The Frugal Canadian

A frugal spender seeks to find new ways to save money and increase her net worth.

Wednesday, October 19, 2005

Lower Banking Fees

I’ve been a long standing customer at TD Canada Trust. I was tired of the standard $3.95 service charge for not maintaining a balance of $1,000. While $1,000 isn’t much to maintain, I find the concept itself absurd and knowing that I had an alternative at PC financial I decided to close my TD chequing account.

I set up a President’s Choice Financial bank account approximately 1 year ago. It took a while to set up but I am finally content to use it as my primary account. It has no service fees on the chequing account and the interest first savings account offers a 2.15% interest rate on my average daily balance.

- Ease of transfers to external financial institutions and brokerage account
- Essentially no fee banking
- Decent savings rate on emergency funds

- Initial hold on deposit totals. I only have a cell phone(no land line) and the bank had difficulty performing a credit check on me. They initially held any deposits on my account for 5 business days before allowing me to withdraw any funds. They have since withdrawn the hold.
- Foreign Currency Difficulties – While the bank card can be used at ABMs in the US, you cannot obtain foreign currency on your account from a teller since no branches exist.
- Waiting time for bankdrafts etc – Obtaining a certified cheque or bank draft can be ordered online or via telephone, but takes approximately 1 week to be delivered via mail. I haven’t had to use this option but it would be a nice to have.

During the transition period, I maintained my TD account just in case the PC Financial didn’t work out. It’s been a year now and I was ready to close the TD account. I went to the branch to close my account and told the banker I wanted to close my account and switch to a savings account. The marginal balance I would maintain in the savings account, would provide some convenience if I did need foreign currency or a certified cheque. Since it is easy to transfer funds from one bank to another, it was a simple solution to maintaining my lower fees.

The banking rep immediately asked why I wanted to close my account. I replied with two words: "service fees." He asked if that was the sole reason and I nodded yes. He shut the door and said, "here’s what I can do for you."
He offered me a full serve account, unlimited transactions and free cheques, no minimum balance for 1 year at NO COST. When I complained that it was only good for one year he told me to come back in a year and he’d give me the same deal.

Then he offered me a savings account. I didn’t really need it since I was already set up at PC Financial. I told him this and he offered me a savings account with no minimum balance earning 2.1%. It normally requires a $5,000 balance to earn interest but he also waived that. I signed up since it cost me nothing.

So I’m staying with TD. I don’t plan to switch back entirely to TD as I am pretty content with PC Financial. It will be nice to have the comfort of knowing I have easy access to foreign currency and some face to face customer service should I need it. Even better, I’ll save $47 a year in service charges.

Saturday, October 01, 2005

The 25K Challenge

I'm 29 years old and up until this point in my life, I haven't exactly been living a frugal life. I have managed to acheive on average a 25% savings rate since I entered into the workforce 5 years ago and have so far accumulated a modest net worth of $55,000. I recently started reading some finance blogs indicating that an individual should strive for a 10% savings rate, so I initially gave myself a pat on the back. It wasn't until I looked at some other sites in detail, that I realized there were a lot of other individuals at my age with a much higher net worth ranging from 150-180K.

I currently rent an apartment in Toronto. The housing market has escalated to the point where homes boast a price tag of $300,000 for an entry level home in a somewhat decent, yet not desirable neighbourhood. With a near term goal of purchasing a house in the next year or two, I am challenging myself to save $25,000 per year. This represents a savings rate of 48% of my after tax earnings. To do this, I developed a budget and will track my monthly progress and report on it.

Notes and assumptions

Monthly income
- net after tax with an effective tax rate of 30%.

- The largest component of my spending budget at 54%; possibly subject to a 3% annual increase. I was able to convince my landlord to not implement the increase in 2005. This was achievable only because rental vacancies are high due to the ongoing housing boom.

Communications - includes monthly phone bill, internet and cable bill. Many of the financial blogs indicate one of the easiest ways to save money is to cancel the cable bill. This is not something I'll willing to compromise and consider these expenses essential. For me and my current lifestyle, a decrease in my internet or cable bill would be offset by an increase in entertainment costs. I have set myself up on a "bundle plan" and plan to try a cancellation tactic in hopes of a decreased price. There is a great post on how to achieve this: MyMoneyBlog. I'm just trying to gather the nerve to pull off this total bluff.

Insurance - Car, apartment and health insurance. I'm currently looking into increasing my deductible on car which should produces some savings. Unfortunately my employer does not offer a group health plan causing me to spend 2% of my budget on private health insurance

- I walk to work everyday and use my car mainly for out of town trips, which I take approximately once a month to visit family and friends. I rely almost exclusively on foot and public transportation. On average, I need to fill my car with one tank of gas per month.

Food - An average of $45/week which will be a challenge. As a vegetarian I can save a little in this area without having the high expense of meat in my budget. This category includes groceries only. Because I live so close to my work location, I eat my lunch at home(the equivalent of brown-bagging it). Note that "eating-out" is captured in the entertainment category.

- A budget of $600 per year. I generally do a big shop twice a year in the spring and fall to maintain my current wardrobe.

Entertainment and Gifts
- An average of $60 per week which will allow for 1.5 nights of entertainment per week. I play in team sports three times a week which helps keep these costs low. That is of course, as long as I don't go out for beer afterwards.

- One $1,500 vacation per year. If I'm going to save 48% of my income, I deserve a vacation at the end of the year.
Expected Results

If I am able to maintain this budget I will have saved $24,432 in one year. I hope to achieve a return on investment on my existing portfolio and new savings of 5% after tax which will put me over my $25,000 goal. My first progress report will be posted October 31st - the first full report of my new life as the Frugal Canadian.