Every day we are bombarded with news. In the finance world, it goes from bad, to somewhat good, to plainly dreadful news. 🙂 In my field, I see many financial planners or financial service providers that will have TVs playing CNBC all day! I do not know if it is to show their client that they are on top of things or just to use as a decoration but personally, I think that the former use is much more appropriate. Following the daily blabber on financial news outlets is the wrong way to view financial planning when your focus should really be on long-term prosperity.
Those news outlets will not only show the daily movements of the markets but also dramatize any insignificant movements. Your focus, if you are aspiring financial freedom, should be on the long-term. Day-to-day movements are irrelevant and there is no need to follow financial news.
However, there is usually something to learn out of anything someone writes on the internet 😛 so here is my takeaway from a few articles I read this week. Some are from financial news, others from personal finance blogs or fellow financial independence bloggers. Let’s start with our good friends at CNBC.
The typical play would be to rotate out of more cyclical stocks and overweight the consumer staples, Wald points out, given that the defensive sector has been the best-performing sector in the average August to October period. – Wald
I think that playing sectors is unnecessary and it is a bet that will not always beat the market. Why would you dedicate so much effort selecting the right sectors, month-after-month, for a slight chance of beating the market when you can simply buy a Total Market Index ETF and forget about it?
I prefer spending my time on other things than looking into my investments. Not to mention that your chances are so low! You should not read the financial news every day and the same goes for your account balances. Try to look at your investments only quarterly, or even yearly, if you can.
Don’t time the pullback — buy it,” Wald wrote in an email to CNBC. “You want to be invested in this market. We like the breakout in equities. – Wald
Agree, 100%. Do not try to time the market. There is statistically a better chance that it will go up than down so why wait? As a millennial, I have a lot of time ahead of me and the biggest help I can get for my future is the power of compounding. I am not the only one increasing my savings, according to a survey that tracks Bankrate‘s monthly Financial Security Index, millennials are saving more than past generations and have a healthier view towards savings.
I saw my elders, people that were older that I looked up to, struggle during the financial crisis,
Keeping a good savings account is something I think would really help me survive something like that. – Markey
It makes sense that tougher times can teach you healthier saving habits. I am glad to see that people are saving, it is the first step to financial freedom.
The Great Depression of 2007-08 has put large financial stress on the ones that were not prepared or reacted badly. High debts and low (or the absence of) savings puts people in a particular situation when the economy starts dropping or their job situation changes. Having a healthy emergency fund in a high-yield savings account will give you peace of mind and the flexibility to live your life on your own terms rather than paycheck to paycheck.
Millennials have a greater inclination toward saving, for both emergencies and retirement, than we’ve seen from previous generations, – Chief Financial Analyst Greg McBride, CFA
Americans saving more than 10% of their income increased to 28%, compared with 24% a year ago, while the number of people saving 15% or more jumped to 1 in 6 Americans, compared with 1 in 7 last year. – Chief Financial Analyst Greg McBride, CFA
The good news is, people are saving. Slightly… but they are saving.
In this article, a 10% savings rate was used as a benchmark. In the United States, almost one-third of millennials are saving at least 10%, which is to me, the bare minimum to have some kind of safety. 10% might not pay for early retirement or even regular retirement, but it is enough to secure a good safety net in case of emergencies or unforeseen expenses.
Since I am saving over half my income, I cannot really relate but I am glad some are taking the initiative to start saving. I am sure that a 10% savings rate can easily be doubled with a little motivation and change of perception. Once you have a clear goal and motivation to achieve that goal, it is easy to find different ways to save.
A great way to increase your savings rate is with location arbitrage. Living in a low-cost of living area and making a big salary can greatly increase your savings potential and speed up your financial independence.
There are many different philosophies on why people live where they live when it relates to finances.
– Live in an inexpensive place and save a ton of money in expenses.
The two main distinctions between these are that one might be more controllable than the other. Nowadays, wages are not even keeping up with inflation and so many sectors saw a drop in standard of living. In most fields, I think it is much harder to find a job that pays enough to justify the high cost of living areas like New York City or San Francisco.
For instance, let’s say you make $100,000 in Kansas City. If you move to San Francisco, you need to make $183,316. If you can’t do that (if you still make $100k in SF), that’s really going to eat into your ability to save, right?
Looked at the other way, if you make $100k in San Francisco, you can live the same lifestyle in Kansas City for $54,551. Imagine how your bank account would benefit from an extra $45,449 each year for 20 or 30 years! –
This is a great perceptive to have; never look at the dollar amount alone but also, at where can that dollar take you.
The biggest impact on your savings rate, for most, is your housing expenses. Real estate can take up a huge portion of your budget and can easily be the key between a 10% savings rate and a 50% savings rate.
With a cost of living almost twice as high in San Fran compared to Kansas, it is easy to see how you can save if you can find a good job in lower cost areas.
Key steps to live in a low cost city with a high salary:
- You must be flexible on where you live.
- You need to develop your career in an industry or field that’s in demand.
- You need to market and grow your career.
- You need to manage your career.
I think that the key here is to be flexible. I understand that moving interstate is not for everyone and most of us will not choose a city based on its cost of living but the basic concepts can be applied locally. Within a region, city, or suburb, you can find price discrepancies and use those to your advantage. When we were shopping for our house, we started looking in one neighborhood but ended in another on the other side of the city. We then started looking on that side of town and finally chose to live 10 minutes drive further than where we were shopping since the house prices were more attractive. In Canada, or anywhere else, housing costs can greatly vary from city to city or suburbs to suburbs and shop around could save you thousands!
Source: Visual Capitalist
In our case, houses 10 minutes further from the city were $40,000 to 50,000 cheaper! Now that’s a bargain. In terms of our mortgage, $50,000 meant $226 per month more in savings. (Assuming a 25 years amortization period at a 2.60% interest) This amount, if invested in the market at an average return of 7%, would add a whopping $216,642.82 to our savings over the next 25 years! 🙂
If you manage your career properly, you can eventually transition to more affordable locations. Especially these days, you can work from almost anywhere. If you build your reputation and network properly, you can be a tech worker in Kansas City for a firm in San Francisco. –
Always be on the lookout for opportunities, remote work online or by phone is always an option. You can also change to related fields to increase earnings or location potentials.
Live Happy, Xyz.