Debt & Frugality

As Didi says in the novel (Findependence Day), “There’s no point climbing the Tower of Wealth when you’re still mired in the basement of debt.” If you owe credit-card debt still charging an usurous 20% per annum, forget about building wealth: focus on eliminating that debt. And once done, focus on paying off your mortgage. As Theo says in the novel, “The foundation of financial independence is a paid-for house.”

What it means to Retire with Debt

Posted By Financial Independence Hub | September 15, 2015

By Douglas Hoyes

Special to the Financial Independence Hub

It’s a reality that Canadians are increasing their personal debt load.

Whether or not the debt levels they are carrying are cause for concern depends on who you talk to and on what day. On one day you will see a story that debt-to-income ratios, now at 163%, are at record highs and households are standing on the precipice. The next day you will read an article about how interest rates are at an all-time low, making debt affordable.

I can confidently say that my opinion doesn’t change from season to season or year to year. In my opinion, debt does not go well with either retirement or Findependence.

Seniors accounting for more bankruptcies

Granted, I’m an insolvency professional: a bankruptcy trustee who sees people who have accumulated an extreme amount of debt. Every two years at my firm, Hoyes, Michalos & Associates Inc., we review all of our client files to determine who is carrying debt and why. In our Joe Debtor study this year we discovered that seniors represent an ever increasing percentage of total bankruptcy filings. Even worse, they have the highest level of unsecured debt of any age group at the time of filing, with over $69,000 of unsecured debt. Continue Reading…

Lower trading fees aren’t an excuse to day-trade

Posted By Robb Engen | September 10, 2015

By Robb Engen, Boomer & Echo

Special to the Financial Independence Hub

As a Canadian investor, I’ve been pleased to see that most of the big bank brokerages lowered their cost per trade from $29 to under $10. Previously, most investors needed a minimum of $50,000 in assets to qualify for lower trade commissions. This has presumably levelled the playing field for small investors.

When I first opened a discount brokerage account with TD Waterhouse (now TD Direct Investing) back in 2009, high trading commissions were the norm. I chose TD because I had an existing banking relationship and my $25,000 investment met the threshold to waive the $100 annual admin fee.

At the time I wasn’t aware of online brokerages like Questrade – which offered trades for as low as $4.95 with no administration fees.

High costs for small investors

The costs added up over the years. From 2009 to 2011 I made 36 trades and paid a total of $1,044 in fees. Had I been with Questrade, I would have paid a fraction of that amount – just $178.20 in trading fees. Continue Reading…

A Simple Way To Boost Your Retirement Savings

Posted By Robb Engen | September 3, 2015

By Robb Engen, Boomer & Echo

Special to the Financial Independence Hub

One of the core tenets of financial planning is to pay yourself first. Automating your savings is a painless way to save for retirement and, in all likelihood, you’ll barely notice that you’re living on less.

Most experts suggest putting away 10 per cent of your income for retirement, but that number might seem out of reach for many people today. The key to developing good savings habits, however, is that you need to start somewhere.

That’s why I suggest setting aside what you can afford, be it three or five per cent of your income, and try to increase that amount every year.

Small changes lead to big improvements

Weekly Wrap: The Market’s near-death experience, magazine reverse indicators, the options of frugality

Posted By Jonathan Chevreau | August 29, 2015

The 1,000+ point drop in the Dow Jones Industrial Average Monday morning will long be remembered by investors but, unless you sold everything at market prices in a panic that morning, those that just sat it out (or meditated, as we suggested that morning) were fine by week’s end. You can find a nice recap of the market’s near-death experience in this WSJ article, complete with charts: U.S. stock swings don’t shake investors.

Still, the scary start to the week was enough for one magazine to create the cover shown to the left. In what some bulls interpreted as a “reverse indicator,” the current cover story of Bloomberg Businessweek features not just one but several bears on its cover.

In a commentary on that phenomenon, Business Insider’s Myles Udland noted that the market often does the opposite of what magazine cover indicators may be suggesting, which would make a bear cover bullish. Remember, Business Week famously proclaimed The Death of Equities in a cover in 1979, triggering a multi-year bull run.

China & other submerging markets

Mid-week rallies aside, one reason for the continued bearishness is China and other Emerging(“Submerging?”) Markets. One of Bloomberg BusinessWeek’s accompanying stories was entitled Will the Next Recession be Made in China? It noted that after Monday morning’s 1,000 point-plus drop, all markets seemed to be correlated: that “the world suddenly seemed like a very small place.” Continue Reading…

“Of Course . . . But Maybe” — How to cultivate sober second thoughts on various financial decisions

Posted By Robb Engen | August 19, 2015

By Robb Engen, Boomer & Echo

Special to the Financial Independence Hub

Comedian Louis C.K. closed his 2013 comedy special Oh My God with a hilarious (albeit crude) bit called, “Of course . . . but maybe.” I thought it would be fun to apply the same thinking to personal finance and some of the situations we run into every day.

On sense of entitlement

Of course you deserve a vacation. You worked hard all year, and sure, while you didn’t make much progress paying off your credit-card debt, and your New Year’s resolution to reign-in the impulse shopping was busted by February, a week spent soaking up the tropical sun will re-charge your batteries and give you a fresh start on your financial goals.

But maybe you shouldn’t add to your debt-misery by putting that all-inclusive resort vacation on your credit card. Maybe burying your head in the sand won’t make your financial problems go away. Maybe you should hold off on the tropical vacation for a year or two while you get a handle on your finances. Maybe then you can truly say, “I deserve this.”

On education and doing what you love

Of course you should go to University and study whatever you want. Of course you should find your passion, however long it takes. You can be whatever you want. You can do whatever you want. Post-secondary education is an investment in your future.

But maybe spending $100,000 and eight-years of your life on that double-major in history and fine arts, only to spend the next few years working as a Starbucks barista, wasn’t the wisest use of your time and money.

On investing in mutual funds

Of course mutual funds offer an easy way for investors to put their hard-earned savings into a diversified basket of stocks and bonds. You can start investing with as little as $25 per month and build up your portfolio without any transaction costs.

But maybe you didn’t notice the annual management expense ratio eating into your returns. Maybe, as Vanguard founder Jack Bogle estimates, the 2.5 per cent a year in fees over a typical investor’s lifetime means that an astounding 80% of compounding returns ends up in the hands of the manager, not the investor. And maybe your financial advisor is really a salesperson in disguise, recommending funds that may not be in your best interest.

On insurance needs

Of course you should buy insurance to protect your loved ones in case something terrible should happen to you. Of course you want to provide for your dependents in case you die or become disabled.

Related: 5 myths about insurance

But maybe asking your insurance broker if you need insurance is like asking your barber if you need a haircut. Maybe if you are single and have no dependents you might not need life insurance. Maybe a simple term life insurance policy that pays off your debts and provides 5-10 years of income for your spouse and children is all the insurance you need. And maybe mortgage life insurance and balance protection insurance really just protect the bank at your expense.

On budgeting and tracking expenses

Of course you don’t need a budget. You have a great handle on your finances. You pay yourself first. You’re debt-free. You live within your means.

But maybe if you spent three months tracking your spending you’d discover several hundred dollars a month worth of unaccounted for expenses in categories such as dining out, gifts, and “miscellaneous.”

On home ownership

Of course you should aspire to own your own home one day. After all, you’re just throwing your money away on rent every month. Why not build up some equity of your own? And with house prices continuing to rise, of course it’s better to get into the market now before you’re priced out forever.

But maybe home ownership isn’t the panacea it’s made out to be. Maybe new expenses, such as property taxes, home maintenance, and lawn care cost more than you thought. A big-fat mortgage means you can’t afford to save for retirement, or even the odd dinner out. It turns out that maybe renting was a lot cheaper and gave you the freedom to pursue and achieve your other financial goals. (See also The Real Cost of Buying Your Home.)

In addition to running the Boomer & Echo website, Robb Engen is a fee-only financial planner. This article originally ran on his site on August 16th and is republished here with his permission. See also Boomer & Echo’s 5th Anniversary contest, with prizes galore (including a copy of Findependence Day).