Mar 092017

A Car Buying Formula 

Someone once said that an old car is like virginity. Once you’ve had it for over 25 years it’s kind of hard to get rid of because nobody else wants it either. 😄 But I’m not here to give relationship advice. This is a personal finance blog after all. So in today’s post we’ll discuss one of the most common questions people face; how much is appropriate to spend on a car? For most people I would recommend the following formula.

0.01s(5h+2i) = Price to pay for a vehicle

= Monthly household spending (before accounting for the potential vehicle.)
 = Number of expected hours the car will spend on the road per person per month.
i = Monthly cost of the auto insurance.

For example, I live pretty close to work so I only spend about 20 hours on the road each month. My car insurance costs $100/month, and my monthly household spending is roughly $2,500. When these numbers are plugged into the formula we see that I should spend about $7,500 if I were looking to buy a car today.

0.01 x $2500 x (5 x 20 hrs + 2 x $100) = $7,500

Let’s look at another example. Susan and Bob are looking to buy a vehicle. It will be used primarily for Susan to drive to work, but will also be used for shopping / recreational activities for both of them. They estimate the car will be on the road for 50 hours per month. They will be in the car together for 10% of that time. Their monthly spending is $3,200. Insurance for the car is expected to cost $150/month for the type of vehicle they are looking for. Using these numbers we discover they should budget in the range of $18,400 for a car.

0.01 x $3200 x (5 x 55 hrs + 2 x $150) = $18,400

Even though the car spends 50 hours on the road, we are using 55 hours in the formula. This is because two people are expected to use the car simultaneously 10% of the time so during those times the hourly rate of utility is doubled.

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Mar 062017

Dow Jones trading over 21,000 points

It’s only the beginning of March and the stock market indexes are already up 6% to 9% year to date in the United States. The Dow closed over 21,000 points last Friday. Of course hitting new highs is nothing special for the stock markets. But who knows how long this momentum will last.  We have confirmation from the Federal Reserve that interest rates in the United States will increase next week by a small amount. I expect this will cool the financial markets. Afterall, since World War II, 77% of Fed tightening cycles had ended in recession.

It has been a fairly predictable month for myself. I’m slowly collecting passive income while paying down my debts.

Liquid’s Financial Update

*Side Incomes:

  • Part-Time = $800
  • Freelance = $700
  • Dividends = $800
  • Interest = $200
*Discretionary Spending:
  • Fun = $500
  • Debt Interest = $1200

*Net Worth: (MoM)16-12-networthiq_chart-nov

  • Assets: = $1,088,400 total (+5,200)
  • Cash = $1,500 (+400)
  • Canadian stocks = $138,200 (-1000)
  • U.S. stocks = $90,800 (+4900)
  • U.K. stocks = $19,300 (+700)
  • RRSP = $74,900 (-100)
  • Mortgage Funds = $30,600 (+200)
  • Peer-to-Peer Lending = $20,100 (+100)
  • SolarShare Bonds = $10,000
  • Home = $270,000
  • Farms = $433,000
  • Debts: = $494,400 total (-1,800)
  • Mortgage = $184,800 (-400)
  • Farm Loans = $190,900 (-500)
  • Margin Loans = $59,600 (+300)
  • TD Line of Credit = $15,400  (-600)
  • CIBC Line of Credit = $27,000 (-500)
  • HELOC = $16,700 (-100)

*December Total Net Worth = $594,000 (+$7,000 / +1.2%)
All numbers above are in $CDN. 

Lucky me. It was another positive month in general for the markets. I’m very close to $600,000 now. 🙂

Random Useless Fact:

 Our brains tend to find creative ways to be entertained when we’re bored.

Mar 022017

I’ve been saying for years that real estate prices in Canada are not that high. Certain areas like Vancouver and Toronto have the perception of being unaffordable. But the fact that population growth is still positive in these major cities suggests otherwise. If these places weren’t affordable then people would be moving out of them, not in. 🙂

People from all the world have wants. These wants turn into demand, which fuels certain parts of the economy. And what do young adults want right now? According to an HSBC survey, the “vast majority” of millennials want to buy property.

Demand from Young People 

HSBC bank polled 9,000 people from 9 different countries: Canada, Australia, China, France, Malaysia, Mexico, the UAE, the U.K. and the U.S. The results include some interesting numbers about the housing market among individuals between ages 18 and 35, which the bank defines as millennials.

37% of millennials said they had financial help from the bank of mom and dad to cover their housing costs. Canada is roughly in the middle of this trend.

A little over a third of Canadian millennials polled already owned their own home, and among those who didn’t, 82% say they intend to buy one within the next 5 years. Thus, housing must be relatively affordable, because even at the lowest earning stage of their careers, most people either already own property, or have the means to own in the foreseeable future. They are also willing to sacrifice a lot in order to become homeowners.

The results of the HSBC study shows that Canadian real estate may not be in a bubble. Funeral costs, health care costs, and tuition have also grown at a faster pace than inflation over the decades, but most people don’t label those sectors of the economy as becoming a bubble. So I don’t think housing is overpriced either.

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Feb 272017

New stock market highs aren’t that special. Here’s why.

Some people inaccurately believe that any time the stock market reaches a new high it must mean that we are near a peak, and it’s a sign that stock prices will probably fall soon. Many undisciplined investor may choose to pull out of the market when this happens. However doing so will almost always be the wrong decision. This is because stocks reach new highs all the time. And they usually go up even more in the following years.

This Bloomberg article explains that over the past 102 years from 1915 to 2017, the Dow Jones stock market index in the United States had hit 12 new highs every year on average. 🙂 That’s once per month. Another way to think about it is that the Dow experiences a new record high about 5% of the time. So it’s not really not that rare. 😉 The table below shows how the frequency of new highs are distributed over the decades.

If someone starts investing at age 30 and plans to live until 80, then he’ll have 50 years of time to invest in equities. Based on historical data for the Dow Jones, he will see roughly 600 new record highs during his investment duration. This is why selling stocks because we may have reached a new peak in the market is a very silly thing to do for long term investors.

Trying to sell high and buy low rarely works. Again, the facts clearly explain why this is the case. Over the same time period, (1915 to 2017), the one year average return for the Dow after it had reached an all-time high was 9%. The 3 year cumulative return was 21%, and the 5 year return was 32%. So even when stocks are at all time highs, they tend to move even higher in the years after. 😀

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Feb 272017

The following was written by staff writer, Peter.

It is possible to quickly boost the value of a rental property by making minor changes. Each of the following changes will allow owners to rent their properties for higher prices. Choose which are the easiest to complete and begin with them and make plans to implement the other techniques in the future.

Enhanced Security

Renters are often concerned with the safety of the neighborhood and security of the property they are considering. One of the best ways to increase the value of your rental property is to make potential renters feel more secure.

The first thing to do is ensure all doors have deadbolt locks and that the locks are replaced or rekeyed between residents. In the past few years, new locks have been made that can be rekeyed easily and for far less money. Many landlords do not make this part of their standard practice due to the additional cost incurred, but proving to renters that you take their safety seriously will allow you to charge a higher premium.

Another upgrade that many renters are happy to see is a home security system. This is a premium feature that can substantially boost the value of the rental property. If you do install such a system, make sure you understand all the benefits and how each one is used to explain it thoroughly to prospective renters.

Boost Curb Appeal

While many people have heard the advice to not judge a book by its cover, most still do to some degree. This is especially true for those looking for a new place to call home. If the home itself is in great condition but the exterior doesn’t look welcoming, many people won’t even consider making an appointment to tour the interior.

To grab the interest of those who browse new locations before deciding to tour the property, or even to create a wow factor for potential renters as soon as they arrive, it is important to boost the curb appeal of the property. One of the easiest and least expensive ways to do this is painting the door, trim, and shutters in welcoming colors. For those who have even moderate handyman skills, this is an easy weekend project.

Another way to instantly elevate the property is to install a new mailbox. It doesn’t have to be the most elaborate selection, but a brand-new mailbox with no dents or rust can instantly make a rental property feel more welcoming and like home.

Finally, invest in decorative touches such as landscaping with season-appropriate flowers. This could be flower pots on the front porch, small shrubs along a walkway, or a flowerbed in the front yard. The amount doesn’t have to be substantial for the impact to be profound.

Interior Upgrades

Interior upgrades often require the greatest investment of time or money for the property owner. However, if chosen wisely they can also have the greatest impact for the longest period of time.

Upgrading flooring from linoleum to tile increases the value of the property and also makes it more resistant to damage over time. Removing old carpeting and replacing it with hardwood floors or stone has a similar effect. Carpeting can quickly become stained and torn while hardwood and stone are much more durable.

Laminate countertops offer another opportunity for an upgrade. While these are standard in most rentals, they are neither the most attractive nor the most durable option. Butcher block, modern cement, quartz, granite, and other natural stone options are all more durable and greatly increase the perceived value of the property.

When buying a residential property, it is important to take into consideration how much work will be needed to make it appealing to a rental market. It may be necessary to make upgrades over time and slowly increase the rental price to reflect the improvements.