Apr 142014

What is a credit score? It’s a number typically ranging from 300 (low) to 850 (high) that represents the likelihood of someone paying back a loan on time, based on that person’s past credit history.

Why is it important? Banks use credit scores to determine a lender’s credit worthiness. If someone has a low score because he’s been late on his payments before, then lenders will either refuse to give him a new loan, or agree to lend him money at a higher interest rate, to compensate for the extra risk.

How is the credit score calculated? Broadly speaking, it’s based on 5 factors with different weighting. See breakdown below.

14-04-creditscore credit score

How do you increase your credit score? Improve the 5 variables that make up the credit score.

  • Credit Searches: Everyone is entitled to one free credit report per year. Hard pulling your credit history too often could raise red flags and decrease your score.
  • Types of Credit: Have a wide range of different types of debt. Types include mortgage, car loan, credit card, line of credit, student loan, etc.
  • Length of Credit Accounts: The older your credit accounts are, the higher your score will be.
  • Credit/Debt Ratio: Try to keep this ratio below 50%. But ideally it should be under 25% for the best possible score. For example, don’t keep a balance higher than $2,500 on a credit card with a $10,000 maximum credit limit.
  • Payment History: Always pay the bills on time and always pay at least the minimum amount.

Where to find your score. You can request it from any of the three large credit bureaus:  Experian, Equifax, and TransUnion. Credit reports are generally free and can be obtained either through the credit bureau’s website or by letter request, but you may have to pay a fee for the score itself. Alternatively if your bank recently pulled your credit history you can ask your financial advisor or another banking representative. They will have your full credit report on file, including the score ;)

What’s the typical credit score? In the United States, the median score was 711 in 2011. The proverbial “subprime mortgage crisis” in 2007 got its name because banks were lending to borrowers with credit scores below 640, which is seen as the dividing number between prime and subprime. Typically individuals with subprime status, or credit scores below 640, have trouble meeting their debt obligations.

This means you should keep your own credit score above 640 at the minimum. A score between 700 and 750 would put you in the same boat as most other people. And a score over 750 would give you the lowest interest rates on the market for your next mortgage or auto loan :)

Do companies have credit scores too? Yes, but they’re referred to as credit ratings. And instead of a number, companies receive letter grades such as AA, or AA+ for prime and credit worthy businesses, to C or D for more risky borrowers. Credit rating agencies who grade businesses include Moody’s, S&P, and Fitch. Entire countries can be graded as well. According to S&P Canada has the highest possible sovereign credit rating of AAA :D

Random Useless Fact: Computer programs can be so inconsiderate sometimes.

14-04-invaliduser credit score invalid user

dat frown :(

Apr 042014

To become successful investors we have to think like burglars, because we must be constantly on the lookout for windows of opportunity :lol: So today’s post is about finding those opportunities with the help of math and probability :)

In a recent Poll, I asked if readers would prefer to receive a guaranteed $3,000 or an 80% chance of getting $4,000. If you didn’t get a chance to vote, make a choice now, and remember your decision. You might be asked about it later ;) Here are the poll results (^_^)


85% of you who voted chose the first outcome :?

*Sigh* (-_-) Folks, this is NOT okay (>_<) Dagnabbit, you guys :-x It’s time we had a serious discussion about this. I know it’s probably my fault for not blogging about this sooner but today’s concept is uber important and may change the way you look at money forever.

In probability theory, Expected Value means the “expected” average outcome if an event were to run an infinite number of times. And the law of large numbers dictates that the average of the results obtained from a large number of trials should be close to the Expected Value.

For example, a 6-sided die produces one of 6 numbers when rolled, each with equal probability. Thus, the expected value of a single die roll is 3.5.

 \tfrac{1+2+3+4+5+6}{6} = 3.5.

According to the law of large numbers, if we rolled a die a large number of times (like 1,000 times) then the average of the produced values is likely to be very close to 3.5, with the precision increasing the more times it’s rolled.

14-04-die probability


Below is a graph showing a series of 1,000 rolls of a single die. As the number of rolls increases, the average of the values of all the results will automagically approach 3.5.

14-04-dieroll probability

The same thing would happen with a coin toss. The Expected Value that a coin will land on heads is 50%. So if we flipped a coin a gazillion times eventually the actual data that we witness will come closer and closer to the expected value of 50%.

Now that we understand what expected value and law of large numbers mean we can approach the poll again from a mathematical angle. The expected value of the first outcome is $3,000 as there is a 100% chance of receiving exactly $3,000 every single time. The expected value of the second choice is $3,200 since (80% x $4,000)+(20% x $0)

If math isn’t your strong suit allow me to sum it up for you :D Basically we should choose the second outcome every time because it has a higher Expected Value.

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Apr 012014

Sometimes it may feel like we’re being gouged :?


But if we adapt to our surroundings we should be able to live the lifestyle we want on a relatively modest income :) Luckily I live in what is arguably one of the most affordable cities in the world – Vancouver, B.C. Canada. :D I currently make more than $3,000 a month from my 2 jobs combined, but if we exclude my consumer/investment debt-related expenses for the moment, my total cost of living each month is less than $1,500. Here’s the breakdown.

Housing related $800
Food $150
Hydro+Internet+phone $100
Transportation $150
Miscellaneous $200

This budget doesn’t feel restrictive because it’s so darn cheap to live here :D

I don’t even try to be thrifty. Things are just naturally cheap in Vancouver. As I’ll explain below, there is probably no other major city in Canada or the U.S. where I can buy the same degree of security, freedom, opportunity, and general quality of life as I have today, for just $1,500 a month.


Trying to pay for a roof over our heads in large cities like San Francisco or New York City (where the average rent is over $3,000/month.) can be financially challenging :? But not in Vancouver (^_^)  With interest rate so low my monthly mortgage payment on my 800 sq ft condo is less than $900/month :D

There are lots of cheap options for renters too. Here’s a one bedroom apartment recently listed. It’s only $875 per month and has a really high Walk Score.14-04-marpoleproperty vancouver affordable city

Here’s another 1 bedroom suite I found on craigslist recently for just $675 a month.

14-04-houserent Vancouver most affordable city

I hear 1 bedroom suites in Calgary and Toronto (outside city centers) normally rent between $1,000 to $1,200 a month. Phew (^_^;) Glad I don’t live in those expensive cities :)


Eating well can be quite costly. But not in Vancouver (^_^) I can usually buy 2 full bags of groceries for about $10 at discount produce markets.

14-04-food Vancouver most affordable city

Restaurant food and other prepared dishes are cheap too :) At Yamato Sushi in downtown for example, you can get a 22 piece assorted sushi combo including soup for just $5.95! How are they still in business? 8-O

Food courts and bakeries across Metro Vancouver usually drop their prices a lot before they close for the day :) Often $4 can buy 2 full take-out boxes of food that can last me a full day lol.

14-04-foodcourt Vancouver most affordable city

Supermarkets like Loblaws and its franchises (Superstore, t&t, etc)  will often mark down their pre-packaged foods in stages starting in the late afternoon. Each hour or so lower priced stickers would be applied.

14-04-cheapdinner Vancouver most affordable city

This is the perfect opportunity for busy people like myself, who may not always have time to cook, to conveniently grab something cheap and easy for dinner :)

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Mar 162014

Many parents make the common mistake of leaving their children with way too much inheritance all at once. Many children will spend their inheritance unwisely because they haven’t learned how to handle such a large windfall. What parents should do instead is pass down the inheritance gradually throughout the later years of their lives to minimize taxation, and maximize economic utility.

This is a bigger deal than most people realize. A study from MIT looked at U.S. senior citizens and discovered that unmarried older individuals had a median net worth of $165,000 a year before they died. And for continuously married seniors it was $600,000 before they died. This means that the majority of elderly people die with some amount of inheritance to pass on.


Estate tax rates in the U.S. vary depending on location and inheritance amount as there could be a maximum exemption threshold. In Canada, we don’t have an inheritance tax :D but we do have to pay taxes on a deemed disposition. Some provinces also charge probate fees of as much as 1.5% on the value of the estate. Here are some reasons why gradually passing down an inheritance earlier may be better.

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