A Canadian and Her Money

The Emotional Roller Coaster - Financial Version

2007-08-22T22:21:00.000-06:00

There was a comment on my last post that got me thinking...

"When it comes to money one has to be a lot like the old Star Trek's Dr. Spock. Completely unemotional and totally analytical."

Now that is a tall order! I understand where the commenter was coming from - he wanted to warn about avoiding groupthink and herd mentality. But I think it's an interesting topic anyway. How much do you need to keep your emotions out of your finances?

Well, it depends which emotions and what context they arise in. Some could be highly beneficial. For example, the emotion of fear is well known to be one of the most powerful motivators. Personally, one of my greatest fears is being poor or dependent on others, especially in my older years. So this emotion actually helps me because it is so deeply imbedded in my psyche that even when I make conscious decisions to spend money there is a part of me that is saying "okay, now where can we cut back to make up for this?"

Another emotion that could be financially beneficial is greed. Yes, it can lead to unwise choices too, but many people who chase money above all else actually end up getting it (and often nothing else, but we don't need to get into that!). And especially if greed is matched by a good work ethic, then I think financial success is virtually assured.

However, if you talk about the stock markets, then both greed and fear can sink you pretty fast. They make you sell at the bottom and buy at the top, and make many other stupid moves along the way.

So here's my theory: the context really matters. Emotions are just motivators - they basically cause you to take an action. If you have emotions plus luck or intelligence you get actions with positive outcomes. And if you have emotions plus bad luck or stupidity then you get negative outcomes. In other words, the emotions are neutral but because they motivate action they will expose your strengths and weaknesses much sooner and more decisively.

If I'm right about this theory, then you don't need to control your emotions, you just need to become really smart financially so that every decision you make is a good one. Then when an emotion comes along and causes you to take action, you show off your genius!

What do you think? Are emotions dangerous to finances or is ignorance the real danger??

Sticking to Your Strategies

2007-08-13T23:33:00.000-06:00

Don't join the flavour of the month club when it comes to your finances! While you may get away with it in the short term, I believe that shifting strategies too often will punish you financially in the long term.

One reason for that is basic human psychology: you will want to chase the strategy that has already worked (and whose time may be past) and exit the strategy that is creating pain right now (which means leaving at a low point). Most reasonable financial strategies are designed for the longer term, so if you only implement them in the short term they won't always work.

A good example of this is owning real estate. If you hold a property for less than five years, and the market stays flat, you won't have enough to pay off your mortgage after commissions and other expenses. Even a modestly rising market won't compensate you if you sell too quickly. A 5% increase in a year will translate to just paying off your mortgage with no profit on most properties after commissions. But as we all know, owning your own home can be a great cornerstone of financial independence. If you stay in the same home for 15 years and accelerate your mortgage payments modestly, you could end up dropping your cost of living by a bundle when that last payment is made.

It's worthwhile to remember this fact when stock markets are falling, interest rates are rising and housing bubbles are collapsing in many areas. Your future does not depend on big gains tomorrow. It does depend on holding steady and keeping your eye on the goal - not the noise of today's market gyrations.

One challenge for me right now is that my house is turning into a bit of a headache, with tenants and renovations to deal with. It's so tempting to just say "sell it!" and have a bit of cash in hand and a headache relieved without drugs. But I have a vision of one day owning both a rental property and a primary residence so that I have some cash flow that is unrelated to a job or the stock markets. So now I have to push myself to do some hard or unpleasant tasks that are going to be investments in keeping my future plans on track. If I change my strategy now, then I will be back to shopping for a first property instead of having one in place and being ready for the second when the time is right.

One final word of warning though - I don't mean to imply that your plans should never ever change. They need to grow and adapt with your life circumstances so that you don't end up succeeding in 20 years at something you don't want any more. So set your goals carefully, review them annually, and in between put it on autopilot and let the plan proceed. If your strategy is sound then the little wiggles of the markets will either be buying opportunities or have no effect on you. And the best part is all the nights of sound sleeping that you will get!

Try to cancel... get a deal?!?

2007-08-09T19:08:00.000-06:00

I spent 45 minutes on the phone last night with my internet service provider, who happens to also be my phone company. The issue? I wanted to move my phone and cancel my internet. Sounds simple doesn't it?

Well, to cut a long story short it took 45 minutes of talking, on hold time and other garbage, but in the end I was convinced to keep my internet with them due to an offer of $10 off my internet every month for the next year. That's a $120 rentention bonus!

So first of all, this makes me realize just how much money they are making off me, but also it goes to show that a "good" customer does not get the best deals. If I just stay for years with the same provider, they will keep charging me the same rate (or raising it), while at the same time they are extending lower rates to people who try to cancel or change service providers. How unfair!

I suppose that I knew about this practice on some level, but having it happen to me really brought it home that it pays to shop around on everything, all the time. Now, obviously it would be too much work to do this every month, but perhaps a yearly schedule of calling around for better deals would more than compensate for the time you spend on it.

I'm sure that you will have some great examples of this to share. Where are the best (or worst) hidden deals to be found?

Why a Full Time MBA?

2007-08-07T20:51:00.000-06:00

A few people commented about my plans, saying that I should be considering a part-time or executive MBA, and keeping my business going. There are two reasons two do this:

Money - to keep my income flowing, even if it is slower
Contacts/Clients - to stay in touch with my network

The second reason is weaker than the first because everyone agrees that an MBA builds your network like nothing else can. However, the financial side of this decision is very interesting. I can afford to go back to school without going into debt. That is a tremendous luxury that many people don't have. But it will reverse the positive trend in my net worth for a couple of years, quite significantly.

As readers of this blog, you all know the gory details of my financial situation. Why do you think that I need to keep working during my MBA? Are you worried that I might not have a secure retirement if I spend $150,000 on an MBA and don't keep saving? If my net worth at age 35 is only $500,000 am I out of the game?? What if it's as low as $400,000?

The reasons that I want to do a full time MBA are a little bit less obvious:

I'd like to live in another city. I've never done so as an adult.
I'd like to be able to have time to learn and enjoy. I have friends who have done EMBA's and you literally have to take 20-30 hours out of your week, plus a day and a half of classes every other weekend. There's not much room for anything beyond work and MBA at that point.
I want to do a complete career shift. I don't plan to go back to my old career in any way. So keeping my business going would be counterproductive relative to my career goals.
I believe that I will get more out of the whole experience this way. More knowledge, more exploration, more networking, more unanticipated benefits.

These are mostly lifestyle and personal preference points. But isn't the point of money so that you have the freedom to do what you want, how you want? In a way, going back to school is like an indulgence for me. I love being in school. I am anticipating having a fabulous time there. And when I'm done, I will possess a qualification that will allow me to start earning money again. In fact, statistically, I should be able to more than catch up, but that is not something I am counting on.

So, in a roundabout way, this decision is about setting my own personal level of enough. I don't need to be the richest person around, and I have already succeeded financially beyond what I would have ever anticipated. I am now choosing to have my money do something for me, instead of me always doing things for money.

I hope that this post helps you to understand some of my reasons for making this decision. As always, I welcome your feedback and discussion!

More about my new plans...

2007-08-03T17:58:00.000-06:00

Million Dollar Journey asked yesterday what I plan to do after my MBA, and I realized that I haven't really put very much context around this decision so it must seem a little bit random. So here's a bit more background....

I have been working in a computer related field for the past 8 years, and frankly I am feeling very burnt out by the low-level detail-oriented nature of this work. It is also very stressful because clients don't notice all the good things that are working as quickly as they notice even one thing that is not, so the ringing of my phone is not a happy sound. Putting these things together, I decided that I wanted to shift my career to a higher level, escape the evil world of details, and leave computers behind.

After much thought, I concluded that I am quite good at working with management types to explore options and determine strategies, and this is something that will clearly satisfy my objectives. So I am heading to MBA school to become a management consultant in the area of strategy. Believe it or not, this is actually a genuine career. I hope to continue as an independent consultant, although I may work for a couple years for a large consulting firm after graduation if needed to get some good experience and pay off my MBA.

The good news is that my financial position allows me some flexibility to go back to school full time. The bad news is that MBA's are very, very expensive so it kind of feels like I am cannibalizing my finances. But I have realized that a full retirement would leave me floundering a bit, so if I'm going to keep working then I need something new to do.

And that's the story in a nutshell. I don't know where I'm going to school yet - I'm actually going to visit a couple of MBA fairs in September to try to narrow down where I might apply. And there are many other details to address over the next year. But I have set my general course, and now I feel much more invigorated and enthusiastic in knowing that I am moving forward in a positive new direction!

Making New Plans

2007-08-02T22:39:00.000-06:00

You know what they say about the best laid plans of mice and men....?

Well, after much thought, I have decided to back to school in September 2008 to do an MBA. This is going to be a huge undertaking in many ways, and financially is not the least of those. So now I am starting to look at my finances and make some preparations and adjustments to get ready for this step. Since there are so many variables, I am planning with the expectation of having to change or toss some of these ideas. But it is always easier to revise than to start from scratch, so I am going ahead even though there are still many unknowns.

Today I am going to discuss housing and related issues. I don't want these posts to become ridiculously long, so I will break it down into a few pieces.

The first part of my plan is that I am going to keep my house and rent the whole thing out. I have an opportunity to house sit for the next 5 months (paying only the operating expenses of about $300-$400 per month), and I am going to use this chance to move out and get my place fixed up and ready to rent. My goal is to have it fully occupied no later than October.

I am hoping for monthly rental income of $3000, and my monthly principal, interest and taxes are $1825. I am budgeting 10% or $300 per month for property management and forecasting 1 month vacancy each year. I will also need to keep my house insured, and cover any repairs or maintenance. I am budgeting $200 per month for these categories. Using these numbers, I am expecting a net cash flow of $5400 which is the equivalent of $450 per month. This may be my only income while I am in school.

Related to housing is my moving costs. It is going to cost me around $500 to move to the house sit because I have a few pieces that must be professionally moved, and I have to clean the carpets in the new house at a cost of about $200.

I also have a 3 year contract on my internet that I will have to break either this year or next year when I go to school. That will probably cost me $300+ since they will make me return my incentives plus penalties. I may also need to break a 3-year cell phone contract, but I don't know what that will cost.

The renovations on my old house are a bit of a question mark. I haven't been able to get a contractor lined up yet, and the last couple who looked at it were reluctant to give a price. I'm going to say that it will cost me $5,000-$10,000 to get everything done. I'm not doing any major items, but there are a lot of fix ups to do.

I may end up having to store items or pay to move some things to my new city. At this point I don't have dollar numbers for these, but I want to capture them.

Any finally, there is the cost of renting, or covering my house sitting expenses. I am going to plan on $400 per month for the house sit and $1000 per month after that. Again, these numbers could change when I get more information about where I will be going.

So as I went through this list, I have been creating a little spreadsheet for all these numbers. For me, the words are great but the numbers make it all come together. Perhaps I'll post it once I'm a bit further along in this process. Tomorrow we will take a look at education costs....

Planning Works

2007-08-01T23:24:00.000-06:00

I must apologize for the infrequent posting schedule. I've been very busy this summer with all the changes going on in my world....

Today I had lunch with an old friend and we talked about some of these changes and all the decisions that need to be made. I told him that once I made up my mind about the new direction my career was headed, it seemed to get easier to make the decisions along the way because I could tell which ones would further my objective.

I was thinking about that conversation again and realizing how many areas of life this can be applied to. There are so many cases in which we are asked to make decisions - sometimes large, life-altering decisions - and we don't have time to think about it for weeks and gather advice and weigh our options. Some opportunities come very suddenly, and we can either grab them or let them pass.

I believe that the key to making good choices under pressure lies in planning. Planning works on many levels and provides benefits that range from immediate to long term. And I think that your personal finances are perhaps one of the best places to apply this, for it will surely pay off. In addition to helping you make decisions, here are just three other ways that planning pays off for personal finance:

Vision
The road to financial freedom is very long when you are standing at the beginning. It can be tempting to fulfill all of today's wants and let tomorrow take care of itself. But with planning you can see a vision of the future that is more appealing than the seductions of the present. You can keep your eye on the goal and know that you are moving toward it.
Updates
Good plans are never static. They are revisited on a regular basis, as well as whenever things change significantly. This may include things like updating your will and insurance when you first have kids, or adjusting your savings level to build in room for a sabbatical. You don't need to get it right once and for all, you just need to make a plan that makes sense right now and keep it up to date as you move through your life stages.
Backups and contingencies
Planners are ready for emergencies. With planning, unexpected expenses may be inconvenient but they are rarely catastrophic. A good financial plan considers an emergency fund very early on. It may be an actual pot of money in the bank, or perhaps a line of credit waiting to be used only in special cases. But either way, a job loss or sudden large expense can be taken care of.

I know that I need to update my financial plans and get ready for the next few years. I will post more on how I plan to do this in the coming days.

Everybody loves a carnival!

2007-07-23T23:27:00.000-06:00

I just realized that my post on car-free living was featured in the 110th Carnival of Personal Finance at Fat Pitch Financials. In addition to my little contribution, there are numerous other articles covering all aspects of personal finance. This is a great way to discover new blogs and I would encourage you to check it out!

Give it Away!

2007-07-23T18:01:00.000-06:00

I'm getting ready to move out of my house sometime soon, and in preparation I am trying to severely reduce the amount of stuff that I own. After considering various options, I will be getting rid of most of this stuff by giving it away - i.e., I won't be getting any money at all out of it.

Some of it is going to friends and family members, some is going to second hand stores that accept donations, and some of it is leaving through freecycle. (Aside: If you haven't found freecycle yet, you are missing out! This recycling initiative aims to keep usable items out of landfills by connecting people who want to get rid of stuff with people who can use that stuff. No money changes hands but both parties are usually very happy with the exchange. Simply brilliant! Visit http://www.freecycle.org/ to check it out.)

Now, some of you might be wondering why I am not trying to sell more items or have a garage sale or take it to second hand stores that pay for your items. I can answer that by telling a tale of used books.

A couple weeks ago, I cleared out a bunch of books that I no longer wanted. All were in good shape and I found a couple boxes and packed them up, loaded them into my car, and ventured down to the used bookstore. After finding and paying for parking, I lugged the boxes into the store, waited for about 20 minutes while the guy went through them... and then took most of them back, along with $10 for the few he wanted. The remainder went out in this week's recycling.

To put it bluntly, used goods have almost no economic value in our country. Most people prefer to buy new, and to compete with this the used stores have very high standards. You don't get much money out of used items, and you have to do a lot of work to get the little bit that is available. If the store is consignment based, then you don't get the money until the item sells, which means even more trips, wasting time and gas.

Garage sales are just as bad, in my opinion. Who wants to prepare for days, spend your weekend haggling over 25 cent items, and maybe bring in $200, most of which came from one or two items that you could have sold on their own with far less trouble?

I have identified two items that I will try to sell, both of which are worth over $100. I may also try to sell a couple of items of furniture, but I haven't sorted out what I am keeping yet so I don't know about that. The rest is all going for free.

Giving stuff away is good for you. It is good when it goes somewhere that it is wanted and needed. It is good when that person thanks you sincerely for giving it to them. It is good when it stays out of the landfill. And it is good to remind you that most of the money that you spend is permanently gone - your possessions that you worked so hard to buy are almost literally worthless once they leave the store.

But the best feeling for me, is the freedom. When an item leaves, I no longer own it, and it no longer owns me. I don't have to provide space for it, dust it, move it, display it, store it, feel guilty about not using it or anything else. Less truly is more, especially when it comes to owning stuff.

So what is the approach that I favour? Commit to save your money and space for stuff you truly love and need, and freecycle the rest. It will be the best commitment you've ever made.

More On Housing Strategies - Renting Out a Part of Your Property

2007-07-20T16:08:00.000-06:00

In response to yesterday's post, Rositta made a suggestion about how to buy more house for your money by purchasing a home with a basement suite and living in the basement while renting out the main floor for a few years.

As regular readers will know, I do own a home with a basement suite and I have tenants living below me. The person who bought my last house has roommates living with him as does another friend of mine. Someone else I know is renting out her garage, and a condo owner rents out her parking spot. All of these strategies are ways to lower your monthly costs by only using the portion of your property that you really need. And financially they work very well.

However, I can tell you from my own experience that there is more to these arrangements than the financial. Renting out space is basically like starting a part-time business. You need to find your customers, collect the money, take care of repairs and maintenance and sometimes much more. While you may get lucky and find someone who rents from you for years without causing any trouble, this is not the norm and you should be expecting to do a decent amount of work.

Also, you are sharing your space, with all that entails. You may have more noise, less privacy, and possibly inconvenience or even damage.

And from a financial planning standpoint, it is important that any of these strategies should be considered as increasing income instead of reducing expenses. Because your expenses will still be there if the person stiffs you one month or if you can't find tenants. So you need to be sure that you can make your monthly budget even if your income from the rental portion of the property fluctuates.

In summary, if this is something that you want to do for extra income, then treat it like a part time job and do it right. But you are still the person on the hook for the entire mortgage payment each month, so be sure that you plan for vacancies and repairs when making your business plan and don't overextend yourself when buying.

Housing Strategies

2007-07-19T18:26:00.000-06:00

Well, once again a reader comment has me thinking! This time I'm wondering about housing costs. Yesterday I advised saving money on housing by choosing a place that was less desirable and therefore less expensive for one of three reasons that housing is priced on:

Size
Beauty/quality
Location

So if you rent, I think that you know what I mean immediately. Those of us who want to achieve financial independence have to go against the grain. So we play with these three factors and find somewhere that not everyone else would want but suits us just fine. Often at half the price of what our friends are living in.

(By the way, I though of another way to save big money on rent: stay put! My own experience and every landlord or tenant I have ever talked to supports the fact that most landlords would rather keep a good tenant than raise the rent and risk losing him/her. The longer you stay, the more this pays off! Come to think of it, there are enough costs associated with moving and buying and selling homes that staying put is good advice for most people looking to save money, even if you own your home.)

But what if you are buying your house? Is it worth the trade off on these factors when you will eventually want to sell the house again in the end? Again, I think that the answer is YES.

Buying more space than you need doesn't make any sense. If you have extra money to spend on space, it is better off being invested somewhere. Get into the right size of place and save yourself a bundle!

Paying for someone else's decorating or renovations is fine if you can't or don't like to do this stuff yourself. But chances are you will want to make changes anyway. Why not start from something that saves you money when you purchase it? Bonus: when you go to sell, the ugly discount will no longer apply.

And then there's location. The one thing that you can't change, right? Well, sort of. You can't change it, but time can. Savvy buyers have always known to look for up and coming areas that aren't as desirable now but have indicators that they will be down the road. Or it's possible that you don't want to live where everyone else does. So you can save yourself a bunch by buying somewhere that works for you!

But this brings us to the big question: what about when you sell? My answer: Fuhgeddabowdit!

The real estate market is fickle, just like the stock market or any other market. Your care of the house and upgrades or improvements will count, your size and location will count, but in the end the market forces will still play the biggest role in determining the price of your house.

And you have been paying down your mortgage the entire time, right? In fact, you probably accelerated it and it's paid off now. And you had to live somewhere all those years. And because you were smart about not paying too much for housing you were able to save and invest more, right?

So look after the things that you have control over and don't fuss about the rest. Chances are good that you will do more for your finances by pushing your monthly expenses down and staying in the same house for 20 years than by trying to chase profit in your primary residence. If you mean to be a real estate investor then use the money you are saving to start investing in other properties!

And remember to keep your eye on the ball. If financial independence is the goal, then lower expenses mean that you need less to get there, and everything snowballs and gets easier and easier!

Bold Choices and Big Steps for Controlling Costs

2007-07-18T17:37:00.000-06:00

Thanks for so many great comments on the car-free living topic yesterday! It really makes me think about what other choices we have that can have large financial impact. I think that to have big impact you need to make bold choices - often the ones that other people can't or won't make. Not every one will be an $8000 per year elephant like the car, but I would be willing to bet that most financially conscious people do a number of fairly significant things to save money.

Here is a sampling of things that are outside the normal way of doing things in North America and will have a substantial impact on your expenses:

Pay less for housing. Rent and housing prices are basically determined by three things: how big the place is, how nice it is, and where it is. If you can avoid paying for any of these you will end up ahead. You can live in a smaller space, choose an ugly space and fix it up yourself, or live somewhere that works for you but may not be as desirable for others. The more you go against the crowd, the bigger the payoff.
Give up your car. See yesterday's post for more details and great comments, but the short version is that this could save you many thousands every year. Huge impact from one decision!
Live without television, cable, super cable, pay per view and similar services. Use cheap long distance or skype for free. Savings that happen every month are worth far more than one time savings, even if it's only a few dollars!
Never buy what you can borrow or rent for cheap. This includes books (I love the public library!!!), movies, CD's and magazines. I also prefer to borrow tools and kitchen gadgets that I don't use very often.
Shop second hand. Consignment stores often carry designer clothing, garage sales sell things for pennies on the dollar, and your local classifieds or craigslist is a treasure trove just waiting to be opened. You will received discounts of 30-90% and also find things that are more interesting and unique than the malls can ever offer.
Volunteer. Instead of paying for your entertainment, be part of the action. You will get free tickets, food, t-shirts and many other perks. And of course, there are all the cool people that you will meet along the way...
Have a garage sale. Not for the money but for the reality check about what your stuff is actually worth. I can guarantee that once you have received pennies on the dollar for your nearly new designer junque you will start to shop with very different eyes.
Stay in touch with reality. Don't hang out with people who have money to burn, or act like they do. Even while you try not to, you will find they socialize your spending upward. Instead, spend time with people who have less than you do. Not only will they not tempt you to spend, you will also feel more grateful for what you do have.
Stay out of the malls. It's a fact: people who visit the malls spend money there. So don't go if you're bored or to socialize or to window shop. Only go when you need something specific. And then only go to the store(s) that has that item. Temptation is easier to resist when it isn't there.

Any other bold moves that you can suggest? What have you done that has had large impact on your finances? Sissies need not apply - I want strategies that rock my world!

Golden Blog Award!!

2007-07-17T18:09:00.000-06:00

I just noticed that I won a Golden Blog Award from the Money Gardener's site on Friday the 13th! I won in the category of Most Impressive Net Worth... and for looking good in a dollar sign medallion. :)

A million thanks, Money Gardener!

Living Car-Free: The Path to Financial Independence?

2007-07-17T17:22:00.000-06:00

A book caught my eye at the library yesterday and I have been steadily making my way through it ever since: "How to Live Well Without a Car"

I thought I would blog about it here because one of the author's major arguments is that owning a car costs so much that it may be preventing you from saving, buying a house (or a better house) and even reaching financial independence. All of which makes for rather intriguing contemplations. Is a car really that big a deal, financially?

Well, let's take a look at my numbers. I spend $412 per month on my lease, $100 on insurance, $100 on gas and $10 on car washes. I also figure that regular maintenance for an almost new car will be covered by about $300 per year for oil changes and the like. This is a total of $7,764 per year, without parking. Parking costs me a tonne of money because I have to park downtown to meet with my clients and I get lots of parking tickets, but since it's a company expense I won't count it. To be fair, I probably should include another $20 per month for miscellaneous personal parking, which will bring the total to $8,004 per year.

Wow! EIGHT THOUSAND DOLLARS PER YEAR TO OWN AND OPERATE A CAR!!!

And I don't drive a luxury car or SUV, and I drive an average of 14,000 kilometers per year, which is well below average. So for many people this number may be much higher. That is simply incredible. I think that for myself personally, I only ever considered the monthly expenses, and never gave any thought to how things were adding up.

And to make matters worse, there is depreciation. Each year, while I may be building "equity" (if I weren't leasing) my car is losing part of that value, and I am basically "spending" this money because I can't get it back. So the true cost of owning my car might be closer to nine or even ten thousand dollars per year.

Now, of course there is more to the decision than just the cost of owning a car. There is the cost of not owning a car, whether that is a bus pass, car rentals, taxi rides, bicycle purchase and maintenance, running shoes or something else entirely. There is the convenience and lifestyle factor. There is the personal enjoyment and attachment.

But when it comes to the purely financial argument, I would say that living car-free is a slam dunk. There is simply nothing else that I could do to save around $8,000 so easily and quickly. And yes, spending $8,000 less per year would be enough to significantly increase savings, buy a house or reach financial independence much more quickly. It is certainly a large enough amount to impact any financial goal that I might have.

So is this even possible? Do any of my readers live car-free? Is anyone considering it? Any stories to share? I would be very interested to hear about real experiences with this strategy (and where you are/were living).

Leftovers!

2007-07-12T17:41:00.000-06:00

So yesterday I discussed my turkeys and today I'm eating turkey soup. It appears that nobody really likes my investing strategy... sigh.

Actually, I'm not surprised - I don't like my investing strategy either. For those of you who read this blog and think that I've got it all together, please don't think that. I have certainly managed to earn money and save money, and I've done well with a couple of real estate transactions, but as an investor I am still really green.

However, I do think I was perhaps a little bit more maligned than I should have been. Here are a few things that I think I am doing better than I was given credit for.

Diversification: Six months ago that entire portfolio was in Canadian Equities, so I am trying to diversify and progress toward a better asset allocation. Unfortunately, the international equities purchases have not been rewarding my good intentions.
Long-term view: This portfolio has also not seen a single sell order since inception (March 2005) so the comment about flipping was rather bruising. Monitoring performance is not the same as flipping and only someone with a very short-term memory could monitor long-term performance, since it stays fixed, so of course I'm looking at short-term performance.
Research: At least I do it. Maybe it isn't in the depth that some might like, but I'm not using a dart board and I do look at more than just last year's return. The Globefund site has a tonne of metrics on the funds.

The bottom line is that investing is complicated, and amateurs can't generally come even close to the level of detail that the pros do, unless they are exceptionally interested and dedicated. Until I reach the point when I have a massive portfolio that I can turn over to a really good manager, I am not going to waste my money on the monkeys that pass for financial advisors in most places. (And screening the monkeys for a good one would be more work than learning how to invest better myself!)

Besides, even though my investing strategy is full of holes, this approach has worked better than most I've tried. My original contribution from March 2005 is up 75%, while the TSX is only up 45% over the same period. Sometimes turkey soup doesn't taste all that bad!

Tossing the turkeys

2007-07-11T19:42:00.000-06:00

Now that mid-year numbers are available for my portfolio, it is time to examine my holdings critically and see how they are really doing. I own 7 mutual funds in my main portfolio with a total value of $248,600 at close today.

Two are large cap Canadian Equity: $83,500
Three are small cap/mixed cap Canadian Equity: $124,400
Two are international equity: $40,700

I like to use globefund.com for it's free tools for monitoring and selecting mutual funds. It tells that 4 of the 5 Canadian Equity funds are in the top quartile for their class for year to date performance. The fifth is in the bottom quartile. Not good. But it does have a five year history of ranking in the top quartile for its class, so I'm not sure that I should dump it on a bad 6-month period. It will go on my watch list though and if it's not better by the end of the year I may take action.

The two international equity funds are frustrating though. I bought them in February for $20,000 each and as you can see they have gone nowhere. In fact, they have been down much of the time I owned them. Again, they have a track record of top quartile performance, but...

In the end, I think that I won't be making any moves at the midyear mark this year. I have identified my possible turkeys though, and come the end of the year there could be heads on the chopping block. Life is too short to own underperforming funds!

For any others who are invested in mutual funds, don't let your funds' performance surprise you. Find out how they are doing and make sure you own the best that you can. There are no guarantees, but I like the five star ratings at Globefund for helping to narrow down the field after you have picked an asset class.

Interview with a Diva and Opportunity Cost

2007-07-05T12:31:00.000-06:00

Well, I'm feeling popular today! Check out the interview that Canadian Dream did with me at his blog. It turned out pretty nicely, I'd say. Thanks CD!

I want to talk a bit today about opportunity cost. Now, I have to admit that I slept through my first year economics and then steered clear of the subject for the rest of my degree, but my understanding of this concept is basically that when you choose to do one and you aren't able to do another thing then there is a cost to the lost opportunity. (If I got it wrong, feel free to correct me, but I'm running with it!)

Now this is a really interesting concept because it points out to me that there are several things to do with my money, but once I put it in one place, I lose out on the benefit of any other alternative. We all know this at some level, but how much do we really analyze what it means to us?

Here are a few examples. The opportunity cost of:

leaving too much in your chequing account is interest that could be earned in a savings account
buying a new car this year instead of waiting one more year is one year's worth of payments (less repair costs to keep the old car running) that could have been saved and invested
buying a GIC is not participating in the higher expected long-term growth of the stock market

I'm sure you can think of more, and better ones!

This relates back to my housing musings earlier this week. You see, if I can rent out the space I'm living in for $1200 and move into a place that would be just as good for me at a cost of $800, then staying has an opportunity cost of $400 per month. The numbers may be fictional, but I believe that the concept is valid. I need to figure out what the best use of my available resources is, including the space that I own (my house), so that I am not wasting without even realizing it.

Rethinking my asset allocation

2007-07-03T09:40:00.000-06:00

Well June's net worth was down - no surprise there as I had to write much larger cheques to CRA than I hoped. And I still have more pain to go through as my installments for this year are larger and I need to do some catch up payments. Plus there was another big expense that came through this month... yup, all down.

Okay, enough of that topic!

I've been thinking about where I have my money and wondering if I am doing it right. Using June's numbers, I figure my asset allocation, in broad terms, looks like this:

46% - stocks and stock-based mutual funds
37% - home equity
7% - cash
6% - retirement accounts
4% - assorted other stuff

When you consider that my retirement accounts are also stock-based mutual funds, you can see that I have over 50% of my assets in this category. So what I'm thinking is approximately this... what if I took some of this money out as a down payment on another property?

Why would I do this?

Well, first off, the house I'm living in right now would be better off as a rental. If I moved out it would be cash-flow positive, probably by $1000+ a month. That's huge. In fact, including the principal amounts that the renters would be paying, I would be expecting 7-10% return on the equity that I have in the place. Even with vacancy, it would stay cash flow positive.

Secondly, this place is really too big for me. I am taking up space that is worth more than I would be willing to pay for just myself but I don't even like being in a big place. I'd rather move into a smaller house or even condo and have only the space I need.

Thirdly, I don't like living above my basement suite. I'd like to be either in a house on my own or a concrete building where I don't hear my neighbours.

And then there is the asset allocation side. I feel that perhaps I have overweighted myself in equities. Also, real estate seems to be better at producing cash flow than the stock market and with my declining earnings this is a factor for me. And it is the investment with the benefit of providing a place to live.

And finally, there are the tax advantages. I need to check with my accountant, but I believe that the plan would be to sell my house to my company, triggering a tax free capital gain for me personally and building up a large amount of money that the company owes to me and that I may withdraw tax free.

So this is something that I have just recently started considering very seriously. I will probably be able to provide further updates over the next couple weeks as I start to look into it in more detail.

Get a Line of Credit Before You Need It!

2007-06-28T20:14:00.001-06:00

I just spoke with a friend who had been turned down for a line of credit, secured by her fully paid off house, due to low and sporadic income. I find it hard to believe that a bank wouldn't love to repossess an entire house to recover half its value, but it goes to show that banks do not think the same as us mere mortals.

Given my plans to change careers, I have now decided to get a line of credit approved against my house right away. If I never use it, then great. But I don't want to be caught making some awkward decisions that could have been avoided with some forethought.

It also makes me wonder what else should be done while my income looks better. Any suggestions or ideas would be appreciated!

Keep steering the ship

2007-06-27T22:02:00.000-06:00

Do you think that a lot of people ignore their personal finances? I suspect that they do, although perhaps not completely. Maybe they do pay their bills and renew their mortgage and maybe even contribute to their RRSP... but I think that a lot of people allow their overall understanding of their financial picture to get out of date. And when that happens, it is almost certain that you aren't making the very best choices for yourself that you can.

What I'm getting at is that your money life goes on with or without you. Interest accumulates on your debts, the stock markets rise and fall, your salary and inflation move forward (hopefully the right one goes faster). And your personal circumstances change. Married, divorced, kids, education, medical costs - it's all different every year.

So this year's financial plan will need some tweaking next year. If you don't do it for one year it may only be off by a bit, but if you leave it for three years I can almost guarantee that you will feel like throwing it out and starting again. The best way to steer a large ship is by making small, frequent course corrections. Your financial plan will benefit greatly from the same approach.

Disclosure: I have never steered a ship of any size in the real world!

What are my goals?

2007-06-25T19:00:00.000-06:00

We are reaching the midpoint of the year and it is time to contemplate some goal setting. I am not going to focus on net worth goals for the next while, because of my career change. This is a big shift for me in so many ways, and I'm still playing catch up on the implications. I need to look at getting back to basics which were somewhat obscured when my earnings were higher.

Goal #1 - A New Career
This will probably resemble a financial setback, but I am considering it an investment in myself and my future career satisfaction. I need to come up with a strategic plan for this change so that I consider all the angles and know exactly how to proceed. I am going to try to change careers without minimal negative impact on my net worth, although that may be very difficult if I take further education. I am hoping to keep one of my part time contracts going until the time that I am ready for a full switch.

Goal #2 - Financial Administration
I hate to admit it, but I have become very slack about taking care of my finances. I have a "few" unpaid parking tickets that I need to take care of, I have a vacant room in my basement that is not generating revenue for me, and I still have not tracked my finances in detail for a month like I wanted to. I am aiming to take care of these three things in particular and to improve my administration skills in general this summer.

Goal #3 - Work on Monthly Expenses to Reduce Cash Flow
The house is killing me with something new every month, but I know that there is a way to get this under control. I need to do some expense tracking (ties in with #2 above) and figure out where the leaks are....

This summer is also going to be a period of rest and not pushing too hard. I think I got a bit burnt out and I'm ready to slow things down. So my goals are fairly modest right now, but will give me a framework to focus on.

Financial Planning by Life Stage - or Not?

2007-06-21T23:39:00.001-06:00

Investoid has an interesting post up today about saving when you are young and it made me start to think about how financial advice tends to be grouped by age. To a certain extent this makes sense, but we all know that people take wildly different paths and one person may be working with 10 years of saving under thier belt at age 30 while another may be just finishing up their medical internship with tens of thousands in debt.

When I read financial planning advice aimed at "people in their 30s" I am always thinking about the numerous ways that I am different. I am single, which puts me in with "people in their 20s", but my financial milestones are in other ways closer to "people in their 40s".

For this reason, I was thinking about what other ways we could categorize life stages apart from age for the purpose of financial planning advice. Here are a few other options I came up with:

By net worth - this is an obvious one and works well to a point, but inflation and differences in cost of living may make absolute numbers seem too arbitrary. I would try to improve it by measuring net worth in multiples of annual income. For example, stages could be negative net worth, zero to one year's salary, 1 to 3 years salary, etc.
By debt level - I'm not positive about this but it seems like it should be part of the picture. For example, if you have $200,000 net worth with no debt or $200,000 of net worth with $400,000 of debt then you are in two very different positions. The debt level has a direct impact on cash flow, which is a very big part of financial planning.
By career/family stage - this is closer to the traditional age-based approach but would use milestones such as graduate university, get married/have kids, buy property, etc. so that non-traditional timelines would still find their fit.
By timeline to retirement - someone who wants to retire in 10 years has certain things that they have to take care of regardless of their age or other factors. Perhaps Canadian Dream (free at 45) has more in common with a 48 year old planning to retire at age 65 than with most other 28 year olds.

I think that all of these approaches could offer improvements on the age-related financial advice that we see so much of, and some could be combined for even better fits. The problem is how far to go. We don't want to have 100 categories, each with slightly different plans and advice, and we don't want it to be too confusing for people to find their correct category.

My solution? I think that the best way is to decide how many categories you will have - I think that seven would be sufficiently detailed - and then give people a short quiz that puts them in the right category. This is a free brilliant idea for someone who needs a new angle on personal finance book writing... any takers??

Expansion and Contraction

2007-06-20T22:15:00.000-06:00

I have noticed lately that a lot of my thoughts are about ways to contract instead of expand. For example, I have recently got the de-cluttering bug again. I'm looking at selling, junking or donating my stuff. My focus in my work is more about cleaning up and finishing off projects than working on new ones. Also, I am thinking more about ways to save money than earn it. All of these point toward a general decrease in my lifestyle and finances - and the interesting thing is that I'm not fighting it.

At first I didn't connect the dots but now that I have noticed this pattern I am seeing it in many of my interests and choices right now. This is an interesting phenomenon and there are a few very useful things that I am doing in this process:

Removing unwanted items including email, clients, projects, items in my house and more
Evaluating to make sure that I am keeping what is important to me
Setting priorities and preparing to make next steps and decisions
Planning and strategizing (to take over the world!!)
Recovering and enjoying some lovely mini-vacations and downtime

I like to compare it to the stock market. Even during the strongest of bull markets, the chart never goes straight up. Sometimes it will go sideways or even down for quite some time before gaining new strength to push to its next high. Despite the fact that I have clearly lost some momentum from my pace of earlier this year, I am confident that this is not wasted time but a necessary breathing space before I start climbing toward my goals again.

If you have had a setback or resting period and then moved on to great things, I'd love to hear your tips or stories!

Second Hand is the Best Discount Store

2007-06-14T18:21:00.000-06:00

I would be fascinated to find some statistics on how many Canadians buy second-hand items on a regular basis. When I was young, my mother was very frugal (out of necessity and upbringing) and I learned about shopping in the context of being cost-conscious at all times. As I grew up and moved out, I bought many of my household items at garage sales, and for a long time there was no furniture or accessory in my house that was new except for a cheap Ikea bed.

I have started to buy new more often now, but I still love a deal and can spend hours on craigslist or ebay. Recently, I bought a car second hand through canadatrader.com, a used lawnmower from a family run business, and a used Axim (PDA) off craigslist. Each of these are significant purchases new, and I have saved 15-75% by being willing to buy used. At a garage sale, I would expect to save 60-90% off list prices, but usually I can only find smaller items.

It's not all roses however. You need to be patient and willing to hunt for your deal. You need to be a bit flexible about what you want. (That's why I can't seem to buy a used couch - I'm too picky about how it looks.) You need to be persistent and keep checking back for new listings or stock. And you need to be willing to accept the inevitable quirks that come with the territory, such as the occasional wasted trip, oddball seller, or item that doesn't live up to it's billing.

But overall, I'm convinced that buying used saves you a bundle. And for those who love shopping - this is more real than the mall. You get the thrill of the hunt, the big find, and yes... even the one that got away. (I'm still wishing I checked my email the day my friends decided to sell their practically brand new snowblower!!)

I am going away for an extra long weekend. But while I'm gone, please share your best bargain story, or tips on where/when/how to find the best deals. Happy hunting!

Seven Ways to Dummy-Proof Your Automatic Payments

2007-06-13T16:01:00.001-06:00

Yesterday I put out a call for people's best tricks for managing automatic payments so they weren't short when the due date arrived. I received such an amazing response that I wanted to summarize them all in a post rather than hiding them in the comments. My readers are so good at this, it feels like I'm preaching to the choir!

Some of them were using a cheque register, or spreadsheet, or just keeping track, but I wanted ways that were more dummy-proof than that. So here are seven ways that my readers keep track of automatic payments and make sure they have enough money for them:

Schedule the payments in your Outlook Calendar
Use alerts in Microsoft Money or Quicken
Link your bank account to your line of credit or set up overdraft protection
Use a product such as Manulife One (bank account, line of credit and mortgage all rolled up together)
Have the payments come off a Visa with a large enough limit (and get points)
Deduct all payments at the beginning of the month in your tracking system
Keep a minimum balance in your account

I think that if you use any one of these methods consistently, you should be able to say goodbye to bounced payments forever. So choose the one that works for you, and then sit back and let the rest be automatic!

Know Your Automatic Withdrawal Schedule for Safety's Sake

2007-06-12T15:12:00.000-06:00

As many of you will know, I have been challenged by some large, unexpected expenses over the past couple of months. I think that I may still have one more to go, but the worst seems to be over for now, however the whole experience made me aware of how rapidly things can be shifted and unsettled financially.

I have had to move money around a few times in the course of dealing with this and I realized that it is a really good thing that I know where all my accounts are and what current cash is available. It also made me wonder about putting your finances on automatic. I only have a small number of automatic bills - my mortgage being the largest - and while this certainly has a lot of benefits there are also dangers. Namely, if you truly forget about the bills, you may not have funds in the account to cover them.

I think that automatic payments should only be used as a time saver, not as a way to forget about your bills. In fact, I would suggest making up a list of all your automatic payments so that you know at what points each month the withdrawals are happening. An ounce of prevention really is worth a pound of cure in this case. If you are on top of this, you will not have deal with overdraft or bounced payment charges, negative points on your credit score, and the general hassle of dealing with it after the fact.

Do you have any tips for managing automatic payments? I would be interested to hear them!

More Planning for Future Home Maintenance and Repair

2007-06-11T20:46:00.000-06:00

It's fun in a sort of geeky way to see how much you can play with a tool like the reserve spreadsheet I set up. After reading the comment by Four Pillars on my recent post about most people not staying in their home for more than ten years I wanted to add a column for probability of payout so you can say there is a 95% chance of staying for one year, 85% after 3 years, etc. However, I decided that if I did that then Promod would REALLY have reason to say that I was being too complicated, and I'm not sure how much value it would add to the model anyway.

So I think I will leave it as is, and post some suggestions for how to use this:

Calculate this amount once a year, like condo fees.
Pay this amount into a bank account every month.
If a repair comes up that is on this list, use as much from the reserve fund as you need.
If a repair comes up that is not on this list, do not take money from the reserve (unless you really need to) but consider adding it to the reserve fund list next year.
If you don't have enough money to cover a repair then you have to do a "cash call" - i.e., the owner has to come up with the shortfall.

Second and subsequent years:

Re-estimate the timing and costs on each item unless you feel sure that you have it correct already. Don't forget to move the Last Done and Next Due dates forward!
Now you have to factor in how much you already have in reserve. A simple way to do this would be to allocate it to one or more specific items that have the highest monthly cost because they will be more expensive and/or coming up sooner. (The updated example at the end of this post shows a hypothetical 2nd year, assuming I put $500 per month in and didn't spend it in the first year.)
Add anything you forgot last year and reset anything that was done this year.

Now the reason that I wanted to do this is to manage my costs. $500 per month is a pretty hefty cash flow. So when you look at the spreadsheet, it becomes clear that there are only two ways to save money:

Do the repair as far in the future as you can. (Give the item a very long lifespan)
Lower the cost of the repair.

I think the Four Pillars was correct in identifying that this model assumes that you are staying in the house forever and all these repairs will eventually need to be done. So please adjust this for your own situation. Here are some other ways to manage the costs and keep your monthly contribution low:

The more you put on the list, the higher your budgeted contribution will be. So if you think that a repair is unlikely to occur while you own the property, don't include it or give it a very long lifespan so you are contributing very little toward it.
Consider splitting into two reserve funds: one for repairs (necessary items) and one for renovations (nice to haves). Make your repair contribution your priority expense, and only contribute to the renovation fund if it is important to you and you can afford it.
Look for repairs that can be postponed through inexpensive preventative maintenance.
If a repair yields a cost savings (such as a more energy efficient appliance) consider doing it sooner than another repair of similar priority and using the savings to offset your required contribution for the year.

I also noticed that when I did year two (below) my monthly cost was lower because I allocated all my year one savings to my upcoming big ticket items. So if there are expensive items with shorter amortizations they will disproportionately increase your required monthly savings. (Again, defer everything as long as you can!)

Anyway, here is the spreadsheet again (click on image to enlarge). I have updated some costs based on feedback on the first version and I have moved it forward to a hypothetical year two to show how that affects things. Note how my contribution dropped even though I have increased some costs!

I think that this is a great tool for starting to manage and save for irregular expenses. I hope that you enjoy it. If you want the actual spreadsheet, please email me (the.money.diva at gmail) and I will send it.

Is My Reserve Fund Approach Any Good? A Debate in Three Acts

2007-06-10T22:07:00.000-06:00

PRELUDE...
I was lamenting to a friend the other day that the art of debate is dying in our society. I'm talking about the kind of debate where the opponents make points and counter points on an issue and fight hard about it, but don't take it personally and are still friends when the the debate ends. It's the kind of debate where winning isn't about changing your opponent's mind, but about putting forth the best possible argument, while poking holes in the other person's case.

THE OPPOSING POSITION...
Anyway, it is in this friendly spirit that I am going to defend my reserve fund approach against the challenges set out by Riscario in a recent post and comment. To summarize, he makes the following points:

A statistical approach does not work well for a single home (works better for multi-unit condo). Items will last longer or fail sooner than the schedule indicates.
Budgeting at this level of detail is boring and does not work. Better to build up an emergency fund using x% savings rate.

MY REBUTTAL...
I believe that the intention of my "reserve fund study" has been misunderstood:

What Am I Proposing? This is not a budget for future spending. This is a plan for saving. The end result is a single number that tells me how much to save.
A Simpler Way? The x% savings approach might be good... if we knew what x was. This approach provides a way to determine what savings rate may be needed.
A Statistical Approach? By including as many expenses as I can think of I do receive some spread of risk. But ultimately, the future use of this money is flexible and up to me. If my fridge is still in good condition in 10 years then I can wait another year. If my roof goes before I've finished saving for it then I will have to make up the shortfall. But it will be less painful than if I hadn't set up a reserve.

In summary, my reserve fund approach is really a way to help the large expenses be spread out over time. We all know that the best thing is to put aside a bit of money every month. This approach allows us to answer the question "how much?" with more ease and accuracy. It does not dictate when or how the money will eventually be spent.

Thanks to Promod for his thoughtful comments on this and other topics. I respect his expertise and appreciate his contributions. But in this case... I must debate!

Managing the Cost of Home Maintenance and Repair

2007-06-08T18:18:00.000-06:00

Thank you to everyone who commented on yesterday's post. I read an article that suggested that most homeowners don't budget enough for maintenance, and certainly it seems like there are many who are as unsure about this as I am.

I think that the key here is certainly to do some planning and budgeting so that I have an element of control. I am going to use my idea of a reserve fund, like a condo would have, to plan for the major expenses. The monthly household budget would be a combination of regular (annual or monthly) expenses along with the amount that gets put into the reserve fund.

Today I will describe how the reserve fund is to be calculated and then we can perhaps look at some other elements next week.

The first step is to make a list of things that would make you say "ouch!" if you had to replace them. My list started with roof, furnace/AC, carpet/flooring, fridge, stove, washer/dryer, windows (broken down by room because I have some newer and some older ones), front door, garage door, deck. Then I also added large expenses that aren't replacement items but maintenance that happens less than once a year: exterior painting, interior painting, tree pruning. I know I forgot stuff, but this is a starting point.

The second step is to estimate how often you need to do each item. For example, I said roof was 25 years, furnace 25 years, etc. This partly depends on how much you spend each time you do it. For example, I know they sell roofing shingles that are rated from 15-50 years with appropriate price differences.

The third step is to estimate when the item was last done. If you weren't the person to do it this might be a wild guess. But you are really planning for when you will do it, so work backwards from the numbers in step 2 if you need to.

And finally, you need to estimate the cost of the item. Use today's dollars and hopefully the interest from your savings account will offset the effect of inflation. So if you were to buy a new fridge today, would you want a $600 fridge or a $2000 fridge (or more if you really like fancy fridges!)? As you start you can ballpark these numbers and update your plan if you get an updated cost.

This is enough to calculate the contribution to the reserve fund that each item requires. Simply subtract 3 from 2 to get the number of years. Multiply by 12 to get the number of months. And divide the cost by the number of months. Voila!

Here is the spreadsheet that I came up with when I did my own quick and dirty version of this (click to enlarge):

I definitely don't know if many of these costs or lifespans are accurate, but I wouldn't be surprised if the estimate ended up very close to the real answer!

What this tells me is that I had better be earmarking $500 per month into long-term planning for irregular expenses or I am going to experience significant pain if a bunch of these happen close together. That turns out to be just over 1% of my house value annually, which is the lower end of what most sources seem to suggest.

I'm not claiming that I should be on the low end though. This is only the irregular expenses. Next week I will look at the regular expenses that occur every year and see what the additional costs for those items might be.

Have a great weekend!

Home Ownership: A Money Pit

2007-06-07T19:25:00.000-06:00

I think that I could spend every penny I make on my house. Seriously. And as if that wasn't bad enough, I think that most of the things I would do would go unnoticed by the vast majority of people. Like fixing my drain. It is certainly necessary but it won't increase the value of my house or make my life better. It only can claim at most to avoid making my life worse. Yippee!

Since my house is on the older side the list of things that need to be done seems to be enormous. And not only that, but there is a list of optional things like pruning trees that is just as long. So my question for today is: how should I budget for repairs, maintenance, improvements and other housing costs?

I think that there are a few options:

I could plan it out like a condo reserve fund - identifying major components and putting them on a schedule, then contributing enough each month to be ready for each expense.
I could put a certain amount of money aside every month and spend it on my top priorities
I could put aside money each month by category (such as interior/exterior, repairs/maintenance, major items like roof and furnance or whatever categories I can think of) and spend each category on its top priority
I could just do what I think needs to be done and not worry about budgeting specifically.
I can plan for big projects like a roof in advance and let the rest happen as needed.

How do other people do it? Do you bother pruning the trees or do you only deal with the critical items? How much is planned, how much is reactive?

I think that this is quite a challenging topic since I have decided that it is the single biggest budget blower for me over the past three years, bar none! Help me get back on track... please!

A Chat with Ellen Roseman and Finding a New Blog

2007-06-06T16:23:00.000-06:00

I've decided that it is very important to talk with new people. There are two huge benefits:

the other person can share new ideas, facts and opinions
in the course of the conversation/relationship you can gain a fresh look at your own opinions

So I suppose that she was really interviewing me, not providing content for my blog, but I had a nice phone call with Ellen Roseman of the Toronto Star yesterday and it has led to some interesting thoughts. (To see the article that she wrote, click here.)

The main area that our conversation made me contemplate has actually been blogging rather than personal finance. Ellen asked me lots of questions about why I started and why I keep going and we talked a lot about the Canadian PF blogosphere.

This is the first time that I have been able to talk to someone using my voice about PF blogging. I don't tell any of my friends and family that I do this, and so blogging is a "secret life". But it is one that takes up a large amount of my time and attention and I realized as I talked to Ellen that I have an awful lot to say about it.

And that brings me to a new Canadian PF blog that I found yesterday as well: Give Me Back my Five Bucks. Apart from the great title, I really liked this blog because it was like meeting a new friend. Krystal's personality comes through so strongly on every post that you really feel like you get to know her very quickly. (She has started doing sponsored posts and some of them are hilarious - like hoping that Paris Hilton knows about antibiotic ointment in case she gets beat up in jail.)

Both Ellen and Krystal reminded me that the point of blogging is the personal aspect. If people wanted to read an expert opinion there are hundreds of books out there. But if you want to know what it's like to be me... you have to come here!

The past couple of months have been hard for me financially, and sometimes I feel like if my net worth backslides or I make some financial mistakes I might be letting my readers down. But maybe that's not the point. Maybe people want to read about both my successes and my failures with equal openness.

So here's to PF blogging and a salute to all the others who do this along with me. We may not be perfect, but we put the PERSON back in personal finance!!

Looking into new directions

2007-06-05T10:21:00.000-06:00

So here's something new for me....

I've been thinking for a while about a career change, and of course there are financial consequences to such a decision. Obviously my earning ability is fairly strong now, and I would not be doing it for financial gain, so mostly the financial impact is negative.

Here are a few of the considerations:

Going back to school - tuition, lesser or no earnings during this period
Other training or conferences - travel costs, conference fees
New career - lower earnings in first 1-3 years, less developed network of contacts

Looks pretty grim, doesn't it? However, it is not all bad.

I have built up a lot of momentum in my finances and I hope that I could work part time during the transition to keep the drawdown on my existing resources minimal. In fact, I hope that my net worth would continue to grow, albeit more slowly, while I was in school and starting up the new career.

And one advantage is that I am looking into another area of consulting which would be better suited for part-time work or semi-retirement. And because I have the flexibility of private consulting, I could manage the transition in whatever way I see fit. So this would move me towards some life goals even though it may postpone some financial goals.

And of course, the reason that I am considering it is that I am getting a bit tired of what I am doing, and I'm ready for a change. :)

So what do you think? Am I doing this too early? Too late? Are there other considerations that you think I am missing? Let me know...

My Official Definition of Net Worth

2007-06-01T15:34:00.000-06:00

I seem to be getting a lot of comments about this, so I figured that I might as well post on the topic to hopefully clear it up for everyone who is wondering...

My net worth =
What I Own (current value if sold today)
minus
What I Owe (currently)

My first target is to get my net worth to one million dollars.

I use the term "nest egg" to refer to the same calculation without my principal residence and personal property. For those who are interested, my May 31 nest egg is $413,800. After I hit my first target, I think I will probably make the second target to get my nest egg to one million dollars.

I use current values because fluctuations don't bother me and I want to know how I'm doing right now. I have no interest in using what I paid for my house or securities because that's ancient history.

BESIDES, if the markets were down since I bought then I would get majorly flamed for using the value that I bought the house or securities for... right? :)

Anyway, the most important part is that I use the exact same definitions and methodology every month, so even if you disagree with how I'm doing it, at least you can compare apples to apples each time.

Have a great weekend! I'm going out of town so I won't post on Monday.

May Net Worth Update

2007-05-31T23:35:00.000-06:00

Since I gave the game away yesterday there isn't much left to reveal this month. I am up a modest 1.68% to $667,100 despite having some crippling bills, so that is good. There are still a couple of major outflows to cope with next month and then the worst should be over.

I moved $70,000 into my brokerage account, and subtracting that I am showing an $8,700 gain on my investments. Part of this is gain on the BMO purchase which came out of the $70,000, but for simplicity's sake I calculated this as a 3.7% gain on the start of month portfolio. This is great and really speaks to the potential of my portfolio starting to provide more of the growth.

On another interesting note: I sold my old car. My new one is on a lease so I don't show it on my net worth. I am considering it a cash flow liability only and neither asset nor liability for net worth purposes. I'm not sure if this is 100% correct.

My billings are going to slow down for the summer, so I am anticipating the modest growth to continue with no real spikes. Next month may be flat or negative due to the remaining larger bills coming up. Perhaps if I get a good project in the fall I will end the year on a more positive note.

My current cash flow from dividends, investment returns and basement suite is about $1200 per month. The rent is by far the biggest part of this, but since I still have a mortgage it is just helping me pay the bills and that's all.

The Dream of One Million

2007-05-30T18:31:00.000-06:00

One million is such a nice, round number. It is entracing, magical and delightful. Although a million isn't enough to be rich, and many people believe that it is not even enough to retire on, there is still a sense of WOW to being a Millionaire.

So why is that? Well, the plain truth is... most of us are not millionaires.

YET :)

I will post my official numbers tomorrow or the next day, but it looks like I will be two-thirds of the way to one million dollars at the end of this month. I love milestones like this because they make it more real and possible. It's such a long journey to get from zero to a million and we need all the encouragement we can get.

I especially like this milestone because I now need exactly 50% growth to reach one million. If I go through my assets line by line and come up with a plan to grow each one by 50% I will have one million dollars at the end. Sounds possible, doesn't it?

Here is a simple breakdown of how this could work...

I have my house valued at $500,000 and my mortgage at just over $260,000. The net value of my house is what I need to increase so 50% is $120,000. If I pay down my mortgage by $45,000 and increase my home value by 15% or $75,000 I will acheive this goal. A 5% per year increase is not unreasonable to hope for and my regular mortgage payments over the next three years will take off $17,141.63 so this goal is already on schedule for a three year target, or if the market goes up at 3% per year, then I will hit a five year target.

About $355,000 is in the stock market or mutual funds (that are mostly equities). If the markets return 8% this will be up 50% between years 5 and 6. If it returns 10% per year then 50% will arrive between years 4 and 5.

The tricky part is to acheive growth on the rest of my assets, which are things like bank or money market accounts, receivables, personal property and miscellaneous smaller investments. There is basically $72,000 in this category so a growth of $36,000 is needed. I have concluded that this is the part I need to grow by saving. This is $12,000 per year for 3 years or $6,000 per year for 6 years.

So I think that if we don't start into a bear market (which is possible so I'm not counting it out) and if real estate makes continued but modest gains and if I save $6,000-$12,000 per year, then I could very well become a millionaire in 3-6 years time.

Cool.

Yeah, I know it's full of ifs, but it is also full of realistic possibilities and the time frame is not ridiculously long. And my history is of saving more than the amounts I have projected, so there are other ways to make the returns needed even lower. I'm very excited about this... I'm going to be a millionaire some day soon!

More bank action

2007-05-29T14:04:00.000-06:00

Another interesting day in banking stocks...

BNS announced it's Q1 results and the market liked them. The stock price was up 50 cents when I checked at 4:15 pm. But there is even better news for dividend investors - BNS also hiked its dividend from 42 to 45 cents. This 7% increase puts the yield at about 3.32% which is higher than all the other banks except BMO. My guess is that the price will start to catch up to this new dividend rate over the next couple months so now may be a good time to watch BNS for a buying opportunity.

TD rose, but the other three banks were down. This makes RY even more attractive, coming on top of Friday's drop. RY was at $58.44 when I checked, which was down 61 cents.

The yields are all over the place now:

BMO: 3.85%
BNS: 3.32%
CM: 2.92%
RY: 3.15%
TD: 2.89%

This is a very different picture from when I first looked at these stocks about 6 weeks ago. There is more variation which probably means pricing inefficiencies. And that could be an opportunity for savvy investors: Let the games begin!

Back in the saddle

2007-05-28T15:56:00.000-06:00

Hello! I'm almost healthy again today, and my fog has lifted enough to think about writing again, so I figured I was past due for a blog post. Today I have two little observations for you...

RY drops on good results (Friday)
Isn't that cute? RY reports one penny under expectations - basically meets expectations - but because BMO and TD beat expectations quite strongly the market punishes the share price. At the point I checked in on Friday it was down $1.75! It recovered later Friday and some more today, but is still down from last week's trading range by $1-$1.50. I think that this isn't going to be a huge bargain opportunity unless something further happens, but if you were looking to buy anyway I'd be keeping close tabs....

Canadian dollar up and up
It closed at 92.6 cents US today. This is really mixed news, depending on where your money is: If it's in Canada, this is great. If it's in the US, not so great. I certainly am hoping to do some cross-border shopping sometime soon, and vacations in the States will be really cheap this year. On the other hand, my recent purchase of JNJ has risen 1.5% but this is not enough to keep pace with the rising dollar so I'm actually at a loss position! (Good thing I don't have to sell!) This is a good illustration of currency risk. When planning your asset allocation, your time frame really matters because currency movements can be long-term trends. If the Canadian dollar keeps going up for the next five years, I could hold an appreciating stock without ever having a "real" profit!

Sorry for not posting... I'm sick! :(

2007-05-24T11:03:00.000-06:00

My brain is too fuzzy to think of something interesting to write about.

All I can think is...
Poor me.
Poor me.
Poor me.

I hope to be back in shape soon!
MD:)

The Money Diva unmasked!

2007-05-22T16:33:00.000-06:00

Well, I don't know how she did it, but the Trading Goddess snapped this little photo of me when I wasn't looking and put it up on her site! I like it so much I think I might look for a permanent place for it....
If you've never visited her site, be ready for something unlike anything you have seen before! Lots of stock charts and other eye candy!

How to React When Life Doesn't Go as Planned

2007-05-22T12:59:00.000-06:00

As I mentioned on Friday, I had a huge and unexpected tax bill that will be creating a cash flow problem for me in the not-too distant future. Fortunately, this problem is not insurmountable, and I thought it might be useful to work through the process on my blog.

1. The Situation

Daily expenses require cash flow:

I have just written several large cheques.
I have certain known expenditures that are upcoming in the next 30 days.
I also have an approximate idea of what my regular spending entails.
I am also going on vacation and need to budget for extra costs related to that.

Bank balances are not adequate to cover these expenses:

I keep only the minimum in my personal accounts, but there is a little extra left from the sale of my car.
I have recently moved a large sum into my corporate trading account. That has left my operating and savings accounts too low after the unanticipated tax expense.

2. The alternatives

Increase funds available for spending:

Work on collecting unpaid invoices from clients
There is enough cash in the trading account to cover the shortfall. It could be withdrawn but it may take several business days.
Set up a line of credit. This may also take several days.
Use a credit card for certain large expenses to bridge the gap.

Decrease expenses:

Unfortunately this may not be adequate on its own due to the large irregular expenses, but a drastic cutback could be a strong contributor to reducing the amount of additional funds required.

3. My Response

In looking at the situation, I have concluded that I probably put too much money into the trading account in an aggressive saving move, when this money was still needed for cash flow. Given that I am about to go on vacation, I don't think that the drastic expense cutback is a pleasant alternative. However, the possibility of collecting some unpaid invoices from my clients is quite possible.

So my first step was to get in touch with the worst offender and negotiate a discount (which they were asking for anyway) contingent on them paying by the end of the month. While they haven't come back with a firm answer, I believe that they will go for this option and this may in turn take the pressure off.

In the meantime, my backup plan will be to use my credit card for my upcoming health expense, which will buy me some time for some other invoicing to come in. I am also of course going to be much more vigilant about maintaining plans for adequate cash flow, even though I believe this was an extraordinary set of circumstances all falling in the same time period.

**********

On another note, the 3rd Canadian Tour of Personal Finance Blogs is now up at Canadian Capitalist's website. Be sure to visit and be a tourist in the CanPF blogosphere!

Ouch! Another Taxing Setback...

2007-05-18T17:00:00.000-06:00

Well, the bad news is that I underestimated my tax liability for this year. Today I wrote cheques totalling over $18,000 to federal and provincial tax departments, as well as my accountant, for her services. I only had $7000 budgeted as a tax liability so once again I am going to be taking a huge hit this month.

The good news? Well, none on the tax front. I suppose that the good news came months ago as I had my best year ever and saw my net worth increase by nearly 60% in 2006.

Additionally, I am planning a major health expense in the next few weeks which will further decimate my account balances. The good news on that topic is that the health trust I set up last year will pay for itself immediately.

So all in all, I'm feeling rather poor today. A couple weeks ago when I sold my car I was feeling quite rich. Funny how money becomes so subjective like that!

This is my 100th Post!

2007-05-17T07:56:00.000-06:00

Hard to believe it, but I have reached the 100th post milestone on my little blog today. Since I wrote the list of Ten Ways Personal Finance Blogging has Helped Me a couple days ago I don't think I need to go into that area again but I will take the opportunity to indulge in some reflection.

I started this blog at the beginning of the year after finding PF blogging while surfing. Since then, it has certainly been a journey with many twists and turns. In the beginning I wrote purely about my own finances and focused on goals like early retirement and reaching $1 million net worth. Lately, these topics have been less of a focus as I try to learn to analyze stocks and make some new investments.

One of the major decisions that I made about my blog was to be absolutely anonymous and absolutely open about my finances. By posting my net worth each month for the world to see, I was able to feel like there was nothing left that was taboo. It was what drew me to this world in the first place and it is still one of my favorite things about it.

I have used this blog to keep me accountable about various things - some more successfully than others. It has also helped me to sort out my thoughts on important issues, because you can't write about something without thinking more clearly about it. I have had other milestones too, such as recently hosting the Second Canadian Tour of Personal Finance Blogs.

As I look forward, I know that my blog will continue to grow and change. I still have many avenues to explore and the topic of personal finance is an endlessly wide one. Who knows what I might be interested in tomorrow?

And finally, I would like to thank those who read and comment on this blog. It is your participation that builds a sense of community and extends my thinking in new directions.

Here's to the next 100 posts!

Another Health Stock - PFE

2007-05-16T06:00:00.000-06:00

Someone suggested PFE in the comments and I decided to take a look. What I found was very interesting!

PFE (Pfizer) is a US-based company with huge international presence that mostly seems to make drugs. All the analysis on it is basically looking at the future earnings of this or that drug. In Canada, the big name that I am familiar with is Celebrex, but there are other big ones as well. Important news often concerns patents as with a recent ruling that protects Celebrex until 2010 from generic competition in Canada.

The company has a 0.10 debt to equity ratio. This is really low! It is like having 90% equity in your house and only a 10% mortgage (sort of). So from that perspective, the company is in great financial health because earnings aren't being used to pay debt so they can go to shareholders.

Why do I care about stocks right now though? Dividends, of course! And PFE certainly satisfies this criteria. Current yield is 4.29% with a 5 year dividend growth rate of 16.89%. These are awesome numbers. I looked further back and saw at least 10 years of consistent dividend increases.

The P/E ratio is 18.90 which is a bit expensive, but the forward P/E is 12.70 which is really good (if the analysts are accurate, which we know is a bit of an assumption).

So why do I call this stock interesting instead of WOW? Well, the charts look scary. The stock price has been going sideways since Jan 2005 but this range takes it back to 1998 levels. It's been in a downwards trend pretty much since Jan 2000. (I wasn't able to find a good chart to post, but look at it on MSN money and you will see what I mean.)

All of this leaves me sort of shaking my head. How does a company stay out of debt while paying out huge dividends (payout ratio is in the 70% range) unless it's very profitable? And yet everyone seems worried about PFE's earnings. I just don't get it.

So if you believe that you need to be a contrarian to succeed at investing, perhaps this is the stock for you. I find it very intriguing, and I love the yield, so I may succumb after giving it further thought, but right now I'm still puzzled by this apparent contradiction.

Remember to do your own research before investing in anything!

Dividend Stock I'm Watching: MFC

2007-05-15T06:00:00.000-06:00

Well, now that I have satisfied my urge to spend, I'm looking around and not seeing too many other stocks that look nice to me. There is one that has caught my eye though...

What it is:
Manulife Financial (MFC) - one of Canada's biggest insurance companies; also has US and international operations

Why I'm watching it:

It's a dividend payer and consistent dividend raiser.
MFC just raised their dividend 10%, Q1 earnings were within 1 penny of estimates, most analysts have it rated as a buy or better, and yet the stock keeps going down.
On Monday the other insurers that I watch (SLF, GWO) were up, but MFC was down.

It is starting to look like a good stock that is currently out of favour. Perhaps investors are overpunishing it for something.

Here are some numbers:

Closing Price (May 14): $39.20
Dividend Yield: 2.24%
P/E ratio: 15.56

And some charts...
Last year (click to enlarge):

Last month (click to enlarge):

It still looks like it has downward momentum, so I will just be watching for a while. It seems like $39 has been a support point recently but if it gets below that it could get down to around $38. At $37.75 it will be less than 15 P/E ratio, which is a number I like.

Anyway... we will wait and see!

p.s. Remember to always do your own diligence! If you want to do more reading on Manulife, check out Canadian Banks and Insurance. They have a bunch of stuff.

Ten Ways Personal Finance Blogging has Helped Me

2007-05-14T06:00:00.000-06:00

Lazy Man and Money suggested this topic and it called out to me, so I have compiled my list. Hope you enjoy it!

Ten Ways Personal Finance Blogging has Helped Me

It is a call to action – I feel like if I procrastinate too much on taking some financial step I will be letting my readers down.
There is a sense of community – there have been times when the words of encouragement from readers and other bloggers have put a smile on my face when things aren’t going right.
I am building a history – my blog is close to reaching its 100th post and I find it very interesting to look back at previous months to see where my interests have been.
I am learning from other bloggers – reading other blogs regularly is like a free personal library, and often brings up points that I haven’t thought of.
I love the feedback on my posts – the comments that are left on the topics that I am writing about have been supportive, humourous, insightful and expansive.
I am understanding myself better – daily writing serves to clarify my thoughts on many topics and helps me to learn how I think and react.
There is a sense of accomplishment – I have had to be committed, remain focused and continue to strike out in new directions. Meeting these challenges is a thrill in itself.
It has opened up new horizons – before I started blogging, there were many areas that I was unaware of. By participating in the blogosphere I have become aware of opportunities and options that are completely new to me.
It is a creative outlet – I am stretched an challenged by the act of communicating my thoughts in such a way that it is meaningful to myself and others. This leads to creative and lateral thinking and I believe that I am stimulating my brain more.
It has led to better financial habits – I have organized my accounts better, consolidated a lot of information in a single place, instituted better tracking and paid more attention to my personal finances than ever before.

I must add that I am very glad that I started personal finance blogging. I think it has been a very positive thing for me to do!

I am an Impulse Shopper!

2007-05-11T21:25:00.000-06:00

I thought it was just cars and houses, but I learned this week that I am definitely an impulse shopper. Once the money was in my brokerage account I simply couldn't pass up the deals that I thought I saw, and today was no exception. I picked up 200 JNJ at $62.06 this morning to add to the 400 BMO from earlier in the week, bringing my total spending spree to just over $40,000!

Wow. That's a lot of money.

Okay, here's my justification...

I believe that I spend a lot of time looking but when I actually buy it is a quick decision. Perhaps this isn't the same as impulse? After all, my past major impulse buys seem to have mostly turned out well for me. So I must have done my research and possibly have good instincts.

Or maybe I've just been lucky so far. ;)

Anyway, I read a short personal finance book called "Five Secrets a Millionaire Taught Me" this week and one of the stories told of a woman using her investment purchases to satisfy her shopping urge. (In fact, he was suggesting that you buy precious metals and keep them in a jar in your house so she even got to take something home from "the store". I think the whole idea is somewhat bizarre, but that's off topic.) I suppose that so long as I spend my impulse money on things that are good for me such as solid investments there is really no harm in it anyway.

The good news is that both purchases turned out positive at the end of the week, so the critical test of sleeping well on the first weekend has been passed. But I realize now that the buy and hold forever strategy is going to be hard for me. I am more active than passive by nature and I want to watch my investments a bit too much. Oh well! What's life without a few challenges?

Have a great weekend!!

The Dividend Project - A First Look at JNJ

2007-05-10T16:14:00.000-06:00

Well, I mentioned JNJ yesterday and today a committee in the US made a statement that sent it tumbling 2.5% so it may be a good time to be looking at this stock. Here are some numbers:

Today's Closing Price: $62.50
Dividend Yield: 2.66%
Trailing P/E: 17.81
5 Year Annual Average Dividend Growth: 15.76%

Why I am watching this stock:

Long, solid history of increasing dividends
Big company with name/brand recognition
Health care is not cyclical and demand will only increase as the boomers age
Other experts favor it (Warren Buffett owns JNJ shares)

Today's news affected a product that MSN Money tells me accounted for about 6% of their 2006 revenue so it was significant but far from their whole business. As well, the committee only said to add more warnings and conduct more safety tests so I don't think that will shut down this product, especially since it is a key product for the company and they will work hard to keep it viable.

Compared to the past 3 years, 2.66% looks like an above average dividend yield for JNJ. I read somewhere that the market average is 1.9% so it is favourable compared to this as well. The P/E ratio is not cheap but it is below the market average of 18 as well. 15 is the number that I keep seeing as a target maximum so it's about 20% higher than that.

Here is the 1 year chart (click image to enlarge):

And the 5 day chart:

I will be watching this stock to see if it is going lower or regaining some ground. The DJIA has run up so high in the last two months that today's loss of 147 points could be followed by more, and maybe JNJ would be pulled down by that as well. Certainly I would say that if it goes to $60 as it did in March it is a clear buy. Even at $62.50 I like it.

Remember that I'm not an expert and you have to do your own research and investment decisions! :)

Update: here is a blurb on JNJ - note how it offers international exposure.

Johnson & Johnson is the world's most comprehensive and broadly-based manufacturer of health care products, as well as a provider of related services, for the consumer, pharmaceutical and professional markets. Johnson & Johnson has more than 180 operating companies in 51 countries around the world, selling products in more than 175 countries.

The Dividend Project - Setting Income Goals

2007-05-09T17:09:00.000-06:00

Middle Class Millionaire commented that he liked my previous post where I related my new dividend income to my property taxes. This made me realize that it's an idea that I really like too - sometimes I just come up with these things and don't fully stop to see whether they are any good or not. So here are my first dividend income goals:

1. Property taxes - $210/month
2. Utilities - $350/month
3. Phone (land and cellular and internet service) - $140/month

This comes to $700 per month or $2100 per quarter. If I was able to buy dividend payers that average a 3% yield then I could do this with an initial investment of $70,000, which by coincidence is how much I have available to invest. However, I suspect that I might fall short because not all of the quality stocks pay that high.

I bought 300 more BMO when it went down further today (at 67.58 to average my cost including commissions down to 67.85 per share) which means that I now have $272 per quarter of dividend income. I think that's enough bank exposure for me now, so I think I will stop following the market movements too closely on those (I don't want to get depressed if it drops again either!).

WIth respect to my portfolio composition, I also want that to be influenced by my own living expenses to a degree. That means that in addition to the banks I am looking at some energy/utilities, and I would like to add a large consumer stock next. JNJ, WMT and HD are the three that I am watching. I will pull together some numbers on them soon and post about it.

...and now, back to our regularly scheduled program

2007-05-08T17:38:00.000-06:00

Hello, I'm back! :)

It feels like I've been consumed by the tour for the past week, so I'm more than ready to return to posting in my own little corner and let the spotlight fade. Taking on a big task is an interesting case study for what happens when scarce resources are reallocated. In this case, my time and attention could only go in so many directions so I had to both find more time and allow certain things to pass by.

Money is the ultimate scarce resource. I suppose that if you are a government you can print it, and if you have a money tree in your backyard you can grow it, but most of us have only a finite amount of it at any given time, and additionally we know that we can only get more of it at a certain fixed or maximum speed.

Okay, not always a fixed speed. For instance I got a bit of a bonus yesterday... I sold my car. This is great because it means that I can cancel the insurance on it and I'm not going to be paying for two cars when I can only drive one. Also, I now have a chunk of money in the bank which will cover some house expenses that I have this month and probably my summer vacation as well.

In other news... The Dividend Project has reached a new stage!

I went out on a limb and bought some BMO today at $68.08. This equates to a 3.99% yield and I figure that's a good place to start. It was a bit scary to hit the buy button, because I haven't done it in so long. But I only bought 100 shares so that if the price drops further I can look at it as a buying opportunity instead of being all upset. This means that I am now entitled to a dividend of $272 per year or $22.67 per month (although it actually is neither of these since it is paid quarterly).

A reality check here-- the cost of the trading commission through a discount brokerage increased my actual share price to $68.34. It would have cost the same to buy 200 shares, so when possible I will have to make larger purchases. Fortunately I am not planning to sell if things go according to plan. :)

With an eye to early retirement, I am going to relate these dividends to real expenses. So first goal is to have enough dividend income to pay my property taxes and this first amount is about 10% of my property taxes. The nice thing about the stocks that we have been looking at is that they historically raise their dividends annually, so I can relate the amounts to current expenses and know that in most cases they should remain inflation-protected.

The Second (EVER!) Canadian Tour of Personal Finance Blogs

2007-05-07T01:00:00.000-06:00

And here it is... the one you've all been waiting for:
The Second (EVER!) Canadian Tour of Personal Finance Blogs

Thank you so much for visiting! I am known as "The Money Diva" (although this is not my real name), and it is my great pleasure to host this tour which will take you around to some of the best Canadian PF blogs, many of which I read daily myself. Over the past couple of days the submissions have been pouring in and I have been consistently impressed by the knowledge and effort that my fellow bloggers have put into their posts.

I have organized the tour around which aspect of personal finance the post addresses and we got a great range. As a reminder, many of these blogs cover more than one area of personal finance and I encourage you to go back to the ones you like for new content after the Tour.

Now Here's The Tour!!

Spending, Saving and Daily Personal Finances

You, Your Partner, Your Money and the Great Big Fight
posted Nancy Zimmerman of Your Money By Design
Provides three very good pieces of advice about an area that can be very tricky. A must-read for anyone with money conflict in their relationship!
Paying Attention to your Finances
posted by Ellen Roseman at Ellen Roseman: On Your Side
Ellen hopes we do better than her 20 year old son, who doesn't care about money yet. She identifies new areas, beyond Starbucks, that we may be wasting money and losing our ability to save.

Consumer Topics

Improve Your Credit Score
posted at Thicken My Wallet
A detailed look and why this is important and how to work on it. After reading this post (in two parts) you will have the tools you need to improve your own credit score.
Compensation of Financial Advisors - A Middle Class Rant V
posted at Middle Class Millionaire
MCM continues his Middle Class Rant series with this great post. For those who think that advisors are unfairly becoming the whipping boys of the PF blogosphere, here is a more balanced perspective on things. I think that I may have to join the discussion on this one!

Risk and Insurance

The Four Financial Risks
posted by Promod Sharma at Riscario
Promod is an actuary by profession and brings a very informed perspective to this topic. He helps us understand the four main risks that insurance is designed to address, and the choices that we all have to make to manage these risks. This is a very accessible introduction to a topic that is sometimes scary. He even includes a picture!
Life Insurance is the Defensive Personal Finance Strategy with Personal Finance
posted by Monty Loree at Quality Life Insurance
This post shows you the role that life insurance plays in an overall personal finance strategy. Monty examines risks a bit differently than Promod (above) to further fill in the details. A great hockey analogy makes this post easy to relate to!

Asset Allocation

Analyzing my Current Asset Allocation
posted by Canadian Dream at Canadian Dream: Free at 45
I am big fan of the learning that comes from seeing details of other people's actual finances, which anonymous blogging allows. For the Tour, Canadian Dream looks at where his money is invested and discovers that his asset allocation contains some surprises. Posts like this always inspire me to examine my own finances from a new angle!
Portfolio Magic ... 3+1 = 5!
posted by Outroupistache at Canadian Financial DIY
Here is an interesting post that suggests that good asset allocation can accomplish what we all want - to maximize portfolio returns while minimizing volatility! Outruopistache includes examples and relevant links to help you acheive the benefit of correctly implementing this strategy.

Investing

How to Assess Hot Stock Tips
posted at Investoid
They say you can tell a bubble when you are getting tips from the cashier at 7-11. But never fear, Investoid is here to help you separate the lead from the gold! This article is solidly informative and useful, with a touch of humour about those situations that we each may recognize. :)
Low Fee Mutual Funds
posted at Canadian Capitalist
It is impossible to predict how a mutual fund will perform in the future but two characteristics correlate highly with odds that a fund will perform well relative to its index: low-cost and low-turnover. This post seeks Canadian Equity funds that have costs that are much lower than the average.
How Segregated Funds Work
posted by Frugal Trader at Million Dollar Journey
If the words "Segregated Fund" are greek to you, then this post is the answer. Frugal Trader avoids jargon and clearly explains what it is, how to buy it, advantages and disadvantages.
Dividend Paying Stocks – The Holy Grail?
posted by Average Joe at Investment Jungle
This post looks at a topic that has been dominant on my blog lately - dividend stocks - and asks whether they live up to the hype. Joe identifies some reasons that good companies may not issue dividends and also some possible challenges in a dividend strategy.
Don’t Steal My Ideas - Where I find stock ideas and how I evaluate them
posted by NonyMous at Canadian Economy, Commodities And Mining Stocks Through a Fundamental Lens - Wolf Stone
This article discusses how piggybacking on the holdings of investment managers you admire can be a valid way to build a watchlist and/or portfolio. A great idea if you are searching for a way for the small investor to thrive without an in-house research department!

Retirement Planning

Top 10 Exciting Semi-Retirement Jobs
posted by Financial Jungle Guy at Financial Jungle
This is the mystery post in the group. Financial Jungle Guy was working SO HARD on this post that he needed more time on the weekend to complete it and I haven't seen a draft in advance. The title certainly piques my interest though, and I know that I will be checking it out as soon as it's up on Monday!

Remember to comment, bookmark and link to posts and blogs that you like!

The purpose of this tour is to help people find all the great blogging that is available in this area. Some of these bloggers are relatively new and others have been blogging for quite some time. We represent a variety of backgrounds, philosophy and experience. We all know and like each other, even though sometimes we get into heated arguments (FT and CC!). I hope that you enjoy this tour as much as I have enjoyed putting it together.

And be sure to visit Canadian Capitalist's blog on May 22 for the THIRD (ever) Canadian Tour of Personal Finance Blogs.

Thanks again for visiting! Hope to see you again soon....

The Money Diva

p.s. Bloggers - I have linked to your home page to begin with and I will change to permalinks later today. Thanks! MD :)

The Dividend Project - Taxation

2007-05-03T16:12:00.000-06:00

Warning up front: this is not purely about dividends...

I met with my accountant today to discuss my adventures in investing and the best way to structure them. The short version of the meeting was: Put everything in the corporation.

Interesting highlights include:

For corporate taxation, foreign dividends are just as favourable as Canadian dividends and this is the best kind of income for corporate (as we know it is for personal)
Interest income is taxed more gently while it remains proportionately small compared to corporate revenue (under 50%)
Upcoming/phased changes in the tax laws may make investing within a corporation even more attractive by 2010
Both corporate and personal capital gains are only 50% taxable. This means that your tax rate is effectively cut in half. However, for corporate it is taxed at the high rate, so the 50% deduction basically puts it back into the low rate.
The 50% of corporate capital gains that are not taxable are also tax free when you take them out of the corporation

We also talked about my mortgage and she was very much in favour of paying it down, although the rental income I receive from the basement suite makes this less urgent. We may look at a 5 year plan for this.

Another interesting surprise: I discussed the concept of borrowing to invest and she said that even that should happen inside the corporation.

So my two grand conclusions are:

Put it all in the corporation and let the accountants figure out the taxation.
Dividends are great.

The last thing she said to me was perhaps the best advice: Make sure you are doing good investing and making money rather than simply structuring for tax effectiveness.

You can say that again!

Update on Canadian Tour of Personal Finance Blogs

2007-05-02T09:59:00.000-06:00

By now most of you probably know that I am hosting the Second Canadian Tour of Personal Finance Blogs, scheduled for Monday, May 7th. I have been working hard to get in touch with all the participants, and it looks like the tour should be a great one!

Here is a current list of who is participating:

Canadian Capitalist
Canadian Economy, Commodities And Mining Stocks Through a Fundamental Lens
Canadian Financial DIY
Canadian Dream: Free at 45
Canadian Mortgage Trends
Ellen Roseman: On Your Side
Financial Jungle
Investment Jungle
Investoid
Middle Class Millionaire
Million Dollar Journey
Quality Life Insurance
Riscario
Thicken My Wallet
Your Money by Design

All the participants write about some aspect of personal finance in Canada, but there is a lot of variety, from investing to consumer protection to retirement to mortages and insurance. Many of these participants post to their blog daily so you can visit them now to get a taste of what is to come.

There are a few days left before the tour, so this list could grow! Be sure to join me on Monday, May 7th to tour the best the blogosphere has to offer on Canadian Personal Finance!!

Tuesday - markets down again

2007-05-01T16:27:00.000-06:00

I happened to be online this morning when the markets did a "V" (as Financial Jungle called it). It was pretty wild to see the prices drop so quickly. For a moment I thought that there was going to be freefall!

This movement affected all the banks, with many of them hitting rather attractive prices, if only for a few minutes. In addition to the TSX chart above I am including charts for all the banks (click on images to enlarge).

Pretty consistent, eh?

You can see that they all recovered, although CM is the only one that trended upwards after, the rest are down. Dividend yield is once again improving on these lower closing prices. BMO is up to 3.92%, RY is 3.21% and the others are a bit more spread out now, due to varying levels of losses.

This is a change from how closely the yields were staying together during less turbulent times. I think that the emergence of a spread indicates that opportunities are starting to show up. I will be glued to my screen the rest of the week, I'm sure!

Just a reminder that I am not a pro so please do your own diligence if you are thinking of investing! Happy Tuesday!

April Net Worth Update

2007-05-01T16:22:00.000-06:00

April is the cruellest month. - T.S. Eliot (The Wasteland)

Sometimes you have to have a sense of humour about yourself. April was not a very productive month for me in many ways. Maybe I spent too much time blogging, or maybe I was just lazy, but my consulting income was definitely down. Not only that, I didn't finish my project to track every penny that I spent in April; I fell off the wagon by the middle of the month! What a failure!!

So to make up for all this dreadful laziness, I decided to increase the valuation of my house. ;)

No, seriously, I had a good reason for that. But it does look rather suspicious that my house valuation came to save me from an otherwise ugly month. One comment that I will mention is that I included a $7000 tax liability this month, even though I won't pay it until May. So the month wouldn't be quite so ugly if that wasn't in there.

Anyway, the official number is $656,100. So enough about this topic. Next month should be better! Or else I'll have to raise my house value again.... :)

Stock Market dip today - all major banks are down

2007-04-30T16:08:00.000-06:00

The TSX was down by just over 200 points (around 1.5%) today and all the banks that we have been watching were down as well. Here is a repeat of the chart that I ran a few days ago (click chart to enlarge):

You can see that the current yield has increased on all five stocks, moving from the 3.12% range to the 3.15% range for the four on the right. BMO is still out of step by about the same amount because almost all the banks were pulled down by its news. It is creeping toward a 4% yield and will reach that if it hits $68.

The commentary I have seen seems to be emphasizing the reasons that the markets could continue to go downwards. Maybe our buying opportunity will be coming soon!!

BTW, be sure to read the comments on Friday's post if you are following these banks. Lots of very smart bloggers have contributed and sometimes there is better material in the comments than the posts! :)

Rising Home Values and Increasing 2007 Target

2007-04-30T08:04:00.000-06:00

I didn’t expect my house to increase much this year but it seems that real estate is up has right across the country. Check out this nifty interactive map to see how your area did over the last 12 months.

After watching the local market this spring, including some field research, :) I concluded that I was undervaluing my house quite significantly. My previous number was too low to begin with, and with the market rising I have decided to increase my house value by 7.2% to $500,000 – a number I believe is still nicely conservative.

With this increase and a strong start to the year for consulting income, I have decided to push myself and revise my 2007 net worth goal from $650,000 to $700,000. I will post April's actual net worth summary tomorrow.

In a funny little coincidence, Canadian Dream was having the same thoughts a me today. Go read his April Net Worth post and experience the deja vu for yourself!

Just a reminder also that I will be hosting the Second Canadian Tour of Financial Blogs next Monday. We have lots of great personal finance bloggers agreeing to participate and it looks like it will be a great event so be sure to join us!

The High Cost of Spring

2007-04-27T15:12:00.000-06:00

The weather has been nice of late, so I finally decided to take a look at my yard and what it needs. Since I have owned the house for less than a year, this is the first time that I have taken this inventory and it was somewhat of a rude awakening!

First off, the yard is HUGE and I am single with no kids - i.e., no secondary sources of free labour. I think that I had forgotten just how big it was, and now I'm thinking that I will definitely need to hire some help to get it whipped into shape. Here are some ways that I could spend money outdoors this season:

spring clean up - raking, trimming, clearing out beds, etc.
lawn fix up - seed/sod/aeration... I'm not sure what it needs
fertilization and weed control - I already signed up for this, it's not too expensive
the deck! - it's a disaster and replacing it would costs thousands. Probably not on this year's list
the roof, the hedges, windows, painting the house and many other expensive but lower priority items

*GULP* I think I should have purchased a condo. :(

Oh well, one thing at a time and it doesn't all have to be done this year. It's a good reminder that real estate isn't all about making money - there is spending to be done too!

BMO trading loss - buying opportunity?

2007-04-27T08:34:00.000-06:00

Look what's in the news today...

TORONTO, April 27 (Reuters) - Bank of Montreal said on Friday
that its second-quarter results will be stung bypretax commodity trading loss
between C$350 million ($312.5million) and C$450 million after changing
conditions hurt its positions in natural gas.

Canada's fourth-biggest bank, which estimates the impact between 45
Canadian cents to 55 Canadian cents a share, said the energy market, primarily
natural gas, became more illiquid while volatility fell to historically low
levels.

The bank, which said it also changed the way it estimated the market value
of the portfolio, will "reposition" it to a lower level and take less trading
risk.

Shares fell about 2 percent, or C$1.32, to C$69.95 on theToronto Stock
Exchange soon after the market opened.

So I'm reading this as a $1.32 drop on a $0.45-0.55 impact. Sounds like a gap to me...
Is anyone buying at this price? Please post a comment!

The Dividend Project - Bringing it all Together

2007-04-26T16:40:00.000-06:00

Don't let the title of the post mislead you - I'm not done yet!

But today I wanted to bring together some of the numbers that we have seen in analyzing the major banks and start to talk about how to set a price at which you would want to buy a stock. Here then is a summary using today's numbers of the five major banks (click image to enlarge):

Now I know these are a lot of numbers, so I will go through them logically.

First, the bottom two sections are my raw data. This time I did not rely on anyone else's calculations, I went and got the information to calculate it myself. I got the last four quarters' earnings and dividend numbers and added them up to get the 12 month trailing numbers.

Then, starting back at the top:

The yellow row is today's closing prices.
The white row is the 10 year growth numbers from the Globe article that I found a few days ago. I just kept them in there for reference.
The first orange section is dividend yield. For the trailing dividend yield I divided the trailing 12 month dividend from the orange section below by today's closing price. For the current dividend yield I took the last dividend times 4 and divided by the lcosing price.
The first blue section is the price to earnings ratios. For the trailing P/E, I divided the closing price by the 12 month trailing earnings. For the current P/E, I divided the closing price by 4 times the last earnings (note: this is sometimes called forward p/e, I believe).
Finally, I calculated payout ratios be dividing trailing dividend by trailing earnings and last dividend by last earnings.

So now comes the big question - are these a good buy at today's price? If not, at what price? And despite my big talk at the beginning of this post, I am going to chicken out and not name prices today. I want to do more reading about these numbers and what they can represent because as I look at them my head goes round in circles. I can come up with an explanation for white in one breath, and black in the next.

I really like this little chart though. I feel like finally I can see where these numbers are coming from and how they all relate to each other.

BRILLIANT IDEA!!!
I'm going to try to run these numbers for MY COMPANY. Okay, I know it sounds strange and it may not be exact since my company doesn't have a real share price, but it will relate it to something that I know really well. Stay tuned, folks. This story is just about to get interesting....

I'm Famous!

2007-04-26T08:30:00.000-06:00

Canadian Capitalist just posted on the New Batch of Canadian Money Blogs and my blog was very kindly included. Thanks for the plug, CC!!

If you are a first time visitor here, welcome to my blog! You may want to check out the series on dividend investing that I have been working on. I am not experienced in this area, so the posts detail my work on understanding and analyzing dividend stocks. The latest posting has links to all the others.

If you enjoy my blog please bookmark it or subscribe to the feed. Have a great day!

The Rites of Spring

2007-04-25T16:29:00.000-06:00

This week I have been quite motivated to move things forward that have been previously standing still. I have listed my old car for sale, moved my bathroom renovation forward by two significant steps, set up some necessary business banking and set up three important personal/medical appointments. I realized that this is a sort of "spring cleaning" for me. The change of seasons seems to bring a renewed interest in getting things into top shape.

I think that it is important to take advantage when this kind of energy strikes. Personal finances can benefit from a "spring cleaning" too. Here are some ideas based on ways that my finances occasionally get "messy". Not all of them will apply in every situation, but it's a good starting point:

Switch banks, open or close accounts, or consolidate banking and investing into fewer locations to save service charges or reduce the administration that you have to do.
On a similar note, do an internet search to see if you have a dormant account that you've forgotten about. Make a resolution not to have so many accounts that you could ever lose one!
Set up automatic payments on those pesky bills that you always forget about. My personal tormentor is my cell phone bill because it doesn't arrive in paper mail, and my email inbox is always so full.
Review how many credit cards you have and what each one's balance, interest rate, annual fee and incentive programs are. Don't forget about department store cards, gas cards or anything else that is like a credit card. Rearrange if things don't make sense.
Increase your mortgage payment. If you think you can't handle it just do $20 extra. Then try raising it again in a few months.
Check when your mortgage is maturing and start talking to a broker now if it is soon.
Increase or set up an automatic RRSP withdrawal. If your employer offers this as a payroll service do it from source so that your taxes are adjusted. If your employer offers a matching contribution make sure you are putting as much in as you possibly can afford. to maximize the match.
Review all your investments to make sure that you know where your money is and what asset classes it is invested in. Review the performance of all stocks or mutual funds to determine if you are holding underperformers.
Rebalance your portfolio if it hasn't been done in a while.
Review your life insurance and will, especially if you have married, had children, divorced or any other similarly significant event this year.

Wow! That's a big list. If your energy level isn't up to tackling so much stuff just pick one or two. I'm a big believer that even small improvements add up over time.

Happy Spring Cleaning!

The Dividend Project - Payout Ratio

2007-04-24T20:58:00.000-06:00

Thanks to comments from Frugal Trader and m00m the idea of the payout ratio or percentage dividend payout has been raised. The way I understand it, this is basically the percentage of the earnings that is returned to investors as a dividend.

Why is this number important? I have some ideas:

it shows how much of the profit is being invested back into the business
a high ratio (on a scale of 0 to 100) shows that most of the profits are leaving the business
a high ratio may be unsustainable and could lead to future dividend cuts
a low ratio means money is staying in the company
the low ratio could show a company philosophy that keeps dividends below what they could be and the investor does not see the immediate share of profits that other companies may offer

There may be other reasons that this number is important. Please feel free to add to the list... :)

Globeinvestor.com provides this number and today's stats show the following for the 5 bank stocks we have been talking about:

BMO 42.55%
BNS 41.44%
CM 34.92%
RY 39.07%
TD 27.77%

Now, I should caution that I wasn't able to get these same numbers. Using the last annual numbers (October 31) for each, this is what I got:

BMO 43.05%
BNS 41.78%
CM 36.80%
RY 39.45%
TD 27.86%

For some reason mine are slightly higher in every case. There must be some variation of the rule that I don't know about.

Anyway, if we use their numbers they should at least be consistent and we can again see an example of most of the sector falling in a fairly narrow range. This time the odd man out is TD, who has a very low payout ratio by comparison. Does this mean that TD may have extra room to increase its dividend? Also, these numbers don't seem to justify BMO's higher yield as was suggested in the comments. BNS and RY are both very close to the same as BMO but they are yielding in the standard range.

I have been working on this series for a while and I know that each post shows only one piece of the puzzle. I am going to try to start pulling things together soon. Here are links to previous posts in this series in reverse chronological order:

The Second Canadian Tour of Personal Finance Blogs

2007-04-24T07:42:00.000-06:00

I have just received word that I will be hosting the second ever Canadian Tour of Personal Finance Blogs! Monty Loree started this tour and did a lot of organizing and promoting to make the first tour a fabulous success. Now it's my turn to take it on and build on his foundation.

The second tour will happen on May 7, 2007. That's a couple weeks away so we have time to line up participants and work out any changes.

There was a previous discussion with some good suggestions already over at Canadian Money Advisor and feel free to send me further suggestions and input. Then stay tuned for updates as I prepare for the tour. I am hoping that we can really make this a community event that everyone supports!

The Dividend Project - Sector Solidarity

2007-04-23T16:16:00.000-06:00

So today four of the five bank stocks that I profiled yesterday were down. The interesting thing is that this actually pushed the yield into an even smaller range (excluding BMO) because BNS was the highest yielding and its price went up, pushing its yield slightly down. Now all four are between 3.09 and 3.11%.

I'm starting to realize that sectors seem to stay together and it's an exception when a stock doesn't stay with its sector. I don't have a broad enough knowledge to say which sectors follow this trend very strictly and which are looser, but looking at the banks I would say that this looks like a textbook case.

What this means is that it might not be essential for us as investors to pick the exactly right stock, so long as we have picked good sectors. I have read before that 90-100% of investment performance is determined by asset allocation but I always thought of that broadly as stocks, bonds, T-bills, etc. Perhaps there is an application of this concept to a stock portfolio as well.

And I am wondering now why BMO is yielding so much higher. Does anyone know if this shows a weakness in the stock or recent bad news?

The Dividend Project - Analyzing The Major Banks

2007-04-22T15:16:00.000-06:00

Today we are back to looking at dividend stocks and I am going to start the analyzing of the major banks. This will probably take more than one post, but I will at least get started today.

Fully one third of the 47 companies listed on the Mergent Canadian Dividend Acheivers list are in the sector "Finance and Insurance". These 16 companies include the 5 major banks, 2 smaller banks, 4 insurance companies, 2 mutual fund management companies, and 3 that I can't identify (HCG, PWF and IGI - please let me know if you know what they do).

So I think that I don't need to justify why this sector is being included in The Dividend Project. We will just start right in with the candidates:

Bank of Montreal (BMO)
Bank of Nova Scotia (BNS)
Canadian Imperial Bank of Commerce (CM)
Royal Bank of Canada (RY)
Toronto Dominion Bank (TD)

All five of these stocks appeared on the list in the recent Globe article I pointed to earlier and they all have 10 year+ track records of paying dividends. Further, this article conveniently provides the 10 year compounded dividend growth rates of these stocks. For ease of reference I have reproduced the numbers below:

BMO 12.51%
BNS 16.34%
CM 10.84%
RY 15.77%
TD 13.11%

And from these numbers, we can conclude that all five of these stocks fulfill our first two requirements of 10 year dividend history and dividend growth.
Here is the current dividend yield for the five banks:

BMO 3.78%
BNS 3.12%
CM 3.08%
RY 3.07%
TD 3.08%

Very interesting! Other than BMO, the group is yielding with a very narrow 0.05% range.

Also, all five of these stocks have less than 2% difference between their share price growth and dividend growth according to the Globe story, which means that their yields probably stay in a fairly narrow range unless the 10 years that he looked at were an anomoly.

To test this theory a little I looked at RY on the first of the month (or last close prior if it was a weekend or holiday) back to November 2003 and found the range of the dividend yield went from 2.60% to 3.49%.

So basically, what this evidence suggests is that these companies will increase their dividends by an average of 10-16% per year and that they share price will go up by very close to the same amount to keep the yield close to the same. In other words, you can expect to gain about 13-19% per year in dividends and capital gains. Wow. That's huge!

So my guess is that solid performers like this never get really cheap, but let's take a look at the price to earnings ratio to see what it looks like. This number is supposed to tell you how much you are paying for every dollar that the company earns in a year. Since earning money means dividends and share price growth, some people would actually say that when you are buying stocks you are really buying earnings. Here are the P/E numbers:

BMO 14.10
BNS 14.50
CM 12.62
RY 15.49
TD 15.65

Again, it is remarkable how close these numbers are. Other than CM, there seems to be a very common range that the investors think the banks are worth.

to be continued...

Net Worth Growth - analyzing my numbers for the past three years

2007-04-20T01:00:00.000-06:00

In response to a comment earlier this week, I decided to analyze my net worth changes from March 2004 (the first month I entered in Net Worth IQ) to March 2007. Here is what I found:

Retirement
Growth from $30,000 to $41,100 is due to investment gains. No additional contributions were made.
Personal Property
No change at $14,500.
Cars
Depreciation from $6,500 to $4,500.
Cash
Gain from $44,500 to $80,000 due to retained consulting earnings
Home Equity
Gain from $0 to $204,500. Second largest source of increase. I bought and sold one house for a large profit and then bought a second house. I have increased its book value to what my tax assessment showed, but that is below market so this number is conservative.
Stocks
Gain from $0 to $228,200. Largest source of growth. This is broken down into $170,00o in contributions (retained earnings from consulting revenue) and $58,200 of investment growth.
Other
This is where I track my receivables. Increase from $21,000 to $36,000 due to increase in business activity.
Credit Cards
Increase in liability from ($1,500) to ($2,000). I put a good portion of my monthly expenses through my credit card. This probably shows higher spending habits but one month is insufficient to tell.

TOTAL: Increase from $114,500 to $621,700

So in summary, I made money in the real estate market, I saved a lot of the money I earned, and my investments did well. Basically a story of everything going right.

I was pleased to see that real estate luck wasn't the entire story here. The fact that my savings and investing beat out my real estate gains makes me feel fairly balanced. And I am fully aware that I will not ever experience such wild growth in my net worth again. My forward-looking forecasts are far more modest.

It is also important to note that these were a very busy three years for me professionally. I hope that I never am that busy again. But fortunately, when you are independent you see the rewards of putting in your time.

Tagged!

2007-04-19T14:40:00.000-06:00

Frugal Trader from Million Dollar Journey has tagged me to admit to my most obsessive thoughts. As per his post, I'm sure that no one is surprised that personal finance bloggers are obsessed with money and financially related thoughts. Here are my four:

Real estate/my house
I visit MLS.ca almost daily and I always know what's for sale in my neighbourhood. I am constantly analyzing for comparison to my house and estimating its value. I also spend a lot of time thinking about home improvements, my tenants downstairs and organizing/furnishing/decorating.
Blogging/money
You can't write almost daily posts without thinking about your blog and its topic a lot. No more to say on this, my posts cover the details!
The future
The real reason that I care about money is because I care about the future. I have a strong need to be able to take care of myself, and to feel secure. My thoughts about the future also extend to specific plans and details, as well as general philisophical musings.
Self improvement
This may be the only surprise on the list. I am always making resolutions and plans, reading books and talking to people about various topics so that I can improve myself in some way. I also love taking courses that make me feel like I know something new.

And there you have it. I now get the right to tag other bloggers and I will pick two regular commenters: m00m and Canadian Money. Tomorrow we will return to our regularly scheduled program. :)

The Dividend Project - more reading

2007-04-18T14:35:00.000-06:00

Here is a fantastic story from the Globe that tells about how rising dividends tend to boost the underlying stock price. It has a lot of detail, including some important exceptions and a chart of Canadian dividend stocks.

This correlation makes a lot of sense. If a company keeps raising its dividend, then the yield will go up. When the yield goes up, it becomes more attractive and people will buy at a higher price. This will return the yield to its usual range until the dividend is raised again and the cycle repeats.

As I have mentioned before, I find it hard to stomach buying dividend stocks for income purposes when their yields are so small, but if you get an increasing dividend and the stock price comes with it then there is potential for great gains.

Happy reading!

Net Worth and Housing

2007-04-17T22:00:00.000-06:00

I know that this topic has received airtime in other places at other times, but I thought I would respond a bit more thoroughly to a comment from Customer's Revenge. The comment was that I should not include my house in my net worth.

My response is... that depends on what I am measuring and why.

If I am trying to measure how much I would be worth today if I sold everything and paid off any debts then my house absolutely needs to be there. It is certainly part of the assets that I own and have accumulated and there is value in knowing what this number is.

If, however, I am trying to measure my assets that can support a retirement plan by generating capital growth and/or income then perhaps my house does not belong in there.

I once saw an article that referred to your net worth without housing as your "nest egg". I liked the term and the concept and so I have taken to tracking this number as well as the traditional net worth. I also take out my car and some personal property. According to this formula, I have recently passed $400,000 of nest egg worth. About $290,000 of this is invested, about $85,000 is in bank accounts (some due to asset allocation, some waiting for investment choices or opportunities) and the remaining amount includes receivables and miscellaneous amounts.

This nest egg is the number that tells me about retirement using the 4% rule. Right now, I can raise $16,000 per year from this amount - not enough to retire on. :(

But I have to say that I disagree with those who say that housing should be excluded altogether because that gives a one-sided picture. A balanced view must include tracking both numbers, in my opinion.

BTW, Consumer's Revenge also asked about how I grew my net worth so quickly. That is a topic for another post so stay tuned for that later this week.... :)

The Dividend Project - Info for analyzing candidates

2007-04-16T19:33:00.000-06:00

Well, after stressing out about my first tour things can now return to normal (more or less). And I am back on the topic of dividend stocks again. For those who missed them, links to previous posts are at the bottom of this post. But today, we are on to the interesting question of how to analyze candidates.

I have put together a list of information to gather for a potential dividend stock candidate based on what I've read at a number of sources. There is a lot of good information available. So the good stuff is probably due to others guidance while any mistakes are mine alone. :)

Now, I am assuming that the decision to invest for dividend income has already been made. If not, you may need to return to asset allocation school, which is something that I intend to cover down the road but not today. Therefore, we can identify the characteristics of good dividend stocks and create a checklist for future use.

1. Dividend History
Obvious, but worth saying. It should have a proven history of paying dividends for at least 5 years but 10 is even better.

2. Dividend Growth
Not many stocks increase their dividend every single time, but some of them never go down. This is a very good sign, especially if it goes with a long history. To get pickier, you may prefer those that show larger percentage increases and more frequent increases.

***If the stock fails after #1 and #2 then stop wasting your time. It won't ever be a contender***

3. Dividend Yield
Here is our first hard one. There are no rules for what is a good yield. So first, find out what the historic range is over at least the last five years. This will help us see when it is historically cheap or expensive. Also, compare to other stocks in the same industry to see where it falls compared to its peers. Finally, remember that high yield may indicate higher risk. Nothing is black and white!

4. Other Indicators of Value
We only want to buy when prices are cheap. But for each stock that could be a very different number. The yield info in #3 will help, but P/E (price to earnings) ratio and Price/Book ratio are also good tools. For now, just look the numbers up. We will talk about how ot interpret them later.

5. Timing Considerations
You need to know when the last dividend was and when the next dividend is going to be (if it has been announced). There are a few different dates and I don't quite understand them all yet so we will need to come back to this point too.

THE POINT
We are going to use this list to decide if we like a stock enough to watch it and to determine at what price it becomes a good buy.

THE CHALLENGE
I don't have good or easy ways to get some of this info, especially the historical stuff. For now, we can use the Mergent Canadian Dividend Acheivers list and assume that stocks on this list have passed #1 and #2. But if I find another way to do that part, I will be sure to post it.

WHAT'S NEXT?
We will talk about sectors and then move on to individual stocks in each sector. Then we will pull together the answers to #3,4 and 5 for a few stocks to see if we can identify a buy price. Later on we should talk about taxes and other boring stuff like that.

Previous articles in The Dividend Project series:
1. Learn with me!
2. Resources

Measuring Net Worth – advantages and limitations

2007-04-15T18:35:00.000-06:00

WELCOME! This article is my submission to the Canadian Tour of Personal Finance Blogs.

When I discovered the world of personal finance blogging, I was absolutely delighted to find a place where people could talk about actual numbers freely. I still find it very exciting that so many PF bloggers post their net worth, budget, debt and other numbers so that we can all gain a greater understanding of money than can be found in the single case of just your own situation.

I have tracked my net worth with various levels of accuracy for many years now, but this year I am starting to realize that this number is not to single key to success that I once thought it was. Ironically it is my success with increasing my net worth that has led to this realization.

My retirement planning has always consisted of spreadsheets that model income and expenses based on fixed assumptions. During the accumulation phase, my net worth would rise and during the retirement phase it would decline. But this past year, as my net worth passed half a million, I suddenly realized that while I have learned many things about accumulating, I have no clue about how to make the declining phase work.

Regular readers of this blog will recognize a theme that I have been moving toward for a while now. To retire, you need income. Net worth doesn’t pay the bills every month.

So although the time I spent focusing on net worth has been productive, I know that the time is now right to change this focus. I need to start developing a strategy for income and adding new measurements that will allow me to track it. I also have to determine what my goals are for this new stage.

To those who are on a different point in their financial journey, I would suggest that if you are early in your accumulation phase then net worth may indeed be the best number to focus on. But once you have some basics in place it may be better to address the income question sooner rather than later. I am beginning to suspect that I may have unnecessarily delayed my financial freedom date by coming to this issue so late.

If you have come here as part of the Canadian Tour of Personal Finance Blogs, thanks for visiting. I wish you every success in your own journey!

The Dividend Project - resources

2007-04-12T10:30:00.000-06:00

Thanks to everyone who posted comments on yesterday's post. I am sensing that this is a topic that many people are interested in. I have started to spend some time crawling the web in search of information that will help us in this project and I have found a few to start with:

I already mentioned the Dividend Guy blog. There are a few articles that he has gathed partway down the left side of the page under the heading "TDGs Guide to Better Portfolio Returns". These cover areas such as Why Dividends Matter and Selecting Good Dividend Growth Investments.
On the right side he also has a section called Tools. These may be useful to us once we get a bit further along...
At DividendGrowth.ca there is a link that says "just starting... some basic ideas" and leads to about 8 printed pages of information. I will be reading this over the weekend and coming back with a summary or any nuggets I manage to extract from it.
At http://www.dividendgrowth.org/ there is a lot of content as well. I haven't managed to go through all of it, but it looks like a very useful site.

I have started a section of links on my blog for this project and these three will be available there. I am also adding a link to Frugal Trader's list that I used as a starting point for this project.

In addition, you may want to check out a recent post by Canadian Money who is also interested in this topic. And Frugal Trader also pointed me toward an Excel add-in that looks very useful. I will be trying it out next week and I will post a review.

I'm off early for the weekend tomorrow, so no more posts until Monday. Have a great weekend!

The Dividend Project - learn with me!

2007-04-11T15:49:00.000-06:00

I have recently got my hands on a copy of Derek Foster's book and I wanted to take this opportunity to explore how to invest for dividend income again. But I have to admit that my 21st century attention span kicked in and I haven't been able to read the book straight through yet.

Part of the difficulty in reading the book is that I am looking for an explanation that might not be in there, so I'm skimming a lot. For some reason understanding dividend investing is still a mental block for me. I can understand that stocks that pay consistent, rising dividends have good underlying fundamentals. But I can't get past the puny 3.16% yield that RY (Royal Bank) has at market close today to see how that could ever get me retired early.

So I have a plan now for myself and anyone out there who is in the same boat. The simple version of The Dividend Project is:

Learn

Invest

Make lots of money :)

Hooray! However, it is very important to note that I am not rushing into this dividend thing. I think I want to be there, but I'm not quite sure when. So we are going to start the learning phase. Here is what I did today...

I took a list from Million Dollar Journey that I bookmarked last month, and I put those stocks into a spreadsheet. I then went into my RBC Direct Investing account and put them all on watchlists so that I can follow them. Finally, I entered the current price and dividend yield for each stock into the spreadsheet. Here is the result:

Now, we are going to watch. I will update this list every week or two to see where the numbers are going. Each time I check in on the list, I will try to expand on some concepts so that I (and hopefully others) can gain some understanding. I am going to visit other blogs, including The Dividend Guy Blog to see if I can pick up some pearls of wisdom there and I will keep trying to read this book. Let The Dividend Project commence!

Income Producing Investment: MICs

2007-04-10T22:20:00.000-06:00

I have dabbled in mortgage investments but not too seriously. Here is something that I am considering. It is called a Mortgage Investment Corporation or MIC. There are many companies in Canada that are now running these and they tend to be quite small compared to mutual funds.

The way it works is that investors pool their money into a corporate entity, the MIC. The MIC then invests in multiple mortgages. As mortgage payments are made, they are proportionately distributed to investors based on their amount of investment.

The appeal of MICs for me is based in four things:

regular income (usually monthly but may be quarterly or other)
higher than average rates of return - most MICs can offer 9% and up, far higher than GICs
lower risk than investing in a single mortgage because the pool invests in multiple mortgages - NOTE: make sure of this, don't assume the number of mortgages is sufficient to spread the risk
no extra work - once you find a MIC with management that you trust, they do all the due diligence. Also, there are no tenants involved. :)

The downsides may include:

some risk if a borrower defaults (although the multiple mortgages will limit it to a portion of your investment)
taxation of MIC income may not be favorable (I really don't know but I think it would be taxed like interest)
lower liquidity - depending on the rules you may only be able to buy and sell in certain amounts or on certain time schedules

There are several companies offering this across Canada. Search the internet for MIC, mortgage, investment and your city name and you will find many choices.

Has anyone tried this route?

Meditations on a trip to Costco

2007-04-09T23:24:00.000-06:00

Since I'm tracking every penny during April, I have been hyper-aware of my spending habits and urges. It really has been a very good exercise for me in many ways that I haven't had a chance to blog about yet but I promise that I will....

I don't have Costco membership myself and a couple months ago I got the idea in my head that it would be a good place to buy myself a PDA. My sister has a membership so I asked her to take me but she had just gone at that time so I resigned myself to waiting. Well, wouldn't you know it, she ended up making her next trip while I was out of town, and I was complaining another anticipated two months of waiting so much that this evening we planned a trip to Costco *just* for me. Aren't I special? :)

Well, the most interesting thing about Costco is that I don't seem to go there to get what I need, I go there to find out what I need. Out of all the items that I left Costco with tonight - and there were many - only two of them, totalling around 5% of my final purchase, were on my list of things I needed before arriving. Two of the larger purchases, the juicer and the cutlery, have been on my radar for some time but not to the point that I was anticipating purchasing them tonight.

To cut to the chase for those who want to know, I spent $240 this evening, and no PDA's were spotted at Costco so the purchase decision for that item never even came up. Here is a breakdown of what I bought for $240:

Juicer $45
Cutlery $60
Box of printer paper $25
Laundry detergent $20
Greeting cards $10
Water $5
Recipe book for juicer $12
Food items - pickled asparagus, Thai kitchen, applesauce $6+9+8

I realize that this doesn't add up, but I'm going off my memory because I left the receipt at my sister's house. This is also a lesson in how our memory deceives us about spending. I would never be able to make the items that I bought total $240 because my memory appears to come in on the low side on everything. I know people who have had the opposite problem but the point is that we remember things the way we wish they were more than how they actually were.

Scary as it sounds, I think that my visit to Costco can be a metaphor for our consumer culture as a whole. Costco gets me in ways that other advertisers can't because it appeals to my bargain hunter instinct. (Also, I don't watch much TV and I think I miss a lot of marketing that way.) But basically, there are people who are completely dedicated to understanding what it takes to part you from your money and they are very good at their jobs. Wants are created and turned into needs without you even realizing that it is happening. And no one is immune. Even though I like to think I am savvy about this, I still left a large chunk of money behind at the store tonight.

But a healthy dose of awareness can slow this process down, as can avoiding situations that you know are designed to create false needs and direct you to spend your money in ways that you might prefer not to. For myself, I realize that I need to limit my trips to Costco. The fun and adventure of my own special trip came with quite a price tag this time round!

My First Tour

2007-04-09T09:23:00.000-06:00

Well, I have agreed to participate in the first ever Canadian Tour of Personal Finance Blogs. This is my first time participating in something like this, and as soon as I agreed I started to panic. What if I don't have anything useful to write about and contribute?

The tour takes place next Monday, April 16th and when it is up I will highlight any interesting articles that jump out at me. It is being hosted by Monty Loree of Canadian-Money-Advisor.ca so you will able to see the complete tour at his site.

My understanding of these events is that the host basically rounds up articles from bloggers and reviews them and lists them on his site. Then, participants and guests can tour around to visit sites that they might not ordinarily read. It's really a way for bloggers and readers to survey a variety of sites on a single subject.

So I will be spending the next few days racking my brain for some topic worthy of such an illustrious event. If you have a suggestion, please feel free to submit it. I need to submit my article by friday the 13th *shiver* so I guess that I will have to get on top of this fairly soon.

Death and Taxes

2007-04-06T10:37:00.000-06:00

Well, I knew that last year was a good year for me...

So despite paying installments all year long, I am still facing an estimated $7000 tax bill for my company. Ouch!

I have added this to my net worth spreadsheet and this means that I will probably not see much increase in April. But now that I at least have an estimate I can look at the rest of the money in the bank accounts as truly mine and start to plan what to do with it.

The Joy of Dividends

2007-04-05T11:10:00.000-06:00

Frugal Trader from Million Dollar Journey left a comment about dividend stocks after yesterday's post that made me want to write a more detailed response. In particular, he mentioned that dividends receive much more favourable tax treatment than other kinds of investment income.

My dilemma is that I'm not sure if the tax advantages are so significant when you own them in an incorporated company, which is where most of my investments are. "Most" of my income is already dividend income because that is the primary way my accountant has recommended that I withdraw money from my company. So my company earns consulting income, but I withdraw it as dividend income.

Now this makes me wonder whether by owning a company I am able to convert all kinds of income to dividend income. Can I earn capital gains, interest, rental income and anything else in my company and pay it all out as dividends? If that is the case, there is no advantage to earning dividend income within my company unless corporate taxation of dividends is similarly favorable. So far, I have only seen reference to personal taxation of dividends. Also, the corporate tax rate is more favorable then the individual tax rate, so any difference might not be that significant.

So if anyone knows about corporate taxation of different kinds of income, I would welcome your comments. Otherwise, I will try to ask my accountant about this when I see her at tax time this year.

Cash Flow is Number One

2007-04-04T17:17:00.000-06:00

Even as I work on my net worth, I am aware that I am still missing the boat...

Having a nice little pot of money sitting somewhere is nice.
Watching it grow is nice too.
But knowing that I have money in my bank account to pay for my groceries
tomorrow is nicer.
And knowing that I will have money each week for as long as I live to buy groceries is the nicest yet!

The real reason we all need money is to pay for our lives every day, week and month. There is no single point where you get to make a lump sum payment and live for free for the rest of your life. Although it would be much easier if there were. Can you imagine if "the rest of your life" had a price tag?

Pay $1 million now and never think about money again!!

WHERE DO I SIGN UP???

Okay, all joking aside, we know that life isn't like that. So the real goal is to figure out how to turn a little pot of money into a series of regular payments that can be relied on, just like a paycheque or a pension.

And no matter how much I think about this, it's like a code I can't crack. Here are the ways that I know of to get regular income without working:

rental property, with a mangement company to take care of it
renting out your money through loans and bonds
dividend paying stocks (very low yield)
purchase an annuity (not practical for young people)
income trusts (scary phrase in Canada these days)
royalties - if only I had written a great book!
own a company that you don't have to run and collect the profits

The short story is that this is not an easy task and it requires much preparation to make this work. For me, I feel like this is the "next level" in my personal finances that I need to break through. I think I understand how to grow my net worth, and that seems to be on track so now it is time to start puzzling over this next riddle...

Getting Aggressive?

2007-04-03T21:56:00.000-06:00

I flipped through a book at the library today which took me by surprise. (Sadly I didn't note down the author or title, but I will make an effort to find it again and add it to this post.) The author was advocating a highly aggressive approach to personal finance, suggesting that anyone who is willing to follow her advice can be a millionaire 3-5 years after they become free of consumer debt. Although I didn't read all the details and I didn't feel like I could buy in to her approach, there were a few interesting points that related to topics in my own finances:

"Entities" were a big part of her strategy. She figured that anyone who wanted to be wealthy needed to have an incorporated company (or several). Now, this was a U.S. book with different terminology, but I know from my own experience that the tax advantages of having an incorporated company are significant in Canada too.
Move capital out of places that it is stagnating. This included pulling equity out of the primary residence to invest it, which is something that I have often thought about. It also meant moving retirement funds into more flexible accounts that allow less traditional investments.
Start a business immediately in an area that you are already expert or experienced. Again, something that I have seen the benefit of, although I can't say whether my experience is typical.

Like I said, this is a very aggressive book, and would not be a comfortable approach for most people. In fact, it felt a bit irresponsible because the risk side of her suggestions seemed to be ignored (unless I missed it). She focuses very strongly on cash flow, which is an approach that I like. But it reminded me a bit of the Rich Dad guy - I read one of his books a few years ago, and it struck me as very simplified and optimistic.

Anyway, I wouldn't be recommending this book (even if I knew the title), but it is good to have the jolt to check and see if you are being too conservative (I usually am) and to remind you that risk and reward do go together....

The Value of Reviewing a Bank Statement

2007-04-02T20:24:00.000-06:00

I have written before about the money that we have and don't even know about, and I came across another example this weekend. I was setting up my tracking spreadsheet for my April project, and paying some bills online when I decided to look through my last month's transactions to see what might be coming up that I could put into my spreadsheet in advance. Well, you can imagine how surprised I was to see a payment for an internet service that I haven't subscribed to since I moved in November! I had set up an automatic bill payment and paid 4 months past the end of the service!!

Needless to say I got on the phone today and spoke to them about it. I am now happily expecting a $160 cheque in a few weeks. Nice.

While I was on the internet I also realized that my slowness in selling my old car is hurting me more than just not getting the cash for the car. I somehow forgot that it is still insured and I am spending some portion (I estimate $60-80 per month) of my car insurance bill to keep it parked. Talk about a waste of money!

So to make a long story short, it pays to pay attention to your finances. If you review your bank statements regularly you may find hidden treasures or financial leaky faucets and painlessly improve your situation. Of course, if you are more organized than me, you might not have these issues in the first place!

March Net Worth Update

2007-03-31T09:04:00.000-06:00

I updated my March numbers and found myself up by a nice 1.5% increase to $621,700 despite writing off some time that I don't think I will be recovering. I didn't change my accounting to exclude unbilled invoices yet because I decided to do the write offs instead. My main investment account fully recovered from the drop at the beginning of the month and in looking back I see that it has actually gained $10,000 over the past two months. If that was normal I'd be retired now! But it's nice to see the investments accounting for more and more of the growth.

I still have a tonne of money in cash accounts. I just can't seem to bring myself to tie up capital even though I surely don't need nearly that much cash reserve. Also, it's in corporate accounts for the most part, so I can't use it on my mortgage or home improvements. Really the only choice is to invest it, and that requires decision making which seems to be very difficult for me.

Looking forward, I should find out my approximate tax situation in April so that will make a difference. I had a good year last year so I expect that I will have to pay extra. I am hoping that my accountant will find a tax effective way for me to access some funds for home improvements. I am also planning to track my expenses and perhaps control them more in April. I see my earnings slowing down as I wrap up a couple of major projects and work at a more sensible pace.

April's Goal: Tracking every penny

2007-03-30T16:04:00.000-06:00

After discussing this earlier in the month, I have made a commitment to myself to track every penny I spend for the month of April. I will share this with the blogosphere as I go, but I have not quite determined the format or frequency yet.

Thanks to those who provided spreadsheets or insights into their perspectives on this process. Your help is much appreciated.

How much do we obsess about money?

2007-03-30T15:15:00.000-06:00

I love my PF blog, but sometimes I can see the dangers of blogging on a single topic. Actually, I supposed that I don't blog exclusively on money, but the focus is certainly primarily there and I realized this week that I am more obsessed with money now than I was before.

I don't mean for obsessed to be a very strong word. I think that in general our culture is obsessed with money and so my obsession is probably quite socially acceptable in most circles. I think that it is quite normal to hear discussions such as:

what can we do for fun tonight? - I'm broke so it has to be cheap
did you see the Jones' new car? - that thing must have cost them $50,000!
I'd like to go back to school as soon as I can afford it
You should try X bank. They have way lower fees.
I lost $10,000 when the government changed the taxation rules for income trusts!

In short, it is okay to talk about how much things cost or what we would do if we had more money, or what others are spending their money on. It is also okay to give consumer guidance or discuss the market or our investments in broad terms. It is not okay to ask questions or reveal information about how much the people in the conversation earn, owe or own.

I also notice that just about everyone is looking for a way to make an easy buck, whether it be in small scale cash jobs, rental real estate, stock market tips or selling items for a profit. (None of these are easy, in my opinion, and all of them are full-time jobs for other people, but somehow the money seems easier when we are just talking about it.)

For myself personally, I have always had an interest in personal finance and a strong need for financial security. But I have to struggle not to get caught up in a never-ending spiral of needing more and more to feel secure. 10 years ago, the amount of money that I have now would have been a fortune, completely adequate to retire on. Now that I am here, it does not seem quite so abundant.

I believe that whatever you focus on, you will do well at. This is certainly an argument for putting some focus on your person finances but it comes with a warning. There are only so many things that one person is able to focus on and you must be sure to choose those which are aligned with your personal values.

I am not prepared to give up my dedication to my personal financial future (and present) because the value I place on security is very high, but I do sense that I need to make some shifts that might realign my priorities. Hopefully these shifts will become apparent to me as I continue to reflect on this topic.

Crap at work

2007-03-29T15:35:00.000-06:00

Thanks to s.b. and canadian dream for their encouragement after my terrible day yesterday. Both of them pointed out that developing your interests and focus outside of work is a very good antidote for dealing with crap at work. Wise advice, indeed.

It also fits with advice that canadian dream was giving earlier about retiring happy. To put it in other words, hating work is not enough to guarantee loving retirement.

I never thought I could be one of those people with no life outside of work. I have always had lots of interests and I still do. But certainly work is interfering with those interests more and more often these days. Sometimes I have been so tired that I have wanted to leave my evenings and weekends completely free. But staying at home and doing nothing doesn't make for an enjoyable evening, and when I do this I usually end up regretting it. Actually, going to a class last night was very helpful in keeping my mind off my troubles.

I know that troubles will come, and sometimes the only thing to do is to just get through them. Life is just like retirement savings. You don't solve all your problems in one day, but if you keep doing the right things then it keeps improving little by little. And I'm not giving up!

My terrible, horrible, no good, very bad day

2007-03-28T17:18:00.000-06:00

I had a rather crummy day at work today and when I got home all I wanted to do was escape from everything: my job, my house, my life... and anything else that could be escaped from. I hate days like this, when I feel almost ill and I can't stop thinking about what went wrong and whether I could have prevented it. In fact, it's my thoughts that I want to escape from most. I just want it all to be gone.

On days like this I really, REALLY want to stop working forever and spend my remaining days under a palm tree far away from the world. I feel like I can't handle working even one more day and the sooner I am out of it, the better. And so it is days like this that are the driving force behind my, and probably many other people's, retirement plans.

Sigh....

But I am also starting to realize that life isn't designed to be easy. There might be days like this even without work. Some days bad things will happen to good people. And smart people will do stupid things from time to time, which will occasionally come back to bite them in the rear. And this is just a part of life, no matter what.

That palm tree sure sounds good though!

Today's billable hours: 3.0
Today's contracted hours: 0.0

Wants vs. Needs

2007-03-26T21:47:00.000-06:00

We had an interesting discussion at dinner tonight about what it means to really need something and I had a revelation: Needs are rarely specific.

I know that it doesn't sound terribly exciting but consider some examples:

I NEED to get to work tomorrow. This could be accomplished by car, train, bus, helicopter, bicycle, walking or any other mode of transportation that goes from my house to where I am working.
I NEED to give my friend a gift for letting me stay with her. This could be a card, a dinner, a gift certificate, a book or anything else that sends the thank you message and is valued by her.

I think you probably get my point. When the underlying need is stated, it can often be satisfied in a variety of ways. However, "I want an Ipod" can only be satisfied in one way.

I wonder if we were more careful to phrase things as needs instead of wants if we could buy less stuff? For example, "I want an Ipod" could become "I need to find a way to make exercise more enjoyable" or for someone else "I need to find a way to organize my music". The final solution might be an Ipod, but it might not.

This is a challenge to break free of marketing messages to determine your own life, and in doing so, take control of how you are spending your money. I think that is a very exciting opportunity.

Today's billable hours: 8.0
Today's contracted hours: 0.0

Saving Money Doesn't Have to Mean Doing Without

2007-03-22T10:16:00.000-06:00

I saw some articles on giving yourself a facial at home and it got me thinking about luxuries. Most of us like to treat ourselves from time to time and some of these treats can be very expensive. I decided to brainstorm some ways to be creative about rewards that won't cost as much:

Instead of a whole box of chocolates, go to a specialty store where they sell them individually and just buy one or two good ones. Bonus - you will eat less chocolate but be more satisfied with the experience.
Instead of cut flowers, buy a potted plant. They are often cheaper and last much longer. Rotate rooms to give a feeling of a fresh new look once in a while.
At home facials are just the start. Invite a friend and you can give each other pedicures, manicures, massage and more.
Swap services with a friend. This could be making meals for each other, running errands, babysitting if you have kids or even cleaning each others homes. When someone else does something for you it always feels like a treat, and when it's your turn you will also have to pleasure of helping a friend.
Track down the title you spotted at the bookstore through your local library.
Attend a minor league or college game instead of pro sports.
Go shopping in your friends closets or pantries and let them do the same in yours.
Borrow or rent equipment to try out an activity for the first time, especially sports, so that you are not stuck with stuff you never use.

Once you get going, it is easy to fund substitutions for many things that are just as good or better. If you could take this approach to all purchases how much would you save?

Updates on my Progress

2007-03-20T19:48:00.000-06:00

Well, I'm single with no plans to buy a hybrid car soon since I just got a new car, so the new federal budget was a bit of a non-event in my life. In the meantime I am just moving along and trying to improve my life and finances in small ways on a regular basis. So here are some updates on topics that I have covered in this blog so far...

Gift Cards:

Since discussing the unused gift cards issue I have managed to use my collection for about $100 of spending that I would have done anyway (at Walmart and the grocery store).
I have also booked an appointment for a spa treatment that I would not have done anyways, but will be about 50% cheaper than usual thanks to a gift card.
I have moved a paper gift certificate onto a card so that I can use it gradually.
I called one place where my card was expired and they agreed to honor it anyway!

Hour Tracking and Invoicing

I am being quite diligent about writing down my time every day.
I have created a list of invoices that are receivable and ones that I need to create and send out.

My House

I have started working on the house again, on tasks that I can do myself.
My friends helped me to do a few bigger tasks that are a great improvement.

Retirement Planning

I have spent some time thinking about this topic and writing some basic posts.
I have concluded that I do not want a full retirement, but a gradual reduction in the amount I am working.
There is much to do before I have this topic all sorted out.

Overall, I still continue to feel that it is beneficial for me to blog about my finances and I am starting to become more comfortable with the fact that this does not mean that I have to make major changes or progress every day.

Today's billable hours: 4.0
Today's contracted hours: 1.5

More on Financial Habits - Your Parents

2007-03-19T17:24:00.000-06:00

I love my parents and learned many good things from them, but they would be the first to agree that financial experts they are not. Consequently, the financial habits that I picked up are a mixed bag. Of course, kids are not exact replicas of their parents, so I also picked up some opposite behaviours to those I saw my parents do.

Here are some interesting examples of both cases:

SAME: Frugality vs. Bargains - I used to think that my mother was frugal but I now believe that she was frugal out of necessity and a bargain hunter for the love of it. I am much the same. I love a bargain and hate to spend too much on anything, but when I feel that money is not so tight I will loosen the purse strings. I will always shop so that each item is a good deal but the overall spending habits are not always frugal.
DIFFERENT: Credit - My parents kept credit card and overdraft balances as constant companions but I have developed a distaste of debt any generally pay my credit cards off every month. They lived too near the edge for my taste so I keep a very wide safety margin.

I believe that part of growing up includes choosing to accept, reject or modify what you bring with you from your childhood. As an adult you will be responsible for your own financial habits so there is no sense in blindly keeping what was passed on by well-meaning but possibly poorly qualified parents.

As a test, take a moment to consider your parents' financial habits. Is there anything about how they have done or still do things that you would change? Now take a look at yourself. The apple may not fall far from the tree, but with some interest or determination it can certainly bounce!

Today's billable hours: 3.5
Today's contracted hours: 1.5

The Financial Value of Having Friends

2007-03-18T17:05:00.000-06:00

Well it wasn't a barn raising, but when my friends came over today they certainly helped me out. By the time they left there were two shelving/storage units installed and a large item moved from my house to the garage. Not rocket science but all things I can't do by myself. And without friends or family I would have to pay for help.

Boston Gal had a recent post about the underground economy and how it helps the urban poor survive. The articles she found talk about the sense of community and responsibility that goes with these arrangements.

I think that no matter who you are, there is benefit to having friends. It can save you money, put a few extra dollars in your pocket or just make life a whole lot easier. In friendships it all goes around and comes around, which is how economics works too. And though that's not why we have friends nowadays, it is certainly one of the reasons that people had to get along with their neighbours in times past.

Now, if you'll excuse me, I'm going to go fill my new shelves....

Found Money and Found Debt

2007-03-15T17:48:00.000-06:00

Recently I have had cases of both found money and found debt happen to me in large amounts: $800 and $950 respectively and it made me think about personal habits that help your finances. We tend to think more about the "finance" side (i.e., the dollars and cents) of personal finance, but there are some schools of thought out there that claim that the "personal" side can have a much larger impact. For example, books titled "Think Yourself Rich" and "Secrets of the Millionaire Mind" --neither of which I have read by the way :).

But on a smaller scale, I think that there is daily impact from your personal approaches and habits with your finances. For example, found money implies that you lost it first. Of course it's great to find it again, but what if you never did? Not so good, and you would never know that it was even missing.

Here's another example: We all know that late bill payments can affect our credit rating, but what about waiting too long to collect money that is owed to us? From my own business experience and others I have spoken to, it seems that your best chance to get someone to pay you is right away, while they remember their reason for doing so. If you wait weeks or months, then it gets harder to collect the money that someone owes you for buying their expensive theatre ticket or lending them $20 when they forget their wallet at lunch. And eventually you may become too embarassed to even ask. I know that I do.

And another one that I'm guilty of: Forgetting to use up near-cash assets like reward points or gift certificates. My estimate is that I currently have about $1,000 in such assets for a variety of places, including Shoppers Drug Mart ($75+), Superstore/PC points ($250), Holt Renfrew ($250), Starbucks ($45), PetroPoints (unknown), Amex/Telus ($300), spa ($50) and maybe even more that I can't remember. These arrive as gifts, or build up gradually, and I often forget about them until they are expired or lost. What a waste!

So to come back to yesterday's post for a moment, I'm still thinking about taking the Quicken plunge again. I would like to do one month and then see if I need to go longer (or if I can handle it). This kind of organization is also a personal habit that I feel will have a very positive effect on my finances and I'm thinking of doing it for the month of April.

But my conclusion is that we are self-sabotaging through these wasteful and counterproductive habits. Each step I can take to close holes in my personal "systems" that are money losers is a step that increases my income or decreases my spending, usually very painlessly.

And speaking of points and gift cards, maybe I should be going shopping tonight....

Today's billable hours: 2.5
Today's contracted hours: 3.5

How much do I really spend?

2007-03-14T00:26:00.000-06:00

Recently I have noticed that I always seem to need more money. Even when I don't think I have spent much in a month, the bills disagree. And there always seems to be more month than money, where there never used to be.

Now, I should put some context on this by saying that I pay myself monthly out of my company, and the amount that I have in my head of $3,000 per month has not changed since 1999. I pay myself mostly in dividends so keeping the number low is important for tax reasons but I don't keep strict track of how much I have withdrawn in a year or what corporate expenses I have paid personally.

I know that costs have gone up since 1999, and back then I was a renter too, so I have renovations and maintenance costs to cover, but I'm not sure how much this is reasonable and how to budget or determine what my monthly cash flows should be. My monthly savings are still substantial due to rising income but I'm wary of the needs rising to match the income too much.

I'm tempted to go back on Quicken and start tracking things in detail again. It's time consuming but it sure keeps you honest about how much is going where how often. One reason that I am thinking about this now is that in my long range planning I will need to have some idea of the expenses that I have to cover. Right now I know that I feel like money is tight, but I don't quite know why. I feel like I need data to analyze my spending patterns but the time commitment has me pausing. I'm going to think this over before committing to it. Maybe I could do it for one month...

Today's billable hours: 4.5
Today's contracted hours: 1.5

Long Range Housing Plans Part II

2007-03-13T18:39:00.000-06:00

After being rather confused yesterday, I got myself on a spreadsheet today before writing the post and I am feeling much better. Using a 3% rate of increase for both house prices and rents, I modelled the value, mortgage, rental income and payments for house #1 (the one that I currently own) and house #2 (the one that I want to buy).

It's a bit hard to describe the results of a spreadsheet, but here are a few observations.

The longer I wait, the more money I will need as a down payment (because house prices only go up in my model)
About 10 years before the houses are paid off they go cash flow positive (which actually means that house #1 is paying the mortgage on both houses). The effect of compound interest works on this too - at 5% rental increase it is closer to 15 years. The interesting thing is that this is very close to the same for one house or two.
I didn't include property taxes, repairs/maintenance, vacancy costs, etc. so this is a bit optimistic.
On the other hand, I started my rent and property value low compared to what I could get on the market right now.

So basically the biggest barrier to my plan is coming up with a second down payment. But I've been thinking about that.... There is quite a substantial cash position in my company (~$75,000 at this writing) and I have strong receivables as well. And the investment property may actually be better off inside my company than in my personal ownership. So if I sold my house to my company I could make use of the cash in there, and perhaps take back a mortgage as well. I would make sure I have enough left from this to put a down payment on another house in my own name.

And since I have 4.5 years before I want to make this move, that is lots of time to work on the downpayment. If I earmark the current $75K plus $20K per year for this purpose and put it in a high interest savings account or GIC at 3.5% (ING's current rate) I will have $185,000 at the end of 4.5 years. I think that this plan just might work...

Today's billable hours: 8.75
Today's contracted hours: 0.0

Long Range Housing Plans

2007-03-12T18:17:00.000-06:00

Following on from yesterday's comments, I am going to start working on a gradual retirement plan. I intend to write this plan in several parts. I want to talk about future expenses, timing, income from work during phased retirement, income from real estate holdings, housing/mortgage, income from investments, income from government sources, taxation, RRSP's, my corporation and more. I would like to come back to the topic of Monte Carlo simulation for testing the resilience of the plan, but for now I will do simple spreadsheet mathematics to make it run.

Today's topic is going to be housing. For as long as I am alive, I will require some manner of housing so it's a critical foundation for being able to retire. Currently, I have a $262,000 mortgage on a $466,000 house. My monthly payments are $1600, property taxes are $210, utility costs are about $350 in the winter, so I expect about $200 in the summer for a monthly average cost of $280. On the plus side, I have $1000 in income from my basement suite. The overall cost of housing for me right now is therefore $1090 per month or $13,080 per year.

I have about 4.5 years left on my current mortgage term, and for that time I anticipate maintaining the same living arrangements. After that, it gets trickier.

In the long term I don't want to be living with tenants under me. So I would like to be able to buy a second place for me and keep this one as a rental. This house has great potential for cash flow, but the problem is buying the other place and when I can afford to do that. And real estate is very pricey where I live, so I will need quite a bit of savings to make this work.

I would like to a find a smaller place, maybe even an apartment, and I would hope to spend about 25% less than what my current house is worth (the market should remain internally consistent even though I can't predict the actual prices). If rents remain strong, it is possible that I would be able to remortgage this place and withdraw enough for a down payment on another place while staying cash flow positive here. The problem that I see is that my personal costs may rise substantially under that scenario.

One solution that I am thinking of is to buy a second place as soon as I possibly can so that I can lock in at today's prices and rent it out to cover the mortgage. But even that is tricky with house prices so high - you need both a large down payment and high rents. (I wish I had been able to keep my old house when I bought this one... but that's another story.) Additionally, there is more work involved in managing a second property and I want to tread carefully there after my experiences with this one.

Hmmm...This planning stuff is tricky! I can see where I want to go, but I can't see the path to get there yet. I think that I will need to ruminate on this more tomorrow....

Today's billable hours: 4.5
Today's contracted hours: 3.0

Do I Really Want to Retire?

2007-03-11T18:07:00.000-06:00

An interesting discussion at Canadian Dream on Saturday led to this post on Investoid, which I really liked. He talks about gradually working less instead of completely retiring, which is something that I have started to think more and more about. As I discussed previously there are some very attractive reasons that might make me want to continue working. Additionally, many of the drawbacks of work for me come from the stress of it and the lack of time to do other (sometimes financially beneficial) things. So a reduced work schedule seems to allow me to keep much of the good while reducing the bad.

When I started this blog I knew that I wanted to reach $1 million and to work on the cash flows necessary to stop working. However, these goals are a bit vague because I haven't set dates or specifics. Essentially, I am still missing a retirement plan, or perhaps as Investoid calls it, an "anti-retirement plan". I would like to start putting such a plan together but I always hesitate over the unknowns.

I am now inspired to start the work on this plan over the next little while and see if I can come to some greater clarity in my vision of the future. This blog has been a really good tool for me to think about things more clearly and I hope that I will be able to make a great step forward by tackling this rather daunting task!

More asset options: Dividend stocks

2007-03-09T17:12:00.000-07:00

I have tended to shy clear of individual stocks over the past few years because I seem to have a real talent for losing money that way, but recently I have been thinking about this option again. One version that I like is buying stocks that pay dividends, and will contribute not only to capital growth but also income. So I am currently watching 3 dividend stocks to see if they go "on sale" in the next few months. I will post if I make any moves.

The downside to dividends is that the yield is quite low, so it feels like very little return on investment. In fact, unless the underlying stock also appreciates then it would not be worth it at all. But if I would have been buying stocks anyway, then the modest amount from a dividend stock is still more than from a non-dividend stock.

Another wild card is whether it is worth it to own dividend stocks in my corporate investment account. I will have to add that to the list of questions for my accountant.

Today's billable hours: 4.5
Today's contracted hours: 1.5

Which Assets, how much?

2007-03-08T23:11:00.000-07:00

It seems evident that to build wealth you need to save money and invest it in appreciating assets. Only then can growth occur without you having to work at it. But if this is obvious, it is far less obvious which assets you should choose. The topic of investment selection can and has filled shelves of books, and made careers for many people.

For me, my working assets are basically equity mutual funds and real estate in the form of my primary residence (containing a rental suite in the basement). Each of these has now grown to the point that I feel I have a solid foundation in these two areas, and as I save new money I am faced with the decision of where to invest it. My choices include more mutual funds (possible refining the asset allocation), paying down my mortgage, buying rental property or talking to someone who sells some product that is the answer to all my financial needs.

The solid foundation throws me off though now, because I wonder if I have too much money in these two places. I am growing reluctant to put more money in the markets in particular, and the turbulence of the last couple weeks has only intensified this feeling. On the other hand, if I actually reached $1 million, where would this money be? I suppose it would have to be invested.

I already have cash piling up in my business accounts again, and my commitment to catch up on my invoicing means that within the next 30 days I ought to have a lot of income arriving, so this question is slightly more than academic. I will need to be deciding soon what my next investment move might be so I am sure I will come back to this topic soon....

Today's billable hours: 8.5
Today's contracted hours: 0.5

A World of Wants

2007-03-07T23:14:00.000-07:00

If you read a lot of personal finance blogs, you will find many bloggers focus on savings and frugality, and I agree that this is the key to financial success. There is a classic quote that basically says if you spend a dollar more than you make you will be miserable and if you spend a dollar less than what you make you will be happy. The truth is that most people are not within a dollar's distance. If you are good at saving, you will save a lot, and if you are good at spending you will spend a lot. So this happiness or misery is very much amplified.

Last month I read "Not Buying It - My Year Without Shopping" by Judith Levine. This book was a really good reminder to me of what I don't like about consumer culture and I could actually feel myself reacting differently to my shopping experiences during and after the time I was reading it.

In reflecting on this book, I had the thought that the easiest time to prevent a purchase is before you even want to make it. If you can look at the fancy gadget or enormous house and not want it, then there is no chance at all of overspending to buy it. Even better, you don't feel deprived because the want doesn't exist.

But although my shopping impulses have been dimmed they are certainly far from gone. For me, housing can be a big want, with very expensive price tags attached. After thinking about this topic, I believe that what I really want is a house that fits my life and is comfortable for me. I need to focus on making this house that I already own (with the bank) into what I want, instead of wishing I could afford a newer, fancier model. I will save myself a lot more money by controlling this want than almost any amount of small economies could produce. And I also believe that learning to be happy with what you've got is one of life's greatest successes.

Today's billable hours: 6.0
Today's contracted hours: 1.0

Patience and Focus

2007-03-06T23:09:00.000-07:00

The advantage of PF blogging is that it keeps me focused on my goals and aware of what I am doing or not doing to move towards them. The disadvantage is that I can look at things too closely, and wish for weekly or even daily progress. Finances don't move smoothly up like that, so such a wish is doomed from the start, and I am therefore doomed to disappointment.

Yes, things are down this month. Markets are down, work is hectic, and my house is still a mess. But I am still on track. I can keep working on things and they will move toward my goals, although not every day.

As a corollary to the above, I think that I need to find a daily focus that is not so strongly on every detail of me and my finances, or I may go crazy. I am going to brainstorm some new topics, to see if a new direction presents itself. So stay tuned... this could get interesting!

Today's billable hours: 8.5
Today's contracted hours: 0