Financial Review – May 2015

We spent around $10,300 in the month of May. It was slightly higher because we had to put a deposit down for the kids’ school in the fall. Yep, we decided to send them both to a private Christian school, at least for the early years.

Breakdown of Expenses

  • Child care and education – 34%
  • Mortgage – 27%
  • Groceries – 13%
  • Home Maintenance – 10%
  • Utilities – 5%
  • Auto – 3%
  • Other, including clothing, toys, phone, charity, insurance, eating out and other discretionary spending – 8%

Reduced Eating Out
We have greatly improved how much we spend on eating out. Looking at last year, where we average $300+ a month, we are now down to $130. This is not even lunches at work, it’s usually now one single family outing where we are usually giving someone else a treat as well. We are well on our track to be under $3000/year for eating out.

Reduce Groceries
May last year we spent above $1800 on groceries for the month. Now we are down to $1300 — well on our way of our yearly goal of under $18,000. I am still learning to buy less since my brother in law has moved out. We are just not consuming as much.

Increased House Maintenance
We have spent a significant amount for the vegetable garden and yard work. House maintenance is over $1000 for us. We also purchased a weed eater…there are a lot of weeds in that backyard! I don’t anticipate house maintenance to go down, especially given that we still have to rip apart our deck to fix a foundation crack, and then re-do the deck.

Income

Tax Refund
We received our tax refund this month which added a substantial amount to our income, since we contributed a large amount to our RRSPs. We finally managed to catch up on RESPs and are on track to maxing out the benefit for the kids by the age of 15.

CPP, EI Maxing out
Payroll taxes are slowly going towards being maxed out, which means more take home income! The end of the year is so much more fun than the beginning!

2015 Financial Goals and Outlook

Goals

Reduce eating out to $3000 year
Last year we reduced this to $3800 – and this year I am hoping to trim it further to $3000 year. It may be a little harder now that are kids actually eat at restaurants, but we are hoping for less outings, and more time at home.

Actually reduce groceries to $18,000 year
I missed this goal by a small amount last year, but am hoping to reach it this year. My brother in law is probably going to move out this year, but we are planning to adopt this year (process finalized!), and are expecting an increase of 1 or 2 kids. I am anticipating costs of formula for a newborn, and diapers etc no matter what. So we’ll see!

Contribute $2500 to kids RESPs (per kid)
I hope to continue this from the previous year, until we max out the Canada Education Savings Grant – which works out to some 14.7 years or so of contributions.

Contribute $22,000 to RRSPs
Not expecting CPP or OAS to actually be around by the time we retire, I am hoping to create self-sufficient retirement accounts. I hope that we are able to continue contributing to our RRSPs despite the fact that neither of our companies offer RRSP matching.

Increase mortgage payments to $1350
This is a new perpetual goal I am adding — I’d like to be able to increase my mortgage payments on an annual basis. I really, really want to be able to pay off the mortgage in 10 years. Way better than 17. We are hoping with our lump-sump contributions and an increase in payments, this dream can be a reality.

Contribute $7,000 to mortgage pre-payment
This would be great and inline with the dream to pay off the mortgage before I am 40 🙂

Outlook

Addition to the family
I am expecting a financially challenging this year, especially if we do end up with an adoptive child. An adoptive child means 7 months of no work (and EI pay only) followed by nanny costs.

An adoptive child also means the baby costs of diaper, wipes, etc. are back. If it’s a girl there are no worries about clothes, but a boy would mean..well, either the baby boy is wearing a lot of pink or we are heading to the thrift store again.

Expected house repairs
House repairs could also be a big cost, especially if we decide to do the deck again. We also have to repair a water-damaged ceiling in our house, so plenty of renovation expenses. I am not expecting any surprising car expenses this year given that they have brand new tires on both and were maintained recently. Lower gas costs should also help the car budget.

Increased vacation costs
Vacation costs should see a dramatic increase as the family cottage that we used to go to will double or triple in costs. Now with a family of 17, we are splitting a rather luxurious cottage. However, I may skimp on camping this year given the extended cottage vacation….but at the same time, I am longing for family time with just the four of us, so that my creep up as a cost somewhere. I am also expecting to fly down to California to visit my nephew, so that will be a cost somewhere. Overall, I am expecting my vacation budget to more than double from $1700 to near $3500.

We may have to dip in some savings this year, but it’s difficult to say until we know whether or not we are getting a child — a lot of decisions hinge on that one!

How I spent $152,000 this year

2014 was certainly an interesting financial year for us. I had a major car accident in February which costed us about some $4000 overall after our deductible and the cost to replace the car (insurance covered a bulk of it, but we bought a slightly newer model). Jonathan was laid off in March which while gave us a good boost due to the severance, plenty of the severance was used up because he stayed unemployed for some 2.5 months. He also splurged a little with a riding lawn mower and a laptop. I also purchased a desktop computer.

Frankly, if we didn’t have the severance we would have to tap into our emergency savings. We spent the whole year fixing up major parts of the house (the bathroom, the air exchanger, the driveway. Cars gave us more expenses with a minor repair on one of them, a new set of wheels, as well as purchase of snow tires for both vehicles.

I had anticipated around $142,000 in spending but we went slightly over with $152,000.

People are shocked when I tell them that’s how much we spend per year. What could we possibly be spending our money on?!

Housing, which includes mortgage, property taxes, home maintenance, home insurance, and utilities made up the biggest portion of our budget – a whooping 43% of our money is spent there. Mortgage alone takes up over 20% of our total spending! Renovation expenses were unexpected this year – did not expect to do the driveway or replace the air exchange.

Kids are the next biggest expense. Not including the increased cost of car, housing, etc. just their care, clothing, activities, toys, etc. make up 20% of our spending. Yep, we are spending as much on kids as we are on our mortgage. The kids go to a pre-school for 7.5 hours per week (3x, 2.5 each time), and the rest is nanny time at home. Needless to say, nanny is the big chunk of the cost (over 90%).

Groceries are the next big expense, 12% of our spending– which is about $18,000 annually. This is a fairly large budget, but it includes everything we would buy at a store that doesn’t quality as something for the car or furniture. Absolutely anything we pick up from Costco or Superstore. It feeds 4 adults (2 males who might as well as be horses), 2 females, and 2 kids. Fresh produce is probably the biggest chunk of this expense, followed by dairy. We are big on dairy – we spend close to $60 a week on dairy alone.

Auto was the next big expense this year, 11% of our spending. It wasn’t suppose to be, but it was due to unforeseen circumstances (the car accident). My husband and I work in two different part of the cities (my work, his work, and our home literally are points on  an isosceles triangle), and the minivan that he drives is quite the gas hog. Sadly, it makes many round trips when we pick up and drop the kids off from school. We spend nearly $6000 a year on fuel – yep, I wish public transportation was available to us — I would use it!

Charity is also a good part of our budget, but not as big as we like (a goal for 2015!). It makes up about 3% of our spending.

That’s about 90% of our spending. The other 10% – 15k or so is discretionary spending on hobbies, entertainment, vacations, furniture, gifts, etc. Considering it even includes dentists, I think that’s a fair amount.

 

2015 – Net worth update

Despite many unexpected expenses over the year, we saw a 20% increase in our net worth (not taking into account appreciation of the house).

We contributed massively to our mortgage (while the interest rates are still low) and saved a fair amount of cash. Investments performed OK given our couch potato strategy, returning about 6-8% for the year.

Despite a pretty good year for us, I am expecting a much slower 2015 year (due to a potential maternity leave and an addition to the family), and expecting a 6-10% growth in net worth. It’s not so bad for as long as it’s going up and keeping up with inflation!

2014 Year in Review (Financial) – How we did on our goals

Looking at my 2014 goals, how did I do this year?

Reduce money spent eating out to $4200/year – SUCCESS
Jonathan and I worked hard on this one – and we did good! We budgeted $4200 and spent $3860. We can probably go to around $3000 a year, but it would be challenging. Often times we pay for other family or friends who don’t have to funds to eat out, so we can spend time together. I have regular lunches with friends of mine from previous workplaces, as does Jonathan. We like to eat at nice places (but don’t usually get drinks or appetizers), so this one gets pretty tricky. But I think we could still do $250/month – given that 2015 is the goal of fitness for both of us, eating out will naturally reduce.

Increase and diversify charitySUCCESS
I was shocked to learn that we were spending more on eating out than on charity, so my aim here was to give to charity way more than we eat out, and we did! We went from an average of $200/month charity to $330/month. We diversified our charitable contribution by now including, on a monthly basis, Sick Kids, Doctors without Borders, and Just Girl. We also provided one-time contributions to Cancer Society, Rotary Club (Turkey Drive), and Wikimedia. We also found ways to give to non-organizations and helping folks directly (even without that charitable receipt) when we could.

Groceries down to $1500/month – CLOSE
Really close, but no cigar – the last month pushed over the edge! The goal was to spend less than $18,000 on groceries for the year, but we hit $18,288.87. The last trip hit us wrong :). Although this is still pretty high, I am OK with it. We have a lot of company over – and in the month of December had many people over our house (it was our most expensive month for Groceries!). We also had people stay over our house for 7 nights in the month! We are not big on vacations, so this is big for us. Having said that, will try for $18,000 again next year!

Contribute $28,000 to RRSPs SUCCESS
Yes, we certainly saved enough to be able to do this and are grateful that we could, given the tax hit Jon is going to take because of his severance. I feel strongly about saving for retirement, especially given we don’t have work pension plans, so this is very important to me (Jon doesn’t think we need any money…).

Contribute $2,500 to kids RESPs SUCCESS
Yes, and for each kid! I am glad that I set up auto-payments for this, because there are certainly months that I would have skipped it.

Contribute $5000 additional to mortgage  SUCCESS
Yes, after Jon’s severance we had enough extra to contribute a little extra. Contributed just over $6000 for the mortgage!

Overall, I am very happy with how we did with our goals, particularly on reducing the eating out and increasing the charity. Now to work on those 2015 goals 😉

Financial Goals for 2014

Reduce money spent eating out
This one is a really easy one. My husband and I are spending between $400-$600/month eating out – $4800-$7200. That’s more than charity! I’d love to bring this down to $350/month for 2014, for a total of $4200 for the year.

Increase charity
Our charity amount seems to be directly tied to how often we attend church…which means in summer, we are practically donating nothing. I’d like to increase our charitable contributions for the year, as well as give to a varied amount of charities. Currently we only give to World Vision and our church. Would definitely like to include some secular and local charities as well, to give back to the community.

Be mindful when buying groceries
Our groceries are averaging around $1800 a month, I’d like to bring this down to $1500 a month. I think we can — if we are just slightly more vigilant about not over-purchasing produce or goods that we don’t need. This is mostly on me on not buying expensive Tupperware or products that we don’t need!

Contribute $28,000 to RRSPs
Keeping in with our retirement plan, I’d like to contribute $14,000 for each of us in our individual RRSP accounts.

Contribute $2500 to kids RESPs
Despite much opposition from Jonathan, I think he is realizing that just because we feel strongly against paying for our kids’ education, it is unfair for them to not be given the grant that the government provides. I’d like to contribute monthly to the kids’ education fund.

Contribute $5000 for Mortgage Pre-payment
Anything to have this mortgage paid is sooner! A $5k annual payment with a 5% increase in payments every year means I pay off the mortgage in 10 years instead of 17!

What are your goals for 2014?

Why can’t people understand RESPs?

For some reason, parents around Canada are mystified when it comes to opening and managing a RESP account for their children. Before they even have a baby they start getting calls from official sounding companies that practically sound like the government. They are offering you a 20% return (guaranteed!) on your deposits.

They are not lying.

What they are not clarifying is that their organization exists to get a cut of that 20% and money that you put in. This is free (well, tax payers) money and everyone wants a cut at it.

You don’t have to go with these organizations. You don’t even have to open the account today. Or before their birthday. Or in the first year. None of that. (There are exceptions if you receive additional grants from the government for your children, but we do not.)

The government will match upto 20% of the first $2500 you put in, per year, until the kid turns 17, upto $7200. Which means they are really only matching for 14.4 years or up to $36,000 of your contributions.

We didn’t open our kids RESP until they turned 2. The first couple of years are hard on parenting — maternity leave, increased expenses, etc. For us it was also a new house and a new car. Now for as long we contribute until our children’s 16th birthday (and then some after), our children should receive the maximum grant possible for our family.

We put aside $208/month per kid in a TD Mutual Fund e-series account. This account carries no “account setup” or “activation” or “admin” or any fee. You hold funds in it. The funds have low fees. They are index funds. The math works out pretty well and is a popular couch potato strategy.

My husband and I hold different views on whether we should fund our children’s education. His parents didn’t fund his. My parents did. Naturally, we both want to do what our parents did. His arguments were:

  • Kids don’t learn the value of money if we give them handouts so early in life.
  • They won’t value education as much.
  • They are more likely to go for a degree with which they would be unable to live a life of financial freedom.

On the flip side, the arguments are:

  • We are saying no to free money. This is not fair to our kids.
  • Since OSAP etc. look at financial situation of the parents, our kids will be ineligible for many grants and loans.
  • Whether or not we like it, the society expects us to pay for our kids and tax benefits are provided keeping that in mind.

Ultimately, we “agreed” with opening RESPs for our kids under the following conditions:

  • We get to keep our principal payments (this is *our* after-tax money).
  • Kids will contribute to their RESP when they have the ability to get a job or have income.
  • Kids will keep the grant as well as the interest on the grant.

This was a compromise for my husband. He feels cheated out of the interest on his $36,000 (per kid!), but it is a little more fair for our kids. The interest payments and the grant leaves each kid with ~$20,000 for education (assuming 3% return, which is rather modest).

My $60 Tax Refund

It was April 30, 2004. I had turned 18 just a few weeks ago. I had been in Canada for a whooping 8 months on a Student Visa. Exams were over and I was trying to figure out this whole tax business. I had an income of $0 but I did have a few scholarships to declare. I had no idea if I was suppose to do taxes (was I a resident?), let alone how to do them. Thankfully, a guy behind a desk in the student court accepted my payment of $30 to do my taxes.

He asked me a few questions. Told me that I’d “only” be getting $60 back – do I really want to do them? I thought that was an absurd question – of course I want to do my taxes! I don’t want the government putting me in jail for failure to do my taxes. I handed him $30 in fees to do my taxes. He gave me a whole lot of printed documents to mail, as well as a folder with copies for me. I was ALL done – in time – and I was going to be getting $60! Woohoo!

It wasn’t until I did my 2008 taxes that I paid someone to do my taxes. I also usually had my taxes done by March 2nd. After all, the sooner I get the money, the better 🙂

Now, for some lessons….

If you had no income, you do not* have to file taxes. But it is in your interest to do so – you could be eligible for benefits resulting in money for you. You don’t get them unless you file your taxes. (*Find out what situations you must file taxes under.)

You can do your taxes for free. Yes, you can always do them yourself if you have the time, but there are also many companies that let students, or low-income folks to use their product for free. Use them. Don’t just go to some guy behind a desk charging you $30. The government also has Volunteer tax clinics (volunteers who do your taxes) which are open to newcomers and students.

There is a lot of money out there in benefits; I highly recommend filing your taxes to see what you’re eligible for. I’ve personally used Ufile for the last 7 years and have only recently considered migrating to accommodate my growing family and complex financial situations.

ING vs TD, TD vs Questrade

Interest rates at conventional banks (TD Canada Trust, BMO, etc.) suck. There is little reason to place your savings there. I’ve followed the model of TD Canada Trust for my day-to-day checking and ING for my savings account. I also have my mortgage and investment accounts with TD.

Why not ING for the checking?

ING is a good bank; however, I still prefer an actual branch that I can walk into to deposit or withdraw funds. TD Branches are located everywhere (where we are, anyway) and their hours are unmatched by other traditional banks (some branches are open Sundays too). I prefer doing as much as I can online; however, I still manage to visit the branch at least a dozen times a year (depositing cash, obtaining a cashier’s check etc.). I also found it much easier to do simple things like changing your name due to marriage, converting to a joint account, etc. easier since I just walk into the bank with my wallet and proof of marriage. With all the online services, I had to call them, ask them what they wanted, scan documents, mail them…and then wait a few days. It’s not terribly difficult, but I prefer things done “instantly” or something as important as my checking account.

Why TD?

I love their Select Service checking account. It’s a $30 monthly fee that is waived if you maintain $5,000 or more in your checking account (which we do). Sure, we forego interest on this money, but in any checking account we’d have a couple of thousand at any point anyway and the benefits are worth it for us:

  • Free checks. ING does not give free personalized checks. I use my checkbook regularly – i.e. at church for offering, paying another person, etc.
  • Free certified checks. So far I’ve had to obtain at least one every year for the past 5 years.
  • Free US checking account. I hold my US funds in this account. The US Borderless account also gives me preferred exchange rates.
  • Free US Credit Card: TD US Dollar Visa. I often purchase from US websites in US funds (in addition to travelling to the US), and this has helped me save 2-3% in exchange fees.
  • Free premium TD Credit Cards: my husband carries the TD Gold Visa and I carry the TD First Class Travel. Our joint account lets us have ’em both for free.

You can also get a free safety deposit box (we don’t care for one) if you so desire. In the five or so years I’ve had this account, I’ve only once paid the monthly fee. Other times, I’ve always just called in the bank and they waived the fee as a “good will” gesture.

But TD for…discount brokerage?

Questrade is definitely the popular option as a discount brokerage. Nothing really beats $4.95 trades. TD starts at $29 unless you have over $50,000 in assets (sadly, your checking account doesn’t count) in which case it’s $9.99. So, going to Questrade is a no-brainer – and that’s exactly what I did. However, I found their service lacking and their platform archaic. I have three separate login accounts with them: one to the company where my money goes, one where my account is, and another for the trading platform. It’s a nightmare. There are people who have have great experiences with Questrade; I did not. I was especially displeased with their inability to let me change my account to my married name. To open an account, you can scan all your documents and send it to them; you never have to hit the mailbox. But to change your name? Nope, a scanned marriage certificate is insufficient. You need to mail a copy. Oh and if you didn’t change your name and decided to move some money from your checking to your Questrade brokerage account? Be prepared for the funds to be on hold because your name is different. Best part is, you will not be informed in any way that your funds are on hold. You will have to call them to find out, and then request that they be returned.

For that reason alone, I preferred paying $30 in commissions to TD. I still have my account at Questrade and a few stocks in there, which I will eventually empty…but I have no desire to use it as my primary brokerage. It’s not worth the hassle.