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.”

Canada’s Real Estate Affordability Battle

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By Dale Roberts, cutthecrapinvesting

Special to the Financial Independence Hub

In my latest for MoneySense, I look at the affordability battle in Canada. Home prices are falling at the fastest clip in the last 20 years. But borrowing costs are also increasing. Mostly, it’s a wash. Even from the bubble peak in February of 2022 to July 2022, things have not improved for homeowner wannabes. Real estate is the most interesting and ‘exciting’ sector in 2022. Have a read of the real estate affordability battle in Canada.

Higher rates take on falling home prices on MoneySense.

In this post I will offer up a few of the important charts, but check out that MoneySense post for the wider perspective.

Average home prices down 22% in July

Home prices are falling fast. After a strong COVID-inspired real estate run, prices are now in a free fall. After peaking at $816,720 in February 2022, the national average house price fell 18.5% to $665,850 in June. The average price fell again in July, settling at $629,971—nearly 22.9% below the peak.

The average national home price in August increased to $637,673.

CREA

The national average price is heavily influenced by sales in Greater Vancouver and the GTA, two of Canada’s most active and expensive housing markets. Excluding these two markets from the calculation cuts $114,800 from the national average price.

Real estate ridiculousness

And here’s some longer term history using average Toronto home prices as an example. It was a crazy run.

  •  Average Toronto home price in 2000: $243,255
  •  Average Toronto home price in 2010: $431,262
  •  Average Toronto home price in 2021: $1,095,336

Rates are going up, up, up

In that battle against runaway inflation, central bankers are raising rates. Borrowing costs mostly follow suit. Here’s the path in Canada for fixed and variable rates mortgages.

And of course, on Wednesday September 7, the Bank of Canada increased rates another 75 bps, or 0.75%. Variable is getting more expensive.

  • A 5-year fixed will now run you about 5.04%.
  • A 5-year variable will increase to about 4.90%.

The B0C offers that they’re not done yet. There are more rate hikes to come.

Given the outlook for inflation, the Governing Council still judges that the policy interest rate will need to rise further. Quantitative tightening is complementing increases in the policy rate. As the effects of tighter monetary policy work through the economy, we will be assessing how much higher interest rates need to go to return inflation to target. The Governing Council remains resolute in its commitment to price stability and will continue to take action as required to achieve the 2% inflation target.

Bank of Canada

Variable rates will automatically follow Bank of Canada rate hikes. Fixed rates will follow the bond market, and the bond market will make a guess about the near and future path of rate hikes. The rate hike on September 7 was mostly already priced into the bond markets.

The money chart on affordability

In the MoneySense post you’ll find the telling table comparing costs for variable and fixed rate mortgages, for 10% and 20% down payment scenarios. Here was the working copy table. Continue Reading…

12 unique ways to Change your Spending Habits

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What is one unique way someone can change their spending habits for the better? 
To help you improve your spending habits, we asked CEOs and business leaders this question for their best tips. From trying to not purchase anything online for one month to trying the envelope method, there are several unique tips to help you change your spending habits for the better.

Here are 12 unique ways to change your spending habits: 

  • One Month No Online Purchases
  • Check How Long You Can Go Without Something
  • Change Paid Activities to Be Cost-effective
  • 30-day Challenge
  • Track Your Spending for One Week
  • Buy from Your Local Market
  • Reduce Impulsive Purchases
  • Shop With Lists Only
  • Ask a Friend
  • Use Cash as a Payment Option
  • Set Savings Milestones and Rewards
  • The Envelope Method is One Way to Change Spending Habit

 

A Month with no Online Purchases

My wife and I recently did a one-month challenge on not purchasing anything online. The breaking point was coming home after a long weekend and finding over 10 packages on our doorstep between the two of us ordering online. We heard of a challenge where you don’t purchase anything for a month, but knew that wouldn’t work for us. We decided just not to purchase any items online. If we needed something we had to go to the store and purchase the item. We realized we didn’t have to buy as much stuff as we were previously ordering online. After the challenge month was over, we did both change our spending habits and don’t buy nearly as much as we previously did online. We also found out that the physical store tends to be less than purchasing your items online. –– Evan McCarthy, President CEO, SportingSmiles

Check how long you can Go without Something

When you’re contemplating buying something, the best way to evaluate your intentions is to check how long you can go without it. If you decide on a date until which you believe you will not need this product or service, postpone your spending until that date. Once the new date arrives, ask yourself the same question and set another date. Do this thrice, and chances are the futility of adding it to your list of purchases will finally hit. It’s also highly probable that you won’t even choose to remember the later dates and forget all about spending your hard-earned money on something you never required in the first place. —Riley Beam, Managing Attorney, Douglas R. Beam, P.A.

Change Paid Activities to be Cost-effective

Going out for drinks, going bowling with friends, dancing at the club: these are all fun activities that are definitely worth your time and money. These expenses, however, add up in the long run and one way to still enjoy yourself but save a little money in your wallet is to substitute some activities with cost-effective alternatives. For example, instead of going to a bar for drinks, create a makeshift bar at home. Try hiking or scope your community newsletter for other free, public events. — Adam Shlomi, Founder, SoFlo Tutors

30-day Challenge

One unique way someone can change their spending habits for the better is by doing a 30-day challenge. One of the most significant barriers to saving money is impulsive buying. It’s easy to fall for an online advertisement that claims to anticipate your needs and wants. But there is a workaround:
– Take a screenshot of the ad rather than clicking on it.
– Create a folder on your desktop to store all these screenshots.
– Check the folder after 30 days to see if you still wish to purchase that item.


The 30-day challenge is also applicable to offline purchases. Write down what you want to buy, give yourself 30 days, and then decide if you still wish to purchase. After a 30-day wait, you may be shocked by the items that no longer interest you. —Tiffany Homan, COO, Texas Divorce Laws

Continue Reading…

Young Investors vs Inflation

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By Shiraz Ahmed, Raymond James Ltd.

Special to the Financial Independence Hub

Until recently young investors were not terribly concerned with inflation. Why should they have been? It was so low for such a long time that we could predict with pretty good accuracy what was around the corner, at least, in terms of the cost of living. But those days are long gone.

Simply speaking, inflation can be defined as the general increase in prices for those staple ingredients of daily life. Food. Gas. Housing. What have you. And as those prices rise the value of a purchasing dollar falls. When these things are rising at 1% a year, or even less, investors can plan and strategize accordingly. But when inflation is rising quickly, and with no end in sight, that is very different and this is where we find ourselves today.

Someone with hundreds of thousands of dollars to invest, but who must wrestle with mortgage payments that suddenly double, is into an entirely new area. It happened back in the early 1980s when mortgage rates went as high as 21%. Many people lost their homes. But even rates like that pale in comparison to historical examples of hyperinflation.

In the 1920s, the decade known as The Roaring Twenties, the stock market rose to heights never seen before and for investors it was seen as a gravy train with no end in sight. But that was not the case in Germany where a fledgling government – the Weimer Republic – was desperately trying to bring the country out of its disastrous defeat in World War I. Inflation in Weimer Germany rose so quickly that the price of your dinner could increase in the time it took to eat it!

Consider that a loaf of bread in Berlin that cost 160 German marks at the end of 1922 cost 200 million marks one year later. By the end of 1923 one U.S. dollar was worth more than four trillion German marks. The end result was that prices spiralled out of control and anyone with savings or fixed incomes lost everything they had. That in no small way paved the way for Adolf Hitler and the Nazis. Let us also not forget that the gravy train of the Roaring Twenties eventually culminated in the stock market crash of 1929 which led to the Great Depression.

Continue Reading…

Tips for moving out of your Parents’ House

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Photo via Pixels/Ketut Subiyanto

It’s about that time in your life when you feel like you need a change of pace and want to move out of your parents’ house. Now, this isn’t as simple as just moving out. There are a lot of steps you need to take in order to be prepared for this new venture in life. Taking on these few tips can help with a smooth transition when moving out of your parents’ and into your new home.

Finding a New Place

Once you’ve decided to move out, you’ll next have to decide if you want to rent or buy a place of your own. Many people lean toward renting since it’s a much quicker and easier way to get a place. Although renting may be easier, buying is typically the more financially responsible route to take.

As a potential new home buyer, you’ll want to do some research on tips for buying your first home. Although there are more hoops to jump through, you’ll be investing your money into real estate and a place to live, instead of throwing your money away by renting someone else’s place.

Before starting your home hunt, ask yourself “how much house can I afford?” Establishing this ahead of time will allow you to know exactly how much you have available to go toward a payment for your new home. Consider working with a real estate agent to help with your home search. They will know the ups and downs of the market and help you find the home that’s right for you.

Decluttering and Reorganization

Many people could agree that moving out of your parents’ house is when the most decluttering needs to happen. You have clothes from all different points in your life, trinkets, and memory boxes galore. Prioritize a day or two to declutter and get rid of the things you no longer need. Then once you start packing you’ll need to move a lot less.

Decluttering prior to your move will also ease the reorganization process in your new place. Researching organization tips can help you find the best ways to do this. Buying organizational cubes, stackable containers, and any storage-type product can help keep all your items in the right place and avoid new clutter.

Developing Financial Independence

Moving out on your own means being financially independent. You’re not relying on your parents to buy the groceries or pay the utility bill. Most expenses are now on you to deal with, and you’ll want to know how you can find your financial independence. Continue Reading…

4 easy ways to Build Wealth: at any Age

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Pexels

By Emily Roberts

For the Financial Independence Hub

Whether you’re just starting out or planning for retirement, there are ways to build wealth at any age. There is no golden age when building wealth; the wealth gap is reducing. If you want to grow your savings and assets, you must take action regardless of your life stage. Here are five easy tips for increasing your assets at any stage of life.

Start Saving early

If you start saving early, you’ll have plenty of time to compound your interest and grow your savings. Even small amounts of money can make a big difference over time. The earlier you start saving, the less you have to save each month from reaching your goal. If you start saving at 25, you’ll have to save $100 each month to have the same amount saved at 65. If you start saving at 35, you’ll have to save $300 each month to reach the same amount saved at 65. While it’s never too late to start, the earlier you start saving, the less you have to save each month from reaching your goal.

Pay off High-interest Debt ASAP

Credit cards can be dangerous because they’re easy to use for small purchases, and you may not notice the interest growing. If you don’t pay off your credit card in full each month, you’ll pay the credit card company more than the original purchase price. You can pay off your debts with a debt consolidation plan, and you can speak with a specialist like Harris & Partners to learn more about how debt consolation works. Debt consolidation helps you achieve a balanced and focused loan payment that is adjusted to your financial situation. In this way, you can free up more funds for investments and get out of debt faster. Continue Reading…