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Having a car is expensive

carBack in the fall, I wrote a post called How much is your car costing you?, where I calculated that I was spending around $300/month for gas and insurance (11% of my net monthly income). And that didn’t even include maintenance like oil changes, repairs, or the actual cost of buying the car.

Even though I concluded that having a car was a clear “want” and not a “need,” I still depend on my car to lead the lifestyle I want for myself. Deciding to live in the suburbs, that’s the choice I made. And it’s the right choice for me now, but I’m not sure if it’s the right choice for me in the future.

When I start my new job later this month, I’ll be commuting from the suburbs to just outside of the downtown core. In the 6+ years I’ve lived here in Vancouver, I’ve never actually worked in Vancouver before… so I’m not sure what my commute will be like. Based on where I’m located, I think it will be similar to my old job (35-40 mins.). But the big difference is that when I’m over at BF’s house, he lives just 5 minutes away. AND since I’m working in such a populated area, most offices don’t have designated parking – so I had to rent a parking spot for $65/month.

Now that $65 parking stall is almost 50% less than any other stalls I’ve found in the area. That’s because I’m renting a space in an apartment building about 3 blocks from my office, and not in a regular parking lot. But if you combine that expense with having to rent a parking stall near BF’s house, my car costs have immediately risen by 25% to approximately $375/month.

I ran the numbers again, comparing my car costs with buying a transit pass, and my car still wins out even with this added cost. But just barely. If expenses go up again, I’m going to have to make some serious decisions. Even though I love where I live and I love my home, I’ve been spending the majority of my time in the city, and that’s only going to increase with this new job.

So maybe it will mean moving to a more central location down the road. Or maybe it will be as simple as letting go of some of my hobbies and buying a bus pass instead.

Is a TV a luxury or a necessity?

lg-tvI finally did it: I bought a television.

My original plan was to check out Black Friday/Cyber Monday flyers to try and snag an awesome deal. But I wanted a name brand TV with a lot of options, that wasn’t happening for me in my < $500 price range. :| I wanted an LG, and since I don’t think I’m going to subscribe to cable, I was really interested in their Smart TVs. So, I headed to Craigslist to see if I could pick up something used within my price range.

Thanks to a sweet Telus deal (where customers could get a 42″ LG SmartTV for free after signing up for a 3-year contract), Craigslist was flooded with these brand new TVs (MSRP close to $800 + environmental fee + tax) going for anywhere from $550 to $700. After lowballing a few sellers, I finally got somebody to sell me his for $450 – and with free delivery! :)

To help offset the cost of the TV, I sold my iPad for $350. When I first bought it a year ago, I thought it would be perfect for traveling. But even with the keyboard accessory, it is extremely annoying as a blogging tool. So I rarely ever used it. I’m also trying to sell my¬†Canon G10 digital camera… but the $350 I got for my iPad means that the TV only ended up costing me $100.

Related: Can lifestyle inflation be avoided?

Finally having a TV in my house gives me mixed emotions. I know it’s not something I need (or have needed for at least two years), but it’s nice to have it. And I can honestly say that in the few days that I’ve had it, it’s been pretty great. Watching Netflix on a screen bigger than my 15″ laptop is nice, and I can finally have people over to watch movies, or to play on my Wii.

But buying the TV also reminded me of a report I read a long time ago (2009) about luxury vs. necessity. In this report, they polled over 1,000 Americans and asked what consumer goods they considered to be a luxury, and which they considered a necessity. The report is old, and it’s polling Americans and not Canadians, but I think it’s still pretty interesting. Here are the results:

ITEM IS IT A NECESSITY?
Vehicle 88%
Landline phone 68%
Clothes dryer 66%
Air conditioner 55%
Television 52%
Home computer 50%
Cell phone 49%
Microwave 47%
High-speed internet 31%
Cable or satellite TV 23%
Dishwasher 21%
Flat-screen TV 8%
iPod 4%

I would consider all of the items above to be luxuries… but would feel extremely inconvenienced and miserable if I didn’t have a home computer, high-speed internet, and access to a phone (landline or cell). Those items are borderline necessities for my current lifestyle (obviously I wouldn’t die and my health likely wouldn’t deteriorate as a result of not having these things), but they would definitely be luxuries if my lifestyle changed for whatever reason.

So for fun, I created the same survey for you to answer! It’ll only take a few seconds, and I think it would be interesting to see the data after a few days. Note, you’ll have to scroll a bit with the survey. :)

Create your free online surveys with SurveyMonkey , the world’s leading questionnaire tool.

Prize Linked Savings: combining gambling and saving

Did you know that one-third of Canadians admit winning the lottery or receiving a large inheritance is part of their financial plan? Think about that for a second. Then think about how many people you know who’ve actually won the lottery or received a large inheritance. Yeah, exactly.

Now that we’ve established that very few people will actually win the lottery or receive a large inheritance (certainly not one-third of Canadians), you’ll also likely agree with me that these 3 statements are true:

  1. We don’t save enough money.
  2. Many people are looking to make money, but don’t necessarily want to put in the effort.
  3. Canadians love to gamble (a recent study showed that low-income families spend 9% of their annual income on lotto tickets)

So what if there was a way to potentially win a huge jackpot, without having to risk losing any money at all?

Enter this thing called Prize Linked Savings (PLS). Maybe you’ve heard about it before. There was a Freakonomics podcast on it back in 2010, but I hadn’t heard about it until just recently. Basically, it’s a kind of savings account that pools the money from all depositors, and pays out a big “lottery prize” every so often based on a portion of the interest generated from that pool of money. This combines the excitement of playing the lottery, with the safety net of having your money in a legitimate savings account. The best part is, you would never be able to lose the money you originally deposited – you’d just lose out on some of the interest (and subsequent compound interest) for the duration your money is “invested.”

This isn’t a new concept; it was once run so successfully by a bank in South Africa that the government decided to sue the bank after its own lottery revenue started dropping (and this was after iniitally approving the program). In Michigan, their Save To Win program (offered by credit unions) is going strong, and awards monthly cash prizes as well as an annual prize of $100,000.

Here are some thoughts I had about Prize Linked Savings, and what it would mean in Canada:

Wouldn’t you earn more investing your money instead?

That was my initial thought when I first started doing research into Prize Linked Savings. You aren’t guaranteed a win – you might never win. So wouldn’t it make more sense to invest your money in indexed funds or even a regular savings account, and watch your money grow that way? Plus I wonder, even if you did end up winning the lottery at some point, if you would actually come out ahead over X amount of years if you carefully invested your money (and earned compound interest) instead of leaving it up to chance.

Isn’t this perpetuating gambling addictions?

I asked this to a friend, who was also interested in learning more about Prize Linked Savings. Isn’t it morally wrong of banks (or any organization) to endorse gambling as a means to make money? As stated above, low-income families spend 9% of their annual income on lotto tickets. Perhaps it would be more advantageous to teach them better money management techniques by saving and investing their money, instead of feeding into a potential addiction.

But, my friend made a good point: he said that people are going to gamble regardless of how much effort we put into informing and teaching the public about good money management. They always have, and they’ll likely never stop. So maybe we need to take that part of people’s lives seriously and find a different and unique way to help them save, instead of trying to force them to do something they don’t think they have the capacity to do. For many people, they think that the lottery is their only chance at becoming “rich” … but at least with a PLS, they’re actually saving the money they’re “gambling” away, instead of losing it all in a slot machine or playing blackjack. That’s fair.

Would it work in Canada?

I don’t know. PLS kind of has an identity crisis. Is it a banking product, or is it a lottery? Still, I can see there definitely being a market for something like this. As a nation, we aren’t saving enough money. In 2012, our savings rate was 3.3% (down from 3.8% in 2011). And the projected number for 2013? Even lower, at 3%. :| Giving people the opportunity to potentially win a life changing amount of money, while still putting cash away for the future? That’s a really big incentive. Plus, if you consider how ridiculous our savings rates are these days, perhaps your money is safer in this PLS lottery system, than investing it in mutual funds or any other financial product that has an element of risk to it.

The Save to Win program in Michigan has seem tremendous growth. In 2009, the program had 8 credit unions participating, with 11,700 accounts for a total saved of $8.6 million (average account balance was $734). By 2010? They had 36 participating credit unions, 16,200 accounts, and a total saved of $27.9 million (average account balance was $1,268). That’s a huge jump. But it does make me wonder how much of that money being put into Save To Win accounts, has been potential revenue lost for the state-run lotteries.

So for that reason, I don’t see the Canadian government allowing something like this to happen if it means taking a bite out of their lottery profits. I do think it would be good for Canada to have a product like this. There’s a market for it, and it’s an interesting and unique way for non-savers to save.

Would you participate in a prize linked savings lottery?

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