Coronavirus: Canadian economy edition

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In light of the pandemic caused by the coronavirus, the Canadian government announced an unprecedented economic package to help as many Canadians as possible during these turbulent times.

It is unprecedented, indeed. Even in during the Great Recession of 2008, the measures implemented were nowhere close to what we’re seeing now. This crisis was actually much more severe than the current one.

Many people -whether experts or not- are decreeing the world is in recession, but it’s actually too early to make that call. In economy, a recession is a temporary period during which trade and industrial activity are reduced, generally identified by a fall in GDP in two successive quarters.

We’re not there yet, folks.

This pandemic is not going to last forever

Like all the ones we’ve had before -and we’ve had a few!-, it will stop at some point. It’s usually a matter of months or a little over a year, at most. Let’s look at the previous 2, most recent pandemics:

  • H1N1: Apr 2009- Aug 2010
  • SARS: Nov 2002-July 2003

As you can see, they didn’t last for years. Right now, China is at the tail end of the coronavirus pandemic. At the time of writing, this country hasn’t reported any new cases for the last couple of days.

Anyhow, let’s go back to the crux of this post:

Canadian personal finances

As I was saying above, the federal government announced a list of extended measures to help Canadians:

  • Removal of the 1-week waiting period for all new EI claims
  • Emergency Care benefit: for workers who don’t have paid sick days, don’t qualify for EI and have to stay home to care for their family or themselves -$450/week for up to 15 weeks-
  • Emergency Support benefit: for anyone who doesn’t qualify for EI and lost their job or had to temporarily close their business -$450/week up to 15 weeks-
  • Tax-filing deadline has been extended to June 30th, with payments to be made by Aug 31.
  • Boost to the Canada Child Benefit, up to $ 300.
  • Additional GST rebate, amount unknown at this stage
  • 6-month moratorium on federal student loans
  • Lower amount of mandatory withdrawals for RRIF holders

For businesses:

  • Deferral of tax payments until Aug 31
  • Wage subsidy: up to 10% of an employee’s pay, maximum 25K per employer
  • Ease of borrowing through BDC and EDC
  • CRA has also suspended its audits and re-assessments on businesses

Something for almost everyone

This has to be one the most comprehensive program I ever seen in Canada. It’s pretty extended.

However, many details are still blurry at this stage. We don’t know what will be required to qualify for these various programs. Both the Emergency Care and Support benefits are not available yet. Applications will open on April 1st.

It is also expected it will take a few weeks for claimants to actually start receiving money. That’s when an emergency fund comes in handy!

Unfortunately, our most vulnerable population is excluded from these announcements….It may fall on provincial governments to handle -and pay for- them.

Many banks, as well as CHMC, have also committed to helping people who may have difficulties with their mortgage payments. The details are also unknown and will probably be on a case-per-case basis.

We’re definitely not sure of how long this coronavirus will linger and the depth of its economic, health and social impact.

However, we will get through this, the same way we got through previous pandemics, economic turmoils and recessions. The world is not going to end! In the meantime, keep calm and carry-on…..

Don’t trade on the news: coronavirus & your money

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The last couple of weeks have been turbulent market-wise. Fears of the coronavirus and its impact on the Chinese economy sent markets into bear territory worldwide.

My own portfolio lost between 5% to 10% over that period. And I don’t really care. Yes, you’ve read correctly. And, yes, you also guessed that I didn’t sell any of my stocks, and don’t plan to at this stage. Why? because I don’t trade on the news….and you shouldn’t either.

Debunking misleading, false information

A lot has been said and written about this Novel coronavirus or Covid-19. For true and accurate information, I invite you to check the World Health Organization website.

I just want to make the following comments:

  • At the time of writing, the number of cases worldwide sits at just over 93 000. It will most likely increase. That being said, the world’s population sits at just over 7.5 billions. It means only 0.12% of the world population is infected….and 99.88% isn’t.
  • At the time of writing 3 199 people died from Co-vid 19. This will likely increase too. It means about 3.5% of the infected people died…and 96.5% will recover -a lot already have-.
  • Should we be careful and take basic precautions? Definitely.
  • Should we stop living our lives? Definitely not!

Keep calm and carry on, financially

The main economic issue with Co-vid 19 is that it started in China. China is the 2nd largest world economy. It has been at a stand still since January. Of course, it will have a ripple effect worldwide. China manufactures the majority of goods we consume.

It’s way too early to predict a global recession. There are a lot of factors that can trigger a recession. A coronavirus is not necessarily one of them, nor is it the only one.

This is definitely not a reason to sell all your stocks and rush to buy bonds or gold. By doing so, you would probably loose a lot of money.

I previously mentioned this, and I am going to do it again: as long as you’re not actually selling your stocks, you are not losing or making any money.

Bear markets are normal and are to be expected. I’ve also mentioned this before.

A little secret…

The most successful investors are the ones who don’t try to time the market – no one can!- and the ones who actually buy more stocks in a bearish market. The silver lining of a bear market is that stocks tend to become more fairly valued or undervalued.

Because we’ve been in a bull market for so long, a lot of stocks are currently overvalued, i.e. expansive.

What if you can’t keep calm?

If you find yourself in panic-mode over the last financial news, you may want to take an honest, serious look at your risk tolerance. You may also want to review your investment objectives.

In my opinion, holding stocks in a portfolio should reflect a more long-term objective, such as retirement. If you invest in stocks, you shouldn’t need that money for at least 5 years, unless you’re a day trader. If you are, this post is not for you :).

The best way to weather a stormy market is to do nothing drastic or impulsive. Keep in line with your objectives and risk-tolerance.

In other words, keep calm and carry on….

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.

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.

 

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.

 

When and how to financially cut off your adult children

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As I previously wrote, times have changed. Gone are the days of working in the same company for your entire career as well as receiving a generous pension plan upon retiring. With tuition fees on the rise and employment prospects rather scarce, a growing number of parents found themselves helping their adult children well past their university years.

I will probably sound harsh here but doing so is a disservice both to the adult children and the parents. Let me tell you why:

  • Parents, your children are not going to pay for your retirement. You can’t borrow for this!
  • Parents, if you can’t pay your own bills in order to pay your child’s, you have a problem!
  • Parents, if you are cashing your retirement savings or your home-equity to help your children, you have a problem!

Constantly helping your adult children actually teach them to be helpless and unmotivated. Think about it for a minute or two. If your adult children know you will catch them when they fall, what are they learning? Probably nothing. Do they have any incentive to proceed differently? Probably not.

There is no question in my mind that adult children need to be responsible for their lives, in every way:

  • Adult children, if you need to get 1, 2 or 3 jobs to make ends meet, so be it! Stop relying on the bank of Mum & Dad for your basics.
  • Adult children, if you need to postpone vacation, wedding or home-buying until you can actually afford it, so be it!
  • Adult children, if you are never able to go on vacation, pay for a grand wedding or buy a house, so be it!

What is the best way, as a parent to help their adult children, you might ask.

  • Teach your child about money management. It is never too late to learn! You may find out you need a refresher too, as a parent.
  • Set boundaries and stick to them. Saying no to a child is the hardest thing to do for a parent, but is both liberating and powerful. But by doing so, you are fostering their independence and creative-thinking. If you gave them a move-out or cut-off date, follow through.

My own parents only helped me once, financially, as an adult. It was back in 2009, in the midst of the economic downturn. I was unemployed and had exhausted the little savings I had.  It is the only time they bailed me out…and that’s the way it should be.

I had previously asked for financial assistance for other items, and my parents always declined. I found it hard, but looking back I know it was in my best interest. I made my own mistakes but I also learned valuable lessons, such as the value of a dollar and the value of planning. It also rid me of any sense of entitlement I may have harbored.

Financial things to do (and not to do) in your 30’s

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The 30’s are definitely an interesting decade. Chances are they are a mixed bag for most people in them, including myself: wedding, kids, house, career…etc. This decade is probably the most taxing on hard-earned dollars.

The good news is that your 30’s are also your top-earning decade. Without further ado, here is what you should – and shouldn’t- be doing in your 30’s:

  • become established in your career. You probably have a few years of experience under your belt by now. Make the most of them to negotiate your salary and promotion or to find a better job. If you are considering a career change or want to become self-employed, you will need to plan for this. Keep reading.
  • make use of work benefits: benefits are basically free-money, and even more so when they are employer-paid. If your employer offers extended health and/or disability insurance, please enroll. Same goes for a pension or a group RRSP plan.
  • track your expenses and income. There is no way you can budget and set goals if you don’t do this.
  • have a sufficient emergency fund. Whether you want to call it a back-up fund or an opportunity fund, it is all the same. It needs to be adequately funded. Chances are $ 1 000 are not going to cut it anymore, particularly if you have dependents. Most people aim for 3 to 6 months of living expenses. Aim for what is right for you, given your circumstances.
  • have adequate insurance coverage. Unless you are loaded with cash you need insurance. Check my previous entry on this subject.
  • plan and save for items: whether it is car repairs, your wedding or your annual vacation, these are neither emergency nor a surprise. If you are unable to save the money, then you may have to postpone or consider other options.
  • don’t keep-up with Joneses. You should be way past this.
  • you are really saving for your retirement. This should be the top-priority, before your kids’ education, if you have them. Ultimately, your children won’t pay for your retirement.
  • you are investing in the stock market. You still have a few decades before retiring. The stock market has always provided the highest returns. Educate yourself and invest your money. Do not let it sit in your savings account earning 0.5% interest.
  • you have your debt under control. It is unlikely you will be able to completely avoid debt in your 30’s. Your student loans should be on their way out, if not paid off. You are not racking-up credit card debt to buy stuff or to pay for living expenses. When borrowing, it should be to buy an appreciating asset, when the cost of the loan does not impact other saving goals and will be paid off before retirement. Anything not under that category should be off-limit.
  • Don’t buy too much house. If you decide that home ownership is for you, do not become cash poor over it. Too many Canadians make their home their entire financial plan, including to retire. This is a mistake. You also need highly-liquid, easily disposable assets.
  • have your legal affairs in order. You need a will, even more so if you are married and/or with children. Ensure you designate a beneficiary for your life insurance and other registered accounts.

 

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