Preet Banerjee (Where Does All My Money Go.com) had a great post yesterday about BMO’s plan to rename several of their index mutual funds.

BMO’s plan to me is a sneaky way to cash in on the continuing move by investors towards ETFs.  Preet makes a great point  that this will just add confusion.  Having “ETF” in the name of a mutual fund will make the simple concept of ETFs more complicated for new investors.

I encourage you to visit Preet’s blog…

Avoiding large impulse purchases is critical to achieving savings goals.  It’s great to eliminate the daily $4 latte, but a single purchase of a fancy new gadget can quickly eliminate months of those savings.

To help avoid impulse buys I established a simple personal rule:  I must wait 3 of days for each $100 of the purchase price.  For example, if I want to purchase a fancy new gadget for $400, I tell myself that if I still want it in 12 days I can consider purchasing it (provided I already have enough savings to purchase it).

In most cases I find that by the time the “waiting period” is over I usually don’t want the item anymore (or realize it wasn’t truly needed).  This not only saves me money but eliminates the clutter of having various purchases lying around in the home.

Readers – do you use a similar tactic?  I’d love to hear about other savings tips.

Disclaimer:  This blog has no professional association with any organizations or companies mentioned in the article.  The contents of the article are the personal opinion of the author at the time the article was posted and may be subject to change.  The blog and author are not responsible, nor will be held liable for any content posted by others in the blog comments.  Readers should complete their own due diligence prior to making any personal decisions.

Recording and tracking every item to establish a monthly budget can be a tedious exercise. I must admit that my wife and I haven’t done this in the past.  However, we recently decided that an accurate picture of how much we spend on various items each month will be important as we plan on a home purchase in the future. Knowing how much we currently spend on things is the first step in establishing a future budget.

To ensure that we wouldn’t find the exercise too tedious or administrative we adopted a very simple system:

1) Focus on one type of variable expense to start – We decided to start by tracking the amount we spend on groceries (we assumed it was a large variable expense for us each month). By focusing on one type of variable expense we could ease into the exercise and not be overwhelmed with tracking absolutely every purchase right away.

2) Use a very simple tracking method – No spreadsheets or fancy software programs.  We decided to just keep every grocery receipt and put them in an envelope.  If you make all purchases on the same credit card you may be able to just look at the monthly statement.  With this method there was little to no overhead and we didn’t need to coordinate “who” updated the spreadsheets/programs.

3) Don’t worry about the tiny category details – We didn’t worry about separating the details of the grocery store purchases into subcategories.  We just added up the totals on each receipt. For example, if we purchased a cake to bring to a party as a gift, we considered it a “grocery” and not a “gift”. Other items included toothpaste, hair products, etc. that some programs categorize as “personal care”, we simply included all of these as groceries.

At the end of the month, we added up the pile of receipts and could see how much we spent on groceries (the total turned out to be very close to our estimated budget).  We plan on continuing this for a few months to confirm the average amount and may move on to other categories as well (by simply using separate envelopes!).

Although our method is very simple, there is one key drawback to the system – not knowing the running total during the month doesn’t allow you to adjust spending during the month. Our system is better suited to establishing an initial budget rather than ongoing management and minimizing of expenses.

Readers, do you have any simple budgeting tips to help people get over the “it’s too complicated or tedious” barrier?  Please share!

Disclaimer:  This blog has no professional association with any organizations or companies mentioned in the article.  The contents of the article are the personal opinion of the author at the time the article was posted and may be subject to change.  The blog and author are not responsible, nor will be held liable for any content posted by others in the blog comments.  Readers should complete their own due diligence prior to making any personal decisions.

Inspiration and education can come from unexpected sources. I was recently playing the game Mafia Wars on the iPhone 3GS and realized that it was an excellent reflection of important savings and investment concepts.

In the real-time simulation your character is a mafia boss looking to amass a fortune and grow the size of the mafia. Each hour you receive income from the mafia’s various business and have the option to spend the income on either investing in more businesses (to increase hourly income) or purchasing fancy cars, weapons and other fun stuff.

It was very interesting to see that the strategy needed to be successful in the game paralleled many important “rules” of personal finance:

Start Investing Early and Take Advantage of Compounding – Instead of purchasing fancy cars and weapons right away, start the game by re- investing the income in more businesses. The amounts may seem small at first but adds up over time.  By purchasing more businesses every hour you will see your income grow.  This is similar to investing in the real world where income from dividends may seem tiny at first but DRIPing over time can grow income into a substantial amount.

It’s Not Always Exciting in the Beginning – It isn’t very exciting re-investing the income every hour. The game is much more fun when you attack rival mafias and rob banks.  However, patience in the early stages of the game is a key to long-term success.  This is very similar to investing where the early stages aren’t always exciting and it is difficult to see the future rewards.  It may be tempting to trade in and out of stocks for the thrill; but this usually is detrimental to long term success.

Spend Less Than You Earn – The fancy cars, equipment, etc. all have maintenance costs that are deducted from your mafia’s hourly income.  If you spend more than you earn eventually you will have to sell some of the cars and equipment at a loss.  Only buy what you can afford.

Be Ready for Emergencies – You may incur unexpected medical expenses or need to replace cars and equipment when rival gangs attack.  Make sure you keep some cash on hand to pay for these unexpected emergencies.  In your real financial plan, always maintain several months of expenses in cash to handle unexpected situations.

Playing the game really helped bring the rules of investing and savings to life.  Instead of just reading articles and books I could see how the numbers and figures added up over time (albeit in a simulation).

We often hear about how unprepared and uneducated individuals are about their personal financial situation.  Hopefully, the younger demographic playing games like Mafia Wars will be able to take some of these concepts and apply them to their personal financial plans!

Readers, have you come across unexpected sources of investment inspiration?  Please share!

Disclaimer:  This blog has no professional association with any organizations or companies mentioned in the article.  The contents of the article are the personal opinion of the author at the time the article was posted and may be subject to change.  The blog and author are not responsible, nor will be held liable for any content posted by others in the blog comments.  Readers should complete their own due diligence prior to making any personal decisions.

Some recommended weekend reading…

  • Garry Marr of the Financial Post writes that variable mortgage rates may not be the obvious choice anymore in the article “Variable rate may no longer win
  • MoneySense magazine has a new article on the timeless classic of saving money over the long term to reach $1,000,000 in the piece “How to save a million bucks

Disclaimer:  This blog has no professional association with any organizations or companies mentioned in the article.  The contents of the article are the personal opinion of the author at the time the article was posted and may be subject to change.  The blog and author are not responsible, nor will be held liable for any content posted by others in the blog comments.  Readers should complete their own due diligence prior to making any personal decisions.

The introduction of Tax Free Savings Accounts a couple of years ago is one of the best programs to be introduced for Canadian investors in some time.  After all, anything to reduce the amount of taxes we pay is a good thing.  There are numerous online discussions on various strategies for the TFSA: emergency cash savings, RSP alternative, dividend income growth, high-growth speculation, etc.

In the first year I didn’t put much thought into the account and threw the deposit into a high rate savings account.  However, recently inspired by various online dividend growth blogs and Lowell Miller’s “The Single Best Investment”, I’ve decided to establish my TFSA as a dividend income compounding machine.  My plan is to buy consistent dividend payers (or dividend stock ETFs), reinvest the income through synthetic DRIPs and take advantage of my 15 to 20 year time horizon to let compounding do its magic.  To start I’m looking at the following stocks:

  • Emera (EMA)
  • Fortis (FTS)
  • iShares Dow Jones Canada Select Dividend Index Fund (XDV)*

* iShares recent switch to monthly distributions for XDV may impact my decision on this stock as the distributions may not be enough to DRIP a whole share

A big advantage (apart from no tax) of using the TFSA is not having to track the adjusted cost base as dividends are reinvested. Over time, I’m hoping that consistently adding to the account each year and reinvesting the dividends will help me supplement my income ~15 years from now.  We’ll see how it works out.  I’ll post updates from time to time.

What are your thoughts?  Are there any readers out there using a similar strategy for the TFSA?  I’d love suggestions.

Disclaimer:  This blog has no professional association with any organizations or companies mentioned in the article.  The contents of the article are the personal opinion of the author at the time the article was posted and may be subject to change.  The blog and author are not responsible, nor will be held liable for any content posted by others in the blog comments.  Readers should complete their own due diligence prior to making any personal decisions.