Oct 312012

Some people think Halloween is just a fun time for children to dress up and eat candy. Perhaps that was true at one point in time. But today Halloween is the second most expensive holiday of the year, rivaling only Christmas. Who would’ve thunk it. Halloween is an $8 billion industry in North America and is growing every year. That’s some serious business.

What’s driving all the spending? Simple modern consumerism lead by media, pop culture, and advertisers. People want to dress up as their favorite characters from this year’s hottest movies (Avengers, Hunger games, Spiderman, Batman, etc) You’ll also see zombies influenced by the Walking Dead, and of course, the Gangnam Style guy. It is not surprising why some Halloween specialty stores set up business only in October, sell their products, and then shut down in November. They only pay one month for rent to get a piece of the $2.9 billion pie that consumers spend on costumes each year.

It’s not just costumes for people either. 11% of Canadians are expected to spend up to $59 dressing up their dog. An average family will spend $300 on Halloween this year. That includes an average of $60 per costume, and the rest on decorations and greeting cards. Canadians are also expected to spend about $320 million worth of candy. Another survey anticipates 60% of all consumers will spend over $100 this year on decorations.

With treats, costumes, decorations, and parties, it’s no wonder that Halloween can rival Christmas in terms of consumer spending. This means we have to be careful about how we plan for it. Halloween, Thanksgiving, and Christmas are all within a couple months of each other (in the US anyway) Want to spend more money on Christmas? Consider spending less on Halloween this year :0)

Happy Halloween!

Oct 292012

There are certain lending rules that banks are expected to follow when they approve someone for a mortgage.

In Canada, the lending rules are…
1) No more than 32% of our gross income can go towards housing related expenses like mortgage, heating, property tax, etc..
2) No more than 40% of our gross income can to towards making payments for all our debts

Mortgage brokers and banks have these rules to protect themselves from risky borrowers. They use it as a standard to evaluate potential clients across the country. But we should not be relying on these guidelines to determine how much house we should buy. What really matters when deciding the size of our mortgage is looking at our complete financial situation and figuring out how a home fits into our long term financial plan. All that means is taking some time to look over our income, expenses, and future goals. We don’t need a detailed financial strategy or analyze every penny. We just have to be realistic.

Consider the 2 different households below.

The Dubois family lives in Quebec, has 2 children, a stay at home mom, 2 large dogs, and a husband who makes $100,000 a year with no pension plan. After income tax, the Dubois family only takes home about $67,000 for all their living expenses. According the lending guidelines, this family can probably be approved for a $400,000 mortgage.  But in reality they would be house poor if they bought that kind of home and they wouldn’t be able to save enough to meet their retirement goals. Poor Dubois.

On the other hand the Johnson couple lives in Alberta, don’t plan to have any kids or pets, both have stable jobs making $50,000 a year each, with defined benefit pension plans. Based on the same lending rules, they also qualify for a $400,000 mortgage. But unlike the Dubois, this couple takes home $80,000 of combined disposable income after taxes. And with presumably lower expenses than a family of four, it should be much easier for Mr. and Mrs. Johnson to finance that same mortgage.

By painting everyone with the same brush, these lending rules just aren’t very practical. That’s why they should be viewed as guidelines only. Banks are not in the business of looking out for our best financial interests. That’s why it’s up to us to plan for our own families. Instead of asking right from the start “This is my current income, how much can I borrow?..” we should instead be thinking “Here’s my entire financial situation including a savings plan. This is where I want to be a few years from now. What is the appropriate mortgage I should be taking on?” Once we know this we can then find out if our interests are within the mortgage lending rules 😀

The good news is some banks are willing to bend the rules a little bit. When I bought my apartment in 2009, 37% of my gross income was going towards housing expenses, which is over the 32% limit. I just had to explain to them how despite my high ratio, I can still save over $1,000 a month because my other living expenses are relatively low. But without making a budget and financial plan first I wouldn’t have gotten them to make an exception for me 🙂 Back then I was making about $40,000 a year. Just goes to show, Vancouver real estate is not too expensive and almost anyone who has a job can afford to buy a home here, as long as they take the necessary steps.


Oct 252012

Read in the local news today that police in metro Vancouver pulled over a car for not having a front license plate. The vehicle turned out to be a 2012 Lamborghini Aventador, which starts at $430,000 Canadian dollars, before taxes. The police soon found out that the 22 year old driver did not have insurance on the car. He was handed a $568 ticket and the Aventador was towed away. (In BC it’s illegal to drive without auto insurance.)

The young driver said he didn’t have enough money to pay for insurance, and complained that the fine was too expensive. I guess the moral of this story is don’t drive without insuring your vehicle. It’s a very irresponsible thing to do and there shouldn’t be any excuse for it. Furthermore, I think driving without a front license place is just asking for attention, I mean cheese and rice, what was he thinking?


But his biggest mistake was not planning ahead financially. He failed to budget by purchasing too much car and not having any money left over to insure it. What he should have done is buy a vehicle under $400,000, and used the extra savings to buy his insurance. Or just forgo luxury cars altogether and buy something more practical. Vancouver is the second most traffic congested city in all of North America. The Aventador’s ability to go from 0 to 60 mph in under 3 seconds might not be very useful around here.

Something tells me that he didn’t earn that car through hard work and sticktoitiveness because if he was bright enough to make that kind of money at his young age then he probably wouldn’t have made those mistakes and gotten his car taken away. Learning about how to legitimately earn, spend, and save money is the only way to properly appreciate the value of it, and respect what you have worked so hard to gain.

Random Useless Fact:  Carolyn Davidson, the creator of the Nike swoosh symbol was initially paid only $35 for her design.

Oct 222012

Last week I wrote about how people spend over $3,000 a year on impulse shopping. If we wish to spend less money and time, but still add value to what we purchase we have to understand how the passing of time will affect our perceptions of what we buy. Maybe you’re smart and are already doing this (^_^) But did you know that economists have a term for this?  Marginal utility is how satisfied we become with each additional use of a product over and over again.

For example after a rigorous #PFWorkout , we would probably be thirsty.  So drinking a glass of water would be very satisfying ヽ(´ー`)┌ But if we then drank another glass of water, it wouldn’t be as refreshing as our first. And if we continued to drink a  third glass, the satisfaction would be even less.  This is called diminishing marginal utility; when something gives us less pleasure each time we use it 🙁 Another example is leasing a new vehicle because the new-car feel and smell diminishes each time we drive it, yet our monthly payments don’t change.

On the other hand, learning to golf at first might be frustrating, difficult, and not very fun. But the more you golf and the longer you keep practicing the better you will get and the more fun you will likely have. Same can be said about other skills too like cooking. When children plead to their parents “Please, just ONE more level,” they are getting increasing marginal utility from their video game, because they feel that each additional level is more fun than the previous one.

Economists use marginal utility to determine how much of a product or service a consumer will buy. But we are not economists. We are consumers, savers, and investors. So here’s how we can use marginal utility to help make the most of our spending decisions. Whenever we are about to purchase something, we can ask ourselves what kind of marginal utility does this item have for us, diminishing or increasing? If it gives us more pleasure over time then that’s good because it adds value to our lives! Like purchasing stocks that pay dividends and starts to DRIP after a certain number of shares is reached,  or wine which tastes better as it ages, or collectibles. Everyone’s definition of utility is different, so learn what yours is.

Please don’t make the mistake of buying a new pair of shoes falsely believing that the joy you feel at the time of the purchase will last for many years.  Some individuals fool themselves into thinking Wow, only $149.95. Regular price is $250. I gotta have this. I’ll make sure to wear it a lot. when the reality is that they’ll wear it less than 10 times, probably forget about them in the closet, and then give them away many years later.

But unlike those people, we’re smarter. We know to factor in the diminishing marginal utility into the price. Honestly ask ourselves will the novelty eventually wear off,  and then finally decide if it’s worth our money. If it’s still worth the price tag then buy it, otherwise keep your money.  I’ve spent so far about $100 on clothing this year by thinking this way. I have a pair of nice shoes for when I go out with acquaintances,  but for work and casual walks I just wear them cheap $25 sneakers from Costco because they’re cheap, comfy, and fortunately my job doesn’t involve meeting with clients :0)


Oct 182012

It’s not everyday we see a 10% intra-day drop in Google’s stock price but that’s what happened today when they missed analysts’ expectations. To make things worse there was a small hiccup during the earnings report process when a third party company accidentally released their profits early without permission, which caused all kinds of problems (゜o゜)  Some investors are beginning to think that the company’s advertising business, which is by far how Google makes most of its money, will not continue to do so well in the future. Sentiment was so bad today that Google contacted the NASDAQ exchange and said “Stop this madness and halt all trading activity for GOOG!” (I paraphrase of course) Their stocks were literally out of commission for most of the afternoon today, which means nobody could buy or sell their shares.

 After the initial shock has worn off the stock  started to trade again in the afternoon. Is this a good time to pick up some Google shares, or wait awhile and see if it drops even more?  I am tempted to buy some GOOG now. But I will be patient and do some research into their financials first. From an earnings perspective they are still more expensive than Apple stocks despite their $60 per share drop today.