I’ve seen the cost of cars broken down to the cost per kilometer of driving, and I’ve seen it broken down to cost per year. However, neither approach seems to measure costs in the way I want. So, I set out to figure out how to model the cost of my car. I want a better idea of what it costs to have a car and how much it costs to drive it. I began by recording all my car costs in the following categories: – Purchase price – Fuel – Maintenance and repairs – Licensing – Insurance I recorded the month of each cost so that I could use historical Consumer Price Index figures to adjust for inflation. For example, to adjust a cost of $100 in January 2010 when the CPI was 115.1 to March of this year (CPI 122.9), calculate ($100/115.1)*122.9 = $106.78. Then I added up the adjusted costs in each category to get the totals in today’s dollars. The big question is what to do with this data at this point. One possibility is to work out the cost per kilometer. But this seems misle...

The standard age to start collecting CPP benefits is 65, but you may get a reduced pension as early as age 60, or get a larger pension by starting as late as age 70. A factor affecting the decision of when to start collecting CPP that I hadn’t considered before is the penalty that comes with years when you make no CPP contributions. Most descriptions of how to calculate your CPP benefits are too hand-wavy to be useful. However, Doug Runchey wrote a great post at the Retire Happy Blog on how to calculate your CPP retirement pension . I used this post to work out my own projected CPP benefits. I worked out 3 scenarios: collecting at age 60, 65, and 70. When you take your CPP before age 65, your benefits are reduced, and if you postpose benefits until after age 65, your benefits increase. We’re working through a transition period right now, but by 2016 and beyond, the reduction before age 65 is 0.6% per month and the increase after age 65 is 0.7% per month. This means that if p...

Here are my posts for this week: Making the Most of the Principal Residence Exemption The Canadian Guide to Will and Estate Planning People Respond to Incentives The Hidden Cost of Active Investing Here are my short takes and some weekend reading. Canadian Couch Potato explains the different reasons why an ETF might fail to exactly track its index. The Blunt Bean Counter says that delays in sending out tax slips has compressed the time he has to work on tax returns. He vows to make changes for next year to reduce his stress level. Preet Banerjee interviews Kyle Prevost, co-author of More Money For Beer and Textbooks , in his latest podcast. Big Cajun Man says that if you keep important financial information on your computer, you need to do backups.

Few investors understand the long-term drag on returns that comes with active investing. Even if you guess right your share of the time, the higher volatility that comes from a more concentrated portfolio costs you money. I did a small experiment to illustrate this effect. Jim started 20 years ago with $20,000 that he planned to invest in only Microsoft and AT&T. He gave $10,000 to one money manager with instructions to always keep the money split evenly between the two stocks. Jim split the other $10,000 between two money managers, Alice and Betty, and instructed them to decide each day whether Microsoft or AT&T would perform better. Alice and Betty always invested all the money they controlled in one stock or the other. By coincidence, Alice and Betty disagreed every day about which stock would perform better. Each money manager alternated days between being right and wrong. Based on this setup, the actively-managed money was invested “correctly” exactly half the ...

My family frequently blows through the limit our internet provider places on the number of gigabytes (GB) per month we get without extra fees. Frequent pleas from me had little effect. Warnings from our internet provider when we reached 75% and 100% of our allotment for the month were ignored. Then I came up with an economic solution. Each computer in my house has a desktop network meter that measures internet usage for the month. Each member of my family gets an equal share of the “free” GB each month. Then any overage fees are shared by all of us in proportion to the amount we exceeded our shares. Here’s an example. Suppose a family of 3 has a limit of 75 GB per month (25 GB each) and one month they use 5 GB, 35 GB, and 55 GB. The overuse is then 0, 10 GB, and 30 GB, respectively. If the overuse fee is $40, then the second person pays $10, and the third $30. Making my family actually hand over cash seems to have made quite a difference. I no longer harp about internet ...

Douglas Gray and John Budd have published the third edition of their book The Canadian Guide to Will and Estate Planning . They do a good job of explaining in simple language the bewildering array of ways to protect your estate from taxes when you die. The range of topics covered includes building your estate, wills, trusts, probate, taxes, U.S. taxes, cottages, family businesses, charity, insurance, advisors, retirement care, and funerals. It’s almost enough to make me renounce all my worldly possessions – almost. I won’t try to summarize this book and further – even at 400 pages, most topics are covered quickly. The main value of this book to me was to become aware of possible estate planning strategies. Actually acting on this information likely requires further investigation or professional help. For the rest of this review, I’ll point out some parts of the book I found interesting, surprising, or I disagreed with. CDIC Coverage “You are protected up to a maximum of $...

Canadians don’t have to pay capital gains taxes on their principal residences. However, the definition of “principal residence” is quite flexible making it possible for families who own a second property, such as a cottage, to save substantial amounts on their taxes. Douglas Gray and John Budd, in their book The Canadian Guide to Will and Estate Planning , explain that your principal residence isn’t necessarily your “main place of residence.” If you own a vacation property, “as long as you, your spouse or at least one of your children occupy the vacation property for some period or periods of time during the year, that is enough to bring you within the principal residence definition.” “The fact that you show your home address on your income tax return does not mean that you are designating your house as your principal residence.” Further, “it is not generally necessary for you to decide which property is to be designated as the principal residence for capital gains tax purposes ...

It was a short week for me because I was off playing some golf in Florida. My only post for this week was Leasing a Car is not Like Renting It Here are my short takes and some weekend reading. There is a serious problem with Canada’s mutual fund industry. In a letter to the Canadian Securities Administrators (CSA), Steadyhand Investment Funds clearly explains this problem and how to fix it . My favourite part of the letter is a quote from a mutual fund investor who clearly does not understand how advisors get paid: “Our financial advisor is such a nice man. Every year he takes us out for a wonderful dinner. I wish we could pay him [in] some way.” Mr. Money Mustache shows a young couple how to change their finances to climb out of debt and prepare for a family. Canadian Couch Potato review iShares’ latest currency-unhedged ETFs. The Blunt Bean Counter discusses some tricky tax situations related to travel expenses for rental properties, declining a tax-free rollover to ...

A colleague of mine has seen me throwing away a lot of paper over the past couple of years, and I explained that I’m trying to live a life with fewer things. The way I see it, my possessions tend to own me rather than the other way around. This colleague recently told me that I inspired him to do the same thing, and he began by leasing instead of buying his most recent car. He sees leasing as like renting instead of owning. The social thing to do in this situation would be to say something like “that’s great – enjoy your new car.” But, I’m no good at saying things I don’t believe. I had to tell him that I didn’t agree that leasing a car is like renting it. For one thing you often end up paying for about half of the car. Further, the details of lease contracts push much of the risk back onto the consumer. This colleague really hasn’t significantly reduced his exposure to the risks of owning a car. Further, because lease contracts are complex, few people understand them enoug...

Canadian Couch Potato explains why you should avoid automatic dividend reinvestment in taxable accounts. Mr. Money Mustache has some sensible thoughts on living a life without line-ups. The Blunt Bean Counter explains “how financial institutions misreport or don't adjust their realized capital gain/loss reports for the adjusted cost base reduction on flow-through shares.” Big Cajun Man explains the generous matching of contributions to a Registered Disability Savings Plan (RDSP). My Own Advisor has a sensible set of 2013 financial goals and is on track so far this year.

The Fraser Institute recently released a study indicating that public sector workers enjoy 12% higher wages than private sector employees after controlling for a number of factors including age, education, tenure type of job, and location. Unfortunately, this 12% figure understates the real gap. Because the study’s authors could not get sufficient data to measure non-wage benefits, such as pensions, insurance, and vacation, they couldn’t properly compare total compensation between the public and private sectors. The 12% figure would certainly rise if we had this data. There is another important factor as well: competence. “In 2011, 0.6 per cent of government employees lost their jobs—less than one sixth the job-loss rate in the private sector (3.8 per cent).” In the private sector, it is weaker workers who tend to lose their jobs. Even when the official reason for job loss is the elimination of a position, the truth is that companies do their best to eliminate poor performers...

The Royal Bank of Canada (RBC) is indirectly replacing 45 Canadian workers with foreign workers through contracting firm iGate. This move has sparked outrage for good reason. This isn’t a case of sending work overseas; these foreign workers are coming to Canada to displace Canadian workers. This is all being done under the temporary foreign worker program which allows RBC “to hire foreign workers on a temporary basis to fill those jobs, but only if a Canadian isn’t available to do the work.” However, these IT-related jobs in question at RBC are not high-skill jobs. There are plenty of Canadians who can do this work. The real issue is money. RBC could easily get a flood of Canadian IT employees if they bumped up the hourly wage they pay. Any apparent shortage comes from trying to pay below the market-based wage. It makes sense to allow companies to bring in foreign workers for jobs requiring rare skills, but that is far from the case here. The fact that RBC is actually rep...

They say that stocks are poised to crash just after everyone is unanimous about the wisdom of getting into stocks, and that they’re set to rise just after everyone is sure stocks are dead. Presumably, it works the same for real estate. I heard something recently that sounds like either a good sign for stocks or a bad sign for real estate in Canada. I hosted a get together where a friend who is a real estate agent told us about one of his clients. This client is frustrated with years of poor results from stock mutual funds and plans to pull all his money out and try to generate better returns buying real estate and collecting rent. This sort of thinking is great for real estate agents, but I’m doubtful it will work out very well for this investor. I know people who are well-suited to be landlords, but most of us are not. This story feels like either a great sign for stocks now that the last person is getting out, or more likely a terrible sign for real estate in Canada now that...

My posts for this week were Dice Gambling System Trying to Beat a Casino Here are my short takes and some weekend reading. Potato has a take on what you can or can’t do to avoid a Cyprus-like seizure of your assets by a cash-strapped government. In nations with their own currency, there is a much easier way to take purchasing power away from the masses: just print more money to pay debts. The resulting inflation is the silent killer of wealth. My Own Advisor thinks the Ontario Lottery and Gaming (OLG) Corporation should help lottery winners get good advice on making their money last. I can’t imagine OLG giving this more than a passing thought unless they think such a program would somehow help drive more lottery sales. Big Cajun Man says that while money may not buy happiness, debt often brings unhappiness. Retire Happy Blog has some suggestions for beginning do-it-yourself investors. The Blunt Bean Counter is descending into another busy tax season but chose to ...

Yesterday’s post was an April Fools' joke. However, the simulation results for the casino dice game of craps were real. As commenter Patrick figured out, the catch was that the strategy called for betting negative amounts. The “system” starts out with $100 bets and goes up by a dollar after a win and down by a dollar after a loss. However, we will lose slightly more often than win. So, the bet amount will keep going down until it hits zero and then become negative. Of course, casinos won’t allow gamblers to bet negative amounts. This is effectively like reversing the role between casino and gambler. It’s no wonder that a gambler who uses the system starts out losing while the bets are positive and ends up winning after the bets become negative. The only way I know to beat a casino at craps is to get them to gamble at your craps table. This kind of hidden problem with experiments and simulations doesn’t just appear in cooked-up April Fools' jokes. A study by Schl...

We all know that Las Vegas was built with gamblers’ losses. The casinos love gamblers who think they have foolproof systems. So, when I was introduced to a new system for playing the dice game craps, I first ignored it. Then after hearing more, I decided to simulate it to prove that it is worthless. The amazing thing is that I didn’t get the results I expected. The system involves only playing the simple pass-line in craps; it ignores all the other more complicated bets. It’s well known that the odds of winning this bet are 244 out of 495. So, out of 495 plays you expect to lose 7 more times than you win. On each bet, you either double your wager or lose it. So, after 495 plays, you expect to be down by 7 times your bet size. I wrote a little simulator for craps and tested it first on a simple case. Start with $10,000 and wager $100 at a time and see what happens after many bets. The expected result is to lose all your money, eventually. With a bankroll of 100 times the ...