Tag: canadian personal finance

Blog Anniversary: 5 years

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5 years ago, I published my very first post on the Money Savvy Blog. Its title was the cost of eating-out.  5 years and 181 posts later, my view on this particular topic hasn’t changed. When convenience becomes a daily necessity, it will derail most financial plans. I still refuse to pay for these by the way.

A number of things has changed in my life in 5 years. I became consumer-debt free, traded houses, switched to part-time work and decided to obtain an MBA. This one thing, however, hasn’t changed.

As for the topic of Personal Finance, my overall perspective has drastically shifted. I realized Financial literacy alone wasn’t enough, that some of the advice dispensed out there was way too generic, if not downright judgemental. It is not all about avocado toasts and lattes. It is more about focusing on the big picture and increasing income. There are Financial killers way more potent than lifestyle inflation. And, oh, living in the suburbs isn’t necessarily cheaper; and sometimes renting is the better option.

There are a few topics, however, on which my perspective hasn’t changed. I don’t see any change happening in the foreseeable future. Debt will always be debt; whether good or bad, it still needs to be paid off. The necessity of an emergency fund is not up for debate, regardless of how it is structured. A line of credit is not an emergency fund per se. While saving for the kids’ post-secondary education is not a requirement, saving for retirement is. To do so, becoming proficient in investing is a good start.

Last but not least, net worth has nothing to do with self-worth. It is also OK not to be into F.I.R.E. In the grand scheme of things, health is more important, as well as being grateful. Happiness can’t be bought on any stock exchange.

To conclude, here are the 5 most read posts for each year I have been blogging.

Life update and musings

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I am aware I haven’t blogged that much lately. Actually, I haven’t blogged much at all this year, with a total of 18 posts, including this one. I guess 2018 was a little bit complicated and full of changes for me. The first half was actually not that great.

CAR ACCIDENT AND INNER QUESTIONING 

In October 2017, I was involved in a minor car accident that resulted in whiplash and soft tissue injuries. Said injuries lingered for over 6 months. This period was difficult, both physically and mentally.

On top of this, I started resenting my full-time job like never before. The only silver lining with this accident is that it really put my current life into perspective. I realized I had been putting off a lot of items, and that it was no longer sustainable.

FIRST WAVE OF CHANGES

I also realized I wanted more out of my life. “More” however is still proving elusive to define. I am working on it. Career-wise, I narrowed a path down to 2 options that I am really interested in. To do so, I decided to obtain an MBA.

Subsequent to this, working full-time was no longer doable or sustainable. Initially, I had given my resignation. After further discussions with my boss, I decided to stay on a part-time basis.

To cope financially, I refinanced my mortgage and leveraged against my condo. I had personal savings as well, but leveraging gave me more options. I don’t regret doing it.

Since then, I have seen drastic improvements in my life, particularly health-wise. I am feeling much better. I am finally taking better care of myself and addressing issues.

There are still a few key aspects of my life that are not satisfying and that I need to spend time on. But, I don’t want to make any rash -or rush!- decisions.

More changes are coming to my life and 2019 has the potential to be a powerful year for me. I can’t wait!

THE FUTURE OF THE MONEY SAVVY BLOG

This leaves me with the future of this blog. To be honest, I am undecided at this stage. One of the things I want to do is definitely being more offline. Maintaining an online presence is exhausting, as well as time-consuming.

I don’t know when the next blog post will be. I simply have more important priorities to take care of at the moment.  I am totally fine with that. Thank you for reading my posts and visiting my blog over the years.

Why I don’t really blog about my own finances

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A lot of fellow PF bloggers share their most intimate financial details online. How much debt they have, their net worth, their spending, their income….you name it, it is out there.

While I did share my debt amount, and how I repaid for it, I chose not to share many details on my finances , and here is why.

privacy concerns

Once you share something online, regardless of what it is, there is no way to get it back. No matter how hard you try, it will stay online.

I am of the opinion people don’t need to know everything about my finances, whether they are complete strangers , friends or acquaintances.

unhealthy comparisons

Society in general, and the PF community in particular, is using net worth as a measure of self worth. The 2 are actually not related.

If you are not killing your monster debt in less than 2 years, something is inherently wrong with you! Or if you haven’t saved a million by the time you are 25 , you are bad with money. If you are bad with money, you are probably bad with other things as well.

Does the above sound familiar? I bet reading about it wasn’t really helpful. It may even have made you feel bad.

Our own story is unique. We all have different lives. Knowing so-and-so paid x amount of debt or saved x amount of money won’ really do anything for us, at an individual level.

not a financial planner or advisor

A lot of PF bloggers have lists and spreadsheets of all their investments on their blog. Some of them even talk about their “top stocks” or favorite ETFs. I previously mentioned the majority of PF bloggers have no formal qualifications or certifications in Financial Planning.

I won’t be one of these bloggers anytime soon. I believe there is a level of personal responsibility when advertising or promoting financial products to complete strangers you don’t know anything about.

Final word

My blog is to share my passion for personal finances, but not necessarily to share everything about my own personal finances or my life.

I consider my blog to be a peephole into my life, but definitely not the complete picture. There is so much more to me than the contents of my blog….but I choose to keep it offline.

10 Financial killers

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In my previous post, I shared how F.I.R.E. has an element of privilege to it. I also indicated that for most people, F.I.R.E. will remain a pipe dream.

There are very real obstacles to becoming financially independent and potentially retiring early. Here they are, in my personal order of importance:

FINANCIAL KILLERS # 1 & 2: STAGNANT WAGES AND INFLATION

5 years ago, Statistics Canada published a very interesting study on the evolution of wages in Canada between 1981 and 2011. The study shows, among other things, that hourly wages barely bulged during that period. A full-time worker would earn about $ 21 in 1981 and just under $ 24 in 2011. Not even 15% more.

There were also gaps depending on gender, age and education.

In the meantime, inflation during the same period rose by 149.16%. 

FINANCIAL KILLERS # 3 & 4: DISAPPEARANCE OF JOB SECURITY AND PENSION PLANS

Job hopping is the new normal these days. Most people will have an average of 15 to 20 jobs and 2 to 3 different careers. Sadly said so, most employees are seen as disposables. Job security is a thing of the past, just like companies’ pension plans.

Only 37% of Canadian employees have a pension plan today, primarily in the public sector. It used to be over 50% in the seventies. A company pension plan used to be an important pillar of retirement, making-up for paltry CPP amounts and lack of personal savings. Nowadays, workers need to save more for their retirement. It can be an arduous task when looking at Financial killers # 1 & 2.

FINANCIAL KILLER # 5: POST-SECONDARY EDUCATION COSTS

Canadian students graduate with an average of $ 27 000 in student-loan debt. Depending on the degree and university, this amount can be much higher. Starting adult life and career with such burden is crippling, even more so when looking at the previous 4 financial killers.

FINANCIAL KILLER # 6: UNHEALTHY OBSESSION WITH HOME-OWNERSHIP

Yes, I am aware I am a home owner, thank you very much. That being said, I did not think about buying until I was in my mid-thirties, and after doing thorough calculations. Nothing says you have to buy a property right after graduation or after getting married!

In order to buy, you need to save for both a minimum down-payment and the closing costs. You also need to stay put for at least 5 years, if you want to gain equity and recover from the closing costs you paid.

FINANCIAL KILLER # 7: CAR AND COMMUTING COSTS

A subcompact car will cost on average $ 10 000 per year. This includes car payment, insurance, gas, maintenance and tolls. Since more people have to move to suburbia to find affordable housing and easily need 2 cars per household, these costs can only go higher.

FINANCIAL KILLER # 8: STAGGERING DAYCARE COSTS

If you chose to have children, it is very likely you will have to go back to work, despite the Federal government paid maternity leave and the Canada Child Benefit program.

This is not always a question of personal choice. It is merely based on at least the 5 first Financial killers.

A spot for an infant in a licensed daycare in Vancouver costs close to $ 1 300/month. For a toddler, you are looking at just over $ 1 000.  Prices in other big Canadian cities are similar, with the exception of Montreal. The Quebec government has its own childcare program and costs are way lower.

FINANCIAL KILLER # 9: CONSUMER-DEBT, AVOCADO TOASTS AND LATTES

A lot of people are still trying to keep-up with the Joneses, by constantly upgrading to bigger and shinier things.

That being said, a lot of people are also using credit cards to make ends meet, due to the above financial killers.

FINANCIAL KILLER # 10: LACK OF FINANCIAL LITERACY

Unfortunately, we are not taught at school that we need to save for retirement or for emergencies. We are also not taught how to best do these things. We are not taught how interests on credit cards or loans is calculated. We are not taught about management fees.

This doesn’t help, but it is not what sends someone to a trustee in bankruptcy, contrary to popular belief.

Segregated funds explained

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Please note I am not a financial adviser or an insurance broker. This post is for information purpose only. 

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Segregated funds have always been a highly debated product. After years of stagnation, they are making a come-back. In 2015, the total amount of money held in segregated funds in Canada rose by close to 17%.

But, what is a segregated fund?

A segregated fund or -seg- is a product combining both investment and insurance. To sum it up, it works like an “insured mutual fund”. The insurance portion guarantees 75% to 100% of the principal invested. Monies are invested in stocks or bonds.

Segs are considered an insurance product and are usually sold by insurance companies. That’s it for the basics.

what are the advantages?

The main perk of this product is that you are guaranteed to receive the majority of your money back. If the investment portion performs well, you could actually end-up with a lot more money.

The insurance portion also offers a death benefit that is not subject to probate. The money held is also protected from creditors. Should you file for bankruptcy, your seg is off-limit.

what are the DISADVANTAGES?

Segregated funds are very expensive. The management expense ratio -MER-on these products can be easily over 3%. As a reminder, the MER is deducted from the fund’s return.

Your money is also locked-in for 10 or 15 years, depending on the contract. If you decide to cash out before the term, you will be paying a hefty penalty and deferred sales charges. They are very few “no load” segregated funds. “No load” means you are not paying any fees for buying or selling.

Because segregated funds are insurance products, they do not have to comply with the new CRM2 rules on investments. Holders are largely kept in the dark as to the actual costs of their segs.

who are segregated funds for?

They could be of interest for:

  • Self-employed people or small business owners mainly to protect their assets from creditors
  • People who are really, really terrified of market risk and close to retirement
  • People who are in very poor health and at a very high risk of dying soon

final word

To be honest, there aren’t that many people who actually benefit from having segregated funds. Better and cheaper results can usually be achieved by purchasing a separate life insurance policy and investments.

Just like any financial product, you need to do your own research and cost-benefit analysis to see if a segregated fund makes sense for you.

Should you ever take a pay cut?

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A reader of the Money Savvy Blog asked when and if it ever made sense to take a pay cut. The surprising answer is yes! There are a few instances when it makes total sense to accept a job offer at a lower salary . Sometimes, there is actually no other option.

You are changing career

If you are moving from Lawyer to Teacher or from Teacher to Mechanic, you can’t expect the same salary, as you probably don’t have any experience in your new chosen field.

you are changing industries or fields

You may still have the same type of job, but if you are moving to an industry you know nothing about, chances are the offer will come with a minor pay cut. Same goes if you move from a technical field to an administrative one, even in the same industry.

you have been out of work for a while

At some point taking the same job with a lower salary makes more sense than remaining unemployed. Unfortunately, the economy has still not fully recovered from the 2008-2009 meltdown. The unemployment rate remains rather high and job prospects scarcer. I get it that salary is important, but if you get too picky, you may have to accept a survival job paying even less!

you need/want more work/life balance or flexibility

If you want to work fewer hours and take more vacation, or work from home, you should expect a cut. Unfortunately, you can’t work 30 hours a week and expect to be paid like you work 100 hours.

you are becoming self-employed

As I previously mentioned here, most of the times your company will not earn money right away. It may also take some time before your clients pay you.

you want to keep your current job

If your employer is having difficulties, you may have to accept a pay cut in order to keep your job.

remember, it is not just the salary

When considering a job offer, also look at the benefits offered such as extended health insurance, bonuses, vacation time, sick days etc…the value of a benefit package can add thousands of dollars to your base salary and save you money.

In my career, I took a pay cut a  few times: when I became self-employed, when I changed careers or when I had to pay for my bills. It did not prevent me from progressing money-wise.

What about you? Have you ever had to take a pay cut?