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I watched a bit a marathon of “Say Yes To The Dress” from TLC last week.

As a financial planner, my first reaction to the show was wanting to scream “DON’T WATCH THE SHOW!” as it will skew your perception of how much a wedding dress should cost.  I don’t think I saw a budget less than $3000!  And all for what?  One day of make believe and grand delusions?  Ask yourself, do you remember what dress the brides wore at a wedding you have attended 2 years ago?

To be fair, the whole show is not completely without merit.  After a few episodes I started to see how the process of choosing ‘the right’ dress can be a metaphor for making any emotionally charged financial decision.  I see many of the same pitfalls arise every day as a financial planner.  There were :

  • those who want everything but aren’t willing to pay the price
  • those who are looking for the ‘perfect’ dress and so afraid that they will regret their decision that they don’t make any decisions at all
  • those who love everything and can’t decide

The show is set in Klinefield’s, a ‘mass affluent’ bridal store in New York.  In one episode Randy, the fashion consultant, told us his cardinal rules about wedding dress shopping which I think are rules we can follow anytime we are making other large dollar, emotionally charged financial planning decisions in our life:

1. Don’t try on a dress outside of your budget, it will only lead to tears – isn’t that so true?  Our wants will always outpace our needs.  Even in the dream factory that is Klinefield’s the first rule is not to temp yourself.  Life would always be easier if you had more money, but if you don’t have it then why tempt yourself? This is where understanding how much money you have and can spend will keep you grounded.  As I’ve said before, you need to be realistic…and Think Poor. Live in the bliss of ignorance.

2. Don’t keep secrets from your consultant –  Yes, they want to sell you something, but they also want you to be happy, even if for no other reason that you will come back they can sell you something else.  Just remember the advice you get is only as good as the information you provide.  If you tell me you have no debt and want to retire at 65, my advice to you will be very different than if you have lots of debt and you want to retire at 55.  So don’t waste your time and the time of your advisor if you are not going to help them to be successful in helping you.

3. Leave the entourage at home – Don’t be surprised if everyone has a different opinion of how to achieve financial success; too much advice is not necessarily a good thing.  Reading all of the financial blogs and books isn’t necessarily going to help you (except this one of course). It may sound cheesy, but a better way to spend your time is to get to know yourself and what your goals are.  There is always a financial solution out there to get to your goals…just as there is always a dress out there for you. The trick is finding the dress or the financial plan that you can afford and that you can live with.

4. Stop shopping once you found the dress – The fundamentals of financial planning are actually pretty simple and universal.  You will need a tailored plan to suit your needs, but once you have plan, stick with it.  Stop trying to find the ‘better’ plan.  Changing course and second guessing yourself won’t help you and will only cost you more money if you make rash corrections to your plan over the short term.

5. Always wear underwear – Well that goes without saying… you never want to be naked at Klinefield’s or in your finances.  Make sure you always have a rainy day fund that is separate from your other accounts.

I would add one more cardinal rule:

6. Keep some perspective on what is really important – In many ways the rush and excitement of the wedding dress purchase is like the initial stages of your financial planning. Wrapped up in each stock purchase or mutual fund selection are all the hopes and dreams of your whole life, career, family and retirement. The wedding dress encapsulates everything brides dream about their marriage. But the dress itself is for just one moment in time.  It’s a lot of work and done right it can be the foundation of something wonderful but it isn’t the marriage. Try to think of your financial planning as if you are buying that wedding dress and planning for the entire marriage that comes after it. Just like in marriage,  the real return on your investment comes from years of hard work, communication and self-reflection.

So say yes to the dress or to your financial plan, but remember these rules to keep your head out of the clouds.

In part I of this three part series we found that moving from Vancouver, BC to Corvallis OR hasn’t saved that much money despite moving to the supposedly “low tax” USA.  I have $166.11 less a year having moved here.

In Part II, I will tackle the big ticket costs of housing, car insurance and medical insurance.

First up, housing. Corvallis is a lot more expensive than I had expected.  Before we arrived I did some research and the city website indicated that the average one bedroom apartment was $500/mon, which is a lot cheaper than Vancouver, BC one of the most expensive cities in the world.   Therefore, I thought our total cost of housing would be around $700/mon tops.

Well, was I wrong. Corvallis has rental vacancy rate of under 1% .  The explosive  growth of Oregon State University and lack of corresponding growth in the rental units means that it is actually really hard to find a place to live.  Don’t get me wrong, you can get places cheap.  We saw a ‘bachelor’ unit that was in the basement with uneven walls, no windows and a shower that was in a concrete hallway all for just $400/mon.  There was a small two bedroom for $600/mon but it smelled of mold which was a problem with many of the units I saw.  For a week from my operation centre at the Days Inn through the worst rain storm of the last decade I must have seen every unit available in January and February. We even went to Albany(gasp!).

We eventually settled on a brand new one bedroom unit at this new condo complex which had been converted to an apartment complex.  On top of the rent, renters in Corvallis are expected to pay for everything else… sewage, water and garbage, electricity and even liability insurance.  The breakdown is below.

In Vancouver, we lived in subsidized student housing that included everything .. electricity, wifi, and even cable.   So instead of using our rent, I asked around and I think $1100/mon should get you a one bedroom in reasonable conditions.  Of course renters are required to pay electricity and WIFI.  The breakdown is below:


Canada US
Monthly after taxes and deduction $3,167.19 $3,181.04
Rent $1100.00 $921.00
Sewage/Taxes/Garbage $37.00
Insurance $8.83
Electricity $50.00 $50.00
WIFI $50.00 $50.00
After housing $2,067.19 $2,114.20

So after housing costs, it’s only slightly ($47) cheaper to live in the US.

Next I looked at car insurance.  In British Columbia we have government mandated car insurance through an agency called ICBC.  Their insurance is not cheap.  I qualify for the highest possible discount and annually it costs approximately $1300/year.  In the US my insurance is $606 for the year. So after car insurance I have $1958.86/mon in Canada and $2063.70/mon in the US.  So the US is still cheaper to live in by about $104 a month or around $1258 a year.

But we haven’t talked about health insurance yet.  In Canada we have national health insurance, although in BC we do have pay a premium.  The premium rate depends on the number of members of your family and your income level.  We pay $109 per month in premiums.  This covers all primary and hospital care.  We also pay supplementary health care for dental coverage, prescriptions, massage etc, but I’m going to ignore that and concentrate on primary care. In the US  we have to contend with a private system.  If you have a good employer, your health care is mostly paid for as it is for my husband.  However, if you do not have your own employment coverage or are not covered by your spouse then you have to pay for yourself.  If I get the same coverage as my spouse, our cost will be $306/mon with an annual deductible of $200.  A deductible is the amount you have to pay up front each year and only once you exceed that does your coverage start to pay portions of your care.   I also received independent quotes for healthcare and they ranged from $150 – $250/mon and have deductible $1000 – $2500.  Given that I probably will only go to the doctor twice a year at a cost of $150 per visit I’m likely not to need to take advantage of my plan that much beyond the deductible. So let’s say I take my husband’s work coverage:


Canada US
Monthly after taxes, rent and car insurance $1958.86 $2063.70
MSP premium per month 109
Husband’s monthly health premium 6
My monthly Health Premium 306
Monthly after Health Insurance $1,849.86 $1,751.70

Living in US has all of sudden became more expensive.  I understand now why people would choose to not get insurance. Even if I take the cheapest premium option which leaves me with a deductible of $2500 per year ( which means unless I have a real emergency, I’m paying for my own health care costs) :


Canada US
 MSP premium per month  109
Husband’s monthly health premium  6
My monthly Health Premium 150
 After Cheaper Health Care $1,849.86 $1,907.70
With 2 doctor Visits ea  $400
Money left over for the year $22,198.32 $22,492.40

So US still works out cheaper to live by $294 a year. Next we’ll see if the lack of sales taxes in Oregon makes up for one of the highest state income taxes.

I been reading Carl Richards blog for a while now.  I don’t agree with everything he says, but “Your Misguided Search for a Money Guru” hit the nail on the head.

I agree with Mr Richards that while the need to find someone to help us make sense of the world is natural, we need to be aware that there are no such people as “money gurus.”  The foundation to good money management is a plan, some common sense and perhaps someone who can remind us of our plans and common sense when we need it.  That’s what I see my role as an advisor as.  I’m there to add a dose of common sense and maybe hold your hand to do what needs to be done, things that are hard to do like deny yourself current pleasures, or take the long view etc.

So how do you deal with it?  I always found it comforting to recite a modified serenity prayer:

I cannot control the future return of the stock market 

What I can control is how much money I save

What I have is the the wisdom to know the difference between what I can and can not control.

In the end all you can do is take a deep breath and do your best.  I know it is not as satisfying as me telling you to buy stock A and you’ll make tons of money but it’ll be a lot more truthful.

I’ve been meaning to write a follow up to my recent blog about how to analyze your spending history to help you avoid your spending triggers when I came across this article on shopping habits by Charles Duhigg.  While the article primarily focuses on how your purchase patterns can really betray you;  providing the companies with data that allow them to better target market to you, what I found most useful was the discussion on “habit loops” (on page 8) and how with a little reflection and tracking you can fight your bad habits and foster good ones.

First I think it is important to admit that we all have triggers in our lives that cause us to spend when we shouldn’t.  It may be a sale, a particular store, some particular item i.e purse, shoes, gadget etc., but we all have them.  Triggers tells us that we really need it and we need it now.

A trigger could also be something small like the obligatory 2-3 cups of coffee, lunch everyday, or drink after work.

Regardless what our trigger is,  spending on these “needs” leads us to overspend.  Even if you are not overspending, knowing the details of your habits can help you find more areas for savings.

So how do you start?  First you need to figure out what are the things you are overspending on (reward in the habit loop)  and then what are the triggers (cue)  causing you to want to spend and what routines you can change to break the loop.

So the first step is to identify the bad habits that are causing you to overspend. To just balance your budget you don’t really need to know this information. However, knowing it will allow you to target some specific habits (and break the habit loop) that may be the cause of your overspending.  I like to give the following exercise to many of my clients and the results have always been enlightening:

  1. Draw up what you think you spend in various categories in a month.  You can be broad or very detailed, but your list should at a minimum contain the following:
    • Housing
    • Phone
    • Transportation – including transit, gas, maintenance, insurance
    • Travel
    • Gifts
    • Food – grocery
    • Food – eating out, including alcohol. It may be helpful to breakout lunches and dinners
    • Clothing
    • Child care
    • Household items (sometime grouped with grocery)
    • Pet care
  2. Find your credit card and bank statements from the past year – pick at least 3 consecutive months, I like to use September to November because it doesn’t have too many holidays or vacations which skew your spending pattern.  Based on the categories you have came up in 1, total what you spent in each of the categories and then divide it by 3 to get your average spending per month.  Some credit cards and bank statements now helpfully divide the categories up for you so it won’t be such a chore and should only take about an hour or two to calculate.I suggest using old statements rather than tracking your spending going forward as it gives a real picture of spending, and does not allow your knowledge that the spending will be scrutinized to alter your behavior.

Now look at the difference between what you thought you were spending and what you actually spent.  They are not the same are they?

If you are not currently overspending (i.e spending more than your take home pay) this exercise will highlight areas that may lead to further savings and help you pay down your debt sooner or save more each month.

If you are currently overspending then this exercise will highlight categories where you need to change your habits.  So dig a little deeper.

Digging  Deeper

Are you overspending on small items like coffee?  These items are insiginicant individually but can have large cumulative effects.  $2 spent each day on coffee for the year is $500.  Would you buy $500 of coffee? Can you buy one cup of coffee instead of 2 cups a day?   Why is that you are buying coffee?  Is it a social need, or an excuse to get out of the office?  Dehigg’s article describes a simple exercise you can try to determine if there is another cause for you habit that you may not be aware of.

What about developing a new habit of bringing coffee from home?  Are there things you can do to create a new cue?

In an upcoming post I will list some tricks that I have used and those that my clients have shared with me that may help you develop a new habit and reduce your overall spending.

Put simply, the trick is finding a way to give yourself the reward you actually want just without spending as much and not making yourself feel deprived.

My husband and I recently moved to the Corvallis, OR from Vancouver, BC. Everyone was happy for our new start and one of the things I constantly heard was that it would be cheaper for us.  All those thousands of cross border shoppers propping up Washington sales registers  can’t all be wrong, right?

Well, never a person to take common wisdom for fact, I thought I should run some numbers for our friends on both sides of the border.

First, we will assume a gross (before taxes) income of $50,000.  We will assume that the currency exchange rate is at par which is where it has hovered for most of the past few years.  This income is at a good average level, an easy even number and is nice because it doesn’t fall in either the lowest tax bracket or the highest.  For comparison, the median income for both the cities are:

  • Vancouver BC (2009) was $67550 data from Statistics Canada
  • Corvallis, OR (2011) was $74200 data from HUD

One reason that many Canadians assume that the US is cheaper is the often heard mantra that the US has lower taxes.  I don’t know how many times I’ve been told by our friends that Oregon has no sales tax and that it will save us a bundle. It seems to be the number one thing Canadians know about Oregon.  Of course, just because Oregon doesn’t have sales taxes doesn’t mean it doesn’t have taxes, there are state and federal income taxes and payroll taxes.

So here’s how $50,000 gets taxed on federal and state/provincial taxes.

To estimate the tax paid in BC I used the E&Y tax estimator which assumes no deductions. For an income of $50,000 in BC you end up with a tax payable of $8,847. That’s an average income tax rate of 17.69%. For the US taxes I use the take-home-pay calculator on calculator.net and tax payable for the year $8,981 assuming 2 deductions (I been told that’s average) or average rate of 17.96%.

Of course the actual tax rate could vary dramatically from the above given various deductions, but for simplicity’s sake and to make a fair comparison we assume that there are not any other deductions.

Then there are the social service payments – Canada Pension Plan/Social Security, Employment Insurance (as unemployment benefits are called in Canada) and Medicare etc.  After taking these into consideration this is how the two countries stack up for income taxes:


Canada US
Before tax income 50000 50000
tax payable 8847 8981.28
CPP/Social Security 2306.7 2094.12
EI 839.97
Medicare Tax 723
Worker’s Comp 29.16
After taxes and deductions 38,006.33 38,172.44

As you can see there isn’t actually that much difference difference and that it is actually a little bit more expensive to live in US.  In part II I will look at the fixed cost of living differences between these two cities and in part III the impact of the sales taxes.

As a financial planner I am often bemused by the thousands of financial self help books.  Like most self-help books, they simplify complex problems and provide an easy sounding and tempting solution which never quite works.  If any one of the books actually were able to help most people to save more and invest wisely then I hardly think that there will be so many books crowding the financial planning  section of the book store. But while they don’t actually provide the cure that they promise, most are harmless. So as I was recently flipping through “The Total Money Makeover: A Proven Plan” by Dave Ramsey, a few things caught my eye which I really felt I had to comment on. In the section “what this book is not” the author responds to previous challenges to his approach. In fact, if you search for  “Dave Ramsey bad advice” on Google you’ll get over 100,000 hits, so what I have to say may be treading some old ground. In a subsection entitled “This book is NOT going to mislead you on investment returns” he says:

“People seem to think that making a 12% return on your money in a long-term investment is impossible. And that if I state that there is a 12% return available then I have lied to you or misled you. I recommend good growth stock type mutual funds in this book as a long-term investment and dare to state that you should make 12% on your money over time.”

He then goes on to explain how the S&P 500 has averaged 11.67% in the last 80 years and how this indicates that you should therefore be able to get the same returns. Now, you can search for  funds that have averaged 10 year returns over 12% on Morningstar (I found 19).

Morningstar search result where mutual fund's 10 year average return is > 12%

But none of the above funds had the tenure that Ramsey had indicated in the book where he’s citing data from the 1930’s. Ramsey did give return data but slyly did not tell you what funds he’s invested in, rather referring to you to speak to one of the “approved” advisors (I would assume that they pay a fee to be approved by Mr Ramsey who must share his secrets with them).

So a little more digging led me to this list which does seem to be the funds that Mr. Ramsey is talking about in his book.

Hey if there are magical funds out there that are giving you S&P returns over the long term then sign me up (keep in mind this means they have to be beating the returns of the S&P since there are fees involved).  But why aren’t any of the funds that’s recommended by him on my morning star list?

So I dig a little deeper.

I looked at American Funds Invmt Co of America fund. The fund was created on March 31, 1934 just as the country was coming out of The Depression.  Up to Dec 31, 2011 it had an average return of approximately 11.79% annually. Even accounting for inflation which was 3.37% over that time, the returns are still above 8% annually.  So Mr. Ramsey seems to be telling the truth.

But again I ask, why isn’t on my morning star list? It didn’t make it on to my little search list because it’s return for the last 10 years is only 4.42% although it has been out performing S&P by 0.42%.

And that’s the problem that Mr. Ramsey’s critics and myself included have with his assumption of 12% return.  Just because a fund has returned on average 12%,  doesn’t mean that your return will be 12%.  When you invest matters a lot.  If you were smart and got into these funds 3 years ago at the depth of the current downturn, your return on this fund would be over 20% annually.  However if you started to invest 5 years ago (at the top of the market) your return would only be 1% annually.

Mr. Ramsey will of course say that for you to gain the average return, you need to invest in the long term.  As you can see, the 10 year results aren’t 12% but what if we look at 20 years?  The answer is 5.99%.  Only when you go back 30 years – a very long investment horizon for most people – do your numbers start to look better at 11.88%.  The question is will you able to hold the investment for 30 years and ride through all of the 50+% corrections? What if that correction came as you are just about to retire?  These are the questions that many who are nearing retirement are grappling with.

So what’s the solution?

Well I don’t really have one.  I’m no better at driving forward on an unmarked road while looking in the rearview mirror than you.  But I have a general approach that you can try to help you to get to your goals:

  • Work out what kind of returns you need to retire – be reasonable in your assumptions about your life style and government program’s availability. Likely the return won’t need to be 12%.
  • Create a portfolio that can give you a good shot at that return.  If you only need 5% to retire, then a more conservative portfolio will work.  If you need 6-7% a 60/40 portfolio will work.
  • Make your portfolio more conservative over time so that corrections have less impact on you as you near your goals, but keep your return assumptions the same.
  • Track where your investment funds should be annually/every 5 years and see if your portfolio (including money you may still be adding to to it) is meeting your objective.
  • If it isn’t, then you need to put away a bit more to guarantee the returns.
This way by the time you retire, hopefully you will guarantee you have the amount of funds you will need through both investment returns and putting enough away.

In January 2011 I wrote about a little experiment on stock market.  Well it has been one year and so here’s the result of the experiment.  In Dec 2010, I selected 5 stocks on the Toronto Stock Exchange (S&P/TSX) using nothing but darts to see how the performance of the stocks would stack up against the index in one year’s time. I made no changes to the stocks during the year even as the stock market experienced a “correction.”  So here’s the data from Dec 21, 2011.


Security Shares Opening Price Opening Cost Ending Price Ending Value Return
Encana Corp 35 28.7800 1007.3000 18.8900 661.1500 -34.36%
Fairfax Fiancial Holdings Ltd Subordinate Voting Shares 2 407.9400 815.8800 437.0100 874.0200 7.13%
Minefinders Corp Ltd 95 10.6900 1015.5500 10.8300 1028.8500 1.31%
Royal Bank of Canada 19 51.6900 982.1100 51.9800 987.6200 0.56%
Silver Standard Resources Inc 46 24.7400 1138.0400 14.1000 648.6000 -43.01%
Dividend 87.1500
Total 4958.8800 4287.3900 -13.54%
total before Dividend 4958.8800 4200.2400 -15.30%
TSX Index 13443 11955 -11.07%
TD Dividend Growth -0.30%

So the dart test did not beat the index in my test.  Including dividends, my annual return is -13.54% while the TSX returned  -11.07%.  Considering I didn’t include the trading costs of $99.95 to buy the shares my overall return on the investment is more like -15.30% , 4.23% less than the index.

The main contributor of my negative return were my heavy weighting in Encana during a year where oversupply for natural gas depressed all stocks related to the industry and the fact that Silver Standard lost 23% of its share price in one day after announcing reduction in reserve (how much silver is available to mine) and increases in production costs.

I have also included one of my favorite Canadian mutual funds in the table to illustrate how a different weighting (heavy in financials) would have impacted your returns. In 2011, while still negative this fund did significantly better than both my darts or the index.

So what conclusion can you draw from this experiment?  As anyone knows one year’s data isn’t worth much in the grand scheme of things.  Had the darts outperformed the index in 2011, I would have to reach the same conclusion.  I think what’s illustrative in this little demonstration is that by overweighing in specific stocks, you can skew the results significantly.  However, as you add stocks in your drive to diversify you will also drive your returns to match the index which means that if you are aiming to beat the index you won’t succeed (remember that there are always fees  even with ETFs).

So what to do?

“Don’t play the stock market” has always been my conclusion.  You don’t have enough time to be looking at the stocks, doing the research that’s required to “beat the market.”  If something like that exists then why are there so many advisors and analysts around?

Go back to your financial plan and see what return you need to grant you the goals you have set for yourself.  Create a portfolio that matches your risk profile and monitor it.  If need be, add more money into the pot, because savings are the best way to reach your goals.

Now if there is only a mutual fund out there that can give me 12% return….

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