Blessed by the Potato

I’m not much of a big spender most of the time, so I usually manage to stay on-budget (or nearly so) without being obsessive about putting things in spreadsheets every day. Nonetheless, it’s still important to review things every month or two to make sure I’m staying on target and what-not, so I collect all my receipts in a box and add them all up (plus a generous estimate of my receiptless spending at Timmies) to see where I am. Well, with the wedding in October and what-not it turns out I haven’t sat down to do that in over 4 months. Ugh. My little box is overflowing and I think I’ve topped 100 receipts here to add up. The spending is outrageously overbudget, but to be fair includes Halloween spending, two car repairs (plus maintenance for that period), a new computer for myself (which had 3 different mail-in rebates totalling $100, none of which has arrived yet… grr), xmess presents, and an xbox (bought with xmas money). Aside from that stuff we didn’t do too bad.

Overall for the year we’re 11% over-budget, not counting wedding-related expenses (which, one way or another, will be one-time things) or my new computer. Oddly enough, the usual suspects of eating out and entertainment weren’t what sunk us. Instead, it was car repairs (30% over what I estimated/hoped/budgeted), gas (both natural gas for the house and gasoline for the car were 25% more expensive this year), groceries (almost 10% over every month, fairly consistently, with a small extra spike at the end thanks to glutardation), and hydro (~30% extra usage compared to last year, especially through the summer — I didn’t think I had the A/C on that much more, but I can’t think of anything else to explain it). That’s not a killer, because we had some pretty aggressive savings goals in that budget for a new car soon as well as a house at some point (Wayfare wants to get one in < ~2 years, but even with Toronto housing prices coming down 10%/year, it's going to take >3 years before it makes sense to buy vs rent; I’m also selling the rental plan, baby, selling it, because unless a miracle occurs I’m probably not going to have a firm long-term career established the instant I graduate).

On top of spending more than we’d hoped, our savings were hurt by the market downturn. I became fully invested in June, and since my car & other assets are next to worthless that means my overall net worth tracked the markets down, down down…

The Tax-Free Savings Account is now live. For those not keeping up, it’s the new complement to the RRSP and the only good thing “Canada’s New Government” has given us. You can contribute money to it ($5000 per year) to grow tax-free until you feel like taking it out. While the banks might charge a fee to withdraw, there’s no tax penalty (unlike an RRSP), and you can recontribute any withdrawls in later years so you don’t lose the tax shelter space (again, unlike RRSPs) so it’s a great account not only for retirement, but also for medium/long-term savings goals — no longer will the interest on that car down payment get taxed for the 3+ years you’re saving up while you drive your current one into the ground!

I filled my $5000 up this morning. For myself, I went with a brokerage TFSA at TD Waterhouse so I could hold stocks/mutual funds in it. If you’re going to hold cash/bonds for the long term, it makes sense to shelter those in the TFSA, but at the moment I’m nearly fully invested in equities/income trusts. I was planning on putting my holdings of Fort Chicago (FCE.UN) in there, in part because part of that distribution is interest income (which should be sheltered), but Yellow Pages (YLO.UN) was down to $7.11 this morning (and closed down at $7.02), which meant I could fit an even 700 units in there (vs the 687 of Fort Chicago) which just seemed neater and cleaner to my mind, so I did that even though it might not have been the most tax-efficient thing I could have thrown in there.

Wayfare, if all went according to plan, should have also contributed to her TFSA today, holding cash in a high-interest savings account at PC Financial to represent our need for cash savings.

I was talking to Netbug about the TFSA over the holidays, so hopefully he remembered on his own to contribute to the one he was going to set up (also at PC Financial). If not, consider this your reminder!

At the beginning of the year, I set a few goals for myself (though I wasn’t quite brave enough to make them public on the blog). In addition to things like making progress on my thesis, I had two major goals. The first was to educate myself about money matters, and to take a more active conscious/purposeful role in monitoring and managing my portfolio. That one I have met in spades, and if anything have gone too far in dabbling in the stock market this year. I think I’ve driven off at least two regular readers because they were bored to tears over the personal finance posts.

My performance in the market has not been great. For a large part of the year I was down, but down slightly less than the major indexes (go go active management!)… until one of my holdings dropped 99% on very bad news… I’m now down 38% on the year (counting savings through the year as cash at the beginning) which is just about the same as the indexes.

The other goal was to lose weight and get in shape. My long-term goal is to get back to the weight I was at at the beginning of grad school. At the beginning of the year, I was 40 pounds over that target weight. Of course, it would be unrealistic and unhealthy to lose all that weight in a single year, so my goal for the year was to lose the first 20 pounds. Sadly, I only lost about 15, and then regained 5 so that at the end of the year, I’m just down 10 pounds. Still, that’s progress, and more importantly, I’m in much better shape than I was this time last year. My heart rate and blood pressure are down, and my stamina is up. So overall, I’m pretty happy with how the year has gone.

I’m keeping my weight loss goal at 20 lbs/year again for 2009, and that’s in the Wii fit now, so no backing down. As long as I continue to make progress I think I’ll be happy (I figure I’ve got at least three years where I can convince my self-esteem that muscle weighs more than fat).

Well, January 2009 is right around the corner, and now it’s time to start thinking about packing money away in your shiny new TFSA to grow tax-free. What are some of the TFSA options out there?

High Interest Savings: I like the TFSA for a number of reasons, but the fact that it’s so flexible, allowing money to go out and come back without losing contribution room or incurring taxes is probably number one. Because of the flexibility of the account, it’s very well suited to serve as my emergency/medium-term savings fund, which calls out for a high interest savings account. Note, however, that you can’t recontribute until the year after your withdrawl, so don’t plan on using it as a revolving door high interest savings account.

Other Fixed Income: Bonds and GICs are taxed in a fairly harsh way (as are high interest savings accounts). But, they should form at least a small part of one’s portfolio, so the ideal place for them is within a TFSA. However, I haven’t seen any GIC TFSAs advertised yet.

Stocks, index funds: I don’t plan on having any stocks or index funds in my TFSA in the first year, but with $5000 contribution per year, I also don’t plan on having $10k in fixed income/emergency funds by year 2, so next year I will probably switch to having some equities in there. Most likely I’ll throw my index funds in, not necessarily because of tax preference, but for tax simplification: it’s just a lot harder to deal with calculating tax due on a mutual fund than it is for a stock. Note however that US dividend-paying stocks would benefit more from being sheltered. It will also depend on fees, as self-directed RRSPs (for holding US stocks, for instance) generally have annual fees whereas mutual fund RRSPs don’t, and it will probably be the same for the TFSA.

I’d like to go into more detail on the various offerings, but firstly most of the banks haven’t released the details yet, and secondly, that’s been covered by virtually every PF blog out there, so you can easily find it and I’d be wasting my time.

For those who don’t know, the TFSA is the new tax free savings account, just about the only good thing given to Canadians by the Canada’s New Government (and I suspect, only so they can find tax leakage in it and take it away later). You put money you’ve already paid tax on into your TFSA, where it can grow tax-free, and can be taken out tax-free. It’s quite flexible, and in many ways superior to an RRSP (where you put pre-tax money in, it grows tax free, and then you pay tax on the withdrawl). For many people, especially those in lower incomes (low enough that you expect to be in the same or higher tax bracket at retirement as when you’re contributing), it may not make sense to contribute to an RRSP (and indeed, I do not have one yet), and the TFSA might be your first choice of savings vehicle.

Well, I own some TD, and it’s way down this week, and it’s probably going to get worse today. They’ve decided to have a share issue to top up their capital levels, which is not news that I wanted to hear. I honestly thought that they would be the one bank to side-step this mess and make it through with out a dilutive share offering… especially since they made a preferred offering early on in this mess.

D’oh.