Tag Archives: budget

Cars – The Prestige of Yesteryear

cars-waste-money

According to Statistics Canada, transportation costs consume 20.5% of the average Canadian’s household budget. In 2013, that amounted to $12,041 in transportation per year, of an average after-tax budget of $58,592. Only the cost of housing took up a larger portion.

According to the US Bureau of Labor Statistics, a 2009 study compared the household expenditures between the US, UK, Canada, and Japan and concluded that Canadians spent the largest portion of their income on transportation.

Transportation, however, includes cars, trucks, public transit, flying, and every other way to get around. Nevertheless, Canadians still spend an average 8.6%, or $5038, of their budgets on automobiles specifically each year, compared to the US, which spent the 2nd most at 6.1%. This includes buying/leasing a car, gas, maintenance, parking, insurance, etc. And though Canada has a higher tax on gas than the US, it is lower than what people in Japan or the UK pay.

After shelter, vehicles are likely to be the 2nd biggest expenditure in your life. At $5000 per year, over a period of 50 years, you’re looking at $250,000 for a lifetime of driving.

For a lot of Canadians, there simply is no option other than owning your own car or truck. Most smaller communities have very limited public transit options. Many jobs, schedules, and circumstantial realities make getting by without your own wheels impossible. And the harsh winter that we experience makes walking and cycling difficult (if not impossible) for half the year. Incidentally, our harsh winter also puts the percentage Canadians spend on clothing highest between Canada, UK, USA, and Japan.

There are many instances where cars in Canada are simply the only option for getting around. But, Canada is an urban country, more than 13 million of us live in its 5 biggest cities. Large Canadian cities usually have good alternative transportation options, including public transit and bike lanes.

Myself, I live in Toronto. I pay $140 per month for my public transit pass, and an average of $100 per month on Zipcar (which lets me rent a car by the hour). So $250 per month for 12 months equals $2500 I spent per year in ground transportation.

Compare that to the parking at the building I work at, which charges $16 for a full day of parking. $16 for 22 work days equals $352 per month only in parking.

parking

The biggest problem with cars is that they don’t appreciate in value, your typical car is always a horrible financial investment. Cars are famous for depreciating in value the second you roll them out of the dealership. If you drove your brand new car 1 km home and tried to sell it, you would not be able to sell it for the same price you just paid.

$250,000 per lifetime on a car is only the average. You really start to burn money when you pay for premium automobiles. This could be why driving a luxury car, like an Audi, Benz, or BMW, is such a status symbol. It tells the world that you have money to spend. Your average luxury car might cost 100% more than something more modest. But BMWs don’t have 100% better gas mileage, or last 100% longer, or go 100% faster. In fact, they don’t do anything 100% better than a typical car, so why spend the extra money?

This isn’t news. Perhaps it’s the crippling student debt and less job security that a lot of them face, but millennials are famously not interested in driving. In the US in 2010, only 60% of 18 year olds had a drivers license, compared to 80% in 1983. There seems to be a cultural shift away from driving happening. I haven’t even mentioned other negative effects of driving, such as pollution or spending hours a day commuting.

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Combine changing attitudes towards automobiles with self-driving car technology and the emergence of the sharing economy and we are on the cusp of a revolution in transportation. If my hunch is right, getting around is going to get easier and less expensive.

Unavoidable Trifecta of Investment Costs (UTIC)

unavoidable-trifecta-investment-costs

There are costs that can be eliminated, like the constant buying of disposable razors, and costs that can merely be reduced. When it comes to investing your savings, there are 3 costs that are unavoidable: taxes, inflation, and fees.

These 3 costs are especially repugnant because they add up to a lot. Bill Gates, still one the worlds richest people, claimed in 2013 that he had paid over $6 billion in taxes. You lose about 2 cents for every dollar you have in a regular bank account every year to inflation. And fees are baked in to nearly every financial service you can think of.

Though you can never be free of any of these costs, you can certainly reduce how much you end up paying. You could get a financial adviser or an accountant. Indeed, legally avoiding taxes is a giant industry. But the more help you get, the more fees you incur. Generally, fees are lower than taxes, but not always.

If advisers and accountants aren’t for you, or if you at least want to better understand all this stuff, there is, of course, this blog 🙂

In a nut shell, to minimize tax payments, put your savings in a Tax Free Savings Account (TFSA), where it can grow tax free. If you’ve maximized your annual TFSA contribution, there’s always Registered Retirement Saving Plans (RRSP).

The best way to avoid fees is to learn about how your money works on your own. The more comfortable you are with saving and investing, the less need you will have for more expensive services, like advisers or accountants.

Unlike the other two prongs of this trifecta, inflation is truly unavoidable. The only thing you can do is make sure your money is growing faster than inflation, which isn’t always the case with high interest savings accounts.

 

Avoidable Costs – Disposable Razors

razors

I have mentioned the UTIC (Unavoidable Trifecta of Investment Costs) before. These are things that erode your savings, and the only thing you can do about it is make sure your savings grow at least as much as the unavoidable costs of taxes, fees and inflation.

But there is another way to increase your savings, that is to reduce your cost of living: the money you have to spend for living comfortably in Canada. This includes housing, clothing, food, cell phones, parking, transit, Netflix, etc. Some of these are unavoidable, everyone needs shelter, food, and clothing. But there are ways to reduce most costs, and today, I’m going to write about a personal favorite cost-saving decision: shaving with anything other than disposable razor cartridges.

There are definite environmental advantages to avoiding disposable razor cartridges, but this is a finance blog, so let’s look at the numbers. I’m certainly not the first blogger to look at the cost of shaving, sharpologist.com has a fun write-up about the costs of various shaving options.  According to sharpologist, straight-edge razors are the least expensive, by far.

I can vouch for that. I personally shave with a straight-edge. I spent $70 on the initial blade, $40 on a strop, $35 on a brush, and $50 on a sharpening stone. About $200. That was almost 10 years ago. That’s really all the money I’ve spent on shaving in the last 10 years, about $20 per year.

According to Gillette, I could get 5 weeks of shaving out one disposable razor cartridge. According to walmart.ca, 12 cartridges cost about $52. That means, I could get just over a year’s worth of shaving for about $50. Over 10 years, that works out to $500, $300 more than what I’ve actually spent. Consider the next 10 years, my real straight-edge cost remains at $200 while the cost of using Gillette’s disposable cartridges will rise to about $1000.

Over my lifetime, I can expect to save $2000-$2500 from using a straight-edge.

Given the more intimidating learning process, straight-edges are not for everyone. But that’s ok, there are still better options than disposable cartridges. Classic safety razors are also inexpensive, as are their replacement blades.