Tag Archives: Financial Independence

Flipping Homes: One way young adults can achieve Financial Freedom

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By Donna Johnson

Special to the Financial Independence Hub

One of the top ways to make money historically has involved investing in real estate. Buying distressed houses at a good price and then selling them for a profit, known as flipping, is a great option for making money in housing. For those who are young adults, there is time to take risks and recover if they don’t pan out. Flipping houses is one of those calculated risks that could help younger American or Canadian adults achieve financial freedom in relatively short order. Here is how the flipping process works.

Find a house

In order to flip a house, it’s necessary to first own the house. A house that’s ripe for flipping might be a very distressed house in a great neighborhood. With tens of thousands of dollars of work, flippers could theoretically earn a profit that equals or exceeds their initial investment. Even a home that’s merely a bit dated in its decor could provide a good opportunity in the right location.

It’s important to know the market before purchasing a house to flip. It will be difficult to sell a house for a profit in a bad neighborhood no matter how impressive the renovations are. Additionally, comps in the local market will need to be high enough to provide a gap between what the flip initially costs and what you can sell it for. Otherwise, it will be difficult to make a profit.

Have money available

It’s important to have quite a bit of cash on hand before beginning a house flip. Those 3.5% down payments associated with FHA loans [in the U.S.] are only available for homes that will be occupied by the owner. Banks consider flips investment properties. Therefore, a flipper can expect a bank to require a 20% down payment as security for a loan. Continue Reading…

The Pros and Cons of Dividend Investing

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My latest MoneySense Retired Money column has just been published, which you can retrieve by clicking on the highlighted headline: The Pros and Cons of Dividend Investing.

As with most of the Retired Money articles I write for the site, the piece looks at dividend investing from the perspective of someone in their 60s who is nearing retirement or semi-retired, as well as full retirees in their 70s.

It notes there are two major schools of thought on income investing.

In his book, You can retire sooner than you think, author and financial planner Wes Moss makes the case for retirees 60 or older having 100% of their portfolio in income-generating vehicles: whether interest, dividends, rental income from REITs or other securities: “Everything should be paying you an income from age 60 on.”

But there is a “total return” camp that argues total returns are what counts, whether generated by capital gains or cap gains combined with a growing stream of dividend income. In his series of “Stop doing” blogs, Toronto-based advisor Steve Lowrie argued investors should Stop chasing dividends.

One of the most romanticized ideas in personal finance?

Also in the total-return camp is PWL Capital portfolio manager Benjamin Felix, who tackled this in a Q&A column where a young Gen Y investor asked how he could create an all-dividend portfolio so he could retire early. Felix has said dividend investing is “one of the most romanticized ideas in personal finance”—citing a 2013 study by Dimensional Fund Advisors (DFA) that found 60% of U.S. stocks and 40% of international stocks don’t pay dividends, plus the fact that Warren Buffett declared dividends should not matter in making great investments. So, he concluded, an all-dividend approach would lead to “poor diversification.” Felix also dispelled the misconceptions that dividends are a guaranteed source of returns, offer protection in down markets, and that companies that grow their dividends necessarily beat the market. Continue Reading…

Like a good neighbour, the Fed is there

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By Kevin Flanagan, WisdomTree Investments

Special to the Financial Independence Hub

At last, the July FOMC meeting has come and gone, and the Federal Reserve (Fed) has done what was widely expected: it cut the federal funds target range by a quarter point. The Fed also announced they would be ending their balance sheet reductions in August, two months earlier than previously indicated. With all the Fedspeak, changing market expectations and the recent rebound in the jobs report, the time had come for the policy makers to put an end to the conjecture. While this decrease, of 25 basis points (bps), does fit into the Fed’s ”insurance policy” narrative, it still leaves open the question of what the future may hold.

Let’s get right to that point, shall we? Unlike the June FOMC meeting, this gathering was limited to the usual policy statement and Chair Powell’s presser. In other words, there were no blue dots (the Fed’s own fed funds forecasts) this time around. The policy statement, which is what the Fed views as its official policy stance, was little changed from the June meeting including the key phrase “will act as appropriate,” leaving the door open for additional accommodation this year. In fact, since the 50-bps-rate-cut crowd is somewhat disappointed by the July results, the focus has now shifted to another reduction in fed funds at the September 17–18 FOMC meeting.

Remember, this rate cut was really not predicated on the Fed’s baseline outlook for the U.S. economy; it was the voting members’ way of trying to counter any potential negative impacts from trade uncertainty and slowing global growth. With no pushback from the Fed, the money and bond markets had boxed the policy makers into a corner. Despite the fact that U.S. financial conditions were actually easier prior to this meeting than when the Fed started raising rates at the end of 2015, there was concern that without a rate cut, conditions could have tightened. So, while you could say the Fed is back in data-dependent mode, it appears as if monetary policy is still leaning towards another rate cut this year. Continue Reading…

How many credit cards should you have?

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Photo by Blake Wisz on Unsplash

By Barry Choi

Special to the Financial Independence Hub

If you’ve recently walked into the mall, your bank or even the grocery store, there’s a good chance you’ve been asked if you want to sign up for a new credit card. Your first thought might be to say no since you’ve already got one, but with so many different credit cards that come with a variety of offers, it can be tempting to apply on the spot.

You may also be wondering “how many credit cards should I have” in the first place or “does it hurt me to have multiple credit cards?” There’s no straightforward answer so let’s take a look at when it does and doesn’t make sense to get another credit card.

When it makes sense: Pros

Getting another credit card can actually improve your credit score since it’ll increase your credit utilization ratio, which is one of the major factors that determines your credit score. Your credit utilization ratio is based on the amount of credit you’re using relative to the amount of credit you have available to you.

Let’s say you have a single credit card with a limit of $1,000 and you typically charge about $600 on it; that would give you a utilization ratio of 60%. If you applied for a new credit card and you were given a limit of $1,000, your overall credit utilization ratio would drop down to 30% since you now have access to a total of $2,000 in credit. As a general rule of thumb, your credit utilization ratio should be no more than 30%.

You may also want to maximize rewards by using a combination of cards for different spending categories or scenarios. For example, it would be to your benefit to use one of the best Mastercards in Canada if it earns you more points on grocery or gas spending compared to a Visa card. Alternatively, if you currently only have an American Express credit card, you could also apply for a credit card with no annual fee (Visa or Mastercard) and use it only where your Amex isn’t accepted. Since the card has no fee, you won’t need to worry about paying an annual fee on two different cards.

Sometimes it also makes sense to apply for a new credit card for a specific reason. Let’s say you like to travel, a card that comes with no foreign exchange fees or has airport lounge access would be pretty handy to have. You could also offset the cost of your trip by applying for one of the best Aeroplan credit cards, since the welcome bonus could be enough points to pay for your flight.

The above are great reasons why you should have more than one credit card, but that only applies if you’re responsible with your spending. In other words, if you’re always paying your bills in full and on time every month, then there’s nothing wrong with getting another credit card.

When it doesn’t make sense: Cons

The tricky thing about getting another credit card is that you could be tempted to overspend since you’ll have access to more credit. Studies show that people spend more when using credit cards instead of cash, so having access to a higher credit limit or multiple credit cards could potentially result in more spending.

More credit cards also means having to stay on top of more bills.
Continue Reading…

The rising cost of owning pets

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By Ted McCarthy

Special to the Financial Independence Hub

People are spending more on their pets than ever. No matter the pet type (hamster, dog, snake, etc.), people are willing to pay a pretty penny on their pets. The APPA reported that US$72 billion was spent on pets in 2018.

People are spending so much on their pets, LendEDU wondered if people were willing to go into debt for their pets, or spend more on their pets’ wellbeing than their own?

Pet insurance is becoming more popular with pet owners, with 2.1 million pets insured in 2017.

LendEDU surveyed 1,000 adult American pet owners to see how much they spend on their pets, with or without pet insurance.

Spending breakdown on pets

The survey showed the breakdown of pets:

  • 24% of expenses go to healthcare/vet costs
  • 55% of expenses go to food
  • 13% of expenses go to toys & accessories
  • 8% of expenses go other

These statistics are about in line with the APPA’s statistics, as over US$30 billion out of the US$72 billion spent on pets in 2018 was food alone.

The pet business is massive in America and will continually grow according to the APPA. As consumers treat their pets better and more as part of the family than before, spending per pet will increase, and people are willing to spend that money.

Pet types

Out of the six pet types surveyed, dog owners spent the most acquiring their pet at an average of US$327.13, and fish owners spent the least at an average of $53.58.

Monthly expenses stack up to about the same. Dog owners spend an average of US$157.39 per month, bird owners, an average of $127.38, and cat owners an average if $95.11. Continue Reading…