Category Archives: finance

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Closing my 2009 financial ledger, looking forward to the next year

Although the personal accounting program I use (John Wiegley’s ledger) can happily process decades of transactions in one file, I like using one file per year. Closing my financial books prods me to make sure that all transactions are accounted for and all my statements balance. It’s nice seeing all the numbers line up.

I saved almost 55% of my net income, which is good because I need to save aggressively in order to meet certain goals. I’ve maxed out my RRSP and TFSA contribution room. I now have a healthy opportunity fund that I can use to start my own business if I want to. In 2010, I plan to save at least half of my income again, setting aside money for some major upcoming things.

(And if the the stock market eventually goes up instead of staying mostly level, all the better!)

Grocery round-up: Toronto

We shop according to what’s on sale at the supermarket so that we can stock up on staples and fill our freezer. =)

Here are the sales for the week:

Metro

  • Extra lean ground beef, $2.99/lb – lasagna
  • Clementines, $4.99

No Frills – 1/2 price event

  • Chicken breast (skinless, bone-in club pack), $1.87/lb – Chicken Maryland

Loblaws – $1, $2, $3

  • Italpasta, $1
  • Chicken drumsticks or thighs, $2/lb – curry
  • Lean ground beef, $2.99/lb – lasagna (see Metro)
  • Marc Angelo dinner sausage, $2.99 – pasta
  • Clementines, $4.99/lb (same as Metro)
  • Schneiders Lunchmate Stackers, $2

Sobeys

  • Lean ground beef, $1.99/lb – lasagna (see Loblaws and Metro)
  • Maple Leaf bacon $2.99
  • Live mussels $3.99 – mussels marinara

Price Chopper, $1 sale

  • Campbell’s soup: chunky / ready to enjoy, $1
  • 5kglb bag of carrots or onions $1

So it looks like we’re going to do lasagna today, and Chicken Maryland and lots of curry tomorrow, plus restocking Campbells. That means passing by Loblaws and picking up everything from there on my way back from improv, assuming that their price for chicken breasts isn’t exorbitant. And if it is, we’ll just cook something else. =)

Saving time and money with a chest freezer

Living an awesome life is easier when you can free up some time and money to do so. W- and I bought a chest freezer more than a month ago, and it’s been great.

When we analyzed whether or not a chest freezer would work, we realized that most of the usual monetary savings didn’t apply to us.

  • W- and I already prepare practically all of our meals, so we wouldn’t see significant savings from just dining in more often.
  • We already shop the sales, so bulk buying isn’t that much of a big deal.
  • The supermarket is walking distance from our house, so there go fuel costs as well.
  • Our vegetable garden is just getting off the ground, and we’ve been eating all the fruits and vegetables as they come up. (Although the squirrels sometimes beat us to it!) No savings yet from storing garden produce, then.
  • Supermarket shopping and cooking are usually social, relationship-building times for us, so the time savings aren’t that big either.

We wanted to explore freezing more food in individual portions, though, to cut down on cooking time during the week.

So far, our new freezer-enhanced routines have been wonderful. Here are the key benefits we’ve seen:

You can make and store your own convenience foods. When we have time (usually every weekend or every other weekend), we make a big batch of food and store them as frozen lunches and dinners. This means we can have our favourite foods practically any time we want, with enough variety to keep things from being monotonous. (Although I don’t mind eating the same thing a number of times in a row!) Our evenings are freed up for reading, hanging out, or cramming in a little bit of work, and in the morning, lunch is all ready to go. Good stuff!

I also keep freezer bags of frozen biscuits (home-made!) for snacks and entertaining. This makes it much easier to host tea parties, and the conversation makes my life that much more awesome.

You can stock up. We try to buy things on sale as much as possible, so the cost savings from stocking up aren’t significant. But it is nice to know that we can (almost always) reach in and pull out our favourite things.

You can extend the life of other things. We keep a bag of milk powder in the freezer. The milk powder’s part of our emergency kit, but the bag had more than what we needed, so we keep it in cold storage to extend its life.

The chest freezer takes up space, uses electricity, and requires an up-front investment. But it’s definitely been worth it for us, and I’m glad we got it. If you’ve been thinking about getting a chest freezer and you have more questions, please feel free to leave a comment!

My financial network map and virtual envelope system

Taking Bargaineering‘s advice to map out my financial network, I decided to diagram how my accounts relate to each other:

I have accounts at three banks, represented by the gray boxes at the top. The first bank offers me free chequing, okay-if-not-stellar rewards on my credit card, and a good savings rate. The second bank offers me a good savings rate and GICs that are easy to manage. The third bank offers me low-MER index funds for my registered retirement savings plan (RRSP) and long-term investments. (I’m 25, so my portfolio leans heavily towards equity.)

UPDATE: I nearly forgot–I also have a Defined Contribution Pension Plan at work, which automatically deducts a portion of my paycheque for my retirement savings. That’s the good thing about automatic deductions–they work for you even if you forget about them… =)

I use a modified envelope budgeting system to get a unified view of my finances, plan my spending, and save up for major expenses. Every week, I balance my books, entering in transactions and double-checking my envelope balances. All income is automatically put into a virtual “Unallocated” envelope. I copy the envelope allocations from my previous paycheque, and these allocations move virtual money to the different envelopes.

Priority envelopes:

  • Retirement: Money I know I won’t touch in a while. I use this to fully fund my RRSP, and I invest the rest in my long-term investment portfolio.
  • Investment: My crazy idea opportunity fund. This is less about investing in stocks or bonds and more about investing in myself. I set a savings goal for this two years ago, and I’m almost at my target amount.  If I want to start my own business, this will be my capital. It’s also useful for taking advantage of opportunities and following hunches.
  • Charity: Good way to make a difference. I regularly support the Toronto Public Library, the Toronto Animal Services, and Kiva.org. 

Infrequently-accessed envelopes: I keep my emergency fund and my travel fund at a certain level.

Regular expenses and flexible expenses: Every paycheque, I use a template to allocate money among my regular and flexible expenses. Then I check the balance of my virtual envelopes. If one of the regular expenses envelopes is lower than it should be or I have a negative balance somewhere, I move money from the flexible expense envelopes. This arrangement lets me build up some “play money” that I can spend on little indulgences.

When I spend money, I track which account it flows out of (Chequing or Mastercard, typically), and I also semi-automatically track which envelope it comes from. Every expense gets taken out of the Play envelope by default, to make sure that all expenses are accounted for. If a transaction matches certain rules or I adjust the envelopes manually, then my system takes virtual money from the corresponding envelope and puts it into the play money envelope. The personal finance system I use (Ledger – it’s a command-line tool for geeks) allows me to prepare reports with or without these virtual transactions, so I can reconcile my finances with bank statements and with my virtual envelopes.

When I want to save for a short-term goal, I create an envelope for it and adjust my envelope allocations. I wrote a shortcut to calculate the minimum I need to save each paycheque in order to meet my medium- or long-term goals by my target dates. That allows me to reduce my Investment envelope allocation and put the freed-up money in my short-term goal envelope. Once I’ve achieved that goal, I return my Investment envelope allocation to my customary amount. This allows me to enjoy things earlier, while still being on track for my medium- or long-term savings goals.

Results: Because I control my spending based on the balances in these virtual envelopes, it’s easy to pay my credit card in full each month. I’ve also been able to fully fund my RRSP each year, and I save a decent amount for long-term retirement outside that tax shelter. Creating envelopes for short-term savings goals like a drawing tablet or a bicycle before lets me build both a budget and anticipation, and I get to do some consumer research along the way, too. The crazy idea opportunity fund lets me try interesting things. When an idea or an opportunity gets large enough, I split off another envelope to make sure I set aside enough funds to explore it well (ex: outsourcing). And yes, I end up with enough Play money to enjoy life, although I often move play money into my Investment envelope because it’s so much fun watching those numbers go up too!

Couple finances: W- is also good with money. We’re both pretty frugal, although we spend where it counts. W- uses GNU Ledger to manage his accounts, too. (The couple that geeks out together…) He uses a similar envelope system, but he allocates money to virtual envelopes on a monthly basis instead of on the bi-weekly basis I use. We keep separate bank accounts, but we reconcile our books every so often so that we can keep track of who needs to be reimbursed for what. =) It’s a lot of fun, or maybe we’re just both weird in the same way.

Next steps: I’m happy with the way my finances work, and I know that I have a reasonable chance of doing well in the future if I just keep plugging away at it. Most personal finance books are written for people overwhelmed with debt or worried about retirement, so there’s very little advice on what to do once you’ve gotten that sorted out. (I’m not guaranteed a good retirement – life happens! – but I probably won’t do too bad.) With a good foundation in place, I can then look at other things: how to get even more value for what I do spend (yay frugality!), how to explore opportunities, and even how to create opportunities for other people.

Big picture: Good money management can help me explore opportunities and avoid one of the most common stressors for relationships, and both help keep me very happy. I’d like to figure out how to manage money really well, because someday I want to be in a position where I can create lots of opportunities for others. I also want to be able to build a library. =) Great money management can help me get there. With that big picture in mind, it’s easy (and fun!) to invest time in reading about how I can save more money, earn more money, or make the most of what I have.=)

Like this? Check out my other posts about personal finance.

Young and savvy

Over at My Two Dollars, Diane Hamilton wrote a post decrying how Millennials “have been raised to expect immediate gratification” and that “everyone is bending over backward to meet their needs” (which popular media has been harping on for a while). She proposes adding more financial courses to colleges and K12, developing personal finance books geared towards younger kids, and sharing mistakes and lessons learned with kids.

Heh. Maybe it’s just me, but I can’t help but want to stick my tongue out at popular media when it paints Gen Y with too broad a brush (and yes, that applies even when they’re bringing out the “Gen Y Will Save the World!” stories).

Especially when it comes to Gen Y and money. It’s true that more and more people are struggling with student debt. In many countries, younger people felt locked out of the real estate market because older people had more assets and could bid up house prices. Now they feel locked out of the real estate market because of less access to capital and lower earning power. And of course, there are many younger people who have moved back with their parents in order to save money, a phenomenon much remarked-on in popular media.

Two words: sub-prime mortgages. Who got the economy into that mess, anyway? ;) But this is the world we’re growing up in, so we’ll just have to help fix it.

But you know, it’s not that bad. =) Here’s what I think about money and my generation: Most of us have seen way too many people make way too many mistakes about life, about money, about all sorts of things. It doesn’t mean that we won’t make our own set of mistakes, but it does mean that we’re generally not as clueless as media paint us to be. ;) The Gen Yers I’ve talked to keep tabs on their spending and plan long-term investment, look for ways to be frugal, and are pretty darn good at using all sorts of new tools to manage their money and learn more.

Then again, I’m weird, and maybe many of my friends are weird too. ;)

Schools: while I’m all for introducing more real-life education into schools, parents should take responsibility for teaching their children financial savvy. Children can have the best lessons in school, but if they come home to parents neck-deep in credit card debt and still spending on unnecessary things, or who laugh at the idea of saving for the long-term for people in their twenties, something’s wrong with that picture.

Don’t just share your mistakes. Share the good things you do. Share your decision-making process. Share your goals, too. Lead by example.

I’m really lucky to have money-savvy parents. My mom and my dad set up their own business, funding all of their growth from a little capital they had saved up and from reinvested profits. My mom taught me how to use the envelope method to manage my money without feeling constrained by a fixed budget. She also taught me never to carry a balance on my credit card, to resist the temptation to spend excessively on consumer goods, and to plan for the long term. Both my parents taught me to spend where it counts.

It’s not hard to do something like that too. Instead of getting all worried about Gen Y and immediate gratification, practice conscious spending and reflective action yourself, and you’ll teach people of all generations along the way.

SO:

  • Gen Y isn’t all that bad.
  • People can teach other people through example, and parents should definitely take responsibility for helping their kids learn. And it’s not that hard–just do the right thing yourselves, and share what you’re learning.
  • Try to avoid popular overgeneralizations. It’s easy to take one of the polarized perspectives from popular media (“Gen Y is bad!” “Gen Y is good!” “Gen Y is just the same as everyone else!”), but you can miss out on more thoughtful discussion.

As for Gen Y being spoiled kids at work–you have to wonder how many of the things we ask for are common-sense. ;) Work-life balance is something I think a lot about, but it’s good for everyone. Focusing on results rather than on face-time–again, that’s a business best practice. Wanting opportunities to be engaged, to do work that you’re passionate about? That makes sense for everyone, too.

My team would be the first to tell you that they adapt to me at least as much as I adapt to them, and they’d also be quick to reassure you that this is a Good Thing. ;)

Thinking about making ridiculous amounts of money

You know it’s going to be an unusual meeting when your manager asks you if you can see yourself making ridiculous amounts of money, and how you think you can get there. =)

My manager reads my blog. He knows about my experiments. He knows I like playing around with ideas, and that I’m making good progress on saving up a crazy idea fund. Not that this makes him very nervous about keeping me. I love working with IBMers, I love working with IBM and our clients, and I love the kinds of things that we do.

We talk about this in career planning discussions, too. He asked me before if money was important to me, which is probably manager-speak for “Do I need to keep a close eye on market salaries so that someone doesn’t hire you away?” I told him I’m okay, which is team-member-speak for “That’s not the main reason I accepted this position, but it certainly doesn’t hurt.” I also told him that I’m all for raises and bonuses–not because I need the cash, but because that’s a pretty good way of checking if I’m creating more value for the company and our clients year after year. I want to grow, while staying true to my work-life balance.

So when my manager asked me about making ridiculous amounts of money, I told him that it’s not about making a ridiculous amount of money, it’s about creating a ridiculous amount of value. It would be nice to capture some of that value, of course. That would make it even easier for me to learn, to experiment, and to make a difference. If you create lots of value for other people, getting some of that back makes it easier for you to create even more value. It all works out.

What I’m really interested isn’t making ridiculous amounts of money, but developing and sharing the skills to do so, and creating lots of value along the way. =) It’s the journey, not the destination.

Also, it’s not about making ridiculous amounts of money. A large part is about saving relatively ridiculous amounts of money, and–very important–investing that into making a ridiculously wonderful life for myself and other people.

It helps to have a bit of money and a lot of freedom when experimenting. Not too much money, though. Too much money makes people act weird, and even makes life dangerous. So a little money and a lot of freedom, and I can keep reinvesting or donating money beyond that.

And then, because I’ve thought about this a bit, I told him about some ways I might go about doing it.

Ken Fisher’s book on the Ten Roads to Riches is a good read. There are lots of paths. Knowing about different paths is helpful, because you can recognize them and you can prepare for them. Here are three ways that might fit me:

  • There’s the path that few people talk about with their manager, which is starting one’s own company. ;) There’s no use denying that I think about this. I’m curious about what it would be like. But I really like working with the people I’m working with, so I keep those ideas on file.

  • On the other end of the spectrum, there’s rising up in the ranks and commanding a premium salary. That’s split into two paths: non-commissioned employee and commissioned employee.

    For a non-commissioned employee, there tend to be structural limits on how much you can earn (based on time and hourly rate), unless you manage to get into a position where you directly affect revenue and you get bonuses based on that (which makes you kinda commissioned).

    Commissioned people are affected by how good their product is, how well they know it, and how the market is. It’s important to pick the right company.

    The path to wealth is to save and invest wisely. Slow and steady wins the race.

  • In the middle, there’s continuing to work with the company because that lets me make some of the differences I’d like to make, and having a business on the side so that I can explore other ways to make money. Other people have successfully done this before while still following our business conduct guidelines and intellectual property agreements, so I know it’s possible. Again, there’s more than one way to do this. If I build a business that requires my active participation, I’ll be constrained by the hours in a day and the energy that I have. If I build a business that can grow beyond me, the possibilities are wide open. 

And of course, there are other paths.

So that’s what I think about making ridiculous amounts of money:

  • It’s not the money, it’s what you learn along the way.
  • It’s not something you keep, it’s something you reinvest and share.
  • And there’s more than one way to get there. =)