Canada’s housing market continues to defy logic as prices have shot-up more than 40% on average across the country. Last spring, then CMHC boss Evan Siddall predicted that home prices would fall between 9-18% due to the economic impact of the pandemic. So, what happened?

One reason is that high income earners working from home bid up prices for detached houses in big cities, suburbs, and rural areas. Another reason is there simply isn’t enough inventory to keep up with demand – leading to bidding wars and bully offers. 

The lack of supply is a problem when you consider that Canada’s population growth slowed to a crawl in 2020, with more people leaving Canada than moving here after Q1 2020. When immigration picks up again post-pandemic, we should see an even larger demand for housing.

Real estate analyst Logan Mohtashami called this an unhealthy housing market when he appeared on the Animal Spirits podcast this week. He was referring to the US market, but the problems are even more widespread in Canada.

“This is a very unhealthy housing market because inventories are too low. We might only be up just a little bit year-over-year in existing home sales and we have 13-18% price appreciation. That is not a healthy market under any circumstances. You should not be competing with 10 to 12 people for a house. That’s not how it’s supposed to be.”

The entire episode is worth a listen. I agree with Logan when he says that the pandemic has pulled forward demand that we might not have seen for 2-3 years. But he also said this is not a credit crisis like the previous US housing boom. It’s legitimate demand, and supply needs to catch up before prices will cool off.

For a Canadian perspective, listen to the latest Mostly Money podcast with Preet Banerjee and real estate analyst Ben Rabidoux. He said, among other things, that:

• Most of the people who lost their jobs weren’t in a position to buy in the first place
• Those who were, tended to see their financial situations improve during the pandemic
• Lower interest rates have further increased debt servicing ability

Rabidoux also explains how the mortgage deferrals that hundreds of thousands of Canadian homeowners took advantage of during the early stages of the pandemic did not lead to massive delinquencies at all. In fact, Rabidoux said most people who deferred mortgage payments did so out of an abundance of caution rather than extreme financial hardship.

This Week’s Recap:

Earlier this week I shared how to create your own financial plan in eight easy steps. 

Many thanks to The Globe and Mail’s Rob Carrick for highlighting my article about what cards I carry in my wallet.

My wife and I go for our second doses next week as Alberta gears up for a full-scale re-opening by the end of the month. Call us cautiously optimistic about our two dose summer.

Promo of the Week:

Readers frequently ask where they should park their US cash. I never had a good answer until now. EQ Bank has launched a no-fee US Dollar account that pays 1% interest.

It claims to offer a competitive exchange rate, it’s CDIC insured, and you can send your US dollars to the US or abroad in just a few easy steps and with no hidden fees.

You’ll need to first open an EQ Savings Plus Account and then open the US Dollar account from your browser or EQ mobile app in just a few steps.

Weekend Reading:

Our friends at Credit Card Genius are offering a free $100 Amazon.ca gift card when you sign-up for Canada’s top cash back credit card – the Scotia Momentum Visa Infinite Card. This is a no-brainer, folks.

A Q&A with Purpose Financial’s Som Seif on his new retirement longevity fund and why Canada is falling behind on financial innovation.

Wealth means different things to different people, but one general rule is that if you’re still worried, you’re not wealthy.

A must-read article from Morningstar’s Ruth Saldanha on why retirement is about more than money:

“Money is important until it fulfills what you want. And then it doesn’t matter. Look at money as survival vs thriving. When you are in the mode of survival, money = happiness. When you reach the mode of thriving, you begin the comparison. At the point of comparison, it takes a lot of money to move the needle to higher amounts of happiness.”

The Humble Dollar blog says retirement can be the best time of our life — but only if we manage it right.

The 34% stock market crash in March 2020 lasted just 23 trading days. Is this the future of bear markets?

David Aston writes that it’s the end of the trail for these trailing commissions (DSCs) – and good riddance.

Many young people don’t need financial advice if they’ve developed good money habits. But with age comes greater complexity. Robin Powell looks at some reasons why you might turn to a trusted financial advisor.

Gen Y Money explores whether employee life insurance is enough. It’s not, usually. Don’t make the same life insurance mistake that I did.

Finally, another gem of a post by Morgan Housel who explains how to get the goalposts to stop moving.

Have a great weekend, everyone!

A financial plan is a road map to help guide you to a better future. Not just about budgeting or investing, a good financial plan will help you navigate your way through all of life’s major financial milestones.

On one hand, your financial plan acts as a set of rules or principles by which to live. Think of Harold Pollack’s famous ‘index card financial plan’ which lists nine rules such as; save 20 percent of your money, max out your retirement account each year, pay off your credit card balance in full each month, and pay attention to fees. It’s something you can carry with you all your life.

On the other hand, your own financial plan needs to be malleable and allow you to adjust course when life throws you a curveball. Sure, your core principles might stay the same, but finances can change in a hurry when you get married, have kids, buy a house, suffer an illness or disability, get divorced, move across the country, or gear up for retirement. Your financial plan should act as a compass to get you back on track.

While a financial advisor can help you set up with a plan, many are focused solely on product sales such as mortgages, investments, and insurance. They’re not likely to ask where you see yourself in five years, and might not truly understand your short-and-long-term money needs.

A better option might be to work with a fee-only financial planner who can take an objective look at your overall financial health and draw up a plan to help you reach your goals. The challenge is a lack of fee-only advisors in Canada, plus a comprehensive plan could set you back several thousand dollars.

One idea is to create a basic financial plan of your own. The process alone will allow you to think about money in ways you never have before. If in the end you have more questions than answers, by all means reach out for professional guidance.

Here are eight steps to help create your own financial plan:

Create Your Own Financial Plan

Step 1: Identify your goals

Sit down with your spouse and have a frank conversation about your short-and-long-term goals. That could mean paying down credit card debt, saving up for a new car, or continuing to max-out your TFSA or RRSP so you can retire early.

Agree on the top three or four goals and then rank them in order of priority. We’ll come back to these later.

Step 2: Determine your net worth

You have to figure out where you are now before worrying about where you want to go in the future. Take a snapshot of your current financial situation by creating a net worth statement.

Add up all of your assets and subtract your liabilities. What’s left over is your current net worth.

Step 3: Check your cash flow

One of the keys to building a strong financial plan is to understand how much you spend and save. Use a spreadsheet or app to track what money is coming in (wages, interest, government benefits) and what’s flowing out (rent, debt payments, utility bills).

Fill in all your monthly expenses in one column and your annual expenses in another column. Add up your expenses in both columns and subtract them from total net income on both a monthly and yearly basis. The result is your cash flow deficit or surplus.

Tracking your cash flow can give you a sense of control and confidence that makes it easier to implement financial changes in your life.

Step 4: Match your goals to your spending

You’ve already identified your goals and determined your cash flow. Now it’s time to compare spending to your goals and see how they match-up. The idea here is to look at how well your current spending habits mesh with your goals.

If you have a cash flow deficit you won’t be able to meet your goals, so you’ll have to see if you can free up cash by cutting back your spending in areas that are less important to you. If you have a cash surplus, that’s great! You can start allocating money to meet your goals right away.

Step 5: Review your insurance coverage

Most employer group plans offer minimal life insurance coverage. With some basic calculations you can determine whether you have enough. A good rule of thumb for life insurance is to get enough to pay off any debts owing, plus cover 10 times your income if you have kids under 10 years old, and five times your income if you have kids over 10.

Your workplace coverage should also include disability insurance, but if it doesn’t, get enough to replace at least 60% of your after-tax income.

Step 6: Reduce your taxes

Tax planning can be fairly straightforward for most families and you’re likely already taking advantage of the best tax shelters if you own your home and contribute to your RRSP, RESP and TFSA.

However, if you are self-employed or rely on commission income, rental income, or significant investment income, consider hiring an accountant to help with income tax planning.

Step 7: Create an investing policy

Every financial plan should include an investment policy statement that advises how your portfolio should be invested. An investing policy written down on paper can help you to stay the course with your investments whenever markets get volatile.

The policy can be as simple as stating that you want to invest in low cost, broadly diversified index funds or ETFs that you will rebalance annually to maintain an allocation of 25% Canadian equities, 25% U.S. equities, 25% international equities, and 25% Canadian bonds. Any new money will be added to the lowest valued fund so that you’re guaranteed to ‘buy low’.

Step 8: Create or update your will

Every adult who owns assets and has a spouse or children should have a will. An accurate and up-to-date will is the only way to ensure your assets will be distributed the way you want them to be, and not left up to the courts to decide.

56 percent of Canadian adults do not have a legal will. Now you can create a legal will online in 20 minutes for as little as $99 thanks to Willful Wills.

Final thoughts

While most people could benefit from working with a financial advisor, anyone can go through these eight steps and create their own financial plan.

At the very least, it’s a good idea to take stock of your own finances from time-to-time to see where you stand. Open up the dialogue with your spouse and even with your kids. Talk about your financial goals and get all of your money concerns out in the open.

What you’ll end up with at worst is a basic idea of your financial position and where you want to go. At best, you’ll have a set of guiding principles to lead you to a better financial future.

Canada’s big banks rollout new fee increases every year or two. These fee hikes may seem innocuous at first – 50 cents here and $1 there – but they collectively (and annoyingly) add up to big bucks over time. 

My advice for Canadians who want to remain with a big bank but don’t want to pay excessive fees is to downgrade to a basic chequing account, maintain a minimum balance, and use a cash back or travel rewards credit card for everyday spending instead of using debit (which can incur more fees).

But that’s becoming more and more difficult as banks continue to hike monthly fees, increase the minimum balance requirement, tie the account fee reduction to holding multiple (fee-based) products, and in some cases not even offer the option to waive the fee with a minimum balance.

For example, TD’s all-inclusive plan costs $29.95 per month and requires a minimum monthly balance of $5,000 to waive that fee. Their Everyday chequing account costs $10.95 per month and includes 25 transactions. The fee is waived when you maintain a $3,000 minimum balance. 

Canada’s largest banks (and others) have all signed a public commitment to offer low cost and no cost accounts. Youth, students, seniors, and RDSP beneficiaries may be eligible for a no cost account that includes basic features.

Consumer advocates will call these fee hikes a money grab (as I did in this Global News column) and they’re right. Big banks get away with increasing fees because they know that most Canadians will begrudgingly accept them. Chequing accounts are ‘sticky’ products and customers simply don’t want to go through the hassle of switching banks, or don’t know that free options exist outside the big bank environment.

I recognize that it’s not practical for some people to hold a basic account with a low number of transactions, or to keep thousands of dollars tied-up in a chequing account just to waive monthly fees. In that case I think you can make one last-ditch effort to negotiate your monthly fee down to an acceptable level (as I’ve done) before you need to seriously consider moving to a no-fee bank account.

For no-fee banking options that come with a debit card I’d look at Tangerine, Simplii, Motive, or a local credit union. You’ll get access to a limited number of ATMs (Scotia, CIBC, or the Exchange network of ATMs) and can typically get unlimited free transactions, including bill payments and e-Transfers.

The one downside to moving away from a big bank environment is the lack of branch access. For example, if you need a bank draft to make an offer on a house you may not be able to get one for 48 hours or more if you deal primarily with an online bank.

Canada’s big banks continue their relentless assault on our wallets by nickel-and-diming us to death with fee increases. It doesn’t have. to be this way. In the age of FinTech, there is a better and cheaper option available outside the big banks in every line of business in which they operate. It’s time to explore those options if you haven’t already.

This Week’s Recap:

I recently shared with readers what’s in my wallet and looked at some excellent rewards credit card options.

On Wednesday I took a deep dive into BMO’s line-up of fixed income ETFs.

Over on Young & Thrifty I explained exactly how to transfer your RRSP or TFSA to Questrade.

We’re getting our minds back into travel mode (finally) and so here’s my Airbnb versus hotels comparison on Rewards Cards Canada.

Promo of the Week:

Our friends at Credit Card Genius have outdone themselves with this one. Sign-up for Canada’s top cash back credit card – the Scotia Momentum Visa Infinite Card – and you’ll also get a free $100 Amazon.ca gift card.

The card still offers an incredible 10% cash back bonus for the first three months, 4% cash back on groceries and recurring bills, 2% back on gas and daily transit, and 1% back on everything else. All of this, and the $120 annual fee is waived in the first year.

Weekend Reading:

Purpose Investments introduced a new mutual fund for seniors that targets an initial lifetime income payment of 6.15% (for investors aged 65 to 67). It’s an annuity wrapped up in a mutual fund, with a pooled structure that takes advantage of mortality credits to meet its long-term goals.

Fee-only planner Jason Heath shares the top mistakes that do-it-yourself retirement planners most often make:

“Life expectancy is easy to misjudge for a retiree. The current life expectancy is age 80 for a Canadian man and age 84 for a woman. However, those are the average ages of men and women at death. A 65-year-old man has a 50 per cent probability of living to age 89, and for women, it is age 91. For a 65-year-old husband and wife, there is a 50 per cent chance that one of them will live to age 94, so at 65, they should plan for a 30-year retirement.”

Here’s why retirees need to heed the sequence of returns risk in their portfolios.

This Globe and Mail article explains when it makes sense to withdraw funds early from your RRSP.

An interesting post at Money We Have looks at collecting CPP and OAS when retiring abroad.

Michael James on Money explains how to lie to yourself about a stock crash with statistics. This is in a response to a particular advisor who has been beating the drum about a stock market bubble for the past 15 months.

PWL Capital’s Shannon Bender explains how to calculate your investment returns using the Modified Dietz Method:

The Monevator blog explains how self-directed investors can keep their investment portfolios on track.

Nick Magguilli (Of Dollars and Data) explains how we become so obsessed with millionaires?

A Wealth of Common Sense blogger Ben Carlson digs into 200+ years of asset class returns to find some interesting nuggets:

“There is a very good case to be made that returns over the next 50-100 years will be lower than they’ve been over the past 50-100 years.”

If being a landlord is part of your retirement plan, read this first. Agree 100% – I would not recommend owning rental properties in your retirement years.

Finally, here’s the Blunt Bean Counter with a must-read article on estate planning: “My kids will never fight over my estate.”

Have a great weekend, everyone!