My mom and I have written more than 1,000 articles on personal finance and investing over the last three-and-a-half years. The articles speak, for the most part, to the general “you” but aim to make readers think about their own finances and how it can apply to them. We receive countless emails from our readers asking that very question – what about me and my unique situation?
Reading those emails, and the comments on our posts, is by far the most enjoyable part about writing this blog. What we’ve learned is that many people aren’t getting the type of advice they need from their financial advisors – the ones who focus more on selling products rather than developing a financial plan for their clients.
The financial services industry has done a poor job addressing this problem. Clients walk into their bank, sit down with a financial advisor, fill out a boilerplate questionnaire assessing their tolerance for risk, and then get sold investment products which are suitable, but may not be in their best interest over the long term.
This experience drives many to go the do-it-yourself route, but again, the focus is on investments and not goal setting and planning. The trouble for those who go it alone is that many are not capable of handling the ups-and-downs of the market and could use a financial advisor to provide a sober second opinion before they push the panic button.
If fact, Nobel Prize-winning economist Robert Shiller said that everyone should have a financial advisor and that “a lack of good financial advice was one of the problems that led to the financial crisis.”
An alternative to the commission-based bank advisor is to look for a fee-only planner, a role that has been talked up in recent years, but is still difficult to find in Canada. A fee-only planner works with you to develop a financial plan and offers investment advice for a set fee, often charged per hour or per project. They don’t sell products and won’t execute trades for you, which is a good thing because it means there’s no conflict of interest in this relationship.
As Preet Banerjee wrote in his excellent piece for MoneySense on how to find the perfect financial planner, “low-cost couch potato strategies coupled with planning and coaching from an adviser is a model set to grow by leaps and bounds in the next five years.”
The article goes on to describe why the fee-only financial planning model has struggled to catch on. It’s not that there’s a lack of demand from consumers, it’s that advisors make far less money in this model than they would make by charging commissions or a percentage of your assets.
“For advisers, the pure fee-for-service model is economically unattractive. A commission-based or fee-based practice has tremendous scalability. The heavy lifting in a relationship is performed early on. Aside from moderately intensive reviews every three to five years, an established relationship becomes less work and is more lucrative for advisers as time marches on. Assets grow and compensation models tied to asset growth clearly exhibit ever-rising compensation. By contrast, a pure fee-for-service model implies a direct relationship between an adviser’s work and compensation and is effectively capped by the number of hours an adviser can work.”
Our New Fee-Only Financial Planning Service
Too many consumers are now aware of the outrageous fees and conflict of interest present when they deal with a bank advisor, yet they don’t have enough assets to meet the minimum that many fee-only asset-based planners require. That leaves them in limbo and prone to make the kind of mistakes that can derail even the most steadfast do-it-yourselfer.
Consumers are ready for and deserve a change. That’s why we’ve added our names to the “rare” list of fee-only financial planners in Canada who operate purely on a fee-for-service model. We separate the advice from the product sales and will help you create an unbiased financial plan that gets you on the right path to achieve your financial goals.
Visit our fee-only financial planning page to find out more about our service and see if it’s the right fit for you.
We consider ourselves to be smart shoppers – faithfully perusing store flyers, comparison shopping and checking prices online, downloading coupons and watching for deep discounts. Canadian retailers are getting on board with Black Friday sales like they have in the US, but Boxing Day is still the busiest day for bargain-hunting shoppers in Canada.
Related: What I learned from working retail
Many items are also reduced at certain times each year. If you have the storage for out-of-season goods and don’t mind that your new purchase is “so last year!” you can find deals all year round. While you can’t wait for months to buy a major appliance if yours completely breaks down, you can wait for a better deal if you think your fridge is old, ugly or losing efficiency. When considering a significant purchase, see if you can wait until the item is officially “out of season”. If you plan ahead you can save substantially.
I love saving money almost as much as I love lists, so I’ll start off the year by combining both. Here’s a month-by-month guide to the best bargains. It all starts with knowing when to shop.
Calendar of Saving Money
January
- Anything Christmas related and/or with special holiday packaging can be marked down by up to 90% especially food items, chocolates and candles.
- Linens. Stores hold “white sales” to encourage shoppers to stock up on towels and bedding.
- Furniture. New styles arrive in stores in February.
- TVs – especially big screen TVs. The two weeks leading up to Super Bowl have good deals and new stock comes in January through March.
- Computers and other consumer electronics.
- Winter clothes. Spring fashions hit the sores in February.
- Workout and sports gear and clothing. Sad but true, the average North American gains 7 – 10 lbs between Thanksgiving and New Year’s Day. There are great sales for those New Year’s resolutions.
- Carpeting and flooring.
February
- Jewelry
- Fragrance and toiletries.
- Furniture and house wares.
- Spring and summer cruises.
March
- Luggage is priced to move.
- “Frozen Food Month.” Stock up your freezer.
April
- Tires. People are thinking of road trips.
- Cookware and china are popular graduation and wedding gifts.
- Vacuum cleaners and cleaning supplies. Spring-cleaning anyone?
- Wallpaper and paint. Walls look grungy after all that spring-cleaning.
May
- Mattresses and box springs (through the summer). Stores often get special offers from manufacturers.
- Refrigerators. New models hit the stores in summer, which means last year’s models have to go. Start with the clearance price, and then negotiate from there. Most stores will be willing to haggle.
June
- Tableware – china and flatware. These are popular wedding gifts for the most popular month for weddings.
- Wedding dress. If you’re not too picky, what didn’t get sold previously is highly discounted before new merchandise comes in.
- Tools. Aimed at Father’s Day.
July
- Furniture. New arrivals come in August.
- Electronics.
- Craft supplies.
August
- Bathing suits and summer clothing. Stores must clear out inventory for incoming fall and winter fashions.
- Linens. University students are shopping for their dorm room.
September
- Lawnmowers and BBQ’s. These take up too much space on the sales floor.
- Trees, shrubs and bulbs. Stores are eager to clear these out to make room for holiday merchandise.
- Stoves. New models come in winter.
- School supplies. Also, backpacks, calculators and laptops.
- Canned goods. Stock up for winter.
- Houses. Home sellers who didn’t find a buyer in the spring and summer and want to move before Christmas may now listen to your ridiculously low offer.
October
- Outdoor and camping gear.
- Patio furniture.
- Snow tires. Canadians know all about winter driving.
- Cars – new and used. The best time to buy a car is late in the month.
- Jeans. The back-to-school rush is over and excess inventory has to go.
- Wedding supplies. Wedding season is over so it’s easier to negotiate prices on wedding and reception locations, DJ, flowers, and catering.
November
- Tools. Timed for Christmas giving.
- Turkeys and baking supplies.
- Baking and roasting pans
- Electronics. These are the top items of Black Friday and Cyber Monday sales – especially Apple products.
- Wedding supplies.
December
- Winter clothes.
- Party foods and treats.
- Food serving and storage pieces (from crystal to plastic).
- Popular holiday related gift items – perfume, ties, sweaters, jewelry, wallets, cookware, small kitchen appliances and tools.
- Champagne. Buy early in the month on sale or gift with purchase.
As I put the numbers together for my 2013 year-end review and net worth update I realized that I made two critical errors in my financial plan this year: my financial goals were wildly optimistic – I wanted to achieve a net worth of $360,000 – and I got lazy and failed to properly execute my plan.
Related: Why your financial plan sucks
Midway through the year it was clear that I wouldn’t reach my target, but I pressed on – convinced that a surge in the stock market would make up for lost ground. While the market did rally in the latter part of the year, it wasn’t enough to help me reach my year-end goal. Even a last-ditch effort to boost my RRSP contributions – although a worthwhile strategy in the long run – wouldn’t get me where I wanted to be at year-end.
I can come up with all the excuses in the world: a wage freeze at work, a decrease in business income, an increase in day-to-day living expenses, and the start of our basement renovations. The reality is that all those things happened, and that’s okay. I’ve tempered expectations and at the end of the day I know we’re still making tremendous progress.
Here’s what my net worth statement looks like compared to last year.
Net worth update: 2013 year-end review
| 2013 | 2012 | % change | |
| Assets | |||
| Chequing account | $1,500 | $1,500 | — |
| Savings account | $10,000 | $8,000 | 25.0% |
| RRSP | $90,502 | $53,582 | 68.9% |
| Defined benefit plan | $82,950 | $51,698 | 60.5% |
| TFSA | $4,523 | $4,350 | 4.0% |
| RESP | $8,551 | $4,690 | 82.3% |
| Principal residence | $425,000 | $425,000 | — |
| Total assets | $623,026 | $548,821 | 13.5% |
| Liabilities | |||
| Mortgage | $267,865 | $290,519 | (8.5%) |
| RRSP loan | $20,000 | — | — |
| Total liabilities | $287,865 | $290,519 | 0.0% |
| Net worth | $335,161 | $258,302 | 29.8% |
Looking ahead to 2014
I’m happy with the nearly 30 percent increase in net worth this year and a quick glance at my budget for next year suggests I might expect a similar gain in 2014. Another 30 percent gain would bring my net worth to $435,000, which is a $100,000 increase from this year.
But when you spell it out like that it looks like I’m setting myself up for disappointment again. Let’s take a closer look at the numbers.
Mortgage
Paying down our mortgage continues to be one of our top financial priorities. We currently put an extra $1,100 on top of our regular monthly mortgage payment and so we expect our balance to decrease by $22,500 to $245,365.
RRSP
Since I’ve basically made my 2014 RRSP contributions already this year by taking out a $20,000 loan, next year will be focused on repaying that loan. I’ve budgeted $1,700 per month to pay back the loan over the calendar year, plus an extra $1,500 for a contribution in December.
Related: RRSP contribution or mortgage pay down?
So with a $1,500 contribution, and assuming 8 percent growth in the portfolio, my RRSP should reach $99,352 by the end of 2014, for an increase of $8,850.
Defined benefit pension
When I checked my last pension statement it showed the commuted value was roughly equal to my contributions, plus my employer’s contributions. That makes an easy calculation and so this forced savings plan should increase by $20,880 and be valued at $103,830 by the end of next year.
And the rest of it will come from?
Half of my net worth growth will come from those three areas next year, which makes sense because they each make up a huge part of our financial plan. But directing the majority of our cash to these three areas won’t leave much room left for our TFSAs, RESPs, and cash for emergencies.
Then there’s the basement renovation. We plan to finish our basement in stages as our budget allows for it. We’ve already had it framed, so we need to start on plumbing and electrical next and then drywall before we paint and install the floor.
Related: Do home renovations pay off?
That means we’ll likely burn through the cash in our savings account, plus some of the cash that was earmarked for “savings” next year. The goal is to complete the project without going into debt.
We’ll keep our regular RESP contributions and hopefully scrounge up a few thousand dollars extra to add to our TFSAs.
A more realistic net worth goal would be to try and top $400,000 – that would be about a 20 percent increase.
Have you reviewed your finances this year? What will 2014 have in store for you and your finances?