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.”
I know it’s tough to save money. It’s even more difficult to up the ante and increase your savings year-after-year. But saving is necessary to meet both our short- and-long-term financial goals. Without any savings, and living paycheque-to-paycheque every month, you’ll either work until you die or else retire in extreme poverty.
So what will it take for you to save more this year? Some people start off small, saving two or three per cent of their salary, and that’s fine – every little bit counts. But many of us short-change our retirement by not finding ways to increase that amount every year. Here are four easy ways to save more in 2015:
From the American Family Insurance website, this article focuses on the importance of sharing budgeting and financial responsibilities with your spouse. In many relationships, it seems one party usually takes over much of the financial decision making– knowing important contacts, where money is kept and how it is spent etc. This article stresses the importance of making sure BOTH parties are on the same page with the family finances and, just as importantly, the family’s financial goals.
AmFam provides a few important steps to accomplishing this, beginning with talking to each other about things like saving, bills, retirement planning and debts.
Setting short- and long- term financial goals TOGETHER, knowing where to find your safe deposit box and combinations to the home safe, and finally making sure your loved ones know how to contact important financial contacts are the final steps to being on the same page as your spouse.
The article also discusses the importance of protecting your important papers by using preventative measures such as a safe deposit box, a fire-resistant home safe, a home filing system, and your attorney’s office to keep all your various documents safe.
One of the features of the Decumulation years is making limited funds stretch. Below, early retiree and Montreal resident Michael Trani shows his analysis for his decision to lease rather than buy late-model cars for 20- and 30-year periods following his early retirement at age 55. He uses income from an investment to fund the lease, a strategy that lets him drive a new car every four years. He says he’ll never buy outright again.
By Michael Trani,
Special to the Financial Independence Hub
A few months ago, for family-related reasons, I was forced to retire from my job at the relatively young age of 55. Yes, lucky me, I was now living the Freedom 55 dream! I was well aware that in this new phase of my life, my future earning capabilities would be severely restricted. Wishing to provide stability to my financial affairs, I embarked on a mission to essentially fix all the present and future costs I could control.
My first order of business was to develop a low-cost strategy to provide me with a car for the next 20 to 30 years. While employed, I had saved quite a bit of money to purchase and carry out the required maintenance on a new car. However, now that I did not have the safety net of a job, I knew that once this money was spent, it would be gone for good. I certainly would not be able to replace it. I had been buying cars at 10-year intervals, and for my potential future car in 2024, things did not look good.
The solution to my predicament was simple. Why not simply invest the money I had saved in an investment that returned regular, monthly, tax-advantaged income, then use this income to finance a car lease in perpetuity?
With the aid of a spreadsheet, I compared the cost of purchasing a new car for “cash” every ten years with a car lease financed strictly with the monthly distributions of my investment. My comparison looked exclusively at the 20- and 30-year timeframes, as these represent my future driving years. I also factored in the necessary tax treatment for the monthly distributions and the residual value of the investment.
The investment I used to finance my car lease strategy is: Investors Group Allegro Balanced Growth Canada Focus Class –T J DSC. This is a special balanced mutual fund that distributes 7% yearly on a monthly basis. The distributions are treated as a Return of Capital, and when all the capital has been returned (in approximately 15 years) the distributions become capital gains. I am sure that other well-established financial institutions will have similar products available.
In the following table I have summarized the findings of my comparison.
Comparison of car strategies for 20 and 30 years
Car: 2014 Nissan Versa Note
Duration of lease: 48 months
Car strategy
20-yr strategy; cost per month
20-yr strategy; total cost 20 years
30-yr strategy; cost per month
30-yr strategy; total cost 30 years
purchase “cash”
$300.60
$72,144.00
$300.60
$108,216.00
lease strategy
$119.08
$28,579.76
$119.53
$43,030.76
savings of lease over “cash”
$181.52
$43,564.24
$181.07
$65,185.24
Note 1: The lease includes the dealer-offered free scheduled maintenance for the duration of the lease (in this case 48 months) and a $600 winter tire credit ( ufficient to purchase 4 brand-new Michelin X-ICE tires)
Note 2: With the purchase “cash” strategy there is no free scheduled maintenance and no $600 winter tire credit
I was totally blown away by these results. Certainly, I had made assumptions in my calculations, but, nevertheless, it is clear that the leasing strategy considerably reduces the cost of financing new cars, in perpetuity I may add. The cost reduction is not trivial when I can lease a car with only a third of the money required to purchase that same car.
Leasing yields a new car every four years
Sure enough, I followed through on my plan. I implemented my investment strategy and recently leased a Versa Note. Now every four years I will have a new car. I realize that at the end of 20 or 30 years, I certainly will not own a car, but will instead own the units of the Allegro fund, which will continue to generate monthly income. I believe I succeeded in my mission to devise a low-cost strategy to finance my future car requirements. I will never buy a car outright again.
As a side note, while negotiating my car lease, I learned that car dealers are willing to give away quite a bit of goodies for free. I negotiated four years of free scheduled maintenance and four really good, brand-name, winter tires for free as well. What more could I ask for?
The following table I details all my calculations, to permit easy verification.
Fund: Investors Group Allegro Balanced Growth Canada Focus Class – T J DSC
Date: June-27-2014
Unit Value on this date: $10.8492
Monthly Distribution: $0.0616 per unit
To generate $332.50 monthly requires 5,397.7273 units or $58,561.02 to be invested in the Allegro fund (the initial cost)
20-year strategy
Purchase price of a 2014 Versa Note: $19,072.00 cash payment in full, assume value of trade-in cancels the sales tax
Average maintenance cost per year: $1,700.00
Total cost for 10 years: $36,072.00
Total cost of purchasing per month: $300.60
Total cost for 2 cars over 20 years: $72,144.00
Leasing a 2014 Versa Note for: $332.50 per month line 1
Maintenance expense: $0.00 per month, free scheduled maintenance line 2
Insurance for replacement value: $17.51 per month, $840.40 for 48 months line 3
Insurance for end of lease protection: $19.79 per month, $950 for 48 months line 4
For 20 years this will cost: $88,752.00
The actual cost of leasing: $67,513.02 A. the initial cost of the Allegro fund + ((lines 2+3+4) x 240 months)
The capital gains tax: $4,987.50 B. to be paid on the distributions from years 15 to 20
The net cost of leasing for 20 years: $72,500.52 C. defined simply as (A + B)
Residual value of the Allegro fund: $43,920.77 D. value of the Allegro fund after all return of capital has been used up and units theoretically sold
The “true cost” of leasing for 20 years is: $28,579.76 E. defined simply as (C – D)
The “true cost” of leasing per month is: $119.08 F. defined simply as (E / 240 months)
30-year strategy
Purchase price of a 2014 Versa Note: $19,072.00 cash payment in full, assume value of trade-in cancels the sales tax
Average maintenance cost per year: $1,700.00
Total cost for 10 years: $36,072.00
Total cost of purchasing per month: $300.60
Total cost for 3 cars over 30 years: $108,216.00
Leasing a 2014 Versa Note for: $332.50 per month line 1
Maintenance expense: $0.00 per month, free scheduled maintenance line 2
Insurance for replacement value: $17.51 per month, $840.40 for 48 months line 3
Insurance for end of lease protection: $19.79 per month, $950 for 48 months line 4
For 30 years this will cost: $133,128.00
The actual cost of leasing: $71,989.02 A. the initial cost of the Allegro fund + ((lines 2+3+4) x 360 months)
The capital gains tax: $14,962.50 B. to be paid on the distributions from years 15 to 30
The net cost of leasing for 30 years: $86,951.52 C. defined simply as (A + B)
Residual value of the Allegro fund: $43,920.77 D. value of the Allegro fund after all return of capital has been used up and units theoretically sold
The “true cost” of leasing for 30 years is: $43,030.76 E. defined simply as (C – D)
The “true cost” of leasing per month is: $119.53 F. defined simply as (E / 360 months)
Montreal-based Michael Trani can be reached at michael_trani@hotmail.com.
Sheryl is a bit hard on gift cards, which I find perfect for younger people when you have no clue what they really want — plus of course, you can specify precisely how much you will spend for each gift-card recipient.
I find most millennials are quite happy with iTunes gift cards or, if they’re readers, with cards for Chapters or Amazon.
Being a magazine guy on and off over my career, I agree magazine subscriptions are both affordable and have the advantage of showing up all year round. The ultimate here is of course Next Issue, which has been characterized as the “Netflix of magazines.”
If the magazine lover you’re thinking of prefers tablets to filling the blue box with dead-tree editions, then Next Issue may be the way to go. However, at $10/month for monthlies and $15/month for weeklies and all other frequencies, it isn’t quite as affordable as a print subscription to a single publication, which often run about $20/year.
On the other hand, it’s certainly something a whole family could enjoy, with at least 140 magazines to choose from, there should be something for everyone: a Yoga magazine for mum, for example, a golfing mag for Dad, a gaming magazine for the teens, etc. It will literally be in your face (or that of the giftees) every day, depending on how many magazines are chosen (there’s no limit)
My only caveat: It can be a real time sucker if you are intent on getting your money’s worth from the subscription. You may begin a given day all caught up on your magazine reading, only to find yourself at day’s end behind by three or four issues as new editions flow in. You feel a bit like the mythical figure, Sisyphus, forever rolling a boulder up a hill.
e-books
As a postscript, I may as well add a third suggestion: e-books. In particular, if you think US$2.99 or C$3.37 is a bargain price (and it is!), then consider the US or Canadian editions of my own e-book, pictured below.
You can find the US e-book at Amazon here. The Canadian e-book is here.
The good news is that while it may be too late to get physical books delivered from Amazon, you should be able to get an e-book delivered right down to the wire. And of course, Amazon does let you specify an e-book as a gift, provided you have the recipient’s email. If they don’t have a Kindle, they can download a free Kindle app for whatever device they have.
I have to admit that over the years, I have personally favoured cash or debit cards, on the theory that you can’t get in too much trouble spending money you’ve at least already earned. To me, overspending to rack up “Points” for even more consumption is just not worth it, especially if it also means ever having to pay the dreaded double-digit interest rates that accompany most every credit card these days.
Reluctantly, however, I’ve come round to the view that with proper discipline, credit cards can provide convenience, a paper trail and most important, more security than debit cards in several situations. And yes, while I’m not driven by it, there may also be the convenience of “points” on purchases, points the writer says can amount to 2 to 6%.
The key, as it always is with credit cards, is to make sure you never get caught paying those exorbitant rates of interest. I’ve never quite understood how it is we’ve been in an era of almost-zero interest rates the last five years when you’re lending out money (via bonds or GICs) but when you’re a debtor suddenly the rate is close to 20%. Am I the only one who thinks there’s a major disconnect here? Better to be on the receiving end of that deal rather than the dishing it out deal: I wish I’d bought Visa or Mastercard stock a few years ago.
Using credit cards as if they were debit cards
The valuable point made by the writer — Jeffrey Weber — is that he finally “learned how to use my credit card like a debit card.” By paying off the full balance each month, never spending more than he can afford and “eliminating interest from the equation,” he is able to avoid using debit cards at all while enjoying the few advantages that go with prudent use of credit cards.
Personally, I do one of two things now, both of which are variants of Weber’s approach. Earlier this week, with Christmas presents for others high on the agenda, I loaded up my MasterCard with several transactions. I also did the same with my business Visa card for some needed equipment. In both cases, when I returned from the shopping spree, I signed on to my home computer and immediately used my online banking to pay off the newly incurred debts instantly. Yes, I realize I could have delayed a few weeks to benefit from the free “float” but I don’t wish to tempt the fates. If you’re going to use a credit card like a debit card, in my mind that means moving the funds out of your bank account the moment (or at least by end of day) you’re incurred the purchases. Besides, who wants to have a fabulous holiday season only to have it all ruined by humungous bills to be paid by the middle of January. That’s TFSA season after all!
The second variant is more foolproof and will even let you take advantage of that float I’m missing out with the “ad hoc” method. Just ask your friendly local financial institution to automatically move funds from your bank account to pay off any outstanding balances before any interest charges come due.
The 5 places you never should use debit cards
Weber’s article lists five specific situations where someone still juggling both credit cards and debit cards should use only credit cards. I’ve just listed the headings: go to the original link for his rationale on each point:
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