Liquid Independence

Liquid is the main editor of the Freedom 35 Blog.

Sep 162014

A series of stress tests can help you sleep at night worry free :) A stress test is designed to determine if you have the ability to deal with a financial crisis if things go pear-shaped. It makes the impact of unlikely, but plausible events measurable and transparent, so you can see exactly if you should be worried or not about your financial situation.

A stress test is like an alternative solution to an emergency fund, but there are some differences.

Emergency funds are great, but they lack tangibility. The popular rule of thumb is for people to have enough cash in their emergency funds to “cover six months’ worth of essential expenses,” writes personal finance guru Gail Vaz-Oxlade on her blog. I’ve heard other professionals say this as well. It’s good advice, and these knowledgeable gurus are not wrong. But six months is quite an arbitrary time period :| Why not four months or nine months? An emergency fund is a good start to financial security, but perhaps it’s not quite enough to give you the complete peace of mind that you deserve. This is where stress testing your finances can come in handy.

14-09-emergency-fund-fry stress test emergency fund

A stress test will categorize all your risks, quantify them, and tell you exactly how much money you should keep on hand, and more importantly, why. It removes all traces of uncertainty and doubt from an objective point of view and offers you a strong sense of financial stability :D It’s also flexible and is accommodating based on your changing financial needs. For example if you renovate your kitchen a stress test can help you determine a budget and solutions in case of complications or unexpected overhead costs. A stress test will also show you warnings in the changing economy, like potentially rising mortgage rates, so you can prepare for it.

Having $15,000 or 6 months worth of expenses in an emergency fund doesn’t tell you why that amount is important, or exactly how that money would be used in a real life situation. You can’t do anything with an emergency fund except wait for an emergency to happen. But a stress test allows you to be proactive instead of reactive. If you have proper auto insurance and know that the most expensive out of pocket cost is $2,000 to fix your car in the unfortunate event that it gets damaged, then a stress test will help you maintain at least $2,000 of cash or available credit at all times, so you don’t have to constantly worry about it ;)

But it’s not about one or the other. A stress test can be used as an emergency fund, or you can incorporate an emergency fund inside a stress test :)

Below are six stress tests that I have made for myself. You can use them as reference/template to create your own. Because stress tests are so granular and custom in nature, everyone’s will be different.

Continue reading »

Sep 132014

We teach kids to not begin a sentence with the word “Because.” We tell them the smallest things in the universe are atoms and molecules. But when the kids grow older they learn about proper grammatical structures and subatomic particles and inevitably realize that the information they were taught as children were simply inaccurate :|. Popular financial advice like “Don’t carry a balance on your credit card,” can be misleading as well.

One favorable reason to carry credit debt is for investing purposes. Earlier this summer, my pal at Finance Journey updated his June net worth where he had multiple credit cards with a combined balance of $26,800.

Being $26,800 deep in credit card debt may sound like a bad situation to be in, but he was actually leveraging the promotional low interest rates on his credit cards to buy large cap, blue-chip companies that paid him more dividends than the interest he accumulated on his credit card loans.


He’s an average, middle class guy but he’s managed to grow his investment portfolio to about $100,000 in just a couple of years thanks to his modest savings and credit card leverage. Even low risk government bonds will still yield a higher return than the cost of those special credit card rates. If we know for certain that our borrowing cost will be low for a set period of time, and higher returns can be made elsewhere, then we can use the opportunity to make some extra money at virtually no risk ;)

Credit cards can also be used as a bridge loan, for example to cover the cost of buying a new car before selling the old one. It’s a way to use other people’s money at no cost to us. Many people including myself also use credit cards as emergency funds :D When I received a promotional 1.9% balance transfer last year, I did not hesitate to carry a $5,000 balance for many months. My credit card loan became part of the money used for a down payment.

Simplified financial advice is designed to connect with the most number of people so it tends to be generalized. Believing credit card debt is inherently bad is like believing humans evolved from apes. It’s just a convenient lie we tell kids because their brains are not developed enough to comprehend the real truth. But we’re not kids anymore. We must look at credit cards objectively and make decisions based on facts, and not on stereotypes.

We shouldn’t borrow money just for the sake of having debt, but in some circumstances carrying a controlled amount of credit card debt can be our best option to financial freedom :) At the end of the day what really matters are results. Crunch the numbers and do whatever makes sense to you.

Random Useless Fact:

Both humans and apes evolved from a common ancestor that lived 5 to 8 million years ago. Given the right conditions, a modern ape species might evolve into something like a human, but it would take millions of years.



Sep 102014

While GICs bear certain similarities to other investment products like mutual funds, bonds, CDs, and time/term deposits, they remain distinct from other types of investment vehicles. So what is a GIC? A Guaranteed Investment Certificate is a financial product, usually presenting virtually no risk to the investor’s principle, with the potential for returns.

Minimum GIC investments usually start at $500. The money accrues interest for the period of time (usually 1 to 5 years) laid out in the GIC agreement. The key feature that makes GICs attractive to conservative investors is the principle protection. Even in the possible, but unlikely event of a bank collapse, the principle amount of a GIC held with that bank is still guaranteed by the government through CDIC insurance.

There are typically three types of GICs available to Canadian investors.

Regular GICs are set with a specific term and interest rate. This way the investor can be sure exactly how much money the account will be worth at any given time. Investors can often get access to their money and interest with 30 days notice, even if the agreed upon term has not run its course. But the investor may be motivated to let the account remain active until maturity if the interest rates increase annually, which is often the case with GICs, making the investment worth more as time goes by :)

14-09--rate-gic-graph gic

Interest linked GICs have better returns if the national Canadian interest rate increases. For periods of significant increase in interest rates, the investor can stand to profit substantially :) For periods with negative interest rate growth, the investor can cancel the account and reinvest the funds in a more fitting financial product.

Market Growth GICs behaves very similarly to index mutual funds, but without the risk of principle loss. Investors can invest their chosen principal at varied levels of risk in either the Canadian or United States indexes. Unlike standard mutual funds, the balance can never fall beneath the principle invested. Still other GICs can offer a guaranteed minimum return. Market growth GICs can also have maximum returns. Due of the rarity that this interest rate would be exceeded, most people don’t worry about it, but some may choose to put their money in other places, with no limits on growth :)

Most GICs today pay about 0.50% to 2.50% annual interest rate, depending on the duration. GICs aren’t for everyone. While there are more aggressive investment strategies with the potential for greater returns, the promise that the investor’s returns will never dip beneath a certain level gives GICs a fitting place in the portfolios of many investors.

Random Useless Fact:
The Volkwagen Group owns all of the following brands: Audi, Bentley, Bugatti, Ducatti, Lamborghini, MAN, Porsche, Scania, SEAT, SKODA, and, of course, Volkswagen.

Sep 072014

For cat lovers what could be a better housewarming gift than having a furry feline delivered right to your new home? :) The largest bank in Eastern Europe called Sberbank Rossii is offering this unique service right meow. :D For a limited time only anyone who signs up for a mortgage with this lender will be able to choose one from a selection of ten different cats on the company’s website.


Then the bank will litter-ally deliver the cat to the customer’s new property. The home owner can play with the cat and take pictures of it but eventually will have to give the cat back so the bank can satisfy its other customers. But Sberbank is a Russian bank and this offur is not available in Canada or the U.S. Large banks are always thinking of creative ways to acquire new clients. This is probably one of the most bizarre strategies I’ve seen though :?

Continue reading »

Sep 042014

I recently saw a list of financial milestones on The Money Pincher. Ideally all 30 in the list should be achieved when one turns 30 years old :) I still have a few more years to go before turning 30, but I thought it would be interesting to give it a shot anyway :D The milestones I’ve already hit are written in green.

1. Financially independent of your parents.
Moved out at 21.

2. Debt free.
Nope, and probably won’t be for awhile lol.

3. Out of overdraft.
Never used it before.

4. Established good credit history.
Nope, my credit score dropped last year because of excess credit risk.

5. Have $25,000+ saved for retirement.
Over $50,000 in my retirement savings plan.

6. Started an investment portfolio.
Yarp :)

7. Established an emergency fund.
I don’t have one yet.

8. Properly insured.
I don’t have collision insurance for my car.

9. Maximizing employer benefits.
We have free coffee at work but I don’t drink it.

10. In the habit of tracking your spending.
I try to stick to a budget :)

11. Done with impulse purchases.
I still buy random stuff sometimes.

12. Willing to spend where it counts.
Of course, YOLO :D

13. In the habit of regularly checking your credit report.
Once a year.

14. On top or ahead of all your monthly bills.
Pay all my bills on time.

15. At least one big splurge you saved up for and paid in full with cash.
Every major purchase in the past has been bought with the help of bank credit.

16. An understanding of personal income taxes and how to minimize what you pay.
I need to do more research into maximizing tax efficiency.

17. Diligently saving for a big purchase.
Don’t want anything at the moment.

18. A clear direction of your career.
I enjoy my work and have set professional goals.

19. A profitable side income.
I teach art part time.

20. A positive, growing net worth.
Not hard to do when the stock market keeps hitting new record highs.

21. A BHAG for your finances. BHAG stands for “Big Hairy Audacious Goal”.
Be financially free by 35.

22. An understanding and a plan of how your money will deliver the lifestyle you want.
I have confidence in my financial plan.

23. So over measuring your finances against that of your friends.
I still do this. It’s hard not to :P

24. Less consumption-oriented.
I like having stuff. My gold coins from the Canadian mint will last forever.

25. A healthy relationship with credit cards.
I pay off my credit card balance almost every month.

26. A regular contribution to charity.
I need to do this more regularly.

27. If you’re part of a couple, a healthy way of sharing money with your partner.
Don’t have a partner yet.

28. A commitment to putting free or cheap before convenient.
I try to be frugal whenever I can but I’m not committed to it. I still buy stuff from 7-11 sometimes.

29. Done paying unnecessary fees.
I pay $3.95 a month for bank fees because I don’t keep the minimum balance.

30. An understanding and appreciation for the reality that money is only a tool of exchange, and not worth obsessing over.
I’m very emotionally attached to my money :|

14-09-tunnel_of_love_relationship_money 30 financial milestones

Whew, some of these are not easy. Overall I achieved 14 out of 30. Not bad, but it looks like I still have some ways to go. I wonder how many people can score higher than me :D Other than being a fun quiz, the list is also a practical guideline for a quick personal finance check-up.

Random Useless Fact:
Some animal activists are more violently opposed to fur than leather because it’s easier to harass rich people than motorcycle gangs.