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Wednesday, April 23, 2014

Going Small?

Posted by Dave on April 22, 2014

Dave is also looking to retire no later than 45, but unlike Tim has no kids and doesn’t want any. Dave is from Ontario and is working towards his CGA certification.

My wife and I are what could be called “Unmotivated Homeowners”. When we bought our place 5 years ago, we did it because it seemed like a good idea. We bought a condominium, which allowed us to not have to either maintain or have responsibility for the exterior portion of the house. Our friends have commented over the lack of anything in the house that would make things look kind of lived in (pictures, decorations or otherwise) – it’s kind of a shell that we watch TV, eat and sleep in rather than something that I guess we would be proud of.

Now that the place is almost paid off, and we have paid several thousand dollars to financial institutions in interest over the 5-year term we are currently completing, we were kind of wistfully thinking about our previous life as apartment dwellers. We lived together in an apartment for three years together, and didn’t have any real complaints. All living expenses were covered, we never had to worry about fixing anything, and it was a more ideal size for the belongings we actually needed. The previous building we lived in had underground parking as well, which after the winter we just had would have come in very handy.

If we sold our house and invested the money into a “rent” fund, interest and principal would almost cover the monthly cost in the small-ish city we live in, as well as the approximate 1% allowable increase per year that landlords are able to raise the rent annually in the province of Ontario. This plan would also be in alignment with the current situation of home-value inflation, (written about by bloggers such as Nelson at Financial Uproar, who did an excellent job explaining his hypothesis last summer) exiting the “long” play I have by owning the asset.

The risk of the asset that took me 5 years to attain is (possibly) going to lose a significant amount of value over a short-term period if interest rates increase in the next few years isn’t an entirely pleasant thought.

The one reason I am a little hesitant in moving to a smaller space is probably also the reason why we like the idea of downsizing – less space. Less space to store things like hockey equipment, golf clubs, tools, and beer-making gear (all of which I like), but there is also less space to store “stuff” that we are constantly trying to rid ourselves of.

My wife and I were back and forth about our living situation for a week or two and have decided to stay where we’re at for now, mostly because we’re too lazy to move, but also because we would have to deal with more people, living in a rental situation.

What I like about my current situation is that I have flexibility in the decisions I can make for my living situation. My mortgage has acted as an enforced savings plan that I paid interest to take part in, which should cover most of my housing expenses for the rest of my life.

Would you downsize your house? What would stop you from doing that?

Financial Procrastination

Posted by Dave on April 15, 2014

Dave is also looking to retire no later than 45, but unlike Tim has no kids and doesn’t want any. Dave is from Ontario and is working towards his CGA certification.

I will be the first person to admit that when it comes to spending money – even if it’s a small amount, I hesitate. I drive my wife nuts over the amount of research I’ll do over a $20 widget that she knows I’ll like, or the fact that there have been times when we’ve gone somewhere to buy something only for me to pick it up in my hand, hold it and put it back on the shelf. She is much more of a spender than I am and enjoys new things. I on the other hand hate to waste money, and would rather do without that widget most times rather than part with money in my account.

Where I run into trouble at times are when deadlines become involved with the spending decisions I need to make. Recently, we just accepted the house and car insurance package given to us, instead of shopping around a bit (a serious personal finance no-no). My upcoming mortgage term is approaching (I need to finance the last 10% of our house) and I really haven’t even looked into my options at all.

I know I’m procrastinating, but like most things of this nature, it’s hard to talk myself out of. I think that I get paralyzed by the many choices available and don’t want to make the wrong choice. I experienced the same thing when I was doing Accounting courses – if I left the assignment until the last minute, anything I put together was better than the alternative (a mark of zero) and I was able to get working and get it done (usually resulting in a lack of sleep for the evening).

With school, at a certain point I had enough of the late nights, which was affecting my ability to concentrate at work and also putting unrequired stress on me during the final late-night burst. I started getting the assignments done days before they were due so that I could at least have an opportunity to read them over and check the math on them (not that I ever did, but the option was there). I think I need to make the same type of effort when it comes to personal finances, as a significant change is going to happen. I am going to have to make many different transaction, when I have to buy income producing assets.

The multitude of purchases (in relation to what I am used to) will need to be thoroughly researched and thought about before making the investment. A significant amount of money is going to be spent on the stocks or bonds that are going to make up my retirement portfolio, and these decisions shouldn’t be made hastily or at the last minute, making my current method of procrastinating ineffective.

So, much like I did when I was in school I have to change the way I’m doing things to become more pro-active in the financial decisions I make.

Have you ever found yourself procrastinating on a financial decision?

Goodbye Jim

Posted by Tim Stobbs on April 14, 2014

Out of all the characters in the federal government as the federal Finance minister I spent the most time following what Jim Flaherty did since it was most relevant to this blog.  So I was a bit shocked to find out he was dead after just a few short weeks from leaving his job.

On the whole I have to say from my personal point of view his record on the job was a mixed bag.  On the one hand he created the 40 year mortgage and created the huge surge in housing prices in this country, which has totally screwed over anyone who didn’t already own a home.  Yet later on this was undone and we reverted back towards 25 year mortgages as he did the hardest thing to do in life and admit you were wrong and fix something after the fact.   Yet for the average person his biggest legacy is the creation of the Tax Free Savings Account (TFSA) which allows all Canadians to save money in an account that doesn’t trigger tax on investments.  While it hasn’t been well used by the average person (since the majority of people just keep their money in a savings account, sigh), it was a good step in the right direction to help encourage saving.

Yet Jim’s last lesson is likely the most notable to me.  Life is short, so don’t spend all your time working.  It doesn’t do you any good to spend you life building a retirement fund if you drop dead shortly after leaving your job.  Stress can be a killer and you have to take care of yourself now and in the future.  So I will try to recall this lesson and not spend all my time working in life.  You have to sit back and enjoy life as well.

So goodbye Jim.  Thanks for trying to make life better for people, while I don’t always agree with what you did I do appreciate you tried.  My condolences to his family in their time of grief, while I didn’t know him personally I respected his actions.