the Wealthy Canadian

It looks like the Canadian budget has passed with the support of the Liberals (not surprising, it did appear to be a Liberal budget) and with the current government will get to keep their seats for a while longer.  Politics aside, how does this budget affect me?

First are tax cuts.  The basic personal amount has gone up to $10320 and the thresholds for the 15% and and 22% tax brackets are now $40,726 and $81,452.  Note that the basic personal amount was already scheduled to have gone up to $10,100 this year (from $9,600 in 2008).  Whatever, it’s still less taxes that I have pay this year, right?  Yup.  By my calculation someone earning $81,452 or more will save $391.  According to data from StatsCan http://www40.statcan.ca/l01/cst01/media01-eng.htm the average person earns 41839.2 (the median is probably lower) so the average Gordon will save about $284.  Yay.  Can you hear the excitement in my voice?  Well, taxes didn’t go up.

Payroll taxes - I mean “EI premiums” - are going to be frozen this year.  Usually they go up every year, so this year I won’t have to pay more towards Employment Insurance.

“Action to Stimulate Housing” - haven’t we just exited the longest and most pronounced housing boom in decades?  In any case the big news here is a temporary Home Renovation Tax Credit.  This credit is only good for 2009, for projects between $1000 and $10,000.  Remeber that credits are for the lowest bracket, or 15%.  So this means a savings of up to $1350.  And it means that I bought my new windows a few months too soon. :(  There a few catches to consider:
* the credit is for costs above the $1000 threshold.  So if you install carpet for $1001 your credit is (1001 - 1000) x 15% = 15 cents.
* this credit is only for iprovements that are deemed to be “that are enduring in nature” i.e., not appliances nor maintenance.

There are many other initiatives that are aimed at helping Canadians as whole, like infrastructure, etc.  But the appear to be the only things that individuals can take advantage of.

How to Make 7 Million in 7 Years has an interesting poll going on about what decision you would make if you were on Deal or No Deal, which gave me an idea for a post about expected value.  

Expected value is statistical tool that economists may use to determine what outcome to expect.  It is sum of the probabilities multiplied by the outcomes - note that this is not the same thing as the probable outcome.  This concept can best be described with the use of an example.

Suppose that you and nine friends get together for a game of chance.  Each person bets one dollar and puts their name into a hat.  You draw one name out of the hat and the winner gets to keep all the proceeds.

10 people betting $1 apiece, only one winner. Your odds of winning 1 in 10 or 10% (conversely, your chance of losing is 90%).

Therefore, the probable outcome is that you will not win the draw and thus lose one dollar.

Your expected value is -$1*90% + 10*10% = $0.10 (90% chance of losing your $1 bet, 10% chance of winning $10).

This means that if you kept playing all night you could expect that, on average, you would earn ten cents for every dollar bet.  If you played ten times in a row, statistically speaking, every person should come out even.

When playing at the casino the house generally has the games set up so that the expected outcome results in proceeds to themselves.  For example, according to wikipedia, the game of roulette is set up so that the odds of winning is 1 in 38 and the payout is 35 to 1.

Expected Outcome = (-1$*37/38) + ($35*1/38) = -$0.0526.  Therefore, if I play once then the probability is that I will lose.  If I play all night then I can expect to lose, on average, five cents on every bet.  Thus the house earns five cents on every dollar bet.

Which is a better ‘investment’?  With the draw you expect to earn something every bet whereas with roulette you lose with every bet.

Modern Portfolio Theory uses this same idea to identify the expected value for the return your portfolio will see.

There is an interesting article in the Globe today titled, “Oil patch cuts claim Alberta’s high-paying jobs.”  For those who don’t know, Alberta is Canada’s hub of the energy sector.  Alberta, has (some may say had) huge reserves of oil and gas, has the infamous heavy oil projects and Calgary (the largest city) is home to numerous energy/exploration head offices.  During this most recent bull market in commodities, Alberta has been in the forefront of the Canadian economy.  As energy prices rose, so too did wages, inflation, and in combination with a fantastic housing boom (bubble) - real estate.

All of the jobs numbers from around the world are showing the same things, people are losing jobs.  Since Alberta was really driving Canada’s economy seeing that people are losing jobs and taking pay cuts there is the confirmation that we’ve been expecting.  None of this really comes as a surprise of course with oil worth less than a third of what it was a year or two ago.  My point is simply that the good times are over.  Canada’s manufacturing sector was lagging for a long time and the US housing market started to collapse a few years ago already.  But now that Alberta has finally succumbed the peak in the Canadian economy is over as well.

The other side of this is related to real estate.  Calgary real estate peaked about a year about already.  The absorption rate (the time is would take, statistically, to sell a house) is around 10 months, but prices have not fallen very much.  The key was that there were still low unemployment and many high-paying jobs.  In fact, one reason for the dramatic rise in real estate prices was the high income earners were looking to jump aboard the express train of high yielding real estate.  When prices stopping rocketing to the sky it didn’t matter because speculators were able to hold multiple properties, either by renting out the excess or being comfortable allowing their high wages to carry them through the rough patch.  Now that people are losing jobs it will be the time to really pay attention to house prices.

Mark Evans, on his blog All About Nortel, reprints an excellent report by NT analyst, Tom Astle.

Mr Astle reflects on the lessons that he has learned from his coverage of NT over the span of 15 years.

Capital structure is key, he says, knowing how to generate cash and raise money.  He mentions that many successful competitors raised equity money when equity prices were high, not when they needed it (after equity prices dropped).  I would add in that knowing how not to squander cash is also important.  The example that comes to mind is the announcement to buy Clarify for US$2.1 Billion and the eventual sale for US$200 Million

Today I am writing a review of ShareYourNumber.com

First I’ll start by explaining  What ‘your number’ is; well it seems to be based off of Michael Mastersons’ Seven Years to Seven Figures‘ book (a decent book, by the way, I should really review it sometime) where you determine what level of lifestyle that you’d be comfortable with.  You then calculate how much that lifestyle will cost you annually and what date you would like to be financially free.  Once you know your financial freedom date and your annual lifestyle cost it is easy to determine how much money you will need to attain financial freedom.

That is Your Number (well, really it is two numbers;  how much and when).

ShareYourNumber is a social network where you go to publicly declare ‘your number.’  After you’ve shared your number the community is there to help you get there.  Forum discussions, blog posts different groups that you can join, etc.  Seems to me to be sort of similar to a personal finance blog directory.

The Good
The best part of the whole exercise is that it forces you to sit down and consider what your life’s purpose is.  From there it is a matter of setting one giant SMART goal, i.e., your number and when you will achieve it.

The second good point is that this is a community of like-minded individuals all located in the same place.  Everybody gets their own space, you can blog join discussions, etc.

The Bad
This site it confusing, in fact it is not really one site att all but a collection of sites.  While trying to find information I was redirected (from ShareYourNumber) to ning, kickapps, ShareYourNumber.org and several subdomains under ShareYourNumber.com.  I’m guessing this started as a ning community before  eveloving into a space of its own.

The Summary
This social network is a great idea to get people to publicly announce their goals - which I’ve read is the most important thing is setting the goal because then it becomes an accountability.  It is also a community so you can lean on others to help you along or provide your own advice.

If you are already a blogger on this subject then I’m not sure if this is the site for you (other than promoting your own space).  Bloggers tend to build their own communities plus they are generally the masters of their own domain.  There are plenty of ads on ShareYourNumber but, I’m sure, none belong to the members.

All in all, I love the idea but am lacklustre on the implementation.  If anyone has signed up and is using it then I would love to hear your comments.