Home Pwnership

For those of you who aren't gamers, 'Pwnership' is intentional.

First, before reading any further, please read this brief article from the Financial Post.

Then, read this part again:

Of the 24.5 million returns filed, 18 million Canadians reported total income of $50,000 or less. That’s not a typo. In other words, ignoring individuals who don’t file returns such as children, nearly 75% of tax-filing Canadians earned under $50,000 in total income in 2009.


Add another 5 million Canadians who reported total income of between $50,000 and $100,000 and you conclude that about 95% of individuals have income below $100,000 annually.

Let that settle for a minute and you will start to see why current consumer behavior and real estate prices in Canada should be so concerning.

Let's take the $50,000 total annual income level as a benchmark and run some quick math.

Total Federal and Provincial income tax payable is in the region of $9,000 for an Albertan (though, this ranges from $6,725 in Nunavut to $10,654 in Nova Scotia -- if anyone wants to pay a low rate of income tax, live and work in a territory...).

That leaves us with about $41,000 of net income left to play with.

Now, before going any further with things like cost of living and such, let's recall a previous post I made, where I talked about the kind of money one needs to set aside to even consider retirement at age 55.

I'm going to make an assumption here that the same, above-average, $41,000 net annual income Canadian is going to want to retire and do at least a few of those things the big banks' television commercials show the withered and decrepit engaging in.

This person, therefore, contributes his or her maximum RRSP amount each year, which is 18%, or $9,000.

This generates a tax return of $2,900, which is more than half of that person's annual TFSA contribution room, and we will assume they will top that off with an additional $2,100, to equal the current $5,000 maximum.

We are now left with $41,000 - $9,000 - $2,100 = $29,900 in remaining coin, and we have generated a fairly sizable retirement lump sum of $817,000 after 30 years of employment (calculated in the same way as the previous post).  We will certainly be a little bit above my $2,000 per month comfort level, as discussed previously, and even more so if the person works a bit longer.

Now, let's go onto the fun of living costs.

Rent or buy, this person is going to be looking at negative cash flow of at least $1,000 a month, assuming they plan to live alone.  $29,900 - $12,000 = $17,900.  We will assume utilities and taxes to be included here, to save on some math, though this is highly forgiving.

He or she will need to eat, so let's call that $300/month (average is in the range of 10% of gross, so we are undershooting this): $17,900 - $3,600 = $14,300.

We also need a car, because this example takes place in Alberta, and for a pretty basic 2011 Corolla and fuel, insurance, etc., this will come out to about $310/month = $3,720 + $2,000 in annual fuel (24,000km @ 7.5L/100km @ $1.10/L) + $250 in maintenance + $1400 in insurance, totalling $7,370.  No consideration for depreciation right now.

Average transportation cost is in the range of 12-14% of gross, so we are in range here.

Even so, $14,300 - $7,370 = $6,930.

We haven't done anything at this point besides pay for somewhere to live, food, something to get us around, and ensure the possibility of a dignified retirement, and we have less than 7 grand left for the entire year.

A smartphone with a decent data plan is going to run around $1,200 a year, and high speed internet about half of that.

Now we are down to $6,930 - $1,200 - $600 = $5,130.

At this rate, it should seem clear why banks need to offer cash back mortgages in this country to keep business going.

Even at a level of income greater than 75% of all Canadians, it would take that person over three and a half years just to save up the 5% minimum down payment for the average $366,000 Canadian home, much less 20% (assuming they plan to both own a home and retire, and not one or the other as the case certainly is right now).

And that's with no budgeted provision for hookers and blow on the weekends, yearly winter pilgrimages to climates with sun and cheap booze, or the daily $5 latte at Starbucks.

Granted, you can make the argument that perhaps my retirement outlay is too high, or that dual incomes change the picture, but my response would be that I have been extremely conservative on the cost of living side of the equation as it is.

Children, furniture, clothing, healthcare, recreation, education, gifts, tobacco & alcohol.


Those all cost more than zero, and I'm certain that whatever amount you pull out of the retirement amount would quickly disappear into the above.

All I'm trying to illustrate is that since the majority of new $450,000 Calgary subdivisions are not filled with houses full of people singing Kumbaya with the lights turned off and their single Toyota Corolla tucked away in the garage, we certainly aren't going to gallop into the sunset together with our chariots full of gold (well, I will...).

Earth Hour

So the farce that is Earth Hour is upon us once again.  Obviously, I'm not the biggest fan of it.  However, my real problem isn't with the vague concept.  It's the thought process behind it and the practical reasons for doing it.  It is simply a matter of people assuming things which make sense until you know the true science.

A Terry-like rant is about to ensue.  You've been warned.

I will preface the following paragraphs with a brief statement: I am by no means an expert on electrical power generation and distribution.  But with a degree in computer engineering and a few years experience working with electronics, I believe I have a pretty good grasp on the basics.

Electrical devices, in general, are fairly efficient when operating at what is referred to as "steady state".  This means that once the device is on and running in its normal state where it is not changing how much power it needs, all is well and it's using (likely) a minimal amount of power (relative to what the device is).  However, when an electrical device is turned on, it briefly can consume from 10 up to 50 times more power than when in steady state due to an electrical phenomena known as Inrush Current.  Although this can be minimized using various techniques, it cannot be completely removed and the amount by which it is reduced depends heavily on the quality of the design and local regulatory requirements.  To summarize for a non-technical audience: at the end of Earth Hour when millions turn their lights, computers, TVs, etc back on, the sudden hit to the power grid can be quite large.

In addition, when Earth Hour starts, the electrical requirements for an area would, naturally, drop.  This leads to the power company (or, at least, the company that owns the generating station(s)) to reduce their production level (i.e., make less power).  The principle for power generation is somewhat similar to that of power consumption: steady state is more efficient.  So, again, when Earth Hour ends, power generation must rise back to "normal" levels.  Especially for areas such as Alberta where power is mostly generated by burning coal, the analogy of a steam train best explains the problem here: to go faster (read: make more power), you need to throw more coal on the fire.

Now, I will be perfectly honest here that I have found difficulty in finding a reputable engineering study that either proves or disprove what I acknowledge as my theory above.  However, it makes sense to me and I encourage anyone to invalidate my arguments.

There are other reasons why I dislike Earth Hour (and consequently won't be participating).  Ross McKitrick, professor of Economics at the University of Guelph sums up a lot of these ideas in his March 25 article "Earth Hour: Why I will leave my lights on" in the Vancouver Sun.  His two key points are that Earth Hour demonizes electricity, one of mankind's greatest achievements, and that in the last 40 years industry has greatly expanded while air quality has actually improved.

And realistically, I don't think the savings to the environment are all that tangible either.  Most people will turn their lights off for one hour and then be able to brag about how eco-conscious they are.  But at the end of the hour, they will turn on their lights and go back to their normal level of consumption.  Earth Hour's marketing  team will argue that Earth Hour shows how the simple act of reducing power usage for an hour can make a difference for the environment.  While I agree with this in its most basic concept, if this simple act does not lead to long term reduction of power usage, it has no impact whatsoever.

I'd like to finish up with a simple point on how simple misconceptions and assumptions can lead people into doing the opposite of what they mean to.  Today, YouTube has a switch which allows you to "turn off the lights" during Earth Hour by turning most of the page black rather than white.  This seemed to make sense at first until I started to think about LCD monitors.  A quick search of Scientific American yielded this.  The article presents arguments from some studies saying that a black screen on an LCD monitor actually uses more power than a white screen.  Although far from conclusive, it lends a lot of credence to two points: most people do not have enough solid information to know the real savings/cost of Earth Hour and not enough solid information on such subjects exists.

To summarize, if you feel like turning off your lights for Earth Hour, go for it.  However, there are only two results which I can guarantee: it will be dark in your house and it might make you feel better about your environmental impact.  However, real savings to the environment can only come from sustained reduction in power usage, not a single night of flipping off a few lights for an hour.

Porcelain Epiphanies

Does anyone else find that they do their best thinking while taking the Browns to the Superbowl (or as we mining folk like to say, dumping a load of coarse reject)?

Early last week during a discussion, someone asked, "How many people here consider themselves to be better-than-average winter drivers?"

A myriad of arms were raised.

"Hmmm; so two thirds of us think we are better than half of us..."

The person's point was that people generally consider themselves to be better than the majority at something, which is probably a valid assumption.

Setting aside the fact that yours truly is certainly better than average when it comes to winter driving ;), it was later, while stocking the pond with Brown trout, that I had a sudden epiphany regarding why the vast majority of today's publicly traded companies are so horrendously managed.

It all seemed so simple, and I felt like an idiot for not realizing this rather basic concept years ago:

If you take a cross-section of the general population, and look at their financial habits (i.e., basically watch an episode of 'Til Debt Do Us Part), there is absolutely no reason to expect a cross-section of the senior management at any large organization to look any different.

Therefore, while an incredibly depressing realization, this provides a very solid explanation as to why so many top-income earners and corporate types have net worths that rank near most panhandlers, and run their companies accordingly (always maximize the short term at the expense of tomorrow and every day after).

It also provides one with a stark realization of just how difficult it is to find a well-run company to work for, these days.  There are very few of us left out there who recognize the importance of planning beyond the next 5 minutes and lack lines of credit, high-ratio mortgages, and matching Escalades, and even fewer of us high up enough anywhere to affect any sort of change.  Discipline, consistency, and long-term time horizons just aren't sexy.

I'm fairly certain that these types of people all end up running small businesses, like restaurants, where the competition and stakes are much higher than the subsidized, corporate-welfare world.  As any episode of Undercover Boss will show you, it takes merely a pulse, a couple of lungs, and a condescending view of those beneath you to be a CEO. Contrast this with the giant set of brass cojones it takes to be an actual businessman -- that is, to risk your own capital and then depend on your venture for survival.

Too many of us are dieting with amphetamines, buying male enhancement drugs, and sending our gold jewelery in for cash to pay this month's interest on our credit cards.

Somehow, I don't think I'm the corporate type...

Uggghhhh

I spent about 12 hours driving this weekend, so my motivation tonight is minimal.  Some good links will have to suffice:

Charter school's $125k experiment - a segment from tonight's 60 Minutes on the wonders of what happens when you find good people and hold them accountable...

A Good Piece from Macleans

Taxpayers in Revolt

And, finally:

Change is Good

I don't plan on talking about money, tonight; and, in fact, my post will probably end up shorter than usual (no promises, though, as I tend to write these things in one take, and, depending on my mood, I can get wordy).

The family and I are embarking on a couple of new schools of thought this year (you could call them late new year's resolutions, I guess), and I figured I'd outline them below with the hope of both sharing them with my fellow tubers and clarifying them for myself.

The first approach is called "reduce material good accumulation". In other words, given that we prefer to remain mobile and flexible in our lives, with the ability to move to another continent for any reason within a day or two as our highest priority, the last move made it clear that our graduation to much larger accommodations over the last couple of years -- as our incomes grew and rents decreased -- resulted in our blind filling of space with a lot of useless crap.

Our solution? With the exception of groceries, anything we buy from here on out will be accompanied by the throwing out of at least 2 existing things in our inventory. In addition, I have noticed we have a lot of older stuff we don't really use, which we can probably sell/donate.

The motivation behind this was partly a website I read months ago, and partly the times my wife and I talk about how we both moved to Vancouver less than 3 years ago with all of our worldly possessions in our cars, while the 3 times we have moved since have involved a rental van, then a small full service move, and most recently, a massive, 6-hours-of-unloading, full service move.

I met a lady at work who moved back to Canada with her husband and son from the Cayman Islands, where they had been living for something like 7 years, with just four suitcases!

In our 21st century, global economy, they are a perfect example to aspire to.

The second approach we are going to take is to try to keep our vacations within the borders of Canada. While epically guilty of it ourselves, it bothers me to see many of us so quick to dash off to Mexico or Thailand or Europe when I'm certain the majority of us have not even been to more than 3 or 4 provinces (especially now that going to the USA is what I'm sure travelling into East Germany used to be like)!

I have personally never been further east (in Canada) than Ottawa. There's a whole other coast to explore! I have lived in BC, Alberta, Saskatchewan, and Ontario, and have driven across all of those, and Manitoba, numerous times. However, it irks me that I've never been to the Maritimes or Montreal or the Yukon, etc.

I've had dreams of driving the entire TransCanada Highway, but such a feat would take a solid week of 10-12 hour days of JUST driving to get from one coast to the other, with no time for stopping. 'Tis a big country, this one of ours.

Have a good week, everybody!