Tag Archives: saving

Why Saving alone isn’t the best way to Financial Independence

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By Elizabeth Lee

Special to the Financial Independence Hub

You’ve been told your entire life that you’ll never be able to accomplish anything unless you have a padded savings account: that every penny you can possibly set aside should be set aside, and you should absolutely never touch it.

You may even have been told that this is the only way you’ll become financially independent. You’ve been told wrong.

Saving is crucially important, but it’s important for entirely different reasons. You shouldn’t go out and spend your nest egg indiscriminately, but spending some of it might help you create a better and stronger independent (“findependent”) future. It all depends on how you strategize.

Why Saving is important

If you’re spending all your money as it comes in, what happens when you run into an expense you didn’t know was coming? Your car breaks down, you need to travel for a destination wedding, you find out you’re going to be a parent a little earlier than you’d originally planned, or you need to go to urgent care for a pesky sinus infection. How are you going to pay for it?

You had no idea that it was coming, and you didn’t budget for any of those things, because you didn’t know they were coming. If you don’t have savings, you might be set so far off track that you need to borrow to pay the bills. Without a savings account, you’re never truly protected from the financial variables life might throw your way.

Why Saving alone won’t make you Financially Independent

You need to spend money to live. Having a pile of money that isn’t doing anything for you won’t unlock a brighter future. Even in a high-yield savings account, the interest won’t amount to much. Financial independence means increasing your income, rather than just having an emergency stash to fall back on when something unexpected happens.

The idea of having savings is not to touch them unless you absolutely need to. The more savings you have, the more protected you are. But they aren’t helping you grow. Financial independence comes through growth, and it’s achieving that goal that will set you up for a smooth ride into your future. Continue Reading…

How to pass on Money values to your kids

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By Matt Matheson

Special to the Financial Independence Hub

(Part 2)

When we had kids, both my wife and I discussed how to be intentional about teaching them about money. We’ve read books, articles, and looked at resources online.  We wanted to be sure that they knew what a healthy relationship with money looked like in the areas of faith, family, and work ethic. We wanted them to know what a truly wealthy life looks like.

Our plan to do this was to model handling our money responsibly. And we wanted to give them real-world opportunities where they could begin to make financial decisions on their own, at first in a supported environment, and later on, independently.

With our first child, our daughter Gemma who’s getting ready to turn 5, we’re in stage 1 of teaching her to be a wise manager of her money. She’s being supported, taught and encouraged to make good choices with her money. She’s also being given lots of opportunity to fail with money. Also known as non-catastrophic failure, it is an essential element to learning, and one many kids are being robbed of by overprotective parents.

So how are we doing it? By teaching her the basics of how to give, save and spend…in that order.

Give

Gemma has been on commission for about four months and it’s been going quite well.  Every Saturday she gets paid $1.50 in six quarters. Some people may think that’s cheap, but I prefer frugal. 

My wife decorated three old loose tea containers with fancy wrapping paper and glitter letters to store her bounty.

The first thing we do when she gets paid is put 25₵ in the Give container. As people of faith, we tithe a percentage of our income to our local church and other charities.  We want to instill the value of generosity and gratitude in our children, and so before we’ve spent or saved, this money goes into the Give fund.

Recently, we went out and used her money (she has stockpiled $4) to buy some gifts for an Operation Christmas Child shoebox. Before we went out I showed her a short video and we talked about how some kids don’t have much money, and how we can give to them.  It was awesome to see her picking out the items for the box and growing her giving muscles right before my eyes.

Save

The next place money goes is to her Save container.  It gets three quarters, the most of any jar.  Before she’s touched any cash to spend, this “invisible money” disappears into her saving fund so she doesn’t even miss it.

We want to impress upon her the value of delaying gratification. We want her to experience the joy you get from passing on the temporary good feeling of spending now, for the amazing feeling of satisfaction and self-control you have when you buy something you’ve been saving up for.

Right now, she’s not saving for a car, university, or a down payment on a house.  We’re not that crazy.  She saves for larger purchases that she wants but can’t buy on impulse and that we’re not going to cave in and get her on a whim.

A Teachable Moment

A few weekends ago, she and I were hanging out and she let me know that she had seen a Spirit Riding Free toy that she wanted to buy. (For those who don’t know, it’s a Netflix show, which is pretty solid for little kids. 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…

Rekindling our inner creativity and frugality this Holiday season 

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By Maria Weyman, creditcardGenius

Special to the Financial Independence Hub

Gifts, parties, drinks, and yes … food! Is there a more expensive time of year than … now?

Staying on the straight and narrow road of financial responsibility means we can’t go about our lives like a zombie (oh wait, wrong holiday )…

But how do we stay frugal (yes, I’m using the F word), and keep fun within arm’s reach?

It’s all about creativity

… not sacrifice.

So, don’t worry, I’m not going to ask you to create two separate lists for needs and wants. Instead, let’s stick with one master list: where you list your full holiday needs and wants.

Now, here’s the thing. At the bottom of your list, write the max dollar amount you plan on spending for everything. But before you write that single number down … a little research would help, like:

How much disposable money –- after your fixed expenses and savings goals –- do you have in the bank?

(No, your credit card limit doesn’t count.)

Working with that single number –- your maximum budget –- it’s time to break it down into chunks depending on what’s in your list. Now we’re cooking.

You’ll feel a little bit of tension. An internal struggle when you’re deciding how and where to allocate your holiday spend. Completely normal. That just means our brain is getting warm and prime to let our creative juices flow. Because here’s a not-so-obvious secret:

Constraints and limitations drive creativity.

Make it a game

Because games are fun. And at its core, aren’t games all about solving problems and overcoming specific challenges?

Even more fun when you get to save, indulge yourself, and spoil the people you love in the process. And here’s the best part:

You get to create the rules.

Here are some questions and suggestions:

Review your list

When you review your list…

  • Is there anything that you can get pre-loved (say hello to Kijiji, Craigslist, and even Facebook)?
  • Is there anything that you can create yourself (using a little help from Pinterest and YouTube)?
  • Is there anything that you can borrow from friends and family?
  • Is there something that you can replace with something that is just as good or better?
    • Example: if you’re thinking of getting your bff that beautiful warm $50 scarf, how about a) inviting her over for home-cooked dinner?, or b) volunteer to watch over the kid(s) for an afternoon so she can have a “me time”?

Anytime you can DIY [Do it Yourself], borrow, replace or get something pre-loved…write down how much you’re saving. Obviously, the bigger the number, the bigger the genius you are.

What’s at stake? Well, that’s for you to decide.

Free is fun

Let’s stop and think about all the free things we’re getting online; amazing isn’t it?

So, back to your list. Is there anything you’ve listed that is available for free? Some ideas …

  • Free local events: Check Eventbrite for current and upcoming local events, some have tickets for sale and some are free.
  • Free stuff. Browse Kijiji and Cragslist free stuff and see if there’s a match on what’s on your list.
  • Other freebies: like games, baby stuff, etc.

7 DIY gift ideas

Ideas from easy to advanced …

  1. Personalized christmas tree ornament: grab a box of blank-canvas ornaments from the dollar store, markers, and stickers … and have fun!
  2. Vanilla infused vodka for baking, etc.: Better alternative than that boring store-bought “vanilla extract” (cheap vodka is welcome).
  3. Chocolate spoon mixer like this one is delish.
  4. Ready-to-go hot cocoa and marshmallow in a jar: drool-worthy ideas here.
  5. Homemade chocolate and caramel dips: you can find glass bottles at the dollar store and recipes for chocolate and caramel dips are abundant.
  6. Decorated candle holder. You can go from simple elegance to elaborate, some ideas here.
  7. Festive painted glassware: Grab a (wine) glass (you guessed it, from the dollar store), enamel paint (specific for glasses), paint brushes, and … some inspiration! The best news? Sky’s the limit to your pattern and design.

These ideas are by no means exhaustive, but I hope it’s a good starting point to get you thinking of the possibilities.

The bottom line

Gifts, parties, drinks, and yes … food.

We’re entering a time where abundance and indulgence are celebrated. And while, no doubt, there are worse things in the world, over-indulgence only feels good for a moment.

So let’s make sure the reality we come back to after this holiday is a happy one for you and your wallet.

Maria Weyman is Co-Founder of creditcardGenius, the only tool that compares 50+ features of more than 150 Canadian credit cards using math-based ratings and rankings that respond to your needs, instantly. Follow on Twitter and Facebook.

 

10 financial lessons to share with friends

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The personal finance community can be a bit of an echo chamber, reinforcing and repeating the same ideas on how to save, invest, and spend our money. This sort of tribalism can be intimidating for outsiders who are eager to learn but afraid to ask questions or know where to start, especially when it comes to more complicated topics.

The truth is not all Canadians are financially savvy. In fact, a Tangerine survey last year found that only half of Canadians consider themselves knowledgeable when it comes to personal finances.

As personal finance enthusiasts it’s our duty to move beyond this little corner of the Internet and start talking to our friends and family about money.

It’s not easy to talk in real-life about what we do with money, how much we save, how much we spend, and the foolish mistakes we make. But these are crucial conversations to help each other deal with money and the complex decisions about it that we all face.

We can start by sharing the kinds of tips and tricks that helped us build lifelong financial habits and skills. It’s what financial literacy is all about, right?

That’s why I was excited to partner with Tangerine for Financial Literacy Month and list my top 10 financial lessons to share with friends:

1.) Avoid credit card debt like the plague

It’s impossible to go through life without incurring at least some debt. I’ve had student loans, credit card debt, a car loan, line of credit, and finally a mortgage.

Carrying a balance on my credit card was by far the most harmful to my finances. Making the minimum monthly payment hardly puts a dent into the balance, and 19 percent interest ensures that balance will continue to grow.

Tackle it with the debt avalanche or debt snowball method, and once it’s gone commit to never again paying one cent of credit card interest.

2.) Track your spending

To free up that additional cash flow you need to understand how much money comes in and how much goes out every month. There’s no other way around it – how else will you know what you can afford to save?

Whether you use a mobile app, budgeting tool, or good old-fashioned Excel spreadsheet, the point is to track every transaction until you can glean some insight into how you spend your money. Use this information to make informed decisions on which areas of your budget you can cut, and where you’d like to direct any additional savings.

Related: Track your habits, save money

3.) Automate your savings

The key to building a life-long habit of saving is to make your contributions automatic and as painless as possible. Pick a day that coincides with your paycheque and set up an automatic transfer into your RRSP, TFSA, savings account, or RESP.

It’s called paying yourself first. Start with as little as $25 and increase it annually, or as your budget allows. This powerful strategy works because it treats your savings goals as ‘mortgage-like’ fixed expenses that come out of your account on a specific day.

4.) Save a percentage of your income

One rule of thumb suggests saving 10 percent of your take home pay for retirement. I say save a percentage – any percentage – of your income as long as you start with something and make it automatic.

One cool trick I learned was to bump up that percentage in tandem with a salary increase each year. So, for example, let’s say you earn $50,000 and saved 5 percent of that amount ($2,500). Then you get a 4 percent raise in the New Year, so now you make $52,000. Well, don’t just continue saving $2,500 – bump that up to $2,600 to stay in-line with your 5 percent savings rate. Continue Reading…