Philosophy toward money

We're all illiterates....financially.
Now that I have your attention, I'd like to discuss the philosophy toward money and making money. I don't mean to jump from topic to topic, but I think this will be a good starting point to have our financial intelligence progress over time to the point where we're all feeling somewhat comfortable with personal finance and investing. This topic was inspired by the book "Rich Dad, Poor Dad" by Robert Kiyosaki.
One of the topics it discusses is people's attitudes toward making money. One of many good statements from the book is "While money has the power to make you a slave to it - it also has the power to set you free."
I'll put some perspective to this thought and I'd like to get your comments on this. We've all heard from our parents to study hard, get good grades so that we can get a good paying job where if you work hard, you can move up in a company. One issue with this ingrained teaching is that it doesn't allow us to think outside the office building box. From the time I got my first job to now, I've seen a pay increase but like most people, the more I made, the more I spent. Such as, renting an apartment to buying a house to buying a bigger house. Now that we have a child, our expenses have increased even more. With the pressure of increasing expenses, we end up having to work even harder to ensure we excel our job to get that promotion. Now, that's a rat race and a half if I ever saw it. And this is what the book refers to being a slave to money. We spend more time worrying about how we're going to pay for all our expenses and less time ensuring that our relationship with our spouse and family is growing. Experts tell us that our home we buy is our biggest investment but how is it that our "investment" extracts so much of our income instead of replenishing it? What hasn't been taught by most, including my parents and the school systems I grew up in is that we need to buy assets to build our wealth and stop the rat race. The book classifies assets as investments that generate income. Hence your home isn't considered an asset for the author because it drains your monthly income. I tend to agree with this perspective. Unless your home eases your monthly expenses - it puts a lot of stress on your personal finance. It usually makes up a good percentage of your expenses on a monthly basis.
By building assets, you are going down the path of being the master of money instead of money being the master of you.
Let me know your thoughts on this topic. Please click on the comment button below and provide feedback.

Alternative view to RRSP vs TFSA article

We have the pleasure of getting feedback/comment to my previous post about "RRSP vs. TFSA" from Pierre Claude who is a Certified Financial Planner from London Life's Freedom 55 Financial in the Ottawa/Gatineau area. His email address is Pierre.Claude@freedom55financial.com

Reminder that you can enter your email address in the "Subscribe" box to the right to get email updates when new posts go up. Once a quarter, I will have professionals like Pierre provide comment/perspective on financial matters that affect us.

Comments can be left by clicking "Comment" just below each article. I look forward to your comments/perspectives.

Thanks Pierre for your perspective. Here is his comment:

"It’s a very interesting concept. I like what you’ve written about the TFSA (Tax Free Savings Account). Keep in mind the idea of Inflation and the affect it has on money. If I have the choice between paying $1 of income tax today or $1 in 20 years, I would much rather pay it in 20 years. So if I get a $384 tax saving for putting in $1,000 in my RRSP today and pay $384 of income tax in 20 years when I take it out, I’ve actually paid back much less. In my mind, a person that still has any kind of debt where the interest is not tax deductible, or if the person is not on target to save enough for retirement, contribute to RRSP. In regards to the TFSA, if this person has not yet saved up enough money to pay for their child’s education, they should not put money into a TFSA other that what they like to keep in there emergency fund (usually 3 months income).

Here’s an example.

$1,000 in an RRSP will give someone with a $50,000 income a $384 tax deduction if they live in Quebec and $312 if in Ontario.

$1,000 in an RESP will give someone with the same income a $200 grant that will be added in the RESP.

$1,000 on a loan with a 5% interest rate (non tax deductible) will save them $81.70 per year ($81.70 minus $31.70 tax to pay $50)

$1,000 in a TFSA that earns 5% interest will earn $50 of interest which will save you $19.20 of income tax a year.

Hope this helps your discussion.

The best advice I can give anyone is that each situation is unique and therefore the advice for one may not be appropriate for another. That’s why everyone should have a Financial Planner with the CFP designation or Plan. Fin in Québec to help set priorities and determine the best plan of action based on their personal objectives."

RRSP vs TFSA

My plan is to stick to the basics of personal finance, but I couldn't help myself on this subject because it's been something I've been asking myself for a while. Is it better to put your money into RRSP or the new TFSA (Tax Free Savings/Trading Account) to reduce your tax burden. Well, here is a good explanation of what one should do regarding this matter.

The article is from Canadian MoneySaver (www.canadianmoneysaver.ca) and it's quite thorough in its analysis of which investment vehicle is optimal for reducing taxes on your investments. Essentially, the article states that an RRSP is more effective in reducing your tax burden only if your marginal tax rate is higher at the time of contribution than at the time of withdrawal. Therefore, we have to estimate whether we will have a higher marginal tax rate when we retire vs. our current marginal tax rate. Hope this helps in your decision to contribute to your RRSP or put money into your TFSA.

If you click on the title of this blog, it will take you to the article. However, just in case that doesn't work, here is the link.

http://www.canadianmoneysaver.ca/resource_center/homepg_articles/RRSP%20or%20TFSA%20Consider%20Your%20Tax%20Rate.pdf

Automatic savings & Daily expenses

Today, I'd like to speak to the advise of automatic savings. We read a book a while back that most of you I'm sure are familiar with; "Smart Couples Finish Rich" by David Bach. In the book, he comments on the "Latte Factor" and how small spending each day add up to a big amount. Well, this is true. We did the calculation of our daily spending and realized that we were spending money of items we can certainly cut down on such as our daily coffee or lunch. We reduced those costs by making coffee at home and bringing lunch to work. Yes, it's a pain to pack a lunch somedays, however, we found that at the end of the day, it was worth the effort. Through our online banking, we set up automated savings withdrawals. For us, we timed the automatic savings withdrawals with our pay periods so that we ensured to "pay ourselves" first. The remaining would be for expenses. Soon enough we were accumulating a significant amount.

The automation is a wonderful thing because you forget about the savings and only see what you have left in your bank account. Technology is a great thing.

In terms of reducing expenditure, I have to say, the task of analyzing your daily expenditures is tedious. However, if you're tired of wondering where all your money went, try it out. You won't regret it.

One specific area we cut costs was our banking. We used PC Financial for our daily banking because of their no monthly service charges. Based on how bank fees are structured, I estimate we saved approximately $140.00 per year ($280 as a couple). That may not sound like a lot but we've each been using PCF for over eight years now so that's $1120 ($2240) in savings in that period of time.

I encourage you to take a look at your daily spending for about a month (a week at a time) and see where you can cut.

Budget Template

So I found how I can give access to the budget template to everyone. Here is the link. Have a look and let me know if it works for you.

http://spreadsheets.google.com/ccc?key=0AmlGZcX5JqLRcjZzYkFvVE9EenFSRVVldjdUQnpTeHc&hl=en

Link to Slice TVs "Til Debt Do Us Part"

http://www.slice.ca/Shows/ShowsPage.aspx?title_id=93097

Money in general

Hello World,

Welcome to my blog about my journey toward better personal financial management for a more comfortable retirement. I am currently in my mid 30's and like most of you, trying to figure out the best strategy to save as much money as I can each month so that I can invest my money for growth. I have a regular job that pays me a regular salary each month. I have a young family and my goal is to be able to afford to pay for my children's education and have enough money to retire comfortably. We all have goals. It's just a matter of who's willing to put the work in to make it happen.

I once heard that a "Job" is another word for "just above broke." Quite interesting and true when you see that after paying your bills each month, you hardly have much left for fun activities let along savings and investing. If you're in the same boat as I am, I ask that you visit regularly so that we can take the journey together to better understand our finances so that we can enjoy a more comfortable retirement.

I will make regular updates and would like to start with the basics such as a personal/family budget, then moving toward savings and investing to maximize our money's potential to grow. I hope you'll find my blog interesting and I look forward to hearing from everyone who visits so that I can learn from you as well.

The first link I'd like to present is toward the show "Til Debt Do Us Part" on Slice TV. I think this show is quite effective in that it shows the viewers how to manage their everyday finances by utilizing the glass jars. We all get in the bad habit of using our credit cards like we have endless amount of cash. Well, this technique by Gail Vaz-Oxlade, the host of the show, is quite effective. I haven't tried her techinque yet but I would love to hear from you if you have. I have been fortunate to not have credit card debt and have been using a personal budget for some time now. So far it's working out quite nicely. I am trying to figure out how to post my budget template as I would like to share it with you. If you know how to post something, please let me know.

If you aren't aware of the show, I've provide a link at the top so have a look and let me know your thoughts.

I look forward to our journey together.