep in 400 thread count sheets during the summer. I just know what brings me the most happiness for my dollar. If you can master that, then everything else will fall into place fairly easily.
Wednesday, February 14, 2007
Tuesday, February 13, 2007
Book Review: The Naked Investor
I recently finished a book that chilled me to my bones with some of its stories. The Naked Investor by John Lawrence Reynolds has the subtitle 'Why Almost Everyone But You Gets Rich on Your RRSP.' It's a good description for the book.
The book starts with a near near miss by the author with a financial advisor whom could have wiped out half of his RRSP's savings with his proposed investment plan. The incident got the author thinking and it produced a scary look at the investment industry in Canada. The book tells several tales of advisers investing in completely inappropriate funds for clients to line their own pockets. The real scary part is when the clients try to get some money back when their instructions were ignored or out right fraud took place.
Often they never see a dime or they end up with a tiny portion of their money back and a gag order with the settlement agreement. But that's only for the investors who take the time to chase justice through a labyrinth of self regulated agencies and slow acting government regulators who make a sloth look like a sprinter. We are talking about a decade in some cases for a retired person to get any results.
I have to admit I always was a bit nervous around financial advisers for some reason I could never explain. This book has firmly changed the nervous feeling to out right paranoia about some things, but to be fair the author does point out there are some good financial advisers that are out there. They are just hard to find.
Perhaps the only draw back to this book is a lack of advice on what to do about the problem. The author repeatedly mentions the industry should go to a fee based structure rather than commissions, but offer no pratical advice on solving the issue. The only useful advice the author does provide is some general RRSP tips of buying index funds.
Overall I thought it was good read, but I would suggest you borrow a copy from your libaray rather than buying the book. The book lacks the content that would make it a useful reference.
The book starts with a near near miss by the author with a financial advisor whom could have wiped out half of his RRSP's savings with his proposed investment plan. The incident got the author thinking and it produced a scary look at the investment industry in Canada. The book tells several tales of advisers investing in completely inappropriate funds for clients to line their own pockets. The real scary part is when the clients try to get some money back when their instructions were ignored or out right fraud took place.
Often they never see a dime or they end up with a tiny portion of their money back and a gag order with the settlement agreement. But that's only for the investors who take the time to chase justice through a labyrinth of self regulated agencies and slow acting government regulators who make a sloth look like a sprinter. We are talking about a decade in some cases for a retired person to get any results.
I have to admit I always was a bit nervous around financial advisers for some reason I could never explain. This book has firmly changed the nervous feeling to out right paranoia about some things, but to be fair the author does point out there are some good financial advisers that are out there. They are just hard to find.
Perhaps the only draw back to this book is a lack of advice on what to do about the problem. The author repeatedly mentions the industry should go to a fee based structure rather than commissions, but offer no pratical advice on solving the issue. The only useful advice the author does provide is some general RRSP tips of buying index funds.
Overall I thought it was good read, but I would suggest you borrow a copy from your libaray rather than buying the book. The book lacks the content that would make it a useful reference.
Monday, February 12, 2007
Should I Go to Work When I'm Sick
During the later part of last week I started to feel a bit sick. Nothing too bad so I continued to go to work. Now I'm looking down at a Monday with several meetings and wondering if I should call in sick.
I remembered an article on this recently in the news and I dug up a copy (see here). What really got my attention is than half of all people believe they got a bug from their office. So why do we go to work when we know we are not well? In a nutshell, we feel guilty to let down our 'team.' My question are you really letting anyone down when you infect everyone else and cause even more production loss for the office as a whole?
So today I think I'm going to try and break a trend and call in sick.
I remembered an article on this recently in the news and I dug up a copy (see here). What really got my attention is than half of all people believe they got a bug from their office. So why do we go to work when we know we are not well? In a nutshell, we feel guilty to let down our 'team.' My question are you really letting anyone down when you infect everyone else and cause even more production loss for the office as a whole?
So today I think I'm going to try and break a trend and call in sick.
Friday, February 09, 2007
How to Blog as a Business
As I stated early, once of my goals for 2007 was to investigate other streams of income. I have to admit I wasn't really thinking about this blog at the time, but a recent comment from Larry McDonald got me thinking about it a bit more seriously. How would you set up a blog as a business?
First off I would suggest a sole proprietorship as the business structure in your own name. That way you don't have to register the business name (check you local provincial law to make sure this is correct), but your personal assets are up for grabs if you ever get sued. I personally don't think this is likely in blogging as long as you cover yourself well by not making recommendations. A suggestion or what you personally do are one thing, but a recommendation is an invitation to be sued.
Then make sure you have a separate bank account that you pass all the blogging money through. Next keep your accounting records. When you deposit a cheque from Adsense you must log it in your general ledger. As when you have an real business expense, you deduct it out of your general ledger.
Read the fine print on your friendly neighbourhood taxman's webpage on which home related costs you can deduct. This is typically includes mortgage interest, power, water, and insurance but not your phone in Canada (unless its a dedicated line for the business). This is based on the usage of the room so again make sure to do your reading over at taxman's webpage to calculate the deduction correctly. Personally I can estimate since I know what my wife deducts for the daycare in the house. I could realistically write off about $10/month based on the amount of time on average I spend blogging. So basically I have to average over $10/month Adsense revenue to make setting up the blog as a small business pay off.
So why do all this work? Let's for example say I managed to earn $15/month and I can deduct $10/month. That means instead of being my full marginal tax rate for the extra $180/year of income I would only be taxed on $60 of it, so at my marginal tax rate (35%) I would save $42 in tax. So unless you earn a lot of money from blogging and spend a lot of time doing it, it may not pay for you to setup your blog as a business.
Have a good weekend,
CD
First off I would suggest a sole proprietorship as the business structure in your own name. That way you don't have to register the business name (check you local provincial law to make sure this is correct), but your personal assets are up for grabs if you ever get sued. I personally don't think this is likely in blogging as long as you cover yourself well by not making recommendations. A suggestion or what you personally do are one thing, but a recommendation is an invitation to be sued.
Then make sure you have a separate bank account that you pass all the blogging money through. Next keep your accounting records. When you deposit a cheque from Adsense you must log it in your general ledger. As when you have an real business expense, you deduct it out of your general ledger.
Read the fine print on your friendly neighbourhood taxman's webpage on which home related costs you can deduct. This is typically includes mortgage interest, power, water, and insurance but not your phone in Canada (unless its a dedicated line for the business). This is based on the usage of the room so again make sure to do your reading over at taxman's webpage to calculate the deduction correctly. Personally I can estimate since I know what my wife deducts for the daycare in the house. I could realistically write off about $10/month based on the amount of time on average I spend blogging. So basically I have to average over $10/month Adsense revenue to make setting up the blog as a small business pay off.
So why do all this work? Let's for example say I managed to earn $15/month and I can deduct $10/month. That means instead of being my full marginal tax rate for the extra $180/year of income I would only be taxed on $60 of it, so at my marginal tax rate (35%) I would save $42 in tax. So unless you earn a lot of money from blogging and spend a lot of time doing it, it may not pay for you to setup your blog as a business.
Have a good weekend,
CD
Thursday, February 08, 2007
Sometimes You Have to Suck It Up and Take The Hit
Well yesterday after long consideration and discussion with my spouse we took a loss and sold the losing income trust from her account. The stock, HTE.UN, was drowning in debt and giving out huge dividends that I don't see being sustainable even in the near future.
So if was time to admit to ourselves, we messed up and it was time to suck it up and take the loss. In order to have some exit strategy, we collected enough dividends to cover the selling and buying fees and then watched the market. As the stock was heading up this week, we thought a sell price of $26.50 would be fair. Enough cash to cover some of the loss, but not so high as to be unreasonable.
Much to my surprise the trading day yesterday drove it up past our sell price by $0.09 and it was sold. Then I watched the price drop down to $26.30 and that was when I starting to feel a familiar feeling. It was the feeling of predicting anything and being right. Yes folks, it was pride. As soon as I realized that I gave myself a little hit upside the head. Idiot, you got lucky and we still lost around $500.
That ends the lesson for the day. I can not predict the stock market and even with your best intentions sometimes things go very wrong. So be smart and know when to take a hit.
So if was time to admit to ourselves, we messed up and it was time to suck it up and take the loss. In order to have some exit strategy, we collected enough dividends to cover the selling and buying fees and then watched the market. As the stock was heading up this week, we thought a sell price of $26.50 would be fair. Enough cash to cover some of the loss, but not so high as to be unreasonable.
Much to my surprise the trading day yesterday drove it up past our sell price by $0.09 and it was sold. Then I watched the price drop down to $26.30 and that was when I starting to feel a familiar feeling. It was the feeling of predicting anything and being right. Yes folks, it was pride. As soon as I realized that I gave myself a little hit upside the head. Idiot, you got lucky and we still lost around $500.
That ends the lesson for the day. I can not predict the stock market and even with your best intentions sometimes things go very wrong. So be smart and know when to take a hit.
Wednesday, February 07, 2007
Tax Time in Canada
Most likely by now you have your paper work for your taxes or your access code if you e-file, so it is time to think about doing your paperwork for your taxes. I was thinking about mine and I thought perhaps I should share a few ideas on dropping that tax load.
1) Know your deductions that you could claim. Some of the often overlooked ones are:
- moving expenses if you move to a new job more than 40 km
- medical expenses which can be claimed in the name of the lower income earner of your household
- keeping taxable investments in the lower income earners name (see a few great articles on the types of investment income over at Million Dollar Journey - Part I, Part II)
-if you live in anywhere fairly far north check if you can claim northern living allowance (they have two zones which qualify, and you would be surprised how far south it goes)
-Using Spousal RRSP's to get the biggest tax break possible if you and your spouse are in different tax brackets
-donations to a political party offer a better break than a charity
2) Consider doing the bookkeeping on anything you do to earn money beyond your day job. If you claim it as a small business ( sole proprietorship) you can write off reasonable expenses from the income you earned and don't have to register the business (check you local Provincial law to make sure). This takes a bit of setup work, but can often be a big saver if you do the work up front.
3) Learn which tax credits can be transferred between you and your spouse and run both sets of numbers to ensure the biggest return.
4) Pay attention to those Federal/Provincial budgets and find out which tax breaks start in the current tax year if your not sure check out taxtips.ca(they often update everything at least once a month).
That's just a few simple tips. If you have your own favorite, please share with a comment.
1) Know your deductions that you could claim. Some of the often overlooked ones are:
- moving expenses if you move to a new job more than 40 km
- medical expenses which can be claimed in the name of the lower income earner of your household
- keeping taxable investments in the lower income earners name (see a few great articles on the types of investment income over at Million Dollar Journey - Part I, Part II)
-if you live in anywhere fairly far north check if you can claim northern living allowance (they have two zones which qualify, and you would be surprised how far south it goes)
-Using Spousal RRSP's to get the biggest tax break possible if you and your spouse are in different tax brackets
-donations to a political party offer a better break than a charity
2) Consider doing the bookkeeping on anything you do to earn money beyond your day job. If you claim it as a small business ( sole proprietorship) you can write off reasonable expenses from the income you earned and don't have to register the business (check you local Provincial law to make sure). This takes a bit of setup work, but can often be a big saver if you do the work up front.
3) Learn which tax credits can be transferred between you and your spouse and run both sets of numbers to ensure the biggest return.
4) Pay attention to those Federal/Provincial budgets and find out which tax breaks start in the current tax year if your not sure check out taxtips.ca(they often update everything at least once a month).
That's just a few simple tips. If you have your own favorite, please share with a comment.
Tuesday, February 06, 2007
Now You're in Trouble
Have I mentioned before how much I love the RRSP season (Janurary to March)? I really do love all the ads/articles that show up during this time and the message they are trying to get across.
This year you might have noticed that your seeing something new in the ads. Fear is now being used to sell investment products. My personal favorite right now is the one with the old man flipping burgers with the tag line of 'Your first job shouldn't be the same as your last.' Please do I look like an idiot? Just because you can work past age 65 now doesn't mean that people are desperate enough to take a burger flipping job, when they have way more marketable skill sets to offer. Trust me when I say you likely have a better chance of getting struck by lighting than ending up there as long as you pay off your debts and have some savings built up.
Here's another great article, which gives investors praise for putting money in, but then gives them crap for not having an investment plan. I personally like to point out I even get confused with all the products out there and I read a lot on investments. If you stick a two year old in front of a table full of food they go for the first thing that they like. Investing tends to be the same. You don't have time to read about every product out there, but if you hear about one you might do some reading on it.
So if your confused by it all, don't worry. Take a deep breath and remind yourself "I am not a sheep, I can think for myself and I'm going to retire before the idiot who came up with that ad or article."
This post is now part of the 88th Carnival of Personal Finance.
This year you might have noticed that your seeing something new in the ads. Fear is now being used to sell investment products. My personal favorite right now is the one with the old man flipping burgers with the tag line of 'Your first job shouldn't be the same as your last.' Please do I look like an idiot? Just because you can work past age 65 now doesn't mean that people are desperate enough to take a burger flipping job, when they have way more marketable skill sets to offer. Trust me when I say you likely have a better chance of getting struck by lighting than ending up there as long as you pay off your debts and have some savings built up.
Here's another great article, which gives investors praise for putting money in, but then gives them crap for not having an investment plan. I personally like to point out I even get confused with all the products out there and I read a lot on investments. If you stick a two year old in front of a table full of food they go for the first thing that they like. Investing tends to be the same. You don't have time to read about every product out there, but if you hear about one you might do some reading on it.
So if your confused by it all, don't worry. Take a deep breath and remind yourself "I am not a sheep, I can think for myself and I'm going to retire before the idiot who came up with that ad or article."
This post is now part of the 88th Carnival of Personal Finance.
Monday, February 05, 2007
Book Review: Your Money or Your Life
As I mentioned on Friday's post, I was reading a new book. The book was Your Money or Your Life by Joe Dominguez and Vicki Robin and I have to say this should be mandatory reading for anyone looking at early retirement or financial independence.
The authors start out with overhauling your ideas about money and all the emotions we have around it. They introduce the concept that money is exchanged for a part of your life energy (or the time you have on this earth). Then they get you to calculate your 'real' hourly wage by getting you to deduct your work related expenses from what you earn and then include the extra time it takes you to commute to work and unwind from work in your hours worked. This significantly drops your hourly wage and makes sure if your job is actually earning more than $4/hour.
The one concept they introduced that I really enjoyed was the Fulfillment Curve. This explained to me something I always knew, but could never really explain. It explains why people who buy every new gadget and toy are never happy. In a brief summary, you get your requirements for survival and have a small measure of fulfillment, but as you get past comfort items and into luxuries you hit a point of optimum fulfillment. If you keep buying stuff you actually start to have your fulfillment level go down. The trick to riding the curve is to know when you have enough and stop near the top, which they cover in another chapter.
A great section for anyone trying to reduce your cost of living is chapter 6 where they present 101 ideas on saving money, which I figure I'm already using over half of them.
I actually enjoyed almost the entire book. My only problem with the book was the last chapter where they suggest your entire early retirement nest egg should be in long term government bonds, which might be an option for someone living in the US (since they can be tax free), but a completely useless one for those living in Canada (since we get taxed at our marginal rate).
Overall I still felt it was a great read and suggest you find a copy from your local library.
The authors start out with overhauling your ideas about money and all the emotions we have around it. They introduce the concept that money is exchanged for a part of your life energy (or the time you have on this earth). Then they get you to calculate your 'real' hourly wage by getting you to deduct your work related expenses from what you earn and then include the extra time it takes you to commute to work and unwind from work in your hours worked. This significantly drops your hourly wage and makes sure if your job is actually earning more than $4/hour.
The one concept they introduced that I really enjoyed was the Fulfillment Curve. This explained to me something I always knew, but could never really explain. It explains why people who buy every new gadget and toy are never happy. In a brief summary, you get your requirements for survival and have a small measure of fulfillment, but as you get past comfort items and into luxuries you hit a point of optimum fulfillment. If you keep buying stuff you actually start to have your fulfillment level go down. The trick to riding the curve is to know when you have enough and stop near the top, which they cover in another chapter.
A great section for anyone trying to reduce your cost of living is chapter 6 where they present 101 ideas on saving money, which I figure I'm already using over half of them.
I actually enjoyed almost the entire book. My only problem with the book was the last chapter where they suggest your entire early retirement nest egg should be in long term government bonds, which might be an option for someone living in the US (since they can be tax free), but a completely useless one for those living in Canada (since we get taxed at our marginal rate).
Overall I still felt it was a great read and suggest you find a copy from your local library.
Friday, February 02, 2007
Saving Money - Part III
Ok, I didn't really mean to turn this into a series this week, but I'll blame the book I'm reading on this (I'll do a book review next week on it). Today on saving money I'm going to touch on suggestions for housing and what makes up a really great place to live that will save you money.
1) Rent or buy near where you work, if possible. That way if you can walk to work think about all the cash you can save.
2) If you can't rent/buy near work, can you do it near public transportation. In my case I'm only two blocks from a cross over point of several bus routes of which one runs with in a block of my work building. I currently car pool to work, but some days I still take a bus when the pool isn't running. (A note for renters, if you always pay on time and have a great set of references ask for extras. I once got an apartment held for me for two months rent free because the landlord really wanted me in the apartment block).
3) Buy in a neighbourhood where you feel comfortable. If you don't feel comfortable when your viewing the place, trust yourself to find something else.
4) Never buy in the 'best' part of town. Prices tend to be high and you don't get a lot more house. Your basically paying more for a home for the name of its neighbourhood.
5) Layout is more important than the number of sq feet. My current house is only 186 sq feet bigger than my first home, but it feels huge all because of the open layout and the smaller bedrooms (where I never spend any time when I'm awake anyway). Also excessive sq feet just cost money to heat and more time to clean.
6) Buy the worst house on the perfect block for you. You can usually get it 10% cheaper than the rest of the neighbourhood and then you can fix it up to what you like for 5%.
7) Use an real estate agent when buying, but avoid one when selling. Real estate agents are very handy for buying a home because they cause you nothing, but don't forget to check out private deals on your own. Obviously avoiding an agent when selling saves you thousands of dollars in commissions.
8) When you do sell your home. Make it spotless and clean up the clutter. Remember your not actually selling your house, your selling the dream of a perfect show home. 80% of people can't see past the furniture to realize they are only buying the walls. If you do it right you can sell your home faster and for more money.
9) Also when selling your home don't get greedy with the list price. A lower list price can spark bidding wars and ensure you house is off the market faster. Remember it does you no good to have a house on sale for a extra month just to get a few more thousand dollars. Your time is worth something.
10) Take your time. Find good housing is difficult, so don't rush into anything if you can avoid it. Every problem I ever had with a place was due to me rushing in. So now I like to take it slow if possible.
Have a great weekend,
CD
1) Rent or buy near where you work, if possible. That way if you can walk to work think about all the cash you can save.
2) If you can't rent/buy near work, can you do it near public transportation. In my case I'm only two blocks from a cross over point of several bus routes of which one runs with in a block of my work building. I currently car pool to work, but some days I still take a bus when the pool isn't running. (A note for renters, if you always pay on time and have a great set of references ask for extras. I once got an apartment held for me for two months rent free because the landlord really wanted me in the apartment block).
3) Buy in a neighbourhood where you feel comfortable. If you don't feel comfortable when your viewing the place, trust yourself to find something else.
4) Never buy in the 'best' part of town. Prices tend to be high and you don't get a lot more house. Your basically paying more for a home for the name of its neighbourhood.
5) Layout is more important than the number of sq feet. My current house is only 186 sq feet bigger than my first home, but it feels huge all because of the open layout and the smaller bedrooms (where I never spend any time when I'm awake anyway). Also excessive sq feet just cost money to heat and more time to clean.
6) Buy the worst house on the perfect block for you. You can usually get it 10% cheaper than the rest of the neighbourhood and then you can fix it up to what you like for 5%.
7) Use an real estate agent when buying, but avoid one when selling. Real estate agents are very handy for buying a home because they cause you nothing, but don't forget to check out private deals on your own. Obviously avoiding an agent when selling saves you thousands of dollars in commissions.
8) When you do sell your home. Make it spotless and clean up the clutter. Remember your not actually selling your house, your selling the dream of a perfect show home. 80% of people can't see past the furniture to realize they are only buying the walls. If you do it right you can sell your home faster and for more money.
9) Also when selling your home don't get greedy with the list price. A lower list price can spark bidding wars and ensure you house is off the market faster. Remember it does you no good to have a house on sale for a extra month just to get a few more thousand dollars. Your time is worth something.
10) Take your time. Find good housing is difficult, so don't rush into anything if you can avoid it. Every problem I ever had with a place was due to me rushing in. So now I like to take it slow if possible.
Have a great weekend,
CD
Thursday, February 01, 2007
Saving Money - Part II
Today on this little series of saving money I'm going to present a few ideas about food.
The biggest savings of food out there is growing a garden. Yes it has some up front costs, but after that in the middle of summer you are eating fresh herbs/veggies/fruit for nearly free and depending on what you grow you can also freeze some for the winter.
Even if you are in an apartment and have at least one sunny spot by a window you can grow herbs and save a boatload of cash compared to buying them. I currently have a basil and chives plant in my living room. I'm not very good at growing anything, but if I can manage it, it isn't all that difficult. Another option is to grow herbs in a pot outside if you have a balcony or any sunny spot in your yard.
If your lucky enough to have somewhere in your yard where you can grow a small garden, then I suggest growing things you like to eat (in my case carrots, beans, lettuce and strawberries). Start small and you can always rip up lawn to make it bigger. If your clueless about growing anything, head down to your library and ask for help finding a book about what grows in your area. Another great resource is talking to your neighbours with gardens, which also might prove useful if you over plant something and can trade it off to someone for some other produce.
After growing a garden my next food suggestion is simple: avoid eating out and prefabricated foods. If you cook at home from scratch, you will also be saving money. Obviously this can't be done all the time, so don't worry about the rare fast food run or deciding that you make horrible pies and you buy one from the store. It's the habit of eating out all the time and using prefabricated food all the time that costs a lot.
So those are my suggestions around food. I like to keep this simple and eat well. If you have any other ideas please share.
The biggest savings of food out there is growing a garden. Yes it has some up front costs, but after that in the middle of summer you are eating fresh herbs/veggies/fruit for nearly free and depending on what you grow you can also freeze some for the winter.
Even if you are in an apartment and have at least one sunny spot by a window you can grow herbs and save a boatload of cash compared to buying them. I currently have a basil and chives plant in my living room. I'm not very good at growing anything, but if I can manage it, it isn't all that difficult. Another option is to grow herbs in a pot outside if you have a balcony or any sunny spot in your yard.
If your lucky enough to have somewhere in your yard where you can grow a small garden, then I suggest growing things you like to eat (in my case carrots, beans, lettuce and strawberries). Start small and you can always rip up lawn to make it bigger. If your clueless about growing anything, head down to your library and ask for help finding a book about what grows in your area. Another great resource is talking to your neighbours with gardens, which also might prove useful if you over plant something and can trade it off to someone for some other produce.
After growing a garden my next food suggestion is simple: avoid eating out and prefabricated foods. If you cook at home from scratch, you will also be saving money. Obviously this can't be done all the time, so don't worry about the rare fast food run or deciding that you make horrible pies and you buy one from the store. It's the habit of eating out all the time and using prefabricated food all the time that costs a lot.
So those are my suggestions around food. I like to keep this simple and eat well. If you have any other ideas please share.
Wednesday, January 31, 2007
Saving Money - Part I
On the path to early retirement the single biggest challenge you will face is controlling your spending. I take it for granted how I handle things, so I thought it would be useful to share a few things that I found cut back on my spending.
Since this is a fairly large area to cover I'm going to break this up into sections. Part I is about cutting back on your utility bills.
Power Bill
-use CFL lights in the house and LED Christmas lights
-turn off that computer when you are done (NOT power save mode)
-unplug anything you are not using right now to reduce phantom loads (for example: if your coffee pot has a clock on it, it's using power, so unplug it when it's not being used)
-if it won't drive you nuts, put all your TV, DVD players, VCR's on power bars and turn them off when they are not being used
-when you have to replace a major appliance look at energy star models
-when the oven is heated up try to cook more than one thing
-if no one is in a room turn off the light (I'm currently treaching my son this one)
Water Bill
-use low flow shower heads (2.5 gpm or less) that allow you to turn off water while soaping up (this also saves on your natural gas if you use it for hot water)
-change your aerators on your faucets to low flow versions (1.5 gpm or less)
-consider getting a rain barrel to save on summer watering of plants
-water the lawn early in the morning to save on evaporation
-buy a front load washer (they use less water and your clothes are dryer coming out so use less power in the dryer)
Natural Gas
-get a programmable thermostat and turn down the heat over night. If you find it too cold use a a few extra blankets on the bed.
-If there is only one bedroom being slept in you might want to consider dropping your house temperature even further overnight and using a space heater for the one room.
-turn down your water heater (the idea is to have warm water not very hot)
-when you leave the house for a few hours turn down the thermostat while you are gone
-install weatherstripping around your doors and if you have old windows use that plastic sheets to stop drafts
-during the warmer months look at your attic hatch to see if it seals well and also check out the insulation in your attic if your less than R40 you might be able to make some serious savings if you upgrade it.
Well that is a few of my tips. If you have more, please leave a comment and share.
Since this is a fairly large area to cover I'm going to break this up into sections. Part I is about cutting back on your utility bills.
Power Bill
-use CFL lights in the house and LED Christmas lights
-turn off that computer when you are done (NOT power save mode)
-unplug anything you are not using right now to reduce phantom loads (for example: if your coffee pot has a clock on it, it's using power, so unplug it when it's not being used)
-if it won't drive you nuts, put all your TV, DVD players, VCR's on power bars and turn them off when they are not being used
-when you have to replace a major appliance look at energy star models
-when the oven is heated up try to cook more than one thing
-if no one is in a room turn off the light (I'm currently treaching my son this one)
Water Bill
-use low flow shower heads (2.5 gpm or less) that allow you to turn off water while soaping up (this also saves on your natural gas if you use it for hot water)
-change your aerators on your faucets to low flow versions (1.5 gpm or less)
-consider getting a rain barrel to save on summer watering of plants
-water the lawn early in the morning to save on evaporation
-buy a front load washer (they use less water and your clothes are dryer coming out so use less power in the dryer)
Natural Gas
-get a programmable thermostat and turn down the heat over night. If you find it too cold use a a few extra blankets on the bed.
-If there is only one bedroom being slept in you might want to consider dropping your house temperature even further overnight and using a space heater for the one room.
-turn down your water heater (the idea is to have warm water not very hot)
-when you leave the house for a few hours turn down the thermostat while you are gone
-install weatherstripping around your doors and if you have old windows use that plastic sheets to stop drafts
-during the warmer months look at your attic hatch to see if it seals well and also check out the insulation in your attic if your less than R40 you might be able to make some serious savings if you upgrade it.
Well that is a few of my tips. If you have more, please leave a comment and share.
Tuesday, January 30, 2007
RRSP or Mortgage: Moneysense Reviewed
Check your mail box today to see if you have the latest edition of Moneysense magazine. If so jump to p.14 and Duncan Hood's column on RRSP or Mortgage? If you don't have the magazine, I'll do a quick summary.
Mr. Hood suggests that the 'debate' about paying off the mortgage vs the adding to your RRSP is over for a few good reasons. First he explains the misconception that your RRSP is tax sheltered while your RRSP is. Obviously if you put money in the RRSP you get a cheque back from the government, but if you pay off the mortgage you pay less interest. So all those future payments will have less interest paid with after tax dollars, so in effect your not only saving the interest, but the tax on all that interest too.
Then Mr. Hood goes on to say it's about risk. A mortgage at 6% is a guaranteed returned, while a 8% mutal fund after the average 2% MER (management expense ratio) gives you the same return, but your exposed to the market risk. So obviously then we should pay down our mortgages first and then contribute to our RRSP.
Ok, I agree with his first point. Saving lots of interest on the mortgage is a good thing. It's the numbers in the second point I'm having problems with. First off most intelligent investors are not paying a 2% MER on anything. If you even use the basic couch potato portfolio you would have got a return last year close to 12% with a MER around 0.5% (or less), for a net return of 11.5%. I locked in my mortgage back in the very low interest days and blended in my new portion when I moved, so I'm only at just over 5%. So my RRSP is 6.5% higher than my mortgage, which in my mind is worth some risk.
The problem with these little articles is they make assumptions. The reality is the answer of paying off the mortgage or save for retirement depends on your own numbers and your comfort level with risk. If your like me a higher RRSP return makes me more likely to save for retirement, but I'm also aware that your mortgage is a reverse compounding curve. So any payments in the first five years really drops your interest payments over the life of the mortgage. So my answer is do both. I've increased my mortgage payments by 15% to assist on the pay down, while still putting a fair amount into my RRSP's. Then any left over cash is getting saved for a big payoff to the mortgage in another year, because if I want to retire at 45 I need to get rid of my mortgage a bit faster than normal. So in the end, do want's right for you.
Mr. Hood suggests that the 'debate' about paying off the mortgage vs the adding to your RRSP is over for a few good reasons. First he explains the misconception that your RRSP is tax sheltered while your RRSP is. Obviously if you put money in the RRSP you get a cheque back from the government, but if you pay off the mortgage you pay less interest. So all those future payments will have less interest paid with after tax dollars, so in effect your not only saving the interest, but the tax on all that interest too.
Then Mr. Hood goes on to say it's about risk. A mortgage at 6% is a guaranteed returned, while a 8% mutal fund after the average 2% MER (management expense ratio) gives you the same return, but your exposed to the market risk. So obviously then we should pay down our mortgages first and then contribute to our RRSP.
Ok, I agree with his first point. Saving lots of interest on the mortgage is a good thing. It's the numbers in the second point I'm having problems with. First off most intelligent investors are not paying a 2% MER on anything. If you even use the basic couch potato portfolio you would have got a return last year close to 12% with a MER around 0.5% (or less), for a net return of 11.5%. I locked in my mortgage back in the very low interest days and blended in my new portion when I moved, so I'm only at just over 5%. So my RRSP is 6.5% higher than my mortgage, which in my mind is worth some risk.
The problem with these little articles is they make assumptions. The reality is the answer of paying off the mortgage or save for retirement depends on your own numbers and your comfort level with risk. If your like me a higher RRSP return makes me more likely to save for retirement, but I'm also aware that your mortgage is a reverse compounding curve. So any payments in the first five years really drops your interest payments over the life of the mortgage. So my answer is do both. I've increased my mortgage payments by 15% to assist on the pay down, while still putting a fair amount into my RRSP's. Then any left over cash is getting saved for a big payoff to the mortgage in another year, because if I want to retire at 45 I need to get rid of my mortgage a bit faster than normal. So in the end, do want's right for you.
Monday, January 29, 2007
Your Personal Time Value of Money
I recently did a calculation of how much money I earn after tax for every minute I work (salary - tax & other deductions + RRSP tax credits) at taxtips.ca to find I earn about $0.37/minute. This little exercise I found very useful to determine how much time I have to work in order to buy something.
For example, a cup of coffee for $1.47 costs me almost 4 minutes (1.47/0.37 = 3.97), and a cookbook on sale for $10.60 costs me about 29 minutes. While a 32 LCD wide screen TV for $1445 costs me about 65 hours (1445/0.37 = 3905 minutes).
So next time you to buy something ask yourself this: am I getting more joy/usefulness out this purchase than it costs me in time to buy it?
So in the case of the cup of coffee if you drink it during a great conversation for 10 minutes, it might be worth the 4 minutes of work. Yet if you drink it while on your way to work for 2 minutes and then let it go cold, it would be a bad deal since you still have to work for 4 minutes for something that gave you less than 2 minutes of happiness (if that long).
The point of the exercise is to check if your really enjoying or using your purchase. If your not really enjoying or using it, why are you even buying it? For example, wasting power with the old 60 W light bulbs seems pointless to me. I need light and the cheaper the better. I don't enjoy my power bill, so why not buy a CFL that will last at least five times longer and use about 1/6 the power. Yes it costs more up front, but the prices have been dropping and my last set of bulbs cost me about $3 or 8 minutes each for something I will save money with for over five years.
This is just one option, the reality is you need something to slow you down for just a second or two and the question "Am I going to make time (money) or joy off this purchase?"
For example, a cup of coffee for $1.47 costs me almost 4 minutes (1.47/0.37 = 3.97), and a cookbook on sale for $10.60 costs me about 29 minutes. While a 32 LCD wide screen TV for $1445 costs me about 65 hours (1445/0.37 = 3905 minutes).
So next time you to buy something ask yourself this: am I getting more joy/usefulness out this purchase than it costs me in time to buy it?
So in the case of the cup of coffee if you drink it during a great conversation for 10 minutes, it might be worth the 4 minutes of work. Yet if you drink it while on your way to work for 2 minutes and then let it go cold, it would be a bad deal since you still have to work for 4 minutes for something that gave you less than 2 minutes of happiness (if that long).
The point of the exercise is to check if your really enjoying or using your purchase. If your not really enjoying or using it, why are you even buying it? For example, wasting power with the old 60 W light bulbs seems pointless to me. I need light and the cheaper the better. I don't enjoy my power bill, so why not buy a CFL that will last at least five times longer and use about 1/6 the power. Yes it costs more up front, but the prices have been dropping and my last set of bulbs cost me about $3 or 8 minutes each for something I will save money with for over five years.
This is just one option, the reality is you need something to slow you down for just a second or two and the question "Am I going to make time (money) or joy off this purchase?"
Friday, January 26, 2007
FAQ
Q: Why do you want to retire at 45?
CD: Why not? No really, the decision to shoot for retiring at 45 was more or less just a date I picked. 55 was too long and 40 was too short, so I picked 45. I want to retire early and the earlier the better.
Q: So where do you dig up all your information?
CD: My information is from a lot of reading of books from the library and a few Google alerts that sweep the Internet daily for general websites, blogs and news sites with information that could be useful.
Q: Do you get paid to do this?
CD: Technically yes. I get money if you click on a link on the site, but the income is so small that I earn more in half an hour in my day job than two months of blogging. So this is largely a labour of love.
Q: How much time do you spend blogging in a week?
CD: So far about 7 hours a week. Usually an hour in the morning during the weekdays a few hours on the weekend.
Q: Do you recommend any stocks or other investment products?
CD: No, I don't recommend anything. You might even notice in my posts I use the word 'suggest' a lot, which implies that you should take everything I say with a grain of salt and do your own research and make your own decision. After all you are an adult and I don't have to tell you what to do.
CD: Why not? No really, the decision to shoot for retiring at 45 was more or less just a date I picked. 55 was too long and 40 was too short, so I picked 45. I want to retire early and the earlier the better.
Q: So where do you dig up all your information?
CD: My information is from a lot of reading of books from the library and a few Google alerts that sweep the Internet daily for general websites, blogs and news sites with information that could be useful.
Q: Do you get paid to do this?
CD: Technically yes. I get money if you click on a link on the site, but the income is so small that I earn more in half an hour in my day job than two months of blogging. So this is largely a labour of love.
Q: How much time do you spend blogging in a week?
CD: So far about 7 hours a week. Usually an hour in the morning during the weekdays a few hours on the weekend.
Q: Do you recommend any stocks or other investment products?
CD: No, I don't recommend anything. You might even notice in my posts I use the word 'suggest' a lot, which implies that you should take everything I say with a grain of salt and do your own research and make your own decision. After all you are an adult and I don't have to tell you what to do.
Thursday, January 25, 2007
Interview with Larry MacDonald
Well today we are shifting gears a bit folks. We are leaving the world of ‘just bloggers’ and moving on to an author that happens to also be a blogger. Larry MacDonald is a former economist who now manages his own portfolio and writes on investment topics in books, magazines and his blog, Investment Ideas.
CD: You've written in books, magazines and your blog. What do you think blogs offer as a medium compared to other forms of writing?
LM: Blogs are a medium where you can develop a more personal relationship with readers compared to writing books and magazine articles. There is also a greater feeling of freedom in posting directly to your audience as opposed to submitting to an editor.
CD: I have to agree that bypassing an editor is nice, so what do you think your blog adds to the blog sphere?
LM: My blog offers the perspective of an economist who has knowledge of financial markets and over ten years of writing on investment topics. I also like to go beyond main stream media to get ideas and material that hopefully doesn’t repeat or rehash what the reader may already know.
CD: Out of your blog material, what is your favorite post on your blog?
LM: It’s hard to decide which post I like the best. Maybe it was the Jan.27, 2006 post-mortem on the last election entitled ‘Other Registered Parties in the Election.’ It illustrates how I try to add value by digging up material that can’t be found elsewhere yet is hopefully educational and/or entertaining.
CD: Now with all your writing work how many hours a week do you spend blogging as compared to your other writing?
LM: These days a lot of my time is spent looking after my two preschoolers. I write a couple hours in the morning before they wake up and during their nap in the afternoon, splitting my time about 50/50 between the blog and columns for Canadian Business Online and Investor’s Digest.
CD: Well Larry this has been an interesting interview, but to finish off I wanted to ask you when do you want to retire and what do you see yourself doing in retirement?
LM: I left my job as a government economist in 1999 to do what I wanted to do, which was to write books/columns, manage my own portfolio, and spend time with kids. I look on myself as retired already in the sense that I’m doing things I would choose to do in retirement.
CD: Thanks again for your time Larry and congratulations on being semi-retired and loving it. Tomorrow I turn the interview questions on myself, so if you have a question please feel free to leave a comment or send me an email.
CD: You've written in books, magazines and your blog. What do you think blogs offer as a medium compared to other forms of writing?
LM: Blogs are a medium where you can develop a more personal relationship with readers compared to writing books and magazine articles. There is also a greater feeling of freedom in posting directly to your audience as opposed to submitting to an editor.
CD: I have to agree that bypassing an editor is nice, so what do you think your blog adds to the blog sphere?
LM: My blog offers the perspective of an economist who has knowledge of financial markets and over ten years of writing on investment topics. I also like to go beyond main stream media to get ideas and material that hopefully doesn’t repeat or rehash what the reader may already know.
CD: Out of your blog material, what is your favorite post on your blog?
LM: It’s hard to decide which post I like the best. Maybe it was the Jan.27, 2006 post-mortem on the last election entitled ‘Other Registered Parties in the Election.’ It illustrates how I try to add value by digging up material that can’t be found elsewhere yet is hopefully educational and/or entertaining.
CD: Now with all your writing work how many hours a week do you spend blogging as compared to your other writing?
LM: These days a lot of my time is spent looking after my two preschoolers. I write a couple hours in the morning before they wake up and during their nap in the afternoon, splitting my time about 50/50 between the blog and columns for Canadian Business Online and Investor’s Digest.
CD: Well Larry this has been an interesting interview, but to finish off I wanted to ask you when do you want to retire and what do you see yourself doing in retirement?
LM: I left my job as a government economist in 1999 to do what I wanted to do, which was to write books/columns, manage my own portfolio, and spend time with kids. I look on myself as retired already in the sense that I’m doing things I would choose to do in retirement.
CD: Thanks again for your time Larry and congratulations on being semi-retired and loving it. Tomorrow I turn the interview questions on myself, so if you have a question please feel free to leave a comment or send me an email.
Wednesday, January 24, 2007
Interview with Canadian Financial Stuff
Welcome back everyone from our commercial break (aka: the links to your right). Our next interview is with the Big Cajun Man of Canadian Financial Stuff. His posts are often packed full of humor and entertaining rants and I recently had a chat with him.
CD: In the personal finance blog world, you've been called quirky, interesting or down right eccentric. What do you see yourself as adding to the blog sphere?
BCM: Humor, a different point of view, and a small 'c' conservative point of view. I am not trying to tell anyone how to live, and they should really not be following my advice as "gospel" more as a guide towards what has worked and NOT worked for someone. That is the best way to view the blog sphere, as a giant water cooler where folks come and tell you stories and give you FREE advice, and you then go back, think about it, and decide whether you think it is something that makes sense to you or not.
CD: A giant water cooler that’s a good way of putting it. So what do you love about blogging?
BCM: Writing. I am not a very good writer, but I am not a bad storyteller, and I just enjoy telling stories, and vomiting my point of view on anyone who cares to read about it. Sometimes it feels like I can see the people I am talking to, and a lot of times, I am mostly looking in the mirror trying to tell myself what to do about things, that is why it is pretty easy to write, but really hard to read.
CD: Storytelling can be a lot of fun, but also a lot of work, so how many hours a week do you spend blogging?
BCM: About 7 hours a week or so (an hour a day or so). Sometimes I get ahead of myself, and will have a few topics already queued up, but usually it is a spur of the moment decision of what I am going to babble about that day. I have a family blog as well, which I tend to update at the same time.
CD: Seven hours a week isn’t that bad, but do you find the entire work/home/blog balance difficult to keep?
BCM: Right now, it's not very hard, but my wife sometimes ask why I keep doing the blog, given the amount of time I spend on it, and how little I make doing it
CD: That kind of begs the question, what do you hate about blogging?
BCM: The technical aspects are a pain the butt. I know too much of how this whole thing works, and I wish it was easier to publish things, and figure out how to get folks to find you. I have spent two years trying to get a readership, but it is still quite small for now. Sometimes finding topics is a little hard too, but I have a large enough network now of different sites I can usually get 1 or 2 postings out a day.
CD: So moving along to my favorite question, when do you want to retire and how much do you think you need to do it?
BCM: I want to retire NOW, given I am 46, yet I know that it is unlikely that I will ever "retire", because I have many different things that I do, that I can't see myself stop doing. I hope to finish with my current occupation in about 15 years, if I can arrange my finances the right way, but I also have a 2 year old son, so it isn't likely that I can do this either, given how much kids cost as well. Unless I find a huge influx of money, I will work until I can't any more. There is a long list of things I would do if $4 Million appeared out of nowhere (this is about what I figured I'd need to stop doing my job), most of them to do with the community and sports, I'd stay very busy.
CD: So the retirement question reminds me that the Canadian government allowed pension income splitting recent and before that was announced there was also talk of income splitting for working couples. What are your thoughts on system that would finally balance large income gaps between spouses?
BCM: I make infinitely more than my spouse, in mathematical terms (she has no income right now), and I am taxed severely for this. My wife is worth about $1500 in tax rebates, and that is about it. If she and I could split my income or create a household income, I'd save over $10,000 in taxes collected from me, which astounds me. I never thought I'd be paying this much in taxes, and I pay more now in taxes than I earned (gross) my first year of working full time (by a lot). The Canadian Tax system favors dual income families who put their kids in day care, that is the bottom line, and it frustrates me that the government refuses to admit this is the case. What would happen if there was a household income, is a very good question. Maybe a lot of folks who are working, who don't want to might find a way not to have to do that? Maybe not, I am not sure.
CD: I’m completely agree that the system does favor dual income earners. I personally get piss off over people that swear that their kids are the most important things in their lives, but then bitch about the costs of daycare. Ok, I’m getting sidetracked into a rant. I’ll save that one for another day. See you tomorrow folks when I’ll have an interview with Larry MacDonald.
CD: In the personal finance blog world, you've been called quirky, interesting or down right eccentric. What do you see yourself as adding to the blog sphere?
BCM: Humor, a different point of view, and a small 'c' conservative point of view. I am not trying to tell anyone how to live, and they should really not be following my advice as "gospel" more as a guide towards what has worked and NOT worked for someone. That is the best way to view the blog sphere, as a giant water cooler where folks come and tell you stories and give you FREE advice, and you then go back, think about it, and decide whether you think it is something that makes sense to you or not.
CD: A giant water cooler that’s a good way of putting it. So what do you love about blogging?
BCM: Writing. I am not a very good writer, but I am not a bad storyteller, and I just enjoy telling stories, and vomiting my point of view on anyone who cares to read about it. Sometimes it feels like I can see the people I am talking to, and a lot of times, I am mostly looking in the mirror trying to tell myself what to do about things, that is why it is pretty easy to write, but really hard to read.
CD: Storytelling can be a lot of fun, but also a lot of work, so how many hours a week do you spend blogging?
BCM: About 7 hours a week or so (an hour a day or so). Sometimes I get ahead of myself, and will have a few topics already queued up, but usually it is a spur of the moment decision of what I am going to babble about that day. I have a family blog as well, which I tend to update at the same time.
CD: Seven hours a week isn’t that bad, but do you find the entire work/home/blog balance difficult to keep?
BCM: Right now, it's not very hard, but my wife sometimes ask why I keep doing the blog, given the amount of time I spend on it, and how little I make doing it
CD: That kind of begs the question, what do you hate about blogging?
BCM: The technical aspects are a pain the butt. I know too much of how this whole thing works, and I wish it was easier to publish things, and figure out how to get folks to find you. I have spent two years trying to get a readership, but it is still quite small for now. Sometimes finding topics is a little hard too, but I have a large enough network now of different sites I can usually get 1 or 2 postings out a day.
CD: So moving along to my favorite question, when do you want to retire and how much do you think you need to do it?
BCM: I want to retire NOW, given I am 46, yet I know that it is unlikely that I will ever "retire", because I have many different things that I do, that I can't see myself stop doing. I hope to finish with my current occupation in about 15 years, if I can arrange my finances the right way, but I also have a 2 year old son, so it isn't likely that I can do this either, given how much kids cost as well. Unless I find a huge influx of money, I will work until I can't any more. There is a long list of things I would do if $4 Million appeared out of nowhere (this is about what I figured I'd need to stop doing my job), most of them to do with the community and sports, I'd stay very busy.
CD: So the retirement question reminds me that the Canadian government allowed pension income splitting recent and before that was announced there was also talk of income splitting for working couples. What are your thoughts on system that would finally balance large income gaps between spouses?
BCM: I make infinitely more than my spouse, in mathematical terms (she has no income right now), and I am taxed severely for this. My wife is worth about $1500 in tax rebates, and that is about it. If she and I could split my income or create a household income, I'd save over $10,000 in taxes collected from me, which astounds me. I never thought I'd be paying this much in taxes, and I pay more now in taxes than I earned (gross) my first year of working full time (by a lot). The Canadian Tax system favors dual income families who put their kids in day care, that is the bottom line, and it frustrates me that the government refuses to admit this is the case. What would happen if there was a household income, is a very good question. Maybe a lot of folks who are working, who don't want to might find a way not to have to do that? Maybe not, I am not sure.
CD: I’m completely agree that the system does favor dual income earners. I personally get piss off over people that swear that their kids are the most important things in their lives, but then bitch about the costs of daycare. Ok, I’m getting sidetracked into a rant. I’ll save that one for another day. See you tomorrow folks when I’ll have an interview with Larry MacDonald.
Tuesday, January 23, 2007
Interview with Million Dollar Journey
Our next interview is with Frugal Trader from MillionDollarJourney. This newer blogger has been on a roll with some great posts and an aggressive goal to obtain a net worth of 1 million by the time he turns 35. I was lucky enough to get a hold of him to ask a few questions.
CD: First off I have to ask about your goal to get to a million dollars. You state in your 2007 goals that you want to get a 12 to 15% rate of return in 2007. Based on the fact that the average stock market rate of return is 10%, do you think can really beat the average for the next 8 years to make your goal at 35?
FT: Bold statements, I know. Most people say that it's a fool's dream to try and beat the market every year. However, you have to think big in order to achieve big. Looking forward, I think that 12-15% return on my savings is achievable through a combination of my stock and real estate portfolio.
CD: Ok, let’s say you keep betting the markets. To date you are doing a great job of building your net worth as you indicated in a December post that your net worth was at $198,500 and you were saving $1830/month. Even if you use your current net worth as the start point and keep the same savings rate at a 15% rate of return you would have $990,957 in 8 years. So that's not giving you a lot room for error on your rate of return and/or savings rate. So do you still think your goal is reasonable and are you willing to adjust that goal as things change from the current plan?
FT: If things change from the current plan, loss of major income etc, then I'm definitely going to have to consider changing my $1 million dollar goal by 35. However, if things go as I plan, with our annual increases in salary and alternate income sources, I plan to increase our savings amount every year. All net passive income will go to savings. I also plan to increase our real estate holdings, which will also bulk up the net worth.
CD: I know you mentioned you don’t have any kids on your blog, but have you considered what impact having kids could have on your plan?
FT: From what I've been hearing from young parents is that kids aren't that expensive until they get a bit older when they get into activities OR if they need daycare when they're young. We're fortunate that our parents live in the same city as us and they'd be more than happy to look after the kids while we're at work. Another issue is when my wife takes maternity leave, that year will be tough as well as she brings in half of our income. However, if we maintain a frugal lifestyle and get our passive income sources up, I believe that we can maintain a high savings amount. We don't have any kids yet and don't plan to for the next year or two. So by the time we're 35, they should be just about ready to start school and other activities.
CD: Well it looks like you’ve thought about your plan a fair amount, so when you reach your goal of a net worth of $1 million do you intend to retire?
FT: That is a great question. My goal for $1 million was never about retirement, it's about financial independence. It is goal I have set for myself so that I will constantly learn about and improve my finances. In my opinion, by the time I'm 35, I don't think that $1 million will be enough for my wife and I to retire on.
CD: Ok, so when you do you want to retire and what do you want to do in retirement?
FT: When I do retire, which will probably be in my 40's, I plan to spend more quality time with my wife and future kids. I will most likely continue investing/trading and look for other ways to supplement my income without working for the man. I guess what I consider retirement is leaving the 8-4 office job, not necessarily stop working.
CD: Speaking of work, your blog is fairly new the blog sphere and many bloggers seem to burn out in a few months. What do you plan to do to help prevent/avoid this?
FT: I see my blog as a personal outlet for my personal finances. It helps me solidify some of my financial thoughts and ideas. I also enjoy the discussions that start from my readers based on my articles. As long as I stay motivated with my finances, I can't see myself stopping my personal finance blog/diary.
CD: Great to hear your got some motivation, so how many hours do you spend blogging in a week?
FT: I admit, I'm a computer/web junkie. It started in my early teens and it has continued until now. When I was setting up the blog, I spent at least 3 hours / day on the blog. Now, it's more maintenance and researching new ways to improve the blog. So, the past few weeks, I've probably dedicated around 1.5hrs / day which equates to 10.5hrs / week. If I could, I would blog all day long. Alas, I have a full time job that requires a bit of my attention. :)
CD: Well that was very enlightening for me Frugal Trader. Thanks for your time and I’ll be back with the third blogger interview tomorrow.
CD: First off I have to ask about your goal to get to a million dollars. You state in your 2007 goals that you want to get a 12 to 15% rate of return in 2007. Based on the fact that the average stock market rate of return is 10%, do you think can really beat the average for the next 8 years to make your goal at 35?
FT: Bold statements, I know. Most people say that it's a fool's dream to try and beat the market every year. However, you have to think big in order to achieve big. Looking forward, I think that 12-15% return on my savings is achievable through a combination of my stock and real estate portfolio.
CD: Ok, let’s say you keep betting the markets. To date you are doing a great job of building your net worth as you indicated in a December post that your net worth was at $198,500 and you were saving $1830/month. Even if you use your current net worth as the start point and keep the same savings rate at a 15% rate of return you would have $990,957 in 8 years. So that's not giving you a lot room for error on your rate of return and/or savings rate. So do you still think your goal is reasonable and are you willing to adjust that goal as things change from the current plan?
FT: If things change from the current plan, loss of major income etc, then I'm definitely going to have to consider changing my $1 million dollar goal by 35. However, if things go as I plan, with our annual increases in salary and alternate income sources, I plan to increase our savings amount every year. All net passive income will go to savings. I also plan to increase our real estate holdings, which will also bulk up the net worth.
CD: I know you mentioned you don’t have any kids on your blog, but have you considered what impact having kids could have on your plan?
FT: From what I've been hearing from young parents is that kids aren't that expensive until they get a bit older when they get into activities OR if they need daycare when they're young. We're fortunate that our parents live in the same city as us and they'd be more than happy to look after the kids while we're at work. Another issue is when my wife takes maternity leave, that year will be tough as well as she brings in half of our income. However, if we maintain a frugal lifestyle and get our passive income sources up, I believe that we can maintain a high savings amount. We don't have any kids yet and don't plan to for the next year or two. So by the time we're 35, they should be just about ready to start school and other activities.
CD: Well it looks like you’ve thought about your plan a fair amount, so when you reach your goal of a net worth of $1 million do you intend to retire?
FT: That is a great question. My goal for $1 million was never about retirement, it's about financial independence. It is goal I have set for myself so that I will constantly learn about and improve my finances. In my opinion, by the time I'm 35, I don't think that $1 million will be enough for my wife and I to retire on.
CD: Ok, so when you do you want to retire and what do you want to do in retirement?
FT: When I do retire, which will probably be in my 40's, I plan to spend more quality time with my wife and future kids. I will most likely continue investing/trading and look for other ways to supplement my income without working for the man. I guess what I consider retirement is leaving the 8-4 office job, not necessarily stop working.
CD: Speaking of work, your blog is fairly new the blog sphere and many bloggers seem to burn out in a few months. What do you plan to do to help prevent/avoid this?
FT: I see my blog as a personal outlet for my personal finances. It helps me solidify some of my financial thoughts and ideas. I also enjoy the discussions that start from my readers based on my articles. As long as I stay motivated with my finances, I can't see myself stopping my personal finance blog/diary.
CD: Great to hear your got some motivation, so how many hours do you spend blogging in a week?
FT: I admit, I'm a computer/web junkie. It started in my early teens and it has continued until now. When I was setting up the blog, I spent at least 3 hours / day on the blog. Now, it's more maintenance and researching new ways to improve the blog. So, the past few weeks, I've probably dedicated around 1.5hrs / day which equates to 10.5hrs / week. If I could, I would blog all day long. Alas, I have a full time job that requires a bit of my attention. :)
CD: Well that was very enlightening for me Frugal Trader. Thanks for your time and I’ll be back with the third blogger interview tomorrow.
Monday, January 22, 2007
Interview with the Canadian Capitalist
The Canadian Capitalist has been around for over two years now and is considered to be one of the best objective personal finance blogs in Canada. I recently got a hold of this blogger to discuss his blog.
CD: Your blog has been mentioned in Moneysense magazine, the Toronto Star and the Globe and Mail and too many blog rolls to count. How does it feel to be a respected Canadian blogger on personal finance?
CC: It is a humbling experience. My blog is still small, so it is very nice to be recognized.
CD: A few of your readers have commented on the quality of your writing and suggested you should write for a magazine. Would you?
CC: I haven't considered writing columns for magazines so far but maybe I should consider such a part-time gig.
CD: After reading your blog for about a year now I can't help but notice how easy you make writing a blog entry every weekday. After trying to do the same for a few months now I'm starting to understand the work involved. So how much time do you spend a week working on your blog?
CC: I spend at least an hour each day on the blog, so my weekly commitment would be at least five hours. It also depends a bit of how easy it is to write. Sometimes thoughts just become words effortlessly and sometimes I stare at the blank screen for an hour and couldn't put two sentences together. I also spend a bit more time reading books, newspapers, online columns and other blogs, but I would be doing this anyway, so it doesn't count as blog work.
CD: Do you find maintaining a balance between your family/work/blog difficult with the time commitment involved?
CC: I don't find maintaining the work/blog/family balance difficult at all. I typically spend an hour writing after the kids have fallen asleep. I do find it difficult that with two young boys, a blog and a two-career family, I have very little time for other activities.
CD: Do you feel that your are more educated after writing this blog for just over two years? Why?
CC: I feel that writing the blog has been a good learning experience. I love blogging because I have a dialogue with my readers and I have learnt a great deal from their comments. For example, one reader pointed out that I could avoid currency conversion charges with TD Waterhouse, which would help me and others avoid those pesky fees.
CD: Do you think your blog has made a difference in other people's lives? Why?
CC: Surprisingly, I have to say that I am not sure that I have made much of a difference in my reader's lives. Most, if not all of my readers are themselves financially savvy and they would do just fine even if my blog never existed. Perhaps, in the future, as more people read the blog, I would be able to make a bit of a difference.
CD: With over two years of posts what are some of your favorite ones?
CC: Diversify, Diversify, Diversify highlights the perils involved in over weighting a hot sector and In Every Little Bit Adds Up, I share a story on how small amounts saved can lead to a serious chunk of cash.
CD: Numerous bloggers start a blog than burnout or go inactive in a few months. What advice do you have to bloggers just starting out?
CC: One advice I can give bloggers who are just starting out is to write because they love to and not for any other reason, especially money. I also suspect that most bloggers who start out underestimate the time commitment needed to write even one post every day. In a few months time, as the effort required becomes clear, most people get discouraged and quit. I would also suggest trying out blogging on one of the free sites first to see if it is something they would like to do.
CD: An in closing I have to ask, so when do you want to retire early?
CC: I want to retire (in the sense that I don't have to really work for a paycheck) in my mid-fifties. I am 33 now and though I am pretty sure that I will be retired in another 20 odd years, I am not sure that I can plan for such a long term. I figure that if I set short-term goals for the circumstances I am reasonably sure about, the long-term will take care of itself.
CD: Thanks for your time CC. Tune in tomorrow folks for another blogger interview.
CD: Your blog has been mentioned in Moneysense magazine, the Toronto Star and the Globe and Mail and too many blog rolls to count. How does it feel to be a respected Canadian blogger on personal finance?
CC: It is a humbling experience. My blog is still small, so it is very nice to be recognized.
CD: A few of your readers have commented on the quality of your writing and suggested you should write for a magazine. Would you?
CC: I haven't considered writing columns for magazines so far but maybe I should consider such a part-time gig.
CD: After reading your blog for about a year now I can't help but notice how easy you make writing a blog entry every weekday. After trying to do the same for a few months now I'm starting to understand the work involved. So how much time do you spend a week working on your blog?
CC: I spend at least an hour each day on the blog, so my weekly commitment would be at least five hours. It also depends a bit of how easy it is to write. Sometimes thoughts just become words effortlessly and sometimes I stare at the blank screen for an hour and couldn't put two sentences together. I also spend a bit more time reading books, newspapers, online columns and other blogs, but I would be doing this anyway, so it doesn't count as blog work.
CD: Do you find maintaining a balance between your family/work/blog difficult with the time commitment involved?
CC: I don't find maintaining the work/blog/family balance difficult at all. I typically spend an hour writing after the kids have fallen asleep. I do find it difficult that with two young boys, a blog and a two-career family, I have very little time for other activities.
CD: Do you feel that your are more educated after writing this blog for just over two years? Why?
CC: I feel that writing the blog has been a good learning experience. I love blogging because I have a dialogue with my readers and I have learnt a great deal from their comments. For example, one reader pointed out that I could avoid currency conversion charges with TD Waterhouse, which would help me and others avoid those pesky fees.
CD: Do you think your blog has made a difference in other people's lives? Why?
CC: Surprisingly, I have to say that I am not sure that I have made much of a difference in my reader's lives. Most, if not all of my readers are themselves financially savvy and they would do just fine even if my blog never existed. Perhaps, in the future, as more people read the blog, I would be able to make a bit of a difference.
CD: With over two years of posts what are some of your favorite ones?
CC: Diversify, Diversify, Diversify highlights the perils involved in over weighting a hot sector and In Every Little Bit Adds Up, I share a story on how small amounts saved can lead to a serious chunk of cash.
CD: Numerous bloggers start a blog than burnout or go inactive in a few months. What advice do you have to bloggers just starting out?
CC: One advice I can give bloggers who are just starting out is to write because they love to and not for any other reason, especially money. I also suspect that most bloggers who start out underestimate the time commitment needed to write even one post every day. In a few months time, as the effort required becomes clear, most people get discouraged and quit. I would also suggest trying out blogging on one of the free sites first to see if it is something they would like to do.
CD: An in closing I have to ask, so when do you want to retire early?
CC: I want to retire (in the sense that I don't have to really work for a paycheck) in my mid-fifties. I am 33 now and though I am pretty sure that I will be retired in another 20 odd years, I am not sure that I can plan for such a long term. I figure that if I set short-term goals for the circumstances I am reasonably sure about, the long-term will take care of itself.
CD: Thanks for your time CC. Tune in tomorrow folks for another blogger interview.
Friday, January 19, 2007
Thank You & Update
First off let me say to everyone who reads this blog: THANK YOU!
I started this blog because I thought the world could use a bit more coverage on retirement planning than it normally gets in the media (which is often from mutual fund salespeople and bank financed studies). I didn't think anyone would actually read it that much, but today I actually looked at my web counter and realized I had passed 5000 in about 8 or 9 weeks (I didn't get a web counter right away). Not to mention the volume of comments, which I have learned a lot from so keep them coming.
Next week I will start the Blogger Interview Project posts (once I finish writing them all this weekend). I'll have interviews with Frugal Trader of Million Dollar Journey, Big Cajun Man of Canadian Financial Stuff, Canadian Capitalist and Larry MacDonald (who recently mentioned this blog in in his Roundup). I'm also putting myself on the block for next Friday, so any burning question (or even silly ones) send me an email or leave a comment and I will answer them.
Have a great weekend,
CD
I started this blog because I thought the world could use a bit more coverage on retirement planning than it normally gets in the media (which is often from mutual fund salespeople and bank financed studies). I didn't think anyone would actually read it that much, but today I actually looked at my web counter and realized I had passed 5000 in about 8 or 9 weeks (I didn't get a web counter right away). Not to mention the volume of comments, which I have learned a lot from so keep them coming.
Next week I will start the Blogger Interview Project posts (once I finish writing them all this weekend). I'll have interviews with Frugal Trader of Million Dollar Journey, Big Cajun Man of Canadian Financial Stuff, Canadian Capitalist and Larry MacDonald (who recently mentioned this blog in in his Roundup). I'm also putting myself on the block for next Friday, so any burning question (or even silly ones) send me an email or leave a comment and I will answer them.
Have a great weekend,
CD
Thursday, January 18, 2007
Late Retirement
It's been in the news lately. We have now removed the mandatory retirement in many provinces (see a good article here).
What's been failed to mention to most people is the price they have to pay for a late retirement. Yes, you can keep having an income, but I won't get too attached to those benefits of yours. If your curious check your own work policies, but you will notice that a lot of benefits like life insurance, long term disability and worker compensation board coverage may no longer apply after you turn 65. You might also find your paycheck shrinks a bit due to rising premiums for health and vision coverage.
So do take care of yourself if you plan on working past 65, since it looks like some of the benefits from your work place that would normally look after you are no longer going to be there.
What's been failed to mention to most people is the price they have to pay for a late retirement. Yes, you can keep having an income, but I won't get too attached to those benefits of yours. If your curious check your own work policies, but you will notice that a lot of benefits like life insurance, long term disability and worker compensation board coverage may no longer apply after you turn 65. You might also find your paycheck shrinks a bit due to rising premiums for health and vision coverage.
So do take care of yourself if you plan on working past 65, since it looks like some of the benefits from your work place that would normally look after you are no longer going to be there.
Wednesday, January 17, 2007
Financially Independent
Financially Independent (FI) is the twin brother (or sister) to early retirement. Different package, but the same toy inside. You have enough money to not work if you so choose.
During my lunch break yesterday I can across a series of three posts on the attitude to achieve financial independence over at Violent Acres. They were vulgar, in your face, but true. Here are the three posts Part I, Part II and Part III.
What really got my attention, beyond the writing style, was in Part III there was one phrase that said "I guess the real question is: How bad do you want it?"
And that is the real test of wanting FI or early retirement. You have to understand how badly you want this dream of yours compared to everything else in your life and commit yourself to making that dream come true. Otherwise your plans will always seem to fall apart on you regardless of anything else. You have to find your motivation and commit yourself.
During my lunch break yesterday I can across a series of three posts on the attitude to achieve financial independence over at Violent Acres. They were vulgar, in your face, but true. Here are the three posts Part I, Part II and Part III.
What really got my attention, beyond the writing style, was in Part III there was one phrase that said "I guess the real question is: How bad do you want it?"
And that is the real test of wanting FI or early retirement. You have to understand how badly you want this dream of yours compared to everything else in your life and commit yourself to making that dream come true. Otherwise your plans will always seem to fall apart on you regardless of anything else. You have to find your motivation and commit yourself.
Tuesday, January 16, 2007
Investing in the Home over an RRSP
This recent article in the Globe and Mail gave me a small pause. The author was suggesting that you should forget about your RRSP's and instead concentrate on improving your home as a safer rate of return.
I think he is forgetting one very important thing: in order to get any gains out of your home you have to change markets to try and maintain your lifestyle. Otherwise any gains you have made in your home will get consumed as you buy into another home in the same market.
One other thing that got me was the sales pitch that your home is a safer way to invest over the stock market. Which if you live in Alberta right now this may not apply at all. Home real estate is famous for being very subjective and unstable in the short term.
The last thing that put my guard up on this idea that investing in home improvements will produce a rate of return. This depends on what you do as an improvement (see this article for ideas) some may actually cost you some house value.
I think he is forgetting one very important thing: in order to get any gains out of your home you have to change markets to try and maintain your lifestyle. Otherwise any gains you have made in your home will get consumed as you buy into another home in the same market.
One other thing that got me was the sales pitch that your home is a safer way to invest over the stock market. Which if you live in Alberta right now this may not apply at all. Home real estate is famous for being very subjective and unstable in the short term.
The last thing that put my guard up on this idea that investing in home improvements will produce a rate of return. This depends on what you do as an improvement (see this article for ideas) some may actually cost you some house value.
Monday, January 15, 2007
Tagged - Five Things You Didn't Know About Me
Like any good virus I got hit the other day with one working it's way through the blog sphere. I have been Tagged by Million Dollar Journey.
Unlike other nasty viruses this is a bit fun. I've got to post five things you didn't know about me and then pass it along to others.
So here we go.
1) Beyond writing as a creative outlet I also paint. Mostly landscapes and more modern pieces.
2) I can't sleep in during the weekend. My all time record in the last few years was 8:30 am.
3) I still read more than I write, even with this blog. My personal library is current around 70 feet of books when you add up all the shelf space.
4) Beyond blogging my other favorite genre of writing is fantasy.
5) I can drink coffee right before bed with no effect on my sleep.
So now I get to pass this along. I'm tagging Canadian Money Blog Reviewer and Getting Rich Together.
Unlike other nasty viruses this is a bit fun. I've got to post five things you didn't know about me and then pass it along to others.
So here we go.
1) Beyond writing as a creative outlet I also paint. Mostly landscapes and more modern pieces.
2) I can't sleep in during the weekend. My all time record in the last few years was 8:30 am.
3) I still read more than I write, even with this blog. My personal library is current around 70 feet of books when you add up all the shelf space.
4) Beyond blogging my other favorite genre of writing is fantasy.
5) I can drink coffee right before bed with no effect on my sleep.
So now I get to pass this along. I'm tagging Canadian Money Blog Reviewer and Getting Rich Together.
Friday, January 12, 2007
New Housing Increases
Over at Canadian Financial Stuff, he has a interesting post on new housing prices going up. While reading the post I jumped over his source from The Daily (Statistics Canada). I expected the big gains in housing in Edmonton, Calgary but a was bit shocked that the next two highest cities for the year are Saskatoon(12.7%) and Regina(10.2%). Both Saskatchewan cities beat out Vancouver and Toronto for price increases year to date.
So what gives? Well SK going under a bit a boom partly from some carry over from Alberta oil industry, but there are some other interesting projects underway like the SaskPower Clean Coal Project which wants to build a $1.5 billion dollar Clean Coal power generation unit. Provided they approve it this year, it promises to be a near zero emission coal power plant. Then they have built the Canadian Light Source project is Saskatoon. Not bad for a province that was typically just known for wheat.
So what gives? Well SK going under a bit a boom partly from some carry over from Alberta oil industry, but there are some other interesting projects underway like the SaskPower Clean Coal Project which wants to build a $1.5 billion dollar Clean Coal power generation unit. Provided they approve it this year, it promises to be a near zero emission coal power plant. Then they have built the Canadian Light Source project is Saskatoon. Not bad for a province that was typically just known for wheat.
Thursday, January 11, 2007
Blogger Interviews Project
Later this month I'm planning a week long series of posts with interviews from various personal finance bloggers in Canada. So far the project is going along great, but I'm now one slot short of my original plan and I'm not sure who I should ask to fill in that slot.
So dear readers, here is your chance: which personal finance blogger would you like to see interviewed? Please leave a comment with your requests and I will try my best to get the blogger with the most votes.
So dear readers, here is your chance: which personal finance blogger would you like to see interviewed? Please leave a comment with your requests and I will try my best to get the blogger with the most votes.
Wednesday, January 10, 2007
Do you withdrawl your RRSP's early?
I was reading an interesting story early this week about 40% of Canadians withdrawl from the RRSP before retirement. The top reasons for those who use the funds were to pay for a house downpayment (37%) or cover living expenses (20%).
The article presented this as something bad rather than putting it in a good light. Out of the 1026 people surveyed most (60%) never pulled out anything from their RRSP's. Out of those who did about 152 people used it to buy a home, which is good thing for retirement planning in my mind. Then that leaves about a mere 82 people (out of 1026 or 8%) who used the RRSP's to cover living expenses, which is not a great idea. So 92% of us are doing the right thing with our RRSP's overall.
So why was this even a news story? You might want to notice who did the survey, the Bank of Nova Scotia. Perhaps they like to sell you some more RRSP's this season. Keep your eyes open everyone we are going to be drowning in "stories" about retirement savings over the next few months.
The article presented this as something bad rather than putting it in a good light. Out of the 1026 people surveyed most (60%) never pulled out anything from their RRSP's. Out of those who did about 152 people used it to buy a home, which is good thing for retirement planning in my mind. Then that leaves about a mere 82 people (out of 1026 or 8%) who used the RRSP's to cover living expenses, which is not a great idea. So 92% of us are doing the right thing with our RRSP's overall.
So why was this even a news story? You might want to notice who did the survey, the Bank of Nova Scotia. Perhaps they like to sell you some more RRSP's this season. Keep your eyes open everyone we are going to be drowning in "stories" about retirement savings over the next few months.
Tuesday, January 09, 2007
Retirement Savings Burnout
Every once in a while I just feel depressed about trying to save for retirement. For example during the income trust disaster last Oct, I got hammered in my taxable account and I still had some expenses related to my move in the summer draining the last of my savings. I felt broke and was wondering what is the point of trying to save when something just happens to mess it all up.
At times like this there is no one size fits all solution. Some people get a good night sleep and feel better. Others play with the kids or visit some family or watch a movie. In my case, I find I often have to take a break from the retirement planning books and stop playing with savings calculators. Once I have some distance from it all I tend to feel a bit better.
There is only two truly bad ideas on how to feel better: spending your way out it or stop saving. Both are doomed to create more problems in the long run. After all getting to early retirement is a bit of a marathon. You save for years to reach your goal and sometimes that finish line might as well be at the other side of the globe. For some people, short term goals can help avoid burnout. First save $100, then $1000 and then $10,000. Small steps that keep you heading in the right direction. I've read from numerous people that the first $100,000 is the worst to save and after that you really start to see compounding work its magic.
So don't worry if you feel a bit of burnout while saving once in a while. It's hard work some days, but the payback will be worth it.
At times like this there is no one size fits all solution. Some people get a good night sleep and feel better. Others play with the kids or visit some family or watch a movie. In my case, I find I often have to take a break from the retirement planning books and stop playing with savings calculators. Once I have some distance from it all I tend to feel a bit better.
There is only two truly bad ideas on how to feel better: spending your way out it or stop saving. Both are doomed to create more problems in the long run. After all getting to early retirement is a bit of a marathon. You save for years to reach your goal and sometimes that finish line might as well be at the other side of the globe. For some people, short term goals can help avoid burnout. First save $100, then $1000 and then $10,000. Small steps that keep you heading in the right direction. I've read from numerous people that the first $100,000 is the worst to save and after that you really start to see compounding work its magic.
So don't worry if you feel a bit of burnout while saving once in a while. It's hard work some days, but the payback will be worth it.
Monday, January 08, 2007
TSX Sinking Like a Stone & Rebalancing Your Index Funds
In case you missed it last week, the TSX index dropped like a stone to finish at 12,478 on Friday , down considerablely from the 13,000 when I last wrote on the index.
The good news out of this for any index investor is if you timed your rebalancing over the holidays, you might have cut you losses. I managed to luck out and cash out 10% of my TSX holdings prior to last week and move it to another fund. So I manged to cushion my personal lost to a mere 0.4% of my RRSP's total value. If you weren't so lucky it might be a good time to use any extra cash in your account to buy in, since these sell off's tend to be a bit of an over kill (Does any remember the panic at the beginning of Nov 2006?).
There has been some debate lately on how to time your rebalancing. There is evidence to suggest that you should wait until a given class of assest is out by 5% or more rather than just doing it once a year. I personally can't be bothered. I like my index investing because I can literally do it in my sleep. I only do one complete rebalance at the start of the year and otherwise just use my monthly cash installments to top any fund that is lower than the rest.
So that's my method of rebalancing. If you have a great easy way to handle it better, I would love to hear about it, so please leave a comment.
The good news out of this for any index investor is if you timed your rebalancing over the holidays, you might have cut you losses. I managed to luck out and cash out 10% of my TSX holdings prior to last week and move it to another fund. So I manged to cushion my personal lost to a mere 0.4% of my RRSP's total value. If you weren't so lucky it might be a good time to use any extra cash in your account to buy in, since these sell off's tend to be a bit of an over kill (Does any remember the panic at the beginning of Nov 2006?).
There has been some debate lately on how to time your rebalancing. There is evidence to suggest that you should wait until a given class of assest is out by 5% or more rather than just doing it once a year. I personally can't be bothered. I like my index investing because I can literally do it in my sleep. I only do one complete rebalance at the start of the year and otherwise just use my monthly cash installments to top any fund that is lower than the rest.
So that's my method of rebalancing. If you have a great easy way to handle it better, I would love to hear about it, so please leave a comment.
Friday, January 05, 2007
Suggested Blog Reading - Part I
The great thing about blogs is there is just so many of them with interesting points of view. Here are a few that I read regularly.
Canadian Capitalist - A fellow engineer in Ottawa that posts every weekday for over two years now! A wide range of topics are covered including spending, saving and current events. A must read during my lunch hour if nothing else for all the interesting debates that tend to come up in the comments to some of his posts.
Canadian Financial Stuff - A quirky blog by another guy in Ottawa. It often features interesting rants and different ideas on the world of personal finances.
Canadian Money Blog Reviewer - A newer blog that seems to off to a promising start. Offering a wide coverage of topics and a very open door policy on topics/help for readers.
The Dividend Guy Blog - If you own any stock with a dividend in Canada you have to read this blog. The author is from Alberta and has some solid advice on dividend paying stocks.
Million Dollar Journey - A blog about a 27 year old trying to get his net worth to $1 million by the time he is 35. So far so good, this blogger is very active in the personal finance blog sphere and you will often see his comments on other blogs such as mine.
Well that's just a small sample of a few the blogs I read. I'll post more later.
Canadian Capitalist - A fellow engineer in Ottawa that posts every weekday for over two years now! A wide range of topics are covered including spending, saving and current events. A must read during my lunch hour if nothing else for all the interesting debates that tend to come up in the comments to some of his posts.
Canadian Financial Stuff - A quirky blog by another guy in Ottawa. It often features interesting rants and different ideas on the world of personal finances.
Canadian Money Blog Reviewer - A newer blog that seems to off to a promising start. Offering a wide coverage of topics and a very open door policy on topics/help for readers.
The Dividend Guy Blog - If you own any stock with a dividend in Canada you have to read this blog. The author is from Alberta and has some solid advice on dividend paying stocks.
Million Dollar Journey - A blog about a 27 year old trying to get his net worth to $1 million by the time he is 35. So far so good, this blogger is very active in the personal finance blog sphere and you will often see his comments on other blogs such as mine.
Well that's just a small sample of a few the blogs I read. I'll post more later.
Thursday, January 04, 2007
Working in Retirement
Well my vacation is now over so it's back to work here. Sorry for the last few days off, but I was a bit busier than I planned.
So I found an interesting article on working in retirement that basically said that 58% of working Canadians plan to keep doing some paid work into their retirement years. In fact, the baby boomers are very keen on the idea with a huge 65% who want to keep working. So the obvious question is: what's changed?
I think some fears about having enough money are driving this trend, but a bigger motivation is looking for some meaning to their lives in retirement. People spend most of their lives working, so when that is gone there is a sudden void in their lives that they don't know how to fill without work. Is this wrong? In my mind, not really. Some work in retirement can be fun and useful beyond money concerns to provide social contact, mental stimulation and meaning to people's lives. The trick is to not let become too large a part of your retirement, otherwise your really haven't retired at all.
So I found an interesting article on working in retirement that basically said that 58% of working Canadians plan to keep doing some paid work into their retirement years. In fact, the baby boomers are very keen on the idea with a huge 65% who want to keep working. So the obvious question is: what's changed?
I think some fears about having enough money are driving this trend, but a bigger motivation is looking for some meaning to their lives in retirement. People spend most of their lives working, so when that is gone there is a sudden void in their lives that they don't know how to fill without work. Is this wrong? In my mind, not really. Some work in retirement can be fun and useful beyond money concerns to provide social contact, mental stimulation and meaning to people's lives. The trick is to not let become too large a part of your retirement, otherwise your really haven't retired at all.
Friday, December 29, 2006
Retirement Trip Wire aka: The Mortgage
While looking at my mortgage balance recently, I realized that I have a small problem with my retirement plans. I want to retire when I'm 45, which is about 16 years away. The problem is my mortgage amortization is currently at 19 years, so I have to either accelerate the mortgage pay down by three years or live with the payments for three years in retirement.
I've never liked paying interest, so I think I'm going to try to find a way to accelerate the pay down by three years. Currently I have maxed out my semi-monthly payments with my current mortgage, so I have to wait until three years to pick a shorter amortization or start applying lump sum payments to it. I'm not sure which way I'm going to do it.
So like all good plans, I'm finding some holes in my plan to retire at 45. So far I don't think I'm past the point of saving the plan, but this has proven to be a bit more of a challenge that I first thought.
I've never liked paying interest, so I think I'm going to try to find a way to accelerate the pay down by three years. Currently I have maxed out my semi-monthly payments with my current mortgage, so I have to wait until three years to pick a shorter amortization or start applying lump sum payments to it. I'm not sure which way I'm going to do it.
So like all good plans, I'm finding some holes in my plan to retire at 45. So far I don't think I'm past the point of saving the plan, but this has proven to be a bit more of a challenge that I first thought.
Year End Check Up: Net Worth Update
With the end of the year approaching I think it is time to take a snap shot of my net worth and find out how I'm doing. In general practice, even if you do nothing else for the entire year of tracking your net worth it is useful to get an end/start of year snap shot of your financial health so you can track your progress at least yearly.
Assests
House $198,000 (I recently did a survey of house listings in the area, apparently my last estimate of $195, 000 is a bit low since a house with 500 sq ft less that mine is selling for $198,000.)
RRSP $11,600
Wife's RRSP $4800
Old Work Pension $10,500 (I'm almost embrassed to say I forgot about this in my first net worth calculation)
Wife's Investment Account $4200
ING Savings Account $1000
Debt
Mortgage $149,900
Line of Credit $0 (As I mentioned before, I keep this as part of my emergancy fund.)
Therefore my net worth now stands at: $80,200.
Even with my 'lost' pension money that is still a nice little increase from my first net worth check back in Nov. See you in the New Year.
Assests
House $198,000 (I recently did a survey of house listings in the area, apparently my last estimate of $195, 000 is a bit low since a house with 500 sq ft less that mine is selling for $198,000.)
RRSP $11,600
Wife's RRSP $4800
Old Work Pension $10,500 (I'm almost embrassed to say I forgot about this in my first net worth calculation)
Wife's Investment Account $4200
ING Savings Account $1000
Debt
Mortgage $149,900
Line of Credit $0 (As I mentioned before, I keep this as part of my emergancy fund.)
Therefore my net worth now stands at: $80,200.
Even with my 'lost' pension money that is still a nice little increase from my first net worth check back in Nov. See you in the New Year.
Thursday, December 28, 2006
Goals for 2007
It's the end of the year, I'm starting to plan for next year. So I thought I would share a few of my goals for the next year.
1) Save $10,000 in 2007. This will include RRSP accounts, taxable account, and the pension plan.
2) Investigate other streams of income. I'm basically going to have a look at a possible small business or a rental property. I'm not entirely sure what, but I'm going to start devoting some of my time to looking at my options.
3) Keep painting and other minor renovations to the house to boost its value by at least $10,000.
I know that hardly earth shattering goals, but I like to keep my goals for a year fairly realistic. I know too many people who make goals that are too hard and then they get frustrated by not making them.
1) Save $10,000 in 2007. This will include RRSP accounts, taxable account, and the pension plan.
2) Investigate other streams of income. I'm basically going to have a look at a possible small business or a rental property. I'm not entirely sure what, but I'm going to start devoting some of my time to looking at my options.
3) Keep painting and other minor renovations to the house to boost its value by at least $10,000.
I know that hardly earth shattering goals, but I like to keep my goals for a year fairly realistic. I know too many people who make goals that are too hard and then they get frustrated by not making them.
Wednesday, December 27, 2006
Book Review: How to Retire Happy, Wild and Free
As par of my vacation I'm getting caught up on some reading and I came across a great little book. How to Retire Happy, Wild and Free by Ernie J. Zelinski is a must read, but not for the usual reasons.
Typically I read books for investment advice, spending reductions and taxation. This one is different in the regards it focuses on that old question of "What are you going to do with all that time in retirement?" Ernie actually gives a great read on how to plan your leisure time to ensure you have a rewarding retirement.
It a pleasure to read a book that addresses the idea of how to have satisfying leisure time. I think most people spend far too much leisure time at passive activities such as watching TV. One example in the book is if you reduce your TV time by just one hour a day you will gain about 365 hours a year or about 20 extra days a year (based on a 18 hour day awake time) to do something more meaningful, such as reading or another hobby.
So next time you think you don't have time for anything. Try to just find one hour a day and see what happens. (Yes, I know that an hour can seem like an impossible goal some days, but try for just 15 minutes and you still gain an extra 5 days a year on something.)
Typically I read books for investment advice, spending reductions and taxation. This one is different in the regards it focuses on that old question of "What are you going to do with all that time in retirement?" Ernie actually gives a great read on how to plan your leisure time to ensure you have a rewarding retirement.
It a pleasure to read a book that addresses the idea of how to have satisfying leisure time. I think most people spend far too much leisure time at passive activities such as watching TV. One example in the book is if you reduce your TV time by just one hour a day you will gain about 365 hours a year or about 20 extra days a year (based on a 18 hour day awake time) to do something more meaningful, such as reading or another hobby.
So next time you think you don't have time for anything. Try to just find one hour a day and see what happens. (Yes, I know that an hour can seem like an impossible goal some days, but try for just 15 minutes and you still gain an extra 5 days a year on something.)
Friday, December 22, 2006
Holiday Posting & Book Review: The Millionaire Next Door
Well everyone I'm officially on vacation from 3pm today until Jan 3rd. I will not be posting on Christmas and Boxing Day, but I will try to post after that as often as possible. Happy Holidays and have a great long weekend.
* * *
I recent read the book, The Millionaire Next Door by: Thomas Stanley and William Danko, and I was a bit amazed by some of their findings. For example that fact that 80% of the millionaires in the US are first generation to their money was a bit of a wake up call. There are basically two types of a rich in the book: those that look rich (but actually have little assets) and those who don't look rich (but have tons of assets).
If nothing else this book teachings you not to worry about what others think and just do your own thing when it comes to money. Just because you earn enough to have the big house in the best neighbourhood and two cars, doesn't mean you have to spend it that way. I've always liked buying the worst house on the block in a decent neighbourhood and making sure I have a profit when I need/want to sell.
It also hammers home the idea that you are not what you drive. You have guys in the US who have a net worth of $10 million, but drive an old truck, because he likes to toss dead fish in the back seat after a trip to his best fishing spot.
So if your looking for some reading material over the holidays, I would suggest reading this book.
* * *
I recent read the book, The Millionaire Next Door by: Thomas Stanley and William Danko, and I was a bit amazed by some of their findings. For example that fact that 80% of the millionaires in the US are first generation to their money was a bit of a wake up call. There are basically two types of a rich in the book: those that look rich (but actually have little assets) and those who don't look rich (but have tons of assets).
If nothing else this book teachings you not to worry about what others think and just do your own thing when it comes to money. Just because you earn enough to have the big house in the best neighbourhood and two cars, doesn't mean you have to spend it that way. I've always liked buying the worst house on the block in a decent neighbourhood and making sure I have a profit when I need/want to sell.
It also hammers home the idea that you are not what you drive. You have guys in the US who have a net worth of $10 million, but drive an old truck, because he likes to toss dead fish in the back seat after a trip to his best fishing spot.
So if your looking for some reading material over the holidays, I would suggest reading this book.
Thursday, December 21, 2006
Taxation Rates In/Out of RRSP
Well after thinking about it for a few days I think I have worked out my plan to not invest an additional funds in my wife's RRSP other than my current $100/month.
It comes down to taxes.
Situation #1 - In the RRSP (Spousal)
Let's say I put in $1000/year additional to my wife's RRSP. That would generate a $350 refund on my taxes which I would roll over to the RRSP. So I keep doing that I would average $112/month at 5% for 15 years I would get about $32,050. I would get tax free growth until I hit 45 but then we would start paying tax on all the gains and the original investment to the tune of about 26%, or about $8333 of that. So her nest egg after tax would be $23,717.
Situation #2 - Outside the RRSP in my spouses investment account.
In this case the wife invests $1000 in a Canadian Blue Chip stock. Dividends would be taxed at a -5% rate, so better than tax free growth and then once she sells she would only pay capital gains at a rate of about 13%. So we kept putting in $1000/year or $83/month and she got dividends to a tune of 1% for a 6% rate of return she would have $26,592 in 15 years. Now tax in this case is only on the capital gain, so drop off $15,000 for monthly investment to $11,592. Then drop the reinvest dividends for another $115 to $11,477 at a 13% tax rate, she would owe $1492. So the nest egg after tax would be $25,099.
So outside the RRSP beats inside by $1382 and I did not include any bonus for getting that -5% tax on the dividends outside the RRSP.
I should point out those numbers were made with a lot of assumptions (like all numbers are in current dollars, that the wife doesn't sell the stock early and trigger a capital gain, and that any RRSP withdrawals would be fully taxed), but with numbers like these you have to make some assumptions otherwise you can't come up with anything. I still feel that having an RRSP is a great idea for those investments which are tax equal to income like interest or holding non- Canadian stocks.
It comes down to taxes.
Situation #1 - In the RRSP (Spousal)
Let's say I put in $1000/year additional to my wife's RRSP. That would generate a $350 refund on my taxes which I would roll over to the RRSP. So I keep doing that I would average $112/month at 5% for 15 years I would get about $32,050. I would get tax free growth until I hit 45 but then we would start paying tax on all the gains and the original investment to the tune of about 26%, or about $8333 of that. So her nest egg after tax would be $23,717.
Situation #2 - Outside the RRSP in my spouses investment account.
In this case the wife invests $1000 in a Canadian Blue Chip stock. Dividends would be taxed at a -5% rate, so better than tax free growth and then once she sells she would only pay capital gains at a rate of about 13%. So we kept putting in $1000/year or $83/month and she got dividends to a tune of 1% for a 6% rate of return she would have $26,592 in 15 years. Now tax in this case is only on the capital gain, so drop off $15,000 for monthly investment to $11,592. Then drop the reinvest dividends for another $115 to $11,477 at a 13% tax rate, she would owe $1492. So the nest egg after tax would be $25,099.
So outside the RRSP beats inside by $1382 and I did not include any bonus for getting that -5% tax on the dividends outside the RRSP.
I should point out those numbers were made with a lot of assumptions (like all numbers are in current dollars, that the wife doesn't sell the stock early and trigger a capital gain, and that any RRSP withdrawals would be fully taxed), but with numbers like these you have to make some assumptions otherwise you can't come up with anything. I still feel that having an RRSP is a great idea for those investments which are tax equal to income like interest or holding non- Canadian stocks.
Wednesday, December 20, 2006
Pitfalls of Early Retirement
Early retirement is a wonderful dream, but in some cases that ends up being a nightmare. So let's looks at some common pitfalls of planning for early retirement.
1) Underestimating expenses. It's amazing how during your working left you get use to your lifestyle that you tend to forget about certain items like health benefits, replacing your car, your water heater, roof and the list goes on. When your planning for an additional 20 years of retirement you better make sure you check your expense list twice. One way to plan for this is to make sure when you go into retirement that everything is new or that you have planned for an extra replacement money. So for cars and houses a good minimum is $2000/year extra expense to cover those unusual expenses.
2) Not having any margin of safety on your calculations. It's nice to hope that things turn out just the way you plan, but let's face it, life doesn't work that way. So you better leave some wiggle room when doing the math. In my case I drop my expected rate of return by an extra 1%. Some people like to boost their expenses by an additional 10%. Either way works out fine, but you do want to have some cushion there.
3) Not enough diversification in your investments. In order to avoid having your retirement savings go up in smoke you need to make sure you can suffer some serious damage to your savings. The solution is to avoid putting all your nest eggs in one basket. You most likely want a conservative mix once you get near retirement, but not too conservative that inflation takes you down in twenty years. So you most likely want a high interest savings account, bonds/CD's, at least one REIT and a mix of other equities in Canada, US and the world.
4) Forgetting about taxes. Knowing your Canada or US tax law is required to build a good portfolio as much as diversification. For Canadians you need to know about the three types of investment income and how each is taxed.
5) Unrealistic expectations. You can't travel the world and live in five star resorts and leave work at 30. Ok, perhaps one in 13 million can, but I know that isn't me and most likely not you.
6) Emotional considerations. Some people do all the math and planning but forget one thing. What are you going to do with all that time? So they end up bored and go back to work. My question is what's the point of saving if you don't have a plan for your activities in retirement! Early on in your planning you want to start considering this. After all you don't want to forget about enjoying your life now and you also want to ensure you will continue to enjoy your life in early retirement.
1) Underestimating expenses. It's amazing how during your working left you get use to your lifestyle that you tend to forget about certain items like health benefits, replacing your car, your water heater, roof and the list goes on. When your planning for an additional 20 years of retirement you better make sure you check your expense list twice. One way to plan for this is to make sure when you go into retirement that everything is new or that you have planned for an extra replacement money. So for cars and houses a good minimum is $2000/year extra expense to cover those unusual expenses.
2) Not having any margin of safety on your calculations. It's nice to hope that things turn out just the way you plan, but let's face it, life doesn't work that way. So you better leave some wiggle room when doing the math. In my case I drop my expected rate of return by an extra 1%. Some people like to boost their expenses by an additional 10%. Either way works out fine, but you do want to have some cushion there.
3) Not enough diversification in your investments. In order to avoid having your retirement savings go up in smoke you need to make sure you can suffer some serious damage to your savings. The solution is to avoid putting all your nest eggs in one basket. You most likely want a conservative mix once you get near retirement, but not too conservative that inflation takes you down in twenty years. So you most likely want a high interest savings account, bonds/CD's, at least one REIT and a mix of other equities in Canada, US and the world.
4) Forgetting about taxes. Knowing your Canada or US tax law is required to build a good portfolio as much as diversification. For Canadians you need to know about the three types of investment income and how each is taxed.
5) Unrealistic expectations. You can't travel the world and live in five star resorts and leave work at 30. Ok, perhaps one in 13 million can, but I know that isn't me and most likely not you.
6) Emotional considerations. Some people do all the math and planning but forget one thing. What are you going to do with all that time? So they end up bored and go back to work. My question is what's the point of saving if you don't have a plan for your activities in retirement! Early on in your planning you want to start considering this. After all you don't want to forget about enjoying your life now and you also want to ensure you will continue to enjoy your life in early retirement.
Tuesday, December 19, 2006
Loaning Money to Friends
Well yesterday I broke one of my primary rules around money. I gave a loan of money to a friend.
To date I never given out a loan to a friend. In my mind it is just asking for something to go wrong and money is not worth losing a friend over. In fact, I know a friend in Alberta who is very well off who has helped a number of friends over the years. Almost every loan has ended badly.
So why did I break my rule? Well in this case the money is already partly his. You see I have a fund setup which a group of friends pay in to each month. That way when we see each other we just deduct the expenses for dinner out from the fund. The fund is a bit over sized right now, so I talked to the other members a while back about giving the gentlemen in question a short loan to buy an engagement ring. They all agreed.
So I've given out a loan, but in reality I only put up about $500 of my own money. Payment terms are set and we get to know about the engagement about a week ahead of the world. I'll let you know how it turns out.
To date I never given out a loan to a friend. In my mind it is just asking for something to go wrong and money is not worth losing a friend over. In fact, I know a friend in Alberta who is very well off who has helped a number of friends over the years. Almost every loan has ended badly.
So why did I break my rule? Well in this case the money is already partly his. You see I have a fund setup which a group of friends pay in to each month. That way when we see each other we just deduct the expenses for dinner out from the fund. The fund is a bit over sized right now, so I talked to the other members a while back about giving the gentlemen in question a short loan to buy an engagement ring. They all agreed.
So I've given out a loan, but in reality I only put up about $500 of my own money. Payment terms are set and we get to know about the engagement about a week ahead of the world. I'll let you know how it turns out.
Monday, December 18, 2006
Maxing the RRSP's or Investing outside the RRSP
I recently had a comment left on another post wondering if I max out my RRSP's every year. Up to now the answer has always been no. I was focused on debt reduction for a number of years and with what I was putting in to my RRSP's and my pension adjustment I don't have much extra room built up. But now I'm not sure if I should max the RRSP's or have my wife invest in dividend paying stocks and hold them for the long term.
Option 1: I buy spousal RRSP's and max out each year for the next 16 years or so. I would get back about $35 per $100 invested and then I would get tax free growth for a number of years. The problem would be I would get taxed at my new lower marginal rate when I pull them out in retirement.
Option 2: I have my wife buy quality dividend paying stocks and hold them for the next 15 years. She would have a negative tax rate on her dividends, so no tax on that growth. If I don't sell for that long I would only trigger capital gains at the end, which would be a lower tax rate than my marginal rate at that time.
Has anyone seen a good calculator that is updated with the latest tax rates? I have yet to find one during the weekend and I'm still working out how to simulate the buying stock option well. Once I get some good results I will be sure to post them.
Option 1: I buy spousal RRSP's and max out each year for the next 16 years or so. I would get back about $35 per $100 invested and then I would get tax free growth for a number of years. The problem would be I would get taxed at my new lower marginal rate when I pull them out in retirement.
Option 2: I have my wife buy quality dividend paying stocks and hold them for the next 15 years. She would have a negative tax rate on her dividends, so no tax on that growth. If I don't sell for that long I would only trigger capital gains at the end, which would be a lower tax rate than my marginal rate at that time.
Has anyone seen a good calculator that is updated with the latest tax rates? I have yet to find one during the weekend and I'm still working out how to simulate the buying stock option well. Once I get some good results I will be sure to post them.
Friday, December 15, 2006
Breaking 13K
Well it finally happened the TSX index broke 13,000 and stayed there long enough to close just over at 13,021. I have to say I'm really noticing this upswing on the market since I switched my RRSP to index funds (see here for details). I'm going to have to rebalance my funds in Jan since the TSX portion is well over it normal 25% level and crawling up to about 30% right now.
The only thing about this upswing that gets me nervous is waiting for a bit of market correction. It seems all investors are a bit too bullish on everything and I'm waiting for the shoe to drop, since we can't escape some slow down from the US. Meanwhile I'll build up some cash to go shopping for deals when we have another drop.
Have a good weekend,
CD
The only thing about this upswing that gets me nervous is waiting for a bit of market correction. It seems all investors are a bit too bullish on everything and I'm waiting for the shoe to drop, since we can't escape some slow down from the US. Meanwhile I'll build up some cash to go shopping for deals when we have another drop.
Have a good weekend,
CD
Thursday, December 14, 2006
Letting Go of Control of Your Money
I have a confession to make. I'm a recovering money control freak. My wife laughed at me for years as I tracked ever little penny of expenses. The reality was it was a good thing to know about my spending, but now with the kid I just don't have the time to bother with the same level of detail.
So how do you get over being a money control freak? Start automatic bill payments and fund transfers for your savings, then comes the hard part. Don't track them as every tranfer leaves the account each month (Alright, you can make sure they leave on the first month). Just limit yourself to doing the end of month summary check to see if you have any extra money in your chequing account that can go over the high interest savings account.
I've now go it all set up so I have to pay just two bills in online banking and do one account transfer of money. Every other bill and account transfer is now automatic.
It's been several months now and it is working. I'm spending less time checking my bank balances and more time reading and playing with the kid. So if you are a fellow money control freak, don't worry there is hope. All you have to do is give up just a bit of control and get a life beyond your money. After all isn't all this saving for early retirement about having time to do the things you love. Why wait until your retired to start?
So how do you get over being a money control freak? Start automatic bill payments and fund transfers for your savings, then comes the hard part. Don't track them as every tranfer leaves the account each month (Alright, you can make sure they leave on the first month). Just limit yourself to doing the end of month summary check to see if you have any extra money in your chequing account that can go over the high interest savings account.
I've now go it all set up so I have to pay just two bills in online banking and do one account transfer of money. Every other bill and account transfer is now automatic.
It's been several months now and it is working. I'm spending less time checking my bank balances and more time reading and playing with the kid. So if you are a fellow money control freak, don't worry there is hope. All you have to do is give up just a bit of control and get a life beyond your money. After all isn't all this saving for early retirement about having time to do the things you love. Why wait until your retired to start?
Wednesday, December 13, 2006
My Worst Investing Mistakes
My investing career started early in life. Back in high school I ran a social studies project where we bought shares in a junior mining company. We made some money and then I decided to buy out everyone else and hold the stock myself. Well that didn't go so well. After a few years I owned about $25 of stock out of my original $200. I sold and avoided the stock market for years, but I still didn't learn my lesson yet.
Now my current mistake is a diamond mine, Tahara (TAH), I bought over a year ago back when the mine wasn't even open yet. There was a lot of hype around the stock and it climbed for several months and I had this feeling at one point I should just take my gains and run. I didn't. Now the stock, even after a reverse share split, has fallen to the point of being a penny stock again.
Yet strangely enough I have no current plans to sell the stock. I bought it with a different frame of mind this time. I know that I'm speculating and I realize that that is not the same as investing. I also realize that I don't have very much money invested into the company so if it bottoms out and I have nothing. I'm not worried, because this is my form of lottery tickets. Perhaps this is the reason I have gone to index investing with my RRSP.
It's been an entertaining ride so far and I promised myself I would give the company five years after start up to see if they can't make a go of it. Even if I just take a lose at the end, at least I get to claim a capital lose on my tax form.
So what was your worst mistake? If you feel like sharing, please leave a comment.
Now my current mistake is a diamond mine, Tahara (TAH), I bought over a year ago back when the mine wasn't even open yet. There was a lot of hype around the stock and it climbed for several months and I had this feeling at one point I should just take my gains and run. I didn't. Now the stock, even after a reverse share split, has fallen to the point of being a penny stock again.
Yet strangely enough I have no current plans to sell the stock. I bought it with a different frame of mind this time. I know that I'm speculating and I realize that that is not the same as investing. I also realize that I don't have very much money invested into the company so if it bottoms out and I have nothing. I'm not worried, because this is my form of lottery tickets. Perhaps this is the reason I have gone to index investing with my RRSP.
It's been an entertaining ride so far and I promised myself I would give the company five years after start up to see if they can't make a go of it. Even if I just take a lose at the end, at least I get to claim a capital lose on my tax form.
So what was your worst mistake? If you feel like sharing, please leave a comment.
Tuesday, December 12, 2006
Retirement Links & Info
Well in my search for retirement data I have done many Google searches and read many books. Below is a sampling of information I found useful.
Canadian Early Retirement Books
Stop Working - Start Living by Dianne Nahirny: A good book on control spending and about being creative on how to save money and make a little more cash.
Stop Working by Derek Foster: Derek's a bit new to this entire early retirement thing, but his book does offer some ideas for investing for a very long time frame.
Free Parking & Advance to Go by Alan Dickson: Two books by Alan that provide a good reality shift for most people. It challenges your belief on how you define wealth and an excellent basic description of index investing and why it works can be found in Advance to Go.
US Early Retirement Book
Work Less Live More by Bob Clyatt: This is an excellent resource on some of the finer points of cost prediction for retirement and dealing with the lifestyle of being semi-early retired. Well worth the read for any Canadian or US retirement planner.
General Personal Finance Book
The Wealthy Barber by David Chilton: A classic read for anyone who is just starting out. It covers the basics of insurance and saving, but you might want to take some of his advice with a grain or two of salt.
Investing Books
The Intelligent Investor by Benjamin Graham: A classic read on investing. I personally enjoyed the edition with commentary by Jason Zweig on each chapter. He points of many little facts that provide some reference to investing today versus investing in Graham's time.
Internet Links
The Retire Early Homepage - A great site with many useful articles. It is written mainly for the US, but it has lots of useful information including a great article on the 4% rule.
Dory's Early Retirement Forum - With over 3000 members of early retirees or people planning early retirement this page is a gold mine of advice from people who are living the dream of early retirement. On last count there were around 11,000 topics and almost 200,000 posts. The board is mostly US based, but there are a few regular Canadian posters as well. If you can't find what you need in the search function, join up and put in a post. The same topics tend to come up and those with good memories will often post links to previous topics.
Enjoy reading everyone. I'll post more links as I get some more time to dig in my bookmarks.
Canadian Early Retirement Books
Stop Working - Start Living by Dianne Nahirny: A good book on control spending and about being creative on how to save money and make a little more cash.
Stop Working by Derek Foster: Derek's a bit new to this entire early retirement thing, but his book does offer some ideas for investing for a very long time frame.
Free Parking & Advance to Go by Alan Dickson: Two books by Alan that provide a good reality shift for most people. It challenges your belief on how you define wealth and an excellent basic description of index investing and why it works can be found in Advance to Go.
US Early Retirement Book
Work Less Live More by Bob Clyatt: This is an excellent resource on some of the finer points of cost prediction for retirement and dealing with the lifestyle of being semi-early retired. Well worth the read for any Canadian or US retirement planner.
General Personal Finance Book
The Wealthy Barber by David Chilton: A classic read for anyone who is just starting out. It covers the basics of insurance and saving, but you might want to take some of his advice with a grain or two of salt.
Investing Books
The Intelligent Investor by Benjamin Graham: A classic read on investing. I personally enjoyed the edition with commentary by Jason Zweig on each chapter. He points of many little facts that provide some reference to investing today versus investing in Graham's time.
Internet Links
The Retire Early Homepage - A great site with many useful articles. It is written mainly for the US, but it has lots of useful information including a great article on the 4% rule.
Dory's Early Retirement Forum - With over 3000 members of early retirees or people planning early retirement this page is a gold mine of advice from people who are living the dream of early retirement. On last count there were around 11,000 topics and almost 200,000 posts. The board is mostly US based, but there are a few regular Canadian posters as well. If you can't find what you need in the search function, join up and put in a post. The same topics tend to come up and those with good memories will often post links to previous topics.
Enjoy reading everyone. I'll post more links as I get some more time to dig in my bookmarks.
Monday, December 11, 2006
How to Buy Big Ticket Items
While reading my latest issue of Moneysense, I read an article the mentioned that a good idea with buying big ticket items is to have a limit at which you are required to get your spouse's approval. I realized that my wife and me, we have been doing this ourselves for a number of years already without any formal agreement.
We don't have a set limit per say, but we tend to discuss any big ticket items well in advance of buying anything. For example, last Friday I spent just under $900 on a new love seat for the living room. To an outsider it looked like a sudden purchase, but we have been discussing it for three months and deciding on styles, fabrics and what we want in the love seat. We also had decided that we wanted to spend around $700 for it before tax and delivery. So the love seat ended up slightly higher than that, but it was exactly what we wanted and I know that I'm investing in a piece that will last me for 20 years if I look after it.
So the exact method will vary for each family, but I do suggest that you have something in place to handle big ticket items (in our case: discussion, research and setting a price range). That way you can just avoid the entire phrase of "You bought what for how much?!?" from coming out your spouse's mouth.
We don't have a set limit per say, but we tend to discuss any big ticket items well in advance of buying anything. For example, last Friday I spent just under $900 on a new love seat for the living room. To an outsider it looked like a sudden purchase, but we have been discussing it for three months and deciding on styles, fabrics and what we want in the love seat. We also had decided that we wanted to spend around $700 for it before tax and delivery. So the love seat ended up slightly higher than that, but it was exactly what we wanted and I know that I'm investing in a piece that will last me for 20 years if I look after it.
So the exact method will vary for each family, but I do suggest that you have something in place to handle big ticket items (in our case: discussion, research and setting a price range). That way you can just avoid the entire phrase of "You bought what for how much?!?" from coming out your spouse's mouth.
Friday, December 08, 2006
Looking for Links
Well if you've been reading this blog for a bit you would have noticed my complete lack of links. This weekend I plan on working on that, but I could use some help. I've got a short list of some blogs I've enjoyed, but I'm always on the look out for more good reading material. So if you have a few ideas of blogs I should include, please leave a comment.
Also I'm going to dig around in my personal bookmarks to put together a early retirement resource page, but again if you have a good link please leave a comment.
One last little thing to note. I finally got my email address up on the page. If you noticed it early and it didn't work. I apologize for typing the address wrong in the link. It should work now. My inbox is open to suggestions, rants or any other questions you would like to see answered.
Have a great weekend,
CD
Also I'm going to dig around in my personal bookmarks to put together a early retirement resource page, but again if you have a good link please leave a comment.
One last little thing to note. I finally got my email address up on the page. If you noticed it early and it didn't work. I apologize for typing the address wrong in the link. It should work now. My inbox is open to suggestions, rants or any other questions you would like to see answered.
Have a great weekend,
CD
Thursday, December 07, 2006
Book Review : Stop Working - Start Living
On my personal library shelf I have built up a small collection of some of my favorite retirement planning books. Out of all of these the one I like the best so far has been Stop Working - Start Living by Dianne Nahirny.
Dianne retired at age 36 and during her working life never made much of a salary (around $20,000/year), but she did make good money off a few house deals. She left the working world with a net worth of just $225,000. So the obvious question is with such a low net worth how is she financially independent? That is the lesson of the book: control your costs or they will control you.
Her book has two parts, the first part focuses on attitudes around money and how she came to her freedom day. More than anything what I was left with was the idea was to control your day to day spending and stop wasting money on things that don't mean anything to you (ie: your power bill). That way you feel fine spending money on those luxury items you really want. In Dianne's case, it was things like a antique gold locket, fur coat and a trip to Europe on the Concorde.
The second half of the book gets down to how to control your money. Some her examples are a bit extreme for my taste, but it proves the point. If your creative there is little no end in sight on ways to avoid costs and save money. The added bonus to her methods is you will be a kinder to the earth as you waste fewer resources. Which is exactly how I view it. I'm not saving the planet with low wattage light bulbs, I'm saving a few bucks and now have a $40/month power bill, so I'm taking that savings and building up to buy a new LCD TV.
Dianne retired at age 36 and during her working life never made much of a salary (around $20,000/year), but she did make good money off a few house deals. She left the working world with a net worth of just $225,000. So the obvious question is with such a low net worth how is she financially independent? That is the lesson of the book: control your costs or they will control you.
Her book has two parts, the first part focuses on attitudes around money and how she came to her freedom day. More than anything what I was left with was the idea was to control your day to day spending and stop wasting money on things that don't mean anything to you (ie: your power bill). That way you feel fine spending money on those luxury items you really want. In Dianne's case, it was things like a antique gold locket, fur coat and a trip to Europe on the Concorde.
The second half of the book gets down to how to control your money. Some her examples are a bit extreme for my taste, but it proves the point. If your creative there is little no end in sight on ways to avoid costs and save money. The added bonus to her methods is you will be a kinder to the earth as you waste fewer resources. Which is exactly how I view it. I'm not saving the planet with low wattage light bulbs, I'm saving a few bucks and now have a $40/month power bill, so I'm taking that savings and building up to buy a new LCD TV.
Wednesday, December 06, 2006
The Emergency Fund Myth
One piece of standard advice that I just hate is that you should keep an emergency fund of three to six months worth of expenses. I personally don't have one, instead I keep a unused line of credit that can cover about five months of expenses.
Why do I avoid an emergency fund? I plan for an entire year's worth of normal expenses in advance, so having the car insurance or Christmas come due is hardly a surprise. I save a set amount each month into my high interest savings account and pull out the money for those yearly expenses when the come up. That way I'm not having too large of a sum of money sitting around, uninvested and losing its value to inflation but I do have a large enough fund to help cushion those unexpected expenses.
As for a true emergency, I have used the line of credit before and found it worked out fine. After our baby was born ten weeks early, we had a lot of unexpected expenses (hotels, food) including the replacement of one of the main structural beams in our house for $9,000 and the car lease buyout for $8,000 (the story on the lease is an entirely new post). The total damage was about $22,000 in three months. So after maxing out the line of credit and stripping down every penny I had saved in non taxable accounts I was still $5000 short. So I took an offer of help from my parents and took out a loan from them for $5000 to be paid back in 8 months.
In 12 months I had manged to pay off the entire debt, which given the size of the emergency I feel is a perfectly acceptable time frame. So depending on your own situation, you may be better off with a $0 emergency fund.
Why do I avoid an emergency fund? I plan for an entire year's worth of normal expenses in advance, so having the car insurance or Christmas come due is hardly a surprise. I save a set amount each month into my high interest savings account and pull out the money for those yearly expenses when the come up. That way I'm not having too large of a sum of money sitting around, uninvested and losing its value to inflation but I do have a large enough fund to help cushion those unexpected expenses.
As for a true emergency, I have used the line of credit before and found it worked out fine. After our baby was born ten weeks early, we had a lot of unexpected expenses (hotels, food) including the replacement of one of the main structural beams in our house for $9,000 and the car lease buyout for $8,000 (the story on the lease is an entirely new post). The total damage was about $22,000 in three months. So after maxing out the line of credit and stripping down every penny I had saved in non taxable accounts I was still $5000 short. So I took an offer of help from my parents and took out a loan from them for $5000 to be paid back in 8 months.
In 12 months I had manged to pay off the entire debt, which given the size of the emergency I feel is a perfectly acceptable time frame. So depending on your own situation, you may be better off with a $0 emergency fund.
Tuesday, December 05, 2006
Retirement Calculations - Assumptions
Well it appears I inspired the Canadian Capitalist to dig out his pencil and do some calculations on his early retirement. He came up needing $1.36 million to leave the working world at age 55. Which to me proves assumptions are everything when it comes to retirement calculations. So for full disclosure on my previous posts (Part I, Part II and Part III) here is what I assumed.
1) That I will collect CPP at age 60 and that I will generate no more CPP contributions after I turn 45.
2) That OAS will exist in some form or another program will take it place to ensure I don't starve to death as a senior when I turn 65.
3) That all my calculations were done in today's dollars.
4) Which is why you will notice my assumed rate of return was around 5% for most of my calculations. To date my RRSP has been around 8% interest, so I cut out 2% for inflation and left 1% as a buffer for things to go wrong, except for my wife's investment account, since it is structured as being more aggressive.
5) I only used a 4% safe withdrawal rate on my work pension calculation. The reason is that the 4% rate is intended to be used for those who want to preserve most of their capital. For my early retirement, I intend to use up almost all of my capital. So for my RRSP's I assumed a 5% withdrawal rate.
Those are all technical assumptions, which can very from person to person depending on your comfort level with the government and your investments.
The single biggest factor in determining all those numbers is: what do you want to have for an income? For me I chose a very low number compared to a lot of people's comfort level ($25,000/year for two people). Yet that number is perfect for me. My current lifestyle is very cheap for the most part. I like to garden (which reduces food costs), cook(again reduce food costs), read books (free from the library), write (ok there is some power cost to run the computer) and watch movies (again mostly from the library, but also borrow from friends). My low number offers me something that can't be bought otherwise: time.
So if you plan a retirement with golf every day and trips around the world every three months you will need a lot of money, but if your looking just for more time with friends, family and to develop new hobbies or revisit old ones you might want to have a look again at the high income number.
I know that if I retire at 45 that I will be taking a risk, that the markets could crash or the government cuts my benefits. Yet, the reward for that risk is another 10 years of good health to do what I want is worth it to me.
1) That I will collect CPP at age 60 and that I will generate no more CPP contributions after I turn 45.
2) That OAS will exist in some form or another program will take it place to ensure I don't starve to death as a senior when I turn 65.
3) That all my calculations were done in today's dollars.
4) Which is why you will notice my assumed rate of return was around 5% for most of my calculations. To date my RRSP has been around 8% interest, so I cut out 2% for inflation and left 1% as a buffer for things to go wrong, except for my wife's investment account, since it is structured as being more aggressive.
5) I only used a 4% safe withdrawal rate on my work pension calculation. The reason is that the 4% rate is intended to be used for those who want to preserve most of their capital. For my early retirement, I intend to use up almost all of my capital. So for my RRSP's I assumed a 5% withdrawal rate.
Those are all technical assumptions, which can very from person to person depending on your comfort level with the government and your investments.
The single biggest factor in determining all those numbers is: what do you want to have for an income? For me I chose a very low number compared to a lot of people's comfort level ($25,000/year for two people). Yet that number is perfect for me. My current lifestyle is very cheap for the most part. I like to garden (which reduces food costs), cook(again reduce food costs), read books (free from the library), write (ok there is some power cost to run the computer) and watch movies (again mostly from the library, but also borrow from friends). My low number offers me something that can't be bought otherwise: time.
So if you plan a retirement with golf every day and trips around the world every three months you will need a lot of money, but if your looking just for more time with friends, family and to develop new hobbies or revisit old ones you might want to have a look again at the high income number.
I know that if I retire at 45 that I will be taking a risk, that the markets could crash or the government cuts my benefits. Yet, the reward for that risk is another 10 years of good health to do what I want is worth it to me.
Paying for the Kid's Education (RESP)
As I was doing my estimates for retirement, it occurred to me that I was planning to retire exactly as my kid will be in post secondary education. So how can I do both? Simple I don't plan to pay for my kid's entire education.
It's not that I'm not going to help, but I didn't have my entire education paid for, so why would I pay for all of my kid's education? I personally found that when my parents stopped paying the bill my spending dropped by about $2000/year. It forced me to question my spending habits and really made me think "Do I really need to buy this?"
I personally found the easiest way to fund a RESP for my kid is to take the Child Tax Benefit and that $100/month from the Federal Government and pour it into a RESP to receive the Education Saving Grant . In my case, that works out to $120/month of government's money that is then topped up to $150/month. So it costs me nothing until the kid no longer qualifies for the $100/month at which point I will continue to fund that amount in every month.
As to where to put the money. I suggest you read the following from the Canadian Capitalist, which is a great post with links to many helpful resources.
It's not that I'm not going to help, but I didn't have my entire education paid for, so why would I pay for all of my kid's education? I personally found that when my parents stopped paying the bill my spending dropped by about $2000/year. It forced me to question my spending habits and really made me think "Do I really need to buy this?"
I personally found the easiest way to fund a RESP for my kid is to take the Child Tax Benefit and that $100/month from the Federal Government and pour it into a RESP to receive the Education Saving Grant . In my case, that works out to $120/month of government's money that is then topped up to $150/month. So it costs me nothing until the kid no longer qualifies for the $100/month at which point I will continue to fund that amount in every month.
As to where to put the money. I suggest you read the following from the Canadian Capitalist, which is a great post with links to many helpful resources.
Monday, December 04, 2006
Defining Retirement
It occurs to me that I have overlooked something on this site so far. My goal is to retire at 45, but what exactly does the mean to me?
Well let me first say that does not mean I plan to never work again. For me retirement is having enough money that it does not matter if I do an activity to earn an income. That leaves me the freedom and time to do what I really love to do rather than what I just get a pay cheque doing.
I personally love to write (as you can tell from this blog), but I know that in Canada it is a very competitive market place for writers and frankly I know I need to get better at writing, but that takes time and I still have a family to feed. So I do engineering, which I enjoy but I don't love, to pay the bills.
If I reach my goal and retire at 45, it means I will most likely go to a new career of writing full time (ie: maybe 20 hours a week, after all this is suppose to be retirement!). So as one reader asked me, I'm not worried about what my then 18 year kid is going to think of having a 45 retired father, because I'm going to show him that if you work hard and plan you can set yourself up to do what you love. Which if your doing anything you really love, it really never feels like work at all.
Well let me first say that does not mean I plan to never work again. For me retirement is having enough money that it does not matter if I do an activity to earn an income. That leaves me the freedom and time to do what I really love to do rather than what I just get a pay cheque doing.
I personally love to write (as you can tell from this blog), but I know that in Canada it is a very competitive market place for writers and frankly I know I need to get better at writing, but that takes time and I still have a family to feed. So I do engineering, which I enjoy but I don't love, to pay the bills.
If I reach my goal and retire at 45, it means I will most likely go to a new career of writing full time (ie: maybe 20 hours a week, after all this is suppose to be retirement!). So as one reader asked me, I'm not worried about what my then 18 year kid is going to think of having a 45 retired father, because I'm going to show him that if you work hard and plan you can set yourself up to do what you love. Which if your doing anything you really love, it really never feels like work at all.
Friday, December 01, 2006
Stay Home with the Kid or Work…Or Do Both?
Two years ago I became a parent about ten weeks earlier than I should have. After five air ambulance transfers, four hospitals, and two rounds of neurosurgery and sixty seven days later we got our baby home. Needless to say, my wife had a very strong desire to stay home with our baby to ensure his development was progressing normally for the next several years. I agreed, but we needed to make it work with the budget after the maturity leave money ran out.
I worked it out that we could exist on my income alone, but there would be no extras (ie: no vacation money, Boxing Day shopping, or us covering the bill at a family supper out). So I gave the wife the news and offered her a challenge. “You have to earn some kind of an income while you stay home. I don’t care how much it is, just something.”
So she went to work during her maturity leave and got a home based daycare up and running in our house. The cash flow is tiny, but when you consider the cost savings on work clothes, commuting, paying for daycare and the tax write off of a home based business it does make sense for us.
Here’s a brief example:
After tax and expenses daycare income to house $240/month
Work clothes savings $50/month
Commuting savings $57/month (bus pass)
Daycare savings $600/month (local child care rate)
Daycare portion of house bills $150/month
Total savings/income to the house $1097/month
Strangely enough that was about what she was taking home prior to going on maturity leave. So I suggest that if your one of you is earning less than $30K/year and have at least one child that you look into the idea of one of staying home with a small business. You might just find that you can have your cake and eat it too.
This post is now part of Carnival of Personal Finance #77 over at Money and Values.
I worked it out that we could exist on my income alone, but there would be no extras (ie: no vacation money, Boxing Day shopping, or us covering the bill at a family supper out). So I gave the wife the news and offered her a challenge. “You have to earn some kind of an income while you stay home. I don’t care how much it is, just something.”
So she went to work during her maturity leave and got a home based daycare up and running in our house. The cash flow is tiny, but when you consider the cost savings on work clothes, commuting, paying for daycare and the tax write off of a home based business it does make sense for us.
Here’s a brief example:
After tax and expenses daycare income to house $240/month
Work clothes savings $50/month
Commuting savings $57/month (bus pass)
Daycare savings $600/month (local child care rate)
Daycare portion of house bills $150/month
Total savings/income to the house $1097/month
Strangely enough that was about what she was taking home prior to going on maturity leave. So I suggest that if your one of you is earning less than $30K/year and have at least one child that you look into the idea of one of staying home with a small business. You might just find that you can have your cake and eat it too.
This post is now part of Carnival of Personal Finance #77 over at Money and Values.
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