Budget Attempt February 24 to March 8

budget (Photo credit: 401K)

I have absolutely no idea how I managed to stay on my shoe string budget last pay period, but I did it. The only overage anywhere was the $1.63 that shows up on every budget because putting $65 down is easier for my mental calculations than $70 is. In other words, I didn’t go over budget anywhere.

Category	Budgeted	Actual	Difference
Mortgage w/ Taxes	$610.00	$609.40	$0.60
RRSP	$100.00	$100.00	$0.00
RPP	$65.00	$66.63	-$1.63
LOC	$400.00	$400.00	$0.00
LOC Interest	$50.00	$38.55	$11.45
Utilities	$200.00	$190.75	$9.25
Fuel	$50.00	$40.00	$10.00
Food In	$60.00	$59.56	$0.44
Food Out	$10.00	$10.00	$0.00
Other	$50.00	$27.36	$22.64

I’ve currently got $20 worth of gas in my tank right now, and the other $20 is in my wallet. The gas prices didn’t decrease last pay cycle because there was a holiday long weekend in the middle. Then rather than adjusting after the weekend was over, it just made its scheduled jump again. *sigh* I’m going to throw that other $20 in my tank today.

I picked up a $20 Groupon for an oil change for my car, which I’ll be trying to get in today as well. The other $7.36 in the other category is actually bank fees. I switched accounts to a cheaper option on Wednesday. It would have been my Procrastination Thursday topic for yesterday, except I had to go in to work a couple hours early for a meeting. More on that after.

This upcoming budget has more all around. More line items, and more money going to debt:

Category	Budgeted	Actual	Difference
Mortgage w/ Taxes	$610.00	$0.00	$610.00
RRSP	$100.00	$0.00	$100.00
RPP	$65.00	$0.00	$65.00
House Insurance	$40.00	$0.00	$40.00
Car Insurance	$35.00	$0.00	$35.00
LOC	$700.00	$0.00	$700.00
Utilities	$100.00	$0.00	$100.00
Internet	$65.00	$0.00	$65.00
Phone	$100.00	$0.00	$100.00
Fuel	$50.00	$0.00	$50.00
Food In	$60.00	$0.00	$60.00
Food Out	$10.00	$0.00	$10.00
Bank Fee	$5.00	$0.00	$5.00
Other	$20.00	$0.00	$20.00

Just a small increase in my line of credit repayment…

I received a small bonus for my work in 2011. It amounted to little over $600 gross, which after the taxes were taken off netted me just under $380. On to the debt it goes. That’s actually why I had to go in to work early today; we had a meeting discussing last years results and what we plan to do as a department moving forward.

There was also some discussion about compensation, including bonuses and salary. As you can see, I did receive a bonus (7/12 of what I could have received since I started in June). I’m apparently also due for a raise, which will be retroactively applied to January 1st of this year, and will show up on my next pay check. That’s good, because I kind of need it.

I’m going to try to maintain the more restrained areas of my budget for a while longer. Does it suck? Yep. But I’m encouraged by how quickly I’ve been managing to pay off this last burden.

Barring any unforeseen events, I will meet the financial stretch goal for Carla’s challenge that I set for myself back in January. Even without the bonus, I would have successfully just squeaked in. I’m really happy about that, because I honestly didn’t think I’d be able to do it. It seemed like too big of a gap to cross in that short a time period. One day short of a month ago (January 25), my balance was sitting at over $6500. It’s now sitting under $4500, which was my goal by the end of February.

Die debt balance, die.

How are your budgets doing this month? Have you been stretching yourself to meet a goal? How is it going?

Recommended Reading: Why I Got A Large Tax Return.

Should You Ever Bypass Free Money?

I’ve been thinking a lot about fees lately. Namely, the fees on my mutual funds.

If you’ve seen any of my monthly snapshots, you’ve probably seen that I have more than one retirement savings account. There are two accounts that have money actively moving in; one through work, and one at a bank.

The one through work is with a company that sells a variety of mutual fund products. Their MERs (management expense ratios) range from between 2.5% to 3.5%. If you’re not familiar with MERs, it’s the percentage of your account balance that goes to the financial institution each year to pay for the care of your account. These MERs are high, but not out of whack compared to what a lot of Canadians are paying in fees on their accounts. The saving grace to the high fees is that I have employer contributions and matching as well. They put in 3% automatically, and match 50% of the next 3% that I put in as well. Basically for the first 3% I get a 150% employer contribution match.

The account at the bank has much lower fees; the fees on this account are closer to 0.5%. I don’t get anything in terms of investing assistance or advice, but it’s a much more inexpensive place to stash my money.

I’ve been wondering for the last little while whether it was better to direct my contributions into the high cost account with the free money, or if I should put it all in a low cost account, where the only money that goes in is what I contribute?

Sounds like a job for graphs!

I plotted a $100 contribution with an MER of 0.5 against six $100 contributions with contribution matching and an MER of 3.0. I did this for four different rates of return (4%, 6%, 8%, 10%) to see how much of an impact it would have on the results over the course of 40 years.

Lump Sum - 4% Rate of Return

Lump Sum - 6% Rate of Return

Lump Sum - 8% Rate of Return

Lump Sum - 10% Rate of Return

I was shocked to see that the low cost fund beat out all of the higher cost funds with contribution matching over a 40 year period. It started overtaking the contribution matched funds after the first 10 years in all four cases.

After plotting the different scenarios it occurred to me that my graphs weren’t entirely accurate. Sure, it’ll be close to 40 years before I retire, but do I plan on contributing once and just trusting that it’ll be enough at the end? I don’t think so. I plan on contributing throughout my working career. How does that affect it?

I adjusted my chart to include consistent contributions every year. The results are a little less clear cut than they were before:

Annual Contributions - 4% Rate of Return

Annual Contributions - 6% Rate of Return

Annual Contributions - 8% Rate of Return

Annual Contributions - 10% Rate of Return

They’re a little harder to read, but again the low fee funds start beating out other funds in less than 20 years. The rate of return had a larger impact here. At a 4% rate of return the low cost fund matches the fund with a 75% contribution match after 40 years. At a 10% rate of return, the low cost fund matches the fund with a 100% contribution match after 40 years.

That’s absolutely incredible when you think about it. You’d have to start with, and steadily contribute, twice as much money in one fund as you would in the other just to pay for the fees. You do this just to end up with the same amount of money at the end of the day. All that free money has amounted to nothing.

It just goes to show that fees matter when it comes to investing, and that not all easy answers are as easy as they look. If you were offered a 50% contribution match at work, would you take it? Would you have looked at how the fees on the account would affect your money over time? I hadn’t before now, and I’m a little perturbed by the results.

If you have fewer years to retirement, and have a great contribution matching program, it’s a no brainer. If you’re younger, however, and if your contribution matching is on the smaller side, you may be better off saying no to the free money and investing it yourself in a less expensive fund.

Crazy, I know.

I’d have to be getting a consistently incredible rate of return over the next 40 years to make turning down the 150% contribution match worth while. That being said, anything I put in on top of what I’m currently putting in there won’t be matched at the same rate. It’s worth it for me to keep my current contribution rate going at the office, but anything on top of that is better off going into my low fee account. I’m happy about this, because it’s what I had planned to do anyway.

What fees do you currently pay on your retirement accounts? Have you ever turned down free money? Would you?

Recommended Reading: Sh*t my boss says/This is why personal finance is important to me.

Double Challenge Month – Weekly Update #4

See the ball.

Wait! Don't Drop the Ball! (Photo credit: ipythias)

See me drop the ball.

I have absolutely no idea what happened to this past week. It just kind of disappeared on me. Somewhat fitting when you consider it was the productivity week *face palm*

That sound you hear is my ball bouncing by.

I did almost nothing in terms of productivity this week. I dropped my donations so far off at Goodwill, but that was about it. I’m just going to consider this week my “break” before tackling the big kahuna: my unpacked boxes in the basement.

*shudder*

Fortunately I didn’t completely drop the ball on tracking my spending:

February 15
-$16.39 – groceries
+$115.50 – medical reimbursement
February 16
+$15.00 – kijiji sale
February 17
+$20.00 – kijiji sale
February 18
*No Spend Day*
February 19
*No Spend Day*
February 20
*No Spend Day*
February 21 
-$10.00 – reloading Starbucks card
-$20.00 – gas
-$20.00 – oil change Groupon
-$43.17 – veggie delivery

Discretionary money balance: +$40.94

This is the first week I’ve come out ahead! It’s due entirely to the fact that I received the reimbursement for my massages this week; but the kijiji sales helped pad the total a bit

I’ve been waiting on picking a location to get my oil changed, and it paid off. I initially found a coupon for $39.99. Then a couple days later I got a bunch of coupons in the mail for between $29.99 and $35.99. Finally I received a Groupon e-mail in my inbox – oil change for $20. Sold. I’m going to try to get it done on Friday.

If you’re part of the challenge, how did you fare this week?

Recommended Reading: Your reward for working so hard is your income.

Awards Ceremony

Over the last week I’ve been inundated with nominations for blog awards. I’d like to give a heartfelt thanks to Auntie Eboo, Judy, and Michelle for nominating me for the Versatile Blogger award.

I’d like to give the same heartfelt thanks to Asia for nominating me for a Liebster Award

The Versatile Blogger award requires that I write 7 random things about myself and nominate 5 other bloggers for the award. The Liebster award requires that I nominate 5 other bloggers with fewer than 200 followers.

I’m going to do it a little differently this time, because these awards frequently make the rounds on the same blogs. If you’re a small blogger, and you want some love, leave your link in the comments with a random piece of information about yourself and I’ll put it up on this post. I’d love to read some new blogs that are just starting out

I will give you another random 7 things about me though. I’m going to have to start keeping track of my random stuff so I don’t bore you with the same stuff repeatedly

1) I skipped grade 8 math as a kid and went straight into grade 9. Between that and being in a grade 7 class where we weren’t taught much, I never actually learned how to do fractions. I’d convert them to decimals in my head, do the math, and convert them back to fractions. It wasn’t until my first year of calculus that my prof caught on and actually taught me how to do them.

2) I’m anaphylactic, and eating mangos will kill me. I always get the same response when I tell people I’m allergic to them: “Oh you’re missing out, they’re sooooooo good.” I actually didn’t like it when I ate it as a kid. I also really didn’t like the gruesome response my body had to it. Come to think of it, my mom didn’t either. I don’t feel like I’m missing out on anything. Funny that.

3) I’m mildly OCD when it comes to the number 4. It used to be really bad when I was a kid; I’d flick lights on and off 4 times, I couldn’t put a book down unless the page I ended on was a multiple of 4, I’d break chocolate bars into 4 pieces, you get the drift. I’d not nearly as bad anymore, but I still put small candies into piles of 4 before I eat them.

4) I don’t like jazz. Some people have a really strong response towards me when I say that, but I really don’t like it. Squealing saxophones give me a headache every single time. I can listen to heavy metal, but not jazz. Go figure.

5) I have really long arms. I’m a 1/4 inch shy of being 5’3″ tall, but when you measure my arms tip to tip they should belong to someone who is between 5’5″ and 5’6″ tall. I injured my neck as a kid and sometimes I wonder if it stunted my growth.

6) Driving in the city terrifies me. Make me drive 200km out into the middle of nowhere on a bad road, and I’m completely fine. Make me sit through a turbulent flight, and I’m fine. Put me on a small city street where people are cutting me off without using their turn signals and constantly tailgating me? Not fine, not fine at all. I was actually scared to be a passenger when I moved to the city, because the traffic terrified me. I didn’t look out the window if I didn’t have to for the first few months. The first time I drove in the city was 3 years after moving there, because I needed a vehicle to get to my first job after university.

7) My parents considered naming me Charlie when I was born. It’s not a common girls name, but I think I would have made a good Charlie. Seeing as my boyfriend is obsessed with Top Gun, it would have been perfect actually

I’ll get my week 3 decluttering/low spend update up for you guys later today. Thanks again everyone!

Recommended Reading: Hello Money, Please Take Me Back.

Humble Pie

I’ll give you three guesses what this is:

Anyone?

No?

Okay, I’ll give you a hint:

That looks kind of painful, doesn’t it?

Any guesses?

Okay, now for the really painful part:

I’m guessing you’ve figured it out by now. That pie is the breakdown of what I paid for my mortgage in 2011. Ouch eh?

I don’t know if it’s a little masochistic, but I do actually enjoy opening my annual statement. In spite of the sheer quantity of money going to interest right now, it shows that it’s not all in vain, and I am building some equity in my home.

Rather than looking at my payments like this:

I prefer to look at them like this:

If I average my interest payments over 12 months, it would be the equivalent of paying just over $775 a month in rent. I’ve paid more in rent for smaller spaces in this city. Even if I average the entire payment including taxes out over 12 months, I’m sitting at just over $1375 a month. That’s less than what it would cost me to rent my house in my neighbourhood.

The real saving grace to looking at my statement is seeing the interest portion of the pie shrink every year. If you’re not familiar with mortgages, this is what it looks like when you’re paying them off:

This isn't my mortgage, but if it was I'd only be on the 2nd bar

For the first few years your annual payment goes almost exclusively to paying interest, while paying off a small portion of the mortgage balance. It’s like paying off a very high balance, low rate, credit card where the minimum payment stays pretty much the same as you pay it off. The higher the balance (the beginning), the more interest you pay. The lower the balance (later in the mortgage), the less your payments go to interest, and more goes to principal.

That’s one of the reasons why prepayments early on in the mortgage are so beneficial; they have the biggest impact. Of my ~$610 biweekly mortgage payments, ~$180 is currently going to principal. If I make a $1000 prepayment now, it’s equivalent to making almost 6 mortgage payments. If I make that same $1000 prepayment later on in the mortgage when my principal portion is worth $330, it’s only equivalent to making 3 mortgage payments. The more money I put to the balance early on, the fewer years I’ll be paying it for.

I’ve been telling myself since I signed the mortgage that I was going to take advantage of the prepayment options, but as of yet I haven’t. One of the first things I plan to do once I’ve paid off my line of credit, along with saving up some money to switch over to online banking, is bump my mortgage payments up by 10%. I’m currently allowed to increase my biweekly payments by up to 20%, along with annual lump sum payments of up to 20% of my starting balance. While I don’t foresee being able to take full advantage of those prepayments, I am going to try to put as much onto it as I can while still contributing to other savings accounts. I’m trying to not get too far ahead of myself here.

If you own your own home, do you take advantage of any prepayment options? If so, which ones do you use?

Recommended Reading: The art or refusing money (or that moment you realize you’re an “adult”).