Tag: education

FIRE

FIRE or Financial Independence Retire Early is a movement that has gained a lot of traction in recent years. The movement is focused on people achieving financial independence prior to the typical age of 65. Many people dismiss the movement due to the amount of work and dedication required to achieve the goal of FIRE.

Those who practice FIRE tend to give up luxuries in the short term to achieve their long-term goal at a faster rate. The overarching theme of FIRE is to cut back on spending and eliminate wasteful uses of money. Although not a one-size-fits-all movement many people go to extremes such as saving ¾ of their annual salary to retire at an early age. The end goal of FIRE is to utilize the 4% rule to make your money last forever. The 4% rule is how much a retiree should withdraw from their account for their money to last forever. In FIRE this amount should be able to cover your yearly expenses. Thus, achieving financial independence.

FIRE isn’t the same for everyone and in fact, there are many different subcategories. The 3 most common are:

1. Fat FIRE
2. Lean FIRE
3. Barista Fire

Fat FIRE

Fat FIRE is the most luxurious of the FIRE culture. This subcategory has practitioners spend north of 200k per year. At a 4% withdrawal rate those who practice Fat FIRE have invested ~$6 million at approx. an 8% return. Unlike many other subcategories of FIRE, this subcategory does not require the person to be frugal. In many cases, they are able to enjoy many luxuries in life and not sacrifice any part of their lifestyle.

Fat FIRE also allows for the greatest margin of error. As previously stated to be able to maintain a lifestyle of withdrawing ~$200,000 per year an 8% return on ~$6 million is necessary. As we know stock markets, housing markets, or whatever means you are using to achieve this rate of return are impossible to predict. Fat FIRE allows practitioners to cut back on spending when necessary to reflect the types of returns they are noticing.

The downside to Fat FIRE is very evident. The average person makes nowhere near 6 million in their life. It is possible to achieve Fat FIRE through doing work on the side and maintaining a low-key lifestyle but without a high-paying job and significant dedication Fat FIRE is very difficult to achieve.

Lean FIRE

Lean FIRE has the same infrastructure as Fat FIRE. Cut back on needless spending, save more, etc… The difference is that Lean FIRE requires practitioners to live a minimalist lifestyle, spending south of $40,000 per year. To achieve this goal those who practice Lean FIRE have invested ~$1 million at approx. an 8% return.

This method only allows people to cover their basic living necessities as well as transportation and other minor expenses. Achieving this lifestyle requires far less commitment and is achievable by many regardless of income. This frugal lifestyle tends to be appealing to people that already live a frugal lifestyle and prefer not to work for the remainder of their lives.

Barista FIRE

Barista isn’t so much about the retire early part of FIRE but instead the financial independence. Those who practice Barista FIRE are attempting to acquire enough money to now have to work their typical day job. Instead after acquiring enough money, they leave their day job to live the lifestyle they want while working part-time. To supplement their income they may take on a job as a barista hence the name. This method is also appealing to many who have jobs that provide healthcare or offer life insurance. If they were to fully retire this would require them to carry this burden on their own.

This method not only requires less initial investment but also allows people to maintain a happy lifestyle that can often be provided by a job that you enjoy. Often in retirement people can become bored or lack things to do. This method allows a good balance without the commitment of having to work to pay the bills.

Whether or not you end up pursuing one of the subcategories of FIRE it is definitely worth your time to look into them. Each category can teach you lessons applicable to personal finance that help you achieve your goals.

For more personal finance information make sure to check out Instagram @therichcollegestudent. If you have any suggestions for topics make sure to leave them in the comments and leave a like if you enjoyed reading.

The holiday season can be a time filled with joy and happiness as families come together. Regardless of what holiday you celebrate during December and January people tend to exchange gifts and companies look forward to this season to make the majority of their income for the year. As a society, we continue to spend more and more during the holidays and this has resulted in over 1/3 of Americans going into debt this holiday season resulting in an average owing of $1249. (https://www.cnbc.com/2021/12/29/more-americans-took-on-holiday-debt-this-year-owing-an-average-1249.html) To some, it may seem foolish to go into any debt at all in order to purchase gifts for others but the answer isn’t always that simple. There can be a number of pressures during the holiday season whether you want to get your kids the newest console or fly to see the family that you haven’t seen in a while you may not always have the funds on hand to do it.

Tips for Avoiding Holiday Debt

The best way to avoid the worst is to prepare for it. When you are preparing your budget it is important to allocate funds towards gift-giving and especially flights if that is going to be a part of your holiday plans. In circumstances like these, it is important to budget more money than you believe is necessary. You never know what obstacles may occur during the holiday season. Delayed flights, out-of-stock gifts, and many other issues can result in extra out-of-pocket costs. Setting a budget and actually following it are two very different things. Once the budget is set it is important to follow it as closely as possible, it is important to be able to say “no” in certain circumstances. Family members will appreciate you regardless of how expensive or inexpensive your gift is. It is the thought that counts. You may feel compelled to give more to family members or they may have certain expectations for what type of gift they should receive. In these circumstances, you may need to get creative. Look at buying gifts early and look for deals often. Avoiding the holiday season rush can be essential to saving hundreds of dollars on gift shopping. It may also be necessary to get creative with gifts. Considering free gifts, being more selective with who you give gifts, or baking gifts are all ways of saving money during the holiday season.

Recovering from Holiday Debt

Whether you followed the tips for saving money and fell victim to extra costs or simply spent too much money this holiday season you may have accrued some holiday debt. Recovering from holiday debt is a similar process to recovering from anything. The worst thing you can do is beat yourself up for it. What has happened has happened and we have no control over the past. The only thing we can do is control the future. In order to make sure the overindulgence during the holiday season doesn’t occur again steps must be taken today. Set a budget. Pay off your debt as quickly as you can. Begin preparing for future events. Budgeting does not only apply to the holiday season, it also applies to birthdays, trips, and other events you will have to spend money for.

        For more personal finance information make sure to check out Instagram @therichcollegestudent. If you have any suggestions for topics make sure to leave them in the comments and leave a like if you enjoyed reading.

ARK Invest is an asset management company synonymous with some of the world’s largest Exchange Traded Funds (ETF). Founded in 2014 by Cathie Wood ARK Invest has seen both the extreme highs (150% return in 2020) and extreme lows of asset management (15-month low currently) in its short existence. The company’s goal is to invest in innovative/disruptive technology while also educating it’s investors on the importance of innovation within the public market and the world. Regardless of your belief in their philosophy ARK Invest has established itself as a brand name within the Innovation Sector and as of February 2021 had $52 billion in assets under management. For this reason, I believe it is important to learn more about ARK and possibly understand why the company is currently facing a 15 month low.

What is ARK Invest?

ARK Invest invests solely in disruptive innovation, they provide ETF’s that are actively managed for investors seeking long-term growth in public markets. ARK invests in many different sectors of the market through their ETFs namely ARK Innovation (ARKK), ARK Genomic Revolution (ARKG), and ARK Next Generation Internet (ARKW) being their largest managed ETF’s. ARK Invest identifies innovative companies that are built for future success and make the world a better place. ARK anticipates which companies will succeed in the public markets as innovation tends to be a “winner takes all” market. Growth can accelerate quickly in a particular sector and due to the short-term outlook that investors have they attempt to hop on this dramatic incline. Instead, ARK Invest attempts to hold companies in their ETF that they believe have the potential for this increase in evaluation. This is represented in their ARKK holdings as Tesla, Roku, and Teladoc Health are some of their largest holdings.

Why is ARKK Struggling?

After seeing 150% returns in 2020 it is difficult to believe that just a year later ARK Invest is seeing 15-month lows. It would have been naïve to suggest that ARKK could continue to achieve its previous success but few anticipated such a dramatic decline in the companies holdings. So, why are they struggling? ARK continues to swap established growth stocks for speculative stocks, this shows that the company is chasing significant returns similar to 2020 instead of the slow growth strategy that has been proven to work. What is even more worrying is that these speculative stocks continue to decline in value. These holdings are not established and are within what investors call the “growth” section of the market. The issue with being a stock within the “growth” sector is that when the market is in decline investors tend to sell these stocks first. Investors then lean towards more established stocks within the “growth and income” or “income” sectors of the market. Due to the nature of ARK invests holdings it is going to be a difficult few months to years for them as new strains of COVID are identified and markets fluctuate heavily.

ARK or no ARK?

That is the question. Good news. The majority of the losses have come in the last 9 months but the 3-year and 5-year outlook is still very high. Bad news. Cathie Wood has made very questionable decisions and made the ETF susceptible to severe losses as well as buying stock in companies that continue to struggle during the pandemic as the market is not in a growth phase, this has led to people selling their position in the stock. In summary, when the stock is hot it’s hot it’s going to be really hot. But, it’s going to get worse before it gets better and it may never get good again since they have switched to an aggressive investing strategy.

For more personal finance information make sure to check out Instagram @therichcollegestudent. If you have any suggestions for topics make sure to leave them in the comments and leave a like if you enjoyed reading.

Your Credit Score is so, so, so important. The fact that we are not taught about it in high school is kind of absurd. Your credit score is a three digit number that shows how well you manage your credit and lenders use this number to determine whether or not they will lend you money. There are many purchases in life that you will either require a loan or begin to think about a loan as a way of funding the expense. Use credit well and your score goes up but use it badly and it goes down.

The benefits associated with having good credit aren’t talked about enough either, having good credit allows you to negotiate lower interest rates which can save you tens of thousands of dollars. There are a number of factors that affect your credit score, a few of them are: how long you’ve had credit, if you carry a balance on your credit cards, if you miss payments, the type of credit you’re using and many more.

It can take a while before your credit score improves also but I will talk about some ways that it can be done. Monitor your payment history and score. If you come across a transaction that wasn’t yours make sure to report it as soon as possible to avoid any of the ramifications. You should also actively monitor your payment history to insure payments are done on time, pay the full amount if possible or the minimum if not and contact the lender if you foresee trouble paying your balance. Use your credit wisely, it is typically advised that you keep your credit utilization ratio below 30% and to never go above your credit limit. Consistency in this area will result in the gradual increase of your credit score. Limit the number of credit checks and increase the length of your credit history. It is a hard hit on your credit score when you close a credit card or default on a loan. If you have a credit card it is better to keep the account open and use it every so often. It is also important to avoid getting to many credit checks either through work or by getting a number of credit cards because every check counts as a hard hit against your credit score.

There are a number of institutions that can access your credit score and based on your jurisdiction they may or may not require your consent. Some of the institutions include: Banks, credit unions, credit card companies, employers, and even mobile phone companies. These institutions use your credit score to determine whether you are suitable for a job, whether or not they will lend you money, amongst other things. It is kind of crazy to think you can get denied a job based on your credit score and some people don’t even know they have a credit score.

It is super important than when you go into any kind of debt not only do you pay it off as fast as you can because you don’t know what type of financial hardship may be lurking around the corner. But also to never miss a payment, if you anticipate that you will be missing a payment it is important that you contact your lender and negotiate the terms of your payment. They can often work with you to help reduce or in some cases even waive your payment. If you miss a payment it can significantly affect your credit score and make it that much more difficult to borrow money in the future. Other factors that can affect your credit score are: if your debts have been sent to a collection agency, any record of insolvency or bankruptcy, the amount of outstanding debts.

For more personal finance information make sure to check out Instagram @therichcollegestudent. If you have any suggestions for topics make sure to leave them in the comments and leave a like if you enjoyed reading.

This week I decided to write about bonds due to how common the term may be in investing conversations. Whether in a discussion with your financial advisor or at the dinner table you have probably heard of a bond. Similar to stocks or mutual fund a bond is another form of investment that can be held within your investment accounts. The formal definition of a bond is a fixed income instrument that represents a loan made by an investor to a borrower.  They can be either government or corporate in nature and typically do not provide a high yield. Bonds can help to diversify many portfolios. They tend to move in different directions than stocks although they can be negatively affected just like stocks can but typically face less volatility providing more security to your investments. With the security on investments comes the lack of ability to significantly increase your money. Similar to stocks also it is important to invest in bonds in different asset classes in order to further diversify your portfolio.

Understanding how bonds work can be difficult to understand. A very simplified explanation is that when a company needs funds they may issue bonds to investors. These investors are given the terms of their agreement and are given interest payments for their money. At the provided maturity date the bond can be redeemed.

There are many different factors that affect bond prices. One of the many conversations you may have heard bonds come up in are discussion centered around interest rates. Interest rates affect the value and income that can be achieved through bonds. Bonds move in the opposite direction to interest rates. If interest rates go up, bond prices go down. The change is usually not one to one either. In the current climate with interest rates as low as they can possibly be a 1% increase in interest rates could have as large as a 7% decrease in bond values. A second factor is credit quality. Credit quality directly affects bonds, bonds with lower credit quality tend to be more volatile but provide higher interest rates. Liquidity is the final factor that we will be discussing. The liquidity of a bond is defined by how easily it can be sold, lower credit quality bonds have less liquidity which can only negatively affect the price of the bond.

Gaining an understanding of all types of investments is essential especially because the market is ever changing. Due to peoples risk tolerance becoming significantly more conservative during and after the pandemic the shift has been away from futures and more towards investments that provide a more guaranteed return. Bonds and GICs have become more popular especially with people owning substantial assets due to their lack of volatility and security. Although not yielding a significant amount the security that comes with knowing how much money you have at all times can often be worth a fortune.

For more personal finance information make sure to check out Instagram @therichcollegestudent. If you have any suggestions for topics make sure to leave them in the comments and leave a like if you enjoyed reading.

Putting away lump sums of money every year or having payments come out of your account every month can seem pointless at times especially when you want to be spending that money. It can be difficult to stay motivated and on track with your goals when you see your friends and family living extravagant lifestyles. This can be especially difficult in the age of social media as we are constantly faced with seeing people on vacations or out with friends. The questions that faces us is why should we invest? We work so hard for the money, don’t we deserve to spend it? There are many reasons to invest. I will only be listing some of the more general reasons.

1. Tax advantages
2. Saving for Retirement
3. Intragenerational Transfer

Tax Advantages

Depending on the location of your money it is possible to receive tax benefits from your investments. An example of this is that if you do not already receive a tax return opening a RRSP can allow you to be more efficient with your taxes and potentially enable you to receive a tax return. By putting money in your RRSP you reduce the amount of taxable income you have for the year which can only benefit you. When an account is registered you typically pay a fee to own it but you receive benefits from the account. One of these advantages can be utilized through a TFSA. Any interest, dividends, and capital gains are tax free for life. When you get into retirement tax free money is the best kind of money. For this reason it is important to maximize your TFSA, make sure to check out one of our previous blogs for more on investment accounts (Investment Accounts). In most cases people will empty their TFSAs first in retirement so they don’t have to pay taxes. All other accounts have tax withholdings once money is withdrawn.

Saving for Retirement

Investing is the most reliable way to retire comfortably. It may seem like something in the distant future but the greater your time horizon the better for you. Having compound interest on your side can allow you to build up more wealth than you know what to do with. Investing allows your money to work for you and take away some of the stress of saving enough funds to be able to retire. You want to be able to make the decision about when you want to retire and not be forced to work in the ladder stages of your life. Another advantage is that you can develop an income from your investments through dividends. This supplementary income is most often reinvested but especially when you are comfortable with your retirement fund and are financial secure this extra money can be used to subsidize some of the activities you enjoy.

Intragenerational Transfer

Through investing it is possible to leave a larger amount of money for your children and grandchildren. There are investments that pass probate and leave more money in the hands of your family. Many investors want to keep the money in the hands of the family and leaving everything to your estate results in a significant loss of your wealth. Luckily there are many products that you can transition to in the late stages of your life to be able to pass more money directly to your family. One of those products are segregated funds, an insurance investment, due to it being an insurance product this money passes probate and a guaranteed percentage of it goes directly to your family. It is important to utilize these products to make sure the money you have worked hard for remains in the pockets of the people you love.

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Investing in yourself is one of the investments less spoken about. When we speak about investing we typically talk about financial goals in the distant future or putting away money to live a certain lifestyle in retirement. Investing in yourself without any financial input can be done by investing your time, hard work, or other non-monetary assets you have. Simply taking a few extra hours a week to learn a new skill can become a valuable investment down the line.  Investing in yourself is typically on a shorter scale, these goals are set for 1-3, 5-7, or 10 years. These investments in yourself will help you to achieve your goals 10+ years down the line and improve yourself during the journey. Investing in yourself allows you to create a better foundation for you to be able to help others, advance your career, and become a better version of yourself.

There are many ways a person can invest in themselves, what I recommend is developing end goals and mean goals. An end goal is something that brings you fulfillment. While a mean goal is the steps you take today to be able to achieve that end goal. An example of an end goal would be that I want to develop a better reputation for myself at work. Mean goals can be developed in order to achieve this such as showing up early to work or taking on extra projects. After achieving this end goal your actions could lead to a promotion or a raise resulting in career advancement and building a better foundation for yourself to be able to help others and achieve your long-term goals.

The issue with mean and end goals is that similar to financial investment in many cases it takes consistency and commitment to be able to gain the benefits from your investment. While taking on extra projects may get you a pat on the back it is not till you do an outstanding job on a consistent basis that you will get recognized. This commitment can be very difficult for many people and may result in them getting discouraged if they do not get the recognition they are seeking. It is important that once you have set a goal that you stick with it and understand through your hard work you will get what you deserve and even if that doesn’t come in monetary recognition you are sure to gain experience and learn things that will be beneficial to you, your career, and your goals.

Investing in yourself doesn’t always have to be about moving forward either. It can be just as important to preserve and maintain the progress you have already made. It can be important to take a pause and evaluate where you currently are mentally, physically, emotionally and more in order to make sure you are able to perform at 100% when you need to. There is no point in building on an old broken foundation, it will only result in the collapse of all your hard work. Instead, take a step back solidify the assets you have and then begin to improve yourself taking small steps along the way.

For more personal finance advice make sure to check out our Instagram @therichcollegestudent. If you enjoyed this week’s blog make sure to like and leave a comment if you think there are any ways I can improve. You can also subscribe if you would like weekly content directly in your mailbox.

It was surprising for me to find out that I haven’t written a blog directed at the mistakes college students make given the title of my blog, but here we are. There are a number of personal finance mistakes that students make in college that can set them up for a poor start to their accumulation years of work after university.

Failing to Make a Budget

Before your school year begins you should sit down and create a budget for monthly and yearly expenses. Creating a budget will decrease the odds of money running out before the end of the year. You will probably have little income and this may lead to you wasting your money on things you don’t need. Start by making a simple budget as you probably have few financial responsibilities. You can get a better idea of where you money is going and build good habits for after graduating when a budget is essential. This will decrease the amount of stress you have during the school year and allow you to allocate more of your time towards studying.

Borrowing More Than you Need

We have previously talked about how banks will qualify you for more than you can afford and the same thing happens through provincial and government loans. You will often get qualified for far more than you need. The cost of higher education has resulted in parents not being able to provide a significant amount of financial support and students are forced to rely on students loans to pay for education. If you are a student try to restrain from using your student loan money for expenses other than necessary living expenses.  It is important that when you accept this money if necessary that you only spend the amount that you need and use the rest to pay off your loan in order to suffer as little interest as possible. Your future self will thank you for accumulating as little debt as possible.

Attending an Unaffordable University

A mistake that is very common is attending a university that is unaffordable for the student. The school may be unaffordable for many reasons including being away from home and attending a prestigious university. In many cases the school you attend is not important, I always say that you never ask your doctor where they got their degree all you care about is that they are qualified. It can be beneficial to do your first to years of university at a local school and then transferring to a more prestigious school in the upper years if necessary. Always consider the return on investment by attending a different more expensive school. Students may also lose a significant amount of money by attending university when they are unsure of the career path they want to pursue.

Not Applying for Scholarships, Grants and Bursaries

There are many scholarships, grants and bursaries that go unclaimed each year. By applying to these financial aids a student can save a significant amount of money. Financial aid can take that significant burden off of families attempting to pay for their child’s education. This can leave room for the students to live more comfortably in university and allocate money towards other necessities and leisure. This can save students from entering their professional careers with a lot of debt.

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In today’s society it seems like everyone is trying to complete a checklist of goals. Along with completing University and getting married one of the main items they want to check off that list is buying a home. The reality is buying a home may not be the correct decision for everyone at this time. I am an advocate for purchasing real estate it is not a financial decision that should be taken lightly or rushed into.

The average house does appreciate at a greater rate than inflation but just because there is potential for an asset to appreciate that does not qualify it as a good investment. Throughout this blog I will be discussing a home as your main shelter and not as a secondary property. Unlike stocks or other monetary investments a home provides shelter and for that reason you cannot capitalize on market highs or cut your losses at a market downturn. To a certain degree you are tied to your investment and the collapse of the market in 2008 has shown that people are not under control of their investment as they were forced to sell their house/default on their investment at an inopportune time.

The operating or carrying cost of a home is very high. This is similar to the expenses or commissions tied with investments which has the industry trending towards self-directed investment accounts. In the majority of investments it does not require the investor to consistently input cash. There are many expenses that are associated with a house that are not included in the overall evaluation of the home. From real estate taxes, insurance, utilities to repairs, maintenance, renovations. Not to mention the expense associated with major repairs such as siding, roof, fence, windows. Many of these expenses which are not carried by the renter in an apartment. The main argument against renting is that you are throwing your money away but renting provides you greater flexibility with less of the responsibility of repairs. At the end of the day your house may appreciate by $100,000 and although it may be nice to have an extra $100,000 in your hand you have not accounted for the fact that inflation has risen, commission fees on realtors and cost of living in the home for that time frame.

Given that your home is your primary residence your house will not generate any cash flow similar to what a dividend would do. Renting a portion of your home can help cover some of the cost of your mortgage and insurance. It can be a great source of cash flow for the home owner but being a rental property owner is a very difficult task. Some of the struggles associated with renting include finding a suitable renter, preparing the unit, maintenance issues, changing the rental price.   An investment property can be a great source of income but also carries all of the same struggles as renting out of your own home and more.

I have discussed many of the reasons why a home is a poor investment but there are many reasons why a home is said to be a good investment. One of the reasons is that the housing market is not too volatile. Although the market has faced its ups and downs the market is shown to be more consistent than the stock market. As your mortgage is paid down there is a significant amount of equity that can be gained from a home. Long term it does appreciate and especially if purchasing a home other than your primary residence it can be a good long term investment that helps to diversify your portfolio.

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