Posted by Dave on July 29, 2014
In order to pay off our mortgage at the end of May, my wife and I had to almost zero out our entire cash savings we had. I will be the first to admit that the amount we had sitting in a 1.3% ING (or Tangerine account now) was probably too much. There were relatively safe alternatives to the interest rate we were getting that were just as liquid to access, for example iShares XBB is yielding almost 3x my Tangerine account right now, at 3.2% (previous year trailing yield).
I have what could possibly be described as an irrational angst towards running out of money. As of this April, I’ve worked for the same employer for over 10 years and have no real concerns for my prospects in long-term employment – whether I continue working where I’m at or with a different firm in the city I live in. With no mortgage payments, our monthly bills have been reduced by around 50%, leaving less of a reason to have a significant amount of money set aside.
My largest concern is a significant expense that I can’t pay – something like a furnace breaking, a major car repair or a pipe bursting somewhere in my house. Going forward I think we will still keep some cash on hand in a savings account, but we will lose a majority of the previous “buffer” we had prior to the mortgage being paid off in exchange for hopefully higher returns on our savings account.
The question comes down to how much money is a reasonable amount to keep in cash savings. Is $1,000 enough? Should we even bother keeping any savings in cash, or just invest 100%? I currently have an unsecured line of credit along with a pretty good limit on my credit card. Between the two options, I should be able to manage any significant expenses. I could turn the unsecured line of credit into a secured, reducing the interest rate and monthly insurance requirements prescribed in the agreement.
A couple of years ago, I was very comfortable having a bunch of money sitting around. With no debt, I think I am willing to be a little more risky with my finances. This type of change will initially take me out of my comfort zone, but I have to remember that I’ve kept a bunch of cash sitting around and it’s essentially been losing me money over the past decade or so.
Is there a particular expense that you keep money around for “just in case?” Are you comfortable borrowing to cover emergencies?
Posted by Tim Stobbs on July 28, 2014
I got my first pay cheque after I’ve reduced my working hours by 10%, so I’m also getting paid 10% less. Yet after looking back at my previous pay stub I’m only making $8 less in take home pay. How the hell is that possible?
Well the answer lies in a little bit of math that most people don’t really consider. First off I make roughly $100,000/year at full time hours. So at 90% time my salary drops to $90,000. So $10,000 year less or $417 per pay cheque, yet that is on a gross basis. You have to consider that $10,000 is getting taxed at my highest marginal tax rate or roughly 40% income tax. So in fact if you reduce that $416 by 40% you would expect a $250 reduction on my take home pay instead of $417. Yet my reduction was only $8, so we are closer but not there yet.
The answer was in the fact I had just max out my CPP/EI payments for the year on the previous pay cheque. The 2014 contribution rates are 4.95% for CPP while EI is 1.88%, so all total you lose 6.83% of your pay cheque to these until you max them out for a given year.
So it may seem sort of obvious by now that out of my 10% less pay, I lose 4% approximately to income tax normally and the rest to CPP/EI, thus once I maxed out those my tax home pay is nearly identical for the last half of the year. Of course the real drop in pay kicks in next year when I start paying CPP/EI again, but in the interim it does mean the rest of the year is fairly easy to live with the salary reduction.
Yet for now, life is easy and I don’t even really notice that I’m making less money. It’s sort of a nice way to break myself in to the change in salary. So have you ever got a weird pay stub? Did you figure out what the issue was?
Posted by Tim Stobbs on July 25, 2014
Last night in Regina, I finally got to meet two people that I have admired for a while Joshua Milburn and Ryan Nicodemus otherwise known as The Minimalists who were in town as part of their 100 city book tour for Everything That Remains. While they have a highly successful blog, I admire them for realizing their old lives sucked and wasn’t making them happy and then actually did something to change it.
In their case, the solution they came across was minimalism. So first they started getting rid of their excess stuff and they came to realize that that if you focus on what is useful and what you love you tend to actually change your life for the better. In the process they also reduced their cost of living as you can live on a lot less if you get rid of the excess that is what people have in the majority of their homes.
Then they both took it a step further and left their high paying corporate jobs to do more work on the things like cared about. That step is what I admire most about them. The jump off the cliff into a new career, which is sort of like I am planning to do, but unlike them I won’t require any money from the new line of work to support my lifestyle. So the their ideas are similar to mine, they just went about it a different fashion.
The book, Everything That Remains, if a memoir style book that tells their story of where they started out and then ended up after finding minimalism. What I liked most about the book was it was less of a ‘how to’ book but much more of a ‘why to’. Getting rid of stuff is actually fairly easy, the issue comes down to knowing why to do it. So I found learning what they thought about their situations and how they dealt with the emotions of the decisions. That is where I personally have been stuck myself for years, so I found the book inspiring and useful to ask myself some tough questions like:
- What do I deem as a successful life?
- Who is the person I want to become?
- What is truly important in my life?
These aren’t easy questions to answer and frankly I’m still working out the answers ever after I have been at it for a while. So I found the book an enjoyable read that also helped push me into doing a better self examination on my life. So I found the book helpful.
So overall it was great to meet them. They talk largely like they write and they are very nice guys. Also they were nice enough to sign my first edition of their book, so I’m kinda thrilled about that.