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How to reduce your Household bills

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By Jenny Hughes

Special to the Financial Independence Hub

The average American has close to $40,000 [US$ throughout] in non-mortgage debt, also known as “bad debt.” This debt will cost them close to $250,000 in lifetime interest and more than three quarters will die with unpaid balances.

It’s a tragic statistic, and it’s getting worse, which is why so many Americans [and many Canadians too!] are looking into programs like student loan debt relief, tax debt relief, and debt settlement, among others. But as effective as these programs are, the best money-saving methods begin at home.

In this guide, we’ll show you some ways to reduce your household bills, potentially saving hundreds of dollars a year, all of which can go toward clearing your debts.

Get rid of unnecessary subscriptions

North Americans are wasting vast sums of money on subscription services, most of which are underused and unnecessary. It’s such a prevalent issue, that we guarantee everyone reading this will have fallen into the same trap.

Don’t believe us? Here’s a quick test:

Without looking at your bank statements, calculate roughly how much you spend every month on digital subscription services, including TV services, online services, etc.,

If you’re like the average American, you probably calculated a total of between $50 and $80, which is respectable, but probably false.

Did you remember to include Netflix, Amazon Prime, Hulu? What about web domains, Xbox/Playstation subscriptions, loot boxes, and cloud storage services?

The problem with digital subscriptions is that they often cost just a few bucks and are purchased on a whim. The average consumer doesn’t think twice about purchasing them because what’s an extra $5 or $10 a month? But as more of these services are added, that extra $5 turns into $50, and before you know it, you’re spending $600 a year on services you don’t need.

A 2018 survey asked the same question to 2,500 participants and found a massive 84% grossly underestimated how much they spent on digital subscriptions. And this is just the tip of the iceberg, as there are also gym subscriptions, grocery deliveries, and countless other subscriptions that leech money from your bank account every month.

The trick is not to think about the monthly cost but to calculate the yearly one. $5 a month seems like a sensible choice for a new media subscription, especially if it means you can watch that new series everyone’s talking about. But what happens three years down the line when you forget to cancel and only ever watch one episode? You’ve just wasted $150 to consume 45 minutes of TV.

Make your Home more efficient

Install energy-saving lightbulbs, low-flow toilets and shower heads; fix leaky faucets; insulate your doors and windows, and stop relying on costly air conditioning units. All these tips can reduce your monthly bills, but they’re just the tip of the iceberg.

American and Canadian households are filled with electrical devices — TVs, video gaming consoles, computers — and most of these are either active or on standby. They constantly draw a charge, which means you’re paying for them around-the-clock, and those charges can add up.

When a device is not in use, turn it off. This also applies to your heating, cooling, and lighting.

Watch those Food bills

The average family spends close to $3,000 on takeout and restaurant food, and roughly $7,000 on groceries. That’s $10,000 on food, and while it’s a necessity that can’t be avoided, how that money is spent desperately needs to change. Continue Reading…

College will look a whole lot different after the Coronavirus pandemic

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By Mike Brown

Special to the Financial Independence Hub

The devastating coronavirus pandemic has flipped every aspect of life on its head and caused great uncertainty, especially when it comes to higher education in North America. 

In Canada, for example, higher education institutions can’t appear to get on the same page, as some colleges will be fully online, some will be a mix between in-person and virtual classes, and some just aren’t sure what they are going to do yet. 

Then there are some colleges, like Brock University, that are implementing mandatory mask policies, while others like St. Francis Xavier University are requiring all students to sign a liability waiver by August 1 to protect the school against any loss or injury related to COVID-19. 

In the United States, the situation is no different, and many students and parents have no idea what colleges are going to do come the Fall. Some institutions, like Yale and the California State University system, are gearing up for another virtual semester, while others like Rice plan to reopen with social distancing regulations in place.

Harvard released a confusing plan that will bring back 40% of students next semester, while the rest will take online classes, and all will somehow pay the exact same price. 

LendEDU, a personal finance website, recently published a survey that highlighted how this uncertainty surrounding higher education in North America could change the college landscape for good. 

Many students considering Online College or a Gap Year during Pandemic

LendEDU’s report surveyed 1,000 respondents that were either current college students from the graduating class of 2021 or later or graduated high school seniors from the class of 2020. 

The results showed that many college students are considering nontraditional alternatives to college in light of the coronavirus pandemic.

For example, 41% of undecided high school seniors are considering enrolling in online college for the Fall semester, while another 28% are not sure if they would do that yet, and 31% will not. 

 

Another 43% of undecided high school seniors are thinking about just taking a gap year next year, while 28% are not sure either way, and 29% are not considering that. Continue Reading…

Yes, you can retire up to 30% wealthier

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Questrade touched a nerve with financial advisors with a series of commercials highlighting how lower investment fees over time potentially means you can retire up to 30% wealthier.

Financial advisor extraordinaire Jason Pereira acknowledged that Questrade was right to go after do-nothing advisors who collect fat commissions, but he claimed the 30% wealthier promise was unrealistic and borderline illegal.

Mr. Pereira’s argument is a good one. Advisors like him (and others who put a client’s best interests ahead of their own) can add tremendous value for clients, but not in the way you might think.

The old school notion of a financial advisor is of someone who adds value through their stock-picking prowess. But that argument falls flat when you see the evidence that the vast majority of actively managed funds fail to beat their benchmarks.

Indeed, investors are better off buying the entire market as cheaply as possible using index funds or ETFs.

PWL Capital’s Ben Felix once told me, “investing has been solved … The way for advisors to add value is on planning, behaviour, and transformation.”

With that in mind, I can get behind the idea that financial advisors with this mindset do have a net positive impact for their clients, even after fees.

Which brings me to the point of this article. Canadians have $1.6 trillion invested in mutual funds, most of which are of the expensive, actively managed variety. Those actively managed funds aren’t adding value: the vast majority will underperform their benchmark. Furthermore, most bank-advised clients aren’t getting value in other ways: financial planning, goal setting and prioritization, behavioural coaching, etc.

Traditional advisors are still selling (and charging for) investment expertise, but failing miserably at delivering excess returns while offering little-to-no value for things that would truly make a difference for their clients.

The easy answer is to pair a fee-only advisor with a low-cost investment solution (either a self-directed portfolio of globally diversified ETFs, or through an automated portfolio with a robo advisor). This way, you get the planning, coaching, and behavioural nudges you need to succeed financially, plus the benefit of lowering your investment fees. Win-win.

But the sad reality is that financial inertia is powerful and it’s easier to keep your investments at your bank, along with your chequing, savings, and mortgage. I get it.

Retire up to 30% wealthier without moving your investments

What if I told you that you can still retire up to 30% wealthier without moving your investments to a robo advisor or a DIY investment solution? The answer is sitting right there on the product shelf at your bank: yet rarely if ever talked about by your financial advisor.

I’m talking about index funds. That’s right. Every big bank has a suite of index mutual funds available to investors. These funds charge between one-sixth to one-half the cost of the actively managed mutual funds that are typically sold to Canadian investors.

I’ve monitored and tracked the performance of big bank index funds and their actively managed mutual fund cousins for more than 10 years, and in every single case (when comparing to identical benchmarks), the lower cost index funds outperform the active funds.

So, all you need to do is walk into your bank branch, sit down with your advisor, and ask (no, demand) to move your portfolio from actively managed mutual funds to their index fund equivalents.

Below, I’ll show you the exact index funds to buy to build a 60/40 balanced, globally diversified portfolio of index funds at each of Canada’s five big banks. I’ll compare those index funds to the commonly sold actively managed “balanced” mutual fund.

RBC Index Funds

If you’re an RBC client, chances are you have the RBC Balanced Fund (RBF272) in your investment portfolio. The fund has nearly $5 billion in assets under management and comes with a fee (MER) of 2.16%. Returns have been decent, with a 10-year average annual return of 5.3%. Continue Reading…

What’s in the Big Bear portfolio?

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By Dale Roberts, Cutthecrapinvesting

Special to the Financial Independence Hub

Canadian economist David Rosenberg is known as a perpetual bear. That framing is a little unkind. Let’s just say Mr. Rosenberg is always cautious and is more than aware of the many risks. But certainly he will dwell or concentrate on those risks. We might think that it is the job of the economist to ‘beware the negatives’. In a recent interview Mr. Rosenberg revealed what was in the big bear portfolio.

Here’s the link to the Financial Post interview that was posted on their YouTube page. It’s an engaging video I would encourage you to watch it.

But I will certainly outline the key points and takeaways for you. And yes, we’ll get to the big bear portfolio.

Mr. Rosenberg sees a dreadfully slow economic recovery. He uses the word ‘sclerotic’. And it’s all about the consumer and consumer demand.

Maudlin Economics reinforces that on the consumer front, unemployment is the driver. Here is a must read and a must follow.

Stumble-Through Jobs Market.

That post references the following Tweet, and follows up with some shocking charts.

Based on the consumer and more, Mr. Rosenberg sees a fishhook shaped or L-shaped economic recovery. And here’s more bear piling on. From a recent Globe and Mail article –

Economists at the UCLA Anderson School of Management stated in a report that the pandemic had “morphed into a Depression-like crisis.” They estimate that the economy declined at a 42% annual rate in the second quarter and predict that the lost ground will not be made up until 2023.

The stock market is not the economy.

Of course don’t tell that to the stock markets. They’ll do whatever they want. As we continue to learn, the stock market is not the economy. Those Robinhooders still love their stocks.

And on the simplicity front, the more traditional Balanced Portfolio barely felt a thing.

The more bearish economists will suggest that the stock markets may learn to count again, one day. And many economists and investment gurus feel that the traditional balanced portfolio might not get the job done. Mr. Rosenberg is shaping his portfolio for a period of stagflation. He feels that could arrive in 2-3 years. Continue Reading…

The shape of things to come for Coronavirus and the market

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By John DeGoey, CFP, CIM

Special to the Financial Independence Hub

For nearly half a year now, pundits have been offering their viewpoints on what the Coronavirus means for both investors and the broader economy.  Many have taken to offering prognostications regarding the shape of the eventual recovery.  While I find these viewpoints amusing (my personal favourite is the “square root” shaped recovery), I cannot help but note that they are virtually all about the economy writ large.  Economic growth.  Output.  Change in GDP.  Employment and unemployment.  Basically, these forecasts are about the big-ticket indicators of economic well-being.  The thing is – as has been noted by me and by others – the economy and the market are very different things.

The question that one might ask therefore, is about the shape of the performance of capital market indicators going forward.  Looking back from about Valentine’s Day, there’s a giant ‘V’ to depict both the TSX and the S&P 500 (and various other benchmarks, too).  Is that it?  Do we go essentially sideways from here and carry on as if the storm has passed?  Is this story five months long … or are other letters on the horizon?

The dominant narrative as of late July is that the story is essentially over.  There’s little more to say.  The virus will be with us for the remainder of 2020 and well into 2021 at least, but the impact on capital markets HAS BEEN felt and HAS BEEN addressed through a swift, effective public policy response: both in fiscal and monetary terms.  In short, the dominant narrative uses the past tense.  I beg to differ.

We are only into the third or fourth inning

While there can be no doubt that the globally coordinated policy response has indeed been swift and effective, it remains an open question as to whether or not the story has ended.  If this was a baseball game, I’d guess that we are now moving into the third or fourth inning.  In my view, this is not even close to being over. Continue Reading…