Raising Twenty Five Thousand Dollars in 3 Months

 Debt, Goals  62 Responses »
Apr 292013
 

I have good news and bad news! The good news is I bought another farm yay :D The bad news is I have to find a way to raise another $25,000 by the end of July for the down payment or I lose my $17,250 deposit forever (O_O) Would anyone be interested to buy some short term, securitized Liquid Independence bonds with farmland being collateral? Lol, just kidding :P

The property I bought earlier this month at an auction was for 150 acres of grain farmland for $172,500. I had to make a 10% (or $17,250) non refundable deposit. But I didn’t have $17K sitting around. So I used my TD bank’s line of credit at 5% interest rate to basically borrow the entire deposit amount and then transferred the money into the agent’s trust account.

13_04_farm2purchase

Unfortunately I bought this farm before I had time to get my financing in order. All lenders these days require a minimum of 25% down payment. My 10% deposit will of course be part of the down payment, but I need to come up with the remaining 15% of the purchase price, or $25,875. I currently don’t have a lot of cash on hand. Perhaps just enough to cover the closing legal costs plus a little extra. This farm deal is scheduled for completion at the end of July. That gives me 3 months to come up with about $25,000.  I can’t even save that much in an entire year, haha. But where there’s a will, there’s a way, and I have to find a way because my $17,250 depends on it ಠ_ಠ.

Unfortunately that 10% deposit really did a number on my line of credit account. I’m now using $33K of my $40K credit limit. So there’s not much room to borrow anymore. And they won’t raise my limit, I’ve asked. I could sell some stocks to raise cash or use my credit cards which has a combined limit of over $10K :) Wait, a personal finance blogger is advocating the use of credit card debt? Yup :D I don’t believe in good debt or bad debt. Only the cost of capital matters. I would gladly pay the 19% annual interest rate on a $10K credit card balance if it means saving my deposit :) It’s not clear to me yet how I’ll raise the entire $25K, but it will likely be a combination of what’s already been mentioned.

Was it a bad idea to buy a property without getting pre-approved for a loan first? Maybe :) Was it risky to wire someone $17K knowing that I would lose all of it if I can’t come up with an additional $25K? Okay, yes it is! :D But we only live once, and sometimes I like to add a little excitement in my life to spice things up a bit. I am so ready for this challenge \(^_^)/ I’ll keep everyone posted.

 

Too Much Debt

 Debt  13 Responses »
Mar 242013
 

Jérôme Kerviel worked for the second largest bank in France, Société Générale, until he went rogue and made a lot of fraudulent trades. He cleverly execute trades by sending fake emails from hacked computers. If his trades were to have been successful he would have became very rich today. But with great opportunity comes great risk and unfortunately for him his unauthorized trades costed the bank €50 billion and made him nothing :(  Not only has Mr. Kerviel been sentenced to 3 years in prison, but when he gets out in 2015 he has to pay back $6.3 billion to his former employer (O_o) He is now the most indebted person in the world.  Not even winning the lottery can save this man now. I owe some money to the bank too, but not nearly as much as him.

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We often hear about the ultra rich like Mexico’s telecom businessman Carlos Slim, currently the wealthiest person in the world who’s worth $73 billion USD. But we never hear about the people on the opposite end of the net worth spectrum.  Obviously the 35 year old Mr. Kerviel isn’t expected to pay back all $6.3 billion in his lifetime, and the debt will probably be forgotten once he passes. So what will most likely happen is a percentage of any income he makes from now on will be paid towards a fund to cover his $6.3 billion fine.

I think what we can take away from this story is to be careful with how much risk we take on as it could leave us in a whole lot of debt and tarnish our credibility, and even future earning potential.  And on a side note maybe the whole idea of net worth isn’t a reliable barometer to define how financially well off someone is. A homeless person with no savings or financial assets is literally over 6 billion dollars richer than Mr. Kerviel, at least on paper. But because of Kerviel’s connections, education, and work experience, I don’t think he’ll be living on the streets any time soon. Maybe the idea of quantitizing wealth, (AKA net worth,) isn’t to compare how rich or poor everyone is relative to each other, but is only meant to gauge how each individual is progressing with their own personal finances :D

Coping With Debt

 Advice, Controversial, Debt  36 Responses »
Nov 132012
 

Do you have debt? Whether it’s $5,000 in credit card debt, $30,000 in student loans, or a $100,000 mortgage, debt can be stressful for many people. Well here are some things you can tell yourself to feel better about your debt :)

1) I’m in my mid twenties and I have over $230,000 of debt which includes a hefty mortgage, $7,000 RRSP loan, and more than $20,000 in a margin trading account. I used to have over $10,000 of student loans as well, but paid that off early since it had a relatively high interest rate. I have plans to increase my total debt owing to over $300,000 by the end of this year after I secure a loan to buy a piece of property I was looking at. If someone like me with an average salary can go this deep into debt and still sleep like a baby at night, then you probably have nothing to worry about (^_~)

2) Debt is a depreciating liability. You know how you can stash away $100 under your bed, and by next year it’s only worth $98? What happened to the $2? Inflation happened right? The rising cost of living can be a pain, but it can also be a gift to people who have debt. If you owe the bank $100 for example, then by next year if you haven’t touched the principle, that $100 balance you owe will only have $98 of purchasing power which means it’s EASIER for you to pay it back. So my $230,000 debt, assuming a 2% inflation rate, will only be worth $225,400 by next year. Wow, I just increased my net worth in REAL terms by $4,600 without even paying back any principle :0) Thank you inflation! Take that TD Bank! lol. The US has over $16 trillion of national debt. And its growing by billions of dollars every day because their government continues to spend more than they take in. Actually our Harper government is not doing that much better (>_<) But anyone who can do simple math understands this trend can’t continue forever.. or can it? Mr. Bernanke, the person in charge of monetary policy in the US explains-

 3) Interest rates are low. If you see a potentially lucrative investment opportunity whether it’s to give yourself more education, renovate the home, or start a retirement plan, then going into debt to fund these things to make your life better is okay (^_^) Don’t feel bad about taking advantage of easy credit.

At the end of the day, just remember that DEBT is only as bad as we think it to be. Nobody appears to be losing their hair over our public debt in Canada, which sits at about $32,000 per person. However when we take on a $10,000 car loan it can become this daunting burden, and we stress over how to pay it off ASAP.  But if anything, I think public debts like the ones held by CMHC, and our Provincial debts (AKA Ontario’s) should be a bigger concern to the quality of our and our children’s lives in the future.  You can pretty much rationalize debt any way you want. It can be scary, or it can be no big deal. Sometimes it’s just all in our heads (＠_＠;) I’m just trying to say nobody likes to have debt, but if you do, don’t worry. As long as you have a plan to deal with it, there’s no reason to let it get you down. Just relax and enjoy life :D

Debt Complacency

 Debt  17 Responses »
Sep 242012
 

A recent study about individual debt has made me reflect on the question of whether people are too smug about their debt situations. The poll seem to suggest that even though our debt levels are at an all time high, most Canadians are quite comfortable with using debt as a financial strategy. 9 out of 10 respondents would consider borrowing money to cover an unexpected cost. In an awkward way, I am really glad to read that because my personal strategy has always been to use my line of credit for emergencies and unexpected expenses. It appears now that other Canadians are also replacing saving for a rainy day with accessing debt to deal with financial problems. Glad to see I’m not the only one.

The average person in Canada has about $1.50 of debt for every $1 of income they make per year. Despite this, 62% of those surveyed said they are comfortable with their financial situation. Are you comfortable with your financial situation? I sure am! But this kind of debt to income ratio is around where the US economy was right before the housing crisis and then the rest of the recession. So there is certainly the possibility that we are underestimating how much risk we’re really putting ourselves into.

“It’s frightening to see that Canadians have become totally blasé about debt – it’s becoming their new ‘normal’ and they’re numb to this dangerous trend,”
~Hoyes, Michalos & Associates Inc.

I wonder if people will be as “blasé” about debt if interest rates were 3-5% higher like normal economic times? :D

The survey interviewed 1,010 Canadians between Aug. 15 and 23. The survey has a margin of error of plus or minus 3.1 per cent, 19 times out of 20.

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Random Useless Fact:  Over 86,000 Americans each year have to visit the emergency room because they trip over their own pet. (source: nytimes.com)

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