GnuCash, Dividend and Expens in Apr 2012

I started to use GnuCash to manage our finance. It’s a great and free personal and small-business financial-accounting software. It uses “Double-Entry Accounting” method which is great for me to learn/understand how company earning reports is. It started to make a lot sense to me after I tried to import several accounts to the system to arrange all financial statement to asset/liability/income/expense. I am still trying the package, so far I likes it.

In April, our dividend income dropped a little and finished at $2,798. It’s still in normal range, no individual stock cut its dividend, except several index ETF(dividend stock ETF and bond ETF) lower the payment a little bit.

April 2012 expenses is about $3,500 as below. Nothing is special in the list except one time tax payment of $858.

Expenses:Auto:Gas                         CAD 138.14
Expenses:Bank Service Charge    CAD  10.95
Expenses:Books                               CAD 132.93
Expenses:Child Expense                CAD 111.48
Expenses:Dining                               CAD 138.01
Expenses:Groceries                         CAD 341.18
Expenses:Home:Mortgage            CAD 1,000.00
Expenses:Home:Repair                  CAD 110.85
Expenses:Home:Strata fee              CAD 190.00
Expenses:Non-Item Expense:Cash Withdraw    CAD 260.00
Expenses:Non-Item Expense:Credit Card Small    CAD 18.15
Expenses:Phone                                CAD 72.71
Expenses:Taxes:Federal                  CAD 858.50
Expenses:Utilities:Gas                      CAD 94.64
Money Out-Total        CAD 3,477.74

TWBR-2: money is time

Before buying anything, we should always calculate how many hours we need to work to pay for it. It will cool off the temptation.  For example, my after-tax pay rate is about $24/hour, I calculated the price of some items in term of time. In average each day our basic living expense(food,cloth,utility,insurance,car,etc) is about $100, which equals to 4.2 hours. So only 3.8hours($91) every day I worked can be used for “luxury” or non-daily basis items.

• House($650,000), it’s  7,142 working days, 27 years.
• Prius v car($24,000), it’s 263 working days, 1.1year.
• IPad 3($620), it’s 7 working days.

Do I want to work extra 1 week and 2 days to get an IPad3? Probably yes if we do not have an IPad 1.  Do I want to work extra 27 years to get another house? probably no.

TWBR-1: Cannot Afford It–housing

I bought the book The Wealthy Barber Returned this weekend, it’s a wonderful book about personal finance. I read the first book “The wealthy barber” years ago and enjoyed the simple and strong messages it delivered.  I read several pages in the book store and decided to buy one copy(the 20% off discount is another incentive too) .  I  finished half of book and already decided to make to some change to our financial arrangement.

We’re considering upgrade our home to a bigger one. We have a small townhouse which perfectly meet our small-family needs and we enjoyed it.  Recently we’re invited to several parties by our friends who have big and nice houses and gorgeous views. As our current home is a small size and hard to accommodate all friends for same size party, we always hesitated to make similar invitation, it kindly frustrated us. 

We visited several open houses around, the price tag is from $650,000 – $ 820,000. Our current home price is ~$300,000. 

Some calculation put this attempt on hold.  Even for a low end priced($650,000) home which is older and smaller or in a less desired neighborhood, the burden of buying a new home is quite huge.  The monthly increased spending would include following items at least.

• mortgage($350,000, 3%, 25yr):     $1,656
• property tax(~1%):                             $300
• insurance+utility:                               $100
• another car(insurance+gas):           $150 
• new furniture, renovation, etc:          $0

The increase is about $2,200/month, and our current monthly income and expense is about same amount if we do not count the dividend income. The dividend income is mainly used to re-invest in our retirement portfolio, we do not want to move that money to a bigger house yet

We probably renovate our old and tiny townhouse and find some creative way to hold parties.

Stock account margin and Smith Manoeuvre

I have been interested in Smith Manoeuvre strategy for a long time, but never tried to implement it. It basically use home equity to borrow money for investment, and claim interest cost as tax deduction for investment income.

During this fax filing period, I learned something new, that interest paid in stock broker account can also fall into this category.

ITA S. 20(1)(c)

You can deduct interest and carrying charges incurred to earn income from securities, bonds and other investments, if they are earning investment income.

As we still have some mortgage balance and the Home Equity Line of Credit (HELOC) interest rate is much higher than the rate in our brokerage account, we will convert our mortgage to brokerage account margin balance. It can achieve two goals: a) lower interest rate for ~1%, b) the interest charge is tax deductible.  There will be some mortgage prepayment penalty, but it’s small (<$100) for our balance.  I am regret that I did not figure this out 3 years ago when I first apply for the mortgage.

If this step goes well, we will gradually increase our margin balance to benefit from this tax saving strategy.  Meanwhile HELOC will be applied and act as our emergency fund.

2012 March dividend income – $3727

In March, there are about 40 dividend deposits to our investment accounts and retirement accounts.  March/Jun/Sep/Dec normally have the largest dividend in a year.  The total dividend of first quarter of 2012 is a little bit over $10,000.

Feb 2012 Dividend Income

By end of February , total dividend income from all retirement and non-retirement investment portfolio is $2,342. February, May, August and November normally have the lowest dividend payout in our portfolio.

With cash portion of our portfolio became less and less, we are expecting the dividend increase will stop until we start DRIP for some of our holdings.

Dividend Income for 2007

Several personal financial bloggers reported their year 2007 dividend income(PFblog and 2Million), it’s good to check mine too. My holdings include dividend stocks and income trusts.

The total cost for these stocks and income trusts is about $90,000. I sold some income trusts in Q4 after they stopped dividend payout and showed capital loss. Most of my current holdings(except NBD,LB, FC.UN) increased their dividend/distribution in past 3 years, I am expecting them to continue the trend.

I plan to buy more stocks and REIT so I can have $20K dividend income 5 years later.

Rich or not?

ScottB’s post answe the question as following:

 My favorite story about knowing when you are rich is told about Joseph Heller, the novelist who wrote “Catch-22.” At a fashionable party in Nantucket, someone pointed to another person at the party.

“He runs a hedge fund. He’s worth $100 million or $200 million.”
“He’ll never have what I have,” Heller responded.
“Oh? What could that be?” Heller’s friend asked.
“Enough.”

$315 + 57 years = rich centenarian

Just got an email from my friend telling the story that a 100-yr old lady who turned $315 invested in 1950 into multi-million dollars after 57 years. Check out the story.

$315 in 1950 equals to today’s $2,945 if we assume inflation rate was 4% each year. Can we invest $3,000 today and get similar result 50+ years later? We need a great luck here. But, if everybody is doing this, I am sure we will see newspaper headline like ” $3,000 + 50 years = 1 billionaire” in year 2057.

What do I learn from the story? The big wealth is built by “buy, hold, forget-it tactic”, small fortune can be earned by trading stock markets day in and day out.

young retired Canadian millionaire

QCash is millionaire and retired at age of 36. See FrugalTrader’s “Young, Rich, and Retired: An Interview with QCash”.