Category Archives: Control Expenses

5 Ways to Reduce Debt

It’s not difficult to reduce your debt. It’s a matter of getting into a habit to always spend less than you make. So that eventually, not only are you reducing your debt, but you’ll also be saving for your future.

Where do you spend your money?

Before you can reduce your debt, you need to know where you’re spending your money. Keep track of your spending and categorize them into Food, Recurring Bills, Entertainment, and so on. Most importantly, add in a column for “needs or wants”.

You can reduce or even eliminate items marked as wants if you’re pressed on reducing your debt.

Forbes conveniently created a list of apps to help you track your spending.

Here are more tips on how to reduce your monthly spending.

Set financial goals

pink piggy bank

Photo Credit: kenteegardin from SeniorLiving.org via Compfight cc

Where do you want to be 30 years from now? Let’s say your goal is to reach $1,000,000 in 30 years. The earlier you start saving and investing, the easier it is to reach that goal. However, debt will slow down your progress because you have to pay interest.

So, the faster you repay your debt, the sooner you get to save and invest. It only makes sense to let your debt accumulate if you can guarantee higher returns from your investments.

For example, if you can earn 10% on your investments, you can repay your debt that costs you a 5% interest at a lower pace. In this case, you’d be using leverage to grow your assets.

However, whether to use debt to invest really depends on whether you sleep well with the debt that you have and how sure you are of generating high enough returns from your investments. Read More

5 Important Concepts About Investing

Following Ben Reynold’s popular article on 3 important dividend investing concepts with real life examples, I gave some thought about the important concepts about investing.

“Never lose money.”

This is Warren Buffett’s No. 1 rule: “Never lose money.” and his No. 2 rule is “Never forget rule No. 1.”

By buying and holding great companies which have track records of delivering results, you cannot lose money given your holding period is forever. If you are buying the best of the best companies, why would you ever sell it?

One easy way to tell that a company is great is if it has increased its dividend for many consecutive years. In Canada, the longest dividend growth streak for a publicly-traded company is more than 40 years. Fortis Inc (TSX:FTS) is one of two companies that has achieved that.

Unfortunately, Fortis is fully-valued and trades at a price-to-earnings ratio (P/E) of 20 at about CAD$43 per share. Whenever it yields close to 4%, it’ll be a decent place to buy some shares.

In the U.S., the longest dividend growth streak is more than 50 years!

Here’s a list of Canadian dividend-growth stocks and U.S. dividend-growth stocks that are updated by devoted investors who update them every month. Read More

How To Save More Money

Do you find that you’re not saving enough even though you have a plan to limit your spending? Let’s go back to the basics to see how to save more money. These tips should lead you to more savings and money in your pocket.

save money

First, we have this savings formula: Savings = Earnings – Expenses

It tells us that:

  • The more you earn, the bigger your savings can be.
  • The less you spend, the bigger your savings can be.

So, let’s think of ways to increase your earnings and reduce your expenses.

Increase earnings

Increase earnings through passive income

What’s exciting to lots of people is to earn a passive income. You can earn a passive income by investing and renting out real estate properties to collect monthly rent.

However, that comes with managing properties and dealing with tenants. It could turn out to be more work than expected and would defeat the purpose of a passive income, which should require less work than an active income.

Perhaps a simpler way to generate a passive income is through a portfolio of dividend stocks. Less money is required for an initial investment compared to a real estate property.

Let’s say a condominium costs $300,000 and you rent it out for $1,500 per month, that’s a return of 6%, excluding the mortgage interests, maintenance fees, property tax, strata fees, and so on.

Historically, the market has returned 7-10% per year. Theoretically, you can buy quality dividend stocks when they’re on sale. After the commission fee for buying, you can hold and avoid paying any more commission fees that are required for sales.

Then, you can just collect passive income from dividends. It’s common to find 3-4% dividend yields that can grow at least 5% per year and 5% yields that may grow 2% a year.

Eligible Canadian dividends are favourably taxed if received in a non-registered (taxable) account for Canadians, and likewise, qualified U.S. dividends are favorably taxed for Americans. Canadians can receive qualified U.S. dividends in registered retirement savings plans (RRSPs) without the 15% withholding tax.

The business growth, which eventually translates to capital gains, is tax deferred until you sell, at which time, only 50% are taxed at your marginal tax rate (if you’re Canadian).

If Canadians buy and hold in a tax free savings account (TFSA), they don’t have to pay any taxes on dividends and capital gains!

If your goal is to generate a passive income, then, you don’t even need to worry about the sell side. Just focus on buying quality, dividend-paying companies when they’re at reasonable valuations and collect their dividends forever.

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