Canadian Personal Finance Blog

Bank Rate Cut

Rates are down by 1/2 a percent again folks. Nope not time to borrow more, time to pay down now!

Bank of Canada lowers overnight rate target by 1/2 percentage point to 3 1/2 per cent

OTTAWA – The Bank of Canada today announced that it is lowering its target for the overnight rate by one-half of one percentage point to 3 1/2 per cent. The operating band for the overnight rate is correspondingly lowered, and the Bank Rate is now 3 3/4 per cent.

Information received since the January Monetary Policy Report Update (MPRU) indicates that economic growth in Canada through the four quarters of 2007 was broadly in line with expectations. Domestic demand has remained buoyant, as rising commodity prices and high employment have continued to support income growth. Canada’s net exports weakened further in the fourth quarter, reflecting the slowing U.S. economy and the impact of the past appreciation of the Canadian dollar. Overall, the Canadian economy remained above its production capacity at year-end. Core and total CPI inflation – at 1.4 per cent and 2.2 per cent, respectively, in January – have also been consistent with the Bank’s expectations.

Back to March

A new month begins for us and we end up with lots of interesting questions and topics to think about for this crucial month in the fiscal year (both at home and investing):

• Q4 results are being announced by many important companies and the stock market has been diving fast. Is it time to buy? Who the heck knows? Follow your investing plans and figure it out yourself.
• Have you paid off Christmas yet? It’s March, you should really be planning next Christmas by now, but if you are still paying Christmas off, keep that in mind for your plans for Christmas 2008.
• How has your financial plan for 2008 been going? At the end of this month, you will have finished your own Q1 (time to update your Personal Finance Quarterly Status Report), and should really do some kind of report on how things stand in terms of your plans too. If you don’t keep this up to date, how do you know where you stand?
• I will attempt to resurrect my “No spending at work” plan, which kind of fell apart in February but I will attempt to begin again (given I will be out of the office a lot this month, it might be easier to succeed as well).

A special Friday this week, given it is February 29th, the bissextile day, an extra day for our year, so enjoy this extra day. Have a Leap today!

• With this extra day you have today to finish up your 2007 RRSP purchases if you wish.  Given how down the markets have been, you might find some deals (or you might be buying tainted meat too, I can’t tell).
• Tomorrow is Saint David’s Day (the patron Saint of Wales). Buy a leek and watch a Rugby game.
• You are supposed to have received all of your relative tax forms by now as well (T-4’s and such) so you can now do your taxes. My employer waits until the very last day before sending my tax forms out.
• The Federal Budget passed a confidence motion yesterday, so TFSA’s are a step closer to coming into laws.
• CIBC took a massive write down from the Low Rate Mortgage scandal in the U.S., which means their stock is tanking even further. TD on the other hand announced a tidy profit and an increase in their dividends. A tale of two Banks?
• I am attempting to get back on the horse and STOP spending money at work again, due to another announcement this week.
• I continue to fill in my net income on financial aid questionnaire’s for various universities, which makes me wonder, what do THEY do with all this information? Once they tell me, “You are too stinking rich to deserve financial aid”, do they simply shred my information? I really hope so, because they ask some very SPECIFIC questions (values on specific lines of my tax forms).

Have some mushy peas and maybe some leek soup and enjoy your Saint David’s weekend.

Wow, now given most of the budget was kind of blah, but there were a few things that affected me personally:

• RESPs are now 35 years in life, which is good to hear (I think). Does this mean my kids can lounge around the house claiming they are getting ready for University?
• More money for the Canadian Student Grant system, which is good, if my kids can get the money, I hope.
• They are paying down the National Debt which is not just for me, but still a good thing to do.

The TFSA A Real Interesting Twist on Things

This was the big funky twist that I didn’t see coming, and neither did most other financial pundits, but it looks and sounds like an interesting idea. Here in a nutshell is what this little financial jewel is (from the Budget 2008 web site):

Tax-Free Savings Account (TFSA)

Canadians need all the help they can get to save money.

The TFSA will allow Canadians to watch their savings grow tax-free throughout their lifetimes.

Canadians can contribute up to $5,000 every year to their TFSA and carry forward unused room to future years. There is no lifetime limit and no tax on investment income earned, including capital gains.

The TFSA can be used any way you like—for example, to buy a new car, pay for an emergency, finance a child’s wedding or bankroll a dream family vacation.

The Canadian Capitalist points out that this account can be used for Income splitting as well, good idea! Now all I need to do is find $5000 a year I can invest… hmmm….

So do you put your money in your RRSP first until it is full and then you put your left over moneys in your TFSA, or vice versa? Interesting question, any theories out there? Who will be the first financial institution to have a TFSA account? Self Directed, of course! Do you put money in your TFSA instead of paying down  your Mortgage?

Election?

Not likely, if the Liberals, BQ or NDP brought down the government on the basis of this budget, I think they’d look pretty darn foolish (but then again, we are talking about politicians too).

Jim Flaherty is poised to announce his new budget and instead of the tradition of the finance minister buying a new set of shoes, instead he had his existing shoes re-soled, which I think is a message to say, “Tighten your belts folks, leaner times are ahead” (at least that would be my spin on it). Interesting that he can make that statement given the government is about to announce a $13Billion surplus, which will mostly be used to pay down the national debt (which I agree with as a tactic for using surplus spending, however, I am not happy with the enormity of the surplus itself).

Some new measures may be brought in but it is unlikely to effect (affect?) my wallet too much. The fact that this is the 3rd budget for Mr. Flaherty for a Minority government is quite the achievement.

Stock Options

I have worked in High Tech all of my career, but I think I am one of the few folks who never, ever had a chance to cash in a large amount of stock options for their company. I just never got options until very late in the game and then they became worthless quickly. I state this as a preface (and as a whine as well).

Yesterday I sat down with a couple of co-workers and this topic came up and I was shocked to have them both admit to me the amount of money they “left on the table” with their options. I am assuming they did make some money on options, but the amounts they both quoted me as potential profits they didn’t act on caused my head to spin (well over a million dollars combined).

Why would you leave that kind of money on the table? Here are some of the reasons I know of:

1. The options had not fully vested. In this instance I don’t view that as lost money, since you were unable to do anything about this, and you shouldn’t beat yourself up about this “lost potential money”.
2. I thought the stock would recover. I guess we can see that one, was not a good strategy, in hind sight we can see you should have taken the money and run.
3. I was waiting for the Stock Options Tax changes. That one had me scratching my head, but I guess it’s a valid reason.
4. I bought the stock with my options and then held it to live on dividends and capital gains. That one is the most lethal mistake that I have heard. These people really did lose money on this, because they spent the money on the options and then got nothing for that money. The previous three “mistakes” didn’t lose you real money, it just lost you potential money, this one lost real money.
5. My options were never worth more than a $1000 ever . That is my excuse, I feel like the Eunuch at the orgy sometimes, never got anything out of this whole thing, oh well.

At the end of it all, lost potential money is much like Love Lost, not much you can do about it, so you might as well forget about it.

Any other High Tech Stock Option stories out there?