April 28, 2007

Inflation and Installing Summer Tires

Inflation (noun): When you pay $20 for the $10 haircut you used to get for $5 when you had hair.
How much does it cost to have your winter tires taken off and replaced with summer tires (all on rims)?

My dealership always charged $48+tax. This time, the price jumped by 42% to $68+tax. That's a huge hike for a simple, routine process repeated twice a year. Well above the rate of inflation.

Recycling Gone Too Far
Also, the snow tires were put back into the same bags the summer tires were in --- not the cleanest after months gathering dust in the garage. Since I have a midsized sedan, two tires were put on the back seat. In the past, they've always used clean bags. Recycling is good, but cleanliness also matters (or so my better half tells me).
I had to stop driving my car for a while ... the tires got dizzy.
--- Steven Wright
I believe in getting service done at the dealership (e.g., they also did a software update under warranty). My lease is up in a year and I'm wondering whether to keep my car (only 29,000 km in 2 years). A big concern is the cost of maintenance and long term reliability. This visit was an eye opener. If the prices shoot 42% for routine service I can get anywhere, what will happen for specialized service when I don't have a choice? Will a $1,000 bill now become $1,420 + tax?

The Result
This visit provided less,cost more and created anxiety about future maintenance costs. A poor combination.

I'm glad I didn't get the wiper blades changed!

April 23, 2007

Canadian Financial Blogs

You ain't been around
You ain't seen nothin' yet, that's what she told me

She said, I need an education, go to school
--- Bachman Turner Overdrive, You Ain't Seen Nothing Yet

Have you visited Canadian financial blogs (besides this one)?

For whatever reason, I didn't think they existed. They do. I found a list of Canadian financial blogs at CanadianCapitalist.com while searching for something else. What's especially nice is the brief summary of the blogs shown. I visited some and was pleased with what I found.

I'm surprised at how many authors don't give out their identities. What do they think will happen to them? Maybe it's our renowned Canadian modesty. Unless we lost it with The Trailer Park Boys. Unless you're doing something wicked (a word which here means "something you'd get in serious trouble for doing"), then hiding your identity means that you can't get credit for your work.

If you're looking for more to read, take a peek. Support Canadian content before the regulators step in :)

April 17, 2007

$1,000,000 After Taxes on Investment Growth

If I had a million dollars, we wouldn’t have to walk to the store.
If I had a million dollars, we’d take a limousine ’cause it costs more.
--- Barenaked Ladies, If I Had a Million Dollars

You know about compound interest. Or do you?

Let's use a simple example. Suppose you have a dollar. I'm sure you can imagine that. Now suppose that your investment grows 100% each year. That's a bit tougher to imagine, but it makes the numbers easier to follow.

Let's see how much you have after 20 years with and without tax.

Here's how your investment would grow:
  • end of year 1: $1 + 100% = $1 + $1 = $2
  • end of year 2: $2 + 100% = $2 + $2 = $4
  • end of year 3: $4 x 2 = $8
  • ...
  • end of year 20: ???
After 20 years, your dollar is worth is $1,048,576. Congratulations! You're a millionaire!

Now suppose you pay tax of 35%, say. How much will you now have after 20 years? Pause and think about this. Here are the most common answers I get
(a) $1,048,576 - 35% = $681,574
(b) $1,048,576 - 65% = $340,787

The real answer is $22,370.66.

How can that be? Taxes compound just like growth. Here's how:
  • end of year 1: $1 + $1 x (1-35%) = $1.65
  • end of year 2: $1.65 + 1.65 x 0.65 = $2.72
  • end of year 3: $2.72 + $2.72 x 0.65 = $4.49
In just three years, $8 without tax becomes $4.49 after tax, a decrease of 44%.

After 20 years, you're left with less than $23,000. A tax of 35% led to a loss of $1,026,205. About 98% of the investment. Is that what you were expecting?

The Solution
Pick investments with high returns and no tax on the growth. Where can you find that combination? In universal life insurance. There are many investment choices. Growth is tax-sheltered (as in an RRSP). The insurance usually costs much less than the taxes you save.

By the way, if you know where to earn 100% annual returns, please post a comment.

April 9, 2007

FBI and Sick Kids

One of our submarines is missing tonight
Seems she ran aground on manoeuvres
One of our submarines.
--- Thomas Dolby
If a submarine can be lost, what of confidential data and trust?

Here are two bizarre examples
  • the FBI losing laptops and weapons
  • the Hospital for Sick Children losing a laptop with patient information
"According to a new report by the Office of the Inspector General, two and three laptops each month are lost or stolen from the bureau—and the FBI cannot determine in many cases whether the computers contained classified data."
--- eWeek (Feb 12, 2007)
That's scary. Losses are understandable. Watch movies and you'll see lots of FBI equipment getting discarded or blown up. Wouldn't you think they'd know if the data was classified, though?

Hospital for Sick Children

This article left me speechless (or whatever you call it when you don't know what to type). Wouldn't you expect a hospital to encrypt and protect patient files without being told? Evidently not.

Who can you trust these days?