I continue to clean up my huge archive. Many times I simply delete old silly content, but this topic is still valid. If you carry a large credit card balance, and make only minimum payments, you are in for a shock. Look for how long it will take to pay off the balance (it must be in your statement). This was originally published back in 2010.

My current credit card balance is quite large this month due to a bunch of specific previously planned expenses (and a couple that we hadn’t planned).  The bill will be paid on time, so there is not too much worry about starting a cycle of credit card interest charges (at least that is my plan, unless I forget to pay on time).

Having wandered through the wonderland of spending, I tripped across the following sentence:

credit card minimum payment
Example of how long a minimum payment will take only 18 years eh?

19 years? Aye Carumba, that is an astounding time frame. So my estimation if we were making this same payment that the effective yearly rate is about 20% and I’d end up paying in total about 500% of the initial amount on the credit line once all payments are made, pretty cool eh?

I realize that sometimes folks spending gets out of control. Sometimes, bad things happen that knock you off your financial feet. If this happens you must fight to get back to paying off the entire balance of your credit card monthly. The interest rates on Credit Cards can be over 20% and will dig a deep financial debt hole for you.

Some ideas you can do to stop paying Credit Card interest:

  • Set up an unsecured line of credit. This can be good, if you treat is as an Emergency only credit vehicle. Typically this has a lower interest rate, but it has risks. If you habitually use the LOC to pay off Debt, but can’t pay off that balance, maybe this is not the way to do it.
  • Consolidation loans or consolidation into your mortgage sounds good. If you use it once, it can get you back on track. If you use it habitually, that is a very bad thing. You are digging a bigger debt hole, more slowly.
  • Borrow it from your family or friends? A last resort, and it can destroy relationships, but it could work, short term.
  • Pay Day Loans? Absolutely, positively NO! Go talk to a licensed insolvency professional before you do this.

The amazing things you can read on your credit card statement.

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RESP: Free Money Folks

Found this classic from many years back (2006). Added a bit of spit and polish and updated the data as well. To get more information and more about how I used the RESP Program, see my RESP page.

For those of you who don’t know about the RESP program (and are Canadian of course) you need to learn about it. It is for folks with kids under the ages of 17. This program is free money from the government for your kids to go to post secondary training program. It is not just University programs, college programs and post secondary technical programs also fit into this. As always, do the research about the programs covered.

The CESG

For up to $2500 you put in every year the government will kick in a percentage of their own depending on how much money you make in the year:

  • If your family income is greater than $98,040 or so, you get a 20% one time kick in from the government. This means if you put in $2500, it turns into $500.00 within 3 months
  • If you make less than $98,040, there is even up to $550 to be had in CESG (Canada Education Savings Grant)
  • If you make less than $49,020, there is $600 available

The maximum CESG for each individual in the plan is $7200.

The Canada Learning Bond (CLB)

…provides an additional incentive of up to $2,000 to help modest-income families start saving early for their child’s education after high school (post-secondary education)

Canada Learning Bond (CLB)

The CLB is available for children from low-income families born in 2004 or later and provide an initial $500 for the first year the child is eligible, up to age 15, plus $100 for each additional year of eligibility, up to 15 years for a maximum of $2,000.

RESP is After Tax Money

So the catch is that an RESP is not like an RRSP, in that the money put in is treated as after tax money. You don’t get to write it off your taxes, like an RRSP. Your kids also have to go into a recognized post secondary training program, or you lose the one time grants as well. However, these things are TRANSFERABLE to other children and even spouses, but they do have a set time period as well (but don’t take my word on this, READ first).

On the positive side, the program pays out in your child’s hands, so taxed at a lower rate (hopefully). The kids pay tax on any growth in the fund, the grants and the bonds added.

Go To a Bank and Open an RESP ?

Bank RESPs, will mean you put your money in Bank Mutual Funds exclusively. I did this, with Canada Trust, in 1992, but I wasn’t as sophisticated back then. My CT Mutual Funds, turned into TD I-Series Funds. These funds have MER’s of around 2%, yearly. I then learned about the TD E-series funds from the Canadian Capitalist. I transferred to those funds, and set up a good portfolio for each RESP.

You might do better setting up an RESP with TD Direct Line, Questrade or similar trading sites. You can then purchase whatever Index Fund or ETF you wish.

Even More on RESPs

Remember I have an entire page dedicated to the Registered Education Savings Plan.

Yeh, That is me, talking about RESPs and Free Money

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For those of you who haven’t had as many financial plans and projects fail as I have, I’d like to share with you the most important variable in all of your plans, and that is Time (no not the magazine, the passing of moments). Time is the most important financial variable , unfortunately.

Time will fix many things, but assuming you can do things quickly is usually the problem that trips up most plans and projects.

Typically a repayment plan will be quite simple:

Payment per Period = Debt / # of periods

However, there are two things wrong with this plan. First is you aren’t taking into consideration that your debt will grow with an interest rate, look up Future Value of Money on-line or look up the PMT() function in Excel to figure out what the debt is going to grow. The other major variable here is the # of periods, and that is where most plans fall over.

Time
If you invested this dollar in 1967 what is it worth now? Time heals all wounds.

People are always optimistic when they start debt pay back schemes (this is my opinion, but based on observation of many friends) and think it will be easy to pay things off quickly, without taking into consideration that Life, Karma, or Sh*t, happens (depending on your religious point of view). If you are overly optimistic with any plan (speaking as a Project Manager now), you will fail, or you will spend all of your time attempting to catch up.

If you are much more conservative in your planning, time can be your friend. This is not to say that you should amortize your car over 10 years, or your house over 50 (if you could), however, don’t get too aggressive in your plans.

Microsoft Canada

Rules of Thumb

A good rule of thumb is to make up a plan initially, and then walk away from it for a day. The day later look at it and ask yourself

  • Can I live with this payment plan? Is this going to hurt a little or be agonizingly painful and will make me miserable?
  • What other sh*t is going to happen? (the realistic answer is “I don’t know”) Plan for bad things, give yourself a little slack (I didn’t say let it fall on the ground, but a little slack)
  • Have I tried this before and succeeded? The answer is most likely Yes and No, since you are doing it again (if you are really good at building up debt and then just as good at paying it off, good on you, but why are you living on a roller coaster?).

Time, it passes very quickly plan accordingly. Time is the most important financial variable , plan accordingly.

Redux

I wrote this about 10 years ago, and I can assure you, Time is an ever dwindling resource in your financial plan.

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Best Financial Decision Ever ?

Whilst wandering through my massive archive of older articles, I tripped across Take the Money or Leave It? I wrote it a month after I got laid off from Nortel. Somehow, this ended up showing the Best Financial Decision I ever made ? Well it certainly looks to be the case. I have a retirement, path to victory.

best decision
Image courtesy of Stuart Miles at FreeDigitalPhotos.net

In that article I mused the following interesting question (remember this was 2008 during the great crash):

The options I have are:

  • Leave the money in my former (or soon to be) employer’s pension scheme and start drawing from it at either age 55 or later.
  • Take the money out and put it into a Locked In Retirement Account (LIRA), or at least the portion that the government allows.

As background my current employers pension plan is under funded, by a fairly large amount. I also have passed a point, so that I can draw from the pension when I am 55.

Thanks to Mrs. C8j, Michael James and a little common sense on my part I ended up doing the second option and it was the best financial decision (read luckiest)  I ever made due to the fact that:

  1. Nortel’s Pension plan was even more under funded than anyone knew and it had serious issues and effectively collapsed. I kept hearing that the Ontario Government had “insurance” to back up the pension, but given the money I took out that “insurance” would not have covered the amount I should have been paid. “There is no way the government would let Nortel and/or its pension fail”? I think we know what happened there as well.
  2. The money I received went into an LIRA in December 2008. This was when stock prices were the lowest, and it grew a great deal, until I took it out to buy into my current employer’s pension plan. Blind luck and no great “market timing” strategy on my part. It was simply me needing to buy, luckily when the market is lowest.

Best Financial Decision Ever?

Many financial decisions cannot be evaluated immediately. Sometimes it takes a while to realize it was the best decision, or a massive blunder.

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Inflation 3.4% April 2021 (Told you so)

For those that have not followed me since 2005, allow me to say, I told them so. Back in 2009, I warned Inflation was coming with all this stimulation, and here it comes (in 2021). Mark my words this is only the beginning.

OK, so I am very much the Blogger who Cried Wolf on Inflation. I am not even sure this is going to be the beginning of an Inflationary spiral.

Stats Canada thinks:

Year-over-year consumer price growth (+3.4%) in April rose at its fastest pace since May 2011 amid the third wave of the COVID-19 pandemic, mostly because prices fell sharply during the early months of the pandemic. As some regions extended restrictions to limit the spread of COVID-19, causing employment losses for some Canadians, prices grew 0.5% month over month in April 2021, the same growth rate as in March 2021.

Prices rose in every major component on a year-over-year basis. Transportation prices (+9.4%) increased in April, mainly because of higher gasoline prices compared with April 2020.

From Stats Canada Consumer Price Index, April 2021

Funny no mention of the Trillions being poured into the Economy by every Government world-wide? Maybe they ran out of ink? The Moore’s Law like growth of Real Estate prices not too much of a factor?

Transportation went up a lot, but Food and Shelter are going up big time too.

The Food thing is going to get worse, with the inability to get the migrant workers that our farms rely on into the country. Is it a good thing we need migrants to do this job? That is for another days discussion. Oh and Electricity prices in Ontario went “back up” when they changed back to a “peak” and “off peak” billing again.

What does the Bank of Canada think about this? Actually using their calculations we are only a little bit above their goals?

 January
2021
February
2021
March
2021
April
2021
 % change% change% change% change
CPI-common3,51.31.31.51.7
CPI-median4,62.12.12.12.3
CPI-trim4,72.02.02.12.3
Consumer Price Index statistics, preferred measures of core inflation – Bank of Canada definitions, year-over-year percent change, Canada

Source(s):Table 18-10-0256-01.

Save up to 50% on life insurance.

Additional Reads From Stats Canada

Previous Rants About Inflation

And that is just scratching the surface.

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