"Until you make peace with who you are, you will never be content with what you have" - Doris Mortman
Quite appropriate given the looming financial problems that we are facing. Hopefully, people will start to spend more time focusing on themselves and what's important in life, and less on buying things to impress others or fill voids in their lives.
I just hit the jackpot (kinda). I received notification last week that I had been successful in securing tickets to two events in the ticket lottery for the 2010 Winter Olympics in Vancouver, in my home country of Canada. Not only that, but I managed to secure tickets for the marquee event in hockey-mad Canada - the Gold Medal Men's Hockey Match. Interestingly, as soon as the winners were notified that they had secured these tickets, ads and auctions began appearing on eBay and Craigslist, with people trying to sell their tickets at a substantial profit. Friends of mine have urged me to do the same, and are somewhat bemused when I tell them that I would rather gather a bunch of friends and see the actual event, than to sell it for a quick buck.
One of the cornerstones of how I live my life, is to experience life to its fullest and in person. While I could sell the tickets and buy a brand-new, big flat-screen TV to watch the Olympics, I choose to use my hard-earned dollars to experience it live, and take in the actual sights and sounds of the big event. Having been to the 2000 Summer Olympics in Sydney Australia, I cannot do justice in describing the feeling of goodwill and comeraderie when people from every country in the world gather together to celebrate what we have in common, rather than what drives up apart. It's something that I have seldom experienced but long to do so again.
I live modestly, and spend my money on things that I am passionate about - travel, personal relationships, once-in-a-lifetime events, priceless moments and adventures. As has been often remarked, "Life is not a dress rehearsal". I have known too many people whose lives were cut short far too early, and if everyone of us knew how much time we had on earth, I think that we would be spending more of our money and expending all of our energies on memories rather than material goods.
Besides, I can always earn the few thousand dollars again that I would gain by selling these tickets, but I may never get the chance again to witness the Gold Medal Match (with hopefully Team Canada winning) in my home country again in my lifetime. So, why give up that priceless opportunity for a quick buck?
I recently wrote a posting about how being an employee is the most expensive way to make money in Canada. Obviously, the vast majority of people are not independently wealthy, nor self-employed and so, many people have asked me what are they to do? Well, even as an employee, there are options. It always makes me laugh when people ask "How much money do you make?". In my opinion, that is often a meaningless question. It's the amount that one keeps that is more important than how much one makes. Effectively and legitimately shielding money from the taxman is seldom done by the average person because they may think it cannot be done, they could not be bothered or they think it involves complex financial strategies.
But it could be as simple as working a four-day week versus a five-day work week. Excluding overtime, the fifth day of work is the most expensive. If people did the calculations, they would realize that if they only worked 80% of the time, they might see their gross income fall by 20%, but that their take home pay would fall by far less. Conversley, when one works overtime or gets a bonus, the tax rate always seems higher, as it often pushes one up to another tax bracket. That's why workers will often quip that it's not worth working overtime when the taxman takes 50% of the paycheque.
If you decide to chuck your job, don't do it in December because you will derive no benefit from the taxman. Rather do it a few months before that, and your tax refund will likely offset much of the lost income from not working those last few months. Given a choice of working for a full year, or takling a few months off with only a marginal loss in net income, I will always choose the latter.
Understanding that someone who makes $60,000 but only works 8-9 months of the year can net as much as someone who makes $100,000 over a full year can help change one's mindset. The next question is how do you get a job where you only work 8 or 9 months per year? Well, there are tens of thousands of people who (by choice) work as project or contract workers, interim executives or in seasonal jobs. The main reason why a lot of people don't go down this road is their need for stable work and job security. The irony of it is, given recent and future economic times, the average worker has little or no job security.
Ask Warren Buffet, the world's richest man who slams a taxation system that is so screwed up that he pays less taxes than his secretary. Last year, Buffet made $46 million and paid a tax rate of 17.7% while his secretary who makes $60,000, paid a tax rate of 30%. This is one reason that Barack Obama is trying to give tax cuts to the middle class while making sure the rich pay their fair share.
This is the time to think outside the box. Give it a try.
Everyone knows that the North American economy is in for some lean times, and there are three ways in which the general population, especially in the US, have reacted to these more austere times. There are those who have started to tighten their belts and re-examined all aspects of their spending (and saving) and adjusted accordingly. There is the second camp who have put on the blinders and pray that this mess all goes away..... soon. They are unlikely to curb spending, partly because they are addicted to consumerism and partly because they think it beneath them to lower their standards. Not unlike residents who ignore hurricane evacuation warnings, they hope that they will be able to ride out the storm. The third camp sits somewhere in between, making small changes to their spending patterns. Regardless of which camp one falls into, it is hard to imagine anyone having escaped unscathed in some way or another. Whether it's one's home, job, retirement savings, investment portfolio, small business or daily expenses, we have and will continue to feel its effects. The silver lining on this dark cloud is that it may, finally, be the impetus for North American society to review its values and priorities, and in the process, become less materialistic and more values-oriented and community-minded. And by so doing, also maximizing their dollars by spending less.
Let's start with what has caused all this - real estate and the accompanying purchases/expenses related to home ownership, thereby straining mortgage loans, credit cards and lines of credit. Home ownership is the cornerstone of the American Dream, and usually the largest purchase and (hopefully still) asset in one's personal balance sheet. There's nothing wrong with aspiring to have a piece of land that you can call your own. Unlike our European counterparts, the aspiration towards home ownership is more ingrained into the North American psyche. Home ownership rates are markedly higher on this continent versus across the pond. Where we have gotten ourselves into trouble is the excesses that have accompanied home ownership. In many other parts of the world, houses tend to be small whereas the trend in North America over the past few decades has been to build super-sized single-family dwellings, hence the term McMansions. These seem to be prevalent in the southern states, most notably in the big-is-everything state of Texas.
Whether the purchase of a trophy home is a signal to everyone that you have made it, or merely to keep up with the Jones, the future reality is that a home of this size (along with all the accessories) will be increasingly looked upon as being largely unnecessary and will start to become obsolete as homeowners and buyers re-evaluate their priorities, given the current financial and environmental climate. Gourmet kitchens for families that don't cook or entertain much, formal living rooms that rarely get used, three-car garages for people with only two cars. The cost of accessorizing, heating, landscaping, maintaining and paying and property taxes alone should be a red flag to home owners that these monsters will suck the life out of your savings account.
This lesson has come too late for all of those homeowners whose houses are now under foreclosure. While one's first thoughts may be that those who over-extended themselves were from the lower-income sector of the population, that is far from the case. Look at cities like Phoenix, Miami, Las Vegas and many communities in California where many of those families losing their homes are middle-class, well-paid, educated white collar workers.
In the 1970s, the average home in the U.S. housed 3.14 occupants, and was 1,520 square feet in size. By the end of the century, that had increased to an average of 2,225 feet, even though the numbers of occupants declined to 2.59 per household. But the tide has been shifting in the past few years, as baby boomers started to realize that they did not need to live in a cavernous, half-empty mansion, nor wanted to expend the energy and expense for the upkeep of them. Progressive communities such as San Francisco are limiting the size of homes, making building permits for monster homes increasingly difficult to obtain. Increasing numbers of home builders are emphasizing quality (finishing and detail) over quantity (size of the home).
The average millionaire in America has lived in a modest home usually in the same unpretentious neighbourhood for 20 years, with little or no mortgage debt. Read about it in the book "The Millionaire Next Door". Those are the ones who may be least affected by this crisis, unlike the people who may live in flashy homes and have luxury cars in their driveway but are a few months away from having the bank foreclose on their home and repo their car.
My wish is that North Americans follow the lead of the Europeans. Instead of cocooning themselves in their huge houses, do what the Europeans do. Live in smaller homes and spend more of their time and income in their communities - enjoying life by leaving their homes to meet friends and families for coffee, a drink or dinner in town. Stroll the park instead of your backyard. Hopefully, my wish comes true.
I am frugal, and carefully watch where my money is spent. I spend money on things I am passionate about, such as travel, and scrimp on other things that, to me, are mundane. I do not need to be an early adopter nor necessarily conform to the masses although I do admit that I did finally give up using both a Mac and PC, and reverted to the latter.
When it comes to computer software, I look at a combination of features and price. Free is my price preference, and what many people may not realize is that one can run virtually every type of application imaginable without ever having to pay a cent. Now, I am not one who understands how companies can give away their products without charging any money (doesn't sound like a profitable operating model to me), but I think that open source software has given the public the ability to use software such as the Linux operating system for free while creating an opportunity for companies to provide consulting services to large organizations that have installed Linux to their servers.
Many people also buy software whose full capabilities they never use. Sometimes, they upgrade because everyone else has, and thus they want to be able to open up documents that others have sent that may be created on the latest version of Microsoft Office, for example. Yet they can still do this, while constantly having their software upgraded free, if they use productivity software such as Open Office (which is free). I was hesitant to use Open Office, but also unwilling to pay $600 for a full-blown version of Microsoft Office, so I gave it a bash, and have been pleasantly surprised. Aside from a few glitches with their version of PowerPoint, I am a convert, and will never pay a license fee to Microsoft again (even though I am a shareholder). Areas where Open Office has not been completely compatible has been in some instances where macros are used in Excel etc. But how many people use complicated macros in Excel everyday? Accountants maybe, the average Joe, not likely.
With a browser, I use Mozilla Firefox which I think is far superior to Internet Explorer, and Google has recently introduced its own new free browser called Chrome which, I am sure, in time will be a superior product to both Firefox and Explorer.
These are just two examples. Don't just take my word for it. Read PC Magazine for their picks of the best free software and the reviews on each of them. The annual edition comes out early in the new year, but for the moment, take a look at the picks for 2008.
http://www.pcmag.com/article2/0,2817,2260070,00.asp
In these tough times, it pays to start to keep your money in your pockets anyway you can.
A start of a new year and I`m sure many people are making resolutions, not least of which is probably to save money , make more money, or for almost all investors, to recover some money. I spent New Year`s with a group of thirty-somethings and the conversation turned to the topic of money. Being an ambitious group, they were also discussing career opportunities and advancement possibilities in the new year. Being at least a decade older than them, they asked me for my opinion. What I said to them about employment and money startled them, but changed the way they perceived the two topics.
My opinion which would be considered to be radical by many, is based on an unemotional analysis of the numbers, and does not take into consideration things such as employment benefits or the social aspects of working within an organization. Nevertheless, my opinion is that being an employee is the most expensive way to make money in Canada. Below is my list of the most cost efficient way of making money.
1) Tax-free Savings Account. Totally tax free and extremely flexible, the only downside being the limits to how much can be put into this account. Otherwise everyone should open one and put money into it.Note, I am not including things such as proceeds from a life insurance policy which is tax-free, but is not something that is accessible to everyone and as well, involves the hardship of losing a loved one.
2) Capital Gains. Whether you sell your principal residence with no taxes levied on it, or whether you sell investments (at a profit, obviously) that attract taxes on only half the gains, this is the second most effective way to make money.
3) Dividend Income. The dividend tax credit makes it more efficient earning than interest income. And depending on what type of investment vehicle you are using, not always riskier than a bond (ask anyone who purchased corporate bonds, mortgage-backed securities or even some money-market nutual funds)
4) Self-Employment Income. Because of the deductions allowed, self-employment income usually places the entrepreneur in a lower tax bracket, thus attracting less tax than someone doing the same job as an employee. I was a consultant with an organization and after awhile, I was required to become an employee to comply with Canada Revenue Agency guidelines. Even though the company had to increase my remuneration by 20%, I still wound up taking home less money than when I earned less money as a consultant.
5) Interest Income. Fully taxable, yes, but usually involves little cost in earning this interest.
6) Employment Income. Fully taxable, but many people underestimate how much it costs to earn this money, i.e. just getting to work costs money in the form of transportation (whether it is using public transport or maintaining a car), lunches, coffees, daycare, drycleaning and laundry costs etc. All this adds up, and the underestimation results from the fact that most of it is paid for using after-tax resources. So, in order to pay for a $150 monthly transportation cost, about $2,500 to 3,000 of your annual income will be spent just to get to your desk.
Obviously, the trade-off is that a job provides security (not as much as many people might think), comeraderie in a social setting, and employment benefits (some that self-employed or unemployed people may have to pay themselves). However, Canada`s social safety net is such that the gap is not as large as might be perceived.
So, think about how much it costs you to make money, and you might think twice about landing that job.
