Why am I doing this? Personal finances can be torture on one's ego and mental health... as I have learnt over the years, the path to financial independence, one must learn all facets of money to be able to control it. Personal finances is not only focusing on investment but the other half of the equation: budgeting and saving. In fact, budget and savings should encompass most of the topic... the biggest reason being most people do not have the financial resources with which to invest. Many live paycheque to paycheque; while most according to the Vanier Institute of the Family only have average household savings of $2500 for 2010!
In part 1, I broke down what our household expenses were going to be for 2011 based on January/ February 2011 bills and discovered to my dismay we were spending a total of $1073.93 per month for basic necessities not including food or gasoline! With a comparison to 1997 spending of $910.13, an increase of $163.80 per month... BUT, considering we have no mortgage payment of $480.00 per month anymore, actual spending increased $643.80 per month or a 249.6% increase since 1997; that's an additional $7725.60 per year more than we spent in 1997 for basic living expenses! How much of this is inflation or standard of living increases or just wasteful keeping up with our peers? According to historical CPI growth rates annual average inflation from 1997 to 2010 is 2.4%; meaning $1 of spending power in 1997 now is worth $1.36 in buying power in 2010. A dollar definitely not what it used to be.
I use the year 1997 because at that point in our lives we purchased our home and vowed to keep our spending limited so that one of us could manage and afford all the bills by ourself just in case one loses his/her job, etc. In 1997 my earnings from collecting unemployment insurance was on par with the wife's earnings with her full-time job in retail. So, we based our spending on this: approximately $1600.00 per month income.
It is obvious we could probably eke by with no savings and no changes in our spending with income from Employment Insurance (payout remained consistent over 14 years) if we absolutely needed to today using only $600 for groceries ($100 per week) and gasoline ($200 per month). But, doing this assessment is good to see if we could do any cutbacks now in excess spending and perhaps put more towards our short term financial goals.
Our 2011 bills:
Enmax- avg. $245 per month for electricity and natural gas. In 1997, that bill was $34.00 avg for water and drainage and $37.00 for natural gas totalling $71.00. Over 300% increase over 14 years!!! Not much I can do about the gouging going on as natural gas is near historical lows ($4/GJ) and electricity is on contract with Enmax for $0.07/kWh. Floating rates are averaging $0.0789/kWh in Alberta and contracts cost over 8 cents... probably the best pkg I can get at this time. Which means more diligence will be needed shutting off lights, electronic goods, etc. within our home. Perhaps an investment in installing solar panels and a 'pre-warmer' water tank is worth looking into since natural gas prices have been creeping up and it looks as these bills will only increase from here.
Epcor- avg. $82.00 per month for water and drainage. In 1997, this cost $28 per month. Another 300% increase!! Over the years the city has added costs to our bills such as waste services (garbage) and additional service charges in sewage. Going with an Energy-star compliant front-load washing machine and dryer helped reduce our water tab by 50% over the last 5 years.
Shaw- $78.70 per month for cable services. In 1997, cable was $27.47. For the same pkg we had in 1997, it would cost $62.95 today (same approx. number of channels- Digital TV pkg); we recently cancelled a few channels we weren't watching that often to save a few bucks and really would cut the entire service if we needed to. Only reality shows and HGTV DIY for the wife and hockey games for myself and kids' channels are the only things we watch on TV these days. Services like Netflix, etc could easily replace our TV viewing. Competitors like TelusTV are entering the market and we will be looking out for any introductory pkgs available.
Telus- $86.87 per month for phone and long distance services. Pkg. includes call display, call waiting, and voice messaging and 200 minutes free per month long distance calling and high speed internet ($40.00 for 16Mbps). In 1997, home phone cost $21.00 per month for the basic package and additional $4-7 per month in long distance when used. Phone service by itself costs us $42.55 per month now: a 100% increase? Six months ago, I was told to look at my current high speed internet package with Telus from a sales dude at Memory Express: he told me Telus doesn't tell its customers about any new packages that may save us money and keeps us paying status quo at lower speeds. I checked it out and found I was paying the same price for a slower speed of internet service as their highest speed service; I called customer service and was instantly upgraded from 6Mbps to 16Mbps for $5.00 LESS per month, with no questions asked or any argument!! Today, I called Telus to knock down any home phone services we do not use.. they offered me to keep my existing package and it would only cost me $36.00 per month: 15% off just for calling customer service!! I opted to take a new pkg. with only basic phone and call display as we do not use voice messaging much and call waiting is now free! $21.00 starting next month..plus 4 cents per minute long distance only when we use it! Savings of almost $25 per month!
Property Taxes- $213.21 per month... $2558.52 for 2011; $136.04, $1632.48 in 1997: A 56.7% increase in property tax includes sewer and sidewalk improvements 2 years ago. Not too awful bad considering a property value increase of 349% (city assessment); or 300% avg market value vs. purchase price from 1997.
Home Insurance- $78.25 per month or $939.00 annual.. $1million replacement and all perils liability; in 1997, it cost a premium of $362.04 per year with same coverage. A 259% increase.. coverage for sewer backup and roof damage increased significantly. A shop-around was done two years ago...I still got the best price sticking with TD Insurance (University of Alberta discount).
Life Insurance- $29.87 constant for last 10 years. Replaced the bank offered mortgage insurance for life insurance; rates with mortgage insurance are misleading- premiums stay the same while the insurer's liability constantly decreases as principle is being paid off. Not much bang for your buck... better with life insurance which also covers much more than default of mortgage via death.
Auto insurance- the only thing that has decreased per vehicle over the years ...no accidents or tickets help. May cancel one vehicle as here is only one household driver at the time. Two vehicles being insured is a waste.
Bank Fees- $32.90 with the birth of our children our free safety deposit box was upgraded in size. Plus, bank service fees has increased significantly over the years. Shop around for your bank's best deals... they now offer less fees via ATM transactions and online bill payments for a monthly set fee.
Cellular services: $68.25 for my iPhone4 (6Gb Data for $30 plus Student My10Voice with Rogers), $10.05 for the wife's Telus Pay N Talk phone; $15.75 for 3G on my iPad. Staying connected via cellular is not a necessity but convenience especially when trying to panic sell one's stocks... iPhone contract due this August; the unit is unlocked and I will negotiate a better contract.
Gym Membership- $41.98 per month multi-club membership at World Health (formerly Club fit locations); this has increased $5 per year every year for the last 3 years...very annoying because they offer better deals for new members. Will look for better options including maybe purchasing a Fitness Trainer for the basement ($2500 Fitness Depot) or different gym.
So there we have it... our 2011 basic monthly spending taking out groceries and gasoline. In comprising this look, I was able to instantly save some money like my phone bill and cable service. But, it has also shown me there is not much else other than cancelling certain services such as cable or gym membership that I can do to save on these basic monthly expenses.
Our mortgage payments of $480.00 per month in 1997, which should give us an increase in savings per month when we paid the home off, have instead completely been absorbed into the increased cost of utilities, property taxes, and home insurance; and the addition of new services like Internet, HDTV, and cellular phones. Also, the 300% increase to our primary utilities due to provincial deregulation shows more diligence is going to be required in other areas of spending. Circa 2003, at least we were able to counter rising natural gas prices with investment in Oil/Gas royalty trusts paying up to 25-30% monthly yields. In 2011, most trusts have been forced by the Government of Canada to convert back to corporate structures making everyday life much more expensive now.
Unemployment Insurance increased minimally from $413 per week before taxes to ONLY $468... a 13.3% increase in 14 years... not much compared to how much our cost of living has increased.
Doing this study also has shown me that current CPI stats can be misleading when it comes to calculating our own expenses. Local media suggests there is not much inflation and prices have increased very little over the years except for food and gas which are taken out because of their volatility and will unlikely increase very much in the future. HA! The figures the media uses are skewed to show only slight month to month increases or year to year and blame inflationary expenses are due to food price and gasoline increases. The "core" CPI, like interest, compounds making real figures like our bills show the increases to be astronomical. Yes, goods such as electronics and computers are cheaper in price these days but we replace them more often now. We use more utilities now with increased computer usage, etc. but also replaced things like light bulbs and appliances with more energy efficient ones... the real price increases come with the extra service charges now present in our bills. So when the news says prices are NOT going up, don't believe it! Look at your monthly statements and see for yourself, there is INFLATION and wages have not kept up. Just something to keep in mind if you're thinking of throwing that extra $100K into that new home in the next few months....
In Part 3, I will look at our grocery bills to see if any savings can be had there; and if there are any savings going to Superstore, Costco, or Walmart; if loyalty cards such as Airmiles or PC points are worth the hassle.