The Finance Blogger

A recent study indicated that 62% of millennials and 35% of generation X’s take advantage of work at home programs. This is based on programs offered by companies around the US. Only 3% of baby boomers on the other hand take advantage of these work at home opportunities. Turns out that there is a big difference in the mind-set of baby boomers as compared to their younger counterparts. Baby Boomers Dislike Working from Home. Admittedly not every job is conducive to working at home. For example while sales people can spend part of the day working from a home office they also need to get out and visit customers. Mechanics and service industry personnel also need to be at their place of work for obvious reasons. Companies that can set workers up with a work station and depend on information workers to get the job done are far more adept at setting up work at home situations.

Baby Boomers Dislike Working from Home

But even when the opportunity exists, many baby boomers dislike working from home and would rather go into the office. There are a variety of reasons for this attitude and they also vary with the individual.

Social Interaction is important for many, because they live to work rather than work to live which defines the major difference between the various groups.

Seniority and position in the company also defines whether you can work at home or must go to the office. Baby boomers tend to be older and in more senior positions.

Career aspiration is another element that can distinguish a person. Those that want to be promoted tend to go into the office where they can be seen and heard. Working from home provides far less opportunity in this regard.

Work tends to define the older baby boomer and they identify with the job and their success. They are working to be successful rather than working to earn a living that they can enjoy other elements in life.

Let us know if you agree with these concepts or if there are other elements that factor into whether people in various groups prefer to work at home.

There are many different issues that creep into our lives that make us happy and unhappy. Some we can control and others we just have to deal with. We make the best of it or compromise as best we can. If you have a choice and it will make your life happier. Why not take the action that will make you happier. We are going to focus on what can make us successful from a financial perspective. Focus on 5 ways to a successful life. These are the main items that we have learned over a long career.  They have made us better off financially and also contributed to a happier life.

5 ways to a successful life

Commuting – use to take me over an hour each way. We all know of people with less commuting time and much more. But the bottom line is that was over 10 hours a week of lost time in my life. Sure I read on the bus, kept up with emails and even caught the odd nap. But bottom line I would rather have walked to work to get my daily exercise, fresh air and spent more time with the family.

Chasing the Market – the market is volatile at best and timing is difficult to match. So how much money did you lose trying to chase the market vs. investing in some blue chip dividend paying stocks. They generated income and let you sit back and enjoy life. Starting early and allowing the investment to build meant that when it came time for retirement, I was able to retire young with enough money to live comfortably!

Cheap Housing – we all or should I say most of us buy the big house. They come with the huge mortgage, high taxes and high utility costs. This money that goes for these things can never be invested and is lost for all time. Sure you should gain on the house as long as you maintain it and live in a good neighborhood. But chances are you will never recover your investment. Live inexpensively and take the savings to enjoy life, save for retirement etc.

Last of the 5 ways to a successful life

House Bound or Experiences – coupled with the above, you can choose to be house bound or live cheaply and have many experiences over your life time. People with experiences are generally happier than those that bought the big house and were house bound.

Work for More than a Paycheck – We need to pay for the basics, a place to live, food, clothing and entertainment. But if your job is not interesting it is going to be a long hard grind over 30 to 35 years. Aim for an interesting job that pays the bills. When it is fun and interesting to go to work, everyone does better and is more successful at what they do!

Did you pay too much for your mortgage on your home? If you don’t know the answer then you probably did. The majority of Canadians and Americans don’t shop around for a mortgage when they purchase a home. They often take the rate that is offered by the bank that they deal with. They pay whatever rate is offered to them. At the very least they should negotiate and try for a better rate. They should really shop around to either confirm that the bank is offering the best rate. They can use this information as a negotiating tool to get a better interest rate for their mortgage. This post is about Mortgage mistakes nearly half of borrowers make.

Most consumers do not realize just how much money they can save. In fact shaving half percent off the cost of your mortgage can save over $25,000 over the lifetime of the mortgage. Consumers will put a lot of thought into the choice of their home, the decoration, and the landscaping. But when it comes to go negotiating a mortgage and going through the mortgage process they find it very intimidating.

Mortgage mistakes nearly half of borrowers make

if you have a good to excellent credit rating, can put at least 20% down as a down payment on your home, your chances of negotiating a better interest rate on your mortgage are very high. For example if a borrower accepts a 4.5% interest-rate instead of a 4% interest-rate on an average home the costs approximately 321,000 with a down payment of 20% on a 30 year fixed rate mortgage loan they’re going to pay $212,000 in interest. however if they are able to negotiate a 4% interest-rate they will save over $27,000 over the life of their mortgage.

This is a substantial sum of money that most people really cannot afford to lose however many are doing it every day without even knowing it. Always shop around for a mortgage and always try to negotiate a better rate. The worst that can happen is that it confirms the rate that is being offered to you by your bank and the best that can happen is that you get a better interest-rate saving you thousands of dollars.

Save

Many people consider their home as an investment, both for the current as well as for retirement. For many it is one of their single largest investments they will make in their lifetime when they purchase a home. However, over the last few years we have learned that investment in housing can also be risky hence the question is should you invest in housing? This really depends on whether it is your own home or an investment property that you plan to rent out. A home as an investment over the long term has proven to be one of the best.

Your home as an investment – Housing appreciation

Over the last 30 years the average home price has climbed just an average of 3.7% a year. The annual inflation rate on an average basis in that same period of time at 2.8%. This does not reflect the wide swings in both appreciation as well as in depreciation. In some years, the average house has increased by over 20% while another years it has dropped by that much and more! If you bought at the wrong time you would’ve lost a great deal of money.

Cost of maintaining a home

The cost of maintaining a home can be quite substantial. With the cost of utilities, property taxes, regular maintenance and repairs, any gain that you might earn is quickly eaten up by the cost of these expenses.

Cost of carrying a mortgage on your home

Even if you have a really low interest-rate the interest cost on a $100,000 mortgage at 4% is going to be for four thousand dollars per year. Although you need to have a place to live and would be paying rent instead of a mortgage the number suggest that your investment may not pay off as quickly as you thought.

One example of an individual living in New Jersey who owned his home over 20 years calculated that he spent $183,000 in improvement and $90,000 in property tax. He was able to sell his house for $377,000, and after taking into account what he paid for his house originally he barely walked away with any profit, even after taking into account the tax deduction for his mortgage interest payments. Of course he sold his house during a slow and if he had been able to wait he might have made more money as a market improvement. This is the issue with real estate you must be able to hold on for a long period of time to be able to take advantage of a major swing, uptick, in the market.

This is lots of food for thought for people who are planning on buying a house. It is your own property. You can do with it what you want within a reasonable level including local bylaws. When you’re renting an apartment, condo or even a house your controlled by the landlord. You  are very much limited by what you can do. It really comes down to a lifestyle decision with regards to buying a home. However do not always assume that you’re going to make money and therefore cannot consider it an investment.

There are many financial beliefs that consumers follow and are also supported by many financial advisors. Some of those make no sense at all and some make no sense depending on the person’s situation. Depending on how long you’re going to live, depending on how long you’re going to work, and how much income you need during retirement, these beliefs may make sense for some people and not for others.

Financial beliefs –

Taking social security early at age 62

If you take Social Security early at age 62 there’s no question that you’re going to incur a penalty compared to taking it later in life say at age 65 or even later. We all know this and understand this, but what it really comes down to is how long will you live. Will you need the extra money in the future? Many people are worried they could die at a younger age and not receive Social Security at all or for a limited time.

Other consumers and financial advisors will look at the age of the parents when they passed away, assume that they may live a few years longer and make a decision based on their projected lifespan. For example if both parents passed away and 75, then you probably want to take your Social Security early. On the other hand if both parents passed away in their 80s or 90s, there’s a very good chance that you also live into the 90s. If you can afford it then obviously you should delay your Social Security and take larger benefits so that you have more money later in life.

Individual bonds are superior to bond funds

Bond funds are more complicated in the sense that as interest rates change so does the value of the bond fund based on the average interest that they are collecting from bonds that they were invested in. Individual bonds will also change their value based on the change in interest rates. If you have to sell the bonds early then you may incur a penalty if interest rates are lower. If you plan to hold the bonds to maturity you will collect all of your interest and your original investment. By owning bond funds you also have the management fee that is charged on any bond or mutual fund.

Paying ahead on your mortgage.

Whenever you can pay ahead on your mortgage you’re definitely saving money. In terms of the amount of interest that you will not pay as a result. Let’s assume that your mortgage carries an interest rate of 4% and your mortgage amount is $100,000. Therefore you will pay $4000 in interest each year. Right off the top you will save $4000 if you can Pay off 100,000. Most people would have to earn at least six or $7000 including taxes in order to pay the $4000 interest.

If you have $100,000 to invest and collect 4% your earned $4000 in interest income or dividend income. Then you have to pay taxes on that income. Depending on their tax structure, most people are much further ahead to pay as much money on their mortgage as they can. They will benefit by reducing the total amount of interest that they pay each year. It is also an extremely nice feature to have your mortgage paid for, and your house paid off, when you retire.

For more ideas and thoughts about bonds, click here.

Save

There are so many variables impacting your savings and trying to figure out how long your savings will last, that most people just give up and hope for the best. For example, inflation, returns on investments, company failures and success, interest rates, taxes, income, jobs, health issues and on and on. Many investment advisers use a 4% rule when it comes to withdrawing money from your savings. Four % provides a rather safe amount to withdraw and most will agree that there is an 85% chance that your savings will outlast you if you stick to 4%. However there may be other alternatives to making your savings outlast you.

Making Your Savings Outlast You – Variable Withdrawals

The first step is to figure what your retirement income is going to me without touching your savings. Take into account pension income, government income and any other income you may have. Decide when you plan to retire and assess how much of a shortfall there is going to be relative to your salary the last year of working. Many people feel that you can live comfortably on 70% to 80% of your income in retirement without any change to your lifestyle.

Once you know the gap in income, calculate what 4% amounts to and re-assess the gap. You may have sufficient income at this point which is excellent. Next if you are short of income, you either have to go back to work, reduce expenses or take a larger amount from your savings every year. This is where it can get tricky.

Most consumers have a variable income prior to retirement, so why not after as well? If your stocks and bonds deliver more than 4% in interest, dividends and growth, consider taking more out. If it is less than 4%, then you may have to cut back that particular year. The stock market has delivered 7% on average according to many experts, but some years it delivers far more than that while in other years, the market might be in negative territory.

Recalculate you withdrawal every year and update your assumptions about income and expenses to figure out where you are relative to the income you need to enjoy your life in the manner you would like to.

For more details about planning a retirement and saving money for retirement, click here.

If something were to happen to you tomorrow, would your family be taken care of? Would they know where to find all of your financial information. Is important to communicate with your family so that they understand what investments you have. Discuss plans about your investments. This is really basic financial planning. Of course some selfish people just don’t care about their families and do not bother to leave any info at all. The survivors must search records and documents to find the information needed. They have to review all financial records, close accounts etc. It can be a lot of work and there is the risk that your family will suffer some hardship as well if the money you set aside is not immediately available to them.

Financial planning – Get Organized

Some of the items to consider as part of the communication to your family and financial planning as follows:

• Estate strategies,
• What do you own
• What do you owe
• Lists of all accounts, location etc
• Your Will and location
• Special instructions
• Long term goals
• College, marriages, grand children

The above sounds like a lot of work, but it really does not have to be. Keep it simple and put the list together, put it some where save and make sure that you tell your family where it is. If you are comfortable discussing finances, sit down with the kids etc and discuss the issues with them. They will probably forget, this is normal. Create a written family plan. Explain where everything is .

Pay bills to keep the house running, utilities etc along with hospital and funeral costs. High light these points and how your heirs will handle these items. Once you have created the plan it is pretty easy to keep it up to date on an annual basis.

According to several recent studies, the age of 45 is becoming the new age of retirement in the work force, at least from a career job in large companies. The facts point to anyone being laid off that is over 45, they are going to be without a job for a longer period than someone who is younger. In effect they are forced to retire! In fact it is unlikely that they will find a job in the same field at the same pay.

The job they do find will be in a lower paying area with lower skill requirements. There may be no benefits or pension to go along with being laid off from the original job. At age 45 or older there is little time left to save for retirement. Or to save for the kids education, weddings or other major expenses that we all are faced with from time to time.

Forced to Retire – Plan as if you will Retire at age 45

This is the new reality and many people get a big surprise about being forced out, but also they suddenly realize that they do not have that many years to work before health issues fail them or other things get in the way of working. They begin to realize that they might not have enough money saved for retirement and have to scramble in order to salvage a quality of life that they expected to have. Forced to retire at age 45 is not fun at all.

Anyone reading this post is probably saying that it will never happen to me. They feel their jobs are secure. That they are protected by the union. That their companies pay into a pension, so what is the problem? A few of us will not have a problem, but a large percentage of us will have this problem, so we ask the following question?

Why not plan to retire at 45? Save for retirement as if you are going to retire at that age. Build up your nest egg and if you find yourself working until 55 or longer, then it is a huge bonus. You have a large nest egg available which gives you the flexibility to retire on your terms. Choose when to retire, when to change careers. You can decide when to change to part time work if that is what you are interested in.

Don’t wait start now. If you are already saving for retirement take a moment to assess how much you will need. When will you achieve your objective. The peace of mind you get once  you have plan is worth it’s weight in gold!

For more posts about retirement issues and ideas, click here.

What is opportunity cost and how does it relate to student loans? Let’s say you have $50,000 which is about the cost of the average student loan. You probably do not have $50,000 just sitting around to pay off your student loan. But many people will focus on paying off this loan as quickly as possible. It has always been considered a bad thing to carry debt. We have all been taught to pay off our debt as quickly as possible. However, there are times and circumstances that may cause investors and borrowers to reconsider this approach.

Let’s assume you have a really competitive interest rate on your loan. Your monthly payment will be around $500 a month. The actual amount depends on the interest rate and the term of the loan. Let’s also assume you have another $500 a month that you could apply to your student loan each month or use as a start on investments.

What is the Opportunity Cost of this Extra $500

Applying the $500 to the student loan will reduce the total interest you pay by roughly the amount of interest you are being charged on your loan. Let’s say that it is 5% for this discussion. The opportunity cost in simple terms for this scenario is 5%

On the other hand, you could invest in equities in the stock market. The stock market has historically returned between 7% and 11% on average with some years much higher and of course some years much less. If we assume an average 9% return then the opportunity cost is 9% for this scenario. But wait you must also consider income tax, which may be somewhere in the range of 20% depending on your tax structure and deductions.

Nine percent of $500 is $45 income each year on average. If you pay 20% of this in tax or $9 then the net is $36 which is still above 7% net and 2% better than the opportunity cost of repaying the student loan quickly.

Use your own numbers to make your decision. The cost of the loan, the expected return you can get on the market and your own tax rate to help make a decision. Invest wisely and diversify, avoid speculative stocks and stick to the plan to improve the overall result.

We decided to write this post about future money trends since it is the start of the new year and we have just finished paying for the holiday expenses. Now it is time to begin thinking about where to place our savings and investments for retirement so that we can maximize our future savings and quality of life in retirement. We have whatever we plan to save for the year and the decision regarding where we place our money among multiple choices will have a huge impact on our lives moving forward as we raise families and plan for retirement.

Future Money Trends

What are the major areas that are hot in the coming year in terms of trends. From the reading and research that we have completed, they appear to be the following:

• Environment
• Markets
• Innovation
• People
• Government

No one has a clear crystal ball about the future, but there are clearly some things that will affect all of us on the macro level.  You may have your own opinions about what they are and the impact that they will have on us. That is actually a good thing since each one of us must apply our own individual situations to each of these areas and asses the impact that it is going to have on us. the planning horizon is also important. Are you looking 10, 20  or 30 years in the future? These five are our thoughts about the major areas that will impact us over the next 20 years.

Environment

Has been in the news in a big way over the past 10 years. There is no doubt that this is going to impact every human in the world over the next 20 years and beyond. Investing in environmental products might be a good bet, providing you pick the right companies and products. Reducing your own personal impact on the environment must also be a good thing.

Markets – will be volatile over this period of time, however history has shown that if you invested in quality stocks that are diverse, chances are your nest egg will grow over time at the average of 7%. You can invest in speculative equities, however you can lose big time or make huge amounts of money. Can you sleep at night with the risk and can you tolerate the loss if that happens?

Innovation – we have more and more innovations that are coming on line and there seems to be no end in sight. The key questions is what disruptions will occur over 10 years that will fundamentally change the industries you are invested in. For example will the combination of solar power, wind power and electric vehicles change the car culture so much that the entire industry shifts?

People – major changes are taking place in India and china as more and more people join the middle class. Some people suggest that the west is in decline unless there is a major shift in the population with more people moving to North American and Europe. How will the current Arab situation resolve it self? How will this effect us all over the world more than it already has.

Governments Do Play a Big Part

Government – come and go, especially the dictators and economies that are not doing well. Will democracy continue to survive or will it succumb to it’s own inertia and red tape that seems to be enveloping our culture? The big areas to keep an eye on are Russia – will it survive; Will China continue it’s major evolution and become a dominant power; will Indian and Pakistan also evolve; and what will happen to Europe? These economies and governments are all in transition of some sort and will have a huge impact on us in the next 30 years.

What is your guess as to what is going to happen regarding Future Money Trends ?

There are lots of theory’s about how to manage your finances and prepare for retirement.  Meeting goals that you may have or just living the kind of life that you wish to have. Various experts have written about mistakes people make in this regard. We have assembled the five biggest financial mistakes that many consumers make on a daily and annual basis.  Take the time to think things through. Avoid following the heard like a bunch of lemmings over the cliff . If you focus and avoid these mistakes you run a good chance that your financial affairs will turn out better than they would have otherwise.

Biggest Financial Mistakes

• Timing the market,
• Trading too often
• Reacting to the market
• Making emotional decisions
• Working with the wrong adviser

More Detail

Timing the market so that you sell high and buy low is much more difficult than it sounds. So much so that many people lose thousands of dollars because they cannot actually time the market. The stock market has averaged 7% year over year for the past 40 years, however there have been some pretty wide swings during that time with losses and gains. Investing in blue chip stocks that are here to stay is better than trying to time the market.

Trading too often can rack up huge trading fees and one wonders if these fees eat all or most of your profit. Don’t forget there is a fee for buying as well as selling, so your profit needs to cover this cost before you actually make any money.

Reacting to the market in a panic mode or in a bull market can also cost thousands of dollars if you sell low and end up buying high. Anyone who sold in 2008, locked in all of their losses and if they stayed out of the market they also missed an over 100% gain in the value of stocks since. Invest wisely, diversely, blue chip and dividend paying stocks and you will have a better chance of weathering any storm.

Making emotional decisions can be equally bad. Talk to an adviser, a family member or someone you trust before making any financial decision. Emotional decisions without facts usually leads to bad decisions.

Working with the wrong adviser who is focused on trading is going to cost you money. An adviser who is pushing the latest mutual fund because they will receive back end commissions does not always have your best interests in mind. Personally evaluate all recommendations and make your own evaluation before proceeding.

Save

There are lots of risk areas in today’s market outlook. The bull market has been running for a long time and is due for a correction. The markets are volatile with regular corrections of 5% or more. Many people are getting nervous about something major happening.  Oil prices are way up and then way down. We just got through the housing bubble! What is the next bubble that we need to worry about? There are pockets of financial risk for every investor and it remains to be alert to protect yourself from these volatile swings.

Minimize Pockets of Financial Risk

One of the best ways to manage pockets of financial risk is to follow the standard investing rules:

• Invest in high-quality dividend-paying stocks.
• Better yet if they have a record of regularly increasing their dividends!
• Invest diversely across market sectors and
• Stay away from speculative stocks and bonds.
• Re-balance once or twice a year
• Focus on income without getting involved in high-risk bonds or stocks.

More Details

High yield bonds – are usually high yield because they are high risk. While the yield can be attractive, the risk can also be very high. Can you afford to lose a major part of your investment or the total investment? They are sometimes classed as junk bonds. Low-risk government bonds and corporate bonds from high-quality companies have much less risk and pay a lower yield as a result.

Small-cap stocks – from smaller companies can swing widely and unless you have the stomach for these wide swings, you may not want to get involved in these types of stocks. Yields might be higher when you include potential growth, but then the losses can be large if the industry is unkind to them.

Slow and steady and investing – while not exciting, perhaps even boring, will deliver on average far better results with far less risk provided that you follow the rules mentioned above.

Systematic investing – is another way of managing risk, a regular investment in stocks for example that captures both the downturns and the upturns will deliver excellent results. You will buy both high and low with the average cost working out to your favor over the long term.

Borrowing solutions – such as a line of credit is much cheaper than using a credit card for example at 20% or higher. A line of credit that is tied to the equity in your home can be as low as 4% or even lower.

Assess your personal set of pockets of risks and take the necessary actions to manage each risk area to avoid a catastrophic impact in the future.

For more posts about financial mistakes we all make from time to time, click here.

Looking to improve your money management in the years ahead? Here are 31 rules for the Financial Rules for the Road Ahead. While they might not all apply to your personal situation, pick and choose the ones that make sense for your personal situation. Talk to experts to get some help regarding the best approach to take. These rules can be considered general guidelines. Everyone can and probably will apply them a little differently than another person. But take the time to read them. Even doing one thing differently might just make your financial life a lot better. Good reading and good luck managing your retirement finances.

Financial Rules for the Road Ahead

1. Check your retirement progress by taking your nest egg and applying a 4% annual portfolio withdrawal rate, equal to $4,000 a year for every $100,000 saved. Will you have enough retirement income—or should you be saving more? 4% is considered the industry average.

2. Don’t automatically claim Social Security or CPP (Canada) at age 60. It often makes sense to delay benefits so you get a larger monthly check unless your genetics suggest otherwise.

3. Never buy a home unless you expect to stay put for at least five years or longer. Between mid-2006 and early 2012, the S&P/Case-Shiller U.S. National Home Price Index plunged 27.4%.

4. Planning to remodel your home? If you’ll get a lot of pleasure from the improvements and you can afford the cost, go ahead. But don’t kid yourself that you’re making an investment, especially those high priced renovations.

5. Never use a custodial account to save for college costs. Focus on a  tax-free growth account.

Avoid Student Loans

6. Don’t let your children take on more student loans than they can reasonably handle, given their expected career and likely earnings. Don’t jeopardize your own retirement by helping them out more than you should.

7. Insure against the big financial risks in your life, while skipping the small stuff. Always take health travel insurance, especially Canadians traveling to the U.S.! Extended warranties, trip-cancellation insurance, and low auto-insurance deductibles? Just say no provided you can afford to self insure.

8. If you aren’t rich, buy term life insurance to protect your family. If you’re super-rich, consider cash-value life insurance to save on estate taxes. Re-evaluate each year.

9. Worried about layoffs? Limit your fixed living costs to 50% or less of your pretax income. Fixed costs include expenses such as mortgage or rent, property taxes, debt payments, groceries, utilities, and insurance premiums. At the 50% level, you know that—with money from your emergency fund—you could get by on half your old income if you lose your job.

Prioritize Your Expenses

10. Think about which expenditures gave you a lot of pleasure in the past year and which were quickly forgotten. Use that to guide your spending in future years

11. Always contribute at least enough to your employer’s 401(k) plan (RRSP for Canadians) to get the full matching contribution. Even if you leave your employer, immediately cash out your 401(k), and pay taxes and penalties, you’ll likely still come out ahead. Canadians can sometimes transfer RRSP’s to managed or locked-in accounts.

12. Expect modest returns from stocks and bonds. The worst that will happen is you’ll save too much. The average return has been in the range of 7% over the long term with significant swings in the market both positive and negative.

13. Think about your paycheck—and how secure it is—as you decide how big an emergency fund to hold and how much debt to take on.

Invest in What You Understand

14. Avoid investments you don’t understand. Among other financial products, that likely means skipping equity-indexed annuities, leveraged exchange-traded index funds, hedge funds and mutual funds that mimic them, and variable annuities with living benefits.

15. Shun investments with high expenses or whose costs you don’t fully grasp.

16. Never keep 100% in stocks—or 100% in bonds. A well-designed portfolio will always include both investments. Diversity is the key to surviving wide swings in the market and interest rates over the long term.

17. Buy individual company blue-chip dividend-paying stocks, and think hard before purchasing actively managed mutual funds. Some charge as much as 2% of the balance whether they make money or not! Corporate blue-chip bonds are also good.

Tax Efficient Investments

18. Check that you have tax-efficient investments in your taxable account while using your retirement accounts to hold investments that generate big annual tax bills.

19. When did you last re-balance your portfolio back to your target weights for stocks, bonds, and other investments? If it’s been over a year, it is time to review.

20. If rich stock valuations and skimpy bond yields make you nervous, you can always pay down debt instead especially if interest rates begin to rise.

21. Never have a year when you pay nothing in income taxes. Take advantage of a low tax bracket by converting part of a traditional IRA to a Roth. In Canada convert RRSP’s to TFSA’s.

Monitor Your Credit Report

22. Check your credit reports for inaccuracies.

23. Always pay your bills on time. This is likely the biggest factor affecting your credit score. In particular, late payments on credit-card bills and loan payments are quickly reported to the credit bureaus.

24. Are you on track to pay off your mortgage by retirement? If not, consider making extra principal payments.

25. Never carry a credit-card balance, which might cost you 20% or more in annual interest. You’ll never earn that sort of return in the financial markets over the long haul.

26. If you have more than enough saved for your own retirement, consider taking advantage of gift-tax exclusion to make gifts to your children and other family members. It’s a great way to brighten their lives—and the cheapest and easiest way to reduce the potential hit from state and federal estate taxes. Also, use TFSA’s to reduce tax on investment income in Canada.

Always Have a Will

27. Get a will. You’ve been promising to do so for years. Make it happen.

28. Check that you have the right beneficiaries listed on retirement accounts, life insurance, and any trust documents. Let’s face it: You probably don’t want your ex-husband inheriting your individual retirement account.

29. Try not to spend money in Roth IRAs. Instead, leave these accounts untouched for your beneficiaries, who could enjoy decades of tax-free withdrawals.

30. When giving to charity, consider gifting appreciated investments. You’ll potentially enjoy three tax benefits: an immediate tax deduction, avoiding capital-gains taxes on the investments donated, and a smaller taxable estate.

31. Keep an eye on the big picture: You want to design a financial life for yourself where money worries are minimal, you have special times with friends and family, and you devote your days to activities that you think are important and you’re passionate about.

For more financial advice, click here.

Your home is paid off, your car is paid for, although it probably should be replaced in a few years since it is a few years old, but still in good condition. The house is older and will need routine maintenance, however there is nothing near term that is required at this time. Sounds pretty good doesn’t it. Retirement is just around the corner as well and you are wondering what your cash flow will be like and if you can do some of the things that you had planned on for many years with the money that you have saved and the income that will be generated from your pension?

Can You Afford Your Home in Retirement

You plan to retire and stay in your home. For most people this is probably the right long term strategy. Depending on your age and how close to your retirement there are a few things that you should plan and / or budget for. Items such as the roof replacement, furnace replacement, hot water tank and driveway are big-ticket items. They need to be budgeted for so that you have the money to pay for these items when it comes time. Some consumers will also consider window replacements as well if the windows are older. There are more efficient models available and there are sometimes incentives.

Should you down size or stay where you are will depend on a number of things. There are the costs that we just mentioned and how prepared you are for these expenses. Some people will sell there homes instead of spending the money, although they will take a hit in the sale value of their home when they do. Then there is the day to day operation of their home.

Operating Costs

Regular operating costs such as heating and cooling, cleaning and maintenance are often much larger than they would be for a smaller home. Newer home with better insulation, efficient heating, and cooling systems is attractive. In addition, new lighting may appeal to someone who has an older bigger home.

Maintenance costs such as annual landscaping, painting, minor repairs is another area that is often troublesome for people.  If you let these things deteriorate, your home may not look as good when it comes time to sell. You will not get top dollar for your home. Never the less,  there is a cash flow to maintenance that cannot be ignored. It should be factored into your decision regarding to stay or to sell.

Can You Afford Your Home in Retirement – Cash Flow

Confirm your cash flow in retirement after taking into account all of the above. Don’t forget your income and plans to travel along with health-related issues. Look at several scenarios and verify the changes in cash flow for each. Don’t forget to factor in the cost of moving, real estate fees and legal fees as part of your decision.

Once you have analyzed all of the possibilities, you can then decide can you afford your home in retirement. Or do you need to make further adjustments! There may be an emotional element to the decision as well that should only be considered after you have reviewed all of the financial impacts.

For more posts about downsizing, click here.

One of the best ways to reducing expenses is to tackle all areas of your cash flow for you and your family. The following areas are possibilities for reducing expenses for the family.

Reducing Expenses

Track Spending – The first step is to go over exactly where you were spending money. Set up a tracking mechanism that tracks all of your expenses so that you can review at the end of the week and also at the end of the month.

Trim Food Costs – by looking for sales, buying involved in larger quantities to get it cheaper per unit price. Evaluate whether you really need to purchase more expensive food items.

Pocket Savings From Sale Items – as you save money from buying things on sale, take that cash saved and place it in a savings account or some other area where it cannot be spent. It is amazing how quickly the savings add up.

Reduce Your Rent

Can you reduce your rent by negotiating with the landlord? Can you take on a roommate? Should you move to a lower-cost rental unit?

Shop for Best Price for Services – if you purchase services for everything from housecleaning, to Peyton to oil changes always look for the best price. You might be amazed at how much money you can save my shopping around. Even a 10% Percent savings can add up over time.

Hunt for Travel deals – last minute deals, re-positioning loses one block off the beach, can save a great deal of money. Always shop for the best deals.

Shave Savings from Spending – pick something that you can do without for reduce your expenditures and shave some of your expenses to increase your savings.

Ask For Discounts – always ask for a discount regardless of what you were purchasing. You will be amazed at how often a discount will be offered.

Pay With Cash – as part of asking for a discount, offer to pay with cash. This provides better cash flow management and many merchants are more willing to offer discounts when paying with cash.

For more posts about budget, budgeting etc., click here.

Save

Consumers can save themselves a great deal of money if they can pay off debt the right way. They can reduce the overall amount of interest they pay on this debt. Consumers can also reduce their monthly payments as well and that leads to an easier financial lifestyle. In this post we will discuss some of the key steps or guidelines to follow. They will lead to a healthier financial lifestyle and leave money in your pocket to be used for other priorities. Aside from the obvious, i.e. don’t get into debt in the first place, paying off debt the right way is something to pay attention to.

Pay Off Debt the Right Way

Pay off high interest rate debt first – if you have a mixture of different kinds of debt at various interest rates, it makes sense to pay off the high interest debt first. Credit cards typically have higher interest rates than do personal loans for example. Either consolidate the credit card debt with a low interest personal loan. Or pay them off before paying down other lower interest debt.

Avoid pay day loans – payday loans are among the most expensive loans available with high interest rates and fees that are charged. Avoid pay day loans like the plague. Even credit card debt costs less than payday loans will cost. If you have a payday loan, this is the first debt that should be fully paid to reduce the significant expenses associated with carrying this kind of loan.

Avoid zero interest credit cards – these kinds of cards are great if you have the discipline to avoid carrying a balance after the initial grace period.  Once the grace period is over, the full debt is charged at the prevailing interest rate. Which is usually in excess of 20%.

Don’t Panic

Don’t panic, get advice. – If you have a lot of debt and are worried that you cannot see a way out of the mess, seek some advice from professionals. Beware of anyone who is trying to sell you a financial product as a solution. Although it could be the right answer, it can and will likely cost you even more money.

Avoid band aid approach – figure out the best long term approach. Band aid approaches are usually just that and will just help you financial situation get worse. Seek advice, develop a plan that is focused on meeting short term issues as well as the long term debt. Then implement that plan with the goal of being debt free as soon as possible.

Save

Save

The following are the steps you need to consider as part of your Year-End Investment Review.

Perform a financial Year End Investment Review

Once or twice a year perform a year-end investment review and evaluate your current goals. Identify new goals, assess your tolerance for risk and make sure that there’s an alignment between the two.

Review your approach

There will be short-term fluctuations in the market, for example, the current market is growing very strong. However, investors should focus on the long-term to ensure they meet their goals to meet their objectives. You may want to look at whether they have sufficient cash to meet unexpected or upcoming events. Will, there be a risk of a shortfall, do you have sufficient insurance coverage to meet your family’s needs and do you have the right mix of stocks bonds and cash to meet your objectives.

Write yourself a check

Complete your contribution to your Retirement savings plan, your tax-free savings account. Determine if you need to adjust your portfolio income to provide for sufficient income for the following year.

Do an inventory check

A diverse investment portfolio is the best way to manage your overall risk. Complete an inventory check to review that you have the right mix of stocks bonds and cash investments. As well as across different asset classes investment grade, international and asset classes. If you are overexposed in one area you may need to make some adjustments to keep to your strategy.

Prepare for choppier waters

Are you prepared 5%, 10% or more adjustments in the market? Volatility is a normal experience in the market. Do you have sufficient cash to invest or take advantage of these pullbacks? What will be the impact on your existing investment? Evaluate your exposure risk as appropriate.

Position for the next phase of growth

Interest rates have been forecasted to stay low for the last couple of years. Currently, they are expected to begin increasing in 2017, however, it is anyone’s guess. When they do rise, equities will be impacted. Do you have the right mix of equities, bonds, and cash to take a bandage of rising interest-rate?

Trim your heavyweights from the previous phase

Some of your investments may have risen significantly and are now overweight with respect to your other investments. This might be the time to sell and take advantage of profit-taking to invest in other opportunities.

These are areas that consumers should consider when evaluating and completing an annual investment review. Work with your investment visor to come up with a strategy that meets your needs, and you’re investing style.

Thirty percent of Americans 65 years and older are carrying a mortgage. Those that are not carrying a mortgage into retirement, may also be carrying lines of credit. Perhaps also car loans or other debt. Either way, these are monthly payments and debt that they could probably do without. These debt payments affect us in multiple ways. They make it much more difficult to enjoy life, perhaps even manage to meet all of your commitments. When they get in the way of putting food on the table or even heating your home, they can cause a very serious situation.

Retirement Mortgage, Lines of Credit – Cash flow

Cash flow is all-important in retirement. Most people are on a fixed income during retirement with pension income and income from savings. If you’re going to take on a mortgage during retirement or carry one into retirement you need to make sure that your cash flow will support this monthly cash expense. If you are on a fixed income with little likelihood of your income increasing chances are that you are actually falling behind. With inflation, every $100 buys less and less every year in terms of real purchasing power.

Carrying a mortgage in retirement means less flexibility in spending due to the cash flow impact. Mortgages carry a fixed interest rate for the most part. Lines of credit and other loans carry varying degrees of interest rates. If you can figure out a way to retire that mortgage or that loan, this step will provide you with a substantial automatic raise. These payments are no longer required and are available to use for other purposes.

Other pressures such as putting students through university, unemployment, retiring early, health expenses, etc also seem to be finding their way into retirement years. Many people decided to have families later in life. This meant that their children were still in university when it was normally time to retire. If you feel that this is part of your future start setting money away now. Make sure that these costs are all covered by the time your children are ready to go to school at a well-known university or college.

Pay off high-interest loans first, then focus on low-interest mortgages.

Are Mutual Funds too Expensive ? This chart would certainly appear to support the case that they are in fact expensive and can have a significant impact on your savings plan or your retirement over the long term. The chart on the left demonstrates that if you had $100,000 to invest and kept this investment in mutual funds over a 10 year period, your investment would be worth approximately $165,000. Sounds pretty good right! Note that this assumes average returns and does not reflect the ups and downs of the stock market. However consider that the mutual fund manager is deducting 2% every year regardless of how the mutual fund actually does in the market.

If you were invested in exactly the same investments that the mutual fund was your investments after 10 years would be worth approximately $195,000 or $30,000 more than they are. MER is taking $30,000 over 10 years as fee’s or an average of $3,000 a year of your money.

Why Are Mutual Funds too Expensive?

Most people use mutual funds because they want so called peace of mind. They do not want to worry about their investments. The sad reality is that most funds are managed by people who have huge portfolios and are relying on the averages. If the markets are down, so are the mutual funds and so is your investment. The manager still gets paid the 2% regardless. You lose in a down market because your investments are worth less. You still have to pay the MER! The answer to the question, Are Mutual Funds too Expensive, is yes!

There are funds that charge smaller MER’s, however you usually get what you pay for. If you are not interested in taking the time to manage your own investments, they you probably should stick with a well managed low risk mutual fund. An investment adviser can assist with selecting the correct one. If you do not want any risk and do not want to pay MER’s, then GIC’s are the oly way to go, however the income level on GIC’s is very low, so again you lose from an income perspective.

Invest in Blue Chip Companies

We  believe that investing in blue chip companies with a long record of paying dividends is the way to go. You receive the dividend income and over time the stocks usually appreciate in value as well. At least you will not pay MER’s.

Take a look at a well performing dividend income mutual fund and invest directly in the same stocks. You probably will not go wrong over the long term. Make sure you are diverse. Monitor your investments on a regular basis to take any corrective action that may be required.

For more information about common sense investing, click here.

Can you count on a pension to stay afloat in retirement from the government or from your employer? The lucky ones will be able to say yes as long as the company they work for does not go bankrupt, rob funds from the pension fund etc. Even city and state governments are not immune to playing with pension money to deal with current fiscal issues. The question is can you depend on the money they promised you to be there when you retire and if it is will it be enough to allow you to live the life that you imagined while you are healthy and retired.

Can you count on a pension to stay afloat in retirement – Diversity

One of the fundamental rules in investing is not to place all of your eggs in one basket. There is just too much risk and too many unknowns that may come along and wipe out the investment. Retirement planning should follow the same rules. If you have a pension and feel that there is a pretty good chance that it will be there when you retire, you are one of the lucky ones and we are very happy for those of you in this position.

Bonus & Insurance

But would it not be to your advantage to also save something in addition to your retirement pension for emergencies and if your pension is not enough. Imagine how relived you will be if your pension comes through and you have your savings as well! This would actually be considered a really nice bonus to have both. If by chance you do not get your pension or receive less than expected, at least you also have your savings to fall back on. This is one of the best solutions and outcomes compared to not having any savings at all and losing your pension, which unfortunately many people are finding. You may need your savings in addition to your pension to stay afloat in retirement.

We post articles on all sorts of topics on this web site associated with financial issues and investing. Take a few minutes to browse our topics and give some thought to how these ideas and concepts might be useful to you in your own life.

For more posts about retirement and issues to consider when you retire, click here.