Canadian Personal Finance Blog

Archive for the ‘Poor’ Category

As eyes turn towards the juggernaut coming at us called the Christmas spending orgy (I am thinking of trademarking that phrase), let me reflect on the idea of using Charity as a present.

Let me first point out that I feel that I do a fair amount of charitable work, and I do give to charities as well, so as a rule and as a concept I completely support charities and feel their good works are a wonderful thing. I strongly suggest to you, good reader, that you give at this time of the year (and all year round). Remember that giving is not just a monetary thing, many charities would love your skills and time as well, so please remember that as part of your charitable works.

What a Crock of Beans!

Now, for those of you who plan on sending me a card that says something like:

“We thought of you this holiday season and have made a donation to the Human Fund in your name”

let me be very succinct: BULLSHIT (note the Seinfeldian reference).

If you wish to give to Charity, wonderful, I applaud your giving, however, do not believe that your “giving” in any way, shape or form makes me feel more festive because of it. You giving to Charity is not a gift to me. If you don’t want to give me anything this year, that is cool, and you don’t even need a card, just drop me an e-mail something like:

“Dear Scrooge, we didn’t feel like sending you jack this year, enjoy the Holidays you unlikeable so and so”

No, I have not completely gone off my nut, but I am really kind of tired of Pious folks showing me how Good they are by “giving for me”, I give as much as I can, and that is as good as it can be.

If you want to give, please do, but don’t masquerade that it has anything to do with me, thanks. Oh and if you send out a card like that and DO NOT give, Karma and or the wrath of whichever God you worship will get you eventually (isn’t that a Happy Holiday thought as well).

Happy Thanksgiving my American Brother and Cousins

Enjoy your deep friend TurDuckEns and gorge yourself on this Happy Festival day.

For two days week we had been talking about where Risk fits in our day to day financial decision points, and I have been adding in examples of Risky Business in my life, today (finally) we wrap this whole thing up.

Previous Posts: Risks in Life I and Risks in Life II

When to Sell?

Yup this one is the big risky one that, I can assure you, I have no idea of when the best time to sell a security is, blind luck has been my best methodology. Most of my “great” financial decisions have been forced upon me (i.e. I needed to sell to get the money in question), so deciding that a security should be sold is something I am not very good at prognosticating.

I have read many books who state unequivocally that if your investment decisions are made emotionally, you will lose in the long run. Going with your “gut” is a dangerous game to play in poker and also in investing, the danger is that if your “gut” is right once, you may rely on it far too much in the future.

Take your profits is the best methodology I have heard (e.g. re-balance your portfolio) in the world of investing. If your portfolio has one area that is doing great, maybe it is time to take your profits and lock them in, instead of “letting it ride”? Maybe you are very risk averse like me (i.e. burned so many times, I have very little nerve left), if that is the case taking your profits, when you see them might be your best decision point.

Am I espousing a specific investment methodology? No, my regular readers know me better than that, you need to find a methodology that fits your needs and I am NOT in any way shape or form advising you on what to buy, what to sell and when to do either, I am simply pointing out in my case, “Take the Money” has worked. I’ll let the REAL investment blogs talk about that kind of stuff.

The risks in this scenario is obvious, take your money now, or will you have more later?

RRSP or Mortgage?

Is this a risk area? That’s a good question, I don’t think it is a high risk area, unless you are doing something whacky like the Smith Manoeuvre or something like that, if you do either of these (pay down mortgage or build up RRSP), you are doing OK.

I have seen a few different models done about the optimal model for paying down debt/mortgage and RRSP contributions, but I am very debt averse right now, and also am in a relatively stable pension situation, so my decision has been to attack debt as much as possible (with a little success).

The risk again comes down to present money value vs. possible future gains. Get a plan for how you want to deal with it and then stick to it.

So What About Risk?

As we have seen the past few days, risk comes into most major (and a lot of minor) financial decisions but you need to weigh risk against the benefits and make your decision in a calm and rational manner.

Analyze the risks, weigh them in your decision, and you should do just fine.

Yesterday we started out by discussing NFL football, and then got onto the topic of Risk and it’s importance in key financial decisions in your life. Today we continue on with more examples from my life about Risk and how it played part in my decision process.

Example 2: Exercise Options or Not?

When I worked at Nortel, I had stock options and there was always the question about whether I should exercise the options or hold onto them in case the stock went up in price. Luckily for me, they were never worth more than $389.67 (yes I remember the exact amount), and no I didn’t exercise them, because I was foolish, so that money was never mine.

Many people I worked with had the same decision to make but with MUCH larger valuations on their options, and they didn’t “pull the trigger” either. I do know a few folks who simply said, “Give me my money”, every time their options came up, and didn’t care about whether the stock might go up, they simply wanted their money, and those folks (in hindsight) are the ones who did the best in the options game.

Risks are high in options, and luckily it’s a game I won’t be playing any more.

Example 3: Buy or Lease a Car?

Many of my friends have leased cars, but I never thought for me it was a good deal. I have owned used cars most of my life (I did buy a GM product new, which luckily I had an extended warranty on) and I have typically driven my cars until they were dead (or 5 months after that), or until my mechanic told me I had to get rid of it (he did refuse to fix a Honda Accord I owned that was in very bad shape).

My view of a car is purely functional, it is not an extension of my masculinity or of my prestige, so having a new car is nice, but not an important variable for me.

Leasing usually means you can afford “more” car than you can afford, however, after 3 years you own nothing (and if you have driven it too much, or worse dinged it once or twice, you are hit with extensive punitive fees). You can simply walk away from the lease, or you can buy your car at that point, however the money you paid in lease hasn’t gone towards the car really, you are simply paying the current value of the car.

Is there risk here? If you BUY a lemon (i.e. a car that is just overrun with defects and issues) you are going to have a problem getting rid of it and it will cost a lot to maintain it, whereas you can walk away from it if you lease the car (typically the lease period and warranty period are about the same time frame).

I’ll continue to buy cars, unless I get a job where leasing might make sense (i.e. you can write off the value of the lease as a percentage of how much it is used for your job/business).

Tomorrow: Final examples and an epilogue

On Sunday NFL Coach Bill Belichick (of the New England Patriots) took a calculated risk and instead of punting on a 4th down late in the game he tried to make the 1st down. This in itself is not that risky a play in Football, however there were circumstances around this choice that made the decision very risky:

1. His team was leading at the time by 6 points (more than a field goal, less than a converted touchdown)
2. The ball was on the Patriots 28 yard line
3. There was 2:08 left in the game
4. His team needed to get 2 yards on the play (not a small amount).

If he punts the ball to his opponent he leaves the game in the hands of his defense, and his opponents most likely have to cover over 80 yards to score (and must score a touchdown not just a field goal).

The risk (in my opinion) was far too high for the decision made, and in hindsight the decision was proven wrong, as his team failed to get first down and left their opponents only 28 yards to score a game winning touchdown (which they did), but it is easy to second guess that kind of decision after it has been proven wrong (i.e. Monday Morning Quarterback club, which I am a charter member)

So What?

So what does this have to do with Personal Finance you might well ask?

Do you take into consideration all the risks that are part of your financial decisions? Do you look before you leap, or do you just roll the dice and let the fates take care of things for you?

Risk is involved in all decisions, and you can paralyze yourself worrying about risks, especially in personal finance, but with larger financial decisions it is imperative to think about what you are about to do, and what risks are involved in the decision.

Let me run through a few personal experiences with major decisions and risk.

Example 1: Lock In or Float?

With folks buying their first home, the question always arises, should you lock in your interest rate, or should you go with a lower but floating interest rate? Back when I was looking at houses for the first time, I locked in at 11% thinking I was getting a great deal (given interest rates had been at 18% previously), so I locked in for 5 years. The decision was made because we could afford the payments at that rate and didn’t want any surprise increases in our budget.

The decision was wrong in hindsight because interest rates dropped to much lower rates after that, but I don’t view that as a wrong decision, more a conservative decision.

I now live on a floating interest rate loan vehicle, because I can withstand a sudden sharp interest rate increase.

The risk here is, can I withstand catastrophic interest rate increases?

Tomorrow: More examples…

That was the label I put on the Pay Day Loan and Cheque cashing shops, but I think I will revise my statement, not wanting to put Pornography in a bad light (given how much of the Internet was built because of it, I don’t want to seem to be biting the hand that fed me).

Financial Head Shop

I am revising my statement saying that Pay Day Loan and Cheque Cashing places are actually the same as Head Shops (financially at least). 

Head Shops are where you buy the paraphernalia and “bits and bobs” you need for your drug habit (e.g. bongs, rolling papers, Bob Marley T-Shirts, etc.,  just ask Michael Phelps he can fill you in on this). 

Pay Day Loan establishments are like Financial Head Shops and use the same arguments as well. “…We don’t make our customers use our services, we are simply supplying a needed service to our customers…” (talk to a Head Shop owner, you’ll get about the same statement of business (i.e. if we didn’t do it, someone else would)).

No matter that you are charging at a rate that would make “Olaf the Loan Shark”  blush, or that once someone starts using a Pay Day Loan it is very hard (nearly impossible) to get out of the cycle (sounds like a bad habit, like say, drugs?). It is a service to take a $5 service charge off a Government cheque that any bank SHOULD cash for anyone who has sufficient identification. 

Sorry folks, guess I woke up on the bad side of the financial world this week. I do like the comment yesterday about how the picture I posted looks a lot like an old time strip club (given the amount of Neon lighting used), that comment I had to chuckle at (glad to see my readers have as twisted a sense of humor as I do).

Senators Ticket Sales Down

I enjoy listening to Sports Talk Radio, just because of it’s silly inane nature and you don’t have to think much, but I caught myself getting quite agitated by a statement by the TEAM 1200 morning crew complaining that people aren’t going to games in Ottawa only because the team stinks. Being a Montreal Canadiens fan (sorry, if you grew up in Montreal when I was a kid, you were a Canadiens fan or you got the crap beaten out of you), I thought it was funny, but then I got agitated.

How naive and obtuse to think that the only reason people are not paying from $20 to $200 a ticket to go out to a Hockey game being simply an “I don’t like the team” decision. I rarely go to games, but am still a big fan of Hockey, because I cannot justify spending upwards of $100 to $300 for a single night out (parking, a beer, popcorn and a ticket), it’s as simple as that. Yes the Senators are not playing well this  year (no big revelation there), but I still think another reason every game is not sold out is that folks are worried about money.

If the team’s record had anything to do with folks buying game time tickets, the Maple Leafs would not have sold out pretty much every game in the 80’s (and trust me those were teams it was painful to watch for FREE).