by Owen | Nov 9, 2020 | Budgeting, Buying A Home, Down Payment, Financial Goals, Financial Planning, Get Out Of Debt, Pay Off Mortgage, RESP/Kids Education
There’s a common misconception that financial planning isn’t necessary when you’re young. Young people are often told to go “read some books” about personal finance. Financial planning is traditionally thought of as something reserved for those with higher income, higher net worth, transitioning into retirement etc.
The fact is… this couldn’t be further from the truth.
One of the BEST times to build a financial plan is when you’re young, when you have lots of options, when you’re designing your life (both personally and financially), and when you’re making some BIG financial decisions that will impact you well into the future.
Some of the financial decisions you make while you’re young can haunt you for years or decades. Making the right decisions now can mean less stress and greater peace of mind in the future.
So why is there this misconception that financial planning isn’t for young people?
Most likely because financial planning in the past was focused on products, it was all about investments, insurance, new debt etc. Products that could be sold. Young people were often left out of the conversation because in general, young people don’t need products, they need advice.
Getting the right advice is so important when you’re young.
Even small decisions can have an enormous impact over time. It’s important to get the right advice early on, avoid common mistakes, and create the right systems and habits that will pay dividends for decades to come.
This advice should cover a few key areas that “traditional” financial advisors rarely cover.
by Owen | Nov 2, 2020 | Buying A Home, Down Payment, Financial Planning, Get Out Of Debt, Saving Money
It’s a challenging time for new graduates. The employment environment is difficult in many sectors/industries, plus the cost of rent and housing have outpaced inflation for years and years. It can feel very daunting to leave post-secondary when faced with mediocre job prospects and sky-high housing costs.
In some situations, the “bank of mom and dad” will step in and provide support. But, for the majority of families, that isn’t an option.
So how can parents help provide new grads a “leg up” in this challenging time?
More and more parents are inviting their adult children back home for 1-2 years after graduating to help them save money and pay off debt.
It may not be a cash gift, but it can provide nearly the same advantage.
Living at home to save money is a strategy that is on the rise. Parents are encouraging their children to take advantage of this opportunity and more and more adult children are doing it.
Living at home after graduation creates the opportunity to save $20,000, $30,000 or $40,000+ in one year, an opportunity that may never happen again.
Living at home for 1-2 years provides a huge head start for a new grad. This head start can be used to pay down student debt, build an emergency fund, start investing, buy a house etc. etc.
But it’s not all positive though. Living at home for a couple years also has risks. Without having a strategy in place it’s very easy to succumb to pitfalls like lifestyle inflation etc.
Here’s why parents should encourage their adult children to live at home for a couple years after graduation, and why new grads should seriously consider taking advantage.
by Owen | Oct 19, 2020 | Behavioral Finance, Financial Goals, Financial Planning, Investment Planning
Behavioral investment pitfalls can have a significant impact on investment returns for the average investor. The impact can be anywhere from 0.5% to 1.0%+ per year. But that’s the average impact on the average investor. The reality is that this impact will manifest differently for each investor and it could be years or even decades before an individual investor gets trapped by one of these behavioral pitfalls.
An average impact of 0.5% to 1.0% makes it sound like this happens every year. While this is true on average, it actually reflects many different experiences for many individual investors.
The truth is that some investors will experience no behavioral impact on their investment return for years and years before suddenly experiencing a negative effect. The AVERAGE impact of 0.5% to 1.0% means that in a given year some people experience no impact and others experience a small or large impact.
The problem is that this can lead investors into a false sense of security. It can make it seem like everything is going well until suddenly it’s not.
In this post we’ll provide three examples of how behavioral investment pitfalls can actually manifest in an investor’s portfolio and how they impact long-term investment returns.
by Owen | Oct 12, 2020 | Behavioral Finance, Financial Planning, Investment Planning
Compounding interest is a beautiful thing. It’s like magic. Give it enough time and compounding interest can turn even the smallest amount of money into millions.
Investing CAN be as easy as that, just set it and forget it. But when it comes to investing, we’re our own worst enemy.
Without guidance, rules, plans, checks and balances, we as individuals can cause some serious damage to our investment portfolios. We’re biased in many different ways and those biases create many behavioral investing pitfalls to watch out for.
There are many different behavioral investing pitfalls to be aware of, but some are more common than others (especially now that investing is even more easy and accessible). Some can be reduced with new investment options that automatically rebalance but there is still a risk.
Are you currently making one of these three behavioral investing mistakes?!?
by Owen | Oct 5, 2020 | Financial Goals, Financial Planning, Income, Saving Money
One of the most important pieces of a financial plan is income. Without an income it’s simply impossible to achieve any financial goals. Plus, having a higher income makes financial goals significantly easier to achieve.
While expenses often get a lot of focus because they’re entirely within our control, the fact is that without a certain level of household income it becomes much harder to save, invest, and still cover monthly spending.
This is why income, and specifically how income changes, should be an important part of every financial plan. Increasing income over time will make financial goals significantly easier to achieve, it makes debt payments a smaller proportion of net income, and it makes it possible to juggle competing priorities.
But unlike spending, income is unfortunately not completely within our control.
Increasing your annual income can be done a number of different ways. There are “side hustles”, there are second jobs, there is semi-passive income from rental properties etc. etc.
But the best and easiest way to increase income is to get paid more for what you’re already doing. You’re already at work, why not get paid more for doing the same thing?!? No “side hustle” required. No extra work. No stress of rental properties and bad tenants.
Increasing income is quite common, especially in a persons early 20’s and 30’s. On average income increases 7% per year during this phase. Once we reach our 40’s the pace of increases starts to slow down but those 15-20 years of steady increases can make a big difference.
How do you get salary increases of 7% per year (on average)? It takes a few things to make it easier, negotiating your salary is one, and unfortunately, switching employers often is another.
How impactful is increasing your income? Massive. In our example below, over a person’s working career, it’s equal to about $585,000 or 20,000 hours of extra work.
So, what would you prefer? Negotiating your salary every few years? Or putting in an extra 20,000 hours work (or about 10 years!)
by Owen | Sep 28, 2020 | Behavioral Finance, Financial Goals, Financial Planning, Retirement Planning, Saving Money
Financial Independence Retire Early (aka FIRE) is one of those big personal finance goals that has gotten a lot of attention recently. The idea of being financially independent, choosing when and if to work, is attractive for many people, especially when there is so much uncertainty in the world.
To be financially independent means that your investments (whether that be stocks, bonds, GICs, real estate etc) can provide enough income to cover annual expenses indefinitely. FIRE enthusiasts typically use the 4% rule as a guideline for how much income they can generate from their portfolio each year. The idea being that a person can draw 4% of their initial portfolio balance, adjusted for inflation each year, and have reasonably high chance of not running out of money after 30-years.
By using the 4% rule we can generate a rough target for FIRE. The basic idea is that you can take your annual expenses and multiply by 25 and that is your “FIRE number“. This is the amount needed in investments to safely retire early (although with low interest rates and low bond returns at the moment this rule is often thought to be too risky).
But despite it being a simple concept, reaching FIRE is a difficult task. It requires a high savings rate, low expenses, and lots of time.
FIRE is made easier with an above average income, which allows for a higher savings rate, but it is still a difficult task. Reaching FIRE means living well below your means for an extended period of time.
This combination of low spending, high savings, and a long time frame can lead to what’s known as “the boring middle”.
In this post we’ll briefly explain what FIRE is, why it’s so easy in the beginning, and why “the boring middle” could be a sign that there is an imbalance in the plan, one where the means may not justify the end.
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