Tuesday, August 7, 2007

how i manage day to day

I’ve been reading several blog posts lately on money saving and management habits that people employ day to day. Namely Four Pillars and Thicken My Wallet have posted on this topic as of late. I wanted to share with my readers what I believe is my unique approach to money saving and management.

To simplify, I’ll lay it out step by step.

1. AUTOMATE RRSP contributions. We do not even see this money, as it is directly deposited into our RRSPs.

2. We get paid on ALTERNATING weeks (ie wife gets paid one Thursday, I get paid the next.)

3. Use CREDIT CARDS. I find this makes things extremely simple as I can expect about 80% of our discretionary spending to come in on 2 bills (mine and hers) each month on the 14th. Obviously bills get paid in full always.

4. MAKE SAVING YOUR FIRST PRIORITY. When I see money come into our account on payday, my first instinct is to transfer this money into my BMO InvestorLine account for investment savings. No reason for funds to sit in the account if there is no immediate plan for use. In fact the simple fact that the money is there may subconsciously create temptation to spend, which I want to eliminate.

5. LOOK ONE WEEK AHEAD. I find looking ahead at shorter time periods (1 week) allows me to save more. If the money that was just received is not needed later in that week then it get saved.

6. Use one account and make it an ELEVATOR. By an ‘elevator’ I mean cash gets on and cash gets off. No money sits in the account for more than 1 week. Why keep money from having the potential to grow? I don’t want to contribute to my bank’s pool of deposits (funds they invest).

7. EMERGENCY FUNDS DON’T HAVE TO BE CASH ON HAND - I don’t believe in keeping emergency funds, as we have a significant unused line of credit and significant non-registered investments that could be liquidated on demand if things went to hell in a hand basket.

8. TAKE ADVANTAGE OF DEBT SPARINGLY when appropriate, usually for investments or short-term timing/convenience issues. Don't use overdraft, and don't take on excessive line of credit debt.

This strategy has allowed us to maintain savings rates (of net income) in the 35% range.

I welcome comments, and suggestions regarding what works for my readers....


Chris said...

Read your blog time to time.
You seem to be doing the right things and owning the right types of companies. I hope your vistors apply this knowledge to their benefit.

FourPillars said...

Thanks for the mention.

I like your steps for savings. 35% of net income is a very good savings rate.


Anonymous said...

How do you fund your non-reg portfolio? Through secured borrowing against your house?

Although it requires discipline, this could save you money versus merely investing your paycheques as you receive them outside your RRSP.

telly said...

Good list. We follow a lot of the same methods that you do.

One question I had was about RRSPs being directly deposited to your RRSP account. Do you get them deposited directly from your pay cheques or do you set up automatic transfers from your chequing account each pay period?

We've set up automatic transfers but it's happened a few times that I've cancelled the transactions (pretty easy click of a mouse) days before the transfer was to take place because we needed the money (we always do an IOU though). I just wonder if it would be possible to set up your paycheque so that it gets automatically deposited to various accounts (including an RRSP). My husband's group RRSP isn't great (high MER funds) so we only contribute 3% to get a match.

Just curious about this idea...I love having things totally automated and out of my control. :)

moneygardener said...

Thanks Chris. I hope so as well.

Thanks Mike.


I fund my non-reg. port. directly from savings (income). Please explain how borrowing with a secured line will save me money...


My company take the money directly off because I have a matching plan. For my wife I pay into here RRSP account each week through my banking site. I will eventually automate hers, but she will not be contributing while she's on Mat. leave so I haven't bothered to set it up and I probably won't until 2009. I believe I can have BMO InvestorLine automatically grab the money from my BMO account each week.

Anonymous said...

moneygardener, in Canada, interest on money that is 'borrowed to invest' is tax deductible, while principal residence mortgage interest is not tax deductible.

If you were to simply use your excess funds to prepay the mortgage, and then, using a HELOC, 're-borrow' those excess payments (to invest in your favourite stocks), you shift much of your non-deductible mortgage interest, into deductible investment loan interest.

moneygardener said...

I am fully aware of that 'smith' type strategy, but I fail to see how it would save me money over what I am doing now.

Remember, I am not borrowing money to invest right now and my mortgage rate is much lower than anything I could get on a HELOC.

Anonymous said...

moneygardener, is it at least the percentage of your tax bracket lower? ie: if you're in the 35% bracket, and a LOC is at 6.25% is your mortgage rate lower than 4.06%? (6.25% * (1-35%))

If it is, congratulations on timing the interest rate cycle 'just perfectly'! If its not, then doing the 'smith manouevre' sort of thing would add value.

moneygardener said...

Hard conversation to have on a blog message board. I have looked at this before and it is not worthwhile for me. Perhaps in the future when I have a greater portion of my house paid off and I am in a higher tax bracket.

By the way my mortage rate is 4.50%

Anonymous said...

Yeah I guess.....4.5% is good, and if you're not in a higher bracket, theres no benefit.

Someday though...

Frank said...

I have implemented the Smith manoeuvre myself using Scotia's STEP. I look at it this way: my LOC rate is 6.0%, and I'm in the 40% tax bracket, so I get 40% of the LOC interest that I pay back as a tax refund. I use the LOC to invest in solid dividend payers, e.g. BNS, which yields 3.6%+, which pays the other 60% of my LOC interest costs (and because of regular dividend increases, this will get even better). So instead of paying 5% interest on a mortgage, I convert it into a "free" investment loan.

- Frank