Canadian Personal Finance Blog

I found a few years back that the time I spend commuting and running errands as time lost. I wasn’t doing anything, so I decided to start to listen to books on cassette. Over the years I have listened to many novels (many abridged), and enjoyed this time that much more.

When I started writing here, I noticed that many financial advice books were starting to get published on cassette and on CD and so now I tend to listen to them in my car as well. Is this the best way to absorb research and ideas? I have no real idea, but I find that it does pass the time nicely, and if an idea is a good idea, it does tend to stick in my head.

Naturally I cannot afford to buy all of this material, I borrow it from the Ottawa Public Library which has an amazing on line system for putting items on reserve and an easy method to pick them up. They also have an ability to download materials onto your PC and listen to them there (for a fixed period of time). Typically if a book is quite useful I may go out an purchase it (that rarely happens), but the library allows me access to a wealth of information that I would not normally have access to.

I have a friend who also does this, but he tends to store the books on his iPOD for later listening pleasure, which is a great idea as well.

National Debt Update

Stats Can put out yesterday a statement about the Canadian Federal National Debt:

At March 31, 2007, the federal government’s net financial debt (defined as the excess of liabilities over financial assets) decreased to $508.1 billion, a 1.2% or $6.0 billion decline from March 31, 2006. An increase of $5.1 billion in financial assets and a decrease of $0.9 billion in liabilities explain this drop. The federal government net financial debt has decreased for the 10th consecutive year, a decline of $80.3 billion from 1997 to 2007.

So the debt has dropped $80 Billion over 10 years, that is not bad, about a 14% drop, and if they can keep this pay back velocity it will only be another 65 years until the debt is finally paid off. I guess it’s better than going farther into debt?

U.S. Interest Rates Down Again?

Another 0.5% drop by the U.S. Federal Reserve yesterday to help prop up a faltering U.S. economy, which caused the Canadian dollar so sore above it’s American cousin for the first time in a while. My guess is the Bank of Canada may follow suit some time in the future, but don’t hold your breath either. Evidently Canadian banks are actually raising their long term Mortgage rates (announced in the past week or so). This suggests that this drop in interest rates may be a very short term thing. TD Canada Trust updated their interest rates (available through an RSS feed) on Tuesday.

From the archives and now from the new Favorites page, one of my favorite financial metaphors (note that Carleton is now the 5 time Canadian Champions):

Don’t Pass it to the Other Team!

So one of my sidelights is coaching basketball, and I love going to clinics from coaches who talk about coaching and plays and stuff (I’m an old gym rat at heart). Last Saturday I was lucky enough to hear from Dave Smart who is the head coach at Carleton University (the Ravens have been Canadian Champions the last 3 years running), and he was fascinating to listen to. Coach Smart admits to being a perfectionist and telling it like it is, and one of the expressions he tells all of his players is “Don’t Pass the ball to the other team“.

The first time you hear this expression it sounds obvious, of course, who would do that, but what Coach Smart was trying to say (I think) is most basketball players watch their own players, but rarely see the other team’s players. If you watch the defensive players, you won’t pass it to them! Simple, right? No! You know where the offensive player is going to go, you don’t know where the defender is going, and you need to watch them!

What does this have to do about finances? (Darn good question, get ready for a stretch here) Don’t take your eye off things that you can’t control, the stuff you can control: your savings, your retirement, your investments, your debt reduction plan, if they are under control that is good (and hopefully you don’t have to watch them as well).

You have to plan for the things you don’t control, and that means:

• Reduce DEBT! You can’t control interest rates, you can’t move forward with your car in reverse. Debt reduction is first and foremost. Everything else can be dealt with much more easily if you are carrying little or no DEBT!!!
• Have contingency funds in place for:
  • Car repair. I am guilty of that one, car repair bills always throw me off kilter
  • House repair. I am going to get a major bill to replace the roof and furnace on my house, but they had to be done. If your house is new, you’ll need to replace these things in 15 years, but in 15 years, if you haven’t saved any money for it, it’s going to HURT!
  • Catastrophic illness. I have long term disability insurance with my company just in case. If I had a stroke tomorrow, my family would at least have an income of some kind.
  • Loss of employment. If you lose your job, how long will you last? A priest once told me everyone is 12 weeks away from living on the streets, make sure you are not one of those folks
  • Death! Term insurance to protect your family, and a will to protect them even more (thanks Dividend Guy, for pointing out I missed that).

These are SOME of the unknowns, that you need to watch for, and not pass the ball to them!

Hope for the best, and plan for the worst! –C8j

As part of the capping of my pension and putting me into a different kind of pension, my company automatically put me in the stock purchase plan, where every quarter the company will allow me to purchase stock in my company at a 15% discount (which in turn becomes a taxable benefit and I am taxed at the end of the year for that 15% discount) very quarter year. This stock is then available to me, to do with what I want, and the amount of my pay cheque that I wish to commit to this stock purchase plan is variable as well (currently I have started at a very low percentage), up to a maximum of 10% of my salary (and there is a monetary value which is a maximum that you can purchase in the year).

Is this a good thing? I don’t really know, but let’s weigh a few points:

• If I hold this stock, I am investing more money in my company. As has been pointed out by a few of the financial bloggers, I am already heavily invested in my company, in that they pay my salary, now I am putting more money into this company. Putting this many eggs in this basket might be imprudent, with any company (unless you are working for a bank, in which case invest away).
• If the company stock is volatile, holding the stock could mean that I get taxed on the 15% discount (as straight work income) however that value may disappear from the company stock, and thus I will be taxed on something that does not exist any more.
• Are there other points I am not thinking about? I’m open to further points that I might be missing here.

So the obvious strategies for this are:

• As soon as the stock is available to me, sell it right away, and realize the 15% discount and then invest it in some other investment vehicle (presumably something less volatile than the stock might be).
  • A corollary to that would be sell the stock right away and take this money and put it on the largest debt that I currently have (Mortgage or Car Loan), given the money has already been segregated from my normal funds. I still have to pay the 15% discount, but that is now thrown onto a debt accruing interest already.
• Transfer the stock into my RRSP right away, and thus hide the 15% discount in the RRSP and have an 85% add into the RRSP, and then either hold or sell the stock on the basis of how comfortable you feel holding it.
• Hold the stock as an investment vehicle, and continue to hold it in that fashion. Set up stop sell rules for it, and forget about it.

I’m not completely sure what my plan actually is going to be, but for now I am leaning towards the corollary of idea #1 (Grab that Cash with both hands and, pay some bills (to paraphrase Pink Floyd)).

Any ideas from the readers?