Yesterday, I was talking about the reason why I finance everything I could during my entire life so far and how this habit has become even more obvious during the last 10 months. Today, I’ll explain why I look to finance so often and why I am different than most people who load their credit cards and lines of credit. Remember; the key is not how much you borrow but what you do with your money.

Looking forward

Since I started working, I have always believed that I could make more money year after year. I started with an annual salary of $30,000 in 2003 and reached $106K last year. This corresponds to a 23% annualized increase in income. This year, I am expecting to make about $130k. While I don’t think I will be able to keep up this pace forever, I have felt comfortable in what I could achieve year to year. This is why I started to borrow a little bit more each year, knowing that I would be able to pay back my debt later on with future income (I know, so far it sounds like a great going-to-be-bankrupt-one-day story ).

What I have done with my borrowed money so far

This is where it gets interesting. Besides gifts and cars, I have used all my borrowed money to make more money. During the last 7 years I have:

- Borrowed 25K to buy land (making 4K profit within a year)

- Borrowed 20k from a line of credit to play the stock market (and generating my initial cash down for my first house)

- Borrowed 25K from my parents to buy my 2nd house (making 75K profit within 5 years)

- Borrowed 30K from the equity of my house to invest in my online company (you can guess how much profit this has generated)

- Borrowed as much as I can on my line of credit (at a ridiculously low interest rate) while I purchasing my employer’s stock (8% of my salary in earning a 25% bonus from my employer, plus stock growth, plus dividends over 3%).

Financing everything that I can so I can make some real money

When you look at my net worth statement, you notice that the bulk of my net worth is in my house and in my company shares. Both result directly from my financing strategy. The problem with financing is not the fact that you borrow money, it’s how you use it. Some call it good debt, some call it leveraging, I call it playing with other’s people money.

Can I fail? I surely can. But I have learned one thing from my parent’s bankruptcy: it hurts, but you don’t die from it. In fact, it makes you stronger. So I don’t plan to go bankrupt, but I know that if it has to happen, I would rather lose everything in my late 20s – early 30s than at 55.

Looking at 2011

This whole introspective about my finances got me thinking of my projects for 2011. I know that I will receive a significant bonus (about 10K net… maybe more). Since my RRSP contributions are already maxed out, I was hesitating either on buying a spa, going on vacation or preparing to build a garage. But now that I have written these 2 articles, I think that I am going the wrong way if I finance “bad debt” and that I would rather pay off my accumulated debt with this 10K so I avoid any bad luck on the financial side .

What do you think? Have you taken any risk by borrowing money in order to make more money?

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2 weeks ago, I told you about my bad Future Shop experience. That post started when I got declined for the 36 interest free payments via their credit card. In the comments, a fellow blogger, Financial Uproar, ask me why I was borrowing so often. My partner pointed out this comment asking me the very same question. This got me thinking about how I manage my personal finances since I started working back in 2003; I keep financing all the time!

Interestingly enough, I have grown my net worth from $0 in 2003 to $150,000 7 years later. How I was able to build such wealth while financing often and seeking more and more credit? Here’s a hint; the key point is now how much you borrow but what you do with your money. I have always believed that you can do much more money with other’s people money than only your own (especially when you don’t have much in your pockets ).

This year is particular

Before I go on & on with my theory of financing stuff and leveraging, I would have to look back on what has happened this year. It was quite a challenge to manage my budget as I had 4 significant expenses and a huge debt payment to make this year:

#1 My best friend’s wedding (2k)

#2 My wife’s 30^th birthday (1k)

#3 My sister-in-law’s wedding (2k)

#4 Buying a 2^nd car (12k)

#5 Reimbursing my parents (31k)

I could debate about buying a smaller car, giving smaller gifts and concentrating on paying off my parents sooner (I held this debt for 5 years) but those are the choices I made and I had a way to finance everything.

The good news is that I also sold my house. Since I made a good profit from it (about 75K), I was able to buy a new place and finance a part of my expenses. This is why I didn’t really feel the car and gift expenses as they went through my account without hurting my monthly budget too much.

Sure financing a car through your 25-30 year mortgage doesn’t sound like a brilliant finance plan. Sure financing your gifts and debt payment to your parents through low balance transfer credit cards doesn’t sound right either. Actually, it all sounds like postponing the problem until later on. In fact, this is how most people get into financial trouble because there is always a limit of what and how much you can postpone. Sooner or later, you have got to make your payments.

So what’s up with my personal finances? Shouldn’t I be more reasonable?

I guess that you may be right. I guess that there are other ways to manage one’s personal finances in order to avoid borrowing constantly and having a comfortable emergency fund. It surely does sound better from a personal finance blogger / banker, doesn’t it?

I actually think that I have managed my finances the best possible way! Say what? But I won’t tell you how come today… I’ll wait until tomorrow

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Last week, I mentioned that I applied for a low interest rate balance transfer credit card. I need some temporary financing and I think that such credit cards can give me a nice cash advance for a low rate. I had been looking around to see what my options were. Sadly enough, there are no 0% balance transfer offers available in Canada at this time! The cheapest one I have found was at 1.99%. All right, 1.99% on $10,000 only makes $199 of interest after a year. So in the end, it’s not that bad (especially if you compare it to a 8% loan or a 15% credit card!). Since I have had a positive experience with MBNA in the past (I once had a Montreal Canadiens credit card ), I decided to go with them once again.
 
 
After applying online, I decided to call MBNA to see if they had received my application (the last page of my application didn’t refresh properly). Interesting enough, I waited less than 2 minutes on the line before speaking to a human being.
 
 
The lady was really helpful and found my application right away. She asked me if I wanted to review the application on the spot so they can issue an immediate approval (thinking that my credit card bill was due in mid-June, I jumped at the offer!).
 
 
The MBNA process is quite straight forward. They validate your identity, the information that you filled in the application and go a little bit deeper (they asked me if I was a home owner, the amount of my mortgage payment, they looked at my credit bureau with me and validate all debt there are).
 
 
The nice thing is that they take your word for it. For example, she asked for more info on my salary but never asked for any proof. I just had to describe what percentage of my income was base salary and how much was variable.
 
 
After she had validated my application, she was able to give me my authorized limit… drum roll please…. $13,000! I was quite happy because this means that I will be able to pay off my parents in full 2 weeks from now!
 
 

The problem with balance transfer credit card offers

 
 
I have noticed that there is one huge catch to making a balance transfer to another credit card. The catch is that we are human! What does this mean? It means that while I might only need to transfer 8 or 9K, I will likely transfer 12,000$ to my regular credit card to ensure I have enough room to pay everything. The problem is that I have just created a $12,000 debt at 1.99% payable in full 10 months (or pay through the nose)… I will have to be very careful to pay it off on time!
 
 
How the credit card balance transfer works
 
 
Once I get my card, I simply have to call to activate the card. Then, they ask me how much to transfer and to which credit card. They make the payment for you so you don’t have to worry about anything. The most important thing is to make sure that your credit card bill is not due on short notice. If you are planning to get a 1.99% balance transfer credit card, I would suggest that you start the process just after you paid your credit card bill. Therefore, it will give you about a month to complete the transfer. In my case, it will take about 2 weeks to have everything completed (the card approved, receive it and transfer the credit card balance over to MBNA).
 
 
I received my card only a few days after calling. When I called to activate the card, they were quite fast to complete the whole process. A big thanks to Trevor and Ticker for the comment on my previous posts about the credit card terms and balance transfer fees. This gave me the occasion to ask the guy what the exact process was. Here it is:
 
 
-         The balance transfer is done within a week. They send the money to the other credit card company by electronic transfer.
 
-         If you miss a payment on your credit card, the 1.99% rate disappears and you jump to the killer regular credit card rate.
 
-         If you go over your credit card limit, the balance transfer deal ends as well and you go back to a normal credit card rate.
 
-         You have 10 months at 1.99%, after that, it’s over. So you are better off not fooling around with this debt!
 
-         There is a fee of 1% of the amount transfered to organise the balance transfer
 
-         The payment to my credit card took 3 days (they say 2 to 5 business days).
 
-          The card is platinum but doesn’t look like one. The design  is not that great
 
-          But, the fact that the card is platinum doubles your warranty on your purchases up to 2 years.
 
 
Overall, the credit card balance transfer won’t cost me too much and it will help me paying off the loan from my parents faster than expected. On the other hand, I will shortly setup a payment plan to make sure I pay off and remove this debt from my balance sheet by the end of the year!
 
 
So if you are thinking about doing a balance transfer, I truly suggest to try the 1.99% MBNA Platinum credit card:
 
 

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As you may already know, I am moving in about 3 weeks. I already know that there will be cash flow chaos the upcoming month. I need to pay for moving, the notary (lawyer), I need to pay taxes and, to top it all off: I decided that I will pay back the loan from my parents right away. This is why I will apply for a Canadian 1.99% APR balance transfer credit card.
 
I have owed this money for the past 4 and a half years and I really don’t feel like waiting until the end of November to pay them back (especially since I recently bought another car). Even though the original agreement was to pay back the loan this fall, I just want to get rid of the debt and again feel free to spend my money as I want.
 
However, I don’t think I will have the money to do all this… I am currently spending a lot of money on several items (new car, my wife’s birthday, my friend’s wedding, and another wedding in the near future, my new house, etc. just to name a few). So I will need extra financing for a few months. I don’t really know for how long, but I know that I’ll be getting a nice bonus at the end of the year so I will leverage that certainty.
 

What kind of options do you have when you are looking for short term financing?

 
You can always rely on a line of credit or a personal loan. My problem is that no bank will lend me money in the short-term right now. How can I make a 6 figure income and yet I can’t get financing? That’s it; TFB is too stupid and spent all his money. This is why he can’t get financing. Sorry folks, it’s more complicated than that: it’s because there is a lot of money I make yet can’t prove.
 
My online company is paying for several expenses and my bonus can’t really be taken into consideration (even though it totals 40 to 50% of my annual income!). They claim that I may not be making this much every year so they can only base their decision on my base salary… reality sucks!
 
So if I can’t get money from the evil banks (and I don’t want to borrow from family or friends since I want to get rid of this type of debt anyways!), I have no other choice but to consider a low apr balance transfer credit card. The main advantage when applying for a credit card is that they qualify you based on your income and your credit bureau (both of which are pretty good in my circumstances) and not on your ability to pay
 
This is why I ran through internet listings to look for the lowest interest rate on balance transfer credit cards. I was disappointed at first, having not found any credit card offering a 0% intro rate for balance transfer for Canadians. Therefore, the best rate I found was 1.99% on all cash advances and balance transfers.
 
There are a few issuers of those generous balance transfer credit cards. Among them, there is MBNA, a well known credit card company (known for their appetite for risk).
 
This is actually why I decided to apply to one of their 1.99% balance transfer credit cards (The MBNA Platinum credit card); because they are most likely to lend me more money than other credit card issuers .
 
So here’s my choice of credit card:

 
 
I have applied for 3 main reasons:

1. They offer the 1.99% rate on balance transfer

 

2. They are more likely going to offer a great credit card limit

 

3. The Platinum credit card doesn’t have fees!

 

 
I have applied today, so we will see how long it takes and how much of a credit card limit they will be willing to grant me. I’ll keep you posted!

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After talking about how to deal with money and family yesterday, it is now time to take a serious look at my options in order to pay off the loan from my parents at the end of the year. Gathering such an important sum of money will require a solid plan, discipline and probably a bit of luck as well!

As I previously mentioned, in May 2009 our life took a drastic step back when my wife quit her job to take care of our children. Since then, our personal finance has been somewhat difficult to manage as it was filled with new challenges.

Things have been back under control recently with the deposit of my big bonus cheque in the bank account. Now that my financial situation has reached stabilized, it is time to figure a way to pay my parents back.

What I have so far:

My biggest “savings” is held in the form of my employer’s stock purchase plan. Directly from my pay, I put $475 per month (including my employer’s contribution) aside. So far, I have $5,000 in this account. If I contribute until the month of October, I should be able to put another $4,750 on the table. This would make a total of $9,750. Out of it, I can withdraw up to 75% of its value twice a year in order to keep my privilege. So if I take up to this percentage, I should be able to withdraw about $7,300 in November 2010.

So I now have 10 months to find $22,000.

Whoa, this doesn’t sound right at all… It is actually quite discouraging L. But, there are a few things I should consider:

I have about $5,000 available on my line of credit and I am paying $500 per month in capital. Therefore, in 10 months, I should be able to get another $10,000 from my line of credit. While it doesn’t really count as a paid off debt since I am transferring from one creditor to another, at this point I wouldI rather owe the bank money than my parents!

Now down to $12,000…. Still a huge challenge!

For the last $12,000, I will have to run with the big dogs in the big world of “what if”. Here are a few possibilities that could help me pay my parents back:

-         I am currently looking for a bigger client portfolio, which would increase my annual income by $10,000. While taxes must be paid on this amount, I should be able to put about $3,000 aside from this salary increase (as long as it comes in the first months of 2010….).

-         By November 2010, I will know how much my next bonus will be. If it’s similar to this year, I should be able to pay an additional $5,000 to my parents. While this money will only be available in January, it will be confirmed before the end of 2010 and I will be able to guarantee my parents that they will receive the money.

-         Speaking of my bonus, since it is paid in January, I have to pay the maximum contribution in pension and insurances. Therefore, I will benefit from a higher net pay faster this year. I will probably be able to put this money aside and have an additional $2,000 by the end of November.

-         I will certainly have more equity in my property that should be appraised around 335K by the end of the year. I could probably be able to refinance my property and get enough to pay my parents. However, this is not my first plan as I would prefer to pay this debt off as much as possible rather than switching from my parents to the bank.

-         The last wild card I have in my pocket is how well my online company does. It has been a tremendous end of year and the month of January seems to continue on the same path. I just hope it will continue to grow so I can take a few more thousand out of it by the end of the year!

So as you can see, I will not be able to gather the full $31,000 in cash by the end of the year. However, I have enough options to make sure my parents get paid and that I don’t have to deal with money issues with my family.

I must admit that they have been pretty smooth with me and they told me that I didn’t have to pay them back this year if I couldn’t. However, I just can’t spend money thinking about the fact that I owe money to someone I love and respect. Once this debt is paid off, it will be a huge relief for me!

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