# Hunger is the best cook - Bupp's Money Journal



## Bupp (Nov 13, 2009)

This thread will serve to keep track of my progress towards reaching my financial goals. By keeping track in a public forum, I will keep myself accountable and motivated.

I welcome any feedback and advice from other posters. I am relatively young and inexperienced so value any insight you can give me on achieving my goals.

*My current financial status*

Assets:

Chequing Account - $1000
Savings Account - $30,000
TFSA - $10500
Investment Account - $25000
Share Purchase Plan - $2000

Liabililties:

VISA #1 - $4600 @1% interest
VISA #2 - $2900 @0% interest
VISA #3 - $30,000 @0% interest
Loan - $19,800 @2.25% (15-year fixed rate)

Net Worth - $11,200

Visa #1 was used to purchase stock in my TFSA account. The interest rate expires september 2011. I need to save money between now and then in order to pay this off, or I need to find another low rate credit card offer at that time.

Visa #2 was used to buy furniture for my apartment. The interest rate expires June 2011. At that time I will pay it off with cash from the share purchase plan

Visa #3 was used for 0% credit card arbitrage with my savings account. The interest rate expires May 2011. At that time I will pay it off from my savings account.

*My savings plan*

My savings has a few components to it.

#1) Forced savings

-Each month my loan balance is paid down by ~$100
-Each month visa #1 is paid down by ~$50
-Each month visa #3 is paid down by $10

#2) Employer Match

-Each paycheque I have 2% of my gross deducted into a share purchase plan where my company matches me by 50%

#3) Monthly savings

-Each month I attempt to save $500

#4) Extra paycheques

-During months where there are 3 paycheques I will save the vast majority of the extra paycheque

#5) Bonus

-Save my entire bonus

_Combined these savings work out to ~30% of my annual pay._

*Action plan*

1) Set up emergency fund of 2 months expenses 

_This would be on top of any cash I have in savings from 0% credit card arbitrage._

2) Fully fund TFSA

_I did not contribute to the TFSA in 2009. I played catchup in 2010 and managed to max out my contribution room. This involved taking out a 1% credit card cash advance of $4800. In 2011 I will get off to an early start by contributing my 2010 christmas bonus._

3) Pay off credit card debt (or roll over into new 0% offer)

_I need to save $4600 before august 2011 to do so_ 

4) Increase investment loan

_I intend to take out a further ~$17,000 at 3% (15-year fixed rate)_

*Investing plan*

My investment plan has a few different parts to it. I'm not 100% sure I am doing it in the most efficient way possible, however so far it works for me.

I am a big believer in index investing. However, I do not like the idea of paying any management fees. Furthermore, market-cap weighted index funds have performance drag because they are over-exposed to past winners and also lose performance due to front-running when the indexes are rebalanced. Therefore I will be creating my own "index fund". 

Within my TFSA I will be purchasing 100 shares of each company listed in the tsx 60. At this point in time I own 7 names. I estimate it will take ~$240,000 to purchase the 6000 shares I will require. I am hopeful to have finished this in 20-25 years time.

I will use RRSP room to keep my income below $41000 each year. I choose this number as it is the point where my marginal tax bracket has a 7% increase. It is also roughly the point at which dividends start getting taxed rather than receiving a tax credit.

When I begin contributing to the RRSP the money will be invested into an index bond fund. Once I reach age 35 I will begin using $10,000 from the RRSP each year to buy a 30-year government of canada bond setting up a bond ladder that will have maturities between 2051-2081.

Outside of the TFSA and RRSP I intend to take advantage of low interest rates to invest in a non-registered account. There will be
2 accounts. The first will hold stock in the company I work for.

The second will be an account where I buy and hold shares of XIU. Once this account reaches a value of $27,500 I will start selling OTM puts against XIU to generate additional income. I will sell 1 put at a strike price of 10% below the recent high of XIU. If the order fills then I will sell two puts at a strike price 20% below the recent high of XIU. If that order fills then 4 puts at 30% below, then 8 puts at 40% below, 16 puts at 50% below. etc. Based on current price of xiu, I would need a line of credit with a 35k credit limit in order to be able to cover a 50% drop in the index. In that scenario I would have purchased 3100 shares at an average price of 58.4% of the previous high of XIU. *This leads to 2 possible outcomes. #1) My puts expire OTM and I generate additional income for my portfolio. #2) My puts get exercised and I have bought shares of XIU at a lowish share price.* I much prefer this strategy to one of setting limit orders for XIU as I get paid to wait!

Final component of investment strategy. I intend to continue renting unless home prices decrease relative to incomes to roughly 3.5x average household income.

*Coles Notes/Too Long Didn't Read*

Young guy not investing in rrsp until his income is above 41k. Saving 30% of gross income, first in tfsa then in non-reg account. Using credit card arbitrage + leveraged investing.


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## Jungle (Feb 17, 2010)

Everything looks really good. If you don't mind, where did you get your 0% visa offer?


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## the-royal-mail (Dec 11, 2009)

Welcome to the forum!

I have a few concerns here. Chiefly, the shell game you are playing with your credit cards. What happens if you lose your job right now? I appreciate your plan and at least you have a concept, but here are the things I would do differently.

-stop using credit to accomplish your goals (first save money instead, then buy what you want)
-paying off $10 a month on a credit card? That's the minimum payment.
-2 months living expenses is not sufficient for an emergency fund. It is widely recommended to have AT LEAST 6-12 months. You could use your TFSA for this but it looks to me like you depend on your TFSA money as some sort of an investment scheme. Try to be a little more detached from it (or whatever account you use to store your emergency savings) so that when an emergency strikes, you can start accessing that account.
-creating your own index fund? How much is your time worth? Full time fund managers do not typically outperform index funds. What makes you think you can do it? An MER of 0.68% (on the RBC CDN Index fund for instance) is hardly offensive when you consider the performance of said fund. This is a good investment.

Overall, your heavy reliance on credit card to get what you want NOW is what troubles me the most. That's the single most issue here that needs fixing IMO.


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## Four Pillars (Apr 5, 2009)

Very interesting post. Good job on savings and your planning!

I don't agree with trying to build your own index. It's just too many damn stocks - don't forget that in a non-registered account you have to keep track of the acb which will be affected by every dividend. Way too much work for the number of stocks you will own.

What if you want to own non-Canuck equities? Are you going to replicate the S&P500? 

XIU (TSX 60) is available for 0.17% MER. In my opinion, a perfectly reasonable price.

Alternatively, if you are really keen on just owning stocks - most indexes are top-heavy which means that you can probably just own the top 10 stocks and still get good coverage.

Looking at XIU holdings:

http://ca.ishares.com/product_info/fund/holdings/XIU.htm

I see that the top 5 holdings represent 27% of the index
top 10 = 44%
top 15 = 57%
top 20 = 67%

Another option is to just focus on dividend players.


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## andrewf (Mar 1, 2010)

Buying 100 shares of each component seems completely arbitrary and would lead to some seriously wonky weightings. 100 shares of Power Financial and 100 shares of Bombardier? Just buy an ETF, it would be far easier, etc.

Have you back tested your put-writing strategy? How well does it perform over time?


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## humble_pie (Jun 7, 2009)

i for one really admire your put pyramid. I'm not sure the brokers will admire it sufficiently, though, to give you the necessary level 4 put trading status, since they detest option pyramids & this one is marginned up to its eyeballs.

did market drop by 50% ? That's worse than 2008/09. Global collapse. Pandemonium. Riots. Banks calling in their loans. Brokers eliminating margin. Oops.


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## Bupp (Nov 13, 2009)

*Jungle:* The 0% offer is from RBC. They mail out 0% balance transfer cheques to existing customers. The awesome part about the offer is that there is no transfer fee (usually companies charge a 1% fee).

*The-Royal-Mail:* If I lose my job I would not be in great shape! I agree that two months emergency fund is not enough. Do you think I'd be better off holding off on my TFSA contributions until I have this up to say a 6 month level?

With regard to my personal situation, I don't own my house, I have no car, I have no children, and my living expenses are low enough that I could get by on a minimum wage mcdonalds job. At this point do I still need the full emergency fund? Or am I in a position where I can skip that step and do some long term investing?

*Four Pillars:* Thank you for the advice re: just holding XIU. That makes a lot of sense. This year I would have saved money just buying XIU rather than buying the individual stocks (I paid $35 and XIU would have cost just ~$27). 

However, once I look out to say 40 years from now. Based upon doing the full $5000 contribution into the TFSA each year and a growth rate of say 8%, the account would have a value of over 1.6 million. At that point do I want to pay $2720 a year to hold a market cap weighted index when I can pay $0 a year to hold a price weighted index?

Maybe I should just buy XIU and then when the price gets to a point where it is cheaper to hold the stocks directly I switch? (This doesn't happen until there is $175,000 in the account which is a looooong way away $175,000 x 0.0017 = 300 which is the cost for placing 60 buy orders at questrade).

*AndrewF:* Agreed that the weightings are wonky. It is creating a canadian version of the dow jones index. I think probably it would be better to create an account that was equal-weighted between the holdings. Maybe buy HEW. Though I hate the idea of paying a management fee.

With regards to the put selling strategy it is not backtested. I figure I am willing to buy more shares on dips, so why not get paid for selling insurance to other investors. This strategy is superior to just placing limit orders for purchases at those strike prices. I should consider if I am better off keeping a cash reserve to make the purchases or if I am ok with leveraging up with the line of credit. This is a lot of borrowing! 

If I had tried something like this in the mid-70's to mid-80's it would most likely have blown up and cost me a pretty penny. I should probably rethink this and tread carefully here.

*Humble Pie:* You have disagreed with anything I have ever written on this forum. Your comments are always the same regardless of what is being posted. I am going to ignore your feedback.

_A lot of this plan is getting ahead of myself, and I am guilty of overthinking things. In the next year what matters is spending less than I earn, maxing out the TFSA, paying off the credit card debt/rolling it over into new 0% offers and getting a start on the emergency fund. I really appreciate the advice already given and am going to think hard about switching the investments over to an index fund.

I would appreciate hearing others thoughts on whether I should do the full 6 month emergency fund given that I rent, own no car, have no kids, and could pay my expenses with a minimum wage job._


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## I'm Howard (Oct 13, 2010)

Your youthful exuberance is great, but I personally think you are creating a very complex plan for what is in actual fact, a small amount.

Personally, 
I would simplify things by getting rid of all the borrowed money and just use my own cash.

35%XIC

20% CDZ

20% XCB

10% CBQ or VWO.

10%GLD.

5%QQQQ.

Contribute as much as you are comfortable, but at he same time enjoy your youth.

Plans have the habit of changeing, but hold off on Home Ownership.


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## tinypotato (Jul 27, 2010)

Great to see that you are thinking and planning your finances.

In general I would advise you to simplify as well, go with the index fund, stop the credit card financing game (the amount gained vs. the risk if you lose your job or something else isn't worth it).

Two other key points I see are:

1) In addition to investing in stocks, think about investing in yourself. See if you can increase your income through more education, etc. I think I saw you mention you can maintain your expenses on a minimum wage job. Think bigger!

2) Be prepared for changes. You aren't married now, but one day you might meet the guy/girl and everything will change...be ready for that and don't be too tied to your existing plan


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## Bupp (Nov 13, 2009)

*I'm Howard:* You are absolutely right, I have spent way too much time thinking about this and needlessly complicating things. I should just plug away at saving as much as possible because any extra investment returns I can earn at this stage are in terms of dollar value very insignificant.

I'm glad that you agree that buying a home in the near future does not make sense financially.

*tinypotato*: You make a good point about considering investing in myself to improve my income. Right now I am 1.5 years away from completing my work experience requirements for the pfp designation. I've got to complete ~$1350 worth of coursework as well. So far I've been taking the courses as my employer pays for them, however perhaps I shoud get them done and over with now (paying for them myself) rather than spreading them over the next year and a half.


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## moneymusing (Apr 3, 2009)

Hey Bupp,

Just wanted to add another voice on the don't buy a home just yet train. It seems like you are capable of setting out plans so in many cases renting and having a rigorous savings plan will net you a similar amount to owning a home anyway. Plus the freedom of being able to get up and go is a great sense of freedom.

All the best on your financial journey!


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## w0015695 (Jan 26, 2011)

Bupp,

Nice post. Quick question about VISA #3... you say the min. payment is $10 per month with a balance of $30,000? Are there special rules for cash advance balances? I read about the credit card arbitrage scheme about 6 months ago, but always wondered about the monthly payments, most people just said to take the money, invest it, then pay off your card, but I knew it had to be a bit more complicated then that. Thanks,

Dennis.


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## Bupp (Nov 13, 2009)

*Moneymusing:*

Really enjoying seeing another voice onboard the renting is better than buying train. The newest data from the national bank/terranet shows that housing prices have declined for three straight months (sept/oct/nov 2010) in my region. I will not be suprised to see this trend continue in dec/jan.

*W0015695*: Every credit card is different. VISA #3 says that the minimum payment is $10 plus any interest accrued that month. Since the card is 0% interest I am able to carry a balance of 30k at only $10 a month. I have that money sitting in a savings account at my bank, and the card automatically pulls the $10 from my chequings each month. I have another card where the minimum payment is 1% of the balance outstanding, so for that card the payment is ~$50 at this point

The end goal with the credit card arbitrage is to be able to have ~100k-200k in credit card offers at any given time. In a normal interest rate environment where a savings account pays between 3%-5% this would result in monthly profit of $250-$835. This is definitely achievable and has been well documented by many posters at fatwallet forums. Right now, with rates so low and my credit card limits fairly low (I have one card with $30,000 limit, all other cards have limits of less than $5000) the main purpose of my current arb is to get a feel for the mechanics of it, and start building up my available credit for when a real money making opportunity comes along. 

The one thing that is important to know is that this can have a significant impact on your credit score. One year ago my score was in the 780s. I am currently applying for an investment loan and line of credit and my score is now in the 680s. This drop has occured even though I have not had a late/missed payment in years (if ever).


I'm looking forward to giving you guys my end of month update next week because there have been a few financial moves that have made some major changes in how my finances will look in 2011.


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## Bupp (Nov 13, 2009)

January 2011 update - 

A lot of changes went down this month. I'll start with the numbers though:

Assets:

Chequing - $400
Savings - $30,800
TFSA - $10,870
Investment Account - $24,400
Share Purchase Plan - $2,345
Pre-Paid Rent - $2,490

Liabilities:

VISA #1 - $4,550 @1% interest
VISA #2 - $2,950 @0% interest
VISA #3 - $29,890 @0% interest
Loan - $19,800 @2.25% interest (15-year fixed rate)

Net Worth - $14,115

Some big changes this month.

Moving from my bachelor apartment to a 1 bedroom. This means a $120 increase in rent per month.

Got promoted at my job. This means a 10%+ increase to my base salary.

Failed on my goal of maxing out the tfsa. Instead I will borrow 5k on line of credit next month at 3% and use that to max out the contribution room.

Also looking to take out another 15-year investment loan (this time at 3% interest) to buy another 20k in stock in feb.

I've been trying to think how much debt I feel comfortable carrying and have settled on ~$500 in monthly payments.

The new loan + plc borrowing + existing credit card debt works out to $450/month in debt repayment so I should have no problem servicing it. What is nice with the existing debt is that because my interest rates are lower than the rate of inflation the real rate of interest I'm borrowing at is actually negative.

Feb and march rent have already been paid so my goal for the next month is to save $1500.


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## Bupp (Nov 13, 2009)

*February 2011 Update:*

Sorry this is coming a week late. As always, lets start with the numbers.

*Assets:*

Chequing - $495 (+$95)
Savings - $25900 (-$4900)
TFSA - $15800 (+$4930)
Investment Account - $42375 (+$17975)
Share Purchase Plan - $2700 (+$355)
Pre-Paid Rent - $870 (-$870)

Total Assets = $88140 (+$16835)

*Liabilities:*

VISA #1 - $4500 (-$50)
VISA #2 - $2950 (No Change)
VISA #3 - $29880 (-$10)
Investment Loan - $35680 (+$15880)

Total Liabilities = $73010 (+$15820)

*NETWORTH:*: $15130 (+$1015)

Pretty decent month for me. Took out another investment loan, this time for $16000. Also set up a personal line of credit with $25,000 credit limit.

I moved $5000 from savings to my TFSA.

I am well on track to hit my goal of $25,000 before the end of 2011. Now that my investing is done for 2011 the focus can go back to saving and paying down debt.

I need to save $4000 between now and may 15 to pay off visa #3. This is not going to happen, so instead I will carry a $2000 balance on the line of credit.

No additional savings is needed to pay off visa #2 as I will simply be liquidating my share purchase plan to pay it off (it vests the same month the visa offer expires).

I'll need to reup the plc another $4200 in august to pay off card #1, based on my savings rate the plc should be payed off by end of November.

This leaves me going into 2012 with a fully maxed out TFSA, and no debt other then the tax deductible investment loans.


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## KaeJS (Sep 28, 2010)

Good increase in net worth of $1k. Nice.

If you dont mind my asking, sorry, but what is your age and your gross income?


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## Bupp (Nov 13, 2009)

KaeJS said:


> Good increase in net worth of $1k. Nice.
> 
> If you dont mind my asking, sorry, but what is your age and your gross income?


I'm 24. 

Base is 40k and bonus of ~10% if I hit performance targets.

I also make around ~1500 in cash jobs throughout the year.


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## Bupp (Nov 13, 2009)

*March 2011 Update*

Once again the numbers - 

*Assets*

Chequing - $1358 (+863)
Savings - $25889 (-11)
TFSA - $16224 (+424)
Investment Account - $43248 (+873)
Share Purchase Plan - $2844 (+144)
Pre-Paid Rent - $870 (No Change)

Total Assets = $90433 (+2293)

*Liabilities:*

Rent Owing - $870 (+870)
Current VISA - $1870 (+1870)
VISA #1 - $4450 (-50)
VISA #2 - $2950 (No Change)
VISA #3 - $29870 (-10)
Investment Loan - $35617 (-63)

Total Liabilities = $75627 (+2617)

*Net Worth:* $14806 (-324)

The increase to chequing account balance reflects the fact that my landlord has yet to deposit my rent cheque.

The savings account remains earmarked to pay off visa #3 when it comes due june 15th.

TFSA had a good month due to bombardier beating earnings estimate for a nice increase.

Investment Account continues to trend higher.

My share purchase plan is earmarked to pay off VISA #2 when it comes due in august.

On the liabilities side I am carrying some VISA debt that is not part of a balance transfer/0% offer. Payment is due end of april and it will be paid off before then.

This month saw my first net worth decrease since I started tracking in december. I had a large furniture purchase, but would have still ended up in the positive had I not spent $400 gambling at the casino.

I made no progress in my goal of paying down debt this month.

In April, I also am going to look at taking out another 0% BT offer credit card. The goal of this card will be to bridge the gap on VISA #3 so I do not have to use the line of credit.


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