Category: Personal Finance

This post is written by Jonathan from Master Your Card.  I’ve been reading this blog for a while and it’s pretty good.

Everyone has a financial personality.  Some people go to the extreme with
their financial personalities, such as people who save habitually and
never spend a dime on anything they don’t absolutely need while other
people on the other side of the spectrum go through money like it’s water.
Most of us fall in between these two extremes, leaning in one direction
or the other as far as Spender or Saver.

Your financial personality has a lot to do with your potential for being
financially successful.  Of course, even the idea of being financially
successful varies widely depending on your financial personality.  Someone
who is more of a Spender may define financial success as having enough
money to live comfortably from one paycheck to the next, while a Saver may
define financial success as having a year’s worth of expenses in the bank.

How do you know when you need to make an attempt at changing your
financial personality? The answer is simple: you need to switch it up when
it’s just not working for you.  Perhaps you constantly run out of money
and can’t cover all your bills, or maybe you have a fair amount of money
but you’re too terrified of parting with your money to make an unnecessary
purchase.  Either way, when it’s just not working anymore, it’s time for a
change.

Recognize the need for change.

The first thing you need to do is to actually recognize that it is time
for a change.  One of the best indicators is that your money just isn’t
working for you like it should.  Do you make a decent wage, yet never seem
to have any money to spend? Do you have an impressive amount of money in
the bank, yet you can’t compel yourself to buy something nice? It’s time
for a change.

Figure out what your financial personality is right now.

It’s probably obvious to you what your financial personality is.  Some
people, however, never make the connection that perhaps they have a hard
time saving money (or spending money) because that’s just the personality
they have adopted over the years.  Behavior can be changed, but the
behavior has to be recognized first.

Force yourself to do something contrary to your current financial
personality.

One of the hardest things about changing behavior is to actually give it a
try.  If you’re a Spender, stash your spending money for the week away in
a savings account and keep it there.  If you’re a Saver, go buy something
that you don’t actually need.  The behavior may seem strange at first, but
you need to prove to yourself that it can be done.

You may not need to change your financial personality.  On the other hand,
if your financial personality causes you grief then it is indeed time for
a switch.  You don’t have to go from one extreme to another.  You might
want to just add a little Spender to your saving tendencies, or just add a
little Saver to your spending tendencies.  It doesn’t have to be a
dramatic switch, but if it makes your life a little more enjoyable (and
your money a little more useful) then there is no reason why you shouldn’t
give it a try.

I have mixed feeling about bailing out the big 3 car companies – GM, Ford and Chrysler.  On the one hand I completely support the theory that weak businesses should be allowed to fail so that the industry and general economy can be strengthened.  On the other hand I recognize that excessive disruption in the name of economic theory isn’t always beneficial either.

It appears to me however that the big 3 car companies are past the point of “saving” in their present form so it doesn’t really matter if they get bailed out or not.  They make too many cars, pay too much in wages, their pension obligations are too high, too many dealerships.  They need to do some radical changes in order to survive in any form.  I humbly present some of my ideas for these companies along with a few other thoughts.

The bailout

I think any bailout has to have major strings attached – the status quo clearly isn’t working since the companies are about to run out of cash, so unless the business model of these companies is significantly altered – the bailout money will be a waste.

Over capacity

Of all the problems, these companies have – I think over capacity is the biggest.  In the past few years, there has been an American credit boom like never before.  Because of the resulting easy credit along with rising real estate values (which make people feel wealthier), the average person was spending more money than they should have – especially on cars.

Now that credit has tightened, now that real estate has gone down and now that a recession is in place – the average person is not going to spend as much money on cars as they did up until a couple of years ago.

They are going to consider used cars, cheaper cars, keep their new cars for longer – which will result in a less cars being sold overall.  I would suggest that the car companies plan to cut production by a third or more.

Hybrids and new technology

I hate to sound like a green grinch here but I find it odd that everyone is jumping all over the car companies for not anticipating the need for greener cars.  There is no question that the car companies have been mismanaged but the reality is that they built big cars and trucks because people were buying them.  Toyota and Honda started off with small cars because that’s what sold in their home markets – both of the Japanese car makers tried as hard as they could to break into the more profitable American markets which included SUVs and pickup trucks.  It was more a situation of luck and circumstance rather than lack of foresight that led to the situation where the American companies were making larger vehicles than the Japanese companies.

As for the question of the car companies trying to develop alternative cars – hybrids are not very profitable and they are not a large percentage of overall sales.  I think more fuel efficient cars should be part of every car companies long term goals but if you are staring bankruptcy in the face then you need to worry about short term profits – not about saving the world.

What’s wrong with bankruptcy?

The big 3 need to make some major changes and I personally think they would be better served by going in to bankruptcy.  This will force all the parties to make their concessions relatively quickly and the new leaner companies can get on with things.

One of the comments that the auto executives like to parrot is that bankruptcy is not an option because then nobody will buy the cars because of a lack of confidence in the warrantees.  I have news for those executives – when you have to go to your government and ask for a handout and talk about how little time until your company runs out of cash….you are, for all intents and purposes already in bankruptcy.  Nobody in their right mind has confidence in your companies now – bankruptcy won’t change that.

The unions

The UAW (United Auto Workers) union has been criticized for being too greedy and helping to bring the car companies to their current situation.  All I can say is that I will never fault anyone for wanting more money.  The reality is that the union executives have done a far better job for their members than the auto executives have done for their shareholders.  It was the lack of will of the auto companies to stand up to the unions when times were good that lead up to current events.

At this point the unions need to forget about their past successes and do the best they can for themselves going forward.  They are going to lose a lot of jobs…a LOT of jobs.  The remaining jobs will be paying less than currently.  The ridiculous “job bank” will be gone and unfortunately the pension obligations to retired workers will have to reduced as well.

Pensioners

Currently retired auto workers are screwed.  While they might have made many a sacrifice in the past for their union – once the auto workers realize how much of a hit they will be taking – the union pensioners will be tossed overboard like yesterday’s dinner.  They have no leverage except maybe a bit of public opinion.  My advice – get going on the PR machine.  If the auto execs can give up their private jets because of embarrassment, then maybe a good pr campaign will help you guys get a bigger slice of whatever is left of the pie.  In Canada pensioners should be calling on their local retiree associations like CARP and tell them to stop worrying about useless causes like RIF payments and help those who need help.

Dealerships

I have no idea why the big 3 have so many dealerships but what I do know is that if a company like GM has 14,000 dealer franchises and 20% market share compared to 1,600 for Toyota with 17% market share – then there is something seriously wrong.  A lot of dealerships have to go.

Congress

I thought it was unfortunate that when the auto execs travelled to Washington the first time for a handout – some of the congressmen chose to use the air time for comedy routines.  Yes, it was amusing to comment on the fact that the execs flew private jets but so what?  They are highly paid executives with billion dollar companies on the brink of bankruptcy – would you rather they be planning strategy aboard a jet that costs a few thousand per trip?  Or spending all kinds of time on a car trip arguing about which fast food joint to stop at?  Given the way they have run their companies into the ground – my argument doesn’t really hold water, but you know what I mean.

Summary -‘tude change

All the different parties involved in this mess have to accept one fact – things are going to get much worse no matter what they do.  They can take their licks now and move forward or they can do nothing and when the companies eventually fail – it will be a lot worse for everyone.

I usually hate “according to” posts where someone makes a tenuous connection between some show or a book then talks about all the lessons to be learned. Buffy the Vampire Slayer has been done before (see the bottom of this post), but ideas for this just kept bouncing in my head so I thought I’d write it up to get them out of there (sorry!).

Buffy the Vampire Slayer was conceived of by Joss Whedon around the idea of a “perfect victim” from slasher and horror films, a young blond woman, who suddenly and unexpectedly pummels a monster that attacks her in a dark alley. The show builds on this idea of misdirection and sudden changes from the first scene of the first episode.

Rely on Your Friends

Each of Buffy’s friends had their own specials abilities and expertise. Giles, her mentor, was a master of research, her friend Willow was a powerful witch, and both her vampire boyfriends were kick-ass fighters. Something that comes out over the course of the show, after we’ve seen other slayers in action, is that Buffy’s greatest ability isn’t a supernatural one: she’s an amazing leader. As well as planning high level strategy and raising to whatever the occasion demands, she also brings out the best in those around her, inspires loyalty and trust (and manages to return it, even though she’s betrayed by a trusted one in every season of the show).

No one can be an expert in all things. It’s invaluable to have contacts to go to for advice about how to evict a tenant, what would be a reasonable asset allocation for your stage in life or how to structure your will to be as tax efficient as possible.

Sometimes the best opportunities come from unexpected directions if we’re open to them. Job leads can come from someone you never expected to be able to help your career, and warnings about potential pitfalls with an investment you’re considering can come from the least expected source. Throughout the series, Xander is considered one of Buffy’s least useful friends (he causes more problems then he solves). His only real ability seems to be that supernatural females find him very attractive (and this mostly causes problems as well). Nevertheless, he manages to save the world at the end of one season by talking about yellow crayons. Unexpected? yes. Helpful? Definitely!

Rely on Yourself

When the situation calls for it, Buffy doesn’t hesitate to roll up her sleeves and get to work on her own. As the prophesy tells her, and she tells her friends: “…Into each generation a girl is born, a chosen one. She alone will wield the strength and skill needed to fight the vampires, demons, and the forces of darkness, stopping the swell of their numbers and the spread of their evil. She is the slayer…”.

We’ve written extensively about real estate agents (not that I’m calling them forces of darkness or anything…), but it applies in all venues of life. You’re asking for trouble if you blindly trust your insurance agent, lawyer, doctor, teacher, spouse or broker. No one is invested in looking out for you as much as you yourself. Trust others, but don’t turn off your brain when you do so.

Expect Changes in Your Environment

In each season of Buffy there’s a “big bad” she has to deal with (a powerful monster with a plan to rule the world). Usually dealing with them involves learning about them, discovering their weakness, laying a plan, then going to battle (while dealing with minor problems each week leading up to this). Each season the major villain is radically different (and in only 2 of the 7 season were they actually vampires). If we optimize our finances for the problems of the past, we’re going to get ourselves in trouble. Sub-prime might be the “big bad” of 2008, but its not going to be the “big bad” of 2009. Avoiding tech stocks in 2002 didn’t do you much good. The big changes are going to be caused by unexpected (and assumed to be improbable) events.

Build on your Expertise

Buffy didn’t try to train Willow as a slayer, and Willow didn’t try to train Buffy as a witch. As Mike has written about before, often the best thing you can do when the apocalypse is coming is invest in your career, do the best job you can and build on that as your greatest asset.

This can get away from us at times, as happened when her power over-whelmed her and Willow became dark Willow. She didn’t let that career setback finish her and she got back to doing what she does best (casting those magic spells).

Do What it Takes

When money got tight, did Buffy decide minimum wage was beneath her and go on welfare or compromise her morals and earn money illegally? Nope, she started working at a fast food joint. It wasn’t beneath her and its not beneath any of us if that’s what the occasion demands. If a superhero can do whatever it takes to put food on the table, so can we.

Life’s Not Fair

Originally Riff Regan was going to play Willow, but after seeing the unaired pilot, the studio wanted someone more attractive to play the “ugly girl”. Unfair? Totally. But life is unfair and we have to play the cards we’re given. Maybe you’re not the right gender, or the right race, or the right sexuality or have the right accent to do what you want. Maybe you’re not tall enough, thin enough, smart enough or experienced enough to land the position you’re desperately after.

It happens to everyone. And you shrug your shoulders, feel bad for a little while, then carry on with your life.

And maybe call Buffy and ask for her help.

Other posts about Buffy and finances are available from Finance Freelance Life, her Buffy themed carnival, Living Behind the Curve, Lazy Man and Money (actually about the actress, not the character), and advice to Buffy about her financial problems.

As I’ve outlined in past posts – we are moving our money from Questrade to RBC Direct to take advantage of their 1% rebate offer.  So far the process has gone very smoothly with 1 rather annoying exception.

The money in my wife’s rrsp and spousal rrsp was in mutual funds – in order to do the transfer we sold the mutual funds and moved the money “in cash”.  As a result we have to make some purchases once the money got to RBC.  First problem was that RBC didn’t tell us when they received the money – I was checking periodically and one day noticed that it was there.  Second problem was the amount of trading fees.  RBC default rate is $29 per trade which is a ripoff.  If you have $100,000 (by household) in assets there, then you qualify for the lower rate of $10 per trade.  Still not cheap but that is ok given the 1% rebate we will be getting.

Now my wife’s two accounts have less than $100k in them so we needed to make sure they were including my accounts when setting the fee schedule.  First of all she called on a Thursday to see if they could set the fees to the lower rate.  The guy she talked to said yes, but it wouldn’t take effect until the following Tuesday.  I thought that was pretty ridiculous but whatever – no rush.   The following Tuesday she called again and the fee had still not be set.  The guy then told her to make the trades and then call back and they will manually adjust the fees.  At this point I’m pretty annoyed – how many phone calls do we have to make to get the fees that they advertise?  This is one of the reasons we will be moving back to Questrade eventually – they have $4.95 fees for EVERYONE and you don’t need to jump through hoops (or make multiple phone calls) to get it.

Anyway, we made the trades – my wife called to get the fees adjusted to everything will be fine.  Only problem is that we made the US$ trades on one day and will do the Cdn$ trades on a different day (so we know exactly how much money there is) so we will probably have to phone again.

So far, I’m not impressed.

By the way – we bought VTI at $44.31, VEA at $26.31 and VWO at $23.61.

VTI – this is Vanguard’s “All American” stock index – basically all the publicly traded stocks in the US.

VEA – Another offering from Vanguar – Europe and Asian stocks etf.

VWO – from…you guessed it…Vanguard.  This is their “emerging markets” etf.

It’s been over a month since Telly left a comment.  Knowing that she’s partial to posts about working 9-5 and employment issues, this is my humble attempt to get her to start visiting / commenting again.  If this doesn’t work, I may start posting pictures of my underwear like SquawkFox does.

In one of his books about real estate, John T. Reed advises that you should only hire resident managers who really need the income.  He recounts that he’s had people that are doing it as a side-job for a little extra cash, and without fail when a big annoyance came up they’d quit.  He found people who couldn’t make ends meet without the extra income from running his buildings were likely to stick around longer and put up with more.

I think he’s definitely on to something in terms of resident managers.  I was thinking about trying to find a small building in Waterloo that I could manage (up to 24 units maybe).  It seemed like a good way to stretch my graduate student funding further, and get more experience in an area that I hope to invest in personally in the future (multi-unit buildings).

He’s right though that if all my expenses were being covered by the university, it wouldn’t take too much of an ongoing issue before I said “forget this!” and moved back to a regular apartment.

Beyond the real estate consideration, I think this is probably true for most employment.  Lottery winners typically say they’re going to keep their jobs, but end up quitting.  There could be a number of explanations for this, but perhaps the next time they hit a “pull your hair out” moment at work, their winnings allow them to tell their employer what to do with the job.

For some time now, I’ve had enough in savings that I can live for a period of time without working.  I’ve often told friends and family that this brings me great comfort, as I’m not afraid of getting fired and am willing to push back on unreasonable employer demands.  It makes sense that this would lead to shorter employment terms than someone who isn’t in this position.

I read an article about a retired man who worked at Home Depot.  The company loved him (and other guys like him) as they worked for a reasonable amount of money, were personable and knowledgeable and had a good work ethic.  In the article he recounted telling his manager that he’d be away for a month the following summer.  When the manager told him he wasn’t sure if that would be possible, the older man respond “No, you don’t understand.  I’m telling you I won’t be here.  If you want me to keep working here once I get back, that’s fine.  If you don’t want me to, that’s ok too”.

I see all sort of signs with most companies that they count of employee desperation.  Perhaps encouraging your employees to dig themselves into debt with consumer purchases and always keep their lifestyle costs a little bit higher than their income is a good way to ensure a submissive, consistent workforce.

Have there been jobs you have kept or quit that your savings (or lack thereof) heavily influenced that decision?

I wasn’t sure whether to call this post “Canada’s stupidest people” or the title you see above.  This post is in the same vein as another post I wrote a while ago about bad for-sale-by-owner signs.

I recently read an article about a family in Ontario that is trying to sell their “haunted house”.  To quickly summarize the article –

Family bought dream home, realized it was haunted, moved out and is paying mortgage plus rent, put house up for sale while holding press conferences to talk about exactly how haunted the house is.

Here are three thoughts I wanted to address – feel free to add any of your own!

Why advertise the fact that the house is haunted if you are trying to sell it?

According to the article, only the locals knew the house was haunted – so why do you want to scare away the rest of the potential buyers?  If I was trying to sell a haunted house – I would not say anything about ghosts, apparitions, witches, goblins, gremlins – even if they were all partying nightly at the house every night.

These people are nuts

I don’t believe in ghosts and while I have no idea what these people are up to – either they are crazy or trying to pull some sort of scam.  The odd thing is that it is not just 1 or 2 people involved – there is a couple and their 2 younger kids who all refuse to go into the house (according to the mother at least).

They left their possessions behind

“We left our things behind because we were scared that we would take whatever it is that’s here, with us”

This is kind of a part 2 to both of my first points – 1)  It drives home the point that this house is clearly not worth buying so why are they telling everyone?  2)  Not only are they nuts – they are really, really nuts!

I’m skeptical

I really have a hard time believing that everything in this story is exactly as presented.  I think some young journalist out there who is looking for an interesting story to break should go and talk to the family (hopefully not in tongues) and find out what is really going on.  Offer to spend a night in the house and see if you make it out alive – if nothing else, you should end up with a good article.

I was talking with my Dad recently about money stuff (he’s a big investment nut as well) and he suggested writing about the TFSA again since it is going to be effective fairly shortly (Jan 1, 2009).  A rather timely and excellent idea so here it is!

What is the TFSA?

A type of investment account where you make contributions but don’t get any tax refund. While the money is in the account there are no taxes applied to any kind of earnings such as interest, dividends, capitals gains. Any withdrawals from the account are not taxable and won’t count against any government programs ie GIS, OAS.

What are the TFSA rules?

• You can contribute $5000 per year to this account for the years 2009 to 2012 and $5,500 for year 2013 and beyond.
• The contribution room is carried forward.
• No taxes on any earnings.
• No taxes on any withdrawals.
• When you withdraw money from the account, the contribution room available gets increased by the amount of the withdrawal.  Keep in mind that when you do a withdrawal, the new contribution room only gets added for the following year so you can’t keep withdrawing and contributing during the same year.
• You can transfer between financial institutions – this will work the same way as transferring your RRSP – there will be no effect on your contribution room.
• Similar to an RRSP, you can have multiple TFSA accounts.
• The TFSA annual limit will be indexed to inflation.  However, it will only be increased in $500 intervals so the cumulative inflation number (over several years) has to be 10% before the limit will be increased to $5500.
• You can withdraw money from the TFSA and transfer it to a non-registered account or RRSP.

When did the TFSA start?

2009.

You can set up a TFSA account starting Dec 1, 2008 and the first deposit can occur on Jan 1, 2009.  There are a number of banks offering to ‘pre-enroll’ you in a TFSA or even ING which will give you a bonus to pay for your taxable interest for the remainder of the year.  While there is nothing wrong with opening an account early, with the exception of the ING offer, there is no real benefit to you as well.

More information on the TFSA start year.

TFSA benefits

Any money that you might be saving for emergencies or upcoming large purchases will have a constant tax drag in an non-registered account. With the TFSA, this tax drag no longer exists so you will end up with more money for your purchase or emergency.  This is the biggest benefit to the TFSA in my mind.

Another significant benefit is retirement planning – while the TFSA is not as good as the RRSP for most people, it is much better than a non-registered taxable account.

More information on the TFSA

Benefits of the Canadian tax free savings account

Tax Free Savings Account (TFSA) Basic information for Canadians

TFSA Over-Contribution Penalty – How To Fix