Author: Mike Holman

Categories
Frugal

How To Save Money On Car Repairs

As much as I love owning a car, I absolutely hate paying for maintenance and especially repairs. I bought my current vehicle brand new so I decided that for the first few years I would get the regular maintenance done at the dealership since it probably won’t need any repairs. After that I wanted to stop going to the dealership since they always seem to find problems with the car – more so on days when they are not busy. My plan (for the past year) has been to find a small repair shop in my area to work on the car.

Blower resistor malfunction

Recently the blower resistor in my car stopped working correctly – what the heck is that you ask? Well the blower is what I call the fan – it “blows” the hot air from your heater and the cold air from your air conditioner into the passenger portion of your car. In my case the fan has 4 settings and only the highest setting was still working. I found out what part was causing the problem by doing a Google search – I didn’t expect to find the exact problem but I did and it told me that I needed a new blower resistor.

Do the repair myself?

Apparently it is an easy part to replace so I thought I would try to change it myself. First step was to get the part – easy enough since the dealership had it for $28. Then I took a good look at the existing part (right behind the glove compartment) and decided that although I could probably get the old part out, it would be a big hassle and I decided to see how much the dealership would charge to replace it. Much to my surprise the dealership would charge 1 hour of labour or $135 including tax. I’m sure it wouldn’t take more than 10 minutes for them to do the job.

Small local car repair shop

My next step was to walk down the street to a small car repair shop and ask how much they would charge for the job. The guy checked out the car specs on his computer (or pretended to at least) and then quoted $50. This was still quite a bit for the work involved but it was a lot cheaper than the dealership quote of $135. I got the the small repair place to do the work and the repair worked great! For checking out the price down the street I saved $85.

Lessons learned

  • Do some research on your car problem – it’s possible other people have posted similar problems/repairs/costs on the internet.
  • Beware of doing your own diagnosis – had the problem been different than what I thought, I would have been out $28 and some time.
  • Shop around – one mistake I’ve made MANY times is that when the dealership says something needs fixing, I’ve always let them do the work. If it’s a big job or if you are suspicious of their intentions then tell you don’t want to do the work right now and then shop around. You can use their estimate documentation to easily get other quotes.
  • Beware of the lies – sometimes they will tell you that your brakes have “only” 20% left and make it seem like you can’t drive the car out of the shop. In reality if it took you 40,000 kilometres (or 25,200 miles) to wear down 80% of the brake then you have another 10,000 kilos (or 6300 miles) to go before it’s a real problem. I’m not suggesting that you wait until your brakes are completely worn out to get them fixed but rather that you probably have quite a bit of time before they actually need it.
  • Don’t assume expertise – unfortunately I’ve had problems in the past with small repair places that didn’t know what they were doing and couldn’t fix the car. Sometimes you are better off taking it to the dealership (I wish I knew when this was the case).
Categories
Announcements

Friday Linkstuff – lots and lots and lots o’ links!

This post started out as a simple PFN roundup and well…

Frugal Dad, who I recently mentioned for posting a great hockey fight pic, is dealing with a very difficult family situation so keep him and his family in your thoughts.

Begin at the Beginning by Remodel This Life was my favourite post of the week. It deals with how hard it is to get things done (and started) and was written in such a nice way. I think I’m going to start putting pictures of flowers into my posts. 🙂

Brip Blap wrote about night guy and morning guy – as a night owl who has to get up early in the morning – this post hit home.

David from Money Ning started a new blog called Busy Blogging Dot Com– it is about the business of blogging and I recommend it highly if you are interested in a behind-the-scenes look at blogging – I’ve read every post so far (it’s pretty new) and I’m really enjoying it.

Finance Freelance Life started also started a blogging blog but it is more slanted to the technical side. I really love it so far because she can explain things in a way that is understandable and complete. Definitely worth a read. Finance Freelance Life also offers blog consulting services – in other words for extremely reasonable amounts of money she will do technical changes to your blog as well as give advice about things like blog presentation, ad layout etc. I haven’t hired her yet but I probably will at some point – she really is quite good.

This extremely short post from My Two Dollars sums up my feelings about bottled water perfectly.

Squawkfox wrote another great food post with awesome, mouth-watering, drool-inducing photos in a piece entitled 5 Cheap, Easy, and Healthy Family Dinners for $5. We are going to try some of these!

In response to Mr. Cheap’s post on MLM – Monetary Maladies wrote a letter of her own to her parents and all I can say is WOW! Nothing to do with PF but it is an interesting read.

Cheap Healthy Good did a brilliant and funny post about the Simpsons and good eating – I love the Simpsons so if you do too then check it out.

Money Ning has too much money on his hands and wanted some input as to whether he should buy an investment property.

The Personal Financier asks – would you be willing to pay 60% income tax for a higher level of social equality? Good questions for Canadians since we are pretty socialist already – would you be willing to go further? (another great blog)

Madison from My Dollar Plan quit her job and will be a pro-blogger, stay-at-home-mom and part-time construction supervisor (great photo). Congrats!

Million Dollar Journey had a very informative post on stock margin and how it works.

The Wisdom Journal has some suggestions for how to wreck your retirement. He also had a funny post on warning signs that your bank is about to fail. My fave was #11 – “Toasters? Out. Valet parking? In. Oddly enough, there’s a used car lot just next door…“.

The Financial Blogger had a great series on estate planning – it is in 5 parts and worth the read.

Where Does All My Money Go had a post on diworsification – don’t know what that means? Then read the post!

Blunt Money gives 9 good reasons not to buy a stock. The first one is “because you like the name of the company”. 🙂

Amateur Asset Allocator had an excellent review of William Bernstein’s “The Intelligent Asset Allocator“.

Michael James wants to know why are financial advisors are paid from commissions? (excellent blog by the way)

Clever Dude wants to sell his big bad truck because he doesn’t need it and it is costing him a lot of money. Only problem is that he is so in love with said truck that he can’t let it go. Now he is finding that used truck prices are dropping.

For anyone out there who is obsessed with savings for their kids education at all costs – you might want to read why you shouldn’t pay for your child’s college education.

Money Ning talks about up-selling and how it can affect your budget. I always find posts about negotiations interesting – buying a car, house etc and learning about sales tactics (even in a restaurant) is the best way to be able to resist ordering more food/booze than you need.

We entered our first carnival of personal finance in ages which was hosted at Squawkfox!

Categories
Personal Finance

Canadian TFSA Vs American Roth Ira

This is part three of my three part series comparing various Canadian and American investment accounts.

I had a request recently from a blogger friend of mine – Paid Twice, who thought it would be a good idea to do a post on some of the more common U.S. and Canadian investment accounts. This post deals with the Canadian TFSA and the American Roth IRA. In part one I looked at retirement accounts – the Canadian RRSP and the American 401(k) . Part 2 compared educational savings plans – the Canadian RESP vs American 529 plan.

Please note that this is just a general comparison – it’s not intended to be reference material for any of the accounts listed.

A big thanks to Madison from My Dollar Plan for helping out with this series.

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Canadian savings account

TFSA – Tax-Free Savings Account

American equivalent

Roth IRA

Similarities

  • All contributions to these accounts are after-tax money. No tax benefit is generated from the contribution – however a contribution to the Roth IRA can qualify for the retirement savings credit.
  • All earnings of any type within the TFSA and Roth IRA are not taxed.
  • Most common security types (stocks, mutual funds etc) are allowed to be purchased in account.
  • Annual limits are similar – $5,000 for the TFSA in 2009 and $5,000 for the Roth ($6,000 if you are age 50 or older).
  • Relatively new account types. The Roth IRA was established in 1998 and the TFSA doesn’t start until January 1, 2009.

Differences

  • Withdrawals from the TFSA are not taxable. Withdrawals of contributions from a Roth IRA are not taxable but withdrawal of earnings are only not taxable if the participant is 59.5 years of age or older and the account has been opened for at least 5 years.
  • Contributions limits for the TFSA are not income dependent. Limits for the Roth IRA are phased out with higher incomes.
  • TFSA contribution room can be carried forward (accumulated) which is not the case for the Roth IRA.

Conclusion

The general idea of these accounts is quite similar in that you can contribute after-tax money and allow it to grow tax-free. The TFSA withdrawal rules are much more lenient than that of the Roth IRA but as discussed earlier in the series, this might not be such a good thing if it encourages investors to withdraw money without good reason.

Read more for a detailed look at the 2009 Roth IRA contribution limits.  That post also covers phase out and traditional IRA.

More information on the TFSA

Benefits of the Canadian tax free savings account

Tax Free Savings Account (TFSA) Basic information for Canadians

Tax Free Savings Account refresher for Canada

ING offers TFSA refresher for Canadians

Is the RRSP still worthwhile because of TFSA accounts?

Using the Tax Free Savings Account (TFSA) for Canadians as an emergency fund

More Information

Roth IRA Contribution Limits For 2010

Categories
Book Review

Your Money And Your Brain – Book Review

I finally got around to reading Jason Zweig’s widely acclaimed book “Your Money and Your Brain” last week while on holiday up north. The book is mainly about human psychology and how it affects your emotions when it comes to money. We have a lot of instincts and emotions which helped us survive when we were cavemen and still serve us well today in a lot of situations – however they are counter-productive when it comes to investing.
photo by Image Editor
First off – I want to say that this book is quite excellent. Everyone should read this book – whether you are an avid investor, a casual investor or even if you don’t invest because you are afraid of losing money. Reading this book will help you understand your basic investing instincts and learn how to react differently.

What I liked

This book is very well written and researched – Zweig includes many examples of psych studies which he then ties in to your emotions around money and help understand that while you might think you are consciously making rational investment decisions, in actual fact it might be your human biology which is influencing your decision making capability.

An example is the rush you feel when you think an investment is going to give you a return – we think of this as “greed” but in fact there are parts of your brain which “light up”. This same reaction will occur in anticipation of many things, winning a jackpot, anticipating sex etc. The point he makes is that if you think you have a “hot tip” or some other great investment idea and you can’t stop drooling about it – take a minute to think about it – or a few days. Hopefully giving yourself time to cool off will allow the rest of your brain to weigh in on the decision and you can make the right one.

What I didn’t like

I thought the book was a bit too long – although it was full of great information, I found by about 2/3 of the way through I was starting to think “Ok, every one of my financial thoughts are caused by my biology – got it!”. It is still worth reading the entire book however.

Conclusion

Read this book! There are some excellent books available (Four Pillars of Investing, Random Walk Down Wall Street) which do a great job explaining why you shouldn’t try to time the market, why you shouldn’t sell when the market does poorly and why you shouldn’t buy when the market does well but Zweig explains why your biology makes you want to do those kind of destructive financial behaviours.

Other reviews of this book

Canadian Capitalist loved this book.

My Money Blog thought is was a good book, but he agreed with me that it was too long.

Categories
Investing

Education Investment Accounts: Canadian RESP Vs. American 529 Comparison

This is part two of my three part series comparing various Canadian and American investment accounts.

This post deals with the Canadian RESP and the U.S. 529 plan which are both educational savings accounts. For the 529 account we are only looking at the 529 savings account (not the pre-paid plan). In part one I looked at two retirement accounts – the Canadian RRSP account and the American 401(k) account. In the next post I will be comparing the TFSA vs Roth IRA.

Please note that this is just a general comparison – it’s not intended to be reference material for any of the accounts listed. Not all of the rules are consistent within each country so there are exceptions to the “similarities” and “differences”.

A big thanks to Madison from My Dollar Plan for helping out with this series.

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Canadian educational savings account

RESP (Registered Education Savings Plan )

US equivalent

529 savings plan

Similarities

  • These accounts are intended for post-secondary educational purposes and have penalties if the money is not used for that purpose.
  • Tax sheltered – any income, dividends, capital gains earned in the accounts are not taxed.
  • After tax money is used to contribute to these accounts. This means that there is no tax refund for any contributions (some states are the exception however).

Differences

  • RESP gets a 20% grant (matching contribution) based on the contribution amount where the 529 can be eligible for different grants (including zero) according to the state.
  • RESP is run by the federal government (except for one province) – 529s are administered by each state.
  • 529 contributions limits are much higher than those of the RESP.
  • RESP withdrawals used for educational expenses are taxed in the hands of the beneficiary – 529 withdrawals used for educational expenses are not taxable.
  • RESP accounts allow any type of investment – 529 plans are limited to mutual funds and annuities.
  • The RESP program has way too many rules – I can’t imagine the 529 is as complicated. 🙂

Conclusion

Overall the two educational savings account types are reasonably similar given that they are both tax sheltered and require that the earnings be used for educational purposes. It is difficult to compare these two accounts beyond that since there are different rules for each state. If you live in a state where there are no contribution benefits to the 529 then that is a disadvantage to the RESP (not to mention the 529 account in all the states that do give some contribution relief). On the other hand it’s possible that your state might give contribution tax benefits which are greater than that of the RESP.

Categories
Announcements

Friday Linkstuff

Clever Dude’s wife made him save some gas. Maybe his wife should buy him a miles-per-gallon meter?

He also had a problem at a restaurant recently because he didn’t want to split the check evenly. I agree – splitting the check works only if everyone eats/drinks roughly the same amount. Check out the comments – pretty entertaining – my favourite was from Sara – “Stuff like this makes me kind of glad I don’t have any friends, so I don’t get into this kind of situation.”

Blunt Money has started a number of small businesses and wrote an excellent post on starting a small business.

Frugal Dad is having a problem with his emergency fund. The post is good but the photo he used is awesome.

Canadian Capitalist reminds us that if you are in the accumulation phase of your investment career then you should be loving the bear market. This is tough to do which is why it is important to read books like the Four Pillars of Investing and A Random Walk Down Wall Street which will remind you why it’s a good idea.

Squawkfox has come up with 50 great reasons not to use plastic bags. I think getting rid of plastic bags is a great idea but it seems that for some people it’s the ultimate solution – ie it’s ok to drive your huge SUV 1 half kilometer to the store as long as you have a re-usable bag.

MoneyNing had an interesting post on two families trying to avoid foreclosure. He also wrote out some good thoughts on passive income.

My Two Dollars says that friends don’t let friends drive frugal…or something like that – very good post!

Categories
Investing

Canadian RRSP Vs. U.S. 401(k) Retirement Account Comparison

I had a request recently from a blogger friend of mine – Paid Twice, who thought it would be a good idea to do a post on the common U.S. and Canadian investment accounts and try to find which ones are comparable. This post deals with the Canadian RRSP and the U.S. 401(k) plan – other accounts will be covered in future posts. I’m only going to do the more common accounts, since the more obscure types probably aren’t known very well on either side of the border.

Please note that this is just a general comparison – it’s not intended to be reference material for any of the accounts listed.

A big thanks to Madison from My Dollar Plan for helping out with this series.

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Canadian retirement account

RRSP (Registered Retirement Savings Plan )

US equivalent

401(k)

Similarities

  • Money in these accounts are considered pre-tax which means that you are taxed at marginal rates upon withdrawal. Basically you add any withdrawals to your income in the year you do a withdrawal.
  • Grow tax free inside the account. No taxation for capital gains, dividends, interest etc.
  • Both types have annual contribution limits.

Differences

  • 401(k) is setup with your employer plan whereas an RRSP can be setup with any financial institution.
  • 401(k) contributions can only be made through payroll deductions whereas RRSP contributions can be made through payroll deductions (commonly through employer-sponsored group RRSP plans) as well as cash (after tax) contributions which then generate a tax rebate.
  • 401(k) has a 10% penalty (with some exceptions) for withdrawal before the age of 59.5 (why the .5?) – the RRSP has no withdrawal penalties.  There are some exceptions where you can withdraw 401(k) money early.
  • Contribution limit for an RRSP is set as a percentage of the previous years income (18% or a maximum of $20,000). the 401(k) annual limit is $15,500 for everyone regardless of how much money you earn. Americans older than 50 can contribute an extra $5,000 per year.
  • In the RRSP – unused contribution limits can be carried forward indefinitely. 401(k) contribution amounts have to be used each year or they are lost.

Conclusion

These accounts are very similar in that the contributions are made pre-tax, no taxes are paid inside the account and withdrawals are taxed at the marginal income rates. The US 401(k) has more restrictions in terms of setting up an account as well as withdrawals. I personally like to have less restrictions on retirement accounts but in some cases the restrictions will prevent people from taking the money out for silly reasons.

Here is more info on RRSP contribution limits.

 

Categories
Investing

Guide To The Sleeping Pill Portfolio

This article was originally posted on Blueprint for Prosperity.

A lot of inexperienced investors who invest in stocks either through mutual funds, index fund, ETFs or owning the stocks directly want great returns with minimal or no losses in the bad times. Unfortunately this isn’t possible for the simple reason that you can’t get great rewards in the equity game without taking great risks. Risk means that your investment could go either way. Your stock fund might get 10% this year or 30% or -30%. In 1929 the Dow lost 90% of it’s value – I’m sure that was a bit of a downer and not just for the guys stepping off window sills. Should you just buy GICs and not worry about the ups and downs of the markets? I would not recommend that because there is no guarantee that fixed income products will keep up to inflation.

Here are some of the things you can do to invest in the stock markets and get a good night’s sleep at the same time.

Own some fixed income – This could include bonds, gics, high interest savings accounts etc. When the market is crashing this part of your portfolio will hold steady and will reduce your decrease in portfolio value. How much you own is based on your tolerance for volatility.

Diversify – A lot of ex-Enron employees couldn’t sleep at night because their skyrocketing retirement accounts made them giddy – until the company went bankrupt and they were left with nothing. The idea behind diversification is to keep your many eggs in many baskets. If your investment in a buggy whip company isn’t doing so well then perhaps your automaker stocks will make up for it. If your telegraph stocks are dipping then maybe your phone company investments will make up for that.
You need to look at your investments and understand if you are diversified or not.
Things to diversity by are:

  • Company – one rule is not to have more than 10% of your portfolio in one company, especially if you work for that company.
  • Industry – owning 12 bank stocks is not diversified – The US market has a lot of different industries so buying a broad market index fund or ETF is very diversified.
  • Country – although a good part of the S&P500 profits come from overseas – it doesn’t hurt to add some more foreign exposure.
  • Currency – this kind of goes with the country diversification. While some people would prefer to purchase currency neutral foreign funds it’s not a bad idea to own different currencies.

Treat your portfolio like a portfolio – When looking at your gains or losses – do it for the whole portfolio and not each security. If you are properly diversified some of the investments will be doing better than others most of the time. If you own ten mutual funds and two of them are cratering but the other eight are doing well then you are probably doing ok.

History – Research the history of the stock market or read the following statement. Stock market goes up, stock market goes down – over the long run, stock market goes up. If you sell when it goes down and then buy on the way up then you are buying high and selling low – don’t do this. Another thing to be aware of is past bubbles – the more you know about them the more you can avoid them.

Keep track of your portfolio performance – If your portfolio goes up 15% per year for the last four years and then drops 20% this year – should you panic? No – you haven’t ‘lost’ anything and your best bet is to hang on.

Ignore the media – The media is not there for your education or to keep you informed. Their job is to sell newspapers, ads etc and that’s it. If the market falls 2% then it’s a “mini-crash”, if it goes up 2% then it’s a “strong day on Wall street”. I’ll leave you with a quote from Preet that I read on another blog which I like.

I remember someone saying that if you left the design of elevator buttons to the financial media, there would be no “Up” and “Down” buttons – they would read “SOAR!” and “PLUNGE!”.