Articles | Business Minded

5 Types of Insurance You Need

Insurance can provide a life-line in a dire situation, but only if you have the right coverage. With so many options for insurance, what types of insurance do you need to keep your family protected?

The 5 types of insurance here are all ones that you should definitely consider for your insurance portfolio.

Life Insurance

Everybody dies at some point. And even death isn’t cheap. The costs associated with a funeral can add up quickly, and leave your loved ones holding a hefty bill. One way to protect your loved ones from the high costs of dying is through life insurance.

Life Insurance pays out your policy in the event of your death. This can help cover funeral costs, and provide a financial safety net to help your loved ones weather a difficult storm. These policies can be broken into Whole Life Insurance, and Term Life Insurance. The type of policy that is best for almost everybody is Term Life Insurance.

Life insurance isn’t required for everybody all the time, but in certain life situations that insurance is the smartest choice you can make. If you have significant financial obligations, whether that’s from buying property, owning pets, or raising children, life insurance is essential. The same goes for the primary bread-winner in a family. Life insurance protects your loved ones if you aren’t around to support them anymore.

It is often recommended that your Term Life Insurance policy is 10 times your annual salary. That provides enough of a financial safety net to help your loved ones carry on this wonderful, albeit sometimes difficult, journey without you.

Medical Insurance

Medical insurance is a must-have for everyone. A single medical issue has the power to bankrupt even the wealthiest among us. Because the costs or medical care are so high, you need to have health insurance.

Fortunately for the Canadian readers out there, that health insurance is paid for by the government. But if you aren’t so fortunate to have government help with those medical bills, you need to buy your own health insurance.

Home or Renters Insurance

Ask anyone who has just moved about how much stuff they have. As they unpack boxes upon boxes of things they’ve collected, the value of all those accumulated possessions adds up.

One thing you can be sure of, it’s that life throws curve balls every once in a while. And some of those curve balls show up in the form of theft, floods, fires, earthquakes, and more.

To protect your assets, you should have homeowners or renters insurance. These insurance policies protect your home and everything that’s in it. And that can mean a lot of things.

If something were to happen and you lose your worldly possessions, home/renters insurance will even pick up the tab to help you settle somewhere else. Whether that’s paying your rent somewhere else, or setting you up in a hotel. Tragedies don’t have to wipe you out financially, as long as you have the right homeowner or renters insurance.

Auto Insurance

Automotive insurance is another must-have if you own a vehicle. Thousands of pounds of steel hurtling down a roadway might be a convenient way to move around this big ol’ world. But, it’s also a good way to really cause some damage.

Having auto insurance helps cover you from both the property damage that arises from a car accident, but more importantly, that insurance covers any necessary medical costs. Those costs can quickly lead to financial ruin for an individual.

Not only is auto insurance a good idea, it’s legally required before operating a motor vehicle. Don’t gamble with your financial life. Make sure you’re covered by auto insurance before you drive.

Long-Term Disability Insurance

Have you ever considered not being able to work? Most people don’t give that any thought. But as you are the source of your future wealth creation, you need to protect yourself and your ability to create that wealth.

Disability insurance provides income replacement in the event that you are no longer able to work. While other insurance can help with things like medical bills, other costs don’t simply go-away because you can’t work. For those costs, having a guaranteed income replacement is essential.

When shopping for disability insurance, the best rates are often through your employer. In fact, many employers provide this insurance as a mandatory benefit. But, not everyone has an employer. For those readers who work for themselves, having a disability insurance policy is essential. This will provide the financial safety net you need in case you are unable to work for an extended period of time.

Life insurance, health insurance, homeowner / renters insurance, automotive insurance, and disability insurance. These policies should make up the majority of your insurance portfolio. Each policy is designed to protect you and your loved ones from an otherwise devastating situation.

The right insurance ensures that you are taken care of, no matter what life throws at you.

How Does Insurance Work?

Insurance offers you the ability to protect against the downside risk of many things in life (even death itself). But, is insurance really worth it?

Of course, the answer is, as always: it depends.

But before we can understand when insurance is a good idea, and when it’s best to say no, we need to look at what insurance is.

What is Insurance? And how does it work?

Insurance is a promise to pay you if a certain event takes place.

The event in many insurance policies is the replacement of a product in case it breaks (device insurance). But it could be covering damages caused, for instance, by a driving incident (car insurance). Or even paying your estate funds in the event of your death (life insurance).

Selling these “guarantees” is a business. A very lucrative business.

And the skyrocketing corporate profits means one thing: you, the consumer, loses out far more often than you win.

Most of the time that’s a good thing. It’s far better to pay for life insurance and not die. Or car insurance and not crash. But, with insurance offered on a wide range of products that we use in our daily life, buying too much insurance can be a poor financial decision. Spending money on things you don’t need is a poor purchase, no matter how you look at it.

When Should You Buy Insurance?

Insurance is often made more complicated than it needs to be. Deciding when to buy, and when to pass on insurance, needs to follow a simple formula.

“What you are insuring needs to be of sufficient value to put you in a bad financial position without the insurance.”

What this means is, if what you are insuring would be difficult to replace with your current financial resources, the insurance is probably a good idea. Or put even more simply:

Emergency fund < Value of Item = Buy Insurance

If your emergency fund is sufficient to cover the loss, you shouldn’t buy the insurance. Instead, keep increasing your emergency fund as well as your other investments.

If on the other hand the value of what you are buying is more than your emergency fund, then insurance is a good idea.

Insurance is often offered on a variety of purchases. I’ve had offers for insurance from anything as small as a video game, to cell phones, all the way up to my automobile and home.

Most recently, when shopping for new appliances, I faced the sales pressure from the appliance salesperson. I was being regaled with tales of broken appliances that weren’t covered by warranty, and frightened by the estimated cost of repair visits. But quickly looking at the numbers, I could tell I wasn’t going to come out a winner. Insurance on the kitchen appliances was coming out to more than 10% of the total cost of all the appliances. Do I buy? Do I pick and choose? If so, which appliance is most likely to break?

Ultimately, I fell back on the formula: my emergency fund could cover the replacement cost of any single appliance. And the likelihood of all appliances breaking at the same time must be extremely rare. Rather than buy the insurance, I’ll be better off passing on the insurance, and setting a little extra away into my emergency fund.

Further Use of the Insurance Formula

Of course, sometimes insurance is more than a simple yes/no question. In the case of home and auto insurance especially, there are different policies. One of the key factors in determining the cost of the policy is the deductible, or the amount you need to pay first before insurance pays out. As you can imagine, the higher the deductible (the more you need to pay first), the lower the insurance rates.

The formula we looked at above can be modified slightly.

Emergency fund > Difference in Deductible = Buy High Deductible Insurance

In this case, if you can cover the difference in deductible without jeopardizing your financial position, you should buy the higher deductible insurance. This will mean you pay more in the event of a claim, but if you don’t need to make a claim, your insurance rates are lower.

Common auto insurance deductibles are $0, $500, and $1,000. If you can cover the $1,000 deductible, the difference in insurance rates from a $0-deductible insurance policy could be thousands of dollars over the course of your life.

Never fall prey to sleazy sales tactics again, you have the numbers to support you in making the right choices. That simple formula telling you what you can afford in an emergency, and what you should seek external protection on, will help cut a lot of confusion out of the insurance question.

Making sure you are adequately covered is a function of what financial risk you can comfortably absorb personally. When you can look out for your own financial interests, you need to rely less on insurance to cover the difference. And spending less on unnecessary insurance helps you get even further ahead.

The freedom to pick and choose what is right for you without worrying about repercussions is liberating. That is one piece of financial freedom.

What is the best Life Insurance?

Is your family protected in the event of a tragedy?

While nobody can truly be ready for disaster to strike, there are some things that you can do to ensure your family is looked after in the event of a tragic death. Life insurance is one area where you can take steps to protect yourself and your loved ones.

But with so many insurance types and policy options, which one is right for you?

What is Life Insurance?

Life Insurance, simply put, is an arrangement with a company that, in the event of your death, your family will be paid out a specified sum of money.

In general, those policies are broken down into two distinct classifications; Whole Life Insurance (WLI) and Term Life Insurance (TLI).

Why Would You Use Life Insurance?

Generally, people use life insurance to ease the financial burden of their passing. Looking out for their loved ones from beyond the grave, so to speak.

But, while there are some excellent reasons to buy life insurance, those reasons change throughout your journey through life.

For example, a fresh University graduate with little to no responsibility might not even need a policy. There are no dependents who rely on the new-grad.

Fast forward a few years, and that new-grad is ready to start a family. Again, with two incomes, a rented apartment, and no kids, insurance might not be necessary. But as life progresses, the new couple buys their first home. Suddenly, an expensive mortgage might be a very good reason to look into life insurance.

Over the years, kids come, and continue to grow. Insurance helps give the family peace of mind. But as the years tick on by as they are wont to do, the house gets paid off, and the kids move out and start lives of their own. Retirement savings are churning out their own returns, enough to live on comfortably for the rest of your days. Is insurance still necessary? The financial risks of an early death have all but passed.

Throughout this fictitious life journey, there have been several points where insurance is a good idea: new home, new family, etc. But as the family life changes, so do the needs for insurance.

And those evolving needs bring the focus back to Whole Life Insurance (WLI) and Term Life Insurance (TLI).

What is the Difference Between WLI and TLI?

Whole Life Insurance is a guarantee to pay a specified sum of money on your death. These policies last with you your entire life, which is why they are specified as “Whole Life” policies. Simply put, you pay into a fund, and when you die, your family is paid out a predetermined amount of money.

Term Life Insurance on the other hand, is insurance for a specified term. Usually in 5 year increments, up to 30 years (policies differ greatly, check out each policy thoroughly before purchasing. These policies cover you in the event of your death during the term. At the end of the term, the policy expires, and you are no-longer covered unless you buy a new plan.

What are the Benefits and Drawbacks of Whole Life Insurance?

Whole Life Insurance is designed as a fund you contribute towards over a set period of time, ranging from 5 to more than 20 years. You pay into this fund on a regular basis, and they guarantee a certain dollar amount to be paid out on your death.

The main benefit of this style of policy is that you have a guaranteed amount coming to your family and loved ones when you die.

Also, since this is an investment fund where you are allocating some money, you might even be able to take some of your contributed dollars out as a loan.

But, all that glitters isn’t gold.

Whole Life Insurance policies are expensive. I mean seriously expensive.

WLI policies will cost you thousands of dollars a year while you are funding the account. And, these are investment accounts. As we’ve looked at for our other investment accounts, the companies running them charge exorbitant fees. Furthermore, you cannot get out. There is no money-back option - once you’ve bought, you’re locked in for life.

What are the Benefits and Drawbacks of Term Life Insurance?

Term Life Insurance is also exactly what the name implies. Insurance for a specified term.

Since there is no guaranteed payout, in fact you should hope your family never collects on those policies (to collect means you die), the insurance premiums are reduced. While WLI may cost thousands a year, TLI is only hundreds (if that). The payouts offered are usually much higher as well.

Another benefit is that TLI policies are simple to understand. You pay $X a month/year, for Y years, and if you die before Y years is up, your beneficiaries get $Z.

Again, this type of policy has its own drawbacks too. As TLI policies expire at the end of the term, if you still decide that insurance is right for your family situation, your premiums will likely be higher when you sign for a new policy. The higher premiums are a result of your increased age when buying the policy, as in general, the cost of a TLI insurance policy increases as you age.

Which Life Insurance Policy is Best?

While there can certainly be a case made for different policies, for the vast majority of people Term Life Insurance (TLI) is best. To understand the reasoning, we need to revisit why you would want life insurance in the first place.

People get life insurance to protect their families from the unexpected, especially when the financial burdens of the family would be hard to handle as just one person. But as you age, your financial needs change. The payout of a Whole Life Insurance policy likely isn’t sufficient to help your spouse keep the house and raise the kids when you’re just starting out. In that case, the higher payouts from TLI are more valuable.

And as you advance in your life and financial journey, the payout from WLI shouldn’t be the “make or break” point in your financial position. Death is a fairly permanent next step, so to need to take that step to unlock additional monies is an extreme measure.

Term Life Insurance, with its lower premiums and higher payouts is optimal for almost everyone. And the savings (the difference between a WLI policy and a TLI policy) should be put into an investment portfolio. This invested money will grow over time, and you won’t need to die to access the additional funds.

If you select a balanced, low cost fund, you’ll avoid those high fees and might even come out ahead! Insured when you need it, with a financial safety net built to catch your family if they ever need it.

Life Insurance provides financial peace of mind, knowing that your family will be cared for in the event of your untimely death. Term Life Insurance is the cheaper option, and in the vast majority of cases will be the better option. With the cost differences invested in your own investment accounts, the additional investments and growth will bring you out ahead of a comparable WLI policy.

Financial freedom includes peace of mind. Life insurance can deliver just that, for a nominal cost, at just the right time.

To end this article in the most relevant salutation, I shall borrow the immortal words of Spoc:

“Live long, and prosper.”

What is a Spousal RRSP?

Are you and your partner taking advantage of the right tax breaks?

One powerful investing option available to couples is the Spousal RRSP.

What is a Spousal RRSP?

A spousal RRSP is an investment account that you can open and fund on behalf of your partner. The money that you invest for your partner becomes a tax credit for you, helping you reduce taxes in the current tax year.

The reason to take advantage of the Spousal RRSP program is to even out your retirement assets between the two accounts. This is especially prevalent when one partner earns significantly more than the other.

To see this in action, consider the following couple, Jane and John. Jane made $120,000 last year, while her partner John is a stay at home father. John’s income from his part time work was only $40,000.

The RRSP contribution limits are calculated as a percentage of your earnings, up to a yearly maximum. For the current year, Jane’s RRSP contribution limit would be $ 120,000 * 18% = $21,600.

John on the other hand has an annual RRSP contribution limit of $ 40,000 * 18% = $7,200.

If they were to both max-out their RRSP contributions, Jane would have a significantly larger nest egg come retirement time. John and Jane would need to withdraw that money during retirement, and Jane would end up paying a much higher tax rate.

Retirement Tax Time

In the above example so far, Jane would have a much larger retirement account balance for retirement. This means that she would be withdrawing more from her accounts than John.

Let’s say they needed $100,000 each year for their retirement lifestyle. Jane, with the larger account, would withdraw $80,000, while John would withdraw $20,000. That means Jane pays income tax on that $ 80,000, which John pays income tax on the $20,000.

The Spousal RRSP Option

Alternatively, Jane and John could take advantage of the Spousal RRSP. Jane’s limit would still be $ 21,600 for tax deduction purposes, but Jane could invest some of that money into a Spousal RRSP for John.

To ensure that both Jane and John had similar investment accounts, Jane could contribute $ 14,400 to her own RRSP, and the remaining $7,200 to John’s RRSP through the Spousal RRSP program. John could contribute his own $7,200 for the year as well. At the end of the year, both Jane and John will have $14,400 in their RRSP’s.

Jane will have realized $ 14,400 in tax savings from her own RRSP, plus another $ 7,200 from her Spousal RRSP contributions, for a total of $ 21,600. John will have realized his full $ 7,200 in tax savings for the year as well.

This would give them comparable sized retirement accounts, and allow them to each withdraw a lower amount annually in retirement.

Instead of Jane withdrawing $ 80,000 and John withdrawing $ 20,000, they both could withdraw $ 50,000 to reach the same combined annual income in retirement. The difference here is that Jane pays a lower marginal tax rate, ultimately saving money on taxes. And less taxes paid as a couple means more of their hard earned dollars can be spent on the retirement lifestyle they want!

How Do I Open a Spousal RRSP?

Anywhere that you can open an RRSP, you will also be able to open a Spousal RRSP. This allows you to contribute some of your RRSP allowable contributions to your spouse / partner, giving you the tax deduction and your partner the tax-deferred investment growth.

What About the Fine Print?

As with all investment accounts, there are terms and conditions applied. For a Spousal RRSP that means a restriction upon when the Spouse can withdraw the money. Funds must sit in the investment account for at least 3 years before withdrawals are made. Making a withdrawal sooner triggers a tax liability, where tax must be paid on the contributions.

The other caveat is this: that money is your partners. While you can contribute any amount you want, within your personal RRSP contribution limits, you cannot access or change the investments.

Is a Spouse RRSP right for you?

If there is a large income discrepancy, caused by a stay-at-home parent, or even just different professions, the answer is most likely yes.

Splitting your retirement savings between both members will help balance the withdrawals. This will reduce the marginal tax rate paid on those retirement funds withdrawn.

Spousal RRSP’s are a powerful financial tool available to couples, helping balance out retirement savings to reduce taxes in retirement. If you think this tool is right for you, perhaps it is time for an open and honest talk about the families finances. You’re in this journey together. Not all trials will be simple, so you might as well take the easy road when it’s available!

How To Start Investing (Canadian Edition)

Are you ready to start investing?

The simple fact is this: you need to invest if you want to achieve financial freedom. The number of people who have made, and kept, their wealth without investing rounds down to 0%. And for the vast majority of us, we will never have the type of paychecks that could deliver financial freedom without investments.

Like it or not, you need to invest. Your future depends on it.

One of the primary ways for an individual to invest is to enter the world of financial instruments, in particular stocks.

Why the Stock Market?

The stock market is simply a collection of companies. They sell ownership “shares”, that entitle the shareholder to a piece of the profits. That piece of profits, now and into the future, has a value. The market price of that value is the share price.

It is important to look at the basics when starting to invest. Wall Street has a bad rap, much of it earned by a few bad apples that spoil the basket. But, irrespective of the story you spout about Wall Street, investing is a necessity for your financial future. And investing in stocks is one of the easiest ways to begin investing.

How to Access the Stock Market?

Before you can invest, you need to know how to get access to those marketplaces.

Traditionally, this was done by your financial advisor. An individual, sometimes representing your best interests, would help you place your hard earned cash into a series of investments.

Today, access to financial markets has never been easier. There are online brokerages, robo-advisors, and financial advisors. Each avenue offers their own advantages and disadvantages.

Online Investment Brokerages

Investing online is an easy way for any DIY-er to get started. These online platforms and apps allow you to buy and sell financial instruments - often for a fee.

The real advantage to these platforms is the ability to invest in whatever you want.

Looking to buy and sell individual stocks? Can’t get enough of the weekly highs and crashes of Tesla? Maybe an online investment brokerage is for you.

Online brokerages allow you to choose your own investing style, and you have complete control over your successes and failures.

The disadvantage is exactly that freedom. Your failures are yours to own.

Robo-Advisors

Robo-advisors also were born from the internet. The ease of accessing investment markets for anyone with an internet connection helped fuel the need for a simple, effective way of investing.

The main benefit of robo-advisors is the low cost access. These providers give you a few choices that suit your risk profile, and increasingly, your social conscience. These choices are designed to hit a specific goal, and really provide an excellent way to get into investing.

The trade-off of course is the loss of options. In a robo-advisors guided portfolio, you can’t pick and choose what stocks you invest in.

Financial Advisors

Finally, financial advisors are still around. And still valuable, for the right people.

A financial advisor will help you navigate some of the intricacies of investing, including multiple asset classes. The benefits of advice from a good financial advisor, with a fiduciary responsibility, cannot be understated.

But, that advice comes with a price. Financial Advisors are comparatively expensive to the other options.

Of course, with more options to choose from, how do you know you’re making the right choice?

How Should You Start Investing?

Stocks are an easy way to get started with investing. But which route is right for you?

To help you make that decision, ask yourself a few questions:

Have you invested before?

If no, skip right over an online brokerage. Get your feet wet with an advisor, either robo or in-person. Investing isn’t a game of chance. Learn to walk before you try to run.

If you have experience investing, this is an option you might consider.

How much time do you have to devote to investing?

Self-managed investing at an online brokerage requires a lot of financial research to see the best results. And that research takes time. Lots of time. If you like reading earnings reports and company profiles, self-managed investing might be for you. You should also be re-balancing your portfolio at least once a year, and likely once a quarter.

Finding yourself with less time on your hands? Other options might suit you better.

Do you have a complex financial situation?

The more complex your financial situation, the more likely you would benefit from a financial advisor reviewing your accounts. While robo-advisors are often quite good at the majority of financial situations, sometimes you just can’t beat the comfort of a human touch.

Are you just starting out?

Financial Advisors can offer tremendous advice. But, if you’re just starting out (and reading “How to start investing” articles), you probably aren’t in a position to benefit from that advice.

Online Brokerages on the other hand are relatively cheap and easy to access, but provide enough options to easily make mistakes and lose your shirt.

Robo-advisors hit that sweet spot in the middle. Enough choice to make you feel like you are controlling your financial destiny, but enough financial theory to help avoid some easy-to-make mistakes.

The best part is, this is your financial journey. You are in control, and can pick and choose as is right for you. Personally, I enjoy a mix of robo-advisors, with some self-managed investing at an online brokerage for some additional customization.

Keep in mind, your future depends on you taking action. Whichever route you decide, whether it’s an Online Brokerage, a Robo-Advisor, or a Financial Advisor, regularly investing money is essential.

Anyone can achieve financial freedom. You just need the right investments to help you along your journey.

Oh, The Places You’ll Go

Where does success come from?

Were some people simply born with more talent? Or, is success learned?

To answer that question in true Canadian fashion, let's look at hockey.

In his book Outliers, author Malcolm Gladwell examines the quintessential Canadian pastime, including looking into the storied histories of the world’s top players.

Statistically, the best in the world are born in the early parts of the year, January to March. But there’s more to this anomaly than meets the eye.

As Gladwell goes to show, being born in the early part of the year makes you the oldest on the rink. Since elite players are selected and groomed from a young age, being older gives you significant coordination and size advantages over the younger people you are matched up with. This invariably ends up with coaches and parents touting their child’s sporting prowess, and enrolling them in more practice time.

The increased number of hours devoted to an area of interest unfailingly develops skills at a faster rate. And those kids that were “naturals” at hockey? Well, increased ice time makes them better players.

In other words, we create our own self-fulfilling prophecies. We believe we are good at something, in this case hockey, so we spend more time practicing. More time practicing in turn yields better results.

But what about those late-year children? Are they any worse at hockey? Or are there undiscovered phenoms, the proverbial diamond in the ruff?

The unfortunate reality for many is, we’ll never know. They will simply never get their shot at success on the ice rink.

All because of a story they were told as a child.

“You aren’t as good at hockey.” “Math just isn’t for you.” “You aren’t good at <fill in the blank>.”

Certainly some things we aren’t good at. Fact: Nobody is great at everything.

But are you selling yourself short because of a story that you’ve held onto for years without properly testing?

Examine your life. Where do you say, “Oh, I could never do that! I’m just not a …”

And put those statements to the test. Don’t think you can write? Try writing. Sales? Try selling an idea to a friend or colleague. Talk to strangers? Try starting a conversation.

It’s time to unshackle yourself from those long-held and never tested narratives. Your success belongs to you. Not to some false negatives installed on your mind when you were a child.

This is your story. Write it for yourself.

Oh, the places you’ll go. In the timeless words of Dr. Seuss “You can steer yourself any direction you choose…. And will you succeed? Yes, you will indeed. 98 and ¾ percent guaranteed.”

Financial Freedom: A Diet That Works

What's in your financial diet? Do you have too much unhealthy misinformation on your plate?

How many different diets can you name?

Keto, vegetarian, pescatarian, Atkins, vegan, DASH, Weight Watchers… and that’s just scratching the surface of a nearly endless list.

Hundreds of options, but for one goal: healthy living.

How can countless options exist, many in direct conflict with other diets, all promoting the same goal?

Anyone who desired to live a healthy lifestyle will get lost, bogged down in the mountains of “facts” and counter-facts that each diet proclaims. And at the end of it all? They’d be even more lost than when they started their journey.

That very same story plays out across our lives, and no more so than in the quest for financial freedom.

I write often about the strategies for financial freedom, and each holds its own merits, depending on where you are in your journey. But for those of you just starting out, you don’t need strategies on top of plans. You need the first step.

The rest of the staircase will come. But only one step at a time.

Financial Dieting: The First Step

Go on a diet. A financial diet. Cut out almost all financial information out of your life. How is APPL trading today? Who cares. What about TSLA? Irrelevant.

There are countless broadcasters and bloggers who pander to the masses with a new story about what to buy or sell today. These “gurus” are in the entertainment business.

And your financial freedom? It’s not a laughing matter.

It’s time to go cold-turkey on those entertainers.

Low-Cost Index Funds / ETFs: The Next Step

Once you have cut out the distractions, find a low cost index fund provider. Personally, I like WealthSimple, but there are many to choose from. Questtrade has a low cost platform, and some major banks offer low cost Index funds too.

The key here is simple: keep management fees low. Under 1% is a requirement, and the lower they are, the better off you’ll be.

Index funds and Index ETF’s track the performance of a wide range of stocks, like the S&P500 or the TSX composite. Essentially, you are buying a small piece of everything. As those companies grow, so does your wealth.

Automate: The Most Important Step

Finally, the next step that you can take is to automate. Setup your account to automatically fund every week/month, and let it take care of itself.

And that’s it. No more stock reports. No more sensationalist stock-market entertainment shows. Just sit back, relax, and let your money grow.

Check back on your accounts every once in a while - I certainly check on my investments once a month. But the daily swings that are so widely covered in the media? I don’t suffer the same ups and downs. My emotions aren’t toyed with on a daily basis, and that is liberating. Just one step closer to freedom.

Financial freedom is about more than having the money to do what you please. It’s about being free from the emotions tied to money. And in three simple steps, you can take a little piece of that freedom now.

Go on a financial information diet.
Find a low-cost index fund / index ETF.
Invest, automatically.

You’re on the road to financial freedom - breathe easy.

How valuable is your degree?

It’s a question asked by every person seeking higher education. Is my degree worth it?

It’s a very serious question. The financial implications alone could change your entire life’s trajectory, for the better, or for the worse.

Doors could open to immense riches. Or, you could end up drowning in student debt, qualified for little more than to pour coffee at Starbucks.

At the root of the question lies a startling and frightening truth. For the vast majority of us, our education is worthless.

The knowledge we learn, if we retain any of it at all, is available for free and accessible within the top 10 google search results.

Of course, there are some professions that require formal education. I certainly wouldn’t want just anyone patching me up on the operating table. Or setting financial policies for the entire nation.

But for most of us, what we learn in school isn’t about the knowledge we walk away with. That knowledge is free.

So why is schooling so important in today’s society?

To answer that, we need to go back in time a few decades. Back to a time when there existed a knowledge gap.

The Knowledge Gap

It used to be up until fairly recently, that schooling was the way to improve your family's economic future. Knowledge was a commodity, and having gathered that knowledge through some form of higher education was a valuable asset to have.

The more you knew, the more value you could bring, and the more you were worth to an organization. More schooling was directly correlated to increased earning potential.

But recently, that “knowledge” imparted by the great educational institutions has become so commonplace that it’s considered a prerequisite to even get a seat at the table. Everyone has the “knowledge” associated with a bachelor’s diploma or degree, so there is no longer that gap to fill. No gap, means no economic advantage for acquiring the knowledge.

While one may argue that getting a degree is necessary to even be considered for a seat at the table, the value of that degree has diminished greatly.

The Information Era

Compounding the issue is the availability of answers to just about any question or problem that you face. For the cost of a reliable internet connection, all the worlds’ knowledge is available 3 clicks away.

In the information era, specialized knowledge is available for such a cheap fee, that there is virtually no economic value to acquiring it.

But don’t despair yet. While the knowledge you might seek has little economic value, there are still some merits to growth and development.

The Skills Gap

For centuries, the gap was knowledge. The information age has eliminated that gap, and levelled the playing field. Never before has the opportunity for success been granted to so many people.

Today, anyone, from any background, has the opportunity to succeed.

You just need to recognize that in the changing world landscape, the gap has changed. This means that you need to look at something other than information to increase your economic value.

And that new gap is the skills gap.

Knowledge is no longer the solution, but the ability to apply that knowledge. The skills to take the information, and make something valuable out of it.

What are the most valuable skills?

While there are many areas that you can focus on developing to increase your economic value, there are a few common areas that are virtually guaranteed to improve your results.

Setting and achieving Goals is one of the best skills that you can master. The ability to determine what is an important direction, and then setting up the systems and routines to get you there will serve you no matter your vocation. Building upon that skill set are the skills of prioritization. Understanding where to focus in today’s world of constant distraction will further compound your ability to deliver valuable results.

The next universal skill set that is sure to deliver economic value, is the ability to communicate clearly. Communication is one of the most highly rewarded skills. That skill goes beyond language, and spills into crafting your message, compiling compelling stories, and creating real change.

Where can you go to improve your skill sets?

If skills are becoming more valuable than knowledge, knowing where to go to develop those skills is essential. Luckily, higher education institutions are on that list.

Colleges and Universities are a great place to stimulate the development of skills. From setting goals, to prioritizing under a dynamic workload, schooling institutions help develop the skills that add value in today’s market.

But there are other options too. Online learning platforms have seen massive jumps in both quality and popularity. The focused learning curriculum of these courses allow you to tailor your growth specific to your journey.

The important note here is this: it matters far less what knowledge you are learning, and far more what skills you are acquiring.

Understanding the different styles of Picasso and Van Gogh has limited value, but having the skills to clearly communicate the benefits of a new strategy or product will greatly increase your value to the marketplace.

When advertising your resume or academic background, be sure to highlight the skills you have developed. Those skills are the answer to what will bring you fame and fortune.

To answer the question; how valuable is your degree? Ask yourself not about what information you now possess, but instead what skills you have and can use to increase your value.

Target Date Funds – Set it and forget it?

Chances are, if you have looked into retirement savings at all, you’ve seen Target Date Funds (TDF) advertised. But what are these funds? And, more importantly, will they actually help you retire on time?

What is a Target Date Fund (TDF)?

Simply put, a target date fund is an actively managed mutual fund. The funds are managed in a way to re-balance, and ultimately move into more conservative investments as the target date gets closer.

The premise is to handle the asset allocation for you, so that you don’t have to worry about complicated investment decisions. You simply pick the year you want to retire, typically in 5 year increments, and the fund handles the rest.

Marketing efforts by major investment industry players, especially over the past 15 years have really paid off. These funds are so popular, that employer sponsored RRSP’s and retirement accounts are almost entirely comprised of these types of funds.

Does the Target Date Fund live up to the hype?

Yes.

And no.

There are several pro’s and con’s to Target Date Funds. Let’s look at each, starting with the criticisms.

What are the issues with Target Date Funds?

While each investment broker will offer a different sales pitch, the criticisms can be broadly broken into three categories.

A One-Size-Fits-All Approach

When you’re simply estimating the date you want to retire, the fund doesn’t take into consideration any of the other factors of your financial health. The most important on this one is your risk profile. While a longer time horizon means you should be prepared to take on additional risk at the onset to reap the return of compounded growth. However, if you are planning to use those funds for another, shorter-term option, like home-buying or education, all of a sudden your risk profile dramatically changes.

Your financial future is as unique as you are. And a target date fund simply doesn’t have the customization to accurately capture your unique needs and desires.

It’s a Competitive Game

Another criticism is that Target Date Funds are not all the same. Even if you picked the same time horizon, let’s say TDF 2035 (15 years from now). Different funds, run by different managers, will carry a slightly different selection of investments inside. This difference in investment options, and the varying mix of debt to equity investments means that each fund performs differently.

In the competitive market of mutual funds, this can lead to poor decisions, and poor returns. This is witnessed as the number of investors who can consistently beat the general market on a somewhat reliable basis is numbered to only a handful of investing professionals. While we’d all like to think the mutual fund manager is Warren Buffet or Ray Dalio, that just isn’t the case.

TDFs: Pay-to-Play

Another criticism of target date funds is that they are a pay-to-play game. Essentially, the offerings you receive are only a small subsection of the entire market. For example, your bank will only offer you fund options that are managed by a related institution.

Many years ago, before I became immersed in the world of personal development, I held a fund with my bank. Looking deeper into the details behind my target date fund, I was not at all surprised to find that the investments held in the TDF were all smaller subsections of other funds sold by my bank. That meant my RBC fund had varying percentages in RBC Emerging Markets, RBC Utilities Funds, RBC US Funds, etc.

What that really means, is that the funds that you see are often covering the ever compounding fees from other mutual funds. And as we’ve previously discovered, even a small change in fees can have a dramatic effect on your total lifetime returns.

On top of that, the selection of funds will be further reduced by the institution that you are working with. This is why many employer sponsored plans aren’t the same across different companies. The offerings aren’t selected for what is best for you, the individual, but based on the rates and admin charges that the company pays to participate.

Knowing this, the question still remains, “It can’t be all bad news, what is the up side?”

The Key Benefit of Target Date Funds

Investing can be complicated.

Actual returns are impossible to predict. And the choices! There are more options in front of you than if you walked down the cereal aisle at the grocery store.

With all those options, in the face of uncertain results, target date funds had the perfect marketing advantage: they were simple to understand.

Someone, presumably an investment professional, will automatically re-balance and reinvest your portfolio with the goal of reaching a retirement date with an appropriate investment mix.

What consumers were really hearing was: Invest here, and you can retire on 20XX date.

The allure of that simplicity, and some misconceptions surrounding how excellent TDF’s are, has helped these style of funds explode into the investing scene in the past decade. Odds are, that if you have investments through an employer sponsored retirement plan, or even if your individual plan was advised by your banker, that you hold a TDF. With the majority of people invested in these style of funds, what do you need to know?

Key Take-Aways: Target Date Funds

TDF’s are convenient, and easy to understand. Investing in them could be exposing you to crippling investment fees. But, the only thing more costly than those crippling fees? Not playing the game in the first place.

Knowing that, it is more important to pick a fund based on the level of fees than the “predicted returns”. Vanguard typically has low-fee options that would serve your needs well.

Target Date Funds are one of the easiest ways to dip your toes into the realm of investing for your retirement. By lowering that initial hurdle, TDFs make it easy to get started on your journey to financial independence. But, because they are a one-size-fits-all approach to investing, you should also supplement your TDF investments with your own investments. This will allow you to play with the lever of asset allocation, and your risk profile, based on the goals that you have. Those individual investments are the bells and whistles on your new car. Same base, but you can customize it to fit your lifestyle.

A low fee TDF, paired with some independent investments, put you squarely in the driver’s seat. It’s your road to financial independence, so the driver’s seat is exactly where you need to be.

Your Finances Are What You Tolerate

Are you settling?

The biggest cost that anyone ever pays financially comes from settling. Learning to tolerate small things will ultimately rob you of great returns throughout your life.

While the areas in which we often find ourselves tolerating less than ideal circumstances are numerous, there are a few that stand out as clear robbery of your financial health.

Bank Fees

Big Banks have long held the top spot for where we are told to store our money. Unfortunately for us consumers, those marketing messages aren’t cheap. And, neither are sports arenas.

To pay for all the extras that big banks are involved in, a common strategy is to leverage account fees on just about every product sold.

While the fees themselves seem small, there are two things to consider.

Just like the recipe for success is the right small things, stacked over time. The recipe for disaster is the opposite. The wrong things (even small in size), stacked over time will lead to financial ruin.

The second consideration is the precedent set when accepting a small fee because it’s “not that much”. That is only the first step, and the question then becomes where to draw the line?

It is far better to not take that first step, and avoid bank fees altogether. There are a few ways to do this, all of which I have done myself.

Open an Account with a Credit Union

Credit Unions operate much the same as banks, largely the same offerings, but without the overhead. While this means you won’t see your favorite sports team being sponsored by a credit union, you also won’t encounter the account fees needed to pay for such extravagance.

Open an E-Account

Another option is to look at e-banking options. These institutions have surged into popularity due to their low-cost offerings. That includes no pesky account fees.

Ask for the Fees to be Removed

Another option, and one especially important for those who won’t take on the hassle of changing financial institutions is simply to ask for the fees to be removed. I currently have accounts with a couple of the big banks, for various financial reasons. At both those banks, I simply asked for my fees to be waived, and they were! Now it’s your turn - take a look at your bank. Are you paying fees? Try asking for those fees to be waived. If not, maybe it is time to look at other alternatives.

Investment Fees

While bank fees cost you a few thousand dollars, they lie at the top of a slippery slope. The next area where many people simply tolerate what is offered lies in investment fees. The difference between low fees and standard fees might not sound like much.
After-all, the difference between 0.5% and 2% is a paltry 1.5%.

But that 1.5% makes all the difference in the world.

Take a $50,000 investment in the general market, returning 7% annually, for 30 years. After those 30 years, the account charging 0.5% in fees has: $330,700.

But what about the account with 2% fees?

That account only has $216,100.

That paltry 1.5% difference in fees just cost over 100 thousand dollars. And that’s simply considering the sum of $50,000. If you consider this impact on your life’s retirement savings, that number could be many times multiplied.

How much are you paying in investment fees? Are you tolerating the levels of fees that will result in financial hardship later in life?

Lowered Earnings

The third, and most costly area that we end up tolerating our lot in life lies in our careers. Far too many people don’t take the time to consider what economic value they are bringing to the world.

Failing to understand the valuable contributions that you make will ultimately lead you to undervalue your work. This is perhaps the most prevalent example of “settling”, as people tolerate the job they have without asking the hard questions.

In a 2018 Gallup survey on worker engagement, the all-time high record was set. 34% of American workers are engaged at work.

That means 66% of workers are not fully engaged. For that majority, the question, “are you paid what you’re worth?” is even more important. If engagement isn’t there, people aren’t working to fulfill an inner drive. For those 66% of people, it is more important than ever to understand their economic value.

To understand what it is that you do to create economic value, you need to think about the value-add tasks of your role. How much revenue does that bring in? Or how many costs are you saving?

As an employee, some of the earnings or savings are a direct result of your actions. That should give you an indication of whether you are paid enough. Other considerations are; how much would it cost to replace you?

Being paid for what your worth could mean the difference of hundreds of thousands, or even millions of dollars over your career. In the pursuit of financial freedom, every choice, good or bad, plays a role.

In all areas of our lives, we are asked to tolerate situations because “that’s the way things are done.” That could mean accepting fees that aren’t justified, or even accepting pay that’s too low. The decision to settle in any of these situations is costly though. From thousands to hundreds of thousands, the cost of tolerance is a high price to pay.

Where are you going to say, “enough!”? What areas of your life have you merely tolerated for too long? It is time to take a stand, your future just might depend on it.

How can you be better at your job?

This week, several members on my team approached me with the question, “How can I be better at my job?”

It’s an important question. One we all have asked at one point in our lives. And the answer is one that can have a profound impact on your entire life.

The answer, perhaps overly simple, has only 3 parts.

The To-Do List

Opening up the notebooks of my team members, the first thing that practically fell out was a seemingly endless list of “To-Do’s”. Each of them, independently, had written down all the balls they were juggling right now.

And there were a LOT of items on those lists. No doubt, you can relate. How many things are on your lists?

How many times have you thought, “There simply isn’t enough time in the day to get all this done?”

Trying to help take inventory of what their tasks were, we started putting those To-Do’s into buckets. Grouping tasks by the nature of the work gives a better understanding of what my team was spending their time on.

Ultimately, we were able to separate these task lists into a few separate groupings, or buckets.

Batching tasks helps give some clarity over where you are actually spending your time. Take out your to-do list, and group those tasks into buckets of similar items.

Make it Rain

Putting those To-Do list buckets to the side for a moment, we then looked at what jobs they were each trying to do. Boiling down the job into the most basic metric: what makes it rain?

Think about your work. What is it that you do in your work that makes it rain? What work do you do that makes money?

If you are a software developer, it’s producing working software. If you’re an artist, it’s making and selling art. If you are an event planner, it’s running smooth events.

In every role, there are a handful of actions that really make it rain. Understanding what those few critical levers are will help you become more valuable.

Now think back to that endless list of To-Do’s that you have. Which of the buckets are the same on both lists? The To-Do list tasks that fall into one of your make it rain bucket, those are your money-makers. Do more of those, and do them well, and you’ll become way more valuable.

What The F*?

Focus.

What the focus.

Asked separately, both Bill Gates and Warren Buffet gave the same answer. The keys to success lie in your ability to focus on the important things.

As my team members looked into their To-Do list, they were really revealing their focus. Anything on that endless list was something that was weighing on their mind, and sapping their time and energy.

By putting more focus on the activities in the make it rain buckets, my team members will ultimately be more valuable to the company. Put another way, by focusing on the real value-add activities, my team members will be better at their jobs.

You want to be better. Better in your career. Better financially. Better in all aspects of your life. I know you do, because that’s why you show up here each week.

Understanding what it is that you do to make it rain, and then allocating more of your time to focus on those key activities makes you better. And that difference in performance between you and everyone else? That will, in time, be rewarded.

Think about these elements this week: What can only you do to make it rain? Are you spending enough time on those activities? Can you increase your focus, time and energy on those money-makers to become even more valuable?

3 TFSA Mistakes That Could Cost You Big Time

Are you making one of the three most common TFSA mistakes?

For Canadians, the TFSA is one of the best investment style accounts you can hold. But that only applies when you follow some rules. Breaking any one of these rules, and you could be in for a nasty surprise come tax time!

The Tax Free Savings Account (TFSA) is actually a style of account that allows tax free investment growth. Tax savings? Check. But, there is a specified limit of lifetime contributions that increases every year. The only way to increase the amount of funds covered tax free in this tax advantaged investment account is to let the markets work their magic over time.

Of course, in times of great opportunity, sometimes impatience starts to rear its head, and people start looking for ways to get ahead of the game. Unfortunately, those activities could actually hurt you more than you’re expecting.

Trading too Often (Day Trading)

With the increased market volatility during 2020, especially the crash in March, investing into the stock market can produce some wild swings in valuation. For those more involved in short-term trading (defined: gambling), there has presented the opportunity to score some quick returns. Investing for the short term steps a little too close to the vast grey-area that the Canada Revenue Agency refers to as, “investing for business activities”.

“Business Activities” as it applies to your TFSA means that you have found yourself in a grey-area of TFSA tax law. Somewhere in that grey area surrounds the frequency of buying and selling transactions. If the CRA determines that the buying and selling of investments is too frequent, those transactions may be disqualified, and therefore not tax-advantaged. You would then be required to pay taxes on those investments.

A note on frequency of trading:

Any long term buy and hold strategy will be fine, even if you have weekly or monthly contributions made automatically. This is where the grey-area begins.

For example: I might have weekly contributions to my TFSA - resulting in 52 purchase transactions a year. On the other hand, someone else might have bought and sold only a half dozen times throughout the year, playing on the market swings of particularly volatile stocks. While my 52 transactions would be fine, the person with only those half-dozen transactions might still be classified as “business activities”.

We saw this a couple of years ago during the weed-stock bubble. Playing the volatility in those stocks resulted in some people walking away with huge gains in their TFSA, ultimately increasing their tax-advantaged investment limits. But, the tax-man always takes his cut. And many people who had tried to “beat” the CRA were ultimately re-assessed and forced to pay tax and penalties, as well as losing that contribution room in their TFSA for the year.

As a general rule of thumb; if you think you’re out-smarting the tax office, watch out. They will find a way to get you.

Buying Certain Foreign Investments

Another mistake many people make is in which investments they buy for their TFSA. While the list is fairly straight-forward, there are a few areas that still trip people up.

What can you invest in?

Cash
GIC’s (Guaranteed Investment Certificates)
Bonds
Mutual Funds
Securities listed on a designated stock exchange

In general, if the investment is traded on a major market like the TSX, NASDAQ, or S&P, your investment qualifies in your TFSA. But, that isn’t the end of the story.

With the diversity of investments available, you can invest in virtually anything under the sun. There are a few types of investments that don’t qualify for the same levels of tax protection as say your RRSP. The most notable of these investments comes in the form of a REIT.

REITs, or Real Estate Investment Trusts, often pay their shareholders an above average dividend yield, which makes them extremely popular. With the international nature of many of these big REITs, the currency of distribution can trip some people up. Some REITs pay their dividend distributions in USD. While that alone is not a problem in a TFSA, the US tax office steps in to ensure they get their piece of the action too. Unfortunately, a TFSA does not provide the same protection from US Withholding taxes as an RRSP would.

Be sure to know what investments you are holding in your TFSA. If the investment is in a foreign country, the same withholding tax protections might not be available compared to holding those investments in a RRSP.

Over-Contributing to Your TFSA

The final mistake is far easier to identify and fix. Contributing too much into your TFSA will result in penalties, including additional taxes and charges for each day the TFSA sits in an over-contributed state.

Each resident has a contribution limit that increases each year they reside in Canada full-time (more than 183 days/year), and are over the age of 18. The confusion arises when moving money into and out of your TFSA. Withdrawals from your TFSA suffer a timing delay before they can be re-contributed.

For example: Assume you have fully maxed out your prior years contributions. Then, in August 2020 you remove $30,000 from your TFSA. Even if by October you have that $30,000 to re-invest, your contribution room doesn’t reset until January 1, 2021. That means, if you put the money back into your TFSA in October, you would be in a state of over-contribution until January 1, 2021. That period from October to January would result in penalties and additional taxes, despite your lifetime contribution limit not changing.

To see what your contribution limit is for any given year, sign into your myCRA account.

Remember, your contribution limit for the year is total contributions, and doesn’t add-back in any withdrawals until the following year.

By adopting a long term buy and hold strategy, and only buying qualifying investments, you will be well positioned to avoid the costly TFSA mistakes mentioned here. Financial freedom is only a few right moves away - avoid these mistakes and you will be well on your way.

A Guide to Purchasing Brand Names

When should you spend top dollar to buy brand name goods?

Personal finance writers everywhere espouse a frugality mindset, often supporting the notion that brand names are a waste of money when you can buy similar No Name goods for a fraction of the cost. And the examples used so often leave little doubt.

Who needs a $4,000 purse, when a $80 purse is just as functional? Or a $10,000 watch when a $40 Timex does the same thing?

While the argument in favor of the cheaper option is compelling, there is far more at work than the simple dollars and cents.

When should you buy Brand Name?

Buying quality goods isn’t just a luxury, there are some very good reasons why someone would choose to spend the extra money.

The Product is Part of Your Identity

How much is your identity worth?

The answer to that is there is no price you wouldn’t pay. It is simply who you are.

We can see examples of this every day, just by taking a look in your front pocket. Do you have an iPhone? Do you know someone who does?

From a technology standpoint, iPhone’s are an inferior product. Hands down, different android phones perform better than the iPhone across any single metric. Battery life, camera quality, durability, ease of use. An android phone is certainly superior in whichever criteria you choose.

Why then do so many people have an iPhone? Because it says something about who they are. Their identity is synonymous with the ideals and values that the product embodies. People love their iPhone’s because it is a reflection of who they are, and the phone is simply a tangible way of showing that identity to the world.

The same case can be made by Harley Davidson Motorcycles. People will pay a premium for a Harley because they feel that the product symbolizes their own values of freedom and independence.

When the product is a way of showing the world who you are, the question becomes more than simply what the price tag is for a set of features.

Higher Quality is Valuable

Another reason to buy a premium product is the long term cost of ownership.

During a camping trip this summer, some friends made the comment that the coolers we used are quite expensive. Anyone familiar with Yeti products would agree. The coolers that we have for camping and outdoor adventures weren’t cheap.

But, as a testament to the quality of the cooler, we haven’t yet had food spoil because it wasn’t kept cool enough. For our outdoor adventures, having a product that works well isn’t just a nice to have, it’s essential.

But aside from peace of mind, the difference in quality can actually lower the long-term cost of ownership. A quality product can be with you for years, even decades after a cheaper alternative has needed to be replaced.

One such example is in footwear. A good pair of leather boots, properly maintained, can last a decade or more. With semi-regular treatment of the leather, and the occasional re-sole, those favourite pair of boots will outlast a dozen pairs of the cheaper options. Ultimately, due to the longer lifespan of a quality product, the total cost of ownership is less.

When to Buy Brand Name - A Practical Approach

Thinking about higher quality, or even the personal identity makes the decision to buy top of the line goods easier. But it is too easy to fall into the mindset that you should always buy top quality. Sometimes the no name option is the better choice than another Gucci wallet.

In true Business Minded fashion, as we strive to unlock the secrets of success, we needed a more formulaic way of making these choices. These decisions can’t simply be at the whim of “Does it match my identity today?” or, “Do I need top quality?”

The solution to this problem of No Name vs Brand Name comes from a piece of wisdom I heard a few years ago.

When you are buying anything for the first time, buy the cheapest product you can. If that product wears out or breaks while you’re using it, replace it with the best quality option that you can reasonably afford.

Why this works?

This guide to purchasing helps take the guesswork out of the game. When you’re buying a product for the first time, you don’t know what to look for, or even if you’re going to continue using the products.

When I first moved into our condo with my girlfriend, I bought a mixed pack of 32 cooking utensils. By no means were these top quality, but I had enough different tools to cook with. In short order, one of the spatulas that I used every morning broke. By this point, I knew exactly what I liked about the spatula, and what was valuable to me. Now, when I went to make the replacement purchase, I knew exactly what to look for, and am overjoyed with our high-quality replacement.

What about the rest of that mixed pack of cooking utensils? Well some of them I use regularly, and know what to look for if they ever need to be replaced. And the rest? I haven’t ever picked them up. Buying top quality from Day 1 would have been a complete waste on those items that have never seen the kitchen lights.

Deciding what to buy shouldn’t feel like a chore. This simple formula of buying cheap, and replacing with quality ensures that you only spend your hard earned dollars on things that you’re actually going to use.

Habits: A Walk in the Park

How long does it take to form a habit?

The best example of forming habits comes from a time when I was in high school. Starting in early September, every single morning I would meet my friend Shane before school. Together we would walk to school, just like so many young school kids do. The way to school was a long loop around the roads, but if you were walking, you could skirt around the edge of a farmers field, hop a fence, and be at the school in less time than it took the bus to drive there.

Every September, we would walk up the hill, and slip into the side of that farmers field. But there was no path. Every September we would have to wade through waist high grass, over rocky, uneven, tractor chewed up ground.

But after a few weeks, the grasses started to become trampled. The ground started to smooth out. And slowly, step by step, a path was formed.

That path served us well for 8 months. With every passing week the path became easier and easier to walk, until it became second nature. But come June, we would stop walking to school and take off for summer holidays.

By September, that carefully trodden path was gone, and we would have to start the same process all over again. Walking the steps again and again, slowly forming that path.

So how long does it take to form a habit? The reason that answer is so difficult to answer is because there is no end. It isn't 21 days, or 60 days, or 90 days. It's forever. Because the day you stop walking that same path is the day the path starts to disappear. The day you stop walking, the weeds start encroaching, not just making the habit harder to keep, but often replacing with counter-productive activities.

Success is a Journey

Success can be achieved by doing the right activities, consistently. If you regularly work-out, you will be fit. If you regularly read, you will be knowledgeable. If you regularly perform high-value activities, you will be valuable.

In essence, this is what Aristotle spoke of when he said, “We are what we repeatedly do. Excellence, then, is not an act, but a habit.”

If you have the right habits, success lies somewhere along the path.

A Shortcut to Success

Just as our path across the edge of the farmers land was a shortcut to our destination, the right habits can take you to where you’re planning to go far faster.

If you want to get physically healthier, the right eating and exercise habits will lead to that life. If your definition of success is for stronger relationships, the right communication habits, the right gratitude habits, those will help you get there faster.

But shortcuts work both ways. If your habits are taking you in the other direction, to a place you don’t want to go. Those habits will also bring you to the edge of ruin faster as well.

Beware, the Weeds

If you stop walking on the path of success, the weeds will start growing. This is a fact. If you want to be successful, you need the right habits to get there.

If you want to stay successful, you need to keep performing those habits that brought you this far. The moment you stop making strides down the old familiar path is the moment that path starts overgrowing.

Very often, those weeds represent negative activities that make our journey harder.

Creatures of Habit

We are all creatures of habit. We fall into the same old routines. Some of those routines lead us to success, and some take us on a different path. Which of the habits that you have are leading you to success? And which are taking you off-track?

Take an inventory of your habits and routines. Which paths should you keep clear of weeds. And which roads should you walk down a little less often?

Knowing that this is a lifelong journey is daunting, but exhilarating at the same time. It means no matter where you find yourself right this moment, tomorrow can always be brighter. You can start forging new paths to greater success at any time.

Your future, your success is in your hands. Seize it.

How To Choose The Right Credit Card For You

Credit cards offer a variety of benefits, but with so many choices out there, how do you know if your card is the right one?

While many of us have at least one credit card, these have really stuck out as the way of the future recently. Reeling from the coronavirus, the payment processing industry has fully embraced credit cards, with many stores simply refusing to accept cash or other contact-laden payment options. With increased usage of credit cards, it is more important now than ever to ensure that you have the right card for you.

Why Credit Cards?

Credit cards offer the convenience and flexibility of payment virtually anywhere. Newer cards also have a “tap” function that allows you to pay under a certain amount without using the keypad. That technological capability made credit cards a clear winner as fear of germs and viruses escalated.

Factors to Consider When Choosing A Credit Card

Credit cards come with a whole list of different costs and benefits, which can make the choice unnecessarily complicated. Three of the elements found on all cards are:

Interest Rate

The interest rate is displayed as the annual percentage rate (APR). This is the interest that you will be responsible for if the credit card is not fully paid on time. That interest rates can fluctuate quite significantly, reaching 20% or more! While this is an important number to know, if you use your credit cards responsibly and pay them off in full every month, you won’t incur any of those high interest charges.

Consider your own financial habits. Do you pay off your statement in full every month? If so, the APR isn’t really influential in your purchasing decision. If, on the other hand, you sometimes miss a payment, or only pay the minimum balance, the APR interest rate can have significant financial implications.

Fees

The list of fees associated with each credit card can be both extensive and confusing. Some of the more common fees that you should be aware of are listed here:

The annual fee. Some cards come with an annual fee, often designed to give you access to more or better perks. While this sounds good on the surface, in reality many of those cards the additional perks don’t warrant the additional fees.

Cash advance fees. Cash advance fees are paid if you need to withdraw cash from your credit card account. While most companies don’t accept cash right now during Covid-19, there are always a few exceptions. In those rare situations, it’s always good to know what the fees are. These are either a flat amount, or a percentage.

Foreign currency charges. Credit cards often have a modifier on foreign exchange rates. For example, one of my credit cards charges me 2.5% more than the current market rate on all non-Canadian dollar transactions. If you do a moderate to significant amount of shopping in another currency, it might be worthwhile getting a credit card in that currency to minimize those extra fees.

Statement fees. Statement fees have certainly become more frequent over the past few years. These fees are levied on print or re-print of account statements, as a type of environmental fee to encourage people to go paperless. These types of fees also can encompass transaction investigation fees, when you ask your credit card company to investigate suspicious or unknown transactions on your account.

Insurance premiums. This final type of fee is for balance insurance. These fees are especially prevalent on cards issued to individuals with no or low credit scores.

Perks

The main reason credit cards are preferred by consumers over cash or debit transactions is the ability to earn different types of perks.

The size of the benefit is often contingent upon at least one of two factors. Your salary, or the annual fee. Bluntly put, the more money you earn, the better the rewards you’re entitled to. There are three types of perks that are typically offered.

Reward Points

Reward points are as varied as the companies offering the credit card. This is probably the biggest deciding factor between credit cards that you’re interested in. Do you like to travel? A card that rewards with airline tickets or Air Miles would fit your lifestyle. Like free groceries? That’s a different card. What about a shopping aficionado? There are likely reward points for your favorite boutique as well.

Matching your reward points with your interests and values is the best way to get the most out of your credit card. For example, I have two different cards, one that rewards groceries and gasoline purchases. The other card has a more general reward point system, with rewards used for travel booking. Both of these cards work well for me, rewarding me where I spend my money, with rewards that I value because they fit my lifestyle.

Cash Back

Cash Back rewards cards are another extremely popular option. Instead of receiving reward points, these cards return a certain percent of your purchases. Effectively, these cards give you a small discount on all qualifying purchases.

If these cards are of interest to you, be sure you do a quick calculation to see your required monthly spending to either qualify or break-even on those annual fees.

Insurance, Hotel Upgrades, and/or Car Rental Upgrades

Another perk that is often offered is various kinds of insurance. For example, both my credit cards offer different types of insurance. One gives me trip cancellation insurance for any travel booked on that card, while the other insures rental vehicles. These are often the less-advertised perks of the cards, but are actually extremely valuable if used effectively.

How to Choose the Right Credit Card for You?

Knowing what the interest rates are, the fees, and the rewards will help you shape your decision. To help you make that decision, think about the following questions:

Do you always pay your credit cards on time?

If not, start doing so now. As you build up that financial discipline, you should get a card with the lowest interest rate possible. No amount of rewards will make up for extra interest charges.

Do the rewards from your necessary spending justify the fees?

You shouldn’t feel pressured to spend simply to make the card worth it. If you have the right card, the purchases you’re already making should bring you out ahead after considering the fees associated with the card.

Are the rewards aligned with your lifestyle?

Being rewarded is nice. But this is your decision, so make sure that the reward points won’t just sit around like that giftcard to the store you’ll never go to. The perks should mesh well with your lifestyle, so that you use them, and actually see the benefits.

The Bottom Line

Credit cards have a place in everyone’s financial fortress. Used effectively, the rewards and benefits can help you immensely. But, that comes at a cost. Financial discipline is necessary to avoid insanely high interest charges. Paying 20% APR interest even once hurts, and makes it that much harder to stay on top of your finances.

If you have the discipline to know your budget, and stick with it, credit cards will reward you handsomely.

Lending Money To Family and Friends

Over the course of several long, hard summers working construction, I had painstakingly built up a prized collection of professional tools. Those tools, and the skills that I developed through those countless hours in the scorching sun made me the go-to guy for fixing small problems at my friends houses. For the price of a hot meal and a cold can, there was little that I couldn’t fix.

Then one day, a good friend of mine came and asked to borrow some of those tools. My skills weren’t needed, the job wasn’t that big, but he needed the tools that I had.

“No problem.” I said, “Just pick them up on Friday and drop them off at the beginning of next week.”

Friday rolled around and I handed over a few of those recently cleaned and organized toolboxes. I wanted to help, and I wasn’t using those tools right now anyways. Better a friend gets some value out of what would otherwise be collecting dust on my shelf.

But then Monday morning rolled around, and instead of a knock at the door bringing those tools back, I received a phone call, “Hey Brian, any chance I could keep these for a few more days? Something came up and I still need those tools a little longer.”

“Of course. How about you drop them off next weekend?”

“Sounds good, appreciate it buddy.”

Next weekend came and went. Then the weekend after that. Finally, a few weeks later my friend showed up with my toolboxes. He sheepishly grinned as he returned them, with a chuckle and a bit of an apology. Other than a little impatience on my part, no big deal right?

A little while later, when I finally went to use one of the sets that I had loaned out, and a long list of small things were either damaged or outright missing. To say I was furious was an understatement, especially since the one thing I actually needed? Of course that size wrench was one of the missing items.

Money is a tool.

I recently recounted this story, when asked about lending some money to a family member. The friend who came asking for advice was slightly perplexed, “What does this have to do with my situation? My brother isn’t asking for a wrench, he needs some cash to get him through his current situation.”

That’s when I needed to explain. Money is a tool. Nothing more, nothing less. Just as you would use a hammer to build or destroy, money does the same. It has the power to create, or take away. To build comfort, or remove discomfort. And while I may appreciate my tools, I certainly don’t want more wrenches for the sake of having more wrenches.

The philosophy you have about money will play an enormous role in how lending money to family and friends impacts you, and your relationships.

Things to Consider When Lending to Family and Friends

Don’t Lend What You Aren’t Prepared to Lose

Just as I learned from lending my tools, sometimes what returns isn’t in the same condition as what was lent out.

There are stories abound of family or friends never fully repaying the loan (or never repaying any of the loan). This ultimately damages the relationships that you have. While borrowing from the bank may have a higher interest rate, what is the cost of your relationship with that other person?

Bringing a wallet into a relationship often has a nasty habit of increasing the friction between the two parties.

While the advice can never be as cut and dry as, never loan to family or friends, a good general guideline is to never lend more than you’re prepared to lose. That way, if the worst comes to pass, you aren’t left in a tough situation yourself. This might even give the relationship a better chance of staying intact.

Count on Life Interrupting the Payment Plan

As the weekend stretched into weeks on end, my patience was fraying. Where were my tools? We had an agreement!

That irritation at the constantly changing terms of our arrangement certainly tested my patience, a test which, when trapped in my own mind, I certainly failed.

Lending money to loved ones is no different. While the bank might shrug and say tough luck, it's a whole lot harder to do that when you care about the person. And while at first it seems like you’re just being generous, if you’re anything like me, that nagging voice of doubt will eventually start muttering. And those quiet whispers aren’t pleasant.

Whenever possible, don’t send over money “just to cover this week”, because that one week could very well stretch into one month. If you have a need for yourself in the foreseeable future, it might be best to hold off getting financially involved.

Ask Questions

There are times when you might want to help out with a monetary loan. In those instances, you should try to get as informed as possible first. Ask questions, so you can set your own expectations, and to understand the needs. It’s never easy to ask for help, especially the way North American culture has conditioned us to provide for ourselves and our own. If a friend or family member is asking for help, it can be a sign of deep respect, and quite likely will help you feel good about helping out.

Setting your expectations right from the outset will help you control some of those nagging thoughts that pick away at the strands of your relationships. Ask the borrower questions like:

Why do you need the money?

Who else is lending you money?

How do you plan on repaying me?

When do you plan on repaying?

These questions will help you understand both the need, and also the plan in place to resolve the debt. And the plan to repay helps the borrower too. Good intentions only go so far, and beyond that, you need a rock-solid plan.

A Gift to You (of sorts)

While this advice on lending money to family and friends may save many relationships over time, there is another solution. Don’t lend at all. Instead, can you make a gift of the money (some, or all of the requested amount). The gift towards a worthy cause for a loved one will help strengthen your relationship, and avoid the potentially high cost of borrowing in the future. And that high cost of borrowing isn’t interest or fees. It’s friendship.

When lending money to friends and family, your philosophy will play a large role in how that sits with you. But even if you aren’t unduly attached to the all-mighty dollar, it is always wise to have a few rules of thumb.

Don’t lend what you aren’t prepared to lose. And most definitely count on life interrupting the best laid plans.

If you are dead-set on giving your loved ones some assistance, other than loaning money there is always another option through gifting.

How To Become An Expert In Anything

What do you want to be an expert in? What do you want to be known for?

Zig Ziglar many times said if you spend an hour a day reading about a subject, within 5 years you will be one of the top in your chosen field.

This advice hits on a few key principles for your growth and development.

Consistency

The first principle to growth is consistency. As Zig says, “an hour a day”. The same advice can be found in a wide range of cliches, like “an apple a day keeps the doctor away”.

With consistent action you are able to build upon an ever increasing knowledge base. By reading an hour a day, you’ll be adding knowledge to an ever expanding base. Simply by exposing your mind to the right ideas, you will be cultivating a fertile spot in your mind for those ideas to germinate and grow.

This process of consistently feeding your mind information and perspectives will help you deliver better results, faster.

To see the power of consistency in action, we can easily find examples of the wrong type of consistent action. Consistently not doing certain things. Consistently skipping the gym leads to a loss of physical muscle, and an increase in body weight. And while fitness is always an easy example to use, that principle of consistency is all around us.

Consistently reading will let those ideas flower, leading to industry renown, and eventually leading to people regarding you as an expert.

Focus

The second principle of success can be found through the focus on a specific subject matter.

By reading everything you can get your hands on in one specific area, you are able to expose yourself to many different viewpoints. Understanding the benefits and drawbacks of different approaches helps you stand out again as an expert in your field. Rather than a single approach to all problems, expanding your knowledge in one subject area lets you bring forth the best solutions to any given problem.

This consistency in sticking to a subject matter is essential to becoming an expert. If instead you read one book each on many different subjects, you will no doubt be more entertaining at a party. But, if you want to be regarded as an expert, you need to go deep into one subject area.

For example, you wouldn’t ask an engineer for financial advice. Their circle of competence means they are best suited for construction and design inquiries. Years of study and reading has led to the engineer being uniquely qualified to handle engineering type problems.

Focus lets you build your own circle of competence, ultimately leading to you becoming an expert on problems that lie within that circle.

Become an Expert in No Time.

Consistency and focus. Those two principles will let you become an expert in any single subject matter in 5 years.

But how do you find the time to devote an hour every single day?

Here is where we can borrow another piece of advice from Brian Tracy. Turn your commute into a mobile classroom.

That 30 minutes each way we spend on a train? We could be reading a book instead of flipping to the sports stats on the daily newspaper. Stuck in traffic for another 50 minutes a day? Throw on an audio-book or a podcast and turn that trip into a learning experience.

Finding ways to increase our time spend learning without costing us any extra time is what Brian Tracy refers to as No Extra Time. This re-purposing of existing mindless activities that we are already doing helps us learn more with no extra time commitment.

If you spend an hour a day reading about a subject, within 5 years you will be one of the top in your chosen field. By applying the principles of consistency and focus, you too can become world-class in whatever you choose.

That world-class status is even easier to attain, if you re-purpose some of the other things you are already doing. Finding ways to add learning into things you already spend time doing helps you become an expert in no extra time.

Lessons From My First Mentor

Mentors play an important role in shaping our growth and development. We each find mentors to help us grow throughout our journey, but almost all of us have the privilege of learning from two special people.

While they go by many names, we call them mom and dad.

As we celebrate Father’s Day this weekend, there’s no better time to reflect on the lessons our father’s taught us, and if possible, to say thanks.

Here are a couple lessons I learned along the way.

Just do it.

Each morning, if I was awake early enough, I would inevitably see my father don his suit, grab his briefcase, and head off to work. Every day, no exception.

No days when he simply didn’t feel like it. No days where his passion or love for work was diminished. No days that his energy levels just weren’t there.

As I grow older, and maybe a touch wiser, I understand. We all face those days where all we want to do is pull the covers over our heads. Those days where we’re worn out, exhausted, just needing a break. My dad was no exception.

But that loss of passion, of energy, didn’t matter. Dad lived out those immortal words of Nike, “Just do it.”

Just do it means showing up, getting the job done, no matter what life throws at you. Just do it means no excuses, no bullshit. Just do it means the only way to get out of a rut is to keep on keeping on. Just keep moving forward.

Just. F*cking. Do. It.

There’s always someone in your corner.

The journey of life has its ups, but also its downs. During those highs, it's important to celebrate the victories. The great hit in little league, the better-than-expected report card. No matter the size of the accomplishment, I always knew there was one guy celebrating with me on the sidelines.

We all have victories, probably more wins than we give ourselves credit for. Take a page from dad’s playbook and reward yourself with a pat on the back and an ice-cream cone.

But just as important as a pat on the back for a job well done is how we react to those inevitable stumbles. Those moments when we don’t live up to our potential.

I can tell you countless stories of those times. The days when nothing goes right. The days when I started to lose faith in myself. The days I was so lost that I didn’t know which way was up.

On those days I learned another lesson. Someone always believes in you.

It is easy to find someone in your corner when everything is rosy. But even when you can’t see the light, there’s someone watching over you. And that knowledge, that belief in you? That will see you through the darkest of nights.

As Winston Churchill said, “When you’re going through hell, keep going.” Don’t whine about it. Just keep going. Just do it.

And know that on those darkest days, there’s always someone looking over you. Someone believes in you. Even when you struggle to believe in yourself, there's always someone in your corner.

To all dads everywhere, Thank-you.

Tell us in the comments; What lessons did you learn from your father? And if you can, let your father know how much you appreciate his tough-love teachings.

How To Find A Mentor

The top achievers in our society often credit the efforts of their mentors for their successes. These mentors, the people who helped these top achievers on their journey through life, play a pivotal role in distilling life’s events into actionable learning experiences. The knowledge and wisdom passed along by mentors helps us avoid some obstacles, and get back on our feet faster after a setback.

With bigger successes and better lessons learned, it is no wonder that mentors play a pivotal role in our achievements.

All that can be asked now is, who is mentoring you?

Mentors and Coaches

When you are looking for a mentor, it is important to make the distinction between mentors and coaches. Both are critical for your success, but they serve very different roles. A mentor is someone who can provide you guidance on your journey. Someone that has walked the same path, and can leverage personal experience to give you insights into your struggles.

A coach, on the other hand, has a short term goal-centric focus. Your coaches will give you specific tasks aimed at developing critical skills that you need right now to reach the next level.

In the 1960’s and 70’s, there was a basketball coach earning notoriety on the west coast. Coach John Wooden’s team went on to win the NCAA championship 10 times in the 12 year period from 1963 to 1975. For the players on the basketball court, Coach Wooden was exactly that; a coach. He helped them focus on a specific skill set; like shooting the ball. This specific short term goal-focused development of skills is the hallmark of coaching. But during his life, Coach Wooden also gave advice to millions of people through speeches. Drawing on personal life experiences, his advice helped shape the journey’s of countless leaders. That imparting of wisdom makes Coach Wooden a mentor to so many others who weren’t directly coached on the court.

Where Do You Find a Mentor?

If mentors are critical for your success, where should you look for one? At the end of my teenage years, I was stumped. Like so many others, I was told that a mentor would help my growth, personally and professionally. But I was just a kid, still green around the ears. Who would take a chance mentoring such an unproven entity?

It was some time later, after graduating university that I came to the first of two realizations. Nobody is going to offer to mentor me. It’s my life, and I alone am responsible for it. If I want a mentor, I need to go find one. And the person I choose to be my mentor should be someone that I deeply respect, someone I can learn from, someone who walked the path ahead of me.

The man I selected, the one I wanted to learn from was Jim Rohn. There was only one problem. Jim had passed away a year or two earlier.

The second realization that I came across was this: it didn’t matter that I couldn’t call up Jim and talk about life. Throughout the years, Jim wrote books and delivered seminars. All the wisdom, support, and guidance I could ever ask for was stored in those pages, in those audio programs.

Understanding that you don’t need to have a personal relationship with your mentors was, as I would call it, a game-changer for me. I became a consumer of knowledge and wisdom from some of the top leaders, speakers, and entrepreneurs. And as I ingested lessons from my mentors, many of my own successes in writing and business could be attributed to the lessons that I learned.

With the way technology has progressed, we are no longer limited in who can be our mentors. The list of resources, of knowledge, of wisdom passed down throughout the ages is nearly endless. All that is left for you to do is choose a mentor that you believe in, and tap into the wealth of information that has been left inked on history’s pages.

Can You Have Too Many Mentors?

Now that we have gone from too few mentors, to countless mentors from all across history, the next question is: who should be your mentor? Can you have too many mentors?

While the list of possible mentors might be nearly limitless, your mentor still needs to be someone that you can believe in. Someone who has walked the path before you, who can help show you the way.

While my learning started with my mentor Jim Rohn, he is not the only mentor that I have tapped into. I have utilized different mentors throughout my life for my health goals, my relationship goals, etc.

You can’t have too many mentors, as long as a few criteria are met. Do you trust their wisdom? And are their lessons learned from experience?

What that really means is this: make sure your mentor has walked the talk.

You wouldn’t take fitness advice from an overweight personal trainer. Health advice from a sick doctor. Or spiritual advice from a politician. In the same vein, make sure that your mentors are people who are already where you eventually want to be.

When you follow someone who is going where you want to go, your path becomes a lot easier. That is the power of a mentor.

With the right mentors, you too will become a top achiever. Who will you credit as a mentor to your next grand achievement?

Embracing Discomfort

Brilliant golden rays shone down over the grassy hills this weekend, as 4 of us gathered at the tee box on hole 1. When my turn came, I placed the ball, fell into a comfortable stance, and started my back swing.

Within seconds, the club came crashing down, striking the ball with a resounding smack. And the ball took off!

Rocketing off that tee, that ball shot straight to the right, landing somewhere well out of eyesight, and probably a few fairways over.

A couple more shots like that later, and my vastly more experienced golfing companions offered me some timely advice. My stance was too far away from the ball, and the only way to improve was to step closer. But there was one big problem. That felt uncomfortable, unnatural, almost unpleasant.

But the next shot was perfect. And as my entire golf game started to turn around, I started to improve.

While I might never become a professional golfer, there is certainly a lesson to be learned from that time spent chasing a little white ball around a grassy field. If you want to improve, you need to step outside your comfort zone.

Embrace Discomfort

Just as my golf game was poor when I was stuck in the rut of “comfortable”, we can all find areas where we have become complacent.

These comfort traps exist all around us. Staying in a job that doesn’t excite or push you anymore simply because it’s a job. Falling into the same old routine with a significant other, rather than pushing for new exciting experiences. Or sticking with your current spending habits, because changing them is uncomfortable, despite knowing that without change those financial goals will forever be out of reach.

This state of comfort is actually costing us greatly. 2018 statistics released by Stats Canada show that the average amount contributed to savings for those under 35 was less than $5,000 annually. This number is alarmingly low, especially for those entering their prime earning years. But the comfort of current spending too often wins out over the sacrifice for long-term gain.

Let us assume that retirement is in the cards for this average Canadian. $5,000 per year, put aside for 30 years in an investment portfolio earning 5% annually leaves a nest egg of just shy of $350,000. That amount won’t fund that dreamy retirement for very long. But small, uncomfortable cuts to habitual spending could drive that savings number much higher. A little discomfort, paired with compound interest over several decades would drastically change that retirement goal outlook.

Being comfortable is the antithesis for growth. To grow, to develop, to become better, we need to embrace discomfort. Maybe that’s changing your financial habits. Or learning new skills to move to the next stage in your career.

By stepping out of that comfort zone, we are able to grow, to improve, and ultimately achieve more.

Where can you step up to the ball? Where can you embrace discomfort in your own life? What changes will you make to shake up the familiar and expose yourself to new levels of learning and growth?

Best High Interest Savings Accounts

What is the best high interest savings account in Canada right now?

This question is important for determining the right accounts for your personal financial systems. Understanding the best place to store different buckets of money is essential for optimizing your financial systems. Savings accounts often rank close to the top when people consider their own financial needs. There are even a dedicated number of people who will switch banks multiple times a year, all looking for the best savings account.

Unfortunately, this often misses the mark. While having a good savings account is preferable, the benefits are often too small to be really noticeable, in the grand scheme of life.

With that, let us look into why your savings account is important, but also why this is a decision that should be classified more in the “set it and forget it” category.

Why is your savings account important?

Your savings account is perhaps the very foundation of your financial fortress, and the starting point for future financial endeavors. Your emergency fund, the first real “investment” that you should be making, should be stored in cash. This safety net will see you through the ups and downs of life. With any luck, your emergency fund will sit there untouched for long periods of time. As a result, having that cash stored in a safe, accessible place is ideal.

Recall that your emergency fund should be stocked with 3-6 months of living expenses, and even upward to 12 months of living expenses. This is a sizable amount of cash, and to make the most of it, should be stored in a high-interest e-savings account. This will reduce the impact of inflation on that emergency fund, if only by a small margin.

Since these cash savings are stored in a cash savings account, it makes sense to secure the best high-interest account that you can.

Why your savings account choice shouldn’t change often.

Too many people focus solely on the interest rate provided by their savings account, even going as far as to switch banks to get the latest and greatest promotional offers and rates. While this may net you an extra half percent or so on your cash savings, the actual dollar value simply isn’t worth your time to swap banks.

Let’s assume you have an emergency fund of $ 30,000. You receive $ 300 per year in interest per percent of interest paid by your bank. Differences between top high-interest accounts, and the general high-interest offerings are probably less than 1-2% annually. What that means, is that the interest difference between various high-interest accounts is $ 600 or less, on a 30,000 dollar balance. Given the number of hours it takes to change banks, the hassle is often not worth it. These changes only make the illusion of progress towards your financial goals, when in reality your time is better spent elsewhere, such as improving your vital career skills, or refining your goals.

A better approach to savings accounts.

Rather than chasing the highest interest rates on savings deposits, it is far better to examine all the offerings at your chosen institution. This includes account fees, accessibility of your money, any extra service charges (like EFT fees), as well as investment options. Simplifying the services you use will save you both money on fees, and more importantly, save your time.

What High-Interest Savings Accounts are “best”?

Ensure you are taking into consideration all your financial needs and goals, and then pick the account that fits right with your plans. To help you get started, here are some of the available high interest accounts from some of the more popular financial institutions. Remember, these savings accounts are an essential piece, but still only one piece, of your financial puzzle. (Note: I am not affiliated with any of the institutions mentioned below.)

Financial Service Provider	Account Requirements	Interest Rates (Annual)
RBC	No account minimum	0.5% (after promotional period ends)
CIBC	No account minimum	0.2% (after promotional period ends)
TD Canada Trust	$ 5,000.00	0.05%
Scotiabank	No account minimum	0.15% - 1.35%, depending on length of time without withdrawing any money
BMO	No account minimum, $200 contributions monthly to unlock the best interest rates	0.05% - 0.7%. Comes with 0.65% interest rate boost if minimums are met.
Tangerine	No account minimum	0.25% (after promotional period ends)
Wealthsimple	No account minimum	0.9%
EQ Bank	No account minimum	2.00%
Alterna Bank	No account minimum	1.9%

Each of these accounts offers their own respective benefits and draw-backs. Remember, when making the decision about where to store your emergency fund, it is best to consider your other financial needs.

For example, I use other RBC and Wealthsimple products, such as investment accounts and credit cards. Keeping my savings accounts at these two institutions makes the most sense for me, providing visibility and access, despite not carrying the highest interest rates on the list.

Making the right choices starts with selecting the right accounts. Eliminating fees, and maximizing interest, in that order. Fees will shrink your financial resources far faster than interest can replace. Once that crucial first step is taken, sit back, relax, and move onto more important (and profitable) areas of your life, both financial and elsewhere.

The right knowledge, paired with decisive action will lead you to the financial success you strive for.

Interest rates and account details available as of June 1st, 2020.

Lessons on Success: Coronavirus Edition

What have you learned from the COVID-19 pandemic?

As Canada starts its second slow thaw of the year, this one from self-imposed isolation measures, it is a good time to reflect on some important lessons learned over the past several months. Here are three of the lessons that I learned:

Appreciating your Financial Risk Tolerance

The stock markets hit their low of the year (so far) in March 2020, suffering a 20%+ (S&P 500, DJIA) decline over their previous highs. As the bottom fell out of the stock markets, some people felt their stomachs drop too.

This provided an excellent barometer for understanding if we were investing in the right things for our own individualized risk tolerance. If you were nervous, or even a little scared, it is probably best to hold a more conservative portfolio. If on the other hand you were okay with, or even excited at the prospect of investing more, you are likely investing with the right level of risk tolerance.

Financial risk tolerance is a very personal decision, but one that can greatly impact both your financial life, and your appreciation of life itself. Stressing about money concerns certainly dulls our sense of enthusiasm. Getting the right mix of risk and return can help you sleep better at night.

Who Do You Miss?

As we have distanced ourselves, we more visibly saw the value and nature of our relationships change. While the way we communicated was definitely different, there were people we regularly saw before COVID that we simply didn’t bump into any more.

This provided an interesting look at our relationships with others. Who was still around, making an effort to send a message or a phone call? And, who wasn’t? Do you miss people you haven’t seen in a while?

It is very infrequent that we truly step back and evaluate the quality of our relationships. Taking a look now that drastic lifestyle changes have impacted us helps deliver some clarity over who really is important in our lives.

Is there someone important to you that you haven’t spoken with in a while? Take 1 minute and send that person a quick text or message.

The Habits of Success are Easy

This final lesson rang especially true in the last couple of weeks, as work increased it’s demands on my time. Thus far during COVID I retained my fairly regimented workout regime. But as work picked up, my yoga mat simply lay there. Unused. No more than 5 feet away.

That is when it hit me.

The habits that lead to success are easy to do. 5 feet away from where I sat for 14+ hours a day was a place to do push ups, crunches, and yoga.

But.

The habits of success are even easier not to do.

This last lesson hit harder than the rest. Success, or the habits that lead to success, are easy to do, but also easy not to do. Making the choice day after day to do the small, positive action will lead you to a life of far greater success and achievement than any one grand action.

Have the past few trying months taught you any lessons? Let us know in the comments.

Working from Home? Getting Your Taxes Right

There is no doubt that COVID-19 has changed the way many of us operate in the world. While social distancing measures are slowly being lifted across the world, there is no doubt that the way of life for many of us will never quite return to pre-pandemic levels.

Already there have been several large businesses who have made the decision to have employees work remotely on a permanent basis. Even the company that I work with has started the process of terminating office leases for several of our divisions, transitioning to a full-time remote environment to save on office costs. These moves will likely impact you, or someone you know, pushing people to create home office environments to accommodate these changes. What would a push towards WFH (work from home) actually mean for you?

Tax Implications of WFH

In Canada there are federal tax implications for home work spaces, allowing you to deduct home office expenses from your income. This helps you reduce the income taxes that you pay, which ultimately leaves more money for other areas of your life. To qualify, one of two conditions must be met:

The space must be where you work more than 50% of the time.
The space is used only for the purpose of generating your employment income.

What these conditions mean is that you either; work from more than 2.5 days a week, or that you have a dedicated home office. This is an important distinction, because as the past few months has shown us, we might work from home a substantial amount of the time, while not having a home office set up.

This certainly applies in my case, where my living accommodations aren’t large enough to provide room for a separate office space. All space in my condo is for both living and working. Therefore, I would not qualify by having a space reserved solely for generating employment income.

You have a “Work-space in the Home”, now what?

Even if you do work from home more than 50% of the time, or have a home office. If you are an employee, there are a few other criteria for claiming work expenses. As explained in the bulletin for the Income Tax Act IT352R2, employees must be required by contract to provide the office space. Also, expenses incurred cannot be reimbursed by the employer.

What this means is, in general, if you have a desk provided to you by your employer, you likely do not qualify. Likewise, if your expenses are reimbursed, you cannot also claim this as a tax deduction (sorry, your employer has already claimed those expenses).

As employers make the switch to different office space arrangements though, those lines become more blurred. Some offices offer “hotelling” of their desks, meaning the employer isn’t providing you your own work space. In increasingly grey areas caused by these working arrangements, it is best to have your employment contract stipulate that you are expected to maintain your own work-space at home.

Along with the employment contract, your employer will also have to fill out Form T2200 that confirms the requirement of a home work-space, as well as how much of your expenses are reimbursed.

What expenses can be claimed?

We often think of the more obvious expenses, like printer paper or cell phones, but there are quite a number of “overhead” expenses that can also qualify. These expenses are based on a reasonable cost allocation. For example, if your home is 1,000 sq ft and your home office is 200 sq ft, you would be able to claim 200/1,000 = 20% of certain expenses. Some eligible overhead expenses are:

Hydro (Electricity)
Internet and Phones
Maintenance fees
Rent
Property taxes
Homeowner’s Insurance

Making the best financial decisions means being informed. As the way we work transforms to fit our “new normal”, this extends to how our work-from-home spaces can be used to reduce your taxes. Knowing where to look to find savings on taxes is just one way you’ll be positioned to thrive in the year ahead.

It’s an Emergency: Spending your Savings

The numbers are out, and they aren’t good. April unemployment numbers were released by Stats Canada this week.

Some of the key points mentioned:

Unemployment rose to 13%, a number that doesn’t fully include recent job losses. Taking into consideration other elements, like self-employed persons who worked 0 hours, that number climbs higher than 17%.
“21.1% of Canadians lived in a household reporting difficulty meeting immediate financial obligations.”

While these numbers don’t paint a rosy picture, the question becomes:

What can you do to prepare yourself during the COVID pandemic?

The answer to that question falls into two categories; those who aren’t seriously affected (yet), and those who are.

If you haven’t been dramatically adversely affected, your focus should be on strengthening your financial fortress, and exploring ways to increase your value. Check out the 5 Steps to Recession Proof Your Life.

If on the other hand the COVID situation has hit you hard, the questions you face are far more concerning. While the focus is still on cash, growing your reserves might not be an option. At this stage, you need to be eliminating debts and freeing up cash flow (i.e. cutting the cord on some of those subscriptions). Then it’s time to look at where to draw money from.

I’ve lost my job. What do I do now?

With unemployment numbers jumping to unprecedented highs, and far more rapidly than ever before, this financial downturn has struck hard and fast. Next steps for you should involve reversing your “good times” financial allocation.

It’s an Emergency. Use your Emergency Fund

If you have been following the financial advice of Business Minded, or any personal finance professional, you likely have some funds tucked away in an emergency fund. Now is the exact time that you’ve been waiting for. Start drawing down on your emergency savings to pay your bills.

These days come rolling in full of uncertainty, will you go back to work next week? Next month? Many people are seeing their situations as a temporary inconvenience, and this is leading to some risky financial behavior. Expecting to return to work, and therefore floating your expenses on credit cards or other forms of borrowings is exceptionally risky, and likely to place you in a worse financial position.

While it may be hard to see that wonderful looking emergency fund start to deflate, it is far better than skating on thin ice that comes with borrowed monies.

Once the emergency fund is used up, you should then start looking at liquidating your investments, starting with non-tax leveraged accounts. By the time you get to this stage, you should be seeking out professional guidance, as your unique situation needs to be more closely evaluated.

As the economic environment worsens, it’s time to use your emergency fund for what it was designed for, emergencies. Drawing down on those hard-earned savings will help you weather this economic storm, and allow you to come out on the other side with your financial fortress intact.

Investing Advice from The Berkshire Hathaway 2020 Annual Meeting

This past week saw the release of Berkshire Hathaway’s 2020 annual meeting. Along with the financial results of the company famously headed by Warren Buffett and Charlie Munger came some commentary from the widely recognized Warren Buffett.

While the annual meeting was over 5 hours, there were a few snippets that come as timely words of wisdom from one of the world’s wealthiest people.

Never bet against America.

Throughout the years, America has proved its resiliency and ability to overcome tough times. This commentary can be more broadly applied with the simple yet powerful statement, bet on humanity.

While we might be currently facing one of the most challenging periods of our lives, one thing is true. We will survive.

While I would caution the mentality of investing as any form of gambling, there is one hand that I would undoubtedly go all-in on. That hand is that we will not just go through this, we will grow through it. We will become better, faster, stronger from the challenges that we as a species are facing right now.

Buy America, And Forget About It.

As with the first piece of sage advice, Buffett also makes some commentary on the ability of the average investor. Most people are better off taking that bet on human progress and investing in a total market ETF.

When saying this, Buffett recognizes that some people like him have careers in investing, and as such devote an above average level of time and attention into investing. These dedicated investors are the ones making individual stock picks based on years of research and experience. For most of us who are not combing through annual reports on a daily basis, taking a broad stance is better suited to our needs and our experience levels.

These total market ETFs allow us to place a bet that some of the best companies will survive and thrive. And that bet on human progress hasn’t been wrong, in the long run, ever.

What can one of the world’s most successful investors teach us? Bet on humanity. Together we will not just survive, but we will thrive.