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Wednesday, April 16, 2014

Transition Year

Posted by Dave on January 7, 2014

Provided nothing major happens, sometime in the middle of this year, my wife and I will have achieved the first of our major financial goals – paying off the mortgage on our house. Our intention is to pay off the full balance by the end of the 5-year term in May, but that is dependent on our savings level the next few months, and we may end up finishing off the debt in the middle of the summer.

This portion of our financial plan will probably be the easiest to complete. To me, it’s the most risk-free portion of our entire 15-year Early Retirement goal. There were no decisions to be made, monitoring to be done, or money to be moved around. Our mortgage just needed to have a persistent payment made against it and we were getting closer to our goal. The next 10 or 11 years will require much more “work” on our part in order to reach our goal , rather than just throwing money at the large amount of debt we took on in our decision to own a house.

Being completely debt free will give my wife and I a psychological boost – not owing anyone for anything we do is a bit of a relief. When this last debt is paid off, our “real” cash flow will increase significantly.

If at any point we decide that we would prefer to change careers to something not as lucrative, or work part-time, it will be much easier to do this, with fewer “fixed” bills owing at the end of every month. Not that we exactly feel encumbered by our current lifestyle, but the knowledge of added freedom will help our peace of mind.

For me, I realize I will become much more interested in investing – partially out of necessity (due to increased funds available to do so) but also because I can actively invest over the rest of my life. I am currently aware that there are other places I could be putting my money towards – I have just been avoiding it to date. This part year will be a bit of a learning curve for me I think – learning an investor’s mindset, tolerating risk, and being involved in the market. I can read tons of books about investing, but (as I’ve learned through sports betting) without anything to lose, it’s difficult to judge how I will react to a significant swing in the market in the short and long term.

I’m glad I went about my plan the way I did – I think having $0 in debt will bring me (an individual who is not comfortable owing money) much more peace of mind than the alternative of taking longer to pay off my house and concurrently investing in the market.

Have you made this kind of transition in the past? Was it a significant change in mindset?

A Saving Government?

Posted by Tim Stobbs on November 13, 2013

So the Saskatchewan Provincial government has realized something important…it is addicted to non-renewable resources revenue.  How addicted?  Well in the last provincial budget a whopping 30% of the money used to keep the government running came from non-renewable sources.  So needless to say there is a huge risk for anyone basing almost a third of their spending on commodity prices like oil and gas or potash.

I give the government credit for at least realizing they have a spending problem.  So they are rolling around the idea of creating a sovereign wealth fund where money will go in, but they won’t take the principle back out …ever. Similar to what Norway has done to build their 760 billion dollar fund. Of course Saskatchewan does plan to spend the interest income which is typical.  The only problem is they don’t appear to be considering taking any big steps towards solving the issue…at least based on their consultant’s report which merely recommends capping their current spending of resource revenue to…wait for it…26% of their annual spending.  Then splitting that mere 4% between paying down debt and saving it.   Ugh, it’s like rewarding yourself and having a press conference for deciding to not spend a coffee today…it’s a drop in the bucket.

Then it occurs to me that perhaps our government officials aren’t familiar with how to save.  After all taking on debt is much more their style.  So perhaps they need a little motivation…so might I offer the following goal: a zero tax provincial government…no income tax, no business tax and certainly no sales tax. None, nil, nothing for tax.

How the hell is that possible?  Well you just use the same math on how a person can save for financial independence.   You see if you saving 5% of your income (all income here, not just resource based) and get a nice 5% return (after inflation) which you re-invest, with compound interest in 66 years you won’t need to tax anyone ever again.  Your investment portfolio will be producing enough income that you should be able to run your current budget without taxes. Oh wait it gets better, if you pull off saving 10% of the government income and reinvest the interest  you can be a zero tax province in a mere 51 years.  In a generation, you can alter the very way people think about government.

In effect with a bit of will power and a long term plan you can actually have a government that lives in its means and actually saves instead of taking on debt for everything.  I fully understand the odds of this occurring isn’t that good, but I thought I would at least point out the option exits.  After all when you spend your entire life using credit cards and having a mortgage being debt free is largely incomprehensible.

Most University Degrees are Overrated

Posted by Tim Stobbs on July 11, 2013

Ok, you may hate me for this, but I think a LOT of university degrees are overrated.  People take expensive education only to never use it in their jobs (I know a lot of Arts majors who made this mistake).  So that in my mind is NEVER “good debt” unless you can make more money with a degree than without one.

While I accept the idea that not all education has to be useful, but when you getting into massive debt to get the education I can only really defend that if you use it to get a better paying job.  Otherwise…it’s a nice luxury item, that  whole lot of people really can’t afford.  It’s hard enough saving your first $100,000 in life, but adding an negative $60,ooo to $80,000 before that is just screwing over young people.  You end up with 10 years of negative compounding interest prior to actually saving much of anything.

Of course now degrees are so bloody common that they are basically meaningless in a lot of cases, so what is a good solution?  Well I don’t know, but one idea that come to mind is stop subsidizing universities so much….keep supporting the research, but let the tuition levels go up.  Pardon?!?  Yes I would like to see tuition levels keep rising so people actually think for a minute about what they are doing (apparently the current $40,000+ per degree isn’t sinking in).

Yet I would also like to see more development of practical applied skills training (even in high school).  There is nothing wrong with learning a trade…heck I’ll encourage my own kids to take one if they have an interest towards any of them.  The money is good, the training is often less expensive and shorter.  Not the mention switching to another skill set is easier if the labour market shifts on you.  I’m not saying reading Shakespeare is useless, but no one needs to read three different plays and study sonnets during the teenage years, perhaps instead might we actually give kids some employable skills.