Category Archives: finance

Thinking about movies

It’s getting harder to spend on leisure, because I’m getting so much better at talking myself out of it. There are just so many other good alternatives.

For example: Iron Man 3 has started showing in Canada. I’ve skipped watching most movies in the theatres, but I do like superhero movies, and theatres are great for superhero movies because they make the movies larger than life. I like the outsized situations that the writers put the superheroes in and how they have to get them out. I like the way the movies push visual effects forward without taking themselves too seriously. So I’m going to watch it at some point. I just have to decide…

  • Do I watch it in the movie theatre during opening weekend, as a vote for more movies like that, maybe with W-?
  • $26 for two tickets
  • Can lead to rich in-joke material
  • Good sound and perfect playback (no worries about scratches)
  • Larger than life / immersive
  • Immediate gratification
  • Focused attention
  • Do I watch it in the movie theatre as a social event, which probably means a weekend get-together with friends?
    • $25-35, depending on dinner
    • Bonding time with friends – find out what’s going on in their lives
    • Buying tickets and organizing seating can be difficult
    • Good sound and perfect playback (no worries about scratches)
    • Larger than life / immersive
    • Short-term gratification
    • Focused attention
  • Do I watch it in the movie theatre off-peak, which probably means mid-day sometime during the week?
    • $13 by myself, or possibly with other friends who also have flexible schedules
    • Better seats
    • Good sound and perfect playback (no worries about scratches)
    • Larger than life / immersive
    • Short-term gratification
    • Focused attention
  • Do I wait for it to be available in the library, so that I can watch it with W- at home?
    • Free
    • Can lead to rich in-joke material
    • Writing time or cat time
    • Can watch with subtitles
    • Can pause and rewind
    • Can watch extended material, commentary
    • Can talk to W- while hanging out (extra in-jokes and movie references!)
    • Comfy seats, clean floor (no spilled popcorn or drinks)
    • I can read IMDB trivia and tvtropes entries or research interesting ideas

    And you know, that library option is looking pretty darn tempting. The biggest downsides are a less immersive experience and a longer wait. I don’t need big sound or big images to get into a story (I can imagine things from books). Watching musicals from closer to the stage was much better in terms of being able to see facial expressions, so there’s something for that.

    It takes a while for movies to be released on DVD, and some more time for the library to obtain copies. The DVDs are available on a catch-as-catch-can basis at various branches, and then they’re available for general holds after a year. New items are released on the 15th of every month. W- and I check the new listings on the 15th or 16th, by which time there are sometimes hundreds of holds for popular movies. For example, The Avengers (2012) has 992 holds for 107 copies. Movies can be checked out or renewed a week at a time, and transit between branches takes another day or two. That means that requesting a popular movie like the Avengers would mean a wait of maybe a year and a half from when the movie was released, which is actually not that big a deal because we’ve got a ton of other things to watch. Besides, sometimes we luck out. In this particular case, the Annette Street branch is the home branch for one of the Avengers DVD copies, so we spotted it during our regular library walk and we checked it out even before it was available for general holds. =)

    Popular movies tend to be well-stocked, and I have three branches in easy reach: Annette, Runnymede, and Jane. The Hobbit was another movie that I decided to wait for as a library release, and writing this blog post reminded me that I should go look for it. It’s not available for general release yet, but one copy is due at Runnymede tomorrow and another is due at Annette on Monday. I might bump into it one of these days. If not, I can wait for it to become available for holds on October 15. (Hmm, time to set a reminder…)

    Besides, there’s so much else to do, and so many other movies, shows, books, and games out there. We can keep ourselves endlessly entertained if we want to with just the things we have. So it really comes down to the question: what do I want?

    • I want to be delighted by and learn from storytelling.
    • I like the way that shared movies turn into great in-jokes between W- and me, layers of references building on other references.
    • It would be nice to spend time with friends, but there are other things I can do to spend time with friends.

    So probably library, then, for this and most other movies. W- says, “That’s a lot of thinking about $26.” But it’s this gradual shaping of wants and desires that creates the space for even more possibilities later.

    The less I want, the more I can enjoy.

    How I got started in investing

    When I was growing up, I raided my mom’s bookshelves for whatever I could understand—and quite a few things that I didn’t at first, but which yielded under repeated reading. In one of her personal finance books, I came across an anecdote about someone who bought stocks of the companies of which he was a frequent customer. When my mom decided it was time for us to learn a little about investing and offered us a choice of several Philippine stocks, I used the same reason to pick Jollibee. Although I didn’t eat at Jollibee that often, I knew lots of people did, so I figured that it would work out the same. I haven’t been tracking Philippine stocks since then, but apparently Jollibee has been doing pretty well.

    When I moved to Canada for my master’s degree, I was fortunate to have a combination of research assistantships and scholarships. I never spent more than I had – another lesson drilled into me by my mom. Living frugally helped me graduate without student debt. By that time, I’d grown to love W-, which made it easier to accept IBM’s job offer and go through the permanent residency process here in Canada.

    Once I started earning money here, I wanted to apply the best practices from the personal finance books I’d been reading all this time. I set aside a portion of my income for long-term investments. After lots of research, I settled on TD e-funds as an inexpensive way to get started with index funds. I didn’t know enough about individual companies to feel comfortable buying stocks, and books and blogs said it was really hard to beat the market anyway. Index funds were a less intimidating way to get started. Small steps – a tiny investment here to see whether I’d set things up correctly, then more as I became more comfortable with the idea.

    I figured that if I hold the funds for decades and get average performance, that’s still all right. If the funds lose value, well, that’s life, and I wouldn’t be any worse off than if I hadn’t been saving. I joined the workplace and started investing just as the financial crisis broke, so it was a little tough buying while people were losing so much, but it turned out all right.

    Canada has a Registered Retirement Savings Plan program (RRSP) where you can shelter some of your investments and savings on a tax-deferred basis, so I put in as much as I could. When the Tax-Free Savings Account program started, I moved my emergency fund into that, and then started using it for some of my investments too (also in TD e-funds). For my long-term goals, I needed non-registered investments as well, so more TD e-funds there.

    The stock market has been up and down since then. The market value of the portfolio is occasionally below the book value, which looks a little discouraging. When I use the XIRR formula in Excel or other spreadsheet programs to analyze my actual returns, though, it works out okay because the reinvested dividends are also accounted for. Besides, as long as I keep an eye on the money I may need within the next five years, I can let the long-term investments go up and down without panicking.

    Investing with uncertain income was a little more difficult for me to get used to. At the beginning of my experiment, I was worried that I might not have enough in cash despite my budget, and I wanted to keep as much as possible in savings accounts just in case. Lately, though, I’ve been able to relax a little and say that at least 10% of this should be put in long-term investments. I look forward to being able to increase this proportion as I become more comfortable with managing finances during this experiment.

    It’s getting easier and easier to postpone present spending for the abstract idea of enjoying extra time and flexibility later on. For example, we were at a thrift store looking for books, and we came across some DVDs for movies we had enjoyed. After some consideration, we put the DVDs back because we get a lot of free movies from the library anyway. It’s easy to keep my lifestyle simple now so that I have the space to keep exploring things later.

    I still haven’t sold a single stock or index fund I’ve ever bought. Well, I guess the transfer of my Sun Life funds (from the IBM defined contribution pension plan) to TD counted as a sale, because it needed to be transferred in cash, but I put it back into investments once the transactions got sorted out. I haven’t tried doing the paperwork for capital gains in non-registered accounts yet. I might do it one of these years just so that I know how that’s done and so I’m sure I’m keeping all the records I need. At some point, I should probably convert some of these e-funds to exchange-traded funds (ETFs) for even lower management expenses. Bonds and stocks still boggle me, so it’ll be quite some time before I get around to buying these. (If ever!) Many things to learn! My sister is a lot more sophisticated when it comes to investing, I think, but as long as I can figure out something that’s comfortable for me, I’ll be fine.

    Investing can be scary for lots of people, but if you can create some space for yourself so that you aren’t as worried about the ups and downs, it seems a little bit easier. The biggest risk of loss comes from having to sell at the wrong time, and that space can help. Many people struggle with saving even just a little, but if you can manage it, it might be worth trying investing. Like in gardening, it’s fun to see things grow without much more effort from you, even though sometimes the seasons can be tough. As long as you don’t have to use up your seeds for food, there’s always next season.

    Planning by the numbers: Checking the length of my runway

    I’d been setting aside an “opportunity fund” ever since I started working at IBM. Last February, I embarked on the experiment for which that opportunity fund was earmarked: a 5-year adventure in learning how to build businesses, create value, and have fun. What can you do if you have a good foundation? What can you do with a long runway?

    Periodically checking the status of this runway helps me make sure I have the space I think I do. I don’t want to have to cut my plans short. I’d rather adjust early and plan ahead. I’m treating business money as separate for now. I haven’t drawn any income from it, because I want to use that money to fund further growth within the business and build up its own opportunity fund.

    It’s tough watching my savings account go down without putting anything back into it to top it up. Well, technically, the GIC ladder I set up replenishes my savings account on a regular basis, so I’m actually watching my GIC total go down. This is according to plan, but it’s still hard to think about, especially with major expenses such as travel on the horizon. Here the numbers are reassuring; plan the work, and work the plan.

    I check how I’m doing every month. I’ve usually been near my projected monthly expenses, but November was higher because I started going to the krav maga gym that W- frequents as well. Even with the additional monthly expense and with travel budgeted for, I still have about 4.3 years of runway (pretty much right on track). I can dig into my long-term savings if necessary, so I have a bit of buffer.

    It’s great to have eight years of financial data. I’ve been tracking my expenses in Ledger since 2005, when I moved to Canada for my master’s degree. I’m happy to see that I’ve been able to slash my net expenses to less than half of what they were the year before. Here’s a sparkline that shows how my expenses have changed over the past eight years: image My top expense categories this year were household contributions, miscellaneous cash expenses, pet care, eating out, and gifts. I wonder if I can get friends to shift towards dinner parties instead?

    Psychologically, it might be a good idea to draw a small amount from my business in 2013 so that I can top up my savings and make a small investment in index funds. I want to make sure that I do this properly, so I may need to find an accountant who can help me figure out the dividends versus salary question for small amounts. (Probably dividends, based on my research…)

    I might also manage the risk as I head into greater uncertainty and more learning. I can take on short writing, drawing, web development, or consulting projects, especially during gaps between conferences and events I’m interested in.

    Still, so far so good, and it’s good to have the numbers to back it up!

    Planning for retirement when you don’t know where you’ll be

    I have several friends who’ve also moved to Canada from other places. One of them asked me how she could figure out how much money she’d need in retirement if she doesn’t know where she’s going to live and what the costs will be. Even at 29, I’ve spent some time planning for retirement, and here’s how I approach planning for retirement when I don’t know what’ll happen.

    The most important thing to realize is that there isn’t just One Number. There are different possibilities depending on how much you save. I remember reading a personal finance book that suggested coming up with three numbers: how much you need for a bare-bones retirement, what you need for a comfortable retirement, and what you need for an awesome retirement. If you take the same idea and extend it to possibilities in different places, you can get a sense of what you might need.

    It’s also good to know that those numbers will change. You’ll make different decisions. You might need more, you might need less. If you’re automatically saving 10%, maybe 20%, maybe even more, then you’ll most likely be in decent shape.

    Still, numbers can be good for motivation! So, how do you get those numbers? I like starting with current dollars instead of inflation-adjusted numbers. It’s easy to find articles suggesting what you need to retire in different places. For example, this 2010 article says $800-1200/month is comfortable for expats, which probably means that number’s way over the top. =) I can probably get away with something like the amount I earned while teaching there, with something extra put aside for medical issues.

    In Canada, I can estimate the minimum I need by looking at my expenses and finding out what else I might need to spend for, like medicines. I’m not counting on Old Age Security, the Canada Pension Plan, or other government programs – they’ll be a nice bonus if I get them, but I shouldn’t rely on them. That gives me a number for a basic retirement, and then I can come up with other numbers for more comfortable retirements.

    When you look at retirement planning as a range of numbers instead of a single number that you have to make, it becomes easier to cheer yourself on. Then you have all these numbers, and you can estimate how much you need in today’s dollars when accounting for inflation and growth. You can see what possibilities are probably already available, and how far you are to your next threshold. You can think of it as getting to different levels in a game, or unlocking different achievements. As you save and invest, you open up more possibilities – and it’s great to know that your backup plan is well-covered.

    Me, I’m inching towards my “very basic Canadian expenses covered” goal, knowing that I can likely retire to the Philippines if I want to. It’s pretty cool knowing this at 29, and it motivates me to save up more so that I could have a totally awesome retirement either in the Philippines or in Canada!

    I’m not a financial advisor and this isn’t financial advice. I’d love to hear what you think, though!

    Learning about business finances

    I’ve been in business for a little more than two months, which is a blink of an eye in the business world. It’s encouraging to see my bank account balance creep up slowly. I move the HST and an additional 30% for taxes to a separate account so that I’m not at all tempted to touch it.

    I’ve made a few purchases here and there, things to help me work more happily and effectively:

    • an extended battery for my laptop so that I can use it all day without looking for a power outlet
    • the Artrage Studio Pro drawing program
    • a few books to read and review

    Those decisions have worked out well. I’m still flipflopping on the idea of getting a tablet, so I’ll postpone it until I meet some more of my other savings targets. Although I’m earning a decent income now, I plan to work on riskier, self-directed projects in a number of months. A good savings cushion will help reduce stress then, so I don’t want to get used to a level of expenses that match my current income.

    I’ll try managing my business finances like the way I manage my personal finances. Because I’m still building up my business’ emergency fund, most of the income will go towards that. Some of the income will go towards an opportunity fund and other things, though, because it’s good to train myself to experiment within the context of the business.

    What about long-term savings? I haven’t been adding to my investments because I’m not sure if I’ll need the money in the short term. Besides, I suspect I might be better off investing the money in developing my capabilities. Would I have a higher return on investment than the stock market, which has been up and down and sideways over the past few years? Maybe. I can probably hedge my bets by going half and half. I can’t time the market, but I can keep regularly investing in it and things will probably work out.

    Many people struggle with managing irregular cashflow. If I fight lifestyle inflation and err on the side of caution, I think things will be all right. I’ll only be able to test this once I move into that pattern of work. In the meantime, I can get ready for it. Here we go!

    How I organize my personal finances

    Update: I found the image!

    Mia is learning more about personal finance. She came across my post on my financial network map and virtual envelope system and wanted to know if I had a copy of the image. Unfortunately, I don’t seem to, but it’s as good a time as any to post an update.

    What’s changed in the last two years? What have I learned about personal finances?

    One of the key things I think people should learn when they’re mapping out how they organize their money and how they want to organize their money is this:

    The logical organization of your money doesn’t have to be limited by the physical organization of your money – which bank accounts, which jars full of coins, whatever.

    I make my logical decisions first: how much to save, what to save for, what levels of risk to accept. Then I use those decisions to guide how to organize my money: chequing, savings, GICs, investments; registered, non-registered, tax-free, etc.

    I use a virtual envelope system to keep track of what I’m saving up for and how much I’ve budgeted for regular expenses. I like this more than a straightforward budget because of the flexibility. If I have a surplus in one category (say, I don’t sew as much), or if I need to spend more in a more important category, I can move money around.

    Current envelopes (no particular order):

    • Retirement: maximize RRSP room every year
    • Medium- and long-term investments: non-registered
    • Charity
    • Sabbatical: replace one year of income every 7 years
    • Household
    • Internet: web hosting and domain names
    • Phone: cellphone service
    • Pet care: cat food, vet visits, long-term savings (self-insuring our pets)
    • Travel: visiting family
    • Personal care: clothing, supplies, health, massages, etc.
    • Hobbies
    • Dream: Larger expenses worth saving up for; experiences
    • Play: Miscellaneous expenses

    I track almost all my expenses, with miscellaneous cash expenses grouped together if I can’t categorize them properly.

    I keep my financial data in plain text files using John Wiegley’s awesome ledger tool. It’s very geeky. I use it because I can quickly answer questions like:

    • How much do I spend on groceries each month?
    • What are the balances in my virtual envelopes?
    • At what prices did I buy my index funds?
    • How much did I make last year after tax?

    I use more financial institutions now. It does take me a little bit of time to check on my accounts at all of them, but I think the benefits outweigh the costs. Here’s how and why I use each of them:

    • ING Direct: I’ve been using ING for savings for a while, and I’ve also shifted my payroll direct deposit to the chequing account I created. I use ING because of decent rates on GICs, the ease of creating sub-accounts, and instantaneous transfers between chequing and savings accounts. I don’t want to make it my only chequing account, though, because the bank machine network isn’t as wide as the other banks.
    • PCFinancial: I used to use this as my main chequing and savings bank before I moved to ING. I also used to use this as my primary credit card before I moved to MBNA. I keep these accounts around mainly so that I can withdraw cash easily.
    • TD Canada Trust: I have a chequing account and a USD account here. The chequing account has the minimum balance needed to avoid fees. This account is mainly to make it easier for me to invest at TD (see TD Waterhouse).
    • TD Waterhouse: I switched from TD Mutual Funds to TD Waterhouse so that I could hold investments in my tax-free savings account (TFSA). I have three types of investment accounts here: my non-registered investments, my tax-free savings account, and my registered retirement savings plan. All of them currently hold TD e-funds, but I may shift to ETFs later on.
    • MBNA: The MBNA Smart Cash credit card gets me 3% cashback on groceries and 1% cashback on everything else, beating PCFinancial’s effective 1%.
    • Sun Life: Sun Life holds my defined-contribution pension plan from work. I maximize the IBM match, but I keep the rest of my long-term investments at TD because I get lower management expense ratios for similar index funds there.

    Overall, I’m at about 6% cash, 20% GICs, 49% Canadian index funds, 9% US, 9% international, and 7% bonds. 31% of that is in my RRSP. It skews a bit more conservative because of the GICs.

    Update: Here’s the old map:

    Here’s what that map looks like now:

    It takes me 15-30 minutes a week to update my accounts, reflect on my expenses, and review my goals. I like the steady progress.

    Good personal finance is boring. ;) It’s mainly a matter of time: saving up, adapting to changes, letting interest compound, learning more… The next thing might be to move money from index funds to ETFs in order to take advantage of the teensy difference in management expense ratios, but it’s no big deal. I’m on track to make my savings target this year. I can’t do anything about the markets, but I can do something about how much I save. We’re getting better at what we spend on, too, as we learn more about what we value and enjoy.

    What have you learned about personal finance?