The Spending Sequester Will Grow the Private Economy

Today’s report of a 0.1 percent GDP decline for the fourth quarter came as a surprise to most forecasters. But it actually masks considerable strength in the private economy. Namely, housing investment in the fourth quarter jumped 15.3 percent annually, business equipment and software spiked 12.4 percent, and real private final sales rose 2.6 percent. All in, the domestic private sector of the economy increased 3.4 percent annually -- a very respectable gain.

And here’s one for the record books: Working ahead of year-end tax hikes, individuals shifted so much money to the fourth quarter at the 35 percent top rate that personal income grew by 7.9 percent annually -- a huge number. And there’s more: In order to beat the tax man, dividend income rose 85.2 percent annually. You think tax incentives don’t matter? Guess again.

Now, all this private-sector strength occurred despite the fact that government spending -- namely military spending -- dropped 6.6 percent. Inventories also lost ground and the trade deficit widened.

But here’s a key point: Military spending has now fallen virtually to its lower sequester-spending-cut baseline. It did so in one quarter by about $40 billion. So the brunt of the impact over the coming years has already been felt. (Normally, as of recent years, military spending has been virtually flat.)

Which leads me to another key point: Even with the fourth-quarter contraction, the latest GDP report shows that falling government spending can coexist with rising private economic activity. This is an important point in terms of the upcoming spending sequester. Lower federal spending, limited government, and a smaller spending-to-GDP ratio will be good for growth. The military spending plunge will not likely be repeated. But by keeping resources in private hands, rather than transferring them to the inefficient government sector, the spending sequester is actually pro-growth.

Big-government Keynesians think big spending provides big growth. They are wrong. This has been a 2 percent recovery -- the worst in modern times -- dating back to 1947. So let’s try something different. Let’s shrink government. Let’s let the private sector breathe and generate entrepreneurship and risk-taking.

Spending is the true tax measure of the economy, according to Milton Friedman, Friedrich Hayek, and others. Even a modest sequester spending cut of maybe $60 billion in 2013, and perhaps more than $1 trillion over ten years (most of which will come from a slower spending growth rate, not real reductions), will be the best thing to inspire business and market confidence as well as international credibility. And it maybe even shave a point or two off the spending share of GDP.

On March 1 the spending sequester is supposed to kick in by law. If Congress wants to help the U.S. economy, the best thing it can do right now is implement this sequester. Then it can round out an even larger growth package, including large- and small-business tax reform and adjustments to stop entitlements from going bankrupt.

The Money Saving Continues

As our conversation continues on way to eliminate the fat in our spending, Jordan and I took on our Fishtank. We have been maintaining a 90 gallon tank (pictured) for the last three or four years. Prior, both Jordan and I had smaller tanks growing up.

I expressed to Jordan that I felt like the fish tank had become my hobby rather than our hobby. I knew he was on board when it came to buying plants and fish – and I’ve always known he’s wanted to move from freshwater to saltwater – but lately when it comes to the muck work (cleaning the tank) – it felt like a chore rather than a part of a hobby we enjoy together.

Jordan expressed that he wasn’t enjoying it as much either – the placement in the house (our office) isn’t ideal and we don’t have the money to invest in making it amazing (the tank pictured is not what it currently looks like – it’s what it looked like a few years ago).

So, we decided to decommission the tank.

We sold some fish as part of our the project to fund the new couch, and donated the last few to a pet store in the city. On Monday night we drained all the water, cleaned the tank, and cleaned the filtration system. It’s a lot of work – but the hardest part will actually be moving the tank into the basement as an empty tank weighs about 160 lbs. Jordan and I have moved it by ourselves before but I’m just not as strong as I used to be – so hopefully we can get a friend or two to help out.

We’re not going to sell the tank/stand because when we develop the basement in a few years, we’re going to set up a salt water environment instead. We will however for the time being save on electricity from the heat/light/filtration system as well as water (evaporation, regular cleaning-water changes). I’m not sure exactly how much – but it will be interesting to compare our bills from last year to this year.

We Sold Our Truck

Yup, that's right.  We are officially a one vehicle household again.



You were with us when we bought the truck at the end of 2008 - lack of past credit history led to me co-signing a loan for Jordan for $4,500.  It was scary then - we weren't married, just newly living together and everyone in the PF world say's 'never co-sign'...but I did and it worked out.  We successfully paid off the truck in May, 2010 - way ahead of the 24 month amortization on the loan - through lump sum and increased bi-weekly payments.



It was a lesson for Jordan and I - a big lesson on how to manage money as a couple and the power of duel income when paying down debt.  We really became a partnership then when it come to managing money.



So, what does this mean?



The truck sold for $850 (high kms...over 400K) - $250 of which was the last chunk to pay off the line of credit for the new couch. Jordan and I carpool every day to work - so while there may be a couple times of year when it's a headache to have one vehicle - the longer term savings will be well worth it.



We originally intended for the remaining $600 to go towards the house/back yard pool of money - however; Jordan would like to use some of it to buy some work clothes for me.  I really do need another pair of pants and a blazer - so that might work out to split it up some.



My mom, who comments here often, has always said to dress for the job you want - not for the job you have.  So, in that case, I do need to step up my game a bit in the clothing department.



The longer term implication of selling the truck however, is a reduction in our insurance premiums/registration fees.  Jordan made those phone calls and found out that with two vehicles we were receiving a 15% multi-vehicle discount which, of course, we lost.



In addition to that, now that we don't have second cheap vehicle, my name has to go on the Escape as on occasional driver and I have a crappy driving record.





So. Our premium only went down by $9.38/month or $112.56/year.



We also stopped in the Registry office.  In the province of Alberta in Canada your insurance and your vehicle registration are separate.  We had just recently renewed and so when we returned the licence plate, we were informed that we would be eligible for a refund.  So, that said, in the next two to six weeks we'll receive a cheque for $64.50.

Saving on annual registry fees and insurance means an approximate total annual savings of about $200.  Not too mention that thing was a gas guzzler.  Even though we didn't drive it often, it will be interesting to see if our 2013 gas expenditure trends down.

Mortgage Pre-Payments

Jordan and I secured our mortgage just prior to the Canadian Governments move last year to reduce the maximum mortgage amortization from 30 to 25 years.  While right from the beginning, we knew we wanted to pay it off faster - the flexibility of a 30 year amortization meant we could adjust our payments to reflect our life circumstances higher or lower (within the confines of the mortgage agreement).



Our total mortgage financed was  $348,818.31 - monthly payments based on a 30 year structure, (5 year fixed) at 3.39% would have been $1,540.44 - our minimum.



Most of you know, that we chose the accelerated weekly option - $385.11/week.  Four months out of the year, there is a fifth week which reduced our amortization, and interest costs significantly.



Our 2013 plan is to finish our back yard and our 2014 plan is to pay off our car - but with all my posts lately about saving money, I couldn't help but look into the future about the impact of adjusting our weekly mortgage payments.

The calculator on my mortgage holder's website lets me review four different scenario's at one time.



The first - just by increasing our weekly  payments by $9.89/week - would shave another two years off of our amortization schedule.  $10 = 2 Years!





Going further you can see that by maximizing our pre-payment schedule, we could increase our payments by as much as $55.77/week to reduce our amortization to just under 17 years.  Jordan and I would be 45 years old!  Wowza!



While I don't think we're ready to come up with the extra funds before the escape is paid off (it's at a higher interest rate anyways) - I know that within the next 3-5 years, we're going to be able to make some serious changes to our mortgage and be mortgage free before we're 50!  Incredible!

New Couch & a Deal

Jordan has been looking for a sectional ever since we moved into our new place a year ago.



Among other furniture in our small living room, we currently  have a regular couch (brown, microfiber, 3.5 years old, $500), and a recliner (brown, pleather, 1.5 yrs old, $200) - they are still perfectly functional - clean and all that - but they just don't fit.  They are not only too big, but they are awkward for the shape of our space which makes it hard  for more then two people to be comfortable.







So, when Jordan was perusing Costco over Christmas he found the sectional pictured above (sans ottoman).  Fell. in. love.  When I finally got home, it was gone, sold out.  He's been keeping tabs on the store ever since, and lo and behold just this past week they received a few more in stock.



Jordan wanted it so much - and the risk of it being sold out again was high.  At $899 (plus 5% tax) - it's unlikely we would find another model that was compatible in quality and price.  Why unlikely, because it took a year to find this one.



So, I made a deal.



I told Jordan that he could buy the couch now (using our line of credit) and then come up with the money buy selling the furniture it would replace to pay ourselves back.  The kicker being, that he can't open the boxes until the debt is paid.



This is what Jordan had to say when I asked him to tell me how he felt about it:

"I wanted the sectional because of overall seating, how it will open up the living room in terms of brightness, color matching theme, and because my wife said she wanted the living room to feel comfortable like the show homes.  We need open and colorful living spaces to help uplift our moods, given the cold and dark winter months.  I love selling items on kijiji, so the deal is easy :)"

So far - he's already sold the couch, ottoman, recliner, old kitchen table, 2 matching bed side tables, some fish and a queen bed frame - there's still a few items to go so we'll see how much $$ we end up with.  The side benefit - we've started cleaning out our basement to get access to quite a few of these items - so all in all, it's been a pretty good deal for both of us.

Tax Assessments

Do you check yours?



Have you ever contested it?



For my NetWorth post a few days ago I went to my cities website and did a search for our tax assessment - pretty quick and easy!  In looking at the details of the page, it indicates the square footage, if the basement is developed, if there is a fireplace and if their is a garage.



All of our details were correct...except for the garage.  It says we have one, we don't.  I called in to let them know, and the person I spoke to was amazing.  Very helpful!  She made the change right away.



Today, I got a letter in the mail that said my monthly tax payment has been reduced from $189.36 to $183.38 until Mail, 2012 - a savings of $29.90.



Not too shabby for a 10 minute phone conversation.

I Heart ING & RRSP Season

There have been times, where I have been frustrated with ING, but by and large, I have been very happy since we switched to Thrive back in January, 2011.  These last two weeks have been no different.  I was fortunate enough to be chosen to be part of the trial of their cheque in feature which allows me to deposit cheques by taking pictures with an iPhone app - a really cool feature!



Over Christmas this was especially handy.  Not only did we receive gifts to be deposited but we also were paid back for shopping for others using cheques - so in my very small town of 3,800 people - I could still get all the banking done that I needed.



Once we got back from the holidays I realized that there was a bit of a snafu.  Several of my cheques had been deposited twice...once when I submitted the photo, and then again once they received the original in the mail - whoops.  One of them was even deposited three times!



Well, ING got it sorted out and I can only imagine audited the rest of the beta users to make sure it hadn't happened with them too.



That was all over the last few weeks - when I checked today I noticed I had a hold on $250 (the value of one of my deposits). I have good history with ING (no holds up to $5,000) - so called in.  It had to do with the other snafu, but not only did the representative I spoke to get it corrected, he told me he would follow up with the Rep who put the hold so they could both learn from it.  Wowza!  Good customer service!

Picture Credit: 
http://money.ca.msn.com/rrsp/

Finally, when I was getting off the call, the Rep let me know about an RRSP promotion they have on right now.  At every other financial institution I bank with, I always feel like they are trying to sell me something - but not in this case.  I was receiving 1.35% on my RRSP account - and now, for the next 90 days, will received 2.5%!  It's not a lot, but it's a lot more than it was - and I didn't have to do any work to get it!



As most of you know, Jordan and I contribute regularly to RRSPs rather then at the end of the year - so this is really the only thing we'll be doing this RRSP season.