Every year I force myself to do my own income tax and I spend the $50 or so to buy QuickTax to try and ease the pain of it all.
This year, without pension splitting our total refund would have been ~$5,000. I know I could reduce this refund but I have my emotional/fussy logic reasons for keeping it that high. But...back to the point-- with the new Canadian 2007 pension income splitting allowance our total refund comes to about $6,000. An increase of just over $1,000.
The second point I want to make is that 2007 QuickTax doesn't optimise the transfer amount, it just inserts the maximum 50% transfer. The summary graph (a nice feature) looked lob sided to me so I used the old trial and error, bracket approach method to search for an optimum transfer amount.
I tried changing the T1032 transfer amount in increments of several thousand dollars from a low of $2,000 to the max of ~$18,000 and found that I increased our total refund from ~$800 up to just over $1,000. Our optimum transfer amount was in the vicinity of $16,000.
When I saw that there was indeed an optimum amount somewhere...that is, the total refund went up as the transfer amount increased, then it started to go down as the amount increased beyond a certain transfer amount, I went back and used smaller increments of several hundred dollars to bracket and zero in on the optimum amount. It turns out there was a range of about $1,000 that provided the same total maximum refund.
Showing posts with label early retirement. Show all posts
Showing posts with label early retirement. Show all posts
Monday, April 14, 2008
Wednesday, January 9, 2008
2007 Cash Flow
Well the numbers are in for 2007. We have a lot of sub categories so I will only note the larger ones.
Our total spending for the year was about $31,000. This includes all expenses except those that were scheduled to be paid from earmarked pre-retirement savings. Savings paid about $18,000 for a newer used car and $3,000 on boating.
Income Tax ~$2,600
Municipal Property Tax ~$1,800
Groceries ~$7,000
Restaurants ~ $2,900
Entertainment ~ $2,300 including car trip expenses
Home Maintenance ~$2,000
Auto Gas ~$1,500
BC Medical $1,152
Auto Insurance $1,300
Clothing/Hair $1,200
Savings for our next car replacement $2,000 (pay cash every 5-10 years)
BC Hydro ~$900
We own our home and we don't have a lot of vacation expenses other than boating. The total for the year is well within my pre-retirement estimates.
Our total spending for the year was about $31,000. This includes all expenses except those that were scheduled to be paid from earmarked pre-retirement savings. Savings paid about $18,000 for a newer used car and $3,000 on boating.
Income Tax ~$2,600
Municipal Property Tax ~$1,800
Groceries ~$7,000
Restaurants ~ $2,900
Entertainment ~ $2,300 including car trip expenses
Home Maintenance ~$2,000
Auto Gas ~$1,500
BC Medical $1,152
Auto Insurance $1,300
Clothing/Hair $1,200
Savings for our next car replacement $2,000 (pay cash every 5-10 years)
BC Hydro ~$900
We own our home and we don't have a lot of vacation expenses other than boating. The total for the year is well within my pre-retirement estimates.
Friday, January 4, 2008
Net Worth Debate....include the house?
I noticed some blog posts lately about net worth and retirement. Its also that time of year when we receive our property assessment notices. It can lead to questioning if a home went up $30,000 this year should that increase be included in a net worth statement?
The short answer is yes.
If push comes to shove "you can always eat your house". By that I mean you can always sell your house and rent a place to live. This will provide excess cash to live on if you need it.
On the other hand...if you stay in your house when retired and don't take out a mortgage on it to get access to some cash flow...it won't provide any income. But home ownership means you won't have to pay rent each month and this will reduce the need for retirement income.
I know some people who have sold more expensive homes in Vancouver, bought less expensive newer ones on Vancouber Island. They use the extra cash for other things in retirement like boating.
Owning a home gives one more options when retirement comes around.
The short answer is yes.
If push comes to shove "you can always eat your house". By that I mean you can always sell your house and rent a place to live. This will provide excess cash to live on if you need it.
On the other hand...if you stay in your house when retired and don't take out a mortgage on it to get access to some cash flow...it won't provide any income. But home ownership means you won't have to pay rent each month and this will reduce the need for retirement income.
I know some people who have sold more expensive homes in Vancouver, bought less expensive newer ones on Vancouber Island. They use the extra cash for other things in retirement like boating.
Owning a home gives one more options when retirement comes around.
Monday, August 27, 2007
Average Retirement Age 61.5 Years Old
There are a number of news articles out there today based on a recent Stats Canada report(s).
Statistics Canada has recently reported that "the average age of retirement remained steady at 61.5" according to this on-line article.
Most baby-boomers are not seeing "freedom 55". Having retired myself just a few months after my 55th birthday I can understand why. It requires a lot of discipline to save more and spend less while everyone around you is spending their extra cash on winter vacations, larger homes and newer cars. Then there are all those who just need to continue working due to their low wage level.
Statscan also found that about one third of older boomers are taking their Canada Pension Plan money at age 60 but continuing to work. The majority are women.
The CPP has investments worth about $120 billion, with about 65 % of this money in equities. This money is one of the many sources that help guarantee that the TSX Comp Index "will always come back" after a correction, like the current one.
Statistics Canada has recently reported that "the average age of retirement remained steady at 61.5" according to this on-line article.
Most baby-boomers are not seeing "freedom 55". Having retired myself just a few months after my 55th birthday I can understand why. It requires a lot of discipline to save more and spend less while everyone around you is spending their extra cash on winter vacations, larger homes and newer cars. Then there are all those who just need to continue working due to their low wage level.
Statscan also found that about one third of older boomers are taking their Canada Pension Plan money at age 60 but continuing to work. The majority are women.
The CPP has investments worth about $120 billion, with about 65 % of this money in equities. This money is one of the many sources that help guarantee that the TSX Comp Index "will always come back" after a correction, like the current one.
Friday, August 10, 2007
Planning For Retirement Study - Are Canadians Saving Enough? University of Waterloo
The on-line report does not contain all the calculation or data details.
Some key points include:
They used data from Stats Canada.
A two senior Canadian household, in 2003, spent $43,717 on food, shelter, clothing, transportation, health care, energy and taxes.
Two thirds of Canadians are not saving enough to retire at age 65.
Assuming one starts at age 40, the required savings rates for a $40,000 income household, for age 65 retirement are 14-20% for one person and 30 % or more for a couple. These savings include the increases in home equity, in some form.
CPP is in excellent financial shape for the next 75 years.
They dealt with home ownership equity by assuming the home was sold at retirement and converted to an indexed annuity so home ownership could be viewed as retirement income (If I understand this correctly).
Income sources included Old Age Security, CPP or QPP, Workplace Pension Plan and other savings such as RRSP and money from home ownership equity.
My initial questions/thoughts:
How good is the $43,717 number?
One car or two?
Newer or older cars? This makes a big difference.
Any vacations included?
How did they obtain the cost of shelter for households that own a home? If it was just total income, then the cost of shelter would only be operating and maintenance costs.
I'm very skeptical about the two-thirds of people not saving enough for retirement.
By their definition...How many retired people don't have enough for retirement now?
No mention of government income over and above OAS and CPP such as supplements.
The home ownership component is the part that I find difficult to fathom. It is a large component and one must be sure to make a valid comparison between the $43,717 spending in 2003 and the required retirement income that translates into a required savings rate. This was a big part of our savings for retirement. The $43,717 per year for a couple, seems to be in-the-ball-park, especially if a couple owns their own home.
Some key points include:
They used data from Stats Canada.
A two senior Canadian household, in 2003, spent $43,717 on food, shelter, clothing, transportation, health care, energy and taxes.
Two thirds of Canadians are not saving enough to retire at age 65.
Assuming one starts at age 40, the required savings rates for a $40,000 income household, for age 65 retirement are 14-20% for one person and 30 % or more for a couple. These savings include the increases in home equity, in some form.
CPP is in excellent financial shape for the next 75 years.
They dealt with home ownership equity by assuming the home was sold at retirement and converted to an indexed annuity so home ownership could be viewed as retirement income (If I understand this correctly).
Income sources included Old Age Security, CPP or QPP, Workplace Pension Plan and other savings such as RRSP and money from home ownership equity.
My initial questions/thoughts:
How good is the $43,717 number?
One car or two?
Newer or older cars? This makes a big difference.
Any vacations included?
How did they obtain the cost of shelter for households that own a home? If it was just total income, then the cost of shelter would only be operating and maintenance costs.
I'm very skeptical about the two-thirds of people not saving enough for retirement.
By their definition...How many retired people don't have enough for retirement now?
No mention of government income over and above OAS and CPP such as supplements.
The home ownership component is the part that I find difficult to fathom. It is a large component and one must be sure to make a valid comparison between the $43,717 spending in 2003 and the required retirement income that translates into a required savings rate. This was a big part of our savings for retirement. The $43,717 per year for a couple, seems to be in-the-ball-park, especially if a couple owns their own home.
Thursday, May 31, 2007
70 % Question
From time to time I run across references to 'the 70% of pre-retirement income being needed to maintain one's standard of living in retirement". I also see references to 'perhaps 50% is all that is needed'. I don't recall ever seeing the calculations and assumptions behind the 70% estimate but someone likely did it years ago. I expect there is some logical rationale behind this percentage estimate.
I wonder...did those calculations include "an equivalent income" from a home that is owned during retirement?
In many cases, the rent one would have to pay to replace one's home is not a small sum, and it should therefore be considered in the "How much do I need for retirement?" question.
When financial advisers are giving conservative advice to the general public the 70 % estimate may not be that far off the mark if one's home is included as part of the income. There may also be a bit of a safety factor in the 70% estimate.
For example, if one owns a $200,000 home, this "net worth component" could be sold and the money invested. It would provide perhaps $14,000 per year ($1,167/month) before tax at 7%.
I wonder...did those calculations include "an equivalent income" from a home that is owned during retirement?
In many cases, the rent one would have to pay to replace one's home is not a small sum, and it should therefore be considered in the "How much do I need for retirement?" question.
When financial advisers are giving conservative advice to the general public the 70 % estimate may not be that far off the mark if one's home is included as part of the income. There may also be a bit of a safety factor in the 70% estimate.
For example, if one owns a $200,000 home, this "net worth component" could be sold and the money invested. It would provide perhaps $14,000 per year ($1,167/month) before tax at 7%.
Tuesday, May 8, 2007
"Top 5" Things To Achieve Early Retirement
I've decided to take on the "Top 5" challenge, as much to see what I could come up with this morning, in addition to being eligible for the random draw for $1001 USD being given away by Problogger.
So here goes.
To help you reach early retirement...however you define "early retirement" I can recommend the following five concrete actions.
So here goes.
To help you reach early retirement...however you define "early retirement" I can recommend the following five concrete actions.
- Buy your own home and ensure that you can have the mortgage paid off before your early retirement date.
- Monitor your cash flow by whatever method works for you. See my earlier post on this one for the easiest way I know how to do this.
- Don't let your job be your entire world...view it as just a means to an end- just a way to generate cash flow. Do an excellent job while your there, but be able to walk away from it.
- Drive a used car to avoid the heavy depreciation costs during the first few years of new car ownership.
- Always live "below your means". Save by paying yourself first and continually look for ways to enjoy life while spending less.
Sunday, April 15, 2007
Kyle MacDonald and Beating The System
When it comes to achieving early retirement, one has to; go against the grain, beat the system, observe what everyone else is doing and do something different. You have to accomplish something that many people believe to be impossible. Kyle MacDonald has nothing to do with early retirement but I think he can be an inspiration to any young person who wants to become financially independent at a young age.
Kyle accomplished a feat that conventional wisdom would have said was impossible. I must admit that had you asked me a few years ago, I would have thought it was impossible.
In only 14 trades Kyle MacDonald traded a red paperclip into a 3 bedroom house in Kipling, Saskatchewan. Kyle used a new technology...the Internet to find his trading partners. I call it new because I think society is still learning the limits of this new way to communicate.
Not only did Kyle help himself but more importantly he is an inspiration to others. Kyle's feat is proof that someone can beat the system.
I saw a TV program today and the latest news is that Kyle has sold the rights to his story to a major movie studio. At the official ceremony in Kipling, Saskatchewan - Kyle molded the paper clip into a ring and asked his girl friend to marry him. That brought tears to the eyes of many present.
What a story, I look forward to seeing the movie.
Congrats to Kyle!
Kyle's website link.
Kyle accomplished a feat that conventional wisdom would have said was impossible. I must admit that had you asked me a few years ago, I would have thought it was impossible.
In only 14 trades Kyle MacDonald traded a red paperclip into a 3 bedroom house in Kipling, Saskatchewan. Kyle used a new technology...the Internet to find his trading partners. I call it new because I think society is still learning the limits of this new way to communicate.
Not only did Kyle help himself but more importantly he is an inspiration to others. Kyle's feat is proof that someone can beat the system.
I saw a TV program today and the latest news is that Kyle has sold the rights to his story to a major movie studio. At the official ceremony in Kipling, Saskatchewan - Kyle molded the paper clip into a ring and asked his girl friend to marry him. That brought tears to the eyes of many present.
What a story, I look forward to seeing the movie.
Congrats to Kyle!
Kyle's website link.
Wednesday, April 11, 2007
Debt In Retirement
Although we have chosen to be debt free for many years, I am aware that one doesn't have to be debt free in order to retire. I know retired people who continue to have significant debt. They have car loans and mortgages on their homes. It all comes down to having adequate and dependable cash flow to meet all expenses. This means, that when it comes time to decide when to retire...cash flow is more critical than net worth. My straw pole, based on random observations over the years, indicates that most Canadian retirees drive newer vehicles. How can they afford to do this?
I suspect that many people retire, then later find that they have more money than they counted on having. In Canada, Canada Pension Plan (CPP) and Old Age Security programs provide significant income over and above any private employment pension plan. These sources of income alone can pay for a lot of luxuries. For example, a $300 per month car loan comes to $3,600 per year. This is well under the $470 per month or $5,680 per year average CPP income that the average Canadian retiree receives.
I will discuss more on Canada Pension Plan pension amounts in a future post.
I suspect that many people retire, then later find that they have more money than they counted on having. In Canada, Canada Pension Plan (CPP) and Old Age Security programs provide significant income over and above any private employment pension plan. These sources of income alone can pay for a lot of luxuries. For example, a $300 per month car loan comes to $3,600 per year. This is well under the $470 per month or $5,680 per year average CPP income that the average Canadian retiree receives.
I will discuss more on Canada Pension Plan pension amounts in a future post.
Monday, March 19, 2007
Financial Independence
I came across a web site selling a service to help people become financially independent. I'm not recommending the service but you might find their list of self-evaluation statements helpful in evaluating how you are doing.
The following statements are listed for a yes or no response. They suggest that a false response to even one item may impede one's ability to achieve financial independence.
I have no credit card or short term DEBT
I SAVE at least 10% of my income
I utilize a spending plan (BUDGET) and live within my means
I have six months of living expenses in RESERVES
I pay only the TAXES that I am legally obligated to pay
I have written short- and long-term GOALS
I have a WILL (or trust) that is up to date and does what I want it to do
I have a RECORD KEEPING system and I can find what I need when I need it
I am EARNING up to my potential in a career that I enjoy
I can easily COMMUNICATE with my loved ones about money issues
I know my financial NET WORTH
My HOME is an integral part of my overall investment strategy
I tend to agree that anyone who plans on early retirement (age 55 or younger) should have a yes answer to most of these statements.
The following statements are listed for a yes or no response. They suggest that a false response to even one item may impede one's ability to achieve financial independence.
I have no credit card or short term DEBT
I SAVE at least 10% of my income
I utilize a spending plan (BUDGET) and live within my means
I have six months of living expenses in RESERVES
I pay only the TAXES that I am legally obligated to pay
I have written short- and long-term GOALS
I have a WILL (or trust) that is up to date and does what I want it to do
I have a RECORD KEEPING system and I can find what I need when I need it
I am EARNING up to my potential in a career that I enjoy
I can easily COMMUNICATE with my loved ones about money issues
I know my financial NET WORTH
My HOME is an integral part of my overall investment strategy
I tend to agree that anyone who plans on early retirement (age 55 or younger) should have a yes answer to most of these statements.
Sunday, March 18, 2007
Is 80 Percent Required?
If your close to retirement and trying to determine if you will have enough money you won't have to look too far before finding the estimate 'that you need 80% of your pre-retirement income in order to maintain the same standard of living after retirement.' But is that valid?
Eighty (80%) percent is a daunting number that could easily scare off many faint hearted potential early retirees. That's a real shame.
Although "How much?" is a critical question, I was only able to find fussy answers. For example, I spent 3 days at a retirement seminar waiting for the answer to this burning question but never got one.
During my research I recall seeing 60 percent and 80 percent estimates. That's quite a range. Fortunately, I had my cash flow records so I was able to do my own analysis. I didn't look at things from just a percentage basis. My minimum amount was that we would have to be able to live in the same fashion as we had before retirement.
I made a spread sheet in Excel that included estimated spending and incomes for 15 years into the future. I kept everything in today's dollars since my pension was indexed for inflation. I found that we would start out fine and things would improve as Canada Pension Plan and Old Age Security came on line for both of us.
Other blogs have dealt with this same question.
In his post, "Why I Won't Need 80 %" at Retire At 45 blog, S. B. writes... "...after retirement I won't need to be saving money". S. B. has been saving a wopping 40 % of his income.
In my case, the elimination of "voluntary savings" was also an important factor.
If your "socking it away big time" leading up to "pulling the pin" you can think of your savings as a deduction from income - one that will no longer be there after retirement. Saving a lot means you are living well below your means. It can make a big difference.
I must admit that the thought of no longer saving a lot after retirement made me a little nervous since I had been doing it for so many years. Old habits are hard to break. My safety factor with respect to finances was very large.
Million Dollar Journey's post "Retiring Early Part I (The Expenses)", estimated that 54 percent would meet their needs. This post made me wonder about my actual percentage.
Of course it is never just about percentage. A lot of personal factors come into play. We own our own home, we have no other debt, and we have downsized to one car. We are still driving an older car. My spending estimates included an amount saved each year for the next car.
Our life style has always been relatively inexpensive...going to the beach, for walks, canoeing etc. That hasn't changed except we have a much longer season to do outdoor activities (all year) and many more opportunities for these types of activities on Vancouver Island.
The sum of pension income plus interest from investments is about 47 percent of our family income prior to retirement. This percentage will increase over time. If CPP and OAS remain at current levels our percentage rises to a maximum of 62 percent.
As planned, we spent some savings to pay for our more expensive home (not better) on Vancouver Island (compared to Winnipeg prices). There was also the savings spent to buy the boat and savings earmarked for annual boating costs prior to age 60 when CPP starts coming. Savings are bridge-financing the boating hobby in the early years.
You might be wondering...How do you find it, is 47 % enough? If we had more income we could take expensive winter vacations etc. For now, I'm satisfied enough that I'm not out looking for a job.
Eighty (80%) percent is a daunting number that could easily scare off many faint hearted potential early retirees. That's a real shame.
Although "How much?" is a critical question, I was only able to find fussy answers. For example, I spent 3 days at a retirement seminar waiting for the answer to this burning question but never got one.
During my research I recall seeing 60 percent and 80 percent estimates. That's quite a range. Fortunately, I had my cash flow records so I was able to do my own analysis. I didn't look at things from just a percentage basis. My minimum amount was that we would have to be able to live in the same fashion as we had before retirement.
I made a spread sheet in Excel that included estimated spending and incomes for 15 years into the future. I kept everything in today's dollars since my pension was indexed for inflation. I found that we would start out fine and things would improve as Canada Pension Plan and Old Age Security came on line for both of us.
Other blogs have dealt with this same question.
In his post, "Why I Won't Need 80 %" at Retire At 45 blog, S. B. writes... "...after retirement I won't need to be saving money". S. B. has been saving a wopping 40 % of his income.
In my case, the elimination of "voluntary savings" was also an important factor.
If your "socking it away big time" leading up to "pulling the pin" you can think of your savings as a deduction from income - one that will no longer be there after retirement. Saving a lot means you are living well below your means. It can make a big difference.
I must admit that the thought of no longer saving a lot after retirement made me a little nervous since I had been doing it for so many years. Old habits are hard to break. My safety factor with respect to finances was very large.
Million Dollar Journey's post "Retiring Early Part I (The Expenses)", estimated that 54 percent would meet their needs. This post made me wonder about my actual percentage.
Of course it is never just about percentage. A lot of personal factors come into play. We own our own home, we have no other debt, and we have downsized to one car. We are still driving an older car. My spending estimates included an amount saved each year for the next car.
Our life style has always been relatively inexpensive...going to the beach, for walks, canoeing etc. That hasn't changed except we have a much longer season to do outdoor activities (all year) and many more opportunities for these types of activities on Vancouver Island.
The sum of pension income plus interest from investments is about 47 percent of our family income prior to retirement. This percentage will increase over time. If CPP and OAS remain at current levels our percentage rises to a maximum of 62 percent.
As planned, we spent some savings to pay for our more expensive home (not better) on Vancouver Island (compared to Winnipeg prices). There was also the savings spent to buy the boat and savings earmarked for annual boating costs prior to age 60 when CPP starts coming. Savings are bridge-financing the boating hobby in the early years.
You might be wondering...How do you find it, is 47 % enough? If we had more income we could take expensive winter vacations etc. For now, I'm satisfied enough that I'm not out looking for a job.
Friday, March 16, 2007
Cash Flow Tracking - A Simple Plan
If your interested in just getting more out of life, or if your goal is early retirement, keeping track of your cash flow on a regular basis, puts you light years ahead of those who don't.
We have done it for many years leading up to our early retirement and continue to do it to make sure our finances are on-track. It's easy and quick to do each month.
To save time we rounded off every expense to the nearest dollar. The variation from month to month will always be greater than any rounding off errors. We just want to know how much was spent in each categories each month. At the end of the year or two years later, we don't care if we spent exactly $2,411.23 at restaurants... $2,418 is close enough. We don't care if $32 was spent on January 5th or January 19th we just add it to the January total.
We get receipts where possible. When we have no receipt we make a quick note. For example, if we had coffee at Tim Horton's and spent $3.70 it is rounded off to $4. When we get home $4 is added to the "little handwritten list" next to "Restaur"(see below). This small list is kept on top of the stack of receipts.
During the month, all of our receipts are kept together with a large black paper clip. A standard letter sized envelop is used to separate our Master Card receipts within the clip. We keep them separate for checking against our MC monthly bill. The clip and envelop are reused each month.
Individual expenses are not put into a spreadsheet, that is too much like work. Only month totals are put into the spreadsheet. I use an Excel spreadsheet that has the categories listed below. The spreadsheet includes 13 additional columns, one for each month plus the yearly total for each category...to the right. Perhaps 10 minutes of entry time once per month.
We use a one page form (8.5 by 11 inch), with different length columns for each category. The form was made using tables in Word. For example, on our monthly cash flow tracking form, groceries is a longer column and gifts is a much shorter column. Utilities such as Hydro, are side by side at the bottom of the sheet in a smaller table. Shorter columns are stacked one above the other to fill the page.
My Excel spreadsheet has the categories more or less in the same order as the monthly handwritten form. This makes monthly data entry quicker - your not spending a lot of time hunting back and forth.
At month end, or whenever we find the time, or more likely - when we "feel like it", we take a photocopy of the form or print one off, and fill it in by hand. We only enter the amounts spent in each category column. No other details. Groceries might be 158, 89, 105 and so on. Just jot down the amounts and sum each category using a hand calculator. It doesn't have to be very neat, just get the totals.
One advantage of using the hand written monthly sheet and a calculator, is that it allows you to do this chore anywhere. All you need is room to spread out the small piles of receipts. This task can be done at the kitchen table, at work during a break, or at the coffee table while watching TV.
Always getting a receipt when you can makes keeping track easier during the month- no need to remember or write anything down. Just add the receipt(s) to the monthly group under the big paper clip when you get home. At month end, we begin by sorting out all the receipts into little piles by category...groceries, clothing and so on. We also review our check book each month to be sure those expenses are included.
After we have added everything up, we throw out the receipts that won't be needed later such as a cash grocery purchase. We keep all MasterCard receipts and any receipts for auto repairs, or gifts...things that we might want to find in the future.
Finally, we fold the cash flow tally sheet in half with the writing on the outside, staple along three sides (two long and one short), and stuff all the "keeper receipts" into the open end. We keep the "stuffed handmade envelopes" it a shoebox for the year. Whenever I feel like it, I sit down at the computer and input the totals into the spreadsheet. We keep one or two years handy for receipt finding and keep a few years in the basement/crawlspace.
The entire monthly process takes perhaps one hour per month. On occasion when we need to find a receipt if we know the month and year it can be found quickly.
I use an Excel spreadsheet and enter data every month or two. Excel has an "autosum" key at top that makes it easy to build in column totals. Just highlight the vertical or horizontal column plus one extra space at the end and hit "autosum". At year end you can copy the spreadsheet for the next year and clear the data, leaving the headings. I copy the spreadsheet into the same workbook to keep them all together in one file. When there are unusual expenses I use the comment feature in Excel to add a comment for that month/category.
When there is no receipt the spending is recorded on a small piece of paper as follows.
Restaur 4, 9, 15
Grocer 11, 2, 4
Car 4
Our tracking categories include the following.
Municipal Taxes
Income Tax Husband
Income Tax Wife
Groceries
Restaurants
Entertainment
Clothing/Hair
Auto Gas
Auto Mtnce/Repairs
Home Maintenance etc.
Sailboat Costs
Miscell/Drugstore (Sundries)
Health/Dentist
Gifts
Writing/Art
Charity
BC Medical Insurance
CR TV (Cable)
Natural Gas
Telephone (Home Landline)
Cellular Telephone
Internet Dial-up Service
Hydro
School Expenses
Auto Insurance&Registration
Driver Licences
House Insurance
Life Insurance
Safety Deposit Box
Savings for auto replacement
When it came time to make the retirement decision...we knew exactly how much we were spending on everything. That was important to know.
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We have done it for many years leading up to our early retirement and continue to do it to make sure our finances are on-track. It's easy and quick to do each month.
To save time we rounded off every expense to the nearest dollar. The variation from month to month will always be greater than any rounding off errors. We just want to know how much was spent in each categories each month. At the end of the year or two years later, we don't care if we spent exactly $2,411.23 at restaurants... $2,418 is close enough. We don't care if $32 was spent on January 5th or January 19th we just add it to the January total.
We get receipts where possible. When we have no receipt we make a quick note. For example, if we had coffee at Tim Horton's and spent $3.70 it is rounded off to $4. When we get home $4 is added to the "little handwritten list" next to "Restaur"(see below). This small list is kept on top of the stack of receipts.
During the month, all of our receipts are kept together with a large black paper clip. A standard letter sized envelop is used to separate our Master Card receipts within the clip. We keep them separate for checking against our MC monthly bill. The clip and envelop are reused each month.
Individual expenses are not put into a spreadsheet, that is too much like work. Only month totals are put into the spreadsheet. I use an Excel spreadsheet that has the categories listed below. The spreadsheet includes 13 additional columns, one for each month plus the yearly total for each category...to the right. Perhaps 10 minutes of entry time once per month.
We use a one page form (8.5 by 11 inch), with different length columns for each category. The form was made using tables in Word. For example, on our monthly cash flow tracking form, groceries is a longer column and gifts is a much shorter column. Utilities such as Hydro, are side by side at the bottom of the sheet in a smaller table. Shorter columns are stacked one above the other to fill the page.
My Excel spreadsheet has the categories more or less in the same order as the monthly handwritten form. This makes monthly data entry quicker - your not spending a lot of time hunting back and forth.
At month end, or whenever we find the time, or more likely - when we "feel like it", we take a photocopy of the form or print one off, and fill it in by hand. We only enter the amounts spent in each category column. No other details. Groceries might be 158, 89, 105 and so on. Just jot down the amounts and sum each category using a hand calculator. It doesn't have to be very neat, just get the totals.
One advantage of using the hand written monthly sheet and a calculator, is that it allows you to do this chore anywhere. All you need is room to spread out the small piles of receipts. This task can be done at the kitchen table, at work during a break, or at the coffee table while watching TV.
Always getting a receipt when you can makes keeping track easier during the month- no need to remember or write anything down. Just add the receipt(s) to the monthly group under the big paper clip when you get home. At month end, we begin by sorting out all the receipts into little piles by category...groceries, clothing and so on. We also review our check book each month to be sure those expenses are included.
After we have added everything up, we throw out the receipts that won't be needed later such as a cash grocery purchase. We keep all MasterCard receipts and any receipts for auto repairs, or gifts...things that we might want to find in the future.
Finally, we fold the cash flow tally sheet in half with the writing on the outside, staple along three sides (two long and one short), and stuff all the "keeper receipts" into the open end. We keep the "stuffed handmade envelopes" it a shoebox for the year. Whenever I feel like it, I sit down at the computer and input the totals into the spreadsheet. We keep one or two years handy for receipt finding and keep a few years in the basement/crawlspace.
The entire monthly process takes perhaps one hour per month. On occasion when we need to find a receipt if we know the month and year it can be found quickly.
I use an Excel spreadsheet and enter data every month or two. Excel has an "autosum" key at top that makes it easy to build in column totals. Just highlight the vertical or horizontal column plus one extra space at the end and hit "autosum". At year end you can copy the spreadsheet for the next year and clear the data, leaving the headings. I copy the spreadsheet into the same workbook to keep them all together in one file. When there are unusual expenses I use the comment feature in Excel to add a comment for that month/category.
When there is no receipt the spending is recorded on a small piece of paper as follows.
Restaur 4, 9, 15
Grocer 11, 2, 4
Car 4
Our tracking categories include the following.
Municipal Taxes
Income Tax Husband
Income Tax Wife
Groceries
Restaurants
Entertainment
Clothing/Hair
Auto Gas
Auto Mtnce/Repairs
Home Maintenance etc.
Sailboat Costs
Miscell/Drugstore (Sundries)
Health/Dentist
Gifts
Writing/Art
Charity
BC Medical Insurance
CR TV (Cable)
Natural Gas
Telephone (Home Landline)
Cellular Telephone
Internet Dial-up Service
Hydro
School Expenses
Auto Insurance&Registration
Driver Licences
House Insurance
Life Insurance
Safety Deposit Box
Savings for auto replacement
When it came time to make the retirement decision...we knew exactly how much we were spending on everything. That was important to know.
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Sunday, March 11, 2007
Lazy Man's Way To Save
Although I must admit... that my early retirement plan was quite a fuzzy plan, I did do a number of things that made the decision to retire at age 55 an easy one. One of those things was setting up a second special saving account at our Credit Union. It was a nice simple system. The general idea was as follows. It can be expanded to more than one extra account to help manage your money.
In our main account we had the credit union set up a few automatic transfers out of that account and into the other account(s) at the beginning of each month. After that, everything was on automatic. It was like having deductions come off my paycheck. I would deposit my paychecks twice a month into our everyday use account and the automatic transfers happened without me even thinking about it.
During the years I had a rental property I wanted the rent to go into a special account so I could track expenses and so on. I set up an auto transfer for it as well. I would deposit the rent check along with my paycheck into the everyday use account. This saved me having to fill out a second deposit slip.
From time to time I would then take money out of the second savings account and invest it into GICs or Canada Savings Bonds depending upon which option had the best interest rate.
On paper I kept track of how I planned to spend the savings. Part of the savings were for known annual large expenses such as: auto insurance, Christmas and so on. These annual costs were estimated into monthly amounts and summed to find the total monthly amount to be transferred. In other words, part of the savings were designated and part was unspecified savings for future use. In this way we always had the money to pay cash for things such as auto insurance or the purchase of the next used car and so on.
Its amazing how the unspecified general savings added up over the years. In addition, knowing you have the money set aside for big ticket items also makes life less stressful.
In our main account we had the credit union set up a few automatic transfers out of that account and into the other account(s) at the beginning of each month. After that, everything was on automatic. It was like having deductions come off my paycheck. I would deposit my paychecks twice a month into our everyday use account and the automatic transfers happened without me even thinking about it.
During the years I had a rental property I wanted the rent to go into a special account so I could track expenses and so on. I set up an auto transfer for it as well. I would deposit the rent check along with my paycheck into the everyday use account. This saved me having to fill out a second deposit slip.
From time to time I would then take money out of the second savings account and invest it into GICs or Canada Savings Bonds depending upon which option had the best interest rate.
On paper I kept track of how I planned to spend the savings. Part of the savings were for known annual large expenses such as: auto insurance, Christmas and so on. These annual costs were estimated into monthly amounts and summed to find the total monthly amount to be transferred. In other words, part of the savings were designated and part was unspecified savings for future use. In this way we always had the money to pay cash for things such as auto insurance or the purchase of the next used car and so on.
Its amazing how the unspecified general savings added up over the years. In addition, knowing you have the money set aside for big ticket items also makes life less stressful.
Thursday, March 8, 2007
Will The Money Last?
I found an interesting site for those thinking about retirement. The site, called FIRECalc, includes a free on-line mathematical model that you can use. You can enter different amounts of savings, how much you would like to spend each year to see if your money would last. It models the US stock market history as if you had retired in the past and lived through the different bull and bear stock market periods. You can pick any time period..for example 30 or 40 years.
As a test I tried $100,000 with a withdrawal rate of 3 percent or $3,000 per year, with only 25 % being invested in the stock market. With a little trial and error I found that this amount would not last 40 years but it would last for 30 years.
The site discusses the impact of retiring close to the start of a severe bear market - the worst case scenario.
I would not base a retirement decision on just the results of the firecalc model, however I think playing with these types of models helps give one a feel for things.
My retirement decision included a good financial safety factor and a plan B, where if necessary, I would find another job or I would reduce my expenses. So far I have not seen the need to do either.
Here's a link: http://firecalc.com/
As a test I tried $100,000 with a withdrawal rate of 3 percent or $3,000 per year, with only 25 % being invested in the stock market. With a little trial and error I found that this amount would not last 40 years but it would last for 30 years.
The site discusses the impact of retiring close to the start of a severe bear market - the worst case scenario.
I would not base a retirement decision on just the results of the firecalc model, however I think playing with these types of models helps give one a feel for things.
My retirement decision included a good financial safety factor and a plan B, where if necessary, I would find another job or I would reduce my expenses. So far I have not seen the need to do either.
Here's a link: http://firecalc.com/
About Margot Bai's Guest Post on Canadian Dream's Blog
Margot Bai, author of "Spend Smarter, Save Bigger", made a guest post on Canadian Dream’s blog. I have read the free chapters on her book site and have added the book to my library reading list. Margot’s post makes some excellent points and she is an excellent writer.
When it comes to achieving early retirement, I agree with Margot, that ‘buyer beware applies to financial services’, and that we all "need to educate ourselves". I find that I am learning all the time.
On the subject of mutual funds I have a few additional comments. My mutual funds are not locked in, although there is a fee (~2 %?) if you sell them within the first 3 months. Also, not all mutual funds have high fees. I never buy mutual funds with front or rear charges.
The normal MER is about 2.5 % for "stock picker funds". In comparison, an index fund, one that can only be purchased "on-line" with TD Waterhouse, have an MER of only ~0.35 %. This lower MER is an important difference. It gives these index funds a 2 % edge over "stock picker funds" and other index funds... no matter what the market does.
You can find Margot's post at: http://canadian-dream-free-at-45.blogspot.com/index.html
When it comes to achieving early retirement, I agree with Margot, that ‘buyer beware applies to financial services’, and that we all "need to educate ourselves". I find that I am learning all the time.
On the subject of mutual funds I have a few additional comments. My mutual funds are not locked in, although there is a fee (~2 %?) if you sell them within the first 3 months. Also, not all mutual funds have high fees. I never buy mutual funds with front or rear charges.
The normal MER is about 2.5 % for "stock picker funds". In comparison, an index fund, one that can only be purchased "on-line" with TD Waterhouse, have an MER of only ~0.35 %. This lower MER is an important difference. It gives these index funds a 2 % edge over "stock picker funds" and other index funds... no matter what the market does.
You can find Margot's post at: http://canadian-dream-free-at-45.blogspot.com/index.html
Tuesday, March 6, 2007
Eliminate ATM Fees
The recent negative reaction to high ATM fees is understandable.
One of the principles of achieving early retirement is that you must be prepared to do things differently. It is also helpful to keep in mind that if you don't like the results you are getting...do something different. I achieved early retirement in large part by finding less expensive ways to live.
With respect to ATM fees the answer is simple...whenever possible avoid using an ATM machine.
We have always made it a habit to go to our credit union or bank and withdrawn a couple of hundred bucks every two weeks. To minimize our need to carry a lot of cash around, we also put a lot of things on our Mastercard. Costs such as gas for the car and restaurants end up on MC. We also pay off our Mastercard bill each month so we never pay interest charges. The credit card receipts also help us keep track of our cash-flow.
One of the principles of achieving early retirement is that you must be prepared to do things differently. It is also helpful to keep in mind that if you don't like the results you are getting...do something different. I achieved early retirement in large part by finding less expensive ways to live.
With respect to ATM fees the answer is simple...whenever possible avoid using an ATM machine.
We have always made it a habit to go to our credit union or bank and withdrawn a couple of hundred bucks every two weeks. To minimize our need to carry a lot of cash around, we also put a lot of things on our Mastercard. Costs such as gas for the car and restaurants end up on MC. We also pay off our Mastercard bill each month so we never pay interest charges. The credit card receipts also help us keep track of our cash-flow.
Sunday, March 4, 2007
The Natural Order of Things?
“The federal government is creating a new national seniors council and will spend $14 million on funding for seniors across the country” (Yahoo News).
Not sure what the government hopes to achieve with this program. I expect that at the very least we will see a communication link between seniors and the federal government. In any event, the shear number of the baby boomer generation will be a political force in the years to come. All levels of government would be wise to keep tabs on what we are thinking.
An article on the Charity Blog Network includes,
“When older people are faced with a work environment where they are discriminated against, feel unwelcome and are not appreciated for the great value that they provide to workplaces and to society in general, it is only natural that they feel that they should take their retirement savings and go travel, pursue their hobbies, or do other things leading to their self-actualization. If workplaces can provide the respect and dignity that help old people to feel fulfilled in their jobs, it is far more likely that they will want to stay in them. As such, the responsibility for this evolution is shared by us all.”
These news items remind me of the last few years of my employment.
Is it possible or desirable to change the fact that older workers often end up feeling this way? Maybe it’s just the natural order of things…and we should’t try to fight it. I believe that “survival of the fittest” applies to both Canadian workers and Lions in Africa.
Good luck trying to get mid-life employees to be concerned about co-workers who are able to retire. The younger employees would like to see the older ones leave so they can apply for their vacant, often better paying jobs. Many of the younger employees envy those who are able to retire. They would love to have their mortgage paid off and be able to sleep in or go fishing or golfing whenever they like. Image getting paychecks and not having to go to work ever again?
This can sound like paradise to a lot of 30 or 40 year old employees who don’t enjoy going to work all that much. Many retirees who don’t have to work envy those who have jobs and take employment at low paying jobs just to have a reason to get up in the morning, to feel they are contributing, and to have regular human contact. I guess the grass always looks greener on the other side of the fence.
It’s just the natural order of things, an inescapable reality.
Not sure what the government hopes to achieve with this program. I expect that at the very least we will see a communication link between seniors and the federal government. In any event, the shear number of the baby boomer generation will be a political force in the years to come. All levels of government would be wise to keep tabs on what we are thinking.
An article on the Charity Blog Network includes,
“When older people are faced with a work environment where they are discriminated against, feel unwelcome and are not appreciated for the great value that they provide to workplaces and to society in general, it is only natural that they feel that they should take their retirement savings and go travel, pursue their hobbies, or do other things leading to their self-actualization. If workplaces can provide the respect and dignity that help old people to feel fulfilled in their jobs, it is far more likely that they will want to stay in them. As such, the responsibility for this evolution is shared by us all.”
These news items remind me of the last few years of my employment.
Is it possible or desirable to change the fact that older workers often end up feeling this way? Maybe it’s just the natural order of things…and we should’t try to fight it. I believe that “survival of the fittest” applies to both Canadian workers and Lions in Africa.
Good luck trying to get mid-life employees to be concerned about co-workers who are able to retire. The younger employees would like to see the older ones leave so they can apply for their vacant, often better paying jobs. Many of the younger employees envy those who are able to retire. They would love to have their mortgage paid off and be able to sleep in or go fishing or golfing whenever they like. Image getting paychecks and not having to go to work ever again?
This can sound like paradise to a lot of 30 or 40 year old employees who don’t enjoy going to work all that much. Many retirees who don’t have to work envy those who have jobs and take employment at low paying jobs just to have a reason to get up in the morning, to feel they are contributing, and to have regular human contact. I guess the grass always looks greener on the other side of the fence.
It’s just the natural order of things, an inescapable reality.
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