I encounter people who have saved very little money, if any, over many years in some cases and decades in others. When we look back over long periods of time, it seems inexplicable that a seemingly intelligent person could fail to save any meaningful amount for the future. But there is a simple explanation. When we look to past failures to save for a long time, we look like fools. But when we look to the future, we see the rest of today, along with a magical time in the future when “I’m not so busy and everything isn’t crazy.” This makes it easy to not save today. After all, what difference can a single day make? The problem is that the last decade is made up of a few thousand single days. Of course, this magical time in the future when things are calmer will never arrive. So, it’s easy to keep putting off things like saving money, improving your diet, and exercising. In the end, the answer to the question “how can people fail to save any money for years?” is “they do it o...

My employer has a recognition system based on points. Just like Air Miles and other reward systems, we get to cash in our points for various types of goods and services. What hadn’t occurred to me until recently was the tax implications. When we cash in our points, the value of our rewards becomes a taxable benefit. So, for someone in a 50% marginal income tax bracket, getting a $100 reward actually costs $50 in additional income taxes. This is still a reasonably good deal, but the taxes have some implications. Just because a reward costs the company $100 doesn’t necessarily mean it’s worth $100 to me. Fortunately, we have a wide range of reward choices, so it’s likely that I’ll be able to find things I actually want. However, these points have expiry dates, and there is no guarantee the good selection of rewards will remain. Normally, if you have points that are soon to expire, you’d cash them in for something, even if that something isn’t exactly what you want. Not so in...

Certified Financial Planner Carl Richards, a.k.a. The Sketch Guy, writes “In all my years of working with clients, I can only think of two people who wanted to retire in the traditional sense.” His clients find some sort of work (paid or unpaid) they want to do for the rest of their lives, or at least well after age 65. This surprised me because it is at odds with my own experience. I sat down and wrote down the names of the first 20 people I could think of who have retired. All but four of them retired to a life of leisure, unlike Richards’ clients. Of the four, one does small contracting jobs on the side, one runs a small farm, one had to go back to work because his pension got chopped, and the last one is partnering with his son to get the son’s real estate career off the ground. Sixteen of them are enjoying their leisure. This speaks to how rarefied the clients of some advisors are. Virtually all financial advisors prefer rich clients. The best advisors have minimums in...

The mayors of five major cities across Canada have come together to call on the provinces to give them “increased revenue powers” to charge tolls on roads and bridges. The full text of open letter is reproduced below. The mayors complain they don’t have the money necessary to build the infrastructure Canadians need. They say “city governments have been required to rely on property taxes alone to support our growing operating budgets, with dollars stretched thinner and thinner as we serve the growing needs of the public.” Apparently, property taxes are not enough. I find it frustrating that the substantial property taxes I pay don’t seem to be enough. Over the past decade or two, city governments have added user fees to everything they can. So, I pay these fees in addition to my property taxes. The prospect of greatly “increased revenue powers” for the city isn’t a happy one for me. I believe it’s important to fix and grow infrastructure, but why can’t some of my property tax...

R.J. Weiss at The Ways to Wealth chose my post Aren't the Banks the Investing Experts as a top 100 post for 2016.  There are plenty of other good articles in each of his categories. Here are my posts for the past two weeks: How Life Can Mess Up the Best-Laid Financial Plans Why Do We Focus on Advisor Cost? Here are some short takes and some weekend reading: FAIR Canada has a clear and concise “wish list of investor protection initiatives it would like to see implemented in the upcoming year.” Dan Bortolotti has a smart take on whether to hold dividend stocks in a TFSA. In another article, Dan’s alter ego, the Canadian Couch Potato makes sense of Capital Gains Distributions from ETFs . Another contribution from Dan is his latest podcast exploring the difference between financial planning and investing . Boomer and Echo discuss the dangers that await when you work with a financial advisor who doesn’t have to serve your best interests. The Blunt Bean Counter ex...

Canadian investors have a problem. The mutual funds they own typically charge 2-2.5% of their savings (not just returns) each year. Over an investing lifetime, these hidden costs can consume as much as half of their savings, leaving them with half as much retirement income. You’d think that investor advocates would be calling for lower-fee mutual funds instead of just focusing on the part of the cost that goes to financial advisors. But there is method to this madness. The second round of changes to the Client Relationship Model sets out rules, known as CRM2, mandating that reports to clients include, among other things, clear information about the dollar amount clients pay to their advisors. But there is no such requirement concerning the other fees that mutual funds quietly withdraw from investor savings. This may seem like an oversight, but it is actually a targeted measure. To see why, we need to back up a little. A great many mutual funds, particularly the largest ones,...

I frequently see people whose financial plans rest on a steady income. I’m not just talking about those living hand-to-mouth, never saving a dime. There are also the “spreadsheet planners” who have their financial lives all mapped out. They borrow large sums for a house or to invest, and rely on a steady income to keep up with the interest payments. As long as everything proceeds exactly as they planned, they’ll be multi-millionaires by the time they get close to retirement age. I’d like to introduce these people to Heather Von St. James. Heather had a great life going but was hit with mesothelioma, a cancer caused by asbestos. Her story about the personal and financial costs she faced is definitely worth a read. ( Disclaimer: I have no financial connection to Heather; I just found her story compelling. ) One takeaway from her story is that your income is not fully secure no matter how safe it seems. Heather’s story is a very specific case, but there are many different pro...

I attended the Canadian Personal Finance Conference (CPFC16) recently. Here are my favourite quotes: “A house is a forced spending plan as much as it’s a forced saving plan.” - Rob Carrick, columnist for The Globe and Mail on the CPFC Housing Panel “You don’t borrow money from a bank, you borrow it from yourself.” - Preet Banerjee on learning how to hate debt again Here are my posts for the past two weeks: The Real Reason Why a Big Mortgage is a Bad Idea Loyalty Points Battles Here are some short takes and some weekend reading: Brokers and insurance companies are desperate to preserve their right to deceive their clients. The latest effort to stop a fiduciary rule is an appeal to free speech . Jack Bogle always gives a good interview, but this one is great . One gem concerns the path to real learning: “I glance at anything favorable to indexing; I pore over anything unfavorable. You don’t need people to tell you you’re right all the time. You need people to tell you ...