Owner: wheredoesallmymoneygo.com URL:http://www.wheredoesallmymoneygo.com Join Date: Wed, 25 Jul 2007 20:37:01 -0500 Rating:0 Site Description: One of the premier personal finance blogs for Canadians. Written by a Bay Street professional. Site statistics:Click here
What is "Leverage"? Part I - The Basic Philosophy 2007-08-01 13:32:31 Leverage: Think of it as using "other people's money" to make money more quickly. Probably another topic that is best explained with an example.
Greg has $1,000 a year to invest for 10 years. Assuming a rate of return of 10%, at the end of 10 years he will have $17,531. Read more:Leverage
, Basic
, Philosophy
What is a GIC? 2007-08-01 09:24:17 GIC: Guaranteed Investment Certificate. In the US these are known as CD's (Certificate of Deposit). This is pretty much as safe as you can get when it comes to investing. You buy a GIC at an advertised rate (say 4% as an example) and you earn 4% per year for the duration of the term.
They are guaranteed in that it doesn't matter what happens to the
Use our strong dollar to save on online purchases... 2007-07-31 21:45:31 Our dollar has been hovering around $0.95 USD. So to figure out how much you pay for something that is listed in US funds, just divide the US price by 0.95. Now you have how much you will pay in Canadian funds.
To take advantage of this you need Read more:online
Inflate your tires properly and save $432 per year! 2007-07-31 20:57:48 The EPA (Environmental Protection Agency) says that for every 2psi (pounds per square inch) of under inflation in your car's tires
, you lose 1% in fuel efficiency. In a recent study (not to exacting scientific method, mind you) students at Carnegie Mellon University found
Can you Diversify too much? 2007-07-31 08:41:56 This is a tricky topic to talk about. So please read the caveat at the bottom of this post!
The wealthiest people in the world have, on average, made their fortunes on ONE stock... and that is usually the stock of the company Read more:Diversify
What is "Diversification"? There is more to it than you might think! 2007-07-31 07:59:25 Diversification basically means not putting all your eggs in one basket. If you hold only one stock and that company went bankrupt, then you would have lost all your money. If you hold two stocks and one company goes bankrupt you have only lost half your money Read more:Diversification
, think
Easy way to avoid the $1.25 ATM transaction fee 2007-08-04 19:29:44
Easy one today - I was just at my local grocery store and using the automated checkout lane (the one where you scan the items yourself) and I decided to use the cashback feature. "Cashback" is a term used by retailers when you use your debit card and in addition to paying for your purchase, you also take money out of your bank account and the merchant gives you the cash. Almost all retailers who do this DO NOT CHARGE the $1.25 ATM "convenience" fee that a bank machine charges when you don't use your own bank's network of machines.SO - next time you do your groceries (or visit ANY retailer that offers cashback) make sure to take advantage of the free transaction! I probably save about $10/month doing this. Don't be afraid to ask at the checkout if the retailer "has cashback" - a lot of them do these days! Not only do you save money, you save yourself the hassle of finding and going to a bank machine...
Save Money on your Life Insurance... Big Money 2007-08-03 14:40:20
This is an intermediate level post. Today we are going to look at one of the greatest secrets in the life insurance business. Specifically we are going to look at Term Life Insurance. The way it works (in a nut shell) is that you purchase a life insurance policy and pick a "term" - similar to a fixed rate mortgage in that for the duration of the term you pay a set amount which does not change.Let's start by looking at an example. Tim buys a term life insurance policy, he is 25 years of age, average health and wants $500,000 in coverage. He chooses a 10 year term. For the first 10 years, his monthly premium is $28.76/month. Not too bad for half a million in coverage. Now, at the end of the 10 years, we begin the NEXT 10 year term and according to the policy the monthly premiums are now $64.96/month for the next 10 years to reflect the increased chance of death for someone who is older. Each successive 10 year period yields a higher premium, and ex Read more:Money
What is a "Capital Gain"? 2007-08-03 11:50:15 The most common reference to "Capital Gains" pertains to when you sell something for more than what you paid for it. So for example, if you bought 1 share of Company XYZ at $50.00 and sold it one year later for $100.00 then you have a capital gain of $50.00 ($100 - $50).Your "Taxable Capital Gain" is a different story. You have to multiply your capital gain by the "Capital Gains Inclusion Rate" (which is 50%). So now, with that same example you multiply $50 (Capital Gain) by 50% (Capital Gains Inclusion rate) and you are left with a Taxable Capital Gain of $25.Oh, wait there is more! The taxable capital gain of $25 is subject to tax at your marginal rate (let's assume 50%). So the tax you owe upon selling your stock is $25 (taxable capital gain) x 50% Marginal Tax Rate = $12.50 in tax payable. So you get to keep $37.50 of your $50 profit.So the "Capital Gains Inclusion Rate" is a good thing because it means not all your gain
What is Disability Insurance? 2007-08-03 11:16:12 Disability
Insurance provides you with an income stream should you become disabled and unable to work. It has nothing to do with whether you are injured at work or not - you could be at home, slip in the tub on a Saturday night and break your leg - you would be covered so long as you met the condition of "disabled" as listed in your policy. For the average 30 year old, the often quoted statistic is that there is a 1 in 3 chance they they will have a disability lasting 3 months or longer, with the average disability lasting 32 months. I've talked about how important it is since your ability to earn an income is your most important asset - especially when you are young.Let's look at a 25 year old, fresh out of University and earning $50,000 in their first job. If we assume a 3% increase in salary every year until age 65, then this person stands to earn $3.7 million dollars over the course of his/her career. Let's call it $2.5 million after tax. That's a lot of mone
Why Disability Insurance is the most Important Insurance to have 2007-08-02 15:12:10
Probably the tell tale indicator as to why I would say that is that it is also one of the more expensive insurance products out there. That may sound like a strange reason, but you have to understand that insurance companies price policies based on how much it is likely to cost THEM if you make a claim, the probability of you making a claim and so forth - plus a little is added to make sure they pull in a profit. So if an insurance product is expensive, it basically means that either the payout is big, the likelihood of claim is big, or both.But there is more to my statement than just cost. You have to understand that your biggest asset in life is not your house, your car or your investments (at least when you are younger). Your biggest asset is your ability to earn an income for the rest of your life!Speaking of assets - you insure your house, you insure your car, you even buy insurance in the form of warranty extensions on electronics. You would have NO Read more:Disability
What is a Bond? Part 1 2007-08-07 22:15:13
A Bond is one of the most basic types of investments. Investments can be broadly categorized into two main types: debt and equity (aka lending and owning). A bond is the most widely used instrument for debt (lending) type investments and is part of the "fixed-income" asset class (named because these investments are expected to produce a (hopefully) stable and fixed level of income for the duration of the investment).You may be surprised to know that the Bond Market is roughly 21 times the size of the Stock Market in Canada - so while a lot of the glamour goes to stocks - more money is in bonds!A company or government issues a bond when it needs money. Let's say a company needs to buy some new equipment that will cost $10 million. It may issue $10 million worth of bonds and promise to pay 6% interest on the bonds for 10 years, and after that time repay the $10 million. The company is therefore going to pay $16 million in total ($10 million + $600,000 interest p
Leverage Part 3: Interest deductibility of the loan 2007-08-07 09:26:52
In Part 3 on the series on Leverage
we are going to look at a tax benefit of borrowing money to invest. (NOTE: This does not apply to RRSP loans.) I STRONGLY recommend reading Leverage Part 1 and Leverage Part 2 in the series as a refresher before reading this article.When you borrow money to invest in a non-registered account (in other words, not an RRSP or other tax-sheltered account), you are allowed to write off the interest on the loan! Let's make an analogy: you may have heard that if you were to borrow money from the bank to start your own small business you could write off the interest on that business loan. The reason for that is because the interest is a "cost of doing business" - i.e. you wouldn't have that cost (the interest on the loan) if you didn't have that small business. The same logic applies to loans used to purchase stocks and bonds in that you are taking on the loan in the expectation of making an income (same as with a small busines Read more:Interest
How to save $13,000 on a $30,000 car! 2007-08-06 09:35:24 Everyone knows that you have to save money - but many people just don't do it because they don't have a budget. Today I'm going to illustrate the financial advantage you have by saving for major purchases versus financing them (via credit cards, lines of credit, etc.).Let's assume that we have a $5,000 major purchase coming up - perhaps a new deck for the house? And let's assume that our buyer is making the purchase at one of those big-box type stores (which conveniently offer a department store card). If he/she were to put the purchase on their credit card they could pay off the purchase of the deck over 2 years by paying $252.56 per month (assuming a 20% interest rate on their credit card).If the buyer were to save-up for the purchase they could use a high-interest savings account (currently paying about 4.25%). Let's compare apples to apples: if they were to save $252/month to this savings account, after 2 years they would have $6,318 to spend on this deck (so
RedFlagDeals.com - Keep up to date on great savings for Canadians! 2007-08-05 19:55:41
RedFlagDeals.com is a website for Canadians
looking to save money on pretty much everything. They offer coupons, promotional codes, advanced copies of flyers for stores planning big sales, and much more. It is a website that is designed for Canadian consumers to let each other know about GREAT deals and freebies. I would encourage you to bookmark the page - I have! It is updated constantly and I'm pretty sure you will find a discount on something you are looking to buy in the near future...
Save money on Electronics 2007-08-05 19:43:52 The first of two websites I'm going to post about: TigerDirect US and TigerDirect Canada.Feel free to click on the links and browse their websites - every now and then you'll come across some serious savings. I bought a 32" LCD HDTV for $888 in September 2006! The average price at a Future Shop style store would've been around $1,400 at the time. This particular model was made by Hyundai (yes, the same company that makes cars!) BUT after doing some digging on the web, I found out this exact model is repackaged as a Marantz in Europe and sold for $3,000 CDN. Marantz is a high end name in the audio/video world.I know there are three retail outlets in the Greater Toronto Area, so you can look before you buy - but most of their business is done online - check it out!
Mortgage Basics Part 1 2007-08-08 11:50:07
A mortgage is just a fancy word to describe a loan that is secured by the property for which the loan was used for. In most cases the loan is for a house or condo. In the very strictest sense, a car loan is also a mortgage but no one ever calls it that.There are a few terms that you need to be aware of:Amortization: this is the total number of years that the loan is structured for (example: 25 years). At the end of the amortization period, the loan will be fully paid off.Term: While the loan may be for 25 years total, the term may be for a shorter duration and is usually 5 years. The monthly payment amount and interest rate options are locked in for the length of the term. You will have many terms throughout the lifetime of your mortgage. Once one term ends, you re-negotiate the details for the next term of your mortgage.Interest rate: This is simply the rate which the bank charges you to borrow money.Principal: This is the total amount of money Read more:Mortgage
, Basics
Make Money on Credit Cards? 2007-08-13 10:39:52
This is for those out there who like playing the game... You know who you are! You've experimented with having multiple credit cards and transferring your card balances between the two credit cards to keep paying a super low rate of interest whenever they have a low interest rate balance transfer promotion.Well, if you are really in the mood, how about this one... If you have a credit card that periodically will have an offer to give you a low rate of interest on cheques written from your credit card for 3 months or 6 months or whatever, then assuming that you have no credit card debt, you could write a cheque to yourself and deposit it into a high interest rate savings account. Let's take an example:Your credit card is offering a 0% interest rate on all cash advance cheques for 6 months. HSBC (example) is offering 5% interest on it's high interest savings account. Let's say you write a cheque to yourself and deposit it to HSBC for $10,000. You will Read more:Money
, Cards
, Credit Cards
What is a Car Lease? 2007-08-11 23:09:51
I remember when I was younger that I had no idea what a car lease was - I knew the monthly payments were smaller so I thought that was good - and that was pretty much the extent of my knowledge! :) I'm guessing there are other people out there who are in the same boat that I was in...Basically a vehicle lease is a tool that allows you to pay for the depreciation of the car only. This is opposed to a car loan, in which you borrow the money to purchase the car outright. For example, let's say we have a $30,000 car. You could take out a loan to buy the car and perhaps the monthly payment is $580 for a 5 year, 6% interest rate loan. After 5 years, the car may be worth $10,000 - $20,000 depending on the level of care you put into it and also depending on the re-sale characteristics of the vehicle make and model. If you plan on selling the car after 5 years (after the loan is paid off), then you will pocket the money you get from selling the car, right?Some peopl
Limited Partnerships with a Flow Through Share Structure for Investment Tax Credits 2007-08-10 16:59:57
This is an advanced level topic.There are certain investments out there that are really only available through a stockbroker - this would be one of them. The Limited Partnership moniker just means that you are limited in liability to the amount of money you have invested - i.e. you can't be sued personally, the most you can lose is the total value of your investment. This Limited Partnership usually has a management team that will manage the money on your behalf into some specified "mandate" which is just a fancy word for describing the overall investment objective of the partnership. So for example, the mandate might be to invest in mining exploration projects - in order to find new sources of minerals for example.Now, in Canada there are certain incentives given to companies in order to promote exploration and development of certain items - two of the main areas are "mining" and "wind power". It provides the incentive in the form of a "Canadian Exploration and E Read more:Share
, Structure
, Credits
RRSP Loans 2007-08-10 16:17:08
An RRSP loan is simply a tool used to get your money into your RRSP before the "contribution deadline" which is the end of the 60th day of the following year. So for example if you want your RRSP contribution to count for your 2007 return, you need to make a deposit into your RRSP account either during 2007 or within the first 60 days of 2008.The reason RRSP loans have become so popular is that people procrastinate. They do not contribute to their RRSPs on a regular monthly basis so they have to take out a loan in order to put in as much as they can. The reason people want to put as much as they can is for the tax refund and to ensure that they are indeed contributing as much as they can towards their retirement.Why people wait until the last minute is just a psychological issue. It's the same with taxes - people file taxes right on the last day - not because they've been crunching numbers trying to find every last penny in savings, but because th Read more:Loans
A Canada Savings Bond is not actually a Bond! 2007-08-10 15:23:53
If you have read the post on what a debenture is this will make more sense. But because a CanadaSavings
Bond is only secured by the "general credit worthiness" of the Government of Canada it is not a bond, but rather it is a Debenture. The reason for this? The "Canada Savings Debenture" is not as catchy from a marketing perspective. The Canada Savings Bond/Debenture is among the safest investments you can make - because the Government has the power to print more money if it cannot make it's obligations - or it can raise taxes. Neither of which is really good economic policy long term, but that's another story... :)
What is a Debenture? 2007-08-10 15:01:21
A LOT more people should know about debentures than do. Simply put, a debenture is a bond that instead of being secured by property or capital asset is rather secured only by the "general credit-worthiness" of the issuer. Hmmm... that's a bit of a mouthful, so let me break it down...If a bond defaults, the bond-holders are entitled to the liquidated proceeds of the property or equipment that was bought with the money that was given to the bond issuer in exchange for the bond. Think of it like a mortgage - if you default on your mortgage, the bank can sell your house to recoup it's money.A debenture is just like a bond in all ways except for what is pledged as security for the investment. With a bond, the security is property. With a debenture, the security is only the "credit-worthiness" of the issuer. So if they have a AAA credit rating, they are in excellent financial shape. But if they default, or go under, the debenture holder has no property righ
Why I didn't post on Thursday... 2007-08-10 14:14:49
I have to apologize to my faithful readers who were expecting some posts on Thursday
(yesterday). Unfortunately my driver's license was suspended due to medical reasons so I cannot legally drive my car. It's a crazy story, mainly because the event in question happened in FEBRUARY a full 6 months ago.For those who are interested: here's what happened. It actually started in December of 2006 - I had food poisoning which caused me to pass out because I was so sick in the washroom that I lost 5 pounds in a few hours (all fluids). The loss of fluids caused a drop in blood pressure and I fainted. I had not properly replenished my fluids (one of the symptoms of dehydration is that you DON'T feel thirsty) and one week later I had a glass of wine at a friend's house and since alcohol is a diuretic (makes you go to the washroom) it pulled what little fluid I had in my body from my blood, causing yet another drop in pressure and a fainting spell. All of that was fi
Leverage Part 4: The Interest-Only Investment Loan 2007-08-10 13:31:33
This is Part 4 in the series of Leverage
(Borrowing to Invest). For a refresher, please visit Leverage Part 1, Leverage Part 2 and Leverage Part 3 before continuing.In this Part, we look at a more advanced form of Leverage: the "Interest
-Only" leverage loan. Not only does it magnify the potential reward even further, it also magnifies the risk involved even further. If you've never leveraged before, perhaps you should consider trying the aforementioned version of leveraging (paying principal AND interest) first. As its name implies, an interest-only leverage is where you take out an investment loan but only pay the interest on a monthly basis. You don't make regular principal repayments - which means: THE LOAN BALANCE NEVER GOES DOWN! First question: Why would you do this? Most people would take out an "interest-only" loan because they would like access to a larger amount of capital. The loan will have to be paid off at some point
Learn more about Life Insurance than your Insurance Agent knows Part 5 2007-08-16 07:53:41
In this article we are going to look at what the insurance companies do with the overpayment in the early years of a whole life insurance policy. (Please refer to Part 1, Part 2, Part 3 and Part 4 in this series before reading this article). We know from the previous article in the series that the monthly premiums in the early years of a whole life insurance policy are much higher than the "pure cost of insurance" which is the green line that increases exponentially with age (see below graph). The reason people agree to overpay is that they will be able to afford the premiums later on in life (note how the "pure cost of insurance" indicates the premiums become unaffordable as you get very old). But what does the insurance company do with the over-payments? As you can imagine, they don't just put in under the mattress! They take the money and purchase a bond portfolio (with some stocks and other investments). Usually the bonds are of a v Read more:Agent
Learn more about Life Insurance than your Insurance Agent knows Part 4 2007-08-15 07:56:10
In Part 4 in this series on Life Insurance we are going to explore the basics of WHOLE LIFE insurance. (You should read Part 1, Part 2, and Part 3 if you have not already.) There are certain costs that people would like paid for when they die, but if they are older we know Term Life insurance is too expensive. In fact many companies will not even offer Term Life once you get to around 80. But of course, even 80 year olds have some life insurance requirements - namely: funeral costs (if they don't want to burden their loved ones), inheritances (if they want to make a larger estate available to their heirs), taxes (if they have a large tax liability when they die, they may want to have enough insurance that will pay the tax bill).The top reason cottages go for sale in Muskoka (Canada's cottaging hotspot) is that the owner has died and the next generation cannot afford the tax bill that has to be paid. The only way to pay the tax bill, is to sell the propert Read more:Agent
Learn more about Life Insurance than your Insurance Agent knows Part 3 2007-08-14 21:40:52 This is Part 3 in the series, and it is strongly recommended that you read through Part 1 and Part 2 before reading this post. :)So in the last article in the series, we saw how insurance premiums increase exponentially as a function of age. From this we can extrapolate that if someone were to apply for an insurance policy every year, the cost for each successive year would increase, until it becomes unaffordable at some point.For someone very young, the premiums are relatively inexpensive. I remember a young client around 26 or so requesting a $250,000 life insurance policy and the premiums were around $130/year. For someone very old, the annual premium will actually approach $250,000 per year. Of course at this point it becomes pointless to purchase the insurance as it would be silly to pay $250,000 for the year if you only collect $250,000 if you die.Let's break it down a little further. For a 25 year old, we know the premiums are fairly cheap - if this Read more:Agent
Learn more about Life Insurance than your Insurance Agent Knows Part 2 2007-08-14 07:45:17 Okay, so you've read Part 1, and now you are ready to build on some simple concepts. This post will deal with how premiums rise as you get older. Once we understand this, we will have a lot of the groundwork covered for the next parts in this series. Remember how the statistics for a 40 year old man, way back when, indicated that he had a 5 in 100 chance of dying in the next month? Well let's fast forward a little bit. Let's say now that a 40 year old man (due to improvements in healthcare and quality of life) now has a 5 in 100 chance of dying within the next YEAR. As you know, your chances of dying go up with age. So statistically a 41 year old man should have a slightly higher "mortality" rate than the 40 year old, and 39 year old would have a slightly LOWER mortality rate than the 40 year old.BUT let's take a closer look. Maybe the 39 year old has a 4 in 100 chance of dying (4%) vs the 40 year old's 5 in 100 chance (5%). The 41 year Read more:Agent
Recommend Site To A Friend
