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.”

5 common financial mistakes Millennials are making

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By Noel Gonzales

Millennials have many opportunities in their hands today. With their skills and talent, they can earn more and do more with their lives. However exciting this is, it also becomes quite a challenging task for millennials to use wisely what they have.

Today’s trends on consumerism entice people to buy and spend more when they earn more, and this is where the trap of debt begins. Aside from this, here are five other common financial mistakes that millennials are making:

1.) Millennials don’t invest in the stock market or other financial markets

Millennials are tech-savvy, and most own a smartphone. Hence, investing in the stock market is not difficult to do nowadays. However, a lot of people, including millennials, still consider traditional savings as the way to go; they’re unaware that stocks grow more income than savings.

If you’re confused with how to start, you can take advantage of online resources and tools that can do the following:

  • Teach the basics of financial markets and investing.
  • Maximize your income, like a great position size calculator, that decides the estimated amount of currency units to buy or sell.

In investing, the younger you start, the better. If you start early, you’d surely thank your young and smart self 10 years from now.

2.) Millennials don’t invest in health insurance

Health insurance is a good investment for your future, as you have a shield that covers all your costs in the event of any health issues. Remember, health is your greatest asset. Illness can be very expensive, but when you have health insurance, your expenses are covered and you can focus on recovering.

There are now easy payment plans on health insurance, depending on your salary. You’ll be surprised to know that paying your insurance premiums can cost you less than the money you spend on your daily coffee run.

3.) Millennials don’t have an emergency fund  

As a millennial, you’re at the top of your health and age. Hence, you forego saving for an emergency fund. An emergency fund refers to money set aside to cover:

  • Emergency travel, such as when you need to go home because a family member died
  • Home repairs after a natural disaster
  • Sudden job loss

You should have at least three to six months’ worth of your monthly expenses as savings for emergencies. For example, if you spend a total of 500 USD every month to cover living expenses, home loan, etc., 3000 USD should be your emergency fund.

4.) Millennials don’t write a monthly budget

Not writing down a monthly budget is a mistake that can lead you to overspend. When you write your budget down, you can visualize it better and stick to it; hence, you know where and how to allocate your money efficiently. Continue Reading…

Which All-in-one, One-ticket Portfolio Is right for you?

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By Dale Roberts, CuttheCrapInvesting

Special to the Financial Independence Hub

In February 2018 Vanguard Canada changed the investment game in Canada with the launch of complete Balanced Portfolios that you can purchase by entering one ticker symbol. For example, once logged into your discount brokerage account you would enter the symbol VBAL, and press buy to get a complete globally diversified Balanced Portfolio. The Portfolio is 60% Canadian, US and International stocks with 40% of those shock absorbers known as bonds.

Vanguard offers One-ticket Portfolios at five different risk levels.  With an MER of .22% these portfolios are a game changer. (In the pie charts below, Orange shows equities and blue fixed income percentages). 

 

iShares has also had One-ticket solutions available for several years. The asset allocation was ‘weird’ and the fees were not that low. considering the low fees on the underlying ETF assets. In response to Vanguard, iShares recently took the scrub brush to the funds, cleaned up the asset allocations and then cut the fees. In fact they undercut Vanguard just slightly with an MER of .20%. Here’s the link to the iShares product page; this will take you to XBAL, their Balanced Portfolio.

And then last week along comes one of the big banks with their own One-ticket offering. Here’s my review at the Hub: BMO keeps it simple with its One-ticket Portfolio Solutions.

 

 

The one-ticket solutions are the most cost-effective managed portfolios available in Canada. This should be the final dagger in the heart of the high fee mutual fund industry.

Which One-ticket provider is best?

Let’s call it a draw. The portfolios are equally great. They include the basic and sensible asset allocation building blocks of Canadian, US and International stocks supported by a bond component. All the One-ticket providers use Canadian and foreign bonds to manage the risks.

How to select the right portfolio

Nothing is more important than investing within our risk tolerance level. We could argue it is the most important ‘part of it all.’ The Portfolios do not come with an owner’s manual for when and how to use them. Matching the appropriate portfolio to your risk tolerance level, time horizon and objective is key.

We have to invest within our risk tolerance level; bad things happen when we invest outside of our comfort level – usually permanent losses. We must be comfortable with the percentage and dollar value that the portfolio could decline.

Are you comfortable with a portfolio that could decline by 5% in a major correction, 10%, 20%, 30%, 40% or 50%?

Remember those bonds work like shock absorbers to soften the blow and smooth out the ride during periods when the stock markets tank.  And tank they can; Canadian and US and International markets have declined by some 50% or more twice in the last 20 years. Continue Reading…

How credit cards can help your 2019 budget, not hurt it

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By Hyder Owainati, RateHub.ca

Special to the Financial Independence Hub

Whether your financial resolution for 2019 is to dial back your spending, build up savings or better manage your debts, odds are your credit card – and how you use it – crossed your mind a few times as you were formulating your money goals for the new year. And while knee-jerk thinking leads many of us to jump to the conclusion that credit cards can only hurt our budgeting goals, it’s not necessarily the case.

Below are some key ways credit cards can help you reach your 2019 money resolutions (not hurt them).

Use your credit card to put your spending habits under the microscope

One of the many benefits of a credit card is that all your past purchases can be easily tracked either on paper statements or on your card issuer’s app (in the case of the latter, you can often sort purchases by category). By investing some time into looking at how you spent your money last year, you can get a big picture view of your worst purchasing habits and take action to avoid repeating the same mistakes.

For example, if you find that you’re paying subscription fees for services you rarely take advantage of, it’s time to cancel them and start adopting a more strategic approach to what you sign up for. If your daily latte purchases add up to an exorbitant amount of money every month, you may want to start brewing coffee at home. And if your holiday and birthday purchases led you to carry a large balance from one month to the next, you may want to rethink your expensive gift-giving habits.

Maximize your rewards with a credit card that aligns with your spending habits

By using a credit card that offers bonus rewards on the purchases you make the most often, you can rack up some significant savings. On the other hand, if you carry a card that doesn’t align with your spending habits, you could be needlessly leaving money on the table.

Do you spend big on gas? Then you’ll want to consider a card that offers bonus rewards at the pump (some of the best gas credit cards in Canada offer as much as 4% in cash back). Are you among the many Canadians who eat out at restaurants more than twice a week? With a rewards credit card catered for dining out, you can earn as much as 5% in travel points for every dollar you spend at restaurants (we’ve calculated that can add up to $180 in points over the course of a year; all on just restaurants).

To find the best credit card in Canada for you, it’s best to compare your option across multiple financial institutions and not confine your choices to a single bank.

Use a balance transfer to tackle your past credit card debts

If you’ve racked up significant credit card debt over the past year and your goal for 2019 is to eliminate your interest payments once and for all, a balance transfer credit card can go a long way in helping you chip away at your debts faster. Continue Reading…

How to make the most of your HELOC

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By Sean Cooper

Special to the Financial Independence Hub

A HELOC, short for “home equity line of credit,” is a revolving line of credit secured by your home’s equity. HELOCs have a reputation for being a convenient, flexible and low-cost way of accessing credit. A HELOC can be a great way to borrow money cheaply (it sure beats using your credit card!), as long as you do it responsibly.

Using your HELOC responsibly means using it for something that is likely to increase your net worth and having a plan to pay back the money you borrow. (It can be tempting to make interest-only payments, but you’ll literally find yourself no further ahead.) To address this, most lenders have recently introduced stricter qualification rules for HELOCs. You’re required to pass the mortgage stress test (2% + your HELOC rate), in addition to some lenders making you qualify based on your HELOC limit rather than your current outstanding balance.

The amount that you can borrow by way of a HELOC has also decreased over the years. With a HELOC today, you can access up to 65% of your home’s appraised value. Note that your mortgage balance and HELOC together can’t be more than 80% of your home’s appraised value.

Now that you have a better understanding of HELOCs, let’s take a look at a couple ways to make the most of your HELOC.

Home Renovations

A popular use of HELOCs is home renovations. But before undertaking a major home renovation, it’s important to ask yourself why you’re doing the renovation. Continue Reading…

Fed Watch: The “New” normal is really just the “Old” normal

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By Kevin Flanagan, WisdomTree Investments

Special to the Financial Independence Hub

The first Federal Open Market Committee (FOMC) meeting of 2019 is now in the books. While the result did not deviate from the market’s expectations on the rate front, the policy statement did provide further evidence that the Federal Reserve (Fed) is going about things in a different way than investors have been accustomed to over the last few years. Is this decision-making process the “new” normal? No, it is really just the “old” normal, or how the Fed typically conducts monetary policy when the Fed Funds Rate target is not zero.

Since the FOMC began raising rates in December 2015, and picked up the pace during the last two years, the plan was to move the Fed Funds Rate target away from zero, i.e., to normalize policy. Now, with the upper band of the policy rate target at 2.50%, or close to what is considered a neutral rate, the voting members have achieved their goal. So instead of raising rates in a somewhat gradual, but more importantly, predictable manner, further possible rate hikes will hinge upon upcoming economic data. In other words, monetary policy has become data-dependent. This is how the FOMC typically went about its business prior to the global financial crisis/great recession.

With inflation below the Fed’s 2.0% target, the policymakers can afford to be patient and, in the words of Chair Powell, “flexible” as well. Certainly, the decline in risk assets as 2018 came to a close created an environment of tighter financial conditions. The question now is whether that development had any visible, longer-lasting impact on economic growth.

Waters will be muddy for a while

So, where do things stand as the markets look ahead? Unfortunately, the waters will be muddy for a while. Due to the partial government shutdown, both the Fed and the bond market have not been receiving any fresh insights on the economy. The only exceptions have been the Bureau of Labor Statistics and private vendors. Continue Reading…