If you have school-age children, you know that when fall rolls around there will be additional costs added to your budget. Hopefully, you planned for this increase in the budget when the school year began, but as we all know there are always unexpected costs that we didn’t think of. Here are a few things to expect as well as a few ways to save.
Clothes
When we send our kids off to school we already know about many of the costs. Back-to-school shopping can be crazy. New clothes are important if we want our kids to fit in with their peers. New shoes are also a popular item and they often need multiple pairs. If you live in an area that has cold weather or rain they will need coats and jackets. If possible try to reuse some of your kid’s clothes. I know they always want new clothes but try to mix in some new with some of the old, and don’t forget to utilize hand-me-downs if you have more than one child.
Supplies
Then there are the dreaded school supplies. A long list that never seems to end and probably a new backpack and lunchbox to go with them. There are ways to save money by finding good sales and also by re-using supplies from the previous year. I keep a plastic bin with unused and used school supplies that can still be used during the year and the following year if I still have them. This saves money and is a good way to be green. Continue Reading…
This might sound weird, as our society has become obsessed with this mystical three-digit number, but it is true. Chasing a high credit score is really a waste of time and money. Here’s why.
The score you have access to is not the one the bank uses
While I agree that having good credit is extremely important, the score can be very deceiving. The biggest problem is that consumers do not have access to the credit score that the banks uses. I know that sounds weird and it shocks everyone when they hear it, but Equifax has recently updated its website with the following notice:
The Equifax Credit Score is intended for your own educational use. It is also commercially available to third parties along with numerous other credit scores and models in the marketplace. Please keep in mind third parties may use a different scorewhen evaluating your creditworthiness. (Emphasis mine)
As you can see, the credit score you have access to as a consumer is for “educational” purposes only and can be completely different than what a lender will see.
For example, when you log onto your profile with your bank or a third-party app like Borrowell, Credit Karma, or Mogo the three-digit number you see is for “educational” purposes and not the score the bank will use on your next credit application. It is even worse, when you find out that the score you are paying for directly on Equifax.ca and TransUnion.ca is not what your lenders uses. Unfortunately, it is common to see over a 100-point difference between the “educational score” and what the bank actually uses. This is just one reason why the credit score provided to Canadians is very misleading.
A high score doesn’t mean you have good credit
An 800-credit score (which is really good) doesn’t mean you’ve been approved for best rates and terms. The score is just one aspect the banks are looking for. Continue Reading…
The term “financial independence” has many meanings to many people.
To some, this means the ability to work on your own terms.
To others, it boils down to not working at all but instead having “enough” to meet all needs and possible wants.
Where do I stand on this subject? This post will tell you in my six phases to financial independence.
Retirement should not be the goal: Financial security and independence should be
Is retirement your goal? To stop working altogether? While I think that’s fine I feel the traditional model of retirement is outdated and quite frankly, not very productive.
As humans, even our lizard brains are smart enough to know we need a sense of purpose to feel fulfilled. Working for decades, saving money for decades, only to come to an abrupt end of any working career might work for some people but it’s not something I aspire to do.
With people living longer, and more diverse needs of our society expanding, the opportunities to contribute and give back are growing as well. To that end, I never really aspire to fully “retire”.
Benefits of financial independence (FI)
In the coming years, I hope to realize some level of financial security and eventually, financial independence. For us, this is a totally worthwhile construct. The realization of FI can bring some key benefits:
The opportunity to regain more control of our most valuable commodity: time.
Enhanced opportunities to learn and grow.
Spend extra money on things that add value to your life, like experiences or entrepreneurship.
Whether it’s establishing a three-day work week, spending more time as a painter, snowboarder, or photographer, or you desire to get back to that woodworking hobby you’ve thought about: financial independence delivers a dose of freedom that’s hard to come by otherwise.
FI funds time for passions.
FI concepts explained elsewhere
There are many takes on what FI means to others.
There is no right or wrong, folks: only models and various assumptions at play.
For kicks, here are some select examples I found from authors and bloggers I follow.
JL Collins, author of The Simple Path to Wealth, popularized the concept of “F-you money”. This is not necessarily financially independent sums of money but rather, enough money to buy a modest level of time and freedom for something else.
Various bloggers subscribe to a “4% rule”* whereby you might be able to live off your investments for ~ 30 years, increasing your portfolio withdraws with the rate of inflation.
*Based on research conducted by certified financial planner William Bengen, who looked at various stock market returns and investment scenarios over many decades. The “rule” states that if you begin by withdrawing 4% of your nest egg’s value during your first year of retirement, assuming a 50/50 equity/bond asset mix, and then adjust subsequent withdrawals for inflation, you’ll avoid running out of money for 30 years. Bengen’s math noted you can always withdraw more than 4% of your portfolio in your retirement years however doing so dramatically increases your chances of exhausting your capital sooner than later.
For simplistic math, such bloggers calculated your “FI number” could be approximately your annual expenses x 25. So, if you’re annual expenses are about $40,000 per year (CDN $ or USD $ or other), then your “FI number” is a nest egg value of $1,000,000.
Using that framework, there are levels of FI some bloggers have adopted:
Half FI – saved up 50% of the end goal (in this case, $1 M).
Lean FI – saved up >50% of end goal to pay for very lean but life’s essentials like food, shelter and clothing (but nothing else is covered).
Flex FI – saved up closer to 80% of the end goal, this stage covers most pre-retirement spending including some discretionary expenses.
Financial Independence (FI) – saved up 100% of the end goal, you have ~ 25 times your annual expenses saved up whereby you could withdraw 4% (or more in good markets) for 30+ years (i.e., the 4% rule).
Fat FI – saved up at or > 120% of your end goal (in this case $1.2 M for this example), such that your annual withdrawal rate could be closer to 3% (vs. 4%) therefore making your retirement spending plan almost bulletproof.
There is the concept of “Slow FI” that I like from The Fioneers. The concept of “Slow FI” arose because, using the Fioneers’ wording while “there were many positive things that could come with a decision to pursue FIRE, but I still felt that some aspects of it were at odds with my desire to live my best life now (YOLO).” They went on to state, because “our physical health is not guaranteed, and we could irreparably damage our mental health if we don’t attend to it.”
Well said.
My six phases of financial independence
(Picture from our catamaran cruise, Barbados 2019)
To the “Slow FI” valuable points, since we all only have one life to live, we should try and embrace happiness in everything we do today and not wait until “retirement” to find it. Continue Reading…
Once you’re halfway through retirement, you’d expect about half your savings to be gone, right? This turns out this is very wrong when we don’t adjust for inflation. The return your portfolio generates causes your savings to hold steady for a while and then fall off a cliff.
I read the following quote in the second edition of Victory Lap Retirement:
“A recent Employee Benefit Research Institute study found that people in the U.S. who retired with more than $500,000 in savings still had, on average, 88 percent of it left eighteen years after retirement.”
Frederick Vettese provided further detail. This 88% figure is the median rather than the average.
This statistic was used as proof that retirees aren’t spending enough. After all, if you planned on a 35-year retirement, half the money should be gone after 18 years, right? Not even close. Below is a chart of portfolio size based on the following assumptions.
– annual portfolio return of 2% above inflation
– annual withdrawals of 4% of the starting portfolio size, rising with inflation each year
– inflation of 2.12% (the average U.S. inflation from 2001 to 2018)
So, to be on track for a 35-year retirement, your remaining portfolio 18 years into retirement should be 83% of your starting portfolio size. This is a far cry from an intuitive guess that about half the money should be left.
Still, the earlier quote said the average retiree who started with at least half a million dollars had 88% of their money left 18 years into retirement. Further, thanks to a reader named Dave who found the original EBRI study online, we know that the 88% figure is inflation-adjusted. Continue Reading…
MoneySense.ca: Photo created by freepik – www.freepik.com
My latest MoneySense Retired Money column looks at the topic of whether average savers transitioning to Retirement really need to fear outliving their money. The piece picks up from a blog this summer from Michael James on Money, which will be republished in its entirety tomorrow here on the Hub.
You can access the full MoneySense column by clicking on the highlighted text: How long will your retirement nest egg last? In addition to citing Michael J. Wiener’s work, the piece passes on the views of two prominent recently retired actuaries: Malcolm Hamilton and Fred Vettese, as well as my co-author on Victory Lap Retirement, ex corporate banker Mike Drak.
Like this blog, despite being online the column’s scope is somewhat constrained by a word limit. In fact, in an email, Hamilton told me he didn’t think such a topic could be addressed in just 800 or 900 words.
Actuary and retirement expert Malcolm Hamilton
“Why? We presume that good advice is universal … that it applies to everyone. It does not, particularly when addressing concerns about running out of money. For years I have looked for evidence that large numbers of seniors spent too much and suffered as a consequence. I haven’t found anything persuasive.”
No one knows how much Canadians should save or how quickly they should draw down their savings after retirement, Hamilton added: “Some people are frugal. They save heavily before retirement and spend sparingly after retirement, leaving large amounts to their children when they die. We all want parents like this. Others are spendthrift. They save little before retirement and live frugally after retirement because they have no money except government pensions.”
Finding balance between extremes of Over-Saving and Over-Spending
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By Tara Thompson
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