They say the best time to plant a tree was 20-years ago but the second best time is now.
The same goes for financial planning. The best time to build a plan is before a crisis/recession/depression but the second best time is today. A good financial plan will help ensure that you’re prepared for a recession or financial emergency.
Having a financial plan provides an incredible amount of peace of mind. A good financial plan will already have anticipated a scenario like this and will ensure you’re still successful. It will highlight how to prepare for a recession and what changes you need to make to ensure you are successful over the long-term.
There are a few best practices that can help improve the ‘robustness’ of a financial plan. These are practices you can start using right away, even if they weren’t previously part of your plan.
Some of these best practices focus on behavior. They help manage your financial routine during emotional periods like this. Some focus on flexibility. They ensure that you have room in your plan to absorb the unexpected, whether that be changes in income, changes in expenses, or changes in investment returns.
It doesn’t matter if you’re in retirement, starting a family, or just starting to save and invest, there are a number of ways that you can prepare for a recession that will help you feel better about your finances and your long-term plan.
This post will touch on many of these best practices. These are best practices that we’ve covered in previous posts, so we’ll cover the basics here and link to past posts for more detail.
Over the last few years the number of low-cost investment options has exploded in Canada. There are new and easy ways to create a low-cost diversified portfolio that isn’t dragged down by high investment fees.
There were always low-cost, do it yourself options, but they required a fair amount of manual work to make contributions, invest those contributions, and rebalance periodically (and let’s not forget, the stress of keeping yourself on course during a correction or recession).
But now there are new options available. In addition to a low-cost ETF portfolio or a low-cost mutual fund portfolio, there are options like low-cost “all-in-one” ETFs and low-cost robo-advisors.
These new options provide investors with new ways to invest in a low-cost portfolio without necessarily doing all the work themselves.
This has understandably put a lot of pressure on investment advisors who have historically charged extremely high fees on the investment products they sell.
The average investment fee on a mutual fund portfolio in Canada is around 2.3%. This can cause an enormous amount of drag on an investment portfolio. A $1,000,000 investment portfolio would experience a $23,000 annual drag from investment fees! That has a direct impact on how much retirement income you can create from your investment portfolio.
But switching from a high-priced mutual fund portfolio can be hard to do.
Even with the high fees, traditional investment options continue to dominate the investing landscape in Canada, but things are starting to change. For the first time ever, ETFs have outsold mutual funds. More money is flowing into ETFs than into mutual funds (bear in mind that you can also have high-priced ETFs, and low cost mutual funds, so this isn’t necessarily the best indicator).
But… if these low-cost investment options have been around for a while, why the slow change? Why aren’t more people switching?
There are three main risks people face when making a change of this kind, financial risk, emotional risk, and social risk. These risks can be difficult to overcome. Let’s understand each one and why they make breaking up with an investment advisor hard to do…
When it comes to personal finance, one of the most important things is how your income compares with your expenses. Are you living within your means? Or are you living beyond your means? Are you spending less than you earn? Or are you going deeper and deeper into debt?
Living below your means is one of those ‘keystone’ financial habits.
Living below your means lets you save a bit of money each month. It gives you flexibility during emergencies. It provides you with some financial ‘room to breathe’.
Living below your means is important because a healthy saving rate is the only way to reach your financial goals. No amount of ‘financial engineering’ is going to help you unless you can save a small portion of your income each month.
That being said, saving a lot of money while your young can be tough.
Saving money while your young can pay off big time. If you can save money while you’re young, you basically let compounding do most of the work for you.
Unfortunately, when you’re young there are also a lot of demands on your income, and these compete with your ability to save.
Thankfully, as your income grows your capacity to save increases… that is… as long as you can avoid lifestyle inflation. A good rule of thumb is to put half of any salary increase towards your financial goals, and the other half can go towards increasing your lifestyle.
By estimating your future income you can plan to save more in the future and put less strain in your current budget. But what is the right amount to assume for income increases in the future? The answer really depends on your current age.
Asking for a raise is tough, but asking for a raise can significantly boost your income. Over 50% of the people who ask for a raise receive one, and almost 10% received a raise HIGHER than the one they asked for or expected.
With odds like that can you afford not to ask?!?
While 50% can seem like good odds…. you can do even better. To improve your odds it’s important to negotiate a raise ‘the right way’.
Asking for a raise in the right way requires a little bit of prep-work. This prep-work should take place throughout the year. Doing it all at once and then asking for a raise won’t be much help.
You also need to know when raises typically occur. It’s possible to get a raise outside these review periods but its waaaaay easier to work within them. Typically, there is a review period once or maybe a few times per year.
There are also some things you should absolutly NOT do when asking for a raise. Doing any one of these things will sink your chances immediately.
Money is amazing. Just the concept of money itself is incredible.
We all agree to take this worthless piece of paper and assign value to it. Most of us trade a considerable amount of our personal time for these pieces of paper. Then we trade some, or all, of those pieces of paper for stuff and things. Money is just a concept but it’s one we all agree to believe in.
One thing I find amazing about money, is that money can make more money. You put those little guys/girls to work and they start to multiply.
You can put your money to work in different ways. Some ways require you to be an active participate, like starting a business. This is active income. You need to spend money, and time, to make money.
But you can also put your money to work in other ways, ways that are more passive, ways that require little to no work from you.
Earning more money doesn’t necessarily mean getting a job. There are plenty of ways to earn money, or just earn extra money, in very unconventional ways.
The conventional (and somewhat boring) way to earn money is to get a job. If you need to earn more money you might get a second job, or a third. But getting a job isn’t the only way to earn money. There are other ways to earn money that don’t involve getting a job.
In this post, we’ve got seven different ways to earn extra money. Of course, there are lots of unique ways to earn money that we haven’t covered in this post but we hope these will at least inspire you to dig a bit deeper and find something that fits you perfectly.
These ways to earn extra income are slightly unconventional. They might not be as stable as a full-time job but they can be a great way to earn a bit of extra money on the side.