I have written a very special message at the end of this post, so even if you just skim my writing, please read the ending in full. Thank you!
In August, I’m going to have a party. It’s going to be the Money Rabbit Pays Off Her Car In Full Party. Hopefully, the roofdeck of my new condo building will be completed by then, because I’m going to have cheese fondue, homemade bread, and everyone can bring a bottle of wine (only if it’s under $10.) I’m inviting all my friends, because I am unashamed about the fact that I think paying off debt is something to be celebrated.
This morning as I was driving into work, an advertisement for the Rich Dad, Poor Dad seminars came on in my car. After watching a W5 exposé on these programs I get very suspicious whenever I hear an ad for one, but considering that Rich Dad was one of the first books on personal finance that I read, I decided to pay attention to the commercial.
In the Rich Dad books, one of the major concepts is that you have to really examine your own personal spreadsheet and ensure that your cashflow is going towards a collection of assets, not liabilities. Kiyosaki argues that everything in life is either an asset or a liability, and its the people who are able to categorize their Ls and their As and accumulate more of the latter are the ones who end up wealthy.
Right now, I definitely agree with this. Something I’ve been batting around in the back of my mind is paying off my car loan sooner than anticipated. Right now, I’m paying $137.36 biweekly, and I’ll be finished the remainder of my loan by April 2014. The kicker? It’s financed at 7.09% interest.
I currently have 124 shares in Bank of Nova Scotia. I also have 20 shares of Royal Bank. On any given day, my stocks usually hover around $8400. I receive approximately $280 per year in dividends from both of these investments, which I in turn reinvest in new shares. Although both of my stocks have performed very well during the recovery of the Canadian economy, I don’t think I can reasonably expect them to exceed 8% this year, even including the cash from the dividends that I receive.
So here’s my current plan. Right now, my Emergency Fund is sitting at approximately $3,000, since I had to take out $2,250 to put down on my rent for my new apartment. Once I get my Emergency Fund up to $5,500, I’m going to cash out my stocks and pay off my car loan. I’m hoping to do this by August 2011. In order to do this, I have to save $500 a month for the next four months.
I hope to God this is true considering gas prices right now. Next car will have to be a hybrid.
Mentally, I’ve been seeing my stocks moreso as a cash emergency fund than what they really are, which is an investment. I’ve been thinking, “Oh, if I ever need money I can always cash out my stocks. When I buy my first property, I’ll just cash out my stocks to use as a down payment.” I see that large sum of money in my bank account and I think “I’m fine! I have $8400 in the bank, I’m good.” I think I’m also sentimental about continuing to hold onto the shares, since I’ve been a shareholder since 2007 and they’re my first stock market investment. However, what I DON’T see in my account is the negative $9530 that is the remainder of my car loan, heavily pressing against my monthly cashflow. Because that debt isn’t visible to me in my day to day banking, it’s easy to think that my stocks, which are visible and tangible, outweigh the loan.
However, it definitely doesn’t. So once I get my Emergency Fund up to $5,500, I’m cashing out my stocks, paying off the loan, and then applying the same payments of $137 to my savings on a biweekly basis, to begin the formation of a downpayment. This will bring my monthly auto costs down from $650 a month to $375 ($200 insurance, plus gas and parking).
Right now, I think the stocks and the loan cancel each other out in terms of building my networth. If I were to wait out the duration of my loan, that would be just under three full years of a networth stalemate between the asset and the liability. By paying off my only existing liability faster, I’ll be able to build my assets faster, which will in turn lead to a higher networth in a shorter period of time. I’m still planning on hitting my goal of $1,000,000 in assets by the time I’m 30, so I’ve got to get moving and ditch the liabilities.
I’d also like to take a few moments to get on my soapbox and plug a friend’s project. My friend Joanne is doing an amazing fundraiser for the recent disaster in Japan called Project A Thousand Paper Cranes. Essentially, for every $5 that is donated, she will fold one paper crane with a special message of hope inside, with the goal of 1000 paper cranes ($5000). She is partnered with Save the Children, who were there almost immediately after the disaster to provide relief for the children who lost their families and their homes in just a few hours.
Joanne is just an ordinary person doing an extraordinary thing, with a deep concern for the Japanese children who have gone through this tragedy. She has never been previously affiliated with any charities, and is essentially running this entire project from her bedroom. She worked with Holy Spirit Elementary School and worked with the teachers to teach the kids there how to fold cranes (the kids wrote personal messages to the kids in Japan), and she has spent countless hours trying to raise money for this project. She is also partnered with two other schools in Edmonton and Quebec to fold the cranes and raise money.
Essentially, she got this whole thing up and running with no experience, but a lot of passion, and THAT is a truly amazing thing and shows what we all could do if we just pushed ourselves to keep going.
If you do donate to this project, you will get an income tax receipt. It literally takes no more than 5 minutes to donate.
Last weekend, Joanne’s papercranes were in full display at the Cherry Blossoms festival in High Park. She’s going again this weekend – it’s supposed to rain, but if you do have any interest in the project I sincerely recommend checking it out.
TO DATE, SHE HAS ONLY RAISED $800, AFTER MANY SLEEPLESS NIGHTS. I am begging my readers to please, please, please take the time and donate $5 to Japan. It’s not much more than a frappucino at Starbucks. She has already folded close to 1000 cranes, so at this point, your donation will be to “adopt” one of her beautiful, colourful creations. Please check out her website (which I linked to in the bold paragraph) and see if it’s something you’d like to get behind.
Joanne's Paper Cranes from Last Weekend in High Park. They were a smash hit with the tourists! (not a lot donated money though)