Monday, February 27, 2012

enough about me... let's now talk about me!

So why am I here blogging to the world (ok ok, about 14 different people who read this occasionally to never) about my trials and tribulations about money and my apparent lack thereof?   Well surprise surprise, It's not all about me.  It's all about YOU in the hopes that you might be able to avoid some of the mistakes I made during the long agonizing period of time it took me to realize that financial advisers aren't in it for you.

I've heard stories from friends (not friends of friends of some guy named fast-eddie... directly from the mouths of my friends) about their limited successes, stagnation and abysmal failures with their stock market holdings thanks to their lack of direct interest and involvement, and of course releasing their mostly small accounts to full control of the adviser.

I remember having phone/e-mail conversations with one of my previous advisers how I would make a specific request for something I wanted and then listen to him/her talk me out of it because my account was too small yada yada yada, so lets do this instead. "This" was almost always (for myself and my friends) a mutual fund with a 3-4% MER.  (Management Expense Ratio)

Since I was young and naive I thought the adviser knew what he was talking about so lets just roll along with his/her recommendations.

Bad move folks...  Even if your mutual fund manages to get you a 3-4% return on your money that profit gets eroded by the management fees.  So if it does manage 3-4% (which is more than double current interest rates and not a terrible yield) your money goes NOWHERE.  They have to do +5% or better year after year after year for you to make any money.

Mutual funds are almost always horrible contraptions with far too many holdings.  (Each holding needs to be bought/sold/researched/discussed at committee all for billable hours of the fund staff which gets rolled into the MER).  There are only a select few funds which I'll discuss in a later post which I would buy ONLY if I were just starting out at say 21 years old, no assets, no consistent job, and without my hopes and dreams crushed by the relentless ongoing reality of cripplingly large monthly payments required to sustain adult life.  (Family... not going out boozing it up every night)

The lesson from all of this?  Once you have more than even a few thousand dollars you should start picking stocks.  YES... Individual, dividend paying companies.  Or a few Exchange Traded Funds (ETFs) which aren't nearly has horrible as Mutual Funds.  If you have an adviser they will no doubt try to talk you out of it because the commissions are too high.  And he/she is right ONLY if they do it for you.  If you open a discount brokerage then commissions are no higher than $20 ish per trade.  $9.99 if you have more than $50k of assets or if you make 30 trades per quarter.  AND some discount brokerages are offering FREE trading on select ETFs.  Which is absolutely fantastic for small accounts or small amounts of money you haven't decided what to do with yet OR haven't accumulated enough of something to buy 100 shares of a company you like.

Do it yourself my friends.  It will save you thousands (or even millions) if you start NOW and invest for 30, 40, 50, 60 years.  (Yes, start at age 18 and invest your whole life... 70+ years)  Or if you're lucky (like my baby boy) the RESP will let me invest on his behalf for his future.  Which will of course be used for school, but with a 20 year timeframe we may have more money in this account than he'll need for his studies which he'll be able to re-invest in his own accounts as he sees fit.  This means he'll have a 70+ year time-frame for investing.  (Hopefully he won't blow it all on booze and sushi like I did with my money)

Full disclosure:
I own Stocks, and ETFs.  These ETFs contain contain stocks, corporate bonds, and some futures/derivatives.  Why?  I don't have enough money of my own to do bonds or futures/derivatives directly.  but I DO have enough money to own stocks.

Saturday, February 18, 2012

home grown austerity

I remember when I was fresh out of school, full of excitement about making my mark on the world, being a part of the social scene that is tremendously important for artists of any genre, drinking fancy coffee and cramming as much sushi into my cake-hole as I possibly could. I was fortunate enough to have an affordable living situation and a decent enough income from a now nearly defunct part of my business offerings.  (Defunct due to the roll of technology)

But due to my tastes (and my exposure to high-society from doing "musical wall paper" gigs at opulent houses, opulent private clubs and fancy banquet halls) I could never seem to keep any money ever.  I wanted to experience new food and drink but my cooking skills were woefully inadequate.  Also, this was before the time of youtube so helpful videos were not available and my success rate with cookery books was more often a miserable failure.  So I essentially wasted all my income on expensive restaurants and cafes.  Not that I'm complaining now mind you!  It was tasty!  But I suspect I appreciate it now much much more because I know how much effort it takes to get it just right.

Coffee was something I just couldn't live without but at $4 per latte, even a 1-cup a day habit (while not seeming like much at the register) adds up VERY quickly.  One cup a day * 365 days a year = $1460.  NOT including any other treats you might buy too!

And for those of you who know me personally know I'm not just a 1-cup a day guy...  So my habit was costing me considerably more. So, if you can't live without coffee like me, you should consider my "coffee austerity" plan by purchasing a home espresso machine and do your best to avoid coffee houses by having your daily dose at home.

Now deciding on how much you want to spend on your machine comes down to a lot of different factors:

Are you lazy?  Or do you think you might enjoy the ritualistic behaviour required for grinding, dosing, tamping, extracting, steaming, and pouring?

Other items to consider:  Do you like lattes or do you like an occasional Americano or espresso?  These are important factors to consider because your tastes will determine how much you have to spend.  Milk will hide an array of mediocre to lousy espresso extraction so you can get a cheaper machine if you're only a latte drinker.  But if you love the flavour density of a super-short, stand-up-the-spoon-restretto espresso then you're going to have to pay more for a better machine.  (Unless of course your palette isn't very discerning)

If you're lazy, then you want a super-automatic.  They grind, dose, tamp, and extract for you.  All you do is add water, beans and put the cup under the spiggot.  (Plug it in too... duh!)  You have to steam your own milk, but if you want to spend more you can get a machine that froths too.  Starbucks uses super-automatic machines but the "barrista" still froths and pours.  (Don't expect Latte art at SB...)  Supers give you amazingly consistent results every time.  (Amazingly consistent mediocre results.)

If you're ritualistic (or a snob) then you'll want a proper espresso machine that's either a semi-automatic, or manual.  The semi-automatic machines are "automatic" because they have an electric pump.  You still grind, dose, tamp, attach the porta-filter to the machine and push a button or pull a lever to get the coffee brewing.  Then you have to clean up the mess.

But, this is outside the scope of my financial blog!  So, this may now seem like a selfless plug for a friend's business, but he's a straight arrow kind of guy.  Top notch customer service and a fantastic repair department so you can go out and buy yourself a temperamental Italian machine and they will get it to work and keep working for years to come. is the place!  The toll-free message is both humorous and a testament to how fanatically this guy loves coffee and provide us coffee addicts the tools to service our addictions.

What did I do?  Years ago (in 1998) I bought a $500 Italian machine before I knew much about how machines worked or any of the methodology to making a good beverage.  This was in the infancy years of the interwebz so researching was far more difficult than it is now.  I used/abused it day in day out until 1.5 years ago.  It required a bit of service over the years...  A whopping $0.50 o-ring and 30 minutes of tech labour.  ($30 total cost of repair)  And based on an average beverage COST of materials (including power) I've reaped over $25,000 in savings during the life-cycle of that machine.  (The machine still runs!  It's at the in-law's house now)  I had been pining for a better machine since my little one didn't make a decent espresso and finally found which offered me a deal I couldn't refuse.

Since I had saved in excess of $25,000 with the old machine, spending $2500 on a new machine and grinder isn't all that unreasonable seeing that my break-even on the machine was less than 1-year.

Now I have a beautiful shiny steel machine at home that I love and use every day.  The savings taste delicious!

Saturday, February 11, 2012

domestic bliss

So, you've gotten married, found a job you like and re-located to said job in a "new" city.  Your spouse may not have the same work opportunities he/she did before the move, but who knows.

The subject for this post is the spousal RRSP.

You're earning a f@*kton more money than you ever have before and your debts are coming down quickly, at the same time you're struggling to keep your spending under control until your contract review period is up.

Being self-employed will require a firm and disciplined hand to keep yourself from spending the money you will NEED to keep to remit for taxes even though you think you're doing the right thing paying down every debt you have.

I have some bad news for you my friend, taxes will be a shock.  You're going to jump up several tax brackets and owe probably more money to the CRA then you even made total in previous years.

The good news is that contributing to an RRSP can help with this.  Your contributions postpone paying tax on those earnings.  (You pay tax on them when you take them out later)  So if you contribute enough you can bump yourself down one tax bracket which I believe will let you keep an additional 6-10% or your income.

Now on to the juicy part: now that you have a consistent decent paying job and your spouse doesn't you will need to open up RRSP accounts for yourself AND a SPOUSAL RRSP for your spouse.  You "earn" contribution room through taxable employment and you can contribute (up to that earned amount) to either/or of the RRSP or spousal RRSP plans. 

The point of this is to make your retirement incomes equal which will potentially save tax dollars rather than keeping one person in a higher bracket and the other in the no-tax bracket. 

I know you think paying off your debts is a first priority, but keeping your money safe from the sticky sticky fingers of the government is also important too.  Open up your RRSPs and give me a call already!

Tuesday, February 7, 2012

A new year, taxes, RRSPs, TFSAs and investing.

For those of you who actually took the time to read my blog I must apologize as this post will probably sound a little repetitive...  But then again there mindless repetition is a core component of learning many many things... So here we go!

Once the calendar rolls over to 2012, the books can be tallied and closed on 2011.  It might have been good, it might have been bad, or you might have plodded along with little change.

I experienced a bit of increased success in 2011, but due to the new family member at home we have much less to work with than we did before.  Now how can this be you ask?  There's only so much blood you can squeeze from that stone!  Less than a pittance is still a pittance!

Yes, it's rough but changes were made not out of our own choice...  Our little baby decided them for us!  Stay with me!  WAAAAAHHH!  And now that he's running around, saying stuff, terrorizing the contents of shelves and counter-tops, as well as starting to be able to open doors on his own.  (Uh oh)  We haven't missed going out since we've been too busy/tired/cranky to do anything else but stay home with the little man.  Don't get me wrong, I wouldn't have traded this for anything.  He's awesome, horrible, joyous, messy, snuggly, bitey, curious, drooly, smelly and exhausting but absolutely wonderful.

So where does that leave me?  NO contributions to RRSPs were made.  But since I will no doubt be in the bottom basement tax bracket a RRSP contribution would only save me FUTURE tax deferral as I will no doubt pay very very little this year.  I suspect it will only amount to HST (harmonized sales tax) collected and a token amount to the CPP coffers.  (Canada Pension Plan)

If you didn't already know, if you think you will be EARNING a mint from your labours in the future, then contribute now to a RRSP, but don't use the tax deduction until you really need it.  So contribute what you can AFTER you max out your TFSA.

So that's all I did really was to contribute $5k to my TFSA.  This is going to be my (and hopefully your) golden ticket to enjoying life on easy street, or at least more than a subsistence lifestyle 25+ years from now.  If the government doesn't mess it up then it's going to be an amazing thing for everybody... if you INVEST rather than save.

Saving at today's rates will get you NOWHERE.  Inflation is HIGHER than every savings rate you can get on savings accounts in Canada.  The latest announcement from the BOC (Bank of Canada) said it was 2.3%.  The best savings account is 2%.  So you're losing 0.3% to inflation AND you get taxed on your savings just like you earned that money.  (So at your tax-bracket rate)  Thus your "savings" will become less and less valuable as time rolls on.

I beg you my friends...  My 20-something, 30-something friends, invest NOW.  Don't wait another second.  DO IT NOW.  Markets go up and down, but if you don't need the money right away you will have time to recover (and recover well) through any dips and doodles world shenanigans do to the global markets.

As I've said before, you have to start somewhere...  why not start with $25/w or even $25/m if you're truly impoverished.  (I contributed $0 a year for about 6 years in a row... yeah, that slowed me down.)

Things are looking up for me now that my investment portfolio is consistently spitting out a bit of money EVERY MONTH that I always re-invest at this point, but it would be very easy to use that money to pay my rent or groceries if need be.

It's been a long arduous road to get here, but I can finally see the light...  It's still at the end of a long tunnel, but at least now I can see it.

Investment idea of the day: find something in your life you can't do without.  Look up who made it and where.  There must be a company involved getting you that thing to you and see if it's traded publicly...  You might be able to buy a bit of said company!

Disclaimer: I'm writing this article to HELP you.  If you do something stupid based on my advice without thinking it through yourself, then you have only yourself to blame.  Plus if you try to sue me for bad advice I don't have any money either, so good luck with that.  Seriously people, stop making your lawyers rich... they don't need the cash!  WE DO!  If you get burned a couple times, it's a learning experience.  Just try to remember to NOT fall in love with your holdings.