All posts by Financial Independence Hub

Fixing your Credit for a Real Estate Purchase

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By Jessica Mohajer

Special to Financial Independence Hub

To purchase a home, having good credit is essential to be approved for mortgage financing.

If your credit needs some improvement, then there are steps you can take to fix it and make yourself more attractive to lenders when seeking approval for a real estate purchase.

What is the credit score, and why do you need it for real estate purchases?

Your credit score is a numerical value calculated using information from your credit report. It typically ranges from 300 to 850 and reflects how likely you are to repay debts based on factors like payment history, the total debt owed, length of credit history, and types of accounts used.

A good credit score can make it easier for you to get approved for a mortgage loan and secure favorable interest rates and terms. Conversely, a low credit score can result in higher borrowing costs and potentially even difficulty obtaining financing for a home. For this reason, it is vital to ensure that your credit score is in good shape before attempting to purchase real estate. It’s also a good idea to check your credit score regularly, as it can change based on any changes in your credit activity.

Enlist the Help of a Credit Repair Service

Enlisting the help of a credit repair service can be an effective way to improve your credit score for a real estate purchase. A reputable credit repair service can work with you to identify errors on your report, dispute information, and offer guidance on how best to handle any financial issues dragging down your score.

Look for a credit repair service that offers personalized services such as customized plans, detailed analysis of your credit report, and a team of certified professionals. It’s also important to check the credit repair service’s reputation: ensure they have good reviews from past clients and are licensed in your state.

Have a positive payment history

Your credit score is one of the key factors that lenders look at when evaluating your loan application, and a good payment history will help you get approved more quickly. Paying your bills on time every month is crucial because it shows that you are responsible for managing your finances. The longer and more consistently you can make your payments, the better. It’s also a good idea to keep track of late payments and rectify them as quickly as possible. If you have missed a payment or two in the past, work on building up your credit score by making timely payments in the future. This will show lenders that you are taking steps to repair your credit and are dedicated to staying on top of your finances.

Check for errors on your credit report

It is important to check for errors on your credit report before you start buying a home. Errors on your credit report can cause significant problems when trying to secure financing and result in delays or even denial of loan applications. While there are several ways to review your credit report, the most efficient method is to get a copy from each of the three major credit bureaus: Experian, Equifax, and TransUnion. By getting a copy from each bureau, you can compare results and make sure all information is accurate. Continue Reading…

Income Needs and Wants in Retirement

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Source: The Behavior Gap

By Mark Seed, myownadvisor

Special to Financial Independence Hub

Some time ago on this site I wrote one of the biggest retirement questions is: how much is enough?

What might be our income sources, needs and wants be in retirement?

The answer to such questions are usually: it depends.

This updated post will share those details and outline how such needs and wants might be funded in our upcoming semi-retirement days – planned for sometime in 2024.

Read on and let me know your thoughts, questions or comments!

What are your income needs and wants in retirement?

It largely depends on what you’ll spend in retirement.

That’s always been step #1 in our book.

Whether you’re 35, 45 or 55, I believe it’s essential to figure out what retirement might look like to you.

Here are a few questions we’ve been working through:

1. When do we want to retire or semi-retire?

Math is helpful but I also believe we want to retire to something.

Both of my parents stopped all form of work around age 60. That may or may not work for me – literally. I like to be busy and instead of stopping work cold-turkey per se I would rather glide into semi-retirement/work on own terms and then slowly ease off the gas pedal per se whenever I want. At least that is my thinking now …

Sure, math helps: the later you retire from full time work, the longer you have to accumulate that retirement nest egg. But I believe there is also the work-optional option of part-time work in our 50s when the debt is gone and most of the assets needed for full-on retirement spending have already been accumulated.

Your mileage may vary. :-)

2. Where do we want to live in retirement or semi-retirement?

Likely Ottawa, as a home base still.

Our family is here. Most of our good friends are here or in the immediate area.

We don’t aspire to own a second home in the sunny south – too many liabilities.

We do however want to travel more/live some time abroad.

Our thinking could always change but it will be nice to have our condo bought and paid for without any debt on the books very soon and maintain it as a home base.

This means all income we do intend to make, including during semi-retirement, is for us to spend as we please.

3. What will our expenses be?

The general wisdom is that you will need somewhere between 70-80% of your current salary for living expensses in retirement. That means, if you make $100,000 combined per year, you should plan to have $70,000 to $80,000 in combined retirement income spending, as an example.

This general wisdom includes the logic that you are likely to spend less as a retiree – since you’re not commuting to work, you might have downsized your home, and/or you’re not supporting dependents.

I think these rules of thumb (like the 4% safe withdrawal rate/rule while valuable to a point) don’t make much sense when you dig further into your personal details, needs and wants. Rules of thumb are a starting point – only.

I far prefer to calculate what our fixed expenses will continue to be, during retirement, including inflationary spending, adding in some variable spending needs and wants as well.

Here is a snapshot on the former:

Key expenses Monthly Annually Semi-retirement comments ~ end of 2024???
Mortgage $2,240 $26,880 We anticipate the mortgage “dead” before the end of 2024.
Groceries/food $800 $9,600 Although can vary month-to-month!
Dining/takeout $100 $1,200
Home maintenance/expenses $700 $8,400 Represents 1% home value per year, increasing by inflation.
Home property taxes $500 $6,000 Ottawa is not cheap, increasing by inflation or more.
Home utilities + internet/TV/cell phones, subscriptions, etc. $400 $4,800
Transportation – x1 car (gas, maintenance, licensing) $150 $1,800 May or may not own a car long-term!
Insurance, including term life $250 $3,000 Term life ends in 2030, will self-insure after that without life insurance.
Totals with Mortgage $5,140 $61,680
Totals without Mortgage $2,900 $34,800 As you can see, once the debt is gone, we’ll be in a much better place for financial independence!

Add in other spending/miscellaneous spending to the tune of $1,000 per month and that’s our base budget. Continue Reading…

Digital wallets: How payment technology is dominating the future of finance

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Photo credit by Adyen

By Sander Meijers

Special to Financial Independence Hub

The payments technology industry is exploding in Canada. Due to economic indicators and progressive technology alike, consumers across the country have adopted new habits over the past few years, changing how they make payments. In particular, the adoption of e-commerce and unified commerce solutions validates that consumers are demanding more flexibility in how they use their “wallet.”

One trend to watch is digital wallets, which have become an increasingly important feature for Canadian merchants to offer. Since 2021, nearly one third (29%) of Canadians have completed a purchase using a digital or mobile wallet. With digital wallet options including Apple Pay, Google Pay, and WeChat Pay gaining in popularity, Canadians are regularly using their mobile devices to make payments in person and online. Knowing exactly how to implement a digital wallet can make a difference in how Canadians can make payments in 2023 and beyond.

Understanding what a digital wallet is

 A digital wallet stores payment information, such as credit cards, which enables the consumer  to pay both online and in person. This ultimately streamlines the payments experience for businesses and shoppers alike. A digital wallet can also be a software program on a desktop or built into an internet browser.

The most important thing to know about digital wallets is that they can completely replace the need for physical payment cards. Some digital wallets also let consumers make peer-to-peer payments, ATM withdrawals, and pre-load funds. Other digital wallets store more than payment information, including loyalty cards, vouchers, tickets, and more in the same place.

There are also mobile wallets, which work only for mobile devices  such as smartphones and smartwatches. The key difference here is that “digital wallet” is a term that includes mobile wallets. In Canada, when it comes to online payments, digital wallets are the second most popular form of payment among shoppers.

What are the perks of digital wallets?

There are major benefits for businesses to accommodate digital wallets in Canada, including expanding your consumer reach, stabilizing  conversion rates, and strengthening high security levels.

Canada is a socioeconomic melting pot, welcoming a diverse range of consumers from across the world. As such, shoppers from around the world have different payment preferences, so increasing flexibility and payment options helps ensure that today’s diverse consumer profile can complete their payments in methods with which they are most comfortable. Continue Reading…

A Conversation about CPP

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By Michael J. Wiener

Special to the Findependence Hub

Close Friend:  My wife and I are just a year away from being able to start our CPP benefits when we turn 60.  I’m not sure if we should start them right away or wait until we’re older to get bigger benefits.

Michael James: I don’t usually get involved with giving this kind of advice about people’s specific situations, but you’re a close enough friend that I’ll try to help.  Let’s go through a standard checklist of questions to help you decide.

CF:  Fire away!

Do you need the money?

MJ:  The first question is “Do you need the money?”

CF:  Of course I need money.  What kind of question is that?

MJ:  Hmmm.  You’re right.  That question isn’t very clear.  I think the idea is whether you need CPP benefits to be able to maintain your standard of living.

CF:  Well, I’m retiring in a few months, and I don’t really know what standard of living I can afford.

MJ:  Another good point.  Let’s try to make the question more precise.  If you don’t start your CPP until you’re 65 or 70, will you have less money available to spend before CPP starts than you’ll have after CPP starts?

CF:  I’m not sure.  My wife and I have $600,000 saved in our RRSPs that we could live on during our 60s.

MJ:  That’s more than enough to live on while you wait for larger CPP benefits at 65 or 70.

CF:  Okay, next question.

Life expectancy

MJ:  Do you have a shorter than normal life expectancy?

CF:  My dad died at 82, but my mother and both my wife’s parents are still kicking.  One of my uncles died in his 60s.  Maybe I should take CPP now in case that happens to me.

MJ:  We can all imagine dying young, but it’s more important to make sure you don’t run out of money if you live a long life.  Maybe a better way to phrase the question is “Are you willing to spend down all your savings before you turn 80 because you’re sure you won’t live that long?”

CF:  No, I’m not.

MJ:  So, even though you don’t know how long you’ll live, you’re going to have to use your savings sparingly in case you live a long life.

CF:  Does that mean I should take CPP at 60 so that I won’t spend as much of my savings in my 60s?

MJ:  No, it means the opposite.  When you spend some savings in your 60s, you’re buying a larger guaranteed CPP payment that is indexed to inflation.  You’re taking part of your savings that you spend over exactly 10 years and turn it into an income stream that could last for decades.  By making this choice, you’ll be able to safely spend more money each month starting today.

CF:  I’m starting to see a trend toward taking CPP at 70.

More money while young

MJ:  Let’s see.  The next question here is “Do you want more income available to spend while you’re young?”

CF:  I suppose so.  But can’t I just spend extra from the RRSPs during my 60s to boost my income over the next decade? Continue Reading…

Re-examining our plans for Financial Independence

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Re-examine our financial independence plans
Image courtesy Tawcan.com

By Bob Lai, Tawcan

Special to the Financial Independence Hub

 

When we started our financial independence journey back in 2011, we didn’t set a specific FI date or number. In our minds, we do not doubt whether we could become financially independent or not. We knew we’d become financially independent in the future. It was just a question of time. We simply needed to have patience and let our investments compound over time.

A few years into our FI journey, our FI plan started to evolve. Rather than having a specific liquid net worth and utilizing the 4% safe withdrawal rule, we decided to have enough dividend income to cover our expenses. Looking at the calendar, we randomly set a target of reaching this milestone by 2025 or earlier.

It’s funny how ten years seemed to have gone by in the blink of an eye. At the same time, a lot has happened in our lives…

  • Getting engaged and married
  • Having two kids
  • Moving from an apartment in Vancouver to a house in the suburb
  • Me having different job titles, going from engineering to project managing to product marketing to engineering
  • Mrs. T starting her holistic doula practice
  • Starting my photography business ( I’ve been on a bit of break the last few years)
  • Starting this blog, writing articles, learning new things, and connecting with other like-minded people

One thing I’ve realized is that life is never static. It’s always dynamic. Although we can do as many projections and make as many plans as we possibly can, projections and plans do and will change. Therefore, with three years to go before 2025, I thought it would be a good time to re-examine our financial independence plans and see if we need to make any adjustments.

Our FI numbers 

Since starting our FI journey, we have tracked our expenses meticulously. Here are our annual expenses since 2012:

Total Necessities Total Annual Spending
2012 $26,210.52 $44,603.76
2013 $26,343.00 $45,260.88
2014 $29,058.96 $47,391.96
2015 $31,256.88 $47,270.16
2016 $29,831.40 $47,566.96
2017 $33,887.68 $51,144.77
2018 $31,840.75 $57,231.99
2019 $33,199.98 $54,906.02
2020 $35,511.60 $48,908.74
2021 $38,950.66 $71,852.02

Necessities cover core expenses like food, insurance, housing, clothing, utilities, car, etc. Other expenses are considered as non-core expenses which include things like dining out, skiing, camping, travel, charitable donations, gifts, etc.

The last two years have been abnormal in terms of spending. Due to the pandemic, our spending was much lower than usual in 2020. Then last year we had unplanned expenses of around $16,500 on our cat and our house. If we take this amount out, it’d put our 2021 annual spending to around $55,000.

Based on our historical spending trend, I would estimate that we need somewhere between $50,000 to $60,000 in dividend income annually to cover our expenses. To be on the safe side, I’d use $60,000 annual spending for any FI plans because we need to have inherent built-in flexibility on variables outside of our control, like major purchases, emergencies, etc.

The $60k annual spending estimate, of course, assumes that we continue to live in Vancouver and do not have many significant changes in our spending habits.

One thing to keep in mind is our spending can drastically come down if we decide to geo-arbitrage by moving to a smaller Canadian town or somewhere in South East Asia with a lower cost of living than Vancouver. On the flip side, the spending number can increase if we move to Denmark and live there for a few years (I’m ignoring the tax consequences for now).

How much do we need in our dividend portfolio?

How much do we need in our dividend portfolio to generate $60,000 in dividend income? Let’s do a quick math exercise, shall we?

For $60,000 dividend income per year, at 3% dividend yield, we’d need a dividend portfolio worth $2 million; at 4% dividend yield, we’d need a dividend portfolio worth $1.5 million. In other words, we need a portfolio valued between $1.5 million to $2 million. That’s certainly not a small chunk of change.

Now, if we take a middle-of-the-road approach and use a portfolio dividend yield of 3.5%, that means a portfolio value of around $1.714 million.

One thing is clear – we need to continue to save and invest money in our dividend portfolio. We also need to find the right mix between high-yield low-dividend growth stocks and low-yield high-dividend growth stocks.

With three years remaining in our FI timeline, it might be tempting to start buying more very-high-yield dividend stocks to make sure we can reach our FI target. But it is very important to make sure our dividend income is safe and remains sustainable over time. We definitely don’t want to hit $60,000 in dividend income one year only to see that amount slashed by 20% or more the next year.

The stability of our dividend income is extremely vital.

We also want to make sure the portfolio value continues to appreciate over time. The rationale is simple – total returns matter. Having a stable and safe dividend income and a portfolio that increases value over time will give us more options.

By 2025, both Mrs. T and I will be in our early 40s. With decades ahead of us, we need to ensure our dividend income can grow organically over time and inflation doesn’t eat into our dividend income’s buying power. It will be necessary to have some low-yield high-dividend growth stocks in our portfolio to allow for organic dividend growth.

The plan of living off dividends 

Living off dividends is an amazing idea. Based on my dividend income projection, we should receive $51,000 in dividend income in 2025. However, when we compare that number with the $60,000 annual spending target, it doesn’t take a rocket scientist to realize that we are short by several thousand dollars. Continue Reading…