Category Archives: Personal Finance

How to choose a car (the mostly-rational way)

There comes a time when you need a car (or two, but almost certainly not three). If your car-liking muscle exceeds the power of your money-saving muscle, this isn’t a post for you so stop reading. But if you think you might be able to make a purchase based solely on rational thought within the context of spending the lowest amount of money without dying in a horrible car accident, read on and I’ll tell you how to choose a car. Also, if you think you might like to just hear what I have to say and then make a decision, I’m down with that.

Hyundai Sonata
My Car is a 2011 Hyundai Sonata Limited. I like it.

Do I need to choose a car?

The absolute best car you can buy from a financial standpoint is a TFSA. “But that’s not a car”, you say. Oh right. But if you can ride the bus without strenuous effort, or walk, that is way cheaper. Be honest with yourself: you don’t need a car to get 2 km to work unless work involves hauling dozens of kilograms of random crap to and from your job in the snow every day. Even then you may be able to get away with a cargo bike if you live in a moderate climate. Bicycles are a good option. In the warmer months I like to ride my bike to work on days I’m not working from home. It’s 7km one way and takes about 20 minutes. It’s a great way to unwind and get time to think and it saves money. Quite a bit actually.
Continue reading How to choose a car (the mostly-rational way)

Pensions: a nuanced retirement tool (update)

Ahhh, pensions. They can be your ticket to financial freedom. In the best of cases, having a pension is like having a job for the rest of your life without working. In other cases employees view their pensions as silver-bullet solutions to retirement and ignore their financial responsibilities. Sadly many people don’t pay any attention to their pensions or the place a pension holds in their financial future until it’s too late to make a difference. Today I’m going to introduce you to the various types of pensions and how to determine their value. Along the way I’ll touch on some common questions. We have lots to talk about so hang in there!

What is a pension?

A pension is an agreement between the pensioner (beneficiary) and the payer to receive a set amount of money (benefits) on a regular basis, generally following retirement from employment. Typically pension payments will last until the beneficiary dies. In some cases, the beneficiary’s surviving spouse or family will continue to receive benefits, possibly at a different rate.
Continue reading Pensions: a nuanced retirement tool (update)

The annuity: dependability has a price

The time-value of money is the principle that money today has a different value than money tomorrow.  At the centre of this concept is the annuity and its formula, which I will not derive or prove here because I’m the only one who will find it interesting.  An annuity is a set of fixed payments that are made over a specified period of time.  I’m going to focus on a specific type of annuity here: a life annuity.  A life annuity is an insurance policy sold by an insurance company that pays a (usually monthly) payment to the buyer until the buyer (or the buyer’s surviving partner in some cases) dies.  Sometimes you just want to be able to know how much money you’re going to have in the future and the life annuity is one way to do that.  Life annuities can seem expensive if you’re not used to seeing the numbers.  The high price is the price of certainty.  I’m going to talk about annuities in the context of retirement, but the math involved translates into pretty much every area of finance so pay attention.  The words annuity and life annuity will be used interchangeably depending on context.  Get ready to bite off more than most of us can chew, myself included. Continue reading The annuity: dependability has a price

Index investing: because average is better than most

I’ve met quite a few people who complain that their ‘investors’ or mutual funds lose their money all the time.  Some of them use this as justification to just blow all their money on boats and going out for lunch every couple of days.  Bad call bros.  Your investor may be making terrible choices (which you have allowed) but more than likely you can fix the problem, get in control and stop being such a fatalist about your financial future by switching to index investing.  Of all the potential reasons why your investment situation is sucking, there are two that are most likely the problem for you:

  1. Your investor or mutual fund is picking stocks that suck
  2. You’re paying insane MERs.

Index investing is the way to beat half of the money investing in the stock market, guaranteed! Seriously. Continue reading Index investing: because average is better than most

Investment types: a net worth and income tax example

Awhile back I introduced a simple rule of growing your net worth: pay or save towards the highest after-tax interest rate first, regardless of what you owe or own.  Today I’ll introduce the investment types with respect to taxes and run some numbers using a rental property as an example.  Each investment type affects your taxes in different ways and what you choose to do with your money should certainly take your taxes into account. Continue reading Investment types: a net worth and income tax example

Get CRA online access so you’re in the loop

One of the easiest things I’ve done to allow me to better understand my financial situation was to get CRA online access (the CRA is the Canada Revenue Agency).  The CRA, through a service called “My Account”, allows you get pretty much all of the paper information you’d get from them automatically but online, accurate, up to date and securely.  And it’s free.

Here are a few things you can do with CRA online access:

  1. See your unused RRSP and TFSA contribution room
  2. See your previous notices of assessment and reassessment
  3. See your T4 / T4s and other tax slips
  4. Modify your previous tax returns returns
  5. Change your address, apply for child benefits or arrange direct deposit

CRA online access mitigates your laziness

I know what you’re thinking already.  Boring!  “Why the heck would I want any more information than what they already mail me, Dean?”  I’ll tell you.  Because you won’t get wealthy by burying your head in the sand and because you’re lazy like me.  Imagine you’ve received your income tax refund (or paid income tax owing) and then you realize you missed a deduction worth $15.  The average person wouldn’t ‘waste’ the time filing it.  That’s lame.  It’s $15!! If you found that much money on the side of the road you’d pick it up.  If someone told you to hold their toothbrush for 10 minutes and then they’d give you $15, you’d probably do it.  Well with CRA online access it takes about 10 minutes to modify your tax return.  Or 3 minutes to change your address when you move so that your cheques will arrive on time (still using cheques?  Get direct deposit with CRA online access!).  Plus it doesn’t increase paperwork for anyone because it’s all online.   Yada dada.

Look, I’m making a big deal out of this.  But as you read more of my stuff you’ll start to see a recurring theme: small things make all the difference.

Net worth and income tax: a rule

After having this conversation no fewer than three times over the past few months, I figured it would be a good idea to clarify a widely-held misconception for landlords holding mortgages and really for anyone whose goal is to put themselves in a better financial situation. I have heard both landlords and others make the unqualified statement that you’ll lower your income taxes if you keep your rental property mortgage for a long time and don’t accelerate the payments on rental properties. While this is true, it’s not necessarily the best way to maximize your net worth and that’s the goal, isn’t it? Even though lowering income tax is a great idea, keeping a mortgage for a long time means we’re just paying money to the bank in the form of interest. To make it worse, the interest we’re paying is often higher than the income tax we would pay if we had no mortgage! Continue reading Net worth and income tax: a rule