Hub Blogs

Hub Blogs contains fresh contributions written by Financial Independence Hub staff or contributors that have not appeared elsewhere first, or have been modified or customized for the Hub by the original blogger. In contrast, Top Blogs shows links to the best external financial blogs around the world.

How to manage your Finances in your 20s

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By Cloe Matheson

Special to the Financial Independence Hub

Your twenties are often touted as the best years of your life. They’re full of fun, frivolity, and finding out who you are. But it’s easy, as a twenty-something, to surrender any thought of saving for your future.

Now, we aren’t saying that every millennial will squander their chance of buying a house because they spend too much money on smashed avocado toast. There are, however, a few key things that we could all do better in our twenties to manage our finances. Want to know how to save your pennies for the future? Here are some top tips.

1.) Don’t get into (more) debt

Most of us will already have large loans to pay back for college. Avoid saddling yourself with even more debt by buying things you can’t afford. This habit will only lead to a world of pain in the next decade of your life.

So how do you avoid getting yourself into financial trouble by spending carelessly? Firstly, evaluate and reflect whenever you look to purchase items over a hundred or so dollars. It’s not only big-ticket purchases you need to watch out for, either. All those discretionary purchases – a top here, a coffee there – really do add up. 

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2.) Build your credit history

You also need to build up your credit history carefully and surely. For many banks and mortgage brokers, a total lack of debt signals financial immaturity. Start building a solid credit history by making a small purchase on credit (say, a washing machine), and promptly paying the moneylender back.

3.) Learn to live with less

It might take some philosophising, but it’s time to re-evaluate your attitude toward material things. Young people tend to compare their circumstances with their friends’ more than most. There’s also a tendency to covet the gadgets and homes that we see plastered on social media. But you don’t need to live this way to be happy. Continue Reading…

Tips for transitioning your employees to work from home

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By Shannon Hicks

For the Financial Independence Hub

For businesses to thrive, they must give importance to their employees. They are an essential part of any company because their competence is what drives growth.

As an employer, there are a number of practices that you can adopt to make your employees more efficient at their tasks, especially in these times when a worldwide health crisis is at hand and most employees are at home.

Working from home poses a lot of obstacles to employees. Hence, as an employer, it is important to motivate them to concentrate on their respective tasks. This way, even though the whole world and economies have been disrupted, your business is still able to generate high-quality outputs.

Here are some tips to transition your employees to working from home:

1.) Help them set up their workspace at home

The first problem that employees face when they start working from home is whether or not they have the hardware necessary to carry out their tasks. So, as an employer, it should be your first concern as well.

Thus, when transitioning your employees to work from home, ask them if they have the necessary equipment or hardware, such as a computer, for them to be able to perform their tasks. If they lack the essential implements, then, allow them to borrow those from the office. Let them take home the units they use at work; after all, no one would be using those. Of course, they need to return the devices once they resume working at the office.

Furthermore, allow your employees to download or install applications that your company will be using to communicate and manage tasks. Make it clear which tools and workforce management system will be utilized so they can have them installed on their respective devices as soon as possible.

For example, Slack can be used for communication purposes, while Zoom can be used for teleconferencing. Making this clear early on will allow your employees to familiarize themselves with the tools, so they would be efficient in using them as soon as they need to.

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2.) Be flexible in your working policies

Each employee will have a different setup at home. While some are living alone in their own apartments, some are with their families and may even have kids at home. Thus, it is understandable that when employees start working from home, they will have different schedules as to when they are best able to work.

So, when making policies for employees working from home, be understanding of their circumstances. For example, you may not need to set specific working hours; rather, keep them focused on finishing tasks before or on the deadline.

For better communication, you can schedule a weekly or bi-weekly teleconference, or you can also take advantage of a specific time when everyone is available. Thus, communication is always open and everyone can regularly give updates on their tasks.

3.) Keep communication lines open

Weekly teleconference or virtual meetings should not be the only time that managers and employees are able to talk and give updates. Continue Reading…

Should Investors have FOMO?

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By Cory Clark

Special to the Financial Independence Hub

Nobody knows if we have reached the turning point in the year’s pandemic-induced market meltdown. The markets are not quite as scary as they were at the beginning of March when some markets lost nearly 20% of their value in a single day.

Some recoveries are rather swift, while others take a little more time, but there is one way to know when the market has reached its bottom … just kidding …. there is no way of knowing, and that’s exactly why the average investor should not be bailing out of their positions when storm seas get rough.

If you decide that you can’t stand the risk of loss and fear that goes along with it, the only way to sell and successfully mitigate losses is to make two correctly timed decisions. Not only must you sell at the right time, but you must also re-enter at the right time. DALBAR has been studying investor behavior since 1994, and it is painfully obvious from history that investors are not going 2-0 and timing it right on both ends.

The common rationalization for selling out at the worst time is that if you are not losing money, you must be better off, right? This an example of a dangerous investor behavior known as risk aversion, and from an economic standpoint it is an invisible hole in the bottom of your bucket. Investors love to make money, but they hate to lose that same amount of money even more. So being out of the market and avoiding a loss provides a measure of comfort, but being out of the market and losing out on a similarly sized gain tends to go unnoticed. But when looking at your investor statement, or when projecting future retirement income, money you lose and money you should have (but didn’t) gain will all have the same net effect on that bottom line.

Don’t get out if you don’t know when to get back in

The situation of today’s average investor perfectly illustrates in live action what DALBAR’s Quantitative Analysis of Investor Behavior (QAIB) has been teaching investors and advisors for years; don’t get out if you don’t know when to get back in.

Imagine an investor who reached their breaking point sometime in March, and sold their equity position with the intention of buying back in when the coast is clear. Not long after, the markets started to shoot back up aggressively, much earlier than anticipated. Now doesn’t that put this investor in a precarious situation? Who wants to be “that guy” (or gal) who buys back into the market after the biggest daily gain ever? If the recovery ends up being a false start, this investor could lose a significant chunk of his portfolio … AGAIN. So perhaps this investor doesn’t fall for a potential false bottom and continues to wait …. and wait … and wait … until the recovery is certain. Unfortunately, by the time the recovery is certain, it’s over and this investor has missed the boat. Continue Reading…

Retired Money: The survivorship downside of deferring CPP benefits

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My latest MoneySense Retired Money column is the second part of a series on CPP and survivorship issues. You can find part 2 by clicking on the highlighted headline here: Reconsidering when to take CPP benefits amid Covid-19 risk.  You can find the first part here and yesterday’s Hub summary here.

What’s all that about Covid-19 risk? It’s admittedly a bit morbid but after all, retirement survivor benefits are all about expected longevity and mortality. To the extent Covid-19 provides a slightly higher probability of a spouse passing away before expected, it underlines the fact senior couples need to think about survivor benefits. They should have all along, of course, but this crisis just makes the issue that much more tangible.

The main sources in the column are again retired advisor Warren Baldwin, who personally took his own CPP at 66 in part because of survivorship issues, and TriDelta Financial president Ted Rechtshaffen, who tackled the topic in this recent column in the Financial Post. There he  described the unfairness of CPP and how it may have “effectively” no survivor benefits. He observed that if a couple both collect full CPP and one dies, the other receives a one-time $2,500 death benefit, but loses the entire ongoing CPP benefits of the deceased.

But if the same couple has one person collecting a full CPP benefit and their partner never paid into the plan and collects $0 CPP, if either dies the net result is they will continue to collect one full CPP benefit. The maximum survivor benefit is 60% of the maximum pension, since no individual can collect more than 100% of a CPP benefit. However, if one person currently receives less than 100%, if the partner dies, that person can top up the CPP payment up to 100% out of the amount being collected by the partner.

For most seniors, dropping combined maximum CPP income (at age 65, in 2019) from $27,600 a year to just $13,800 constitutes a huge hit if both partners contributed a lot to CPP over the years. Rechtshaffen suggested these rules “almost provide an incentive to only have one working partner over the years. It hurts couples in which both partners worked full time.” He also made some suggestions on how Ottawa could redress this unfair situation.

Asher Tward, Tridelta’s VP estate planning, generated quotes on a life-only, $14,110 per annum, single-person annuity, no survivorship, with the payment 2% indexed. He found a typical quote for a 65-year old male with 2% indexation was worth $316,000, while a typical quote for a 65-year old female with 2% indexation was worth $355,000. We also asked what it would cost to buy the same annuity with a 60% survivorship payout to the surviving spouse. The relevant comparison is someone with no spouse or who has a spouse with maximum CPP against a person who has a spouse who has no CPP. For a registered annuity for couples like my wife and I, Tward found a joint annuity with 2% indexation and a 60% survivor benefit was worth $358,000, with either partner being the survivor.

So for a couple with maximum CPP, the total “value” is around $700,000. If they can afford it, they could defer collecting benefits by living off RRSPs and other savings; however those assets are fully estate-protected for either survivors or beneficiaries.

“There is a degree of use-it-or-lose-it in the CPP,” Baldwin concludes, adding it behaves somewhat like a tontine, except with no lump sum at the end.

Similar issues with OAS

OAS presents a similar issue: at just over $7,000 a year, it would have a value around 50% of CPP: about $150,000, so why not collect as soon as possible? Continue Reading…

Retired Money: A new CPP calculator, and why I took my CPP at 66

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My latest MoneySense Retired Money column has just been published and looks at CPP survivorship issues. Tucked in there I reveal for the first time my personal decision to take the Canada Pension Plan at age 66, which I did last summer a few months after reaching that

It was more of a cash flow issue in light of the fact that just prior to this, my wife had left her full-time and well-paid job in the transportation industry. But I mention another consideration: the quirky CPP survivorship rules. Now I realize most couples in their 60s don’t dwell on our mortality much if they are in good health and keep care of themselves. And bear in mind my decision was long before the Coronavirus pandemic, which disproportionately affects seniors.

The first of a two-part series on this issue you can find by clicking on the highlighted headline: When is the best time to start taking your CPP payments?

We will look at the followup tomorrow.

Normally, those ready to retire contact Service Canada to get a record of past CPP contributions. They send you benefit estimates (both for CPP and OAS) some months before you turn 65 but you can also obtain this information before or after by visiting Canada.ca. There you can find a CPP/OAS calculator provided by Ottawa, providing an estimate of expected sources of income.

Doug Runchey and David Field team up on a new CPP calculator

While OAS is straightforward, optimizing CPP is surprisingly complicated, so much so that Doug Runchey (one of the country’s preeminent experts on both programs) provides calculation services to help individuals make optimal decisions on timing the start of benefits. Runchey used to be at Service Canada, so is intimately familiar with the ins and outs of the timing of receipt of these programs. Continue Reading…