Guerrilla Frugality - Saving You Money

Have you ever cleaned up after Christmas and asked yourself “Why do we need all of this stuff?”  And then as the credit card bills arrive in January you think “Is all of this stuff worth it?”  Well, it’s from those questions that a movement has started to grow around the world: Guerrilla Frugality.

Guerrilla Frugality is (to many) a way of life that involves cutting costs wherever possible.  As in any activity, some people take it to extremes, but most people who live a life of guerrilla frugality are simply trying to pay off debt, save for retirement, and live within their means.  The emphasis is on doing whatever you can to achieve those goals.  Some people embrace guerrilla frugality because of their debt load, and others because they have seen their parents retire without enough savings to support themselves and don’t want to have the same thing happen to them.  Whatever the reason, it often becomes a way of life instead of just a temporary thing.

Are low interest rates actually good?

Mortgage rates look really good right now.  They have never been as low as they have been in 2009, and they probably won’t be returning to these lows again any time soon.

The low mortgage rates have helped a lot of home owners to pay down their mortgages more quickly because of lower payments and lower inters charged.  The rates have also caused some people to purchase a home they probably can’t really afford.  Let’s look at the numbers:

You are purchasing a $340,000 home and have about $90,000 to put down, meaning you need to get a $250,000 mortgage. 

Best Investment Advice: Do It

A lot of people are quite willing to sell their investment advice books about the best stocks, bonds or GIC to invest in, but I offer some very basic investment advice:

Start putting something away now, and do it regularly for as long as you possibly can.

There are two benefits to putting money away over a long period of time:

$1,218 For Christmas

As we approach Christmas time, most of us spend a lot of time thinking about what we are going to give our loved ones.  We want to get the best for them so we can see them smiling and happy.  As a result, the average household Christmas spending in 2009 will total about $1,218.   This includes the turkey, decorations and so on, but the biggest cost will be the gifts.

That is quite a bit of money, and unfortunately many people end up wasting quite a bit of it because of their eagerness to get the gifts they want to buy.  Here are a few tips  that

7 Tips For Safer Online Shopping

More and more people are doing their Christmas shopping online.  The selection is great, and you can definitely find some good deals, but you want to be careful about how you shop online.  The following are 7 tips to make your online shopping safer:

1. Make sure your information is being entered on a secure site.
2. Look for the latest credit card password procedures
3. Know who you are buying from. Use stores you are familiar with or people you know have dealt with.
4. Beware of refurbished items, usually a detail buried in small print.
5. Check the store’s return policies before you buy.
6. Use a separate credit card for online shopping, preferably one with a low limit in case the number gets stolen.
7. If the deal sounds too good to be true, it probably is.

Online shopping can be a great convenience, and by following the above tips you can have a safer online shopping experience.
Jerry

Youtube Budget Contest

Win $300 in our Youtube Budget Contest

We are doing a contest to encourage youth to learn more about creating and sticking with a budget.  Youth between 15 and 21 years old who live in the Rocky Mountain House trade area, or are a Rocky Credit Union member, can create a video from 2 minutes to 5 minutes in length talking about why it is important to have a budget and how to create a budget, and that video could win $300 and other prizes.

Contest Poster (440 kb)
Contest Submission Form (324 kb)

The videos will be judged on the value of the content and the creativity in how the information is presented.

Deadline for Submissions is January 15, 2010.  Winners will be announced at our Annual General Meeting on Feb 1, 2010.

72 Hour Emergency Kit

Are you prepared for an emergency?  There are some areas of the world where they have become accustomed to evacuating their homes at a moments notice.  Hurricanes, tornadoes, and forest fires are just some of the natural disasters that affect people’s lives annually.  As a result, people who live in areas plagued by these events have 72 hour kits that allow them to leave home quickly, and be prepared to live away from home for at least 3 days.  Many have suitcases packed to help them live for up to a week without access to their home.

The basics around a 72 hour emergency kit are:
1. Know the risks
2. Make a plan
3. Get a Kit

Know the Risks – Each person and home is subject to different risks.  While the Rocky Mountain House Region isn’t likely to have a hurricane, we have seen some pretty powerful winds that could knock out

Finances In Your 40's

In the Finances in your 20’s and 30’s articles, I wrote that those two decades tend to be a lot about debt: accumulating debt, living with debt, trying to control debt.  In your 30’s, hopefully people start a bit of saving for retirement, emergency purposes, and children’s education as well.

Finances in your 40’s changes things a lot.  In your 40’s you are probably on your second or third home.  Hopefully you haven’t gotten the largest home and mortgage possible, as this could cause problems for the financial effectiveness of this decade.  This is the decade when you should be clearing off your debt, ending your 40’s with only a mortgage as debt.  You are approaching the height of your earning potential, and with that money you should clear off credit card debt, pay down your mortgage at more than the basic payment, and start seriously saving for retirement.

Debt Support Groups

There are a lot of support groups out there; weight loss, addictions support, single parent groups…  A support group that has been gaining in popularity over the past 3 or 4 years is the Debt Support Group.

A debt support group works very similar to the others:  you need to be completely honest, willing to share your actions and thoughts with the others, and your peers hold you accountable for what your actions.  You then get support in changing and controlling your spending, opinions of people going through similar situations, valuable lessons in budgeting, and share in the successes of each other.

Confusing Posted Rates

There are a lot of rules around how banks post the rates on their websites and in their branches.  The spirit of those rules is to make it easy for consumers to understand what the real cost or gain is to them.  I have to say that most banks do a pretty good job of trying to make their rates clear and understandable, but there is one product out there that continues to confuse people with its almost misleading rate advertisements – that is the escalator term deposit.

For most 5 year term deposits (redeemable or non-redeemable) the posted rate is the compounding rate you get on your money every year.  So a 5 year term deposit at 3.01% compounding annually means just that – you get 3.01% compounding every year.

For a 5 year escalator, the rates are laid out in the following way:
Year 1        0.4%
Year 2        1.1%
Year 3        1.3%
Year 4        2.1%
Year 5        6.4%

Teaching Kids About $ - Prize Contest

Prize contest at the end of the article.

A lot of people are concerned about the money habits youth have today.   These concerned citizens often say things like “They need to teach budgeting in school” or “than credit union needs work with kids more.”  The truth is that School does have a class in grade 10 where budgeting is a mandatory part of the curriculum, and the credit union helps by teaching a budgeting class at any of the schools who want us to come in.  These things help youth learn, but the greatest budgeting lessons a youth ever learns come from home.

Youth learn most from seeing what their parents do.  If a parent is poor at handling money, often the youth is too because they learn those same habits.  The best way a parent can teach their kids about money is to handle it well themselves, and talk to their kids about why certain choices have to be made regarding money.

I learned this lesson last year.  My kids were asking for a variety of items they had seen on TV commercials or that their friends had, and my regular answer was “We can’t afford it.”   I have said that for years.  Then I overheard my oldest telling a friend that we were too poor to do a certain activity that he hadn’t even asked us about.  The lesson my son learned was that we were poor and couldn’t do things that he thought were fun.

My wife and I discussed this, and decided we needed to change how we communicate our money issues with our kids.  We started by changing our answer from “we can’t afford it” to “We have decided to spend our money on other things.”  We also made sure that we pointed out the things we do spend money on – scouts, brownies, tae-kwon-doe, piano lessons, swimming…  and that because we have chosen to spend money on those things we have decided not to enroll the kids in hockey, or buy a Playstation…  We want the kids to understand that our budget is about choices, and that we can’t just have everything we want.  We also play money games with the kids (Monopoly, Life…) in addition to them earning money through extra chores around the house and yard.

So, what are your thoughts about teaching kids about money?  The first 3 people to post how they teach/have taught their kids about money will win their choice of a board game (Monopoly, Monopoly City, or Game of Life) a Wealthy Barber Book, and $40 Rocky Bucks to be spent here in Rocky Mountain House.  We’d like to hear from you, not only what you did but how it has turned out for your kids so far.  After posting your response, please e-mail your contact info to rockycu@myrocky.ca so we can get the prizes to you.

A Sandwich Generation

A lot has changed in our family cultures of the past 100 years.  In 1900, the life expectancy of an average person was around 50 years old, while today it is closer 80 years old.  In 1900, it was very common to have 3, even 4 generations living in a home.  Today, while it is more common for the younger generation to stay with parents until their late 20’s, the expectation is that they will leave, and over the past 50 years it has been pretty rare for people in their 50’s to have their parents living with them.  This is changing for many Canadians.


Canadian Baby Boomers are facing something that many have never really prepared for: the caring of their aging parents.  As Baby Boomers hit their 50’s and 60's and their children start leaving home, they are finding that some of their parents are in their 70’s or 80’s and are having difficulty living on their own.  Baby Boomers are starting to take in their parents, sometimes for health or financial reasons.  The health reasons tend to be obvious reasons for care, whether mental or physical, but the financial reasons are not always discussed.

Finances in Your 30's - More Debt, Some Savings

While your 20’s are often about accumulating debt and having little to no income, your 30’s also tend to be about accumulating debt, but this time there is an income.

People in their 30’s usually are trying to move out of the tight financial circumstances of their 20’s.  This mean they are paying off the debt they built up in student loans and credit cards, and trying to purchase better quality times that will last longer (car, furniture).  It’s these last things that can make life the most difficult for people in this age group.

When buying a home or vehicle, most people think of the size and age they want rather than the cost.  They often think of the home their parents have and want something about the same size or even bigger.  What many 30 year olds forget is that their parents didn’t get that larger home until they were in their late 40’s or early 50’s.  They worked for 20 years, often at long career jobs before being able to purchase that larger home.  People in their 30’s are trying to buy that same level of house with only 5 to 10 years of work behind them.  This makes the monthly payments so tough that very little is left for anything else, and they better hope that no emergency comes up.

Tax Free Savings Account

The Tax-Free Savings Account (TFSA) is a flexible, registered general-purpose savings vehicle that allows Canadians to earn tax-free investment income to more easily meet lifetime savings needs. The TFSA complements existing registered savings plans like the Registered Retirement Savings Plans (RRSP) and the Registered Education Savings Plans (RESP).

How the Tax-Free Savings Account Works

• A limit of one TFSA per person. Similar to RRSPs, this account is reported to the Canada Revenue Agency.
• Contributions to a TFSA will not be deductible for income tax purposes but investment income, including capital gains, earned in a TFSA will not be taxed, even when withdrawn.
• Unused TFSA contribution room can be carried forward to future years.
• You can withdraw funds from the TFSA at any time for any purpose.
• The amount withdrawn can be put back in the TFSA at a later date (not within the same calendar year) without reducing your contribution room.
• Neither income earned in a TFSA nor withdrawals will affect your eligibility for federal income-tested benefits and credits.
• Contributions to a spouse’s TFSA will be allowed and TFSA assets can be transferred to a spouse upon death.

Finances in your 20’s – or The Age Of Debt

Your 20’s are an exciting time.  You are determining your career, possibly even changing career paths a couple of times.  You usually finish your concentrated formal education (university, college) during this time period, and most of you have gone into debt to pay for your education.  You purchase your first vehicle with a bank loan, usually around $4,000 to $5,000, and you wonder how you can make the payments.  For many, they are wondering about starting a family and if it’s time to invest in a house and avoid paying rent.


The 20’s is a time of accumulating debt.  There is nothing wrong with that.  It is normal.  However, you want to make sure that the debt makes sense and its accumulation is controlled.


Education debt – It is normal for students to leave a 4 year degree with over $30,000 in debt.  That is a lot of debt when you don’t have a career job to help pay it off.  At $30,000 over 7 to 9 years, that means you will be paying over $500/month to student debt.  If that debt is built by going through a program that will give you a good living, it may be worth it.  However, if that debt paid for ski trips or a program that only offers $20,000/year in job salaries, you will have a very heavy burden for a long time.  While education debt may be necessary, try to keep it down.  You will appreciate it when your friends are still paying it off at 34 years old and you are free and clear.

Budgeting basics

I’m sure everyone has heard the following basics of building financial security, but because they are the basics they are worth reviewing:

1.Spend less than you earn.
a.This can be a huge topic unto itself.  Canadians have been spending more and more of their income over the past 15 years, to a point where many are spending more than they take home.  In order to do this they are going deeper into debt.

b.What are they spending money on?

• The biggest house and mortgage they can afford, even when they don’t need one that big (5 bedroom house with only 1 or 2 kids).  Unfortunately this often also comes with more property taxes and high heating and electricity bills, making it cost even more.  These costs often make it difficult to cover other expenses.
• Brand new vehicles, bigger and with all the extras that jack up the price by 30 to 50%.  These large vehicles (SUVs, 4 by 4’s that never see gravel…) also mean higher insurance rates and often poor fuel mileage.
• Eating out or eating prepared foods.  I know most people are very busy, making it difficult to make meals at home, but when eating out costs at a minimum of $8 and easily up to $25 per visit it may be time to review both eating and spending habits.  This is a very expensive consumer habit that can change your monthly spending by $200 to $500 per month.
• The latest toys.  People are going into debt to have the newest TV or sound system, video games, newer washing machine…  Often people are buying new versions of these even when the old one still works just fine (replacing at 27” TV with a 47”).
•  Holidays.  I can’t believe how many people take at least one vacation to Mexico, Cuba, or Las Vegas every year, and put the whole thing on their credit card.  They believe they deserve the break, because they are working so hard.  The thing is they have to work so hard to pay for last year’s vacation.  When someone is having difficulty making mortgage payments, a $1,500 trip to Las Vegas probably isn’t the best thing to do.

Credit Scores & Reports

A credit score is a pretty important thing.  It will determine if you can borrow to buy a vehicle or home, and will influence the amount of interest you will pay on that loan.  To the lending institution, the credit bureau (or report) tells them if you are financially responsible, if you make your payments on time, and if you are a good risk or a poor risk for a loan. The credit score ranges from 300 to 900, with 900 being perfect.  720 is considered good, while scores below that usually require more collateral and can pay higher rates.  Most financial institutions will not lend at all when a score is below 620.

Credit reports from any of the major reporting companies show a history of your credit use over as much as a ten year period. A report begins with identifying information, including your name and social security number, current and former addresses. Next is a list of creditors and your payment history with them, and ratings of your credit use.

Look carefully at each part of your report and note any errors. Incorrect demographic information can make it impossible for your own report to be found. This can cause real problems when you apply for a loan, an insurance policy, or in some cases a job.

Picking An Executor Or Guardian

 A lot of people don't like to think about picking their executor or guardian, but the reality is that by doing this work yourself while you are healthy you will save your family/friends a lot of work and grief when you might not be so healthy.

Taking care of your will/estate plan is an act of caring for your loved ones.  By doing it yourself, you are saving them from trying to guess what you want done or even prevent fighting amongst family members.  As bad as that sounds, I've seen family arguments because someone didn't leave a will, more than once, and it ends up devastating a family already going through a tough time.

The blog Thicken My Wallet has an excellent article on how you should choose your executor or guardian.  Take some time to read it, as it could be very important to how you care for your family after you are gone.

Jerry

The Cost Of A Wedding

The average wedding in Canada costs $26,000.

I know that as a rather frugal guy that many may disagree with me, but I believe that $26,000 may be a little too much to spend on one day.  I have been happily married for over 12 years now, and we had a fairly simple wedding, but we had a lot of friends and family celebrate it with us in a pretty simple setting.  Our total cost was under $4,000.  I have trouble picturing starting off married with the added debt of a super expensive wedding, or saddling any parents with those costs.  We had enough debt with student loans that we sure didn't need to add more to it.

But for those who are planning for the big weddings, the following 2 links can help you control and even reduce your costs.  Always remember that as important as that one day is, all the days after it are even more important.

Get Rich Slowly site
Canada.com article

Jerry

Strategies That Beginning Investors Should Avoid

Mr. Cheap, who has a blog called Four Pillars, has written an article about investment strategies that beginning investors should avoid.  A lot of it comes down to 2 good pieces of advice:
1.  If it sounds too good to be true, then it probably is.
and
2.  Don't invest in an investment product or industry you don't know.

I would throw in a third piece of advice based on some experiences of people I know:
3.  If the investment is based on a secret or global conspiracy (New World Order), you are more likely to make someone else rich than yourself with your investment.  Enough said on that here.

Check out the more detailed article at Four Pillars.  http://www.four-pillars.ca/2009/09/17/beginning-investment-strategies-to-avoid/ 
Keep your investments safe
Jerry

15% of parents are saving for kids education over retirement

Good article by Jonathon Chevreau of the Financial Post about saving for retirement and children's education at the same time.  Some scary stats about how many are saving for neither one of those.

http://network.nationalpost.com/np/blogs/wealthyboomer/archive/2009/09/23/15-of-parents-put-kids-university-savings-ahead-of-their-own-retirement-plans.aspx

Investment Planning 101

For some, retirement may seem like years away. For others, it may be right around the corner. Regardless of where you are, it’s still important to take control of your finances and start right now. If you invest even a small amount each month—say, $25 per week—you can accumulate a lot! If you wait, it could potentially cost you lots of money later.

If you start to invest in your 20s and invest $100 each month for just 10 years, then you will have a bigger nest egg than someone who invests $100 per month from age 35 to age 65!

No matter how old you are, if you're just starting to plan and invest for your retirement, you'll need to consider several things:

• Your time horizon
• Your risk tolerance
• Your goals and objectives
• Establish an Emergency Fund 

Your Time Horizon

If you're just getting started, you most likely have a while to go before you retire. The longer your time horizon, the greater your chances of reaching your retirement savings goal. Why? Because time gives compounding—earning interest on your interest—a chance to work. And, it gives long-term investors a chance to recover from market downturns.

Your time horizon also helps determine the amount of risk you can take on comfortably. The more time you have before you need your money, the greater the level of risk or volatility your portfolio can withstand (because you have years to recover). Volatility is inevitable, since markets tend to move in cycles. But the longer your time frame, the more volatility you can handle.

Risk Tolerance

To seek greater rewards–such as a higher investment return–you must be willing to accept greater risk. If you wish to reduce risk, you must be willing to accept lower returns. A diversified portfolio may help seek a higher long-term return and keep your risk relatively low. The key: find a comfortable place on the risk/return spectrum. You can accomplish this through diversification and asset allocation.

Goals and Objectives

Maybe you want to save for a dream home or your child’s education. Perhaps you just want to have a nest egg for a rainy day. Once you specify your goals and when you’d like to reach them, it’ll be easier to develop a financial plan.

Establish an Emergency Fund

It's very important to have some money set aside in case of an emergency. Experts recommend three to six months’ worth of expenses in cash or a relatively liquid investment like a money market fund. This money can help get you through emergencies or other times when you might be tempted to dip into retirement savings to get by.

You can find a more detailed article on our website at  http://rockycreditunion.com/default.aspx?PageID=1084

Debt Is Way Too Easy?

"Don't Pay for 14 months!!  No Money Down!"

My kids can practically quote some of the TV commercials that have pitch men shouting slogans about how cheap everything is and that you should get it now.  Especially the vehicle and furniture retailers.  Those ads are on all the time.  I have to turn down the volume just so I can think. Maybe that's a part of their advertising gimmick, making only their sales slogan stick in your head and erase all the other ads.  Who knows?  I think it might work on my kids.  To them, getting the item is far more important than thinking of how you might pay for it.  They would be quite happy to borrow money for every little thing that comes up on TV.

Debt itself is not a bad thing.  In fact it can help us purchase things that just cost too much to realistically have saved for before we buy: ie. a house, vehicle, or education.  So for those things most of us have to borrow money, and it's worth it to have a mortgage so we can have a house..  But there are things where borrowing money doesn't really make a lot of sense.

For instance, if you pay for a computer on credit card and make low monthly payments on your card, you will probably have to replace the computer before you have even paid it off.  That's probably not a good thing to borrow for and pay back over 7 years.

The smart people at Wealth Web Gurus have a very good article about "Good Debt vs. Bad Debt."  It describes how debt can help you and when it isn't good for you.

The Financial Post has an article about how easy it is to get into debt.  The author, Gary Marr, thinks it is a little too easy to get into debt.  "Debt Becomes Us."

Using debt wisely can help everyone over the course of their life.  Use it unwisely and you'll end up with a whole lot of letters and phone calls, maybe even some guy named Vinnie knocking on your door at midnight, asking for the keys to the car.  Nobody wants that.

My own advice about debt is:  If you have to borrow for it, the value of the item should last longer than the loan.
Jerry

Text Banking is coming soon

I just wanted everyone to know that we are currently testing our banking system with a very cool new service: Text Banking!  Pretty soon you will be able to get your account balances texted to your cell phone.  You can even get the last 5 transactions sent as well!

We're pretty excited about it.  When you consider our awesome online banking system and combine it with remote (telephone) banking and text banking, I have to say that our members can do their banking from pretty much anywhere.

Keep an eye on this blog or our website for when and how you can sign up.

We're reaching out across the world.  Not bad for a Credit Union based in a small town in Alberta.
Jerrry

Scams & Fraud

We have seen a rise in the number of attempted scams over the past year, and we really want our members to protect themselves from these crooks.

The most common scam that is hitting our members right now is called the Cheque Overpayment Scam.  This is how it works:

You are selling something through an internet site or the newspaper classifieds.  The purchaser sends you a cheque that is larger than the amount needed.  When contacted, the buyer blames the secretary or accountant and says you can cash the cheque and send the difference by money order or official order.  You go ahead and do this, mailing the money order right away.  Their cheque then bounces, but you are out the difference of the money order amount.

We have seen this for supposed purchases of items from less expensive items like speakers all the way up to a motorbike.  As long as the crooks can make money off of it, they will try it.

You can go to our website Scams page at http://rockycreditunion.com/default.aspx?PageID=1090  for information on other scams that keep popping up.

Keep your money safe.
Jerry

What does college and university cost?

We get this question quite a bit, especially in the fall when parents and grandparents are thinking about school.
The Edmonton Journal has a good article explaining the costs of education.  For 2009, the articles says that university tuition and books will cost about $6,500 a year, around $4,000 in personal costs, and another $11,000 for room and board if the student lives away form home.  These are general costs and will vary depending on the college and lifestyle.

http://www.canada.com/business/Post+secondary+costs/1971082/story.html

So that cost comes out to about $22,000 per year, and that's if the student lives moderately.  While there are Government Student Loans, and every financial institution has student loans (including us and our very good education loan), it's a lot better for the student to avoid all that debt by saving the money before school.  The best way to do that is through the Registered Education Savings Plan or RESP.

The basics of  RESPs are:

• You can open an RESP as soon as the child is born. 
• The money in the plan grows tax-free and the government offers special savings incentives (from 20% up to 40% depending on family income)
  
• When the child enters a qualified educational program at the post-secondary level, he or she can start drawing on the accumulated savings. 
• Only the child will pay taxes on the money he or she withdraws. Since many students have little or no other income, they usually don’t have to pay much, if any, tax when they withdraw money from their plan.

You can talk to one of our Member Service Representatives to find out more about RESPs or you can visit the following government website for more details about this very good program.
http://www.hrsdc.gc.ca/eng/learning/education_savings/index.shtml

Jerry

Welcome to RCU Speak

This is my first posting on the RCU Speak blog. My name is Jerry, and I am responsible for our main website at www.rockycreditunion.com and for this blog. Our website is the place to go for information about our products, but we figured it would be nice to have a less formal way for our members to ask us questions and hear about the latest news.

We will use this blog to warn people about scams, new technology, the best way to take money on trips, and to respond to questions about our own services and even the banking industry in general. Hopefully you can use this blog to learn more about various financial matters, making you a better consumer and investor.

For the credit union, we will try to answer questions and respond to any concerns quickly and effectively. We rely very strongly on the word of mouth of our members, so we hope this can be another way for our members to communicate with us.

To better financial management
Jerry