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.”

11 best Personal Finance formulae to live by

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What is one personal finance formula that you live by to help maintain expenses and create wealth?

To help you maintain expense and create wealth, we asked small business owners and professionals this question for their insights. From developing multiple streams of income to living beneath your means and giving back, there are several personal finance formulas that you can use to maintain your expenses and generate wealth.

Here are eleven best personal finance formulas to live by:

  • Develop Multiple Streams of Income
  • Set a Budget and Stick To It
  • Make and Save More Than You Spend
  • Seek Out the Best Deals
  • Overestimate Your Spending
  • Value and Invest in Yourself
  • Account For Every Dollar With Zero-Based Budgeting
  • Track Your Spending Monthly
  • Deposit Any Extra Cash to Savings
  • Set Clear Expectations With the 30/50/20 Rule
  • Live Beneath Your Means and Give Back

Develop Multiple Streams of Income

You need to develop multiple streams of income, if you can. Just trying to get wealthy from one source of income is not enough to build the sort of wealth you’re imagining for yourself. Starting with the income stream you have now, add to it. Invest, if you can, as dividends from the right stocks or mutual funds can be another income stream. In general, the more income streams you have, the greater your ability to create wealth. — Carey Wilbur, Charter Capital

Set a Budget and Stick to it

Setting a budget and sticking to it is a tried and true personal finance formula that works for anyone of any age, in any business. Fiscal responsibility is never overrated. Knowing how much you have coming in and going out, how much you can afford to spend and how much would be too much, can prevent you from making costly decisions. This is one of the key foundations of creating and maintaining wealth. — Randall Smalley, Cruise America

Make and Save more than you Spend

I live by the formula of making and saving more money than I spend. There’s no better way to create wealth than being responsible with what you earn. Save more than you spend, make smart investments when possible, and don’t deviate from your long-term goals. Work hard and stick to your budget, and your wealth will continue to grow. — Vicky Franko, Insura

Seek out the Best Deals

I try to save money wherever possible and always try to find the best possible deal on an item. A penny saved is a penny earned, after all, so I do my research in order to earn. If I see something I like, I shop around to be sure that I’m getting the best price. The same principle can be applied to anything, whether we’re talking about books, TVs or, like with us, insurance. — Brian Greenberg, Insurist

Overestimate your Spending

When creating my budget, I always overestimate my spending for each category. I round up every number so that there is a buffer for unexpected costs, and I’m never cutting it too fine. I find this removes the feeling of being too restricted by my budget and letting it rule my life by being in the way of spontaneous moments. When in reality, a budget is there to make your life easier and help you plan for the moments which bring you great happiness. It’s barely noticeable to put away a little extra for each spending category but combined this adds up and allows you space to live more freely. — Antreas Koutis, Financer

Value and Invest in Yourself

You are your own greatest and most important investment. That’s how I see it. Be sure that you’re paying yourself what you’re worth, commensurate with the value you bring to whatever you’re doing. Continue Reading…

Retirement Planning for Gen Xers: Build Wealth and Retire Happy

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Image Lowrie Financial

By Steve Lowrie, CFA

Special to the Financial Independence Hub

Are you a Gen Xer? Not quite a baby boomer, but too, ahem, mature to be a millennial? If you are in your 40s to mid-50s, your family financial planning has probably been on a wild ride lately. You may be wondering if you’ll ever get to retire with any wealth left to spend.

As we covered in “Retirement Planning for Baby Boomers”, you should also be incorporating retirement planning into your holistic financial planning. And, no, “I’ll just work forever” doesn’t count for peace of mind planning. Let’s take a look at what Gen X retirement planning looks like for many families.

Gen X Retirement Planning Essentials: Saving, Spending, and Investing

Whether you’re planning to fund your retirement or any other major life goal, the essentials aren’t so complicated. I’m reminded of a joke I heard a while back:

There was this guy, Joe, who dreamed of winning the lottery, so he prayed every day that he would. As time passed with no luck, his prayers grew more fervent. One day, he finally asked, “God, can you even hear me?” Lo, the heavens parted and he received his reply: “Joe, help me out here … Buy a lottery ticket!”

So it goes with planning for retirement, or any other short-term or long-term financial goals. Skip the obvious, and you’re unlikely to get very far.

Many Gen X families I meet come to me anxious to learn how to best invest their savings and make money in the market. This is important, and we can definitely help with that, as I’ll touch on below. But first, consider this from “The Psychology of Money” author Morgan Housel:

“Since you can build wealth without a high income, but have no chance of building wealth without a high savings rate, it’s clear which one matters more.”

In other words, despite all the speculative, FOMO (fear of missing out) investing hype you may be tempted to follow in the popular financial press, don’t lose sight of FIRST setting aside money today to build wealth for tomorrow. Consistently spending less than you’re earning (without piling up high-interest debt to do so) goes hand in hand with saving. THEN comes investing.

Gen X Retirement Planning Challenges

These retirement planning essentials aren’t complicated. But they’re often much easier said than done, given the hurdles that often stand in the way. You probably don’t need me to tell you about the Gen X-style financial challenges you and your family are grappling with. But I will anyway. You’re welcome. 😊

When you were new to adulthood, financial planning was simple. You were single, no dependents. Your job didn’t pay much, but you figured you were destined for greatness. Other than college debt, you had few demands on your income. Maybe your parents were even pitching in. If you decided to move, you and a few buddies could transport everything you owned in a rental van, and still have time left for pizza and brew at the end of the day.

That doesn’t seem so long ago. But now you’re in your 40s or 50s, and “simple” has become a distant memory. These days, you’re juggling your own short-term and long-term financial goals; your parents’ needs; your kids’ wants; Toronto-area housing challenges; and, oh yes, that little career-crushing pandemic. Plus, your youthful vigor isn’t quite what it used to be. As the late, great comedienne Joan Rivers once said, “You know you’ve reached middle age when you’re cautioned to slow down by your doctor, instead of by the police.”

I get that it’s hard to incorporate retirement planning into all of the above. Relative to your here-and-now financial needs, retirement probably feels too distant and too daunting to tackle today.

But take heart. You can actually use that distance between now and retirement as a force for good … your good. If you can include even a few retirement planning best practices into your life, they should have a larger-than-life impact on your family financial planning.

What are some of your power moves? Read on.

A Gen X Edge: The Power of Compound Returns

As a Gen X family, you should still have decades between you and your ideal retirement. So, perhaps counterintuitively, you get to routinely set aside less if you start saving more right away.

The extra time you’ve got gives you the luxury of benefiting from compounding returns. That means you can snowball more returns on the returns you’re already receiving—and so on, and so forth. Bottom line, the more you manage to save, and the sooner you get started, the more likely your investment portfolio will have what it takes to come through for you in retirement. Continue Reading…

Getting your finances ready for the new year

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By Stuart Gray,

Director, Financial Planning Centre of Expertise, RBC

(Sponsor Content)

If you’re like many Canadians, with 2022 around the corner, you’re likely thinking about what you would like to achieve in this new year.

You can begin by having a good look at your current financial situation and the steps you can take to stay on top of your money.

As we consider what this year will bring, here are five areas of personal finances you can focus on to get 2022 onto solid financial footing:

• Make sure your financial plan still works for you

As the economy continues to recover and we look toward whatever this year holds, having a financial plan can help you take stock of where you are and what you need to do to continue to work toward your financial goals.

A financial plan can help strengthen your confidence when it comes to managing your money, both now and in the future. Taking the time to build a plan that works for you and your unique financial situation is a good start. Use your plan to identify your goals and objectives, evaluate your finances and put steps in place to achieve your financial goals. It’s also important to revisit your plan regularly, especially as your finances or priorities change.

• Stay on top of your cash flow

As inflation continues to impact Canadians’ purchasing power, cash flow will become an even more important part of managing personal finances in 2022. Here’s where having a budget, to complement your financial plan, is a huge help. A budget will give you a good picture of the money you have coming in and going out.

If you already have a budget, it’s a good time to review and update your expenses to account for rising costs: from gas and groceries to utilities and activities. This will help you see what you may have left over to put into savings.

Managing any debts and how you plan to pay them off is also an important part of managing cash flow. A piece of advice here: Don’t worry about paying all your debts at once. Instead, focus on taking care of higher interest rate debts first. This will have a good impact on your overall financial health, to help you worry less and save more.

New digital tools, like NOMI Budgets and NOMI Forecast can also help you stay on top of your money and avoid unnecessary expenses. Available to RBC clients through the RBC Mobile app, NOMI Budgets simplifies the budgeting process by taking a close look at your spending and recommending a personalized monthly budget based on your habits. NOMI Forecast learns from your past transactions and uses predictive technology to provide a rolling forecast of your expenses for the next seven days.

• Be prepared for the unexpected

One important lesson the pandemic has taught us is that the unexpected can happen at any time. It also has reinforced the importance of having an emergency fund that you can rely on to help cover the costs of unexpected expenses like loss of income or repairs to vehicles or flooded basements.

Setting up an automatic savings plan can make it easier to save regularly. Using a digital savings account like NOMI Find & Save can also help, as it finds extra money in your cash flow it thinks you won’t miss and automatically sets it aside. If a payment or transfer is due to come out of your linked chequing account, the money is automatically transferred back to ensure you have what you need to cover those transactions.

• Look past the headlines when investing

It can be tempting to do ‘emotional investing’ – reacting to negative headlines and market volatility by altering a well-designed investment plan. While selling off your portfolio may make you feel better, this decision could mean lost opportunities and not achieving your long-term investment goals. Continue Reading…

Collateral vs Conventional Mortgages

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By Sean Cooper

Special to the Financial Independence Hub 

Collateral and conventional mortgages may sound similar, but they’re actually two separate and distinct things. In this article we’ll look at the difference between the two.

What is a Conventional Mortgage?

A conventional mortgage is the mortgage type most Canadians are familiar with. When you make at least a 20% down payment on a property, you can take out a conventional mortgage. This differs from an insured mortgage, where you can put down as little as 5% on a home.

With a conventional mortgage, the lender will let you borrow up to 80% of the property’s value. The property value is the lesser of the purchase price or the appraised value. Usually the purchase price and appraised value are the same, but sometimes they differ.

If the home is appraised higher than the purchase price, that’s a good thing. That means that you’re getting a good deal on the home. However, if the home is appraised at less than the purchase price, you’ll need to make up the difference if you still want to put at least 20% down.

With conventional mortgages, you get to choose the length of the mortgage. The most popular lengths or amortization periods are 25 and 30 years. If you’re looking for the lowest mortgage rate, a 25 year amortization usually offers that. However, if you’re looking for lower mortgage payments, the 30 year amortization is the best option.

What is a Collateral Mortgage?

Not to be confused with a conventional mortgage, a collateral mortgage is a lot like a conventional mortgage, but with a key difference. Unlike a conventional mortgage, a collateral mortgage re-advances. This means that a mortgage lender is able to loan out more funds as the value of the property goes up, without needing to refinance your mortgage. Continue Reading…

ESG and evaluating Risk in Fixed Income

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Franklin Templeton/Getty Images

By Ahmed Farooq, CFP, CIMA, Franklin Templeton Canada

(Sponsor Content)

ESG (environmental, governance and social) has become a hot topic in investment circles.

Sustainable investing is a key consideration for most asset managers nowadays, reflecting changing attitudes among investors.

Responsible or sustainable investing was once a very niche part of the market, but now accounts for US$35.3 trillion worldwide, according to recent data from The Global Sustainable Investment Alliance (GSIA).

This rise of ESG is most closely associated with equities, but this approach to investing can also be applied in the fixed income space too. Being able to minimize downside risk is a key objective for fixed income investors, and this certainly aligns with the characteristics of ESG investing.

Green Bonds evidence of ESG’s growing significance

ESG’s growing significance was displayed further earlier this year when the federal government’s 2021 budget included a plan to issue $5 billion in green bonds to support environmental infrastructure development in Canada.

Speaking at the recent Exchange Traded Forum, Brandywine Global Investment Specialist Katie Klingensmith discussed the firm’s investment philosophy and how ESG has become an important element of its strategies in recent years.

One of the specialist investment managers brought under the Franklin Templeton umbrella after its acquisition of Legg Mason in 2020, Brandywine Global has US$67 billion in assets under management globally.1

Of that total AUM, US$53 billion is in fixed income, where the investment team combines a global macro perspective with a disciplined value approach to select suitable holdings for the Brandywine  funds.

A signatory of the UN-supported Principles for Responsible Investment (PRI) since 2016, approximately 99% of the firm’s assets under management now feature ESG integration.

Brandywine has built its own proprietary ESG portfolio management dashboard as a result, and will publish its first Annual Stewardship Report in 2021. Continue Reading…