Blog - Page 7 of 9 - Ellen MCKAY

December 1, 2020 Economics 101

Economics 101: Part 4: Tragedy Of The Commons

Inspiration for this series of posts comes from a great podcast called Planet Money that’s produced by NPR. This summer, Planet Money produced a series of podcasts called “Planet Money Summer School“. It inspired me to do some blog posts dedicated to those topics!

This is part 4 in my series called “Economics 101”. If you’re interested, you can start with

In this post, I’m going to talk about an economic concept called “tragedy of the commons”.

What is the tragedy of the commons?

A “tragedy of the commons” situation occurs when there is a) a shared-resource system and b) individual users deplete the resource through their shared action. To make this a little easier to understand, here are a few examples:

All the farmers for a city graze their sheep in the same field. Eventually, if no one takes care of the field, or makes sure the sheep alternately graze elsewhere, then no one’s sheep will be able to use the field at all.
A town shares a well that everyone has to use. But the water is a limited resource that will eventually run out.

Usually, another part of this scenario is that some people benefit more than others – those who are using more water or have more sheep, for example.

So why should I care?

You may be thinking that you’re not a farmer or someone who shares a well – so how could this possibly impact me? However, we all do share some common resources – like clean water – that there’s only so much to go around. That’s why there are watering bans in the summer when we don’t get a lot of rain.

So if some people are selfish and still water their lawns or wash their cars daily, then there may not be enough water to go around for people who truly need it to support their livelihood or simply to meet their daily needs.

How does society deal with this?

Usually, society deals with this in one of two ways:

Regulatory – laws or by-laws are crafted to ensure no one person or company can over-consume a resource.
Collective agreement – if several people or companies need to share a resource, they work out an agreement on how to each only use their fair share.

Have you ever been in this kind of situation?

Ever run into a tragedy of the commons situation in real life? Let me know about it in the comments!

November 15, 2020 Economics 101

Economics 101: Part 3 – Elastic and Inelastic Demand

My inspiration for this series is a great podcast from NPR called Planet Money. This summer, they did what they call “Planet Money Summer School“. I decided to do some blog posts based on these topics.

This is part 3 in my series called “Economics 101”. If you’re interested, you can start with

In this post, I’m going to talk about elastic and inelastic demand.

What exactly is the “elasticity” of demand?

The elasticity of demand refers to whether the demand for an item is flexible – that is, it will go up or down, depending on what it costs or how much income people have.

An “elastic” good would be a luxury item such as a high-end car. It can also be a “brand name” cereal – where a “no-name” option can be easily substituted.

An “inelastic” good is something people need regardless of how much the price goes up or income goes down – such as prescription drugs.

What are some samples of inelastic goods during the pandemic?

I mentioned it in a previous post – toilet paper! Also, things like sanitizing wipes and even hand sanitizer became in-elastic goods during the pandemic. Unfortunately, many people took advantage of this – and cleared out shelves, then tried to re-sell the goods at a higher price. Hopefully, this didn’t happen to you – if you were short something, you had a friend or family member who could help you. I was lucky to have a friend who makes masks and gave me several free of charge.

What’s a sample elastic good?

That would vary from person to person. We bought a lot more snacks in our family – but didn’t eat out for a month. We also didn’t buy any toys or books for ourselves or our son at all. We were lucky enough not to have our income drop, so it wasn’t a matter of our income dropping – we had nowhere to buy anything and no need to leave the house.

For others who had to deal with a loss in income, they may have bought cheaper meals (e.g. beans instead of rice) or switched to generic brands to save money on food and other products.

How were you impacted?

Now that you know what elastic vs. inelastic means, tell me about something in your life that you consider either an elastic or inelastic good!

November 1, 2020 Economics 101

Economics 101: Part 2- Supply and Demand

This is part 2 in my series called “Economics 101”. If you’re interested, you can start with Part 1- Sunk Costs and Opportunity Costs.

Over the summer, I listened to a great podcast called Planet Money. They did a series called “Summer School” which covered a lot of basic economic concepts – and how they can relate to everyday life! So I’ve decided to cover a few concepts as well, using their series as a starting point.

Today I’m going to talk about supply and demand. Supply and demand is a theory in economics – it explains the interaction between the people selling a resource and the people buying it. So – if you have a low supply of things and a high demand – prices are going to go up!

There are two examples that come to mind for this – toilet paper and the Nintendo Switch.

1. Toilet Paper

One of the top things people are going to remember about this pandemic is about how hard it was to find toilet paper! We were fortunately fully stocked with a big pack from Costco. I picked up a package as a joke for parents returning from vacation (as it was already flying off the shelves) and I’m glad I did – because by the next day the shelves were bare! People were even buying it up and then reselling it in the parking lot to make a profit.

But -things are finally calming down – to the point I actually saw it on sale the other day at the grocery store! I think everyone stocked up so much that there’s now more supply than demand – so prices drop!

2. Nintendo Switch

If you’re not familiar with the Nintendo Switch, it’s a video game system – as it has a lot of family-friendly games. The perfect thing to have if you’re going to be stuck inside for weeks on end with your family. I thought about buying on myself at Christmas – but hoped the prices would go down. Not a good move on my part!

Because of production lines shutting down, Nintendo Switches quickly ran out – and the only way you could get one was to pay a very inflated price – sometimes even two times as much as the original costs. Even Nintendo Switch games were hard to find for a while.

Unlike toilet paper, Nintendo Switches are still very hard to find – and if they do come into stock, they quickly sell out.

The Takeaway

While there will always be “hot ticket” items out there – I bet none of us ever thought toilet paper would be one of them! I think the key lesson here is to always keep a good supply of everyday household items on hand. As well – if you really want something and can afford it, better to get it while it’s available then wait and see it sold out!

What’s an instance in your life when unexpected supply and demand changes have impacted you?

October 15, 2020 Economics 101

Economics 101: Part 1 – Sunk Cost and Opportunity Cost

I know, I know – economics? But the basic concepts of economics do have a lot to do with money on an everyday level- I promise!

I love listening to a podcast from NPR called Planet Money. This summer they did what they call “Planet Money Summer School“. They picked some previous podcasts and then had economists discuss the basic concepts in them.

I’m going to talk about two of those concepts in this first Economics 101 post:

Opportunity Cost
Sunk Cost

Opportunity Cost

An opportunity cost is what you lose when you have to pick on alternative over another. There are so many ways this plays out in everyday life:

You want to lose weight, but choose to eat an extra donut. So – you have the happiness of eating the donut, but you lose the opportunity to cut calories there.
You’re trying to save money – but get invited on last-minute getaway with friends. You have a great time and great memories – but now you haven’t saved that money.
You have a great job opportunity so you take it – but it comes with a longer commute. So you are happier at your job, but you have less time for leisure when you get home.

Sunk Cost

A sunk cost is money that has already been spent and cannot be recovered. I knew someone who’d started a four-year degree at university in something that really didn’t interest them and they already planned to do another degree once they finished their first one. But – they felt they HAD to finish their first degree since they’d already put time and money into it. So – a sunk cost.

The problem with this thinking is that they were just throwing money and time away. If they had no interest in the degree and were never going to get any use out of it, there was no point in wasting more money and more time finishing the first one.

People run into sunk costs all the time – whether it’s years in a relationship, money put into a car or house, or even an investment – it’s very hard to know when to walk away!

The Takeaway

I hope you’ve enjoyed your introduction to Economics 101! Opportunity costs are something we come across almost daily. This morning I chose to take a long nap! It was nice – but it means I have less time to get everything else on my schedule done today. For a sunk cost- I think I’ve definitely held onto some investments longer than I should have!

What’s a time in your life you’ve had to deal with an opportunity cost or sunk cost?

October 1, 2020 Good money habits, investing, Kids

The best money decisions I’ve made – Part 3

If you’d like to know more about some of the best money decisions I’ve made, please check out Part 1 and Part 2 of this series. This will be the last post in this series for now.

Here are two more of the best financial decisions I’ve made:

Switch to having my investments managed by a robo-advisor.
Give my son hand-me-down toys and clothes.

1. Switch my from an investment advisor to a robo-advisor

I’m not going to lie – I still have some of my investments with banks for various reasons. But I have complete control over them – and no one is calling me up a few times a year to remind me that I need to make a switch in investments (without explaining why!) or trying to sell me additional products I don’t want.

With a robo-advisor, you can “set it and forget it”. I got tired of getting reams of statements I didn’t understand and didn’t want – and if I did ask questions, my advisor would take forever to answer and then not really answer me at all. Plus robo-advisors have much lower fees – so over the long term, you’ll get more of the money your investments actually earned instead of it going into someone else’s pocket!

2. Give my son hand-me-down toys and clothes

I’ve talked before on this blog about how to save money on clothes for your kids. I’m lucky that he still has very little interest in what he wears – although he is big enough now that clothes for birthdays and Christmas isn’t going to cut it – he wants toys! But the good news on this front is I’ve been lucky enough to get bags of clothes and even some toys in good shape from various people.

This has been particularly helpful during the pandemic. I didn’t have to order online or brave the few stores that were open to buy him new clothes – I just went to my basement to open up the bags that were there and had a whole new wardrobe!

In addition, my son has a second-hard store near his school. He was initially interested in it because they had Halloween stuff outside – so he called it “The Halloween Store”. When I finally took him he was pleasantly surprised that it had more than just Halloween stuff! It’s a great opportunity to allow him to pick his own toys at a reasonable price. As well – I tend to limit him to one toy per visit so he’s learning to make decisions about what he does and doesn’t really want!

The Takeaway

It can be a lot of effort to make a new money habit – like moving from an investment advisor to a robo-advisor – but it’s well worth it in the end. You can also help your kids get started early by making them comfortable having everything not be brand new – and help them learn how to make money decisions early on.

What’s a good money decision you’ve made regarding your finances or your kids?

September 15, 2020 Good money habits

The best money decisions I’ve ever made – Part 2

A few weeks ago I did Part 1 in this series. I talked about some of the smartest financial decisions I made up to university. Now I’m going to talk about some of the decisions I made after finishing university.

Here are three more of the best money decisions I’ve ever made:

Rent a basement apartment the first few months out of school.
Not live beyond my salary.
Buy a house below the amount I was approved for.

1. Rent a basement apartment the first few months out of school

I was lucky enough to graduate with a job in hand (the last place I did a co-op term for!), so I knew where I was going to be working. In order to not have to rush into moving all my stuff right after I finished school, as well as save up some money for first and last month’s rent, I rented a basement apartment for three months before I moved into my new apartment. I was lucky in that I had a nice landlady and I was so used to moving that one more move didn’t really phase me – and it helped me save up most of my paycheck for several months.

2. Not live beyond my salary

I graduated with a pretty good salary – not a crazy high salary but certainly enough that I could have splurged way more than I did. Instead, I immediately started putting money into my retirement savings plan, as well as some non-registered accounts. Where I worked wasn’t downtown, so going out to lunch wasn’t really an option – so that helped me save too. I certainly didn’t deny myself the odd treat (and I definitely did a little travelling the first few years after I graduated), but I also made sure not to live beyond my means.

3. Buy a house below the amount I was approved for

When my husband and I were ready to move out of our apartment and look for a house, one of the first things we did was get pre-approved for a mortgage. We could have definitely bought a more expensive house than we did, but we choose to get something in a more affordable range. I’m not going to lie – while the house itself and the location was fine – I hated sharing a wall (we were in a semi-detached house) and living on a corner because it was a high-traffic area. So if I had a chance to make this decision again, I’d likely have spent more in the interest of peace and quiet!

The Takeaway

These good money decisions have helped me a lot. It meant when I ran into some unexpected costs later in life, I had enough money saved up that I could still afford to pay for them without going into debt. It also meant I wasn’t “house poor”. I definitely cut back on travelling once my husband and I bought the house – but we could still afford to eat out and go to the movies – the fun things in life!

What’s a good financial decision you’ve made in regards to spending below your means or buying a house?

September 1, 2020 Good money habits

The best money decisions I’ve made in my life – Part 1

September is here – and that means it’s back to school time. Of course, it’s not business as usual everywhere. Depending on your age and where you live – you may be at home, in the classroom, or a mixture of both! I’m going to do my own “money school” for the next few months (maybe longer) and teach you about some good decisions I’ve made that have helped put me on good financial footing. I’ll also introduce some basic economic concepts everyone should know.

Here are three of the best money decisions I’ve made:

Have a part-time job in high school.
Not blow an inheritance.
Sign up for a co-op program at university.

1. Having a part-time job in high school

I started babysitting fairly young – and then after that worked at Shoppers Drug Mart, in the bakery of a grocery store, and then McDonald’s. I learned two things from these jobs 1) Working in the service industry is hard. Always be nice to anyone working a service job. 2) I did NOT want to waste my money.

I’d come home from McDonald’s tired and smelling of grease – I even burned myself a few times on the job. Working hard for that money made me value it far more than if it had been handed to me. I used that money to help pay for my first year at university. And since it was MY hard-earned money no way was I was going to waste it and flunk out.

2. Not blowing an inheritance

I was lucky enough to inherit some money from my grandmother that I could legally access once I turned 19. I had just started university, so the good news is – I was too busy to think about going out and blowing it. Instead, my Dad got me to sit down with an advisor and I put it in various investments. Later on, when I was ready to buy a car, I had the money to pay for it flat out. I also let the rest of the money sit and grow – and used it as part of my down payment when I was ready to buy a house.

3. Signing up for a co-op program at school

I went to a university that offered a co-op program – one term at school, then one term working. There were definitely some drawbacks – I moved 10 times over the course of five years! But I also got some great experience, learned out to budget my money during school and while working – and I didn’t have to borrow any money to make it through university.

The Takeaway

The earlier in life you can start making good money decisions, the better! You may be at a period in life it’s a little late for part-time jobs and co-op programs, but you can always pass on this advice to anyone you know who is young enough to benefit from it.

What’s the best financial decision you made while you were fairly young that has benefited you?

August 15, 2020 Mortgage, Saving money

How to get started saving for home ownership

Image by Nattanan Kanchanaprat from Pixabay

So you’re finally ready and you want to take the plunge into homeownership! You realize that in order to do this, you need to start saving up money. But how? It may seem like every dollar you make is already accounted for – and you think there’s no way you can find the extra money you need to put towards a down payment.

I’m here to tell you that’s not true – here are the first three steps you need to take to get started on saving for homeownership.

Figure out your net monthly income
Figure out your fixed expense
Figure out your variable expenses – and where you can cut back to start saving

1. Figure out your monthly net income

Figuring out your net monthly income can be easy or hard depending on how many sources of income you have. If your income varies from month to month, then figure out the average of what you make each month. Take into account:

Your regular salary
Tips
Other regular income – such as child support, dividends etc. you can count on

2. Figure out your fixed expenses

Fixed expenses are expenses where you really don’t have any wiggle room. For example:

Rent
Student loan payments
Child care

It’s possible you could negotiate a lower rent or child care, but you can’t count on that lasting. You could also choose to move or switch child care providers, but the amount you’d save is not likely worth the hassle unless the savings are quite large.

3. Figure out your variable expenses and where you can cut back

After you’ve figured out your monthly net income and your fixed expenses, you should sit down figure out what your variable expenses are. They tend to be irregular and can happen from as little as once a year to as often as every other week. The good news is that they are expenses that you have more control over.

Here are some sample variable expenses:

Vacations
Gifts
Cell phone
Internet and cable
Subscription boxes
Groceries, takeout food, Meals and drinks out
Entertainment, such as movies, concerts, etc. (Not that any of us are spending much money on big-ticket events these days!)

Now take a look at these expenses and figure out where you can cut back. Perhaps you can eat out less. Or maybe you’re good with just Netflix and don’t need cable. Or you’ve enjoyed that subscription box – but really don’t need to keep getting it. You don’t have to cut out everything all at once – just see where it works for you to make changes.

The Takeaway

It can seem overwhelming to get started saving for a house. But by breaking it down into concrete steps (that you can break down into more little steps) you’ve found a way to get started!

If you have a house – how did you get started saving for it? If you don’t, but want to – how do you plan to start saving up?

August 1, 2020 Mortgage, Saving money

How I paid off my mortgage in less than 5 years

A mortgage is one of the biggest debts you’ll ever take on. Unless you inherit money or win the lottery, chances are, you’ll need to take out a mortgage if you want to buy a house. For our first house, my husband and I did take on a mortgage – but we paid it off in less than 5 years! It was a huge relief for us to have it paid off. It meant we saved a lot of money we could use elsewhere that we didn’t have to spend on interest.

In this post, I’m going to talk to you about the three main things we did to help ensure we could pay off our mortgage quickly:

Buy less house than we were approved for.
Opt for bi-weekly payments.
Put down a lump sum payment every year.

1. Buy less house than we were approved for

My husband and I were both working and making decent salaries. But we were house shopping in Toronto which wasn’t cheap! I think we were approved for a mortgage of over 500,000 dollars, but the idea that much debt just made me nervous. We certainly could have bought a much nicer, bigger house if we’d used that amount. But we would have been “house poor” and it would have taken us years to pay off. In the end, we took a mortgage of 100,000 dollars and paid for the rest of the house using savings.

2. Opting for bi-weekly payments

When you have a bi-weekly mortgage payment, you are giving the bank a payment every two weeks instead of monthly. I tied it to when my paycheck came in, so we’d always have enough in the bank to cover our costs – never had to worry about overdraft charges!

With bi-weekly payments, you actually ended up making one extra payment a year, which means you are paying your mortgage off that much faster. But you aren’t making any changes to your budget or payment schedule, so it doesn’t come as a surprise to you when that “extra” payment comes out of your bank account!

3. Put down a lump-sum payment every year

Another option we took advantage of was putting down a lump-sum payment. A lump-sum payment means that you put down a certain amount towards the principal once a year. Most banks have a limit on how much of a lump-sum you can put down (it’s usually a certain percentage, such as 10%, of the total amount you borrowed in the first place). This is a great way to quickly cut down how much of the principal you still owe – and you have total control over it. Even if you can only put 500 dollars down – it’s still helping cut down your principal.

Now it’s your turn!

You’ve now learned three great ways you can pay your mortgage off quickly:

Borrow a lower amount than you are approved for
Select bi-weekly instead of monthly payments
Make a lump-sum payment each year

Some banks may charge a few for selecting a bi-weekly payment schedule or lump-sum payments, so check with your bank before you proceed with either of these options.

Happy mortgage-free living!

July 15, 2020 Good money habits

Five Of The Best Money Tips of All Time

Image by Miguel Á. Padriñán from Pixabay

Summer is quickly going by – trying to savour every minute of it. So it’s another round-up post – with some of the most enduring money tips out there.

Start saving as soon as you can. The earlier you can put money aside, the better. That gives your money a chance to grow – the miracle of compound interest, which is earning interest on your interest over many years. While retirement can seem years away when you’re 25, your older self will thank you
One of the easiest ways to start saving is to set up automatic savings. This is the easiest and most effective way to save. It helps puts extra cash both out of sight and out of mind.
The more you have for a down payment on a house or even a car, the less it will cost you. It may seem tempting to buy as expensive a house or car you can, but the lower the payments you have, the less you’ll have to pay in interest.
Budget! Keep track of all the spending you do in a month to get an idea of where your money is going. Keeping receipts or putting everything on your credit card (as long as you pay it off!) is a good way to keep track.
Have an emergency fund. You never know when something is going to go wrong. Whether it’s a leaky roof or a car repair, it’s important to be able to cover costs as they come up. It’s a lot cheaper to be able to cover a cost without having to put it off on a credit card and then pay interest in it.

What’s your favourite money tip?