Invest Decision

Warrants exercised by Warren Buffett’s Berkshire Hathaway for Purchasing 700 million shares of Bank of America

Bank of America Corporation’s shares BAC, -0.25% rose 1% in premarket trade recently after Warren Berkshire announced that it will exercise the warrants to purchase 700 million shares of the bank’s common stock.

Warrants exercised by Warren Buffett’s Berkshire Hathaway for purchasing 700 million shares of the Bank of America recently. It happened because the America’s dividend increase took place. The prices of exercising these warrants would be around $7.14 per share. This is 71% below the closing price of the previous day, where price was $24.32. so, the 700 million shares of Bank of America would simply represent about 7.0% of the outstanding shares. After all this was said, it is believed that Berkshire would probably become the largest shareholder in the shares of Bank of America.  

Berkshire announced that it will utilize its $5 billion worth of 6% preferred Bank of America stock as deliberation to purchase the common stock. The warrants to buy the common stocks were received by Berkshire back in 2011 when it purchased the preferred stock. The stock has rallied 10.1% until date while the financial select sector ETF of SPDR has dipped down on 6.2% and the S&P 500 has gained 8.1%.

It seem that this change in the prices and the shares of Bank of America would definitely make Berkshire one of the top shareholders in the shares. All the warrants has been received and the benefits are availed.

Invest Decision

3 Ways to Pay for an Accounting Degree Without a Student Loan

Paying for college is not easy, and more than half of the population takes out a student loan to pay for school. Approximately 70 percent of all college students in the United States take out a loan, and the total student debt amounts to roughly $1.4 trillion. While these student loan statistics may imply that getting a student loan is normal, getting buried in your educational debts may not be the best choice.

For those who would rather not be weighed down by their debts for years to come, here are three alternatives worth considering:

Think Outside the Box – Consider Online Educational Institutions

With the yearly increase of college tuition, you should be strategic in choosing the institution you are going to attend. Public colleges are cheaper than private universities. Another thing most students forget is this that they have the option to study online.

Distance learning is the new way to get a higher education, and a university offering this option is a more cost-friendly choice. Many institutions, both private and public, are offering 100 percent online courses at a fraction of the price of a traditional degree. Maryville’s Bachelor’s in Accounting is a degree you can take fully online. As for those who would rather attend a public university, there are universities participating in distance learning education like the University of Alabama at Birmingham. UAB offers a Bachelor’s in Accounting online, too.

Federal Work – Study Programs

For those who want help in paying their school fees, the government has programs in place designed to help out. Part-time and full-time students can get a part-time job from participating educational institutions to help out with their tuition.

The Federal Work-Study program provides opportunities for those who demonstrate financial need. The best way to avail of this is to fill out the Free Application for Federal Student Aid, indicating you are interested in student employment.

Look for an Employer Who Will Help Put You Through College

Working while studying may be challenging, but it can be rewarding, too – especially if you have an employer who will support you through school. These days, there are several companies with existing programs to help their employees finish college or pursue a higher degree.

Many employers offer a college tuition reimbursement program because it’s a valuable investment for them. The health insurance company Cigna, and the popular international coffee chain Starbucks are just two companies offering employer tuition assistance programs.

Paying for a college education may be difficult and challenging, but with the right mindset and determination, you have several options if you truly want to study.

Saving Tips

Tax Tips for Freelancers and Entrepreneurs

I’ve had to claim income from Money After Graduation since 2011. Initially, I worked as a sole proprietor and claimed my freelance and blog income as “other income” when I filed my personal income taxes. In 2015, I incorporated my company and put myself on my payroll, which meant now I issued myself a formal T4 for tax time. While I let an accountant handle my business income taxes, I still choose to file my personal income taxes myself.

I love being self-employed and in charge of my income, but I will admit, it takes even more discipline and attention to detail to manage my business finances on top of my personal finances. However, over the years I’ve found the systems and strategies that help keep me organized and avoid any extra stress at tax time. Here are some of the ways I handle my business finances:

Dedicate a specific bank account to your business finances

The most important thing you can do as a freelancer or business owner, is separate your business finances from your personal finances. Open a business bank account and make sure all business-related income and expenses run through this account. Because you can’t claim personal expenses as business expenses, it’s imperative that you always know which is which. Keeping your business and personal finances separate makes it easier to manage both, and avoids any potential negative findings by Canada Revenue Agency in the event of an audit.

Use spreadsheets or software to keep track of income and expenses

Depending on the size of your business, you might be able to keep track of all your business finances in a spreadsheet. You want to keep a detailed record of income and expenses, and regularly verify that these amounts are correct by comparing them to your business bank statements.

I pay for bookkeeping software that integrates with my business bank accounts to manage my day-to-day business finances. Not only does it help track and categorize expenses, it readily produces essential reports like profit & loss statements or item sales. It doesn’t automatically calculate my corporate taxes, but it does let me invite my accountant to view my records so she can grab all the numbers she needs at tax time to prepare my business tax return for me. A lot of headache is avoided by simply being organized.

Likewise, I also use a payroll software to pay myself from my company. This lets me issue a formal T4 for myself at tax time but also ensures I remit the correct amounts of income taxes and CPP to the government every time I pay myself. I do this to avoid a big bill for these expenses at the end of the year. If you’re not regularly submitting your income taxes and CPP to the government, make sure you set up a savings account and set aside at least 30% of your business income for taxes. As a freelancer or small business owner, even a small tax bill can catch you off guard. Make sure you’re saving more than you think you need to, and you’ll find it’s probably just enough.

Prepare for tax-time year round

In addition to keeping your finances organized and recording all your business transactions, there are other important tax considerations as a freelancer or small business owner.

If you’re earning more than $30,000 per year, you will need to collect and remit GST or HST depending on the province in which you do business. This also lets you claim any GST or HST you pay on purchases for your business. You have to know how much you’re making to know if you need to charge clients and customers GST or HST, so this is yet another reason to take meticulous care of your business finances.

Take advantage of tax credits for the self-employed

One of the major advantages of being self-employed is you’re in charge of your income, and many of your expenses, so you can optimize them to minimize taxes. The general rule of thumb is that if you spent money to earn self-employed income, then it’s a business expense.

If you work from home, you can claim a portion of your household expenses like rent and utilities as business expenses. All you need to do is dedicate a specific area or room of your home to your business, and make sure to keep track of your household expenses. If you use online software, like TurboTax, to file your personal income taxes, you will be prompted to enter in the square footage of your home dedicated to your business, and any related household expenses. It will automatically calculate how much you can claim.

This year, I set up a Health Spending Account for my business, which lets me claim up to $3,000 per year in health-related spending as business expenses. This includes everything from my private health insurance premiums to out-of-pocket dental, vision, and prescription costs. It’s almost always preferable to pay for things with gross revenue rather than net income, so I was thrilled when I learned I could make my contact lenses and massages count as business expenses! If you can’t set up a Health Spending Account, remember your health expenses that are greater than 3% of your personal net income or add up to $2,237 are tax deductible. Just another reason to be diligent about tracking and managing your expenses!

Money Tips

Judging the Enactus Regional Exposition

Earlier this month, I had the privilege of judging at the Enactus Regional Exposition in Western Canada. Alyssa from Mixed Up Money and I were invited to be part of the judging panel for the Capital One Financial Education Challenge, in which student groups from post-secondary education institutions across Canada present projects they created that use financial literacy to improve the livelihoods of people in their community.

About Enactus

Enactus is a community of student, academic, and business leaders that are committed to making the world a better place through entrepreneurship. They focus on empowering students to take entrepreneurial action to improve the lives of those around them. Enactus currently operates in 36 countries at over 1,700 post-secondary institutions. They host a series of regional, national and global competitions, which provide teams an opportunity to showcase the impact of their outreach projects.

About the Capital One Financial Education Challenge

The 2017 regional competition for Western Canada was hosted in my city, Calgary, Alberta, on March 2nd and 3rd. It consisted of four separate team-based competitions focused on financial education, environmental sustainability, youth empowerment, and entrepreneurship.

Both Alyssa and I were judges in the Capital One Financial Education Challenge, where student groups presented the unique and creative ways they were using financial literacy to empower people in their communities. The challenge is just one of the initiatives Capital One is involved with to help empower Canadians to make smart financial decisions.

We heard from 13 different Enactus teams, each with an innovative way of using financial literacy to improve the livelihoods of people in their community. Each team was judged on their ability to see an opportunity, take action through financial education or inclusion programming, and improve livelihoods in an economically, socially, and environmentally sustainable way. No two teams presented the same solution, and all of them showed both ingenuity and passion in making the world a better place.

Since 2012, the Capital One Financial Education Challenge has engaged 6,316 students across the country, resulting in 620 financial education outreach projects, and directly impacting the financial futures of 69,826 people. Their simple, sustainable solutions to big challenges result in lasting change, both in their communities and beyond.

The Impact of Financial Literacy

One of my favorite parts of the competition was seeing teams who focused on specific groups, such as at-risk youth or teen mothers. When we talk about financial literacy, we usually focus the conversation on people that already enjoy significant financial privilege. For example, if you have student loans, it means you had good credit and were able to attend a post-secondary institution. Likewise, if you’re trying to determine whether a TFSA or RRSP is better to save for retirement, it means you have money left over from each pay cheque to put towards long-term savings. We tend to forget that, for many people, the financial challenges they face in their day-to-day lives are things we never even think to worry about.

My favourite Capital One Financial Education Challenge project was Count on Me by the Enactus team from Simon Fraser University. These students recognized that many young people were spending too much of their income on cheap, nutritionally deficient take-out meals. Over the course of eight weeks, they taught workshops that shared both financial literacy and cooking skills to disadvantaged youths. The financial workshops included topics like Budgeting, Banking & Saving, and Income & Taxes. The cooking classes gave students hands-on experience in how to make delicious, healthy, affordable meals. The combination of financial savvy plus life skills made the Enactus SFU program stand out above the rest in the competition. I love that they addressed two significant problems at once.

Related Post: Achieving Financial Stability Through Entrepreneurship

The Enactus student teams that most impressed me were those that found solutions to uplift and empower people who need it the most, but all of the student teams did an extraordinary job. Not only were their projects creative and inspiring, they were all passionate young entrepreneurs and expert presenters. I loved seeing entrepreneurship in action to make a lasting difference in the world!

Final Thoughts

To say judging the Capital One Financial Education Challenge for Western Canada was inspirational is selling it short. The student groups showed just how significant the long-term impact of financial literacy can be.

Saving Tips

How To Financially Plan For An Unplanned Baby

I had a positive pregnancy test in hand only 4 days after I had moved into a new one-bedroom apartment.

I hadn’t even bought living room furniture for my new place yet, let alone unpacked. I sat in my bathroom trying to wrap my head around those two pink lines, then promptly went to my computer and canceled all the speaking events and conferences I had planned to attend in the summer.

The weeks and months that followed that first day that I entered motherhood were marked by some of the most heartbreaking, agonizing, and terrifying moments of my life. I’m still going through it, though the shock has at least worn off.

50% of pregnancies are unplanned

If you’re already rolling your eyes at my “accident”, please stop. I, too, used to nod with fake empathy whenever a pregnant woman insisted her chosen method of birth control failed — and now I’m paying dearly for all my smug doubt.

During one of my many late nights googling all things pregnancy related, I learned 50% of pregnancies are unplanned. Furthermore, women elect to carry 57% of those pregnancies to term. In other words, my unplanned pregnancy and my decision to keep the baby made me part of the majority for my situation, even if my circumstances initially felt achingly lonely.

Until now, I’d never had so much as a pregnancy scare. I never worried “what-if” at any point through college or my early career. I had the privilege of being pro-choice without ever having to make the choice. I trusted birth control implicitly. I thought it was hard to get pregnant. I never thought this would happen to me.

It did.

To say the timing is bad is an understatement

It’s terrible timing. But I’m still of the mindset that terrible timing doesn’t necessarily mean a terrible event.

I normally don’t like to share emotionally heavy life-events online until they’re long over. I don’t have that luxury with my pregnancy. It’s too obvious to hide and too all-encompassing to ignore. My child became the centre of my world the moment I learned of her existence. By the time I will be able to vocalize why this all happened the way that it did, I will still be in the thick of motherhood, tackling some new soul-stretching, resilience-building, heart-expanding feat with her. This is who she is to me, I already know this is who she will always be.

Over the past few months, I’ve told friends and family about my pregnancy while grappling with the lifetime financial and logistical challenges of adding a child to a life already operating at maximum stress.

I was only a year into self-employment, and while I had survived that dreaded first year of business with a profitable, self-sustaining company, I hardly wanted to add a child to the mix. Every business decision became suddenly weighty and consequential. I couldn’t experiment or take risks because any blow to my bank account could spell long-term disastrous repercussions. I couldn’t be frugal anymore, either. Pregnancy necessitated a new wardrobe, plus a hoard of additional expenses like expensive vitamins and birth classes, not to mention no freedom whatsoever to subsist on rice and ramen if I had to skip a paycheque or two.

The months have ticked by in alternating states of wild productivity and paralyzing panic. Sometimes I’d find those inspiring single-mother entrepreneur stories and think, “that’s all this is! I’m going to figure it out and everything will fall into place because I’m working so hard! I’ve never been so motivated and creative in my life!”. The rest of the time I thought, “I am one of the failures they don’t write about” and would cry helplessly in the bathtub for two hours.

I lost entire days to my grief, sweatpants, and Netflix. I lost even more in pure, unadulterated joy: my baby’s ultrasound photos, her gentle kicks while I work, the very thought of her in my arms, and in my life, forever.

How to afford an unplanned pregnancy

They say the average cost to raise a child in Canada is $250,000, which means an unplanned pregnancy is more or less the financial equivalent of being signed up for a small mortgage while unconscious. You wake up dazed and shackled to a bill for an amount that seems comical in its size. If you’ve always wanted a house but you’re not sure you can afford it, do you bail or do you find a way make it work? If you’re up for the challenge, here are my suggestions for managing your unplanned pregnancy:

1. Make your decision based on more than the financial implications. I’m never going to tell anyone whether or not to carry a pregnancy to term, or what reasons should make or break their decisions, but I do want to encourage you not to let finances be the deciding factor either way. When you first find yourself unexpectedly pregnant, how to afford another human will easily make its way to the top 3 of your List of Main Concerns, but don’t let it be the only item on your list. Money is important, but it’s not everything. If everyone made their decision as to whether or not to have children based purely on financial considerations, no one would have kids.

2. Realize that you have 9 months to get your financial shit together. One of the best things about pregnancy is that it lasts a long time. A really long time. Pre-pregnancy you probably thought human gestation was only 9 months, but it’s actually 40 weeks which makes it more like nearly 10 months. Whether it seems like it or not when you’re battling 24/7 nausea or needing to go to bed at 7pm, nearly-10-months is long enough to re-jig your budget, earn more income, and find a solution to manage your debts. Virtually everything is more manageable when you realize you probably won’t need to buy any maternity clothes until your second trimester, and your first daycare bill is probably more than a full year away. Your baby is not arriving next week. Chill.

3. Don’t let your stress and worry keep you from enjoying the good parts. One of the best pieces of advice I received very early in my pregnancy was to enjoy it. When you find yourself accidentally pregnant, it’s easy to feel so awkward, ashamed, and guilty that you don’t feel entitled to beautiful experiences. Don’t cheat yourself. You’re allowed to buy cute maternity clothes, dream about your baby, and enjoy every single tiny flutter and kick. Things will be hard, and people will tell you that it will be very hard (and they’ll say it with that awful look that’s two-parts pity and one-part doubt that you’ll even be able to manage), but when you get the parts in your pregnancy that are easy and fun, indulge. I found I could acknowledge the impending financial and logistical challenges of single motherhood while simultaneously falling deliriously in love with my growing baby. These things are not mutually exclusive. No matter what your circumstances or how many challenges you’re facing, you’re still entitled to all the joys of pregnancy and motherhood. Take them unapologetically.

4. Plan for what is in your control, do your best with what is not. If you’ve been procrastinating any responsible adulthood tasks, few things will scare you out of your laziness like an unplanned pregnancy. Mere weeks after my positive pregnancy test, I set up a health spending account through my business and signed up for private health insurance. I made a baby budget that would let me upgrade to a 2-bedroom apartment. I drafted blog posts, email newsletters, and scripted YouTube videos to publish during a self-funded maternity leave. I haven’t gotten everything figured out, but I’ve managed to organize enough within my control to no longer feel like the sky is falling. I’m still winging the rest of it, and I don’t feel bad about that. Most people will tell you that you “can’t plan” for children. They’ll arrive on their own time, in their own way, and their sleep schedule will be wholly out of your control. But you can plan for diapers and daycare and other things within the realm of your control, so focus on that.

No one is really planning anything anyway

I know many people try to plan their pregnancies around the rest of their lives. Often when people wanted to talk to me about pregnancy, they liked to share how they were really looking forward to starting a family after they traveled or bought a house or secured a promotion. I tried to feign understanding, but I could feel my eye start to twitch whenever someone told me they were putting off “trying” in order to attend a friend’s wedding in a region with Zika. Maybe I was jealous of their sense of control and order over their lives when I seemingly had none. Maybe I was already cynical and jaded enough to be anything other than quietly amused by the ridiculous notion that you have any control in the first place.

For all the time we spend meticulously planning our lives and our finances, many things will be outside of our control. An unplanned pregnancy is only one possible scenario. Earlier this week my friend Barry shared his post:

How Much Does IVF Cost?

We represent opposite situations, but the heart of the matter has one big similarity that’s too often forgotten:

Sometimes your family planning doesn’t go the way you planned, and it ends up costing you a lot.

How I’m coping with the financial implications of an unexpected baby

In the early months, I wavered between staying self-employed and going back to a traditional job. I lusted after a steady paycheque and health benefits the way you would standing in front of a buffet after months starving on a deserted island. Rejoining the traditional workforce would have meant I was entitled to Canada’s luxurious government-sponsored year-long paid maternity leave. As an entrepreneur, my maternity leave was entirely my responsibility and no one was going to help.

I chose it anyway.

I’m now signed up for single motherhood as an entrepreneur. I’m not sure I can think of a more daunting financial undertaking.

We don’t always get to choose exactly how our biggest life events play out. Sometimes managing your finances is a lot more about adapting to changing circumstances rather than planning for them. Of course, I always knew this (see Financial Black Swans: Why Your Money is Never Wholly In Your Control and The Future You Are Saving For Does Not Exist), but I didn’t expect to put my perspective into practice in such a big way.

Where we go from here

Going forward I will be creating content around the costs of pregnancy, how to afford a baby, and more. This will never become a parenting or mommy blog, but many millennials are parents now and it’d be remiss to neglect the financial implications of this major life event, especially as it becomes part of my own story.

To answer the expected questions…

  • My baby is due in August
  • The father is present and very involved
  • My family is very supportive and very excited
  • My baby is a girl!
  • We have not settled on a name for her yet
  • I feel great! My pregnancy has been super easy with very little discomfort

I’ve been filming regular pregnancy updates for YouTube for months, which means even though I’m making this announcement only one before I enter my third trimester, you haven’t missed a thing. You can view my pregnancy video playlist HERE.

I’m excited to share this new twist with all of you!

Money Tips

How To Use The RRSP First-Time Homebuyer’s Plan

Home ownership is still a cornerstone of the financial plan of most Canadians but with the average house price in Canada nearly $500,000, it’s not always easy to get a foothold in the real estate market.

One of the ways the Government of Canada has made home ownership more accessible is through the RRSP First-Time Homebuyer’s Plan. But how do you actually make use of this great tool to buy your first house?

What is an RRSP?

The Registered Retirement Savings Plan (RRSP) is a tax-advantaged saving or investment account for your retirement. Your individual contribution room is proportional to your taxable income and works out to be approximately 18% of your gross income earned.

Unlike the Tax-Free Savings Account (TFSA), money in your RRSP is simply tax-deferred, not tax-free. This means you won’t pay taxes on it the years you make your contributions, but your withdrawals from you RRSP in retirement will be subject to income tax then. Because the majority of people will have a lower income in retirement than in their working years, you can save a whack of income taxes by contributing to you RRSP now and make the withdrawals in the future when you stop earning an income. Want to learn more? Check out my video: The RRSP Explained in 3 Minutes

What is the RRSP First-Time Homebuyer’s Plan?

The RRSP First-Time Homebuyer’s Plan (HBP) lets you withdraw up to $25,000 from your RRSP without penalty for a down-payment on your first home. If you’re buying a home with your partner, they are also eligible to withdraw up to $25,000 from their RRSP under the HBP for the downpayment, giving you $50,000 altogether for a down-payment on your home.

The RRSP First Time Homebuyer’s Plan is an awesome way to unlock funds you have saved up in your retirement accounts without penalty. Normally, a withdrawal from your RRSP would be subject to income taxes. However, under the HBP, you’re withdrawing the money as a tax-free loan to yourself. You will be required to repay the amount beginning one year after you’ve purchased your house.

You will be required to repay the amount you withdrew from your RRSP under the First-Time Homebuyer’s Plan over 15 years, beginning one year after you’ve purchased your house. If you withdrew the full $25,000 under the HBP, your repayment amount will be $139 per month ($1,667 per year). You can — and should — continue to contribute more to your RRSP on top of your HBP repayments, and these will be counted as new RRSP contributions.

You have to have money in an RRSP to use the Homebuyer’s Plan

This is an obvious statement but I want to emphasize it anyway: you need to actually have $25,000 in your RRSP if you want to withdraw $25,000 for a downpayment on a house. To save this amount, you’d need to set aside approximately $400 per month for 5 years.

It’s easier to save money in your RRSP than you might think. Because this is a tax-advantaged account designed to let you contribute pre-tax income to your retirement savings, doing so can really give you a break when you file your income taxes. If your income is greater than $50,000, it can make sense to make contributions to your RRSP and claim these contributions when you file your taxes. This will usually result in an income tax refund, which you can further use to top up your RRSP.

To use the First-Time Homebuyer’s Plan, simply withdraw your money from the account

Most people know about the First-Time Homebuyer’s Plan and why it’s a great idea, but when it comes to actually withdrawing the funds to buy their first home, they worry they might be missing a step.

Utilizing the HBP is as simple as taking the money out of your RRSP, and moving it to your chequing account to pay your down-payment.

If your RRSP is in investments like mutual funds, ETFs or stocks, you will need to sell those first, then transfer the cash from your investment account to your chequing account.

There’s no special paperwork you need to fill out, you don’t even have to notify your bank or the CRA that you’re making the transfer. You don’t have to document the withdrawal in any way until you file your income taxes. When you file your income taxes, there is a checkbox that asks plainly if you made a withdrawal from your RRSP under the First-Time Homebuyer’s Plan. It’s important for you to select “yes”, as this is necessary to track and allocate your future RRSP contributions as HBP repayments going forward beginning the following year.

Most people are surprised by the ease of withdrawing funds from their RRSP under the First-Time Homebuyer’s Plan. Because withdrawals from your RRSP are typically subject to a tax penalty, taking money out without consequence gives you the weird feeling of getting away with something you’re not supposed to! But I assure you, it really is that simple.

A word of caution before you choose the HBP

The RRSP First-Time Homebuyer’s Plan is an awesome tool if you use it correctly, but most people don’t. Research shows that as many as one-half of Canadians don’t stick to the HBP repayment schedule, which means they’ve fallen behind on payments or stopped paying altogether. The consequences of not repaying your RRSP First-Time Homebuyer’s Plan loan on time are serious: you lose that RRSP contribution room forever and you need to pay income taxes on the amount you failed to repay.

The reasons people are not able to make the repayments on their HBP are predictable. Most of them boil down to homebuyers seriously underestimating the costs of home ownership. Many people are so focused on scraping together that down-payment as the biggest financial hurdle, they forget to take into account that having a home also means having property taxes, higher utility bills, and home maintenance costs. If you don’t factor these expenses into your monthly and annual budgets, you will find yourself short on cash, and one of the things likely to suffer is your savings.

From a purely mathematical standpoint, saving up your house down-payment in your RRSP is better than saving it in your TFSA, because it’s always better to spend tax-deferred money and let tax-free money continue to grow. However, if the repayment schedule of the HBP is going to cause you financial stress, you might want to think twice about withdrawing from your RRSP to fund your house down-payment!

Invest Decision

Why You Should Invest in Index Funds

For most investors, a portfolio of index funds is more than enough to meet their long-term financial goals. Index funds are some of the most popular, readily available, and valuable investments on the stock market. They’re also very affordable and easy to access. Still, many people aren’t exactly clear on how they work or how to buy them.

I’ve been getting a LOT of questions on index funds lately, so I wanted to explain what they are and how they work, so you can see what an awesome investment these are for millennials!

What exactly are index funds?

To understand index funds, you only need to understand what the words “index” and “fund” mean.

A fund is a collection of related investments, usually stocks, that trade as a single unit. A fund manager selects the securities that are to make up the fund, bundles them together into a single package called a fund, and then sells shares of that fund to investors.

An index fund is a collection of investments that represent an index. An index is a measure of something. In the stock market, an index usually represents a particular industry, geographical region, or type of investment. For example, you can buy an index fund that mimics the oil and gas industry, or one that follows the US stock market, or one consisting entirely of bonds. Index funds contain investment securities in the same proportion that they are represented by size in the stock market, so the largest company on the US stock market would also be the largest holding inside a US stock index fund.

Index funds are typically mutual funds and exchange traded funds (ETFs). Both of these are managed by a fund manager that you pay a small fee to for his trouble of selecting the investments and managing the fund. Mutual funds charge higher fees than ETFs, but are easier to access because they’re typically sold by your bank, have very low entrance requirements (you can get started with as little as $25!), and don’t require any ongoing management effort on your part. ETFs are much cheaper than mutual funds in terms of fees, but you need a brokerage account to buy them, which usually requires at least a $1,000 deposit. You’ll also have to take a bigger role in managing your ETFs portfolio than you would a mutual fund.

Why are index funds a good investment?

Index funds are a cheap way to diversify your portfolio, which can reduce your investment risk and increase your exposure to the whole market. Not only does this protect your portfolio from major market swings, it can also increase your investment income.

Think about it this way: if you have $1,000 to invest, you can buy 1 share of Google or you can buy a small piece of 500 different US companies, including Google, by buying shares in an ETF representing the S&P 500 index. Which would you choose?

Google isn’t a bad investment, but you are putting all your eggs in one basket. If the stock goes down, your whole portfolio goes down. If you want to buy a few shares of something else, you’d have to sell your entire holding in Google, pay the trading commissions, and then reinvest in something new. If you own an ETF of the S&P 500, if Google goes down in price, your investment might dip a little, or you might not even notice it at all. In fact, if the other holdings in the ETF are doing well, you could still see your investment increase in value, even if Google and few others are having a bad day.

Google doesn’t pay a dividend, but many stocks do. When you own an index fund, you will receive dividend payouts from these companies in the form of a dividend from the ETF. Many ETFs pay out quarterly, but a few pay out monthly. If you’re looking to increase your passive income, slow and steady investing in index funds is an excellent way to do it.

Index fund investing is EASY

The beauty of investing in index funds is you probably only need to own 2 or 3 to have a fully diversified investment portfolio. It really is that easy. All you need is a broad stock market fund and a bond fund and you’re done.

However, if you want to take a more active role in managing your portfolio, you can diversify further with more specific index funds. You might choose to add an index fund representing emerging markets to your portfolio, or one containing only socially responsible, green, or ethical investments. Truthfully, there are index funds as broad or as specific as you want, which means you still have a lot of flexibility over the asset allocation in your portfolio even though you are not holding individual stocks.

If you want to buy individual stocks, you still can. I personally love building the foundation of my investment portfolio around core ETFs, and then investing in individual companies I find interesting or exciting to further diversify my portfolio. This protects my overall wealth from dramatic market fluctuations, while still letting me enjoy a more hands-on active trading experience.

Do you invest in index funds? What’s your experience so far?

Invest Decision

Your Top 5 Investing Questions Answered

Most millennials are not investing. In fact, as many as 80% of millennials are staying out of the stock market, citing both lack of funds and lack of understanding about how investing works as their reasons for staying put on the sidelines. However, failing to invest, especially when your young, means missing out on decades of returns. This is why I say not investing is the most expensive mistake you can make: choosing to stash your cash in a savings account instead of the stock market can cost you six- or –seven figures over your lifetime.

In other words, you can’t afford not to invest.

Nevertheless, you might still be hesitating because you have questions about what exactly investing is and how to get started. Check out my answers below to the 5 most common investing questions I hear all the time!

What exactly is investing?

Investing means using your money to make more money. Anything that earns you a return on your capital is an investment. Technically savings accounts are a type of investment because you earn interest on your deposit. However, because interest rates are so low right now, a savings account is not enough to grow your wealth over the long-term. In fact, if you’re putting your money in a savings account, it will actually be worth less over the long-term because interest rates are less than inflation. This is true of most GICs as well. For this reason, the best places to invest to actually grow your wealth are mutual funds, ETFs, or stocks.

How do I get started investing?

It’s never been easier or more affordable to access the stock market, because you can do all of your money management online. In the past, investors had to work through a broker in person at their bank or over the phone, but now you can buy and sell investments with the click of a mouse.

Setting up a brokerage account takes about 1 week and requires an online application and cheque to seed the account with some starter funds. After that, you’re good to go.

How much money do I need to get started investing?

Most people are surprised how little it takes to get started investing in the stock market. You can begin investing mutual funds with as little as $25 or $50. You can start investing at with as little as $100. Or you can open a brokerage account with between $1,000 and $5,000. The more you have to invest, the sooner you’ll start seeing a real return on your money.

I suggest saving up $1,000 to start investing. You can start with more, but since timing in the market matters more than market timing, it’s not worth the opportunity cost of waiting until you have $5,000 or $10,000 in the bank to jump into the stock market. Besides, it’s better to learn how to invest and take your first risks with a small amount of money rather than your life savings. Remember, investing well is a lifetime skill, so you have time to take it slow!

What should I invest in?

What you should invest in depends on two things: your risk tolerance and your investment knowledge – and both of these are likely to change over time.

As a new, inexperienced investor, your primary objectives should be getting in the habit of investing, learning the language of finance, and getting used to watching the value of your portfolio fluctuate with the market. Index funds, such as mutual funds or ETFs, are best for this.

RELATED POST: Why You Should Invest in Index Funds

When it comes to selecting your investments, you may want to get help from a financial advisor, but there are some important questions you need to ask before you trust anyone with your money. ATB Investor Services has four key questions everyone should ask their financial advisor regardless of where they bank:

  • How can I be confident you’re going to act in my best interest?
  • How are you compensated?
  • How will I be charged?
  • What is your (and your firm’s) investment philosophy?

Since fees can drastically reduce your returns on your portfolio, it’s vital that you know how much you’re being charged and how. Recently, many of Canadians financial institutions have come under fire for focusing on selling financial products rather than helping clients reach their financial goals. Being able to ask the right questions is integral to ensuring your best interests are being looked after.

For most investors, index funds will be all they need, but if you enjoy managing your portfolio and want to take a more active role in trading, you can start buying individual stocks. Investing in common stocks requires a greater time and skill because you have to make the effort to research and evaluate different investments, determine how they fit into your overall portfolio asset allocation and make decisions about when to buy and sell them to meet your investment goals. Trading common stocks comes with higher income potential, but it also comes with increased risks. You have to have the time and skills to manage individual securities in your portfolio. Otherwise, the risks far outweigh any potential rewards.

Where can I learn more about investing?

Something I always tell millennials eager to jump into the stock market without taking the time to seriously learn about investing is:

If you don’t know what you’re doing, you’re not investing. You’re gambling.

Many people think investing in the stock market is “risky”, but that’s only true if you don’t know what you’re doing and you don’t have a plan. Knowledgeable and experienced investors can expect to grow their wealth consistently in the stock market, unskilled investors making guesses are unlikely to have the same returns.

To really profit in the stock market, you have to invest as much time in your education as you do money in your brokerage account. Some of the best places to learn about investing are:

  • Personal finance blogs (like this one!)
  • Directly from your brokerage or bank – check out ATB Financial to ask questions directly, check out InvestU, or learn more about investing with ATB
  • Personal finance books
  • Websites like Google Finance, Investopedia, and Marketwatch

The more you learn about investing, the more confident you’ll feel managing your own portfolio, and the more you’ll be able to earn in the stock market. Happy investing!

Have more questions about investing? Tune into ATB’s Facebook Live event on May 25th at 12:30 pm MST with President of ATB Investor Services, Chris Turchansky!

This post was sponsored by ATB Investor Services The views and opinions expressed in this blog, however, are purely my own.

Money Tips

How to Afford to Live in an Unaffordable City

One of the biggest challenges facing millennials today is enjoying any semblance of a comfortable lifestyle while underemployed (or unemployed) and saddled with student loan debt.

For all the crap Boomers give the generation of their adult children, millennials do really have it harder than their parents did. Virtually everything is more expensive, but the two things that have become the most expensive remain the measuring sticks of success: post-secondary education and home ownership.

For many, home ownership isn’t even on their radar because they’re trying to afford rent in an unaffordable city.

How much should you be spending on housing?

A general rule of thumb is to spend no more than 35% of your net income on all your housing costs. This includes rent/mortgage plus utilities, insurance, repairs & maintenance, homeowners dues, and so on. This comes from a suggested (but not mandatory) budget breakdown that looks like this:

For people living in pricey cities like Toronto, Vancouver, San Francisco, New York, or others, 35% of your net income might not even cover your average rent, let alone your other housing costs. If you live in an unaffordable city, it is permissible and necessary to spend more than 35% of your net income to keep a roof over your head.

If you forego car ownership, you can comfortably accommodate spending up to 50% of your net income on housing costs.

This is because as you can see from my suggested budget above, 15% of your net income is a good rule of thumb to spend on transportation. However, if you can eliminate or significantly reduce your transportation costs by choosing to live near your work and nightlife, then you can feel good about allocating these savings to increased housing costs.

Focus on reducing your largest expense: housing

If your happy place is the centre of a concrete jungle, I feel you. I’ve always loved to live smack dab in the centre of a city, particularly within a 3 block radius of a grocery store, my favorite coffee shop, and my work. I’m lucky I’ve never called Vancouver or Toronto home otherwise this would take more serious financial gymnastics and creativity to accomplish. However, I have lived in a few less desirable places only to stay on budget and still live in the neighborhoods I’ve wanted. Roommates, walk-ups, old buildings, balconies that faced parking lots, no balconies whatsoever, closet-sized bedrooms, and screeching water pipes have all been part of the “sacrifices” I’ve made to live where I wanted and within budget.

The secret to living in the city you want (and the neighborhood you want) is finding the most affordable option in that location. There are a few different ways to do this:

  • Share space by getting roommate(s)
  • Settle for smaller space, like a bachelor or a studio
  • Choose an older building
  • Give up “must-haves” like a dishwasher or ensuite laundry
  • Look 10 to 25 minutes outside our ideal area (that is NOT a bad public transit commute or Uber ride)

When it comes to finding the home of your dreams, sometimes you have to choose between whether that constitutes the actual “home” of your dreams, and when it means the lifestyle or neighborhood of your dreams. You can’t always afford both.

Pay off your debt to free up your disposable income

There are the apartments I had as a debt-laden student, and there are the apartments I had otherwise. I’ll tell you: it’s way easier to live where you want when it’s the only real bill you have to pay. Every $100 you’re spending on student loans is $100 that could be going to a swankier apartment — and when it comes to housing, $100 goes a long way.

Many people accept student loan payments as a necessary evil, but they don’t have to be. You can (and should) pay off your debt sooner rather than later, if for not other reason it gets rid of the monthly payments from your budget. The difference of becoming debt free in 3 years instead of 10 is more than simply saving money on interest costs, it’s also about the opportunity cost of having flexibility in your budget 7 years sooner.

If your debt is holding you back from being able to live where you want to, then pay it off.

Or at least pay part of it off. Getting rid of your consumer debt and/or 1 or 2 student loans can mean the difference between staying in your parent’s basement and living downtown. Start seeing your debt as a very real barrier keeping you out of the home you want — because it is. Get rid of it and you can live wherever you want.

Increase your income with a side hustle

Hands down the easiest way to afford anything extra in your budget is to dedicate a specific income stream to pay for it. Chances are it probably would take as little as $200 or $300 more per month to be able to afford to live where you want, so now this becomes a matter of where can you find this extra money to pay your inflated rent.

A single half-day shift at a coffee shop would easily bring in an extra $50 per week. So now the question becomes:

Are you willing to make lattes for 4 hours on Saturday mornings in order to keep your apartment?

If the answer is no, you don’t really want to live there.

For the love of god, MOVE

This is an unpopular opinion, but it’s worth considering. I know no one that lives in Toronto wants to leave Toronto, but if living in an unaffordable city is killing your bank account and compromising your future financial security, nothing about living in the centre of the universe is worth it.

You need retirement savings more than you need to be close to your favorite coffeeshop.

You need to be debt free more than you need to call a certain zipcode home.

You can do your job elsewhere.

Regina, Saskatchewan really isn’t that bad.

The fact of the matter is, it doesn’t matter how amazing the nightlife in Toronto/Vancouver/New York/San Francisco is if you can’t afford to participate in it. Sometimes the fact of the matter is, you really can’t afford to live in an unaffordable city, and you’d be better off leaving.

I know it’s blasphemy to say this, and many people never come around to the idea, but you can have a really beautiful life filled with fulfilling work, fun nightclubs, and good restaurants outside of the biggest and most expensive cities in North America. In fact, you’ll likely find living somewhere cheaper frees you from anxiety and stress that was putting a serious damper on enjoying life in the big city.

And let’s imagine for a second what your life could be like if you were able to spend only 35% of your income on housing, and free up that extra 15% for travel. Nice, right?

Invest Decision

Is Bitcoin a Good Investment?

Bitcoin has reached all new heights, attracting the interest of investors and non-investors alike. Many people are more interested in trying to snag a piece of this crypto-currency’s astronomical gains than really enjoy the unique attributes of an anonymous digital money. So should you buy?

TL;DR – No, you probably shouldn’t invest seriously in Bitcoin, but you can buy one or two Bitcoins for fun if you really want.

I first heard about Bitcoin in 2009 or 2010 from my boyfriend at the time. He even got me to set up a wallet, so I could use my computer to earn Bitcoin’s in the background. At that time, I was freaked out at the idea of something or someone using my computer’s processing power while I slept, so I’m not entirely sure if I actually own any Bitcoins. Last year, I made some efforts to try to find my lost wallet in the hopes of learning out I had a handful of Bitcoins kicking around from my undergraduate days. But in what has been almost 10 years, I had given my old computer to my sister where it has since passed away. If I ever had any Bitcoins, they’re long gone.

What exactly is Bitcoin?

Bitcoin is a digital currency, which means there are no actual coins or paper money representing it. It was started anonymously in 2009, and exists completely electronically. The interesting thing about this is Bitcoin has no real intrinsic value.

Because Bitcoin doesn’t represent something tangible, its value is determined entirely by what people think it to be worth.

Which these days is actually quite a lot.

Unlike the currency of a country which is regulated by a government, no one controls Bitcoin. Likewise, there are no Bitcoin banks. Bitcoins are stored in a digital wallet on the user’s computer or in the cloud. There are risks to both of these: the wallet on your computer can be deleted accidentally or lost if your computer crashes, and a wallet in the cloud can be hacked. Because Bitcoins are not regulated by any government, they’re not insured by the FDIC (USA) or the CDIC (Canada). So if your Bitcoins are every stolen or lost, they’re gone for good.

Why is Bitcoin so popular?

The main reason Bitcoin is so popular now is because it’s trading at an all-time high. But the real reasons Bitcoin initially become popular are because of it’s anonymous and unregulated nature. You can use Bitcoin to buy things anonymously, which has made it popular for making illicit or illegal purchases online.

A less dark perk of owning an anonymous unregulated currency is it’s a great way to tuck away wealth outside of the risk of regular currency volatility. This concept probably doesn’t make a lot of sense for North Americans who enjoy fairly stable currency (except for how annoying it is to buy anything in USD as a Canadian right now), but in countries with less political — and therefore monetary — stability, Bitcoin offers an attractive option removed from this risks of government and currency collapse.

Another important reason Bitcoin is taking off is many businesses are warming up to Bitcoin, both online and off, and accepting it as a form of payment for their products and services. The more companies that accept Bitcoin, the more utility it has, and therefore the more valuable it is likely to become.

Bitcoin as an investment

Why do people want to invest in Bitcoin? Well, for starters, this:

Bitcoin’s growth this year has attracted a lot of interest, even from people who don’t invest in anything.

The downsides of investing in Bitcoin

Bitcoin is volatile af. Few investors can handle watching the price move 20% to 40% in a single day, but that’s the stomach you need to have if you’re going to hold Bitcoin as a long-term thing.

Without insurance or government backing, Bitcoin is one of the riskiest investments available, which means you probably shouldn’t make it the cornerstone of your retirement portfolio. But can you make some quick cash? Probably. Maybe. If you’re really fast and careful, which you’re likely not.

Why you already suck at investing in Bitcoin

One of the hardest things to do when you’re investing is sell when you’re ahead. Why? Because if a security you’ve purchased has rapidly increased in value, you assume it’s going to continue to do so. Considering Bitcoin right now, what do you think the top of the market is? You have no idea. Nobody does. But maybe you’re thinking $2,500 or even $3,000 USD per Bitcoin. However, once your Bitcoins actually reach that threshold, the first thing you’re going to think is, “Damn, I was really off. The top is obviously $5,000!” and then proceed to wait for your investment to hit that target.

There are a few ways to avoid this. The first is to pick your selling target and stick to it, even if it means you’re going to check the value of Bitcoin for the next three years and kick yourself for selling so early after it quadruples in price. The second is to buy a handful of Bitcoin, say 3 or 4, and then sell them off as you hit a step-ladder of price targets, effectively capturing profits while still leaving some skin in the game. Of course, this second method requires you to have $10,000 to play with on uninsured electronic internet currency. Do you?

If you think you’re the person that’s going to be smart enough to sell Bitcoin the month/week/day before its price is cut in half, you’re not. You don’t know any more about cryptocurrency markets than the next person, and realistically, if you’re honest with yourself, you probably know much less (don’t hate the messenger, you’re the one that Googled “is Bitcoin a good investment?” and ended up here in the first place).

The fact of the matter is, you already suck at investing in Bitcoin. Otherwise, you would have entered 5 years ago.

Is there still an opportunity to make money in Bitcoin?

Yes, probably. People are excited about this cryptocurrency and it will likely see gains for awhile. Does this mean you should jump in? Not as an investment, but if you want to put a Bitcoin or two in your pocket for fun, go for it — just make sure you can handle the volatility.