Tuesday, January 31, 2006

This Week's Festival of Frugality

Frugal Underground is hosting the Festival of Frugality this week. I was particularly inspired by Seattle Simplicity's advice as I try to ferret out some additional savings I can work on in February.

Monday, January 30, 2006

(Getting Out of) Consumer Debt

As I believe I mentioned in regard to my savings plan for the year, for the first few months of 2006 my net cashflow will be painfully curtailed as I pay off the balance of some evil consumer debt. I financed two purchases in late 2005:
  • Window coverings for our new home. I consider this a forgivable dip into the consumer debt morass as it was arguably necessary and came with some manageable provisions (i.e. pay no interest for 6 months). With regular payments, I should have this one licked, interest-free, by April.
  • A new Dell laptop, presumably to replace my old PC that died last summer. Considering I could have got a new PC with more than I needed for under $1K, I consider this a shameful (and honestly, uncharacteristic) display of conspicuous consumption.
Besides this, I've been pretty good and don't keep a balance on credit cards, and usual avoid any purchase I can't pay in full with cash, with exceptions noted above.

My own situation came to mind today when reviewing the latest news about spending and indebtedness. As reported in the Toronto Star, Americans increased their spending in 2005 by dipping into their savings, pushing their savings rate for all of 2005 into negative territory at -0.5 %, the lowest it's been since the Great Depression.

Lest Canadians feel at all smug, Statistics Canada last reported that our current personal savings rate is only marginally 'better' at -0.2%.

Sunday, January 29, 2006

The Brown Bag Revisited

Data I included in my previous post got me thinking about my own situation. While I've always focused on the short-term (i.e. monthly budget) benefit of packing a lunch, I've never really considered longer-term consequences. Here is my brown-bagging status:
  • I pack a lunch every day,
  • I include leftovers 100% of the time,
  • I don't actual use a brown bag per se, I reuse a plastic grocery bag (read helplessly frugal) .
Were I to eat out, a modest lunch would be about $6.50. In a week that's $32.50 and annually, $1690! As there is no additional cost for me to pack a lunch I'm counting this as 100% savings.

A few observations:
  • This amounts to over 8% of my gross savings goal for 2006 of $20,450,
  • To enjoy a similar gain through employment income, I would need to (successfully) walk into my manager's office and request a raise of about $2682. Hmm...
  • Assuming the cost of eating out appreciates at an inflation rate of 2.2%, and assuming a long-term growth rate of 7%, investing this savings alone over a 10-year period accrues $25,492.35.
Admittedly this isn't terribly glamourous*, though handy in the short term and hopefully valuable as time goes by.

* Not particularly helped by the plastic grocery bag.

Saturday, January 28, 2006

Simple Life Changes Can Have a Huge Savings Effect

I always knew that making small changes to one's lifestyle could have beneficial downstream impacts, but a recent Hamilton Spectator article (based on TD Waterhouse research) offers some interesting (and specific) details:
  • Brown bag it: By taking your own lunch to work three days a week, you'll save an average of $7 a day. After groceries, that's a net saving of $15 a week, $60 a month and $720 a year. Slip that into an RRSP earning 7.2 per cent a year, along with the tax credit from an RSP investment and over 35 years those lunches turn into $94,658 at retirement.
  • Take the better way: Parking the car and taking the bus to work saves $834 a year - with tax credits and interest over 35 years, that totals $109,689.
  • Bulk up: Instead of buying bottled water at $1 a pop at a convenience store, buy it in bulk for $3 a dozen and save $574 a year, including the RSP tax credit. Over 35 years your nest egg just grew by another $56,777.
The total of these small changes delivers $261,124 at retirement.

Thursday, January 26, 2006

Canadian Money Saver Magazine

I'm looking forward to picking up a Canadian Money Saver print subscription next month (I would do this now but all my discretionary spend is exhausted for January). I visited their site today primarily to solicit for single shares of Enbridge and Emera* on thier DRIP forums, only to discover these were restricted to members only. After my short period of (involuntary) irritation had lapsed I had a chance to review sample articles and topics. The material appears genuinely well-written, fresh and certainly relevent.

On a related note, I cashed in 90 Air Miles last October for a subscription to MoneySense and ended up pursing an escalation with them this month as I haven't received a thing to date. After a painfully stereotypical explanation on a call this week (... there were computer problems when the order was originally placed ...) I was assured that the supplier would respond with my first issue within a few weeks.

*If anyone has a single share they could sell me please send a comment to this post with your contact - I won't publish it. Thanks.

Wednesday, January 25, 2006

Looking at Dividend Reinvestment/Share Purchase Plans

I admit that I sort of glossed over DRIPs initially, mostly because online brokers are more in my comfort zone given my limited trading experience, and at first glance I may have unfairly considered this approach unduly complex.

However, as a reader aptly commented on an earlier post, a good number of the companies on my watch list offer DRIP/SPP programs. Not only that, but as pointed out in a 2003 Money Saver article, a ‘core DRIP portfolio’ as recommended by Tom Connelly including a telecom, a pipeline, an electrical utility and a bank (he also includes Terasen) can all be acquired through DRIPs. Not only this, but at least for the pipeline, utility and bank, these also can be cross-listed with Mergent's Dividend Achievers list - Enbridge, Fortis/Emera, and pretty much all the banks, save RBC – respectively.

The other benefit I see personally with DRIPs/SPPs is that I can pretty much start investing immediately with even monthly contributions, without having to save up lump sums that end up competing with other household interests. Naturally, paying no commission fees has an obvious savings appeal.

With these considerations, my portfolio could be:

In fairness, I have run into a couple of challenges:
  1. Getting the first share – while I have had some interaction from the great group at DripInvesting.org (lots of information here as well) in trying to buy a single, this will take some time, unless I want to shell out large service fees to buy a share through my Waterhouse account and transfer into my name.
  2. Despite a wealth of good resources online, there still is a lot to figure out for a first-timer by culling from a number of sources (some of which are occasionally spotty and out of date). I may well craft a small series in the ‘DRIPs for Dummies’ vein once I get through my first transaction.
All in all though I'm currently pretty excited about the opportunities that DRIPs can offer.

Tuesday, January 24, 2006

eBay is Not an Online Garage Sale

File under 'money-making lessons learned' - after a four-month grace following a move to new home, we finally got around to unpacking all the boxes that had been left in our basement. While we were able to freecycle a number of items that had some appeal, our best efforts of triaging (keep, give away, garbage) still left us with a few odds and ends:
  • 1 Fondue Set
  • 1 Milk frother
  • 1 set of ceramic 'Finding Nemo' bookends
  • 1 game, Operation (I wasn't even a fan of this one when I played it 22 years ago)
  • 1 odd plaything, a 'Bop-it'
All items were brand new and in original packaging. I had just received an email newsletter from eBay offering 5 free listings (perfect!), so I suggested my wife list the stuff and see what we could get for it. $15? $20$? Who knows?

No dramatic conclusion, and certainly no bidding wars over Operation. (In fact, we didn't even get a single bid.) If I learned anything, eBay shoppers are a saavy lot indeed, and can smell someone trying to unload basement goodies a mile away.

Monday, January 23, 2006

Better Meal Planning?

Let me preface this by explaining that I am a product manager by trade, a vocation that requires I spend a fair amount of time getting my hands dirty trying to find out what's driving people nuts, considering creative ways to address their needs, and then weighing the business case for bringing a solution to the market. It’s a discipline that is so fully ingrained I can’t help but consider the "business requirements" for a weekend outing, or do a quick business case (in my head, honest) when considering a furniture purchase.

I bring this up because I have to admit – though I have been religiously planning meals for at least the last 5 or 6 years – that I do find the process um, a wee tedious from time to time. Don’t get me wrong, I think meal-planning is overwhelmingly beneficial for a number of reasons:

* It ensures, on a weekly basis, that all your nutritional requirements are met,
* It takes the puzzling mystery out of nightly meal prep after a long day’s work,
* It spares you from the defeat of buying whatever is on sale only to discover you can’t make a single meal out of all the ‘deals’ you just purchased, and
* Anecdotally, you almost always save money shopping from a list.

That being said, I do share a certain sympathy with all the friends whom I have pleaded to start doing this, as the process can be a bit challenging. Does the following sound familiar:

1. Select meals (usually dinners for the week), drawing on reliable cookbooks or old favorites.
2. From these, distill a grocery list of ingredients and weekly staples.
3. Check inventory and see if anything can be crossed off.
4. Shop.
5. Repeat 1-4, every week. Forever.

So the product manager in me has wondered for some time how this can be made easier. From a business problem perspective, I find meal planning an apt subject for consideration as it is so pervasive and yet so unaddressed. Nothing has changed to improve this process pretty much since it was conceived.

So for what it's worth, here’s my vision for a meal-planning solution roadmap, in three phases:

EasyMeals v1.0: Enter about a dozen of your favorite meals in a simple database application, along with the ingredients for each. Whenever a meal list is needed/its time to buy groceries, select the meals you like and print off the grocery list.

EasyMeals v2.0: An expansion of v1.0, this update puts the whole thing online as a free hosted service, allowing users to add, modify, remove, ‘favourite’ and share meals with other online users. This quickly allows users a much broader meal inventory, with the same ‘select meals and print grocery list’ standard feature. Also, here we can add new categories for meals – like using fresh herbs and imported cheeses? Give the meal a 9/10 for ‘cost’. Categorize by core type – red meat, poultry, fish, vegetarian, etc. Needless to say, v2.0 offers a lot of possibilities.

EasyMeals v3.0: The business case finally ripens with v3.0. Same as v2.0, but now you can automatically send your grocery list to Grocery Gateway, Loblaws eGrocer, etc. once selecting your meals. This version effectively automates the entire end-to-end process, from selecting meals, to making a list, and even the shopping (how much fun are those insert-aquarter-carts anyway?) – all from the comfort of your home PC. While still a free service for users, company founders extort negotiate with online grocers for a nice cut small percentage of each order.

Update: The equivalent of versions 1 and 2 already exist in a great site, Meals Matter.

Sunday, January 22, 2006

A Frugal Focus Saving Event - Energy Expenses

Remember all my platitudes about miserliness vs. frugality? Well, 4 days and $13.31 later, I caved and my basement is now the proud home of a masterfully frugal series of clothes lines (4 in total, and quite discreet). I simply screwed 3 pairs of 2 X 3's in parallel from my ceiling joists, drilled holes in the bottom end and ran some clothes line between them (and right below a heating vent, to boot).

I have to confess I'm a somewhat compulsive DIYer come the weekend (though not so skilled with actual use of tools, etc.). I suspect this little project was more about the new clothes lines justifying the savings (as opposed to the other way around).

Total Annual Savings: $94.00 - $13.31 = $80.69 (though I'm somewhat suspect of the EnerGuide estimate ...)
What this means: About 1 month of gasoline for car.

Saturday, January 21, 2006

Mergent's Dividend Achievers

Like the S&P Dividend Aristocrats, Mergent offers indices based on dividend growth, but also includes a Canadian Dividend Achievers Index. To become eligible for this index, a company must be incorporated in Canada, trade on a major Canadian exchange, and have increased its annual regular dividend payments for the last 5 or more consecutive years. In addition, Mergent applies certain additional screening criteria to ensure a stocks' liquidity and investibility. I will likely use this index as another screen for possible buys.

Even with only 5 years required (compared to the 10 years they require of U.S. equities and the 25 years needed to get on the S&P DA index) there are only 36 companies that made the cut.

Friday, January 20, 2006

Current Watch List

I currently have two watch lists, one for Canadian and one for U.S. equities. My focus this year will most likely be on spending my target $10K over about 3-4 purchases of Canadian stocks.

Here is my current Canadian list (I have simplified the view in order to make this easier to display):

To date, I am looking most carefully at Manitoba Telecom (MBT), Russell Metals (RUS) and one of the pipelines (Enbridge (ENB) or TransCanada (TRP)). In the meantime, I'm still waiting for paperwork on my Canadian ShareOwner account to be processed. Thoughts?

Thursday, January 19, 2006

Derek Foster's "Stop Working"

Buy Stop Working NowI've recently finished reading Derek Foster's "Stop Working", a personal finance autobiographic account from Canada's self-proclaimed youngest retiree. As I'm pretty sure Foster's investment approach is fairly well-known, and as others have already provided helpful reviews of his book (see Canadian Capitalist's synopsis as an example), I won't go into a lot of detail. I mention his book here really for a couple of specific reasons:

1. His strategy of buying and holding (forever), recession-resilient, industry-dominant equities with a demonstrable history of maintaining and increasing dividend payments is one that I will (hopefully) begin to implement when I weigh my first transaction later this month. Among other factors, I will evaluate possible purchases with the criteria he outlines in his book.

2. I appreciate Foster as an agitator, which I mean in a very positive way. As an indication of this, the largest discussion thread ever recorded on MoneySense.ca's forums (320 posts at last count) was a topic that began, innocently enough, under the heading "The book "Stop Working" by Derek Foster" with the inquirer simply asking about any risks to this strategy. Foster himself became part of the online discussion, taking advantage of the forum to really clarify how, contrary to the model promoted nearly universally, his approach is not predicated upon the size of the nest egg. (Speaking firsthand, as part of the process of recently joining my company RSP plan, I indeed went through a 'retirement workbook' that quite clearly dictated exactly how much I needed at retirement (the nest egg) in order to stave off abject poverty.) Also, a good part of the discussion focused on financial models comparing Foster's approach and RRSP investing. Though it frequently became argumentative, I did learn a lot from these exchanges.

In short, whether one agrees with his strategy or not, I think Foster has been very effective (in some circles) at challenging assumptions and making people double-check and think hard, if not passionately, about their retirement plans, be them of the 'early' variety or otherwise.

Wednesday, January 18, 2006

Looking at Energy Expenses

In looking at my energy-related expenses I found the EnerGuide site interesting , particularly their interactive energy cost calculator. I have been considering setting up a small clothes-drying area in my basement and really wanted to understand, as nearly as possible, what I pay to use this on a per load basis.

Using their tool my dryer cost came out to be about $94 annually. Assuming we do 4 loads/week that's about $0.45/load. Not terribly significant, and this cost is arguably bordering on the 'non-essential but life-enhancing' (to use Derek Foster's terms). While I can have dry clothes whether I pay $94/year or not, it will probably take 10 minutes for my wife or I to hang it all up. And at $0.45 per load (assuming my math is right) it doesn't seem worth it. Frugal = good, miserly = bad.

Plus, putting on a pair of jeans fresh from the clothesline, something akin to cardboard lined with sandpaper, in no way compares to the oddly instinctive pleasure of donning the same pair fresh from the dryer. Its all about the simple pleasures.

$1M Home Page?

File under curious but off-topic - while the professional blogging community debates AdSense positioning vs. Chitika eMiniMalls, this 21-year-old has taken 'site sponsorship' to an extreme selling about 1,000,000 pixels on his site for a $1 each as an idea to fund his university expenses.

In under 5 months he had sold $1M worth of 'ad space'. Sideshow or disruptive innovation? (From an aesthetic perspective I'm praying its the former. Naturally, copycat sites have already been reported ... )

Monday, January 16, 2006

Mackenzie Investments - Average Canadian spends $100 every four days

From MoneySense - Average Canadian spends $100 every four days: Mackenzie Investments study
The average Canadian spends $100 on discretionary items every four days, while nearly one person in four can't even make it last 48 hours, a survey released Monday by Mackenzie Investments suggests.

The article does include some interesting analysis based on province ...

A Frugal Focus Saving Event - Long Distance Services

In a follow-up to an earlier post, I did the deed today, smiling to myself as the customer service rep tried in vain desperation to sell me something, anything, after making it clear I was turning my back on legacy long distance plans. Forever.

I'll try out a 10-10 service from now on, like 10-10-100 or 10-10-940. It seems really simple, you just dial this number before your call. No activation fees, block plans, service contracts, nada. They both offer $0.04/minute for calls in Canada (10-10-940 bills a two-minute minimum).

(Not so) ironically, these two companies each have agreements with Bell.

Total Annual Savings: Up to $94.80
What this means:
One month's hydro bill.

Investor Sentiment - Pessimistic or Realistic?

From the Toronto Star - Investors foresee sliding returns:
A growing number of Canadian investors have lowered their expectations for 2006, continuing a trend that began in 2002, a new poll for TD Waterhouse (TSX: TD) suggests.
Has anyone ever seen any research that correlates investor sentiment and actual market performance?

For me personally I would look forward to a small correction as a buying opportunity, given that I'm just starting out.

Sunday, January 15, 2006

A Frugal Focus Losing Event - EI and CPP

This one, unfortunately, affects every Canadian's cash flow.

While I was elated the 2006 EI rate dropped to 1.87% (from 1.95%) of insurable earnings, saving us all a cool $31.20 annually, the CPP pensionable earnings rose to $42,100 from $41,100 (with no rate change). As a result, the CPP maximum went up to $1910.70 from $1861.20. Though this is a good thing in the very, VERY long run, it will mean that net of 2006 EI and CPP maximums we are all a little poorer.

Total Annual Loss: $18.30
What this means:
Practically, nothing.

Goals and More Goals - 2006 Continued

I did want want to break down my 2006 goals in a little more detail. I am planning the following savings per month:

The first half of the year will be woeful for savings. From January - May I will be paying down the balance of some uuuggly consumer debt- something we will touch on in more detail once we review January at the end of the month. Come the end of June I will also max out my EI and CPP contributions. August looks high due to my annual bonus.

You will note (and I am painfully aware) that this plan shows ~20K in savings while my goal for 2006 was clearly stated as $10K in contributions to my non-registered account. The other 10K will be spent on/used towards:
  • New home needs new furniture - though I would be much more excited about investing this money, I am told it is culturally normative to have some of this.
  • Both my brothers are getting married this year. One lives across the country, one lives across the Atlantic. What gives, eh?
  • Though its hard to imagine presently, I'm sure the dog days of Southern Ontario summer will drive even me to get an air conditioner come July.
  • 2006 marks my 10 year wedding anniversary.
My RRSP contribution of $5K will be based on monthly contributions (from source) of $389 as well as a chunk of my anticipated bonus.

Saturday, January 14, 2006

A Frugal Focus Saving Event - Phone Services

We recently moved to a newly constructed home from an apartment and needed a new phone number/line service. The service representative setting up the line took all the old service and billing information and just copied it to the new number, including the $5/month 'wire protection insurance'. As our wiring is under warranty by the 'smart home' company that set it up, this was an obvious expense that could be eliminated.

Total Annual Savings: $60

What this means:
3 months of movie-renting entertainment.

Fortunately/unfortunately, there's more. Folks, look very carefully at your phone bills. Every so often you hear about some poor geezer who realizes he/she has been paying $8.95/month as an 'equipment rental fee' for some lousy first generation touch-tone phone since the early eighties. Couldn't happen to you or I, right?

In preparing this entry I pulled out my last phone bill and really looked carefully at my long distance. Every month I rack up 10-30 minutes in long distance minutes, entirely within Canada. Though it wasn't something I really took notice of before, I'm on a monthly rate plan of $4.95 allowing 60 minutes of long distance during evenings and weekends.

A couple observations:

1. Though possibly a good deal at the time this was set up, I'm apparently a 'legacy services sucker' like the above-mentioned geezer. My phone company doesn't currently offer any plan remotely this expensive.

2. I only had 11 minutes last month, of which all but $0.58 were covered by this plan. In other words, I paid ($4.95 + $0.58)/11 = $0.50/minute. Yes, I'm still feeling the pangs.

3. It gets worse. The very fine print explains that the phone company includes a $2.95 'network charge' for any consumer that uses any of their long distance rate plans (no matter how bad). In other words, my geezer-meter rocketed with long distance really costing me $0.77/minute.

I need an intervention.

Friday, January 13, 2006

Goals and More Goals - 2006

My goal for 2006 is to invest $10,000 in my non-registered account and $5,000 in my RRSP. As I have no current investments at all, I am going to focus on contributions this year (as opposed to rates of return).

My RRSP contributions will be made through my employer-matching program, where they add 2.5% of my salary to my 3% contribution. Not bad.

My non-registered equity contribution will likely equate to 3 actual orders this year as I don't want to pay more than 1% in commisions. Where the stocks I am looking for are on their pre-screened list, I will use a Canadian ShareOwner account, and otherwise I will trade through TD Waterhouse.

Thursday, January 12, 2006

Goals and More Goals

For me, a true goal needs to have a number of characteristics:

1. It must be realistically achievable. ("I want to develop my telekenisis" appears, alas, to fail this test, and as such was a goal I gave up, with difficulty, at around age 12.)

2. It must be quantifiable, both in achieving its stated objective and evaluating one's progress to that end. This eliminates a number of amorphous, though noble intentions in the "I want to be a better person." vein.

3. It must be inherently motivating (i.e. there must be something meritous in acheiving a goal that sustains its emotional appeal.)

4. The unspoken (though apparently not unwritten) characteristic - it must be noble (if not simply decent). I can think of many goals that meet 1-3 but fail this one big time.

This topic actually came up yesterday in a discussion with my wife, when she explained that her and a friend had it as a goal to make and sell soap during the summer farmers' market period. Needless to say, my attempts at deconstructing her 'goal' were not met with wild enthusiasm.

Why bring this up? For me, goals that meet these criteria are rare and powerful guiding forces. As contracts we make with ourselves they provide a point of reference for which every action, decision, pursuit can be evaluated. If any given opportunity would not advance one toward one's goals (no matter how fleetingly attractive) I usually give it a miss. Despite appearances, this is not an opporunity, it is a distraction.

Like most people I have a few of these goal-visions, though the one that I hope to document here is, specifically, my likely winding path to an accrual of $308,446.64 in non-registered, dividend-paying equity and $197,870.62 in registered (RRSP) savings by December 31, 2020. While I'm not expecting to retire with these sums, the non-registered account of dividend paying equity should allow a level of passive, tax-advantaged income that will certainly make things easier. While this goal meets the above-mentioned 4 criteria it offers an excitement factor for blog readers that rivals weed-pulling. To make this a little more focused, let's start with 2006.

A Frugal Focus Saving Event - Bank Services

Long overdue, I finally went entrirely paperless with by bank reporting. No more statements, returned cheques and little ads for mortage transfers. With recent changes at TD Canada Trust, I can view images of all my returned cheques online.

Total annual savings: $24

What this means: One week of getting to and from work via public transit.

MoneySense Magazine Top Stock Resources

I have to say I really enjoyed reviewing MoneySense magazine's annual list of Canada's Top 200 stocks and the Top 1000 U.S. stocks. While their specific analysis may not exactly adsdress your investment goals, it was very thorough and well-formatted. Best yet, their spreadsheet of results is available to download entirely free of charge, unlike other 'Top X Stocks of 2005' which I have seen as high as $165!

Disclaimer: These articles are for information only, and are not to be construed as financial advice, legal advice, or a solicitation to buy or sell securities.