Happy Leap Day!

It’s a very unique day, in that it doesn’t happen very often (once every 1450-ish days is pretty rare), and for those who have birthdays on this day, you have my condolences (I am talk to you Henri Richard).

What could we do financially on a Leap Day? This time, Leap Day lines up so that for me (and other folks who get paid bi-weekly on a Wednesday (this Wednesday)) February actually has 3 pay days, so that is a reason to dance happily (no, no videos will be posted of this dance (except maybe by my kids)). I could make 3 mortgage payments this month, but I think I will push it one day, and make the extra payment in March.

Evidently you are supposed to Froggy things (since Frogs leap), but I would say you should do things Lemur-like (since Leaping Lemurs makes a much better alliteration).  Are Lemurs very judicious about their money? Can’t say as I have read too much about how Lemurs are cheap, or careful with their money, so maybe we can forget about that idea.

You have an extra day to pay any bills that are due at the end of the month, yes it is only one day, but February is a crappy month for those kind of bills (you only had 28 days to pay, now you have 29). Enjoy the extra day with your money.

If you have some extra money lying around, maybe make:

  • A Leap Mortgage payment (an extra payment on top of your regular payment)
  • A Leap Credit Card Payment (get out of that debt trap sooner)
  • Make a Leap RRSP payment (for those in Canada)

Yes in Canada we have an extra day to make an additional payment into our RRSPs, and have it count on last year’s income, which if you have extra money (and no debts to pay, and RRSP room) might not be a bad idea as well.

What other financial Leap Day things could you do?

 

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Let’s Go Buy Some Money

I note that the pay-day loan places are now changing their names to sound much more friendly, and most of them are using names that would portray them as a “Money Store“, and I guess there is a ring of truth in that description since you are going to there to buy money.

Are you going to get money on a discount? No, that won’t happen. Will there be a “sale on money” and you’ll get it for cheaper, maybe, sometimes, but you are still buying money there, but not at a very good rate.

How Much Money Am I Buying?

If you ask the Pay Day Loan Association (and according to this 2006 CBC posting), typically you are buying about $300 now and you’ll pay it back in about 10 days or so, once your pay shows up. At the end of those 10 days or so, you can expect to pay about $363 dollars (maybe less, possibly even more, but I haven’t stepped into one of these establishments so I couldn’t say for sure). Remember even with the new Payday Loans Act in Ontario, you can still be charged $21 service charge for each $100 you borrow (so if you borrow $300 you could get hit with a $63 fee). That doesn’t seem to bad, does it?

You have bought $300 now, for about $365 in 10 days, but maybe you needed that money to pay your rent, so it does have some value I suppose. You have now paid somewhere more than 500% interest annually (not compounded) to buy this money for a short-term loan (but wait that’s 21% only, no, you paid it back in 10 days, 1/36th of a year, if you look at that over the whole year that’s a lot more). I am sure other financial bloggers could give you the exact tally, suffice it to say it is astronomical over the year.

Yes, but it really only cost $63 so that isn’t that much, is it? Think about that statement, you just borrowed $300 because you didn’t have enough money before your pay arrived, and now you have started your next pay period $63 in the hole, what are the chances you get another pay-day loan soon? I would say pretty high, but that is only my opinion.

Have a look at the Capping Borrowing Costs report from February 2009, it is quite enlightening what is still allowed in this modern day usury program. My comment about getting another loan quickly is actually not as flippant as I thought, and I quote:

The Canadian payday lending industry depends heavily on repeat business.  For every loan to a new customer, payday lenders make 15 loans to repeat customers on average across the country.5  As a result, even the largest stores have fewer than 1,500 different customers in a year, with a typical number of customers ranging from 200 to 500.  A consumer survey6 indicates that almost half of Toronto’s payday loan borrowers have taken out six or more payday loans in the last 12 months.

So once you are in this financial trap, it is not easy to extricate yourself.

Admittedly the loan company is taking on quite a risk, but they are paid very handsomely for that risk, and given the number of storefront pay day loan “stores” opening in my area, it must pay well enough.

I realize it is easy for me to comment on how this isn’t something you should ever use, as a financial service, but I do realize sometimes folks end up in dire financial predicaments, but this should not even be your last choice, because as the report points out, once you start using this service, it is a lot harder to stop using this service.

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A Quick Brilliant Saving Idea

I had lunch with a former co-worker, who always had interesting ideas which didn’t always pan out, but they always seemed so very interesting to me. During the lunch I was reminded about an interesting case study/idea that he had when we worked together (many years ago), and I think it is yet another brilliant saving idea if you implement it the right way.

This gentleman was one of those folks who simply allowed his spouse to take care of the money and he simply tried to stay out of her way. Over the years, he wanted to have some of his own money for his hobbies and so he didn’t have to feel like he was begging his spouse for money, if he wanted to go out.

With this as his problem he devised an ingenious system using the tools that he had available to him. The tools he used were:

  • The ability to split pay cheques to different bank accounts (that our previous employer allowed us to do, up to 5 different bank accounts).
  • A good income which at some time during the year, meant his EI and CPP payments would reach their maximum and not be collected on further pay cheques that year
  • The pay splitting system could use either a Percentage of pay to each account, or a set amount.

I’m sure some of you have already read ahead and have figured out what was done, but for those who want the full explanation, the method my former co-worker used to give himself a little mad money was actually brilliantly simple.

Each year, he saw how much his net income was per pay cheque (on his first full pay cheque of the year), let’s say it is $X.xx is this amount. With this information, he would fill in the forms to have $X.xx deposited into the account his wife used for every pay cheque (for the rest of the year). The form then had another line where you ticked off a box, to put the rest of the money into a separate account. This meant that his wife saw the exact same amount go into their bank account every pay cheque (we didn’t have to worry about Overtime, since we were never paid it), and once the CPP and EI was paid off any extra money would go into the Mad Money account.

Is that not simply brilliant?

No, I am not espousing hiding money from your spouse (pardon the pun), but you can use this system to hide money from yourself!

Use this same method to put the same amount in your working account every pay cheque and the rest of the money can go into a rainy day account, and you can (and should) then forget about this transfer, and go about with your life (checking occasionally your Rainy Day account is growing).

Voila you are now saving money in spite of yourself.

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Accountability

In Ottawa this week our Hockey team fired yet another coach, meaning our team is actually paying for 3 different coaches right now (the one we fired last year, the one we fired this year, and the current coach), which is not very good planning (paying 2 people NOT to do a job), however, the main statement is that the previous coaches did not hold the players accountable for their play (i.e. the players were allowed to do what the heck they wanted without concern of less playing time, or punishment for sloppy play in practice) and thus the players were “lazy”.

This got me thinking this accountability concept is vital in business and a few of the bigger problem areas of the economy there is a lack of accountability seen as well.

Bank CEO’s

We are seeing the Canadian Bank CEO’s making an attempt to appear to be “tightening their belts” and “taking one for the team” by eschewing some bonus money. While my opinion is this isn’t enough, at least the optics of the acts show at least some penitence for their actions, and thus some perceived accountability.

High Tech

There I don’t see as much. Nortel’s CEO has still not really shown any contrition or accoutability in his actions, which makes a lot of folk wonder does he feel accountable for the companies current situation? Employees who are about to get laid off with little or no severance are not as likely to “go to the wall” if they know their CEO is still raking in big money.

John Chambers from Cisco on the other hand for a while (and might still now, I can’t find any coroboration) took a salary of $1 per year (he got other compensation), but that alone has great optics for employees. Is he still very rich? My guess is it is not likely that he is trying to create extra income for his family by taking a part time job at Home Depot.

Overall Accountability

Accountability of the folks in power and of anyone you deal with directly (especially when it comes to your money) is a vital thing to look for. 

If you have a financial advisor, how are they accountable to you? If they give  you bad investment advice what happens? Ask that if you are talking to your advisor. If their answer is, “… well, I’ll try to do better next time”, you might want to think about not hiring them. How can you make this person accountable for their decisions with your money?

How do we make CEO’s of large firms accountable? Make sure if you are a stock holder you vote for your Board of Directors, since they are supposed to represent your best interests (whether they do or not, is another question). Go to the yearly stockholders meetings, ask questions and read the company prospectus (no matter how painful it might be).

You can’t hold someone accountable for anything, if you aren’t sure of what they are doing, and you can’t ask pointed questions about what is being done, if you don’t know, “what is being done”.

Make yourself accountable for your decisions, but also make the folks you deal with directly (and those that work for you) accountable for their actions and decisions, it will make the whole system work that much better.

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Happy Mother’s Day

Yes, it is Mother’s Day, a day to celebrate our Mother’s and the good works of all Mother’s that we know. My mom’s works always amazed me growing up, and now my wife’s tireless works amaze me even more (and make me appreciate the hard work all Mothers do day in and day out).

Every year usually there is a survey that says, if Mothers were actually paid for their duties they would earn $X, and this year is no exception. This year’s value says mothers should be paid $126,593.00 according to Salary.com . Given the hours Mothers work that isn’t as big a salary as you might get (working 12-14 hours a day 7 days a week), and my bigger concern is who pays that? I can’t afford to have a Mother on my payroll if I had to pay that much! Guess, I’d have to get a second job, to pay.

“But they should try cleaning their house with little kids running around and messing it up right after them.”

The salary calculation for mothers also took into account the roles they fulfill as laundry machine operators, computer operators, facilities managers, van drivers and janitors. With overtime work averaging about 54.4 hours a week, stay-at-home mothers worked a hefty 94.4 hour work week.

Points well taken and well understood by most Fathers as well.

If a Mother works in the home her entire life, she gets CPP at the end of it, but not much else either, so the job has lousy benefits too.

Another interesting point about Mother’s Day is it used to be the day when the most long distance phone calls were made (according to AT&T in the U.S.), however Father’s Day was the day the most COLLECT phone calls were made, which sums it all up nicely.

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