Welcome to the Million Dollar Journey April 2009 Net Worth Update – Is this really a bull market edition.

My last net worth update in March indicated that we just started a market rally.  The rally has continued throughout April and I’ve actually done a little buying within my leveraged portfolio as well as within my RRSP.  I fully intended to play around with covered call options within my RRSP account, but I soon discovered that my account did not have the permission to do so.  After many calls and forms to fill out, my RRSP account now has the ability to write covered calls.  Even though I’m ready to go, I haven’t executed any options trades yet.

The market rally has propped up my portfolios thus the significant (to me) increase in net worth for the month.  You may notice a large gain in my RRSP account (17%).  Although it would be nice if it was organic gains only, more than half of the gain is due to a $5,000 contribution.

On the saving/spending side of things, we managed to keep things in check.  The only big expenses were for window coverings, which is included in the home renovation tax refund.

On the liability side of things, I asked you whether it was the right time for me to go with a fixed rate about a week ago.  From that post, I decided that instead of locking myself in for another 5 years, I’m going to get aggressive and pay off the mortgage before my current term is up in 2 years.  As you can see below, we have approximately $74,000 remaining on the mortgage and we hope to have it conquered by early 2011.  It’s really not that far fetched as we plan on dumping our savings onto the mortgage in the very near future.

Assets: $459,450.00 (+2.73%)

• Cash: $4,500 (+0.00%)
• Savings: $37,500 (+8.70%)
• Registered/Retirement Investment Account: $54,600 (+17.42%)
• Pension: $22,350 (+0.00%)
• Non-Registered Investment Account: $14,500.00 (+7.41%)
• Smith Manoeuvre Investment Account: $41,000 (+2.76%)
• Investment Property: $ 124,500 (+0.00%)
• Principal Residence: $275,000 (+0.00%) (purchase price)
• Vehicles: $10,000 (2 vehicles) (-9.09%)

Liabilities: $128,600.00 (-0.69%)

• Tax Liability: $3,000 (-0.00%)
• Investment Property Mortgage: $92,000 (-0.11%)
• Principal Residence Mortgage (readvanceable): $73,500 (-1.34%)
• HELOC balance: $52,100 (+0.19%)

Total Net Worth: ~$330,850.00 (+4.12%)

Started 2008 with Net Worth: $309,950.00

Year to Date Gain/Loss: +6.74%

April has turned out to be the most significant net worth gain of 2009 thus far.  Most of the increase is due to bounce in the markets, so unfortunately, it could easily go in the other direction.  However, I am encouraged by the growth and will keep chugging along!

Some quick notes and explanations to net worth questions I get often:

The Cash

The $4,500 cash are held in chequing accounts to meet the minimum balance so that we pay no fees (accounting for regular bill payments). Yes, we do hold no fee accounts also, but I find value in having an account with a full service bank as the relationship with a banker can prove useful.

Savings

Our savings accounts are all held with PC Financial. We hold a fair bit of cash in case “something” comes up. The “something” can be anything that requires cash such as an investment opportunity that requires quick cash or maybe an emergency car/home repair.  We also need cash to cover any future tax liabilities.

Real Estate

Our real estate holdings consist of a primary residence plus a rental property. The value of the principal residence remains valued at the purchase price despite significant appreciation in the real estate market that we’re in.

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In the past 12 months, I’ve been able to save 20% of my income and lose 20 lbs. In the process I’ve learned that there are many similarities between losing weight and saving money.

Here are 7 ways saving money is like losing weight:

1. Have a goal

Here it’s the million dollar journey. The goal is right in the title. For me it was 20 lbs. I only knew where I was going if I had a goal to strive towards. Having a goal is a great way to stay motivated when the going gets tough. I set out with both a financial goal and a goal for the number on the scale.

2. Write it All Down

I volunteer my time as a financial coach where I sit down with people and help them come up with a financial plan. This includes setting goals, getting out of debt, preparing a budget and saving for the future. One of the first assignments I give people is to begin writing down everything they spend. I track our expenses at wesabe. I track everything I eat and all exercise at fitday. Both are free.

When you write down what you spend and what you eat, it’s easier to see when and where over-spending and over-eating occur. It also provides accountability when you know later that you’re going to have to write it all down. People are often amazed to find they have spent way more than they thought in an area where they least expected it.

I’ve had several people guess they were spending $200 a month on food. When they wrote it all down, it often turned out to me more like $600 or $700. Others guess that they can’t be eating all that much until they write it down and add it up.

3. Chart your Progress.

On the first of every month I track my net worth in google spreadsheets. On the first of every week I tracked my weight. I made a little graph that showed my progress. Tracking your net worth can be really motivating for some people. It’s the same for tracking weight loss. A great deal of motivation can be found by looking at how far you’ve come!

4. Make it Automatic

Once I set up automatic monthly payments into savings, it became a lot easier to save money. I also have all of my bills automatically paid out of my chequing account each month. It’s the same for food. I eat the same breakfast every morning. Boring? No way! I chose something I liked. I also chose something with enough protein and nutrition to get me to lunch without snacking. By automating parts of my fiances and parts of my diet, I make the choice to save and eat well easier without having to think about it every time.

5. It’s all About Simple Math

Losing weight is about simple math. Eat less than you burn. Saving money is also about simple math. Spend less than you make. If you earn more, you can spend more. If you you exercise more, you can eat more.

6. Find some Balance

Learning to eat well is not about deprivation. It’s about getting healthy and feeling better. I finished every day with a square of chocolate and a scoop of frozen yogurt. Could I have lost weight faster if I hadn’t? Absolutely. Would I have reached my goal? I’m not so sure. I wanted an occasional treat and by allowing myself one small treat a day, I was better able to reach my goal.

It’s the same with living below my means. It’s not about constant deprivation. I could have saved more if I’d skipped a concert, a movie, dinner out with my spouse or the weekend in Niagara Falls. Instead we budgeted in fun money so that we wouldn’t feel deprived and were better able to meet our financial goals.

7. Enjoy the Process

Diets and budgets don’t work if you don’t enjoy the journey. I had to change my thinking from what I wasn’t eating to how much better I felt when I ate the right foods. I had to change my thinking about budgeting so that it no longer became what I couldn’t spend money on, but making room for spending money in areas I valued. Eating well was not about learning to like melba toast and celery. It was about finding healthy foods I really enjoyed like salmon, almonds, and dark chocolate.

Final Thoughts

One of the most surprising results of this weight loss journey is the money it saved. We ate out less and shopped at the local market more. We ate much less processed and prepared food and avoided the middle section of the grocery store almost entirely. I thought that by switching to healthier foods, I’d be spending more but in the end by avoiding meals out and processed food, our grocery budget dropped considerably. Buying a whole new wardrobe was a different story!

How have you found the journey to wealth similar to the path to health?

Kathryn is a regular contributor on Million Dollar Journey and has a passion for personal finance.  She volunteers her time as a money coach meeting with ordinary Canadians, teaching them the basics of budgeting, no fee banking, saving for the future and other basics of personal finance.

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I’m on the prowl again for a charity that aligns with my values and provides top value for those they are trying to help (ie. keeps their admin expenses low).  Within this search, for you business owners out there, I came to the question of whether it’s better to donate to charity within a private corporation or under a personal name.

Lets review how the charitable donations affects taxation under both structures.

Charity Donations under a Personal Name

As I explained in the article “how the donation tax credit works“, charitable donations have the additional benefit of giving a tax credit to an individual.  Donations for the year (registered charities only) are added together and the tax credit is calculated.  The first $200 will receive a tax credit equivalent to the lowest marginal rate (federal and provincial combined) and the remaining will receive a tax credit at the highest marginal rate (federal and provincial combined).  You’ll have to check your specific province to see what the lowest and highest marginal rates are.

Charity Donations under a Private Corporation

Charitable donations to a registered charity made under a private corporation are taxed differently than an individual.  Where an individual gets a tiered tax credit, a corporate donation is simply an expense, and reduces income dollar for dollar.

To determine which is better, you’ll have to understand how corporate taxes work.  Basically the small business tax exemption allows a small business to be taxed at a preferred rate.  For active income less than $500k (a lot of small businesses), the corporation pays around 16% income tax.  The tax rate jumps, however, if the corporation derives most of it’s income from investments.  Income from investments within a corporation is taxed at the highest corporate rate (high forties).

Corporate or Personal?

So with the background established, which is better, a charitable donation under a personal name or the private corporation?  The answer is that it depends on the situation.  If it’s a simple private corporation with active income, then it’s probably best to donate under personal as it will give you a higher tax deduction.  In this scenario, donating under the corp would give you a tax benefit of about 16% whereas a personal donation would result in at least a 40% tax benefit (providing the total donations for the year is much greater than $200).

The line isn’t so clear if the corporation is primarily used for to generate investment income.  In this case, the tax return in either scenario will be fairly close as the marginal tax rates will be similar.

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