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.)
h
 = 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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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. 🙂

16-08-mindful-spending

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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Jun 132016
 

The Challenge is Over

Last week I embarked on a culinary adventure where I would limit myself to eating just $29 worth of food for an entire week. It was not to determine if such a thing is “possible” or not. Humans are very resilient eukaryotes. The average healthy person with a body fat percentage of 20% could survive multiple weeks consuming nothing but water — although it wouldn’t be very fun. 😕 But much like the “no spend days” challenge, I wanted to experience what it’s like to live on a tighter budget like so many poor people do.

Now that it’s all over, I’m going to make like a mirror and reflect on my experiences. Thankfully I managed to keep to my rules as mentioned in the original post, and didn’t eat anything outside of my basket of groceries. I even had some food remaining as of Sunday night. Woohoo! I passed the challenge. 😀

Here are some simple homemade dishes I put together last week, using the ingredients from my list.

16-06-food-stamp-challenge-recipes1 16-06-food-stamp-challenge-recipes2

Breaking Down the Week

Days 1, 2, and 3

The first three days of the challenge were spent eating a little bit of everything from my food basket — although there was a heavy emphasis on fresh vegetables as the tomatoes, cucumbers, and squash had to be taken care of before they start to spoil. I put the bread in the fridge so it would stay fresh longer. During this time I ate mostly sandwiches, salads, and roasted vegetables.

Days 4 and 5

These days were more focused on a protein and carbs rich diet — literally the meat and potatoes of my basket. 🙂 I also boiled and seasoned the large white radish. Around day 4 I began to feel weary about eating the same food over and over again. By the end of day 5 I had finished consuming all the fish, crackers, and most of the produce.

Days 6 and 7

These last two days were mainly for eating leftovers from my basket. I tried out different ways to cook the remaining turkey and potatoes. At this point I felt peckish for other types of food, mainly something sweet. I realized I should have added some apples or oranges to my food basket. I tend to season lightly when I cook at home. After nearly a week of not eating salty food from restaurants my tastebuds have gotten use to consuming a lower sodium diet. On day 7 I made turkey soup, using leftover meat and produce remains. At the end of the challenge I had some bread and 2 turkey drumsticks remaining out of 14 total. A turkey drumstick is about 13 ounces, compared to a chicken drumstick which is about 4 ounces.

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Jun 062016
 

$29 Per Week for Food

In the United States most people who meet certain low income guidelines are eligible for the Supplemental Nutrition Assistance Program (SNAP, or the food stamp program). Last year glamorous Hollywood actress Gwyneth Paltrow challenged herself to live on just $29 worth of food for one week. According to the Center on Budget and Policy Priorities, $127 is how much the average food stamp benefit receives each month, which works out to roughly $29 per week. Paltrow wrote on her blog, goop.com, that she was doing this challenge to raise awareness for the New York City food bank. She uploaded a photo of everything she purchased for the challenge and set out to not eat anything else for a whole week. This is what her basket looked like from one of her Tweets.

16-06-from-goop-gwyneth-basket-tweet

But unfortunately she only made it through 4 days before she gave in and ate some black licorice. I know, it’s shocking right? How could anyone like the taste of black licorice. ? After her challenge ended prematurely, Paltrow said that her “perspective has been forever altered by how difficult it was to eat wholesome, nutritious food on that budget, even for just a few days—a challenge that 47 million Americans face every day.”

The Internet Backlash 

Although she did not complete her challenge I have to give her props for trying. 🙂 But of course this is the internet. So when she wrote about her food stamp challenge there was no shortage of criticism and adverse response.

As one person aptly observed, “Gwyneth Paltrow bought scallions, onions, a clove of garlic, and fresh parsley. She is doing her poor people shopping wrong.” ?

Below are some other intriguing reactions from random denizens of the Twitterverse. 😀

16-06-replies-to-gwyneth-tweet

Yikes! Bring out the carving knife because Gwyneth Paltrow got thoroughly roasted, lol. But internet drama aside, this whole situation has inspired me to do the $29/week food stamp challenge as well. 😀 As a personal finance blogger, I want to find out if I have what it takes to live on $29 a week for food.

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Oct 262015
 

What a Liberal Government Means for Canadian Investors ?

Last week the charismatic Justin Trudeau lead the Liberals to win the 2015 federal election. I’m sure his good looks has nothing to do his popularity and success. 😛

15-10-justin-trudeau-in-front-of-parliament

Justin pledged to make meaningful policy changes to the country that could benefit millions. But will his commitments help you? The jury is still out on the long-term effects, but here’s a TL;DR summary of what Trudeau’s government means for Canadian personal finance and investors in the short term.

The new Liberal majority government will…
HelpHinder
  • spenders
  • low-income seniors
  • stock market investors
  • students
  • most middle-class workers
  • savers
  • high-income households
  • single-income nuclear families

These are only generalizations. The rest of this post will explain individual policies that could affect your pocket book. Keep in mind that just because politicians promised something during their campaign, it doesn’t mean they will always follow through. Any of these policy changes below could be altered or cut completely going forward.

Borrowing To Invest. ? Going back into Deficit. 

According to the federal finance department, Canada’s government had a $1.9 billion surplus in the 2014-2015 fiscal year. 🙂 But the new Liberal government under Trudeau plans to run a $10 billion deficit for each of the next 3 years, before balancing the budget again in 2019.

Going into more debt as a way to expand economic output isn’t necessarily a bad idea. $10 billion is peanuts relative to our $1,827 billion/year economy (0.6%.) Also, our national debt to GDP ratio is quite low by international standards, which means we can borrow money at ridiculously low costs. New 10 year Canadian government bonds are currently yielding 1.5% in annual interest.

After factoring in inflation, there might actually be no real cost to tax-payers, lol. 🙂 Craig Alexander, the Vice President at the C.D. Howe Institute, said that despite digging deeper into debt, the debt to GDP ratio of Canada is still going to decrease over the next three years because our GDP is expected to increase as well. 😀

About a third of the new spending will go towards much-needed public transportation and infrastructure development and repairs. This means building more roads, highways, bridges, etc. This should improve the country’s productivity because gridlock and urban densification are causing major problems right now in large cities such as Toronto, Montreal, and parts of Vancouver. The other two-third of public spending is planned for social housing, seniors centers, and clean energy projects like solar and wind farms.

Due to more deficits and fiscal stimulus the Bank of Canada will be less likely to further cut interest rates for the time being.

What this means for you: Invest your money. Historically the S&P/TSX Composite performed well during times of deficit spending. Below is a graph I put together using stock market returns and government budget information courtesy of the CBC. During the two decades from 1995 to 2014 there have been 9 years where the government ran a deficit budget. And the stock market had positive returns in 8 out of those 9 years.

15-10-budget-vs-stock-market-return-tsx

Economic stimulus increases employment and grows the economy so people and businesses feel more optimistic about their investments which tend to be bullish for the financial markets. 🙂 In particular I would consider investing in stocks or sectors that have exposure to financials, cannabis, industrial goods, construction, utilities, preferred shares, and green technology (solar panels, wind, etc.)

Goodbye annual $10,000 TFSA contribution limit ?

The Tax-Free Savings Account annual contribution limit will revert back to $5,500 and increase in $500 increments based on inflation. This will make it harder for Canadians to save and won’t benefit the middle class. There’s a rumor that the TFSA only helps the rich get richer. But that’s baloney! The TFSA actually helps anyone who wants to save get richer. Here’s a table courtesy of the National Post which shows that many low and middle-income families still managed to max out their TFSA contribution rooms in 2013 when the limit was still $5,500.

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