Financial Friday #81: Income or Expenses - Which One Matters Most?
What Moves the Needle on Saving Money?
There is a lot of focus on maximizing our employment income and investment returns, but this myopic look at the top line number often overshadows the importance of defensive strategies to reduce costs and expenses.
After factoring in taxes and the time required to earn more employment income, or the increase in risk level to generate higher investment returns, you may find that simply reducing expenses provides more bang for your buck.
Enriched Academy Vice President and personal finance expert Arian Beyzaei recently sat down for an interview with Build Wealth Canada host Kornel Szrejber to talk more about defensive financial strategies and where to look for opportunities.
Arian noted that housing and transportation are the two biggest buckets for Canadians and together they eat up almost half of our disposable income. You need to live somewhere, and a car is likely a necessity with the exception of downtown living in a handful of cities, but how much house do you require and does your household really need two cars?
Moving is a big step, but if you can downsize, move to a cheaper location, or get a home with a rental suite you could remove a large chunk of your monthly mortgage payment. You can also deduct some expenses from rental income, so there is a tax benefit as well.
Speaking of the mortgage, Arian also suggested to check-in with a mortgage broker if you are renewing or think your current rate is a little high. They have access to multiple lenders and rates are now super low and very competitive — half of one percent on $500K is a lot of money!
You may also want to re-evaluate the type of car you drive and the need for two cars in your family, especially if the pandemic has pushed your employer to allow for more remote work.
Cars are depreciable assets and start losing value from day 1. They have a lot of obvious costs like the monthly payment, but also a lot of overlooked costs like registration, insurance, oil changes, parking and snow tires. Make sure to take a long hard look at your total car costs and whether or not you could survive with a lesser car (or even one less car).
Outside of housing and transportation, the next item on Arian’s hit list was recurring monthly expenses. Trying to negotiate your electricity bill might be a tall order, but if you find the cell-phone/internet/cable bills for the family are running $300+ each month you can likely do better.
Paying a monthly fee and/or transaction charges for daily banking is completely unnecessary given the number of free options available. While you’re at it, review your monthly bank and credit card statements to see if there is a gym membership, COSTCO card or Amazon Prime subscription that rarely, if ever gets used.
You can catch the entire discussion between Arian an Kornel and load up on more money saving tips here.
Not only does Kornel run the #1 personal finance podcast in Canada, he is also the man behind the Canadian Financial Summit. This virtual event is on now and features more than 30 of the best financial writers, bloggers and speakers in Canada dishing out sage advice on a variety of personal finance topics.
From saving money to cryptocurrency to retirement planning, the Summit has something for everybody, and it’s all free for a limited time. Check it out by clicking on the banner at the top of this newsletter.
Resources
The ultimate financial guide for new parents
If you've recently had a baby or have one on the way, make sure to check out this great 3-minute read on what you need to do - from opening an RESP to updating your will.
Can you be financially secure without ever buying a home?
If you want to know whether you'd be better off to drop $860K on a house or rent for the same size mortgage payment ($2500), check out this in-depth analysis and the tangible and intangible factors that should go into your calculations.
Review of the "Reddit Personal Finance Canada" page
Great article about what it is, how it works, and the type and quality of information you can find there. If Reddit is on the fringe of your financial information gathering radar it's time to give it another try - but read this review first!
25 Things to never buy at Walmart
If you read this week's feature article, you'd know that cutting your spending can go a lot farther than making more money when it comes to balancing the household budget, but are Walmart's "guaranteed" low prices the be-all and end-all of shopping bargains?
Are we naturally wired to sell when markets dip?
Conventional wisdom is to hang on an ride it out when stocks tumble, and this has proven to be wise advice by multiple stock market recoveries (remember March of 2020?). If we know this to be true, why is it so hard to resist the temptation to sell when it hits the fan, and with many pundits now calling a steep correction is imminent, how can we counteract this urge?