Net Worth Update – End of 2013

Calculating Net Worth 11

Net Worth Update – 2013

 

Following the example of a number of personal finance bloggers, I’d like to start tracking and updating our net worth on a regular basis. Tracking it monthly doesn’t quite make sense to me (translation – way too much work), so an annual checkup should work just fine.

The value of our house is based on the most recent assessment notice issued by BC govt – some people might disagree with this method of valuing a property, but in our case this will provide most consistent figures (unless I start putting up our home for sale every year just to see what is the real market value of it – and it is too much work as well).

I’m only including major items in our net worth calculations – no need to start including absolutely everything like value of our car (non-existent!), and my vast collection of unfinished sock puppets. No Picasso painting for us, and I’m not about to go through my wife’s jewelery box to make the calculations perfect. After all, I’m not trying to pad the numbers and impress anybody  – it’s only meant to show our progression towards our goals.

Net Worth Update

Net Worth Update

 

Investment and cash accounts: $190,853.21

 

Cash and saving accounts: $23,707.68 (includes emergency fund, chequing account, and various saving accounts – new car, annual property taxes, etc.)

RRSP accounts: $2,675.58

Non-registered investment account: $108,005.95

Mr. Financial Underdog TFSA account : $28,719.00

Mrs. Financial Underdog TFSA account: $27,745.00

 

Other assets: $275,000

 

Principal residence: $275,000

 

Liabilities: $207,171.39

 

Principle residence mortgage: $207,171.39 (as of Dec. 31, 2013)

 

Total Net Worth (Assets – Liabilities): $258,681.82

 

 

Good news:

 

– If we sell all of investments and empty out bank accounts, technically we can almost pay off our mortgage and be completely 100% debt-free. But since investment returns are much higher than our mortgage rate, I think it would be counterproductive. But still kinda cool.

 

 Bad news:

 

– A good chunk of our assets is tied up in our principal residence (sounds way fancier than “our home”, eh?). For the most part, these are fantasy money as there’s no easy way to get them out and invest. Tapping into home equity for the purpose of investing is technically possible by using Smith Maneuver   (story courtesy of Million Dollar Journey which is a kick ass resource for anybody interested in personal finance), but at the moment I’m only exploring it as an option down the road.

– We don’t use RRSP accounts although have plenty of room available. I’m not worried about it as contribution room keeps growing, and we can always put some money into RRSPs later on.

– Our net worth is lower than I was hoping it to be (no surprise there). The formula I use is borrowed from Thomas J. Stanley’s book “Millionaire Next Door” :

Net Worth

Net Worth

I think this means we have some catching up to do! I will make another Net Worth Update some time next January to show the progress.

***

According to this article, just 85 people—the richest of the world’s rich—hold as much wealth as the poorest 3.5 billion. That’s half the world’s population. Amazing.

 

Canadian Banknotes are fascinating! – $10

Canadian Banknotes 4

Previous story: Canadian Banknotes – $50

Canadian banknotes can be truly fascinating!

 

While going through my wallet, I found a new $10 banknote that is currently in circulation. The ten dollar bill (polymer series) once again features some of Canadian pride and one of the most prominent politicians in Canadian history.

 

Front Side – Sir John Alexander Macdonald:

 

Canadian Banknotes

Canadian Banknotes

Sir John Alexander Macdonald was the very first Canadian Prime Minister and served for a number of terms (1867–1873, 1878–1891). After his family immigrated to Canada from Scotland, he became a lawyer and shortly after got involved in politics slowly rising to the top of the political scene. His actions helped shape Canada as we know today.

 

Notable achievements and interesting facts:

 

 

  • Dominion of Canada came to existence on July 1st, 1867. Same day, Sir John Alexander Macdonald was knighted (hence “Sir”) and appointed the Prime Minister of newly formed government.
  • Shortly after, the very first general elections were held in Canada. Interestingly enough, back then no secret ballots were used and votes were made public.
  • Under his rule, Trans Canadian Railway slowly came into existence and was completed after years of planning and design. The entire project was extremely expensive for such small nation, and required heavy borrowing, negotiations, and compromising. Few times the project almost went bankrupt – but it was finally completed on  November 7th, 1885.
  • Mount Macdonald at Rogers Pass, Ottawa Macdonald-Cartier International Airport, and Ontario Highway 401 (the Macdonald-Cartier Freeway) are all named after him.
  • John Alexander Macdonald was known to be quite a drinker – to the point his drinking would sometimes get in the way of politics.
  • John’s first wife Isabella Macdonald was John’s first cousin. Apparently cousin marriage was no big deal back in the day.

 

Famous quote of Sir John A. Macdonald (one of many):

 

“Let us be English or let us be French… but above all let us be Canadians.”

 

Back Side – The Canadian:

 

 

Canadian Banknotes

Canadian Banknotes

 

Back side of the bill features The Canadian train winding through Rockies as a tribute to Sir John Macdonald as the main driving force behind Trans Canadian Railway.

 

Interesting facts and information:

 

– British Columbia joined Canada in 1871 with the promise that it will be included in Trans Canadian railway project. People of BC were also given large sums of money as part of the deal to repay their debts.

– Overall cost of the project was estimated around $100,000,000 which was a monstrous amount of money in that time.

– The project caused First Nations rebellion in Manitoba against Canadian government which lasted 6 months but ended after Canadian troops were brought in.

– The railway was completed in on Nov. 7th, 1885 in Craigellachie, BC (area between Sicamous and Revelstoke). First train arrived at Port Moody from Montreal on July 4th, 1886.

– Port Moody was originally the final destination for the railway on the west coast. But by 1886, the Canadian Pacific Railway Company had decided to extend the line further to the West to Vancouver after local businessmen promised to fund the extension for their own benefit.

– Ride between Montreal and Port Moody was five days and nineteen hours long.

 

Canadian Banknotes

Canadian Banknotes

 

Mortgage life insurance is an awful financial product

Mortgage Life Insurance 8

Mortgage life insurance seems like a good idea

 

At first glance, mortgage life insurance obtained from your bank sounds like an excellent idea. You’re buying a home for your family and sign up for a loan that will take decades to repay. While you’re signing documents for your mortgage, your bank rep mentions the benefits of getting mortgage life insurance – peace of mind, complete repayment of your mortgage in case you or your spouse pass away, and relative low cost (when compared to your mortgage amount that is). Sounds like a responsible thing to do to protect your family, right?

Mortgage Life Insurance

Mortgage Life Insurance

When we bought our home few years ago, we had this exact conversation with our mortgage specialist. Fortunately, I had enough brain cells to say that I needed more time to research it, and I started digging around. After looking into details of the mortgage life insurance offered by the bank, I found several reasons why it’s an awful product, and should be avoided at all costs – unless your hobbies include wasting money.

 

Mortgage life insurance is too expensive

 

Just out of curiosity, I’ve looked up the cost for mortgage life insurance on TD Canada Trust website. For example, you’re buying a small house and taking out a mortgage of $400,000. To obtain life insurance for a mortgage of this amount, you and your spouse (in my example you’re in your 30s) will have to pay $105.00/month (after generous 25% discount). If your mortgage amount is higher or if you and your spouse are older, the monthly expense will be higher.

 

Mortgage Life Insurance

Mortgage Life Insurance

 

This is extremely expensive when compared to simple term life insurance that can be obtained through independent brokers. Similar coverage of term life insurance would cost you less than $40/month and offer more to you – as I discuss it late. Even our life insurance policy offers superior coverage and flexibility.

While $105.00/month might not seem like a big deal when compared to your mortgage payment, the value just isn’t there. Also, keep in mind that your coverage will be going down as your mortgage is being paid down – while your premiums will stay the same.

 

No guarantee of paying out

 

Typical life insurance policy obtained through insurance broker is actually underwritten when you sign the contract and the risk is assessed prior to this. Once you enter the contract, the payout is guaranteed in case you or your spouse die. Insurance agencies take this step very seriously, and take every step possible to assess your health before the policy is signed. In our case, we had to go through a medical examination performed by a registered nurse to make sure our level of health is reasonable and we are insurable.

Mortgage life insurance is a bit different in a sense that it’s underwritten at the time of the claim. Bank won’t access your health prior to signing the documents; you simply fill out a short questionnaire about your health. If the unthinkable happens, the bank can actually deny the coverage simply because you weren’t insurable. The fact that you didn’t know about your heart condition won’t make any difference.

Check out this episode of CBC Marketplace on mortgage life insurance:

 

 

 

Mortgage life insurance is controlled by the bank

 

If I had mortgage life insurance for our home, and got hit by a bus, the payout would go straight to the bank holding my mortgage because the bank is the beneficiary for the insurance policy. My wife wouldn’t be able to make a choice on what to do with insurance money – it would simply pay off our mortgage. In case of private insurance, the proceeds would be given to my wife tax free with her choice of actions – pay off the mortgage, invest the money, or build a giant Rocky-styled statue of me.

Another thing to keep in mind is that your mortgage life insurance policy is attached to your mortgage. If you sell the house – the policy gets canceled. If you renew the mortgage – the police needs to be renewed. If you miss a payment – your policy gets compromised. In other words, you have no control over it whatsoever.

 

Why do banks offer mortgage life insurance?

 

Mortgage life insurance is an easy sell for bank employees to push to their clients as an added bonus. Any responsible adult would think about protecting their family from unexpected death. But mortgage life insurance offered by most banks is not the right way to do so. In reality, it protects the banks more than it protects you. It is also a great money maker for them given extremely high price and poor value of it to the consumer. No wonder bank employees are told to push this awful product!

 

What is the right way to go?

 

Don’t get me wrong, protecting yourself and your family is important and insurance can be a beautiful thing. It is your responsibility to make sure your family won’t suffer financially if you or your spouse suddenly passes away.

But mortgage life insurance offered by the banks is an awful product that offers very little  value. If I were you, I’d consider obtaining term life insurance from an independent insurance company. You will be able to control the coverage amount and what happens if the policy pays out. Your premiums will also be much lower than what the bank will offer you – and who can’t use some extra money these days?

My name is Financial Underdog, and I’m not impressed with mortgage life insurance!

Why I call myself Financial Underdog

Why “Financial Underdog”?

 

Underdog is defined in sports as somebody (or some team) that are expected to lose. The chances are stacked against them, and history of achievements is not quite there. In fact, it doesn’t even exist.

Financial Underdog

Financial Underdog

For example, the movie Rocky is about an absolute underdog Rocky Balboa going into a fight with a favorite (or top dog) named Apollo Creed. Apollo had everything going on for him – great track record, a whole team of coaches looking after him, great environment for training, and sponsor money to support all of this.

What about Rocky? Rocky (portrayed by Sylvester Stallone) was trained by an obviously crazy coach Mickey in a dirty gym, he jogged through dirty streets of Philadelphia dressed like a homeless person (seriously, have you seen his outfit?), punched dead cows instead of punching bag, and lived in a small dirty apartment. He was a nobody. Not exactly a recipe for championship – and because of that everybody expected Rocky to lose.

But a miracle happened – and Rocky put up one hell of a fight. Technically he did lose, but he was a true winner of the fight by lasting against Apollo this long and not going down. A guy from the streets went against the champion, and became the legend of the streets, a true folk hero.

Financial Underdog

Financial Underdog

 

 

What does it have to do with finances?

 

As somebody who grew up in a poor family in final years of USSR, I lacked common knowledge about money from day one. My parents never had much money (especially when the country was slowly breaking apart) and they couldn’t teach me how to manage it – which translated into very bad money habits for me when we came to Canada. If you can think of one stupid thing to do with money – I did it. For the most part, I simply didn’t know how money works and what to do with it.

My family came to Canada when I was in my early 20s – and I had to start my life from the very beginning with zero knowledge. Heck, I didn’t even speak English when I came here – and even right now I still have a fairly thick accent. Imagine trying to get your first job  when you can barely speak English and have social skills of a newborn – not the greatest start towards financial success, am I right?

No university degree for me – I simply couldn’t afford it. No inheritance from a helping uncle. No high paying jobs for me either as those require skills and education. No slick investments or smart money habits.

 

But the dream is there

 

But the dream of becoming financially successful despite all of this is still there. Yes, I want to put up one hell of a fight. I want to achieve financial independence for my family, and leave a legacy. I want to prove that even if odds are stacked against you, there’s still a chance to win with money by working hard, investing wisely, and teaching yourself about money.

An average person by all means can become wealthy in this country. Even if you start at the very bottom, you can get a degree in street smarts through school of hard knocks. You may need to punch some proverbial cows – but it’s just the part of the process. There are mistakes to be made, and successes to be enjoyed.  But even financial underdogs get their chance, and when it comes you have to strike hard and fast.

My name is Financial Underdog, and I’m working towards my degree in Street Smarts majoring in Personal Finance.

Why I don’t want to buy a new car

Our car is a gazillion years old

 

My car has been with me for quite some time. I remember picking up my wife for our first date in it – about nine years ago. I remember heading to my friend’s graduation and packing 5 people into this little thing. Heck, I even remember my dad teaching me how to check tire pressure on it. Every little life event we’ve experienced, our little Donkey (that’s how we affectionately call it) been there for us. We moved, got married, changed jobs, had bad things happen to us, had good things happen to us – and our Donkey has always been there to drive us around.

Our Donkey is a mid-nineties child with its own character traits and just over 230,000 kms on its odometer. For the most part, it has never given us any troubles – just ongoing maintenance, replacing parts when we need them, and a good cleaning now and then. Inside and outside it looks absolutely fantastic – for a car of this age. Once in a while, I wax it on a sunny day, and it starts sparkling and almost causing traffic accidents by blinding oncoming traffic.

 

What would a brand new car mean to our finances?

 

Once in a while my mom asks me how come I’m still driving this old thing. Our friends politely giggle at how out of place our car looks next to theirs when we get together, and wonder what stops us from upgrading.

Let’s say one day we forget everything we’ve learned about personal finance, and buy ourselves a brand new car.  We walk into our local Acura dealership, sign the papers, and drive away a new Acura TL – complete with leather seating, LED lighting, navigation system, and power windows (something I’ve never had in my life, can you imagine?). What would a brand new car do to our finances?

 

New Car

New Car

 

Here’s a list of new expenses we would have to fit into our budget:

 

Financing (or worse yet – leasing) is on average  $450/month in Canada. Every month an average family sends this much to the bank for the privilege of driving a new car. While our budget could absorb it, it would certainly mean less money being invested as per my New Year’s Resolutions.

Insurance costs would go up – and once again would take a bite out of our budget. Our Donkey costs us less than $100/month to insure – mainly because it’s a fairly cheap car to replace. If it was a brand new vehicle, this number would undoubtedly go up into the stratosphere.

Brand new car depreciates in value like a stone. If you buy a $40,000 car today, its value will hover around $20,000 three years later – which is an equivalent of burning a $100 bill every week while you drive your car to work. I’m sorry, but I have a better use for $100 bills which doesn’t involve burning.

– Increased running costs would punch our monthly budget further into unconsciousness. Most luxury vehicles these days require premium gasoline which costs more. Little engine on our Donkey  burns very little gasoline, and doesn’t care about higher quality fuels.

Maintenance costs would also go up because newer cars are more expensive to fix – considering how complex they are and how much training mechanics need to have. My friend’s BMW needed a new window mechanism, and between labor and new parts, he had to shell out almost $800! I haven’t paid this much for anything done on this car for as long as I owned it – even new radiator.

– Heck, even car washes would be more expensive – because newer car would command premium car wash complete with waxing and deluxe detailing. No need to do this with our old car, I can wash and vacuum it myself once in a while. No need to spend extra money and it gives me something to do with my hands on Saturday.

 

Moral of the story?

 

Used Car

Used Car

So, for now we’ll stick to our used car. It might be almost 20 years old, but it’s very reliable and makes sense for us financially at the present times. Sure, it’s not a head-turner. But we’ve gotten used to it and it gets us from point A to point B with a certain classic feel to it. One day it will be time for it to go (some sort of farm where all aged cars go, perhaps?) – and we’re already saving money for our next used car. But for now, I’m perfectly happy with it.

And trust me, I’m not against buying nice cars – or nice things in general. I’m not the kind of person who believes in driving old cars till the day I die and eating nothing but oatmeal just to save money. But I do believe that buying new cars only makes sense when your financial future is secure with enough investments set aside, your income can absorb all increased costs and buying  a new car won’t put a dent in your budget. Unfortunately, we’re not quite there financially, and we’re making a conscious decision to drive with less flare, but more financial stability down the road.

 

How old is your car?

 

Goals and Resolutions – 2014

Excuse me for being stereotypical…

 

Now that the Christmas insanity is over and New Year’s partying ended, I’ve decided to sit down and come up with a few goals and resolutions of my own – seeing that so many financial bloggers are doing it. After all, if everybody else is jumping off the roof, then why shouldn’t … wait, bad example.

They say the difference between goals and wishful thinking is that goals have to measurable, exact, and have a time frame. Unfortunately, not all of my goals qualify fully. Also, far from all of my goals and resolutions are centered on personal finance. While I mostly ramble about money (hence “money ramblings”), I think of other things too, you know!

My plan is to revisit these goals and resolutions one year from now and see if I missed any of them – and how badly.

 

Goals and Resolutions

Goals and Resolutions

 

1: Invest 30% of our income

 

This isn’t exactly new to us – we’ve been diligently transferring a set percentage of our paychecks into a special account reserved for investments for few years by now. It used to be a much lower amount though – if I’m not mistaken we’ve started with 5% just to see how it feels. Once we’ve gotten used to losing 5% of our income, we’ve upped the bar to ten – and so on. We’ve reached thirty percent not too while ago and I don`t think it will change much from here – we’ve already cut our lifestyle quite a bit, and my wife might be right (I hope she doesn’t read me admitting it) in a sense that we shouldn’t be focused on just saving and investing money – we should enjoy it once in a while too. She is one smart cookie, eh?

Also, all of our investment income (dividends, distributions, and growth) gets re-invested – and we don’t spend it on our living expenses – not yet at least. This is simply because we want our assets (little pile of money/retirement account/freedom fund) to grow as fast as possible to the point when it starts growing by itself or even without our regular contributions. Wouldn’t be wonderful to have money working for us as opposed to us working for money?

Short and sweet: Invest 30% of our paychecks + 100% of all proceeds

 

2: Update my blog on a weekly basis

 

When I started this blog, I thought I’d update it every month or so. But for some reason I feel the urge to do it more and more often – every comment here or every new Twitter conversation get me fired up like I just made a new friend. I do appreciate people helping me and providing feedback – I just hope this blogging thing doesn’t become an obsession for me. After all, it’s just a place where I sort my thoughts out and voice some opinions (sometimes rather strong ones) without being called a numbers nerd by my friends.

Also, I think my little DIY blog needs a bit of a facelift. But I have no idea what a good looking blog should look like. I know mine isn’t exactly appealing and hard to read – so I think I’ll invest some time (or money if I have to) into redesigning it to bring readability up. If somebody can suggest changes or share some wisdom, I would be absolutely ecstatic.

Short and sweet: Update this blog every week and redesign it to make it user-friendly

 

3: Lose 50 lbs. of weight by budgeting

 

No, I’m not talking about cutting our grocery budget to $50/month and starving myself into thinness (because I tried it before and failed miserably). Recently, I had a bit of revelation. I’m not sure if you’ve noticed it, but I’m a bit of a geek when it comes to numbers – to me not a lot of things are equally satisfying as balancing our monthly budget or calculating rate of return on some investment (even if this investment is buying pickles in bulk). What if I could use my superpowers (if being a numbers nerd can be classified as a superpower) for good?

What is the key to losing weight? Most experts will say it’s balancing input (food consumed) with output (physical activity). What if I start tracking my consumption on everyday basis and balancing it against the energy I use – either by increasing my exercise or cutting down on consumption? They say just by tracking the numbers, people usually drastically improve their eating/exercise habits.

So, as one of my goals and resolutions, I am going to lose 50 lbs of my weight by the end of the year. Currently sitting at around 240 lbs., my weight can use a bit of an adjustment (to put it lightly), and an entire calendar year is a reasonable target. If you think about it, it’s only 4.16 lbs. /month – or just about a pound a week. I’m pretty sure I can do it!

 Short and sweet: Lose 50 lbs. of weight by the end of 2014

Goals and Resolutions

Goals and Resolutions

 

4: Read a new book every two weeks

 

I used to read quite a lot. Unfortunately, lately I’ve noticed that slowly I switched to listening to podcasts and even comedy shows. While entertaining, they bring no new information for the most part.

So, as of one of my goals and resolutions for this year, I will pick a book every two weeks, read it from front to cover, and ponder over the material read. To make my life a bit easier, I will favor audio books as they’re easier to consume for me as I do chores around the house or commute to work – perhaps I’ll even invest some money into Audible membership. To keep myself a bit accountable, I will even post short book reviews if they happen to be on the subject of personal finance or just money in general. I even picked a new book already and started reading it!

Short and sweet: Read a new book every two weeks and post reviews if related to finance

 

5: Practice a bit of “selective ignorance”

 

This is a bit of a wishy-washy goal. Another thing I’ve noticed about myself is that I spend too much time paying attention to things that don’t really matter to me. I’ll listen to a radio show about some phenomena in another country, start reading about it on Wikipedia, and pretty soon I will waste some good hours of my time over something I don’t really care about.

 

Goals and Resolutions

Goals and Resolutions

I’ve heard of low-information diet before, and I think it’s time to explore it. I should start asking myself “- How does this help me and my family reach our goals?” more often. Cause if it’s completely unrelated to me or my family, why do I even bother? And I’m not talking about going full-tilt and starting to live in a informational bubble without knowing what’s happening next door. But cutting down on informational noise can be quite beneficial to me, I think.

Short and sweet: Cut down on unnecessary and unrelated information intake.

 

Do you have any goals and resolutions for this year?