Tuesday, August 26, 2008

Good Advice

I finished reading a book called Confessions of a Subprime Lender about the credit crisis in the US. What struck me was the stories about how many people were living beyond their means, barely getting approved for mortgages, then being forced out when their adjustable rate mortgages adjusted up.

It reminded me of some advice I got a few years ago from a family friend about living within your means. Specifically, he talked about how many people that he worked with in a seasonal, construction type industry depended on their bonuses as part of their income. He on the other hand did rather well treating his bonuses as just that bonuses. He lived on his income, and then used his bonus as an investment.

It also speaks to the greater topic of found money, ie bonuses, tax returns and inheritances. More good advice, park found money in an investment account, wait and decide, rather than spending a new found windfall. Certainly pay yourself, spend 10% on yourself, but invest the rest or pay down debt.

Tuesday, August 12, 2008

Review of ING Direct Account Setup - Week One Update


The end of week one and I have achieved a savings of $35, $5 each day for 7 days. My money is resting in my ING Investment Account while I wait for some of the other accounts like the RBC Centura account through RBC Access to be set up. I'm also going to be investigating a low cost brokerage. I haven't achieved any gain on my savings as yet, will update you on the amount of interest at the end of the month.

Setting up the ING account was relatively quick and painless. Fill out a form online, return a cheque payable to yourself. They've set up an electronic transfer with my main chequing account at Bank of Montreal. So far I've been pleased with the service, any transfers have gone through in a day or so, with a 5 day hold on the funds. I will report back on how long it takes for the funds to be returned back to me. The account is no frills, but it serves its purpose as a leave your money there for awhile account.

Linking around the Net

Back to School Edition of Money Stories

Sunday, August 10, 2008

2007 Top Marginal Rates of Tax for Canadian Dividends

I've been researching into the tax implications of having various dividends and capital gains. I found a good resource from Grant Thorton LLP which I've shared here. Simply put in each province, when you combine federal and provincial tax rates, you're going to get taxed at a different rate depending if you declaring interest income, capital gains, foreign, eligible, or other canadian dividends. An eligible dividend is declared when it is awarded by a Canadian company. You will pay the highest rates of tax on common interest and on foreign dividends.

Saturday, August 9, 2008

Paying Attention To Money

I'm finding that I'm developing an interesting mindset about money and savings these days.

Personally, I was pretty lucky to graduate without much debt. Now that I'm working, most of my major obligations are taken care of with automatic payments. My RRSP contribution is automatic, my insurance and car payments come out once a month and so on. So after the paycheck went in, and the money came out, I was pretty comfortable spending the rest.

I purposefully created this project around a small amount of money to focus my spending and savings habits. I'm finding that I'll walk up to a vending machine, stand there for a moment, decide that I don't really need to spend the money and then walk away. I don't really feel deprived, and when I do make a small purchase it seems more rewarding. I'm following my budget more closely and I'm reducing my overall spending.

Friday, August 8, 2008

RBC Access USA

I paid a visit down to my local RBC branch, carrying my driver's license, SIN card and my passport. Thanks to Sam and Nancy I was able to quickly enroll in their RBC Access USA program. They set me up with an RBC Day to Day Savings Account, which has no monthly charges, the fees are transaction based, with one free transaction a month at their branch. Then we fired off an application for the RBC Access USA program. I opted for the basic level service, which let's you have a few free transactions, write cheques etc, there is a premier level service that has some more fees, but more included. Everything seemed to go fairly easily because I had all my ID and such. They faxed the application off to RBC Centura who are then supposed to go ahead and set me up an account and mail me the information. So step one completed, hopefully all goes ahead with no issues. If everything goes ahead, I should be able to log into both accounts through the RBC canadian account and move funds into the US account.

The RBC Access USA program appears to be set up primarily for Canadian snowbirds, for the unfamiliar, snowbirds is the nickname for Canadian retirees who spend 6 months or so over winter each year in Florida. The program looks like it will work for folks like me as well who require a bank account physically located in the US. In this day and age, this looks like one of the last viable options for US banking for canadians without traveling to the US.

Thursday, August 7, 2008

High Interest Savings Accounts

What to do while I wait to build up some funds? A stack of bills under my mattress won't do me much good. I went looking around for some high interest savings accounts. Most of the major banks have some kind of a higher interest option, one maybe two percent. That's not very good, the better options are high interest savings accounts from discount banks. These banks are usually characterized by having little to no storefront presence, and their business is primarily conducted online. You usually have to submit an application form, have a social insurance number, and submit a cheque payable to yourself so that the accounts can be linked. Once your account is linked you can move funds by Electronic Funds Transfer.

Some of the options out there are:

Citizens Bank Investment Account
Citizens Bank Ultimate Savings Account
HSBC High Rate Savings Account
ICICI Bank HiSAVE Savings Account
ING Direct Investment Savings Account

The plus side is that these are all CDIC insured, the only drawback is the potential for slightly lower customer service. Personally, I've opened an account earning 3% with ING, not big dollars, but somewhere to put the cash for now.

Wednesday, August 6, 2008

Dividend Reinvestment Programs and Direct Stock Purchase - Not So Easy For Canadians

I want to avoid brokerage costs as much as possible right now, as I would have to wait a long time to save up enough money to invest and to cover the brokerage costs. I investigated dividend reinvestment programs (DRIPs) and direct stock purchase programs. For a DRIP if you own at least one share, you can participate in dividend reinvestment through companies and their transfer agents. I found www.directinvesting.com is able to transact the one share and enroll me. Even better, in some cases with stock like General Electric (GE) you can participate in a direct stock purchase plan and buy stock directly from their transfer agent.

HOWEVER, you need to write a cheque, drawn in US funds on a US bank with a US address (Basically, the branch needs a 9 digit ABA transit number and has to be located in the US). Hmm, can't open accounts online anymore thanks to the Patriot Act and what not. No trips to the US planned in the near future. Alright, I've had an account with Bank of Montreal since I was six, maybe they can facilitate something....

"In regards to your inquiry, I can advise that, regrettably, BMO Bank of Montreal does not provide the facility you have requested. Please note that we do provide the option to open US Dollar accounts, however we are unable to set up accounts that are held at banks in the United States. I apologize for this limitation."

Well there goes that idea. I'm going to try RBC next, they have a program called RBC Access USA. It looks like it's set up for snowbirds and it looks like the accounts are held with RBC Centura bank. Not much information online, and you have to go in to the branch to set it up. Well Thursday is the day they're open late so wish me luck.

The First Five

So here it is, the first fiver.

Day One Total = $5.

The Plan

My plan looks like this:
Start Early: I won't get anywhere if I don't gain the benefits of compound interest.
Invest Often: I will transfer funds from my savings accounts to my investment accounts every two weeks.
Buy and Hold: I can't afford broker commissions for switching stocks around, so I'll be using a buy and hold strategy to try and pick winners and then hold on to them.
Diversify: I'll try and hold stocks and bonds from a variety of industry sectors to try and mitigate losses in any one area.

The Math

So what's five dollars a day worth? I'm 22, let's assume I save and invest five dollars a day, everyday, until I retire at 65, that's 43 years. Assuming an annual rate of return of 8% and 2.5% inflation and a marginal tax rate of 33%, I will have deposited $ 137 702.65 and my investment will have produced $ 313 111.06 in growth for a total value of 450 813.71. This all presumes that I increase my $5 per day savings with inflation also. I'll index my inflation to the previously mentioned Starbucks latte because I believe that if you can cut out a latte a day, you can try and follow along with me.

Tuesday, August 5, 2008

The Project

I'm 22, going on 23 and I just graduated college. The first thing they told me was, start saving for your future. So that's what I'm going to do, cut out the Starbucks latte, save five dollars a day and invest it and let's see what happens.