Category: Personal Finance

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Digital cameras and computers are wonderful things. They allow us to take lots of pictures of our kids growing up and easily send them to various grandparents/aunts/uncles who don’t get to see them often.  The problem is that sometimes computers fail (especially the hard drive) and pictures can be lost. Over the last few years I’ve been taking steps to make sure that if one of the computer fails we won’t lose any files.

One of the actions that I’ve been doing for a few years to back up the files on our computers to an external hard drive. I don’t copy the entire computer hard drive – just the files that that we want to back up which are mainly pictures.

The problem is that last year we ran out of room. My hard drive was only 50 GB which seemed pretty huge when I bought it but now it was too small. The main problem is our new cameras – the file size is much bigger than on our old camera plus we take more videos which suck up a lot of space. The Sony DLSR A350 takes photos very quickly which adds to the number of files and the Canon 200sx has a great video feature.

So I went shopping for a new external hard drive. These devices are faily simple so I wasn’t looking for anything fancy. I mainly just wanted a lot more storage space.

Over the last 2 or 3 years there have been quite a few advancements in external hard drives. You can buy drives that are much smaller than the old ones with way more space. The other big advantage is that while our old hard drive had to be plugged in separately, the new one plugs into the USB port in the laptop which is very convenient. The last advancement is looks – some of these hard drives look very, very good! The one we ended up buying was designed by the same company that has styled most Ferraris. 🙂

What external hard drive did I end up buying?

SimpleTech Signature Mini Espresso external hard drive 500gb.  The price was $150 but I notice that Best Buy has it for $130.  Amazon.com has it for $99.

The storage is 500 gigabyte which is 10 times the old one. I’m under no illusion that this will be enough space forever but it should hold us for a few years. It had comparable data transfer rates to other drives and I found the small size was definitely a plus.

It also has a 1 click backup feature which I have yet to utilize but I am planning on doing this.

It plugs into your standard USB 2.0 port and has the following dimensions:  4.4″ x 5″ x 1.5″ and weighs in at 0.5 pounds. Very small.

This wasn’t the cheapest option for a hard drive but the small size was enough for me. The cheaper drives generally were larger (and not all that much cheaper).

Do you use an external hard drive for backup?  If you don’t do any kind of backup then I urge you to buy an external hard drive and start backing up.  I’ll be posting more on this topic.

According to the mainstream media in both Canada and the US – we are in the midst of a terrible recession.  Stock market crashes, layoffs, increasing unemployment mean that lifestyle inflation is not something that most people have to worry about.  Or is it?

In my case, my investments are doing fairly well, I still have my job, no permanent pay cuts and I have a side business which did reasonably well in 2009.  The fact is that 2009 was the best year I’ve ever had financially.

My wife and I have identified some financial goals that we would like to achieve over the next 5 years or so.  The main ones are:

• Pay off the mortgage.
• Max out my rrsp room.

We’ve been pretty good about watching our spending and keeping our eyes on the goal but it is hard to not just start spending more.  There are unfinished renos/fixes around the house that I would love to hire someone to do.  Our tv is a 27″ CRT (the old tube style) which still works ok but it would be nice to upgrade to a shiny new flat screen.

Since we are not hardcore about reaching our goals before loosening the purse strings a bit, I’ve been thinking about how to analyze potential purchases.  It seems to me that one way to think about purchases/expeditures is to divide them into 2 categories.

1) Where you commit future money in the form of debt payments or regular fees.

Debt:
Examples might be where you buy a bigger house/car  – property taxes, utilities, insurance, maintenance, debt payments.  Large reno. vacation, any other spending which is on credit.

Non-debt future payments could be on something like:

Sign up for some membership such as a gym – monthly payments.
cable tv service, internet service.  Costco – other clubs.

The problem with this type of lifestyle creep is sometimes it can’t be easily undone or changed.  Debt has to be paid off, a house or car that is too expensive can be sold but that is a lot of work.  This adds risk to your finances and sometimes you can get into trouble if your income is reduced and you have trouble making your payments.  Things like houses are not all that liquid and if the value has gone down significantly then selling might not solve your problems.

Some ongoing fees can be reduced or cancelled such as cable tv.

2) One time expenditure – no future obligations.

These are items where you just have the one time cost which you don’t have to borrow.  Entertainment, nice dinners, vacations, any other items that you have the cash for such as furniture, renos.

In my mind this is a different type of lifestyle creep that is less risky is where you spend money (where you have the cash) on things that have no future commitments.

These lifestyle luxuries may not do much for your financial standing (except maybe renovations) since you are basically trading money for “experiences” but if nothing else you can stop that kind of spending on a dime if necessary.  Yes, mentally it might be hard to stop eating out or have to cut back on vacations but the choice is yours.

The dilemma that I see is that items with future commitments are often items of lasting value so they might not be poor financial decisions.  A house is a great example – while they can go down in value and do, it’s not likely that your house will lose the majority of it’s value.  Even if your house value does go down a lot it might not matter much as long as you can still make the payments and don’t want to move.
A car is another example of lasting value – yes, it does depreciate but not overnight.

The problem with spending money on items with no future commitments is that they are often of no value once you purchase them.  Any money spend on nice dinners, entertainment and vacations is completely gone since there are no remaining assets of value.

It seems that borrowing (leveraging) to buy assets that hold their value or appreciate will lead to greater wealth down the road as long as your income can be maintained.  If you have reduced income for any length of time then you could lose a lot.

On the other hand someone who spends a lot of money on items of no monetary value may not have a great finances since they might not have any real assets but they also don’t have much in the way of commitments so they can survive a reduced income fairly easily.

Anyway, for future large purchases I’m going to try to consider the following:

• Do I have to borrow? Borrowing means future obligations which means more financial risk.
• Are there on going fees?  Signing up for a gym/club membership might not cost anything up front but your cash flow will be reduced until said membership is cancelled.
• If I buy a new HD tv then do I have to upgrade my pvr as well as my cable package?  If I get a new car (with cash) will the insurance/gas costs go up?
• How quickly will the item depreciate?  This obviously doesn’t apply to consumables but do things like furniture, new cars, a nice tv retain some portion of their value for a time?
• Will this purchase delay retirement?  I’d love to be financially independent at some point and every penny I spend or commit to spending in the future delays that date.  If the purchase is large enough then it will delay retirement.
• Do you apply any kind of selective thought process before committing to new purchases?  Do they work?

Summary

It’s hard to come up with any kind of financial “rules” out of all these different thoughts but I did manage to come up with the following:

1. If you are regularly spending more than you earn then try not to commit any future money to things with ongoing payments.  Ie just overspend on things like restaurant meals (which can be easily stopped).
2. If you are living well below your means then you can not worry about future commitments as much.  Buy a house, join a gym etc.

Warning – this post is very long and most of it has very little to do with my Sony external flash.  If you want to just read the low down then skip to the Sony external flash review.

Last year we bought our first DLSR camera – the Sony A350 which is a pretty good camera.  It wasn’t cheap but it takes great photos and is super fast which was a key criteria since one of the main motivations for buying it was to take pictures of our very active kids.  A friend of mine has a similar type of camera which he had bought about year before I bought my Sony A350.  One of the things he told me was to buy an external flash since he found it made a huge difference in the quality of photos.  I was ok with the photos we were getting so I didn’t bother with the external flash at first, but last fall I started thinking about it and ended up pulling the trigger on a Sony HVL-F42AM external flash.

How and where I bought the flash

First of all – I’m not a really shop-around kind of guy.  For some reason I like to think that the electronic markets are relatively efficient so it shouldn’t really matter where you buy your electronic product since the prices shouldn’t vary all that much.  In reality that is not the case.

I ended up buying the flash from an American company called Click 4 Digital which is basically an electronics wholesaler.   They had the cheapest price I could find at $229 US.  This seemed pretty good considering the other companies I looked at were all about $299.  Future Shop here in Canada was the only place I found the identical item and it was $385 there ($435 including tax).  Even with the exchange I was saving about $205 compared to Future Shop.

I can’t complain about the price but it turns out that they charge $50 US to deliver to Canada (they phone to tell me this).  Ok, so now the saving is only $150 which is still pretty good.  However, the guy on the phone pointed out that I needed batteries for the flash and said they had some rechargeables – either $49 or $69 for the extra-long-life rechargeable batteries and recharger.  I opted to go with the $69 batteries – this cost didn’t affect the savings from buying in the US however it did add to the price of the flash.  Instead of the $230 price tag I was comfortable with – I was now looking at $229 + $50 (delivery) + $69 (batteries) = $348 US which is about $370 Cdn.  Had I known it would cost this much I would have done a lot more thinking about whether to purchase or not.

I later on looked up the rechargeable batteries and recharger and it turns out that Amazon has the same recharger for $14  (I paid $70).  That should teach me to do an “add on” over the phone.  I assumed since the flash was cheap that everything else was cheap too!  I was sitting at my computer when he phoned so I could have easily looked it up.

The UPS ground delivery

I’ve heard before that UPS ground should be avoided at all cost when receiving a package from the US and I wasn’t disappointed.  UPS left a notice in my mailbox saying they tried to deliver the package and would try again the next day.  There was also a $41 COD (cash on delivery) charge which is why they wouldn’t just leave the package.  Needless to say I wasn’t pleased with the $41 charge which now meant my (not very expensive) external flash was up to $390 which is more than you would have to pay for my Canon 200sx (awesome) camera.  The other problem was getting the delivery – the next day the same thing happened where they tried to deliver but nobody was home so another notice.  I checked the UPS website to see if I could just arrange to pick it up somewhere but it didn’t look like I could do that.  Normally my wife is home during the day but for some reason she wasn’t there for those delivery times.  On the UPS website it indicated that after three attempts the package would be sent back to the company.  Needless to say I didn’t want this to happen since I’d probably be looking at a whole pile of new delivery and custom charges.

I phoned a local UPS store and he told me I could just leave a note on the door with instructions to deliver to the UPS store and then I could pick it up at the UPS store later on.  The only catch was that because money was owed, I had to pay the money to the UPS store first before they would accept the delivery.  So the next morning my wife went to the UPS store – gave them $41 on a credit card to make sure we could get the damn thing delivered.  As luck would have it, my wife was home to accept the delivery so we ended up cancelling the $41 we paid to the UPS store – but it was still a big hassle!  Avoid UPS ground delivery if you can.

The Sony external flash review

Now that I’ve finished the exciting story of how I purchased the flash – maybe it’s time to actually give an actual review.  To put it simply, I was quite underwhelmed.  I had expected great things from this flash – as my friend had put it – his flash made a difference like “night and day”.  My flash didn’t make that difference for the shots I like to take.  Most of our shots are in our house or outside in good light.  Either situation means that the external flash doesn’t usually add much to the picture and in fact often made the indoor shots look worse because it put more light behind the subject.

The Sony flash works very well – it can literally light up a room and is quite impressive in that respect.  The problem is that for the photos I like to take, it just doesn’t add much.  In fact sometimes it makes photos look a lot worse.  It’s the right tool for someone else’s job.   Part of the problem might be my lack of expertise – perhaps a more advance photography nut could make better use of it.  I did a number of tests to see if it was helping my photos and it appeared that the only time it really was making  a difference was in poorly lit rooms.  If I turned the dimmer lights most of the way down in our kitchen for example then the picture with the external flash was far superior to the picture taken with the normal flash.  This proves the flash works but why would I take a picture in my kitchen with the lights down so low?  Maybe if there was a burglar having a snack and I wanted to get photographic evidence? I also  suspect the flash would also work fairly well if you are taking pictures outside at night but this is not something I normally do.

Another thing I figured out was that the flash worked quite well when taking pictures of certain objects but not others.  People pictures (which is all we take inside) did not do very well with the flash, in fact using the flash often made the picture look worse.  For some photographers this flash would probably be a great tool but for us, it just doesn’t do the trick.

Here are some test pictures which show the good and bad sides of the external flash

Why did my friend like his flash so much?

I have a couple of theories as to why my friend liked his flash and why some people would benefit from an external flash.

• The built-in flash on your camera is crap.  If this is the case then adding an external flash might make a huge improvement.  Buying a better camera might also make an improvement.
• You like taking pictures in poor lighting.  I’m sure there are lots of times this would come in handy but I haven’t encountered them myself other than then on the odd power outage.  I imagine there are a lot of professions who could use this flash such as insurance adjusters, accident/forsenic investigations, stripper scouts, ghost busters, anything to do with vampires etc.

What to do with my flash?

The reality is that we don’t use the flash. It’s a bit of a hassle and most pictures don’t look any better with it.  If I could do it again, I would have preferred to not buy it or have bought a local option so that I could return it.  I may try to sell it and see what I can get.  I’m thinking that if I can get at least $200 then selling it is probably the best choice.  I’d rather sell for say $300 (and a $100 loss) and not have the flash over owning the flash and never using it and being out $400.

What do you think?

In the unlikely event anyone is still reading this incredibly long post – what should I do?  Sell for whatever I can get?  Learn how to use it properly?  Start taking pictures of cemeteries at night?

In a comment on a recent post, AS requested information about an RRSP strategy I alluded to.  In the title, please note that I refer to AVOIDING taxes (which is legal and encouraged), not EVADING taxes (which is illegal and can get you sent to jail).  Please also note that I’m not an accountant or tax specialist, and although I’m fairly sure this is ok to do, I could be wrong (my numbers below are particularly suspect).  If anyone knows more than I do, please post any clarifications in the comments.  Also, I’ll acknowledge up front that there would be a fairly limited number of people who would be in a position to benefit from this.  Finally, Derek Foster presents a very similar strategy in his new book, so check that out if you’re intrigued by this and would like to read another take on it.  Tim Cestnick, Where Does All My Money Go? (Preet is Mr. RRSP), and  Efficient Market Canada each have more information about this idea.

We’ll all, at some point, probably be in the situation where our income will drop substantially compared to the year before.  Usually this happens when you retire (since you move from a higher working income to a lower pension), but can also happen if you get laid off (not as much fun), become a stay-at-home parent or go back to school (this happened to me).  If you know this is going to happen ahead of time, it becomes tempting to try to figure out a way to move some of your income forward, since you may be in a lower tax bracket in the second year.  Unused RRSP contribution room lets you do exactly this.

Say an Ontario man was earning $100,000 / year and was planning to head back to school.  While at school, he expects to continuing working part time and will earn $40,000.  Say he has $20K unused contribution room in his RRSP.  Using the 2009/10 tax rates, he’ll be going from a 43.41% to a 24.15% marginal tax rate.  Say on March 1st, 2010 (the RRSP contribution deadline for the 2009 tax year) he contributes the full $20k that he has in contribution room to a RRSP savings account.  This will save him (give a refund) of:

0.4341*(100,000 – 81,941) + 0.3941(81,941 – 80,000) = $8,604.36

After his taxes are submitted, he can then withdraw this money from his RRSP, at which point he’ll pay a withholding tax (like when the government withholds part of your paycheck).  HOWEVER, the withdrawal will actually be taxed as income in the year he withdrew it 2010 (he’ll get some of the withdrawal tax back when he reports it on line 129).  If his other income is $40k, he’ll incur a tax penalty of:

0.3115 * (60,000-40,726) + 0.2415 * (40,726-40,000) = $6,179.18

Therefore, overall he’s netted a tax savings of $2,425.18.  If his income in the first “high income” year was higher, or if his income in the second “low income” year was lower the benefit would be even greater.

There is a cost to doing this.  In this example, $20K of his RRSP contribution room is gone forever (you don’t get this back when you make an early withdrawal).  Derek Foster doesn’t like RRSPs and I’ve never been consistently in a high enough tax bracket to really benefit from them, so for us this isn’t that big of a deal.  HOWEVER, for most people lowering your income every year and allowing the funds within the RRSP to compound faster through tax-free growth is VERY worthwhile.  Burning $20k of contribution room to save $2.5k in taxes is of questionable benefit.

Obviously if the person in question were actually going back to school (or using the withdrawl to buy a house) there are programs like the home buyers plan and the lifelong learners plan.  To keep things (relatively) simple, I’ve ignored these.

I recently took my 3 year old son down to watch the annual Christmas parade for the first time.  I live in Toronto but I imagine that most large cities have their own equivalent.  I was a bit apprehensive since I had never taken him to a large event like that before.  We had a reasonably good time and the weather was fantastic.  I learned a lot from the experience so I figured a post was in order to share some thoughts I had about how to make next year’s parade better.

Bring Food

This is one of the few things I got right.  I brought some snack food along for the little one.  Nothing helps pass time better when there is nothing going on with the parade than some food.

Talk to someone who has gone before for tips

I have no idea why I didn’t do this but after seeing all the other parents there with blankets, coolers, chairs etc I realized that maybe asking around before the parade probably would have helped.

Bring chairs, blankets

If you have foldup chairs for both adults and kids then bring them.  We ended up sitting on the ground while waiting.

If your child is young then don’t stay for Santa

We tried to time it to get to the parade route and not have to wait long.  It didn’t work since the parade was delayed which meant we ended up leaving before the end of the parade.  My son doesn’t even know or care about Santa so no big deal.

Don’t arrive too early

Some parents and kids will try to arrive at the parade route well before the parade in order to secure a good spot.  If you and your kids can handle waiting 1 hour or more then more power to you.  My son is not capable of waiting around that long.  We went later on and still had to wait too long.  If I could do it again I would have gone much later, stayed for a reasonable amount of time (1 hour max) and then went home.

Don’t drive

In Toronto, the parade is held downtown so driving is not a good idea.  If you do drive then I would follow the following suggestions:

• Don’t try to cross the parade route.
• Consider parking a distance from the route and take public transit the rest of the way.  This might be a good approach if you are coming from far away.
• Ride a bike.  I only mention this one because that’s how we got down there.  20 minutes there, 20 minutes to get home – it was awesome.

Dress appropriately

This rule didn’t matter this year since it was so warm.  However some years it can be cold and wet.  Bring lots of clothes and rainwear!

For you Santa Claus parade vets – can you provide any more tips or experiences you’ve had with the Santa Claus parade?

As always – pictures were taken with my Canon 200sx digital camera.

Mike from Four Pillars and I recently went out for lunch and had a great time munching and chatting about personal finance. At one point during the meal I talked about how my brother wouldn’t do well investing in real estate as he would react quite strongly to tenant complaints. Mike thought this might be an interesting post, so here it is! 🙂

Investing in real estate has elements of investing and elements of running a business (which, in my humble opinion, is what accounts for the greater returns over more passive investments such as index funds). The business element that probably causes the greatest headache is the customers (your tenants).

Business take a range of responses to their customers. Growing up in a smallish town, the local merchants took the attitude that they were doing us a favour by selling to us (and I delight in watching them go out of business as the Walmarts and Home Depots have moved in). Some large chains take the perspective, against all evidence, that “the customer is always right”. The best perspective is right between these two.

People all have their own perspective and will get upset about and demand all sorts of crazy things. As a landlord, you have to be willing to look another upset, grown adult in the eye listen to their angry demands and be able to say “no”. If you can’t do this, the real estate business is going to get very expensive, you’ll pour money into your properties until you go bust and you’ll be miserable.

The alternative, to rule your tenants like a petty tyrant, is no better. If you’ve ever talked to a family who are trying to rent out a room in their house, it will quickly be apparent that they want the rent, but not the tenant. In Western society paying money to live in a property gives a person certain rights. Landlords who expect a feudal relationship are going to be sorely disappointed when they lose their first court case.

My brother isn’t cut out for landlording, simply because he doesn’t like fighting, and will quickly stop the discussion and walk away if the argument escalates. If he gets into a disagreement at a job, he’ll just quit and find another job (assuming its a fairly large disagreement). Landlording you just can’t do this unless you’re going to always give in to the tenants (bad) or refuse to even listen to their complaints (also bad).

I always think a “on call” type of job is pretty sweet. You sit around near the phone and watch a movie. If you get a call, you deal with the situation, if you don’t you get paid for just being available. Owning an investment property is like this for me. I feel like I’m getting paid $10 a day, and haven’t heard a peep out of my tenants for the last 2 months. Of course, when the emergency hits you’ll feel like you really earned your $10 that day, but on the whole I feel like I’ve been well compensated for the amount of effort my property has taken.

Grumpy landlords (those who don’t have the temperment for it) are a perfect example of a desperate seller. So if you’ve got into real estate and found its not for you (and are now eager to sell), give me a call and I’ll take the problem off of your hands! 🙂