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 things to consider when buying a new car

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By Sia Hasan

Special to the Financial Independence Hub

It’s easy to buy a car without giving the purchase much thought. Every car dealer in town is ready to roll you off the lot in a brand new car today. If your credit score presents a problem, they’ve got a cheaper used model for you. Should your credit preclude that, there are any number of “buy here pay here” stores ready to roll you off the lot no matter what’s on your credit report.

But are you making a wise investment? People with lots of money got it by asking themselves that question before every purchase, be it a car, a house, or a hamburger. When it comes to a car, the answer to that question takes some research into the vehicle and a hard, truthful look at your financial situation.

If you are like most people, the first part of the answer is much easier to obtain. Ratings and reviews can tell you about the reliability, safety, and warranty. Armed with that information, it’s fairly easy to pick a car that’s not likely to cost you your left kidney. The second half of the equation requires putting the wishful thinking on the shelf and giving yourself an honest answer as to what you can afford.

Here are five important considerations when investing in a vehicle:

1.) Run the numbers

Before you even step onto a car lot or start reading the auto ads, know your budget. To figure this, add up the cost of all of your basic needs, like housing, utilities, food, cellphone, etc. Be sure to include the less basic but important needs, like saving for retirement, taking a vacation, saving for emergencies, going on a date, etc. Be honest with yourself. When you add in the cost of your new car, remember it’s not just the payment. How much it will cost for gas, insurance, maintenance, and repairs must also be included. Once you know what you can afford on a monthly basis, any number of online calculators can show what purchase price is in your range.

2.) Buy or lease

Most consumers are better off buying because they can gain equity in the car and eventually pay it off. With leases, the payments never end. The lease term expires and then you need another car. Also, mileage caps are restrictive and terms can be confusing. If you drive very little and don’t need the car for the long-term, leasing may make sense. Also, if you plan to drive a new car every two years, leasing may work better because, unless you’re a cash buyer, you’ll always have payments anyway.

3.) New or used

New cars drop a third of their value as soon as the proud new owner drives off the lot. Some of the best car deals out there are for 1- to 3-year-old cars. They’ve taken the initial depreciation but are still in good shape. Continue Reading…

Poll finds most wonder how friends or neighbours can afford lifestyles

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It’s one thing keeping up with the Joneses but a poll from Edward Jones finds that 61% of Canadians wonder how their friends or neighbours can even afford their lifestyles. This is especially so among Millennials (aged 18 to 34), 71% of whom felt this way, while 66% of Gen Xers aged 35 to 44 were curious to understand how those around them finance their purchases.

Seems to me this gives new meaning to the phrase The Millionaire Next Door, a popular book on how frugality is a key trait in building wealth. Typically, the kind of millionaires in the book live modestly and their net worth may not be obvious merely observing the size of a given home and/or what’s parked in the driveway. Conversely, it can also be that an apparent “millionaire next door” has no net worth at all but is fuelling their conspicuous consumption merely with debt.

Either way, it appears many of us are influenced by what our associates are spending their money on.

Sadly, the Edward Jones poll found that the pernicious practice of looking at the purchases of others may influence consumers to buy beyond their own budgets: a whopping 93% said they experienced buyer’s remorse after such purchases and admit to regrettable spending habits. Among Millennials, 96% experienced buyer’s remorse but so did 90% of baby boomers.

Among the types of purchases most likely to generate regret were tangible purchases, which were cited as a source of regret in 83% of cases. Clothing or shoes were regretted by 35% polled, jewelry by 28% and electronics by 26%. Millennials regretted spending on clothing/shoes in 47% of cases, while boomers were more likely to regret spending on jewelry (34% of them did).

While Millennials famously are supposed to value experiences over stuff, across the Canadian population, 83% regretted making impulse tangible purchases, versus 71% for experiential purchases.

Build spontaneous spending into your budget

So what lessons does this survey furnish for those seeking ultimate financial independence? “If you know you enjoy spending money spontaneously, build this into your monthly budget,” said Roger Ramchatesingh, Director, Solutions Consulting at Edward Jones in a press release issued on Monday, “When it is unplanned for, it can add up over time and hurt other long-term goals such as retirement or the purchase of a home.” Continue Reading…

Staying on track financially: best practices

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By Gloria Martinez

Special to the Financial Independence Hub

Many North Americans have trouble staying on track financially; there are so many things that can derail even the best-laid plans, from unexpected medical expenses to home repairs or a dip in credit.

However, there are some simple ways you can help keep your finances in check so you aren’t left with a nasty surprise down the road, and it will ensure that your retirement, college funds, or other savings are left untouched.

It’s important to start with a good plan. Sit down, look at your expenses and current income, and create a budget that will be easy to stick to. Don’t cut back on too many things at once; that’s a recipe for failure that will leave you feeling unmotivated to keep trying. It’s also a good idea to keep communication open with your spouse or partner so everyone is on the same page.

Read on below to find out the best ways to stay on track financially.

Buy a Life Insurance policy

The right life insurance policy isn’t just a way to protect your family in the event of your death; it’s also an investment that you can sell down the road should you need to free up cash. Many people do this in order to pad their nest egg a bit for retirement, but it’s important to find the right policy for your needs: both now and in the future.

Set a Budget

Setting a budget is essential when it comes to staying on track with your finances. Create a spreadsheet online that can be shared with your spouse or partner, and update it every day with each new purchase or checking deposit. It’s also a good idea to set an allowance for spending for the week and stick to it as closely as possible, whether it’s for groceries or eating out. You can look for ways to save, as well, such as carpooling, making eco-friendly changes to your home to reduce your utility bills, and trading cable for a streaming service. Continue Reading…

Why and how Financial Independence is achievable

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By Jade Anderson

Special to the Financial Independence Hub

Financial independence can mean different things to different people, but the widespread definition is to be financially secure and on the right track to a safe retirement.

Sometimes people will still need to work in order to maintain their financial independence (aka “Findependence”), but the main idea is that you are free from any debt or outside help from financial institutions. This may seem like something that is unachievable for anyone outside of retirement age, who isn’t well established; however, because of the different types of financial independence, it may not be so difficult after all. Adjusting your spending habits, creating a budget for your self and several other things can lead you towards Findependence, if you know the right things you need to consider.

Reduce unnecessary expenses

Setting up a budget for the long term is extremely important if you’re wanting to become financially independent. If you can cut down on any unnecessary expenses (such as extra food, clothing, and entertainment) in your weekly spending, then you’ll find it will be a lot easier to save. If you are not used to saving money, starting small is important because it will help you establish a pattern of saving properly, and it will be easier for you when you move up to saving more of your average income.

Plan your savings and spending

Planning not only your savings, but also your spending is crucial for ensuring your financial independence. If you have a few debts, and you can make plans to pay off certain amounts by certain dates, you’ll find that the overall debt is easier to pay off, than if you paid it off in a lump sum. Using one of the financial calculators like those on Brighter Finance can help you calculate your budget and repayment periods for your loans, so you can keep track of your money more easily.

Continue Reading…

Vanguard Canada unveils low-cost actively managed mutual funds

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Vanguard Canada’s Atul Tiwari

On the heels of its three asset allocation ETFs that shook up Canada’s investment industry in February, Vanguard Investments Canada Inc. today announced it will be providing four new low-cost actively managed mutual funds to the Canadian market.

The four new mutual funds are its first actively managed products for the domestic market: until now, it has been providing 36 exchange-traded funds (ETFs), with more than C$16 billion in assets. Vanguard says Canadians hold more than C $28 billion in Vanguard investments if you include both its Canadian products and its funds trading on US stock exchanges.

All four of the new active mutual funds are globally diversified: Vanguard says its management fees are about half that of the mutual fund industry average in Canada. (According to the Investment Funds Institute of Canada here, the average total cost of ownership of mutual funds for clients using advice-based distribution channels in Canada at the end of 2016 was 1.96% when taxes are excluded.)

IFIC has said these costs continue to fall and there’s little doubt Vanguard’s entry will accelerate the trend, and not a moment too soon, given last Thursday’s disappointing proposals from the Canadian Securities Administrators. (See the Hub’s roundup here or my Motley Fool Canada blog here).

In a press release distributed at 8 am Monday, Vanguard said the four new funds “feature global investment strategies from some of Vanguard’s longest-tenured sub-advisors” and complement its broad-based lineup of ETFs.

Vanguard Canada managing director Atul Tiwari (pictured) said “Vanguard has a deep 40-year history of active management expertise and we are excited to extend that to mutual fund investors in Canada, at a low cost … These mutual funds reflect our philosophy as an organization with a disciplined long-term approach and world-class investment managers that have worked with Vanguard for decades.”

Despite the fact The Vanguard Group Inc. pioneered index funds and low-cost passively managed investing (with more than US$5 trillion under management), it is also one of the world’s largest active managers, with US$1.2 trillion in global actively managed assets. The key contributing factors to successful active management are low costs, talent and patience, said Tim Huver, Vanguard Canada’s head of product.

Pricing varies with investment performance

Vanguard says it will use a unique pricing structure in the Canadian marketplace that aligns the interests of the sub-advisors with the funds’ investors. The maximum management fee for each mutual fund will be 0.50% and the management fee will vary up or down, up to that maximum amount, based on the investment performance of each fund.

 

Mutual Fund Maximum Management Fee First Year Management Fee
Vanguard Global Balanced Fund

 

 0.50% 0.38%
Vanguard Global Dividend Fund

 

 0.50% 0.34%
Vanguard Windsor U.S. Value Fund 0.50% 0.35%
Vanguard International Growth Fund 0.50% 0.40%

 

The first year management fee shown above is effective from June 25, 2018 to June 30, 2019. The funds will be available to financial advisors through Series F units and institutional investors through Series I units.

Canadian investors currently hold $1.5 trillion in mutual funds, according to Tiwari. “Vanguard has a long track record of lowering investment costs in the areas in which we operate, so we see providing greater choice and lower costs to a broader group of investors as very positive.”

More on the four actively managed global mutual funds Continue Reading…