And no, the holidays did not come early this year. It’s RRSP season and the most exciting time of the year when you need to start preparing to file your taxes.
If you haven’t made a contribution towards your 2020 year yet, you only have until March 1 to do so. This date hasn’t really ever changed, so it always amazes me to see how many people are always scrambling in the last week to put money away into their RRSP’s. This is something that you can set up, and contribute to, at any time during the year. You don’t just have to wait until February when everyone starts marketing that the RRSP deadline is coming up.
If you don’t know what an RRSP is, let me tell you as simply as I can.
It’s a government-regulated account (registered) where any contribution that you make will give you an immediate tax deduction. Within your RRSP you can invest in things such as ETFs, stocks, bonds, mutual funds, real estate, etc.
Example: if your income at the end of 2020 was $75,000, and you contributed $10,000 into your RRSP throughout the 2020 year, then you are only being taxed as if you made $65,000 in 2020. This would bump you down into a lower tax bracket, and either provide you with a bigger tax refund, or would reduce the amount of taxes owed.
Keep in mind as well, that when you invest in a healthy and diversified portfolio within your RRSP, that your contributions grow tax-free until you start to withdraw them. And most people withdraw their RRSP when they need the income in retirement, so they’re typically in a lower tax bracket. You do eventually pay tax on your withdrawals, but if you’re retired and farting around the golf-course or sipping Pina Coladas on a beach somewhere, chances are you won’t be in a high tax bracket already, because most retirees don’t work. If you start young, build your portfolio up to $1,000,000, and only need $50,000 in retirement, then you’re only paying tax on your $50,000 withdrawals.
How Do I Get Started?
Well, to be honest, you should contribute to your RRSP throughout the year, but if you haven’t been contributing then you should do so before March 1. The contribution room that you have available to you can be found through your CRA My Account, or on your NOA from the previous year. Your accountant should also have that number somewhere. So don’t delay, start today.
Here are the three main ways that you can open an RRSP;
1. Managed: Personalized investment portfolios that are managed by advisors and professional money managers at financial institutions. Portfolios are tailored to the specific needs of the client depending on a number of factors such as your age, risk tolerance, and short and/or long-term goals. There are typically high fees associated with managed accounts since a human is deciding what securities to hold within that account and are actively managing it.
2. Robo-Advisor: A new class of financial advisors. It uses algorithms to provide investment management and advice with little human supervision. Using a certain type of software, a Robo-Advisor is able to automatically buy, sell, and rebalance assets in your portfolio. Don’t know the first thing about investing but want to invest in ETFs? Don’t you worry. Robo-advisors will do it all for you. So, if you’re new to investing, and want to reduce the fees you’re paying, then a Robo-Advisor may be a perfect fit for you.
3. Self-Directed: You have full control over the buying and selling of securities in your account. By managing your own account, you can reduce the amount of fees that you pay, putting more money in your pocket at the end of each year. With a self-directed account, you do all of the dividend re-investing and rebalancing of your portfolio.
We’ve helped 100’s of clients in our Financial Freedom Coaching program set up an RRSP and use it as an investment vehicle throughout the year. And we can help you too. If you’re ready to set up a Free Coaching Assessment call with our team to see if you’d be a good fit for our coaching program, then sign up here.
We can help you build a solid budget, set you up on a plan where you’re making weekly-monthly contributions into your RRSP, and save you from pulling your hair out every February as you scramble to find money to contribute.
Happy New Year to all of you. I LOVE January.
Why, do you ask?
Because it marks the beginning of my personal financial year. This is where I sit down, complete my Net Worth Tracker, organize my budget, and fill out my Financial Freedom calculator so that I can figure out how much to set aside for the year ahead. My current financial goal is to retire by 45, and I seem to be on the right track (right now). Wish me luck.
I thought I would take this opportunity to write a post for parents out there who are wanting to motivate and teach their kids about financial literacy and money management. We get a lot of clients in our Financial Freedom coaching program who take the education that they’ve learned and pass it on to their little ones. Financial literacy should start as young as possible!
Growing up, my grandparents always gave me Israeli Savings Bonds for birthdays and holidays instead of physical presents. I never understood why, and to be honest, it always pissed me off. Until I hit 18. Around my 18th birthday, all of the bonds had matured, and I was presented with a cheque for $10,000. I couldn’t believe my eyes when I saw all of those zero’s! I kept thinking about all of the things that I could buy with that money, but my mom had another plan in place for me. I’m so glad that I listened to her advice. Looking back now, I don’t think I’d be where I am today without my mom’s guidance and financial education.
She immediately took me into the bank and had me open up a self-directed TFSA where all of the money was invested into Index funds. At this time, I had NO idea what any of these words meant. I just thought that there was a savings account and a chequing account. But my mind was blown after my mom had taught me about the different types of accounts one could have – and this was at the young age of 18.
For the entire year after, I didn’t think about or look at the TFSA. I just let it sit there and allowed the market to take its course. One day, I decided to take a peek and see what was happening. I had made just over $800! And I literally did nothing all year with that money. It just sat in the account, made a 7.5% return, and compounded interest while invested in these Index funds. Seeing the $800 return sparked my interest in investing. I had a conversation with my dad afterward about the money I had made, and about investing in general. He told me to “make your money work for you, and don’t work so hard for it”. That saying has stuck with me to this day.
Three years ago, I hit a milestone. I turned 30 (I’m currently 33). And since I’ve been tracking my Net Worth for the last 3 years, I remember taking a look at my savings and investment portfolio and having just over $100,000, at the age of 30. I’m now 33, and my investment portfolio has doubled in growth over the last 3 years. What’s the secret you ask? I’ll tell you how I did it.
Keep in mind that I am not a homeowner. I choose to rent. But I do have a partner, a car, and a lovely 2-year-old Bernese Mountain dog (named George). We live a great life in Toronto (one of the most expensive cities in Canada. So yes, it is possible to save).
- Set goals for yourself and work hard. After that first year of investing, it became a personal goal to max out my RRSP and TFSA every year. And I can happily say that I’ve completed this financial goal since the age of 19. Before working for Enriched Academy as the head of their coaching program, I worked as a freelancer in the entertainment industry, and prior to that, worked in the restaurant industry.
- Pay yourself first, and have fun after. I know that I have a different mentality about money than other people my age do. I don’t spend a lot on material things. I go out for dinners and drinks with friends, have a great apartment in Toronto, and bike/walk almost everywhere I can. I spend the majority of my money on experiences, food, and travel. I have the mentality that I need to pay myself first by maxing out my RRSP and TFSA, and then I can have fun afterwards. Knowing that I have that money in an account makes me sleep like a newborn baby every night.
- Educate yourself and invest! I know that I wouldn’t be where I am now without investing. Learn the basics, take a course (like our one-on-one coaching program), and put some money into diversified investments so you begin to understand the principles. It doesn’t need to be a lot! Start with $10/week. A majority of my portfolio is invested in Index ETF’s, but I hold a few blue-chip stocks that pay out a dividend.
- Budget, budget, budget. This is so important and will be the basis of your financial plan. Once you have a budget in place, you will see where your income is coming from, and what you’re spending money on. And if you have any “leftovers”, you can start putting it into your savings/investment account. This is really where you’ll start to see your Net Worth grow.
I know that I’m not like the majority of Canadians. And that’s ok. I'm incredibly thankful to both of my parents who took the time to educate me about money. It’s never too late. So make sure that you take the 2021 year as a teaching opportunity and start to make the financial changes that you need to yourself. Your kids will thank you later.
What a Year.
How did you manage? What did you learn? What are you bringing with you into 2021?
2020 was tough. Emotionally. Mentally. Physically. The pandemic has definitely taken its’ toll on my emotional and mental well-being. Not being able to freely walk around, see friends and family, and be constantly mindful of the people around me has really made this quite the year. It’s definitely been hard, but I think after all of this, there are probably a few things that we’ve learned in regard to our finances.
Here are a few things to bring with you into 2021.
- We don’t need a lot to live. I think for the majority of our coaching clients, the thing we hear the most is that the pandemic really taught them about the most important things in life. It wasn’t about the car they drove, the clothes they had in their closets, any other material object they once had, or even going to get their hair done bi-weekly, we’re surviving without all of it. There are always going to be things that we like to have. But when you really get down to the nitty-gritty of it, we don’t truly need a lot to live. Head into 2021 by taking a good hard look at your finances, cut out those things that may not be bringing you joy, and focus on those things that matter most to you.
- You can manage your cash flow, regardless of your financial situation. This one was SO interesting to me. We had a number of coaching clients who had joined us back in February, and then lost their jobs because of the pandemic and had to take a paycut or live off of the CERB. And guess what? They still managed. By working one-on-one with our coaches, our clients were able to re-work their budgets and focus on the priorities of putting food on the table and a roof over their head. It just goes to show that it’s not the money you make, but the way you manage it.
- Pay off your high-interest debts – ASAP. Being in debt can be hard. Being in debt during a pandemic can be even harder. But I hope (if you were one of the 1000’s of Canadians who had debt before the pandemic) that you had some ah-ha moments. Our coaching clients certainly did. Always pay off high-interest debts (above 5%) every month, or as fast as you can. Nobody knows what’s going to happen in the future, and I think the pandemic made a lot of us realize that our finances are not finite. Manage your income, dollar by dollar, and get out of the weeds when you have the ability to.
- Have money set aside for an emergency fund. Remember how we always talk about having 3-6 months of necessary living expenses in an account that you can dip into for emergency purposes? I’m sure that really came in handy back in March if you were someone who lost your job. Figure out what your absolute necessities are, and keep a 3-6 month emergency fund in an out of sight, out of mind account that pays some kind of high interest.
- Invest, Invest, Invest. Once you’ve gotten rid of all of those high-interest debts (above 5%), you can start to invest. Back in March, I was in the airport heading to Belize when the markets were crashing. I kept seeing them drop. Lower and lower and lower. Do you know what I did? I didn’t sell my investments. No, no, no. This was the opportunity that I’ve been waiting for. Everything went on sale! I maxed out my TFSA, RRSP, and had my partner do the same. To this date, our investments are up over 30%. Now, I’m not telling you to time the markets, because nobody can. But if you can keep costs low throughout the year, manage your cash flow, and have cash set aside for these kinds of opportunities, then you’re all set. Buy low, sell high, remember? Don’t panic. If you’re properly invested and diversified, you’ll never lose all of your money. Yes, it may be volatile, but if you can think of the future, you’ll come out on top.
"Be Greedy When Others' are Fearful and Fearful When Others' are Greedy" - Warren Buffet
At the end of all of this, it’s been really interesting to see our clients throughout this pandemic. Regardless of their financial situation, they’re excited about getting their financial house in order for a healthy and successful 2021.
Are you ready to join them? Sign up for your free Coaching assessment call here. Having someone else to give you a completely non-judgmental and non-biased view of your financial situation may just be what you need for your own successful year ahead. After everything is said and done though, make sure to not take any moment for granted. Hugged your loved ones. Take time away from technology, work, and enjoy every minute.
Happy Holidays and New Year from Enriched Academy
What Are You Thankful For?
As we approach one of my favourite holidays of the year (aside from Passover, and Christmas, and Hanukkah, and my birthday), I’d like to check in with you to see what you’re thankful for?
I’ll start. I’m thankful for the health of myself and my family and friends, and also the financial education that my parents taught me at a young age, which now has provided me with the financial freedom to not stress about money. And I’m 33 years old. How many 33-year-olds do you know who can say that?
As the head of coaching for our Financial Freedom program, our program sees 1000’s of clients every year who are in really difficult situations because of a lack of financial education. Just remember, this is not your fault. We live in a broken system. But there is a way that you can make a change, and that change starts with altering your behaviours and habits.
How To Make Habits Stick
We all know bad habits are easy to pick up and hard to drop. Good habits on the other hand? Well, if it was easy, we would all be wealthy and fit (and able to wear the same jeans that we did in high school). I’m currently struggling to fit into the same pants that I was wearing before COVID hit. Damn you quarantine.
But I’m going to let you in on a super easy secret that can help you create strong, lasting habits.
Make those habits as easy as possible.
If you sat down and made a list of habits that you go through in a day, you can probably come up with around 10-20 of them. Here are a few of mine that may help you to create your list.
- Wake up and make coffee.
- Review budget.
- Read finance blog.
- Walk the dog.
- Brush my teeth.
- Make breakfast.
- Clean dishes.
- Get dressed in workout clothes.
- Work out.
- Do yoga.
- Make lunch.
Pretty crazy eh? It’s not even 1 pm yet and I’ve already gone through 11 habits that I don’t think about. I’ve gotten into a routine where I just do them.
Atomic Habits is our favourite book on creating winning habits. The author, James Clear, outlines a few tips you to follow...
Use this formula: I will (behavior) at (time) in (location). For example, instead of saying, “I will budget each month.” Try, "I will budget on the 1st of each month at 5 PM in my office."
Every habit is initiated by a cue. The cue triggers your brain to initiate a behavior because it predicts a reward. We are more likely to notice cues that stand out. Setting an alarm on your phone for 5 PM monthly is a cue that you need to budget.
Forming a new habit is hard so Make it Easy. We really strive for that in our Enriched Academy Programs.
And now I’d like to share with you:
5 Money Habits of Wealthy People
These concepts are honestly so easy, and they truly are the key to building wealth. We see most of our successful Financial Freedom clients live by these means, and you can start to see results today if you follow the list below.
- Live below your means. Spend less than what you earn. It’s as easy as that. Sit down and go through all of your sources of income, and everything that you spend money on. If you have money left over every month, and are putting money into an investment account, you’re beyond the majority of Canadians. If you’re overspending though, then you need to make some cutbacks unless you want to end up in debt for the rest of your life. It’s not about making more money. It’s about living with what you have and being smart with it. If Warren Buffett is worth over 70 billion dollar and lives in the same home that he bought 50 years ago for $31,000, and drives a modest Cadillac, then you can live within your means as well.
- Learn one new thing a day. No one has ever gone broke buying books. I read a daily personal finance blog that keeps me up to date with what’s going on in the world. If your new thing is a recipe, or a craft, or a new trade, then that’s awesome. But just force yourself to learn something new.
- Small steps each day. Have you ever read a book or taken a course but quickly found your motivation evaporated? Wealth is given to those that take small consistent actions daily. Ask yourself, what is one small thing I can do today to help me make progress with my finances?
- Track your net worth and budget monthly. You cannot improve what you don’t measure. These two numbers are the foundation for financial and time freedom. 30 minutes per month, that's all it takes. This is one of the biggest ways that we measure our clients in our Financial Freedom coaching program. We get them to track their Net Worth month and start to track their cashflow as much as possible. This way, they can see the correlation between the two. When you start to track your cash flow, and you spend less than what you earn, then your Net Worth goes up.
- Learn to say “no”. Only spend money on things that bring you an immense amount of joy and happiness. Everything else, say no to.
Once you’ve got the top 5 habits above in place, you’ll start to see dramatic results with your finances. You’ve just laid down the foundation to becoming financially successful. Congratulations. But there’s still more work to do! You need to review your financial goals and plan each month. Step 1 is creating that plan. Step 2 is constantly reviewing and making changes to your plan as things change. If you are not constantly reviewing your plan you could be headed in the wrong direction and not even know it.
When COVID-19 hit and our economy, we worked with all of our coaching members to revise their financial plans because so many things were changing all at once. Some of our clients had lost their employment, their investment portfolios were going down, their kids were home from school, among many other things.
The one thing that we’ve heard over and over again is how thankful our Financial Freedom clients have been for having us work with them throughout COVID-19. Even though some of our clients have seen a decrease in income, they’ve seen an overall increase in their Net Worth. This education that we provide is something that will be with you forever. And we can help you change your habits.
Just the other day I received a note from one of my past students. It made my heart go all warm and fuzzy inside.
“I am not exaggerating when I say that what you all do is life-changing! You helped us so much and we are forever grateful ????”.
So, if you’re ready to take control of your finances and join the 1000’s of Canadians who have gone through our Financial Freedom Coaching, sign up here for your coaching assessment to see if we can help you.
You’ll be thankful.
Have you ever gone through your bank to take a look at your credit score and haven't been super happy with the results? Or have you ever looked into getting a mortgage or needing to borrow money, and nobody will give you a loan? It's likely because you don't have a credit score that's in tip-top shape. This article will explain what a credit score is, and how to increase it.
What is a Credit Score?
You Credit Score is a number (typically between 300-900) that is based on your credit report. Your Credit Score your financial report card, and it’s used by lenders to predict the likelihood that you will repay any future debt. Your Credit Score is based off of your Credit Report, which is a summary of how you pay your financial obligations. Lenders use your Credit Report to verify information about you and how you have been with paying off your financial obligations in the past.
Why is This Important?
Your Credit Score will determine if you are a risk to lenders and it will affect the interest rates that you pay on any loan that you’re applying for. If you have a “Poor” – “Fair” score, and are looking at securing a mortgage, you may not qualify through a bank or Credit Union. You may have to go with a B-Lender or even a Private Lender, where you’re looking at interest rates 3-6% higher than a traditional A-Lender.
The Credit Score is one of the metrics that we track in our Financial Freedom Coaching program, and if you can believe it, we’ve helped our average coaching client increase their credit score by 21 points in a 6-month period.
How Can I Increase My Credit Score?
There are 5 main ways that you can increase your Credit Score. All of these ways need to be monitored and properly managed in order to work.
- Payment History: this is the most important factor in your credit score, and it makes up to 35% of it. Creditors want to know that you’re going to pay back the money you are asking to borrow from them, so they will look at what your payment history has been like from previous consumer debts. ALWAYS make your payments on time and make the full (or at least minimum amount owed) payment each time.
- Amounts Owed: this makes up about 30% of your overall score, so it’s an important one. How much you already owe on your debt vehicles will really matter to a lender. Try to keep your credit utilization rate less than 35% of your available amount, and don’t max out all of your available debt vehicles. If you use a lot of your available credit on your debts, lenders see you as a great risk EVEN if you pay your balance off in full by the due date.
For example, if you have a credit limit of $10,000, you should not carry a balance of more than $3,500.
- Length of Credit History: this makes up about 15% of your score. Creditors and lenders like to see that you’ve been able to handle credit accounts correctly over a period of time. Newer accounts will lower your average account age, which may negatively impact credit scores. Never cancel one of your first cards because that marks the beginning of your credit history.
- New Credit Applications or Credit Checks: every time you apply for more credit, your score will be affected, so try to limit hard inquiries. There is a difference between a soft credit check (checking your credit score) and a hard credit check (looking for more credit). Every time you do a hard credit check, your credit score will be lowered. This takes place when you apply for a mortgage, loan or credit card.
- Use Different Types of Credit: You should have at least 2 credit vehicles open (credit cards, LOC’s, car loans and mortgages.) Showing you can manage different types of credit will have a positive impact on your score.
You should check your credit report and score once per year. One small error can have a horrible long-term impact on your credit score, which is why we get our Wealth Mastery and Financial Freedom Coaching clients to check it. Your credit score is like your financial report card and having a bad score can have a really negative affect on your long-term financial plan. We’ve helped 1000’s of clients increase their score by an average of 21 points through our Financial Freedom one-on-one coaching program. If you feel like you need a little one-on-one help, make sure to sign up for our free Coaching Assessment Call.
It’s been a few years now since the term Robo-Advisor has surfaced, and we get a TON of clients in our coaching program not knowing what it is. So, while you sit there, scratch your head, and wonder what this new type of tech is, I'll explain it to you. As easy as possible.
What is a Robo-Advisor
A Robo-advisor is a new class of financial advisor. It uses algorithms to provide investment management and/or advice with little human supervision. Using a certain type of software and algorithms, a Robo-advisor is able to figure out your asset allocation, and then build a portfolio for you that is only made up of ETF’s. From there, they actively manage your portfolio whenever necessary; buying, selling, and re-investing dividends. Don’t want to do self-directed investing but still want to invest in ETF’s? A Robo-advisor may be perfect for you.
What are the Fees?
Since Robo-advisors don't use a lot of human management on the back end, they often have lower management fees than other investment firms. Robo-advisors charge an MER on Assets Under Management of anywhere from 0.30%-0.60% for their services, and then the ETF portfolios typically charge an average of 0.10%-0.30%. At the end of the day, this is probably going to put more money in your pocket because you’re saving a bundle on fees.
Let’s break down how that looks compared to an actively managed account from one of the big banks. Canada has some of the highest mutual fund fees in the world with an average 2.3% in MER fees. Let's say you have a portfolio of $100,000 with a financial advisor. You're probably paying an average 2%-2.5% MER or $2000-$2500 in commission regardless of how your fund performs. But if you're using a Robo-advisor, you're only paying a commission of $400-$900 (based on the 0.40%-0.90% MER). That extra money that you're not paying in fees will go a long way with that sweet principle called compound interest.
Which Robo-advisors is best for me?
Good question! This really depends on your preferences, your goals, and the portfolios that the Robo-advisors use. Each Robo-advisor offers something different so it’s important to take a look at which one works best for you. Here are some of the different things to look into;
- Fees. Although this isn’t the most important thing, it is an important factor.
- ETF’s that make up the portfolio.
- The dashboard.
- Other benefits. Some Robo-advisors provide you with a dedicated financial advisor, estate planning, insurance needs, tax-loss harvesting, etc. This may be something that you require, so it’s good to look into your own personal needs.
Well.....there’s no better time than the present, and if you find that your returns haven’t been stellar over the last few years, it may be time to re-think your current investment strategy. Or maybe you’re ready to grab the bull by the horns and start tucking away some money for long-term financial growth if you don’t have any high-interest debts that you need to pay off.
And if you feel like you’re still lost, and need some one-on-one guidance, consider signing up for a coaching assessment call to learn more about our one-on-one coaching program. We can provide you with a deep dive analysis on your current investments, teach you about alternatives, and provide you with unbiased assistance to make the most of your money. You can sign up for your coaching assessment call here.