Kirsten's Personal Finance Blog

We didn't do very well at all at tracking the "Cash" category this year. It didn't change very much - from the previous year's $6 357.59, it dropped only a little to $6 423.10. I suppose that means we're consistent!

About $2 000 of this is transit expenses, which should be broken out separately - I will attempt to do at least that this year.

Surprisingly, our second-highest category last year was "Vacation". I should have expected that, since we spent pretty much the entire month of August on the road, touring the eastern end of our fair country. There was quite a bit of good eating that went on, too!

I would compare it to last year, but I'm disappointed to see that somehow last year's vacation didn't get included in the expense categories.

We had saved the money for this year's trip ahead of time. Travel this year will probably limited to visiting family and two out-of-town weddings, so it won't be nearly as high.

As expected, housing remains our biggest expense in a year.

We paid $18 200 against our mortgage this year, down from the previous year's $26 600. We have a variable-rate mortgage, so with the interest rate so low, I chose to invest the extra money instead towards our early retirement.

Next year's will be $18 200 again, unless we change something about it.

Since I'm a teacher, "year-end" around this house is the end of August. Any increase in pay I get starts in September, so it's just easier to consider my year to begin then.

That means it's time to fire up Quicken and ask it to give me all the numbers for the previous year. I want to compare our biggest seven expenses year-to-year.

For the 2008/2009 year:
1. Mortgage, $26 600.
2. Auto, $17 564.59.
3. Household, $8 000.
4. Cash, $6 357.59.
5. Utilities, $3 586.25.
6. Groceries, $3 514.52.
7. Property taxes, $3 000.

I'll be interested to see if, and how, this past year's expenses are different.

I'm still analyzing last year's expenses, and already at number seven I'm feeling like it's one I can't do anything about - property taxes.

Our taxes are actually reasonable by some standards, since there aren't a ton of infrastructure projects going on in the neighbourhood. We pay just over $3000 a year, or $260/month, which we can usually spread out over 8 payments.

We're not interested in moving out of our home when we're retired, although I guess our opinions could change. I like the idea of hosting foreign students for some part of the year, enough to pay for the property taxes. I'm a teacher with ESL qualifications, so I think we'd be a desirable host family.

There are two adults in our house, one child age ten (who is actually only here half-time), and two cats whose food and litter get added to the grocery bill. Surprisingly, we only spent $3514.52 in the past year on groceries, which works out to $68/week. It's even more surprising when I look and realize that LCBO (liquor store) purchases are in there too.

We have a lot of routines we're happy with, when it comes to cooking and eating food. For much of the year we got the Good Food Box, a big box (about three grocery bags full) of fruit and veggies for $17. We've used the local farmer's market that opened in our neighbourhood this summer. We tend to shop "around the edges" of the grocery store, buying almost no pre-prepared or packaged foods. (My husband's boxed cereal is the biggest exception). We only buy meat when it's close enough to its best-before date that the grocery store has slapped a 30% off sticker on it. I'm kicking it up a notch by starting to clip coupons seriously, joining a coupon train to trade the ones I don't need for the ones I do, and tracking the best possible price using the website

grocerysavings.ca.

In general, though, we keep agreeing that we want to spend *more* on groceries; I'm a good cook (if I do say so myself), and we'd both like to get away from the number of times a week we have sandwiches for supper because we're too tired to fix something more complicated. We don't order in, but neither do we enjoy all that life has to offer in the eating category. When we're retired, eating quality food we made ourselves is one of the things we expect to bring us considerable joy.

Our fifth biggest expense in the 2007/2008 year was Utilities, with total spending of $3 586.25. That breaks down to almost exactly $300/month.

"Utilities" include phone, natural gas (our furnace is natural gas, and so is the stove and dryer), electricity, city water & sewage, and cable TV.

We've cancelled the cable TV, saving over $30/month. We've switched to Bullfrog Power, which increases our bill, but we're trying to use less electricity to offset that. And we've got plans to put up a clothesline to dry our clothes, although I'm not sure how much that will save us in terms of natural gas usage.

As I mentioned in a previous post, we're looking at putting in solar electricity and hot water, which would affect our utility bills (hopefully in a good way!).

I'm sure there's more we could do to reduce our utility bills, and perhaps we'll take a month this year to focus on that.

I'm mortified to find that the fourth-biggest expense we had in the 2007/2008 year was the category called "Cash". This is the category I use when I'm categorizing any withdrawal from either my husband's savings account, or my chequing account.

The total for the year: $6357.59! When I break it down, it's "only" $66/week for each of us, which on the face of it is reasonable. When I think that every year, each of us could buy a $10000 strip bond with that money instead, it sure starts to seem like a lot.

The worst part is that with one exception, we don't really know what we spent that money on. We use it for lunches out, haircuts, library fines for overdue books, my son's allowance, the occasional take-out coffee for me, and I'm not sure what else.

The exception is my husband's monthly transit passes, which in Toronto cost $109. Those should absolutely be tracked separately, especially since we can get an income tax rebate on them now. We can also order a year's worth ahead of time, which has three benefits - it saves $9/month, we get them in the mail ahead of time, and the expenditure will be clearly marked in our chequing account when they withdraw the money.

It's clear what we really need to do - start writing down what we spend! In a way, it's our third-biggest expense, since the "Auto" category was only so high because of the camper-van purchase. We've made half-hearted attempts to do this in the past, but never really managed to keep it up. It's time now.

Our third-biggest expense in the 2007/2008 school year was the category we call "Household". We spent just under $8000.

Over $6000 of that was for a new roof - we knew the house needed a roof in 2005 when we bought it, but we managed to stretch it out and replace it after I was done my re-training and had a full-time one-year contract.

The remaining expenditures in that category are not really very well itemized. Anything we buy at Rona (the Canadian version of Home Depot), Canadian Tire (hardware store), Zellers (Canadian department store), or the pharmacy tends to end up categorized here. It includes supplies bought for wiring and plumbing fixes (our house was built in 1914), but also the occasional purchase for the kitchen (like canning jars).

Without the roof, it works out to average $135/month. There are other bigger expenses to worry about...

We live downtown in the biggest city in Canada, and use public transit (the subway, in our case) to get to work every day. I was therefore surprised to see that our second-biggest expense in the past year was... "Auto"!

From last September 1 to the end of August, we spent $17 564.59 in that category. Wow.

Fortunately that's not typical for us. The biggest hit was because we bought the dream car that I'd wanted for a couple of years - a 1978 Volkswagen Westfalia campervan. We spent five weeks in July and August driving from Toronto to the Yukon Territory and back, and it was an amazing adventure.

It cost $8 800 to buy the camper and get it on the road (taxes, registration, plates, and all that). We also spent about $2 000 for a very good mechanic (one who specializes in air-cooled VWs) to get it ready for the trip.


We do have another car that we use occasionally, and if you thought a 30-year-old camper was old... well, my "regular" car is a 1971 Volkswagen Superbeetle. I had been putting off various maintenance issues for it until last September, so it had a considerable amount of work in the past year - about $3 800.

Insurance for both vehicles is a fairly reasonable $135/month. Since we don't drive every day, even being Canadians we spend less than $100/month on gas (today's local gas price is $1.15/litre, which works out to $4.35/gallon.) The other recurring cost is parking, which we have to pay for, and works out to about $25/month.

Even with some maintenance costs built in, I'd expect to see next year's auto costs running between $3500 and $5000. If we decide to sell the campervan, we'll actually get ahead for the year in that category!

Edit: added picture of the campervan. Isn't he the cutest thing ever?!

I've been looking at our household expenses for the last year... since I'm a teacher, I tend to view the end of August as the end of the year. I plan to look at each expense category in turn, from the biggest to the smallest.

Our single biggest expense, as expected, is our mortgage. We paid $26,600 (Cdn) on it over the past 12 months. We pay weekly, and doubled up 24 of those weekly payments.

It's a variable-rate mortgage, and right now the rate is sitting at 4.75%. At that rate, we'd have it paid off in less than five years. Of course the rate won't stay that same, though. If it starts going up to the point where the mortgage won't be paid off before our planned retirement date, then we'll have to start doubling up payments again to keep the amortization acceptable.

I expect for the current year, we'll pay only $18,200 in mortgage costs, since we're investing money rather than aggressively paying off the mortgage right now. Since it's an expense that will eventually go away, I don't think it's worth scrutinizing any further!

A couple of people commented on yesterday's post, suggesting the rule of multiplying your desired retirement income by 25 to get the nest egg you need. I understand this argument, that by assuming you get a 4% return on investment, you need 25 times the amount you need.

The problem with it is that I don't intend to die with a $1000000 nest egg - I intend to die as close to broke as possible!

Let's crunch a few more numbers, using my own example. Our monthly expenses (without mortgage) run about $3100 right now. Multiplying that by 12, then 25, I get $930000, just shy of a million. At my current savings rate, I'd need to save for 14.5 years to get there. Using a safe 4% rate of return, this would work fine - 4% of $930000 is $37200 annually, or $3100 a month.

Now let's assume that I want the same $3100 payment every month, but the future value to be zero. Excel tells me that the present value (the amount when I retire) needs to be $459840.82, less than half the amount. I can save that in nine years.

Wouldn't you rather retire five years earlier?

We're considering adding solar power to our house, in two ways; photovoltaic cells to generate electricity, and a solar hot water system. This also means upgrading the electrical panel in our 96-year-old house.

The total cost will work out to be about $30,000 Cdn. (We can do it in four phases - roughly $3K for the electrical upgrade; $11K for the first KW of PV; $9K for the next KW; $7K for the solar hot water.)

Because we live in Canada, we can't do the cheaper methods of solar hot water, where the water itself is circulated up to the roof. We have to go with the more expensive glycol-circulation type, where an anti-freeze-like substance is circulated and brings heat down to the basement to heat the water.

We pay about $85/month for electricity. We'll tie the electrical into the Toronto Hydro grid with their Standard Offer Program, which might allow us to actually get money back when we generate more electricity than we use. In the simplest scenario where we pay nothing for electricity, it's going to take at least 20 years for the system to pay for itself.

There are two big incentives for me to go ahead and do this, since the payback is so long it's not really incentive;
1. It's the right thing to do for the environment.
2. This is a perfect example of a way to pay now, while we have income, to cut our household expenses when we're retired. If we don't have to worry about electrical price increases from 2016 to 2060, that's one less thing to worry about and plan for.

EDIT: scfr brings up a good point, about tax rebates. We can get the provincial sales tax (8%, or $2400) reimbursed, and there are $1000 in provincial and federal rebates available on the solar hot water system.

The biggest problem I had with the book Smart Couples Finish Rich was that it mentions the figure of "a million dollars" throughout the book. In almost any discussion of how much an amount could grow to, the example of how long it would take to reach a million dollars was invariably the calculation that was shown.

This fixation on being a "millionaire" has two problems, in my mind; on the one hand, you might not need a million dollars, and on the other hand, you might need a whole heck of a lot more.

This randomly picked

online retirement planner tells me that I need to save 35% of my income between now and age 65, to maintain 60% of my income afterwards (which is low compared to what most sites recommend). A little bit of calculation in Excel shows me that I would have saved $1,938,438.17 by the day I turn 65... just a little shy of $2 million. So, for anyone who wants to retire "well", a million may not cut it at all.

On the other hand, saving and investing a couple of million dollars makes a lot of money for banks and investment brokers. My husband and I are closely tracking and actively reducing our household expenses, and hoping to need only about 35% of our income post-retirement. The total figure to save for that, according to Excel? $664,622.80 - only two-thirds of a million.

So, don't be misled by the idea of being a "millionaire". If you're living the American dream, a million in the bank isn't necessarily going to buy you a retirement with a cottage, golfing every day, and twice-yearly cruises. But by the same token, if your hopes are more modest, you need never be a millionaire to be happy.

This contest is a perfect opportunity for me to capture some of the best resources that have helped me the most in recent months. Most of these are books or websites that have been key to me getting my financial situation in control.

1. The book

"Your Money or Your Life" by Joe Dominguez. This was an eye-opener for my husband and I - that we could win the "money game" not by having a lot of money, but by not needing a lot of money.

2. The "Get Rich Slowly" blog. JD's writing style and learn-with-me attitude are refreshing, readable, and useful.

3. Quicken software, to download our transactions and find out exactly where our money goes each month.

4. The ETrade Canada website, where our extra cash is now earning 3% rather than 0%, and we've started buying corporate bonds.

5. The Canadian edition of the book "Smart Couples Finish Rich", by David Bach. This book filled in the gaps from the book mentioned above, helping us to figure out what our values as a couple are.

6. The Service Canada website, which goes through a detailed analysis and predicts how much income you'll get once retired. This helps cut through the confusion around OAS, CPP, RRSP income, and pension income to come up with a full scenario.

7. A variable-rate mortgage with larger-than-necessary weekly payments. At the current rate of 4.25%, the bulk of the money we pay every week goes to the principal, rather than interest. We'll have it paid off in 53 months.

8. The website CalendarBudget. I put in our regular recurring expenses at the beginning, and I adjust them as I go along. It tells me what our cash flow situation is every day into the future, helping me plan expenditures and letting me know when there's a little extra to siphon off into our high-interest account before it gets spent.

9. The book "In Your Best Interest", by Hank Cunningham. Finally bonds made sense to me, and we have started buying corporate bonds on the ETrade site to fund our early retirement (up to age 65 when our pensions kick in).

Okay, so this is my public declaration... our goal is to retire in the summer of 2016.

We've told a few people that we plan to retire "early", but I'm sure they think we mean between ages 55 and 60, rather than at age 65. In reality I'll just have turned 47, and my husband will be only 42.

I've read many times that writing goals down is key to making them happening. So... here it is!

A long time ago I saw a website where you could reserve at Toronto-area restaurants ahead of time, and receive a discount on your bill for doing so. I can't seem to find it now, but I have found

MenuPalace.com, which offers (among other things) various discounts and offers, including coupons. I signed up for a free $25 gift certificate at Monsoon, a downtown restaurant I've been wanting to try, and it's a tiny bit disappointing - it's $25 off only if you spend at least $75 on food (presumably excluding wine and other drinks), it's only valid Monday to Thursday, and it expires in 2 weeks.

I also found a 2 for 1 entree coupon at a restaurant we've eaten in the past two weeks, though, so knowing this ahead of time would have helped.

Much to my chagrin, I just went into the kitchen to make tea, and found a restaurant coupon book in the cupboard that my son's school was selling last year. I had better go through that and see if it has all expired...

I've been reading up on coupons tonight (yes, I have nothing better to do on Saturday night!).

I think of clipping coupons as something my grandmother did, scissoring out good deals on products she would never buy, but storing all the coupons carefully categorized in a special wallet that was inevitably left at home on grocery day.

My life seems so different from hers, with our haphazard stops at the local 24-hour Sobey's on our way home from the subway. We also dismiss coupons because it seems they're for "unhealthy" foods, but several sites I've read tonight are quick to point out that's not true.

Interesting links I don't want to forget:
-save.ca has several manufacturers signed up, and will let you pick weekly coupons to have mailed to you
-

A&P/Dominion have a page where you can print coupons
-the grocery coupon guide has some good introductory material on the how-to side
-GrocerySavings is a cool site that lets you see the best flyer prices, plus historical data, for five stores in my area (three are within walking distance!) - I signed up and created my list


More thought will need to go into this!