Category: Opinion

I’ve been tracking my expenses, which is  a great way to get a grip on how much I’m spending, what I’m spending it on, and what my savings rate is. Part of me is thinking that I might have gone overboard, as I’m saving 83% of my pre-tax income, which is higher than the 75% upper end recommended

I haven’t tallied my spending from New York yet (which should drive my averages up), but before I left I had gotten my variable spending down to almost $1200 (shaving another $100 off of what many people seem to think is an already low cost-of-living).

What I’m thinking is that I might start taking anything above 75% that I save and earmark it as “mad money”. If I want to travel with this, blow it at the mall, buy some big tech toy or whatever, that’s what its for, to be spent foolishly. I’ll try to avoid anything with a monthly commitment, but if I end up with something that does have a monthly commitment, I’ll just take it out of the mad money fund (and cancel it when/if it runs dry).

I’m torn about whether this makes sense or not, because with my current spending, I could be retired in 3 years or less. Capping my saving at 75% would definitely push this back (and lead to a potential retirement in 5 years or so, unless I could up my income a bit). My lifestyle would definitely improve though…

Definitely food for thought…

On Canadian Dream’s post today he talks about the possibility of forming a new shared personal finance blog with multiple writers. This got me thinking a bit about the concept and I thought I would share some of my thoughts.First of all I think a group blog is a great idea. There are lots of bloggers who only want to post infrequently and sharing a blog would help keep the traffic up so that there would be people still reading your posts even if you only posted once or twice a week. I personally haven’t “hit the wall” yet but if I ever get to a point where I just can’t or won’t post several times a week then sharing a blog with a couple of other bloggers would be ideal.

I’m guessing there could be other motives for forming a group blog and they would be financial. A lot of blogs have advertising but as successful as some blogs are in terms of hits, it’s difficult for a single person to expand that blog without quitting their day job to write content for the site. The answer of course is the shared blog. However if the shared blog is to be run like a company then I’m not sure how well it would work if there a lot of bloggers involved. Who has the final say on things? Who controls the money? Who decides the layout?

My suggestion would be that a better idea is to have one person who is keen on creating a profitable site and has access to financing, to be the owner of the new site. They would get other bloggers to write posts by paying them. It could be small amounts at first and then maybe more money if the site takes off. I wouldn’t be surprised if you could get a lot of quality posts for $10/post. The idea would be to create a “must visit” blog which will drive traffic to the point where the advertising revenue can create a profit.I didn’t think of this idea of course, one example that I’m thinking of is hockeybuzz.com which is a hockey blog run by a guy named Eklund who supposedly has a lot of nhl connections. If I’m not mistaken, he started the blog himself and then later added posts from other writers. I would assume at this point that he pays those writers but I don’t know that for a fact. Who can do this? Someone with a lot of drive, access to money, good webmaster skills would help. You could start a site from scratch but nothing breeds success like success so I would suggest that you follow the Eklund model and expand on an already popular site. Canadian Capitalist comes to mind as well as Million Dollar Journey. CC has built up his traffic over the last several years while MDJ worked some kind of magic to quickly create a very popular site.I don’t think either of those guys wants to start writing more posts per day but if they could get other people to write the extra posts then that would be a way of expanding their sites.Why don’t I want to do something like this? For one thing I don’t believe the Canadian personal finance world is big enough to support a blog like hockeybuzz.com. The hockey blog world much, much bigger than the Canadian personal finance blogworld. Plus I rather like having my own little blog.

Philip Greenspun was one of the founders of ArsDigita Corporation and wrote a very interesting write up about his experience getting rich through the dot-com boom, and some of the dangers of accepting VC funding.

I recently came across some of his thoughts on early retirement and found them quite interesting as this is a subject I spend a fair bit of time thinking about these days. I went through a period of “willing unemployment” (temporary retirement? a prolonged case of laziness?) and some of his insights definitely ring true to my experiences.

My mother always insisted that my brother and I stay busy, so every summer we had to be involved in an activity (or job or whatever). She made it quite clear that lounging around the house playing Atari wasn’t an option. Through childhood, school, university and work I was always busy and developed this idea that if I could free up my 8 hour school/work day then my life would stretch in front of me like an endless vista of time to do and experience everything I might desire.

As Philip discusses in his essay, when you get rid of the work and actually have the time, it disappears in a hurry without a lot to show for it. I always felt guilty when I wasn’t working (and even when I technically was doing something but wasn’t as productive as I felt I should be). It was sometimes disturbing to look back on a couple of months of life lived with nothing to show for it.

The flip side of this, of course, is why do we need to have “something to show for it”?

I always speculated with friends that this was a hold-over from society’s “protestant work ethic” and I just need to become comfortable with the lifestyle I’d created and not let nay-sayers make me feel bad.

Sometimes I wonder if early retirement will feel the same way? Does regular retirement? Most of the people I know who have retired around 65 seem to adapt well to it, but I know not everyone does…

As you all know, anyone who works for a company has to pay EI – employment insurance premiums and CPP – Canada Pension Plan premiums on every paycheck. The maximum amount you can pay for CPP in 2007 is $1989.90 which is based on a salary of $42,100. The maximum EI contribution is $720 which is based on a salary of $40,000

[edit – Here are the 2011 Employment Insurance premium amounts and the 2011 CPP contribution amounts]

The problem is that the deduction rates are calculated so that the premiums are all deducted during the portion of your salary within the annual maximum. For example EI is calculated at $1.80 per $100 of earning up to $40k in earnings. That’s fine if you earn $40k per year and the deductions will be constant throughout the year. But what if you make say $65k per year? Then the EI contributions will only be deducted for the first 7.5 months or until the middle of August, when you’ll see a significant raise. In that case the CPP will be deducted until the end of August. The more you make, the higher the deductions are per paycheque and the earlier in the year you get your “raise”.

This drives me nuts because as much as I like to get a raise during the year, I find it difficult in January to go back to the “old” paycheque at a time when heating bills are higher. Why can’t the government mandate that the annual maximum contributions be prorated over the entire year so that there is no “raise” and “pay cut” because of this dumb policy?

This post isn’t directly related to finances however because of several developments I’ve come across in the last little while, my surfing productivity has increased greatly which allows me to cover more financial ground when I’m on the net.

First of all – until about a year ago I used to surf exclusively with Internet Explorer. Good application, does the job, however because I can read faster than most pages download (which isn’t that fast) I normally opened up multiple browsers with different pages loading in each, which is not that easy to do with IE. You can imagine my joy when I discovered the FireFox browser. It has a tab feature that allows you to open up multiple pages in the same browser. What really made things easy for me is FireFox’s ability to open up all the links in a bookmark group at the same time in different tabs. By grouping similar websites in a bookmark folder I can open them all up by selecting the “Open All in Tabs” option.

Great stuff, but when I finally figured out the whole RSS feed/Blog reader thing a few weeks ago I really hit the jackpot. By setting up a Google Reader account and linking to the feeds of all my favourite blogs I can keep up with all their latest posts and comments regardless of how frequently or infrequently they post. One complaint is that it sometimes takes a while for the posts/comments to show up on the reader but that’s not a big deal. Another complaint is that a lot of blogs don’t seem to have comment feeds. This seems to be exclusive to the blogspot type of blogs – do these not have comment feeds available?

Anyways, if anyone has any suggestions on how I can improve my surfing experience then I’d love to hear it!

I’ve been considering a bit of a funny idea for what to do with my retirement: go get a PhD.

Back when I did my Masters, I really enjoyed the day-to-day of being a grad student. Investigating an incredibly detailed area of study and getting to the point where only a handful of people in the world could knowledgeably discuss the issues I was investigating was definitely a fun, cool way to spend a couple of years.

If you want to read more about grad school from someone who has been through it all – check out the new site Ivory Tower Unlocked.

One area I didn’t like was having the profs treat us with contempt. Graduate students are like teenagers in a family, you want to be taken seriously, but your supervisor (parent) occasionally makes a comment that makes it QUITE clear they don’t.

One big benefit to grad school is that here in Canada you get enough funding to cover tuition and a modest lifestyle (some of my friends were able to afford to run cars while doing grad work). Currently grad funding would more then cover the “spread” between my passive income and my expenses (in fact I think I quite easily live off of my grad funding, and just let my passive investments compound for the 5-7 years I’d be working on my PhD).

The other considerations are if my desired lifestyle suddenly spiked during my studies I might be bummed out living like a starving student (I think this is unlikely).

Its definitely something to consider (finding a “fun” job, even if it doesn’t pay very well to start my “retirement”). This would help me test to make sure I can live off of what I’ve set aside. Additionally, it’d build up a buffer to deal with any unexpected emergencies (dividend cuts, rampant inflation or some such things).

One of the other big benefits during an “early retirement” is if you discover you’re falling short of what you need to live the life you want, you can always go back to work! (much harder at 70!).

Other “retirement jobs” I’m considering are some sort of technical liason with an overseas company (maybe China?), publishing (starting or writing for a magazine or self-publishing some books like John T. Reed), property management (develop my real estate skills on someone elses dime) and working for a non-profit (high pay and low stress, what’s not to love?).

Yesterday I mentioned “Succeeding” by John T. Reed (I should write up a review for it). Another idea I liked in it is related to Offense and Defense in Football (pardon me in advance if I make mistakes, I’m not a football fan at all).

In Football you want to “meet strength with strength” (defense) and “attack weakness with strength” (offense). Basically you want to focus your strength where the opposition is attacking, and where it is weakest. Wealth accumulation is similar, except you’re playing against society.

Every time there’s pressure to “keep up with the Jones”, your wealth is being attacked. People who are being eaten alive by debt, can’t afford to live the lifestyle they’ve chosen and have to worry about money constantly, have to bring more of their strength to defend against these attacks. Strength in this case is mostly just a matter of giving these issues some of your attention and accepting the negative consequences of defending against them.

Perhaps your friends will give you a hard time about the old car you drive, or the crappy basement apartment you live in. Maybe your significant other will call you cheap when you don’t want to go out binge drinking at the club twice every weekend, maybe cultural pressure will be placed on you to send a check to your parents every month to help pay their bills. Each of these affect all of us differently, and you don’t necessarily need to stop ALL of them, but be aware that issues like this are nibbling away at your wealth, forcing you to work longer-and-harder than you would have had to if they weren’t in your life.

Meeting societies weakness with your strength is another issue that can be easy to articulate, but can be harder to do. Basically, beyond doing “what you want” for a career (fulfillment), you need to factor in how badly society doesn’t want to do whatever job you’re considering. After the dot-com boom, computer work took a nose-dive, because so many people started doing the work. Even though its vital new labour that’s needed by modern companies, it was so popularly perceived as in demand that soon their was a glut of labour being supplied (and salaries therefore dropped).

Currently in Canada and the US you can make a VERY good living in the trades (electricians, plumbers, drywallers, etc). For some reason the public wants to look down on people who use their hands to make a living, and because of this these jobs pay VERY well. If I was a young guy coming out of high school who had any interest in any one of the trades, I’d definitely be thinking about moving in that direction. Even with the massive investment that I’ve made in my mind and technical skills I’m sometimes tempted to move into the trades when I get a bill for the plumber for $250 to put in a new tap in my kitchen sink.

You can accumulate wealth by strengthening your defense or your offense. If you have a strong defense and weak offense, you’ll live like a miser. If you have a strong offense and weak defense, your cost of living will raise every time you get a salary increase and you’ll spend the rest of your life on a treadmill.

By combining both you can figure out what you truly value, earn enough money to pay for them, then have the time to enjoy them.

While I like to consider myself frugal, my friend and family tends to view me as cheap. I like to get a bargain, which, as failings go, doesn’t seem too bad to me.

HOWEVER, even though I’m cheap, I like to consider myself quite generous. One of the most insightful things I’ve had a friend say about me is that I’m generous to others, but not to myself. I’ll leave the analysis for my time on the couch (yeah right, as if I’d pay for therapy!!!). Instead I’d like to write today about how it can often cost you money being too cheap.

I tend to wear clothes and use “stuff” as long as I can get away with. I have socks with holes, and just recently was persuaded to give up the winter jacket I’ve been wearing since high school (I’m now in my early 30’s). I don’t put a high value on what other’s think of my appearance, and certainly don’t place any value on displays of wealth, so if it keeps me warm and doesn’t offend people around me, I’ll keep wearing clothes.

For the most part, I think this works to my advantage with clothing. With other items though, sometimes this backfires. I finally bought a high-quality travel mug (Thermos Brand) from Wal-mart for $10 (yes, I’m a big spender). Previous to buy this one, I was using two el-cheap dollar store travel mugs (bought for $2 a piece). The first cheap one started leaking, so I replaced it with a similar make that start leaking almost immediately (it was like a trick dribble glass, when you’re drinking from it, it’d spill liquid down your front). Surprisingly I put up with it from the first mug for a few weeks (gotta get my $2 worth) and finally broke down and fixed the situation when I saw co-workers eying the wet marks on my shirts.

To be fair, it was usually tea, and I buy stain resistant shirts, so once it had dried there wasn’t a mark, but…

Another example of being “penny wise, pound foolish” was I was visiting a friend in the Bay area and decided I wanted a portable dvd player to use on trips. I’d debated the purchase for a few months and finally decided it would be worth it when traveling to be able to bring along a few movies and watch them. I wanted a cheap one, and wanted an external battery (since the built-in play time is quite miserable on most of them). After running around between all the major stores that would sell them (Target, Wal-Mart, Best-Buy, Good Guys, etc, etc, etc) buying one, realizing that the external battery was incompatible, returning it and finally selecting another, we spent an entire day shopping (out of a time limited visit) and I saved $30 (not including gas and wear-and-tear on my friends vehicle) off of the player and battery I saw at the first store we visited. Not my finest hour.

I think a fallacy many people fall into is not valuing their own time. I viewed my friend’s and my day as worthless, when in actual fact it was worth far MORE than $30. In real-estate people often brag about their profit on a property, but don’t include their own time and labour on the project (magic fairies did the paint job and other renovations I suppose). Again, they’re not valuing their time, if they factor it in the project might not compare that favourably to getting a second job and investing in stocks.

The other fallacy I often fall into is “Sunk Cost“. When money is spent and there’s no way to get it back, often the best way to make a decision is to ignore anything that’s already been spent, make the best decision from your PRESENT perspective (and try to use any new information on future decisions).

I think there’s real value in looking at where you spend your money and trying to make sure you’re spending wisely on the things you value most. However, cheap for cheap’s sake can often be an expensive way to live your life.