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.”

Simple investing isn’t easy

Posted By |

By Steve Lowrie, CFA

Special to the Financial Independence Hub

In my last post I covered why simplicity often beats complexity, especially when investing.  To quote myself:  “Simplicity is … the art of designing good, simple habits you can effectively implement and readily sustain.”  This keeps you on track toward your personal financial goals, with minimum fuss and maximum cost-management.

So why doesn’t everyone invest simply?  Because it isn’t easy.  We’re often done in by a host of human habits like fear, greed, loss aversion and herd mentality.  These and many other instinct-driven biases trick us into abandoning our good, simple plans whenever the next “all you need to do …” trend comes along.

“All you need to do is buy some dividend-paying stocks and you’ll have the income you need.”

“All you need to do is buy a few ETFs and you’ll be all set.”

“All you need to do is buy a couple hours of financial advice to get you up and running.”

While dividend-paying stocks, ETFs and hourly advice might still have valid roles to play in your plans, these sorts of “how to invest” fads shouldn’t override why you’re investing to begin with.  Plain and simple, your “why” should be guided by your long-term financial goals, like how much wealth you’d like to create or preserve over what period of time.  Your “how” should be grounded in robust academic evidence and time-tested solutions.

Unfortunately, the data tells us investors are often unable to take it easy on hyperactive trading.  For example, a 2017 Vanguard white paper, “Principles for Investing Success,” found that investors would move in and out of mutual funds and ETFs alike in reaction to market mood swings.  They’d also pile into and out of funds according to recent Morningstar ratings.  Instead of patiently embracing an efficient, long-term discipline, they were buying hot, high-priced funds and selling them low, after they’d cooled off.

Vanguard concluded (emphasis ours): “Investors should employ their time and effort up front, on the plan, rather than in evaluating each new idea that hits the headlines.  This simple step can pay off tremendouslyin helping them stay on the path toward their financial goals.”

Simple?  You bet.  Easy?  The evidence suggests otherwise.  That’s why I prefer to work with families upfront and ongoing with respect to their planning and investing.  That’s the only true way I know to ease their way over the long haul.

Steve Lowrie holds the CFA designation and has 25 years of experience dealing with individual investors. Before creating Lowrie Financial in 2009, he worked at various Bay Street brokerage firms both as an advisor and in management. “I help investors ignore the Wall and Bay Street hype and hysteria, and focus on what’s best for themselves.” This blog originally appeared on his site on June 5, 2018 and is republished here with permission. 

How to pay off your mortgage in 10 years

Posted By |

By Karren Smith

Special to the Financial Independence Hub

Owning a home without a mortgage is something of a dream for many, and an important step in financial independence. Paying off a mortgage in 10 years can seem like a massive task, but with some simple financial strategies and planning, it’s possible.

While you will need to make some sacrifices, the benefits of owning your home as soon as possible is worth it for many people. By paying off your loan more quickly, you and your family will save thousands of dollars in interest and have more money to put towards the things you love, such as overseas travel, or perhaps a second home for holidays. Owning your house can help your life become freer and more flexible. So how can you escape the shackles of your mortgage and pay off your home in 10 years?

Create a simple plan

Assuming you’re debt free, aside from your mortgage, you can make a simple plan that will help you pay off your home within 10 years. For example, let’s say you have a $300,000 loan at a 5% interest rate. If you have a single income of $95,000, you can pay off your loan in 6-7 years with $2,000 fortnightly payments.

If you’re a couple, with an income of $140,000, you can pay your mortgage off in 5-6 years with $2,600 fortnightly payments.

Of course, these numbers are just a starting point to illustrate what’s possible if you focus on paying your home off. Bigger loans will require more time or bigger repayments. Obviously, the higher your fortnightly payments are, the more quickly you’ll pay off your loan; however, at the same time, it’s important that you have enough money to cover your expenses and live comfortably. Continue Reading…

5 things to consider when buying a new car

Posted By |

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

Posted By |

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

Posted By |

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…