My New Best Financial Decision

I posted a way back when about the best and worst financial moves of my life. Well, in the last year I entered into one which is now the new best.

Back in March/April of this year I really started to feel like the economy was on shaky ground and I really didn't think that interest rates were going up much for the foreseeable future. As a result I started shopping around for a new variable rate mortgage. Keep in mind that at this time I had been in my house less than 2 years and still had over 3 years left on my original mortgage. After extensive research, my boss put me in contact with his personal banker who quoted me a rate of prime -1%. At the time I was paying 5.35% fixed with ING and a rate of prime -1 worked out to 4.25%. Considerably better than what I was paying.

My next move was to call ING and see what the penalty was, and see what they could do about matching the rate. They had no interest in matching the rate and informed me that the penalty was 3 months of interest. In my case about $3,000. At this time the posted rate for a 5 year fixed was above 5.35%, had it been lower than 5.35% I would have paid the greater of 3 months interest or the difference between 5.35% and the current rate for the duration of my mortgage.

I crunched the numbers and determined that payback on this transaction was about 14 months. I looked at the implications over the life of the mortgage and decided I would go for it. I assumed that rates would not go up during those 14 months and guessed that I would average below 5.35% for the duration.

As you know, since then I have had nothing but luck. As of today I'm now paying only 2.5% on the mortgage and I have a line of credit at 3.5%. This works out to about $6,500 in savings per year (shrinking as my mortgage value declines) at the current interest rate level. In all likelihood this transaction has saved me $20,000 over the next 4 years. Not too shabby.

The Herd Mentality

I just watched a great video on youtube outlining the market predictions made by Peter Schiff over the last two years. You can watch it here:

http://www.youtube.com/watch?v=2I0QN-FYkpw

In this video Peter consistently makes great predictions about the future of the economy while analyst after analyst tells everybody that everything is great and will only get better. My favourite part is when another guest is so confident that they goes so far as to try and bet Peter on the future results. Another great moment was the great Ben Stein's top pick of Merrill Lynch. Wonder how that stock pick worked out?

The point of this is that most investors & analysts just go with the flow and have very little insight on anything more than the very near term. If everybody is saying that everything is great, then it must be great. Right? The solution is to invest for the long term and to not get caught up in short term hype or BS being pitched by tv analysts.

RBC's Laptop Promotion

Its that time of year again where the major banks start to beg for your business. The past couple years, TD has offered an Ipod for you to switch over your banking. CIBC has offered $100. Last year RBC offered a $150 gift card if you switch your banking over to them.

This year RBC is offering the most valuable promotion to date. They are offering a free laptop to those who switch ($300 value). But you will have to do a bit of leg work to get the laptop.

In order to qualify you must:

-Open a new RBC Signature No Limit bank account or RBC Vip bank account.
-Use CustomSwitch to transfer your account balance and preauthorized payments from another Canadian financial institution
-Transfer at least 2 preauthorized payments from your account
-Transfer automated payroll direct deposit
-Select paperless statements
-Pay at least 1 bill through online banking

For more info, here is the link: http://www.rbcroyalbank.com/products/deposits/nolimit/index.html?ProspectID=013DF87E8A914A66A11C6147090ACFF4

It sounds like alot, but for many it just means "do your day to day banking with us". As I recently just moved my mortgage over to RBC I was going to do all but the EasySwitch anyway.

In a couple months I will have the new laptop, I will report back then on how it is. Based on the specs it appears to be a bare bones laptop suitable for surfing and minimal application use. Does anybody have any experience with the Asus line of laptops?

Selling Your Garbage and Cleaning your House

Your trash can be another's treasure; this is the idea behind Craigslist.com and Kijiji.com. I knew this to be true for your lightly used items, but I recently learned that this may be possible for items that you might otherwise have been planning on throwing out.

A few months ago my stove died. Thanks to the extended warranty that the previous owner of my house had bought, I was eligible for a brand new stove for free. Apparently the stove had broken with this exact same problem twice before. Once my new stove arrived, the delivery company instructed me that I would need to contact Whirlpool to have the old one removed. I figured that rather than send it to the dump, I might be able to sell it. It was listed on Craigslist the next day. I fully disclosed the problems and the approximate cost of repair. To my surprise I received numerous requests to come see it. Within a week I had sold it for $180. Not too bad for a broken stove.

I told this story to my manager who decided to try craigslist out for himself. He was finishing his basement and had ripped out the carpet. The company installing his new floors had offered to dispose of his old carpet for $200. Instead he listed it on craigslist. In less than 48hrs he had sold the carpet for $75 saving him $275. Pretty good for some old carpet. He later went on to sell some leftover bricks he had from an interlocking project that were taking up room in his garage.

What have you been able to sell that would otherwise be in the dump?

My New Car Buying Tips

As I stated in my last post, we recently purchased a new car. In the process of researching for this purchase I realized that I had numerous resources at my disposal that would save me a considerable amount of money relative to MSRP. Here they are in order of accessibility to the average person.

1) Negotiate, Negotiate, Negotiate

The worst thing that you can be when buying a car is what car dealers call a "lay down". Those that refuse to negotiate are just wasting a tonne of money. A dealers cost is typically 5-10% below MSRP. Negotiate accordingly.

2)Savings Plans through your employer/organization.

Most, if not all of the major car makers have savings plans that they offer to corporations and groups that they do business with. The typical discount is 4% below MSRP or 4% above dealer cost. You can typically negotiate a better price, but if that really isnt your thing, be sure to look for this. Honda has a particularly good program on eligible vehicles that allows you to negotiate your best deal and regardless of price paid, you get a rebate.

3)Apa.ca/CarCostCanada.com

Apa.ca & Carcostcanada.com are both websites that will provide you with what the dealer paid for the car. Armed with this information you should have the upper hand in the negotiation for your new car. Dont feel like negotiating? No problem, Apa.ca has pre-negotiated deals with some dealers. From what Ive read, it is very difficult to beat the price they have already negotiated. The cost of membership for these sites is $39.95 for 5 reports through CarCostCanada and $65 for 5 quotes through APA.CA. For the extra $25, go with APA for their pre-negotiated deals.

4)Employee Pricing

The employee pricing programs offered by most car companies apply to more than just the employee, they often apply to extended family so be sure to ask around if you know somebody who works for a car manufacturer. In my case I was eligible for Ford's Z-Plan. Z-Plan is for Ford retirees and I am obviously not a Ford retiree, but as the grandson of a Ford retiree I qualified. Those eligible for Z-Plan pay dealer cost. In my case I paid about $2500 below MSRP (pretty good for a 25K car).

The Case Against Public Transit

My wife recently go a new job closer to home and as a result will not be commuting to work on the train anymore. Off to the car dealership to buy a car. In the process of shopping for a car, I came to the realization that some of the benefits of public transit arnt all they are made out to be. Transit is made out to be a cheaper, more convenient alternative to driving. Lets compare.

The biggest issue I have is price. Living in the GTA, my wife had to up to 3 different transit systems between home and work (usually 2 because I drove her to the train station) every day.

The cost for each is as follows:

Go train - 4 X 10 ride tickets ~ $210
TTC - tokens ~$88
Local transit - $25 (likely cheaper than the gas & depreciation that was actually incurred)
Total cost: $323

Compare this to the monthly cost of a brand new economy car of about $200/month. If one were to go used it would be a little bit cheaper.

Add insurance of about $130 a month, gas of $150 and maintenance of $25 (assuming new) and we are at $505 per month to drive a car.

So it works out that the car is about $180 per month more than driving, but in this example the two total values arnt really apples to apples comparisons. When you own/lease a car you have the ability to use it 24/7, where as the cost of transit is just to get to/from work. I would have expected significantly more savings when comparing transit to driving.

The second factor touted is convenience. Adds show people sleeping, reading the paper and relaxed. This simply isnt the case. The subway cars of the TTC and the train cars of the GO during rush hour turn into cattle cars where the benefits of seats are usually rumour more than fact. Getting out of the train station is also painful. It can often take up to 20minutes just to leave the area as people sprint to their cars, or to the waiting cars of loved ones. All of the above assumes that the GO/TTC are even running on time and arnt on strike. Without fail 5 or so times per year there are multi-hour delays getting to/from work as a result of some sort of mechanical failure or accident and of course the all too common strike.

In a world where we are constantly being told to do what is best for the environment, in the case of transit vs car I am personally going to need more incentive.

Im back

Ok, its been about 13 months since my last post so what better time than now to come back. Since my last post, a great deal has happened in my life. Ive got married, my wife is starting a new job, and Ive been promoted. All of this will give me plenty of ammunition for future posts.

Im going to try and keep to the pace of two posts per week, hopefully I can maintain that over the long term.

P2P Lending in Canada- It Is Finally Coming

That's right folks, Canadians will soon be able to lend money to other Canadians via an online person-to-person lending site. For a little over a year, Prosper.com has been enabling Americans to lend money to other Americans at rates that are much better than your typical GIC or bond, all the while supplying the borrower with money at rates far below that of your typical credit card. Unfortunately, Canadians have been unable to take advantage of this service.

I recently discovered a site called CommunityLend.com that is promising to bring Canada into the world of P2P lending. As of now all that is available is a front page and a brief description stating that they should go live Fall 2007.

I for one am very excited for this opportunity. I think P2P offers a great opportunity for Canadians to further diversify their investment portfolios.