As we’ve all observed, gas prices and grocery prices are again going up.  It costs more than $3 to buy a loaf of bread.  As I stared at the commercial bread isle, I thought to myself, “There’s got to be cheaper bread than this… and healthier!”  It was at that point I took a leisurely stroll through the bakery.

Fresh baked 7 grain bread – $2.59!  Boo ya!

Awesome because:

1. Less expensive
2. Fresh, locally made
3. Probably more nutritious - Fewer, if any, preservatives, for example.
4. You can ask the bakery to custom slice the loaf to whatever width you want for FREE!  HELLOOO!  ”I’d like 14mm slices, please…. nah, make that 13mm.”

I made a sandwich on the bakery bread as soon as I got home.  It was incredible – and that is no exaggeration.  Tender, moist, delicious bread – and the crust was actually crusty – like it was baked in an oven.  Makes me ‘wonder’  how commercial  breads are made.

Winning!

- Most people, including yourself, are illiterate and don’t know how to add or subtract.
- There’s only one denomination of currency available: 1 dollar coins.
- Debt is not an available option.

Each month, you receive 5,000 loonies as your salary. Because you don’t know how to write or add, you immediately have to count your loonies into piles to pay for things that you know you’ll need to pay for. So you count out 1,500 and store that in one corner of your room. That’ll be used to pay the landlord. (You have to rent because you don’t have enough loonies to buy your house outright.)

Next, you count out 500 loonies and store that in another corner of your room. That’ll be used to pay for your groceries. You go on to count out piles of loonies for gas, heat, hydro, insurance, and so on.

You’ve learned that your car occassionaly costs a lot of money when it breaks down – and since debt is not easily available, you need to make sure you have extra loonies piling up just in case.

One day, your car does break down. The mechanic tells you it’ll cost 5,000 to repair. You pray to God you have that amount in the pile of loonies you’ve been stashing away. You run back to your house and start counting all the loonies in that pile only to find out you have just 2,000 loonies.

You begin to look around the room. There are more piles of loonies elsewhere. But should you grab some from the grocery pile? How about the rent pile? You decide to grab money from the house maintenance pile and a little bit from the grocery pile. You’re going to have tighten your belt this month and hope nothing breaks in your house.

And this is where I think most accounting systems have completely fallen short. They make it easy to set a budget. But they don’t make it easy to keep track of an accumulation of reserves.

If you were following a typical accounting system, you would’ve grabbed the money from your bank account – which might’ve had a pool of maybe 8,000 dollars in it – and then figured out how to account for it later.

Actually, if you’re like most people today, you would’ve just put it on credit since you wouldn’t have even had 8,000 in your bank account.

The point I’m trying to make is that I think we should all view budgeting as if we’re receiving piles of loonies and need to physically organize them according to how we’re going to spend them. Simply setting up a series of goals and then waiting till the end of the month to see if we went over or under is not good enough.

This is the same concept as the envelope system but I’m saying it needs to be virtual and it needs to encompass more than just the monthly expenditures. It needs to emcompass quarterly expenses (saved up monthly), and long-term goals as well.

If we manage our finances this way, we’ll always know how much we have for certain things and we won’t need to stress about money.

(I wish I had the resources to turn my in-house financial management system into something more distributable and user-friendly.)

I’ve been reading about the protests in France, stemming from a proposal to increase the retirement ages from government pensions from 60 and 65 to 62 and 67, respectively. Public workers in various industries are in on the action, including oil refinery employees. The article states that about 1/3 of the nation’s gas stations don’t even have petrol gas! With protests, blockades, and fires running rampant, I was happy that this phenomenon will be localized in France and France alone.

But NO…this is not the case!

The reason the French government is doing this is because there’s a large crop of older workers who’re retiring. So not only are they not paying into the government pension pool, they’re also withdrawing from it! This forces the next generation to support a huge crop of retired public servants. The situation is much worse in the USA.
The UK also seems to be jumping on board.

The issue is government fiscal policy. A quick look at the G8 countries shows the following debt levels, as a percentage of GDP, as well as the deficits they’re running:

* 2004 numbers

As one who keeps the books for the family’s personal finances, I am appalled by these numbers! There is absolutely NO WAY any sane human being should be running deficits (read: spending more than earning), especially when in such huge amounts of debt! Now, many individuals have higher debt loads as a % of yearly income (~GDP)…but these individuals own have purchased houses!

Nevertheless, we are forced to do the following, in light of all of this:

Thoughts?

It’s been a while since anyone posted to this blog; so I hate to post a quick lame link to an interesting article I read in passing. Nevertheless, that’s exactly what I’m doing. =P

I thought it was encouraging to know that other people also think meeting regularly with others to talk about finances is a smart move.

Ok, I want to see someone else post something now. =)

So what is it? Here’s how it works:

- Take the property’s income minus expenses for the year to get net operating income (NOI).
- Divide the NOI by the purchase price (PP) and you’ll get a percentage. That’s the cap rate.

In mathematical terms: Cap Rate = (Income – Expenses) / Purchase Price

Multi-res buildings in an area should all have a relatively similar cap rate since it only makes sense to pay more for something that is generating more profit and less for something that is generating less profit. So the ratio is maintained. As rent increases over the years, so too does the purchase price.

Ottawa’s downtown has a lower cap rate (less NOI is generated for a higher PP), while the outskirts of the city has a higher cap rate (more NOI is generated for a lower PP).

Since all the rental properties in Ottawa have a similar cap rate, it’s possible to work the formula around and compute the purchase price (or market value) if you know the income and expenses for a property. This is useful both as a negotiating measure and as a way to analyze what a property is worth.

In mathematical terms, the formula becomes: Market Value = (Income – Expenses) / Cap Rate

It’d be nice if it was that simple but.. sellers don’t give you management, maintenance, and vacancy. And when an advertisement for an investment property boasts a high cap rate, check the numbers!! They probably didn’t factor in all the costs.

It’s also good to know that the mortgage payments (or annual debt service) is not ever factored into the equation. The reason for that is because everybody finances the property differently. If Brock bought a property and paid cash for it and Jeremy bought a property and financed 100% of it, that shouldn’t change the value of the property, right?

If you were given $1000 and then had the choice of either a) a 50% chance of getting another $1000 or b) a 100% chance of getting $500, which would you choose? Think about what you’d pick before reading on.

Now, if you were given $2000 and then had a choice of either c) a 50% chance of losing $1000 or d) a 100% chance of losing $500, which would you choose? Again, think about what you’d pick before reading on.

His point was that the majority of people would choose (b) and (c). However, according to mathematical probability, (a) and (c) are identical and (b) and (d) are identical. The reason people would choose (b) and (c) is because they avoid risk when it comes to gain but seek risk when it comes to loss. This is partly why the stock markets can change so rapidly and are so unpredictable when the trend shifts downward: people who were predictable on the up-tick tend to become less predictable on the down-tick.

I think we all sort of knew that intuitively. But personally, I think it’s neat to see it spelled out so plainly.

I can honestly say that I think my answer would’ve been (b) and (c) as well. Not even sure I’d change my answer either. What about you guys?

P.S. There’s a 30-second video about the book here: http://www.niallferguson.com. I can lend my copy of the audio book if anyone’s interested. Thought this was humourous: In his interview with CNN, he says “Canada’s said to be a rather boring country and it’s banks to be especially boring; but I’m in favour of boring banks. I think a lot of what banks do should be boring. They should take deposits from us and they should give loans to us. And they should not blow up the World economy.”

Hide the wires – Instead of buying the expensive plastic shields from the hardware store that hides cables, I’m going to take some paper, duct tape, and paint. I’ll cut a thin piece of paper (thinner than the duct tape), and then tape it over the cables. Then I’ll paint over it so that it blends right into the wall. I tried a small sample to see how it would look and am impressed that it gave such a smooth, seamless look.

Poop at work – I realized today when my wife took the initiative to buy more toilet paper, that I don’t remember the last time I used our own toilet paper since I tend to poop at work. =P So it got me to realize.. hey.. just hold it till you can use the paper at work. Then you won’t need to buy toilet paper as often.

=P

From what I gather from Wiki though, the deal works like this: a deal-of-the-day is voted on by the community until enough people vote it into existance.

According to Wiki, there are other comparable services as well:
- MyCityDeal
- 8coupons
- BuyWithMe
- Thrillist
- Woot
- LivingSocial
- wahanda
- Jasmere.com

If anyone is using this service, please share your experience. Are there any pitfalls aside from the gentle persuasion to buy something you wouldn’t have otherwise bought?

Scenario – You’re in $10K debt.   The following is my perception of debt.   If you have $10K of debt, this means you have NEGATIVE money.  It shouldn’t matter what ‘arrangement’ you have with your bank on how to pay that money back.   On paper, your income is not your own – it belongs to the person who lent you the $10K.   Would you all agree with that?

For better perspective, think of the ‘bank’ as your neighboor… literally living in the house beside you.  Imagine if that were the case!  (scary).  I’d feel so akward looking that dude in the eye knowing I owe him $10k.   Now, how do you think that dude would feel if he found out you were giving $100 of your income to some charity instead of paying him back?

See where I’m going?

So the question – if you have negative money – if you’re income is not your own – if you owe someone/some organization money – is it ethical to be giving your money away to charity instead of paying your debts?

The answer to this question might be very clear (or maybe not) – but I’d like to hear how you guys would articulate your answers.

Most of my social circle during my early professional years consisted of people who placed a great deal of social worth on consumption. Respect and friendship were doled out based on the elecronics you owned, the clothes you wore, the golf clubs you had, the places you ate at, and so on.

I made a valiant effort for a few years to run with this crowd. I dressed wonderfully. Sarah and I ate at tons of nice restaurants. I had the latest gadgets, including piles of video games. I went out with the gang a few nights a week. The list went on and on.

In order to stick with this crowd, though, a person had to spend – and keep spending. Every single person in that group was living beyond their personal means. I suspect that some of them had parental help, but I’d be willing to bet all of us had some level of credit card debt.

My current circle of friends is much, much different. We get together for regular potluck dinners. We play board games around the kitchen table. We have conversations about life goals and about ways we can maximize our bucks and our time. We share clipped coupons with each other. We laugh together and goof off together.