Not to put any pressure on anyone trying to finish their Christmas Shopping, but Wednesday, Dec. 24 is also the last day Canadians can sell stocks for tax-loss harvesting purposes.
You need three days to settle trades so next week just before New Year’s will be too late. Christmas on Thursday is obviously a holiday and Canadian markets are closed Friday for Boxing Day.
Americans have a little bit longer, since U.S. markets will be open part of the day Friday.
The guest blog below by certified financial planner Matthew Ardrey followed a discussion we had on social media about the distinction between traditional retirement and financial independence. Matthew, who is with T. E. Wealth, uses a definition of financial independence that is virtually identical to the one we use on this site, right down to having a paid-for home. We especially like this line: “One can be retired and not financially independent or vice versa.” Over to Matt:
Matthew Ardrey, T.E. Wealth
By Matthew Ardrey, CFP
Special to the Financial Independence Hub
I was first introduced to the concept of retirement as a young boy, when my grandfather retired from the TTC on his 65th birthday. I understood that he no longer worked, and that this is what you do when you reach 65. From the eyes of a child, it seemed like a far away notion.
It wasn’t until 2000, when I started working in the financial services industry, that I was properly introduced to the concept of financial independence as it differs from retirement. The proprietary financial planning software we used at my workplace did not have a retirement calculator. Instead, it had a “Financial Independence Needs” analysis tool. As I was young and green, I saw it as a fancy way of saying retirement planner. Through the benefit of experience, I would soon discover that financial independence was something else entirely.
Retirement vs. Financial Independence
Retirement, by definition, is the cessation of work with the intent of not returning. Financial independence, on the other hand, is having sufficient financial assets to have the choice about whether or not you continue to work. So, one can be retired and not financially independent or vice versa.
When I explain financial independence to my clients, I let them know that the main differentiator is freedom of choice. If you are not financially independent, you have no choice but to continue working if you don’t want to alter other aspects of your life. Once you are financially independent, you can choose if you want to continue to work in the same capacity – or at all. This freedom to choose is empowering and it’s what I encourage all of my clients to work towards.
How to Get There
I’m often asked how one can get to this wonderful nirvana known as financial independence. The first step is to pay off your home. By having a debt-free residence, you have eliminated what is most people’s largest single expense. Without this hanging over your head, you have freed up significant cash-flow.
The second step is budgeting – both before and after you have reached financial independence. Before, determine what you will need to save to reach your goals, and pay yourself first. After, understand what and how you spend to determine if you have accumulated sufficient assets in the “before” stage.
Know Your Asset Returns
Understand the return on the assets that are funding your freedom. Which assets in your portfolio are generating income or appreciating, and at what rate are they growing? How are taxes affecting these returns? These are questions to which you should know the answer, as small changes in that rate compounded over a long period of time can have a significant effect.
Costs matter, period. Focus on the cost/benefit relationship of your investment structures. Benchmark both what you make and what you pay to make it. If you find that the costs are inordinate while the performance is average or worse yet, lackluster, take steps to fix the cost/benefit. Even better yet, get the jump on “CRM2” by asking your advisor to fully delineate all costs pertaining to your investments and what services are offered in exchange for these costs.
As I guide my clients towards their future goals, I find the word “retirement” is used less and less in my lexicon. When my clients leave the workforce, the pursuits they undertake tend to be much different from my grandfather’s, who retired 35 years ago. What they are pursuing is the freedom to make their life whatever they want it to be.
Matthew Ardrey is a Certified Financial Planner with T. E. Wealth. He can be reached at its Toronto offices here. He is also on Twitter as @MattArdreyCFP.
Life expectancy around the world has risen by a whopping six years since 1990, according to a global survey released Friday.
As the CBC reports here, these longer lifetimes are occurring in both rich countries and poor ones, although for different reasons.
In the affluent west, it’s driven by falling death rates from the two big scourges of cancer and heart disease. In poorer countries, increased life expectancy is the result of progress in fighting tuberculosis, malaria and diarrhea. The tragic exception, however, is southern sub-Saharan Africa, where life expectancy has actually fallen five years because of rising deaths from HIV/AIDS.
The 2013 Global Burden of Disease Study was published in the Lancet medical journal.
For those born in 2012, life expectancy in Canada is now 80 for males and 84 for women, according to this report in May of 2014.
Here at the Financial Independence Hub, we generally review financial or investing books we think are worth reading. But every once in awhile, we come across a delightfully savage book review we just have to pass along.
A great example is Philip Cross’s review of Naomi Klein’s latest book on Climate Change, which ran in Friday’s Financial Post. I have no intention of purchasing This Changes Everythingor reviewing it, or indeed anything else by this author; but whatever your politics, you have to appreciate the turns of phrase Cross employs in his skewering of Klein. Continue Reading…
I have to admit that over the years, I have personally favoured cash or debit cards, on the theory that you can’t get in too much trouble spending money you’ve at least already earned. To me, overspending to rack up “Points” for even more consumption is just not worth it, especially if it also means ever having to pay the dreaded double-digit interest rates that accompany most every credit card these days.
Reluctantly, however, I’ve come round to the view that with proper discipline, credit cards can provide convenience, a paper trail and most important, more security than debit cards in several situations. And yes, while I’m not driven by it, there may also be the convenience of “points” on purchases, points the writer says can amount to 2 to 6%.
The key, as it always is with credit cards, is to make sure you never get caught paying those exorbitant rates of interest. I’ve never quite understood how it is we’ve been in an era of almost-zero interest rates the last five years when you’re lending out money (via bonds or GICs) but when you’re a debtor suddenly the rate is close to 20%. Am I the only one who thinks there’s a major disconnect here? Better to be on the receiving end of that deal rather than the dishing it out deal: I wish I’d bought Visa or Mastercard stock a few years ago.
Using credit cards as if they were debit cards
The valuable point made by the writer — Jeffrey Weber — is that he finally “learned how to use my credit card like a debit card.” By paying off the full balance each month, never spending more than he can afford and “eliminating interest from the equation,” he is able to avoid using debit cards at all while enjoying the few advantages that go with prudent use of credit cards.
Personally, I do one of two things now, both of which are variants of Weber’s approach. Earlier this week, with Christmas presents for others high on the agenda, I loaded up my MasterCard with several transactions. I also did the same with my business Visa card for some needed equipment. In both cases, when I returned from the shopping spree, I signed on to my home computer and immediately used my online banking to pay off the newly incurred debts instantly. Yes, I realize I could have delayed a few weeks to benefit from the free “float” but I don’t wish to tempt the fates. If you’re going to use a credit card like a debit card, in my mind that means moving the funds out of your bank account the moment (or at least by end of day) you’re incurred the purchases. Besides, who wants to have a fabulous holiday season only to have it all ruined by humungous bills to be paid by the middle of January. That’s TFSA season after all!
The second variant is more foolproof and will even let you take advantage of that float I’m missing out with the “ad hoc” method. Just ask your friendly local financial institution to automatically move funds from your bank account to pay off any outstanding balances before any interest charges come due.
The 5 places you never should use debit cards
Weber’s article lists five specific situations where someone still juggling both credit cards and debit cards should use only credit cards. I’ve just listed the headings: go to the original link for his rationale on each point:
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Not to put any pressure on anyone trying to finish their Christmas Shopping, but Wednesday, Dec. 24 is also the last day Canadians can sell stocks for tax-loss harvesting purposes.
