York Region Money Coaches

05/22/2017

Charity at the check-out

Is it just me? Is it just me who is annoyed every time I’m forced to say ‘Yes’ or ‘No’ when asked if I want to contribute to some obscure charity at the check-out counter?

In my book, charitable giving is a very personal thing. My wife and I try to keep our giving to ourselves. But when I am asked straight-out if I want to contribute to a charity I know nothing about – on the spot – I cringe.

First of all, I feel that corporate generosity should be just that – corporate generosity. Why are customers being asked to support a charity chosen by the retailer’s head office? When the money is passed on it will look like the retailer is being generous and put them in a positive light. All they did was ask their customers for it!

I feel most sorry for the cashiers who must ask every customer if they would like to contribute. Coming between them and the transaction they need to ring up, are the awkward question and the response. How do they feel when people say 'No'? Is there pressure felt among those who can’t afford to give any more than they are giving elsewhere? And what about those who choose to give generously to other charities, yet feel selfish by having to say ‘No’?

Call it a pet peeve. I choose to say ‘No’ every time, because I want to make sure my giving strategy is intentional, and I try to give generously to those chosen by me. I don’t like to be ‘nickeled and dimed’ by spontaneous choices forced on me by giant retailers.

And you can do the same if you choose it. Another strategy might be to allocate a certain dollar amount each year to unspecified charities that might just work for these cashier moments.

Most important – be thoughtful about your giving. It might be the most important financial decision you make each year as you improve your relationship with money by recognizing what your money can do for others.

04/12/2017

Is bank bashing at an all-time peak?

When we look at the popular culture of late, you’d think that the big banks were robbing the poor to feed the rich.

Just look at the premises of recent American movies ‘The Big Short’ and ‘Going In Style’ – where big financial institutions are being blamed for the fall of the little guy. And we have the recent headlines exposing Canadian banks of using aggressive sales tactics to hit financial product sales targets.

Let’s be clear. Banks are in the business of making a profit – and they’re good at it. They are not charitable organizations whose only interest is doing right by their customers. They are as likely as any other business to mislead and mistreat. What’s surprising is the higher standard Canadians seem to have regarding their banks’ business practices.

There’s nothing evil about McDonald’s offering to upsize our meal order, but when a bank is exposed for doing something similar, shock and awe are the resounding reactions.

Banks sell financial products – that’s how they make most of their money. It might be a chequing account at $14.99/month; it might be a GIC offering 2%; it might be a line of credit at 4.9% or a credit card at 19.9%; it might be a mortgage at 2.7%. These are all financial products – all with profitability associated with them. And the more they sell, the more profitable the banks are. And it adds up to more than $35 billion a year among them, which means they’re good at it.

So yes, banks sell financial products, and they sometimes push the ticket in terms of their tactics, and how they motivate staff to achieve their goals. They may be aggressively selling – and the issue isn’t that they are selling products – it’s that they are taking advantage of customers’ lack of financial literacy in doing so.

Many Canadians believe that banks will always do what is in the clients’ best interest – that they should take their bank’s advice in making their financial decisions. While there may be some fiduciary responsibility in how banks assist clients, I cannot count the number of times I have shaken my head at a bank’s recommendations to their unknowing clients.

My simple advice – Talk with your feet. Don’t berate a teller or any bank employee for doing their job. If you’re not happy with your bank’s products, fees or practices, don’t be complacent and give them the benefit of the doubt by letting them keep your business. Educate yourself, consider the alternatives, and reward the most innovative and best (not the biggest) financial institutions with your business.

02/17/2017

Understanding CPP and OAS

Knowing when to retire is a complicated calculation. And it’s never just about the numbers. You need to be ready to use the time effectively, replacing the time you spent at work with pursuits that fulfill you – whether it’s hobbies, helping out family, travel, community clubs, sporting pursuits or friendships.

When it comes to the numbers, you should know what to anticipate from your Canada Pension Plan and Old Age Security.

The maximum you can receive from these sources are currently $1,114/month (for CPP) and $578/month (for OAS) and require that you contributed the maximum to your CPP for at least 39 years, and lived in Canada for at least 40 years after turning 18, for maximum OAS. You should contact Service Canada to get your personalized amounts at different ages.

Something else to consider – you can start taking CPP as early as 60, and as late as 70. Penalties or bonuses apply if you start before or after 65. You can’t take OAS early, but you can take it late… Again bonuses apply if you take it after 65, but the latest you can start it is age 70.

CPP and OAS just isn’t enough for most people, and that’s why we save during our working life. But what does $100,000, $500,000 or $1 million get you in retirement? One simple calculation for a 65-year old is “$500/month for every $100,000 saved”. It’s a rough approximation, but it might help you figure out what income you’ll be capable of generating.

What this means is that if you have $500,000 saved at age 65, you may be able to generate $2,500 in monthly income indefinitely from the nest egg. Add it to your anticipated CPP and OAS and you will have an idea of whether it’s enough for you. And remember all of these sources of income will be taxable as regular income throughout retirement.

And if it’s not enough, save more, work longer or spend less. The choice – as always – is yours to make.

01/10/2017

Watch Annie Silvester's (NiagaraBuzz.ca) interview with me as I share money tips for 2017... http://www.niagarabuzz.ca/2017/01/09/life/money-coach-shares-top-tips-for-financial-success-in-2017

… at the speed of life

01/01/2017

If you have a love/hate relationship with New Year’s Resolutions, you’re not alone.

We’re supposed to make them every year. They’ll make us better people, and if we only stuck to them we’d be richer, thinner and smarter.

But we don’t stick to them. New habits are tough to create and sustain, and the rewards are often too far out.

New Year’s Resolutions that have a hope of sticking are S.M.A.R.T.: they are Specific, Measurable, Achievable, Results-focused and Time-bound. If you really want to make a life change, go through the S.M.A.R.T. list and make sure your Resolution checks off each of them.

Specific: Make it clear what it is you are trying to achieve. Don’t be wishy-washy – be as specific as you can, so you know (and can imagine) what success looks like.

Measurable: This is important. Try to put numbers around your goal, whether it is a number of pounds to lose, a distance you want to run or the amount of debt you want to eliminate.

Achievable: Be realistic. Don’t make your goal a pipe dream - you already know you won’t achieve it. To set yourself up for success, make sure your goal is achievable.

Results-Focused: A Resolution should be set with a focus on achieving your end result. This means the action steps you take should be well-directed towards achieving exactly what it is you want to achieve.

Time-bound: Perhaps the most important on this list! Try to put a time goal on your Resolution so you know whether you’re on track to achieve it. Setting interim targets is a good idea to stay motivated towards the end goal.

Whether it is weight loss, running a 10km or eliminating debt – these five S.M.A.R.T. standards will help ensure whatever Resolution you choose has a better chance of being achieved.

Happy New Year everyone!

12/02/2016

Discipline might be the thing missing

Just this past week I received a telemarketing call from a bank. They were pleased to offer me an interest rate of under 3% for whatever I might need. And would I have interest in taking advantage of this special rate?

Now, this might seem like a normal call anyone might receive these days. But what's really going on here? The fact is, debt is sold now like anything else. You’re not really buying anything – you’re just borrowing from your future earnings because what is borrowed must be paid back.

We're tempted because of low rates, low minimums and the desire for things we can’t afford. What ever happened to saving for the things we want?

Discipline is what most people lack when it comes to their personal finances. This is what made Dave Chilton’s The Wealthy Barber book so successful – the concept of ‘paying yourself first’, recognizing that if we save whatever is left at the end of the month may result in nothing saved.

What makes the concept of paying yourself first so brilliant is the fact that it uncovers the truth of human behaviour – left alone, we may not do the right thing for our future self. But a system that forces us to automatically look after our future self is one that will be rewarded many times over.

How do you do it? You set up a savings account, or perhaps even a few to tackle different savings targets, and fund them with fixed amounts every pay day. It’s amazing how these accounts will grow if they go untouched. Just $150 bi-weekly for 4 years will equal over $14,000. And believe me, you won’t miss the $150 after awhile.

So recognize your own weaknesses and put in place a system that will reward you forever. Be content with what you have, live below your means and just say ‘no’ to cheap debt. Your future self will thank you.

11/04/2016

How to Control your Spending

There comes a point in just about everyone’s life when you decide you want to limit your spending. Maybe it’s your overall spending to get rid of some debt or as you prepare for a fixed-income retirement, or perhaps you just want to reduce your spending in a particular ‘leaky’ category.

No matter the reason, it’s a noble idea. You work hard for your money and you want it to last. You want to make sure that your values and long term goals are reflected in your spending, and there’s something to show for years of hard work. Sabotaging your future self with unconscious spending isn’t your idea of financial success.

So, what to do? Stick with cash only purchases? Debit only? Cut up the credit cards forever?

Let me review 5 principles to help you manage cash flow better. Whatever you decide, stick with these principles and you’ll be better off in more ways than one.

1. Treat every dollar like a dollar, regardless of the form of payment you choose. Better yet, consider how long you have to work for each after-tax dollar – you’ll value your money like never before.

2. Don’t use the envelope system if it isn’t realistic for the category. For example, don’t put $300 in an envelope for gas money on the 1st of the month. You’ll be setting yourself up for failure, because I doubt you’ll be pushing your car to work if you run out.

3. There’s nothing wrong with collecting points for your purchases as long as you don’t spend more because you’re collecting points [see Point #1].

4. Make sure budgets or spending limits are realistic and sustainable, and allow for ‘yes’. Winning with money is a marathon so don’t use ‘sprint’ techniques that aren’t meant to last for the long term.

5. Use a system that maximizes pain when spending in discretionary categories. If cash is more painful than debit, use cash. If debit is more painful than credit, use debit. Or write everything down and be accountable for the number of transactions you make each day.

So, good for you for wanting to take control of your cash flow. It’s a good idea, no matter when you decide to do it. You’ll likely be able to retire earlier than you would otherwise – and how could that be a bad thing?

10/14/2016

What to do about the New Fee Disclosures

The first questions that I suspect will come from the lips of Canadians finding out how much their advisor is paid (as required by the end of 2016), will be ‘Why didn’t I know this sooner?’ ‘How come she didn’t tell me?’ and perhaps ‘What should I do about this?’.

While I can’t answer the first two questions, I will spend some time with this 3rd question – because what matters most is how to best move forward. We can’t change the past.

The new disclosures will show – in dollars and cents – what your financial advisor’s compensation is for your business. If you don’t feel you are getting decent value for this fee, it makes sense to look elsewhere and determine how to lower your fees.

Many Canadians are flocking towards index funds and exchange-traded funds, which are generally 5 – 20 times cheaper than standard mutual funds. They’ve actually been around for more than 20 years but it is only more recently that their merits are being extolled by the educators in the industry.

Fees matter. An annual fee of 2.4% (no matter how charged) can rip 50% of your returns away in less than 15 years – and that just isn’t acceptable for a growing number of Canadians. When an Index fund charges 0.5% and an exchange-traded fund charges 0.1%, the benefits should become clear.

Now some might argue that the ‘active professionally managed funds’ will put the experts on your side and compensate for the high fees of mutual funds. Perhaps index funds are for amateurs who don’t understand the value of a good research team and professionals timing their way in and out of the market. Not true. Check out any SPIVA report that comes out quarterly. 90%+ of all mutual funds cannot keep up their respective market index (like the Canadian TSX) over any given 5-year period. Very convincing stuff if you’re willing to take the time to read it.

And from today’s Globe & Mail (page 1 of Report on Business): ‘Not a single Canadian manager investing in U.S. stocks delivered higher returns than the S&P 500 index over the past five years – none.’

So if the research is there to suggest that a more passive, index-hugging approach is better for investors, why isn’t everyone doing it? The answer is buried in the reason our banks and investment companies make several billion dollars in profit each year – it’s not in their best interests to promote it. As Upton Sinclair wrote, “It is difficult to get a man to understand something when his salary depends upon his not understanding it.”

But reporters and educators who are not profiting from the sale of financial products get it. Dan Bortolotti (Canada’s renowned Canadian Couch Potato Investing guru) puts it like this: “Indexing strategies are used by the most sophisticated pension and endowment fund managers in the world, and many of its proponents are Nobel laureates… yet many financial advisors are contemptuous of the idea despite ample evidence to the contrary.”

When you find out what you’re paying for your mutual funds this year – know there are alternatives available. Move forward with a low cost, diversified, index approach and your future self will thank you.

09/21/2016

Disclosure of Fees is Coming

You may not know it but 2016 marks a year of disruption for the financial services industry.

Regulatory change, specifically the initiative entitled ‘CRM2’, will require all mutual fund companies and advisors to disclose – for the first time – the full amount being paid to advisors for their services.

It will no longer be buried in percentage terms as part of the Management Expense Ratio that most Canadians don’t know they are paying. It will be shown in dollars and cents, and for those advisors who have been less than transparent, or worse, ‘sitting on their book of business’ collecting commissions and trailers for past product sales, it will be a tough year ahead.

As Canadians reflect on the annual fees they are paying – and they exceed $1,000 for most, and hit $20,000+ for many – the question of ‘value received for fee paid’ will become top of mind.

The full Management Expense Ratio (that averages 2.4% a year for Canadians) will not be disclosed, only the portion that is being paid to your advisor. The basis of those fees is not determined by hours worked, value or growth of your portfolio – it is based on an advisor-friendly and expensive business model that is as dated as the rotary-dial telephone.

Welcome to 2016 – There are more choices than ever before. Canadians are no longer tied to the antiquated and expensive mutual funds that dominated the investment market in the 1980s and 1990s. Low cost index funds and exchange-traded funds are the fastest growing category of investments, and for good reason.

Large institutional investors, small retail investors, sophisticated researchers, doctors, lawyers, and yes financial advisors’ personal portfolios are gravitating to these low cost options. The reason: the performance of index-hugging low cost funds beat their mutual fund counterparts 9 times out of 10.

I’ll get into the reasons why next time. In the meantime, pick up any Globe & Mail newspaper or MoneySense magazine or go to www.CanadianCouchPotato.com and start to read the latest trends in passive investing. You’ll be glad you did.