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.”

Affording our Lifestyle, post Financial Independence

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Billy and Akaisha enjoying Chacala Beach, Nayarit, Mexico

By Billy and Akaisha Kaderli, RetireEarlyLifestyle.com

Special to the Financial Independence Hub

It’s no secret that we have been living on around US$30,000 per year.

Now into our 31st year of financial independence we see no need to lower our spending. In fact, we are trying to increase it.

Some people do not believe we can have such a fulfilling lifestyle on this small annual amount, so in this article, we thought to explain how we do it.

Let us break this down

Decades ago we discovered the lower cost of living in Mexico. This is what is referred to as Geographic Arbitrage. You make your money in US Dollars – in our case dividends, capital gains and Social Security – and spend in the local currency. After running around the Caribbean Islands and RVing through the Western US, in 1993 we were invited to visit friends living in Chapala, Mexico. Since we track our spending daily, we saw our expenses in Dollar amounts drop rapidly by being there.

After spending 4 years in Chapala,we started traveling to Asia – another low-cost destination – again utilizing the strength of the US dollar to ease the pressure on our wallets. All the while, our stock market assets continued to increase in value.

For a handful of years again we made Dollars in the market and spent Quetzales in Panajachel, Guatemala. Easy living is what we call it and this is an essential style of our retirement approach.

In between all of these travels we spent time in our Adult Community Resort in Arizona. Surprisingly, our cost of living there was one of the best in all of the locations where we have lived. Yes, we were spending Dollars, but the price of living with value was attractive, and we modified our spending in other ways. Often, we walked or biked to grocery stores and various locations. Rarely using our vehicle at that time, the insurance company gave us a discount for having such low annual mileage. Weather – other than the super-hot summers – was pleasing and since there were tennis courts in the resort and friendly neighbors, we had assorted low-cost entertainment options.

These days we’re settled back in Mexico where the exchange rate is as good as it gets.

Travel

As our readers know, we still travel quite a bit even though Covid has kept us mostly in Mexico.

We have upgraded our lodging and choose more comfortable ways to get from place to place. Intra-country flights are very affordable here in Mexico, with a one-way ticket from Guadalajara to Puerto Vallarta costing less than $50USD per person. One time we flew from Guadalajara across the country to Merida for $38USD each. There is no need to stay at home when a week away is so attractively priced.

Because we have permanent residence status here in Mexico, we are entitled to an INAPAM card offering us 50% discounts on buses. Therefore, our transportation expenses for a bus trip to the beach is 2-for-the-cost-of-one. For example, we go to Chacala Beach, Nayarit, Mexico for 538Pesos for the 2 of us. This is about $13USD each on a luxury, air-conditioned bus.

This INAPAM card also gives us free entry into museums and certain public areas that charge a fee.

Rent

Our apartment, showing the upgrades we just finished

Our rent is $300USD monthly, or the Peso equivalent. This amount allows us to live in a gated garden complex, where we have a roomy one-bedroom apartment centrally located. Shopping, restaurants and doctors are easily within walking distance. There is no pressure to own a car in a foreign country with all the expenses like maintenance, licensing, fuel and insurance that are involved.

Recently we remodeled our kitchen with new counter and backsplash tile plus paint, costing 13,800 Pesos, about $690USD. Continue Reading…

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…