Aug 152018
 

The idea that higher minimum wage helps the working poor is utterly ridiculous. It’s a lie spread by liberal politicians and their supporters so they can take more tax money from individuals.

According to the Calgary Herald, rising minimum wage was the cause of 25,700 jobs disappearing in the city. But things will likely get worse as Alberta’s minimum wage will soon grow to $15 an hour. The Bank of Canada warned that minimum wage hikes could cost the country up to 136,000 jobs by 2019. Ouch. That’s some hard cheese. 🙁

Minimum Wage is a violation of basic human rights

Instead of protecting our life, liberty, and the pursuit of happiness the government actually violates our rights by creating a minimum wage law, which prevents mutually beneficial, voluntary labour contracts between two parties from taking place. It’s absurd that some government official can think they have the right to prevent others from offering their personal services for pay.

You have to be an egotistical control freak to believe that you somehow know the magic amount of what a minimum wage should be. You also have to believe that this one arbitrary number can be fairly applied to millions of agreements and transactions between people living in different cities, with different costs of living. That kind of patronizing thinking is pure buffoonery to me.

What gives them the right to decide how much my service is worth? Apparently these politicians think it doesn’t matter if the work is shoveling snow, teaching calculus, or giving CPR, because everyone’s time and labour is magically of equal value! But anyone who reads this blog regularly is smart enough to realize this is simply not true in the real world.

When I worked at a warehouse earlier this year I was making about $14/hr. My coworkers and I were pleased with our pay. Nobody talked about unionizing because we were all treated fairly. But if minimum wage were to increase then some of us would lose our jobs for sure. Even if we want to come back the law would make it illegal for the company to hire us at $14/hr. It would be very difficult for laid off workers to find a similar job that pays better. Raising the minimum wage displaces workers and increases the incentive to leave the job market altogether to live on social assistance. This is very damaging to the lives of low income workers.

 

How Minimum Wage hurts the poor the most

There is a myth being spread that governments can somehow mandate employers to pay all their minimum wage workers more money. And therefore, an increase in the minimum wage will benefit those workers.

Unfortunately the reality is not that simple. The actual fact is that governments can only give employers the choice of either paying their workers more or employing fewer workers – both scenarios are bad news for low income earners.

  • If the owner employs fewer workers, the least skilled employees are the first to get canned.
  • If workers are paid more, the least productive employees will lose their jobs and be replaced by other people who are more qualified and can provide more value to customers in the marketplace.

If an employee only creates $12/hr of value then it wouldn’t be sustainable for a business to pay him $15/hr for his labour. Either that worker’s productivity/ skills/ efficiency have to improve, or he will be laid off. Companies can also invest in new technology to bypass human workers altogether.

When minimum wage is forced onto employers it's the busines sowners that hurt the most.

Furthermore increasing the minimum wage across the board will create inflation and raise the price of goods and services. The people who are most disadvantaged by rising minimum wage are the working poor because their cost of living will increase disproportionately to everyone else. The dollar is devalued and the affordability gap widens between the rich and poor.

So if the idea is to help low income workers, then increasing the minimum wage is the antithesis of what we need to be doing. If you are making around minimum wage, then logically speaking you should be the most against raising it because you are most at risk of losing your job.

 

Why the Minimum Wage is Racist

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Jul 272018
 

According to a Fox article, millennials now make up the largest generation in America, and we’re seeing some troubling trends as they are increasingly turning away from capitalism and favouring socialism instead. Based on a study of over 2,000 people, nearly 45% of millennials polled said that they would prefer to live in a socialist country compared to the 42% who said they preferred a capitalist one. Another 7 percent said that the preferred living in a communist country. Oh dear. 🙁

By comparison, most baby boomers polled favor capitalism, compared to 26% who said they prefer a socialist system. Socialism never works in the long run because you eventually run out of other people’s money to spend. For a recent example we can turn to Venezuela, which has a socialist government. Venezuela’s currency has lost 99.9997% of its value in the past 6 years. In the span of a few months, the International Monetary Fund (IMF) has gone from forecasting that Venezuela’s inflation rate would hit 12,875% by the end of the year to now saying that it will get to 1,000,000%. Yikes! The country’s economy is on the verge of collapse for the past year. People often struggle to find food, medicine, and other essential goods.

If socialism is better than capitalism then all the socialists should get together and redistribute their properties fairly among themselves. But that has never happened, lol. As Winston Churchill once said, “Socialism is the philosophy of failure, the creed of ignorance, and the gospel of envy. Its inherent virtue is the equal sharing of misery.”

 

 

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Random Useless Fact:

Eating healthy can cost more money

 

 

Jun 152018
 

Lifestyle inflation is when we spend more money when our income increases. This can feel natural because the more we earn the more we can afford to spend. But this can make it very difficult to save for retirement or meet other financial goals. Lifestyle inflation is what causes many folks to get stuck in the rat race instead of being able to retire sooner. Here are some ideas to help curb lifestyle inflation when we get that big raise next time. 🙂

  1. Visualize the net amount of a raise after paying payroll and income tax.
  2. We don’t necessarily deserve nice things. But we deserve to be happy – which can be jeopardized if we overspend on nice things by sacrificing financial security.
  3. Hang out with friends who have similar spending habits to ourselves.
  4. Pay ourselves first. Set up an automatic transfer for a fixed amount of money from our bank account to an investment account every month.
  5. Define our goals and only spend new money if it will get us closer to those goals.
  6. Have inexpensive hobbies such as reading, blogging, hiking, playing music, and cooking.
  7. Realize that success doesn’t equate to material possessions. Better indicators of success are health, love, friends, family, and experiences. We should be happy with our quality of life without feeling the need to prove it to others.

Reaching a good balance of spending and saving is a personal journey for everyone. There are some people who save too much without enjoying life as it comes. There are others who impetuously spend too much without thinking of their future. Finding the sweet spot between the two extremes will bring us financial happiness. 🙂 Happiness is like peeing our pants. People around us can see it, but only we can truly feel the warmth of it. 😀 Live for today but don’t forget to plan for tomorrow.

 

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Random Useless Fact:

QiZai is the only giant brown panda in the world left. He is literally one of a kind.

Jan 292018
 

The Next Recession is Coming

Although not directly correlated to the stock market in the short term, the economy also experiences cycles of ups and downs. Here are some graphs that have historically been very reliable when used to forecast recessions in the United States. Recessions occur when the total economic output of the country declines in two consecutive 3-month periods.

The Yield Curve is Flattening

The graph below shows the difference between the 10 year treasury yield and the 2 year treasury yield. The yield curve tends to get flatter when the economy reaches the end of an expansion phase. The vertical gray bars on the graph represent periods of recession. Every time the yield difference falls below 0% a recession happens soon after. Looking at the chart it appears we’re approaching 0% again.

 

 

Unemployment Rate Nearing A Turning Point

A lower unemployment rate is good for the economy. But at the end of every full employment cycle is a sharp increase in the civilian unemployment rate, usually accompanied by a recession. In the past a long period of declining unemployment rate has always lead to a spike up and a recession.

This rate has fallen from 10% eight years ago to 4% today. Practically speaking it cannot go much lower than this. The lowest the rate has been over the last 60 years is 3.5%. So this downward trend in the civilian unemployment rate is almost over. It’s not hard to imagine what will follow after the rate stops heading lower.

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Jan 152018
 

How to Prepare for Higher Borrowing Costs

My debt to income ratio is about 500% while the national average is around 173%. Readers sometimes email me and ask what I will do when interest rates rise. My answer is simple.

I tell them I will pay down my debts in an accelerated manner prioritizing the highest interest loan first. I will limit my monthly interest expense to no more than $1,500. Doing this will adequately protect myself from interest rate risk. Sounds like a solid plan, right? 😉

But I know not everyone will agree. :/ Back in 2014 I noticed some people were concerned that I had taken on excessive risk because my debt level was too high. This sentiment echoed around various internet forums. Here are some examples I’ve saved.

The last commentator wanted to know how I’m doing now. That’s what I’ll be discussing in today’s post. 🙂

But first, here’s a look at my debt summary in 2014. The numbers are taken from my net worth update 4 yrs ago.

Liquid’s 2014 Debts Balance Interest Rate Annual Interest Cost
Mortgage$200,0002.95%$5,900
Farmloans$208,3003.40%$7,082
Margin Loans$52,9004.25%$2,248
HELOC$17,9003.60%$644
TD Line of Credit$33,7005.25%$1,769
CIBC Line of Credit$14,0004.50%$630
RRSP Loan$5,0004.00%$200
Total Debt Balance$531,800  
Average Weighted Interest Rate 3.47% 
Total Cost of Debts$18,474

 

Back then I had nearly $532K of debt, charging me an average interest rate of 3.47% per year.

I was paying $1,540 per month in interest. But I was cash flow positive and saving about $1,000 per month. I felt like I had everything under control. So I didn’t understand why people claimed I was overly leveraged. I thought maybe I was missing something. But as Bobby McFerrin would say, “don’t worry, be happy.” 😀 So that’s what I did.

And here’s what my debt looks like today, 4 years later. 🙂

Liquid’s 2018 DebtsBalance Interest Rate Annual Interest Cost
Mortgage$180,3002.80%$5,048
Farmloans$185,3004.30%$7,968
Margin Loans$57,0002.40%$1,368
HELOC$14,9003.70%$551
TD Line of Credit$5,0005.45%$273
CIBC Line of Credit$17,5005.00%$875
Total Debt Balance$459,000  
Average Weighted Interest Rate 3.49% 
Total Cost of Debts$16,083

 

So my debt costs me $16,083/yr or $1,340 per month right now. This is actually $200 per month lower than in 2014, despite interest rates being higher today.

Yay. Bobby was right. There was no need to be worried. 😀

Nearly every asset class I hold long positions in has produced decent returns since 2014. Had I not borrowed and used other people’s money to invest I would have missed out on all the investment gains.

 

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