Marred by taxes

Talking about personal finance is all-too-often a sombre, serious pursuit. Which is why I'm relieved that the conventional media in which I work is slowly waking up to the potential of the web as a medium for telling stories in a different way.

Case in point? Marred by taxes.

Garry Marr, real estate reporter at the Financial Post (and former colleague of mine) has begun a weekly series of videos on FP's website in which he rants and raves about the myriad ways that Canadians are overtaxed. What really works about the series is that it's not an act -- Garry's just a curmudgeonly guy who does this all day long at his cubicle anyway. Somebody just had the brilliant idea of videotaping it.

Maybe it's because of the headaches I'm currently going through dealing with various utility companies while I extricate myself from my apartment, but I really loved Garry's thinking aloud about why, exactly, his gas, hydro and water bills seem to be intentionally obtuse and misleading.

A customer charge? Delivery charge? Gas supply charge? Debt retirement charge? Since when does making sure there's a free market for electricity in Ontario cost me $18.82 every month? What ever happened to the concept of billing me for the amount of electricity or gas that I use.

I tried to embed the video below, but in case it doesn't work, click here to be redirected.

Budget reaction -- Hooray for TFSA!

I really can't emphasize enough how pleased I am by the prospect of the tax-free savings accounts the Tories unveiled in the budget today.

The star's James Daw has an excellent recap here, and Canadian Capitalist offers his usual insightful analysis here. ROB's Rob Carrick chimes in here. I suspect the Canadian personal finance blogosphere will be all atwitter with TFSA-related posts in the very near future, but for those to lazy to click, here's the 10-cent version of what's happened. Starting in 2009, Canadians over the age of 18 will be able to deposit up to $5000 a year into these accounts, and will never have to pay any tax on interest or capital gains on assets within the account. There's no limitations on taking money out of the account, and in fact investors will be able to reuse contribution room after making withdrawals. As some astute readers on CC's thread have already pointed out, the TFSA will function a bit like a Canadian version of a Roth IRA -- albeit an even more flexible one.

There are a lot of things to like about this. I'm particularly impressed by the fact that there doesn't appear to be many restrictions on what the funds have to be used for -- as opposed to RESPs and RRSPs which can only be cashed in under certain conditions, and are subject to taxes and penalties for breaking those rules. Even if the upside doesn't end up coming in as advertised, at the very least this proposal is bereft of downside. Whether it's to save for a downpayment on a house, an emergency fund, or a conventional taxable investment account for stocks and ETFs, I can't see any reason why Canadians wouldn't use these new TFSAs as a potent wealth-building tool. I can assure you, time is running out for my taxable investment account once these little beauties see the light of day, although I do wonder what sort of tax implications there would be for transferring stocks out of a taxable account into TFSA. Would the CRA consider me to have sold them and repurchased them as they do when you transfer stocks into an RRSP? I suspect so, but time will tell.

The only "bad" thing (such as it is) is that unlike RRSP contributions which are tax deductible and thus give me a nice fat cheque every April, TFSA contributions aren't. So the government isn't paying me to save for my future, as they do with RRSPs. But on every other level, these accounts help make it more and more worthwhile for Canadians to start saving more -- unless I've missed something, 100% of every dollar you earn from an investment in one of these accounts goes into your pocket at the end of the day, a claim that can be made of very few things. You have to like that.

Fear trumps greed

Conventional wisdom has it that in our capitalist system, the best way to induce any particular event into happening is to provide an economic incentive for it's occurrence. In layman's terms, this means that no matter what we want to achieve or obtain (A nicer house? Improved customer service?) the most efficient way of making that happen is to offer cold, hard cash after the fact as a reward.

In macroeconomic terms, governments do things like this all the time -- dangle tax cuts for a particular industry that they're trying to stimulate investment in. And companies do the same, by, say, putting certain items on sale so we're more inclined to buy them. Even in our own quotidian lives, we use positive reinforcement to induce ourselves into certain actions -- we reward ourselves for sticking to a diet, or allow ourselves a treat after accomplishing some sort of savings target, to name but two examples.

It's not necessarily an irrational view to take. But the more I think about it, the more I'm convinced that taking the opposite tack might work just as well: instead of rewarding success, punishing failure can be a lot more effective.

Take my cousin. He's come up with a novel way of raising money for a charity he supports. He's planning on running the London Marathon in April, and rather take than the conventional strategy of soliciting for donations, he's put his money where his mouth is and basically betting with his friends on what his finishing time will be. He's never run a marathon, and he's shooting for a time of 3 hours, 30 minutes -- quite a good time, I'm told. He's trying to cull together a donation 1000 pounds (about $1970 Canadian) for a cancer hospice. If he hits his target time, his list of donors will have to come up with the 1000 quid. But if he goes over his target time, he'll donate the 1000 pounds out of his own pocket.

I think this is a novel approach, and one I'm happy to support as part of my own ongoing charity plans. The added bonus that will probably come out of this is that if he doesn't hit his ambitious target, he'll put up 1000 pounds of his own money, and his friends will pitch in an additional 1000 to support a good cause, so everybody ends up happy. So finish that cheeseburger and have that second beer, I say. :)

But to me, the really interesting thing about all of this is that rather than take the conventional view of setting a goal and rewarding himself for achieving it, my apparently overly-rationally-minded cousin is more motivated by actually losing money through failure than by the prospect of being rewarded for success.

I think deep down, a lot of us are like this even if we fail to realize it. Why else do we, as investors for example, have a tendency to sell our winners too quickly after we've pocketed a nice gain, but we'll painfully watch as our losers slide further and further into the red because we're unwilling to accept defeat? And why is it that the investing stories we obsess over for years aren't the times we pocketed a 60% gain in three months on some flash-in-the-pan tech start up, but rather, the thousands we lost because we tried to catch a falling knife named Nortel?

Because we hate failure a lot more than we like success.

Tragedy averted

More reminders pour in with every passing day to reinforce my conviction that PC Financial > Canada's Big Banks.

After switching to PC Financial from Royal for my everyday chequing account a few months ago, I was pleased to discover there's a CIBC bank machine in the lobby of my office. Since CIBC essentially runs PC's banking division, this ATM has essentially become the place where I do 90% of my banking.

On my way out of work on Friday, I hit up the ATM for some cash (the boys and I enjoy a few non-alcoholic beers from time to time....) I asked for $60 from the machine, thinking that would be enough to fuel my weekend. This seems like a good time to note that whenever presented with the option, I decline the option of getting a receipt from the ATM, as I don't use them to track my finances, they end up in the garbage a few hours later, so as such, they just seem like a waste of paper.

So after asking for $60 and declining a receipt of the transaction, the hamster in the wheel inside the machine starts making some very abnormal sounds. A few seconds pass, before the machine spits out my card and says "Your transaction has been processed -- don't forget to take your cash." One problem: it didn't spit out any cash.

I'm wracking my brain trying to decide how to proceed here. Essentially, this bank machine has just taken $60 out of my chequing account, not given me the cash, but debited my account for that amount. Since I don't know PC Financial's phone number offhand (and really, this seems like and error on CIBC's part anyway) I call the CIBC phone number printed on the ATM. After 10 minutes on hold, a very unhelpful man informs me, essentially, that I'm short out of luck. He confirms that the transaction went through and he sees no evidence that cash wasn't actually presented, so my beef is with PC Financial, not CIBC, I'm told. It seems I would be best served by calling them. Thanks for nothing.

At this point, I'm a good 20 minutes late and in a bit of a sour mood, so I decide to head to the bar opera house to meet my friends and resolve to put my tab on VISA and deal with this in the morning.

Next day, I log on bright and early to see that the good folks at PC have already taken the bull by the horns and reversed the transaction -- reinserting $60 into my account. I didn't even have to call them to get this entire fiasco fixed without my involvement. Good on them for that.

Now, technically, I have no idea how one of the conventional banks would respond to a situation like this. But based on my brief dealings with CIBC (and the 20 years before that sidestepping Royal Bank's nickeling and diming) I suspect it would have been nowhere near as painless.

What can I say? Make the switch. You'll be glad you did.

Confessional

The point of a blog, if not the characteristic that makes the good ones really special, is when bloggers feel truly free to write from their heart and aren't compelled to self-censor themselves or hold anything back. On that front, I haven't been the most open of bloggers of late, as there's been a fairly major change in my life that I haven't had the stomach or inclination to deal with here.

A few weeks ago, I made the difficult decision to pull the plug on my long-term relationship with my girlfriend. As is always the case with these things, the reasons are complicated and difficult to understand -- even to me. And even though I was the one who initiated it, it's still the most difficult thing I've ever had to do in my life. Typically, writing is a cathartic process for me whenever I undergo times of stress and difficulty, so one might imagine I'd take advantage or an outlet such as this one to sort through my thoughts. But in this instance, I don't really feel comfortable pouring my heart out on this subject, as this doesn't really seem like the ideal medium to do it in. Nor did the breakup have anything to do with money, for that matter.

Still, I felt like I owed it to myself, and my few readers, to come clean here. By ignoring the elephant in the room and prattling on about my personal finances, I just feel like I'm being dishonest somehow. And my posts of late, I think, have tended towards the superficial as a result.

So there you have it. I'm basically going through as close to a divorce as you can (without ever actually getting married, that is) and while it's as amicable as these things can be, it's safe to say this is a major life change for yours truly. Maybe I'll feel like hashing out my thoughts here some day, but that day's not here yet. In the meantime, expect numerous posts on how expensive this process is turning out to be. Even after we've finished splitting all our stuff and finding new places to live, I'd forgotten how expensive single life can be.

I hope you understand.

January net worth -- surveying the damage

I updated my net worth last night, and I was pleased to discover that it actually went up, albeit marginally, despite the stock market carnage that continued through most of the month. Click the chart in the right sidebar for the gory details. Proof positive that automatic savings programs work.

And as for the stocks, not that this really means anything in and of itself (since the only time one should care about the value of their stocks is when you want to sell) but it's nice for a little reassurance that I have indeed chosen solid firms that are better positioned than some to weather inevitable storms. I wasn't worried when the TSX lost 600 points in a day, and I'm not worried now.