Cash Cows, Pigs and Jackpots: The Simplest Personal Finance Strategy Ever

Simply keep your money to yourself. Traditional financial wisdom persuades us to try to get rich. We get on the treadmill to build our assets, even borrowing to invest, in an attempt to grow our net worth. But traditional financial wisdom is often wrong. In Cash Cows, Pigs and Jackpots , David Trahair challenges the basic assumptions we make about managing our money, suggesting that too often we follow the advice of the institutions that are leading us down the path to financial ruin. Banks, brokers, and investment companies make enormous sums of money because they know that cash flow is king. They aren't making the bulk of their money from investing in the stock market—they're milking it from regular people like you, every minute of every day. Cash Cows, Pigs and Jackpots turns the tables, separating out the things that make us money over the long term, the things that cost us more than we think, and those one-time payoffs that we shouldn't bank on. It's time for a financial strategy so simple even a 10-year-old could understand it. Trahair explains: why trying to build wealth is making you poor, and them rich why getting rich will not make you happy, and what will why investing in expensive real estate is ruining lives what your biggest cash cow is and how to protect it. Helping you break asset addiction, get out of debt, and increase your personal cash flow and wealth, Cash Cows, Pigs and Jackpots explains how you can save more, live the life you want, and avoid as much risk as possible—a great strategy going into the stormy financial years to come.

Acknowledgements xii Introduction 1 Cash Is Not King 2 Cash Flow Is King 2 Who Gets Rich Off You 3 It′s Not Just Them, It’s Us 3 Want to Get Rich Quick? 3 Back to Basics 4 Chapter 1—The Cash Cow Strategy 5 Cash Cows 5 Cash Pigs 6 Cash Jackpots 7 This Is Not a Philosophy; It′s About Cash Flow 8 Cows and Pigs Can Change 8 One Person′s Pig May Be Another Person’s Cow 9 Cash Cow, Pig or Jackpot? 9 A House or Condo 10 Gambling 11 Personal Debt 11 Defined Benefit (DB) Pension Plans 12 Canada Pension Plan and Old Age Security 14 Kids 14 A Bigger View: Government Debt 15 Why Don’t People Follow This Basic Strategy? 16 Chapter 2—Taking Care of Your Biggest Cash Cow 17 Your Biggest Cash Cow Is  17 How to Protect Your Biggest Cash Cow 19 Is Your Body Trying to Tell You Something? 19 Are You Eating Well? 20 How Much Exercise Do You Get? 22 How Much Sleep Do You Get? 22 The Value of Hard Work 23 Summing up Healthy Living 24 Chapter 3—Who Wants to Be a Millionaire? 25 What Is "Rich"? 25 Net Worth Is a Lousy Measure of Wealth 25 Mixing Pre–Tax and After–Tax Amounts 26 Ignores Cash Flow 26 Many "Wealthy" People Are Living a Mirage 28 Why I Don’t Want to Win the Lottery 30 Going Beyond the Numbers 31 Does Money Buy Happiness? 31 What Causes Happiness? 33 "The Happy Movie" 33 Happy for No Reason 35 My Take on Happy 38 My Secret to Life 39 Million Dollar Wrap–up 41 Chapter 4—The Trap: Why You Aren′t Getting Rich and They Are 42 How the Banks Make Money 43 Plug the Cash Pig Leaks 43 The Mutual Fund Fee Monster 44 Borrowing to Get Rich: It Can Work, But Don′t Bet on It 45The Wealth Effect Is the Enemy 46 Sometimes People Are Their Own Worst Enemies 47 Paul′s Story 48 Closing the Trap 54 Chapter 5—The Dream of Home Ownership 55 The Wealthy Barber Weighs In 56 How Much Home Can You Afford? 57 Rent Is Not a Four–Letter Word 60 An Example—123 Any Street, Hometown 63 123 Any Street: The Assumptions 65 Don′t Forget the Closing Costs 66 A Word About the Down Payment 69 CMHC Changes 71 The Key Points That Most People Miss 72 The Opportunity Cost 72 The Ongoing Cash Costs 74 Consumer Debt Warning 74 Compounding Confusion 75 123 Any Street: The TFSA Results 77 123 Any Street: The RRSP Results 80 Playing with the Inputs 81 Housing Prices Increases 81 House Price 81 Interest Rates 84 Beware Those Trying to Sell You Something 84 Beyond the Numbers 85 Long–Term House Prices 85 Repairs and Maintenance 86 Renovations 87 The End Game: Can You Sell? 87 Conclusion 87 Chapter 6—The Condominium Conundrum 89 Condo Basics 90 Defi nition of a Condominium 90 The Legal Details 91 Condominium Regulations 91 The Fees 92 Who Pays for What? 92 Insurance 93 Renting Out the Unit 94 Condo Costs 94 The Purchase Price 95 The Monthly Costs 95 Running the Numbers 96 The Toronto Condo: Results 97 Playing with the Inputs 100 Further Analysis Required 101 Buying a New Condominium 102 Buying a Re–sale Condominium 103 Condos: What Could Go Wrong? 104 What You Can Do to Manage Condo Risk 106 A Word about Rental Properties and Income Tax 107 Condo Wrap–up 108 Chapter 7—Infl ation: Monster or Myth? 110 What Is Infl ation? 110 The Consumer Price Index (CPI) 111 How the CPI Is Calculated 112 Historical CPI Rates 114 Percentages versus Actual Cash Flow 116 An Infl ation Example 117 Where Will Infl ation Be in the Future? 119 Defl ation May Be the Bigger Monster 120 Stagfl ation: The Two–Headed Beast 121 Why the CPI Matters to You 121 Chapter 8—Maximizing Your Canada Pension Plan 123 CPP and OAS Overview 124 CPP: The Basics 124 CPP: The New Rules 126 CPP Contribution Rate 130 Is the CPP Plan Solid? 130 The CPP Investment Board (CPPIB) 131 The Chief Actuary of Canada 133 Can We Count on the CPP? 134 Is the Canada Pension Plan a Good Investment? 134 How Is the Maximum CPP Pension Calculated? 137 CPP and QPP Maximum Amounts 138 How Will My CPP Pension Be Calculated? 139 The Child–Rearing Provision 139 Should I Elect to Start My CPP Early? 141 Infl ation Effect on the CPP Retirement Benefit 143 The CPP Disability Benefits 143 Summing Up the CPP 145 Chapter 9—Can We Rely on the Old Age Security Cash Cow? 146 The OAS Details 146 Guaranteed Income Supplement 147 OAS Clawback 148 OAS and GIS Amounts 149 The Proposed OAS Changes 150 OAS Wrap–up 152 Chapter 10—Cash Flow for Life 153 What Are Your Cash Cows in Retirement? 154 CPP and OAS 154 RRSPs: How Big Does Yours Need to Be? 156 RRIFs: The Details 157 Annuities: The Details 159 Cash Flow Finale 161 Chapter 11—The Inheritance Jackpot 162 The Great Wealth Transfer Is Going to Be Inefficient 163 How to Talk to Your Parents About Death 164 The Problem with Death 165 Is There Tax on Death? 165 Getting Ready: A Simple Checklist 165 Conclusion 167 Index 169 About the Author 177

David Trahair is a Chartered Accountant who operates as a sole-proprietor, offering a broad range of accounting and tax services to a variety of businesses and individuals. He is a frequent speaker, appears regularly in the media, and is the author of several books, including Enough Bull and Crushing Debt . He is also a previous director of Credit Canada, a non-profit organization dedicated to helping people deal with credit problems.