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How to plan your own Revenge Travel Year

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Most of you know the story by now. The short version goes: I quit my job at the end of 2019 to focus full-time on financial planning and freelance writing. The underlying motivation was to have more time to travel.

No longer bound by a set number of vacation days, and with work that could be done from anywhere with an internet connection, we planned some epic trips for 2020.

You know what happened next. Trip to Italy – cancelled. Trip to the UK – cancelled. Two years later, with a lot of pent-up demand to continue this vision of our rich life, we embarked on our revenge travel year.

A week in Maui, 3.5 weeks in Italy, 3.5 weeks in the UK, and another eight days coming up in Paris this fall. It has been a crazy and exciting year.

Planning your Revenge Travel Year

Many of you also have a pent-up demand for travel, and have either managed to get away this year or plan to do so in 2023.

Your ideal destinations may differ from mine, but if you’re itching to travel soon then I suggest you start planning now. Here’s how to plan your own revenge travel year:

Time and Place

My wife and I like to plan our trips at least a year or two in advance so we can properly allocate our travel spending.

Like any financial goal, it helps to have a rough idea of how much you’ll spend, plus a time-frame so you can work backwards and ensure an appropriate savings plan.

For example, you might budget $5,000 for a warm holiday next February. That means saving $833 per month for the next six months to reach your goal.

A budget nerd like me maps out spending for an entire year, so I know which months will incur the big expenses.

A more sensible approach might be to set up a sub-savings account for your travel goal. That kind of mental accounting can be a useful part of your financial plan.

Transportation and Accommodation

How will you get there? Plane, train, automobile? Where will you stay? Hotel, Airbnb, in a friend’s guest room?

Are you a luxury traveller, flying business class and staying at the Ritz Carlton? Or are you happy with an economy flight and a Best Western? Will you need to rent a car?

We flew business class from Calgary to Rome, and then again from London to Calgary. I’m not going to lie, it’s pretty nice to actually get some rest in a lie-flat seat and not arrive completely wiped out after a nine-hour flight. But, the economy flight back from Rome wasn’t all that bad.

We also love staying in nice hotels when it’s just me and my wife enjoying a kid-free getaway. Otherwise it’s Airbnbs for the extra space and the kitchen.

I bring up transportation and accommodation because it’s helpful to know which airline you’re going to fly with, which hotel chain you’ll stay at, and which rental car agency you’ll use.

Most airlines, hotels, and car rental agencies have their own loyalty program or belong to a coalition where you can earn points, get discounts, and receive other perks. Sticking to the same 1-2 brands and joining their loyalty programs can help augment your travel budget each and every year.

Rewards and Loyalty Programs

I’ve been a credit card rewards addict for many years. But I don’t just blindly apply for any credit card with a decent welcome bonus. Instead, I’m laser focused on earning points that I can use when I travel, and using credit cards that can help me accumulate those points in a hurry.

My top loyalty programs for travel include:

  • Aeroplan
  • WestJet / RBC Rewards
  • Marriott Bonvoy
  • Scotia Scene+
  • TD Rewards

Aeroplan is easily the best value of the bunch. Expect to redeem Aeroplan points at a value of 2 cents per mile. That’s at least twice the value of most other programs, where you can expect to redeem points at a rate of 0.50 cents to 1 cent per point.

We focus on Aeroplan because flights for four of us to Europe or Maui are expensive. Redeeming Aeroplan points has helped us save thousands of dollars on flights.

I also collect WestJet Dollars from time-to-time, as WestJet is sometimes a good choice for flying out of Lethbridge and for short haul trips to Vancouver. It’s good to have options. RBC Rewards can also be converted to WestJet Dollars.

I collect Bonvoy points because Marriott has the largest collection of hotels in the world and will almost always have an option in the area if we need a hotel.

We had a lovely stay at the Sheraton in Edinburgh and at the Westin Dublin in 2019, and with Marriott’s fifth-night free option we saved a bundle. We also like the free night certificate that comes attached to their Amex affiliated credit card.

Finally, a couple of supplementary loyalty programs (like Scotia Scene+ and TD Rewards) always come in handy to redeem for car rentals, hotels, or tickets to an attraction.

For example, I had more than 100,000 TD Rewards points ($500) and redeemed the points for a car rental in England this summer.

The point is to zero-in on a select few rewards programs that align with your trip or with the way you like to travel, and start racking up points.

Maybe you can shave off $1,000 from that $5,000 trip just by strategically using your points. Or, like I do sometimes, use those points to enhance your stay with a business class ticket, upgrade to a suite with a view, or to see an attraction you might have otherwise deemed too expensive.

Top Credit Cards for Travel

Okay, so which credit cards are best to use for collecting travel points? I wish there was an easy answer, but if you’re planning a revenge travel year soon you’re going to need a complete overhaul of your wallet.

Here’s what I’m packing:

  1. American Express Cobalt Card – Simply put, this is the best credit card in Canada for earning points for travel. New cardholders will get 2,500 points for each month in which they spend $500 (30,000 total). That’s in addition to earning 5x points on groceries. Sign up for this card, use it for $500 per month worth of your grocery (or dining) spending, and after 12 months you’ll have 60,000 Membership Rewards Points. These can be transferred to Aeroplan or Marriott, or used to redeem against purchases made on your card.
  2. American Express Platinum Card – Go big or go home. You’ve got an epic year of travel planned, you need an epic credit card (even for just one year). Yes, the Amex Platinum card comes with a $699 annual fee. But do the math and you’ll see the card easily pays for itself and more. Sign up for this card and you’ll get: Airport lounge access, a $200 travel credit, plus 115,000 points when you spend $6,000 in the first three months. Again, these can be transferred to Aeroplan or Marriott, or used to redeem against purchases made on your card. Time this application to coincide with a large one-time purchase (home or auto insurance for us). Cancel the card after your year of revenge travel, or keep it if you find it useful (I do).
  3. American Express Aeroplan Reserve Card – Another premium card option for a big year of travel ahead. This one comes with a $599 annual fee, but also some incredible perks like Maple Leaf Lounge Access, priority check-in, boarding, and baggage handling (all of which came in handy for us this year). Sign up for this card and you can earn up to 115,000 Aeroplan points when you reach the minimum spending thresholds.
  4. Marriott Bonvoy American Express Card – I’ve held this card for years because of the annual free night certificate, which I think easily pays for the $120 annual fee. We redeemed the hotel certificate for one-night stays in London and in Rome near the airport before our flight, and at the Marriott in-terminal hotel in Calgary before an early departure. Sign up for this card and earn 70,000 Bonvoy points when you spend $3,000 in the first three months. As I said, this one is a long-term keeper.

Next, I have a strategy to earn additional points from holding RBC and TD Cards. Here’s what I do:

  1. WestJet RBC World Elite MasterCard / RBC Avion Visa Infinite – I’ve held each of these cards at one time or another. They often have great sign-up bonuses for doing very little (welcome bonus on approval, or on first purchase), which makes them a no-brainer option for someone looking to accumulate points quickly and hassle-free.
  2. TD Aeroplan Visa Infinite / TD First Class Travel Visa Infinite Card – Same idea, I will often hold one or both of these cards to collect easy sign-up bonuses. The Aeroplan Visa obviously helps accelerate your Aeroplan points, while the First Class Travel Visa earns TD Rewards, which can be redeemed for a number of things – most notably through Expedia for TD (where I redeemed points for that rental car in England).

What I like about the TD and RBC cards, besides the easy to earn welcome bonuses, is that you don’t have to cancel your card before the next year’s annual fee comes due. You can downgrade to a no-fee card, or make a “product switch” from Aeroplan to First Class (and vice-versa), or from Avion to WestJet (and vice-versa), so you keep your credit file open and won’t take a credit hit for closing the account.

Ready Player Two?

Most credit cards come with the option of having a supplementary card: a second card for your spouse or partner to use on the same credit card account. Some even charge an annual fee for this “privilege.” No thanks! Continue Reading…

4 Retirement Planning mistakes and how to avoid them

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By Patricia Campbell, Cascades Financial Solutions

(Sponsor Content)

Retirement planning used to be less complex. People would spend their career working for a company, retire after 25-30 years, receiving a watch and a pension that would be enough to live on. With people changing jobs every 2.7-4.5 years, more individuals becoming self-employed or freelancing, retirement has gotten a lot more complicated.

Unfortunately, it’s all too easy to make mistakes when planning for retirement. Here are 4 mistakes to avoid:

1.) Expecting the government to look after you

If you’re at least 60 years old and have contributed to CPP, you’re eligible to receive the Canada Pension Plan (CPP) benefit. The payments won’t start automatically, you would need to apply to the government to start receiving it. The Old Age Security (OAS) pension amount is determined by how long you have lived in Canada after the age of 18. As of July 2022, seniors aged 75 and over will see an automatic 10% increase of their Old Age Security pension.

The Canada Pension Plan (CPP) and Old Age Security (OAS) are guaranteed incomes for life but not necessarily enough to live securely in retirement. Assuming you’re 65 today and are starting payments for both, the combined total is $1,345.32 every month.

For the CPP, the maximum amount is $1,253.59 (2022), although most individuals don’t qualify to receive the full amount. The average amount for new beneficiaries (October 2021) is $702.77.

2.) Applying for government benefits too early

You could receive 8.4% more every year when delaying your CPP payment beyond age 65. That’s a 42% increase if deferred to age 70. For OAS, you receive 7.2% more for each year of deferral beyond age 65. That’s a 36% increase if deferred to age 70.

It seems like a good idea to wait, but before you decide, consider this: If you compare 3 individuals who are the same age, where Mark takes the CPP at age 60 and Tonya takes it at age 65 and Natasha at age 70. The break-even point where Mark and Tonya will both have received the same amount of money is age 74. Natasha, on the other hand, will not catch up until age 80. At this point, Natasha will begin to outpace the others considerably. But keep in mind, she would need longevity to actually use and enjoy the money. With this being said, the later you start, the higher your monthly payments will be.

3.) Spending Too Much Money Too Soon

Do you really know how much you spend each month? Unlike working, you will have a fixed income in retirement. Therefore, it’s important to plan your retirement including any vacations or large purchases. An important part of retirement income planning is knowing how much income you can achieve based on your savings. Cascades Financial Solutions is an excellent tool to use when determining your after-tax income.

Continue Reading…

A higher dividend yield isn’t always better: How to spot the good from the bad to avoid this costly mistake.

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is higher yield dividend better

Investors interested in dividends should only buy the highest-yielding Canadian dividend stocks if they meet these criteria — and don’t have these risk factors

Dividend yield is the percentage you get when you divide a company’s current yearly payment by its share price.

The best of the highest-yielding Canadian dividend stocks have a history of success

Follow our Successful Investor philosophy over long periods and we think you’ll likely achieve better-than-average investing results.

Our first rule tells you to buy high-quality, mostly dividend-paying stocks. These stocks have generally been succeeding in business for a decade or more, perhaps much longer. But in any case, they have shown that they have a durable business concept. They can wilt in economic and stock-market downturns, like any stock. But most thrive anew when the good times return, as they inevitably do.

Over long periods, you’ll probably find that a third of your stocks do about as well as you hoped, a third do better, and a third do worse. This is partly due to that random element in stock pricing that we’ve often mentioned. It also grows out of the proverbial “wisdom of the crowd.” The market makes pricing mistakes and continually reverses itself. But the collective opinion of all individuals buying and selling in the market eventually beats any single expert opinion.

Canadian dividend stocks and the dividend tax credit

Canadian taxpayers who hold Canadian dividend stocks get a special bonus. Their dividends can be eligible for the dividend tax credit in Canada. This dividend tax credit — which is available on dividends paid on Canadian stocks held outside of an RRSP, RRIF or TFSA — will cut your effective tax rate.

That means dividend income will be taxed at a lower rate than the same amount of interest income. Investors in the highest tax bracket pay tax of around 29% on dividends, compared to 50% on interest income. At the same time, investors in the highest tax bracket pay tax on capital gains at a rate of about 25%.

The Canadian dividend tax credit is actually split between two tax credits. One is a provincial dividend tax credit and the other is a federal dividend tax credit. The provincial tax credit varies depending on where you live in Canada.

A couple of decades ago, you could assume that dividends would supply up to about one-third of the stock market’s total return. Dividend yields are generally lower today than they were a few years ago, but it’s still safe to assume that dividends will continue to supply perhaps a third of the market’s total return over the next few decades. Continue Reading…

A closer look at Inflation

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By Alizay Fatema, Associate Portfolio Manager, BMO ETFs

(Sponsor Content)

While inflation was sidelined by several central banks and deemed as “transitory” for the most part during 2021, the tone shifted promptly this year as back-to-back red-hot inflation prints forced most central banks to go on an interest-rate hiking spree. This aggressive action is being taken to tame inflation otherwise known as the rate of change in prices over time, [1], as it’s persistently high and is eroding the purchasing power of households, reducing consumer spending, and the overall economic well-being.

What are the causes of inflation?

Before we discuss whether inflation will slow down or not, let’s take a step back and analyze what’s causing prices to rise globally in the first place. Most economists attribute this uptick in inflation to several different causes such as:

  • Cost-push inflation driven by supply chain crisis

The COVID-19 outbreak led to a series of lockdowns and restrictions across the globe, which caused supply chain disruptions and labour shortages and ultimately induced cost-push inflation [2], resulting in a surge of prices due to an increase in costs of producing and supplying products and services. World economies are still recovering from this effect, and some of these constraints are fading away as global transportation costs plunge and Chinese production ramps up again. However, the Russian invasion of Ukraine is clearly hampering this progress and further stoking inflation.  [3]

  • Demand-pull inflation fueled by savings, fiscal stimulus, and monetary policy

The pandemic had caused an unconventional recession, and to keep economies afloat, several central banks slashed their interest rates, increased their money supply M2 (a measure of the money supply that includes cash, checking deposits, and easily- convertible near money)., gave out government aid, relief, & stimulus payments as part of the fiscal response during 2020 & 2021. As businesses reopen this year after remaining shuttered and reducing their production and services, they could not meet the pent-up demand driven by savings accumulated during the pandemic along with the monetary & fiscal stimulus. Thus, strong consumer demand, fueled by robust growth in employment, has outstripped supply temporarily for several products & services such as air travel, hotels, cars, etc., resulting in demand-pull inflation [4].

 

A series of interest rate hikes to curb sky-high inflation

The price increases for gasoline, food, and housing caused Canada’s inflation to rise to a 39-year high of 8.1% in June 2022. The markets got some respite in August as headline inflation came down to 7% and further weakened in September to 6.9% from a year ago, as gasoline prices fell. However, the recent data was disappointing as the dramatic increase in food prices was unexpected.

On a similar note, south of the border, the U.S. inflation spiked to 9.1% in June 2022, the highest level since 1981. Although headline U.S. inflation reported for September was up by 8.2% from a year earlier (down from the peak of June 2022), the core U.S. consumer price index (ex. food & energy) rose to a 40-year high, increasing to 6.6% from a year ago, which is a cause of concern as its squeezing households by outpacing the growth in wages.

To dial down the surge in prices, the Federal Reserve engaged in a series of rate hikes not seen since the late 1980s, increasing the front-end interest rate to 3.25% in September. The Bank of Canada followed suit by raising rates through consecutive outsized hikes, bringing its target overnight rate to 3.75% in October. Given inflation is still sky-high in both countries and way above their 2% target, both Fed & Boc are expected to raise their short-term rates again. Both central banks are maintaining their hawkish tones, which means the rates will be further raised to fight against raging inflation. However, they may dial back the pace of their hikes amid recession fears.

When will we see a slowdown in inflation?

Looking at recent CPI prints, the question arises whether the U.S. and Canada have passed peak inflation. The truth is it’s hard to predict what lies ahead. Prices in some sectors, such as gas and used automobiles, have dropped, which is a good sign. However, prices for certain goods & services are “stickier” than others, such as rent, insurance, health care or dining out, meaning that they are likely to stay at their current levels or increase even further, so inflation may stick around for a while. Moreover, higher wages and inflation may continuously feed into each other, resulting in a wage-price spiral [5] which may result in further rate hikes, causing additional damage. Continue Reading…

13 common and costly Retirement Planning Mistakes

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What is one common and costly retirement planning mistake to avoid? 

To help you avoid common and costly retirement planning mistakes, we asked financial planners and business leaders this question for their best advice. From not saving early on in life to poor tax planning, there are several retirement planning mistakes that you should be careful to avoid in order to build healthy financial security for your retirement.

Here are 13 common and costly retirement planning mistakes these leaders are mindful of:

  • Not Saving Early On in Life
  • Investing in Actively-Managed Funds With High Fees
  • Not Working a 401K to Your Full Advantage
  • Not Investing Your Savings
  • Not Planning for Health Care Cost
  • Investing Too Conservatively
  • Relying Only on 401K Savings
  • Retiring Too Soon
  • Carrying Debt into Retirement
  • Underestimating the Years You Live
  • Cashing Out Your 401K When Changing Employers
  • Withdrawing Early from Your 401k is a Major No-no
  • Poor Tax Planning

Not saving early on in Life

Your first dollar saved is your most important one. And whether you save that first dollar at 20 years old or 35 makes a huge difference because of compound interest. When compound interest is working FOR you, time is your best friend. Consider that with a 5% annual return, $1,000 grows to $5,516 in 35 years. Sounds pretty good, right? Well it gets better. That same $1,000 becomes $11,467 in 50, more than doubling in those last 15 years. So not saving early on in your life is a very costly mistake. — Paw Vej, Chief Operating Officer, Financer.com

Investing in Actively-Managed Funds with High Fees

Most people have good intentions when it comes to retirement. They put money into their 401K or IRA and don’t get cute with how they invest it, sensing that the diversification of mutual funds and ETFs is better than individual stocks and risky assets. However, one thing that is often overlooked is the drag that high management fees can have on a portfolio’s performance.

Actively-managed funds, including popular target date funds, have very high management fees, especially in comparison to low-cost index funds. And while the difference in fees may seem minuscule (often less than 1%), they can really add up. For example, for a normal retirement portfolio earning 4% per year, over the course of 20 years, when a fund has a 1% management fee versus no management fee, the total portfolio can be worth $50,000 less in the end. Just based on the drag of high fees! So make sure to watch for funds with hefty expense ratios – it’s a common trap. — John Ross,  Chief Executive Officer, Test Prep Insight

Not working a 401K to your Full Advantage

It’s unfortunate that many workers who participate in 401(k) plans either don’t take full advantage of an employer’s matching contributions or don’t increase their contributions when their income increases. The reticence to increase contributions is understandable given inflation putting stress on short-term purchasing needs, and making it even more difficult to pay attention to long-term goals. But not bringing your 401(k) up to the percentage of your employer’s matching contribution means you’re missing out on free money. And instead of falling victim to lifestyle creep whenever you get a raise, allocate the increase or a portion of it to your 401(k) to better secure your future. 

There are several ways you can save on short-term purchases so you have the funds to increase your 401(k). This includes curtailing or eliminating unnecessary expenses from your budget, comparison-shopping on large outlays such as car and home insurance, and lobbying creditors for a lower interest rate. –– Karen Condor, Insurance Copywriter, ExpertInsuranceReviews.com

Not Investing your Savings

Don’t keep your money sitting in a savings account. Instead, the best way to manage your savings and plan for retirement is to invest this money in an index fund that tracks the S&P 500. You’ll earn interest on your money in the market, whereas when your money sits stagnant in a savings account, you’re actually losing out on money due to inflation. — Cesar Cruz, Co-Founder, Sebastian Cruz Couture

Withdrawing Early from your 401k

Cashing out your savings early. If you have money in a retirement plan like a 401K, taking out cash can have a major impact on your long-term savings. In addition to the penalties, taxes and fees you’ll pay for the withdrawal, you also lose out on compounding interest. Depending on how old you are, how much you withdraw and various market factors, this could end up costing you big time. Whenever possible, avoid withdrawing from your retirement savings unless you have a true need that you can’t cover in other ways.

— Vimla Black Gupta, Co-Founder & CEO, Ourself

Not Planning for Health Care Cost

There is an old saying “Disasters and diseases come without asking.” Therefore, health care costs are a huge expense that increases as you age. And it’s almost impossible to calculate, but if you want to live in peace for the rest of your life, this expense has to be saved separately. And consider it important in your retirement planning. But many people think that as healthy as they are now, they will remain the same in the future, and do not pay attention to the health care cost. With the passage of time, they realize how important it is to include health care costs in retirement planning. But at that time, they can’t do anything. Therefore, avoiding all these difficulties, including health care costs, is important in your retirement planning. — Kenny Kline, President & Financial Lead, BarBend

Investing too Conservatively

Investing too conservatively is a common retirement planning mistake. Many people are afraid of losing money, so they invest only in low-risk options, such as savings accounts or government bonds. While these investments are safe, they don’t offer the potential for high returns that you will need to reach your retirement goals. To reach your goals, you need to invest in a mixed bag of assets, including stocks, which have the potential for higher returns but also come with more risk. Working with a financial advisor can help you create an investment portfolio that meets your needs and helps you reach your goals. — Danielle Bedford, Head of Marketing, Coople

Relying only on 401K Savings

People who sign up for 401K benefits think they’re doing all they can to prepare for retirement. Don’t be too reliant on such a thing because that income stream can come to a screeching halt as a result of being laid off — or worse, as a result of nefarious business practices. It may seem like an extreme example, but ask any former Enron employee how their 401K investments turned out. You need more than what your company offers as far as retirement preparation, so seek out additional ways to save money for your future retirement. Find low-risk investments. Turn to random rewards banking. Own a rental property and set aside that income stream for your distant future. Don’t just rely on one source for retirement savings, because if it dries up or explodes on you, you’ll have nothing. — Trevor Ford, Head of Growth, Yotta

Retiring too Soon

Retiring too soon is a common and costly retirement planning mistake to avoid. Continuing to work for a few more years can increase your retirement income by up to one-third. The average retirement age for most people, according to the Social Security Administration, is between 66 and 67, but many Americans don’t wait that long. Working until your full retirement age will help you avoid the Social Security benefit reductions for early filing. You can continue to make contributions to your retirement savings plan at the same time, creating additional balances that can be used to make market investments. 

Retirement entails leaving a full-time job or career that a person has held for a long time. There are numerous options, such as working part-time in your current job or career; beginning a new job or career, part-time or full-time; working as a bridge job for a few years until full-time retirement; working for yourself or owning a business; or volunteering for a cause you care about. — Raviraj Hegde, Head of Growth, Donorbox

Continue Reading…