A Young Couples Journey Out Of Debt, And Down A Path To Financial Independence.

Monday, December 3, 2007

Financial Goals For 2008

1. Increase net pay from $3472.00/month to $4000.00/month. (from any source, not just primary employment)

2. Change my RRSP account to a mixture of low-cost index funds.

3. Finish paying off the Line of Credit. (March 31, 2008)

4. Increase investment account payments from $150.00 biweekly to $225.00. (after switching to index funds)

5. Make one extra weekly mortgage payment per month. (decreasing principal by $3392.00)

6. Have $12 000 to $15 000 saved up for my wifes' car purchase. Her lease is up in October, we want to pay cash for a car so we have no more car payments.

Most of these goals are attainable with a little hard work and some creativity. I am really looking forward to this year. Hopefully it will be a year with no debt. I haven't been able to say that in many years, wish me luck.

I would really like to hear what other pf bloggers are doing in 2008, Let me know?

Assets: +0.75, Debts: -2.74: Net Worth + 13.98%

November has not turned out to be quite as bad a month as I had previously thought it would be.

Our total debt load decreased by 2.74%. This was due largely to that lump sum payment I received from my pension.

I would have liked to see my total assets increase more on a month to month basis, but with the markets as they are I am glad that I am still coming out positive at the end of the month.

I am really pleased with our progress this month, we've had to resist a lot of consumer temptations, and it has paid off. We have also been able to resist temptation of another kind and are staying in the market for the long run. We are remaining positive and believe if we stay on the same path it will pay off in the end.

For a detailed look at the progress we have made, have a look at my net worth IQ profile.

Thursday, November 29, 2007

Net Worth Blues

I have not checked the state of my investments in quite a while. As the markets have been "correcting" over the last month or so I decided it would be better for my mental health not to check the balance. I am starting my investing career as a 'buy and hold' man and realize that this is just one month in many years of investing. This strategy has worked thus far, only now will I be checking my account for my October net worth update and I am wondering how bad the damage will be. I am having a great month in terms of debt repayment, and saving. So if the news is really bad I really can not be too depressed. I am sure I can wait it out, but no one wants bad news especially bad money news.

Tuesday, November 27, 2007

Pension Pay Out.

I received a cheque toady from the pension plan of my previous employer. Because I was in the same pension plan at both of my jobs I was not allowed to roll one pension into the other. Apparently you are not allowed to have greater than 12 months of earnings in any one plan. As I have mentioned previously, at the present time we are focusing most of our time, money and energy on debt repayment. For this reason, I decided to take a cash refund of my pension and use it for debt repayment. I was very apprehensive about this decision, as most personal finance advice tells you not to do this, but to reinvest it. I consider debt repayment a good investment in the current market, so I am reinvesting the money that I received from the pension plan and paying off debt. The total value of the pension was adjusted for taxes @10% because the total value was less than $5000.00. I was only in this plan for 10 months, all the while making pension payments at my other job, which I am now full-time. I decided to cash it out based on a short time in the plan, current investment market, already paying into another pension, and the timing of the payout. The only cons were not reinvesting in a down market, and being taxed on the total amount of the plan.

Here's what I did. I received a cheque for $4945.00, of which I applied $4221.59 directly to my unsecured Line of Credit. The other $700.00 will go into our savings account. Our line of credit now stands at $6684.00, It totalled over $22,000 just six months ago. I was very excited to wake up and find this money in my account. November is turning out to be a very good month in terms of debt repayment. We have paid off nearly $7000.00.

If we continue at our previous pace for repayment, $1500.00 per month, we will be debt free at the end of march.

We can see the light at the end of the tunnel. We are so excited.

Friday, November 23, 2007

New Tires

The weather here is getting bad. We had the first nasty storm of the season on wednesday, and thursday night. A lot of snow, ice and rain. Not a good combination if your tires are bald. I have been putting off buying new tires for my wifes' car, I just can't wait any longer as it getting too dangerous. The front tires on her car are really bald.

My wife leased the car in 2004. She was just starting out in her career, and the only way we could get a car that we could afford was to lease (lease rate of 0.9%). Leasing doesn't make a lot of sense, as you are only renting the car for 4 years, but it was the best we could do at the time. Now the lease is up in less than a year and we need to start thinking about what we want to do next. We may buy it out, but we are not sure.

So, the dilemma was this. Do I buy snow tires for the car (four tires, a lot safer in winter, but very expensive) or do I buy two new all season tires, still safe because of the new tread, but considerably less expensive (only have to buy two fronts, as the back tires are fine).

As the car is leased I chose the second option. I bought two new tires for the car, totalling $394.00. It was $322.00 for the tires, and almost $60.00 extra because I had to replace one of the front rims due to damage (my wife hit a curb).

In Canada the winter season is cold, snowy and wet. Snow tires are the better option in the winter. All season tires are not all season with respect to Canadian winters. They are acceptable, but not ideal. The rubber in winter tires is designed to grip in wet conditions, and cold temperatures, all season tires do not have the same rubber compounds. I have never had winter tires. I am not sure what I am missing, but the few friends that do have winter tires say you can drive the same as you would in the summer during a blizzard. Not so sure that would be safer, and definately not enough of an endorsement to make me want to spend $1000.00.

Wednesday, November 21, 2007

Do Not Pay until 2009

With Christmas quickly approaching the average consumer is being bombarded with a very tempting offer to buy now and pay no interest until later. This option allows you to have that 42" flat panel today with no worries until 2009. Sounds good, what's the catch.

My good friend found out the hard way what the catch was, and I think a lot of other consumers find themselves in the same situation when the loan comes due.

He and his wife bought a house and needed to furnish it. They did what many other people do, they bought their new furniture with no money down and no payments for a year. My friend is self-employed and could not make the payments on the due date, as a result he was charged the purchase interest (21.5%) on the entire purchase, that hurts. He is still making payments, only now he is paying interest on each one. He had every intention to put money away each month to pay the t.v. off on the due date, but like so many other people he did not.

This offer seems to good to be true, and it is. Retailers are offering free money (no interest) to purchase their products. They must know something that we do not, I think they know that we want "stuff" right away. They know that at the back end they will make money on extremely high interest rates because we will not be able to pay.

If you must buy nowand pay later I have a better strategy, one that does not require you to save. Instead, most offers of buy now pay later will give you the option to make equal monthly installments at 0% interest. Why not use the credit, with no interest. This works best if you already have the money saved in a high interest account. You can withdraw the monthly payments while making interest on the balance of the account. This way after two years of no interest payments the t.v. is yours free and clear.

We used this when we moved into our house and it worked out beautifully. New appliances for the kitchen @ 0% interest, and our savings remained in the bank earning us interest each month.

We all can agree that the best option is to enjoy what we already own, or pay cash for that big ticket purchase. But if we have the choice of no payments for a year or equal monthly installments over two years I think the later is the better option.

Taxing Bottled Water

Toronto politicians are floating an idea to tax bottled water anywhere between $0.05 - $0.10 a bottle. They hope to use this money to help offset the cost of running the city. As I very rarely drink bottled water, and do not actually reside in the city I am not affeted by this potential tax.

The city is also trying to promote municipal water sources, and reduce waste to landfills. If the tax reduces consumption, and decreases waste, I am all for it. This is just an idea at the moment, but it is out there. Bottled water is not necessary, and wasteful. I think a tax on the "luxury" item is a good idea.

A reuseable aluminum bottle with water, ice and lemon is great all day.

Tuesday, November 20, 2007

A New Credit Card and reward points

I signed up for a new credit card last week. The card company was offering 12,500 reward points upon sign up and another 2500 after one year. My wife and I decided to sign up due to the fact that our previous points were convertable to the new card and because of the special offer. With our previous points and the bonus points we now have enough points for three domestic flights, whereas before we only had enough for one.

I use my credit card quite often, buying groceries and gas. I justified the extra yearly cost to have the card on the points we received, and that we decided to travel more in the future.

The yearly cost is $120.00 vs. the $35.00 I paid with my other card. We are offsetting this cost by downgrading my wifes card to a no fee non-rewards card. It makes sense for us as I am the one putting all of the major purchases on my card already, and the fact that my wife hardly ever uses her credit card.

Does the cost justify the rewards, or am I just throwing my money away.

I am always aware of my balance and pay it off each month.

I have already used 30 000 points to fly to Kelowna in January for a snowboarding trip. So far I am happy with my decision. The flight was $575 return, and I only paid $92.00.

How do you pay off debt?

I have always been good at paying off debt, the only problem was, that was all I did. I would pay off one debt, or get very close to paying it off, at which point something unexpected would inevitably arise and I would find myself right back in debt only to repeat the same scenario over and over again. I was not saving and paying down debt, and that was the problem. In order to be successful I believe a combination of saving and debt repayment is the best strategy.

A light came on one day while speaking to my father, I had recently started my full-time job and was about to start making more money. He suggested the best thing for us to do was use my salary to cover all of our household expenses. He then said we could use all of C's salary for debt repayment, and for savings.

I was unsure if this would work as my father makes a lot more money than I do, so much more than my mother that her salary as a nurse is fairly insignificant to his. He uses all of her salary for repayment of debts, I am sure they don't even miss it at all. With this in mind I began to crunch the numbers and found it would be tight but possible for us to do the same.

We began this debt repayment plan last June, and to date we have paid down over $11,000 and plan to be debt free by June of this year. If we stay on track we will have paid off nearly $27,000 in just one year. This was a great idea for us. I recommend this strategy to anyone who can afford to do it. I suggest that the person making the most money cover the expenses. If all expenses are covered the other salary is used strictly for debt and for savings. If not, supplement a portion of the expenses and use the remainder for debt. It works, try it.

Let me know what strategies work for you. I am always interested in new ideas.

My Sister and Money

How can two siblings raised in the same house by the same mother be so different when it comes to finances and money. My sister and I are polar opposites when it comes to money, I mean it is not even close. I am very much the saver and she is not. I understand that we are different people, I just find it interesting that two children raised under the same roof, being taught the same money lessons (both positive and negative) could be so different. I see my financial awareness as a way to freedom, I save and am frugal so that I can enjoy more time with my wife and my friends. I am saving and paying down debt, so I can keep my money and have it work for me. My parents and my sister see it a little differently. My parents spend and spend, my dad believes he can always make more money. If he wants it, he buys it and figures out a way to make more money to pay for it. My sister, however, spends and spends without the means to pay it back.

When we were young we had almost everything we wanted. My mother was single and putting herself through college. At the time we didn't understand any of this, she bought us "stuff" on credit and figured out how to pay for it later. I know she payed a price for this, but we wanted new clothes, cool shoes, and all the "stuff" the other kids in the neighbourhood had. My mother always kept her head above water but I know it was tough for her. I think back to that now and realize how hard I made her work for such trivial things. I think I understand the value of money, and the power it can have to work for you, or against you. I know my sister has not figured it out yet.

She spends, and spends and relies on my parents to bail her out. She works hard, but her income cannot support her lifestyle. She is still that little girl who needs all of the stuff to feel good about herself, and my mother is still paying for it all. My mother still believes she is helping my sister, but she is really doing her more harm than good. My parents have worked hard and become very successful in business, I am very proud of them. I see that same drive in my sister, but I believe my parents need to stop bailing her out every time she spends her money on new seven jeans, a new blackberry or handbag instead of on debt repayment and on her future.

About Me

I am a married 29 year old male living in the Greater Toronto Area. I decided to start this blog after many months of procrastination. My wife and I have an open relationship when it comes to money and we are very dedicated when it comes to debt repayment and long term financial planning. However, we do disagree about how far we are willing the stretch in order to achieve our goals. This blog will serve as an outlet for my thoughts on money, and as a way to solidify my ideas. Posting my thoughts and ideas will help me make them real. Hopefully I will get some feedback and some help along the way from potential readers of this blog. I hope to get some feedback, to let me know if I am on the right track.

Our current financial objective is to pay back all of our outstanding loans, approx. $16,000 worth, which is a combination of student line of credit and government student loans. Once accomplished we hope to save and invest in a range of broad based index funds.

We are concentrating solely on the LOC as the government loans have interest that is tax deductable.

If all goes well and we keep up with our payment schedule, we will be debt free by June 2008.

I am an avid reader of personal finance blogs, and I enjoy reading about how other people are struggling and overcoming the obstacle that is consumer debt. I feel recharged by their success and it keeps me going when I start to want to spend some money on frivolous things.

Monday, November 19, 2007

Life is Short, So Start Living

I have been reading and commenting on various personal finance blogs over the last few months, and have been meaning to start writing one of my own. I have thus far come up with countless excuses as to why I should not, and have managed to successfully procrastinate up to this point.

What changed?

Why have I started?

It's really quite simple. I attended the funeral of a close family friend today, a man in his fifties who died too soon from cancer. Today, I decided to stop procrastinating and start living my dreams, to follow through on my ideas and to concentrate on the things I am really passionate about.

So, this is my first post of many to come.

I hope to share my journey out of debt, my money philosophy (how I spend and how I save), and my desire to create multiple streams of wealth to financial freedom.