All posts by Financial Independence Hub

Canadians eager to continue pandemic budgeting habits through recovery

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By D’Arcy McDonald

Special to the Financial Independence Hub

In the last year and a half, Canadians have had to change almost every aspect of their lives. They have formed new habits to adjust to the many changes that the COVID-19 pandemic has brought. This includes how they have been dealing with their finances, and how much they have been spending and saving.

Opportunities to engage in pre-pandemic activities have increased as our economy reopens, including the return to work, international travel, and frequenting our favourite bars and restaurants. One may assume that Canadians are taking full advantage of the opportunity to save more and spend less, but that has not been the case.

Our latest Scotiabank Money Habits survey provides some interesting insights into Canadian’s personal spending habits. Despite Canadians having the freedom to reemerge into the retail and recreational world, many are not planning to return to pre-pandemic levels of spending.

In fact, the survey, driven by the responses of over 1,500 Canadians found that two out of three respondents (63%) say they do not plan to return to their pre-pandemic spending habits, while half indicate they plan to cut back (53%).

We found that the budgeting habits that Canadians developed while hunkering down are here to stay, including curbing their spending, keeping a closer watch on their finances, and refining their money habits.

Canadians pivoted and started taking up activities at home like baking and cooking, participating in online fitness classes, ordering in, and catching up on their favourite TV shows. Apparently, these habits are here to stay, respondents to the survey said they plan on continuing these activities this year to the same extent as they did last year.

These results reinforce our previous Money Habits Survey from Spring 2021 when Canadians were eager to get back to normal life. We have missed those dinners out with friends and international travel to warm and sunny beaches, but most Canadians are still not planning to return to their pre-pandemic spending patterns.

Despite best efforts, anxieties continue

Even with good financial habits, 42% of Canadians are still anxious about the future of their finances as we transition to the new normal.

We also know that the pandemic has disproportionately affected certain groups such as women and young people working in the service sector. It’s no surprise that The Scotiabank Money Habits Survey found that financial anxiety is higher among younger Canadians (51%) and women (48%).

Leaning on banking advisors will help Canadians develop the strategies and financial foundation to provide the peace of mind needed to face whatever the future brings. Canadians recognize the benefit of carrying less debt and spending less, allowing them to increase their savings contributions.

This is a great time for Canadians (especially young people) to figure out what they need to do now to accommodate their long-term goals.

Top Tips to Manage Financial Anxiety

1.) Don’t go at it alone: Seeking advice from an advisor can calm some of those post-pandemic finance anxieties. Scotiabank advisors can provide you with the support and financing that you need in the months ahead. Continue Reading…

RBC launches new digital banking tools to help clients manage their money, every day

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Image from RBC/iStock

By Peter Tilton, Senior Vice President, Digital, RBC

 (Sponsor content)

As the banking landscape continues to evolve and more Canadians choose to bank digitally, it’s more important than ever to empower our clients with the tools they need to confidently manage their money and keep their accounts and information safe.

That’s why we’re continuing to add value while enhancing security for our clients through two new industry-leading digital capabilities.

The first – 2-Step Verification – is the newest security feature within the RBC Mobile app, providing added protection for clients who access their accounts digitally.

The second is the latest capability in our award-winning NOMI offering. With NOMI Forecast, clients can quickly get a seven-day view into their future cash flow and stay up-to-date on upcoming preauthorized payments from any deposit account.

Let’s take a closer look at what these two innovations offer Canadians.

More peace of mind with industry-leading digital security tools

With more options than ever to access our accounts online and through our mobile devices, having the peace of mind that our personal and financial information is protected is critical.

With our new 2-Step Verification we are further enhancing the security features available to our clients by adding new safeguards around identification and authentication.

Embedded directly within RBC’s Mobile app, 2-Step Verification enables clients to set-up their mobile device as their primary channel for their online and mobile accounts. This means when they log into their account from another source, such as their laptop or tablet, they will receive a prompt within the app to verify the session.

With the verification process happening directly in the app, clients no longer need to go through the hassle of manually entering a security code received via email or text. With the press of a single button, they can continue with their banking needs knowing their information and accounts are protected. Since no security code is used, there is no threat of a code being intercepted.

Our new 2-Step Verification is just one of the industry-leading digital security tools our clients can access:

  • With our card lock option within the RBC Mobile app, clients can quickly and easily lock their card if they’ve misplaced it. This eliminates having to cancel a card only to find it later, while reducing the chance that it’s misused if it doesn’t show up.
  • With ID Verification, clients have the ability to digitally verify their identities when opening an account remotely or in-branch. This creates a more seamless account open process for our clients, while further protecting their identity and accounts.
  • Our fraud monitoring and Digital Banking Security Guarantee means our clients can be confident they will be protected when banking online or through the mobile app.*

Leveraging AI for forecasting to bring next-generation digital advice to clients

The financial challenges many Canadians faced as a result of the pandemic have put an added spotlight on our daily finances. We’ve also heard directly from our clients that they want to feel supported with digital tools and personalized insights to help them stay on top of their finances. Continue Reading…

Sector ETFs deliver diversified returns

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By Kevin Prins, BMO ETFs

(Sponsor Content)

More and more investors are converting to Exchange Traded Funds (ETFs) over picking stocks individually. But what is it that’s so appealing? Why are more investors considering ETFs over individual stock picking? With the growth of the ETF market, you can access precise strategies that reflect how you want to invest, while at the same time reducing single security or concentration risk with strategies such as “high-dividend ETFs” “clean energy ETFs” “commodity ETFs” and “tech ETFs.”

Essentially, an ETF is a bundle of securities that tracks an index, sector, commodity, bond, or other asset, and is traded on the exchange like an individual stock. So, by buying an ETF, you end up gaining exposure to a whole basket of stocks, commodities, or bonds.

But what makes them more popular is that they are easy to use, as a single ticket solution on the exchange, just liking buying a single stock.

Most individual stock-pickers don’t add value

Consider that academics — who have conducted a lot of research on the subject of stock picking — have found that investors can reduce market risk by diversifying across securities, typically starting at 20 holdings.1

In fact, they’ve concluded that while talented stock pickers can add value, the majority do not. According to S&P Dow Jones, as of the end of December 2020, 75% of large cap fund managers underperformed the S&P 500 over a five-year basis and 60% underperformed over a one-year basis. 2

So, if stock pickers aren’t the most consistent way to generate market returns, what is?

ETFs provide exposure that captures the returns of all the securities in its targeted market. With a variety of ETFs, you can gain exposure to a diversified group of securities across industries and sectors.

This diversified exposure allows you to track entire industries that are set to see growth, like, for instance, tech ETFs and clean energy ETFs. Continue Reading…

Is early retirement in your future?

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By Scott Evans

Special to the Financial Independence Hub

We traditionally think of 65 years old as the standard age for retirement, but wouldn’t it be nice to make an earlier exit from the workplace? Many of us dream of an early retirement to be able to spend more of our valuable time with family, on hobbies, volunteering or on other pursuits.

One of the more unexpected outcomes of the pandemic has been a growing trend of younger retirees. Many Canadians have taken time over the past 18 months to think about and re-evaluate their priorities. Have you been thinking about your retirement goals and whether it is possible to retire earlier than you originally planned? If you are one of those people, read through for some tips on how to get closer to your goal.

1 .) Spend less to save more

The easiest way to increase savings is to cut back on your spending. The earlier you can start saving, the more you benefit from compounding returns over the long-term. Your future self will thank you! Cutting back on impulsive or discretionary purchases now, may be the trade-off for the financial independence you are seeking. It will also create better spending habits for your retirement years, and may in fact lead to a more fulfilling life.

2.)  Start Planning

Saving early only helps if you are generating a return on your savings. Keeping money under a mattress or in a savings account will result in you losing purchasing power to inflation each year. You will want to make sure you are not only investing using appropriate financial instruments for your goals, but also holding those investments in the appropriate accounts to maximize growth and to avoid losing money to taxes. To connect your savings with your early retirement goal, it’s essential to plan for how much you’ll need in order to retire and to have a plan on how to draw down those assets tax efficiently.

3.)  Play defense

Saving and investing are strategies that will help you grow your wealth; you will also want to consider strategies that can help protect your income and your savings. Insurance can protect you from unexpected health events that may otherwise cause a loss of income or significant expenses. Having an emergency fund set up is essential to help you get through job loss or another unexpected event that could derail your planning.

4.)  Be tax efficient

Investing inside a TFSA (Tax Free Savings Account) will allow your contributions to grow tax-free and be withdrawn without any tax consequences. This works differently than an RRSP (Registered Retirement Savings Plan) contribution, which is tax-deductible in the year you make the contribution but will be taxed on withdrawal (hopefully at a lower tax rate if you have planned well). Taking advantage of both of these plans with appropriate investments will play a big part in your success, as it will reduce the amount of tax you pay each year and allow your returns to grow tax sheltered. Be aware of your contribution limits for both of these plans and make your contributions early. Continue Reading…

The six phases of financial independence [Revisited]

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By Mark Seed, myownadvisor

Special to the Financial Independence Hub

I’ve recently updated this post to include more links to related content. I hope you enjoy it. 

The term “financial independence” has many meanings to many people.

To some, it means not working at all.

To others, financial independence covers all needs and many wants.

To others still, it means the ability to work on your own terms.

Where do I stand on this subject?

This post will tell you in my six phases to financial independence.

Retirement should not be the goal, financial independence should be

Is retirement your goal?

To stop working altogether?

While I think that’s fine I feel the traditional model of retirement is outdated and quite frankly, not very useful.

As humans, even our lizard brains are smart enough to know we need a sense of purpose to feel fulfilled.  Working for decades, saving money for decades, only to come to an abrupt end of any working career might work for some people but it’s not something I aspire to do.

With people living longer, and more diverse needs of our society expanding, the opportunities to contribute and give back are growing as well. To that end, I never really aspire to fully “retire” – cease to work.

Benefits of financial independence (FI)

In the coming years, I hope to realize my desired level of financial independence.

We believe the realization of FI will bring about some key benefits:

  1. The opportunity to regain more control of our most valuable commodity: time.
  2. Enhanced opportunities to learn and grow.
  3. Spend extra money on things that add value to your life, like experiences or entrepreneurship.

Whether it’s establishing a three-day work week, spending more time as a painter, snowboarder, or photographer, or whatever you desire – financial independence delivers a dose of freedom that’s hard to come by otherwise.

More succinctly: financial independence funds time for passions.

FI concepts explained elsewhere

There are many takes on what FI means to others.

There is no right or wrong folks – only models and various assumptions at play.

For kicks, here are some select examples I found from authors and bloggers I follow.

  • JL Collins, author of The Simple Path to Wealth, popularized the concept of “F-you money”. This is not necessarily financially independent large sums of money but rather, enough money to buy a modest level of time and freedom for something else. I suspect that money threshold varies for everyone.
  • Various bloggers subscribe to a “4% rule”* whereby you might be able to live off your investments for ~ 30 years, increasing your portfolio withdraws with the rate of inflation.

Recall the rule:

*Based on research conducted by certified financial planner William Bengen who looked at various stock market returns and investment scenarios over many decades. The “rule” states that if you begin by withdrawing 4% of your nest egg’s value during your first year of retirement, assuming a 50/50 equity/bond asset mix, and then adjust subsequent withdrawals for inflation, you’ll avoid running out of money for 30 years. Bengen’s math noted you can always withdraw more than 4% of your portfolio in your retirement years however doing so dramatically increases your chances of exhausting your capital sooner than later.

In some ways, the 4% rule remains a decent rule of thumb.

Are there levels of FI?

For some bloggers, the answer is “yes”:

  • Half FI – saved up 50% of your end goal (e.g., $500,000 of $1M).
  • Lean FI – saved up >50% of your end goal; income that pays for life’s essentials like food, shelter and clothing (but nothing else is covered).
  • Flex FI – saved up closer to 80% of your end goal (e.g., $800,000 of $1M). This provides financial flexibility to cover most retirement spending including some discretionary expenses.
  • Financial Independence (FI) – saved up 100% of your end goal, you have ~ 25 times your annual expenses saved up whereby you could withdraw 4% (or more in good markets) for 30+ years (i.e., the 4% rule).
  • Fat FI – saved up at or > 120% of your end goal (in this case $1.2M for this example), such that your annual withdrawal rate could be closer to 3% (vs. 4%) therefore making your retirement spending plan almost bulletproof.

There is this concept about “Slow FI” that I like from The Fioneers. The concept of “Slow FI” arose because, using the Fioneers’ wording while “there were many positive things that could come with a decision to pursue FIRE, but I still felt that some aspects of it were at odds with my desire to live my best life now (YOLO).”

They went on to state, because “our physical health is not guaranteed, and we could irreparably damage our mental health if we don’t attend to it.”

Well said.

My six phases of financial independence

With a similar line of thinking related to Slow FI, since we all have only one life to live, we should try and embrace happiness in everything we do today and not wait until “retirement” to find it.

After reviewing these ideas above, among others, I thought it would be good to share what I believe are the six key phases of any FI journey – including my own.

Phase 1 – FI awakening. This is where there is an awareness or at least an initial desire to achieve FI even if you don’t know exactly how or when you might get there.

FI awakening might consider self-reflection questions or thoughts like the following:

  • I would love to retire early or retire eventually…
  • I can never seem to get off this credit card treadmill…
  • I wish I had some extra money to travel…
  • Wouldn’t it be nice to buy X guilt-free?

(I had my awakening just before I decided to become My Own Advisor, triggered by the financial crisis of 2008-2009.)

Phase 2 – FI understanding. This is the phase where people are getting themselves organized; they start to diligently educate themselves on what their personal FI journey might be.

In this phase, they might set goals or get a better handle on what goes into their financial plan. Even if your plan is not perfect, it’s a start.

They might start asking some deeper questions like:

  • Why is money important to me?
  • What is my money for?
  • How do I know I’m doing it right?

I would say it took me until my mid-30s to get my financial life in order through more financial education and improved financial literacy. It was a process that took a couple of years although I’m always continuously learning and improving. I don’t pretend to know it all.) Continue Reading…