Canadian Personal Finance Blog

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.

This is one way to do this spreadsheet, I used Excel but I am sure other methods are out there that may be more accurate. I use this spreadsheet as an estimate to figure out how much money I still owe on my mortgage and it gives me a warm fuzzy counting the number of days left in my mortgage. Today, I will explain the main function used to estimate your periodical mortgage payments and tomorrow I will show the Mortgage Pay Out Schedule (I’ll include an example template tomorrow as well).

Mortgage Payment Estimation

As with most calculations you will need the following information

1. Total cost of your mortgage
2. Interest rate you will be paying for the mortgage
3. How many years your mortgage is amortized over (25 years?)
4. How may payments you are going to make in a year (25.5 for bi-weekly, 12 for monthly, etc.,)
5. How often the rate is compounded
6. Starting date of the Mortgage

Put each of these values in a cell on a blank spreadsheet. The most important function to use in this worksheet is the PMT() function. In Excel the PMT() function figures out how much your payments are going to be (now the function does this for American Mortgages and really should only be used as a guide, since I have never had a Bank and this function match given the same data.

To use the PMT function is simple it is:

PMT(  X ,  Y , -Z )

Where

X = Interest Rate (yearly) divided by number of pay periods in the year (e.g.  4.75%/25.5 periods)

Y = Total Number of payments which is number of years of the mortgage multiplied by number of payments per year

Z = Total Mortgage to be repaid

Use this and you will get a good estimate of how much your mortgage payments will be (either bi-weekly or monthly).

That alone is very useful if you are trying to figure out how much how you can afford, in either bi-weekly or monthly payments.

Example

Say me and Mrs. C8j decide to really downsize and because our kids ate us out of our savings, we still end up with a $100,000 Mortgage at 5.5% and we want to pay monthly payments on the mortgage but only want a 15 year term.

The cell on the spreadsheet would look like:

=PMT( 5.5%/12, 15*12, -100000)

which would give us a monthly payment of $817.08

This is close to how much we will make in Mortgage payments per month (remember this is an estimate your BANK will tell you what they will charge). This one function can also be used for car loans and many other things, which makes it a very powerful tool.

Tomorrow, we do the mortgage schedule.

… how do you know it ever happened? I remember reading that in a Tom Clancy novel and thinking that really does make a lot of sense, and it is very important in Financial Planning. If you have a plan, but you don’t write it down, can you be sure you are following the plan? How do you explain the plan to your spouse if you have not written it down?

If you don’t write down the cheques you write and the credit card purchases you had, how can you tell if one arrives that you don’t remember is fraudulent or not? If you write it down, you at least have an argument about whether it is real or not.

Records keeping is synonymous with Financial Planning and Financial Reporting and is an also an important of your home finances, and you must keep diligent records, as well.

This came across my mind when I revisited my mortgage repayment spreadsheet, which I use to figure out just how much longer I have to pay off my house (not as short as I want it to be), but at least because I wrote it down, I now know how long it should be, if I can live within my financial plan. Without that being written down, all I have is, “Maybe some day I’ll have my house paid off”, but to me that is not enough, if I don’t have a real number in my head, I don’t have a goal, and without a goal, it is unlikely I will succeed.

Tomorrow, I’ll do a quick run down of how to set up a simple mortgage repayment spreadsheet, which is a good estimator of how many days you have left to pay off your house.

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.