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How To Make 1,200 Dollars In An Hour

Or, more accurately, how to save 1,200 dollars in an hour.

As we get closer to our retirement, we have been doing a careful analysis of our spending patterns. And there is certainly room to improve. During the course of an hour last week-end, we saved 1,200 dollars in annual expenses.

When I turned 50, the monthly payment of one of my term insurance policies had doubled from 45 dollars a month to 90 dollars a month. The payment is bundled with a number of other term insurance policies that get paid through automatic withdrawal and I am embarrassed to say that I hadn’t bothered to take any action for the past nine months.

I went online to get a quote from my favorite bank, the Bank of Montreal. And I obtained a quote for 50 dollars a month. For a policy with a significantly higher face value. I bought that policy and cancelled the old one. Annual savings? 480 dollars.

I had switched from the National Post to the Globe and Mail last year. We were paying 25 dollars a month for the Globe. I had received an offer in the mail to subscribe to the National Post. 30 dollars. For one year. We cancelled the Globe and switched to the Post. Annual savings? 270 dollars.

My wife received a Gold Card for my charge account. Not that we asked for it. And then I thought about whether there was a fee for this card. Yes indeed. 50 dollars. Card cancelled. Annual savings? 50 dollars.

We keep three active cellphone accounts in our household. I never use mine. Contract is at end of term so that phone is gone. Annual savings? 400 dollars.

Many financial planners talk about the so-called Latte Factor. It is so easy to throw money away without thinking about it. And a little bit saved here and there can make a difference over time.

Liens and Lottery Winners

We endured several years of living beside the most disruptive and dysfunctional family imaginable. A lottery win got them into the house and financial mismanagement forced them out. Since they have left, we have a transformed neighborhood. A remarkable change.

We learned yesterday that apart from a mortgage, there were liens outstanding on their property when it was sold. No surprise. For those unfamiliar with liens, a lien is a charge on property to satisfy a debt or other obligation.

An owner may agree to place a lien on real property in order to obtain mortgage financing to purchase the property.

A lien on real property may also result from a debt of the property owner that is not directly connected to the ownership of the land. Examples include unpaid taxes.

If a debtor owner fails to pay a debt, and the creditor goes to court and obtains a judgment, the law usually permits the creditor to file that judgment in the land records so that it becomes a lien on the debtor’s real property. The creditor may then be paid by either foreclosing the lien, forcing a sale of the property to satisfy the debt, or waiting until the debtor wishes to sell the property.

If the debtor sells the property without satisfying the lien, the lien isn’t discharged and it may still be satisfied by a sale of the property, even after it’s been sold to a new owner. In most transactions, a bank or other mortgage lender will not provide mortgage financing until all liens on the property have been removed.

A worker or business supplying building materials may have a lien for the construction or improvement of real property.

Our former neighbors had liens across the board, both construction and credit.

I guess the moral of the story is that a lottery win, although a lucky break, doesn’t develop character or potential. And it certainly doesn’t teach you how to manage your money.

Who is Earning What?

Statistics Canada released income data on Canadians taxpayers from 2004. If your individual income was $89,000 or more, you were in the top 5 percent of Canadian taxpayers. To be in the top 5 percent in terms of family income, you would need $154,000 or more.

A middle income family earned $43,000 in 2004.

The range of incomes in the top 1 percent of the Canadian population varies dramatically. To gain entry into the top 1 percent, your individual income would be more than $181,000 or more than $305,000 for the total family income. To be in the top 0.1 percent your individual income would need to be more than $648,000. The family income for the top 0.01 percent? A mere $1,045,000.

The top 2,000 Canadians, 0.01 percent of the population, individually earn more than $2.8 million. For the family to be considered as the top 0.01 percent, the income would need to be more than $4.3 million.

95 percent of Canadian families earn less than $154,000.

At the end of the day, income is relative. I found that over the years, as I made more money, my expenses somehow increased.

Thank heavens for forced savings.

Financial Blogs in Canada

Over the past year or so I have found a number of interesting financial blogs. Canadian ones at that, eh.

Canadian Dream is a blog that outlines one person’s dream and approach to retire at 45.

Middle Class Millionaire chronicles the journey to the million dollar club. He is a person with a plan to achieve a million dollars of net worth by the age of forty. He is 27.

Thicken My Wallet provides a wide range of insights into financial matters. Written by a president of a niche investment company.

Million Dollar Journey is the plan of an ambitious person to achieve a million dollars of net worth by the age of 35. Always some interesting insights to be found in his blog. In his late twenties, his net worth is roughly $250,000. Not bad.

And The Dividend Guy. A believer in building passive income through dividend investing. A pretty good investment strategy.

Lots of great resources in the above sites so go out there and start investing.

Are Canadians Saving Enough?

Scattered across the mainstream media was a story on retirement planning in Canada. The question: are Canadians saving enough for their retirement. The answer: no.

This is news?

The media story was based on a report, sponsored by the Canadian Institute of Actuaries. You can download the pdf report here. And some doom and gloom stories covered by the mainstream media can be found here, here and here.

The report asks some basic questions about whether a person, 40 years old or over, is saving enough for retirement. According to the report, two thirds of Canadians are not.

However, reading through the report is very confusing. Assumptions are made without clearly specifying data. For example, modeling of investment returns followed the projected yield curve for Government of Canada bonds adjusted for low and moderate inflation. The report does not mention the assumed rate of return or the impact of inflation.

Looking at the Bank of Canada website here, I suspect that the report used an interest rate of about 4.7%. Factor inflation between 2 and 3% and little wonder most Canadians won’t make it.

Look at one of the scare diagrams below. I have no idea how someone on the Average Wage Index of $40,000 per year can save 20% of their pre-tax income for retirement. Looks like WalMart will have a large labour pool of senior citizens.

Savings

Rich, Poor

The Toronto Star had a front page story on the gap between rich and poor in Ontario.

What I find interesting is the definition of rich. Affluence is not based on total net worth. It is based on income.

The Star takes a report from the Canadian Centre for Policy Alternatives and describes a scenario where half of Ontario families have seen their fortunes fall while the income of the richest 10% have soared.

And what defines the richest in Ontario? The top 10 percent of families with children who earned more than $146,000 in 2004.

I suppose it is all a matter of perspective but is total household income of $146,000 a year really rich? In a city like Toronto?

Here is an excerpt from the Toronto Star’s article:

The Ontario numbers show that the richest 10 per cent of families raising children ”“ those with earnings of more than $146,000 in 2004 (not including investments and other assets) ”“ earned 75 times the amount of the poorest 10 per cent. In 1976, the richest earned 27 times as much.

As the richest break away from the pack, those households with incomes less than $56,000 in 2004, earned less or stayed the same, in inflation-adjusted terms, compared to a generation ago, the report states.

The gap narrows considerably in after-tax income, which takes into consideration income tax deductions and any government programs that prop up families with low-incomes. But the report shows even that gap has grown in the last decade. The after-tax income of the richest 10 per cent of families grew from eight to 10 times greater than the poorest 10 per cent nationally since 1998. In Ontario, the income of the richest families grew from eight to 11 times greater than the poorest.

Here is the link to download the full report as well as a website dedicated to the issues of income inequality.

I am not sure why a focus on income inequality, the division of “rich” and “poor”, is relevant to the issues of poverty. I don’t see how rich people cause poor people. For that matter, many so-called rich people, families with relatively high levels of income, overspend. They may have a high level of income but they do not have much in the way of net worth. 

By the way, you can use this tool to determine where you stand. If you make more than $200,000 a year before taxes, you are in the highest one percent of all families in Canada. Making more than $200,000 a year in the United States puts you in the highest 2.7% of all families according to Wikipedia’s article on U.S. income.

High Net Worth

How many households in Canada have investable assets over $1 million? I came across some data which reported that only 100,000 households have investable assets over that amount. Investable assets do not include the primary residence.

According to BMO Harris Private Bank, the Canadian high net worth market statistics are as follows:

  • 390,000 people between $500,000 and $1 million
  • 185,000 people between $1 million and $2 million
  • 91,100 people between $2 million and $5 million
  • 12,100 people between $5 million and $10 million
  • 7,000 people over $10 million

The average age of a Canadian with investable assets over $1 million is 58. And what about philanthropy? I could only find data on inherited vs entrepeneur philanthropy.

A Cornell University study showed that for every $1,000 of entrepreneurial wealth, an entrepreneur will give $4.56 to charity. However, in the case of inherited wealth, the inheritor will only give $0.76 for every $1,000 of inherited wealth.

Christmas Carols And Estate Planning

Over the next few days and months I will be working on a Christmas CD project. We have begun work on basics and I am quite impressed with the quality of the arrangements. The musicians are all very high calibre and the rough dubs are sounding great.

There is something timeless about Christmas carols. Each song that we have worked on brings back wonderful memories of the holiday season.

This week is a bit about recovery, a bit about recording, and a bit about spending time with my family.

As I reflect on the past 50 years on the planet, I have been a pretty lucky guy. And although I have had a few health challenges, I seem to be on an upward mend. At least for the time being.

As a consequence of recent events, I did decide that it was time to review the will. I guess enough has changed since when we first started our family that my lawyer recommends a full estate plan. I guess we are doing much better now than two decades back.

Time to call my banker. We will need to appoint a trust company as an executor for our estate.