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Over the last few years, discussions around personal finance have been louder – and more confusing – than ever.
Market volatility, rising interest rates, the high cost of living and global unrest have dominated headlines and made life increasingly complicated for most Canadians.
Today (October 9) is World Financial Planning Day, a time to dim the noise and focus on the basics: a financial plan, what it is and how it can help you feel financially prepared for your future. More importantly, it’s an occasion to recognize that working with a financial advisor on a personal plan has many benefits, including greater financial confidence and a higher quality of life.
A financial plan is not just an investment plan: in fact, it’s much more. An investment portfolio is certainly a component of a financial plan, but your investments don’t provide a clear direction for any life plans in the coming years. Your investments can indicate financial returns, but their value is not guaranteed at any point in time and investments alone cannot prepare you for the future.
A financial plan is a goals-based document that provides a road map for what you would like to achieve in the short- and long-term. The goals are not necessarily financial, but they need monetary support (like investment income) to be reached.
Goals within your financial plan may include:
When you want to retire, and the lifestyle you want in your golden years.
Affording major expenditures, including a home, vacations or post-secondary education for dependents.
Preparedness for untimely events, such as premature death, disability or critical illness.
Plans for your estate and the legacy you’d like to leave for your family and charities.
These goals are personal and involve answers to questions that address significant, and sometimes difficult, situations. It can be challenging to determine these responses on your own, so working with a financial planner can help you answer these questions, define your goals and create a strategy to achieve them. Your financial planner will get to know you on a personal level. Then, based on your aspirations, project what needs to happen and create a financial plan for your future. Continue Reading…
Financial Independence is the goal of everyone with a bank account, and budgeting plays a main role in achieving that.
It can be difficult to understand where to start or how to get yourself back on track.
With these valuable pieces of insight from leading industry experts, you can start your own Fnancial Independence journey.
Pay yourself first
“One essential budgeting tip for achieving financial independence is to adopt a ‘pay yourself first’ approach. This means prioritizing savings and investments by setting aside a certain portion of your income as soon as you receive it, before using it for bills, expenses, or discretionary spending. By automating savings and investments into accounts like emergency funds, retirement accounts, or other investment accounts, you’re prioritizing your financial goals and building a habit of consistently contributing toward them. Over time, this proactive approach allows your savings to grow, helps you avoid lifestyle inflation, and keeps you focused on long-term financial stability rather than short-term gratification.” – Bill Lyons, CEO of Griffin Funding
Financial independence wildly relies on smart budgeting and disciplined financial practices. One powerful strategy is to leverage your tax return, which is often a lump sum. Consider depositing your tax return directly into a separate savings account from your tax software. This strategic move creates somewhat of a safety net. This disciplined approach not only safeguards your funds but also provides a foundation for future investments or emergency expenses. Over time, this habit can contribute significantly to your financial independence.
Minimize Debt
“Minimizing your debt can help achieve financial independence, as it reduces financial burdens and frees up resources for other financial goals. When you prioritize the repayment of high-interest debts, such as credit-card debt or personal loans, individuals can save significant amounts of money on interest payments over time. This disciplined approach to debt reduction can also improve credit scores, making it easier to qualify for private financing options when purchasing a home or commercial property. Minimizing debt, individuals can strengthen their financial position and increase their chances of securing favorable terms and rates for private financing, ultimately helping them achieve their real estate ownership goals.” – Sacha Ferrandi Founder & Principal, Source Capital
“A practical budgeting method divides income into three categories: 50% for needs, 30% for wants, and 20% for savings or debt repayment. This system assists individuals in efficiently allocating their funds, ensuring they cover essential expenses such as housing, groceries, and utilities, while also setting aside money for financial goals. Wants to include discretionary spending such as entertainment and dining out. The remaining portion goes towards savings or paying off debts, contributing to long-term financial security. This budgeting approach offers a simple framework for managing finances, preventing overspending on non-essentials while prioritizing savings. It’s adaptable to different income levels, making it a balanced way to manage money.”– California Credit Union
Plan for irregular expenses
“Planning for irregular expenses is a wise budgeting strategy that can contribute to financial independence. By anticipating and setting aside funds for irregular expenses, individuals can avoid financial stress when unexpected costs arise. One effective way to allocate funds for irregular expenses is by saving a portion of your tax refund return instead of immediately spending it on unnecessary items. Exercising discipline and directing your tax refund towards an emergency fund or a dedicated savings account, you can build a financial cushion that provides peace of mind and protects you from unexpected financial setbacks. This proactive approach to budgeting ensures that you are prepared for unexpected irregular expenses and helps you maintain control over your financial well-being.”– Lisa Green-Lewis Tax Expert, Turbo Tax Continue Reading…
The following is an edited transcript of an interview conducted by financial advisor Darren Coleman of the Two Way Traffic podcast with eldercare expert Yvonne Dobronyi of YCD Consulting. It appeared on September 6th under the title ‘Planning for your parents and what it’s going to cost.’
Coleman says the single biggest financial blind spot for families when planning for the future is the rising cost of eldercare and Yvonne Dobronyi agrees.
An eldercare consultant who counsels individuals and families through her firm, YCD Consulting, Yvonne says the monthly outlay for a retirement home starts at $3,600 for a single studio suite without care, but once in-home resources are included the tab can go up to $20,000 a month.
“Families are in denial and don’t want to ask difficult questions about moving Mom or Dad to assisted-living accommodation,” says Yvonne, who added that more than half the families she sees aren’t prepared for dealing with one, never mind two, elderly parents.
She says many seniors don’t understand they need to sell their home or cottage and sometimes both in order to afford retirement living if they have limited savings. And that seniors may have to work beyond their retirement years to maintain a cash flow to pay their bills even if they’re mortgage-free.
The two experts discussed a range of issues to do with eldercare:
Who holds Power of Attorney for both property and healthcare, and what happens when one sibling has it and the other doesn’t?
The importance of keeping these documents, along with a will, updated passport and medical records, in a designated file that’s readily accessible by a trusted contact.
‘Free’ (government-funded) resources like personal care and light housekeeping services are available after assessment if you qualify but only for 2-4 hours and when staff is available.
Dealing with long wait lists for LTC (long-term care) homes, how to navigate the system, and making decisions during emotional stress.
Below is an edited transcript of the interview, focusing on the cost of eldercare housing services and families being prepared, or not prepared, for what can happen.
Darren Coleman
This is probably the single biggest blind spot most families have when they do their own planning. We can prepare for retirement, but this is where it tends to catch people off guard. I want to explore what life looks like when people suddenly have to figure out, how do I live independently for longer in my home, or what happens if I move into seniors’ housing.
Some families are well prepared, but more than half are not. They react to a situation, so all of a sudden you have a crisis. Mom has dementia and Dad’s been the caregiver and now Dad falls in the home and breaks his hip, so he has to go to hospital. Who’s going to manage Mom? That’s when families get together to figure out what sort of care is required. So some will go to hospital, and others try to manage Mom. My experience is that a lot of times they haven’t designated a power of attorney, completed a will or made funeral arrangements.
Darren Coleman
The reason I think most find they’re not prepared is that the timing of when people will need care is unknown. And people don’t know what these things cost.
Yvonne Dobronyi
Often, family members don’t know where they have an RRSP or GIC, or whether or not their home is sellable the way it is. It’s something that’s avoided because families are in denial and don’t want to ask difficult questions. But it’s our duty as family members to be well prepared and that might involve asking difficult questions.
Darren Coleman
Someone should take the lead in these things. It might be more of a formal meeting or a conversation with some structure to it.
Yvonne Dobronyi
Absolutely. You sit down and share information that will be kept confidential. And if something happens, family members are prepared and know what to do. But often this is not the case.
Darren Coleman
People may be dealing with these things while they’re in this emotional crisis. That’s not the best time to have that chat with your brother or sister about who’s going to look after Mom or Dad.
Yvonne Dobronyi
Very often a parent made a decision to give the power of attorney to one child and not the other two. Or two of them have the power of attorney and can’t agree on what the next steps might be. So one family member says we should move Mom and Dad into a retirement community or long-term care, and the other one says no.
Trusted contacts, Wills & Powers of Attorney
Darren Coleman
There’s a new administrative element for financial advisors in Canada now. It’s about adding a trusted contact to your file. So if people listening have not done this with their advisor, I recommend picking up the phone and saying I’d like to add that to my file. You mentioned the power of attorney and the will. We should point out there’s two kinds of power of attorney. Sometimes people will say, I have a will. Well, it doesn’t matter. The will only works once you’re gone, and the power of attorney is the document that works until you’re gone. So you need both of them.
Yvonne Dobronyi
The power of attorney is responsible for making decisions on behalf of that party in a healthcare capacity. Say the resident or patient has an extreme crisis situation and is now on life support. There needs to be that meeting to determine what is the best route. And that’s a difficult decision to make. I recommend you have more than one person be the power of attorney for care, so you can look at it closely and determine together what would be the best route. Continue Reading…
When I started riding my stationary bike about a year ago, I had a vision of what exercise would do for me. I’d become a stronger, healthier person. I’d lose weight. My desk would be tidy and my bookshelves in alphabetical order. I’d be taller. I’d be younger.
That last goal was inspired by a book called Younger Next Year, by Chris Crowley and Henry S. Lodge, MD. They wrote that, although everyone is going to die, years of decrepitude at the end of life are avoidable. There was a way to counteract the relentless decline of aging. Unfortunately, the only way to release the rejuvenating chemical was daily physical exertion.
As a woman of a certain age, I no longer focused on whether exercise would help me look good naked. Instead, my goal was to be able to get to the bathroom by myself well past the age of ninety. Caring for my elderly mother, I learned that being able to drive a car isn’t the key to independent living. It’s being able to get to the potty on your own.
One benefit of the stationary bike was its convenience. On my morning commute from the bedroom to the kitchen, I passed the exercise room and could hop on the bike.
I bought my stationary bicycle second hand for $40. I felt frugal saving thousands of dollars compared to the latest high-end stationary bikes. Those gorgeous new machines had a screen that makes it look like you’re biking in the Tour de France or across Tuscany. Or you could take a virtual spin class with a live instructor.
But what those high-tech bikes couldn’t do was distract me from the fact that I was working out. Exercising wasn’t fun for me. I needed distraction. My riding times improved considerably when I started watching Netflix on my tablet. I wanted to peddle vigorously while catching up on episodes of Capote and The Swans. I wanted to forget that I’m on the bike and just have the minutes tick by.
My goal was to ride for an hour. At first, if I rode fifteen minutes, I was exhausted: breathing hard, awash in perspiration, and rubber-legged my first few steps after climbing down. But I kept increasing my time a few minutes each day.
The hour-long ride eluded me for months. At fifty minutes I’d stop and tell myself that I could have ridden for another ten minutes if I really wanted to. Then I pushed through to fifty-five minutes.
When I finally rode a complete sixty-minute hour, it was a huge victory. I jumped off the bike, pumping my fists over my head as I did the Rocky dance. My cat looked at me like I was nuts.
Elated, I called my cousin to brag. “I biked for an hour today.”
“You did?” she said. “You’re an animal.”
“I’m an animal!” I shouted.
My cat shot me a look that seemed to say, “Leap to the top of the refrigerator, then tell me who’s an animal.” But I was in no mood to yield the field. I had done what the go-getters in spin class dog: I rode for an uninterrupted sixty minutes.
As hour-long rides became my routine, some things changed. I could talk on the phone while I was riding. My recovery time became much shorter. My legs wanted to dance, which could be embarrassing if I was standing in line at the bank.
Things that DIDN’T improve with regular exercise
But my life hadn’t become perfect. Here are a few things that didn’t improve with regular exercise. Continue Reading…
As consumers we prefer higher quality things, and with stocks it may be no different.Learn why Quality may be important to investors.
Image courtesy BMO ETFs/Getty Images
By Erin Allen, Vice President, Direct Distribution, BMO ETFs
(Sponsor Blog)
Quality is a very familiar concept in society. As we know, an item can’t be judged on price alone. If one shirt costs $10, versus another that costs $30, does this mean the cheaper shirt is better based on price alone? Most likely not, as what matters is the quality of the shirts, and how it will perform in the future!
In investing, Quality is no different. It starts with a base assumption that all stocks aren’t created equal, some are going to be higher quality than others, and as a result may enjoy better risk-adjusted returns. As consumers we prefer higher-quality things, and with stocks it is no different. Indeed, higher-quality stocks have historically shown benefits to investors, outperforming over time.[1]
What makes a company a quality company?
There are different approaches to identifying Quality, with associated pros and cons. Warren Buffett prefers to look for companies with “competitive moats” and companies that exhibit earnings power in excess of its peers. If a business model is easily replicated, one would expect copycats to soon enter, and drive down profitability. Companies with competitive moats have advantages that competitors find difficult to touch, and would be considered higher quality. Many fundamental investors have a Quality screen in place and will also often look for high-quality management teams, which are assessed by in-person meetings, and other heuristics.
Quality can also be defined by assessing financial metrics in a consistent and disciplined approach. This is an approach BMO GAM has taken for the ETFs listed below, using the MSCI index which BMO’s Quality ETFs are based. Three metrics are assessed: ROE (Return on Equity), Leverage (Debt to Equity), and Earnings stability (the consistency of earnings through time). Having discipline, and a regular rebalancing schedule to assess and make changes, is of tremendous benefit in investing, to mitigate the role of emotion and behavioural biases, and to ensure the portfolio remains on plan, and true to its intended exposure.
ROE – This is a measure of profitability. Companies with higher profitability are winners in their respective industries. In investing, while things do evolve over time, winners tend to remain winners*1. Higher profitability is a good signal a company has a high-Quality business model.
Low Leverage – High Quality companies tend to be cash rich, from driving solid and consistent business results. Apple is a great example, as it is currently sitting on over US$60 billion of cash and short-term investments2. In short, Quality companies often have less need for debt, so BMO GAM screens for companies with less debt overall.
Earnings Stability – Companies with strong competitive advantages tend to have more consistent earnings streams, as competitors find it difficult to take a “bite out of their lunch.” Quality companies tend to show their merits in earnings consistency through time.
When does Quality tend to perform well, and when may it lag?
Quality companies tend to have a risk level at or slightly below broad markets, and can participate in growth, while maintaining a measure of defensiveness should volatility in markets increase. Investing in higher-profitability stocks tends to give the quality exposure a growth flavour, while in negative equity markets quality stocks will often be preferred due to their strong overall balance sheet strength, with less debt and more consistent earnings. As well, higher interest rate environments tend not to be as much a concern for quality companies, as their debt levels are lower and they are less exposed to higher interest rate impacts.3
Performance wise, like all factors, Quality is best evaluated versus broad market performance through the entire market cycle, or market cycles. However, as a generalization, Quality stocks tend to do well in growth markets. In very strong bull markets Quality stocks tend to participate well, but higher risk/lower quality stocks may outperform when investors are the most exuberant and take on more risk. In backdrops with higher market volatility, Quality tends to outperform, as company fundamentals and balance sheet strength matter. These are general historical performance trends, and performance in specific market scenarios may vary.
The chart below illustrates factor performance over the past 10 years which shows quality outperforming in many years.
Other considerations
Implementing a quality exposure in your portfolio leads to sector differences and security differences versus the broad index. For example, in the U.S., Quality tends to overweight Technology companies, as many of these companies fit the bill of high profitability/low debt/consistent earnings, and underweight other sectors such as Consumer Discretionary, where the metrics are not as strong. Continue Reading…
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