Oct 062016


Why It’s So Easy to Overspend

We are all tempted by instant gratification to some extent. And thanks to poorly implemented public policies it’s now easier than ever to live beyond our means. When we run out of savings, we can simply use credit to continue buying what we want. At least that’s what I usually do. 😉

Once upon a time people had to work almost constantly to prepare, track, hunt, build, forage, and gather resources so they would have enough food to survive the winter. But now the average American only works 34 hours per week, according to the OECD. That’s 20% of their available time. In other words, people spend 134 hours each week sleeping, eating, and doing leisurely activities that don’t involve getting paid for labour. That’s a lot of time to kill.

We have so much free time on our hands we often have trouble deciding what to do with it. Businesses use this opportunity to target our wallets, which leads us to buy things we don’t really need.

The Advantage of Distraction

In order to prevent impulse purchases we simply need to distract ourselves and do something else with our time and attention. 🙂 The best way to do this is to find free or cheap hobbies that can take up a lot of time. For example, if we are already preoccupied with reading the latest Harry Potter book, then we are less likely to think about shopping. To put it another way, we spend money when we’re bored or have nothing better to do. This is why many workaholics tend to be frugal. They’re so busy with work, they literally don’t have the time to enjoy all the money they’re making, lol.

I recently came across this Reddit thread about affordable hobbies that anyone can do. I will share the top activities mentioned in the thread and add some of my own ideas. We sometimes overspend because we don’t have the willpower to walk away from something we want. But hobbies such as the ones below can distract us so we won’t even get the chance to think about shopping in the first place, and therefore, save money. 🙂

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Sep 222016

Lower Cost with Interactive Brokers

Everyone likes a discount, especially personal finance enthusiasts. We tend to get hyped over even marginal deals. 😀


Speaking of margin-al discounts. I recently lowered my stock margin rate from 4.45% to just 1.95%. Hot damn! It’s even lower than my mortgage now, haha. 😁

One of the best things investors can do to increase our net returns is to reduce the cost of investing. When it comes to leverage, or borrowing money to invest, the best way to reduce our cost is to find a broker which charges the lowest interest rates. 🙂

In the past I have held my margin account with TD Direct Investing. The current interest rate they offer is 4.25% or 4.75% per year, depending on which currency investors borrow in.


Although TD’s rates are already competitive relative to the other large banks in Canada, it is not the lowest. After doing some research online I’ve discovered that a U.S. based brokerage firm called Interactive Brokers offers the lowest margin rates, and has cheap trading commissions. So I recently transferred my entire margin portfolio from TD to IB to reap the benefits of lower cost borrowing. 🙂

Interactive Brokers Advantages

Here are 4 reasons why I switched to IB.

  1. Reduced margin rates for more cost-effective leverage. I currently have about $54,000 of margin debt. I was paying on average 4.45% a year for this massive loan with TD. But with Interactive Brokers I’m now paying only 1.95% on average because I have both US and Canadian dollars. This represents a difference of 2.50% between the two brokers, which translates into $1,350 of interest rate savings every year! 😀 “BM” in the table below refers to the benchmark rate set by Central Banks.16-09-interactive-brokers-margin-rates
  2. Cheaper trading commissions. TD and many other brokers charge a flat fee of $9.99 per trade when buying stocks. But IB charges 0.5 cent per share for U.S. accounts, and 1 cent per share for Canadian stocks. The minimum cost per transaction is $1. For example if I buy 200 Shares of BMO (Bank of Montreal) shares, then my total commission would be $2.00 CDN. My trades are typically worth between $1,000 to $3,000. This means I rarely buy more than a few hundred shares of anything because most companies I prefer to own are dividend growth stocks, which tends to be priced at $20 per share or higher.
  3. Access to global markets. This isn’t a big deal for most people, but for more advanced investors Interactive Brokers allows trading in foreign currencies outside of North America. This means we can buy European stocks in Euros, or Australian stocks directly from the ASX using Aussie money. 🙂 TD used to have a platform that lets Canadians like myself trade internationally, but they cancelled that service last year. 🙁 I’ve mentioned in a previous post, that I want to diversify into other countries and there could be some good opportunities in the U.K. after the Brexit event earlier this year. So having access to a global trading platform is important for my financial goals. 😉
  4. Great for options trading. $0.70 per contract; $1 minimum order; volume discount available. And in the unlikely chance that our open options are exercised or assigned, there is $0 assignment fee, unlike $43 for TD or BMO.

Disadvantages of IB

Here are a couple drawbacks with IB.

  1. Penalty for not being an active trader. If investors do not spend at least $10 in commissions per month, we will be charged the difference. Furthermore, there’s a $10 fee for real-time quotes each month which is waived if at least $30 in commissions is spent. I typically trade once or twice a month so I will be paying these fees.
  2. $10,000 USD minimum balance to open up an account. This isn’t an issue for me, but some investors might have trouble coming up with $10K.

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Sep 122016

A Philosophy on Debt

Many people have this oversimplified, binary view on debt which suggests you either have debt, or you don’t. But the world of debt isn’t black and white. Much like women’s erotic fantasies, debt tends to operate in many Shades of Grey. 😀 However instead of only 50 shades, the debt spectrum covers an infinite span of possibilities! But don’t get too excited yet, ladies. Let me first explain how debt really works. 😉

What is the Debt Spectrum?

A blog reader recently asked if I will always carry a certain level of debt. It’s hard for me to answer this question without first explaining what debt means to me. So today’s post will cover a slightly more advanced topic of personal finance; the Debt Spectrum.

I will discuss this important concept and how I use it to make decisions about whether to borrow money or pay down debt. 🙂 Let’s get started.

Whenever I think about debt I imagine a spectrum.

The debt spectrum can be thought of as a horizontal line that stretches forever in both directions. Along this line are numbers representing how much debt we owe. For example if we have a $100,000 mortgage and $20,000 student loan debt, then we would be situated at the +$120,000 mark on the spectrum.


It’s important to remember that this continuum measures net debt owed. So for example in my case, I owe about $470,000 of debt. But I also own about $40,000 of other people’s debts. So my net debt owed is the difference between the two, which is +$430,000. I’ve marked this on the image above.

Why is this Important to Know?

The way to make money is to improve our investment returns. The way we do that is by maximizing profit while minimizing risk. The debt spectrum is an essential tool to gauge our investment risk. It can give us an overall indication of our debt profile so we know if we’re under-leveraged, over leveraged, or positioned just right. 🙂

How to Make Use of the Debt Spectrum

There is no specific formula for calculating where we should be along the debt spectrum. But here are 6 important variables that should factor into our decision.

The 6 Debt Spectrum Variables

  1. The cost to borrow (AKA: interest rates)
  2. Personal health condition
  3. Risk tolerance
  4. Investment objectives
  5. The state of the economy
  6. Future goals 

We’ll use myself as a case study to work through each of these variables.

  1. The average borrowing cost across all my debt outstanding is about 2.9%.
  2. No health problems.
  3. I have a good income, and no spouse or kids yet to take care of so my risk tolerance is quite high.
  4. Main objective is growth. Secondary objective is hedging.
  5. Slow economic growth with loose fiscal and monetary policies.
  6. Become financially free

So based on these factors which are true about my particular situation, I am sitting at $430,000 of net debt owed. This feels about right to me as I don’t find it hard to keep up with my debt repayment. But I’m also in a good position to capture any future market gains.

If none of the 6 variables change then my position on the debt spectrum shouldn’t change either.

If I come back a year from now, I can use my position on the debt spectrum today as a reference point to compare my financial progress. This will help me make better decisions over time as I keep track of my benchmarks. Let’s play around with the first variable (borrowing cost) to demonstrate how this works.

The Effects of Changing Interest Rates

Let’s say next year my average borrowing cost increases from 2.9% to 3.5%. Assuming all other factors remain the same, this means I have to lower my overall debt and move left on the debt spectrum.


This is because I can’t afford to service 3.5% on my debt as it stands today. So I may lower my net debt by $30,000 in order to keep my minimum debt payments the same amount every month. This way, I’m preventing any additional risk or financial burden to my cash flow.

On the other hand if my interest rate falls from 2.9% to 2.3% then I would go out and borrow more money which means moving right on the debt spectrum by accumulating more debt.


In this scenario, I can afford to borrow more money because the cost to service debt has gone down while nothing else in my life has changed. So I may increase my debt by $30,000 in this situation, and invest the money in an asset which has an annual expected return higher than 2.3%. For example, Enbridge Inc (ENB), a relatively stable blue-chip stock, currently pays a 3.6% annual dividend and has been gradually increasing its dividends for the past 60+ years! 😀

Enbridge recently agreed to acquire Houston-based Spectra to create an energy infrastructure empire. 95% of all cash flow in the combined company will come from long term contracts that are unaffected by oil and gas prices. The newly formed energy giant is basically guaranteeing continued annual dividend growth in the 10% to 12% range all the way through 2024.

I would simply ask myself which of the 2 scenarios below would MOST LIKELY lead to a better financial outcome for me 10+ years from now?

Option 1: Borrow money at 2.3% today to invest in Enbridge that pays 3.6%.
Option 2: Don’t take any action.

After doing the proper due diligence, I’ll probably conclude that option 1 would have a greater probability of making me more money in the long run. So that is most likely what I would do if my average cost to borrow went down to 2.3%.

At the end of the day if borrowing becomes cheaper, I increase my debt. And if borrowing becomes more costly, I reduce my debt.

The principle behind this strategy of moving back and forth on the debt spectrum is to maximize returns for the future without compromising security in the present.

The debt spectrum helps me track and evaluate how my overall debt should move when circumstances such as interest rates change. It’s also important to use the debt spectrum in conjunction with my stress tests to help me understand where my limitations are so I don’t lose my shirt in the next market correction.

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Aug 292016

Being Mindful With Spending

Mindful spending is when we only buy something that will create a net benefit to our well being, in proportion to its relative cost. The idea here is to spend money with purpose! 😀 This will reduce waste, maximize economic utility, and give us the most bang for our buck, so-to-speak. 🙂


In practice, all we need to remember are 3 simple questions when contemplating a new purchase.

  1. Why do I want this?
  2. What are the positive and negative effects this product or service will have on me, whether they be physical, practical, emotional, or spiritual?
  3. Assuming the answer to #2 has a net positive benefit, how much am I willing to pay for this?

That’s pretty much it. We can use this simple application every time we want to buy food, furniture, cars, investments, a swedish massage, real estate, and even an education. This literally works for anything that has monetary value.

Let’s take a look at how we might answer those 3 questions in real life cases below: Since mindful spending is based on individual preferences I will only be using myself in the following examples as I can’t speak for anyone else.

  • Should I buy a Nikon D5 camera?
    1) I want to take pretty photos just for fun.
    2) Helps me learn to become a better photographer. Fun to play with a new camera.
    3) $100 because I’ll probably take the camera out with me a few times, get bored with it, and never use it again.
    So in this case, I would not buy the camera since it costs thousands of dollars.
  • Should I go back to school?
    1) To increase my earning potential.
    2) Spend 2 to 4 years in full-time education. Estimated income out of school is 5% to 10% higher than now. Loss of income during time in school.
    3) (-$70,000) because after accounting for both benefits and opportunity costs of going back to school, I would lose $70,000 in the long run.
    So in this case, it’s not worth it at all. Even if I received full scholarship to attend art school for free I still wouldn’t do it.
  • Should I subscribe to Netflix?
    1) I enjoy watching its original programming.
    2) Provides entertainment value. On demand and no commercials. Uses up a lot of my limited internet bandwidth.
    3) $40/month, because for the enjoyment I get out of the service I would gladly pay $2 per hour of view time, and I watch at least 20 hours of Netflix a month.
    So in this case, I would and actually do have a Netflix subscription already since it’s only $10/month, which is cheaper than what I’m willing to pay for.

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Aug 222016

Falling Victim

The pharaohs of ancient Egypt created the first pyramid schemes. ? But since then these schemes have evolved to become more elaborate. The most recent example has taken shape in the form of a Gifting Circle, which specifically targets affluent women. According to the Better Business Bureau, a consumer watchdog, the scam works by inviting women to join wine parties and luring them in with the promise of a $40,000 payout if they invest just $5,000 themselves and recruit their friends. Organizers at the party claim to create “abundance and spiritual healing” for anyone who signs up. ?


Personally I thought spirituality was about self development and discovering meaning from within. I didn’t realize it could be bought with money, lol. But I am certainly no expert on the subject. ?

Evan Kelly, an advisor for BBB Mainland B.C., says that since $5,000 is somewhat prohibitive, this scheme tends to go after wealthy women and their circle of friends. “After all, a friend asked you to join. It couldn’t possibly be a scam, right?” Kelly says. But eventually the pyramid collapses under its own weight and members on the bottom lose thousands.

So if you ever get invited to a party that might be held under false pretense then enjoy yourself and drink responsibly. 🙂 But please DO NOT sign up for any programs they want you to join, especially if it involves recruiting more of your friends.

Here are some tips from the Better Business Bureau for avoiding potential scams such as this.

  • Do your own independent research and be skeptical.
  • If there’s no actual product or service being offered, question how it makes money?
  • Be careful of investments that promise low risk and high returns.

So the lesson here is simple: Money can’t always buy brains. However, brains will almost certainly make us more money. 😀 To improve our financial literacy, we can take this online quiz I recently stumbled across. It contains 6 short questions related to personal finance and should help us make better money decisions. Feel free to take the quiz here and see if you can ace it on your first try. 😉 To put things into perspective, the national average score in the U.S. is 3.16. Hmm. That seems kind of low to me.



Random Useless Fact:

A polar bear’s fur is not white. Each hair is a clear hollow tube. The bear looks white because of the way its hairs reflect the sunlight.