All posts by Financial Independence Hub

Financial Planning for blended families

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By Scott Evans

Special to the Financial Independence Hub

It may not be the most romantic topic to discuss on Valentine’s Day but it may be the most valuable for long-term happiness in your relationship. 40% of blended families admit to not discussing finances before moving in together but when you blend families there’s a long list of items for you and your partner to figure out. Your finances should be near the top. Dealing with financial issues early can go a long way to ensuring this next chapter in your life is all you want it to be.

Holding property – together or apart?

One of the first decisions you’ll have to make as a couple is whether to own property jointly or in separate names. What you decide will affect the way you manage money now, and determine how your wealth is passed on.

Some property like an RRSP or TFSA must be registered solely. But for other assets, including investment accounts, GICs or real estate, you have the option of sharing ownership.

Arranging joint title is handy where unrestricted, convenient access for either party is important; daily bank accounts are an example. It can also make sense if you want to share your property with your partner now and leave those assets to them when you die. Holding property as joint tenants with right of survivorship ensures ownership will transition smoothly to the surviving spouse. However, tenancy if your partner makes bad financial choices it could also impact you and your creditworthiness.

Keeping title separate is an option if you’re concerned about clearly tracing who brought which assets, or debts, to the relationship. On the other hand, if you still prefer sharing ownership with your significant other there’s an alternative: holding property as tenants-in-common.

Let’s say you bring assets from a prior relationship which you plan to leave to your children from that earlier union, rather than to your new partner or stepchildren. Instead of having title transferred automatically to your spouse upon your death as would happen in a joint tenancy, as tenants-in-common your share of the property remains part of your estate, meaning title can be passed to your heirs according to your will. You won’t be relying on your new spouse to ultimately decide your children’s inheritance.

Don’t forget to update important documents

Review key documents to ensure they still reflect your intentions. Including:

  • Beneficiary and related designations for RRSPs, RRIFs, TFSAs, life insurance policies and workplace pensions. At death, registered investments can generally transfer to your new spouse without immediate tax consequences.
  • Your will. In BC and Alberta, a will is no longer automatically revoked by marriage. That means any directives stated in your will, including those made benefitting your ex-spouse, stay in effect unless you alter them. However, no matter where you live, it is important to review your will during life events such as divorce or marriage.
  • Power of attorney and executor appointments. In blended family situations where adult children are involved, consider naming a third-party professional like a lawyer or trust company to these roles. Doing so can help head off any family conflict, while ensuring duties are carried out properly.

Options for estate planning

Continue Reading…

Why Saving alone isn’t the best way to Financial Independence

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By Elizabeth Lee

Special to the Financial Independence Hub

You’ve been told your entire life that you’ll never be able to accomplish anything unless you have a padded savings account: that every penny you can possibly set aside should be set aside, and you should absolutely never touch it.

You may even have been told that this is the only way you’ll become financially independent. You’ve been told wrong.

Saving is crucially important, but it’s important for entirely different reasons. You shouldn’t go out and spend your nest egg indiscriminately, but spending some of it might help you create a better and stronger independent (“findependent”) future. It all depends on how you strategize.

Why Saving is important

If you’re spending all your money as it comes in, what happens when you run into an expense you didn’t know was coming? Your car breaks down, you need to travel for a destination wedding, you find out you’re going to be a parent a little earlier than you’d originally planned, or you need to go to urgent care for a pesky sinus infection. How are you going to pay for it?

You had no idea that it was coming, and you didn’t budget for any of those things, because you didn’t know they were coming. If you don’t have savings, you might be set so far off track that you need to borrow to pay the bills. Without a savings account, you’re never truly protected from the financial variables life might throw your way.

Why Saving alone won’t make you Financially Independent

You need to spend money to live. Having a pile of money that isn’t doing anything for you won’t unlock a brighter future. Even in a high-yield savings account, the interest won’t amount to much. Financial independence means increasing your income, rather than just having an emergency stash to fall back on when something unexpected happens.

The idea of having savings is not to touch them unless you absolutely need to. The more savings you have, the more protected you are. But they aren’t helping you grow. Financial independence comes through growth, and it’s achieving that goal that will set you up for a smooth ride into your future. Continue Reading…

An Update on the 2017 Corporate Tax Proposals

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By Robert G. Kepes

Special to the Financial Independence Hub

You have probably seen that ad on CNN with an apple and chattering teeth sliding in front of it. The voiceover says one is an apple and the other is a distraction. The ad concludes: “But it will never change the fact that this is an apple.”

The ad is a not-too-discreet dig at shenanigans currently taking place in Washington, D.C., and may also have some traction on this side of the border, especially where it concerns the federal government’s tax proposals.

Back on July 18, 2017, the federal government released its first take on tax proposals involving tax-planning strategies of private corporations, including many professional corporations. The feds announced a period of consultations to discuss proposed policy changes involving the taxation of corporate passive investment income, such as interest or dividends.

Income sprinkling a key focus

The government’s wish, which actually went back to the federal Budget released in March, 2017, was to close alleged tax loopholes, bring fairness back to the tax system, and end tax-planning strategies in which the rich may take unfair advantage. The strategy also looked at income sprinkling among family members using private corporations. Income sprinkling  allows the corporation to pay dividend income to the founder’s spouse and children, in lieu of the founder paying tax at the highest rate on all his/her income earned. Overall tax savings for the family is achieved through a combination of the founder’s top tax-rate salary, and low-tax dividends to the spouse and children. Continue Reading…

Investing in fads like Bitcoin or Marijuana stocks: Quack like a duck and you may get plucked

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By Steve Lowrie
Special to the Financial Independence Hub

 

It’s now been nearly a decade since investors have had to face down a bad bear market.  Long enough, apparently, that many have forgotten how painful that can be.  Maybe that’s why I’ve been witnessing what seems like an uptick of speculative excess lately – aka, fad-chasing.

For example, there’s been performance chasing in real estate, and continued stockpiling of high-dividend stocks.  At least these qualify as legitimate asset classes if they’re sensibly incorporated.  In an increasing bid to turn up the heat, I’ve also been seeing investors bedazzled by far riskier ventures ranging from cryptocurrency to cannabis. This, despite decades of evidence suggesting what the future has in store for financial fads.  A few lucky players make a fortune, but the vast majority who pile in after the run-up is noticeable are far more likely to be left holding the bag.

When the ducks quack, feed them

Everyone seems to have forgotten how risky a hot hand can be.  Everyone, that is, except the Bay Street and Wall Street denizens who have a saying for these sorts of speculative runs:  When the ducks quack, feed them.  Meaning, as one source has described, “when investors want to buy something … that something is offered for sale.  It doesn’t make any difference if Wall Street knows in its heart of hearts that that something (such as an IPO) is overpriced.”

Make no mistake.  The typical Wall Street brokers and Bay Street bankers are no fools; they are opportunistic.   If they see a chance to make easy money on a hot-hand trading frenzy, they’re happy to help you get in on the action.  Whether you win or lose on your trades, they come out ahead on the transaction fees involved.

Likewise, the popular financial press makes its money by capturing your interest; not by advising you according to your highest interest.  Case in point:  As I write this post, the Yahoo Finance feed is prominently displaying Bitcoin pricing ahead of the Cdn/US dollar exchange rate and major international market returns.  It’s also awash with ads promoting Bitcoin and other cryptocurrency for sale.  So much for objective reporting.

As Reformed Broker Josh Brown once said: “The more you read about Wall Street history, the more you recognize it as the world’s most elaborate petting zoo – lambs, ducks, goats, cows and pigs herded into pens so that bankers and brokers can feed them pellets right from their hands.  We are fed until the bursting point, we almost never walk away on our own.”

So before you decide to buy cryptocurrency, cannabis, or whatever is the next craze to come, here’s what I would suggest you do first:  Think it over while taking a good long walk – most likely in the direction of “away.”
Continue Reading…

Do you need two million dollars to retire?

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By Billy and Akaisha Kaderli

Special to the Financial Independence Hub

We like to keep informed about the topic of retirement from the perspective of money managers and those in the financial fields.

You might have read some of these articles also; you know, the ones that say North Americans have not saved enough to retire.

Many of these pieces proclaim that you must save enough in your investments to throw off 80% of your current annual salary so you can afford a comfortable life away from a job. Lots of them will say that you need US$2 million in investments and woe to the person who thinks they can do it on less.

Approximately 10% of the households in the US have a net worth of one million dollars or more. What are the other 90% supposed to do? Not retire? What kind of common sense does this make?  Expecting the regular “Joe” to meet this $2 million dollar mark is not realistic.

As you know, we have almost three decades of financial independence behind us. And while everyone’s idea of a perfect lifestyle sans paycheck is different, we can tell you that for these almost-30-years, we have kept our annual spending around $30,000 or less per year.

The secret: Living within your means

In all of our years of retirement and travel we cannot recall one retiree who regrets their decision to retire. In fact, most have told us that they wished they had done it sooner.

The Society of Actuaries (SOA) recently conducted 62 in-depth interviews of retired individuals across both the U.S. and Canada. These people were not wealthy and had done little to no financial planning. But the vast majority of them shared that they had adapted to their situation and live within their means. Meaning, they have adjusted their spending to the amount of money they have coming in every month.

So basically, it’s really that simple and this is why we say if you want to know about retirement, go to the source.

It doesn’t have to be complicated

In our books and in our articles about finance, we say over and over that there are four categories of highest spending in any household. We personally have made adjustments in all four of these categories, and have therefore reaped the benefits of having done so.

The financial guys and gals will have you tap dance all over the place with investment products, and a certain financial goal you must achieve. They will press upon you the seriousness of this decision to leave your job for a couple of decades of jobless living. We say it doesn’t really have to be that complicated, but it’s very important to pay attention to these four categories.

Listen up Continue Reading…