As you read this, there are currently 529,839 entrepreneurs in Canada struggling to take their business to the next step. Y’know, give or take.
Every business has its own unique challenges, but most can be broken down into one main category. Some struggle to get sales. Others have costs slowly ballooning out of control. The lucky ones are swept off their feet, barely keeping everybody happy as orders keep pouring in. Naturally, the first and second groups hate the third. Uppity bastards.
This here blog, back when I was serious about making money at it, suffered from some of the same issues. Writing for other websites was much more profitable (in the near-term, anyway) than pecking away on the keyboard for Financial Uproar (the website which is like a tightly coiled sex robot in a jar). I spent so much time on content that I didn’t have time to establish relationships with real brands. And besides, why would any legit business partner with a website that made 13,920 different kinds of dick jokes?
That last paragraph was a little depressing, huh? Good thing I only do this for fun these days. Oh, you’re not enjoying yourself? I will make you have fun.
If I were to start over in the world of websites, I would make one major change. In fact, it’s something I would recommend many entrepreneurs do.
That change is…
I once poo-pooed partnerships, talking about the somewhat uneven relationship between two anonymous partners who started drifting apart once their business was running smoothly.
But some six years later, I now know there’s more to that story. The first partner was much more ambitious than the second, so he went ahead and worked on his own ventures. The second guy was content to run the business. So even though they drifted apart over time, the hard feelings quickly diminished.
Even though the two partners grew apart, they still accomplished more together than either one could have on their own. Their business has grown by leaps and bounds, and each of them have substantial investments outside of the partnership. Both spend money like drunken sailors too, so it’s obvious there’s some decent cash flow there.
Coming back to this blog, it’s obvious the advantages I’d have if there was another person helping out. I could focus on the writing while they worked the advertising side. Or we could both write, giving y’all differing opinions on stuff. This would leave time for both partners to network more effectively. The possibilities are endless with two people, while one quickly runs out of time. At the end of the day, it’s all about using different strengths to maximize benefit to the business.
One of the things I really enjoy about my grocery job is working out problems with my co-workers. It’s amazing how helpful it is sometimes to get a different perspective on things. If I’m stumped on a problem, a different set of eyes can easily find a solution. If you’re a solopreneur, you don’t get that benefit without reaching out to one of your peers.
Not every partnership will work, and that’s okay. I entered into a joint venture with an unnamed former PF blogger back in 2016. It only lasted a few weeks before fizzling out. I didn’t have the time to dedicate to the venture, while my partner had his own flaws. But we got as much traction in that first month as Financial Uproar got in its first year, including mentions on a couple of major blogs. Not bad for a couple guys working on something part-time.
Not every business would benefit from a partner. And there are certainly some entrepreneurs who would drive even the most optimistic co-owner batty. But on the whole, most businesses would benefit from having two (or even more) people with different strengths and weaknesses. I know if I were to ever go into business again, I’d do so with somebody else.
Admittedly, this story has very little to do with personal finance. Sorry about that, but not really. I’m also not 100% sure it’s true, since all the info I have on it is second-hand. I trust my “sources” on this, but haven’t done any of the work to verify. Yes, kids, I’m even a lazy investigative reporter.
Still, I think it’s a fascinating tale with a lot of fun lessons about unintended consequences. Which, to be frank, are easily the best consequences. It’s not even close, either.
The year was 1996, and my local golf course had big expansion plans.
Located on the edge of town, the course featured a nine-hole track with plenty of trees along the river. It was a standard par 36 course, playing a little over 3,000 yards from the middle tees. Like many local courses in Alberta, it was publicly owned but was managed by a board of directors. The board then set policy, hired a manager, and so on.
There were a few problems with only having a nine-hole course, however. It struggled to attract big tournaments, simply because they all play on 18-hole courses. Tourists were avoiding the place for the same reason. And, of course, having a back nine would allow the course to sell more 18-hole rounds. More people would cough up the extra cash to play 18 unique holes versus the same nine holes twice.
There was just one problem. The course is nestled between a highway and a river. It’s bordered by houses on one side and a farm on the other. Even if the farmer was willing to sell (he wasn’t), the land was too flat and boring to make a good location for nine more holes. And buying out homeowners was impossible.
There was a multitude of undeveloped land just across the highway, but it was hilly terrain filled with coulees, ravines, and more cacti than the set of a Hollywood western. This land would be expensive to develop and would create a golfing experience vastly different than the existing real estate.
Despite the obvious reasons against choosing this land, the board went ahead and did it anyway. And to their credit, the result was spectacular. The back nine is a wonderfully unique experience. It might be the hardest nine holes in the province (I once lost 10 balls in nine holes), but it’s unlike anything else out there. Each hole presents a different challenge. Some demand length to carry your ball over a ravine. Others require precision to place your ball in a narrow, sloping fairway. And one particularly nasty hole requires a 190 yard carry over a water hazard and bunker to a narrow green.
The problem wasn’t with the back nine itself, which worked out quite nicely. The problem was how it was paid for.
Here’s the unintended consequences part
Building nine new holes in terrain not suited for holding a golf course was expensive. The price tag quickly ballooned into something worth several million dollars.
To pay for the expansion, the board of directors tapped multiple sources, including going to the local community with a unique offer. The golf course would sell two tiers of lifetime memberships. The first, which cost $10,000, would be good for one individual to golf as much as they wanted. The second, which cost $25,000, would let a business owner and a number of their employees golf for free. Avid golfers snatched up the deals, and the course ended up selling dozens of each kind of memberships.
Fast forward 20 years, and the establishment was beginning to have some serious money problems. Despite increasing rates annually and a book filled with tee times, the top line just wasn’t budging. After bringing in an outside consultant to crunch the numbers, it was obvious what the problem was. Some 60% of rounds were played by individuals using these lifetime memberships.
Here’s what happened. Most avid golfers snatched up these lifetime memberships like your author scarfing down Doritos. Casual players were then driven away by the increasing costs on a per round basis, the general decline in the sport’s popularity, and an unwillingness to play the incredibly difficult back nine. Sure, some tourists came to play the venue, but those numbers are steadily falling as well. It turns out fewer and fewer people are golfing these days.
The board faced an interesting conundrum at this point. The wording in the lifetime memberships was ironclad; there was only one way to get away from the commitment, which would be to declare bankruptcy and start over again under a new organization. But it’s not quite that simple, since the place wasn’t necessarily insolvent.
Certain lifetime members also reacted in a predictable way. Once word got out the board of directors were looking for ways to end the gravy train, they put themselves up for nomination. I’m told the board is now mostly filled with these people.
The moral of the story
If I had a time machine, one of the first places I’d go is back to those board meetings in the mid-1990s to see if anyone foresaw this coming. Yes, I am that lame.
The lesson is simple. Beware of the long-term unintended consequences of today’s actions. This is often easier said than done, of course. Second-level thinking is hard but is often necessary.
Cory writes in:
Really enjoy reading your blog posts. My girlfriend and I are moving to Saskatoon as she’s going to law school. We wanted to buy a place there seems like there’s a variety of options up to 330k with a basement suite to rent out to help with that. Some friends say rent some say buy… not sure if you have an opinion as I know the Saskatoon market has dropped off in the last couple years so in my head right now would be a decent time to buy.
I’m going to assume Cory is that little weiner kid from Boy Meets World and his girlfriend is the lovely Topanga. YOU DON’T DESERVE HER. The law school thing even fits. I am 100% convinced this is true.
While I like Cory’s leaning towards a basement suite, it does make this question a little more complicated to answer. First, let’s tackle the main issue.
Should they buy a house?
We’ll split this part of the analysis into a couple different sections, talking about buying a house in general and then doing a half-assed analysis of the Saskatoon market.
Generally, I believe people should buy a place only if they plan to stay there for a decade or longer. Sure, some people have made solid gains owning over a short period of time, but those results are mainly driven by luck. Real estate does tend to go up over time, but on a year-to-year basis its performance is about as reliable as your slacker friend’s promise to help move furniture. I’M STILL WAITING, JERK.
It also costs a lot to dispose of real estate. You might luck out and get a hot market when it’s time to sell, which makes it far easier to sell that place yourself. But it’s far more likely to be a crummier market when it’s time to sell; meaning you’re stuck paying a Realtor 5% to sell the place. At least pick one who wears a short skirt, Cory.
And then there are home maintenance costs, taxes, insurance, and so on. All of those add up, although I’m convinced they don’t need to be as much as other people spend. Who cares if your bathroom is a little outdated? Just think about the money you’re saving and I guarantee an old sink will look much better.
As for the Saskatoon market, the median sales price in January was $330,000. That’s down a bit from all-time highs of just over $350,000 in mid-2015, but is up substantially over a five- and ten-year period. Median family income in Saskatchewan’s capital is just over $80,000 (according to 2015’s census data), putting the market at just over 4.1 times what the average family makes. This is a reasonably valued market, especially with a five-year mortgage setting you back about 3% a year.
Keep in mind, however, that Saskatoon’s unemployment rate is higher than Regina’s. It is growing smartly, with a year-over-year population increase of 7%. The relatively high unemployment (especially for a government town) gives me pause, but only a little.
Overall, I’d say the Saskatoon real estate market is fairly valued. If Cory and Topenga plan to stay for a while I don’t hate the idea of buying a house today. Now onto the basement suite issue.
Should they get a suite?
Buying a suite is often not a very suite deal for a newbie landlord.
(Ducks as tomatoes come flying in) Yeah, probably deserved that.
It’s a little harder than the average person thinks to be a landlord. Without a working knowledge of your province’s residential tenancies act, you’ll have dirtbag tenants walking all over you in no time. Even with a good grasp of the law, it still takes balls to stand up to somebody who’s breaking the terms of their lease. Amateur landlords don’t recognize the importance of doing the proper paperwork, which often comes back to bite them square in the ass.
I don’t want to discourage my new best friend Cory, because it’s very possible for him to get into the basement suite game. And I firmly believe basement suites are great for first-time landlords, since sharing a set of walls with your landlord will generally dissuade would-be scammers. He just needs to do things right and he’ll be fine.
A bigger concern might be what the missus thinks about sharing a house with strangers.
So, should he do it?
Buying a place is a big decision. Cory has a million variables to consider, including whether he should invite Nelson to the housewarming party. I won’t bring a gift and I will vomit somewhere, but other than that I’ll be an A+ house guest.
The good news is he plans on doing it smart and getting a little revenue to offset his housing expenses. This will help insulate him from shifts in the market. As long as he commits to owning for a while (and keeping that sweet, sweet rental stream going), then there’s nothing wrong with buying today.
If you’d like your question featured on the ol’ FU machine, contact me and we can make that happen. I won’t even charge!*
*Not charging tax of $29.99 applies
Apparently it’s RRSP week here on Financial Uproar (the blog you’d LOVE TO TOUCH. BUT YOU MUSTN’T). Check out my latest RRSP investments and how most retirees who aren’t saving 40% of their incomes won’t be screwed come their golden years. And then kindly eat a big bag of dicks.
Let’s talk a little bit today on how not to use your RRSP. Here are five RRSP mistakes the average person makes and how to correct them.
Contributing, but not investing
This is a big RRSP mistake that I’ve made in the past. I make my contribution and then the money sits there while I wait for some obscure value stock to get even cheaper.
There are a number of ways you can remedy this problem. The easiest way is to figure out an asset allocation and stick to it. Thus, when it comes time to contribute to your retirement savings, it’s only a matter of buying a couple of ETFs and calling it a day. Easy. Go golfing champ, you deserve it.
If you’re an active investor like me, there are a few other options. You could put the money to work in an ETF and then sell portions of the investment as you find better opportunities. This works especially well if you hide out in bonds, which don’t usually see big fluctuations in market value. Of course, doing this costs brokerage commissions, which can really eat into short-term returns. Especially when you’re dealing with small amounts of money.
There’s an argument to be made that GICs are reasonable fixed income products that can offer comparable yields to bonds without the risk of capital loss (although with bonds those risks are somewhat small). Additionally, it does make sense to hold any investment which is fully taxable in your RRSP to shield yourself from the taxes.
But I’m not talking about all that. I’m talking about the person who’s too scared of stocks to actually hit the buy button. Instead they hide out in GICs, content to earn 2% in exchange for not losing any of their precious capital. It’s going to be really hard to retire someday only earning 2%. Italics man, can I still call people pussies, or is that not politically correct?
Oh right. He’s dead.
Be mindful of tax brackets
The rule of thumb is simple. If you’re in the lowest tax bracket, you probably shouldn’t contribute to your RRSP. Put your cash in a TFSA instead.
When I was a young lad, when I wasn’t too busy masturbating, I contributed thousands of dollars into RRSPs. I did so while earning less than $10,000 a year working at my part-time job at Dairy Queen. In hindsight, I probably should have keep that contribution room for a few more years until I was in a higher tax bracket. Remember, you keep the room until you use it. There’s no real hurry.
Waiting until 65 to withdraw
If contributing to your RRSP should be a strategic exercise to minimize total taxes paid, then so should withdrawing. Remember, there’s no rule that says you have to wait until you’re 65 to start taking out the cash.
Thousands of Canadians are currently setting themselves up for a fantastic retirement. They max out their RRSPs every year and have accumulated hundreds of thousands of dollars there. That money will grow over time, perhaps even surpassing $1 million. That’s the holy grail for these people.
And then they hit 65 and start taking it out. They have so much invested that they’re pretty much forced to withdraw in big chunks, which comes with a large associated tax bill.
There’s a smarter way to go about it. Have a lean year at work? Take some money out of your RRSP. Sure, you’ll have to pay withholding tax at the time, but it gets treated as any other income. If you do this right, you’ll be putting money in that comes from a high tax bracket and withdrawing it to pay the tax on a low bracket. THAT’S WHAT I’M TALKING ABOUT, BITCHES.
Buying expensive mutual funds
Just don’t. Look, I’ve met that nice lady at the bank. She’s really a terrible person who is only good at sales. She murders puppies. I’ve watched.
What excuses do people use when stuck with high interest student loans? Many times borrowers believe they aren’t eligible to refinance, or they’ve been turned down by lenders in the past. Some might think the process is too complex or time consuming. Still others aren’t fully informed.
The truth is the availability of student loan refinancing exists for millions of borrowers. And the process has never been easier.
Eight Million Missing Out
Experts estimate that approximately 8 million Americans are eligible to refinance their student loan debt. Some of these borrowers may have attempted to refinance in the past but got turned down by one or two lenders. This statistic should open their eyes: 68 percent of eligible borrowers are turned down by three or more lenders.
Not Worth The Hassle?
Some continue to balk since they know that going from door to door seeking refinancing can be a chore. Who likes rejection? Also, applying for credit inquiries from individual lenders may negatively affect your credit score. For a long time, these concerns were legitimate. The refinancing process was arduous due to the distance between borrowers and lenders. Also, there was no easy way to instantly compare real interest rates from multiple lenders.
The good news is that there is a way around all this. Even more, the solution goes far beyond just convenience. It’s a method that can help you get the best interest rate out there.
Lender Marketplace Solution
Just as the travel industry has been revolutionized by sites that let you see actual prices for air fares and hotel rooms, a lender marketplace can show you rates you’re prequalified for with multiple lenders. Many have already taken advantage of a lender marketplace to lower their student loan payments. In a nutshell, the marketplace lets you answer a few questions about yourself, and see personalized rates from lenders who are competing for your business..
The results are incredibly advantageous. For example:
- See real rates from multiple lenders in minutes.
- Many lenders will compete for most eligible borrowers. No more door-to-door shopping.
- Competition between lenders drives interest rates down.
- Your credit score is not affected when you request personalized rates.
- The options are presented in a simple, easy to understand manner.
- The marketplace puts you in contact with the lender of your choice — you’re not steered to any company.
- The interest rates presented to you are real and customized to your situation.
What Refinancing Does For You
When you refinance your student loan, you exchange your old loan for a new one, typically with a lower interest rate. This can allow you to lower your monthly payment yet still keep the total number of payments the same. If you want to reduce your monthly payment by a lot, you can refinance into a loan with a longer repayment term, but you may pay more over the life of your loan. If you would rather maximize your savings over the life of the loan, you could increase your monthly payment and reduce the loan term. What you decide depends on your current financial situation and personal preferences.
In the end, student loan refinancing gives you something everyone wants: options to restructure your loan to save money and personalize it to your needs. So even if you tried to refinance in the past and were turned down, try again. Leverage the lender marketplace and get a better deal.