Family Formation & Housing

For young couples starting families, buying their first home and/or other real estate. Covers mortgages, credit cards, interest rates, children’s education savings plans, joint accounts for couples and the like.

How to mitigate the burden of Sudden Wealth

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Image Source: Pixabay

By Beau Peters

Special to the Findependence Hub

You’ve always dreamt about it and now it’s happened. Your ship has come in. You’ve found the pot of gold at the end of the rainbow. Your future is secure. You have found sudden wealth and now the world lies at your feet, just as you’ve always wanted.

And yet, perhaps life isn’t quite what you expected. Perhaps the affluence you’ve found has brought with it as many unanticipated burdens as it has alleviated. Indeed, no matter how you came into your good fortune, the simple truth is that sudden wealth has its own challenges, ones that you must be prepared to address effectively if you want to secure your own future well-being.

The Psychological Toll

Before you came into your money, you probably imagined that if you were only rich, your life would be perfect. To be sure, wealth can solve a lot of problems. You no longer have to worry about how you’re going to keep a roof over your head or food on the table. You don’t have to worry about the car note or your student loans. You’re secure, as is your family.

However, when you’re absolved of financial worries, especially when this relief comes quickly, that can all too often shine a bright spotlight on other issues in your life. The obligation to make a living and pay off your debts might well have served as a distraction, enabling you to avoid confronting challenges in your relationships, your career, or even your own mental health.

With this obligation removed, so too is the distraction it once provided. You may well find yourself overspending in the effort to continue the avoidance. You may panic buy to comfort yourself or to relieve boredom. 

You may lavish your friends and loved ones with expensive gifts in an unconscious attempt to buy their affection or to compensate for guilt you may feel over your sudden prosperity. In fact, emotional spending is one of the most significant, and most pernicious, ways people waste money because the pattern is such a difficult one to break.

Whatever the reason, overspending can be one of the first and most important symptoms of psychological distress in your new life. Confronting the source of the issue, the depression, fear, guilt, or trauma that often lies at the root, is essential to overcoming it.  

Managing the wealth

When you’ve had a windfall, it can be tempting to think that the hard work is done. It’s often just the beginning. Far more often than not, the greatest challenge lies not in acquiring wealth but in keeping it.  Continue Reading…

Die with Zero?

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By Bob Lai

Special to the Findependence Hub

Recently I met up with a good friend for a much-needed chat. Over the course of a few tasty cans of beer, my friend mentioned that he recently listened to the “Die with Zero” audiobook and really enjoyed the key messages of the book.

Curious, I borrowed the book from the local library and finished reading it in two days.

The book’s author, Bill Perkins, suggested that we should all aim to die with zero dollars in our bank account, or at least as close to zero as possible. He argued that too many people spend unnecessary energy working extra years only to earn money that they wouldn’t be able to spend in later years and die with a large sum of money in their bank accounts. This is definitely different from the traditional belief of saving money during your working career and spending your savings once you’re retired.

Why die with $200k in your bank account, considering it took you an extra five years to save it, when you could have stopped working five years earlier?

Perkins believes that our lives are the sum of our life experiences which can be quantified and optimized. Therefore, we should focus on spending our money when we are younger and obtain as many life experiences and memories as we possibly can.

My friend now believes in spending his money in the most optimal way to obtain memorable experiences for himself and his family while keeping a focus on saving for retirement in the best approach. This is similar to what I’ve been preaching on this blog – find your own personal balance between spending money to enjoy the present moment and saving money for your retirement.

The fallacy of “save-save-save” mentality 

For many of us on the financial independence retirement early (FIRE) journey, we think about saving money constantly. We think about what’s the best way to save money and how to boost our savings rate, so we can become financially independent earlier.

But the “save-save–save” mentality isn’t actually healthy. It’s actually giving the FIRE movement a very bad vibe.

I’ll be honest, I was certainly guilty of focusing purely on our savings rate early on our FIRE journey. I wanted to cross the finish line and hit the escape button. Over time, however, I found that I wasn’t enjoying the small things in life. I felt frustrated when we spent money eating out or having a cup of coffee and treats at a cafe; I was having arguments with Mrs. T over these small expenses, because I wanted to save more money to expedite our FIRE journey.

When I stepped back and looked at the bigger picture, I realized that the “save-save-save” mentality wasn’t healthy. It was actually quite detrimental, especially to my relationship with Mrs. T.

The idea of becoming financially independent faster but without my lovely wife was not a price I was willing to pay. I realized there’s a fallacy in the “save-save-save” mentality.

Continue Reading…

The Rule of 30

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By Michael J. Wiener

Special to the Findependence Hub

Frederick Vettese has written good books for Canadians who are retired or near retirement.  His latest, The Rule of 30, is for Canadians still more than a decade from retirement.

He observes that your ability to save for retirement varies over time, so it doesn’t make sense to try to save some fixed percentage of your income throughout your working life.  He lays out a set of rules for how much you should save using what he calls “The Rule of 30.”

Vettese’s Rule of 30 is that Canadians should save 30% of their income toward retirement minus mortgage payments or rent and “extraordinary, short-term, necessary expenses, like daycare.”  The idea is for young people to save less when they’re under the pressure of child care costs and housing payments.  The author goes through a number of simulations to test how his rule would perform in different circumstances.  He is careful to base these simulations on reasonable assumptions.

My approach is to count anything as savings if it increases net worth.  So, student loan and mortgage payments would count to the extent that they reduce the inflation-adjusted loan balances.  I count contributions into employer pensions and savings plans.  I like to count CPP contributions and an estimate of OAS contributions made on my behalf as well.  The main purpose of counting CPP and OAS is to take into account the fact that lower income people don’t need to save as high a percentage of their income as those with higher incomes because CPP and OAS will cover a higher percentage of their retirement needs. Continue Reading…

6 Expenses that First-time Homeowners should plan for

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Image Source: Unsplash (https://unsplash.com/photos/cqAX2wlK-Yw)

By Beau Peters

Special to the Financial Independence Hub

Becoming a first-time homeowner is an exciting prospect. It’s a chance to have a place you can call your own, where you can make memories for years to come.

With that said, proper planning is necessary, or your dream can become a financial nightmare. The fact is that there are many unavoidable and potential expenses that could occur over time, and if you don’t understand the realities or you don’t save appropriately, then you could be in for some hard times.

To help you out, we have compiled a list of common expenses that most first-time homeowners will experience and how to prepare accordingly.

1. Closing Costs

As you are looking at potential homes and comparing your financial situation, you will want to keep in mind that there are some upfront expenses that you will want to consider, especially closing costs, which may amount to 3-6% of the total loan value. It is important that you have those funds fluid and ready to go when you sign your new mortgage.

If you are short on funds, then consider creating an agreement with the seller to share these costs or look into government programs if you are short.

2. HVAC Issues

No matter where you live, yyour HVAC (Heating, Ventilation, and Air Conditioning) units will likely need to be repaired either soon or down the road. While most units can last 10 to 15 years, if you run your heat or AC all day, every day, then you could be looking at a repair sooner than later, especially if you bought a home with an existing unit.

When preparing for the expenses associated with a damaged air conditioner, you will need to decide if you can have your unit repaired or if it will need to be completely replaced. The first thing you should do is get a quote from a professional to see if the cost to repair is almost as much as the cost to replace. If it is, consider getting a brand new unit because you know it will last a long time and work at high efficiency. Also, consider the fact that if your AC had to be repaired once, it will probably require maintenance again. Include these considerations in your final decision.

3. Appliance Lifetimes

Whether you are moving into a home with existing appliances or you are buying them brand new, you must realize that all appliances have their expiration date. For instance, refrigerators often last about 10 years, and even if they are still usable after that time, their efficiency will begin to dwindle. As far as other appliances:

  • Washers and dryers typically last about 10-13 years.
  • Dishwashers have about 10 years.
  • Microwaves typically last around seven years.

Knowing these dates is important so you can begin to budget accordingly to pay for a replacement.

As a new homeowner, an expense that you may want to incur is the cost of a home warranty. Many of these programs cover a portion of the price of the service calls necessary to fix your appliances, and your annual fee will also help with the cost of a new unit. As soon as you move into your home, look for home warranty programs and find one that suits your needs and financial situation.

4. Roof Damage

The roof is arguably one of the most important aspects of your home, and if it is damaged by weather or general wear and tear, then you will want to have it inspected and repaired immediately. Typical roofs built with asphalt shingles will last about 20 years, so if you have a new home, you may be good for a while, but if you bought a used home, then you will want to see how much time is left. Continue Reading…

Get started on your investing journey

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RBC/Getty Images

By Michael Walker,

Vice-President & Head, Mutual Funds Distribution & RBC Financial Planning, RBC

 (Sponsor Content)

Whether you’re investing to build up a nest egg for retirement, to buy your first home or for a special vacation, finding the right investing solutions can play a big role in helping you achieve your financial goals.

If you’re just starting on your investing journey, however, I know that taking that first step can feel overwhelming.

To help get you started, I’ve responded below to four of the most common questions I hear about investing:

  • Do I have enough money to get started?

You don’t need to have a lot of money to start investing. It’s important to start early, however, as even small amounts of money can grow into big investments with the power of compounding.

As a simple way to think of this, compounding enables your investment to generate earnings and then those earnings are reinvested. In other words, compounding helps you grow earnings on your earnings.

The basic idea is to start investing with an amount you’re comfortable with and increase that amount over time. Once you’ve decided how much you can invest, consider setting up an auto-deposit that automatically moves that money from your chequing account into your investment account on a regular basis. This could be weekly, bi-weekly, monthly: whatever works for you and your finances. Then, as your available funds increase, you can increase the amount you deposit.

In this way, you’re benefiting from paying yourself first and the money you’re depositing will be in your investment account before you can even miss it.  

  • How do I decide which investing options are right for me?

Finding the right investing solutions starts with understanding your investing style. Here are some questions you can ask yourself, to help determine that style:

  • Why do I want to invest? How does this fit into my overall financial goals?
  • Do I want to make my own investing decisions and do I have the time to manage my own investments?
  • Am I comfortable with virtual investing, knowing there are professionals managing my investments in the background?
  • Do I want advice and support from an advisor, and if so, how much?
  • Do I want to combine doing some investing on my own with working with an advisor?  

Once you understand your investing style it will be much easier to determine the investing options that suit you best. Continue Reading…