Building Wealth

For the first 30 or so years of working, saving and investing, you’ll be first in the mode of getting out of the hole (paying down debt), and then building your net worth (that’s wealth accumulation.). But don’t forget, wealth accumulation isn’t the ultimate goal. Decumulation is! (a separate category here at the Hub).

8 Financial Fitness Tips that will help achieve your Wealth-Building Goals

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By Monica Mendoza

Special to Financial Independence Hub

Wealth-building plays a critical role in securing your financial future. More than just having enough money to cover day-to-day expenses, it’s about creating a financial cushion that allows you to navigate life’s uncertainties and enjoy peace of mind in the long term.

Whether your goals are to own a home, provide for your family, or retire comfortably, it’s essential to take steps to build your wealth as soon as you can. Follow the smart financial strategies listed below to help you set a solid foundation for achieving  your long-term wealth-building goals.

Start the Process by Creating a Realistic Budget and Sticking to it

Your budget is the cornerstone of your financial plans. As such, it’s important to set a solid foundation for achieving your long-term goals by putting together a realistic budget that reflects your financial needs and capabilities. This means keeping a record of your expenses, categorizing your spending into essential and non-essential items, and using these details to plan your future spending. Having a clear picture of where your money goes can help you identify areas where you might be overspending and adjust your budget if needed. Once you’ve established control over your finances, you’ll have more room to save and invest for the future.

Build an Emergency Fund that can Sustain your Household for several months

There are circumstances, such as illnesses and accidents, that may require you to immediately shell out money or disrupt your source of income for some time. These can quickly derail your finances if you’re not adequately prepared. That’s why building an emergency fund is crucial. Start as early as possible to grow your funds; open a bank account with high-yield savings, such as Maya’s Personal Goals or Time Deposit Plus that let you earn at least 4% p.a. and up to 5.75% p.a., respectively. Aim to set aside 3 to 6 months’ worth of living expenses in such accounts. This fund will serve as a financial buffer so that you won’t need to rely on credit cards or loans when an emergency arises. Having an emergency fund gives you a sense of security and keeps your wealth-building efforts on track.

If you have Debt, make a Priority of Paying off High-Interest Debt First

Debts, particularly high-interest debt like credit card balances, can severely hamper your ability to build wealth. Focus on paying these debts first to prevent your balance from ballooning even further. If you have multiple high-interest debts, consider using either the avalanche method (pay the debt with the highest interest rate first) or the snowball method (start with the smallest debt for quick wins). You may also want to consolidate debts so you only have to worry about one amount and one deadline. Once you’re free from high-interest debt, you’ll have more flexibility to redirect your money toward savings and investments that grow your wealth.

Look into Investing in Retirement Accounts as early as possible

Even though retirement may seem too far into the future, it’s never too early to plan for it. In fact, the sooner you start investing for retirement, the better. Aside from government-backed retirement plans like the Social Security System (SSS) and Personal Equity and Retirement Account (PERA), you can also put some of your money in investment products like time deposits or stocks. Consistently contributing to these accounts over time allows you to benefit from compound interest, which grows your investments faster. Prioritize retirement contributions as part of your wealth-building strategy to ensure that you’ll have a secure financial future when you’re ready to stop working.

Diversify your Investments to Control Risk and earn Long-Term Returns

Instead of putting all your money in one place, spread it across different types of investments, such as stocks, bonds, mutual funds, or real estate. Each type of investment behaves differently under various market conditions, so diversification helps protect your wealth from sudden market downturns. If you’re new to investing, consider working with a financial advisor or using investment apps that provide access to diversified portfolios with lower entry points. Continue Reading…

Retired Money: Tax Brackets, Income Thresholds, Inflation Factors & other things retirees need to consider going into 2025

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My latest MoneySense Retired Money column looks at a variety of tax and savings limits changes that are effective early in 2025. Click on the highlighted headline for the full column: What retirees need to know about tax brackets for 2025.

As the column notes, at or near Retirement taxes and inflation are the two big threats to preserving enough wealth to last a lifetime.  The tax burden hits home with the annual tax-filing deadline in April, but the time to start thinking about the yearly ordeal is before year-end.

The complexity of this task is compounded by almost-annual changes to tax brackets, the Basic Personal Amount, OAS thresholds, inflation adjustments and much more. For starters, I recommend reading an excellent article by CIBC Wealth’s tax guru, Jamie Golombek, which appeared in the Financial Post here on Nov. 23rd, shortly after the Canada Revenue Agency released its new tax numbers for the year 2025.

 Let’s look first at inflation, the second serious scourge retirees face if they live long enough. Here, a useful tool suggested by certified financial planner Morgan Ulmer is Statistics Canada’s Personal Inflation Calculator, which lets you compare your personal inflation rate to the general CPI.

Ulmer, of Toronto-based Caring for Clients, sees the higher tax brackets and inflation adjustments as an “opportunity for retirees to build a savings reserve.” CPP is indexed to inflation yearly while OAS is indexed quarterly.  So “if a retiree is able to increase their spending at a rate that is less than CPI, the difference could be saved as an emergency reserve or invested in a TFSA.”

 Inflation and Tax Bracket changes

 Back to some key data cited by Jamie Golombek.  The inflation rate used to index 2025 tax brackets and amounts will be 2.7%: just over half the 4.7% in effect in 2024.  The good news is that the Basic Personal Amount (BPA) on which no federal tax is levied rises to $16,129 in 2025: It was $15,000 in 2023.

All five federal income tax brackets are indexed to that 2.7% inflation rate. In 2025, the bottom federal tax bracket of 15% will apply to incomes between zero and $57,375. The second lowest bracket of 20.5% will apply to incomes between $57,375 and $114,750. The 26% bracket applies to income between $114,750 and $177,882, while incomes between $177,882 and $253,414 will attract a 29% federal tax. After that the federal rate will kick in at 33%.

Below is a table summarizing that information prepared for MoneySense:

MoneySense.ca

 Don’t forget there will be additional provincial taxes on top of the federal haul, also indexed to inflation at various provincial rates.

 What is relevant for those in the Retirement zone is the higher threshold on Old Age Security: in 2025, according to Canada.ca, OAS begins to get clawed back for taxable income of $90,997.  OAS benefits disappear entirely at $148,451 for those aged 65-74 in 2025, and at $154,196 for those 75 or over. Note the OAS clawback is based on individual incomes, not household income.

Deferring CPP and OAS till 70

 Matthew Ardrey, portfolio manager and Senior Financial Planner for Toronto-based TriDelta Financial, agrees that tax brackets, whether federal or provincial, “become more of a consideration in retirement.” For many Canadians receiving employment income on a T-4, there is little we can do as retirees to keep income in the lower tax brackets. But there’s plenty to think about when considering tax minimization and decumulation strategies. Referring to Golombek’s article, Ardrey says that using federal brackets only, taxpayers can receive $57,375 of income and pay very low rates of taxation, especially when the $16,129 basic personal amount is considered.”

Retirees under age 70 can defer CPP and OAS until 70 and try to live on withdrawals from their registered plans instead. With no other income, taxpayers could have almost $50,000 of after-tax income, or $100,000 for tax-paying couples. Continue Reading…

3 Key Rules help make you a more successful Conservative Investor

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Conservative investors: Follow our three-part Successful Investor if you want to maximize your portfolio returns with the least amount of risk

Pixabay: Gerd Altmann

The surest way for conservative investors to make money in stocks is to start out by following our three Successful Investor rules for sound investing. They are the foundation of our Successful Investor system.

The first of these three Successful Investor rules is to invest mainly in well-established, profitable, dividend-paying companies. This rule goes first because it’s a simple and effective way of controlling the risk in your portfolio. Needless to say, that control is especially important when you have retired and you depend on your investments for income.

If a stock lacks one of these signs of investment quality, it may be riskier than you realize, yet still offer long-term potential. If it lacks two of the three, it exposes you to above-average risk and is suitable mainly for aggressive investors. If it lacks all three, it’s a high-risk speculation.

If you want to buy stocks missing all three of these qualifiers, it’s best to do so only with money you can afford to lose.

Avoid the urge to diversify into junior or riskier stock groups, just because they might offer the possibility of bigger gains. Stick with stocks that leave you feeling comfortable.

Diversification across sectors is also key for conservative investors

The second rule for conservative investors in our system is to spread your investments out across most if not all of the five main economic sectors: Manufacturing & Industry; Resources & Commodities; Consumer; Finance; and Utilities.

When you follow this rule, you are taking note of the fact that a large random element is at work throughout the financial universe.

When you spread your holdings out like this, you diversify in a way that helps you avoid overloading yourself with stocks that are about to slump.

Unpredictable slumps may be due to weak industry conditions, changes in investor fashion, or other random factors. That’s a bigger risk if you concentrate your stock holdings in one or two of the five main sectors.

Simply staying aware of the concept of diversification can put you ahead of inexperienced investors who take a casual approach. But, beware of half-hearted diversification. It can hurt your investment results, rather than help.

For instance, beginners may zero in on investments that seem to have huge growth potential. Today’s examples might include concept stocks that focus on lithium mining, say, or AI (artificial intelligence), or cryptocurrency. If you disregard our first Successful Investor rule (see above), you’ll mainly wind up buying high-risk speculations that pay off sporadically at best. Continue Reading…

Strategies for Building a Substantial 401(k) Balance

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Retirement planning may not be at the forefront of every twenty or thirty-something’s mind. However, starting early could mean the difference between a retirement spent in comfort or want. With social security’s uncertain future and the rising cost of living, the sooner you embark on saving for retirement, the better. Managing your retirement savings wisely will ensure a peaceful and fructiferous future. Learn the strategies now for building a substantial 401(k) balance [United States.]

Image by Adobe Stock/ juliasudnitskaya

By Dan Coconate

Special to Financial Independence Hub

Today, a robust 401(k) plan is more crucial than ever for securing your retirement. Understanding how to manage your contributions and investments effectively can set you on the path to Financial Independence. As the traditional employer-sponsored pension system becomes less common, individuals are increasingly responsible for their retirement savings.

By taking advantage of employer contributions, understanding investment options, and reviewing your plan, you can cultivate a retirement savings strategy that prepares you for the future and helps you build financial confidence. These strategies for building a substantial 401(k) balance will ensure it becomes a strong pillar of your retirement portfolio.

Choose the Right Investment Options

Most 401(k) plans offer various investment options, and selecting the right mix can directly impact your retirement savings. Investments fall primarily into stocks, bonds, and mutual funds or ETFs, all carrying different risk levels and potential returns. A balanced portfolio that reflects your risk tolerance, investment timeline, and financial goals can better weather market fluctuations. Review your options regularly and consider rebalancing your portfolio to adapt to any changes in the market or your personal situation.

Gradually increase Contributions

If you’re hesitant about contributing a significant portion of your salary to your 401(k) from the outset, consider implementing a gradual increase plan. Many employers allow you to set up automatic annual increases in your contribution percentage. Taking advantage of raises or bonuses to boost your contributions ensures that you consistently increase your savings without feeling the financial strain of a sudden change.

Regularly Review your Plan

Conducting annual reviews of your 401(k) to ensure it remains aligned with your financial objectives is vital. Life changes, such as starting a family or changing careers, can shift your needs and goals, requiring adjustments to your retirement strategy. Continue Reading…

Retired Money: A Canadian immigration success story

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My latest MoneySense Retired Money column is a bit of a departure in that its focus is on 57-year old blogger and YouTuber Alain Guillot, who came to Canada from Columbia with nothing but entrepreneurial gumption and a dream of being part of the North America depicted on TV at home.

For the full MoneySense column, click on this headline: The first $100,000 is the hardest to save for newcomers.  

The re-election of Donald Trump is almost certain to make Immigration an even more contentious issue. However, as I am myself the child of (British) immigrants I am naturally sympathetic to those who are brave or desperate enough to leave the land of their births to find opportunities in North America.

Which is one reason that over the past year, I’ve been corresponding with an interesting blogger and former financial advisor, Alain Guillot, and occasionally republish his blogs on my site, Findependence Hub. It’s called simply AlainGuillot.com

           He aims to write at least one blog a week and has 600 subscribers on his YouTube channel,  where he is more than half way to being able to monetize it. Now Guillot has just self-published a short e-book entitled The Wealth Paradox: Navigating Money, Free will, and Success, which you can find on Kindle for a very reasonable price. The subtitle explains more: How unconventional thinking influences your Financial and Personal Life.

Side hustles and Entrepreneurism

           One reason Guillot got my attention in the first place was that he emigrated to Canada from Colombia, a place I once visited (San Andres). He soon discovered he was almost forced to become an entrepreneur in Canada. Continue Reading…