The vig

The vig, the juice, the interest rate; that’s whats feeding the kids of your local bookie or mortgage broker.  When a degenerate gambler loses his car and house, he still needs to keep up with child support payments.  Unless he decides to sell a kidney to the black market, his only choice is a visit to the loan shark.  When a borrower accepts money from a lender they end up repaying the principal (original amount) along with an additional sum (interest rate).  The vig is usually a percentage of the principal.  So if our gambler gets a good tip on a horse and borrows $10,000 with an interest rate of 10% a month, at the end of the month he owes $11,000 (if the horse loses he owes 2 kneecaps).

The sharks at Mastercard and Visa will spot you some cheddar at an average rate of 17% per year.  If your credit is good (or you show some cleavage) your friendly neighborhood banker can provide you with a Line Of Credit (LOC) at a rate anywhere from 3% to 10%.  If you can qualify for an LOC, it is an ideal tool to minimize the amount of juice that you will pay on your debts.  Strap on those high heels and put on that sexy black dress, go interest rate shopping!

Borrowing more money to pay off debt? Yes! That’s not crazy that just modern economics.  Bring a suitcase to the bank and load it up with cash from your LOC.  Go home and literally swim around in money (make a profile pic while your at it).  After washing the shame off in the shower, put the cash towards paying off your loans.  Start with credit cards that have the highest interest rates and move onto those dreaded student loans.

Learn to use credit cards as a tool to record transactions rather then a gateway to uncontrollable debt.  And if are already in debt, strive to pick the lesser evil with the lowest interest rate.

Advertisements

Free money!!!

The only things free in this life are smiles from the cute McDonald’s cashier and prostate exams at the doc’s office.  Everything else comes with a catch.  You know that nice “gift” you get from the government each year after filing your taxes? The one that feels like the government is finally giving you a break? If you contribute regularly to a Registered Retirement Savings Plan (RRSP), have child care or employment expenses (or have a great accountant who can make it seem like you have all of the above) then there’s no gift at all.  The mounties should be the ones thanking you, after all they did keep your money as an interest-free loan for a year.

Imagine yourself being Macaulay Culkin, after making all those “Home Alone” flicks you are just drowning in cheddar.  Each Christmas your parents return home from whichever vacation you were funding, they then “spoil” you with a great big gift (bought with your own money).  And you have to say “thank you” or you will be grounded for a week.  The Canadian government is indebted to you because your RRSPs are funding their Aruba getaways.  Of course there is a neat trick to avoid getting a lame non-gift at the end of the year and just getting the money steadily with each paycheck.

Step 1: Download and fill out the T1213 form in order to “request to reduce tax deduction at source for tax year”.  You can find the form here: http://www.cra-arc.gc.ca/E/pbg/tf/t1213/.  Ask your accountant to perform their trickery and document all of the tax deductible expenses.

Step 2: Go and see the nice lady at HR and put her at ease by letting her know that you are NOT there because of the rampant sexual harassment going on at your workplace.  Once she’s relaxed, explain that after years of abuse you are finally standing up to the mounties and kindly asking them for instant cheddar.  After this heartfelt conversation don’t forget to drop off the form.

Step 3: Wait 8 weeks.  It’s absurd that you even found out about this method let alone bothered doing it.  The mounties will need 8 weeks to comprehend the situation.

Step 4: Free money!!! Or at least extra cheddar each month that you won’t need to wait a year to see.

Taxpayer beware, you will not be receiving a big bonus at the end of the year (plan ahead).  In fact, if you overshoot on the eligible deductions you might end up having to pay the government.  Also, this nice chat with HR lady will have to be done yearly each time you want your hard earned money back.

Don’t feel bad for the Canadian government (which taxes first and asks questions later) they should be just fine.  Enjoy the extra cash!

Budget ratios

One of the most critical mantras in life is: take care of business before the business takes care of you.  In our case it’s important to take control of your budget before your budget starts controlling your life.  This means anticipating and setting realistic limits on fixed expenses (housing, transportation, savings) so that you can actually enjoy spending money on variable expenses (booze, entertainment, latest useless electronic gadget that induces foaming at the mouth).

There is no “one size fits all” budget that can be blindly followed to reach financial independence.  Everyone is different, some people have kids, some people have pets, and some people spoil their pets as if they were kids.  It would be unfair to expect everyone to follow the same budget.  On the other hand, overly complex budgets with dozens of categories (in addition to a user’s manual) are a waste of time.  The best cheddar ratios are the ones that are easy to follow.  What is the point of setting strict rules if you will keep breaking them? Unless you want to feel rebellious again.

The 60% solution is a great example of a simple budget.  Add up all of your fixed expenses and aim for those to equal up to 60% of your net income at the end of the month.  Divide the leftover money into four 10% categories: retirement, emergency spending, vacation and entertainment.  Rule of thumb budget ratios such as this one are great starting points to get comfortable with setting spending guidelines.

You don’t need to be all about business like Sly Stallone, take full advantage of the vacation and entertainment categories each month.  You worked hard for that cheddar, now go spend it on whichever marketing ploy has you most excited this month!

Paper vs Plastic

So you’ve downloaded a budget spreadsheet, now what? Now you’re staring at a bunch of empty square cells that will eventually grant you some form of financial savvy.  Filling out the income section may cause disappointment and sighing but at least its simple (just add up your net pay for the month).  Filling out the expenses section is just as easy, add up: rent, utilities, debt repayments, car payments, car insurance, gas money, groceries, take-out, coffee cash, lap-dance fund, cable, internet, charity, cellphone, clothing, entertainment (sans lap-dances), miscellaneous expenses and savings (hopefully).  Oh and since it’s better to be precise, don’t forget to dig up all of the receipts which I am sure you have filed away neatly.

All of a sudden crap chores you’ve been putting off for weeks start to look attractive compared to budgeting.  Don’t worry, and don’t start grooming your damn cat just yet, there’s another way.  Credit cards!  Use credit cards for all of your purchases, that way you will always have a record of your transactions.  Open an online account associated with your credit card, at the end of each month simply copy and paste your expenses into the budget.

What is the price of this convenience? It could lead to massive amounts of debt, uncontrollable spending and paying high interest rates that a loan-shark would be embarrassed to charge you.  On the other hand, you can use credit cards as they are meant to be used, for convenience.  Pretend your credit card is like your debit card, do not spend money you don’t have.

Cash is hard to track, dangerous to carry in large amounts, has traces of cocaine on it and inevitably turns into clunky loose change.  Credit cards help build credit, offer rewards and take up less space in your wallet, leading to a slimmer waistline.  Here is a great website to compare Canadian credit cards: http://creditcards.redflagdeals.com/  Just remember to pick a card that has no annual fees.

Think of credit cards as a challenge to your moral fiber: you CAN spend beyond your means but you won’t.  Take off the training wheels and ride the big boy bike!  Trust yourself to responsibly handle credit cards.  Otherwise, you better stock up on more glass jars from IKEA.

Baby steps

Before running you must walk, before walking you must crawl and before crawling you need to first climb out of a uterus.  Everything in life requires baby steps and financial matters are no different.

Before you do any type of investing you need to have something to invest with, which means you must first learn how to save.  Whether you’re living from paycheck to paycheck or just knee-deep in cheddar, cash can slip right through your fingers if you don’t keep track of it.  This is why a budget is one of the most important and fundamental steps to taking control of your finances.  Here are some great free templates you can use in order to begin tracking your monthly spending: https://docs.google.com/templates?q=personal+budget&sort=hottest&view=public

I know what you’re going to say, “Who gives a crap? I make money, I spend money, as long as I got a little something shaking in the piggy bank at the end of the week I’m happy”.  That’s the kind of attitude that got Athens in the pickle it’s in, got the United States government flirting with bankruptcy and currently makes my fellow Canadians spend $1.50 for every buck that they earn. Poor planning due to lack of insight.  By simply starting to track (not change) your spending, you will likely realize how much money you can save.

In the next few posts I will go into more detail about how to painlessly track your spending, what personal budget ratios to aim for and how a simple piece of paper can add instant cheddar to your current paycheck.

Stay tuned!