Hot to Trot: When not to buy a house

So with no debt and a bit of money in the bank, my girlfriend and I got excited with the prospect of owning a house. Our logic was that putting money into a property instead of into rent was always the better choice. We were booked to go see some houses and were about to drop serious money onto a house when my Dad presented some logic that was irrefutable to me.

Annual interest on $270000 mortgage at 5%: $13500
Current rent: $1200x12 = $14400
Additional bills with house ownership: $3000(taxes) + $600(water) = $3600.
Total relevant annual expended money with house ownership: $17100
(left out other bills as we have to pay them regardless of ownership or not)

In other words, we're calculating how much money we pay in either living situation that does not accumulate into net worth. The logic of "paying rent is wasted money" is true, but so is "paying interest to the bank and taxes to the city". At a $270000 mortgage, you're actually spending an extra $2700 annually that does not accumulate into your net worth.

At what mortgage amount would I be saving money VS renting at $1200/month?

Good question. You start saving money at the point where (total yearly expenditure of owning) = (total rent). Let's assume taxes+heat totals $4000/year. Expanding above we get:

(interest) + (taxes and heat) = (rent)
(interest) + ($4000) = $14400
interest = $10400

So as long as your interest is less than $10,400 a year it is worth it for you to buy a house. At 5% this is a $208000 mortgage. At 7% this is a $148,571 mortgage.

Additional savings while renting
We did not address another big difference between a huge debt load (while mortgaging a home) and money in the bank (while renting): Accumulated interest on your savings. Investing that down payment (safely) helps it grow and is a benefit you will not see for a long time once you do take the plunge.

The last factor we might want to weigh in this decision is the current market. While it's true over time that house prices will appreciate, the current economic situation is unstable enough that it's quite possible that house prices will fall, in which case we're much better off renting until our dreams are affordable :)

How to quit your cell contract without paying your ETF (Early Termination Fee)

I've had a Rogers cellphone for the last year and a half. We're switching to minimal Pay as you Go cells and got a landline through our ISP Teksavvy (who I cannot say enough nice things about. They are amazing!)

So I had to cancel my cell. While I am halfway through my 3 year contract, Rogers still wanted $360 for me to cancel. I almost paid it then reconsidered, and put an ad up on usedottawa.com and craigslist. From the perspective of a person looking for a cell contract, by taking over my contract they get the phone for free and that's a year and a half less they are in their contract for. Saved me a ton of money! So it's a win-win for everyone involved.. except Rogers who doesn't get my $360 and an extra year and a half locked in on someone else.

As far as I know this is the only way I know to get rid of your phone without paying the early termination fee.

Cash Budgeting: 2 weeks in

We've completed our first cash-budgeted pay period and have learnt quite a bit!

Pros:
- Instant feedback. This is much better than card-based budgeting because personally, I find my bank's statements to always be back a few days, some vendors seem to get registered late, weekend purchases get processed seemingly on the monday, etc.
- More meaningful. Watching the mone leave your wallet and be replaced with coins and fives gives a much more realistic view on how much you have spent compared to signing your name at the bottom of a sheet.

Cons:
- A single budget isn't very realistic or fun. Saying things like "we could go for a beer but then we'd be out of budget for food" is depressing. I think I'm going to modify my plan by having a $200 monthly budget for fun that gets banked seperately than the day-to-day. It's my intent to also use that $200 for saving up for trips.
- A little dangerous.. I don't suggest you walk around all the time with all your money in your pockets. For a forgetful person such as myself it's a little sketchy!

Cash-based budgeting

So despite having cleared all of my debt I am not saving money at a rate I feel I could. My biggest issue with wesabe and the like is that while it is very very informative, it is all post-purchase analysis - IE I've already spent the money. I want to try a more proactive approach that will keep my purchases in line.

I find more often than not it is very hard to mentally add up purchases that I make over a 2 week period. If you asked me how much I spent in the last 2 weeks I would tell you a number that would be off probably by almost half. I just can't do it. I think my issue is that when I spend $30 three times in my head that adds up to "not much, oh... 50$ or so" not the near $100 it really cost. So I end up without any concept of "reduce spending this week since last week was over budget". It doesn't help that my bank account statements online are about a week too slow, so i make any financial decision on those values based on old information.

Anyways, whatever the reason for my math failures, I'm going to try a pure cash based budgeting approach. I get $450 every 2 weeks to spend on everything. That works out to me putting about $1000 in the bank every month. If I can spend less than that, that's great, my girlfriend and I get to go out or buy something we want.. but if it's a week in and we've got $100 and that's it we'd better save for some groceries!!

"The List"

Like many people I know I have a tendency to buy on impulse. Sometimes it's a 20$ item, but I've done it too with items more towards $1000. Recently I decided I wanted to start DJing parties, so I researched online and ended up with 2 CD players costing me around $850.

$850. To play some parties. I already have a fully capable laptop (and it's actually easier to use). I've since decided to get rid of these players (anyone wanting 2 lightly used Denon DNS-1000 cd players? I'm looking for $650 for the pair, a great deal ;).

As a software designer I often fix problems in two ways - the first is to fix the problem directly, the second is to fix the problem that allowed the first problem to occur. Applying that logic to this purchase, I solved the direct problem by (hopefully) selling the cd players. But to prevent it to happen, I invented... "The List".

What is the list? It's simple. Any time I want to purchase something over $100, it must first sit on a list of things I want for a full 30 days. This gives me 30 days to stare at the item, dream of holding it, and also stare at the price tag for the item and see it floating away in the sky. By 30 days if I still want it, I can purchase it. If I decide mid-term I don't want it, hey I just saved myself all that money.

There's some exceptions obviously: anything that is a life necessity (car breaks down, etc.. doesn't require the list), and anything that is a fleeting deal (cheap vintage synthesizer on craigslist for example) do not need the to sit on the list.

But otherwise, this should stop some frivolous buying.

I am sad and embarrassed to be a canadian these days

Ottawa axes arts travel program

Everyone is a criminal (if) bill c-61 passes

:(

Daily Expenditures Add Up (Food)

You always hear people say that the small stuff adds up. Let's play with some numbers and figure out just how much. Not all of these fit this blog's mandate (mainly, do not impact your quality of life) but many of them are changes you can make without changing anything really.

Let's first define some metrics. There's 365 days in a year. There's 52.1 weeks in a year. For simplicity let's say that there's 104 days in the year where you do not work (assuming 5 day work weeks). That leaves 261 days of work. Subtract your 10 holidays and a sick day, let's stick with the nice rounded number of 250 days a year where you go to work.

Purchasing Food:
1. Daily coffee @ $1.45 = $362.50
Add a bagel @ $1.25? Make that $675/yr.
2. Daily fast-food lunch combo @ $8.00 = $2000

Making @ Home:
1. Coffee at home
(We Buy PC Organic Fair-Trade Coffee, $8.99/pound, and it lasts about 3 wks.)
So we buy about 18 pounds of coffee yearly resulting in $161.32. And that includes coffee for both of us in the morning and on the weekends, and the coffee is quite a bit better.
2. Lunch
I eat a pretty simple lunch usually, I get it from my Dad. I usually have:
1 peanut butter sandwich with honey
1 Apple
1 Banana
tapwater to drink.
Total cost for this lunch is probably around $2.50 a day, if that. So lets say $625/yr.

Differential
Coffee -> $362.50 - $161.32 = $201.18
Lunch -> $2000 - $625 = $1375
Total Savings: $1576. And that's not even trying!

You might claim my lunch isn't interesting enough. I'm definitely in a minority eating the same simple lunch day after day. But you don't need to chose something that simple! Just buy it from the grocery store and instantly you will be saving over 50% of the cost for the unhealthy fast-food alternative.