Canadian Personal Finance Blog

Where are your savings?

I guess a better question is “Do you have any savings?“, before asking “Where are you putting your savings?“, but which is the better question to answer?

Do you put most of your savings in RRSPs or do you have it easily at hand in a trading account? Are you really traditional and have your money in a nice save “Savings Account” (which pay effectively no interest)?

Is Should you have savings, an even more interesting question? If you are carrying heavy consumer debt (i.e. pay day loans, credit card loans and the like), should you have money in savings, or should you be paying off that debt? Is it smart to have a “rainy day” fund if you are already in a financial hurricane of debt?

If you find money (i.e. windfall profits, inheritance, or won a beauty pageant) is it better to save it, or should you use it to pay down your debt? Is this really found money, or should you really just view it as an extension of your normal income and treat it that way? Can you show me where you found this money, so I can maybe find some too?

What if you are really lucky and have no debt to deal with, is that the time to start worrying about saving money, or should you have started sooner? Should you put your savings in RRSPs or is it smarter to put the money in a traditional trading account and build up wealth that way?

Does anybody still buy CSBs? Why? Are bonds as safe as you think they are?

Why did I write an entire post of questions today? Am I hoping you might comment on these questions? Isn’t it interesting, that someone who always asks questions is called an expert, yet they never seem to have answers?

Did you notice I never really answer any questions?

For my regular readers, I am so lazy swamped over the holidays that I am taking some time off and putting up a “Best of” anthology until the New Year (January 4th to be exact). Enjoy two Best of posts a day over the Holidays and have yourself a Merry Christmas and Happy New Year.

Todays posts are diverse in that they talk of Debt and it’s ability to sneak up on you and how Cable over usage can happen when you aren’t looking as well!

I Didn’t Know I was That Far In Debt!

I have found two new guilty pleasure shows on TV, one is 16 and Pregnant on MTV (that one I can’t even talk about right now, I’ll save that for a separate rant) the other is “I Didn’t Know I was Pregnant” where women explain how they can go 9 months carry a child and then claim they never knew they were pregnant. ……

Click here for the complete Post

Rogers Cable and Overruns  (2009/08/25)

One of the problems of having a lot of computers around my house and having a large number of teenagers is that my Internet connection does get heavily used, but I hadn’t had any problems until last month.

Click here for the Complete Post

So the Bank of Canada announced on Thursday that one of the threats to the on-coming recovery in Canada is that Households are holding too much debt. To be specific:

The vulnerability of Canadian households to a deterioration
in economic conditions has risen in recent years, as
aggregate household debt has increased in relation to
income. There is thus a risk that a shock to economic
conditions could be transmitted to the broader financial
system through a deterioration in the quality of loans to
households.

The report outlines that the levels of indebtedness in Canada are nowhere near catastrophic levels, however, we are heading in the direction that may lead to that kind of failures in the system. Remember I have been a bit of a broken record that maybe it’s time to start paying back debt, instead of picking up more debt now. The report also points out that if the “recovery” dies off and we go back into the economic “crapper”, household debt failures are going to happen a little more often.

There may come a time when lenders in Canada may tighten the purse strings and turn off the credit taps, and that would be an inconvenience but not a big issue to some folks. If they decide to rethink or revisit existing risks in the system that is when we can start seeing interesting scenarios like banks refusing to re-new Mortgages of existing customers (not likely, but if you have debt still a remote possibility).

The only absolute way to not have to face this possibility is to get out of debt and then you have control of your own finances. Much like the only absolute form of birth control is abstention (the Vatican is correct on that one, unfortunately), the only sure way not to have issues with your Debt Vehicle, is to retire it quickly.

(Sorry about the Planned Parenthood reference, one day I’ll write about how Vasectomies are not fool proof either).

Uncomfortable Subjects with Kids

Larry MacDonald asked me a few questions for an article he is working on, and it caused me to think a bit more about a subject that it is important as parents to talk to our kids about. This subject is taboo in most families and is certainly not a normal dinner table topic, and I must say that as a child growing up my parents never brought this subject up, and I must also admit that most of what I learned about it initially I learned “on the street”.

What is this taboo subject, that so few of us talk to our kids about (and heaven forbid ever want to educate them about)? No, not the one you were thinking (although my parents never talked about THAT either), but the subject of Debt. My parents did talk about Money, but mostly in platitudes about the importance of saving and knowing how much money you earn and working hard (the Anglo-Catholic work ethic).

The subject of DEBT was taboo, and I suspect it is in many houses, because parents feel squeemish talking to their kids about this important topic. Admitting to your kids that you carry debt seems almost to be like talking about whether you did drugs as a kid, or when you lost your virginity (nope haven’t talked about either subject with my kids either).

As a youngster the first time I heard about DEBT and borrowing was from a school chum, who said his Dad had got some money from HFC (Household Finance) and at the end of the month he had to pay back MORE money than what he had been loaned. This concept seemed completely foreign and weird to me, and I believe I may have brought the subject up with my parents, and they may have dismissed it with a, “Well, never deal with a company like that….”.

There was an opportunity to teach a young mind about debt, and borrowing, but an opportunity missed in this instance.

You don’t have to go into gross details about your debt to your kids, but explaining to them what debt you have, and better still WHY you have that debt may be an important lesson to teach your children.

An example would be explaining about your Mortgage and why you carry that debt. Kids think you own your house (I know I did) and I didn’t really figure out that my parents didn’t own the house until I was graduating high school and there was talk of Mortgage burning parties and such. Having kids understand what a mortgage is for (and maybe what it is NOT for as well), helps them understand what Debt is, and the more they understand Debt, the less likely they are to get themselves into a “Debt Jam”.

Too many kids I know have no idea what debt is, or worse, don’t seem to care how it can disrupt, strain or even destroy lives and relationships. If your kid grows up with the following cause and effect model:

I ask Mum and Dad for an Iphone -> They argue about it, say that it is too 
expensive -> I keep asking and finally they buy it for me -> They get mad
at me when I lose it or use it

what are these kids learning? Did you have to go into debt to buy this toy? Can you afford to pay for this toy? Does your kid value this toy? (I believe in this example the answers are: Nothing, Yes, No, and No).

Teach your kids about Debt (aka the 800 pound Rhinoceros in the room) and encourage them to learn about it themselves. Don’t let them learn about it on the streets!

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.