You get what you save for.

Your Financial Dream Team

June 21, 2009 – 2:29 pm

Hi Rich By Thirty Readers,

I’m often asked about what types of relationships are important to have in order to achieve financial freedom. So, this post is specifically about who/what you should consider bringing into your life. I like to think that choosing people to handle your money is like deciding who you want to date.

For example - I had a terrible date a few years ago. Dinner was fine, and we went for a nice walk, but the conversation was brutal. By the end of the evening I knew he wasn’t for me. He was a sweet guy, but noticing the romantic red flags, I ended the date. No big deal. But then as I went to leave he attempted the Goodnight Kiss. I pulled the Swoop-and-Hug. Not getting the hint, he tried again. This time, I took a step backwards and tumbled down his porch steps, ploughing through a row of flowerpots, scraping my wrists and ripping my pants wide open. Bleeding, I made a break for the car and didn’t look back. I’d made a decision about who I wanted – or, rather, didn’t want – on my team, and it was good for my personal well-being.

These are the kinds of decisions that reverberate through your life and will potentially turn out to be good financial decisions, too. Like your personal relationships, who you build financial relationships with have lasting economic impact. Teaming up with the right people, asking the right questions, learning what characteristics to look for and knowing where to find them are as important when building a financial dream team as they are when you’re building a personal relationship. Some people will wait in the wings, only entering your life occasionally. A mortgage broker and realtor, for instance, can assist with the nitty gritty in real estate contracts and save you money while they’re at it. Others should be front and centre. It’s a little like creating the lineup for a basketball game. Here are a few positions you’ll want to have on your side:

Your Michael Jordan: Your top draft pick is an investment advisor, or shooting guard, to help you focus on building a realistic financial plan based on growing your long-term net worth. Ensure they have their Certified Financial Planner (CFP) designation. As with any financial expert, always get a referral from someone you trust and then interview a few, to 1: - see if you like them and 2: - figure out if they’re being honest and realistic. Ask each candidate to prepare a proposal of a financial plan. This will help you select the advisor most aligned with your goals – you’ll instantly be able to tell who was listening well.

Your Steve Nash: An insurance agent (a.k.a. the point guard), whether it’s a Chartered Insurance Professional (CIP) or Chartered Life Underwriter (CLU), can advise you on protecting your assets and family if something such as property damage, illness or death derails your plans. A good agent will direct you towards insuring for big things (life, home, loan and auto), not small things, and help you buy the right insurance to protect your assets. Ask candidates to prepare a proposal to address your needs. One more thing: Many investment advisors and insurance agents work on commission; a good one will always be upfront about the costs and benefits of doing business.

Your LeBron James: A small forward, or chartered accountant (CA) focuses on tax aversion (though not the highly illegal tax evasion), helping you structure your finances to avoid paying unnecessary dollars to the government. Their role is to advise you on how manage your net worth growth in the most tax efficient way possible, along with ensuring you pay the right amount of tax – not too much or too little. Make an appointment at least once per year to ensure you’re finances are properly structured.

Your Wilt Chamberlin: You won’t need their services of a lawyer (your center) often, but they’re critical when you need to do fun things like buy a house, draw up a will, handle estates or assist with property transactions. Accountants and lawyers charge by the hour, so make sure you’re organized before your appointments to make meetings more efficient.

Your Tim Duncan: The last person is, naturally, your romantic partner, a kind of power forward. Be clear – this also goes for people who are single – about your views on debt, investments, spending, budgets, family, lifestyle expectations, and future goals. As uncomfortable as these topics seem, do not pass go until you’ve discussed your views on debt, investments, spending, budgets, family, lifestyle expectations and future goals. Try the “who, what, where, when, why and how” approach: Do you have a budget? Who taught you how to budget? What are your top budget priorities? Do you budget for the unexpected? When do you evaluate your budget? How successful are you at keeping within your budget? Unlike “dating” your financial advisors, however, this is best done over a bottle of good wine.

Whatever you do, choose your financial dream team wisely. These people will have a big impact on your life and your pocket book.

Lesley Scorgie

Lesley@richbythirty.com

***Also posted on www.unlimitedmagazine.com

By LesleyScorgie | Posted in financial goals, personal finance |

Tips for Managing in Today’s Economy

June 8, 2009 – 2:22 am

The economy is changing once again. Over the past two months, the markets have started to recover from the economic meltdown of 2008. Though we certainly haven’t recovered from where we were from this time last year (the market peak), share values are gathering strength and commodity prices are improving from where they were in the trough of the market. Finally - this is a glimmer of hope for many people in North America.

But, for many people, reality is still not very good. Unemployment continues to rise in both Canada (Canada Unemployment) and the US (US Unemployment), even though the government is funneling money into the economy in variety of ways. Also on the rise, is the average household debt level. A frightening study released two weeks ago (Canadian based) by the Certified General Accountants Association of Canada (CGA) indicated that approximately 85% of households are currently carrying balances on their credit cards. Additionally, 21% of respondents reported they were unable to manage their current debt load. One in four households can’t handle an unexpected expense of $5,000 or more and one in ten reported they’d be unable to handle an expense of $500 or more.  All in all, debt has risen nearly 30% since this time last year, and the majority of the increase is related to consumer debt.

Though the market is starting to recover, it will likely take quite some time for the unemployment rate to improve and households to get back on their feet once again. So, now is the time to manage your money in the most prudent fashion possible. Cut out any extra expenses, build a reserve fund and try very hard to remain employed.  If you are in serious financial trouble, here are some ‘heavy hitting’ approaches to getting your financial situation somewhat back on track.

  • If you can’t find a full time job, try and get a part time job.
  • If you have a hobby or skill (decorating, writing, photography, engineering, body building, etc.), start a small business to increase your cash flow.
  • Access all available tax credits in the US (www.irs.gov) and in Canada (www.cra.gc.ca)
  • If you still have a job, get another one.
  • Pick up the phone and re-negotiate the interest rates on all loans and credit cards
  • Downsize your home and/or rent for less.
  • Get a roommate(s) or rent out your basement. Also consider leasing out storage or a parking space.
  • If your family owns two vehicles, sell one and share the other. If you can get by on public transit, sell all your cars.
  • Sell luxury items online – eBay, Craigslist or any other local used goods website.
  • If you do make a purchase, buy used.

If you have a ‘heavy hitting’ approach to saving money that you’d like to share, please email me
Lesley@richbythirty.com.

Thanks,

Lesley Scorgie

By LesleyScorgie | Posted in Debt, consumer, financial goals, frugal living, how to save money |

Advice for Tough Times

April 14, 2009 – 5:54 pm

Dear Rich By Thirty Readers,

I received a great email that I’d like to share with you.

Hi Lesley,

I have read your book, Rich By Thirty and I really enjoyed it!! I am 40 years old and have been working hard at saving my money. I’ve been very patient with the markets and the recession, but it’s tough to remain positive when I work so hard to save and I don’t see the results I’m hoping for.

Lesley, my question for you is - I am saving $600 per month and have managed to save a total of $100,000. This recession has eaten away at some of my savings and now I am thinking that ‘Freedom 55’ will be more like ‘Freedom 75’. Do you think I even have a chance of retiring at 55? How long does it take for the markets to recover statistically? Also, is there a way to figure out what percentage return I am making on my money (5%, 6%, etc)?

Thank you for your time! Hope to hear from you soon Lesley!

Sincerely,

Owen

Hi Owen,

Thanks for contacting me. These are trying times and it’s tough to keep motivated. But, there is hope. Things will get better. In the long run, the major stock indexes in the US and Canada have returned over 10% annually. So, this means, if you buy and hold (long term) like Warren Buffett, you will hopefully (not guaranteed though) see similar returns in the future.

Right now, your $600/month in savings is buying more units/stocks than before because the unit/stock values have declined so much in recent months. That is a good thing because it will bring the average cost of your units/stock down. Eventually they will recover and be worth more than they are today.

My first tip is; keep saving. Don’t stop. If you can, save even more than before. My second tip is; don’t jump around too much. Though the markets have dipped quite a bit, they will recover. From a long term perspective, buying high quality units/stock and holding these assets, tends to pay off more so than if you try and jump around from investment to investment. Investors that jump around tend to earn less than 4% on their portfolios which is just slightly above inflation which is approximately 3%.

Economic recessions have hit North America before and they have lasted anywhere from 6 months to a few years. Don’t worry though; you still have plenty of time to save (15 years) before retirement. Like I said above, try and save a bit more if you can because the prices of units/stocks are generally undervalued right now. This will pay off in the long run when the values start to increase again.

To determine your rate of return, a quick way to do it is take the amount the stock has appreciated + income you earn + interest earned on the investment for a specific period and then divide that sum by the principle amount invested. Multiple that number by 100 and add the % sign behind it. So if you earned $300 (combined appreciation, interest and income) on a $10,000 investment, that would be a 3% return.  Please note that you don’t actually ‘earn’ anything when you don’t sell the asset because you’re not technically realizing the gain or loss. Please see websites like www.investopedia.com and www.bankrate.com for more information. This is just a basic summary of a return calculation. You’ll need to cross reference it with additional research or with an advisor.

Thanks,

Lesley

Scorgie

Author of: Rich by Thirty: A Young Adult’s Guide to Financial Success

By LesleyScorgie | Posted in financial goals, how to save money, investing, investment strategies, personal finance |

Index Funds in RRSPs and IRAs

February 25, 2009 – 2:43 am

Dear Rich By Thirty Readers,

Just a quick last minute reminder to our Canadian investors – Registered Retirement Savings Plan (RRSP) season is nearly over. You have until the end of this month (March 2, 2009) to make a contribution into your RRSP for the 2008 tax year.

As Marco mentioned in his previous entry, the US equivalent to the RRSP is the Individual Retirement Account (IRA). American’s can contribute until April 15, 2009.

If you’re not sure what to buy within your RRSP or IRA, you’re not alone. Many people are scared to invest because the markets have performed so poorly throughout the past six months. Though no one knows exactly where or when we’ll hit the bottom of the market, we do know that we’re close.

So, if you’re investing somewhat conservatively in light of the economic situation, consider index funds. Index funds are a form of mutual fund which tries to mimic the overall performance of a particular market index. For example, an index fund could try and copy the performance of the S&P 500 or the Dow Jones Industrial Average by purchasing stocks that make up that index. Over the long-term, the
stock markets in the US and Canada have returned between 10% and 13% annually.

Mutual funds are different from index funds because they invest in specific stocks that are aligned with the fund’s policy.  Unfortunately, mutual funds tend to under perform, relative to the market, 80% of the time. This means that the index (also known as the benchmark), performs better than mutual funds the majority of the time.

To summarize, with Index Funds you’ll never under perform the market because the Index fund is a representation of the market. On the flip side, you’ll never outperform the market either. Lastly, index funds are managed by a computer and therefore have small fees (Management Expense Ratios).

Index funds include funds that track the major indexes as well as ones that follow sectors – like financial services or energy. In Canada, the main index funds are called iUnits. Barclays provides most of the funds in Canada. In the US, the main indexes are the QQQQ (NASDAQ Tracking Stock) , the DIA(Dow Jones Industrials) and the SPY (S&P 500 tracking). They have the nicknames Cubes, Diamonds and Spyders. Go to The Globe and Mail website filter to find all the funds available in Canada.

Thanks and have a great week!

Lesley

By LesleyScorgie | Posted in financial goals, investing, investment strategies |

Last Chance for Tax Plans

February 9, 2009 – 7:16 am

January just whizzed by and we’re well into February. Tax time looms ever closer. Only a few weeks remain in which you can make contributions to tax deductible plans for this tax season.

In the United States there is the Traditional Individual Retirement Account (IRA). Contributions to the account are tax deductible and grow inside the account tax free until funds are withdrawn at retirement. Those withdrawals are taxable. Contributions can be made as late as the April 15 filing deadline.

The Canadian equivalent of the Traditional IRA is the Registered Retirement Savings Plan (RRSP). Contributions can be made as late as March 2nd this year.

A variation of the IRA is the Roth IRA. Contributions to the Roth IRA are not tax deductible but, like the Traditional IRA, the invested account is allowed to grow tax free. The proceeds are not taxed on withdrawal. So you have a choice of tax savings now (Traditional plan) or tax savings later (Roth plan). The Canadian equivalent is the newly introduced Tax Free Savings Account (TFSA). Of course, because contributions to these plans are not tax deductible, there are no deadline considerations.

So consider your options. If you have contribution room, look at putting some money into a tax deductible plan.

Something to consider for out younger readers, especially Canadian ones: It may be wiser to contribute to a TFSA if your income is lower and your marginal tax rate is lower. The funds can be withdrawn any time tax free. You can withdraw them later when you’re in a higher tax bracket and then contribute them to your RRSP for a larger tax deduction.

By MarcodenOuden | Posted in financial goals, how to save money, investment strategies, personal finance |

Know Your Score

February 2, 2009 – 8:46 am

As economic turmoil persists, I’d recommend proactively managing your credit score – no one will do it for you. These days, consumers have to watch out for identity theft, corporate reporting errors, etc. So, to ensure your credit report is accurate, request a copy and review.

To learn more about getting your credit report, head to Equifax (www.equifax.com) or TransUnion (www.transunion.com). In Canada, visit Equifax Canada Inc. (www.equifax.ca)or TransUnion Canada Inc.(www.transunion.ca).

Tips on actively managing your credit file:

- To ensure your credit file has accurate information, check on it every one to two years. You can order your report online (see the sites above) or by mail.

- If you have a question or inquiry, send a written request (with official receipts and paperwork) to the credit bureau and they will investigate the matter for you.

- If an error is discovered in your file, the credit bureau must correct it.

- If an error is corrected, the credit bureau will send copies of the updated file to the credit grantors if you request it.

- If a credit application is refused, the credit bureau isn’t responsible for the decision – the credit grantor makes the decision based on their lending policies. So if you’re shut down, you’ll be directed to contact the credit bureau to review the information that contributed to the decision.

Have a fantastic week!

Lesley Scorgie

By LesleyScorgie | Posted in Debt, consumer, financial goals, personal finance |

One & Only Stock Picking Contest

January 16, 2009 – 12:10 am

Dear Rich By Thirty Readers,

I’ve entered the Globe and Mail’s One and Only Stock Pick Contest. The article covering the contest came out today, Jan. 14, 2009 and it explains who the contestants are and what stock they’ve selected. I have selected Suncor (SU) a Canadian based integrated energy company focused in the Oil Sands and refining business So far, I’m in the lead!!! I’m sharing this with you because you may enjoy following along with the contest or even trying one of your own - with a group of friends or colleagues. 

The rules of this particular contest are as follows.  

  • Each contestant picked a stock, income trust, American depositary receipt (ADR) or exchange-traded fund (ETF).
  • The stock must trade at $1 or more (and have a $100-million market capitalization minimum for Canadian equities) at the beginning of the contest and trade on the TSX, the TSX Venture Exchange or a U.S. exchange. A U.S. stock or ADR must have a $1-billion (U.S.) market cap minimum.
  • Any U.S. pick gets converted into Canadian dollars to reflect changes in the exchange rate, as well as gains or losses in the stock’s price. 

    Results are tabulated on a total return (dividends and distributions included) basis.

  • The winner will be the contestant who has the top percentage gain on a total returns basis for the calendar year 2009.
  • The pick must be held for the entire period, unless it is taken over.
  • If a stock is taken out in a merger or privatization, the contestant has the right to stand pat for the year or pick another stock, ETF or ADR within a week of the date that the stock ceases trading. That gain or loss will be added or subtracted from the original stock’s return.

The prize for the invitational contest is a Globe and Mail coffee mug and bragging rights. Have a great week! 

Lesley Scorgie

By LesleyScorgie | Posted in personal finance |

Resolutions for 2009

January 11, 2009 – 10:43 pm

With a stock market crash in 2008 and the possibility of further economic turmoil in the year ahead, the beginning of the new year is a good time to take stock of your finances and make some resolutions for the year ahead. Here are five.

1. If you already don’t have a savings plan, start one. Resolve to save at least 10% of your pay cheque off the top. Talk to your employer about having it automatically diverted into a savings account before you even see it.

2. Get control of your debts. Write down on paper all your outstanding debts and look for ways to pay them down easily. If you have several credit cards, pay off the ones with the highest interest rates first. If you can swing a low interest consolidation loan to pay them all off at once, do so. Then resolve not to run up any more debts on your credit cards until the loan is paid. Encase your credit cards in ice in your freezer if you have to - thawing them out only in an extreme emergency or when your consolidation loan is paid off.

3. Replace you credit cards with a debit card. You retain the ease of paying for purchases with plastic - no need to carry a lot of cash - and you are forced to live within your means. You cannot spend more than you have available in the bank.

4. Crisis means opportunity. The current financial situation will bring superb investment opportunities - the chance to buy into excellent well-managed, profitable companies at bargain basement prices.  There is an saying attributed to one of history’s most famous financiers - buy nwhen there’s blood in the streets. This can be literal or figurative - what we are witnessing right now is financial blood in the streets. Employ the services of a knowledgeable broker or investment advisor to help you make sound investment choices.

5. Increase your earning power. With an economic downturn, employers value employees who are flexible and eager to learn and adapt to changing conditions. Learn what it takes to be a valuable employee. Take extra courses or learn through online courses and books.

Have a great 2009!

Marco

By MarcodenOuden | Posted in Debt, economics, financial goals, inspiration, investing, personal finance |

Happy New Year Rich By Thirty Readers!

January 1, 2009 – 11:56 pm

I’m excited to tell you about a new savings program. In January 2009, the Tax Free Savings Account (TFSA) (http://www.budget.gc.ca/2008/pamphlet-depliant/pamphlet-depliant2-eng.asp) became available for Canadians 18 years and older (in certain provinces the age of majority is 19). This account is very similar to the Roth IRA (http://www.irs.gov/retirement/article/0,,id=137307,00.html) which has been available in the United States for nearly a decade.

With the TFSA, you can contribute $5,000 (after-tax dollars) annually and your money grows tax free (http://www.financialpost.com/money/wealthyboomer/story.html?id=336296) within the account. Though your contributions are not eligible for a tax deduction like an RRSP contribution (similar to the 401 (k) (http://www.investopedia.com/terms/1/401kplan.asp in the US), your earnings (interest, appreciation and dividends) aren’t taxed.

As with an RRSP (invest with pre-tax dollars) or other Non-Registered plans (invest with after-tax dollars), you can put a variety of investment vehicles within the TFSA like Guaranteed Investment Certificates, stocks and mutual funds. Your contribution room is also carried forward indefinitely into the future. When you withdraw the funds (you can do this at any time) you don’t pay tax on capital gains, dividends or interest earned.

I thought it would be valuable to compare the RRSP, TFSA and Non-Registered plans. To make the comparison simple, let’s say you invested $1000 into each plan for 25 years, you earn 8.5% annually in interest and your tax rate is 35%. After 25 years, both the RRSP and TFSA would be worth approximately $5,000 and the Non-Registered worth $2,900. The Non-Registered plan is worth a lot less because you pay taxes, approximately 28%, on all earnings annually.

The new TFSA is going to be a helpful tool that can be used either for short-term savings or long-term investing. If you’re thinking long-term investing, use the TFSA to augment your RRSP savings. It provides great balance in terms of the way you’re taxed (http://www.taxes.ca/info/tfsa.php). If you’re thinking short-term savings for something like a down payment or wedding, the TFSA will allow you to grow your money, not pay tax on the growth and withdraw at any time tax free.

I’m a huge fan of the new TFSA (and the Roth IRA if you live in the US)! You can open up the TFSA through most financial institutions.

Happy Savings!

Lesley

By LesleyScorgie | Posted in financial goals, investing, investment strategies, personal finance |

Happy Holidays!

December 21, 2008 – 11:16 am

Dear Rich By Thirty Readers,

The Rich By Thirty team would like to wish you the very best throughout the holiday season.

As we reflect on the year past, share the warmth of friends and family during the holidays and look ahead to 2009, let’s be mindful of the blessings we enjoy. Let’s share some of our good fortune with those not as fortunate.

Thanks for your support in 2008. We look forward to serving you 2009.

Keep safe and enjoy the holiday season!

All the best,

Lesley

Marco

By LesleyScorgie | Posted in charity, inspiration |