Canadian Personal Finance Blog

Yesterday I revealed that carrying debt is making me sick (no not figuratively, but physically). I think people who know me aren’t surprised, but I am impressed that I confessed this truth about me.

In my situation it is better to be paying off my Mortgage and debt in a faster fashion, than worry about my retirement savings. My statement (as has many of my commenters) is that this choice is a personal choice and you should choose what makes you comfortable.

What other reasons makes paying my debt or Mortgage off a better choice for me, let’s run through a few points.

Investing in RRSP is Better Started Early

While this is true, it also assumes you know how to invest, and where to put your money. For my regular readers you realize my early endeavors in the area of investment have been at best mediocre and at time disastrous (remember my top 5 investment regrets). If I had put the money I had “invested” on my debt I might well be much closer to being out of debt, than I am towards being able to retire.

If you are confident in your abilities to invest, or have a system you think you can rely on, starting your retirement savings at an early age is a good thing (if you don’t carry debt already).

Early Retirement is an Option

For me, I think this is not likely, unless I came into a very large amount of money, and even then, I think retired would be a relative statement, since I would do volunteer work full time instead. I have a very young son (almost a second generation in our family) and by the time I will be 65 he will be 21, so my guess is I will need to keep an income of some kind (other than retirement income) for a lot longer than I thought I would 10 years ago.

Debt Reduction as an Investment Vehicle

The best investment I know I can make right now is on my debt, since I can figure out exactly how much money I will save by paying it down, whereas, I couldn’t tell you what the price of any stock might be in 6 months.  Given I am paying about 5% on my debt vehicles, I know I am getting at least that much money in savings on the money I am paying into it (i.e. I am paying that much more on my principle).

Personal Conclusions

As I have been saying all along, debt repayment is a much better thing for me to be doing at this moment in my life.  I have some equity invested in my retirement (not nearly enough I know, but some), however the ill effects of carrying debt and my aversion to that fact points me towards a more aggressive payback schedule for these debts.  Whether this plan of attack can be fully implemented remains to be seen, as the only way to tell if a plan was successful is to look back after it’s implementation.

I am always open to hearing about personal achievement stories in these areas, so please feel free to leave a comment about your successes (or failures) in this area.

Bank of Canada Stays Pat

Experts, shmexperts! All the major sites were calling for a cut to 2.75% on the overnight rate, well the Bank of Canada saw some sense and held their ground and did not cut the rates this time. I think this is a good idea given the Inflation Boogie Man is out there and I suspect he is going to come and stay for a while too!

The comment from the Bank of Canada States:

If current levels of energy prices persist, total CPI inflation will rise above 3 per cent later this year. However, with the Canadian economy operating in excess supply, core inflation is expected to remain below 2 per cent through 2009. Both total and core inflation should converge on 2 per cent in 2010 as the economy returns to balance.

Against this backdrop, the Bank now judges that the current stance of monetary policy is appropriately accommodative to bring aggregate demand and supply into balance and to achieve the 2 per cent inflation target. There continue to be important downside and upside risks to inflation in Canada, which the Bank will monitor closely.

Mortgage That’s the Ticket!

In my humble opinion, for me, I should be paying down my mortgage and debt load, and not concentrating on my retirement.

Until about 1 year ago, I had the potential to get a very good pension from my employer (the pension was capped and a new pension system put in place, although I still have some equity built up in my now capped pension), so I was actually investing heavily in a Spousal RRSP to ensure an income splitting model when I retire.

Currently I save about 8% of my income in RRSP or retirement funds (without including the new Pension that I am currently part of, that I am not sure what value it has yet).

Saving 8% annually approaches what I should be saving for my retirement as a minimum (last I heard most “experts” said 10% is a minimum you should save for your retirement). I suspect I am ok for retirement, whatever that actually means to me (given I don’t think I can retire for a long time, due to family commitments).

Wait a Minute, you said….

What do I mean by the title of this post then? I actually am on the “RRSP That’s the Ticket” side of the question of whether to invest in your retirement or pay off your debts? My answer is I think I made a mistake, and should have been much more aggressively paying off my debt load (which is not as low as it should be currently).

I make this statement as my opinion of how my debt load is affecting me. Let me be clear, carrying debt is making me sick, it keeps me up at night, it distracts me and worries me every day since I went into debt many years ago. I am confident this worry has affected my health directly, worrying about this debt and the scenarios that come from still carrying this debt, this late in my working career.

What should I be doing now is the next interesting question? I think I need to sit down with my wife and figure out how to change all of this, but we were going to do that anyhow given it is almost the end of this home finance quarter.

After last week’s “show and tell” about Mortgage worksheet calculators, the next question to ask yourself is which is more important to pay into your Retirement Fund (RRSP or 401k) or pay off your Mortgage (and debts)? Since the U.S. model has tax implications for paying off your Mortgage, and I do not wish to mention the Smith Manoeuvre for Canada, let’s just concentrate on the Canadian model.

In a lot of cases this question is of no real value since a lot of people can only afford to pay for their living expenses and do not have free money to pay for their retirement or speed up their debt payments, for those folks, the job is hard enough, but I encourage you to find savings somewhere and do something more with your found money than “party” with it.

Arguments For Paying Down Mortgage

Some of the reasons I have heard and espouse for paying down your mortgage first would be:

1. Carrying debt is dangerous no matter what the economic times, and the sooner debt is removed from your plate, the sooner you can relax about your finances.
2. Once your mortgage is paid off then you can start saving for your retirement, knowing that you will not have that expense in your golden years.
3. Paying off your Mortgage is like investing in Real Estate, which is usually a good investment.
   • I don’t view my house as an investment, I view it as an essential of life, as in shelter is somewhere you live, not where you invest.
4. You are increasing your liquidity, by having more credit available to you, in case of emergencies.

Arguments For Retirement Money

The reasons to put money in your retirement funds are many as well:

1. Retirement saving is like Golf, the sooner you start doing it the better you will be at it later. Money saved at age twenty has much longer time to double than money invested at age 50.
2. With current interest rates, you can invest your money and make more with it, than if you pay off your Mortgage (typical Mortgage rate is about 6% whereas the Stock Market’s normal rate of return is about 7%, so you are ahead in the game).
3. You get tax money back for putting money in your RRSP, but you don’t if you put that same money into your mortgage. This is important since the major expense for most of us, is still taxes.

Best Choice?

That would be telling, I’ll write some more about this tomorrow, but I am open to discussion, pointers to good articles, and any other comments folks might have about what the right choice for them was and is (remember at the end of this, it is a personal choice on your part).

Debt Reduction is like Sex in your teenage years, everybody wanted to do it, but almost none were skilled at it, and very few actually did it, and worse still, nobody dared tell you how to do it.

Do I have your attention now? Think about it, I am right and for all you folks who are taken aback or think this is a crass statement, so be it, but you know it’s true.

Debt reduction is a subject few people bring up, especially the ones that need to be helped the most, because they don’t want to appear they don’t know what they are doing, or worse that they appear as stupid to other people as the way they feel inside.

Don’t be afraid to ask for help, and don’t be afraid to talk to people you trust about what they do about this problem. Let’s take Debt Reduction out of the closets and bathrooms and into the bright light of the day!

Come to Canada, PLEASE!!!

Tourism is taking an almighty beating these days thanks to the strength of the Loonie, according to Stats Canada.

Travel to Canada hit a record low for the fifth consecutive month in March, in the wake of substantial declines in both same-day car trips from the United States and the number of visitors from overseas nations.

Tourism is an important industry in Canada, so don’t discount the importance of this decline.

Gone in 15 Minutes

That was how long it took our old Bar B Q to disappear last night when I put it out for the garbage at 7:10 PM, 15 minutes. The quest for de-crapification continues with gusto with a great deal of yard waste and most of the metal frame from a sofa bed going out in the garbage last night as well (I had cut it up with my reciprocating saw).

First a scavenger arrived and took the top and left a whole bunch of stuff, and I was quite irate that I was now left with a mass of crap strewn on my front lawn. I went out and tidied it up a bit, and went back inside, 10 minutes later it was all gone, except for the bar b q rocks, which remained in the garbage, where I had thrown them. The second scavenger had taken everything and also part of the sofa bed that I had cut up to put out for the trash (also metal), it was all gone, in 15 minutes total. Not sure what they wanted it for, but I feel foolish having bent two cutting blades cutting up the bed frame, if someone was going to take it all.

There is more room in the garage, but still more still to throw out.