Net Worth Network

Financial “freedom” is the goal

When I envision what being wealthy looks like, I see myself being able to be free of the decisions that stress most of us. As I grow older those sources of stress have changed somewhat. No longer do I have to decide about which bill I have to shortchange to ensure that they all receive some sort of payment, nor do I worry about how to pay for gas when I spent my money on the gotta have toys. Now I wonder about whether it is better to spend my money on family vacations or should I make lump sum payments on the mortgage. The decisions are no less stressful but as I strive for balance in my life I find it interesting to think that what I’m really striving for is the freedom to make the decision making process less painful.

Real estate and investment portfolios are the vehicles that I hope will get me to this financial shangri-la. Along the way, as those tough financial choices are in front of me I will be holding onto the thought that life one day will be more about what I want to do than what I have to do. When that time comes, I know that there will still be difficult choices in life but they shouldn’t be concerning my ability to stay on top of bills or savings.

The freedom that I crave I am modeling after those who I know that can choose to work that day or month and not have to worry about meeting their financial needs. All of the luxuries that come with being wealthy are just that - a luxury. The real goal that I’m striving towards is to have the choices in life that follow my heart as much as my head. As I follow my plan towards this goal I will update the blog on how the decision making process is evolving for me.

Your “network” can save you money

My wife and 4 year old daughter were sitting at the table following their ritual Tuesday night flyer shopping when they came across a beautiful pink and white bicycle. Anytime my daughter sees something that catches her eye we have shown her to circle it and show us the flyer when she’s done. We then explain how much that item costs and how much more she has to save up to purchase it. This particular bike was something that my wife and I were thinking about purchasing for her soon anyways so we told her that soon she’d be pedaling that lovely bike down the street.

Since my cousin worked at a local bike shop (Maple Ridge Cycle) I thought that I’d e-mail him and get his advice on this certain bike and what size would suit my daughter best. To my surprise he said that he’d bought the same bike for his daughter but she had outgrown it. For a minimal price he’d let us take the bike off his hands. Since we would be saving at least half the purchase price of the bike I decided to put the difference into her account. Even though the total output was equal to what I would have paid for a new bike, her account will have benefited from the generosity of family.

Now this is one small example of what help your network can do for you. We all know how great it is when a box full of hardly worn clothes for your children is loaned to you, or when an old friend has a swing set that doesn’t get used anymore that is a perfect fit for your back yard.

I’m very lucky to have a great network who will willingly help out at a drop of a dime.

Do your homework on pre-sale condos

Much has been said and written in the past year about the concerning problem of pre-sale condominium and townhome projects going into receivership. There have been some highly publicized cases in the Metro Vancouver area where developers have taken a project close to completion but due to rising costs and mismanagement have had to shut down construction leaving homebuyers in the lurch. Some people feel that this problem is growing and has been likened to the “leaky condo” issues of the 1990’s.

Buyers in this market have seen at least a half a dozen projects fall into financial difficulties in recent months. The most recent is the Brio in Abbotsford. It was touted as the tallest project between Surrey and Calgary. It was going to be a 28 story condominium tower with more than 170 suites with such amenities as concierge and valet services. It was marketed as a very luxurious option for buyers in the area with prices ranging from $279,000 to $1.1 million. The problem is that only 30% of the project sold. The developer has shut the project down for the time being and has decided to give full refunds with interest on deposits. With median condo prices in the area being only $187,000 it is quite obvious that price was the issue here.

For some a pre-sale condo is their only affordable way into the market. “Flipping” has become commonplace. As the project completes the prices reflect the rise in the market during construction. This makes it difficult for those who buy into the project after it is built as it costs thousands more. So what should you do when looking at a pre-sale project?

Make sure that you know who the developer is and what other projects that they have completed.

Legislation has been made to make it easier to find out if the developer has had any projects fail or any bankruptcies.

Seek out legal advice to ensure that all of the details in the contract have been explained to you.

If you speak with experts in the Greater Vancouver Homebuilders Association they will tell you that this issue is not as prolific as the media makes it out to be. in fact there have been more than 78,000 successful new home and condominium projects in the lower mainland in the last 4 years.

So, if you’re in the marketplace for a new home and you are considering a pre-sale project as an option please do your homework. The results could be devastating if you don’t.

The long and short of the 40 year mortgage

More and more home buyers are now opting for the 40 year ammortization period in the mortgage market. The biggest selling point that most will point out is the affordability factor. With lower monthly payments vs. say a 20 year mortgage it is a much more attractive option for those who are just entering the market. With housing prices hitting great highs in most major markets in Canada the monthly payments could seem out of reach. Enter the 40 year ammortization. While some may say that this may be the only way into some markets, a simple comparison can show how much more one would pay in interest for this option.

Here’s the math:

• On a $350,000 mortgage @ 6.45% over a 40 year ammortization period weekly payments would be $465 with a total interest cost of $597,000.
• That same mortgage over a 20 year ammortization would have weekly payments of $596 but only a total interest cost of $265,000.
• The difference in interest costs over the two ammortization periods is a whopping $332,000
• The 40 year mortgage costs you an extra 45% in interest charges over the 20 year mortgage.

The above example was taken from a Global TV report discussing the relatively new option of the 40 year mortgage. The main issue raised in the report was affordability vs. total interest costs. Many people looking at this option are not aware of how much more of their hard earned cash would end up in the hands of the bank. The flipside is that that same home buyer could buy more of a house with the longer term. So as each home buyer’s circumstances are different, one would have to weigh out affordable payments vs. total interest costs and make a decision that suits their financial situation and goals.

Trying to find the right accountant for us

My wife and I are in the midst of trying to find someone to help guide our decision making when it comes to taxes. We both have some interesting personal and business taxation questions and are hoping to find the right person to get the most out of our situations. It is our goal to maximize every deduction possible (as is everyone’s goal I guess) but also to educate ourselves as to what we can do in the future on our own.

This past year my wife has become self-employed as she has started a home based business (licensed daycare). We finished off our basement to make way for the “crazy-zone” and I believe that there are opportunities for writing off some of the construction costs and furniture for the daycare. Along with those deductions, we will also be looking to write off a percentage of the mortgage interest for the square footage designated for the daycare. Along with that my wife also has another home based business that she runs dedicated to the designing of personal cards and invitations (www.butterflybabydesigns.com). We have already used this business to lower our tax burden in the past.

For myself, I have been making interest only payments on a HELOC for a real estate investment (for more details read my last post). I will be looking to write those off as well. As for the future, I will be pondering the idea of turning this blog into a corporation for the tax benefits.

Along with all of these considerations, there’s also our RRSP’s and investment portfolios to account for at tax times. We would want to ensure that our accountant would be using every possible tax break to our advantage.

So, I’ve done some research online to get a good gut feel for the type of questions I should ask each of the CGA’s that we will talk with to figure out who should get us on the straight and narrow. One of the sites that I came across was www.taxtips.ca. It was full of insightful tips as well as links to other helpful sites. After all this reading I now feel much more comfortable in my search. I’ll update our search in future posts.

My children’s “Giving Account”

After the spoils of our daughter’s birthday and Christmas gifts, my wife and I had a discussion about teaching our children the importance of donating to those less fortunate than us. We have decided to start an account for each of our children with the intent of donating to a charity of their choice next Christmas. We have called it their giving account and are letting our kids decide whether to put spare change into their savings bank or into their giving bank. We are also encouraging family members who would normally purchase a toy (we are already swimming in plastic dolls and toy trucks) to give our children money, of which they can split between their personal accounts and their giving accounts.

As time goes on, my wife and I are trying to link the value of a dollar to the things that most of us take for granted such as basic groceries and personal hygiene items. This will make the tie in to donating to the less fortunate take on a much higher meaning for them. When my daughter puts a couple dollars in her giving account I let her know that it could purchase a jug of milk or a bag full of apples for someone who struggles to do so on their own. At preschool she colored a picture of a $20 bill and when she showed it to me I related it to the amount of food that it could purchase from the supermarket. My daughter has taken great interest in learning what she can do to help people who can’t afford the basic necessities in life. It is this thirst for knowledge that I hope will help guide my children to make the decision to keep adding to their giving accounts.

3 Tips for managing your household’s discretionary income *

Like most couples, my partner and I have the occasional squabble over our household finances. Usually, these arguments arise because of something else — a deadline at work, illness, a difficult commute — but they often open up the door for frank, and sometimes heated, discussions about money. So, how do my partner and I broach the ‘M‘ word without spiralling into an emotional rage?

Like any relationship that deals with money, or some form of it, you must be able to trust all of the people in your network. Trust between partners (theoretically) allows each person to make comments or suggestions about finances without being snapped at and gives people the opportunity to flesh out new ideas about your spending and saving patterns.

In our house, we do a number of things that help us make budget-related issues less stressful, with fewer arguments and better long-term money management emerging as a result of our actions. Our approach relies less on a tried-and-true formula and more on open communication and thoughtful spending (sort of!). It’s an adaptable system that allows us to meet changing short-term goals while pursuing our long range targets. Read the rest of this entry »

B.C. Home Assessments up 16%

The B.C. Assessment Authority has released the 2007 Assessment numbers as of July 1, 2007.
Here are some of the highlights:

• The province average is up 16% from the previous year — substantial gain but not as much as last year’s 23%.
• 1.92 million properties in B.C. were issued assessments with a total property value of $940 billion.
• The lower mainland has come in at a 10-20% increase in value this past year.
• New construction was up 15% this past year to yield a record $21.5 billion in value
• 49,729 homes in B.C. have assessed values over $1,000,000.

The Numbers and You

So these were the statistics released , but how does this affect the homeowner? Global TV reported that assessed values tend to be less than that of market values. The reasons for this are that the assessed values really only take into consideration a few factors such as recent sales in your neighbourhood, size, location, age, general condition, and outstanding characteristics ie: waterfront. What is missing is what you’ve done to make your home your personal space. Renovations and upgrades ie: granite countertops, hardwood floors, central air are not taken into consideration. What might set your house apart from others in your neighbourhood will not send your assessed value higher. Is this a bad thing? I would say no. The assessed value does link to property taxes, however, you should only see a minimal increase unless your home has been assessed at a much higher % increase than the municipal average.

Online Assessment Comparisons

If you logon to www.bcassessment.bc.ca/ you can access comparison information to similar homes in your neighbourhood. One note though, you will need your assessment statement as you will be asked for a PIN number and an assessment roll number. This is an easy way to see how your property stacks up to others in your area.

Using holiday sales to save money all year long

Every December my wife and I bundle up our daughter and we head out for a couple of days on the town, looking for Christmas gifts for friends and relatives and hoping that I don’t go crazy and start yelling at random people in the middle of a huge crowd. Holiday shopping for me is a rite of passage, a trial that I must endure in order to make it to the 25th of December, and part of the reason that I do it is to check out the pre-Boxing Day ’sales’ in the final few days before Christmas. They’re a fantastic opportunity for consumers to stock up on stuff whose retail prices have been slashed by retailers.

Holiday decorations

This season, we used Christmas sales to purchase holiday decorations for next year (but only on items that were between 60% and 70% off). For example, we picked up some wrapping paper and bows that were marked at $7.99 early in December for under $3.00, three days before Christmas. Similarly, we found some indoor / outdoor LED lights for about 40% off regular retail prices.

Cheap birthday presents

We use this strategy throughout the year, but the good sales are a perfect time to pick up presents for our daughter’s friends (January - April is a popular birthday season). Over the past week, we made a few purchases of select toys and books and they were marked down between 50% and 75% below retail. While we’ve found that similar discounts can be had at many online retailers, it’s sometimes very difficult to tell if this set of Pokemon cards is cooler than that stack of Pokemon cards. Take that Pikachu!

Spend that windfall? I don’t think so.

I’d love to say that I took the cash we saved on our purchases and rushed out to buy the Nintendo Wii that I… errr, I mean my daughter, has been clamouring for since September. Instead, our strategic buying helped us save over $400 in December, money that was put into our daughter’s tax-sheltered RESP. The government provides a grant that amounts to 25% of your deposit up to $2000 so, effectively, that $400 in savings is $500.

Plan for success in 2008

As 2007 comes to a close, many people will be looking at New Years resolutions to be their personal motivator. People vow that as of Jan. 1 they will no longer eat junk food, or spend frivolously. They will no longer abuse their credit card, or cheat on their homework. The problem that I see with this is that they will most likely be setting themselves up for failure . Too often have I heard of people resolving to lose weight, go pay for a membership and use it twice. The same could be said about financial resolutions. We all have heard someone say that next year my bank account will be double than that of this year, but don’t change their failing ways.