Category: Personal Finance

Since my move last month, things have been a little bit more expensive. In addition to the extra $170 / month in rent, I’ve been having to pay for applications to schools (~$90 / school) and to order transcripts ($8 each, at least two needed for each school).

Rent – $670
VOIP – $20
internet – $45
variable – $735
total – $1,470

My passive income rose slightly to $313.37, which is about 21% of my current expenses (way down from a high of 26%). Luckily I got the first payment from my passive real estate investment ($500) and payment from a contract I did a while ago ($500), so combined with my income from the condo I’m about even. This is good considering that I’m not working

My stocks were WAY down, until the rally last Tuesday pulled them back up which also helped my networth. It currently stands at:

Mortgage: $92,104.80
E-Trade: $24,790.36
Cash: $6,173.57
Condo: $143,500.00
Building: $12,553.50

Networth: $94,912.63

I took a bit of a risk and bought a bit of Washington Mutual ($2500 worth) mid month on margin. It promptly dropped significantly and has rebounded a bit, but killer dividend yield or not I’m worried I’m red lining in the investments a bit too much (and am probably not going to do any more buying until income starts coming in again or I’ve at least been accepted somewhere).

Like everyone, I expect the holidays to be a bit more expensive then a typical month. I haven’t had to touch my line-of-credit (which is ready and waiting with $20K once I’ve used up my cash) and I’m currently hoping / expecting my cash reserves to last until I start my PhD program (in May or Sept). The University of Alberta and the University of Waterloo are looking like the two strongest contenders right now…

Some time ago I posted that I was going to take H&R Block’s tax course (Telly recommended against it). I signed up, paid my $300 fee, went to the first class, and dropped out afterwards.

Telly’s warning was 100% on target. Henceforth, I intend to do anything Mike *OR* Telly tell me to. My one fear is that they’ll give me conflicting instructions…

The course focused on VERY SLOW learners. When he was “teaching us” how to fill out the name and address portion of the tax form, the instructions said to put “YOUR CITY and YOUR PROVINCE in the blanks”. Pretty self-explanatory, right? He told us, LITERALLY 5 or 6 times “now, here you’re going to put Toronto, or Mississauga, or whatever your city is in the blank, don’t write your city!”. The second time he said it, I looked at him and smiled (I assumed he was joking), he gave me an encouraging grin and a nod back, which clearly said “people have made this mistake before”.

If you thinking about buying tax preparation software then consider software programs such as TurboTax or TurboTax Canada (formerly QuickTax).

This course also didn’t cover business income or income from rental properties, two areas that I was very interested in learning about. In the end I figured I could spend 66 hour and teach myself more than I’d learn at the slow pace in the class.

Luckily, they give very generous refunds near the beginning of the course (I think I got 80% of my fee returned to me). Unless you’re a fairly slow learner, or you want to work for H&R Block (I think that’s why a lot of people take the course), I’d just buy some books at Chapters and read through them for 6 hours every week.

Over on Marketwatch, Paul B. Farrell posted that ‘Dilbert’ deserves the economics Nobel Prize for his ‘Unified Theory of Everything Financial’.

As with most things Scott Adams writes, I think he’s actually half-serious, and with 129 words he puts together a pretty good plan (for the original, see the article).

In a blatant rip off, reeking of lack of material to post about, here’s the Canadian version:

1. Make a will

2. Pay off your credit cards

3. Get term life insurance if you have a family to support

4. Fund your RRSP to the maximum

5. Buy a house if you want to live in a house and can afford it

6. Put six months worth of expenses in a money-market account

7. Take whatever money is left over and invest 70% in a stock index fund and 30% in a bond fund through any discount broker and never touch it until retirement

8. If any of this confuses you, or you have something special going on (retirement, college planning, tax issues), hire a fee-based financial planner, not one who charges a percentage of your portfolio

Supposedly he originally wanted to publish it as a one page book, but when his publisher wouldn’t let him, he included it in “Dilbert and the Way of the Weasels” instead. Truth be told, I find it hard to argue with any part of it, probably over 90% of people would do better following this simple plan than whatever they’re doing now. I might switched the order of 5 & 6 and add “spend less than you earn” as #1. Disturbingly, as much as I think this makes sense, the only thing from his list I’ve done is #2 (I’ve never carried a balance on a credit card).

Any other suggestions for changes? Would you recommend this as advice to a friend who wanted to “start investing and become more financially savvy but didn’t know where to start”? Should we e-mail Stockholm?

NOTE: I realize that any unified theory would include Canada. Its called a joke you nerd! That’s right, walk away tough guy, walk away. (bloggers take note: that’s how you deal with imaginary hecklers)

I’ve moved again and am not working any more (lots of changes for me, that’s life in the cheap lane I guess). My new cost of living is:

Rent – $670
VOIP – $22.45
internet – $45
variable – ~$580
total – $1,317

My passive income is at $311.47 (there was a nice little $11 / month dividend increase from my ROC stock), which is covering just under 24% of my new cost of living. This means I’m bleeding about $1K / month while applying for grad school.

In terms of networth and cash, I actually improved my cash position by $634 this month (got my final check from where I was working right before the end of the month).

This puts my networth figures at:

Mortgage: $92,296.12
E-Trade: $24,831.02
Cash: $6,414.83
Condo: $143,500.00
Building: $12,553.50 (what I put into it, it’ll take a bit more time before I can make any sort of estimate what my position is worth)

Networth: $94,812.58

as of November 1st.

With no significant money coming in, my plans are mostly to stay the course (there isn’t a lot of costs for me to cut, unfortunately), get the ball rolling with grad school applications, then look around for something to bring in a bit of cash until I start (perhaps some contract programming, perhaps a short term business venture, perhaps something else, any suggestions?).

I’ve answered a couple of memes in the past, so I’m at the point where I’d like to try starting my own.

What early (i.e. before you were 10 years old) ideas did you have about money or finance that turned out to be totally (and amusingly) wrong? Please tag at least 3 people when you answer this meme, and link or traceback to  https://moneysmartsblog.com/childish-misunderstandings-about-money/, or leave a comment with a link to your response at the same address (so we can collect all answers generated in one place). Feel free to cut and paste this paragraph into your response post.

To begin with, when I was a kid (like 5 or something) I thought that you had to buy jobs. I got the concept that there were jobs that were better then other jobs, but I thought you got them by paying more money for them (so if you wanted to be a doctor, you’d have to pay the hospital $100,000 but if you wanted to be a paperboy, you only had to pay the newspaper $500). I realized that you did get paid for a job, but I thought you needed to pay them first. I *think* I thought you’d be able to sell a job when you left too… So I thought people saved up, then bought a better job.

The funny thing is, in SOME ways this *is* a little bit correct (e.g. you have to pay for an expensive education to become a doctor or lawyer). In many ways families buy better jobs for their children. Dividend paying stocks, annuities, GICs and whatnot have always made sense to me, because that’s how I thought even employement worked (you paid a lump sum of money then collected the ongoing payments).

I’d like to tag Million Dollar Journey, The Dividend Guy, Wooly Woman and Krystal to continue this meme.

Wooly Woman tagged me to post about courses I’d like to take if they were offered. My mind actually jumped to courses I’d like to teach, which probably doesn’t say anything too flattering about me (I’d rather have the chance to force people to listen to me then listen to someone else 😉 ).

Course #1 – The no BS course for landlording

$300 for 11, 6 hour sessions (over 3 months – 66 hours total), much like the H & R Block tax course. Would cover buying property (running the numbers), dealing with sellers and real estate agents, lawyers, renovating, tenants, etc, etc. Course instructor would have no hidden agenda other then providing information (wouldn’t try to sell the students anything). It would be the opposite of the popular (and scummy) guru crud.

Course #2 – The Pursuit of Happyness

Without any spirituality or cult stuff, a course that would investigate the meaning of existence, false paths people pursue attempting (and failing) to find happiness, and approaches that do lead to meaningful, fulfilled, happy lives (perhaps with psychological research backing it up)

Course #3 – Startups for Fun and Profit

A course that would provide the “Coles Notes” of a business education for techies that want to start up their own company. Present ideas from people like Paul Graham and suggest worthwhile books that present non-technical subjects using an approach that would make sense to techies (something like “Selling for Engineers”). Critique business plans and provide connections. Sorta like Y Combinator but easier to get into.

I’ll take Mike, Money Gardener, Growth in Value and Telly (in the comments perhaps?) to continue this meme.

There seemed to be renewed interest in my networth, so I’ll put that back into “the mix”, but preface it every month as being unimportant.

It was a good month to be a Cheap in September (from a financial perspective). I managed to get my last check out of the recruiter (which was quite a trial and may make for a future post). I also got my first check from my new job, so as much as I was worried the “lag time” of pay would hit me, I managed to avoid it.

I managed to save $4062.54. There was also a $739.64 increase in the value of my E*Trade account (this is totally irrelevant, I’m holding these stocks for the long term for dividends, not looking for short term capital gains). My networth increase seems to be pegged at about $4800 (which, to stress for a third time, is totally irrelevant for anything), for a current networth of $91,654.11).

My savings rate is going to start decreasing (because of tax withholding as an employee), but this will also decrease my tax obligation in April, so its all good (as Casey Serin would say).

In September I pursued a variety of long-term, delayed pay-off investments, so unfortunately didn’t make any progress on increasing the proportion of my cost of living being covered by passive income (which currently is at $300.08 or around 26%). My passive income increased slightly because I paid down my margin account due to a false margin call.

I managed to get my cost of living down to $1,151.75 (this decrease is what lead to the “increase” of my passive income paying 2% of my living expenses, which I don’t think is actually going to be sustainable), which will go up after I move into an apartment at the end of October (one of my roommates has annoyed me to the point that I’m moving out). I’m paying $500 / month for a room in a 3 bedroom house and want to find a bachelor for ~$700 / month on the subway line as close to downtown as possible (I work near Union station if anyone wants to suggest a place to live 🙂 ).

One “delayed payoff” investment is my dividends, which are heavily margin-ed now (about 60%). The dividend payments pay off the interest debt (its “cash flow positive” by roughly $33 / month). As long as the dividend payments increase faster then the interest rate raises this should work out well. If it doesn’t, it won’t be a tragedy (I have the income to cover the debt interest). This changed the dividends from being something I was getting a monthly income from, to something that pretty well moves along on its own steam (which I’m optimistic will lead to a higher income later).

The other “delayed payoff” is being a silent partner in a mixed use building purchase (the purchase of which is set to go through in early October). This was $12.5 K so far (which pretty well wipes out my free cash, there’ll be another ~$5 K payment for legal fees). I’m not looking for monthly income from this, as our plan is to save up more in the building’s account, use this to renovate, and convert the building from a rooming house type structure (which it is now) to a bunch of individual apartments (which hopefully will be more lucrative and less work going forward). We’re hoping to immediately change the downstairs bar from being kind of a dive to a higher end place (our ideal clientele would be local business workers going for lunch or an “after work” drink). My “active partner” will be paid 10% of the gross rent for doing all the management (and we’re putting money into the venture on a 50/50 basis).

This is definitely a new sort of venture for me (and hence a bit scary), but my partner is a guy I’ve known for years (he’s been my real estate “mentor” if you’ll forgive the “get rich quick” lingo). I was in his wedding party and have hopes that it’ll work out well (although if it goes belly up, I’ve already categorized this as a “higher risk” investment). He has a wide variety of residential management experience, so I’m also hopeful that he’ll have the background to transition into managing a different sort of residential (rooming house) and commercial (a bar and a retail outlet).

So there’s the “state of the Cheap Union”. My plans going forward (after paying the upcoming legal bill) are to start focusing on my RRSP contributions (looking for about $14K for 2007) and saving to pay off my April tax bill (which I’ll ballpark ASAP to make sure I have enough to cover it). I’m torn between doing a mix of US market / EAFE index funds for my RRSP or getting a couple good US dividend payers (BAC & WM look good right now, and I’d be tempted by something long term like JNJ or KO). I keep advocating index funds to friends and family, so part of me feels like I should actually buy some myself :-).

I’ve mothballed the idea of buying more real estate in 2007. It *might* be possible to get something with a very low down payment (especially now that I have a regular job and am not a contractor any more), but I think the stress of pushing my finances that far wouldn’t be worth the benefits.

In a previous post I indicated a simple formula that can be applied to determine how much life insurance you need. I also went through a real life example (moi) and talked about how you should try your best to calculate how much insurance you need (and how long you need it for) and only buy that amount or even a bit less since your financial situation should improve over time which will lessen your insurance needs.

Sometimes people are tempted to buy large amounts of insurance because they want financial freedom if their spouse dies. Or in some cases they really believe they need an excessive amount of life insurance.

In my opinion the best level of life insurance is an amount that ensures that the surviving spouse can maintain their current lifestyle. Typically a million dollar 20 year policy will provide the surviving spouse with a large increase in their standard of living. Now you might be thinking that the monthly premiums are not that much larger for a million dollar policy than say for $750k but those monthly amounts add up. As well, getting a million dollar policy for 20 years will result in a lot more premiums being paid compared to someone who gets insured for $750k for 10 years and $250k for 20 years.

The problem is that they are paying extra money for premiums for extra insurance that will increase their standard of living. The reality is that they are extremely unlikely to collect this money so this extra money is similar to buying lottery tickets where typically someone might take a small amount of money ie $25/month and play the lotto in hopes of an unlikely payoff which will result in an increase in their standard of living.

The best insurance you can have is financial independence which is usually a long time coming for most of us but saving even $25/month on insurance premiums will hasten its arrival.