Categories
Opinion

Changes

Still don’t know what I was waiting for
And my time was running wild
A million dead-end streets

After much soul-searching (and spending half of every other day fixating on how much I didn’t want to be there) I quit my new job on Monday. To be fair to them, they were an amazing group of friendly, smart people.

Every time I thought I’d got it made
It seemed the taste was not so sweet

My reason for quitting is somewhat hard to explain to non-technical people, but basically they had a very complex system they wanted me to work on, and I wasn’t able to get the other members of the technical team to provide me with information about how it worked. The other people there have been working on the system for years, and I think they didn’t realize (and I wasn’t able to convince them) that one sentence responses to questions aren’t enough to get people up-to-speed. I tried talking to the group and making adjustments, but it just seemed to stir up bad feelings (and didn’t get me any further to getting up-to-speed). In all fairness, this is probably a cop-out. I could have just started digging through the code-base and traced what they’ve done over the last 5 years and figure out how the system works from the ground up, but I suspected they’d get impatient with me going through this exercise (it would have taken months) and I wasn’t too happy to dive into that when there’s someone sitting next to me who could give me the information I needed but wouldn’t. Plus their system was built on custom hardware, which isn’t my forté (damn, damn serial communication!), so I was struggling even with this approach.

So I turned myself to face me
But I’ve never caught a glimpse
Of how the others must see the faker
I’m much too fast to take that test

I’ve hit the point where, given that it didn’t work out at what was in almost all respects a great company, that I’m really not cut out for 9-5 life. After a string of bad experiences, at some point I have to admit that the common element is me. People are amazed at how little cash I live off of, and it’s really not due to much beyond that I find standard employment far, far more painful than most, and therefore have had to figure out a way to get by on less. Paul Graham perhaps put it best, when talking about the transition from school to work, that “You’ve gone from guest to servant.” I don’t care how modest the house is, but I need to be master of it.

Ch-ch-changes
Just gonna have to be a different man

Given that I’ve failed at being an entrepreneur and repeatedly failed at being a good little worker (pity poor, poor Mr. Cheap! 😉 ), I’ve decided that I’m going to focus on moving for the rest of the month (I’ve found a new place, and I’m going to start trying to get rid of “stuff” before the move). Starting in November I’m planning to decide on areas that I’m interested in applying to for a PhD, then spend the time between getting the applications in and the start of the program on figuring out what makes me happy (I want to become more of a Tigger and less of an Eeyore), what I want to do with the rest of my life, and maybe the occasional short-term contract just to prevent me from going TOO deeply into debt (I figure I can probably last about 6 months before I have to get into my line of credit). My hope is that I may be able to find happiness as a researcher, academic or teacher (and failing that I’ll be a bum on the street hanging out in front of Mike’s house trying to scam grilled salmon and beer off of him 😉 ).

Ch-ch-changes
Don’t want to be a richer man

PhD programs provide a stipend for students to live off of (at least in Canada most do). It’s reasonably generous (around $24K), which is more than enough for me to live off of (and pay back whatever debts I accumulate).

And these children that you spit on
As they try to change their worlds
Are immune to your consultations
They’re quite aware of what they’re going through

I’ll apologize if any of my posts over the next few months get overly bitter or introspective (Mike, please pull anything too poisonous before it goes live – you’re too late for this one 😉 ). Obviously the “retire in 3 years” plan is off the rails and my cost of living is going to swing from a surplus to a deficit almost immediately.

With respect to the poet Bowie as popularized in the classic film “Shrek 2”.

Categories
RESP

RESP – Additional Grants Eligibility And Canada Learning Bond (CLB) For Lower Incomes

The regular RESP grants (CESGs), calculated at 20% of contributions, are available to all eligible Canadians regardless of their individual or family income. It doesn’t matter whether you earn $20 a year or $2,000,000 a year – you still qualify for the basic RESP grants.
Besides the 20% basic grant, the government offers additional grants based on family income.
There are a large number of middle (and lower) income Canadians who are eligible for these additional grants – and probably don’t know about it.

RESP Book
Buy The RESP Book on Amazon

The income levels for additional grants apply to the primary caregiver of the child and not the person who opens the account.

These additional RESP grants apply to the first $500 of contributions each year, unlike the normal RESP grants, which are payable on the first $2,500 of contributions per year.

There are two different income levels to qualify for these additional grants.

Families with a net income between $42,707 and $85,414 are eligible for an extra 10% grant on the first $500 of contributions each year for a total of $50 per year.

Families with a net income of $42,707 or less are eligible for an extra 20% grant on the first $500 of contributions each year for a total of $100 per year.

These income ranges are for 2012.  To get updated value for future years, please visit this CanLearn page.

The family income in this case refers to the primary caregiver, who might not necessarily be the subscriber or owner of the account.

Net income: This is the amount on Line 236 of your T1 general tax form. It is your income net of RRSP contributions, child care expenses etc.

Not all financial institutions offer additional grants, CLB or ACES grants.  Please check this list for verification.

Canada Learning Bond – no RESP contribution required . $500 initial one-time payment followed by $100 per year for 15 years – total potential of $2000.

Eligibility – If primary caregiver is eligible to receive NCBS – National Child Benefit Supplement – this supplement is generally for families with a net annual income below $42,707 .

Alberta Centennial Education Savings Grant (ACES) – No contribution required – $500 initial one time payment – 3 subsequent payments of $100 payable at ages 8,11,14.

You have to apply for the initial contribution within 6 years of the child being born and the subsequent contributions, 6 years after the birthdays. There is no income test for ACES grants.

Both the CLB and ACES grants do not require a contribution, so anyone who qualifies for them should take advantage of the program and get the grants. For the addition CESG grants, these require a normal RESP contribution to be made before getting the additional grant, so I would caution anyone who is in a lower income range to make sure that you have your own finances in order before contributing to an RESP.

Let’s look at an example!

Mary and Steve make a combined family income of $71,500 which makes them eligible for an extra 10% CESG grant on top of the regular 20% grant.

If they contribute $1000 in a year then they will get:

Normal CESG grant of 20% = $200.
Additional CESG grant of 10% on the first $500 of contribution = $50.

So the total CESG grant on their $1000 contribution will be $250.

More detailed RESP information

Check out the RESP rules page for a list of more detailed RESP articles on this site.

Categories
Book Review

The Lazy Investor

I read and enjoyed “Stop Working” by Derek Foster some time ago, and was excited when I heard he had a new book (“The Lazy Investor”) coming out. After visiting Mike on Friday night, I drank all his beer and took the copy that he’d won (when you let Mr. Cheap come to your house that’s par for the course).

Lazy Investor main points

My take away points from “Stop Working” were

  1. Dividends are a more reliable, consistent way to make money off of stocks rather then trying to time buying and selling.
  2. Blue chip companies with long histories of uninterrupted, increasing dividend payments can replace income.
  3. The tax efficiencies of Canadian dividends make them very attractive while building and living off of your investment income.

STOP WORKING

What the book was about

Although it was quick, fun read, I definitely enjoyed his first book more. This one read like a series of well thought-out blog posts (perhaps a “best of” collection) then a book with a consistent theme.

It covers:

  • How to setup DRIPs.
  • General ideas about investing in stocks.
  • Specific ideas about investing in stocks (including a short list of Canadian companies to consider buying).
  • Investing in American companies.
  • Teaching your kids about investing.
  • Whether you should pay for a child’s university education.

All interesting stuff, but I had expected a bit more of a unifying idea behind the book which wasn’t really there (it was broken into 2 sections, basically: how to invest and how to teach your kids how to invest).This book, like his first, is targeted to the beginner investor, and perhaps *I’m* different rather than this book being weaker than the first (against my best efforts I may have learned a couple things over the last few months). It’s a easy read and it may (bundled with “Stop Working”) be a good text for someone trying to figure out the basics of investing in the stock market (or looking for a straightforward approach to achieving an early retirement). Unfortunately I don’t think you’ll find many radical new ideas in it.

If you want to order this book – click on the Indigo banner below.

STOP WORKING

Categories
Real Estate

How to Save The Environment, Your Kitchen and Your Pocket Book!

Are you the type of person who has to have everything updated in their new house? Do you shudder at the thought of having laminate counters in your kitchen and not stone? Do you throw out perfectly good cabinets and replace them with expensive new “modern” cabinets? Do you toss out modern white appliances and replace them with stainless steel ones?

If so, then this post is for you! I’ll discuss two reasons why you shouldn’t be replacing parts of your house that are still functional – one is the environment and the other is your pocket book.

Most renovations are not good for the environment

Environmental effects of renovations are pretty major. Lots of energy gets used to make new materials like drywall sheets, kitchen counters, tiles etc. so if you are throwing out perfectly functional kitchen counters then you are not doing the environment any favours. Another problem is that the disposal of demolition material takes up a lot of space in landfills. It’s one thing to replace an item that is broken or in a state of disrepair but to redo a bathroom because you don’t like the colour of the tiles is a bit of a waste.

Renovations don’t always add to house value

At this point if you are thinking that you would be willing to fork out some money for a Prius but you are not going to give up your dream kitchen for the environment then let’s take a look at the effect of renovations on your house value. A lot of people assume that any money they put into a house automatically gets added to the value of their house. So if they buy a house for $400k and spend $30k on a new kitchen then the house must be worth $430k right? This assumption is a bit of a stretch, however let’s say for the sake of argument that it’s accurate. If that assumption is true, then the opposite must also be true – if you remove anything of value from the house then the value of the house must go down as well. Typically when you buy a house that is in half decent condition then you are paying for all the various parts of the house. If the kitchen is in reasonably good condition or even if it’s not that great but still functional then you paid some $$ for that kitchen when you bought the house. If you were to remove the kitchen and then put in a new one then you have to subtract a value for the removed kitchen.

Let’s look at a hypothetical example:

Let’s say you buy a house for $400,000, the kitchen was remodeled about 20 years ago and is in fairly good shape but it looks a bit dated in your opinion. The new kitchen you want will cost $25,000. Let’s assume the value of the existing kitchen is $10,000. We’ll also make the assumption that your house value goes up or down with any money invested in renovations or demolition (removal of value).

In this case the added value of the new $25,000 kitchen will be:

$25,000 – $10,000 = $15,000. Considering you paid $25,000 and went through a lot of hassle for the new kitchen you didn’t get a very good return on your investment.

So how do you help save the environment, get your money’s worth from renovations and still have your dream kitchen?

I suggest two different alternatives:

  1. Try to buy a house with a kitchen that is in the poorest condition possible. The more rundown the kitchen is, then the less value it has and the negative effect of removing it will be minimized.
  2. Lower your standards a bit. Consider repainting the cabinets instead of replacing them. The repainted cabinets might not be quite as nice as the new ones but for less than 5% of the cost you might have a much better value. If the appliances aren’t too old then hang on to them and decorate the kitchen in such a way that they fit in. Bottom line is to try to only replace items that need replacing and just fix up/paint everything else.

Summary

Whether you are thinking of the environment or your pocket book – try not to remove items of value when you are doing renovations. Use as much as you can of the existing room.

If you have to gut a kitchen/house then buy one that is about to fall down, that way you aren’t throwing out anything of value.

And remember – it doesn’t matter how much you spend on your new kitchen – the food will still taste the same!

Categories
Announcements

Saturday LinkStuff

Some quick links for a Saturday.

Canadian Financial DIY posted an excellent article comparing the show “Who Wants to be a Millionaire” to investing – check it out and see for yourself.

The Financial Blogger addressed one of my pet peeves regarding lack of financial education in schools.

Canadian Capitalist posted an article pointing out that high investment costs (which we are all obsessed with) are not the worst enemy of the investor.

Million Dollar Journey wrote about how blogging has influence his finances.

Mr. Credit Card hosted the Carnival of Personal Finance #121 and

My Retirement Blog hosted the Carnival of Personal Finance #120

Categories
Frugal

Becoming Cheap

As a reward for reading me all these long months (and following me when I upscaled and moved into Mike’s crib), I’m finally going to pull back the veil and provide 3 mind tricks to become cheap. I love little ideas that can give you a totally new way to evaluate the world (things like “Sunk Cost” blow my mind).

Keep in mind, knowledge can be dangerous if incorrectly applied. Luke Skywalker didn’t start trying to take over people’s minds until the *THIRD* movie (and even then, it got him thrown to the Rancor). If you apply these and your girlfriend / boyfriend / husband / wife dumps your ass (or if they turn into a Rancor) you’re not going to get any sympathy from me!

Mind Trick #1

Any time you’re going to make a sizable purchase (not a cup of coffee, we’re talking Canoe size purchase plus here), take 10-15 minutes (maybe in the store, maybe in your living room when searching on E*Bay) and imagine your life with that item. Imagine going out canoeing, or wearing the cardigan around campus (do kids where cardigans around campus these days? Did they ever? Does anyone know what a cardigan is?). Some times you’ll decide you can’t see yourself using the item much in the future, sometimes you’ll enjoy the idea of the item enough that you don’t need to actually purchase it.

Mind Trick #2

When you’re about to buy something (big or small), compare its purchase price to something you really enjoy. Say you like going to Mexico once a year to an all-inclusive for $2000. When you’re buying an extra-large double-double at Tim’s, ask yourself “Would I rather have the trip or 1300 cups of coffee? Say you like going to the movie on a weekly basis, ask yourself “Is dinner at a fancy restaurant really worth 4 movies to me?”

Mind Trick #3

Somewhat related to #2 (but different enough to justify being another point 😉 ), when you’re about to buy something, consider it in terms of your hourly salary (to take a trick from Ramit, if you’re paid an annual salary, your hourly rate is 1/2 it, so if you make $40K / year, your hourly rate is about $20). If you want to get really depressed, consider the price after sales tax AND AFTER INCOME TAX (e.g. reduce your salary by the tax rate you pay).

I saw a woman in a McDonald’s uniform coming out of Starbuck’s one day. She totally deserves a bit of a treat on her way to work (who doesn’t love a Mocha), and maybe its just the occassional indulgence (I doubt it though), but that drink would probably cost her the first hour of her shift. Who would ever trade an hour of labour for a bloody cup of coffee?!?!? Or even a cup without any blood in it???? 😉

Does anyone have other “mind tricks” they like for saving money or just getting more out of life?

Categories
Investing

Indexing My RRSP

I recently moved my rrsp account from low cost mutual funds to Questrade where I bought some ETFs. I thought I would share the experience with you since I learned a few things during the process.

My plan was to buy four ETFs:

  1. XSB – ishares short term bond (Cdn $)
  2. XRB – iShares real return bond (Cdn $)
  3. VTI – Vanguard US equity (US$)
  4. VEA – Vanguard Europe and Far East (US$ to buy)

I described in a previous post about my first efforts at completing an equity trade. With this solid background I figured I’d be in better shape this time.

If you check out my post on my planned asset allocation you’ll notice that this portfolio is incomplete. That’s because we have several investment accounts so this one doesn’t represent the entire asset allocations. Once I get all the accounts figured out then I’ll post on the final asset allocations.

My goals for this exercise was to try to buy as many shares as possible and minimize the amount of cash in the account and to try to get it over with quickly. I didn’t want to have to spend a lot of time at work trying to get the best price for each security.

I started off with the Canadian purchases. This turned out to be a minor mistake because for some reason I thought that once I purchased the Canadian securities I would phone Questrade and get the Cdn$ converted to US$ and then buy the US$ securities. In actual fact when you buy US$ securities, you put the order in and then the dealer converts to US$ when the trade gets filled. The problem is that since you don’t know the exact currency conversion rate in advance you can’t utilize your last few dollars properly when buying a US$ security since you don’t know the exact maximum number of shares you can buy.

I used only limit orders which are market orders with a limit on them ie if you put in a buy when a stock is trading for around $50.00 with a limit of $50.50 then you will get the market price but only if it is less than or equal to $50.50.

Anyways, on with the trades…

XRB – The ETF had gone from $18.49 to $18.50. I put in a limit order for 700 shares with a limit of $18.55. It was filled immediately for $18.49. Very successful trade!

XSB – This one caused me a some trouble. This one has very slow trading activity so unless your order gets filled right away it might take a while. The last order was $27.97, I put an order for 1050 shares with a limit of $27.98 – first mistake – I should have had a higher limit. Second mistake, I didn’t put in a “all or none” order and 50 shares got filled at $27.98. The price drifted up during the day so my 1000 shares remaining with a limit of $27.98 couldn’t get filled. The problem was that I was already looking at one commission for the 50 shares so if I cancelled the remaining order the I have to pay a second commission. Luckily the trades are cheap at Questrade because by the end of the day the order had expired. The next day the last trade was $28.03, I put in my order of 1000 shares with a limit of $28.05 – filled right away.

VTI – this ETF had the higher share price so I bought it next. Last trade was $146.17 so I put in order for 350 shares with limit of $146.20. The price went up quickly to $146.20 so I had to wait about 15 minutes and it was filled at $146.20.

VEA – my problem with this order was that I didn’t know how much money I had in US$ – I called Questrade to get a recent conversion rate which I used to approximate the amount – I decided to go for 1000 shares. Last trade was $47.29, I put in order for 1000 shares with limit of $47.32 with all-or-none to prevent partial filling. Price went up for a while but it got filled about half an hour later at $47.32.

The next day I checked my cash balance and I ended up with about $900 in cash. This isn’t a big deal since these ETFs will be creating cash via interest and dividends anyways but if I could do it again, I would have left one of the Canadian securities to be the last trade so that I could accurately use up all my cash.

Anyways, it was fun buying these ETFs and I ended up learning quite a bit in the process.

Categories
Real Estate

Rental Income vs. Property Value

I’ve posted on the topic before, but I’ve been looking at Toronto area multiplexes and have bumped up against the issue of asking price vs. market rent again.

ICX (like mls but for commercial properties) has some nice little properties listed (this link will expire in the near future, don’t feel bad if its dead). The property linked to is a nice 3-plex in North York which brings in $2,075 / Month ($24,900 / year) and the owner is asking $299,500.

A good “back of the envelope” calculation for real estate investors is the GRM (gross rent multiplier). This is basically the price / rent (so a lower ratio is better than a higher ratio). Its a good way to ballpark if a property is worth looking at more closely or not. Some sources claim you should use the monthly rent, some claim you should use the annual rent (it doesn’t matter which you use, as long as you’re consistent).

Capitalization Rate is far more illuminating (its based on the net profit instead of the gross income), but takes a bit more digging to calculate.

My condo, with a monthly rent of $1300 and a purchase price of around $134K (accepted price + renos – not including legal or anything else) would have a GRM of 103 (134000 / 1300). In comparison, this building has a GRM of 144. Given that multiplexes should be MORE lucrative than condos (not far less), this especially pitiful.

High GRMs also are good at telling us when housing prices are getting far above rental rates (which is a good indication of an overly frothy real estate market).

If we turn our eye north, and have a look at this gem in Thunder Bay (its a 6-plex but we can ignore that for the time being), we see that in the true great white north a rent of $4,100 / month (49,200 / year) can be had for $249,000 (twice the income for a lower price). This gives us a GRM of 61, which is far more like it!

“But Mr. Cheap…” you protest, “Toronto is a big city, OF COURSE property costs more here!” Yes. But shouldn’t rents be higher too? GRM lets us see the relationship between the stream of income from a piece of real estate and the purchase price of that stream. Even if its harder to find tenants or to sell the building in the future, the higher income for lower purchase price certainly makes property outside the GTA look attractive (not even mentioning the upcoming increased transfer tax).

Any other towns in Ontario that you guys think give a better GRM than Toronto (or perhaps to belabor the point, any with worse numbers)? What do the numbers look like in Windsor Telly?