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.”

How do insurers calculate your home & auto insurance premiums?

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By Matt Hands, Ratehub.ca

Special to the Financial Independence Hub

Insurers look at historical data, as well as real and perceived risks when calculating your insurance premium. If we dig a little deeper, we can identify specific factors that affect the price you pay for home and car insurance. Even better, we can determine which of those particular factors can help you save money and get you closer to financial independence.

Car Insurance Rates

Factors beyond your control

Age: There are certain factors that you can’t change:  like your age. A younger driver will pay more for car insurance because, with less experience on the road, there’s a higher chance of an accident. Historical statistics have proven time, and again that younger drivers take more risks than more mature drivers.

Location: Where you live affects your insurance premium, so unless you’re willing to move, there’s not much you can do. Specific location factors that impact pricing are: number of accidents, levels of fraud, the value of claims, theft & vandalism, as well as climate considerations. For instance, if you compare Ontario car insurance quotes vs. Alberta car insurance quotes you might find, all things being otherwise equal, that Albertans pay less for car insurance. The reasons for the cheaper pricing could be any number of reasons from lower claims volumes to population density.

Factors you can use to save money

Your Car: It should come as no surprise that the more expensive the vehicle, the more it will cost to insure. We don’t have to compare Maseratis to Civics to find better pricing though. The Insurance Bureau of Canada (IBC) uses the Canadian Loss Experience Automobile Rating, or CLEAR table, to determine how cars may be rated differently when calculating their insurance premiums. Use IBC’s How Cars Measure Up Guide and browse for vehicles with lower collision or comprehensive claims that will result in lower insurance premiums.

Your driving activity: This point is three-fold. If your general driving activity is safe, if there are no accidents, no speeding tickets or other major offences on your record, you’ll save money on car insurance. Your driving history, or the longer your driving activity is free and clear of any blemishes on your record, the more your insurer will reduce your monthly payments. Finally, how much you drive will affect your premium. The more you’re driving on the road, the higher the risk of an accident, and the more you’ll pay for car insurance. If you can walk, take public transit, or shorten your overall commute, the more you’ll save on car insurance.

Level of Coverage: To pay the least amount of car insurance, you can opt for the minimum coverage if you own your car outright, but keep in mind, this exposes you to significant costs should you be in an accident.

For instance, you can opt out of collision insurance which protects your car against damages sustained in a crash. You can decide against comprehensive which protects your vehicle against damages from events not related to driving, like a tree falling on your car after a storm. You can also choose to only take the minimum third party liability allowed in your province. This puts most of the risk on you though, and if anything does happen, you’ll probably be paying much more than your monthly premium.

Higher Deductible: A quick and easy way to pay less without touching your coverage is to increase your deductible. The deductible is the amount you pay after being approved for a claim, but before the insurance company will pay their portion up to the limit specified in your policy. If you increase your deductible from $500 to $1000, this is a signal to the insurer that you’re taking on more risk, and they’ll reduce your premium accordingly. Continue Reading…

The Fed: “March”ing out like a Lamb

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By Kevin Flanagan, WisdomTree Investments

Special to the Financial Independence Hub

The transformation of Federal Reserve (Fed) policy continues. What was viewed as a hawkish Federal Open Market Committee (FOMC) outcome at the December meeting has now morphed into a more dovish outlook. In fact, one could conclude the Fed is leaving March by “going out like a lamb.”

So far in 2019, Fed policy decisions have graduated to be less about an actual rate move to the question of what the blue dots are saying instead. Remember, these blue dots represent the policy makers’ own projections for the future Federal Funds Target Rate over a period of time. So, not moving the rate at an official FOMC meeting during the first half of this year is not necessarily of paramount importance, nor expected, for that matter. Instead, it has become all about their policy statement and Fed Funds forecasts.

With that in mind, the results of the March FOMC gathering were being anxiously awaited. Interestingly, fixed-income investors had become accustomed throughout 2017 and 2018 to the Fed essentially guiding the markets as to when a potential rate hike would be coming. While Fed-speak had led to expectations for no action at this latest policy gathering (the actual result on the Fed Funds Rates front), the uncertainty quotient was dialed up because investors were not as certain about the Fed’s blue dot path.

Overall, the voting members do envision some slowing in U.S. growth this year, but, to quote Chairman Powell, they still feel the economy is “in a good place.” This outlook was essentially confirmed in the March policy statement. In addition, the lack of inflation places no urgency on the Fed to contemplate a rate hike anytime soon, even though core measures are straddling the 2% threshold. Continue Reading…

How Baby Boomers can be frugal, yet still live it up

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By Gloria Martinez

Special to the Financial Independence Hub

Baby Boomers have reached the point in life where they have either retired or are quickly approaching it, and that last paycheck is causing many to become more frugal. Being financially responsible is never a bad thing, but it shouldn’t take over your life. According to Forbes, being excessively frugal can “be a bigger problem for [a Baby Boomer’s] social life, family, and friends, not to mention physical health.” It is important that you find the right balance between saving and preparing for the future while also living in the moment.

Fulfill important responsibilities first

Before you can focus on having fun, take care of your health and well-being first so that it doesn’t become a constant worry. Some of the problems Baby Boomers face include declining rates of health due to obesity, diabetes, and various other health issues. Healthcare costs are continuing to rise as well, feeding into that constant need to save.

Your health is what will carry you through your Golden Years, but it comes at a cost. Now is the time to start exploring your healthcare options, including signing up for Medicare. Research Medicare Advantage plans, such as those offered by Humana, as they offer important health benefits and coverage, including dental, vision, and hearing, along with original Medicare benefits. While on the topic of your health and well-being, go ahead and make sure you have your end-of-life documents in order, including a living will, power of attorney, life insurance, etc. This might also including pre-paying funeral expenses or looking into long-term care insurance.

Explore ways to have frugal fun

Catch the Travel bug with a Road Trip

Traveling is a common activity for retirees, but when you add up airfare, travel insurance, and the cost of luxury destinations and cruises, travel becomes a huge expense. To save and make getting to your destination part of the fun, opt for a road trip. A road trip gives you the flexibility to travel anywhere, any time, with a personalized travel plan for a day trip, weekend getaway, week-long excursion, or a cross-country trek. Go at your own pace, and pack in the sights and experiences youwant to see.

Give that Hobby a try

Careers, families, and various other obligations don’t leave you with much free time, but retirement does. Maybe now you can finally find a hobby that you enjoy. Some of the most common Boomer hobbies are cooking, DIY projects, sports, and volunteering, but the possibilities truly are endless. You might even find a hobby that you can use to make a little extra cash. For example, you can sell produce from your garden at the farmers market, sell handmade furniture with your knack for woodworking, or make jewelry to sell at local boutiques and fairs. Continue Reading…

Smart ways to divvy up your tax refund

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Situation: The income tax refund is a welcome sight for many taxpayers.

My View: Park it temporarily to reflect on its best use before allocating it.

Solution: Evaluate family needs and options that provide lasting benefits.

Income tax filing season is under way once again. Accordingly, I examine some smart ways to apply your tax refund. First, a little trivia:

For what year did Canadians last file a 1-page Federal income tax return?
It was the 1949 tax year.

I think of allocating the income tax refund loosely within these categories. For example, you can spend it, save it, invest it, reduce debt and help others.

Start by parking the refund into a saving account to resist impulse, say for 30 to 60 days. That provides you sufficient time to reflect and evaluate your needs and best options that apply.

Try your utmost to arrange lasting usefulness from this source of cash. Many of the allocations you will make are not reversible.

Everyone can reap benefits from these simple best practices. I summarize some sensible ideas in dealing with tax refunds:

Reduce debt

  • Repaying credit card balances are top notch, risk-free allocations.
  • Trimming a line of credit, mortgage or student loan is very desirable.

Invest it

  • Contributing to the RRSP boosts the retirement nest egg.
  • Adding to the TFSA generates tax-free investment income.

Help others

  • Donating to a charity of your choice is a noble cause.
  • Helping out someone less fortunate than you is generous.
  • Making RESP deposits helps pay the rising costs of education.
  • Funding the RDSP for a special needs family member is unselfish.
  • Lending it at the prescribed rate to the lower tax bracket spouse.
  • Assisting an adult child to purchase a vehicle or residence.

Save it

  • Leaving it in your saving account is a worthy choice.
  • Supplementing your family business capital is worthwhile.
  • Adding to your investment plan is productive strategy.
  • Improving your career or education fulfills goals and dreams.
  • Rebuilding the family emergency account is beneficial.
  • Setting funds aside for the next income tax instalment.

Spend it

  • Replacing an aging vehicle and appliance helps.

A beginner’s guide to Fixed Rate Mortgages

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By Rebecca Hills

Special to the Financial Independence Hub

Fixed rate mortgages are very popular in Canada. In fact, of the 6 million mortgages that have been taken out by Canadians, 60% are fixed rate mortgages. A fixed rate mortgage agreement stipulates that the borrower will be required to pay interest on their mortgage that will not fluctuate for a set period of time. Presently, the most popular mortgage in Canada is a three-year fixed rate mortgage.

In addition, interest rates for fixed mortgages will differ, depending on the province that you are living in, as well as the number of years on the term, and also the financial institution that you borrow from. Different mortgage brokers will also offer different rates, so doing your homework beforehand, while understanding your unique financial goals and situation, will help you avoid any headaches down the line. Here, our goal is to provide you with a beginner’s guide to the fixed rate mortgage scheme.

What is meant by Fixed Rate Mortgage?

As mentioned, roughly two thirds of Canadians opt for a fixed rate mortgage over a variable rate mortgage. A fixed rate mortgage is designed for people who are averse to risk, as having a set interest rate will eliminate the risk of interest rates suddenly skyrocketing in the future. Imagine a situation where interest rates increase exponentially and you are unable to afford the sudden spike in rates. Such a possibility would not be an issue when you lock in an interest rate for the entire term of your loan.

Also, please note that you don’t have to stick with a fixed rate mortgage forever. For instance, if you receive a job promotion or inherit some money then you may be more comfortable taking a risk and switching to a variable rate mortgage. Once your mortgage has reached the end of its term you can consult with your broker in order to determine if switching to a variable rate mortgage may be the better option when it comes time to refinance your home.

Evidently, in some cases a variable rate mortgage may be the better option, if interest rates happen to be low when you sign, and remain relatively low throughout the term of your mortgage. As can be seen, both fixed rate and variable rate mortgages have their pros and cons, so if you are not sure with which to go with speaking to a financial advisor or broker may help with your dilemma.

Should I choose a fixed or variable rate mortgage?

There are many advantages to fixed rate mortgages. For instance, you won’t have to worry about your payments increasing over the duration of the mortgage term. There are also many options to choose from, from 2- or 3-year terms, to 5- or 10-year terms. In some cases you may also have the option to sign a 6-month fixed rate mortgage or one as long as 25 years. There is also the matter of certainty, as you will know exactly what your mortgage will cost at all times. Knowing exactly how much you will be required to pay will also streamline your billing, and also help you create a budget that is safe and secure. Continue Reading…