DRiPs - Paperwork and Taxes

This is the fourth installment of my series on DRiP investing.

Paperwork

One of the disadvantages of DRiP is that, for each company that you drip, you will receive regular account statements in the mail. The frequency depends on the activity (purchases and dividend paid), but you should expect at least a few every years.

Even though some of the companies you drip may be handled by the same transfer agent, statements will be sent independently for each companies. So if you have 4 companies for which you makes purchases each month, you will receive 4 statements every month, for a total of 48 statements for the year. That's a lot of paper!

Still, it is important to keep those statements, since they report of each purchase you made, dividend you received, and price paid for additional shares of the company. You need that information to be able to calculate you Adjusted Cost Base (ACB), a very important number when you are ready to sell shares (or if you transfer shares to someone else). More on this in a future installment.

Taxes

The dividends you receive from the companies you drip must be reported, even though you decided to reinvest them. At tax time, the companies will send you a slip for that income. If the amount is below a certain treshold, they might decide not to send one to you. You are still supposed to report the income, though.

In Canada, dividends are treated favourably by the tax-man. Although the amount of dividend is grossed up, there is a substancial tax credit also applied. The end result is that if you taxable income for the year is below a certain number (about $40K-$50K, check with your accountant), the dividends you received will actually lower your taxes! Nice, isn't it?

A note, however, about income thrusts (such as real estate income thrusts, REITs). Most of the distributions from income thrusts are not dividends. They are reported on the tax slip as part capital gain (which must be used to readjust your ACB but have no impact on taxes until you sell), part as interest income. Interest income is taxed as regular income, based on your tax bracket.

DRiPs - Enrollment and Purchases

This is the third installment of my series on DRiP investing.

Enrolling Into the Plan

Now that you have the shares registered directly to your name, you can enroll into the DRiP and SPP of the company. This is done by simply filling in a DRiP Authorization Form, issued by the company, and returning it to the transfer agent. Sometimes, you will receive this form automatically when you become the direct owner of the shares. You can also call the transfer agent of the company and ask for the form to be sent to you.

Some of the plans offer a number of different options. You will want the option that allows you to automatically reinvest your dividends into more shares of the company, and that allows you to make additional purchases (i.e. participate in the share purchase plan).

Making Additional Purchases

If the company offers a SPP, you will then be allowed to make additional purchases. This is done by simply sending a cheque to the transfer agent, along with the Optional Cash Purchase form. When the next purchase date is reached, your money will be used to purchase additional shares of the company.

Those purchases are done at specific, pre-determined dates, as specified in the plan brochure. This is usually at the payment date of the next dividend, but some companies allow you to invest monthly. When the transfer agent receives your cheque, they may cash it in immediately, but they will wait until the next purchase date before investing it.

The price of the shares is usually determined by the average of all shares bought during a specified period before the purchase date (5 days is common, although I have seen longer periods).

DRiPs - Registering Shares to Your Name

This is the second installment of my series on DRiP investing.

Registering Shares to Your Name

To participate in a company's DRiP, your shares of that company must be registered to your name. What does this mean?

When we purchase shares through a broker, our broker buys the shares and keep them for us, simply making an entry into their books (more likely a database) that X of those shares belong to you. As a result, the company does not know that you own those shares.

To enroll into the company's DRiP, the company must know about you. So, only shares registered to your name will do. If you already have shares that you purchased through your broker, you simply have to call your broker and ask for the shares to be registered directly to you. Your broker will charge you a fee for this (usually in the range of $30 to $50). Once this is done, your shares will no longer appear in your account at the broker, and you will receive a paper certificate showing your ownership of those shares.

Important Note: The certificate is valuable, since it is the proof of your ownership of the shares. You should keep it somewhere safe, like in your bank's safety box.

Once the shares are registered to your name, you will now appear as one of the owners in the books of the company. As such, you will be allowed to enroll in its DRiP and SPP.

There are ways to purchase shares of the company without going through a broker, and which are less expensive. I will address this in a future installement of the series, once all the basic features of dripping have been covered.

DRiPs - What are they?

One of my favourite ways to invest money for the long term is through my DRiP portfolio. So I thought I would present a series on DRiP investing. This is the first installment.

What are DRiPs?

DRiP is the acronym for "Dividend and Reinvestment Plan". A DRiP is a plan offered by some companies to allow their shareowners to easily re-invest the dividend they receive into more shares of that company, without paying additional fees.

Under such a plan, whenever the company would pays out a dividend, instead of sending you a check for the dividend, it uses that amount to buy additional shares for you. The kicker is that this amount can purchase fractional shares. Those fractional shares, in turn, will also pay out a dividend to you on the next distribution date. This means that you gain the full benefits of compounding. The vast majority of companies that offer a DRiP will reinvest you dividends without charging any fee.

It gets even better. Many companies also offer an additional feature, called a "Share Purchase Plan" (SPP). Under the SPP, you can send additional money to the company to purchase additional shares, without paying any fee. You read that right: invest money without paying fees!

There are some drawbacks to this, though:

• The shares must be registered to your name. This takes time, and carries some costs.
• The purchases of additional shares is done at a preset date, so you cannot time the market closely.
• DRiPs generate a lot of paperwork, and you have to track each purchase.
• Selling shares in a DRiP takes time.

I will come back to each of those in the next installments of the series.

Net Worth Update

As of December 1st, my net worth was $46 360 (down 0.5% from $46 579). The stock market was choppy and though this month, but started to recover at the end.

If I exclude house-related assets and liabilities, my net worth is $37 231 (down 0.4% from $37 367).

Assets ($124 334, down 0.3% from $124 747)

• Bank Accounts $3 622 (down 3.3% from $3 747)
• Emergency Funds $2 556 (down 32% from $3 747)
• RRSP Accounts $31 306 (down 2.2% from $31 999)
• Non-Registered Investments $5 632 (up 24% from $4 542)
• Home $75 600 (stable)
• Arbitrage $5 000 (stable)

Liabilities ($77 975, down 0.25% from $78 168)

• Credit Cards $6 362 (up 3% from $6 171)
• Student Loan $2 665 (down 8.5% from $2 911)
• Mortgage $56 680 (down 0.2% from $56 785)
• Heat Pump Loan $7 151 (down 0.7% from $7 198)
• Arbitrage $4 895 (down 2.1% from $5 000)

This month, I did about half of my Christmas shopping, and refilled the oil tank for the house. These expenses went on the credit cards. Some money from the emergency funds was used for a temporary purchase in the non-registered investments -- it will be back in the emergency fund in December. I put about $1000 in the RRSP this month, at that wasn't enough to compensate completely for the down markets. Choppy indeed!

Update on CC Arbitrage Experiment

Yesterday, I received my first monthly statement for the credit card I used for my arbitrage experiment.

The good surprise was that I was charged no fee to use the balance transfer cheque. Whoo-hoo!

As I expected, I will have to do a minimum payment each month, which for this month is $105. This is not too bad, at 2.1% of the current balance.

I will pay this out of my regular income, as if I was putting money aside for investment. However, this means that if I had wanted to run this with no impact on my regular cash flow, I would have to put aside a part of the initial amount for these monthly payments. This could be segmented by 3-month periods (since ING Direct offers GICs for 90, 180 and 270 days).

The exact run-down of this, with a $1000 arbitrage for 12 months (to keep things simple and make it easy to multiply the amount), would be something like:

• Leave $62 in the regular savings account -- this will cover the first 3 monthly payments.
• Put $57 in a 90-day GIC -- to cover minimum payments for the next 3 months.
• Put $54 in a 180-day GIC -- minimum payments for months 7 to 9.
• Put $51 in a 270-day GIC -- for the last 3 minimum payments.
• Put $776 in a 1-year GIC -- this will be the final balance at the end.

All of this assumes that the minimum payment is based on the running balance of the account.

Of course, this would somewhat reduce the total interest gained for the arbitrage. But like I said, this would eliminate the impact of the arbitrage on my regular cash flow.

Net Worth Update

As of November 1st, my net worth was $46 579 (down 2.5% from $47 780). The decrease was due to the replacement of the car shelter.

If I exclude house-related assets and liabilities (that includes the car shelter financing), my net worth is $37 367 (up 2.9% from $36 316).

Assets ($124 747, up 5.4% from $118 321)

• Bank Accounts $3 747 (down 12% from $4 246)
• Emergency Funds $3 747 (up 37% from $2 729)
• RRSP Accounts $31 999 (up 3.3% from $30 974)
• Non-Registered Investments $4 542 (up 7.8% from $4 214)
• Home $75 600 (stable)
• Arbitrage $5 000 (new)

Liabilities ($78 168, up 10.8% from $70 542)

• Credit Cards $6 171 (up 93% from $3 195)
• Student Loan $2 911 (down 7.8% from $3 156)
• Mortgage $56 785 (down 0.2% from $56 890)
• Heat Pump Loan $7 198 (down 0.7% from $7 247)
• Arbitrage $5000 (new)

This month, instead of moving $500 directly to my RRSP account, I parked it in my emergency fund. Since I would not have a big enough amount to make a purchase, this way it will generate some interests. I'll do the same in the future, until the amount is big enough to matter. Then I will transfer it to my RRSP account, where it will be available when an opportunity presents itself. Since I have until February 2008 to max out my 2007 RRSP contributions, putting my money straight into my RRSP account where it does not generate much interests would not be as efficient.

Obviously, the replacement of the car shelter had a big impact on my net worth, since I am financing it on my credit card (12 monthly payments without interest). However, since this is a house-related expense, Princess will be transferring me her share of it every month, which increases my cash flow.

Impact of CC Arbitrage on Credit Score

Following my post on Credit Card Arbitrage two days ago, Esme (from Brown Eyed Girl and Money), asked a question:

"Do you know if this balance transfer will have a negative impact on credit rating?"

Since credit scores are a complex subject, I thought I'd write a seperate post to answer that question. I will only discuss the impact of using a balance transfer for credit card arbitrage. For more general information on credit scores, The Financial Blogger has a nice series of articles.

The credit score takes into account a number of things when looking at credit cards:

1. How many credit cards do you have? Obviously, opening a new credit card account increases this. This is not necessarily a bad thing, if you don't have many of them. This raised my number of cards from 3 to 4, which should not be negative considering my credit history.
2. What is the average age of your accounts? Opening a new account, however, will "dilute" your existing credit card accounts, so the impact will be negative. I've held two of my credit cards for a long time, while the third was recent. So I've effectively cut my average by half. I'm not sure how this will impact my score.
3. What is the total credit limit accross all account? This is another area where opening a new account has an impact. However, this is not necessarily negative. Before opening my new card, I had kept my total limit quite low (about $11,000), so the $11,000 limit they granted me of this card raised my total to $22,000. I think this is still reasonable, if a bit high for my personal tastes.
4. What percentage of your total limit are you using? That is the area where you can take the biggest hit on your credit score when using a balance transfer for arbitrage. If you open a new card and max it out right away, you will increase your utilization ratio substancially. Since this is an experiment, I kept the amount drawn from the new card low, at $5,000 out of a limit of $11,000 -- which is about 45% of the credit limit. I previously had a 50% utilization ratio, so it basically remained the same.

Now, I still expect to take a hit on my credit score. But since the next time I need to negociate a loan is about 18 months away (when I renew my mortgage), it will have time to recover.

Blog Format Update

As suggested by Four Pillars, I added a RSS feed to my blog.

I have also adjusted my "Credit Card Financing at 0%" progress bar to take into account the purchase of our car shelter.

Finally, I have added a Sitemeter counter to track the number of visits to my blog.

CC Arbitrage Experiment - Update 1

In a previous article, I mentioned that I was starting an experiment in Credit Card Arbitrage. So here's an update on how things are proceeding.

On September 16th, I signed up for my new Citi card online. It took about 10 days before I received the card. They assigned me $11,000 credit limit.

There was no specific information about their 0% balance transfer offer in that mailing. However, when I called to activate the card, the agent asked me if I wante to do a balance transfer. His explanaiton were a bit confused, so I didn't sign up right away. I could only have transferred a balance from a current credit card anyway (a relatively low amount). And I don't want to give Citi the number for my other credit card anyway.

I few days later, I called again, this time specifically asking about the balance transfer offer. The agent was even more confusing. She first told me that the offer was free, and that it would be faster to do the transfer if I waited for the cheques. Then, when I specifically asked about the fees for using the transfer cheques, she mentioned that there might be a fee of 1% (she didn't sound confident, and the general documentation for the credit card indicated a 1.5% fee for using the cheques). She told me the package containing the cheques should arrive one week after the card itself did, so I decided to wait.

About 10 days after I received the card, I got a package containing cheques. However, the 0% balance transfer was not mentioned. Reading the small print carefully, I saw that the cheques would be treated as a cash advance. At this point, I was getting cold feet and decided not to go forward using those cheques.

Then, after another week, I received another package containing cheques. This time, it specifically mentioned the 0% balance transfer offer. The cheques mention that they are valid only until November 16th, and documentation provided with them mention that amounts withdrawn using those cheques will appear as "balance transfer" on my credit card statement.

Now, this is more like it. I wrote myself a $5,000 cheque that I have deposited in my account. As soon as it clears, I'll transfer it to my ING account to put it in a 4.25% 270-day GIC. This should give me about $160 in interest.

So even if there is a 1.5% charge associated with the cheque, I should still make about $85. Not much, considering the trouble. But this is an experiment meant to become more familiar with the process, so I wanted to reduce the risk even if it meant a smaller reward.

The lesson I learned until now is to be really careful and make sure the documentation is provided. Had I used the first batch of cheques, I would have been charged 1.5% for using the cheque, and this would have been a cash advance with the 19.9% interest charged from the moment the cheque was cashed in.

I will provide another update when I receive my first account statement. I expect to see that I have to make a minimum payment for my account, probably 2% of the total amount each month.

Current Asset Allocation

In the last coupleof days, I have been calculating the asset allocation for both my RRSP and non-registered accounts. I saw this as a first step towards having a global asset allocation strategy.


I detailed the asset allocation in two independent categories: geographic allocation and asset classes. I only looked at those accounts I consider there for investment, so this excludes the house, as well as my day-to-day bank account. But it includes my emergency fund and secondary bank accounts (including those in US currency).


In the geographic allocation, my assets are divided in the following way:

• Canada: 78%
• United States: 7%
• Europe: 9%
• Asia/Pacific: 6%
• Others: 1%

As you can see, I am overweigth in Canada. I expected this, as this is one of the reasons I erformed this exercise.

As for asset classes, the allocation is:

• Stocks: 58%
• Income Thrusts: 12%
• Bonds: 7%
• Cash: 16%

This, however, was a mild surprise. I would have thought I had more stocks and less cash. Of course, including my emergency funds modified the balance quite a bit. In fact, it results in about 50% cash in my non-registered assets.

Already, I can see that I need more international exposure in my stocks. I have already modified the allocation of my new contributions for my RRSP so that a bigger share of new contributions go towards the international part of my portfolio.

Car Shelter Decision

Yesterday, I called the company to ask some more questions about the new car shelter, and finalized the purchase. We are going for the more expensive option.

I believe we took the right decision for the long-term. Princess simply cannot scrape her car in the morning without risking injuring herself (she's had problems with tendons in her elbows). I cannot stand to spend money on something that will not last, and risks damaging our house.

We are using a 12 payments, no interest, financing. The expense is split 60/40 between me and Princess, like we do for all the structural expenses related to the house (our co-ownership is set up using the same ratio).

Car Shelter Update

This week, I got estimates for the replacement of the trap for the car shelter. WHile I was at it, I asked about fixing a problem that has bugged us ever since we bought the house.

With the car shelter so close to the house (they're about 12" apart for half of its length), a lot of snow get stuck between the house and the shelter. And that side of the shelter's roof is almost impossible to clear of the snow. I have no way of removing that snow during the winter, so the space fills up with snow. The problem is that if it rains, that snow becomes quite heavy, and it applies a lot of pressure on the car shelter's tarp.

It is probably one of the reasons why the trap now need to be replaced. On top of that, there is a basement window that gets completely burried in snow which will also need to be replaced soon.

So the guy who did the estimate told me that usually the type of shelter that we have is not placed so close to a house, because of that problem. To fix that, half of the shelter would need to be converted into a lean-to shelter (with a single slope).

Now, I have two estimates. The first one is just for replacing the current tarp with a new one, and is for about $1100. The second one is for converting half of the car shelter, and for a new tarp for the rest, for about $3200. Ouch!

The second choice would probably the best for the long-term, since it would last the longest and prevent further damage to the house. Princess and I will probably take this course of action, but are taking the week-end to think about it.

Net Worth Update

As of October 1st, my net worth was $47 780 (up 3.9% from $45 984).

If I exclude house-related assets and liabilities, my net worth is $36 316 (up 4.7% from $34 671).

Assets ($118 321, up from $117 089)

• Bank Accounts $4 246 (down 32% from $6 252)
• Emergency Funds $2 729 (down 3.4% from $2 825)
• RRSP Accounts $30 974 (up 9.8% from $28 213)
• Non-Registered Investments $4 214 (up 15% from $3 641)
• Home $75 600 (stable)

Liabilities ($70 542, down 0.8% from $71 105)

• Credit Cards $3 195 (down 5.5% from $3 380)
• Student Loan $3 156 (down 7.1% from $3 399)
• Mortgage $56 890 (down 0.2% from $56 994)
• Heat Pump Loan $7 247 (down 0.6% from $7 293)

This month, I moved some money to my RRSP, which negatively impacted my bank accounts. I plan on maxing out my 2007 RRSP contributions before the end of the year, as well as a $2000 repayment to my Home Buyer Plan (which is more than the minimum I have to pay back every year).

Another encouraging thing is to see my student loan melting fast. It will be fully paid back in December 2008. I never accelerated repayment of this loan, since the interests are tax-deductible. Still, it will be nice to see that one go!

Cost of Fixing the Car Shelter

Princess and I have to replace the tarp of our car shelter, and this is going to cost us more than expected. We were planning about $500 for this, but it looks like it will cost us twice that.

When we bought our house three years ago, we also bought the previous owners' car shelter. Although it was paid seperately from the house and wasn't new, it was still a deal at $100.
Now, after patching it for two years, the tarp is so old that it's tearing up in multiple places. Princess' brother, who used to work in that sector, had told us it would probably cost us something like $300-$400 to replace it.

Turns out he hadn't realized how large our shelter is. It's big enough for two cars comfortably, and we've even managed to squeeze in a third small one when we had to. When I asked for a quote from the original company, as well as a second one referred by the brother, the amount was pretty much the same -- around $800. I figure that after we ask for a few modifications, replacing a few of the missing anchors for the legs, and taxes, the total bill will be pretty much $1000.

This had me questionning the necessity of having a car shelter for the winter. I've thought about shoveling the snow for one winter, but I must admit that the prospect is far from appealing to me. We will probably end up replacing the tarp, but it was a shock to realize the amount of money we will have to spend on this. Convenience has it's price!

The money will come out of my emergency fund. I will make sure to plan better for this in the future.

Investing Principles and Exercise

In the last two years, I have been spending (or rather investing) a lot of time improving my knowledge of personal finances and investing.

One of the principles that I have learned, and which I have been trying to integrate into my investing habits, is that quality, consistency and persistence win this race. You have to have a good plan, and stick to it.

I have decided to apply it to another area of my life -- health.

You see, my day job is that of a computer analyst. So I work in front of a computer most of the day, formulating solutions to problems and typing quite a lot. This requires a lot of concentration and mental energy. As a result, when I get home I don't have a lot of energy left and usually just sit in from of the television, or reading. As you can imagine, this is not good for me or my waist line.

I have tried to exercise on before, but the major problem I have hit is that I usually have dinner right away when I get home. The thing is, once I've had dinner, it is almost impossible for me to exercise. Call it a lack of will if you want, but the fact is that exercising on a full stomach is not good!

So, I have decided to exercise as soon as I get home on weekdays. I will spend 30 minutes on the threadmill at least 5 times a week. I will take this one week at a time. Slow and steady.

I call this my personal health investing project.

An Experiment in Credit Card Arbitrage

In recent weeks, I have been reading on credit card arbitrage. Basically, this is borrowing money using those 0% offers from credit cards on balance transfers, and using it to invest in a safe, fixed-term investment. At the end of the 0% offer, you pay back the money you borrowed and keep the interests you made on it. Since you are borrowing the money for free, even a 4% interest rate translates into free money.

So, I decided to do try this to see if it is worth the effort. So I signed in for a new credit card from Citibank, which is offering 0% interest on transfers until August 2008. I did this on September 16th. I am still waiting for the card and transfer cheques.

I will keep you posted on my progress on this experiment.

Net Worth Update

As of September 1st, my net worth was $45 984 (up 4% from $44 195).

If I exclude house-related assets and liabilities, my net worth is $34 671 (up 4% from $33 330). So, percentage-wise, my house's net worth change is keeping pace with the rest of my finances.

Assets ($117 089, up from $115 384)

• Bank Accounts $6 252 (up 80% from $3483)
• Emergency Funds $2 825 (down 44% from $5 018)
• RRSP Accounts $28 213 (up 1.4% from $27 828)
• Non-Registered Investments $3 641 (up 16% from $3 121)
• Home $75 600 (stable)

Liabilities ($71 105, down 0.1% from $71 188)

• Credit Cards $3 380 (up 20% from $2 813)
• Student Loan $3 399 (down 6.7% from $3 642)
• Mortgage $56 994 (down 0.2% from $57 098)
• Heat Pump Loan $7 293 (down 4.5% from $7 635)

In almost the opposite from last month, when the change was a decrease in debt, this month's change is almost completely due to an increase in assets. My investments partly recovered from the down markets in July, while my credit card bills increased enough to offset the payment of long-term debts. Note that Princess and I made an additional $500 payment to the heat pump loan, which is our highest interest loan.

Painting Tips

My princess and I spent the weekend painting her oldest daugther's new appartment. Things went fairly well, but I figured I should still go over the experience while it is fresh in my mind to see how things could go even better the next time.

First, let me describe the appartment -- it is a two-bedroom appartment on the 11th floor, in a building mostly occupied by university and college students. The previous renters were young males, and they smoked. The ceiling are made of lightly-textured stucco, with the floor covered by carpeting.

Most of the cleaning took place before I really got involved, since I went to get the paint while this was going on.

To make a long story shorter, here's a few tips to make things go faster and less expensive:

1. If you want colors, decide on them before going to the paint store. Selecting the right colors can take time, because the selection is huge.
2. Buy the paint and other supplies the day before. That way, when you get there to begin working, you can do so right away.
3. Get more supplies than you think you'll need. This is particularly true for primer, ceiling paint, and semi-gloss paint for the closets, doors and door frames. You can return usually any unopened white paint without any problem. Colors cannot be returned, though, so you should calculate surface you have to paint and plan 20% more. Having to go back to buy more paint while you are working is inefficient, particularly when your time is tight. Things you will need in addition of the paint: rollers, brushes, masking tape.
4. Other things you need. Screwdrivers, plenty of rags, plastic bags, small plastic containers to hold paint. At least one stepladder is a must (2 or 3 steps high).
5. Clean all surfaces before you start painting. When they leave, the previous tenants probably won't care how dirty the place is. Paint will adhere much better to a clean surface. Water and a general cleaning product will do.
6. Empty a room before painting it. If you can, get all the furniture out of a room before you paint it. Always bumping into someting is frustrating, wastes your time, and can be painful. If you cannot empty a room before painting it, cover everything.
7. Cover the floors. Paint will splatter, that is unevitable. All painting stores sell rolls of this plastic to cover the floors. They are worth it, unless you want to spent hours cleaning the floors after you finish painting (and when you are already exhausted).
8. Prime everything. A coat of primer will save a lot of time and paint, provided you want a nice finish. This is particularly true if there were different colors than the ones you want. Primer dries very fast compared to regular paint, so you'll be able to apply a second coating within an hour after priming. The paint will adhere much better to primer than to anything else.
9. Ceiling should be white. White ceilings reflect more light. White paint is also less expensive.
10. Clean your tools frequently and carefully. Don't let your brushes dry, clean them right away.

Enough for now. Let me know if you have more painting tips!

Net Worth Update

I haven't had time to post in July, and until August 14th I will be away on vacation.

As of July 31st, my net worth was $44 940 (up 6.4% from $42 229 on June 30th). This can be detailed between my assets and liabilities as follow.

Assets ($115 050, down 0.05% from $115 103)

• Bank Accounts $3 483 (down 11% from $3 913)
• Emergency Fund $5 018 (down 10% from $5 557)
• RRSP Accounts $27 828 (up 2% from $27 277)
• Non-Registered Investments $3 121 (up 13% from $2 756)
• Home $75 600 (stable)

Liabilities ($71 188, down 3.3% from $72 875)

• Credit Cards $2 813 (down 31% from $4 109)
• Student Loan $3 642 (down 6% from $3 884)
• Mortgage $57 098 (down 0.2% from $57 201)
• Heat Pump Loan $7 635 (down 0.6% from $7 681)

As you can see, most of the difference is from debt payments. I would like to point out that I pay down my credit cards completely each month -- I never carry a balance. But I do have two no-interest loans on one of my credit cards, on which I make a payment every month. It slightly inflates the amount I owe on my credit cards (about $1000).

My Net Worth

As of June 30th, my net worth was $42 229. This can be detailed between my assets and liabilities as follow.

Assets

• Bank Accounts $3 913
• Emergency Fund $5 557
• RRSP Accounts $27 277
• Non-Registered Investments $2 756
• Home $75 600

Liabilities

• Credit Cards $4 109
• Student Loan $3 884
• Mortgage $57 201
• Heat Pump Loan $7 681

Note that I use the city's evaluation of my house when assessing its value. Since we bought it three years ago, it is probably understating its real worth. I don't have a problem with that.

Also, I only include my part of the house, mortage and heat pump loan when calculating my personal net worth. My Princess' part (40%) is not included.

Knowing What I Spend

In my previous post, I described how I prepare a budget. As I explained, one of the most difficult part is listing all my expenses.

So how do I know how what my expenses are?

When this frog was much younger, he started at the university. At that time, our frog didn't have much money, so he did something to know where that money went, and to make sure he was not over-spending. He wrote down each and every one of the things he spent money on, down to the cent. Everything. The young frog did that for a year.

As you can imagine, by the time I stopped doing that, I knew perfectly well where my money was going. I'll admit now that it was a bit excessive. There is usually no need to do it for such a long time. Usually a month is enough to get a grip on your expenses.

The point is that by writing down all your expenses as they occur, it is much easier to track them. And once they are written down, it becomes easy to categorize them and see how much each category costs you. You don't need to do it all the time. I did it about 18 years ago. And while I was thinking about write this post, I realized it might be a good time to do it again for a month.

After all, my situation has changed a lot in 18 years. I think I still know where my money goes, but it might be a good thing to check. I'll try to do this in September, once the summer is over.

The Basics of a Budget

I think that a budget is one of the most basic and useful skills in managing your personal finances. It is a great planning tool.

Basically, you prepare two sections, with four columns each. For the heading of each column, you have "Description", "Amount", "Frequency", and "Period". For now, we will only fill in the first three columns for each section.

The first section is for income. It is the easiest one to fill. You write down all the amounts you expect to receive for the next year. This can be from your salary, dividend payments, whatever. For each amount, write down the frequency (for example, if your salary is a net $800 a week, while you receive $50 in dividends every quarter, write these down). If your income varies with time (for example, if you receive commission income that changes every week), use an average.

The second section is for expenses. That list can be quite long -- grocery, rent, car payments, phone, internet, insurance, clothes. Try to list everything, and include the frequency along with each amount. One good way to structure the expenses section is to use broad categories. For example, this could be:

• Home (rent or mortage, electricity, heating, taxes, insurance)
• Transportation (car payment, gas, bus tickets, driving license)
• Living expenses (grocery, phone, clothes, internet)
• Leisure (cinema, eating out, books)
• Others (student loan payment, life insurance, yearly credit card fees)

Once you've written down all the income and expenses you can think of, along with the frequency for each, it's time to bring them down to the same period of time. This can be a week, a pay period, or a month. Use whichever one is most convenient for you.

Now, for each item on your budget, calculate the amount of each item for one period of time. That's what the "Period" column is for. So, if your period of one month, your salary is $800 a week, and you receive quarterly dividends of $50, you would put down $3400 and $16.66, respectively (since a year has 52 week, each month is actually 4.25 weeks).

Calculate the total of the "Period" column for each section. Compare them. Are you spending more than you make? Even if you don't, there should be a margin of safety between your income and your expenses -- after all, we always forget to include something in the list of expenses.

More on budgets next time!

Getting Started, part 2

Before I get into the financial stuff, I thought I'd introduce myself.

I am 37, male, and a computer analyst. I currently work for a big consulting company in Quebec.

My spouse (whom I call Princess in this blog) is a few years older than I am. She works for the provincial government and has three children, all young adults. Two of those live with us.

A couple of years ago, we bought a 40-year old house. It is in good condition, but still needs a fair amount of maintenance and renovations. We handle most of the work ourselves, as we are lucky enough to have the skills.

Why did I choose the name 'Frog of Finance'? Because I'm a French Canadian and proud of it. And frogs are cute. It's also a play on the word 'Frog' vs 'Fog', since finances are so often murky and difficult to navigate.

Finally, I believe that handling my own finances can be fun, so expect a few jokes along the way!

Getting Started, part 1

How does one get started blogging about finance?

I have been reading financial stuff for about a year now. This includes a few books, but for the most part my information has been from web sites and online articles. A couple of months ago, I stumbled upon blogs that talk about finances and investing.

One of those left a deep impression on me. It made me think about what I have learned. Made me realize that writing about my thoughts, and receiving comments, could help me refine my financial strategy.

That blog is A Canadian and Her Money.

So thank you, The Money Diva, for inspiring this Frog!

Once Upon A Time...

... there was a young frog. Its life was a simple one -- the frog had a good job in its little pond, played with its friends, and visited its parents as often as it could.

Our frog had a little bit of money, which it decided to invest. At first it was clumsy -- it had some success, but made quite a few mistakes listening to poor advice. It learned why some called investing a jungle, although our little frog liked to call it a swamp. Life continued, the good but also the bad, as our frog lived through some hard times.

Then one day the frog got very lucky, and met a beautiful princess. They decided to live together, and were happy. But the frog knew that a day would come, as years went by, when its legs would loose their spring and work would become impossible. When such a time came, it wanted to be ready.

So it decided to learn more about finance, and that strange swamp that is investing. It read a lot, tried some things, read some more, and experimented. Then, one day, it stumbled upon the strange library of Blog, where it read about others also trying to navigate the swamp.

Discovering their story, the frog decided to share its own...