Posted by Robert on November 11, 2013
This is a guest post by Robert, who lives in Calgary and worked as a financial adviser before retiring at age 35. He is married, has three kids and has returned to school with the goal of eventually living and working overseas.
My wife recently began a new job, and she decided to buy a new car to go with it. The finance rate was cheaper than our mortgage rate, so we decided to finance the car. Consequently, we needed to decide when we want to make the monthly payments. The decision really doesn’t matter, financially, because it doesn’t change the cost of the car.
I suggested that we use the idea of matching to decide. My first suggestion was that we match the car payments to her paycheque. She is paid bi-weekly (26 times per year), so it would make sense to have the car payment come out of the bank account the day after each paycheque. In the end, we decided to make the payment once a month, around the same time as our mortgage payment and credit card payment come out of our bank account.
When I worked as a financial planner, I heard from clients how awkward it can be to have all payments come out of the bank account at once, when payments into the bank account are made twice a month. The experience they had was of having “lots of money” in their bank account for half the month, then very little in the account during the other half. It made them feel alternately rich and poor. So what I would suggest was to better match the expenses with the income. As much as we were able, we would have half the expenses come out after the first paycheque, and the other half come out after the second paycheque.
Now that I don’t work, I have made a habit of looking at our bank account once a month and transferring in cash from our investment account if needed. Since all the expenses come out at once, I only have to ensure there is adequate cash in the account once a month.
Another way that some people match expenses with income is to set up a savings account. From a financial perspective, there’s no benefit to having separate accounts or mixing all the funds in a single account. But when saving for a large expense, such as a car or a vacation, it makes sense to save the money in a separate account, so that it can all be paid from that account later. That way, there is less temptation to spend the money on impulse items in the meantime.
Do you match your expenses to your income, either by timing or by account? Do you have another way to organize your budget?
Posted by Tim Stobbs on November 6, 2013
*insert growling noise here* “Why isn’t this damn cappuccino maker working?!?” I swore to the gods.
I got a decent cappuccino maker as a wedding gift over 13 years ago. It was totally a luxury item for a couple of broke university students back when we got married, but it got fairly regular use over the years and likely saved us a small fortune on ‘fancy’ coffee drinks at home instead of a coffee shop. Yet at the same time the thought of having to actually buy a replacement made me a little sick since it would likely involve a nice $250+ hit to replace…I like cappuccino, lattes and espresso, but I wasn’t sure if I liked them THAT much.
Then I gave myself a metal slap…Tim you are a damn ENGINEER…it is merely a piece of steam producing machinery. At least TRY to fix it before you assume you need to replace it (worse case scenario it becomes trash and I buy a new one). So I filled it with fresh filtered water and heated it up and started doing a little troubleshooting. Steam production? That seem rather normal. Water flow rate for espresso production? Watching the little trickle of water…it was way lower than it should be. Mmm, likely causes..line blockage and/or restricted piping. Potential solution that ideally didn’t involve taking apart stream lines…chemical clean.
Despite the higher pressure a cappuccino maker is very similar to a coffee maker and if you have hard water where you live you are likely used to having to clean your coffee maker with warm water and vinegar periodically to keep it working well. So I added to the water reservoir of the cappuccino maker about $0.05 of vinegar and some warm water…the poor man’s version of a chemical clean solution. Then I turned on the steam production and ran it for a minute to ensure the temperature was good and high…then I switched to espresso production mode and in a few seconds the flow rate increased dramatically. I ran it through two more cycles to ensure it was clean. Then rinsed the entire thing three times with water (otherwise you will have the worst coffee based drink of your life afterwards).
Total troubleshooting and repair time: 30 minutes. Money saved: $250+. Effective hourly pay rate of repair job: $500/hour. Getting your double espresso without leaving the house during the first snow storm of the season: priceless.
Today’s lesson: skip thinking about buying your way out of a problem as your first option. Odds are you have other easier options at your finger tips if you just stop and think for a minute or when in doubt…Google it.
Posted by Dave on November 5, 2013
I know I may come off (especially to my future self) as a petulant teenager in this post, not a 33 year-old, but I had a frustrating discussion with a family member over the weekend that I can vent a bit about in this venue.
I had invited this family member over for dinner on the weekend, as a birthday present (I had no idea what to get them, so offered dinner. They didn’t get “crap” that they didn’t need, and we got a quiet visit out of it, a win-win situation). This family member is on a countdown right now, they’re six weeks away from retiring. After dinner, we talked about the pending retirement and what the family member was going to do with all their time. The family member seemed super excited about all the free time they were going to have, and all the projects they would be able to get done that they never really had time for.
I had talked to this family member in the past about my financial plans, and explained my wife and I were about 5 months away from paying off the last part of our mortgage. We explained that we were around 10 years behind them with our retirement, as long as our investments work out at an average rate.
We answered the same questions we normally do when we tell people our future plans (which is not very often, as it’s something we prefer to talk to each other about, rather than publicize). My family member’s main concern was the length of time between our retirement date and when the pension I’ve earned will start paying. We explained we just didn’t plan to spend that much money (and currently don’t spend that much money) – we are choosing free time over “stuff”.
I think the frustrating part of the conversation was that this “awkward” discussion came after the retiree was contemplating installing a $40,000 wood shop onto their already enormous shed. There were just significantly different ways of thinking – I would prefer to have $1,000 in tools that I could use in a small wood shop or outside when the weather was nice, and invest the other $39,000 (If woodworking were something I was wanting to do seriously) rather than having a wood shop eating up a year or so of my potential retirement dollars.
My whole retirement plan comes down to spending efficiently – to get the most “bang” out of the money I do decide to spend, while maintaining a saving level that will hopefully allow me to reach my goal of retiring in 11 years. While I understand the concern, I can’t see working an extra 20 years to spend more money. We would rather spend less money, and have more time. I just move the conversation on to more neutral ground.
Has your retirement plan been called unreasonable? How do you respond?