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.

Millennials and Gen Z struggling with debt but open to finding solutions

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BDO Affordability Index Spring 2023 (CNW Group/BDO Canada LLC)

By Jennifer McCracken, BDO

Special to Financial Independence Hub

The cost of living has spiked significantly in the past year and Canadians across the country are feeling the pinch. Younger Canadians between the ages of 18 and 34 are particularly affected, having not had the chance to build up as much savings as older generations.

BDO’s newest Affordability Index shows that 45% of young Canadians say their debt load is overwhelming and they’re unsure how to tackle the problem. That’s higher than those between the ages of 35 to 54, where 39% say they’re in that situation and significantly larger than the 13% of Canadians between the ages of 55+ who feel the same.

Credit-card debt appears to be the main reason younger Millennials and Gen Z are falling behind, with 37% of 18-34 year olds saying this form of debt causes them the most stress. Mortgage debt and student debt were the next closest reasons, with 22% for the former and 21% the latter.

What are Canadians doing to cope with inflation and rising debt?

It’s not surprising then that 49% of younger Canadians say they’re reducing their living expenses to cope with inflation and the high cost of living, while 32% say they’re lowering how much they contribute to savings as well.

While younger Canadians may be struggling more than their older counterparts, they’re also more open minded when it comes to finding solutions.

The Affordability Index indicates that younger generations are much more willing to look for new streams of revenue compared to older ones. Some 24% say they are adding part-time work to keep up with inflation, compared to just 13% of 35-54-year-olds and only 5% of those 55 or older.

Young Millennials and Gen Z would also find side hustles and gig work to increase their income. Of those doing this, 35% said it was to help them pay for essentials and 27% say it’s to help them pay down debt.

It’s not just part-time and gig work that younger Canadians are using to fight inflation, they’re also looking for higher paying jobs. A total of 13% say they’ve recently found a new full-time job in response to the affordability crisis. That’s compared to just 7% of those aged between 35-54 and only 1% of those 55 and older.

However, while younger generations are keen to seek out new ways to increase their income, they’re very unfamiliar with many of the most common debt relief options available.

A lot of people just don’t know what their debt relief options are  …

Only 19% of them said they were familiar with the idea of bankruptcy, 11% said they know what a debt management plan is and 9% with a debt consolidation loan. Continue Reading…

A Self-Checkup on your Financial Health to help your Mental Wellbeing

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Image courtesy FPCanada

 

By Sahar Abdul Zahir, BlueShore Financial

Special to Financial Independence Hub

Many people view money as simply numbers that get you from point A to point B, and may not make a connection between how finances can also impact mental and physical health. However, FP Canada’s 2022 Financial Stress Index survey found that 38% of Canadians believe finances are their biggest source of stress, ahead of both health and relationship issues. More alarmingly, FP Canada’s study also found that 43% of respondents had lost sleep over financial anxiety.

There are a variety of reasons why many of us do not seek professional advice for our financial problems, ranging from not thinking we need the help, to being embarrassed, or not knowing where to go. Regardless of the reason, there is a clear link between finances, anxiety, stress, and mental health, and avoidance of the problem is not the answer. The good news is, there are many steps you can take today to help get yourself back on track.

Understand your relationship with money

Many people still believe that talking about money is taboo, or feel embarrassed to discuss financial troubles, even with a professional. Financial literacy should begin at an early age and continue as a lifelong learning process. Having an open dialogue around finances and money management as a family can be a good thing as your experience with money, or lack thereof, in your childhood can impact your attitude and emotions towards money later in life. Make note of impulse buying behaviour and what may trigger it: perhaps a hard day at work, or an argument with your partner. Understanding these spending patterns will allow you to find better ways to manage these stresses and adjust accordingly.

Financial health checkups

Just like doing a regular physical health checkup, having periodic financial wellness checkups is important for detecting any areas that you should focus on. This can be done by completing a thorough audit of finances, budgets, and plans with an advisor. An annual checkup can help you better prepare for the future and minimize the impact of any surprise events. Also utilizing online advice tools such as BlueShore’s Financial Wellness Checkup tool can help get you started, by providing an assessment of how you are doing, and advice on where you need to improve along your path to financial wellness.

Small cuts for long-term impact

We have all heard the latte-a-day and avocado toast analogy. While these items can seem like small expenses that are not likely to make a big impact on our overall financial health, they are really representative of our spending habits. Cutting out your morning coffee is not going to make you wealthy, but you may have some ongoing small expenditures that quickly add up and could affect your long-term financial goals. Continue Reading…

ETF Fees: What you need to know before investing

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By Sa’ad Rana, Senior Associate – ETF Online Distribution, BMO ETFs

(Sponsor Blog)

Investing in Exchange-Traded Funds (ETFs) can be a smart move for many investors, but it’s crucial to have a clear understanding of the costs and fees associated with these investment vehicles. In this blog post, we will decode the various expenses and provide valuable insights to help you make informed decisions.

Expense Ratio: Unveiling the Components

The expense ratio is a fundamental factor to consider when evaluating ETF costs. It encompasses several elements, including:

  1. Management fees: ETFs charge management fees for the professional management of the fund.
  2. Operating expenses: These expenses cover administrative costs, custody fees, and legal fees.
  3. Trading costs: ETFs incur costs associated with buying and selling the underlying assets that make up the fund.
  4. Taxes: ETFs may also be subject to taxes including, interest, dividend, and capital gains taxes, which are passed on to investors.

The expense ratio is typically expressed as an annual percentage of the total assets under management (AUM) and is deducted from the ETF’s net asset value (NAV). For instance, if an ETF has an expense ratio of 0.50% and an NAV per unit of $100, the annual cost to investors would amount to $0.50/unit.

Exploring Other Cost Considerations

  1. Tracking Error: Although ETFs aim to replicate the performance of an underlying index or asset class, certain factors such as fees, market conditions, market timing, currency, and tracking methodology can lead to a difference between the ETF’s returns and the index it tracks. This disparity is known as tracking error.
  1. Bid-Ask Spread: The bid-ask spread represents the difference between the highest price a buyer is willing to pay and the lowest price a seller is willing to accept for an ETF. Liquidity, market conditions, ETF characteristics, trading volume, and market maker activity influence the bid-ask spread. Narrower spreads are generally observed with higher liquidity and trading volumes, while wider spreads are prevalent with lower volumes and niche markets. Investors should consider bid-ask spreads, as they can affect transaction costs and overall investment returns. To mitigate these costs, investors can use limit orders to specify their desired price and potentially minimize the impact of wider spreads.
  1. Currency Hedging: ETFs provide easy access to assets from different regions worldwide. Investing in non-Canadian assets expose investors to two potential sources of return: the return of the security and the return of the foreign currency relative to the Canadian dollar (CAD). Currency fluctuations can have either a positive or negative impact on your total return. Currency-hedged ETF solutions are available and aim to mitigate the impact of currency fluctuations, allowing investors to participate in global markets as if they were local. It is important to understand however, that there is a cost for currency hedging. At BMO ETFs this cost is minimal as we use forward currency contracts to hedge purposes which are very cost effective.   Continue Reading…

How to avoid a CRA Audit

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By Amit Ummat

Special to Financial Independence Hub

Our firm is a tax boutique with all kinds of clients and all kinds of tax issues. They may be corporations, individuals of high net worth, business people, and entrepreneurs running smaller enterprises. They can also be retired professionals.

One of our clients is a retired doctor from Alberta who owns several Canadian properties. He moved from Alberta to Ontario so he could be close to his sister, but he still owns that property in Western Canada. However, the Canada Revenue Agency is not satisfied that his Ontario residence is his primary residence – it is – and demands back taxes.

Unfortunately, the CRA often takes the view that one is guilty until proven innocent, which is why so many people require professionals like lawyers and accountants to help them in their tax dealings with the federal government.

We also have clients with stories that are heart-breaking. And make no mistake, the CRA is anything but a purveyor of mercy when it comes to taxes. It doesn’t matter if you are a multi-millionaire or a single mother with kids whom they deem to be in tax arrears.

Regardless who you are and your particular situation, one thing everyone has in common is that no one wants to be audited. According to the CRA’s Annual Report to Parliament, in fiscal year 2020-2021 the agency conducted 245,000 audits of individual tax returns and another 41,000 audits of small- and medium-sized businesses. Generally speaking, the CRA can only audit someone up to four years after a tax return has been filed. However, in some cases — such as in suspected fraud or misrepresentation — the CRA can go farther back and, in fact, there is no time limit for such a re-assessment.

Of course, many of our clients are self-employed, but as mentioned we also represent professionals and businesses who are required to keep their own books, as well as clients who operate other cash-based businesses. It just so happens that these groups are usually audited more often than others. So, if you belong to a group that is already under some scrutiny, it’s important to audit-proof your business.

How do you do that?

Indeed, one of the most common questions we get asked is “How do we avoid audits by the CRA in the future?” Well, there is no simple way. It’s not like taking a pill. But I have compiled a list of ten tips that should help you to remain audit-proof. Let’s have a look at them:

  1. Check and double-check your return after you complete it. This is especially true if you do the return yourself. Keep in mind where this return goes. It goes to the Canada Revenue Agency. If they discover a mistake – even if it’s an honest mistake on your part – they may conclude it was done for a reason. I have many examples of well-documented transactions being rejected due to the taxpayer’s failure to file a routine election. This is why it’s better to avoid mistakes as much as possible.
  1. Keep detailed records. I cannot stress this enough. The fact is some expenses and deductions are audited more than others. I had a client recently who was reassessed vehicle benefits because he didn’t have a log book. It was a huge headache, but we got him his relief. Ensure that you keep meticulous records of all these expenses.
  1. Make a point of filing correctly the first time. Amended returns can and often do draw scrutiny to your filing position. I have seen people forget to report a sizeable deduction. Once it was reported on an amended T2, the CRA conducted a full-scale audit. And this is a large public corporation.
  1. Properly document any unusual changes to your filing position. What exactly does that mean? If you are suddenly earning double the income from one year to the next, or you are claiming an unusual capital expense, do not be afraid to explain it in your return.
  1. Try not to claim unrealistic deductions. Home office expenses, especially these days in the post-Covid world, are often claimed. But if you are claiming half of all your home expenses, you may be audited. Likewise, if you ascribe 100% business use to a vehicle, you may be audited for that.
  1. As much as possible, try to fly under the radar. In other words, do not make it easy for the CRA to single you out as a person or business that should be audited. Examples of not doing this could be things like excessive charitable donations, very low income while living in a mansion, or participating in tax shelters. All of these will raise red flags that may result in an audit.
  1. File on time. This is pretty basic, but you would be surprised how many people and businesses file late. There really is no excuse not to comply. Late returns are never a good idea and opening the door to a potential audit is only one of the reasons to avoid doing this. It is always better to file on time. Continue Reading…

The 5 factors needed for timing your Retirement, and a 6th that shouldn’t be

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My latest MoneySense Retired Money column reprises a couple of interesting takes on the key factors in deciding one’s timing of taking on Retirement. You can read the full column by clicking on the highlighted headline here: The 5 Factors of Retirement for Canadians.

One take is from the Plutus-award winning US blogger and author Fritz Gilbert; the second a Canadian take from MyOwnAdvisor’s Mark Seed.

Gilbert started the ball rolling back in April with a blog on his The Retirement Manifesto blog, entitled The 5 most important factors in your decision to retire. Gilbert is also the author of a book on retirement: Keys to a Successful Retirement. After more than 30 years in Corporate America, Fritz retired (as planned) in June 2018 at Age 55.

Then this site, as it often does with bloggers’ permissions, re-reran Gilbert’s blog late last year. It was then noticed by Mark, who was inspired to write his own version of the blog, with more of a Canadian spin and remarks on his personal perspective. It was also republished on the Hub.

So what was it that so intrigued three different financial bloggers (I’ll count this blog and the MoneySense column as evidence that three of us found it worthy of a write-up)?

Fritz Gilbert

Succinctly, here are the five factors originally identified by Gilbert:

  1. Do you have enough money?
  2. Are you mentally prepared for Retirement?
  3. Have you made a realistic spending estimate?
  4. Is your portfolio ready for withdrawals?
  5. What’s your risk tolerance?

            By now, you may be wondering about the mysterious sixth factor which in his blog Fritz says “doesn’t really matter at all.” Strangely, he adds, many people consider it to be the most important in their decision.

            Spoiler alert: if you like a bit of suspense, read Fritz’s original blog before proceeding. For those who want the quick-and-dirty reveal, if you’ve not already guessed, it’s your age. Or as Fritz wrote: “For once in your life, age has nothing to do with this decision.  Unlike driving, voting, and drinking, there are no legal constraints on when you can choose to retire.  As long as you can check the boxes on the important factors listed earlier, you can choose to retire regardless of your age.” Continue Reading…