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.”

These are the credit cards Canadians favour the most, according to J.D. Power

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By Barry Choi

Special to the Financial Independence Hub

J.D. Power has just released its 2019 Canada Credit Card Satisfaction Study and Canadians have spoken: they prefer non-traditional card issuers over what the big banks are offering. This shouldn’t be a huge surprise as consumers had a similar outlook in the 2018 study, but there have been some minor changes to the ranking of cards with Tangerine Bank now having the highest overall customer satisfaction rating.

Using a 1,000-point scale, the average overall ranking was 754, but the top four credit card issuers had an average score of 799. Ratings were based on six factors: Benefits and Services; Communication; Credit Card Terms; Customer Interaction; Key Moments; and Rewards.

With more than 6,600 cardholders taking part in the survey, it’s impossible to determine what everyone was thinking, but we can make some logical assumptions based on the data available.

Canadians are favouring non-traditional card issuers

The biggest takeaway from the survey is that Canadians are favouring non-traditional card issuers with Tangerine, American Express, Canadian Tire and PC Financial taking the top 4 slots. This might be shocking to some people but when you look at the features of the credit cards offered by these companies, it may not surprise you at all.

The Tangerine credit card has become a popular card ever since it came onto the scene a few years ago. What makes this card appealing is that you get to choose up to three categories where you’ll earn up to 2% cash back. Every other credit card out there offers cash back has pre-defined categories so Tangerine is giving their customers the ability to choose what works best for them.

With American Express, they offer both cash back and travel cards, but one feature that’s unique to all of their cards is American Express Invites. With American Express Invites, you get exclusive access to some of the best entertainment, dining, and shopping experiences out there.

When it comes to Canadian Tire, it’s a brand that every Canadian knows. Canadian Tire Money is one of the most popular loyalty programs in the country and it has recently become better since the Canadian Tire credit card lineup was updated and rebranded to Triangle Mastercards.

Then there’s PC Financial Mastercard, which took the top slot last year but has fallen to fourth. Their PC Optimum program is still incredibly popular since you can earn up to 45 points per dollar spent at Shoppers Drug Mart and 30 points per dollar spent where President’s Choice products are sold. In other words, you can earn free groceries and merchandise fast with PC Optimum.

Cash rewards are more popular

According to the survey, 30% of those who responded said they preferred cash rewards. Airline rewards followed with 23%. Overall, customers who understood the value of their rewards program and what they earned were more likely to recommend their card over people who weren’t exactly clear how their rewards worked.

Favouritism towards cash back is nothing new as many Canadians now prefer the simplicity of cash rewards. With cash back credit cards, you get a set % back for every dollar you spend and you can cash out when you have a certain amount banked. When you compare that to travel rewards which may have blackout dates or it may take a ton of points before you can redeem any rewards, it’s easy to see why people prefer cash back these days.

That said, airline rewards are still popular. Within Canada, Air Canada controls much of the airspace so their loyalty program Aeroplan is still incredibly popular. Earlier this year, Air Canada formally acquired Aeroplan and have started to slowly implement some changes. Many Canadians are excited to see what else Air Canada has planned for Aeroplan which is likely why airline rewards are still ranked second overall.

Canadians prefer fewer communications

Unlike customers in the United States, Canadians were more satisfied when their credit card provider only contacted them once or twice a year. Overall, people much preferred email as their preferred way of communication. Continue Reading…

Why Robb Engen is striving not for FIRE but to be a FIE (Financially Independent Entrepreneur)

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I’ve written before about my modified pursuit of FIRE (Financial Independence, Retire Early). The twist is that I’m striving for FIE: to be a Financially Independent Entrepreneur. It’s an idea that I haven’t been able to get out of my head lately. Here’s why:

For as long as I’ve been writing this blog I’ve had a goal to achieve financial freedom by age 45. I’ve also declared a goal of reaching $1M in net worth by the end of 2021, the year I turn 41.

I’m on pace to achieve that, perhaps slightly ahead of schedule. More importantly, though, is a realization that my so-called side hustle – the online income earned from blogging, freelance writing, and financial planning – has far surpassed my full-time salary. Simply put, I could leave my day job tomorrow and still pull in enough income to meet our spending and savings goals.

So what’s holding me back? A few things. The security of a full-time job with benefits. A wife and two children who depend on my income. A $200,000 mortgage. The angst of where my next freelance contract will come from (and when it will be paid). Navigating the constantly changing online world while trying to earn a living. Having enough of a cushion in the bank in case things go sideways.

Never been busier

I think about all of those things. But the reality is my business has grown by nearly 50 per cent this year. I’ve never been busier, and I know there’s plenty of opportunities I’m leaving on the table because I can only do so much on evenings and weekends. Continue Reading…

How has the Home Buyers’ plan Changed?

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By Penelope Graham, Zoocasa

Special to the Financial Independence Hub

Of the tax breaks and incentives offered to first-time home buyers in Canada, the Home Buyers’ Plan is likely the most utilized; the program, which allows qualifying buyers to pull, tax-free, funds earmarked for retirement from their RRSPs for a home purchase, has steadily grown in popularity since it was first introduced back in 1992.

Eligibility for the program is fairly straightforward; first, the prospective buyer must have some funds saved in an RRSP. They must also be classified as a first-time home buyer, meaning they do not own, or have owned, a principal residence in Canada within the last four years.

The funds must be sheltered within the RRSP account for a minimum of 90 days before they can be withdrawn for the HBP, and the money must be paid back within a 15-year timeline, to kick in the calendar year after the withdrawal is made, in installments of one-fifteenth of the total amount.

While the program is structured to allow home buyers to tap into their retirement funds, it also ensures they pay themselves back; should one of the 15 installments be missed, that portion of the withdrawal funds loses its tax-free status, which the buyer will see reflected in their income tax bill.

However, there are some new changes afoot for the HBP, as announced as part of the federal budget in March, including the program’s first maximum expansion in a decade, and a tweak of the rules to improve eligibility for more home buyers. Let’s take a look at what’s new.

New maximum withdrawal now $35,000

As of March 19, the maximum withdrawal amount for the HBP has been expanded to $35,000, up from $25,000, where it had remained since 2009. This also means that, if a couple is purchasing a home together and both qualify as first-time home buyers, each could theoretically withdraw $35,000, to a combined total of $70,000; an amount that will give buyers greater pull in expensive markets, such as those buying homes for sale in Toronto. Continue Reading…

Is FIRE impossible for reasonable people?

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By Michael J. Wiener

Special to the Financial Independence Hub

“Whether you think you can, or you think you can’t ― you’re right.”
― Henry Ford

Retiring in your 30s or 40s seems like an impossible dream for most people. But the FIRE (Financial Independence Retire Early) movement is filled with people whose goal is to retire well before the usual retirement age. Critics say these FIRE penny-pinchers deprive themselves of any joy in their lives, and that FIRE is impossible for reasonable people. There is some truth to this, but not much.

The truth is that most adults have created a life for themselves that makes FIRE impossible without huge changes. They bought a big house far from where they work and own cars for commuting. They’ve committed almost all their income for the foreseeable future to a lifestyle they’ve chosen. No amount of eating in or other penny-pinching will make a big enough change to make FIRE possible.

That isn’t to say that smaller changes don’t help. Cutting out small amounts of spending here and there can improve your life tremendously. The key is to identify spending that isn’t bringing you happiness. But this type of change won’t shorten your working life by decades.

Best to start FIRE before making huge financial commitments

For FIRE to be a reality, it’s best to start before you make huge financial commitments. Instead of buying a big house far from where you work, you choose to rent or buy a modest place close to work. The savings can be huge. Reducing your commute by 25 km each way saves about $5,000 per year. Renting or owning a smaller place can save much more. By avoiding building an expensive life, it’s possible to save much more of your income and build toward early financial independence.

If you’ve already built an expensive life, changing to the FIRE path requires big changes. It likely means selling your home, selling expensive cars, and moving to a modest place closer to work. Few people are willing to make these changes.

None of this means it’s wrong to buy a big house for your family in the suburbs and commute a long way to work. It’s just that this choice precludes early retirement. Life is about choices. FIRE is not impossible; it just requires the right set of choices on the most expensive things in life. However, most people tend to push big choices like houses and cars right up to the limit of their income supports. Continue Reading…

Markets to the Fed: Go Fund Me

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By Kevin Flanagan, WisdomTree Investments

Special to the Financial Independence Hub

In an interesting turn of events, we had an FOMC meeting recently, but the results of this convocation were not what captured the lion’s share of Federal Reserve (Fed) headlines. Indeed, the dislocations that were witnessed in the funding markets, and attendant Fed responses, seemed to take center stage. Essentially, the stresses that emerged in this arena created a situation where participants were clamoring for the Fed to step in and provide the necessary funds to potentially alleviate the pressurized conditions.

Let’s do a quick Fed 101. There’s a certain level of reserves in the banking system that can fluctuate on a daily basis. The N.Y. Fed, acting on behalf of the FOMC’s monetary policy directive, is charged with keeping the Federal Funds target within its prescribed trading range, by either adding or deleting reserves via repurchase (repo) agreements with the primary dealer community, depending upon what is needed to achieve the aforementioned goal. Typically, these daily operations from the Fed go essentially unnoticed and don’t garner any headlines. That’s exactly the way it’s supposed to work.

So what happened this time around? Quite simply, there was a shortage of reserves, or think of it as a “cash crunch.” The “repo” market is a part of the financial system where participants borrow and lend money, using Treasury securities (as one example) as collateral within the transaction. It is in this repo market where the stresses became all too evident, for three reasons. Continue Reading…