All posts by Financial Independence Hub

10 Tips to help save Money on Healthcare Expenses

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From taking advantage of tax deductions to keeping a healthy sleep schedule, here are the 10 answers to the question, “What are some tips to help save money on personal healthcare expenses?”

  • Take Advantage of Tax Deductions
  • Keep a Healthy Diet
  • Opt For Services In Your Network 
  • Save With Pre-Tax Accounts
  • Ask Questions and Advocate for Yourself
  • Get Robust Health Insurance
  • Compare Quotes to Get the Best Deals
  • Buy Generic Drugs
  • Use Free Screenings
  • Just Sleep It Off

Take Advantage of Tax Deductions

Make sure you are taking advantage of the tax deductions you are eligible for when paying for your healthcare. These include deducting the costs of your health insurance premiums, medical expenses, and dependent care expenses. You can also deduct the costs of travel for medical care and the cost of child care for medical appointments. 

While the healthcare costs are high, you can save money by simply keeping track of the expenses you are already paying and ensuring you itemize your deductions to get the most out of them. –– Matthew Ramirez, CEO, Rephrasely

Keep a Healthy Diet 

Invest in quality nutrition now to save money on health care later. Many people give in to the convenience and comfort of fast food, but it really shouldn’t be a regular part of anyone’s life. Eating whole, colorful foods is the best way to keep your body healthy, and yes: it can be quite expensive to eat healthily.

While organic produce, free-range eggs and meats with no added hormones may bump up your grocery bill, it’s far less expensive than managing a chronic condition like diabetes or cardiovascular disease. My best advice is to take care of your body now so you can save money on health care expenses later. — Jae Pak, MD, Jae Pak MD Medical

Opt for Services in your Network 

Finding strategies to pay for medical expenses without going bankrupt is a daily effort for persons with chronic diseases and long-term treatment demands. Fortunately, the news is not all negative. 

The clever consumer may find big discounts in many typical healthcare circumstances if they know where to search. It is tempting to visit the first care facility with an open appointment when you’re feeling under the weather. However, the costs of various provider alternatives vary. 

Do you need to go to an emergency room? You may see physicians who are in-network or out-of-network depending on your health insurance. Because in-network providers have an agreement with your health plan, you pay less to see them. This translates into reduced prices. — Isaac Robertson, Fitness Trainer & Co-Founder, Total Shape

Save with Pre-Tax Accounts 

Using Health Savings Accounts (HSAs) or Flexible Savings Accounts (FSAs) is a great way to save money on healthcare expenses. You can put money into an HSA or FSA each year and use it to pay for qualified medical expenses, including doctor visits, prescription, and over-the-counter drugs, home medical supplies, and even mental health services. 

These accounts can cover a variety of personal daily products related to first aid, feminine care, family planning, skincare (such as acne treatment and sunscreen), respiratory health, and pain relief. 

The money you put into an HSA or FSA is not taxed, and any money you spend on qualified medical expenses is not taxed either. You can use the money in your HSA or FSA to pay for medical expenses, even if a health plan does not cover you. — Michaela Ramirez, MD, Founder, O My Gulay

Ask Questions and Advocate for Yourself

Sometimes being in a healthcare setting can be overwhelming, especially if you aren’t feeling your best. However, it’s important not to get railroaded into agreeing to things that don’t serve you in the long run. 

For example, a medical professional may suggest a test, treatment, or procedure which you’re uncertain you can afford. Don’t be afraid to ask questions. Why is this necessary? Is there a cheaper alternative? 

Make sure you’re informed about all your options before agreeing to anything. There can be pressure to make snap decisions, but this is your health, nobody else’s. 

“Can I just take a moment to consider this?” is a great phrase to use in order to gain some breathing space. If a medication is recommended, it’s always worth asking whether there is a generic equivalent. These are often cheaper than brand-name products and just as effective. A curious, considered, and calm approach should help you make the best choices. — Alex Mastin, CEO & Founder, Home Grounds

Get Robust Health Insurance

One of the best ways to save money on personal healthcare expenses is to have a robust health insurance plan. Many people think health insurance plans with low premiums are workable. But that’s not true. 

Health insurance plans with low premiums come with other liabilities. They have higher deductibles, and you may get a higher co-pay. Also, low-premium plans don’t cover many things. These plans don’t include particular procedures or tests. 

As a result, your medical expenses can get out of control. Sometimes health plans offer discounts and valuable services. They deliver services that give a boost to your health. You can get all the details from the health insurance company or your health insurance card. — Sean Harris, Managing Editor, FamilyDestinationsGuide

Compare Quotes to get the Best Deals

One great tip that has increased my savings on personal healthcare expenses is to compare the costs of service providers. 

When I was shopping around for a primary care physician, I called various medical offices and asked about their appointment fees. Even though each office listed different pricing, one stood out because it was lower than the other options. 

By taking the time to shop around, I could save money in the long run. Compare-and-save strategies can be used not only with doctors but also with many other areas of healthcare, such as medications and lab tests.  Continue Reading…

Are your Online Shopping habits compromising your Financial Security?

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Image: Unsplash

By Beau Peters

Special to the Financial Independence Hub

Incredible advancements in technology have made it so we don’t ever need to leave the house to buy the stuff we like. You can buy anything from food to video games from the comfort of your home and have it delivered the next day. However, while convenient, the rise of online shopping has also made it easier than ever to overspend and put our information in the hands of hackers and cybercriminals. It is important to know your limits and shop responsibility.

Today, we will talk a bit about the dangers of shopping online and what you can do to protect your data and your pocketbook.

Awareness of the Risks

If you watch the news, then you have likely heard reporters talk about the criminals that use online spaces to steal the money of consumers. The reality is that if you do anything online, then hackers can get to it. According to Help Net Security, 62% of consumers believe that online shopping fraud is a real threat, yet, most people continue to use e-commerce sites for their needs. The reason is likely because they don’t really understand how bad stolen data can be.

The fact is that if a hacker is able to get ahold of your credit card or debit card numbers, they can steal and retain that information and use it to take out fraudulent loans on your behalf. Even the personal data that you put online, like email addresses and birthdays, can be sold to other hackers for profit.

There are several threats to be aware of, including unencrypted websites. When you shop on any site, you must look at the web address and ensure that it says HTTPS before the website name. The “S” in this case stands for secure, and it means that the website automatically encrypts your payment information so it cannot be read by hackers even if it is stolen.

You must also be cautious when you are shopping on your phone, especially when you are out in public. Hackers can set up fake Wi-Fi networks that can look like the real deal, but when you connect, you are really connecting directly to the hacker. From there, they can steal your data and log into your bank accounts. This is why it is so important to be vigilant about online security wherever you go.

Before you buy anything at a website that you have never shopped at before, take a look around the site for red flags. For instance, if the website does not have a returns policy that you can easily find and review, then it may mean that it is a scam. Also, be aware of spelling mistakes. It is human nature to make a spelling error here and there, but if the website is littered with errors, then it may mean that it was put up in a hurry and the site is not legitimate.

Be Smart about Payment Info and Documentation

It is essential that you are aware of how you use and store your payment information as you do your online shopping. Many companies give you the option to store your payment information on their website for the sake of convenience. But you should know that if that store is not secure, then your financial security could be in jeopardy. So, if you must keep your card information saved at that company, then ensure that they are encrypted, and if you are unsure, then shop elsewhere.

If you do decide to keep your payment information on a website, you must make it a habit to routinely check your debit and credit card statements. If that website is hacked and your card information is stolen, then hackers can continue to use your payment info to make fraudulent purchases. By checking your statements, you can spot false charges right away and file a dispute with the bank.

Also, consider how you store and access those statements. If you view them online at your banking or credit card website, then ensure that you protect your data by adding a complicated password complete with letters, numbers, and special characters. Make your password hard to guess and change it regularly.

Some people choose to download their statements and save them to their computers for future review. If you do the same, then you still need to be cautious because hackers can also get into your device and read the information you have on those statements. Once the documents are on your computer, consider redacting your personal information off of those PDF files, so it cannot be read by others. Doing so will black out your name, address, account number, and other sensitive information so you can keep your files without fear of theft.

Be Smart about your Money

The other potential downside to online shopping is that the instant access makes it too easy to give into temptation and buy more than you need. It can only take a few seconds to find that you have spent the money that you need to pay the bills. That is why it is always a smart idea to create a budget so you can ensure that you stay within your limits.

It is important to consider your wants and needs when budgeting. You may want to buy that new sweater or television set, but are there expenses that you absolutely need to pay before you can splurge? Sit down and write down all of your monthly expenses, including childcare, food costs, utilities, and rent. Compare those necessary costs with the money you have coming in each month. If there is anything left over, then you can dedicate some of that to your online shopping desires.

Part of financial security is not letting your debt get so out of hand that you dig yourself into a deeper hole. If you have debt on credit cards, then it is important that you focus on eliminating it before you spend more unnecessary money. You can do that by adding your credit card payments into your budget, paying more than the minimum each month, and if you have more than one card, then pay off those with the highest interest first. Then, once you pay off your debt, reward yourself with something nice.

As you can see, it is important that you are smart about how you shop online. By shopping with a plan, you can avoid scams and improve your financial situation so you can have a brighter future.

Beau Peters is a creative professional with a lifetime of experience in service and care. As a manager, he’s learned a slew of tricks of the trade that he enjoys sharing with others who have the same passion and dedication that he brings to his work. When he is not writing, he enjoys reading and trying new things.

Get more out of giving: The benefits of a philanthropic strategy

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Image from Unsplash: Amy Hirschi

By Christine Van Cauwenberghe

Special to Financial Independence Hub

December ignites the spirit of giving and most affluent Canadians are continuing to spread the wealth, despite the current economic climate.

A survey conducted by Pollara Strategic Insights on behalf of IG Private Wealth Management found that 96 per cent of high-net-worth Canadians (those with at least $1 million in investible assets) give to charities, with more than half (57 per cent) stating that the volatile economy will not impact their philanthropic priorities. However, only 26 per cent have a charitable giving strategy.

There’s good reason to give, particularly at year’s end, as many can pair supporting the causes they care about with financial incentives. However, with increased capital comes complexity – it’s important that wealthy Canadians speak with a financial advisor to understand when, and how, to give to maximize the benefits for themselves and the causes they champion.

A carefully constructed giving strategy can enhance tax efficiency and optimize the impact of donations. Below are three key considerations to keep in mind when making a charitable donation:

  1. Tax benefits
  • Prior to making a gift, it’s helpful to understand the tax benefits associated with your donation. An organization can issue a tax receipt following a donation if it meets the criteria under the Income Tax Act.
  • A charitable donation claimed personally on your tax return generates non-refundable donation tax credits. The value of these credits reduces the taxes you owe.
  • When claiming donation tax credits on your tax return, the credit rate you receive and amount of tax savings for each dollar donated will depend on your specific circumstances. The value of the donation tax credit is determined by the amount of donations you wish to claim, your taxable income level, and your province or territory of residence.
  • If this is a high-income year, it may be beneficial to increase donations in the year to take advantage of the potentially higher donation tax credit rates available to you.
  1. Deciding what to give
  • Your donation decision should align with your overall financial plan – when deciding on the amount to give, consider your short- and longer-term goals, retirement and estate plan. Continue Reading…

Accelerating your Legacy Planning by Gifting In Advance

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LowrieFinancial.com

By Steve Lowrie, CFA

Special to the Financial Independence Hub

Most posts about legacy, wills, and estate planning focus on how to settle your estate after you pass: ensuring your intentions are met, your family is cared for, charitable gifts are fulfilled, taxes are minimized, and so on.

Estate planning is important; we help clients with it all the time. But today, I’d like to offer a valuable twist on the theme of estate, life, and legacy planning:

Instead of your excess wealth being distributed after you die, you may find even greater value in giving some of it away while you’re still around.

Properly managed, making gifts and charitable donations while you’re alive can offer solid tax-saving benefits to you and your estate financial planning. In particular, targeted charitable giving can be a powerful tool for business owners and similar professionals who are approaching retirement and facing high-tax events, such as selling their business, or exercising highly appreciated stock options.

As importantly, it can be incredibly rewarding to witness the results of your generosity. Don’t underestimate the value this intangible benefit can add to your life and legacy planning.

Legacy Planning for Quality Living

First, what is “excess wealth?” Is there such a thing as too much money??? Not really.

This is where legacy planning is essential. If you’re thinking about spending, gifting, or donating significant wealth, don’t just guess at the dollar amounts. Instead, you and your financial advisor should periodically crunch the numbers to determine how much you and your loved ones conservatively need to remain well-positioned, even under worst-case scenarios (such as, say, a global pandemic).

After that — if you and your loved ones are indeed set for life — any extra resources become the financial equivalent of gravy on your entrée. How will you use your excess wealth to add flavour to your life and to the lives of others so that you are leaving a legacy you can be proud of?

An anecdote about Lifetime Charitable Giving

To envision what it would be like to make one or more significant charitable donations during your lifetime, consider the story of “John and Jane,” an earnest couple in their 60s who came to me for advice a few years ago. John came from meager roots, but he was determined to make his own way. With a boost from some financial aid, he put himself through college, where he met Jane. Together, they worked hard, scrimped and saved, and raised two kids. Along the way, John started his own business, which prospered.

Fast forward to 2020, when John was able to sell his business for a substantial sum of money. After we ran all the numbers, it was clear he, Jane, and even their kids would be able to live comfortably for their remaining days. Both personally and in a holding company, the couple also owned some taxable investments that had appreciated nicely.

So far, so good. However, there was one challenge (even if it was a nice “problem” to have): even with extensive planning in the anticipation of an eventual sale (purified operating company, multiplying the lifetime capital gain exemption, etc.), the business buy-out would generate hundreds of thousands of dollars in taxes in the year of the sale. As the saying goes, when you’ve incurred taxable gains, you can choose who’s going to benefit the most from the taxable portion: the government, or your favorite charities. I suggested to John and Jane, they could reduce their taxes owed in the year of the sale by instead fulfilling some of their existing charitable intents that same year.

To manage the significant donation they had in mind, we established a Donor-Advised Fund (DAF) in their name. They then donated into their DAF an equal amount to the taxes incurred from the sale of John’s business. This helped them accomplish several goals:

  1. They were able to fully offset the taxable buy-out gains with their charitable contribution.
  2. John was able to fulfill a lifelong dream by using some of the DAF assets to establish a scholarship at his alma mater. By doing so during his lifetime, he has been able to see others benefiting from a solid education, just as he had when he was young. On a personal level, he and Jane have found the experience highly rewarding.
  3. Moving forward, they can donate highly appreciated assets to their DAF to wash away those gains as well.

A DAF offers a few other benefits as well. For example, you can direct how to invest undistributed DAF dollars in the market, potentially increasing your giving power over time. You can also keep your charitable giving anonymous if you’re so inclined. Continue Reading…

Price, Value & the CAPE’d Crusade

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Image via Outcome/The Blue Diamond Gallery

By Noah Solomon

Special to the Financial Independence Hub

According to Warren Buffett, “Price is what you pay. Value is what you get.”

The cyclically adjusted price-to-earnings ratio, commonly known as CAPE, is a valuation measure invented by Nobel Prize recipient Robert Shiller. It is calculated by taking the price of an index and dividing it by its average earnings over the past 10 years, adjusted for inflation. The ratio’s use of average earnings over the last decade helps to smooth out the impact of business cycles and other events and thus provides a better picture of a market’s sustainable earnings power.

The CAPE ratio is commonly used to gauge future returns over medium to long-term horizons. In theory, higher than average CAPE levels imply lower than average future returns, while their lower counterparts suggest that future returns will be relatively high.

In the following piece, I analyze historical data to determine if the CAPE ratio has been a useful predictor of future real (i.e., after inflation) returns. In my view, including real rather than nominal returns is appropriate given the recent resurgence of inflation. Investors must be mindful of inflation’s potential to erode a substantial portion of their portfolios’ purchasing power. Lastly, I comment on what investors can expect going forward given the current CAPE level.

The following table presents average real future returns following various CAPE ranges.

S&P 500 Index: Average Real Returns Sorted by CAPE Ratio (Jan. 1970 – Nov. 2022)

There has been an inverse relationship between CAPE ratios and future returns. When the CAPE ratio has been near the high end of its historical range, future returns have tended to be relatively low. Conversely, low CAPE ratios have tended to foreshadow higher returns. Whereas this relationship has not been statistically significant over shorter holding periods, it has been strong over the medium to long-term.

When CAPE ratios have been below their historical average of 21, annualized real returns over the subsequent five years have averaged 8.3%, as compared to only 3.3% when CAPE ratios have stood above this level. The corresponding numbers for 10 year holding periods have been 8.8% vs. 4.2%.

The difference in average returns cannot be understated. On a $10 million investment over 5 years, the difference in return equates to a real value of $14,922,900 vs. $11,754,768. Adding in the average inflation rate since 1970 of 4.04%, the corresponding nominal values have averaged $17,920,804 vs. $14,240,696.

Over ten-year holding periods, the average real values of a $10 million investment made when CAPE levels were below vs. above average were $23,290,712 and $15,137,096, respectively. After adding back the post-1970 average inflation levels of 4.04%, these figures rise to $33,533,809 and $22,140,747.

These differences, although significant, represent the divergence in average returns during times when CAPE ratios have been merely above or below average. As the table above demonstrates, the difference in returns following investments made in very low vs. very high CAPE environments has been far greater.

Explaining the Anomalous “Bump”: Where Behavior Confounds Theory

Although low CAPE levels have been associated with higher future returns, and vice versa, the relationship is far from perfect across different CAPE ranges. Specifically, there is an anomalous “bump” whereby future returns for the 20-25 CAPE range have been nearly as high or higher than those that have followed any other CAPE level.

My best guess is that this peculiarity relates to human psychology and behavior. Historically, when stocks have risen for an extended period following a bear market, investors have been increasingly willing to believe that “it’s different this time” and that the good times will continue indefinitely. At these times, FOMO (fear of missing out), greed, and momentum have taken center stage until valuations reached levels which all but guaranteed a catastrophe.

Greed, Fear, & Where we Stand Today

The above relationships are a powerful representation of investor psychology. Historically, when the crowd’s greed manifests in lofty stock valuations, future returns have tended to be anemic. On the other hand, when widespread skepticism and despondency have caused earnings to go on sale, above average returns have tended to ensue. Alternately stated, investors would be well-served to follow Buffett’s advice to be “fearful when others are greedy, and greedy when others are fearful.”

Recent market malaise notwithstanding, stocks remain overvalued by historical standards. Taking the most recent data available, the CAPE ratio currently stands at 27.42, which is 30% higher than its historical average since 1970. This CAPE level implies real annualized returns over the next five years of 3.6%, which is approximately 50% lower than the 6.9% average that has prevailed since 1970. Over the next ten years, the implied real rate of return is 4.3% as compared to a historical average of 6.6%.

When the Going Gets Tough, the Tough get Tactical and Seek Dividends

Over five decades spanning January 1970 to December 2019, the two worst periods for the S&P 500 Index were the 1970s and the 2000s. Continue Reading…