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Sunday, April 23, 2017

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.

A View from the Other Side*

Posted by Dave on June 25, 2013

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 were provided with a unique experience last week. One of her co-workers was looking for a side-gig, which it turns out was a debt mediation service. He asked her to be a reference for his potential employer, which turned out to be more of a training session (my wife was too nice to let them know we weren’t interested). On the plus side, I got to see a whole spiel from one of these services – which took a total of 20 minutes and gave me some insight into an industry that I’ve heard of, but hadn’t been involved with.

It turns out the guy giving the presentation has been doing this debt mediation stuff for over a decade, and had just started up his full-service firm about a year and a half ago. It was stated right away that there was no pressure to buy anything, he was there merely to show us the products and services his firm provided (and to try and get us to allow him to prepare a financial outlook report).

We politely listened to the whole 20 minutes and then told him we weren’t currently in need of any of the services offered. He took this fine, and asked why and we told him that the only debt we had was our mortgage, and it would hopefully be paid off within a year. We were told that we were the first people in our 30s he has ever met that have been debt free (in his line of work, I can’t see how he would meet anyone doing phenomenally well).

My takeaway from this experience:

  1. People who need this kind of service probably don’t know they could seek it out, get competitive rates from financial institutions and increase their cash flow.
  2. Families who utilize this kind of service, reducing monthly expenses may not have the discipline to employ the freed up cash to pay down debt. I am assuming that the amortization period for these “refinancing” loans is fairly lengthy, as the example the sales guy used was a reduction of almost 50% in monthly expenses
  3. The interest rates quoted seemed quite high. On the investment side, the company was offering 8% for a “safe” investment, and 18% on “riskier” investment. Looking at the companies represented, they are providing moderately-priced mutual funds (the prices provided didn’t include costs, and I didn’t ask).

I think the service offered is good, if used appropriately. I’m just not too sure how much these people really care about the clients when they’ve gotten their referral dollars (how they get paid, instead of fees).

Have you, or anyone you know used this kind of service? Would you use something like this?
* I am not implying anything derogatory about the use of this type of service, simply pointing out that I have never been in a position to use products or methods advertised by companies like the one talked about in this post.