December 2010 Net Worth Update / Debt Update
October and November kept me so busy that I was not able to post in November; not that being busy with work is a bad thing.
The increase in business income did cover my RRSP contribution and set us up fairly well for the Christmas spending.
Our current net worth is $770,860, which is an increase of $28,300. The balance in our All In One Mortgage account is $162,397. This represents the debt on our primary residence. Just over half of the increase can be attributed to the extra income in the previous two months. Unfortunately, business has slowed a bit and we will not be experiencing the growth we saw until things pick up again.
This will also allow me some extra time to post this month, so stay tuned for more!
Have a great month!
Get a Second Opinion on Your Financial Plan
Over the weekend I took on the task of cleaning out our home office. Things just seem to accumulate there and it was time to do away with some of the clutter. In my pursuit for organization I made an interesting find, it was a financial plan made for my spouse approximately 3 years ago. Although we are not considering retirement any time soon, I have been doing some research and playing with some numbers. As a result of this research I found this plan quite interesting.
The plan laid out that my spouse needed $1,569,000 to retire at the age of 65. Her current shortfall was $1,548,000. Things appeared to be bleak. This prompted checking over the financial plan more carefully.
1. It was estimated that she needed 89% of her current income in retirement. I believe the conventional standard is 70%. I am of the opinion that 70% may be a little on the high side as well.
2. Having 89% of her income in retirement means her tax rate pre and post retirement stays the same. This defeats the purpose of contributing to RRSPs. The goal is to be taxed less in your retirement, not the same.
3. The plan also estimated annual returns of 10% pre and post retirement. Although this would be very nice, it is not realistic pre retirement and I would consider even attempting for this type of return in post retirement to be reckless.
4. Calculations of CPP and OAS were totally left out of the equation. Perhaps the planner has the view that they may not be around in 25 years.
5. The biggest "oversight" was the omission of my spouse's defined benefit pension plan. If she chooses to work until she is 65 this plan will ensure she does not have any financial challenges when she retires.
After looking over the entire document I think it is fair to say that this Financial Planner was looking after himself by wanting my spouse to start making large purchases of mutual funds. These contributions would need to be approximately $15,000 a year to build the nest egg of over $1.5 million. This is not including any tax consequences.
The moral of this post is you should always get a second opinion on financial matters. Anyone can produce a good looking financial plan with nice color graphs, pie charts, and estimates, but the planner must consider all the factors and make reasonable assumptions. Unfortunately, this planner fell short in his goal of helping my spouse plan for retirement.
DIY for Big Savings
A few months ago I took my 2002 truck to a the dealership for a minor recall. When I booked they offered me an oil change and a 60 point inspection for $60. Normally I take my vehicle to a mechanic who works out of his garage. He spent 25 years working at a dealership so I trust him explicitly. The inspection revealed that I needed over $3,000 of work done to my vehicle. I was shocked and not very happy. Naturally they wanted to book me in right away but I wanted my mechanic to look at their list. He checked the list and changed one seal for a total of $120. That was work that needed to be done. The rest of the recommended work was unnecessary and just recommended to boost profits. One of the items recommended was a wheel alignment. I found this odd as the tires had been replaced a few months ago and showed no wear. The vehicle has never pulled to either side. I called the dealership back and asked if the inspection I paid for included a road test. The service rep stated that it was just a visual inspection done in the garage.
I swore off dealerships for any minor things that went wrong on that day. Low and behold, 5 months later my heat and air conditioning stopped working. Nothing was coming out of the vents. This was a bad time of the year for this as I needed heat in the mornings and air conditioning in the afternoons.
I started out of my quest to do it myself and naturally I went right to Google. There was a lot of information to take in and I determined that the blower motor needed to be replaced. I found an awesome resource for my vehicle at . Not even knowing where the blower motor was located I went down to a local parts store. The staff there was awesome, telling me where it was and giving me some tips before I even purchased a new one.
I took their advice and gave it a couple of good wacks to see if that would get it going again and it didn't. I removed the blower motor in anticipation of purchasing a new one. As I was working on my truck my neighbour popped over to chat and see what I was doing. He is a handy type guy and offered to check and see if power was getting to the blower motor. He was able to determine that the blower motor was not getting power. The next day I returned to the parts store and purchase a fuse and a switch for for approximately $14. I also picked up at tester for $7 so I could test power myself. Low and behold replacing $14 worth of parts fixed the problem. I had heat and air conditioning again.
Although I am far from being "mechanical" before I take my vehicle in for any issues I am having I will do a little research and have it checked out by a "non-dealership." I am guessing I will save hundreds of dollars.
October 2010 Net Worth Update / Debt Update
September keep busy with business and the extra income was nice. I have also been making an error on our net worth due to estimating a pension value wrong. Both combined for a good month.
The business income has now more than paid for our annual vacation in August and the unexpected vacation for my better half and her son. It will also help with my RRSP contribution this month.
Our current net worth is $742,553, which is an increase of $62,044 and our balance in our All In One Mortgage account is $171,397. The represents the debt on our residence. A majority of this increase in net worth comes from a $50,000 error on a pension plan. Oops. It still means that we did increase our net worth by over $12,000 in September which is huge for us.
I am hoping I have time to post about a couple of different experiences this month. The fan in my truck stopped blowing warm or cold air and with the current weather I need both daily. This has been fixed. I also want to write about my trip to the mountains this last weekend.
Have a great month!
Things That the Canadian Should Know Before Buying Real Estate in US
The main attraction for all the Canadians is to buy real estate in America as they not only wish to head south during winter but they find investing here to be a lucrative business. Due to economic downturn many US citizens are planning to sell their house and move into a low maintenance small apartment. This economic depression has drawn attention of many foreigners to invest in real estate. The two countries like USA and Canada have similarities but have few noticeable differences along with it. So the Canadians should know few things before they plan to invest your hard earned money in real estate in US.
US Tax Systems:
As each country has different terms and conditions of taxation on investment properties so it is advisable to consult a financial advisor experienced with American real estate investment.
If you are interested in investment in real estate in US then you need to be aware of the following things:
1) With 1031 Exchanges you can have some capital gains from the sale of an investment property. This capital gain can be used to purchase a similar type of property. But the condition is that you need to buy it within 6 months from the date it has been sold. This process can be continued till the time the end asset is finally disposed off and not replaced.
2) If you have already sold the property and received the cash then 15% tax is levied on the total net gain. This tax is imposed on you because you have owned the property for more than one year. But the tax would be overpriced if you keep the property less than a year.
3) Canada and U.S. have quite similar structure of the property taxes. If you are a Canadian and own a property in a Southern state like Florida or California the tax you have to pay as a “non-resident” would be much higher compared to the local residents or if you invest in other U.S. States.
4) U.S. tax does not levy tax on your primary residence so you can ignore the interest charged on your home.
How is the process of lending in U.S. different from Canada?
The U.S lending scenario has changed drastically with the cash crunch and doldrums in the sub prime market. Therefore the lending plans and procedures have changed in U.S with the financial melt down. Fetching mortgage loans has never been a difficult job in U.S but in recent times the entire market is facing a change. The loan applicants have been granted loan but the lenders have high risk as the loan is issued to borrowers without job, income or any collateral. But with the introduction of ARM that is adjustable rate mortgages the interest rates have mounted. And this is one of the major reasons for foreclosures cropping up across the nation. But the Canadian does not need to worry about it as there are innumerable other options that are available.
1) In U.S there are many banks that can offer innumerable varieties of lending policies and guidelines;
2) The license of mortgage broker differs from one state to another. But there are many states that require no testing or licensing.
3) State and federal law implements the bank regulation. But the criteria of lending procedure might vary from one bank to another as the regulations and laws would be different.
So these are few things that the Canadians should keep in mind before investing in real estate in U.S.
Author Bio :
This is a guest post by Kevin Craig who is a financial writer. He has helped lots of burdened people with free counseling and advices on many finance related topics.