Wondering… Too Good To Be True?

I went to bed shortly before midnight last night, dead tired and prepared to sleep at least 8 hours. However, shortly before 1:00 am, a loud THUD resounded from upstairs (i.e., where the Family-From-Hell resides) and woke me up. I swear they throw bowling balls on the floor up there! The end result, though, is that I couldn’t fall back to sleep, and I’ve found that if I can’t fall back to sleep after a half-hour of tossing and turning, it’s better to get up for a little while and then go back to bed.

Thus I found myself watching a bit of TV, including an infomercial on The Magic Jack, a VoIP device that costs a fraction of what I pay every year for phone service from Bell. It sounds almost too good to be true! From what I gather, given that I already get my Internet service from the local cable company, I could have a slightly more expensive variation of this thing and not have a computer turned on all the time in order for it to work. Obviously, recalling that I know of someone locally who got this gizmo a while back and being extra budget-conscious (obsessed?) lately, I couldn’t help but want to look more deeply into this possibility.

Bell pissed me off again recently, which is something it seemed particularly gifted at doing. I mean, at the best of times, Bell annoys me by wasting so much paper with at least one promotional letter per month plus sending me an envelope to pay my bill even though I’ve been on pre-authorized debit for at least a year. I was all happy with myself back in November when I found a way of saving over $10/month on phone services I didn’t use. However, this month Bell increased the cost of my long-distance plan by $5/month, so coupled with its $2/month basic fee increase and the Québec government’s 1 percent increase on the sales tax, my monthly savings have shrunk to less than $3/month. When I figured this out, I tried to look on the bright side and thought to myself, “Well, if I hadn’t asked for the useless services to be removed, I would be at well over $100/month by now.” Except this product has now come back to my attention, and I figure that not only could I reduce my phone budget by nearly 90% per year, but I could finally stick it to Bell.

I would obviously lose my current “514” phone number in order to get another one, but I’m not as attached to it as I was to my “902” number in Nova Scotia, which I held for some 15 years. But the thought of redirecting ≈ $900 per year on debt or savings or vacation money has the ol’ wheels in my head turning. And I’m sure my financial hero Gail would agree that every little bit counts.

Yet Another Grab Bag

I suppose wishes for a Happy New Year are in order even though, unbelievably, we’re almost at the mid-point of January already. Indeed, the first two work weeks of 2012 are already done, although the first, for me, was only three days long.

I’ve had a whole whack of blog topics come to mind in the month since my last entry, but somehow I got distracted by other things.

Wondering If It Works
Many months ago, the geek in me found that it was possible to edit what’s known as the .htaccess file for a website to exclude visits from anyone whose IP is from a specific country. For instance, one common practice is to exclude anyone with a Russian IP given how many spammers use that set of IPs. But for my part, in an attempt to feel more free to write what I wanted in aMMusing, I added commands to exclude all IPs from a particular country in North America. You’ve got three guesses (literally!) and the first two don’t count. I’m not certain these commands really work, but like a gift, it’s the thought that counts, I suppose.

Gail Vaz-OxladeA Marvel I Don’t Understand
I told you at great lengths back in October that I did my budget this fall on a massive spreadsheet. It seems to be working well three months into maintaining it, although I can’t understand why. Crazy, eh? I mean, I developed it so I should be able to understand it! Then again, this isn’t the first time I developed something that works without understanding why. Some would say I’ve become totally obsessed with my budget spreadsheet, as I keep working on it and looking at how the numbers are playing out; however, there’s something extremely empowering about it for me since it’s about looking towards the future and figuring out how to build an emergency nestegg (and how fast) and how I’ll pay to replace my car (which I expect to do around Junior’s 10th anniversary in Spring 2013).

My financial hero these days is Canadian best-selling author and host of ‘Til Debt Do U$ Part (with the “Home Edition” aired on HGTV), Gail Vaz-Oxlade. Not only does she make a lot of sense, but her blunt “tough love” bits of advice pass well because of her delightful accent (she was born in Jamaica).

Among Vaz-Oxlade’s bits of advice, there’s the need to create a budget. Some people equate “budget” with “cutting back,” just like others equate “diet” with “losing weight,” but that’s not her point. Instead, it’s the preliminary step to finding out exactly how much money is coming in and how much is going out on what. It has to include not just weekly or monthly spending but quarterly and annual obligations as well, like property taxes, water taxes, haircuts, dentist visits, vehicule registration, and so on. That’s the point where one sees where there’s fat that can be trimmed or cut out entirely.

She gets the people on her show to stop using credit cards and even debit cards and rely only on cash which she places in specifically labelled jars. (Personally I use my debit card as cash and rarely to get cash from an ATM, and I find I spend less that way than having loose cash in my wallet and pocket.) In some more extreme cases, she cuts back participants’ expenses by as much as 90 percent. If they complete the challenges she imposes on them over a few weeks, she gives them up to $5,000 to go towards their debt.

I started with my budget as she suggests and found that, although I’m in debt, my income is greater than my expenses (unlike most of her participants). That’s the most enviable situation to be in. For sure, I could go to a barber instead of the delightful Gabriel for my haircuts, but that would only save me about $8 per paycheque and that cutback (pardon the pun) isn’t necessary at this point. In the end, my budget maps not only the net amount of each expense, but also the monthly and, more importantly, the per-paycheque net amount for each. Indeed, I always wondered why the two “extra” pay periods for someone like myself who’s paid every two weeks don’t seem to be “extra pay days” as one would expect when just looking at the surface.

I then considered, but stopped short on, imposing the “magic jars” system on myself. Instead, I took a two-pronged approach: the “calendar” approach for my cash flow in one sheet so that I can see when certain recurring amounts go out, and a combined “virtual savings accounts / daily expenses” approach in another sheet for daily expenses including those I automatically set aside (i.e., not spend right away), namely 6 fixed amounts ranging from $4.20 to $43.30 per paycheque for haircuts or any of those irregular or occasional musts.

As a result, in the cash flow sheet, I have only one line per pay period for stuff I lumped together like food and other expenses. During the current period, that amount goes up based on the entries I make on my daily expenses sheet. On payday, the surplus or deficit from the previous period is added to or subtracted from the net paycheque — often when there’s a surplus, I put it on my line of credit — and the 6 amounts above are immediately deducted from that “lumped together” total so that I will have the cash to pay for those things when they’re due. That leaves me with the remainder to play with, but although sometimes it seems like the cash flow is in the red, in reality the variable accumulated sum of those 6 “virtual accounts” remain part of the actual balance in my bank account.

What’s discombobulating about this approach is that the balance in my bank account doesn’t mean anything anymore. It seems like it should be heading into negative territory one of these months, but as long as I trust only what I see in my spreadsheet for any given day, that’s really where I stand. I don’t know how many times I re-examined my formulas to make sure I’m not double-counting (or not counting) some expenses, but the logic holds even though the bottom line in my bank account never seems to add up to anything I see on my spreadsheets.

So, I’m staying the course. I think the worse thing that can happen is that I’ll find that I’ve been too aggressive attacking my debt — it looks like I’m putting over 24% of my net towards debt repayment, which I gather is about 9% more than what Vaz-Oxlade suggests is optimum, although her 15% figure might be for when someone HAS to pay more than that in order not to sink further in debt — in which case I’ll just have to backpeddle a little bit on that front. Besides, even if it’s only a few dollars here and there, keeping one’s debt as low as possible means lower monthly interest charges on the line of credit on which I consolidate my credit-card expenses. Not only is the interest rate much lower on the line of credit, but the interest is paid monthly from my main account, meaning the outstanding balance on credit doesn’t balloon, not to mention that I never pay a penny in interest on credit cards due to the 21-day grace period.

Having Much of a Life Lately?
As you can tell, not really, but unlike a year or so ago, that’s not depressing me. Funny how only a few months in therapy changed my outlook so fundamentally.

Like I said, the budget thing has become very empowering for me. It’s actually set up to be the worse-case scenario, yet despite my expensive screw-up a month ago, it still looks like I’ll be relatively debt-free by the end of 2013. Given how time flies, that’s nothing and extremely encouraging! While I’m currently not following Vaz-Oxlade’s “pay yourself first” suggestion, that’s only because I have something up my sleeve that will turn this worse-case scenario on its head.

But I haven’t been going out much lately, either. I get that way in winter. However, if I must be candid, I haven’t felt like it because of the 20 or so pounds I gained in the last two years. A lot of my clothes doesn’t fit well, but rather than buy new clothes, I prefer to lose the weight. Granted, by that time, that clothes will be in need of replacing, too, but I rather buy “skinny clothes” than adapt and buy “fat clothes.” I may like bears but I don’t see myself as one. Besides, I prefer hunky bears over fatty bears.

Any Vacation Plans?
Yup! That’s in the budget and it’s also why I want to lose weight. My first vacation will be for a week around Easter when I’ll be flying to Moncton and spend that time with my mom. But the second vacation — the “for me” fun vacation — will be the first two full weeks of August when I plan to spend a few days in Provincetown and then drive up the coast to Moncton (again) and Halifax. It’s not my dream vacation to Mykonos just yet, but I hope that’ll come in 2013 or 2014, especially if I can find someone to travel with. It seems like it would be more fun to travel to Greece with a friend than on my own.

Do You Still Follow Politics?
Avidly! But whether it’s in Québec or Canada or the U.S., there just seems to be so much I could be railing against that I don’t know where to start. However, combined with the uncertain economy, politics has become rather depressing. There comes a point where it’s better to go inside a little bubble to preserve one’s sanity.

Becoming Stingy or Smart?

Spreadsheet Heaven or HellIn reference to the title of this entry and the previous entry on this topic, I’m starting to wonder if my rekindled budgeting obsession demonstrates that I’ve turned downright stingy or simply smarter. It might be a bit of both, although I prefer to think it’s more of the latter.

Yesterday I scooped out my most recent phone bill from my mailbox. It’s more of an FYI kind of bill because the total amount, which is stable every month unless I do some odd extra thing, is automatically debited from my personal account. Except this time I paid attention to the fine print and identified two lines in the details section that have long bothered me — something about maintenance fees.

So I called Bell — what an awful maze of “If you’re calling for this, press 1; if you’re calling for that, press 2” they have! — to speak to a live agent. The “interior cable maintenance” fee was described to me as a kind of insurance: for $6.95 (plus taxes) per month, if something happens to my line that the reception becomes horrible or some people can’t reach my number for whatever reason, I can get a repair person to come and won’t have to pay anything upfront. “You might never need this for 3, 4 or even 5 years,” the agent explained, “but if you did need a technician, it would cost you over $90 up front.” As for the other fee of $6.95 (plus taxes) per month, I was paying it for nothing because my non-Bell equipment wasn’t even registered with Bell, and it is meant for repairs on such third-party equipment.

I did the math out loud with the agent, rounding off the numbers.

The cabling maintenance: $7 * 12 months = $84 per year and I never used it in more than 3 years. At that price, I’d be better off forking out a one-time $90+ fee if I needed to.

The equipment fee: Same calculation, but if my phone sets suddenly stopped working well, I’d just buy new sets for probably less than 2 years’ worth of fees.

“So basically I’m reducing my phone bill by $14 per month excluding taxes, which works out to $168 per year,” I said. “It’s not much but it’s better than nothing, especially for something I’m not very likely to use!”

The agent laughed, implicitly agreeing with my logic. She then “took the opportunity” to warn me that the basic fee is going up by $2 starting in January. She didn’t mention, however, that the Québec Sales Tax is also going up 1% on January 1, 2012, bringing it to 9.5%, and since it’s charged on top of the federal GST of 5%, our sales tax rate will be 14.975%. Except that when all is said and done, if I compare my current monthly bill to the one I’ll be getting as of January, I’ll be paying almost 15% less, or the equivalent of the sales taxes. Not bad for one 10-minute phone call!

It’s wonderful to be taking back control of all aspects of my life, even trivial little things like this one. I also asked the janitor this weekend to have the rental office send a formal letter of complaint to my offending/offensive neighbours upstairs. These are little things, but they’re all contributing to feeling less powerless as I bemoaned earlier.

Centres StopMeanwhile, after work tomorrow, I’ll be going for my first of two consecutive soft-laser treatments in my latest attempt to quit smoking. This is an expensive proposition: it will cost nearly $800 but will include two “touch up” treatments over the next year and some herbal remedies for backup. But that is yet another testament to trying to regain control over my life.

I still have a few things to tackle in the coming days and weeks, all of them financial. But while “discipline” will be a featured word in my life for the coming months, I’m actually stoked about it all. I’m yearning for that sense of control I briefly held around June 2007, for when I fell in control, I’m able to make big decisions.

Indeed, it was in June 2007 that I stopped bitching about not living in Montréal and instead made plans to do so within less than a year…

Living Within One’s Means

Money WorriesWhen I started my permanent job in March 2006, I calculated my net debt at the time was two-thirds of the gross salary I would be getting. What’s more, I was officially being hired on a one-year contract, so while I hoped that it would be extended beyond that point or even become permanent, I didn’t count on it. Therefore, I made plans to use that year to make a serious dent into my debt load and to transition back into my freelance venture.

As it turned out, at the end of that year, my contract was extended by six months and, within a few months during that time, I was made a permanent employee. Furthermore, I had made financial preparations because I had anticipated keeping my previous freelance work as a sideline on evenings and weekends, except that the day job turned out to be so intense and time- and energy-consuming that I did little to no side work, choosing instead to delegate much of it.

However, the thing of which I was most proud in my first 12 to 15 months at the then-new job is the near-miraculous debt repayment I managed to pull off. Even with buying out the remainder of Junior ‘s lease, I found myself with a debt load below 30 percent of my gross income by early summer 2007.

I achieved this feat in two ways: First, I mapped out in detail my income and spending for 12-18 months in an elaborate spreadsheet and, second, I kept my expenses roughly at what they were when I was earning so much less. Granted, I allowed myself some extras, like getting “grown up” accommodations while travelling (i.e., staying at B&Bs rather than with friends) and making a few essential purchases (e.g., a new computer and replacing a desperately need dinette set). But the most critical element of the two was keeping a close eye on that spreadsheet and sticking to it and cutting back in some places to compensate for those places I went over budget.

By summer 2007, a small expected and a big unexpected happened: I decided to move to Montréal and I fell in love, in that order. Followed a spending frenzy during which I pulled all the stops. Yet when I recently decided to start paying attention again to my finances, which I hadn’t the energy to do for more than a year (when “depression light” started in earnest), I had to reach a rather pleasant conclusion: my financial position today is closer (though certainly not quite as good) to early summer 2007 than late winter 2006.

Since that personal financial “high spot” of 2007, much has occurred outside day-to-day life, most notably worldwide economic uncertainty stemming from the Great Recession, which today is threatening to return. Even though it doesn’t seem likely that my job will be terminated soon, I decided that I can’t make such an assumption. Despite racking in billions per quarter most of the time, an employer like mine could start crying famine after one or especially two consecutive quarters of deficits. And to be sure, executive salaries wouldn’t be the first thing on the cutting block; front-line workers like myself would be expected to take the brunt — and this despite past performance or the very negative impact on clients.

So that brought me to thinking about my “miraculous” spreadsheet of ’06-’07. “If I could do it once I can do it again,” I thought to myself. Therefore, I fired up OpenOffice Calc a few weeks ago — I prefer not to have Micro$oft products on my newer computers, except for the operating system itself — and by now I’ve refined a financial outlook to the end of 2012 that would lead to an improvement similar, though perhaps not as spectacular, to the one of ’06-’07.

The biggest challenge in my opinion is realizing that a budget is theoretical and can be quite detached from cash flow. We tend to think in terms of months, quarters and years, but those of us who are paid every two weeks actually receive 26 paycheques per year, not 24 as a monthly projection would imply. Yet it seems those “extra” two paycheques always go to waste.

So what I designed on the first worksheet is a yearly budget, trying to come up with all unavoidable expenses like haircuts, web hosting, insurance, annual auto plates/insurance renewal, and so on. The only thing I didn’t consider is gas for Junior or the occasional refills on my transit pass, as those are next to impossible to predict. As for a budget item like food, I decided to go much higher than average to take into account that I’m not likely to change overnight and start eating in nearly 100 percent of the time. (Basing budget numbers on hope rather than reality is, in my mind, a sure-fire way of creating a doomed budget.) The most important line item I added was to automatically place 16% of my net income on servicing my debt, which one day will become an automatic deposit into a savings account. I then calculated in subsequent columns how much each line item represented by month and, most importantly, by pay period.

That’s how I figured out how, despite a year-plus of neglect, I managed not to sink back too far into debt: my expenses remain lower than my income, albeit not by an enormous amount. I found that there is some wriggle room when looking at the yearly and per-period picture, but the trick is to plan months ahead rather than paycheque to paycheque.

So now what I do is save small per-period amounts into fictional accounts for all recurring expenses. For example, I spend about $300 per year on my dentist, but setting aside $11.54 per paycheque is much easier than scraping up $150 after one visit to the dentist, which usual ends up going on the credit card and gets paid later. (And if one visits ends up costing more than was set aside, there’s that much less to defer.) The same goes for once-a-year payments like auto plates/insurance. Since I leave those set-aside sums in my general account, I ignore what my actual bank balance is at any given time; I trust only the balance shown my spreadsheet.

Although the per-period leftover is small, I add that amount to all those fixed “set-aside” amounts; I then consider that lump as one row of “money spent” in my general ledger but track in detail in a separate worksheet a detailed breakdown of that lump that includes all those fixed per-period amounts placed into my fictional “accounts.” I have another worksheet where I tally only the fictional “accounts,” which gives me a running total of what’s waiting to be spent in the near or medium future. And as I mentioned, I have another worksheet which is the general ledger in which I track cash flow: one row for paycheque, another for fixed debt/savings payment, another for living/”set-asides” into the fictional “accounts,” and one row placed “just in time” (i.e., at the date each is expected to hit my general account) for each item like phone, hydro, cable or rent. That means when I do pay cash for my dentist or a haircut, I don’t record the expense on the general ledger but on the “running total of money set aside” spreadsheet.

Theoretically, some periods end in the red, but the beauty of this scheme is that, after a few months of following this regimen, the accumulated savings into those fictional accounts prevent me from actually dipping into my overdraft yet the cash is there “just in time” when I need it (to pay my dentist or hair stylist cash). I also added formulas so that if I go slightly over budget during a period, I have less discretionary income in the next period, but if I stay slightly under budget, the surplus goes into the next period and it can go either to making the next period balance more easily or towards more debt servicing or savings.

It’s a thing of beauty, I tell ya! I’m keeping a few details secret from this blog for now, but what I can say is that within a foreseeable future, I should be in the situation most financial analysts say one should be, namely with a few months’ savings in case of sudden unemployment (although employment insurance would likely kick in as well at first). And although Junior continues to run well for an aging car, I can foresee replacing him when I have to without getting back too deeply into debt. I know there’s bound to be unexpected expenses (right down to vacation getaways), but those can comfortably go into the debt column for a while because, under this scheme, credit is for such extras that can be reimbursed in full within a reasonable period of time and not for day-to-day living.

I know this is a terribly boring topic; we unfortunately all have to worry about our personal finances. But I suddenly feel like such a responsible adult for a change! And I recognize, after this exercise, that I’m more fortunate than most …no pun intended. I may never be able to afford real estate in Montréal, but otherwise there are many who would envy the situation I’m in.