Wednesday, 7 March 2012

Apple time

Today is the day a lot of people have been waiting for. In a few hours, Apple shall (hopefully) unveil the latest version of the iPad. Every Apple product launch is awaited with bated breath. There are tons of rumours and leaks leading up to the launch. Its like an industry in itself - the rumour machine.

Anyways, this blog is not about the device itself. What I am going to talk about is the product and the cost. The iPad has thus far been priced from $499 ($519 here in Canada). And a ton of people have bought it. For themselves. For their kids. And in some cases even for their significant others.

And this has kind of surprised me. Even if you go for the cheapest iPad, after taxes and basic accessories, it sets you back by at least $600. And then you go ahead and spend more on apps. In my opinion, that's a good chunk of money. Especially for a device that very few people really need.

The iPad is the perfect example of a want. There is very little that you can do on the iPad that you couldn't already do with other devices that you already have (i.e. the laptop or desktop, your smart phone, your DVD player, your game console etc). Yes it does makes stuff more convenient but we don't actually need it.

And then in exactly one year a newer version is released and we want the latest one all over again. Of course Apple products tend to hold their value fairly well in the resale market. iPad 2s were apparently fetching around $375 as of a few days back. So you could sell the one you have for that amount and go ahead and get the latest and greatest.

Cost of ownership - ~ $225 / year

Of course this is for the base level WiFi model. If you splurged for the 3G model you have a data plan to pay for as well so the cost for the year would go up accordingly.

Is $225 a big amount to spend each year? Maybe. Maybe not. 

I have not yet succumbed to the calling. I would sure love to have one. But my frugal brain holds me back. Will it continue to win? I don't know. 

Have you already bought the iPad? Are you planning on buying one? or more? Is it an upgrade? What are you doing with the older one? Please do tell.

Tuesday, 6 March 2012

Tax Time

I'll call this the Tax special. Canadians (and others as well) are well into Tax season - everyone's favourite time of the year :) Some things to think of at this time ...

1. File early: I don't believe that I am unique in delaying filing my taxes simply because I am too lazy to get around to it. Canada Revenue Agency (CRA) is normally pretty good at grabbing your taxes through the year. So most of us file to get some back in the form of Tax refunds. And so if you are due to get a refund, better today than tomorrow. So get on it.

2. Slips and receipts: Make sure you have all your tax slips and receipts. Sometimes we change jobs a few times during the year or move accounts or actually move ourselves. Keep track of who owes you a T4 or T5 or RSP or Charitable Donation or other receipts. Businesses have until the end of Feb to mail out the slips. So if you have not received them by now, feel free to get in touch with them and find out what's happening. Worst case, call CRA and they will help you get your T4s.

3. Deductions: The Tax system offers a bunch of deductions ... even for us lowly employed folk. Make sure you use all of them that apply. Some common ones include RRSP, Child Care, Children's Fitness Tax Credits, Public Transit Credits, Medical Expenses, Relocation (if moving to be at least 40 kms closer to your job or school), Tuition credits (for students), Property Tax or Rent credits etc.

4. Save copies: Make sure you save yourself a copy of everything that you send to CRA. With online filing, a lot of us never send anything. But we also tend to get rid of stuff as soon as the refund cheque comes in. CRA send the refund cheques automatically assuming that your filing was accurate. They tend to take their time to decide if they need to look at your return closely and have upto 6 years (or is it 5) to request additional information or receipts. I normally advise people to keep their copy of the return and documents for upto 7 years. The analytical ones amongst us might want to store stuff even longer if they want to track their income patterns / tax payments etc. It can be fun :)

5. Carry forward amounts: Don't forget about your carry forward amounts. Tuition credits, unclaimed RRSP contributions, Capital losses, charitable donations etc can be carried forward. Make sure you do not forget about them.

Random tips:
  • If you donate money to charitable organisations (and you should) remember that the first $200 each year only offer you a 15% deduction. Donations beyond the $200 mark offer you a much larger deduction. So if you only donate around $200 each year, it is a good idea to hang on to your receipts and claim them once every 5 years (you can carry forward your donations for 5 years). That way you get the maximum bang (tax-wise) for your charitable donations.
  • All the govt support programs (child tax benefit, OAS, Disability, GIS, HST credits etc) are linked to your tax returns. What does that mean? It means that if you do not file, you won't get your benefits. So even if you have minuscule income, make sure you file your return.
  • If possible get the highest income earner in your family to claim the deductions. This will get you the biggest refund for those deductions since the deductions are always at the marginal tax rate. Pension splitting lets you get the same for seniors. A number of credits can be transferred amongst family members. One example is the Tuition credit. Students get a credit based on the tuition fees paid. They can carry forward this credit themselves to future years when they start having income. Or they can transfer it to their parents. If you are studying to be a Doctor or in an MBA program or something similar which will allow you to land into a high paying job as soon as you graduate, it may make sense to keep your credits for yourself. If however your parents have income that is significantly higher than what you will have (which is true in most cases), let them take the deduction for a bigger refund.
  • CRA doesn't complain too much if you are due a refund and you do not file your return. However if you owe, you absolutely must file by the April 30 deadline. Failure to file may result in penalties in addition to interest charges on the amounts owing. If you do not have the funds to send in a cheque along with your return, it is still a good idea to file your return. Call CRA and let them know of your situation. As long as you have filed your return, there won't be a penalty. And they may even be willing to waive the interest payments if you ask nicely.
  • Made an honest mistake in your taxes and realized it after you filed - file a T1 Adjustment. Need to come clean on income you had that you didn't report - use the Voluntary Disclosure process to kill those tax audit nightmares. However this won't work if CRA has already started investigating you. So the sooner the better.
  • Can't understand taxes and can't afford to pay someone to do them for you? If you are truly low income and have a simple tax situation (i.e. no business / investment income etc) you can avail yourself of the services of the volunteer tax preparers as part of the Community Volunteer Income Tax Program (CVITP

Any more you can think of? Please feel free to add in the comments.

Friday, 3 February 2012


I don't think there is a single person that isn't aware of the upcoming Facebook IPO. After endless speculation Facebook filed papers this week to go public. And with the filing, we now have endless articles, opinions, reports related with Facebook (as if we didn't have all of that before!).

Here is what I have learned ...
- Facebook plans to raise about $5 billion.
- The IPO should value the company at between $75 and $100 billion.
- There are going to be tons of actual billionaires and very many multi-millionaires.
- Heck even the artist who drew the murals on the walls of Facebook's offices could have his stock turn out to be worth about $200 million.

Is Facebook a good thing to invest in? Should you try to get in on the IPO? Should you try to buy the stock on Day 1? or Day 2? ever? never?

Here is what I think...
1. Facebook as a business is likely in pretty good shape. About 800 million active users is a lot. And most of these users have a lot invested in it ... friends, photos etc. So it is highly unlikely that there will be a mass exodus any time soon. It makes a good amount of money from Advertising. And with all the data available on the various users, it is an advertiser's paradise. It is already making a lot of money. That's a good thing and a lot of IPOs can't say that about themselves.

2. Social networks aren't going away. And you can only use a network that others are also using. You may love Google+ for example but if all your friends are over at Facebook, you aren't going to make the switch on your own. So its base of users isn't likely to disappear any time soon.

3. While the Facebook IPO will make a lot of people very wealthy, I am not sure that can be said about the investors coming in at this stage. Most companies IPO way before they are at the very top. If Facebook goes public at a $100 billion valuation, how much room does it have to grow? It would grow 4 times and immediately be in the Apple and Exxon leagues as the world's most valuable companies. Can Facebook be the most valuable company in the world?

I personally feel that Facebook has held off its IPO for far too long. That has resulted in the existing share holders benefiting the most from its growth. But as a result, that leaves very little further potential growth to be enjoyed by the average retail investor.

Does this make it a bad investment? Probably not. If Facebook has it in itself to rival Apple, you could invest $10000 and see it turn into $40000. Is that good enough for the average investor? Is that good enough for you?

Tuesday, 17 January 2012

Fantastic Mortgage rates

If you are in the market for a new home. Or if you have a mortgage with a remaining amortisation that is 5 years or more, you should be super happy this week.

Last week Bank of Montreal announced that they had lowered their 5 year rate to 2.99%. That is really incredible considering that a lot of people don't have variable rates as low as that.

And now ING Direct is offering a 10 year mortgage at 3.99%. Wow!

We have no idea where mortgage and interest rates will be over that long a term. So to be able to lock in your mortgage for a 10 year period at that low rate is just too good a deal.

I remember with envy that in the early 2000s I started off my mortgage at a 5 year rate north of 7%.

Tuesday, 10 January 2012

The case for not investing in your own company

For a lot of people out there, being invested in the company they work for comes naturally. It is after all a known quantity. Of all the investments out there, the one you can know the most about is the place you work. You know whether things are on the right track, if the products or services being offered are selling, if the company is looking to grow, what the morale is like etc. Additionally, a lot of organisations will offer employee stock options so that is one way you find yourself wandering into the "self-invested" realm. As an added perk, your organisation might offer employee stock purchase plans where you have the opportunity to buy stock in the company at anywhere from 5 to 15% off market value. It is like getting a free and guaranteed 15% return. And then of course we have the corporate pension / retirement plans where a good chunk of the funds are invested in the company itself. Is this a good thing?

I say not. And I have just one main reason ... Diversification

1. Talk to any financial adviser and the need to diversify ones investments is front and centre. This really takes a back seat when investing in the company we work for. We are already heavily dependent on the success of the company thanks to our pay-check. If your company does poorly, the risk of losing your job or worse the company itself disappearing heavily impacts your net worth because the prime source of your investing dollars is now gone. Add to that the risk that your already invested $$ could also be going down in flames. That is not a pretty scenario. Ask all those Enron and Nortel employees.

One does not have a choice with respect to stock options so there is no escaping them. Once they vest, I would simply cash them out (even if the company is doing great) and take the money elsewhere.

Same goes for the stock purchase plan. Take the shares at 15% off market price and sell them as soon as you can and pocket your 15% growth. The program forces you to save which is always a good benefit and gives you a 15% return ... can hardly complain about that.

For the retirement plans, if you have the option, try investing in balanced funds. Nothing worse than seeing your job gone and your company disappear and then checking your retirement account to see that its balance has dwindled as well because most of the money was invested in the company itself.

Of course there are always going to be cases where people come out millionaires because they stayed up to their eye-balls in the company they worked for. But for every such person there are tons others that lost everything. The idea is to reduce risk. And with risk reduction comes some level of reward reduction as well. So you won't become a multi-millionaire this way but if your company flames out and disappears, you won't find yourself on the street as well.

Friday, 6 January 2012

Waste or Economy helper

I read a news item today that informs us about Elin Nordegren (Tiger Woods' ex-wife) tearing down a $12 million home she bought only last year and re-building. As someone who's never known $12 million and quite likely never will, I was certainly "impressed" by the story. After all, I don't think she and I have a lot in common. I have trouble throwing out a $12 shirt I bought on sale that has served me well for 5 years but still shows no signs of wear - why discard perfectly good clothing??

What was more interesting though was reading the comments. I only scanned the first page of comments and practically every single one of them complained about the excessive spending and wasteful nature and what $12 million would do for so many people who could better use that money. It was typical Occupy-rant with us versus the 1% mentality. But are those people really right?? I don't think so and here is why...

In my opinion, every one of us 99%ers should applaud her decision to tear down the $12 million home. It is the perfect example of wealth re-distribution from the rich to the ... well ... less rich. The money she spent buying the home and whatever she spends on tearing it down and rebuilding and decorating will go where? To real-estate agents, lawyers, construction workers, dump truck operators, electricians, plumbers, landscapers, architects, builders, carpenters, cleaners, interior designers, chandelier manufacturers etc etc. These people in turn will spend that money at local restaurants, coffee shops, toy stores, car dealerships, spas, electronics stores, cinemas etc.

In short she is quite probably single-handedly kick-starting the local economy. If she hadn't decided to renovate / rebuild, all that money would stay in her bank account. This way it gets spread out among the people. Why would anyone have a problem with this, I fail to understand.

Ideally, we should encourage every single wealthy person to take similar actions that appear vain and ridiculous at the outset but if you scratch just a wee bit deeper, they are actually exactly what we need.
I'm sure I am not the only one that sees it this way.

Tuesday, 3 January 2012

Air Miles is changing

Do you collect Air Miles?

If so, you may want to pay attention.

Air Miles is one of the more popular "points" / "rewards" programs here in Canada. You shop at participating retailers and show your card and earn points. Collect enough Air Miles and you can get yourself all kinds of rewards (and yes flights are amongst the rewards offered).

So Air Miles is changing. So far the Air Miles you had collected never expired. Well that's going away. Effective Dec 31st 2011, Air Miles have a 5 year life span. You use them or lose them. In addition Air Miles is introducing something called Air Miles Cash where you can automatically convert your Air Miles to "Cash" and redeem the Air Miles Cash at any participating retailer for stuff you like to buy ... just like having a Debit card.

But of course not all is as simple as it seems. The rate of exchange between $$ and Air Miles Cash is not the same as the "value" available if you redeem for rewards (called "Dream Rewards" from now on) - 95 Air Miles = $10 Air Miles Cash. And you need to pre-select whether you wish to divert your points to "Cash". Its not clear to me if you get to re-classify those points to Dream Air Miles.

If you do nothing, everything continues as usual and you continue to collect Air Miles in your "Dream Rewards" account. Just make sure you use them within 5 years of earning them.

For more details check out the Air Miles website

Do you like this change?

Sunday, 1 January 2012

New Year

A very Happy New Year to everyone.

So what does one need to do once the new year's eve alcohol and festivities wear down? From a financial perspective, there are a few things you should look at right away ...

1. TFSA: If you have a Tax Free Savings Account, a whole new $5000 in contribution room becomes available as of January 1st. So if you have to dough ... make sure you put the money in the account and let it grow ... tax-free as soon as possible. Even if you do not have money saved up, you can start smaller regular contributions from your paychecks. Pay the TFSA before anything else and you won't miss the money. :)

2. RRSP: Hopefully you have already made your RRSP contributions for the 2011 tax year. If not, the countdown to the deadline starts now. Make sure you do that before Feb 29th to get you tax savings in time for your 2011 return. You could be even more proactive and start contributions for the 2012 Tax year. Of course this means that you need to guess a bit on your RRSP contribution room for the year. But if your income has stayed much the same or grown in the past year, your RRSP room should be at least what it was for 2011. Its never a bad idea to start something safe now and then when you get your Notice Of Assessment, you can always top it up.

3. Mortgage lump sum prepayment: If you have a Mortgage and plan to make a lump sum payment to the mortgage without penalty, Jan 1st gives you a fresh opportunity to do that. Most lenders allow annual lump sum prepayments with no penalty. If you have funds lying around, doing nothing, get them working for you by saving you mortgage interest.

4. Credit card debt: Before you do any of the above, make sure you pay off your credit card debt that you may have accumulated thanks to Christmas and Boxing day shopping. The 19 or 29% interest you pay on your balances will be far greater than any benefit gained from any of the above.

In addition to the above, the new year is a great time to reassess your financial situation, review your plans, and course correct if needed.

Have a Happy New Year!!!