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It’s been fun!

Posted by on Sep 4, 2014 in Uncategorized | 9 comments

This week marks two long years since I inked my first post. And it’s been fun! Although this one might be my last… at least for a while.

I started this little blog with the intention of helping struggling dads and others rethink their own financial habits and priorities to get to a place of financial stability. I also did it partly for myself. To prove to myself that I could do it. I never realized how time consuming blogging can be or just how hard it can be to push the publish button on a post. Maybe out of habit, but to this day, I still look away from the screen when hitting “Publish”. It’s somewhat daunting. Will readers connect with it? Will they like it? But amongst all the challenges, it’s also a really rewarding experience a) when you know you’ve written a post that made YOU smile and b) when your post resonates with others. There’s nothing better than getting votes of confidence in your comment section. It’s kind of like getting all the shiny stickers on your school paper. And it’s something, as a blogger, I think each of us always look forward to.

“Some of us think holding on makes us strong;
but sometimes it is letting go”

– Herman Hesse

I often talk on the site about setting priorities and assessing what’s really important to you. And one of my big goals this year was to let go and work less. I was taking classes, working practically two jobs in addition to writing for the blog, while trying to be a son, a brother, a husband, and a daddy. Time has it’s limits. So I started this Spring letting go. I took on no more new classes, but I took on a better position at a new job, which allowed me to free up my nights working. And I started giving myself a week off from the blog every month and had planned to take some time off in the summer too. Then I got some news.

My father had suffered the past year from ALS and while away on business, and quite unexpectedly, I got the call that he had been rushed to the hospital. So I cut my trip short and tried to find the quickest flight out of town, which I quickly found, was no easy task. But I flew out the next day and as I flew through a mountain of clouds, I kept thinking that one of them might be him. But in the end, I did make it in time to say my final goodbyes to my own thrifty dad. It was a tough day. A tough week. A tough month. And it’s times and challenges like these that they say, sometimes make you reevaluate your own priorities. Your own journey. And it did for mine. After a while away from the blog, it’s always difficult getting back in, but the time away gave me time to pause and reflect and think.

“It is good to have an end to journey toward,
but it is the journey that matters in the end”

– Ursula K. Leguin

I met a lot of great people, and I learned a great deal. But this might be my last post for a while. I am incredibly appreciative of all my loyal readers who read and commented on my posts week-to-week and also to those new ones that are just finding me. I’ve enjoyed connecting with all of you. I enjoyed reading your posts and I enjoyed writing even more. It’s funny, even as I sit here writing this, there’s a small part of me that is saying ‘maybe just a few more posts’. And although part of it excites me, I’m more excited by the start of a new journey (and I have to admit, all my free time). Where this site goes from here, I cannot say. But there’s a part of me that would like to see it maybe pass onto a new gen of thrifty dads.

But for now, I think it’s time for me to put the down the pen and be a dad again.

Thank you!
Anthony (Thrifty Dad)

Image courtesy of anankkml at FreeDigitalPhotos.net

Is a cottage a good investment?

Posted by on Jun 26, 2014 in Mortgages, Travel | 5 comments

Summer has begun and many Canadians are flocking north to cottage country, to relax and get away from the hustle and bustle of the cities. For many Canadians, owning a cottage is a dream. There’s something about having a place to call your own. A place that your children can grow up in and build memories. And we did as well – although, my parents never purchased a cottage.

When we were young, they would rent the same wonderful cottage every year, about an hour north of us and minutes from the beach. It neighboured two other cottages, side-by-side, which my uncles had rented as well. They were pretty sizeable cottages, but we come from a pretty sizeable family and we all shared living quarters with one other. All in all, including us kids, there were about 20 of us. Many of my closest cousins were there. And some of my fondest memories were there: playing soccer in the grassy fields, swimming in the neighbourhood pool, hiking adventures and days at the beach, and catching frogs and skipping stones. We made fun and memories out of pretty much nothing.

So I completely get it and I completely get generations of cottage owners wanting to pass it down. But although the idea of it sounds lovely, my wife seems to think that because I don’t want to ‘own’ a cottage, that I’m not really a cottage person and that’s not really the case. I also like to travel and explore new places, experience different cultures and not necessarily be tied to one place. Aside from being tied to one place and not being able to afford one right now, there’s also countless other financial reasons why I don’t think it makes sense for us.

What’s it worth to you?

Unless you want to drive for a while, it’s not uncommon to see little cottages within an hour drive of us, selling for upwards of $200,000. In fact, it’s fairly common to see some going for upwards of $300,000. And unless you plan on that being your primary residence, it’s pretty pricey, especially considering the short seasons we have here. At most, I think most provinces get about two months of great summer weather – two months! July and August really are the prime cottage months with temperatures where I am, hovering around the high 20’s, with anywhere from 5-10 days above 30ºC (86ºF) and water’s generally much cooler. Yes, there are the avid cottagers that go year-round, and some who work from their cottage, but I would say those are few and far between. Saying, if you owned one, that you’d go more often and actually doing it are two different things.

But here’s where financially the thought of a cottage, just doesn’t make sense to me. I can rent a cottage for the price of about $1000/week, $2,000/week for one that sleeps about 8 people or 2 families, which essentially brings me back down to $1,000. So my thought is, would I rather spend $300,000 on a cottage, or take three-hundred $1,000 vacations? Let’s say it’s a beautiful $2,000/week cottage, $300,000 can still buy me 150 one-week vacations, 75 two-week vacations – or another way of looking at it – 75 years worth of $2,000 vacations, twice a year.

Look, even if you were to spend $10,000 to take your family on a nice big trip once a year, you would still be able to do that for the next 30 years. And that doesn’t include a pinch of maintenance costs, which can be really expensive. Decks and docks, replacing old plumbing/septic tanks, just to name a few. And it also doesn’t include the mortgage carrying costs. For most buying into the cottage market, it’s usually their second home. And after interest costs and all is said and done, that $300,000 cottage is closer to a $400,000–$500,000 cottage.

On the bright side

Now, I’m not saying cottages are bad investments. Some things hold sentimental value. And in some markets, you may be able to find a cozy little cottage for $50,000. Or maybe you live in an area where you get longer periods of sunny weather. And if you’re comfortable sharing that family cottage, there’s also the ability to turn that cottage into a rental property, in which, even a couple of months a year can help cover your annual maintenance costs and help to pay down some of your mortgage. Which depending on the area, could turn out to be a great investment, provided you can afford the upkeep costs.

Now this cottage example could be a metaphor for so many other things. Whether it’s a cottage or any other long-term investment/purchase that you’re thinking of, put aside your beverage and Muskoka chair, stop romanticizing for a second, and ask yourself if it’s worth owning. Are there other options? Or how can you get the best value out of your investment?

Dream of owning a cottage? Own a cottage (*gulp*)? Is a cottage a good investment? What are your thoughts? Leave your comments below.

Image courtesy of Evgeni Dinev / FreeDigitalPhotos.net

Worry about saving first. Then your investment performance.

Posted by on Jun 19, 2014 in Investing, Saving | 6 comments

Investment returns are important. No doubt. Just a few extra percentage points compounded over time can add tens of thousands to your portfolio or retirement nest egg. But sometimes we get too caught up in the numbers, and chasing investment performance, when we lose site of what’s arguably more important – how much we’re saving. And other times we just lose site of what we’re really getting.

The 100% return

I was having a conversation with a friend who was complaining last year when he got his annual investment performance report from his company that his investments in his company’s defined contribution retirement plan weren’t doing all that great. Now most defined contribution plans that company’s offer here in Canada seem to be restricted as to the funds they offer. My last company plan was like that. You had to pick from a pool of a little over 20 funds – of which maybe 5 were balanced funds, 5 Canadian equity funds, 5 U.S. equity funds, 5 global, 5 fixed income and so on. On the one hand it’s a good idea for the average investor, in that they don’t offer terribly risky funds – this is your retirement nest egg after all – but you also get handed a limited (crappy) selection of funds that you would probably never pick yourself. So, in the end, the returns never end up being that great, or are they?

So he was complaining about a 4% return. Not a great return. But not a terrible one either. So I joked “well, at least you’re not losing”. But I wasn’t really joking and he didn’t really seem all that amused. So I told him, “you’re not making 4%, you’re making 104%, and that’s a pretty good return to me.” He laughed, “what do you mean 104?” Most people forget that in defined contribution plans / 401k’s, where the company matches up to a certain percentage of what you contribute, they are doubling your investment right off the top. Where else can you get a return like that? I can be happy with that.

We’ve gone through a few years now of great returns. Markets across the world are at all time highs now, and continue to rise, ignoring all sensible market indicators. Low interest rates have definitely fuelled a lot of it. Where else is someone to park their money? But what happens when interest rates rise? Or are we headed for a big correction before then? No one can say for sure, and it’ll differ depending on where you live too.

If we look at the US S&P 500, since 1960, there have only been 3 years when the market did NOT experience a 5% correction. So for my defined contribution plan, I’ve been slowly moving to more conservative investments for now, preserving some of my capital. After all, I’m already getting a 100% match dollar for dollar, up to 3% of my earnings.  Sure, it would be nice to get a few extra percentage points above that. But as long as I’m not losing, I’ve already doubled my money. I’m not all that worried about a percentage here or a percentage there.

Why what you save is more important

Is what you save more important than your return? Absolutely! Let me paint this simple example. Let’s say you set aside $100/month, Warren Buffet lent you his good luck shoes and you make a great 10% return, compounded monthly. At the end of the year you made $1,256.56. Let’s say you decide to double your savings and put aside $200/month, but instead are weary of the market and decide to lock it into a safe 1-year Guaranteed Investment Certificate (GIC) bearing a paltry 2% return (compounded annually). Can you guess who comes out ahead. Right, of course, the paltry 2% GIC. At the end of the year, you’ll have accumulated $2,421.92, and all with no risk. Extrapolate both numbers 10 years, that works out to $20,484.50 and $26,519.36, respectively. A 2% return trumps the 10% return.

Now of course this may sound overly simplistic and you’re probably thinking, okay, but you’re asking me to double my savings. But you don’t have to double your savings. All I’m really saying, is if you focus all your energies on how well your investments are performing, and don’t pay attention to what your saving, you’re really not coming out any further ahead.

Of course there is the flip-side argument that if you can generate a larger return, you don’t have to save as much. And this is true. But what kind of returns are you chasing? In most cases, buying index funds, have been shown to outperform the majority of management-led funds and investment earnings are not guaranteed after all. Savings can be.

I’m not disputing the fact that investment returns are important nor that you shouldn’t try and get the best return on your investments. But I’m always cautious when the markets reach these peaks. And if you want to really bump up your investment returns, just start saving more. Save early, save often.

Image courtesy of scottchan / FreeDigitalPhotos.net