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.”

6 things you can do to stay out of Debt

Posted By |

By Sia Hasan

Special to the Financial Independence Hub

No one wants to be in debt, but the good news is that you don’t have to be if you make smart financial decisions. Here are six ways you can change your habits and stay out of debt.

Create a monthly budget

Creating a monthly budget can help you visualize how much money you have coming in and how much typically goes toward expenses such as electricity, Internet and maintenance. There are plenty of apps that can help you get started, or you can go the old-fashioned route and use a pencil and paper. After about a month, you’ll be able to see how you can cut down on your expenses, such as canceling subscriptions that you don’t need or use.

Go Green

Not only can you go green on a budget, but it can actually save you money in the process. The next time you’re low on food, try going to the local farmers market instead of the grocery store. Contrary to popular belief, one study found that farmers markets are 10 to 20% less expensive than grocery stores. While you’re at it, bring your own reusable bag with you when shopping. Some stores will give you a refund, which can add up to $10 of savings a week. If you’re looking for another way to go green, installing solar panels in your home can be a great way to help the environment and save money at the same time. Although the initial investment may be large, you’ll actually end up cutting electrical costs in the long run. One study found that you can save up to $30,000 in the first 20 years after installing solar panels. If you’re interested in going solar, Loanpal can provide you with financing options.

Leave your credit cards at home

Unlike a credit card, you can’t overspend cash once it’s gone. Before you go on your next trip to the grocery store, bring only the amount of money that you think you’ll need. This way, you can stick to your list and you won’t be tempted to buy any extra treats or unnecessary items. Credit cards can make it difficult to know how much you’re actually spending, which can lead to costs rapidly accumulating. Continue Reading…

Retired Money: What can retirees do about GIC reinvestment sticker shock?

Posted By |

My latest MoneySense Retired Money column looks at the vexing problem retirees and near-retirees face when their GICs have matured in recent months. Click on the highlighted text for the full column: Recovering from GIC sticker shock.

If before you were getting 2 to 3% on 2, 3, 4 or 5-year GICs, you may be shocked to discover you’ll be lucky to get 1% and only then by declining to take the first suggested GIC your brokerage has on offer. Going out 5 years may only gain you 0.5% or so, depending on provider.

Nor will matters improve any time soon. The Federal Reserve, Bank of Canada and other central banks have suggested interest rates will stay “lower for longer.” The Fed in particular has indicated rates are unlikely to rise for at least three years.

The piece passes on the views of financial advisors Adrian Mastracci and Matthew Ardrey on what to do about it. It amounts to grinning and bearing it and settling for lower guaranteed returns, or biting the bullet and taking a bit more risk with equities or alternative investments.

But what if you insist on what our family has done historically: leaving half your fixed-income allocation in GICs? Personally, I aim for roughly a 50/50 asset allocation and for the fixed-income portion historically have split it between laddered GICs and bond ETFs, or asset allocation ETFs with a healthy dose of bonds.

Odds are if you use the major discount brokerages of the big banks, you may need to leave them to find more generous GICs available from independent places like Oaken Financial, which has a 1-year registered GIC paying 1.4% and a 5-year GIC currently paying 2% through Home Trust and Home Equity Bank.

Personally, I have reinvested some GIC cash in 2- or 3-year maturities, on the hope rates start to rise three years from now. While 1% or so is pathetic at least it’s a positive number (ignoring inflation): with so many mentions of negative interest rates in Europe and sometimes floated by central bankers in North America, any positive return at is not to be sneezed at.

Conservative Asset Allocation ETFs are one possible alternative

Among the gambits I’ve tried is to raise risk slightly by moving some of this cash to ETFs like Vanguard’s Conservative Income ETF Portfolio [VCIP/TSX], which is 80% fixed income but provides a modest 20% equity kicker. Those who don’t wish to mess with their pre-existing asset allocation might consider the Vanguard Global Bond ETF [VGAB], roughly split between US and global bonds, all hedged back into the Canadian dollar. Continue Reading…

Top 10 tips on becoming Financially Independent (or “Findependent”)

Posted By |

Financial independence is something for which everyone strives. But most of us never get to a stage of financial independence by choice and we reach this stage when we are very old and can no longer work anymore. And although it is not easy to achieve financial independence (aka “Findependence,”) it can be done if you know how to manage your money effectively.

1.) Develop a budget

The first thing that you need to do when you are trying to save money is to develop a budget. To develop a budget, you need to start by figuring out how much money you need to live on each month and then giving yourself an appropriate amount of money to use over the course of the month.

2.) Get a financial planner

If you have had trouble managing your finances in the past, you should consult a financial planner so that you can get the most out of your money. He or she can help you to plan out what you need to spend, so you will be able to figure out how much money you need to save in order to get where you want to be financially.

3.) Create financial goals

Setting financial goals ensures success, because it helps you to get a sense of what you want to achieve and where you want to go on your financial journey. Giving yourself short term and long term goals is usually the most effective way to achieve financial goals, because it allows you to plan and amend your plans as you go.

4.) Pay off your debts

If you have a lot of debt looming over your head, you should make sure that you pay it off before you start actively trying to save. Start by paying off your smaller debts that have the highest interest rate first, so that you won’t have to pay so much later on when the debt has increased.

5.) Get rid of student loans

When most people think of paying off their debts, they forget about paying off their student loans because they are a different kind of debt to your standard credit card debt or loan repayment. There are a few different options when it comes to repaying your student loan, from paying a fixed amount each week, to contributing a percentage of your average income every pay-day. Continue Reading…

A good resolution for 2021: Choose Financial Independence

Posted By |
Amazon.com

By Michael J. Wiener

Special to the Financial Independence Hub

Many of us dream of financial independence.  Chris Mamula, Brad Barrett, and Jonathan Mendonsa offer many practical ideas for achieving financial independence (FI) and enjoying the journey along the way in their book Choose FI: Your Blueprint to Financial Independence.  They avoid many of the problems we see in the FIRE (Financial Independence Retire Early) book category.

The authors avoid the biggest problem with most FIRE books.  It’s annoying to tell the story of a high-income earner deciding to live like a student his whole life and retire in his 30s, and then say “you can too!”  Although I point out the bad parts of books, I can forgive a lot if my mind is opened to a good idea.  For this reason, I’ve enjoyed FIRE books even if they have some bad parts.  This book manages to avoid the worst parts of other FIRE books.

The authors don’t bother much with retirement.  FI gives us choices so we can “scrap the idea of retirement completely and focus on building lives we don’t want to retire from.”  The life you build can involve paid work, leisure, or any other pursuit you want.

Rather than focus on just one story, the authors draw from the experience of many people who have sought FI.  A common theme is the importance of enjoying the journey.  If you see your pursuit of FI as suffering for several years until you hit your magic number, you’re not doing it the right way.

FI’s benefits start even before you reach the target

You benefit from pursuing FI even before you reach your target.  “If you have a mortgage, a couple car payments, a family to feed, and nothing in the bank, what choice do you have when your boss asks you to do something stupid?”  I was able to push back somewhat with my boss in the late part of my career, and this got me more money and autonomy.

If reaching FI seems like an unattainable goal, it may help to break it down into milestones.  The authors suggest “getting to zero” for those in debt, “fully funded emergency fund,” “hitting six figures” in your portfolio, “half FI,” “getting close,” “FI,” and “FI with cushion.”  This last stage is defined as having a portfolio equal to 33 times your annual spending needs.  This is a sensible target for a young person with a long remaining life who doesn’t really know how spending needs will change with age. Continue Reading…

A smart guide on how to invest in 2021

Posted By |

By Alex Barrow

Special to the Financial Independence Hub

2020 was a difficult year in markets and the economy. There remains a high level of uncertainty heading into the new year. Below we’re going to walk you through some time-tested practical steps on how to prepare for the coming year, in order to make sure you’re financially set for whatever may unfold. 

1.) Assess your personal balance sheet

When planning your finances for the new year it is critically important to know and understand the strength of your current financial position. You can do this by running through the exercises below. 

• Understand your financial obligations relative to your income: 

Are you carrying high levels of debt relative to income? What is the composition of this debt: is it mostly in high-interest credit cards or a low fixed-rate mortgage? The 36% Rule states that your debt to income (DTI) should never surpass 36%. When your DTI rises above 36%, your personal balance sheet is fragile and you become more exposed to financial risk. In these difficult times of uncertainty, it’s important to keep your DTI low so as to maintain financial flexibility. 

• Upcoming big-ticket expenses: 

Do you plan to make any big purchases or financial outlays in the coming year? Perhaps you’re planning to buy a home and purchase a new car or pay the tuition for your child to attend their first year of college … These are big expenses that can stress the strongest of personal balance sheets if one doesn’t plan properly. That’s why it’s important to note these at the start of the year so you can start preparing for the expense. 

  • Nonessential spending: 

Frequent dinners out and vacations at the beach are fun but if they come at the cost of putting a strain on your financial security, they can cause more stress than they’re worth. A good exercise for planning for the coming year is to look back at your expenses from the year before and see where you’re maybe spending a little more money than you’d like. Those $6 lattes every morning add up! 

2.) Set your personal financial goals 

To cite the oft-quoted baseball sage, Yogi Berra “If you don’t know where you’re going, you’ll end up someplace else.” Financial planning and goal setting are critically important to protecting your resources and securing the future you want. From a practical standpoint, this means doing a number of key things at the start of each year. 

  • Set a target retirement savings amount: 

Retirement might be a ways off for you, or not. Regardless, it’s never too early or too late to start planning for it. The rule of thumb is that you should aim to stash 10%-15% of your pretax income into a retirement savings account each year. The earlier you can start doing this the better because that puts the power of compounding in your favor.  

  • Invest, invest, invest: 

The best way to grow your wealth over time is to start investing early and often. This means putting a percentage of your income into low-cost stock and bond indices, on a consistent and regular basis.  

  • Take control of your debts: 

Turning back to keeping your DTI below the key 36%, debt is a financial burden that has to be dealt with before it grows out of hand. This takes time and planning. Just like how the power of compounding works in your favor in investing, it works against you when you carry large amounts of debt if you’re just paying the minimum. Continue Reading…