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Friday, March 24, 2017

Fortunate

Posted by Dave on April 29, 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 really enjoy writing once a week for this blog. It provides an outlet to talk about my own financial strategies (such as they are) and hear back from people who are interested in the same thing. For the most part, I just carry on with my plan and don’t really think twice about it. Once in a while though, something comes up that puts my life into perspective, like happened this past weekend when I was hanging out with friends and found out about a past high-school buddy who I hadn’t spoken to in a few years.

This is guy is the exact same age as me, was in some of the same classes as me in high school and grew up about 10 km from me in the country. When people are having a rough time, I think it’s natural to put yourself in their shoes. I look at this guy and realize how easy it would have been at some point in my life to have something happen to me that would alter my life significantly. Beyond wanting to achieve financial independence, part of the reasoning behind my financial plan is to hopefully reduce my risk of bad things happening.

I read enough “business guy” books which say the best thing to do financially is to constantly be on the offensive – to keep pushing financially to achieve greater and greater goals. I think the difference between myself and people who actually follow the methods professed by these “gurus” is that I’m not really looking for a lot out of life. I don’t need a huge house (bought the smallest size possible in the city I live in), a fancy car (my car is a 6-year-old Nissan Versa), or a vacation property. When I’m not taking part in my hobbies, I just want to hang out with my wife, friends and family.

It’s for these modest “wants” that I tend to play a more defensive personal finance game. I don’t try to overstretch, taking huge risks. I don’t participate in leveraged purchases, and prefer to pay down relatively low-expense debt than attempt to increase my annual income through stock or other asset purchases. I understand the opportunity cost in carrying out the financial strategy I have, but I am more concerned with keeping what I have, rather than collecting more.

I realize that I’m fortunate to be able to contemplate any of this, and to talk to the subscribers to this blog about my financial goals, and the thinking behind some of the inane financial decisions I make along the way. Sometimes though, it’s good to be jerked out of the constant mindset and realize how fortunate I am to be able to even attempt what I’m doing.

RESP Or Getting Free Money

Posted by Tim Stobbs on April 28, 2014

You might have noticed that on my investment net worth statements I NEVER mention our RESP account we have setup for our kids.  The simple fact is I treat that money as theirs and that I’m only the caretaker of it.  So I tend to ignore it for most of the time.  Yet as number of my friends have been having kids lately I keep telling a similar story that might be useful for some other parents out there on how to save rather painlessly for your kid’s education.

I’m a firm believer in taking free money when every I can get my hands on it so for a number of years we filed our taxes and got our government grants for our kids.  The two programs we typically got money from were the Universal Child Care Benefit and Child Tax Benefit.  The Universal is by far the most straight forward, you get $100/month for each kid under the age of six while the Child Tax amount depends on your income but again is paid monthly.

Rather than actually spending any of that money on my kids I treat the entire amounts as free money and I setup a family RESP plan and put the money in that account where we get a 20% grant on what we put in up to $2500 per kid per year.  So in total I started our RESP account for the kids with all government money, where they added in more government money after we put in.  Then as the kids got older I kept the contributions the same and slowly starting paying ourselves after the kids’ Universal Child Care stopped (right now the contribution is $167/kid/month).  The advantage of this method is your income by this point has typically gone up a bit so it is a bit easier to cover it yourself.

Our investment of choice is actually boring as hell, it is just a dividend mutual fund which has returned about 6% since we picked it in 2005.  Yet overall all these actions has resulted their RESP account having a balance of $45,800.  Not too bad when in fact I haven’t put in that much of my own money.  Also this means I’ll likely surpass my target of saving $40,000 per kid, as my oldest is now 9.  So assuming things continue the same pace the kids should have ~$100,000 between both of them when I’m ready to quit full time work around age 42.

Obviously there are several different ways to approach saving for your kid’s education, but I found our method fairly easy to use.  If you have kids, how much are you trying to save?  Are you on track to meet it? Any other ideas on how to save for their education?

How Not To Spend Your Tax Refund

Posted by Tim Stobbs on April 24, 2014

*click* “Oh wow, that’s my account balance?!? I’m pushing almost $10K. I must have got my tax refund.”  That was me a few days ago on the computer.

I really do like that feeling of getting my money back from the government.  There is something nice about getting a bit of extra cash that you previously weren’t planning on.  In my case, I normally owe a small amount of tax each year so getting a refund over $4000 was unusual. Yet I had managed to put a lot of money in a spousal RRSP and thus got a extra big refund because of it.

So for about a few seconds I ideally wondered what I could spend the money on.  A nicer summer vacation could be fun or perhaps a break from winter later this year.  Or perhaps I could start that kitchen renovation that we keep talking about?  Yet in the end I did what I had already planned.  I moved every dime of the refund I got (plus a little extra) over to my TFSA and maxed out my contribution this year.

How did I managed to do that?  It’s called planning ahead.

The day I filed our taxes I knew I had a bit of time until my refund was put in, so I started thinking about what to do about that money then…before I ever had it.  That way I could go through every idea in my head and sleep on it before making a decision.

So yes I did consider spending my tax refund on other things like a vacation or kitchen reno, but ultimately I just loved the irony of using a tax refund to invest without paying any more tax on that money.  I can’t say everyone should do that since if you have lots of debt you might want to pay that off first.

In the end the only really bad way to spend your tax refund…is on an impulse buy.  After all what might seem like a good idea at the time could end up being a waste of money.  I think everyone has gone through buyer’s remorse at some time or another.  So right after you submit your taxes sit down and start dreaming.  Then after a few days of sleeping on the idea you will really know if it is a good one or not.

What did you do with your tax refund this year?  Or what do you plan to do?