budgeting sustainably for real life

Drawing up a useful, sustainable monthly budget for your family does not have to be a complicated, or difficult exercise.  The primary goal for putting a budget to paper in our case is saving money and living well within our means.  This will enable us to save enough money so that we can maximize investment growth, capital stability, and be financially secure for years down the road.  You can tailor your budget to serve as a tool for meeting your financial goals.

If you have some basic Microsoft Excel skills you can draw up a useful budget that can serve your tracking needs for years.  I'm not referring to an advanced budget that they might teach you in an online MBA program; just a simple budget.  First you should check your pay stub and your partner's pay stub to determine exactly what your net income is. 

(I use the net amount that we bring home in employment income after RRSP contributions, taxes, etc.  The reason that I do it this way is that our RRSP contributions are fixed and they are deducted automatically so that we never really see this money.  I know what our RRSP contributions are and if I wanted to I could calculate these savings as extra to our budget later on.  For now I just choose to exclude them and know that we are setting aside at least 10% of our income before we even get started here.)

This will be your INCOME section.  Use your net employment income and any other income you receive along with any government child care benefits.  Enter the monthly values in Excel and get to a total income number.

(I choose not to include investment income here because I save 100% of these funds and they get reinvested. I don't consider this as flexible, liquid funds such as employment income as the money really never leaves our portfolios)

Next you need to create your EXPENSES section.  This involves categorizing and filling in all of your monthly expenses from mortgage payments to gym fees.  Try to think of everything and try to be conservative for fuzzy ones.  For some fixed costs such as property tax you will be able to enter an exact amount and for some categories such as entertainment you will need to ballpark what you spend in this area in an average month.  Total up this area as well.

Then take your total from your INCOME section and subtract your EXPENSES section.  Hopefully you get a positive value.  Your will arrive at a figure which I call my "TOTAL NON-REGISTERED SAVINGS PER MONTH". 

How To Use Your Budget
Creating your budget is only one third of the battle.  How you are going to use it is the second piece of the puzzle.  Instead of holding us to only spend $40 per month on haircuts I don't pay particular attention to these small details once they are part of my budget calculator.  The way I use the budget tool is that I key in on our TOTAL NON-REGISTERED SAVINGS PER MONTH.  This is our pass or fail mark.  If this guide number is $1,000 and a month goes by where we saved only $500, I usually know why this has occurred.  Could have been that the dishwasher needed replacing, or it perhaps we went on a small vacation.  If I don't know why, I better re-visit the budget. 

Obviously the third piece of the puzzle is actually matching your life to what you you have entered on this Excel calculator. If you are regularly spending $500 per month on clothes then don't enter $50 per month in your clothes category.  You will certainly need your partner to be a team player throughout this entire process

I find this to be a pretty useful way to budget.  You don't have to watch your nickels and dimes and track every penny.  Just pay attention to how much money you are actually saving versus what your budget says that you should be and you will be well on your way to achieving your financial goals.

would you like to purchase a warranty?

I am always interested in the innovative ways that companies try to grow their bottom line in dealing with consumers.  The promotions, warranties, freebies, bogos, and 'don't pay' sales often have me scratching my head at the stupidity of retailers or their naive customers.

I happened to come across an interesting one last night at Sears when I was purchasing a major appliance.  As is typical the sales associate wound up with the usual warranty offering, usually as this is occurring I am glazed over and getting ready to politely refuse.  However the Sears warranty threw in an interesting twist this time, which I have to admit, is clever and likely works well for them.  If you purchase the warranty for $110 and nothing goes wrong with the item within the 3 year time frame of coverage you receive a $110 gift card for Sears.  I still refused the offer as I want my precious $110 for myself for the next 3 years for obvious reasons to anyone who reads this blog.  Also who's to say that I'll happen to want to buy something at Sears in 3 years time.  That being said, I would imagine that many customers who typically waiver about warranties usually come over to join the protected now that this offer is presented.

saving money is simple & fun

I like saving money.  No, I mean I really love saving money.  You know that feeling that you get when you get something accomplished that you've been working at for days; or the rush that you get after a good run or workout at the gym?  Saving money gives me that feeling.  I don't mean to sound corny at all but I consider it fun when I electronically move money into investment portfolios from our chequing account.

We recently refinanced our residential mortgage in order to lump in our home equity line of credit, which was the result of borrowing money to invest during the financial crisis in late 2008, early 2009.  At the same time we increased our amortization to 35 years and changed our payment frequency to monthly instead of accelerated bi-weekly.  My plan with this strategy is to do what I love to do and save more money.  Since interest rates are currently low, we will be lowering the priority on paying our mortgage off while socking the extra funds in dividend paying investments.  Our mortgage rate of prime less 0.60% (currently 1.90%) will enable us to save more capital and invest it.  At any time we have the freedom to switch gears and make larger payments toward our mortgage if the circumstances change.  For now though saving is the priority and I plan to ramp it up!

One of the main reasons why I like saving money now is that it really pays off years down the road.  I am 31 years old; I want to put dollars to work now so that they can pay us in spades later in life.  I don't need too much stuff right now to be happy in life, and coincidentally I have big plans for any extra funds that don't contribute to that happiness.   A $500,000 portfolio of dividend paying stocks can easily pay out $25,000 per year in income.  Wouldn't it be nice to make an extra $25,000 a year before dividend taxation?

Having saving on my mind every time I log in to my banking site is something that lends itself to my saving prowess.  Moving money around is easy and it gets it out of the way, and out of my sight which inhibits wasteful spending.  I don't like seeing money just laying around, I like putting it to work.

happy Canada Day!

I'd like to wish all of my Canadian readers a Happy Canada Day!

Not only does Canada Day mark a time to celebrate living in a wonderful country it also marks the halfway point in the year. This makes it a good time to look at our investment portfolios.

So far this year:

S&P 500 Index ($USD) = DOWN 7.6%
S&P/TSX Index ($CAD) = DOWN 3.9%
Our Non Registered Portfolio in $CAD including dividends = UP 0.1%

asset diversification update

When accumulating wealth as we grow older I am a believer in diversification. I want to be able to grow our asset base at good average rates year after year. In order to accomplish this and at the same time build flexibility into our finances we set out to push down the percentage of our assets that our home value makes up. I believe that it only makes good wealth building sense to diversify and not be over concentrated in real estate assets like many North Americans are.

I check up every other month on our net worth and at the same time I look at a percentage which I call: HOUSE VALUE AS A PERCENTAGE OF TOTAL ASSETS. This is simply the appraised value of our residence as a percentage of our total assets. Total assets include our home, registered and non-registered investments, cash, vehicles, etc.

Below is our progress on this since May of 2006. Over the past four years we've driven down this percentage from 83% to about 59% today.

personal finance activities

Like any other family our personal finances are under a constant state of flux. We are in the process of or have recently completed the following changes to our financial situation:

1. Paid off a 4 year old vehicle in full. We ended up saving some interest on this open loan.
I was just sick of this payment and I felt that it would be nice to be payment free for my wife's maternity leave.

2. Renewing our mortgage; choosing a variable rate, changing our amortization to 35 years & lumping our HELOC balance into our first mortgage.
Going variable was an easy choice due to the current rate options and my view on the economy and Canadian rates going forward. Increasing the amortization just means that our mortgage is manageable and I'd prefer to put it on the back burner and enjoy lower rates during this period. The money not deployed here will be invested. The HELOC was lumped in to get a better interest rate on the HELOC portion.

3. Opening a second RESP with TD e-funds for our second son.
I've been very pleased with TD's online portal and the fund fees are hard to beat. I'll continue to focus on using the $200 per month UCCB as the base to fund the RESPs. We will add aditional money when appropriate to take advantage of the full grant.

simplest ways to ensure financial difficulty your entire life

Classic moneygardener; Revisiting an old post from September 12, 2007.....

List compiled with inspiration from young, (age 25 - 35), friends and relatives (ie they helped me compile this list without realizing they did so)

1. Buy a vehicle without looking at total cost of ownership (financing, gas, insurance,maintenance)

2. Buy a home for your maximum lender pre-approval amount.

3. Do not start an RRSP because you have debts to pay off.

4. Do not make proper (higher interest to lower interest) debt repayment a priority.

5. Maintain a short-term view of your finances.

6. Fail to coherently plan finances around life events.

7. Fail to work as a team with your partner when it comes to your household finances.

8. Fail to realize that how you spend and manage money matters more than how much money you make.

creative wealth growth

Thank you to all who submitted questions for The Personal Finance Clinic. We received several questions and we hope to answer most of them over the next few months. Please visit Canadian Capitalist and Triaging My Way to Financial Success to view the balance of the Q&A.

Jessica asked,
I'm a regular reader of themoneygardener and since graduating from university debt-free, I've been trying to find resources for people like me who are not dealing with debt, but just a lack of education in what else to do with the rest of my paycheques. I already know about different investment vehicles and have money invested in a mix of GICs, mutual funds and stocks, but it would be good to get more opinions on what other wealth-building strategies are available to someone who is in their late 20s and has time and money on their side.

Like Frugal Bachelor has already written in one of his recent posts, most personal finance blogs aren't challenging enough for their readers. Think about it: if you're using your free time to enhance your personal wealth, you probably have a handle on your finances already. So maybe it's time to get creative and see what else is available to the budget-and-personal-finance conscious crowd.

Thanks for the interesting question Jessica. It is a great thing to have time and money on your side. Personally I would add debt as a tool for your toolbelt as well, and I wouldn't shy away from using other people's money as leverage.

Even though I do not have a direct answer to your question, I thought I'd publish it anyway just because I found it thought provoking. It also did not hurt that you mentioned your 'regular reader' status. The reason why you'll find that most personal finance blogs discuss the same strategies, is that they are indeed personal finance blogs. The bloggers tend to write about what they know, and in most cases that happens to be investing, saving, and other personal finance topics.

Getting Creative
I am of the opinion that the greatest way for an individual to grow wealth quickly is by starting a business. I'm fairly certain that there are a plethora of blogs that would discuss this area. In the personal finance blog space, I know that Thicken My Wallet as well as Four Pillars have discussed entrepreneurship at length.

The 80 hour work week just isn't all it is cracked up to be. Most wealth building strategies really would centre around investing. Try starting your own business, earning rental income, or building wealth in any other way without at some point making an investment. You can serve other people to earn a living, but true wealth can usually only be built by putting your hard earned capital at risk. Good luck!

fixing things in dark times

Thank you to all who submitted questions for The Personal Finance Clinic. We received several questions and we hope to answer most of them over the next few months. Please visit Canadian Capitalist and Triaging My Way to Financial Success to view the balance of the Q&A.

Kris asked...
"Like many people, I have lost a lot of money (at least on paper) in my RSP account.
I don’t have a particularly good mix of mutual funds (took poor advice from a poor advisor), and I had started the process of re balancing into an ETF-based “couch potato” mix (by started, I mean I had thought it through, read up, and picked an asset mix but didn’t actually sell and buy) when the market tanked.

What should I do now? I am still saving but currently holding my savings in an ING savings account (some are for retirement and some are in a general account as I'm hoping to buy a home now that Vancouver's real estate market is somewhat cooled down).

What should I do with my RSP portfolio? Should I just accept my paper losses, sell my mutual funds and execute my plan (I hate to lock in the money I’ve lost but….)
Or, should I just wait it out with my current portfolio, and use any new retirement savings to operationalize my couch potato portfolio? If I wait for my current portfolio to bounce back (at least partway) , how long is reasonable? 1 year? 5 years?

No doubt that many are in your shoes Kris. We have all seen the value of our registered investments drop substantially over the past two years. If you have truly seen the flaws in your current asset mix as well as investment vehicles, I am going to assume that you are paying high management fees (MERs), and/or you are diversified poorly by having too much risk, too little risk, or your sector allocation is out of whack for your time horizon and investor profile. The good news is that it sounds as if you have done some research and you have a plan that will lower your fees and diversify you more appropriately.

Regarding your specific question, I would recommend that you implement your strategy as soon as possible. The way to think about this is that it really does not matter when you sell your mutual funds and buy the new ETFs because you will either be selling low and buying low or selling high and buying high. Theoretically it makes no difference if you are selling and buying like items. For example if you sell a managed Canadian Equity mutual fund and buy a Canadian Equity ETF right now you are selling at point X in the markets and buying at point X in the market. You are no further behind or ahead except for the fact that you believe you are getting into a more appropriate investment vehicle. This is a positive, proactive action.

Things to watch out for:

• Trading fees (you will likely incur some but minimize them wherever possible)
• If your main intention is too sell a lot of equity investments and with these funds buy a lot of safer (bonds, gics, money market) investments, now may not be the best time to execute this specific trade, as the market has recently crashed, and you may want to put this off for a year or two. These are not like items with like values. That being said nobody knows where the market is going, this is just my opinion.
• Don't lose sight of your investment time horizon and let this be your guide to asset allocation.

If you execute your plan now. You can be confident knowing that your money is now working for you the way you want it to. You have empowered yourself by educating yourself and taking the proper steps to rectify your portfolio. Nobody wants to own investments that are poor if they know better. Good luck with your portfolio and your home purchase.

how much can we afford?

When a person embarks on the tumultuous journey of a first time home purchase, or for that matter a second or third time home purchase, one of their top priorities is often 'how much can we afford?'. Better yet, I feel the question should be 'how much of our after tax and utility money should we allocate towards paying off our mortgage'.

If you choose to use online tools in order to give you this information, please avoid using this one: Canadian financial news source The Globe & Mail runs a great website called globeinvestor.com. On this website down the left panel in the 'resources' section you'll find a link called 'Mortgage Snapshot'. This link contains the latest mortgage rates from various lenders as well as a chart titled 'How Much Can You Afford'. The chart indicates that if you earn a gross income is $120,000 you can afford a mortgage of $461,808, which provides a home worth $615,744 using a 25% down payment of $153,936 and a 5.8% interest rate. What!

Let's look at this a little closer. Let's assume this gross income is made up of a dual income couple earning $60,000 each per year. After tax, Employment Insurance Contributions, and Canadian Pension Plan Fees they would bring home about $44,000 each, or $88,000 per year. Let's remove RRSP contributions of a responsible 10% of gross income ($12,000 total). Let's also remove a conservative property tax amount of $2,500 per year, heating of $1,500/year, and electricity/water of $1,500/year.

We now arrive at a value of $70,500 for the money our lovely couple will actually have access to, after the tax man, heat, power, and retirement are all taken care of. This is $2,712 bi-weekly.

Using the 'What Will My Payments Be' calculator on BMO.com we see that this couple's bi-weekly mortgage payment would be $1,333. Taking their mortgage payment as a percentage of the money they'll actually have access to, we arrive at 49%. If they decided to make accelerated bi-weekly payments instead to reduce their amortization time to under 25 years, the figure becomes $1,450 or 53% of their accessible funds. So more than half of their disposable income would go to mortgage payments, and this is not even accounting for other fixed costs like groceries and insurance. This situation would be far from ideal. In fact, it might not even be possible. Considering vehicles, daycare, clothes, gifts, cable tv, maternity leave, vacations, and a broken furnace, this mortgage does not seem feasible in the least.

The source for this information on the globeinvestor website is not listed. I believe that this chart is very poor resource for home buyers and it is irresponsible of The Globe & Mail to provide this resource to reader.

The Personal Finance Clinic

Whether you are in good financial health, directly experiencing the downturn in the economy or concerned about the state of your personal finances the authors of Canadian Capitalist, the moneygardener (that's me), and Triaging My Way To Financial Success are holding a Personal Finance Clinic for our readers.

We recognize that finding the answers to your questions on topics of personal finance can be difficult in the best of times; they should not be hard to find in the worst of times.

With the abundance of material published online and in print media on topics of personal finance we are holding a clinic to tackle your best questions on a variety of financial matters. Best of all no health card or credit card is needed.

Rules:
Questions can be on topics that include personal savings, net worth, budgeting or investment fundamentals.

Readers simply need to send their question with identifying name to personalfinanceclinic@ gmail.com before May 31st, 2009.

Canadian Capitalist, the moneygardener and Nurseb911 will each select an equal share of questions from all submissions based upon our readership, personal knowledge and ability to seek research on the topics asked.
Responses to specific questions can not be guaranteed to be 100% accurate.

Canadian Capitalist, the moneygardener and Nurseb911 are not certified investment professionals and are not licensed to provide financial advice. We hold no liability for responses and our answers are intended for educational purposes only.

When possible we will supply references and/or links to articles, content and alternative tools.

We cannot guarantee that all questions will be answered in the clinic due to both the number of responses and the limitations of our personal time.

We will not provide recommendations on specific investments or their potential for investment. We will not accept questions on any specific stock, mutual fund, ETF or financial product and their investment potential for a reader.

what you'll get free from equifax

Following up on my investigating your credit history for free post; I have now received my credit report back from Equifax. This arrived in the mail 4 business days after I phoned their automated request line. Below is a summary of what the report contains:

4 pages front and back were included.
Section 1 PERSONAL IDENTIFICATION INFORMATION
This contains some personal information that they have on file for you including your prior addresses and a brief employment history. Mine seems to be accurate and complete back to 2002. This section also includes the date that Equifax opened a file on me.

Section 2 CREDIT INQUIRIES ON YOUR FILE
This section first lists Equifax members who have received a copy of my credit file for credit granting followed by a list of authorized parties who wanted their records updated regarding my existing account with them. Very little detail and nothing real shocking here.

Section 3 CREDIT HISTORY
This is the meat of the report as it goes into detail on your account with each creditor. This includes a rating for each, for example R1 meaning 'paid as agreed and up to date'. Information on what your balance was at the time of last reporting, when the account was opened, your credit limit, and date of last payment made are included. Items listed here might include credit cards, student loans, lines of credit, bank accounts with overdraft, auto loans and leases, and other loans.

This section was interesting to read and I made sure that I went over it in detail to ensure accuracy. Everything was in order and aside from a very old credit card with a $0 balance, there were no surprises.

Section 4 PUBLIC RECORDS AND OTHER INFORMATION
This section seems to be a place for official filings of secured loans/chattel mortgage, etc.

Section 5 'GLOSSARY'
This section just gives some general information on different credit terms and time frames for when records will be purged. They then go on to give some more general information about credit and Equifax and their services.

The last page is a Consumer Credit Report Update Form to request changes to your file.

----
Overall obtaining this report was beneficial, and I feel there is enough information here to set my mind at ease regarding my credit. Although I am a little curious, I don't feel the need to obtain my actual score.

One thing that I did not expect was the absence of our mortgage on this report. After some quick searching on the Internet I've learned that this appears to be common practice, as apparently a mortgage does not affect your credit score. This was a surprise to me and I still don't quite understand why this would be the case. Does anyone know anything about why mortgages are not included in Equifax reports?

income from investments at $8.93/day

It has been a while since I updated the status of the income we are receiving from our investments inside our non-registered account. Recently I have suffered three dividend cuts within our portfolio. General Electric (GE), Bank of America (BAC), and Husky Energy (HSE) all cut their dividends significantly, and I continue to hold all three stocks because I still believe these companies will prosper long term.

Procter & Gamble (PG), Johnson & Johnson (JNJ), Fortis (FTS), Diageo (DEO), Sysco (SYY), and Telus (T.A) have all raised their dividends recently. I expect Clorox (CLX), and Walgreen (WAG) to increase their dividend over the next few months.

Since Lehman Brothers failed in September of 2008 and the stock market fell off of a cliff, I have poured a significant amount of capital into our portfolio. In summary our income from investments is now sitting at $3,258 which is roughly 56% higher than we were earning pre-Lehman failure. During the same time frame our portfolio is up about 42%.

Our portfolio is currently yielding 5.5% and has a yield on cost of 4.2%. 9% of our portfolio is tied up in dividend re-investment plans.

investigating your credit history for free

If you are Canadian and you've ever wondered what your credit file looks like, there are two reports that you can access for free. It appears that obtaining your actual credit score will cost you some money though. Below is what I have requested free of charge. I'll review this material on the moneygardener after I receive it.

"Consumer Disclosure" from TransUnion, requested by mail with copies of both sides of two pieces of ID and the necessary completed form.
Total time commitment = 20 minutes with access to a computer, photocopier, your wallet, pen, envelope, and stamp.
What is a Consumer Disclosure?
A Consumer Disclosure is a complete account of all the information on your credit report, as mandated by consumer reporting legislation. Unlike the version supplied to a business that purchases TransUnion services, which is referred to as a "Business Version," a Consumer Disclosure lists all inquiries made to your credit information, including account management inquiries, non-credit-related inquiries and your own inquiries. The Business Version is an abbreviated version of the Consumer Disclosure. This is the credit report that creditors do see. The Business Version does not contain account management inquiries, non-credit related inquiries, or your personal inquiries to obtain a copy of your credit information.

"Credit Report" from Equifax requested by phone using automated voice recognition system. This is supposed to be mailed to me within 3-5 days.
Total time commitment = 3 minutes with access to a phone and your wallet.
What is a Credit Report?
Your credit report includes personal information such as your name, address, date of birth and Social Insurance Number. It also includes historical data such as current and previous addresses, current and previous employers, and public records like bankruptcies, liens or judgments. Most importantly, your credit report contains your credit card, mortgage and loan payment information. This information is used by lenders to see if you have missed payments, carry high balances, or are in other ways over extending yourself financially. Payment history is the most important factor in your credit rating — so pay your bills on time — even if it is just the minimum balance due each month. Lenders evaluate your credit risk based on information in your credit report. It is a good idea to review your credit report periodically and check for inaccuracies that may have an impact on your credit standing.

kanye west, bang on about money

One's relationship with money in life can often be complex, emotional, and multi-faceted. Most of us know that we want more money, however most of us do not want to let money rule us or make decisions as if all we care about is money. Many would agree with the statement 'Money Can't Buy Happiness' or 'Money Can't Buy Love' because most people agree that achieving fulfillment in life is not simply about having wealth.

A lot of people grew up poor or lower middle class which influenced their attitudes toward money and allowed them to become frugal as adults. These people tend to attempt to ensure they'll never be broke, rather than striving to be wealthy to achieve happiness. Sometimes the best quotes come from the most unlikely sources. One of the best quotes that I have ever heard that surrounds the human relationship with money came from rapper, Kanye West in the song 'Good Life'.

"Having money's not everything. Not having it is."

At least this is what I think the correct lyrics are. There are conflicting quotes on popular song lyric websites. I like this line better than the alternatives anyway.

What I like about this quote is that it defines the human relationship with money pretty well in few words. When you have money, are comfortable and wealthy, money is certainly not everything and does not feel like the be all and end all. However, if you get into the situation where money is extremely tight or you literally have very little money to survive on, money can often become your sole focus and seem like it is the root of everything bad in your life.

saving $ is fun again!

I must admit, I've lost my motivation to save money.

In the process of getting really busy with my day job, my excitable one year old son, and planning and taking a wonderful Vegas vacation, I've lost my saving mojo recently. These factors were not the only detractors from my usual saving prowess, I've been weak lately. My wallet has sprung open too wide and I've been very prone to the 'we deserve it' mentality. While I do believe this type of occasional extravagance keeps one sane, it's time to get back on the horse; and I've never been more ready to saddle up.

Our indulgence has cost us some progress toward Goal #1 which states:
Save an average of at least $1,000 per month to be added to our non-registered portfolio. (These savings are on top of regular RRSP and RESP contributions.)

We've come up empty the last two months:
February, 2009 = $0
March, 2009 = $0

As of right now we are not meeting our goal. Over the last rolling 12 month period we have manged to save an average of only $701.

Even though my wife was on maternity leave for half of the period, I am not happy with that, and we have been motivated to turn it around. Following the surprisingly frugal lead of my wife, I feel like we have a renewed motivation to sock away cash. I don't know if it is Spring breaking or just a natural snap back from overspending but we're definitely acting more frugal lately. Given the ongoing recession, we seem to have a lot of company all of a sudden. Saving money seems to be in vogue now; everyone was at the malls in 2007 when the moneygardener ruled saving money?

April's savings have already been booked at $1,500 and growing. I'm happy to proclaim that after a luxury sabbatical, saving is fun again!

foster & a frugal bachelor

I haven't had much of a chance to blow through my Google Reader lately, until today. Here's what I found:

I wanted to point out a blog that I've been reading that I find quite interesting: Frugal Bachelor 's writing is actually offensive at times, but it certainly makes you stop and think. I have thoroughly enjoyed several of young Texan's posts. He bills his blog as 'personal finance without family values'.

Normally sane Canadian personal finance icon, Canadian Capitalist has gone Derek Foster mad. The "Stop Working, Here's How You Can" author has recently sold all of his dividend paying stocks and he has personal finance circles chatting once again. At the danger of heaping more publicity on top of all the current froth, Canadian Capitalist has been all over Foster in a series of posts lately. One of the posts contains a link to a Foster interview on CBC's The Hour in the comments section.

I read Foster's fist book and I did enjoy it. I especially liked his comparison of dividend income to employment income. I always wondered why he would attempt to live off of dividends from stocks that were the exact opposite of recession resistant. He talks about Colgate Palmolive and Enbridge on The Hour, however I believe a large part of his income was actually coming from trusts that were much more economically sensitive. Trusts like Canadian Oil Sands just didn't make sense with his strategy to me. Living solely off of pay outs from 100% of the riskiest asset class was asking for failure. The man has a talent for marketing and seems to be quite proficient at selling books and getting time with the Canadian press. Currently, it is not clear whether as an investor he suffers from severe over confidence or extreme fear.

good financial government

The role of government lately, is treading into the realm of personal finance advisor. On both sides of the 49th parallel governments are either commenting or implementing policy based on how they feel people should be managing their household finances.

Obama's fresh new $75B mortgage relief plan includes the following goal:
Convince lenders to cut monthly mortgage payments to sustainable levels, defined as no more than 31% of a homeowner's income. Write it down, the magic number, Barack is playing Suze Orman.

Let's assume this means 31% of gross income. If so, our lender needs no incentive as our mortgage payments represent about 12% of our income.

North of the border in Canada, Bank of Canada Governor Mark Carney came out and said that he is concerned about the level of household debt in Canada. Household debt in Canada currently sits at 130% of people's disposable income (a higher ratio than the United States). Average household debt in Canada rose to more than $90,000. Debt is apparently rising faster than income is in Canada.

Carney would not like the moneygardener's household finances. Our household debt represents about 175% of our income. I'm not concerned with our level of debt. Our Debt/Asset ratio is 0.54, meaning we have almost twice the assets as we do liabilities. Servicing a mortgage which comes in much less than Obama's 31% of income, means we are able to move the needle in the right direction by accumulating more assets while reducing debt slowly. Our income may pale in comparison to our debt now, but we're young and I'm confident that our debt is manageable given our assets and income.

What would Obama and Carney think of your personal financial situation?

recession reflections

By all popular accounts it now seems as though we are well into a recession in North America. The doom and gloom in the media is extremely evident, and now terms like 'uncertainty', 'recession', and 'tough economic times' have completed the long journey from CNBC to Subway commercials. Grade 10 girls are reflecting on the economic downturn in discussion around their lockers between classes. It is official, the sentiment is bad and times are indeed tough.

Despite the decisiveness of most on this issue though, it is an interesting discussion to have with friends, colleagues, and relatives. How has this all affected you?

Losing your job is very unfortunate, and for those who have been affected I wish them luck and success in the future. I've seen countless examples of where the recession is really hurting on the news; but where is it hurting locally and in the lives of those around me? Well...

• Of all the folks that I know, I am aware of one person who has been laid off recently
• Personally, my investments have been hammered beyond belief, and I'm sure I'm not alone on this

On the other hand:

• I know a few small business owners who are reporting business as usual
• In minus fifteen degree weather I still can't get a parking spot at local malls
• An 'edible arrangements' business just opened up in my area
• Real estate still seems to be on the expensive side

Right now I do feel like there is a chasm between what appears to be going on in the world and what is actually happening locally and to those that I know personally. Is anyone noticing the same thing?

the moneygardener 2009 financial goals

In my recent post, 2009, a new financial year, I talked about how I believe it is important to have a vision for what the upcoming year will look like for us financially and to write it down. Well we might not all have a blog, but I do, so conveniently I can write my 2009 financial vision/goals right here.

Current Situation
We are quickly approaching 30 years of age and over the last 4 years we've carried out some important financial steps toward building a secure, prosperous future.

• Started retirement saving plans for the long term
• Purchased a home and added features to make it comfortable
• Started a non-registered dividend stock investment portfolio for the long term
• Grew our careers through experience and further education
• Eliminated several inefficiencies such as gas guzzling, old vehicles, and multiple bank accounts
• As of October of 2008, when the market really went to hell in a hand basket, we made the decision to borrow money tax efficiently to invest into our non-registered portfolio
• My wife went back to work full time in December of 2008 after a year of mat. leave

Financial Vision For 2009

1. First and foremost, in keeping with my stated goal #1, in 2009 we want to continue to save at least $1,000 average per month for our non-registered portfolio. Ideally I'd like to save much more than this, considering that last year we managed to save an average of $1,395/month. This will enable us to be well on our way toward our goal of the portfolio being worth $175,000 (net value after any debt) in February of 2014.

2. 2009 will see us spend a good amount of money on home-related items. We will also spend some serious money on a vacation.

3. We will start 2 TFSAs (Tax Free Savings Accounts) in 2009 and contribute the maximum amount to both.

4. Over the past 3 months I've been using borrowed money to invest in our non-registered portfolio and paying it off in large chunks with saved money. I am expecting that this buying activity is largely completed and I will slow purchases now and concentrate on using saved money to pay back the line of credit. I am happy with the fact that I have now bought a good chunk of my portfolio at much lower prices and higher yields. This obviously depends on the market, but unless we breach the S&P 500 lows of the last few months I don't think I'll get excited about the opportunity to invest as often.

5. Our dividend income within our non-registered portfolio has grown from $1,523 one year ago to it's current level of $3,524. Savings and borrowed funds over the last year have really juiced our dividend growth. Over the next year I expect that this rate of growth will slow down dramatically as we rely on companies raising dividends for growth instead of mainly new funds coming in.

What I won't Aspire To Do:

Grow Net Worth By X% - This is a pointless exercise for me because I rely heavily on the stock market for net worth gains. The market is out of my control.

Accelerate Mortgage Payments - This just ain't how the moneygardener rolls. I've chosen sides already. Having a low interest mortgage and an interest in the long term prospects of investing I've set my mortgage payments on cruise control, and I like it that way.

Follow The Crowd - I'll march to my own drummer again in 2009 like I've always done. I don't care what the majority of people are doing and why. I'm sticking to our long term plan.

What does your financial 2009 look like?