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.

To combine finances or not?

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When two people are in a committed relationship, the question of moving-in together comes-up at some point. This question actually triggers a series of other questions such as how to share household chores and if all the belongings are going to fit-in in the new place.

However, there are a couple of very important questions that should not be overlooked: how are we going to pay for the bills and are we going to combine finances?

Long before you move-in, you should have had “the money talk”, as a couple. There are crucial details that partners need to know about one another, such as income and debts, as well as goals.

Once you have the basics down, it is time to take your conversation to the next level.

Option 1: partial combination; 1 joint checking-account, 1 joint savings-account

A joint checking-account is used to pay for common expenses like rent, utilities and groceries. More categories can be added, depending on your situation. If you are a one-car household, then car expenses would also be considered as a joint expense.

If you have similar incomes -or close enough-, you can both contribute 50% to the account. If there is a large disparity between your incomes, use the percentage method instead.

Add your respective monthly net incomes. Divide your individual net income by the combined income and multiply by 100. Always use your net income.

For example, if your net combined monthly income is $ 10 000 and one partner earns $ 2 500, their share is 25%.

It is also a good idea to have a 3-month emergency fund for the shared expenses.

Option 2: almost complete combination

With this option, all the money is deposited in a joint-account and a portion is transferred to each partner’s individual accounts.

All the bills are paid from the joint-account, regardless of their nature. The individual accounts work like an allowance.

The most challenging part of this approach is to decide what amount should be transferred to the individual accounts!

Option 3: complete combination

This approach is definitely the most transparent one. When both partners are on the same page financially, it is also the best.

Communication is key. It is best for both partners to sit down and discuss how to consolidate all their accounts, as well as how to manage them on a day-to-day basis. Both need to be actively involved.

As years go by and children come into the picture, the line between “yours, mine and ours” becomes more and more blurry.

Option 4: complete separation

In this scenario, the couple does not combine finances at all and keeps everything separate. I personally find this method counter-productive. Some household expenses are higher than other ones, and it can be tricky to decide who pays for them. It can also be an hindrance to saving goals or paying-off debt.

You may want to revisit why you are not considering combining finances to some extent. Maybe you have done this in a previous relationship and it was a disaster? Maybe you don’t trust your partner? Maybe your partner has an opposite financial style?

Again, communication is key here. Money is a huge stressor for couples and the leading cause of divorces.

Final word

Deciding to combine finances -or not- is a very personal decision. What will work for a couple may not work for another. It is important to find the system that works for both your partner and you. Don’t worry about what outside people think.

The problem with personal finance blogs

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I totally understand the post you are about to read may confuse you, and even more so since I am a personal finance blogger who has been blogging about personal finances for over 3 years.

That being said, I believe it is also important to have perspective.

PF blogs are either too generic or too specific

A lot of blogs out there are either about extreme frugality, early retirement, stock investing or becoming debt-free. If you don’t fit in any of these categories, it is hard to relate to these blogs and the bloggers behind them.

Same goes with geographic location. A lot of blogs are written by US residents. Well, I live in Canada so that does not necessarily help me.

It is one of the reasons most people create their own blogs in the first place. I was no exception.

most pf blogs are written by non-specialists

This is a highly sensitive area I am coming to. The majority of people blogging about personal finances have no background in it whatsoever. Quite a few are writers trying to cash in on the popularity of the subject.

Writing is also influenced by personal experience. Bloggers are sharing tips and advice because it worked for them. By extension, it should work for everybody else, right? Wrong!

In order to work, financial advice has to be personalized. You don’t get this in PF blogs. It is crucial for readers to always check facts and not take the advice too literally.

PF blogs are repetitive

How many times have you read that you need to save money for retirement or have a budget?

Don’t get me wrong, basic financial advice is and will always be needed. It is a foundation to build on. But we also need different takes and perspectives in order to progress.

So, that what my blog will be aiming to do from now on. Readers will still see basic advice from time to time, as it allows for a broader audience. But, there is some conventional wisdom that can and needs to be challenged.

 

Segregated funds explained

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.

Choosing a Financial Advisor

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Over the last week or so, 3-time Olympian Harold Backer has made headlines here, in British-Columbia, and not for the right reasons. After retiring from rowing, Backer became a Financial Adviser and Mutual Fund representative. He mysteriously disappeared in 2015 amidst allegations of defrauding former clients. He turned himself in last week and has since been charged with two counts of fraud over $ 5 000.

this story illustrates how badly the financial services industry needs to change

The industry is largely unregulated. Anyone can set-up shop and call themselves a Financial Adviser, a Financial Consultant, a Money Coach, a Personal Finances Expert. You do not need any particular qualifications or experience.

Unfortunately, most canadians do not seem to care and are far too trusting

I don’t know which one I find scarier here, to be honest. A lot of personal finances bloggers also call themselves “experts” when they are anything but. This a post for another day.

So, how do you choose a Financial Advisor?

first, look for the following credentials

The Financial Services landscape is full of designations that can be very confusing. Unlike the Accounting profession, there is no talk of “unifying”.

  • Certified Financial Planner®: this is the “Gold standard” of the profession. This designation is international. To obtain it, candidates need to take classes in Financial Planning, pass exams and have a minimum of three years of relevant work experience. In Canada, the CFP® designation is administered by the Financial Planning Standards Council.
  • Personal Financial Planner®: this an alternate designation, administered by the Canadian Securities Institute. It is very similar to the CFP® designation.

A lot of Financial Planners also have one or more of the following specialized designations:

  • Chartered Investment Manager®: a CIM® usually handles and manages portfolios of wealthy clients.
  • Chartered Financial Analyst®: a CFA® also handles and manages portfolios. They also do research and analysis on companies, stocks and other securities.
  • Trust and Estate Professional®: a TEP® is very knowledgeable in estate planning and management, trusts, wills and taxation. Note a TEP® does not replace a lawyer or notary.
  • Chartered Professional Accountant ®: a CPA® prepares and analyses financial records for companies and non-profit organizations. They also do tax returns.
  • Chartered Financial Consultant®: a CH.FC® specializes in retirement planning and wealth accumulation.

The five above designations are very good complements to a CFP® or PFP® designation. However, as stand-alone, they are not enough to provide comprehensive financial planning.

Ignore the LLQP and Mutual fund license

The LLQP is for people who want to sell insurance products. These two credentials do not cut it to provide sound and objective financial advice.

Then, LOOK FOR A FEE-ONLY ADVISER

In my opinion, this is the best way to receive unbiased advice. A fee-only planner will charge you for their time. Some will charge you a percentage based on the total value of your assets.

It will definitely be more expensive than meeting with an adviser at a bank. The main difference is that a fee-only planner will not sell you any products and will put your interests first.

Experience is a bit more relative. Education is key when it comes to choosing a Financial Planner.

 

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?

Fun and cheap Valentine’s Day ideas

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I have always been bemused by the sheer amount of money a lot of couples spend for Valentine’s Day to “show” their love for one another. I also find the fact children “have to” give cards or gifts to their classmates downright ridiculous. I probably sound lecturing here, but Valentine’s Day is only one day of the year, just like Christmas, Easter or your birthday.

The best way to save money on Valentine’s Day is to skip it altogether, and treat it like a regular day. Easier said than done, I know. Let’s see how we can all save some money here.

  • Homemade meal: skip the crowded  and expansive restaurants and cook at home.
  • Homemade card or love letter: you don’t need a fancy card, you can create your own or better, write a letter instead. If you absolutely want to buy a card, get one from the dollar store.
  • Homemade cookies: bake goods instead of buying them.
  • Watch a movie at home
  • Play board games
  • Have a scavenger hunt: hide candies or love notes all over your house and have your partner find them
  • Turn-off all your electronics and spend quality-time together: the world is not going to stop because you can’t answer your cell or tweet about your evening. It is actually a great way to show your partner you care.

It is important both partners manage their expectations of this day. The best way to do do is to talk about said expectations. Also, don’t expect your partner or your relationship to be different just because it is Valentine’s Day.