A quick guide to budgeting

07-Jul-2010 | kate | Budgeting Retirement Planning

I hear it all the time; I am going to start a budget. My one friend actually says this once a pay cheque and judging how often I hear it, she has yet to follow through on it.

People act like budgeting is a death trap for having fun, like the minute they start a budget they will never be able to do anything entertaining every again. But that is not true, in fact creating a budget will help you reach your financial goals faster than those who don’t follow a budget, and yes you can budget vacations and your dream car in too.
Budgeting is all about understanding where you money is going and making sure that you aren’t spending more than you make and is rather easy to do following some simple steps.

Step 1: Expenses.

The first thing to do in budgeting is to start by keeping track of your spending habits for a couple weeks by writing down in a notebook or using a handy online worksheet. The purpose is to track every little thing you spend money on from that cup of Tim Hortons, candy and even that pack of gum that cost 70 cents.

After a few weeks add up the amount and you will have a good idea of your spending habits.

Then take your spending and break them into your budget categories such as:
Housing (rent, mortgage, condo fees, taxes)
Reoccuring bills (cable, insurance, utilities, credit cards, child care)
Food and Entertainment
Travel
Pet Care
School (tuition, books)
Vehicle

Step Two: Coming In

After figuring out your average spending habits, you need to take a look at your pay stubs and calculate your average monthly income (don’t forget spousal support and rental income etc)
Once you know how much you bring in and how much you really spend, you need to figure out where and how much of it you want to spend your money on.

Don’t forget that we have actually needs: Food, Clothing and Shelter
Don’t forget to save- Retirement, emergency fund and big ticket items (like insurance)

Step Three: Keep on it!

So you have set up your budget but there is still work to be done. You need to keep track and follow along to see where you are going off budget and adjust your spending (or plan) accordingly. There are plenty of ways to save money, even at the grocery store. For example reviewing your spending can come up with some interesting place to save- Do you have full package cable and only watch 5 channels?

Step four: Create A Habit

Success in the budgeting takes time and doesn’t happen overnight, but some simple steps will help:

Write it down

If you can’t balance your budget- earn more

Think ahead- If you know your situation is going to change, plan for it.

This blog has been prepared by the Retire First Team. The blog expresses the opinions of the writers and not necessarily those of Retire First Ltd. Statistic and factual data are from sources Retire First believes to be reliable but their accuracy can not be guaranteed. This blog is furnished on the basis and understanding that Retire First is under no liability whatsoever in respect thereof. It is for informational purposes only and is not be construed as an offer or solicitation for the sale or purchase of securities. Retire First Ltd. And its officers, directors, employees and their family may from time to time invest in the securities discussed in this blog. This blog is intended for individuals where Retire First Ltd is registered as a dealer in securities.

Retire First is a member of the Canadian Investors Protection Fund.

Commission, trailing commissions, management fees and expense all may be associated with mutual funds. Please read the prospectus before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. A recommendation of any of the mentioned investments would only be made after a personal review of individual portfolio. Third Party research has been used in formulating the writer's opinions.

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2009 RRSP Season Concludes; Quick look at fixed-income ideas

03-Mar-2010 | Reggie | Bonds Canadian Investing Retirement Planning

After a terrible year last year, the 2010 RRSP season ended very strong with many wading back into the market that scared many away last year.  Last year’s RRSP season was right in the midst of the stock market upheaval that saw years of returns decimated in just a few short days.  The stock market’s bottom last year actually occurred in March.  The world was awash with uncertainty as to future job prospects and left investors wanting to keep savings readily available.

Many believe that the caution gained last year will linger on for a while longer as investors are still sensitive to riskier investments.  Surprisingly, the high level of contributions and extra caution still wasn’t enough for the Alberta bond issue to sell out.  At a rate of 3.3% locked in over 5 years, the rate was totally uncompetitive, but from data gained last week it looked like the target of $100 million would not have been reached.

In the corporate world, companies with a debt rating nearly as good as the Alberta (AAA) are showing up with some pretty competitive rates that should be enough to lure most investors away from the locked in Provincial offering.  Take a look at these for example:

As of March 2, 2010                   Maturity            Yield

General Electric Capital AA+      11/02/2015        3.63%

Rabobank Nederland      AAA     05/02/2015        3.32%

Royal Bank of Canada    AAAe    10/11/2014        2.90%

Sun Life Financial          A          31/03/2014        3.74%

Bank of Nova Scotia       A+        27/09/2013        2.74%

This blog has been prepared by the Retire First Team. The blog expresses the opinions of the writers and not necessarily those of Retire First Ltd. Statistic and factual data are from sources Retire First believes to be reliable but their accuracy can not be guaranteed. This blog is furnished on the basis and understanding that Retire First is under no liability whatsoever in respect thereof. It is for informational purposes only and is not be construed as an offer or solicitation for the sale or purchase of securities. Retire First Ltd. And its officers, directors, employees and their family may from time to time invest in the securities discussed in this blog. This blog is intended for individuals where Retire First Ltd is registered as a dealer in securities.

Retire First is a member of the Canadian Investors Protection Fund.

Commission, trailing commissions, management fees and expense all may be associated with mutual funds. Please read the prospectus before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. A recommendation of any of the mentioned investments would only be made after a personal review of individual portfolio. Third Party research has been used in formulating the writer's opinions.

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RRSP Season has Arrived!

04-Feb-2010 | kate | Canadian Investing Retirement Planning The Wise Investor

RRSP season has arrived and the contribution deadline of March 1st, is heading our way.  And as usual, the deadline is a reminder to Canadians of the pressing need to start saving for their retirement years.

Right now is the perfect time for investors to start reviewing their retirement plans to ensure that their investments are on the right track for today’s market conditions.  A recent survey of Canadian investors found that 91% have retirement fears, with 30% of respondents fearing that they haven’t saved enough.

So here are some retirement theories that should be considered:

1.)     My Canada Pension Plan/Quebec Pension Plan and old age security payments from the government will be enough.

Government pensions are a good start but will not necessarily be enough to live on, depending on the kind of retirement lifestyle you want. It is also important to remember that government pensions are fully taxable and that for those accustomed to living with higher incomes, the payouts will replace only a small portion of what people were earning while working.

2) Company Pension.

Having a company plan will also not guarantee that you will have enough income for your retirement, you may need to save additional money on your own.

3) $1-million rule

The $1-million figure is based on the assumption that you should have saved 20 to 25 times the annual income you will need once you are retired. So as you can see, this rule would vary from life style to life style. As well this number would change with inflation and tax rates.  So you may need to save less or even more depending on your personal situation.

4) 70% Rule

Instead of fixating on your pre-retirement income, focus on what your expenses will be when you retire.

5) “I will be fine if I only withdraw 4 or 5 per cent a year from my savings once I retire.”

In some cases you have no choice in how much you withdraw. For instance, if you have a Registered Retirement Income Fund (RRIF), your withdrawals are based on your age. Many individuals may find that they spend even more money in the first few years due to traveling etc. Later in life you might find that certain expenses will go up, like health care.

This blog has been prepared by the Retire First Team. The blog expresses the opinions of the writers and not necessarily those of Retire First Ltd. Statistic and factual data are from sources Retire First believes to be reliable but their accuracy can not be guaranteed. This blog is furnished on the basis and understanding that Retire First is under no liability whatsoever in respect thereof. It is for informational purposes only and is not be construed as an offer or solicitation for the sale or purchase of securities. Retire First Ltd. And its officers, directors, employees and their family may from time to time invest in the securities discussed in this blog. This blog is intended for individuals where Retire First Ltd is registered as a dealer in securities.

Retire First is a member of the Canadian Investors Protection Fund.

Commission, trailing commissions, management fees and expense all may be associated with mutual funds. Please read the prospectus before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. A recommendation of any of the mentioned investments would only be made after a personal review of individual portfolio. Third Party research has been used in formulating the writer's opinions.

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Margin: Watch out for Interest Rate

21-Sep-2009 | kate | Retirement Planning The Wise Investor

When you borrow money to invest, you are said to be leveraging your account. “Financial leverage takes the form of a loan or other borrowing (debt), the proceeds of which are (re)invested with the intent to earn a greater rate of return than the cost of interest.” (1) So for the third installment of our margin series, let’s look at effects of interest rates on your margin account.

Investor use margin because they believe that the return on their investment will be greater than the cost of borrowing, but this isn’t always true, so lets examine the cost of borrowing affect on your margin account.

Let’s pretend that a client comes into the office and informs me that want to borrow $100,000 to supplement their current balance of $100,000. For simplicity sakes, let’s say that the client will be borrowing the money at the variable lending rate that prevailed from 1997-2008.

Using a stock simulator, I created a portfolio that simulated the S&P 500 returns from 1997 to 2008, and for simplicity sakes, we will assuming that there were no margin calls on the account. I first ran the account with out the margin.

Year

S&P 500 Return

Account Value at Year End

1997

33.36%

133,360.00

1998

28.58%

$171,474.29

1999

21.04%

$207,552.48

2000

9.10%

$226,439.75

2001

-11.89%

$199,516.07

2002

-22.10%

$155,423.02

2003

28.69%

$200,013.88

2004

10.88%

$221,775.39

2005

4.91%

$232,664.56

2006

15.79%

$269,402.30

2007

5.49%

$284,192.48

2008

-38.49%

$174,806.80

Meanwhile, if the client has used margin during these years, his portfolio would have been worth $196,092, after he has paid his interest and principal on his loan.  The simulation assumes that he paid only the interest on his loan while he was borrowing.

Year

S&P 500 Return

Account Value at Year End

Loan Balance

Interest Rate

Payments

1997

0.3336

$266,720

100000

5.91%

5910

1998

0.2858

$335349.498

100000

5.25%

5250

1999

0.2104

$399552.432

100000

5.35%

5350

2000

0.091

$430074.854

100000

6.32%

6320

2001

-0.1189

$373370.402

100000

5.89%

5890

2002

-0.221

$286,267.233

100000

5.35%

5350

2003

0.2869

$361,512.387

100000

4.70%

4700

2004

0.1088

$395,633.575

100000

4.51%

4510

2005

0.0491

$410,327.742

100000

3.81%

3810

2006

0.1579

$470,706.894

100000

4.36%

4360

2007

0.0549

$491,949.338

100000

4.61%

4610

2008

-0.3849

$299,762.427

100000

3.67%

103670
Total Profit

196092.4269

In this case, the cost of borrowing was less than the return on investment, resulting in positive return of the investor.

During high period of interest rates, such as the 70’s and 80’s the use of margin can be costly. With out margin in the clients account, an investment account of $100,000 from 1973-83 following the S&P 500 would have provided returns of $142,781

Year

S&P 500 Return

Account Value at Year End

1997

-14.70%

$85,300.00

1998

-26.50%

$62,695.50

1999

37.20%

$86,018.23

2000

-7.20%

$79,824.91

2001

6.60%

$85,093.36

2002

18.40%

$100,750.54

2003

28.69%

$129,655.86

2004

32.40%

$171,664.36

2005

-4.90%

$163,252.81

2006

21.40%

$198,188.91

2007

22.50%

$242,781.42

Now if our sample client portfolio decided to leverage his account by the use of margin, the client portfolio would have resulted in losses of just under $3,500.  The total cost of margin for the clients account of $146,085, calculated by adding the $3,364 in losses and the lost profit of $142,781 from above.

Year S&P 500 Return Account Value at Year End Loan Balance Interest Rate Payments

1973

-14.70%

$170,600.00

100,000

10.93%

$10,930.00

1974

-26.50%

$117,357.45

100,000

14.03%

$14,030.00

1975

37.20%

$141,765.26

100,000

10.24%

$10,240.00

1976

-7.20%

$122,055.44

100,000

8.70%

$8,700.00

1977

6.60%

$120,836.90

100,000

8.27%

$8,270.00

1978

18.40%

$133,279.21

100,000

10.78%

$10,780.00

1979

28.69%

$157,644.24

100,000

13.88%

$13,880.00

1980

32.40%

$190,343.85

100,000

14.37%

$14,370.00

1981

-4.90%

$167,351.13

100,000

20.63%

$20,630.00

1982

21.40%

$178,119.45

100,000

17.60%

$17,600.00

1983

22.50%

$196,636.33

100,000

13.40%

$100,000.00
Return

96,636.33

Unfortunately for the client, even though the average return on the S&P 500 was 10.35%, the high interest rates were on average 12.98% over the 10 years, which resulted in the poor performance.  Effectively, the cost of borrowing was greater than the return on their investments, resulting in overall losses to the account.

Well there are many great opportunities that can be enhanced by a margin account, investors must be aware of the impact of increasing interest rates on their bottom line.

This blog has been prepared by the Retire First Team. The blog expresses the opinions of the writers and not necessarily those of Retire First Ltd. Statistic and factual data are from sources Retire First believes to be reliable but their accuracy can not be guaranteed. This blog is furnished on the basis and understanding that Retire First is under no liability whatsoever in respect thereof. It is for informational purposes only and is not be construed as an offer or solicitation for the sale or purchase of securities. Retire First Ltd. And its officers, directors, employees and their family may from time to time invest in the securities discussed in this blog. This blog is intended for individuals where Retire First Ltd is registered as a dealer in securities.

Retire First is a member of the Canadian Investors Protection Fund.

Commission, trailing commissions, management fees and expense all may be associated with mutual funds. Please read the prospectus before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. A recommendation of any of the mentioned investments would only be made after a personal review of individual portfolio. Third Party research has been used in formulating the writer's opinions.

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Mutual funds may now face PST

18-Sep-2009 | Reggie | Canadian Investing Market Outlook Retirement Planning The Wise Investor

One of the biggest issues facing mutual funds are the high costs that come along with ownership.  As it has been mentioned previously, Canadian mutual fund holders face some of the highest fees in world.  These expenses put a serious damper on any returns the investor may see.  Unfortunately, things could get even worse for mutual fund investors in BC and Ontario as new legislation has been tabled to further tax the industry.

Both Ontario and British Columbia plan on harmonizing their PST with the GST already levied on the funds.  Currently provincial sales tax is not charged for the sale of mutual funds in any province.  If the tax goes through on July 1 2010, investors in Ontario will be paying an additional 8% in tax while those in BC will be paying another 7%.  This is a very significant move for holders of mutual funds because they already dinged quite hard by their annual fees.  Another 7 or 8 per cent could be a nail in the coffin for many mutual fund holders as Canadian funds become even less competitive compared to their US counterparts or fees involved with building your own stock portfolio.

The mutual fund companies recognize the threat this poses to their industry and have been lobbying for months in an effort to get the government to reconsider.  In return, the government has promised to wage a public relations campaign to alert the public of the high fees they already face.  This leaves the Canadian mutual fund industry in quite a pickle, but will hopefully act as a eye opener for investors who may not have been aware of the high fees being charged and cutting into their returns.

This blog has been prepared by the Retire First Team. The blog expresses the opinions of the writers and not necessarily those of Retire First Ltd. Statistic and factual data are from sources Retire First believes to be reliable but their accuracy can not be guaranteed. This blog is furnished on the basis and understanding that Retire First is under no liability whatsoever in respect thereof. It is for informational purposes only and is not be construed as an offer or solicitation for the sale or purchase of securities. Retire First Ltd. And its officers, directors, employees and their family may from time to time invest in the securities discussed in this blog. This blog is intended for individuals where Retire First Ltd is registered as a dealer in securities.

Retire First is a member of the Canadian Investors Protection Fund.

Commission, trailing commissions, management fees and expense all may be associated with mutual funds. Please read the prospectus before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. A recommendation of any of the mentioned investments would only be made after a personal review of individual portfolio. Third Party research has been used in formulating the writer's opinions.

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