Major Expenses in 2009

Posted by Dave on December 29, 2009

With Tim’s much anticipated Net Worth update coming, I thought it might be interesting to look at my financial year in review.  From a net worth perspective, it has gone up, but only slightly over the past year (I don’t have exact numbers, this is something that I have on my list as a New Years weekend project), but over the past year, there were two significant financial expenses that I incurred, the purchase of a house and a wedding/honeymoon.

I got married in March of 2009, the wedding and honeymoon was budgeted and saved for and didn’t really make much of a difference to our day-to-day budget, but for someone like myself who watches their spending, dropping approximately $8,000 on a wedding and another $2,500 on a honeymoon was tough to do.  If I had any advice for people looking at cost savings in their wedding it would be the following:

Limit your guest list: Guests can be viewed as a variable cost to the whole ceremony.  There is a lot of tradition around who to invite to weddings (I’m sure many people have been to weddings with 300-500 guests – how many of these people do the bride and groom actually know?) but by inviting people you don’t talk to, or in some cases don’t know but your families think you should invite, savings could be in the hundreds or thousands of dollars when you factor in food, drink and other minor expenses.

Don’t have an open bar: We had a toonie bar and it worked out well.  This may sound cheap, but I dislike open bars due to the waste that happens when people set drinks down, forget where that happened and just go get another – the $2 per drink  isn’t prohibitive to anyone’s fun and at least allows for a cursory look around.

Have your wedding someplace cheap: We got lucky because my spouse’s family all lives in a small town in an economically depressed part of the province.  Our costs were all approximately 20% lower then a comparable hotel in the city that we live in, and the place was just as nice or nicer then anything we saw in larger cities.  Might be difficult to do, but moving the venue could reduce costs as well.

Relax and have fun: Even if everything doesn’t go the way you think it should, in the end, in all probability the end result should be the same – you should be married and someone will do something ridiculous that everyone will talk about for a while (hopefully not you).

As for the house purchase, the only thing that I would really advise is going to a mortgage broker over a bank – in my experience the mortgage broker was much more flexible with rates then the bank.  Even if you decide you like your bank, you should at least shop around and engage in negotiations – we were able to reduce our fixed rate from the initial offer from a bank of 4.25% to 3.59% with a few calls for a 5-year fixed rate mortgage – probably about half an hour of time saved hundreds of dollars over the term of the contract.

Those were my major expenses incurred for the year – the wedding being (hopefully) a once-in-a-lifetime occurrence and the house expense happening probably only 2 or 3 times.

How about you?  Any large, one-time expenses in 2009?  Any you wish you could have back?

I hope everyone had a great Christmas – Happy New Year to everyone!

2010 Goal

Posted by Tim Stobbs on December 9, 2009

So with my focus on paying off my mortgage you would think making a goal would be easy.  In some ways, yes since I’ll be picking a number related to my mortgage.  On the other hand doing the math to determine a specific number and cross checking if I can put all that money on the mortgage wasn’t easy.

Yet in the end I did the math and came out with a few things.  First off I expect the mortgage to finish the year at about $121,600, which would mean I’ve paid off about $15,000 this year on principle.  That’s fairly good given I haven’t focused too much on it.  So in 2010 I’m really going after it I’m heading for a goal to have my mortgage at $78,000 or less by Dec 31, 2010.  So for those of you with sharp math skills I’m planning on paying off over $43,000 in principle next year.

So obviously that is a huge number, so how the hell can I get there?  Well that’s got a few factors to it:

1. I’m reducing my investment activity down to just my pension, regular RRSP contributions and regular RESP contributions which should free up some cash.
2. I’m putting all my after tax income from my second job towards the mortgage.
3. I’ve increased my regular payments by 15% and the balance has dropped so each regular payment I’m now paying off a fair bit of principle.

The longer term result of all  of this should be paying off the final mortgage balance sometime in 2012.

So do you have any goals for 2010?  If so, what are you focusing on?

Do We Still Have a Housing Bubble?

Posted by Tim Stobbs on November 2, 2009

I came across this article over at The Tyee on CMHC (Canadian Mortgage and Housing Corporation) which granted does contain a few over reaction statements but does contain some interesting data on why our real estate market only had a slight correction rather than the fall in the US.  Basically the argument goes that we are just sitting on a housing bubble funding by CMHC which puts us the taxpayers on the hook if this bubble bursts.

First a little history lesson, recall back in 2007 when 0% down payment and 40 year mortgages were introduced.  This fulled the initial rush into the housing market until August 2008 when those rules were scaled back to 5% down payment and 35 years.  You would have though the banks would have got some of that risk right? Actually the banks mortgage debt from the start of 2007 until Jan 2009 has grown by a mere 0.01%, so that means almost every mortgage in Canada from 2007 to 2009 was backed by CMHC.   Then guess what CMHC has been packaging some of those loans up and selling them off in pools (if this sounds familiar it should Mortgage Backed Securities is what caused a lot of this mess in the US).  So if people fail to pay their huge mortgages the banks are off the hook, but CMHC picks up the tab and CMHC is government backed.  So in the end we the taxpayers are on the hook.

If your curious how big of an issue this is let’s look at the dollars.  In 2007 the CMHC had $138 billion in mortgages or about 17.8% of all mortgages.  By June 2009 CMHC had $290 billion in mortgages and the government has raised it’s leaning limit again from $300 billion to $600 billion since CMHC is predicting they will have about $500 billion in mortgages by the end of 2010.  Currently CMHC has issued $114 billion of those loans as guarantee pools.  Also keep in mind at the end of 2008 the net federal debt was about $480 billion.

Now this is the important bit, CMHC is not a bank.  Therefore those wonderful conservative regulations that our banks have had praise for from around the world don’t apply to CMHC.  Effectively meaning if the real estate market goes south on us that $56 billion deficit this year is starting to look damn small.  Are you starting to get a little bit nervous?  Good because so am I.

So what can the government do about this potential mess?  Well so far they have done almost nothing (other than back away from those 40 year mortgages).  After all things are going well so it’s not a big deal.  Yet if they tried to tighten the mortgage rules back down to a maximum of 30 years you cut off the new home buyers, you do that and construction falls and the economy slows even further.   If that happens mortgage defaults could go up.  You can see the bind that they are in.  If they try to fix it they would likely burst the bubble if they do nothing the bubble could keep growing.

So what do you think?  Do we have a problem or not?  If so what can we do about it?