All posts by Financial Independence Hub

How to Balance Spending Now & Saving for the Future

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From opening two different savings accounts to giving your money a job, here are 12 answers to the question, “Give your best tip for how to balance the need to save and invest for the future with the desire to enjoy my life and spend money on things that are important to you?” 

  • Open Two Different Savings Accounts
  • Consider Your Housing Costs
  • Focus on The Three Aspects of Great Personal Finances
  • Use Financial Aggregators to Monitor Spending
  • Spend Money On Your Passions; Avoid Pointless Purchases
  • Invest in Things That Will Last
  • Understand Your Cash Flow
  • Consider the 50-50 Rule
  • Create and Follow a Budget
  • Use Fixed Percentages for Saving /Investing
  • Schedule a ‘Spending Period’ in Your Life
  • Give Your Money a Job So It Has a Purpose

Open two different Savings Accounts

Most people have a checking account and a savings account. If you want to save for the future, open up a second savings account and put your long-term savings in that pot. Find the best interest opportunities you can find for that account and leave that money alone to the best of your ability.

For the money that you want to use in the shorter term (shopping, traveling, buying gifts), manage that money in a separate savings account. Your checking account should cover all of your expenses while your primary savings account should be your “fun-spending” money.

The third account should be your long-term savings and that should be the money that you take to your financial advisor for the best long-term investment opportunities. Let that build up for a while and then try to make smart investments with it. — Brittany Dolin, Co-founder, Pocketbook Agency

Consider your Housing Costs

If you’re struggling to save and invest for the future while also enjoying life, consider your housing costs. Housing is one of the biggest monthly expenses, so if you’re living in a home that’s too big for you, or you’re paying more than you can afford for it, you may want to consider downsizing.

Consider your needs and wants when choosing a home. Do you really need a five-bedroom home if you’re a family of two? Can you live somewhere with fewer amenities if it means you can save money on your monthly housing costs? Homeownership is an investment in yourself and your future, so it’s important to find a balance between spending on your housing and investing in the future. — Matthew Ramirez, CEO, Rephrasely

Focus on the three Aspects of Great Personal Finances

I’ve learned from my mentors that great personal finances can be broken down into three areas: Budgeting Expenses, Creating Income, and Developing Cashflow-Producing Assets.

With any money-related goal, identifying which area(s) to focus on is key. For example, getting out of debt requires stricter budgeting and increasing income. Meanwhile, retirement has to do with areas 1 and 3. This also makes it simple: budget a percentage of your income to save and invest based on your long-term goals.

Then determine your priorities. Perhaps you need to be strict with some other living expenses to be able to spend money on what’s important to you and set savings and investment goals for larger purchases while you also work to increase your income. — Eric Chow, Chief Consultant, Mashman Ventures

Use Financial Aggregators to Monitor Spending

The balance between saving and investing for the future, while also enjoying life and spending money on what matters to you, is a difficult one to achieve.

One uncommon way to reach this balance is by using financial aggregators. Financial aggregators are tools that allow you to connect all your accounts, such as investments and bank accounts, into one place in order to get a better look at where your hard-earned money is going. This makes it easier for you to budget wisely and allocate money towards satisfying both savings goals, as well as needs or wants for immediate enjoyment.

With this knowledge in hand, you’ll be more aware of how much flexibility you can have with your monthly expenses since both needs are being fulfilled simultaneously. — Carly Hill, Operations Manager, VirtualHolidayParty.com

Spend Money on your Passions; Avoid Pointless Purchases

The best way to save money and enjoy life is to spend money on your passions and cut back on everything else. For example, you might grab a Starbucks drink before work every day. But does this really add value to your life? You can make the exact same coffee at home for a fraction of the price. This is just one example, but most people are spending thousands of dollars a year on unimportant things.

Once you’ve cut expenses out of your life that don’t provide value, spend this extra money on your passions. Let’s say you’re a big fan of motorbiking. You can use this money to buy a sport bike and go to your local racetrack every weekend. Or, if you love hiking, buy quality hiking gear and hike with friends and family. This strategy allows you to cut back on unimportant expenses, save money, and spend more on things that bring happiness. — Scott Lieberman, Owner, Touchdown Money

Invest in Things that will Last

A great way to balance the need to save and invest for your future while still enjoying life is mindful spending. This means considering each purchase you make, big or small, and evaluating if it will add long-term value and benefit you; an uncommon example of this would be investing in a massage package.

Instead of splurging on something that won’t provide sustainable value, such as multiple nights out with friends, consider treating yourself to regular professional massages — which have medical benefits from managing pain to reducing stress — that promote mental health and well-being. Practicing mindful spending ensures money is not wasted frivolously but also allows for some indulgences now that can later prove beneficial. — Grace He, People and Culture Director, teambuilding.com

Understand your Cash Flow

Understanding your household cash flow is among the most important aspects of securing your financial future. In order to have more money to spend or save now, you must be acutely aware of your spending habits. Continue Reading…

Timeless Financial Tips #1: “It’s Already Priced In”

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Lowrie Financial: Canva Custom Creation

By Steve Lowrie, CFA

Special to Financial Independence Hub

Understanding How Market Pricing Works

Let’s talk about the price of stocks.

It stands to reason: To make money in the market, you need to sell your holdings for more than you paid. Of course, we’re all familiar with good old buy low, sell high. But despite its simplicity, many investors fall short. Instead, they end up doing just the opposite, or at least leaving returns on the table that could have been theirs to keep.

You can defend against these human foibles by understanding how stock pricing works and using that knowledge to your advantage.

Good News, Bad News, and Market Views

How do you know when a stock or stock fund is priced for buying or selling?

The short answer is, we don’t.

And yet, many investors still let current events dominate their decisions. They sell when they fear bad news means prices are going to fall. Or they buy when good news breaks. They invest in funds that do the same.

While this may seem logical, there’s a problem with it: You’re betting you or your fund manager can place winning trades before markets have already priced in the news.

To be blunt, that’s a losing bet.

You’re betting that you know more about what the price should be at any given point than what the formidable force of the market has already decided. Every so often, you might be right. But the preponderance of the evidence suggests any “wins” are more a matter of luck than skill.

Me and You Against the World

Whenever you try to buy low or sell high, who is the force on the other side of the trading table?

It’s the market.

The market includes millions of individuals, institutions, banks, and brokerages trading hundreds of billions of dollars every moment of every day. It includes highly paid analysts continuously watching every move the markets make. It includes AI-driven engines seeking to get their trades in nanoseconds ahead of everyone else.

And you think you can beat that?

We believe it’s far more reasonable to assume, by the time you’ve heard the news, the collective market has too, and has already priced it in. Continue Reading…

How to address your Financial Anxieties without breaking the Bank

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Image source: Pixabay.com

By Beau Peters

Special to Financial Independence Hub

Money management is arguably one of the most stressful things that most of us deal with on a regular basis. It never fails; just as soon as you feel like you’re doing well financially, something comes up — unexpected home repairs, vehicle maintenance, emergency medical bills, holiday gift purchases. Financial worries can sit in the back of your mind and weigh on you day in and day out.

For many, financial stresses are a concern, but not a debilitating one. However, some people develop financial anxiety — a condition where worry, fear, and unease about finances causes those suffering from it to behave differently. Behavior changes can show up in different ways such as extreme frugalness, avoiding finances, excessive overspending, or even physical changes such as high blood pressure.

Fortunately, if you are someone who suffers from financial anxiety, there are steps you can take to help address it and get your life back. The first one is finding some help, the next is gaining control. As you work through the process of dealing with your financial anxiety, you will inevitably learn a lot about yourself and how to manage your money the way you want to.

Finding Help

The root cause of financial anxiety can come from a number of different places. Maybe you have an extreme fear of being in debt because you grew up watching your parents struggle to make ends meet without sinking deeper and deeper into financial ruin. Or perhaps you were never really taught about personal finance management and now everything finance seems daunting. Or maybe you’ve just given up all hope of financial stability and choose not to address the financial concerns you know you should.

Either way, there is help out there and you are not alone. Talking with professionals about financial issues is a great place to start. Numerous different types of therapists can help you identify the root of your financial anxiety and work through the issues surrounding that cause. Likewise, financial advisors can be a great resource for helping you to understand your finances and get them back on track.

Of course, it might give you anxiety just to think about paying for a therapist to help you through your financial stresses.

Don’t worry! There are still options for you. The first might be to start by talking to a trusted friend that you believe manages their money well. Another option is to dive into the multitudes of cheap or free resources that are available online. These include affordable financial help guides or podcasts that dive into all sorts of topics, from how to build a budget you can stick to all the way to how to best invest your money.

Making a Plan

If getting help is the first step, developing a realistic plan is the second step. You might be thinking great, another budget that is bound to fail, but this isn’t necessarily the case. A workable plan can come in a variety of different forms. The right plan for you to address your financial anxiety might be different than what another person needs to feel financially stable.

For example, maybe the right plan for you involves building greater financial literacy by learning some of the terminology and tools available. Perhaps your plan is to read one financial news article a day. Or maybe your plan is to build up a rainy day fund that will ease your concerns about going into debt. Or to focus more on building more meaningful relationships and focus less on having the fanciest home goods.

All of this isn’t to say that a budget isn’t sometimes a great tool. In fact, budgets can be one of the most powerful tools for getting yourself out of debt or achieving a financial goal. The crux is creating a realistic budget that you can actually live with. Cutting out all of your excess expenditures might help you save money, but sooner or later you’ll crack. Smaller changes that you can really stick to are much more valuable over the long run.

Taking Control

The final step is to enact the plan and adjust as needed to make sure you’re doing something that is really making a positive difference. Take time once a month to evaluate where you’re at with your financial anxiety. Are you making progress? Are you achieving your financial and financial mental health goals? Continue Reading…

 RRSP Confusion

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By Michael J. Wiener

Special to Financial Independence Hub

Recently, I was helping a young person with his first ever RRSP contribution, and this made me think it’s a good time to explain a confusing part of the RRSP rules: contributions in January and February.  Reader Chris Reed understands this topic well, and he suggested that an explanation would be useful for the upcoming RRSP season.

Contributions and deductions are separate steps

We tend to think of RRSP contributions and deductions as parts of the same set of steps, but they don’t have to be.  For example, if you have RRSP room, you can make a contribution now and take the corresponding tax deduction off your income in some future year.

An important note from Brin in the comment section below: “you have to *report* the contribution when filing your taxes even if you’ve decided not to use the deduction until later. It’s not like charitable donations, where if you’re saving a donation credit for next year you don’t say anything about it this year.”

Most of the time, people take the deductions off their incomes in the same year they made their contributions, but they don’t have to.  Waiting to take the deduction can make sense in certain circumstances.  For example, suppose you get a $20,000 inheritance in a year when your income is low.  You might choose to make an RRSP contribution now, and take the tax deduction in a future year when your marginal tax rate is higher, so that you’ll get a bigger tax refund.

RRSP contribution room is based on the calendar year

Each year you are granted new RRSP contribution room based on your previous year’s tax filing.  This amount is equal to 18% of your prior year’s wages (up to a maximum and subject to reductions if you made pension contributions).  You can contribute this amount to your RRSP anytime starting January 1. Continue Reading…

Is short-termism hurting your investment?

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By Bob Lai, Tawcan
Special to Financial Independence Hub

Are you a patient investor? Or are you looking at your portfolio multiple times a day, having the itch to sell everything? Despite having done DIY investing for over a decade and making my shares of investment mistakes in the past, I am still learning about investing on a daily basis.

One key lesson I’ve learned is short-termism will hurt your investment. As investors, we need to have patience and a long term view.

What is short-termism?

Per Wikipedia, short-termism is giving priority to immediate profit, quickly executed projects and short-term results, over long term results and far-seeing action.

On the surface, it seems that short-termism is associated with investment strategies like day trading, momentum trading, short selling, and options trading. However, I believe many investors that invest in individual dividend stocks and passive index ETFs often fall into the short-termism trap as well.

How so?

On one hand, it’s about short-term profit taking. On the other hand, it’s about paying too much attention to the short-term share price movement and feeling the need to tweak your investment portfolio. Some common portfolio management questions I’ve seen on Facebook and Twitter are:

“Should I take profits when the stock goes up and re-invest the money later? Give me a reason why I shouldn’t sell and should just hold?”

“I purchased Royal Bank at $110. It’s frustrating seeing the share price going up to $150 and then dropping back down to $125. Should I sell when the stock is at a 52-week high and buy back when the stock price dips?”

“I have a small paper loss on Brookfield Asset Management, I don’t think the company is doing well, should I sell and invest the money elsewhere?”

“I bought some Apple shares recently. Apple had a terrible quarter and I’m down. I’m convinced that Apple is going to crash and burn. Should I sell and run now?”

And the questions go on and on…

Why do we fall into the short-termism trap?

There are many reasons why we fall into the short-termism trap. Some of the common reasons I believe are:

  • The need to be correct – we as investors want to see our investments increase in value once we make the purchase. When this happens, it means we’re right and made the correct investment decision. If the share price goes down, that must mean we are wrong and are terrible at investing. The need to be correct becomes a burning desire. Nobody wants to be told that they are wrong and be the laughingstock.
  • The need to be validated – we all have the need to be validated by others but for some reason, this need is even stronger when it comes to investing. We want others to validate that we made the right investment decision so we can feel good inside. The desire to be validated can be like drugs, once someone validates you, you begin to want even more. The need to be validated is a very slippery slope…
  • Looking for gains right away – It’s exciting to see investment gains. It is even more exuberating to see significant gains in a few days. It’s like going to the casino and winning 1000 times on your bet or winning the lottery. Why wait for five years to see multi-bagger gains when you can get the same type of gains in a week? Long-term investing is for losers!
  • Ego – for some reason we all believe we are better investors than who we truly are. Believe me, I fall into this trap from time to time. Deep inside, we believe that we can predict how companies will do in the future accurately by looking at past performance and public information.

How to escape the short-termism trap?

So how do we escape the short-termism trap? I think the best method is to understand your short-term, medium-term, and long-term goals. Are you investing for the short-term or are you investing for the long-term? Knowing this will dictate what kind of investments you should buy. Continue Reading…