Debt & Frugality

As Didi says in the novel (Findependence Day), “There’s no point climbing the Tower of Wealth when you’re still mired in the basement of debt.” If you owe credit-card debt still charging an usurous 20% per annum, forget about building wealth: focus on eliminating that debt. And once done, focus on paying off your mortgage. As Theo says in the novel, “The foundation of financial independence is a paid-for house.”

Financial planning should be a Parallel, not Serial, process

By Darren Coleman

Special to the Financial Independence Hub

In a serial circuit when one light bulb goes out, all the lights go out. Each light is wired to the next and all of them have to work for each one to work. In a parallel circuit all the lights are wired together but independently from each other, so when one light goes out, the other lights still stay on.

This concept is important and comes into play in my book ‘RECALCULATING – Find Financial Success and Never Feel Lost Again’. The book applies the analogy of driving to investing and financial planning. (See earlier Hub blog on the book).

I have spent almost a quarter of a century counseling clients about their money and assets, and often see people who believe their financial planning should look like a serial circuit. They think they must achieve one goal before moving on to the next. They have constructed an order or sequence that must be strictly followed for them to feel comfortable about achieving their plan.

This is the view Marvin and Jesse had when I met them. A successful, professional couple, they had young children and a list of goals. No. 1 on the list was that they wanted to be mortgage-free by age 45. They also wanted their kids to go to a private school, and vacations every year with the family. In addition, they wanted a comfortable retirement by their late fifties. They had great jobs, were disciplined savers, and figured they should be able to achieve all these goals. But they didn’t know how to put all the pieces together and make it happen.

I reviewed the situation to gain an understanding of their current state, and discovered that almost all their uncommitted cash flow went to pay down the mortgage. There were only token amounts being saved for their children’s education, family vacations, and retirement plans.

A couple that used serial financial planning

When I asked about this, they said paying down the mortgage as quickly as possible was the central assumption – the core pillar – of their financial planning. In short, this couple looked at all their desired destinations as if they were part of a serial circuit. Once they had paid off the mortgage, they would move on to the other plans.

I told them they could do this, but achieving that milestone of being mortgage-free by age 45 meant they could not put their children in private school, take annual holidays with the family, or make tax-advantaged contributions to their retirement plans. So, while they could be mortgage-free at an early age, they would not accomplish their other goals. And, of course, they couldn’t get the time back.

None of us can.

Shift to financial planning in parallel

I showed them that changing the picture from a serial circuit to a parallel circuit might be the answer. Continue Reading…

How Millennials’ financial priorities differ from previous generations

By Gabby Revel

Special to the Financial Independence Hub

There is some truth and some fiction to the idea that millennials are not responsible with their finances. On the one hand, today’s youth is particularly adept at saving money and meeting their financial responsibilities on a monthly basis. However, millennials appear to have less foresight, as they’re not as interested in planning for their financial future as Generation Xers and Baby Boomers were.

Financial freedom

The most important element of a paycheck for millennials is the financial freedom it offers them. A study by Bank of America and Merrill Edge discovered that this generation is better at saving money compared to other generations, but what they choose to spend this money on differs greatly from older workers.

This same study discovered that 63% of millennials value financial freedom above all, meaning they set aside a certain amount of money to continue living their lifestyle of choice. This means planning for social trips or vacations, eating out at fancy brunch restaurants on Sundays and using Uber as one of their primary forms of transportation.

A survey by BMO Wealth Management found that 26% of millennials  —  ages 18 to 34 — believe “saving more” is their most important priority with finances. A further 25% value reducing and eliminating debt at the top of their list, while 20% want to invest effectively, 17% focus on budgeting and 5% believe in spending on personal needs or goals above all. All in all, millennials are reinventing the wheel in regards to where their finances should go, but they might pay the price moving forward.

Disregard for retirement

 A chunk of today’s youth has yet to begin planning for retirement, as they’re not thinking about what their needs will be in the future. Some believe Social Security (or in Canada CPP/OAS) will get them through their golden years, which only nets the average retiree about $1,300 per month nowadays. Others buy into the carpe diem or YOLO mentality that’s been instilled within millennials.

Continue Reading…

Is a HELOC right for you?

By Alyssa Furtado,

Special to the Financial Independence Hub

A home equity line of credit (HELOC) is a convenient way to access the value in your home. You might have seen commercials on TV or been offered one by your mortgage agent. Not only can you get a much lower interest rate than you can with an unsecured line of credit, you can also be approved for a sizeable loan. It’s tempting to have quick access to a lot of money, but is a HELOC right for you?

A HELOC is a secured line of credit that uses your home as security. As with a mortgage, the money you borrow is secured by your home. In Canada, as long as you can show that you can carry the debt, you can borrow up to 65% of the value of your home, provided you keep at least 20% of the value as equity.

For example, if your home is worth $1 million and you owe $400,000 on your mortgage, you can borrow up to $400,000 against your home ($1 million x 80% = $800,000 – $400,000 owing = $400,000).

There are many upsides to getting a HELOC. Depending on the value of your home, you can potentially borrow a large amount of money. Interest rates on HELOCs are significantly lower than on unsecured lines of credit (typically about prime + 0.5%). You can take out money or repay it at any time without penalty. And you can go up to 25 years before you have to pay back what you’ve borrowed.

One of the most appealing HELOC features is that the minimum monthly payment is just the interest that’s accrued. Using a HELOC calculator on that $400,000 line of credit example above, the monthly payment at today’s best HELOC rate of 3.7% is just $1,233. The minimum monthly payment on a traditional line of credit is typically 2% of the outstanding balance: $8,000 on a $400,000 balance. Even a traditional mortgage would require a much higher monthly payment. This feature alone is a big part of why HELOCs are so appealing.

Possible downsides of HELOCs

However, HELOCs also have their downsides.

Because the minimum monthly payment on a HELOC is just the interest, it can feel like it doesn’t cost you much to borrow money. But when you don’t repay the principal, your costs over the long run are actually much higher than with a traditional loan.

Let’s look at an example comparing a regular $50,000 loan with a rate of 4.7% repaid monthly against borrowing $50,000 at 3.7% from your HELOC repaid in a lump sum at the end the loan term.

If you pay the loan over five years, your monthly payment will be $936.83 and you’ll pay $6,209.80 in interest over that time.

Continue Reading…

Mobile Personal Finance apps for Millennials seeking Financial Independence

By Reviews Bee

Special to the Financial Independence Hub

Smartphones and apps have enormously affected our daily life and financial management. And despite the fact the elder generation may still have some doubts about tracking incomes and expenses,  millennials are more likely to connect their financial independence with these apps.

The fact is many mobile apps nowadays enable quickly entering data on incomes and expenses, and to find information about completed operations, make changes, export the database or restore it from a backup, and track your expenses and income. They give you some perspective on major and minor decisions in life so it becomes much easier to make  right decisions on the flow of your personal money.

When choosing a program, it’s important to consider not only functionality and convenience of interface but also safety. To be sure the financial apps will not let you down, we have considered  functional peculiarities and user reviews of many similar mobile apps, on the basis of which we present some of the best ones:


The Mint application helps to form a budget, track expenses and achieve financial goals. Costs and savings can be easily tracked in a special list, where different types of financial transactions are marked with different colors, as well as in the tables and charts that the application forms.

Users can also track movements on their bank accounts and credit-card balances in real time, monitor investments and even break their expenses into categories.

In addition, you can set up alerts if it’s time to pay bills, or if users have exceeded their budgets. Another convenient feature: a weekly consolidated report of the movement of your funds is available.


Continue Reading…

Make & Save: The importance of actionable Personal Finance habits

By Hellen McAdams

Special to the Financial Independence Hub

When it comes to actionable personal finance habits, earning more money and saving a good portion of it are near the top of the list. Sadly though, before you can ascend the tower of wealth, many of us need to first dig out of the basement of debt.

Escape Debt in 5 years

Did you know the average American household has approximately $137,063 in debt? (all figures $US.) That’s too much debt. But what if you were to discover it’s possible for the average household to get out from under the thumb of that kind of debt in as little as five years?

There are several ways to do this. Loan consolidation is a practice whereby you reduce the complication of managing debt by combining everything together. If you have a bunch of little debts that individually compound separately from one another, one possible solution could be to take out a small loan, pay them off, then pay off the small loan in a single payment from then on.

There are online loans of this type which can, believe it or not, be secured online, if you’re considering such.

Still, this is just a debt transition; it doesn’t truly get rid of that which you owe: it merely reduces the complexity of paying a dozen little things off in tiny increments; like cellphones, furniture, and medical bills. A better way to get your debt paid off more quickly is to downsize.

Debt Relief Strategy

This is where you have to establish good financial habits. This hypothetical revolves around $3,000 a month in earnings from the primary breadwinner of the household. That comes to $36,000 a year before taxes. Now say you’ve got $137,000 in debt hanging over your head. You need to find a way to pay that off with the money you’ve got. Continue Reading…