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.”

Last-minute gifts for Christmas: 10 unique but affordable ideas

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By Casey Milton

Special to the Financial Independence Hub

Sometimes loved ones can be judgemental and happen to measure your affection for them based on what you get them for Christmas! But jokes aside, Christmas is an occasion that is incomplete without colourful boxes of presents.

But what about the budget? Especially when there are numerous people that you want to gift!

Here are 10 unique gift items to inspire you, which can be special, utilitarian and affordable all at the same time.

Before we get on with the list, it’s a good time to acknowledge that while many of us search for the most special gifts to give to our loved ones, it is also around this time that we contribute a lot to the global pollution rate with our unconscious consumer habits. It is high time we understand that sometimes “affordability” is not all about OUR monetary budgets but also about the Environmental cost.

So let’s be minimalists, let our gifts and gift packaging be in sync with the environment, and let the whole world have a breath of fresh air after the festivities are over.

1.)  DIY Gift Basket

Gift baskets are the coolest things that can fit just about any budget! You can create one without spending any money at all, with the help of a cardboard box or paper mache. Though the basket can make your presentation much special, it is still what goes into the basket that matters! If you can spend a little time to browse the local thrift stores, you may find some cool objects within your budget. Here are some ideas :

  • Coffee Hamper
  • Chocolate Hamper
  • Old-school basket of seasonal fruits
  • Vintage Collectibles curated from thrift stores
  • Hand-made, organic cosmetics
  • Hand-made soap and bath accessories
  • Art Supplies
  • Old, rare books curated from library giveaways

2.)  Handmade “Gift in a Jar”

The gift in a Jar is certainly not about a jar of honey or pickle! It is something a whole lot sweeter and full of joy! And this has so much potential to be a no-money gift item, based on whether you are buying the jar, and what you fill in it. Simply, take glass jar (recommended, reused jar) and fill it up with one of the following things :

  • Good Quality Battery-Operated Fairy Lights
  • “Open When” notes
  • Homemade Cookies
  • Homemade Chocolates
  • Handmade Candle

3.)  Personalized Tech Accessories

Tech accessories can be the most forward-thinking gifts, but only when you know your gift will compliment your dear one’s tech stuff. When it comes to such accessories, what better way to make them unique, than personalization! It doesn’t have to cost too much money, just needs a bit of your creativity:

  • Personalized protective phone cases for girls or boys, with their Instagram-worthy images, favorite colors or name initials – it should truly reflect their persona.
  • Personalized Bluetooth speakers
  • Personalized power banks

4.)  Rugs & Runners

Rugs can be functional gifts on a budget for the winter season and they don’t always have to be fancy or expensive. Here are some of the practical options:

  • Paint or embroider good quality sisal or jute rug
  • Knit a throw rug
  • DIY Rag Rugs
  • DIY braided rug with recycled fabric, you can also explore the thrift stores or art exhibitions to curate one of these.

5.)  Shelves of all kinds

You can never go wrong with shelves even if the person you are gifting lives in a rented space. The only condition is that you have to be careful about size and the installation process. Here are some ideas:

  • Ladder Shelves: you can take an inexpensive ladder, decorate it with some paint or polish, and you are good to go.
  • Rope Shelves are practical for rented places when you can simply hang them from command hooks
  • Floating wall shelves are good gifts when there are no restrictions or constraints on drilling

6.)  Plants

Continue Reading…

Age 60, retirement on a lower income – can I do it?

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By Mark Seed

Special to the Financial Independence Hub

Retirement plans come in all shapes and sizes but retirement on a lower income is possible.

Not every Canadian has a house in Toronto or Vancouver they can cash-in on.

Gold-plated pension plans are dwindling.

There are people living in multi-family dwellings striving to make retirement ends meet.

Not every person is in a relationship.

Retirement on a lower income is (and is going to be) a reality for many Canadians. 

Here is a case study to find out if this reader might have enough to retire on a lower income.

(Note: information below has been adapted for this post; assumptions below made for illustrative purposes.)

Hi Mark,

I enjoy reading your path to financial independence and it has inspired me to invest better.  I’ve ditched my high cost mutual funds and I’m now invested in lower costs ETFs inside my RRSP.  I think that should help my retirement plan. 

So, do you think I’m ready to retire at 60?

Here is a bit about me:

  • Single, live in Nova Scotia. No children.
  • Own my home, no debt. I paid off my house by myself about 10 years ago.  No plans to move.  It might be worth $300,000 or so.
  • 1 car is paid for, a 2014 Hyundai SUV. Not sure what that is worth but I don’t plan on buying a new car anytime soon.
  • I have close to $50,000 saved inside my TFSA, all cash, I use that as my emergency fund.
  • I have about $250,000 saved inside my RRSP, invested in 3-4 ETFs now.
  • I have some pension-like income coming to me thanks to my time with a former employer. A LIRA is worth about $140,000 now.  I keep all of that invested in low-cost ETF VCN – one of the low-cost funds in your list here (so thanks for your help!)

I’m thinking of stopping work later this summer, taking Canada Pension Plan (CPP) soon and I will start Old Age Security (OAS) as soon as I can at age 65.

I plan to spend about $3,000 to $4,000 per month (after tax) including travel to Florida, maybe once or twice per year to stay with friends who have a condo there for a week or so at a time.

So …. do you think I’m ready to retire at 60?  Any insights are appreciated.  Thanks for your time.

Steven G.

Thanks for your email Steven G.  It seems like you’ve done well with the emergency fund, killing debt, and investing in lower-cost products to help build your wealth.

Whether you can retire soon (I think you can with some adjustments by the way … see below) will require a host of assumptions to be made in addition to your details above.  This is because all plans, including any for retirement, are looking to make decisions about our future that is always unknown.

To help me make some educated decisions if you can retire on your own with a lower income, I enlisted the help of Owen Winkelmolen, a fee-for-service financial planner (FPSC Level 1) and founder of PlanEasy.ca.

Owen has provided some professional insight to other My Own Advisor readers in these posts here:

What is a LIRA, how should you invest in a LIRA?

My mother is in her early 90s, she just sold her home, now what to do with the money?

This couple wants to spend $50,000 per year in retirement, did they save enough?

Can we join the early retirement FIRE club now, at age 52?

Owen, thoughts?

Owen Winkelmolen analysis

Mark, I echo what you wrote above.  When it comes to retirement planning there are a few important considerations that we always want to review.  You’ll see those assumptions for Steven below.  There are also tax considerations.  Taxes will be one of the largest expenses for many retirees and Steven’s case is no different. In fact, living in Nova Scotia unfortunately means that Steven will be paying the highest tax rate in the country for his income level.  Let’s look at some assumptions first so we can run some math:

  • Assume income (today) of $60,000 per year (pre-tax).
  • OAS: Assume full OAS at age 65 $7,217/year.
  • CPP: Assume 35 years of full CPP contributions (ages 25-60) and a few years with partial contributions
    • CPP at age 60 = $8,580/year.
    • CPP at age 65 = $13,967/year (assumes future contributions in line with $60,000 income and includes new enhanced CPP benefits as of 2019).
  • Assume ETF portfolio with average fees 0.16%. Good job on VCN Steven!
  • Assume $85,000 in available RRSP contribution room.
  • Assume $13,500 in available TFSA contribution room.
  • Assume birthdate Aug 1, 1959.
  • Assume assertive risk investor profile.

Based on Steven’s current employment income, I’ve gone ahead and estimated that he will be paying around $14,000 in income tax each year (give or take depending on tax credits, etc.) At this income level Steven is paying the highest tax rate out of any province in Canada. Ouch … but reality. Continue Reading…

Canadians have an Income problem, not a Debt problem

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BoomerandEcho.com

It’s not hard to find a report about the growing Canadian debt problem. Canadians owe $1.77 for every $1 they make. The average consumer owes $31,400 in installment and auto loans, while borrowing for credit cards and lines of credit average $18,500 per consumer. Finally, there are reports that nearly half of Canadians won’t be able to cover basic living expenses without taking on new debt.

Half of Canadians say they have less than $200 left over at the end of the month, after household bills and debt payments. Canadians’ household savings rate is an abysmal 1.7 per cent.

Canadians have a major debt problem! All the warning signs are there. We’re overextended, borrowing to maintain our cost of living, and at risk of insolvency if a recession hits. It’s a crisis!

Our affordability problem

Not so fast. It looks to me like Canadians have an income problem, not a debt problem. Or, put a different way, Canadians have an affordability problem. The median after-tax income for Canadian families is $71,700. Meanwhile, the average house price in Canada is $512,501. That’s an incredible 7x income! For reference, the typical rule of thumb for housing affordability is 2.5x income. That means Canadians should be buying homes worth $179,250.

The discrepancy is even more staggering in B.C. and Ontario:

Avg. house price Median income Affordability
British Columbia $696,115 $72,200 9.64x
Ontario $618,165 $73,700 8.39x

It’s not just housing. Child care costs have risen faster than inflation in nearly two-thirds of cities since 2017. It’s often the single largest household expense after rent or a mortgage. The median cost of child care in Canada’s largest cities hovers around $1,000 per month, with parents in Toronto paying $1,675 per month. The exception is in Quebec, where a universal child care program has been in place for more than two decades (families pay $175 per month for child care in Montreal).

Transportation is the next largest expense for Canadians. On average, we owe $20,000 on our vehicles. The average price of a new vehicle has risen to $37,577. Today, it’s common to see auto loans stretched out over seven or eight years. That helps lower monthly payments slightly, but families are easily paying $500 per month or more on each vehicle (with many two-car families).

Beyond frivolous Debt

All this to say, it’s no wonder Canadians are struggling to get by from month-to-month. We’re accessing cheap credit, in a lot of cases, to fund basic living expenses or cover emergencies. It’s not like we’re out there buying diamonds and furs.

Furthermore, Scott Terrio, insolvency expert at Hoyes Michalos, says it can be misleading to suggest Canadians are so close to insolvency. He says there is a lot of runway between when someone is in financial trouble and when they file a legal insolvency.

“One can be technically insolvent for months, even years, before they need to consider an actual filing. We regularly have clients tell us that they should have come in to see us 12-24 months earlier than they did. That’s because there are all sorts of ways to stave off a legal insolvency.”

Indeed, there are only about 55,000 bankruptcies and 75,000 consumer proposals filed by Canadians every year.

“And there are 37 million Canadians, so you do the math,” says Terrio.

It’s an Income problem

No, we have an income problem that is crippling our ability to save. I’ve seen it firsthand. As a young homeowner, who admittedly got in over his head as a first time buyer, I struggled to pay my mortgage, buy groceries, and service my student loan debt (another issue altogether for young Canadians). Continue Reading…

Frugal and Fun: Preparing for the unexpected and enjoying life too

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Photo courtesy of Pixabay.com

By Jim McKinley

Special to the Financial Independence Hub

Baby Boomers came of age during a period of unprecedented prosperity and affluence in America, which was reaping the benefits of a super-charged post-war economy. And, like their parents and grandparents, instead of giving into frivolous financial behavior and spending their money, Baby Boomers tend to “hedge their bets” and play it conservative when it comes to spending. If this sounds like you, don’t let a concern about the future and the need for a tidy nest egg keep you from having fun and enjoying life. There are plenty of ways to balance preparing for the unexpected with having some fun.

Cost-conscious vacations

Vacations tend to be spendy affairs. The anticipation of visiting new and exotic locations can encourage a freewheeling attitude and a considerable outlay of money. If you’re worried about spending money you should be setting aside for a rainy day, forgo that Carribean or Danube cruise and look into something a bit closer to home, a destination you can easily reach by car. Sometimes there’s a memorable vacation waiting for you just a few exits down the road.

Do some research and look for an attractive but affordable bed-and-breakfast in a location that’s near a site of historical interest or a scene of natural beauty. If you don’t want to put highway miles on your car, check into coupons or online offers from a rental car company. Instead of stopping for pricey fast food, pack a picnic lunch and hit the trail for a fun and healthy hike. If you decide to stay in a hotel with a continental breakfast, grab some leftovers and cobble together your own lunch to avoid overspending on meals later.

Rethink dining out

There’s nothing quite like heading out for a nice dinner out with your spouse. The only problem is the cost:  a nice dinner at your favorite French restaurant with wine and dessert will certainly leave you with a three-figure check. Instead, look for some of the less expensive gems every city has to offer, if only you know where to find them. Do a little homework, ask around and find a new “go-to” restaurant, perhaps a family-owned place with a great history and a menu full of homemade delights. You can also save money on wine by bringing your own bottle, which many restaurants will gladly allow.

Take care of the basics

If you have a frugal nature, you’re probably more comfortable taking care of financial responsibilities before you head out for a good time. Few things make you feel better about your money situation than having an adequate rainy day emergency fund firmly in place. It’s easier than you think: simply set up a monthly automatic transfer into a simple, interest-bearing savings account, though make certain it’s a monthly amount your budget can handle. If possible, save enough to cover at least six months of expenses in an account you can easily access. Continue Reading…

Is buying a house a good investment? Usually, but here’s a case where it wasn’t

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Is buying a house a good investment? Recently we spoke to the son of one of our Successful Investor Wealth Management clients who has to make a decision about housing, but needs to look at it from a financial point of view.

He and his wife bought a small starter home on a tiny lot in an old part of downtown Toronto. They both work in the north end of the city, so they had a long commute. But they liked the neighbourhood, and a number of friends lived nearby.

New considerations came up after their first child’s birth.

As it happens, a family member owns an investment house in the north end of the city, in an area that’s renowned for having some of Toronto’s top public schools. It’s twice the size of their current home, half as old, worth three times as much, and is in livable condition. It has a driveway that can park three or four cars, plus a garage. In winter, it has room for an enormous backyard skating rink. In summer, it can accommodate barbeque get-togethers with 50 or more guests. The location makes the house an easier commute for both of them.

The family member/owner is willing to accept a yearly rent equal to 1.2% of the value of the home, which is less than his interest cost. He’s even agreeable to making modest improvements at his own expense, since he can write off the cost against his rental income. The house plays a key role in his estate plan, since it’s part of a long-term land-assembly project. He is willing to let them live there for as long as they want, or until he dies, with little if any change in the rent. He just wants a trouble-free tenant.

Is buying a house a good investment? Here’s a specific case where it wasn’t

They asked our advice on buying a house before, and they asked again when this sell-or-hold question came along.

Back in 2015, we told them the same thing we’ve repeatedly told other clients and Inner Circle members. Since the 2008/2009 recession, central banks in Canada, the U.S. and other countries have set off on a unique economic experiment. They have artificially pushed interest rates down to historically low levels, for two reasons: to keep the economy out of recession, and to make it possible to pay the interest costs on extraordinarily high and rising government debt.

Now, with this sell-or-hold decision to make, the situation has changed. House prices and interest rates have both gone up substantially. This means far more potential Toronto-area house buyers have been priced out of the market. In addition, the artificial interest-rate paradise is coming to an end. Interest rates have gone up and our view is that they will keep rising.

Our advice for this particular young family was to accept the sweet deal on the rental house, and sell the starter. They can save the money they’d otherwise pay on property taxes toward a down payment on their dream home. Their incomes are likely to rise, since they are in the prime of their careers, so they’ll have that much more to add to the dream-home fund. When they are ready to buy, here are some tips:

Is buying a house a good investment? 6 key real estate investing tips for Successful Investors

Tax pluses. Homeowners get a tax-free, rent-free benefit of having a place to live. Profits on sales of principal residences are also tax-free. Continue Reading…