All posts by Financial Independence Hub

15 Favorite Frugal Living Tips for Financial Independence

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Image by Pexels: Dany Kurniawan

To help you on your journey towards financial independence, we’ve gathered 15 frugal living tips from financial advisors, founders, and other professionals.

From delaying big-ticket purchases, to asking for deals to save money, these experts share their best practices for frugality and financial independence.

  • Delay Big-Ticket Purchases 
  • Master Budgeting and Tracking Spending
  • Align Budget with Personal Values
  • Plan Meals to Control Food Budget
  • Distinguish Between Needs and Wants
  • Prepare Lunch at Home for Savings
  • Leverage “Stoozing” for Mortgage Savings
  • Track Expenses for Financial Insight
  • Eliminate Unnecessary Subscriptions
  • Use Technology for Financial Management
  • Prioritize Spending with Budget Tracking
  • Cut Expenses from Seldom-Used Subscriptions
  • Invest in Experiences, Not Impulse Buys
  • Wait a Month Before Impulse Buying
  • Ask for Deals to Save Money

Delay Big-Ticket Purchases 

When climbing the pay ladder, I purposefully delayed purchasing big-ticket items such as a newer or more expensive home, car, or luxury item. When I review my spending in detail, I’ve found it typically isn’t an $8 latte (or several of them) that puts me over the discretionary-spending edge, but rather something like a luxury handbag that I felt I deserved at the time, yet doesn’t bring me sustained happiness. 

That is to say, in hindsight, it would feel better to see my investment portfolio increase than to have a closet of designer wares. It’s important to build a budget for yourself, but equally or more important, to reconcile your past spending and decide whether to make an adjustment to the budget or your spending to be more accurate moving forward. — Morgan Jarod, Financial Advisor, Royal Private Wealth

Master Budgeting and Tracking Spending

There are many clever ways to cut expenses or generate extra income, but there is no replacement for the discipline of budgeting. A budget is the daily application of your long-term goals. It serves as a compass for your financial journey, making sure you are consistently moving towards your destination. 

There are two parts to every great budget: planning and tracking. First, you need to write out a plan for how you are going to spend every dollar of income you will earn in a given month. Then, you need to track your spending to ensure you are following your plan.

It would amaze most people at how much progress they can make toward their financial goals by simply using a budget to align their spending with their goals.

Luckily, becoming a master budgeter is easier today than it has ever been thanks to several budgeting apps that make the process simple and convenient.

When meeting with someone serious about their financial goals, the first recommendation is almost always a budget. — Ty Johnson, Financial Planner, Peak Financial Management

Align Budget with Personal Values

Review your budget so that it aligns with your values, not what society tells you to value. Many of us get trapped in consumerism and in looking the part. Society tells us that, in order to prove that you are wealthy, you must have an expensive car, home, and wardrobe.

What happens if you value none of those things? You spend more money than necessary, proving you have money. Look at your expenses. Do they truly align with what you care about? If they don’t, change it and be free. — Tremaine Wills, MBA, CFEI, Financial Planner | Investment Advisor, Mind Over Money

Plan Meals to Control Food Budget

Plan your meals for the week on the weekend before. Make your grocery list from your established menu. This habit keeps you from buying groceries you don’t need and helps avoid the late-afternoon query, “What should I make for dinner tonight?” that often ends up with something quick and less healthy, or convenient but more expensive. 

Additionally, planning out your menu helps maintain variety. In our home, we have an outline we tend to follow: Sunday’s meal has pork; Monday tends to be a hearty soup or salad; Tuesday is “Breakfast for dinner” (egg bake, blueberry crepes, etc.); Wednesday is a chicken dish; Thursday’s dinner has fish or sausage as a base ingredient; Friday is Pizza night (make yourself or order out), and Saturday is a beef dish. — Keith Piscitello, Certified Financial Planner, S2 Wealth Planning

Distinguish between Needs and Wants

Frugality is about mindset and intentionality more than deprivation. One of the most impactful practices for me has been to shift my mindset around needs versus wants. It’s easy to fall into the trap of feeling like we “need” the latest technology, furniture, clothes, cars, etc. But most of these are simply wants. Focusing on true needs — food, shelter, basic clothing, transportation to work — frees up a lot of money.

I ask myself, “Do I really need this, or just want it? Will this purchase add value and enjoyment to my life, or am I buying it just to have it?” Distinguishing needs from wants has allowed me to dramatically cut discretionary spending. I buy very few material items now, and focus my time and money on experiences, relationships, and personal growth. — Brian Meiggs, Founder, My Millennial Guide

Prepare Lunch at Home for Savings

Wherever possible, prep your lunch at home if you’re eating at the office or somewhere other than your home. Over the course of a month, the savings really stack up! This could be as easy as batch-cooking at the weekends, ready for the week, or just making a homemade sandwich in the morning. — Jordan White, Financial Planner, A Money Thing Happened

Leverage “Stoozing” for Mortgage Savings

In financial strategies, one unique money-saving hack I’ve employed is using an offset mortgage combined with savings. This approach, popularly known in England as “Stoozing,” can significantly reduce monthly mortgage payments. 

Stoozing involves utilizing the funds from 0%-interest credit-card offers. Instead of spending this money, one deposits it into a bank account linked to an offset mortgage. This approach effectively reduces the mortgage balance temporarily, leading to significant savings on mortgage interest. 

As the 0% period on the credit card nears its end, the “stoozer” then pays off the credit card using the deposited funds, having benefited from reduced mortgage costs in the interim. At one point, I had over £100,000 on credit cards, but this was sitting in my bank account, significantly reducing the interest payments on my mortgage. It accelerated my financial independence by at least 10 years. — Shane McEvoy, MD, Flycast Media

Track Expenses for Financial Insight

As a wealth-management specialist, one frugal-living tip I recommend to new clients is to track and record all your expenses. While this may seem time-consuming, it’s a great way to gain insight into where you are spending your money and how much you’re actually saving each month. 

Making sure you can see exactly where your money goes will help keep it in check and prevent impulse purchases that add up quickly. This is especially important when trying to reach financial independence because every dollar saved means more freedom for the future. — Adam Fayed, CEO, AdamFayed.com

Eliminate Unnecessary Subscriptions

Getting rid of subscriptions and simplifying my monthly budget has played a significant role in speeding up my journey towards financial independence.

Subscriptions might seem harmless, but the costs can really sneak up on you if you’re not careful. For years, I was paying over $100 a month for cable. I also was spending $50 on various streaming services, had an expensive gym membership, and would occasionally try services like meal delivery kits. And I hadn’t negotiated my Internet or phone bills in years.

One day, I realized I was spending well over $350 per month on these services, some of which I wasn’t using. I cut cable out completely, got a cheaper phone plan, and moved to a more affordable gym near me. I also scrapped the meal delivery kits and just cook myself now. This saves me $200+ a month easily, and it hasn’t impacted my quality of life.

I suggest other people take a look at their monthly spending to find sneaky recurring charges they can trim quickly. — Tom Blake, Founder, This Online World Continue Reading…

What Experts get wrong about the 4% Rule

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Pexels Photo by Miguel Á. Padriñán

By Michael J. Wiener

Special to Financial Independence Hub

 

The origin of the so-called 4% rule is WIlliam Bengen’s 1994 journal paper Determining Withdrawal Rates Using Historical Data.  Experts often criticize this paper saying it doesn’t make sense to keep your retirement withdrawals the same in the face of a portfolio that is either running out of money or is growing wildly.  However, Bengen never said that retirees shouldn’t adjust their withdrawals.  In fact, Bengen discussed the conditions under which it made sense to increase or decrease withdrawals.

Bengen imagined a retiree who withdrew some percentage of their portfolio in the first year of retirement, and adjusted this dollar amount by inflation for withdrawals in future years (ignoring the growth or decline of the portfolio).  He used this approach to find a safe starting percentage for the first year’s withdrawal, but he made it clear that real retirees should adjust their withdrawal amounts in some circumstances.

In his thought experiment, Bengen had 51 retirees, one retiring each year from 1926 to 1976.  He chose a percentage withdrawal for the first year, and calculated how long each retiree’s money lasted based on some fixed asset allocation in U.S. stocks and bonds.  If none of the 51 retirees ran out of money for the desired length of retirement, he called the starting withdrawal percentage safe.

For the specific case of 30-year retirements and stock allocations between 50% and 75%, he found that a starting withdrawal rate of 4% was safe.  This is where we got the “4% rule.”  It’s true that this rule came from a scenario where retirees make no spending adjustments in the face of depleted portfolios or wildly-growing portfolios.  So, he advocated choosing a starting withdrawal percentage where the retiree is unlikely to have to cut withdrawals, but he was clear that retirees should reduce withdrawals in the face of poor investment outcomes. Continue Reading…

Navigating the Student Loan Dilemma: Unlocking Financial Independence with RESPs

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By Andrew Lo, President & CEO of Embark Student Corp.

(Sponsored Post)

The pursuit of higher education is a cornerstone of personal and professional growth for many young Canadians. However, this pursuit often comes at a hefty price, with student loans being a significant barrier to financial independence. The burden of student debt can haunt graduates for years, affecting their ability to save, invest, and achieve financial stability. But there’s good news: opening a Registered Educations Savings Plan (RESP) can lighten the burden of student loans and help you help your children start their adult life debt-free by encouraging regular and early savings, offering valuable government grants, and harnessing the power of compound interest.

The Student Loan Conundrum

Canada is home to a world-class education system, but the cost of pursuing post-secondary education can be daunting. Tuition fees, books, accommodation, and other expenses can quickly add up, leaving many students with no choice but to turn to the most common method of affording post-secondary:  student loans.

What some students don’t fully understand when they use student loans is that they come with interest rates that accrue after graduation. For many young Canadians, this means they start their careers with substantial debt, and few resources to help them repay their loans.

In a recent poll of Canadian students, 79% admitted that the amount of debt taken on to afford post-secondary can be debilitating. This burden of student debt can have a profound impact on a young graduate’s financial journey, with 57% of students surveyed agreeing that graduating with student debt will make it harder for them to become financially independent from their parents.

Unfortunately, the constant struggle to make loan payments often hampers their ability to save and invest in their futures. Despite this, student loans are still the most normalized way of paying for education in Canada.

There’s a better way pay for post-secondary education

One effective way to combat the student loan conundrum is to start saving for education expenses early. It can be hard to think about university and college when a child is a few years old but by beginning to save as soon as possible, families can significantly reduce their need for student loans. You’re probably thinking, “accumulating savings to cover educational costs while managing the rising cost-of-living is no easy feat.” This is where a Registered Education Savings Plan [RESP] comes into play.

RESPs are powerful tools that Canadians can take advantage of to fit the post-secondary bill. They can be opened by the parents or guardians of a child, other family members, or friends, to save over a total period of 35 years. By contributing regularly to an RESP, families can build substantial savings to cover tuition and related expenses. Starting early allows for smaller, manageable contributions over time, reducing the financial stress associated with higher education. The most valuable part of this savings tool is that it opens your savings up to a world of government grants that you can qualify for.

Unlocking “Free Money” with Grants

One of the most compelling features of RESPs is the opportunity to acquire “free money” in the form of grants. The Canadian government provides a generous grant called the Canada Education Savings Grant (CESG) as a reward for saving, allowing you to collect up to $7200.

This grant matches 20% of your contributions on the first $2,500 saved annually. Over the years, if you contribute $2500 annually to an RESP, this works out to an additional 20% being added to your first $36,000 saved without even considering investment gains. By maximizing these grant opportunities, families can alleviate the financial strain of higher education and better prepare for the future. Continue Reading…

The changing perceptions of Normal

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Image courtesty Outcome/Creative Commons

By Noah Solomon

Special to Financial Independence Hub

In response to rapidly accelerating inflation, central banks began raising rates aggressively at the beginning of 2022. Ever since, wild swings in bond markets have had a tremendous impact on virtually every single asset class.

This month, I examine the recent spike in rates from a historical perspective. Importantly, I will discuss the likely range of interest rates over the foreseeable future and the associated implications for financial markets.

When the Fed and other central banks were confronted with financial disaster in late 2008, they slashed interest rates to zero and deployed additional stimulative measures to ward off what many thought could be another Great Depression. Global rates then remained at levels that were both well below historical averages and the rate of inflation for the next 13 years.

In 2008, the runaway inflation of the 1980s and the painful medicine of record high rates that were required to subdue it were still relatively fresh in people’s minds. At that time, had you asked anyone what would be the most likely result of keeping rates near zero for over a decade, their most likely response would have been runaway inflation. And yet, inflation remained strangely subdued. According to most experts, this unexpected result is largely attributable to a relatively benign geopolitical climate and a related push toward global outsourcing.

This led to the notion of a “new normal” in which inflation was permanently expunged. Over the span of only 13 years, people went from fearing inflation to believing that it was a relic of the past unworthy of serious consideration. This false sense of comfort caused central banks and investors alike to be caught off guard in late 2021 when they realized that inflation had not been permanently vanquished but was merely hibernating.

These sentiments were evident in bond markets. After rates were slashed to zero during the global financial crisis, investors were skeptical that they would remain there for long before stoking inflation. Longer-term rates remained well above their short-term counterparts, with the yield on 10-year U.S. Treasuries retaining an average 1.9% premium above the Fed Funds rate from 2009 – 2020.

However, 13 years of ultra-low rates with no sign of inflation allayed such fears, with the yield spread crossing into negative territory late last year and reaching a low of -1.5% in May of 2023. Even the rapid acceleration in inflation in late 2021 failed to fully disavow investors of the notion that the era of low inflation had come to an end, with current 10-year rates falling below their overnight counterparts.

10 U.S. Treasury Yield Minus Fed Funds Rate (1995 – Present)

 

Equity markets danced to the same tune as their bond counterparts. When central banks cut interest rates to zero during the global financial crisis, investors were dubious that inflation would not soon rear its ugly head. Multiples remained relatively normal, with the P/E ratio of the S&P 500 Index averaging 16.4 for the five years beginning in 2009.

Over the ensuing several years, investors became complacent that the world would never again experience inflation issues, with the S&P 500’s P/E ratio climbing as high as 30 by early 2021. Multiples have since remained somewhat elevated by historical standards, indicating that markets have not fully embraced the fact that inflation may not be as well-behaved as what they are used to.

S&P 500 P/E Ratio (1995 – Present)

 

The Rising Tide of Declining Rates: Not to be Underestimated

According to legendary investor Marty Zweig:

“In the stock market, as with horse racing, money makes the mare go. Monetary conditions exert an enormous influence on stock prices. Indeed, the monetary climate – primarily the trend in interest rates and Federal Reserve policy – is the dominant factor in determining the stock market’s major direction.”

The 2,000-basis point decline in interest rates from 1980 to 2020 not only turbocharged aggregate demand (and by extension corporate revenues), but also dramatically lowered companies’ cost of capital. In tandem, these two developments were nothing short of a miracle for corporate profits and asset prices. Continue Reading…

These three ETFs are responsible for most of my wealth

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AlainGuillot.com

By Alain Guillot

Special to Financial Independence Hub

I was a day trader for almost 10 years.

Oh, I was so smart. I was smarter than the market and all its participants. But I was not, I was delusional. I wasted my time trying to guest the direction of the markets. I had good months in which I felt I was going to be a millionaire, and then in one bad trade I would lose most of my gains.

The one lesson I discovered, and maybe was worth the price of all my losses was that passive investment works.

The strategy create by John Bogle many decades ago is till paying huge dividends. Mr. Bogle was the founder of Vanguard Funds, the inventor of Passive Investing, a strategy created for the masses. Ever since I started passive investing my portfolio has been going up at a staggering rate.

My investments are composed of three main investments:

VFV (Vanguard S&P 500 US Index ETF)
XIU (iShares S&P/TSX 60 Index ETF)
VIU (Vanguard FTSE Developed all caps ex North America)

Plus other individual stocks that mostly lose me money. Continue Reading…