Debt Limiting Idea

As I have written in the past I have a huge backlog of unfinished ideas, and thanks to a vile chest infection, I am dipping into this odd array of unfinished ideas. This one I think crosses a few lines (i.e. in poor taste), but it does have a point to it.

I was trying to think of how banks might slow down the tsunami of debt that seems to be accumulating with all of these cheap interest rates, that we currently have in Canada, and I have come up with a brilliant† idea, that will never (ever) be implemented (because banks make money if you are in debt, so this fantastic idea is counter to their profit line).

† – Where brilliant could be translated to sarcastic as well

Debt Tatoo

Nifty Looking Ink Eh

The important technological step that is needed is erasable tattoos, which are being developed (well the inks are) as we speak.

Here is the idea, you go into your local banker, and you want to borrow a large sum of money, and your banker offers you the following

Get the word Debtor tattooed on the back of each hand, and you can have the loan for a 25% discount on the current lending rates. When the debt is repaid, the tattoos are removed. However, if you show up with one of these tattoos, you are automatically refused.

There would have to be subclauses about if you tried to alter the tattoo, or hide it in some fashion you’d have to pay a penalty but wouldn’t this be a great idea?

Too harsh? All it really would do is drive folks to alternate lenders, I doubt it would slow many folks down.

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Stats Canada published the Consumer Price Index a little earlier this month (this past Thursday), and as I guessed the continued oscillations of Gas prices has caused the January CPI to seem to suggest that prices only rose 1.0% year over year, which of course, is more fun with numbers. Without gas prices included the actual CPI is around 2.5%, and with gas prices going back up 25% this past month, look for a not so happy story in February.

CPI with and without gas prices

CPI with and WITHOUT Gas prices for the past little while

The major increase that impacts everyone is the 4.5% increase in Food prices, to quote Stats Canada:

Food prices advanced 4.6% on a year-over-year basis in January, the largest gain since November 2011. Prices for food purchased from stores were up 5.4% in the 12 months to January, following a 4.2% rise the previous month. Prices for both fresh fruit and fresh vegetables posted higher year-over-year increases in January than in December. Consumers paid 2.8% more for food purchased from restaurants in January compared with the same month in 2014.

Given all the cogitations of fuel prices the price of food has been steadily going up, and making it a lot harder for lower and middle-income Canadians to feed their families.

CPI for past little while

Seasonally adjusted CPI for past 5 years or so

Bank of Canada’s core index

Let us hope that the Bank of Canada has a more sane view of inflation?

The Bank of Canada’s core index rose 2.2% in the 12 months to January, matching the increase in December.

The seasonally adjusted core index rose 0.2% on a monthly basis in January, matching the gain in December.

Well, it is closer to the real numbers, but I suspect we will continue with our over-stimulated economy for a while longer.

Consumer Price Index, major components and special aggregates

A usual, I will include one of the big tables for you to see just how interesting all the numbers are, and you do the comparison on things.

 

Relative import1 January
2014
December
2014
January
2015
Dec 2014
to Jan 2015
Jan 2014
to Jan 2015
% (2002=100) % change
All-items 100.002 123.1 124.5 124.3 -0.2 1.0
Food 16.41 133.0 137.4 139.1 1.2 4.6
Shelter 26.80 130.5 133.0 133.1 0.1 2.0
Household operations, furnishings and equipment 13.14 114.7 117.8 118.0 0.2 2.9
Clothing and footwear 6.08 89.2 91.1 91.1 0.0 2.1
Transportation 19.10 129.2 124.9 122.4 -2.0 -5.3
Health and personal care 4.73 118.3 119.6 120.0 0.3 1.4
Recreation, education and reading 10.89 104.7 106.1 105.6 -0.5 0.9
Alcoholic beverages and tobacco products 2.86 140.9 149.1 149.9 0.5 6.4
Special aggregates
Bank of Canada’s core index3 85.39 121.3 123.7 124.0 0.2 2.2
All-items excluding energy 92.21 120.1 122.5 122.9 0.3 2.3
Energy4 7.79 160.2 148.7 139.5 -6.2 -12.9
Gasoline 3.84 179.5 149.9 131.3 -12.4 -26.9
All-items excluding food and energy 75.80 117.3 119.3 119.5 0.2 1.9
Goods 46.68 114.2 114.6 114.0 -0.5 -0.2
Services 53.32 131.9 134.5 134.7 0.1 2.1
  1. 2013 Consumer Price Index (CPI) basket weights at December 2014 prices, Canada, effective with the January 2015 CPI.
  2. Figures may not add up to 100% as a result of rounding.
  3. The Bank of Canada’s core index excludes eight of the CPI’s most volatile components (fruit, fruit preparations and nuts; vegetables and vegetable preparations; mortgage interest cost; natural gas; fuel oil and other fuels; gasoline; inter-city transportation; and tobacco products and smokers’ supplies) as well as the effects of changes in indirect taxes on the remaining components. For additional information on the core index, consult the Bank of Canada’s website.
  4. The special aggregate “energy” includes: electricity; natural gas; fuel oil and other fuels; gasoline; and fuel, parts and accessories for recreational vehicles.

Source(s):

CANSIM tables 326-0020 and 326-0031.

 

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RRSPs, Saint David, Right Arm and #BestOfThisWeek

Hope everyone is enjoying the festive last week of RRSP season and for those who enjoy getting that last minute Income Tax break buzz, you have until Monday next week to get your last minute RRSP contributions in place, to get a break on your 2014 taxes. As I mentioned this week, maybe we should have this kind of excitement for TFSAs? It’s not necessary as the limits carry forward for you (another reason to like the TFSA more than the RRSP).

Daffodils and Wales

The Daffodil a True Sign of Wales (and spring I hope too)

Sunday is Saint David’s Day for my Welsh brethren. Wales plays France on Saint David’s Eve, let us hope for a festive win to help usher in this happy day.

Dydd Gwŷl Dewi (Sant) hapus

I gave blood again this week, and due to a small pimple on my regular “giving arm” I gave with my right arm this time. Always an exciting time, but it worked just fine, and I can now feel pious for Lent, knowing I helped someone out. Have you given blood lately? If you can, why not?

The Rideau Canal has set a record for number of days open this year, we in Ottawa hope it won’t still be open in May.

My Writings for Week Ending February 27th

I did enjoy the festive feel for this final week of RRSPs, and my twitter feed was peppered with useful RRSP commentaries :

  • Didn’t hear if anyone used my RRSP Bingo card for their RRSP purchases, I hope someone had fun with it.
  • What order do you do your savings RRSP then TFSA ? I have a different idea, but if you are a regular reader you can guess my point of view on this.

TigerDirect (CA)

Click here for many more great financial stories

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RRSP then TFSA ?

Given it is nearly the end of the festive RRSP season, I figured I’d cover one of the most asked questions folks have asked me (more than once), “Should I put my money in my RRSP first or my TFSA?”. For most Canadians, it is an interesting question to ask, but I think I have found the definitive answer the question on the order in which extra money should be used. I think the following explains it clearly:

Pay off your debt first¹

¹ – If you do not have debt please take the advice later on in this post.

Seems pretty straight forward doesn’t it? Maybe I am not being clear enough here, maybe I need a list of 10 Ways to Save ? I doubt it, you get my point.

Now that we have cleared up that one, let’s move on to the real question, which savings vehicle do you try to max out, if you are out of debt?

My opinion is that you should be putting as much as you can (within the guidelines and limits of the CRA) in your TFSA. If you have reached the maximum levels for your TFSA, then you can start thinking about your RRSP (which shouldn’t be too hard, given the low yearly allowances on the TFSA).

Why?

  • When you look at the balances of your TFSA you are (in most cases) looking at money that you can have, and use (after brokerage fees or whatever similar costs might be involved). Depending on your portfolio, a TFSA is available in a short period of time, and when you transfer funds out of it, you can use that money without having to worry about paying taxes or the like.
  • With an RRSP, you can withdraw money, however, on top of the brokerage fees you might pay, you are also going to have to pay the CRA. If you have made no money in the current year, the tax will be low, however, if you are John (or Jane) Paycheque, earning a normal income, taking this money out is going to cost a fair amount in taxes. The RRSP is there for when you have lower income (later in life) and thus taking money out of it will have you incur lower taxes (lower than when you were working). Yes, if you put money into an RRSP, you will get a tax refund, but, that “refund” will get repaid to the CRA when you take the money out of the RRSP (hopefully less than your refund initially).

This is my opinion, I think there is no wrong choice here, maybe do both, but you must unburden yourself from debt first, then figure out how to save. Keep that in mind this RRSP season.

 

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RRSP Bingo

One of my favorite games that I used to play at work, would be Meeting Bingo, where someone would print out a Bingo card with a whole bunch of buzzwords, or acronyms that might be used in the meeting, and you tried to fill up your card (although it was very bad form to yell BINGO! in the middle of the meeting).

With this being the last week of RRSP contributions for Tax Year 2014, allow me to give you an RRSP Bingo Card, that you can take with you if you are going to visit a bank or investment institution, and see how many of these terms get used in your meeting (or just how many of these terms are used in Financial Articles this week).

Remember in Bingo, you can win with a single line, but you can make it more challenging if you try for a:

  • Make a cross (i.e. two lines that cross in the middle)
  • Fill the entire card
  • Fill two Rows of columns
  • And many more
Have fun, but remember not to yell BINGO! if you win

RRSP BINGO

B

I

N

G

O

Spousal RRSP

Balanced Fund

Low Risk High Yield

Home Buyer’s Plan (HBP)

CPP Collapse

Common Sense Investing

Pension Shortfall

Kids Won’t Help

Living in a Van Down by the River

Pension Adjustment

Estate Planning

Market Linked GIC

FREE

Whole Life Insurance

Long Term Planning

Contribution Room (or RRSP Limit)

Stock Market is Dangerous

Retirement Lifestyle

Cash Flow Goals

Locked in Retirement Account (LIRA)

Interest Rates

Lifelong Learning Plan

Financial Security

Whole Life Annuities

The Tax Man

Feel free to comment about other “annoying” or “fun” RRSP terms that I am missing from my game card.

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