I asked my twitter followers to send some of their best personal finance articles for the week, below is what they came back with:

While Kathryn wrote about different ways to reduce debt, No Credit Needed had a similar article about his debt reduction mindset.

Michael James on Money asks why company pensions are at risk.

Five Cent Nickel tells us that good deals don’t always pay.

Canadian Capitalist concludes that it’s a good bet to keep dividends within an RRSP.

Steadfast Finances lists 12 facts you should know about facebook’s business potential.

Four Pillars says that spending cash is the same as borrowing if you have debt.

Suburban Dollar writes about the Coverdell Education Savings Account (U.S).

The Financial Blogger has some discouraging news about the S*P 500

My Life Roi writes about networking: strangers aren’t very giving.

Realm of Prosperity shows us how to prepare for a lost wallet.

Where Does All My Money Go writes about the genesis of DSC mutual funds.

Saving For Serenity has the showdown between frugal vs cheap.

Thicken My Wallet explains how to be a better employee.

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Welcome to the Million Dollar Journey July 2009 Net Worth Update – The Home Expenses Edition

Houses are expensive!  With summer in full force, I have been diving into the “honey do list.”  Thus far, we have installed a fence and organized the garage.  Other items on the list include creating a front garden for curb appeal, building a shed, and developing the basement.  They probably won’t all be done this year, but I’m hoping to take advantage of the home renovation tax credit as much as possible.  With the work done so far, and mid year property taxes due, our savings have taken a hit.

With regards to our portfolios, they have been performing well thus far in the year.  I’m actually surprised that we haven’t seen a larger correction, but I’ll take it!  If we do get another correction, I will be waiting to buy more equities.

Assets: $452,500.00 (+1.04%)

• Cash: $4,500 (+0.00%)
• Savings: $10,000.00 (-9.09%)
• Registered/Retirement Investment Account: $67,000 (+3.08%)
• Pension: $22,500 (+0.67%)
• Non-Registered Investment Account: $17,000.00 (+6.25%)
• Smith Manoeuvre Investment Account: $48,500 (+5.43%)
• Principal Residence: $275,000 (+0.00%) (purchase price)
• Vehicles: $8,000 (2 vehicles) (0.00%)

Liabilities: $89,900.00 (-1.75%)

• Tax Liability: $3,000 (-0.00%)
• Principal Residence Mortgage (readvanceable): $33,900 (-4.51%)
• HELOC balance: $53,000 (+0.00%)

Total Net Worth: ~$362,600.00 (+1.75%)

• Started 2008 with Net Worth: $309,950.00
• Year to Date Gain/Loss: +16.99%

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 usually 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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Miya wrote me an email about her financial situation and was looking for an opinion.

I am a big fan of Million Dollar Journey and I learned a lot from here. I realized that if you don’t manage money, the money will manage you.  Although I understand the fundamentals about finance management (I think I do), I’m still in a dilemma of choosing my priority between paying off debt, contribute to an RRSP or build a portfolio.

The Numbers:

1. I am married with a new born baby. Annual income of household is $75,000 before tax ($60k take home in BC).
2. Annual expense budget which is quite practical is about $50,000 (Include: rent, car loan, cell phone, groceries, baby expense, credit card minimum payment, entertainment, etc.)
3. Total credit card and line of credit: $45,000 (between 15-19.5% interest)  note: from wedding expenses and over spending before baby was born
4. Cash: $10,000
5. RRSP: $15,000
6. RESP: none

Our household after-tax income can basically cover the expenses. For the cash and other extra income, I don’t want to put them all against my debt, instead I would like to contribute to our RRSP or invest into stock market which I think is a good time to build a portfolio. I know it is crazy but I would like to see some rewards rather than fill the big debt hole.

I appreciate your advice.

So the question is, what does Miya do with their cash?  To be blunt, it is crazy to consider investing in the market while holding credit card debt, especially when it’s upwards of almost 20%.

I think the biggest issue is that a lot of people feel that investing is sexier than paying down debt.  The reason being is that investing can be more exciting and has the opportunity to grow your money, while paying down debt doesn’t have the same type of gratification.

There are times when I believe that investing should come before paying down debt.  For example if the interest rates are extremely low, or if it’s a tax deductible loan (good debt).  However, in Miya’s case, the debt is extremely high interest which would be extremely challenging to beat by putting the money in the market.

If the cash was invested in a non registered account, the market gains would have to be greater than 21% before tax to match the 18% debt on the credit cards.  As paying down the high interest debt is a guaranteed return, the risk adjusted return required from investing would have to be even higher.

My suggestions?  I’m not a financial advisor, but if it were me, I would:

1. Take the cash savings and pay down the credit card debt (highest rate first) as soon as possible.
2. Tighten that budget to squeeze every dollar possible to pay down debt.
3. Consider pausing RRSP contributions (unless it’s employer matched) to put more towards the debt.
4. After debt is repaid, invest by contributing to your RRSP or TFSA.

This scenario is similar to Paul and Melanie’s, but they’ve already paid down more than half their debt in 6 months since the post!

Those are my thoughts, what do you think?

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