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Essential Budgeting Tips for Financial Independence

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Image courtesy Shutterstock

By Matt Casadona, 365 Business Tips

Special to Financial Independence Hub

Financial Independence is the goal of everyone with a bank account, and budgeting plays a main role in achieving that.

It can be difficult to understand where to start or how to get yourself back on track.

With these valuable pieces of insight from leading industry experts, you can start your own Fnancial Independence journey. 

Pay yourself first

“One essential budgeting tip for achieving financial independence is to adopt a ‘pay yourself first’ approach. This means prioritizing savings and investments by setting aside a certain portion of your income as soon as you receive it, before using it for bills, expenses, or discretionary spending. By automating savings and investments into accounts like emergency funds, retirement accounts, or other investment accounts, you’re prioritizing your financial goals and building a habit of consistently contributing toward them. Over time, this proactive approach allows your savings to grow, helps you avoid lifestyle inflation, and keeps you focused on long-term financial stability rather than short-term gratification.” – Bill Lyons, CEO of Griffin Funding

Financial independence wildly relies on smart budgeting and disciplined financial practices. One powerful strategy is to leverage your tax return, which is often a lump sum. Consider depositing your tax return directly into a separate savings account from your tax software. This strategic move creates somewhat of a safety net. This disciplined approach not only safeguards your funds but also provides a foundation for future investments or emergency expenses. Over time, this habit can contribute significantly to your financial independence.

Minimize Debt

“Minimizing your debt can help achieve financial independence, as it reduces financial burdens and frees up resources for other financial goals. When you prioritize the repayment of high-interest debts, such as credit-card debt or personal loans, individuals can save significant amounts of money on interest payments over time. This disciplined approach to debt reduction can also improve credit scores, making it easier to qualify for private financing options when purchasing a home or commercial property. Minimizing debt, individuals can strengthen their financial position and increase their chances of securing favorable terms and rates for private financing, ultimately helping them achieve their real estate ownership goals.” – Sacha Ferrandi Founder & Principal, Source Capital

“A practical budgeting method divides income into three categories: 50% for needs, 30% for wants, and 20% for savings or debt repayment. This system assists individuals in efficiently allocating their funds, ensuring they cover essential expenses such as housing, groceries, and utilities, while also setting aside money for financial goals. Wants to include discretionary spending such as entertainment and dining out. The remaining portion goes towards savings or paying off debts, contributing to long-term financial security. This budgeting approach offers a simple framework for managing finances, preventing overspending on non-essentials while prioritizing savings. It’s adaptable to different income levels, making it a balanced way to manage money.”– California Credit Union

Plan for irregular expenses

“Planning for irregular expenses is a wise budgeting strategy that can contribute to financial independence. By anticipating and setting aside funds for irregular expenses, individuals can avoid financial stress when unexpected costs arise. One effective way to allocate funds for irregular expenses is by saving a portion of your tax refund return instead of immediately spending it on unnecessary items. Exercising discipline and directing your tax refund towards an emergency fund or a dedicated savings account, you can build a financial cushion that provides peace of mind and protects you from unexpected financial setbacks. This proactive approach to budgeting ensures that you are prepared for unexpected irregular expenses and helps you maintain control over your financial well-being.”– Lisa Green-Lewis Tax Expert, Turbo Tax Continue Reading…

The Rising cost of Eldercare: Podcast

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The following is an edited transcript of an interview conducted by financial advisor Darren Coleman of the Two Way Traffic podcast with eldercare expert Yvonne Dobronyi of YCD Consulting.  It appeared on September 6th under the title ‘Planning for your parents and what it’s going to cost.’

Click here for full link …

https://twowaytraffic.transistor.fm/episodes/planning-for-your-parents-and-what-it-s-going-to-cost

Coleman says the single biggest financial blind spot for families when planning for the future is the rising cost of eldercare and Yvonne Dobronyi agrees.

An eldercare consultant who counsels individuals and families through her firm, YCD Consulting, Yvonne says the monthly outlay for a retirement home starts at $3,600 for a single studio suite without care, but once in-home resources are included the tab can go up to $20,000 a month.

“Families are in denial and don’t want to ask difficult questions about moving Mom or Dad to assisted-living accommodation,” says Yvonne, who added that more than half the families she sees aren’t prepared for dealing with one, never mind two, elderly parents.

She says many seniors don’t understand they need to sell their home or cottage and sometimes both in order to afford retirement living if they have limited savings. And that seniors may have to work beyond their retirement years to maintain a cash flow to pay their bills even if they’re mortgage-free.

The two experts discussed a range of issues to do with eldercare:

  • Who holds Power of Attorney for both property and healthcare, and what happens when one sibling has it and the other doesn’t?
  • The importance of keeping these documents, along with a will, updated passport and medical records, in a designated file that’s readily accessible by a trusted contact.
  • ‘Free’ (government-funded) resources like personal care and light housekeeping services are available after assessment if you qualify but only for 2-4 hours and when staff is available.
  • Dealing with long wait lists for LTC (long-term care) homes, how to navigate the system, and making decisions during emotional stress.

Below is an edited transcript of the interview, focusing on the cost of eldercare housing services and families being prepared, or not prepared, for what can happen.

Darren Coleman

This is probably the single biggest blind spot most families have when they do their own planning. We can prepare for retirement, but this is where it tends to catch people off guard. I want to explore what life looks like when people suddenly have to figure out, how do I live independently for longer in my home, or what happens if I move into seniors’ housing.

Eldercare expert Yvonne Dobronyi, YCD Consulting Ltd

Yvonne Dobronyi

Some families are well prepared, but more than half are not. They react to a situation, so all of a sudden you have a crisis. Mom has dementia and Dad’s been the caregiver and now Dad falls in the home and breaks his hip, so he has to go to hospital. Who’s going to manage Mom? That’s when families get together to figure out what sort of care is required. So some will go to hospital, and others try to manage Mom. My experience is that a lot of times they haven’t designated a power of attorney, completed a will or made funeral arrangements.

Darren Coleman

The reason I think most find they’re not prepared is that the timing of when people will need care is unknown. And people don’t know what these things cost.

Yvonne Dobronyi

Often, family members don’t know where they have an RRSP or GIC, or whether or not their home is sellable the way it is. It’s something that’s avoided because families are in denial and don’t want to ask difficult questions. But it’s our duty as family members to be well prepared and that might involve asking difficult questions.

Darren Coleman

Someone should take the lead in these things. It might be more of a formal meeting or a conversation with some structure to it.

Yvonne Dobronyi

Absolutely. You sit down and share information that will be kept confidential. And if something happens, family members are prepared and know what to do. But  often this is not the case.

Darren Coleman

People may be dealing with these things while they’re in this emotional crisis. That’s not the best time to have that chat with your brother or sister about who’s going to look after Mom or Dad.

Yvonne Dobronyi

Very often a parent made a decision to give the power of attorney to one child and not the other two. Or two of them have the power of attorney and can’t agree on what the next steps might be. So one family member says we should move Mom and Dad into a retirement community or long-term care, and the other one says no.

Trusted contacts, Wills & Powers of Attorney

Darren Coleman

There’s a new administrative element for financial advisors in Canada now. It’s about adding a trusted contact to your file. So if people listening have not done this with their advisor, I recommend picking up the phone and saying I’d like to add that to my file. You mentioned the power of attorney and the will. We should point out there’s two kinds of power of attorney. Sometimes people will say, I have a will. Well, it doesn’t matter. The will only works once you’re gone, and the power of attorney is the document that works until you’re gone. So you need both of them.

Yvonne Dobronyi

The power of attorney is responsible for making decisions on behalf of that party in a healthcare capacity. Say the resident or patient has an extreme crisis situation and is now on life support. There needs to be that meeting to determine what is the best route. And that’s a difficult decision to make. I recommend you have more than one person be the power of attorney for care, so you can look at it closely and determine together what would be the best route. Continue Reading…

Indexing of different Asset Classes

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By Michael J. Wiener

Special to Financial Independence Hub

When it comes to stocks, index investing offers many advantages over other investment approaches.  However, these advantages don’t always carry over to other asset classes.  No investment style should be treated like a religion, indexing included.  It pays to think through the reasons for using a given approach to investing.

Stocks

Low-cost broadly-diversified index investing in stocks offers a number of advantages over other investment approaches:

  1. Lower costs, including MERs, trading costs within funds, and capital gains taxes
  2. Less work for the investor
  3. Better diversification, leading to lower-volatility losses

Choosing actively-managed mutual funds or ETFs definitely has much higher costs.  For investors who just pick some actively-managed funds and stick with them, the amount of work required can be low, but more often the investor stays on the lookout for better funds, which can be a lot of work for questionable benefit.  Many actively-managed funds offer decent diversification.  Ironically, the best diversification comes from closet index funds that charge high fees for doing little.

Investors who pick their own stocks to hold for the long term, including dividend investors, do well on costs, but typically put in a lot of work and fail to diversify sufficiently.  Those who trade stocks actively on their own tend to suffer from trading losses and poor diversification, and they put in a lot of effort for their poor results.  Things get worse with options.

Despite the advantages of pure index investing in stocks, I make two exceptions.  The first is that I own one ETF of U.S. small value stocks (Vanguard’s VBR) because of the history of small value stocks outperforming market averages.  If this works out poorly for me, it will be because of slightly higher costs and slightly poorer diversification.

One might ask why I don’t make exceptions for other factors shown to have produced excess returns in the past.  The reason is that I have little confidence that they will outperform in the future by enough to cover the higher costs of investing in them.  Popularity tends to drive down future returns.  The same may happen to small value stocks, but they seemed to me to offer enough promise to take the chance.

The second exception I make to pure index investing in stocks is that I tilt slowly toward bonds as the CAPE10 of the world’s stocks grows above 25.  I think of this as easing up on stocks because they have risen substantially, and I have less need to take as much risk to meet my goals.  It also reduces my portfolio’s risk at a time when the odds of a substantial stock market crash are elevated.  But the fact that I think of this measure in terms of risk control doesn’t change the fact that I’m engaged in a modest amount of market timing.

At the CAPE10 peak in late 2021, my allocation to bonds was 7 percentage points higher than it would have been if the CAPE10 had been below 25.  This might seem like a small change, but the shift of dollars from high-flying stocks to bonds got magnified when combined with my normal portfolio rebalancing.

Another thing I do as the CAPE10 of the world’s stocks exceeds 20 is to lower my future return expectations, but this doesn’t include any additional portfolio adjustments.

Bonds

It is easy to treat all bonds as a single asset class and invest in an index of all available bonds, perhaps limited to a particular country.  However, I don’t see bonds this way.  I see corporate bonds as a separate asset class from government bonds, because corporate bonds have the possibility of default.  I prefer to invest slightly more in stocks than to chase yield in corporate bonds.

I don’t know if experts can see conditions when corporate bonds are a good bet based on their risk and the additional yield they offer.  I just know that I can’t do this.  I prefer my bonds to be safe and to leave the risk to my stock holdings.

I also see long-term government bonds as a different asset class from short-term government bonds (less than 5 years).  Central banks are constantly manipulating the bond market through ramping up or down on their holdings of different durations of bonds.  This manipulation makes me uneasy about holding risky long-term bonds.

Another reason I have for avoiding long-term bonds is inflation risk.  Investment professionals are often taught that government bonds are risk-free if held to maturity.  This is only true in nominal terms.  My future financial obligations tend to grow with inflation.  Long-term government bonds look very risky to me when I consider the uncertainty of inflation over decades.  Inflation-protected bonds deal with inflation risk, but this still leaves concerns about bond market manipulation by central banks.

Taking bond market manipulation together with inflation risk, I have no interest in long-term bonds.  We even had a time in 2020 when long-term Canadian bonds offered so little yield that their return to maturity was certain to be dismal.  Owning long-term bonds at that time was a bad idea, and I don’t like the odds any other time.

Once we eliminate corporate bonds and long-term government bonds, the idea of indexing doesn’t really apply.  For a given duration, all government bonds in a particular country tend to all have the same yield.  Owning an index of different durations of bonds from 0 to 5 years offers some diversification,  but I tend not to think about this much.  I buy a short-term bond ETF when it’s convenient, and just store cash in a high-interest savings account when that is convenient.

Overall, I’m not convinced that the solid thinking behind stock indexing carries over well to bond investing.  There are those who carve up stocks into sub-classes they like and don’t like, just as I have done with bonds.  However, my view of the resulting stock investing strategies, such as owning only some sub-classes or sector rotation, is that they are inferior to broad-based indexing of stocks.  I don’t see broad-based indexing of bonds the same way.

Real estate

Owning Real-Estate Investment Trusts (REITs) is certainly less risky than owning a property or two.  I’ve chosen to avoid additional real estate investments beyond the house I live in and whatever is held by the companies in my ETFs.  So, I can’t say I know much about REITs. Continue Reading…

What Exercise has NOT done for me

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By Carolyn A. Fox

Special to Financial Independence Hub

When I started riding my stationary bike about a year ago, I had a vision of what exercise would do for me. I’d become a stronger, healthier person. I’d lose weight. My desk would be tidy and my bookshelves in alphabetical order. I’d be taller. I’d be younger.

That last goal was inspired by a book called Younger Next Year, by Chris Crowley and Henry S. Lodge, MD. They wrote that, although everyone is going to die, years of decrepitude at the end of life are avoidable. There was a way to counteract the relentless decline of aging. Unfortunately, the only way to release the rejuvenating chemical was daily physical exertion.

As a woman of a certain age, I no longer focused on whether exercise would help me look good naked. Instead, my goal was to be able to get to the bathroom by myself well past the age of ninety. Caring for my elderly mother, I learned that being able to drive a car isn’t the key to independent living. It’s being able to get to the potty on your own.

One benefit of the stationary bike was its convenience. On my morning commute from the bedroom to the kitchen, I passed the exercise room and could hop on the bike.

I bought my stationary bicycle second hand for $40. I felt frugal saving thousands of dollars compared to the latest high-end stationary bikes. Those gorgeous new machines had a screen that makes it look like you’re biking in the Tour de France or across Tuscany. Or you could take a virtual spin class with a live instructor.

But what those high-tech bikes couldn’t do was distract me from the fact that I was working out. Exercising wasn’t fun for me. I needed distraction. My riding times improved considerably when I started watching Netflix on my tablet. I wanted to peddle vigorously while catching up on episodes of Capote and The Swans. I wanted to forget that I’m on the bike and just have the minutes tick by.

My goal was to ride for an hour. At first, if I rode fifteen minutes, I was exhausted: breathing hard, awash in perspiration, and rubber-legged my first few steps after climbing down. But I kept increasing my time a few minutes each day.

The hour-long ride eluded me for months. At fifty minutes I’d stop and tell myself that I could have ridden for another ten minutes if I really wanted to. Then I pushed through to fifty-five minutes.

When I finally rode a complete sixty-minute hour, it was a huge victory. I jumped off the bike, pumping my fists over my head as I did the Rocky dance. My cat looked at me like I was nuts.

Elated, I called my cousin to brag. “I biked for an hour today.”

“You did?” she said. “You’re an animal.”

“I’m an animal!” I shouted.

My cat shot me a look that seemed to say, “Leap to the top of the refrigerator, then tell me who’s an animal.” But I was in no mood to yield the field. I had done what the go-getters in spin class dog: I rode for an uninterrupted sixty minutes.

As hour-long rides became my routine, some things changed. I could talk on the phone while I was riding. My recovery time became much shorter. My legs wanted to dance, which could be embarrassing if I was standing in line at the bank.

Things that DIDN’T improve with regular exercise

But my life hadn’t become perfect. Here are a few things that didn’t improve with regular exercise. Continue Reading…

Lessons we Learned in 2024

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Billy and Akaisha in Sorrento, Southern Italy; Photo courtesy of RetireEarlyLifestyle.com

By Akaisha Kaderli, RetireEarlyLifestyle.com

Special to Financial Independence Hub

 “Improvise, Adapt, and Overcome” – Marine slogan

What a year!

Every year brings new challenges that we must face. Life doesn’t stop and the best way to meet the “new” is with an open attitude and a sense of confidence. Fear doesn’t help anyone or anything.

Solid plans often break

Our Readers will sometimes say they have just a few more things to settle, a few more “I’s” to dot and “T’s” to cross before retiring. They’re waiting for the health care issue to be settled, waiting for the bonus check next year, waiting to hit “this” particular financial number, waiting for next year to sell their properties, waiting for things to mellow out in the country, waiting for inflation to go down, waiting for the market to go back up,… they’re waiting…

Personal Financial Independence was put off until this imaginary perfect time, and then finally they planned a year of travel. But BAM! One of the spouses became gravely ill with a disease that not only shook them up, but forced them to shelve all excursion plans. Or the market started pulling back giving them the willies and they lost confidence in their future plans of early retirement.

Ask yourself, “What are you waiting for and why?” Then ask yourself if you have a Plan B for these unexpected situations.

Lots of people wait until they graduate from law school, or get the degree or wait until they get married, or until they buy that perfect house, or until the kids get out of school, or they hit that magic number to retire – in order to be happy.

They live for tomorrow and forget all about the pleasures and happiness of today.

Stop settling, start living. NOW.

You’re not going to get anything in Life by playing it safe. There are no guarantees.

Lesson learned; Faith over Fear, Don’t Worry be Happy

Image courtesy RetireEarlyLifestyle.com

We only have control of ourselves.

I get push back on this one, sometimes. Usually it falls under the “You don’t understand what I’m going through” category.

But if you think about it, stuff happens.

We can’t control a loved one getting ill, can’t control that our children or spouse do what we prefer. We don’t have a lot of say in international peace relations. Whether our children get divorced, illness knocks you or a loved one for a loop, there’s a huge business loss or politics don’t go our way – all we have control over – is our response to the situation.

If you are feeling out of control on your moods, there are lots of tools to clarify your mind and calm yourself down and lots of services available to you. Don’t let the stress build up until you have an even worse situation happen.

Lesson Learned; Life is not in our total control – only our response to it is.

Relationships change

Relationships are cemented or lost every year. Change is part of life, and some relationships don’t move forward with us.

Once again if you think about it, when you got married, had a child, moved cross-country, got that promotion, contracted a serious illness, got divorced, retired early or hit any other life milestone, did some friendships recede?

Most likely.

Life is change and sometimes your better future lies ahead of you, without those loved people in them.

Yes, it IS difficult to let go of habits and people. We’ve all been there at different points in our lives. It’s better to process the loss and continue to move forward, creating the life of our dreams, than to become bitter and angry over the loss.

In my opinion, 2024 was a year of clarification.

What I mean is, yup. Things fall away. Sometimes it’s beloved things and people. I think this helps us to focus on what really matters to us. This is a blessing in disguise and you will be stronger for it.

Lesson Learned; As you grow, some relationships won’t make it into your future.

Fear seems ever-present

When we are afraid of something, chances are, we don’t know much about it. Our perceptions are skewed because of this.

Remember the old saying – FEAR is False Evidence Appearing Real?

Take control and choose to find out more. The knowledge you discover will give you options and open up doors for you. Question the thoughts you are thinking and the beliefs you are holding. Question the definitions you have set for yourself. Fear does not serve you in any way and will only force you to contract, limiting your options even further.

This is a choice.

You can either learn and grow or contract and suffer because of it.

Lesson Learned; Fear is related to ignorance. Choose to learn more

People retreated into perceived safety

There is no safety, there are no guarantees. And sometimes as we age, we think we’ll feel better if we just “don’t take any chances.”

Remember Helen Keller’s quote:

Security is mostly a superstition. It does not exist in nature, nor do the children of men as a whole experience it. Avoiding danger is no safer in the long run than outright exposure. Life is either a daring adventure, or nothing.

You can either live your life or live in FEAR.

Make the most of life every day. It’s later than you think!

Lesson Learned; Life is a risk every day. Manage it.

Anxiety seems to be everywhere

This is a good one, and it surprised me a bit.

Living the “life of my dreams” I hadn’t realized that I was still carrying friction and tension in assorted areas of my life. Billy and I started getting massages more often. I began going to a chiropractor, and my customary yoga became more important. We upped our exercise routine, I meditated more and I opened my mind to new information.

Anything that just didn’t “fall into place easily” or no longer worked … we dropped.

This made us feel freer and gave us more physical energy, clearing our minds.

Lesson Learned; Make things easier on yourself in any and all ways.

Don’t stop living your life

When things change beyond our control, we must find the advantages in the situation and make the most of where we are. Continue Reading…