Like many twenty and thirty-something Canadians, a virtual right of passage into responsible adulthood was the reading of David Chilton's personal finance classic "The Wealthy Barber". I remember reading it perhaps ten years ago and finding it to be a pretty clear presentation of basic financial knowledge, wrapped up in a non-descript, somewhat campy storyline. Although my overall memory of the book is quite fuzzy, I remember a few concepts and details from it:
- 10% of everything you earn is yours to keep (outside of retirement savings and for long term growth)
- Canadian government bonds had insanely high yields by today's standard (try to find a Canadian gov't bond that pays 12% these days)
- The quote: "the car loan is the black hole of personal finance"
Like many people, I do not have enough cash flow to accomplish number 1, although my wife and I try to make sure we are saving sufficiently for retirement. I find the double dip of retirement savings and a hefty income-tax refund more appealing than the idea of saving money after said money has been reduced by the sticky fingers of government. The best path is not always the easiest to travel and or the best marked I suppose.
If yields were even close to 10% on a stable investment like a gov't bond I would consider saving much more money outside of retirement savings. I'm sure that many people after weighing the merits of paying income taxes and then investing post tax come to a similar conclusion. Is it beneficial, for instance to lose 30% of your income to taxes only to realize a 2.75% gain on your investment in a secure investment? Even with the advent of the Tax Free Savings Account, it still benefits a person minimally to invest with post-tax dollars, until they have maxed out their RSP contribution room unless that person expects to see a substantial increase in annual earnings going forward. That said, if one could fill all of their available RSP room and have surplus funds to invest the TFSA would be in the words of the timeless philosopher J.J. Walker: "Dyn-o-mite!" I find some aspects of the account quite attractive, first and foremost the fact that regardless of whether one decides to contribute or not contribute to the TFSA, the annual savings room accumulates indefinitely. Doesn't hurt that the account's principal and proceeds can never be taxed or result in any detrimental effects such as the Boomer curse-word "clawback" of C.P.P. benefits or any supplemental or income-based allowances. An idea being bandied about in web forums is that the TFSA will likely become an increasingly common method of wealth-transfer from parents to their adult children, skirting probate and other estate taxes entirely. This scheme will take years to bear big fruit, but in the year 2029, a person could inherit 100,000 (20 years x $5,000) from an estate and not pay a penny in tax on the amount, or any proceeds from the inheritance's subsequent investment.
Number three is something that I find creeping into my consciousness whenever the thought of undertaking a vehicular purchase arises. Our family vehicle is a newer vehicle that we use for trips to the grocery store and about town. We bought the family vehicle a couple of years ago, when my wife traded in her vehicle. My personal vehicle (not used for family transport) is an older sedan that has been very reliable and cheap to operate thus far. It is as economical as they come, costing me an average of $30-35 dollars in gas per month for my short commute to work and the odd trip around town.
I have been incredibly fortunate in my experience with this older vehicle, but I would prefer to modernize soon, for a couple of reasons: safety and family capacity (post 2002 vehicles are mandated to have the LATCH/Canfix system of child seat tethers which are favoured versus the old "throw the seat belt through it and shoot a bolt into your back deck beside the brake light".
Perhaps it was rock-metal legends Gun's N' Roses who said it best - "nothing
lasts forever.. even cold November Rain".
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