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4 ways to avoid a financial crisis before it happens

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By Lidia Staron

Special to the Financial Independence Hub

Do you want to avoid a financial crisis before it happens? Everyone does, but few are willing to take the essential steps. You might have heard rumors of a significant economic crisis just looming around the corner. Whether it happens at a personal or national level, it feels good to know that you have done something to avoid it or at least soften its impact in your life.

In this post, let us take a look at some of the most effective ways to avoid a financial crisis before it happens:

1.) Save before you spend

Benjamin Franklin said “a penny saved is a penny earned.” Nothing can be truer than that! Every time you spend on something, you take out cash from your pocket. It decreases your wealth. Spending on unnecessary things may mean that you could have used precious resources for other things.

Now, it doesn’t mean that enjoying the fruits of your labor and buying things that you love are bad things. The point is that sometimes you just have to make small sacrifices today to enjoy great rewards in the future. And that’s precisely what saving can do for you.

The best way to avoid a financial crisis is as simple as saving a penny a day. You can then gradually increase your savings each month. It may sound small at first, but great things start from little things. The key here is consistency. Just keep on saving, and you will soon see how it can help you become financially secure.

2.) Make a Budget

It’s helpful to be reminded of this adage, “If you failed to plan, you planned to fail.” Budgeting is a form of planning for the future. Some people mistakenly thought that they could go on with their lives without a budget. Almost always, without fail, those who don’t have a budget are the same people who are in a financial strait.

Making a budget does not have to be complicated. It only takes a few minutes. Decide where your money goes and ensure that you track every penny from your wallet. If you made a personal loan online, then make it a point to pay off debt first as much as possible before spending on things that are just optional. Continue Reading…

January is a great time for these 4 financial planning action items

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January rings in the New Year, a sign of optimism, and the annual promise of something new: adopting resolutions, setting goals and looking ahead. It’s also a time to reflect on the previous year. Making resolutions is common for many, but less than 40% will actually achieve what they set out to do.

Nevertheless, for those looking for improvement in their financial health, here are some good habits to follow at the beginning of each year.

January is a good month to…

Save

1. ) Calculate your net worth

You know how to do this. Total up all your wealth building assets – home, investments – subtract your debts – mortgage, credit cards, car loan, and voila – the resulting total is your net worth, or in other words, the current picture of your financial standing.

There are lots of online calculators that help you do this, but don’t stop there. Redo the calculation at least once a year. Create your own spreadsheet so you can compare several years. It will help you see if you’re moving in the right direction. Otherwise, how can you know if you’re getting ahead?

Also read: Your financial plan is a compass

Focus on what you can do to improve your finances, and if you find yourself getting off track, do some course corrections and carry on.

2.) Revisit your goals

January is also a good time to review your goals. If you have a spouse or partner, set aside some quiet time this month to have the money talk. Have an honest discussion about your short-term and long-term goals and check to see whether you are still on track to meet them.

Or, maybe your situation or priorities have changed, and you need to reassess. If something is not working, go back and modify. Since you can’t know what the future holds for you, a period of five years is a manageable target.

Also read: Create your own financial plan with these eight steps

Map out a few steps for the current year that will see you heading towards a better financial situation. Continue Reading…

Motley Fool: How to top up your TFSA even if you have no “new” money

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How to top up your TFSA is the subject of my first blog of the new year for Motley Fool Canada, which has just been published.

Click on the highlighted text to retrieve the full piece: January is TFSA top-up time — How to contribute the maximum $5,500 even if you don’t have “new” money.

So what’s the “old” money you can use instead? Well, while younger investors probably have most of their money in RRSPs and TFSAs, old-timers who were saving for decades before the 2009 introduction of the Tax-free Savings Account tend to have significant chunks of their net worth in taxable non-registered (aka “Open”) investment accounts. This is particularly the case for those with generous corporate pension plans, which means RRSP room was limited by the so-called “Pension Adjustment” or PA that’s shown on your T-4 slips. (Yes, brace yourself for the annual onslaught!)

Of course, by definition, taxable accounts generate annual tax liability on all the dividends, interest and capital gains you may have enjoyed in the calendar year. In the next few weeks and months you can expect your mailbox to be full of T-3 and T-5 slips that tell you and also the Canada Revenue Agency just how much money you received and will have to pay tax on when you file your taxes late in April for the 2017 calendar year just completed.

Key concept: Transfers-in-Kind

The Motley Fool article goes into the mechanics of “transfers-in-kind,” which means identifying stocks or ETFs (or other securities) in your taxable account that can be transferred into your TFSA. Continue Reading…

Saving to Retire

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I see too much pessimism on whether it’s possible to achieve a comfortable retirement.

Hence, I highlight three observations on saving for retirement:

  • Surveys frequently remind investors that they don’t save enough for retirement.
  • Investors are keen to know what it takes financially to achieve a comfortable retirement.
  • This is a good time to start the optimistic retirement math discussion.

The number often mentioned is rounding up financial assets of $1,000,000 by age 65. However, accumulating that sum of money may be a tall order for some.

It can be done, but it is not always easy. So, I propose meeting halfway, say at $500,000.

Typical sources of income and capital are the registered accounts, saving accounts, stocks and bonds. Perhaps, income real estate, employer pensions and a family business also fit.

Adding regular savings to your investing plan is simply a must to reach retirement goals. Your degree of financial success has a lifetime of implications.

Assume you begin saving at age 30, 40 or 50 and have no other retirement assets. Here are some annual saving targets to reach $500,000 by age 65 (figures rounded):

Annual Returns to Age 65 Your annual saving targets starting at:
Age 30 Age 40 Age 50
8% $2,900 $6,800 $18,400
7% $3,600 $7,900 $19,900
6% $4,500 $9,100 $21,500
5% $5,600 $10,500 $23,200
4% $6,800 $12,000 $25,000

Say you are age 40, you will need to save $10,500/year to age 65 with 5% returns. That saving target reduces to $7,900/year to your age 65 with 7% returns.

If your aim is to accumulate $250,000, divide the above annual saving targets by two. For the $1,000,000 goal, multiply the above saving targets by two. Continue Reading…

Why you might get more for your home in January

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By Penelope Graham, Zoocasa

Special to the Financial Independence Hub

When it comes to nuggets of real estate wisdom, a persistent adage is that one should avoid selling in the winter at all costs:  after all, bad weather, limited sunlight and poor driving conditions don’t inspire shoppers to peruse open houses.

But while it’s a fact that the winter housing market is a slower one — there were 25 per cent fewer sales in the Toronto real estate market in January 2017 compared to the previous May —  having to list your home in the new year doesn’t necessarily mean compromising on your profits.

In fact, due to a few seasonal phenomena, listing your home for sale in January can translate to a higher sales price; here’s why.

Winter buyers are extra motivated

Just as January sellers are likely listing for a reason, early-winter buyers are also likely driven by a sense of urgency. In fact, a small but persistent bump in activity is typically seen in the weeks following New Year’s Day, as buyers who shelved their holiday home purchases jump back into the market.

January also tends to be a busy season for mortgage pre-approvals, especially for organized buyers seeking every advantage in preparation of the spring market. However, once these buyers have confirmed their maximum buying power, they may be tempted to take a preliminary look at what’s available now, including your listing.

“The fact is, if you’ve waited until spring to get a mortgage pre-approval, you’re already late, and there are a few real estate market factors that will work in your favour if you act now,” says Mike Bricknell, a mortgage broker at CanWise Financial.

“It is very beneficial to get your mortgage pre-approval when the housing market is quieter, especially as there have been many recent industry changes that may have affected what you can afford.”

Low supply means higher prices

Continue Reading…