Jan 102013
 

ONE of the easiest ways I’ve learned to make money is to take action when others are complaining about something. There is often a silver lining to every financial problem, and learning how to take advantage of that can bring you much reward 🙂 Here are 4 common financial problems I hear people complain about almost every day and my solution to each one.

The problem: Housing prices too expensive.

What other people do: complain they can’t afford to live in the city anymore.
What you can do instead: Offer financing or buy real estate. Take Vancouver as an example. It’s land size is not getting any bigger, but the population will continue to expand. The following tables show the development of the number of inhabitants according to census data of Statistics Canada.

13_01_populationgrowth Financial Problems

13_01_population_metro_van

The Greater Vancouver Area currently has about 2.2 million people. The population is expected to grow by 30,000 new residents each year, or 1.2 million residents by the year 2041, for a total population of 3.4 million according to a residential growth projections report by Metro Vancouver (report in PDF format.)  So based on common sense, even if housing prices fall this year and next, they should in the long run still go up because of growing density. The only way city space would be less valuable decades from now is if we see zero population growth and zero inflation, which is highly doubtful.

Some people say they can’t afford to buy a house. But nobody is forcing them to buy a million dollar bungalow right away. New home owners can start small and slowly work their way up. My down payment was only $15,000 for the two-bedroom condo I bought in 2009. I plan to purchase larger properties over time as I build up equity. Besides, if prices are “too expensive” today how will people ever afford homes in the future when population density and demand will be even greater?

Offering real estate financing is another way to benefit from the housing market, especially if you don’t have a lot of money to put down. You can lend money to a home buyer like a mortgage so they pay you interest instead of a bank. This can be done through a private mortgage or a mortgage investment corporation. Higher real estate prices just means more wealth for me because I have exposure to that market 😀 No complaints here.

 

The problem: Oil prices too expensive

What other people do: Complain they’re getting gouged by oil companies and they can’t afford to drive anymore
What you can do instead: Buy oil and gas companies. As it becomes harder to find and extract oil from the earth, prices will probably be higher 10 years from now than today using common sense. Most oil companies pay dividends to shareholders. A lot of them have a history of growing their dividends because their profits are growing over time as gasoline prices go up at the pumps. Every year for the last 4 years I’ve been investing thousands of dollars into Suncor, Exxon Mobil, Chevron, and other oil businesses. I was getting paid $10 a month in dividends from these companies in 2009. But with sheer sticktuitiveness and persistence, as well as ALL of these companies raising dividends in the last few years, I am now getting $81 a month in dividends from them collectively. Oil companies are now paying me MORE money, than I’m paying for gasoline every month 😀 No complaints here.

The problem: Food getting more and more expensive

What other people do: Complain how food inflation should be added to the CPI and how they can’t afford to eat as much anymore.
What you can do instead: Buy a farm or invest in agriculture. Historically farmland prices tend to out inflate food prices. When consumers pay for their food at the store eventually some of it or most of that money goes back to the farmers or producers of the food. So common sense tells us that if you own the means of production, or at least the land it’s being produced on, then you are in a pretty good position. Last year I bought a farm in Saskatchewan and rented the land to a farmer to grow his crops. Over time if the price of soft commodities increase, then I will increase the rent, and I’ll use that extra money to buy even more farmland. The farmer will still make lots of money too so everyone’s happy 😀 No complaints here.

The financial problems: Slow wage growth and stagnant career

What other people do: Blame their employer for underpaying them. Complain their taxes are too high.
What you can do instead: Invest and become rich. I spent the last several years saving at least a third of my gross income from working 2 jobs, and slowly investing that money to build up dividends and other passive income. 13_01_passive_history income Financial Problems

Investment income such as dividends or capital gains are also taxed at a much lower rate than ordinary salary. And ANYONE can do it, even if you don’t have a lot of savings to start investing. A modest $500 can buy you some mutual fund and give you exposure to the financial markets 😉 $2,000 can buy you more than 100 shares of the index fund XIU. $5,000 is enough of a down payment to buy a small farm, and $10,000 for a small one-bedroom apartment.  It DOES start off slow though and will be a decade before most people will see any noticeable results. But the year 2023 WILL come to pass, so when it does, common sense tells us people who starts investing today (in 2013) will most likely be in a much better position financially, than those who don’t. I estimate that in roughly 10 more years, my personal investment income combined with the salary from my full time job, will bring my total annual income to over $100,000 while lowering my average tax rate at the same time, just like how the rich do it 😀 No complaints here.

The solution to so many of our everyday problems in life are sometimes right in front of our eyes. A lot of it as you’ve seen is just common sense. We can complain like everyone else around us and do nothing about it, or take action and pave a better future for ourselves. Choice is yours folks 😉

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Random Useless Fact:  Sometimes looks can be deceiving. Either that or eating healthy and exercising isn’t as good for the body as people say it is.

13_01_health_women Financial Problems

 

Dec 302012
 

We sometimes hear about how Canada’s debt is over $600 billion, and it’s going to hit new highs in the next couple of years, and how it’s so unfair to leave all this massive debt to future generations. But I don’t think it’s that big of a deal. I’m sure in the 1980’s when our parents were younger, they were scared to think about having to pay back around $300 billion of national debt. But 3 decades later, they turned out just fine, well most of them anyway. Canada turned out okay 😀 and the debt is STILL there, in fact, the country’s debt has pretty much doubled during that time.

Canadian national debt

Based on CPI data from Stats Can, most things costs twice as much today as they did 25 years ago. You can use calculators like this one to see how much $100 basket of goods in 1980 would cost in 2005, for example. And between 1980 and 2005, the median income of all economic families of two or more people increased 11.1% in 2005 constant dollars. That means most household incomes have beat inflation over time.

So if we’re making twice as much money, and our assets (eg: houses, stocks, etc) are also worth twice as much, and we’re spending twice as much on stuff, then relatively speaking if our debt is now also twice as high ($600 billion), did it really increase from before in real economic terms? The only thing that’s changed is the money supply we have in the system. Every dollar back in the 1980s only has the same effective value as 50 cents today :0) So that’s why our national debt may look bigger, but may not feel bigger.

I don’t see the problem of handing down all this debt to our future children either because they’re just going to do the same to THEIR children. Why not? Every other generation before them has gotten away with it lol :0)  But what’s good about our national debt is that most of it’s owned by Canadians.  Mutual funds, pension funds, and even the CPP is invested in our national debt. For example OMERS, a company that manages and invests people’s retirement money in Ontario, might have bought $1 million of Canadian debt. That would mean they lent the federal government $1 million. So the beneficiaries of this $1 million once the debt is repaid is the hard working municipal employees of Ontario. About 75% of the $600 billion debt is owed back to Canadians this way. So our net debt to people in other countries is only a fraction of the total number.

But if anyone is still concerned about government debt and wants to feel accountable for racking up so much IOUs, luckily there is a way you can pay your fair share of our national debt. There are about 35 million people in Canada, so on average each person’s share of the national debt is about $17,000. That means you can just buy federal debt, such as Canadian Savings Bonds, either through your bank or a trusted broker, and the government of Canada will literally owe you $17,000, or however much you buy. In other words, you will become one of the many beneficiaries of that $600 national debt 😀 By owning what you owe, you essentially don’t owe anything. As far as the national debt is concerned, you will be debt free :0) However I am not certain this logic is sound because you would be paying off debt with more debt, haha. But hey, that’s the kind of world we live in (^v^)

Aug 312011
 

I’ve mentioned in an earlier post that most of the big 5 banks in Canada are raising banking fees this year. But there is a silver lining. See if you can follow along with this plan.

The minimum balance required to wave the $3.95 monthly fee on my TD bank account used to be $1000. So for that reason I’ve always held at least the minimum in my account before. I basically save $47.40 a year. In other words, if I could make more than $47.40 a year (after tax) with that $1000 (or 4.74%), then I would be better off investing that money in the financial markets and just pay the monthly service fee.

However, starting this month, the minimum requirement to waive the fee has gone up to $1500, but the fee itself remains unchanged at $3.95/month. I now have $500 more capital at my disposal if I choose to invest it. $47.40 from $1500 means I only need to make a 3.16% total return (after tax) in order to cover my bank account fees. Making 3.16% per year for the foreseeable future sounds a lot more doable than 4.74%. So from now on I’ll put the $1500 (that would’ve been tied up in my checking account) into buying common shares of TD Bank, and just pay the $3.95 monthly fee. Here’s why.

TD shares currently pay a healthy dividend of 3.50%, at less than 50% payout ratio (very safe,) which means the dividend alone paid to me, even after tax, which ends up being about 3.3%, is enough to cover the 3.16% return I need, to break even. Not to mention the future potential for dividend growth and capital appreciation. Plus, many people who kept $1000 in their accounts before to avoid the monthly fee will just top-off to $1500 starting now, which will give TD more capital to grow its business boosting value for its shareholders (me.)


In the end, this method is a little risky but if the banks are going to grow and make money at the expense of their customers, then it’s like that saying if you can’t beat them, join them. Of course only time will tell how this will play out. Don’t try anything on this blog without consulting with a financial advisor first.