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Friday, April 18, 2014

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?

Maxed Out

Posted by Tim Stobbs on April 9, 2014

While I was having coffee the other day with some co-workers it came out that I was maxed out…no, not on credit cards, but rather RRSP contribution room and last year my wife and I maxed out of TFSA contribution room.

Until that moment I had forgotten how unusual that state of being is for most people.  The older people around the table all had unused RRSP contribution room of $30,000 to $50,000 and all of them make an healthy salary.  So it wasn’t the fact they couldn’t save, but rather they had chosen not to.

In total Canadian’s have $600 billion in unused RRSP contribution room, which is a lot of tax savings people are leaving on the table. Put it another way, if everyone used that up in a single year at a mere 26% tax rate the government would be out $156 billion in revenue.  That doesn’t even touch the used TFSA contribution room out there as well.

So why is saving such a difficult thing to do?  After all the amounts aren’t huge in the case of RRSPs it is 18% of your previous year income (less pension adjustments).  So if you had a defined contribution pension you could likely get 5 to 10% there, which leaves anywhere from 13 to 8% left to be saved.  Yet you get a tax refund on that money, so as long as you keep putting your refund back into RRSPs you really only have to save around 10% or less.  Can you not live on 90% of your income?

Granted if you don’t have a pension plan this takes a bit more planning to really pull off.  18% of your income can seem a big difficult, but that is why you need to get the tax refund at once rather than waiting until tax season.  How? You can use that handy tax form T1213 Request to Reduce Tax Deductions at Source.  By having a regular contribution plan setup, you can fill this out and send it in then a few weeks later you can start getting your refund on each paycheck rather than waiting the full year.  This helps keep your cash flow up while saving.  The downside of this trick is you do have to file it every year (in most cases).

I should also point out I also had extra RRSP contribution room for a number of years (~$30k).  It was only between some planning and adding extra money for years that we managed to catch up.  Yet it can be done and when you put your mind to it.

So have you ever maxed out some contribution room?  If so, how did you do it?  If not, what is preventing you?

Currently Befuddled

Posted by Dave on March 25, 2014

I’m currently about halfway through a 6-month temporary contract / learning opportunity with the company I have worked for over the last 10 years. So far, I have gotten to the point that I know enough to confuse myself on an almost daily basis. My end goal is to be 60% as competent as the people who were given the task of answering my questions, or at least understand what they’re talking about most of the time.

This will be the fourth position I have taken within my company over the decade worked there. After a period of time where I’ve learned the job fairly well, I’ve just continuously looked for different opportunities in the company. After this job, I’ve basically done every staff-level job that someone with accounting experience would be able to do within the company. I enjoy learning new things, and I would like to think I have benefited the company I work for by cross-training throughout the fairly large organization.

At the same time I have been learning a new job, I have been reading a lot of books on investing and what I should be looking for in potential stocks. Sometime in the next few months, my retirement plan is going to move from paying down my mortgage, to investing heavily for retirement, something that I’d like to be prepared for. I figure if I’m the least bit organized I will at least be throwing money around based on semi-educated reasoning, which will let me go to bed at night thinking it’s a little less on the gambling side and a little more on the investing side.

You could say that I am currently in a state of information overload, whether it’s investing material that is important to my retirement investing health, or my work life where I am constantly learning about a fairly complex accounting system used by my company, I am learning more and more every day. The befuddlement I feel is something I enjoy, because at some point something will click and I will hopefully be better for it.

I hope to achieve some passable level of talent at both my job and investing over the next few months, so that I won’t have wasted my own or my company’s time in learning. It’s one thing at work, where I have at least added some new acquaintances and a greater understanding in how a different part of my company works, but if I haven’t picked up enough strategy for investing, my whole retirement plan might crumble – not the end of the world, but definitely not ideal.

At what point would you say you turned into a “seasoned” investor? Do you think you’re on the way, or are you in a constant state of second-guessing?