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.”

How to Invest your way to Findependence

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By Devin Partida

Special to Financial Independence Hub

Today’s economic and job-growth landscape might have you turning to investing as a prominent option.

It takes patience and effort, but anyone can save up enough through intelligent investments.

How do you begin the Investment Process?

As of 2023, the average American makes around US$57,000 annually, which is lower for minority groups. Even if you’re careful with your spending, becoming financially independent with that salary can take a long time.

The average person from the United States only has about $5,000 in savings. Before beginning the process, you must consider how much money you can invest. The ultimate goal is financial independence [aka “Findependence” on this site], but getting there can take a while. Only put in what you’re willing to lose because things might not pan out as expected.

The formula for Findependence takes your yearly spending and divides it by your safe withdrawal rate to calculate your goal savings figure. Then, it subtracts the amount you’ve already saved and divides that amount by how much you can save each year. It’s only an estimation, but it can help you know how much your investments need to make.

What Investments should you Consider?

There are plenty of investment types. The stable ones often have lower returns and you usually need to take some risk to see a high reward quickly.

1.) Real Estate Investment Trust

A real estate investment trust (REIT) receives money from investors to purchase and manage property. Most generate revenue through rental income and pay dividends in return for the initial payment you made. It’s similar to owning by yourself, but you pool funds for the purchase and let someone else take care of the tenants. There are also other REIT types, so you have more options than rental properties.

2.) Stocks

The stock market usually requires more attention to detail because you must keep up with it. Anything from an upcoming brand deal to an overseas political event can affect this investment type. You should frequently check the stocks you hold and the businesses they belong to so you can quickly respond to changes.

The Canadian stock market differs from the United States version. Firstly, you need a brokerage account. Most brokerages charge about $5 to $10 per trade, with average commission fees of $6.95. It might seem minor, but paying to invest or shift your stocks around puts you at a loss before you begin. The flat rate cut you must pay can also make investing smaller amounts challenging because it takes a higher percentage the less you put in. Continue Reading…

Gen Z and beyond leaning on debit to spend in times of economic uncertainty

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By William Keliehor, Interac Corp.

Special to Financial Independence Hub

Gen Z Concerns

Generation Z (Gen Z) is feeling the brunt of economic uncertainty in Canada as they enter the workforce and take on a whole host of financial ‘firsts’ – such as paying rent, saving for a vacation and purchasing groceries. More than any other generation, Gen Z is more likely to feel stressed (42 per cent), anxious (37 per cent), and overwhelmed (31 per cent), according to new research from Interac Corp.

Inflation is one of many factors serving as a hurdle for Gen Z and Canadians alike in their ability to stay on top of their money. In fact, 78 per cent of Gen Z respondents agree inflation and everyday essentials (75 per cent) are two external causes throwing a wrench in their ability to manage their finances.

Leaning on Interac Debit and Interac e-Transfer

Canadians will likely continue to contend with inflationary pressures for many months to come and it’s critical they’re equipped with tools that can help them stay in control.

Building healthy money habits such as creating a budget and using your own money are two ways to help navigate personal finances amid the current economic landscape. We’re hearing that Gen Z is doing just that – leaning on debit to take charge of their finances. Gen Z told us they are more likely (70 per cent) to frequently use debit, compared to 55 per cent of non-Gen Z Canadians polled in the Interac survey.

From the survey findings, we discovered that nearly half of Gen Z say they prefer to spend with debit so they’re only spending the money they have. Gen Z also told Interac that they feel more in control of their spending when using debit (46 per cent) and half of this generation of debit users (50 per cent) also say it’s easier to track their spending when using debit versus credit.

While there are many external factors that make it difficult to manage your finances, there are tools to help you stay in control of your day-to-day spending. For example, making Interac Debit the default payment in your mobile wallet or merchant app can help you spend the money you have in your account. Using debit for essential purchases can also help you stay on track and build good financial habits.

Canadians can also take charge of their financial well-being by using Interac e-Transfer to pay instantly or to split costs with others, making shared experiences more affordable and easier to track. This is a trend we began to see last year, as Interac e-Transfer hit one billion transactions. We’re seeing that Gen Z continues to rely on this tool, with nearly eight in ten (78 per cent) saying Interac e-Transfer is the simplest way for them to split costs so they can still get the most out of life and spend the money they have.

Essential spending continues

In times of uncertainty, debit remains an important and empowering tool, helping all generations across Canada stay in charge of their finances. While we’ve seen Canadians react to inflation and shift their spending accordingly, essential spending has continued. Canadians continue to spend the money they actually have in their accounts, as evidenced by year-over-year growth in Interac Debit (5 per cent) and Interac e-Transfer (11 per cent) volumes.

Additionally, year-over-year, Interac transaction data shows an increase in the number of transactions with InteracDebit at grocery stores and supermarkets as average basket sizes have decreased. Continue Reading…

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…

The superiority of Canadian “Robo Advisors” over mutual funds

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By Dale Roberts, cutthecrapinvesting

Special to Financial Independence Hub

This is a battle between lower-fee Canadian Robo Advisor portfolios vs high-fee Canadian mutual funds. As you are likely aware, Canadians pay some of the highest investment fees in the world. Larry Bates, the author of Beat The Bank, calls those fees wealth destroyers. Lowering fees is one of the most predictable ways to increase your investment returns. More money stays in the right pocket; your pocket. By way of the Questwealth Portfolios (from Questrade) let’s have a look at the superiority of Robo Advisors over Canadian mutual funds.

Here’s the review of Larry’s Beat The Bank. That is a must read. On Larry’s site you will also find a tool that will calculate the cost of high investment fees.

The Questwealth Portfolios

There are three simple ways that Canadians can leave behind their advisor and high fee mutual funds. If you want investment advice and managed global ETF portfolios, you can look to one of the Canadian Robo Advisors.

Here is a post on what is a Robo Advisor? As you’re about to discover, this is a far superior approach to a typical high-fee mutual fund. Also consider that most high-fee mutual funds in Canada are offered by salespersons and not ‘real’ advisors.

Questwealth is one of the Canadian Robo Advisors. And don’t be fooled by that Robo word. While you can choose to do everything online from start to finish, real humans are available for investment advice and guidance. And at a shop such as Justwealth you’ll have a dedicated advisor, with financial planning available.

You can have it all in a low-fee environment.

Not investing with Mom and Dad’s guy

Questwealth offers the Questwealth Portfolios. They are the lowest fee Robo offering in Canada. And they are famous for their advertising. Many younger Canadians are not following their Mom and Dad, running into the bank, Investor’s Group or AGF (or other mutual fund sales shop) to fill the pockets of advisors and mutual fund creators. Nope, they are learning how to self-direct and how to take control of their own wealth building destiny.

In one commercial the younger brother turns to his embarrassed older bro and offers …

You’re not still investing with Mom and Dad’s guy, are you?

It’s nice to see many Canadians become their own advisor. Keep that 2% or more in your own pocket. You’ll need bigger pockets, by the way.

Questwealth Portfolios vs Canadian mutual funds

Questrade suggests (based on the simple fee math) that over time Canadians could retire 30% wealthier. That said, it’s a much greater benefit than that 30% suggestion. Based on the return differential to date, you’d be looking at returns that are 50% better (or more) over a 30-year period. Retiring with 50% more is obviously life changing.

And of course, a 5-year performance is a shorter period, but it aligns with the known underperformance of high-fee actively-managed Canadian mutual funds.

Also, past performance does not guarantee future returns.

You’ll find a calculator on their site.

Here’s the Questwealth Portfolios vs typical or average mutual funds in Canada, to the end of February 2023. The mutual fund returns are based on Questrade calculations, looking at the available data for the mutual fund space. That list and returns for the individual mutual funds was also provided to me.

And here’s Questwealth vs the RBC Select balanced mutual funds.

And here is a post that looks at Justwealth vs Canadian bank mutual funds.

The outperformance is outrageous.

Ditch your high-fee mutual funds

It appears to be a no-brainer: ditch your high-fee Canadian mutual funds. If you decide that a Robo option such as the Questwealth Portfolios is right for you, you’ll find it is an easy process to make the move. They can help you with the transfer process.

Here’s the link to Questrade.

But please pay attention to any tax consequences should you have any taxable accounts. You might consider Justwealth if you need to transfer considerable taxable amounts. They can accept your taxable account mutual funds and will drawdown the assets over time in a tax-efficient manner.

Create your own ETF Portfolio

If you want to leave your mutual funds behind, you can also create your own ETF portfolio. Here’s the performance of the core ETF portfolios.

Continue Reading…

5 Best Apps for Budgeting & Financial Planning

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Image by unsplash/Kelly Sikkema

By Devin Partida

Special to Financial Independence Hub

Budgeting is hardly exciting, but it’s key to getting finances under control. However, making a budget and sticking to one isn’t always easy. That’s why we could all use some help now and then.

Consider using budgeting and financial planning apps to maintain disciplinary action. Here are the best budgeting apps on the market.

1. You Need a Budget [YNAB]

YNAB earns a spot on this list because of its proactive budgeting approach. It offers the ability to sync bank accounts, import data, and manually enter transactions.

Once users sign up, they can create a budget and assign each transaction to a purpose. For instance, they might like to use the app for car payments or mortgages.

The app’s goal is to get users one month ahead. That way, they spend money they earned over a month ago. Essentially, the app gives customers a complete budget overhaul. It also provides users with top security to protect their information and gives them additional resources for staying on track.

This app costs US$98.99 per year or $14.99 per month and offers a 34-day free trial. [All figures below are in US$]

2. Goodbudget

Goodbudget has a free version with ads. Or, users can pay for an ad-free version that costs $7 per month or $60 annually.

Goodbudget is a useful budgeting app that allows users to create and stick to budgets – and keep track of their debt to pay it down faster.

In addition, it helps with money management. That way, users know where their funds are and how they perform.

Users also have easy access to their accounts, as they can use them on the web and on multiple phones. In turn, people can easily share their accounts with others and stay financially connected. This is valuable for some, as it prevents miscommunication and mishaps.

The app also syncs each transaction to the cloud. And some reports show the finances in greater detail – as well as pie charts and other updates to track spending.

3. Mint

Mint is another great budgeting app, as it has high ratings in the App Store and Google Play. It’s also free and syncs with various bank accounts, including checking and savings, loans, credit cards, and more.

Mint works by tracking users’ expenses and placing them within budgeting categories. You might have categories of your own ready to go in a spreadsheet. Mint lets users more fully personalize their categories and set limits to maintain their budgets. Once users approach those limits, Mint will notify them within the app. Continue Reading…