Unimor Capital Corporation

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  • What Money-Savvy Kids? 5 Lessons to Set Them Up for Financial Success

    What Money-Savvy Kids? 5 Lessons to Set Them Up for Financial Success

    As parents, it can be overwhelming to think about everything we need to teach our kids — whether it’s showing them how to cross the street safely, introducing them to the alphabet or teaching them to ride a bike. Unfortunately, money still seems to be a taboo educational topic — even among families. Teaching your kids about money lessons is essential for raising adults who are comfortable talking about and handling their finances. By following these tips, you can create a solid financial foundation for your kids.

    1. Talk About Family Finances
    We’re not suggesting that you study your financial spreadsheets with your kids for a family fun night, but your children can’t get comfortable talking about money until they know you’re comfortable talking about it. By setting up a consistent family budget meeting — you don’t have to call it that if the b-word scares/bores everyone — your gang can get in the habit of discussing topics like how much money it takes to keep your household functioning and why it’s important to plan for big purchases.

    If kids get the opportunity to give their input — and no, they don’t get the deciding vote, even if they outnumber you — it will empower them to take responsibility for how the household spends its money. It can start with something simple like: We have $50 extra spending money this month. Would you rather go to a drive-in theater or save the money so that next month we could go on a camping trip?

    2. Show Them Why Saving Pays
    Your child’s method of saving will evolve as they get older but teaching the basic value of setting aside money will help them avoid the temptation to make an impulse buy each time they have money in their hands.

    Use Real Dollars & Coins
    Using physical cash and coins is great for helping younger children understand the concept, as it allows them to see how their nickels and dimes (and dollars) can really add up. You can start out by teaching kids to budget their money — consider using one piggy bank for savings, another for spending and a third for giving.

    Open a Bank Account
    When they’re ready, you can take the next step by opening a bank account for your child. Many banks have accounts specifically for minors if their parents also bank there, which can help your children save on fees that banks may charge for regular accounts.

    By bringing them along to a physical location to open their bank account, you’ll help your kids become more comfortable dealing with financial tools and institutions. That way, banks won’t seem as intimidating when your kids open their own accounts as adults.

    Teach Them About Compound Interest
    Additionally, use their savings accounts as an opportunity to teach kids about compound interest — a basic financial concept that explains how your money can grow by earning interest on the interest.

    3. Let Them Learn the Value of Their Money
    Getting your children to value their money can give them a head start on money management skills. It starts with understanding where the money comes from (the ATM doesn’t count). Whether you pay them an allowance, they receive money as gifts from relatives or they’re making their own money (yes, even a lemonade stand business counts), your children will better understand how much a dollar is worth if they learn how to budget their money early on. Accounting for each dollar allows a child to learn decision-making skills that will prepare them for later in life when they’re parcelling out their paycheck.

    Ask them questions like: Is it worth doing an extra chore to have their pick in the candy aisle at the grocery store? By giving them the power to make that decision, your children will be able to apply the same money concepts when deciding as an adult whether it’s worth working an extra shift to buy those new shoes or taking on a side gig to pay to build an emergency fund.

    4. Don’t Let Investing Be Only for the Rich
    Your kids don’t need to become the next Warren Buffett to learn the value of investing. And they don’t need to be rich to start (and neither do you). No matter what their age, kids can learn about growing wealth by investing a small portion of their money. We recommend starting with a very small amount since there is, of course, a risk that their investment could lose value. It’s a tough lesson, but one that’s easier to accept if your child lost a week’s allowance rather than a lifetime savings.

    And investing doesn’t require a large cash outlay to start, especially if you work with a brokerage that allows you to open a custodial account and invest in fractional shares. For just a few dollars, your kids can pick a couple of companies that make their favorite toys or movies, then check the stock price each week to see how their investment is faring. If your family is the competitive type, let every member invest in a different stock and see whose stock grew the most at the end of a year.

    5. Don’t Make Debt a Four-Letter Word
    You want to protect your kids from all the bad things, so if you don’t talk about debt, they won’t end up in it, right? Maybe. But probably not. Giving them the tools to understand debt is a better way to avoid bad debt and responsibly handle the good debt that they’ll face in their lifetime.

    Differentiate Good Debt vs. Bad Debt
    So how can you teach kids the difference between bad and good debt? Remember these two factors:

    • What’s the interest rate?
    • What’s the value of the item they’re going into debt for?

    As a general rule, if you’re borrowing money at a higher rate than you can earn by investing, that’s bad. For example, if a credit card charges 18% interest, you can’t reasonably expect to get those kinds of returns on investments, so that’s a bad debt. However, if you get a mortgage with a 3% interest rate, there’s a good chance you could invest that money and make more in interest.

    It’s also important to teach kids that bad debt vs. good debt involves the types of things and events that they’d want to use the credit for. Borrowing money to buy a candy bar? Bad debt. Borrowing money to invest in a mower so you can start making money cutting the neighbor’s lawns? Good debt (since they’ll in theory be using that borrowed money to make more money).

    Get Real About Student Loans
    One of the biggest decisions kids will have to make early on in regard to debt is whether to take out student loans. Start talking to your teens early about how student loan debt could affect their lives after college. Although it can be a very personal decision, encourage them to consider the costs and benefits of student loan debt. For instance, is the private, out-of-state school with the gorgeous campus worth the debt burden if they’re getting an education degree? Teaching your kids early about how to use debt and credit lines responsibly — perhaps by adding them as an authorized user — will let them see the benefits of building a solid financial foundation.

    Start Small
    And if all this is a little much for your youngest kids to understand, you can introduce this money lesson with one of these debt free charts. Start by deciding on a bigger purchase your child wants but doesn’t have enough cash for yet — but small enough that they can “pay it off” in a few weeks or months. Each time they make a “payment” to you, they can color in another section of the chart. By the end, they’ll have a better understanding of what it means to pay off debt, and you’ll have another piece of art to hang on the refrigerator. Win-win.

  • Where Does Your Paycheque Go?

    Where Does Your Paycheque Go?

    10 Budgeting Tips to Help You Stay on Track

    A monthly budget is like Google Maps for your finances: you follow it because you don’t know where you’re going without it. If you’re new to budgeting, don’t be discouraged by a few — or many — wrong turns and closed roads along the way. The longer you stick with it, the better you get. With a few simple budgeting tips, you can be well on your way before you know it.

    1. Set Your Goals Before You Make Your Budget
    Without a goal, a budget is just a spreadsheet that tells you to have less fun. Think about what you want in the next 5 to 10 years and figure out what financial situation you need to get there. Whatever your goals are, know that any sound financial foundation starts with an emergency fund. You might then want to pay off debt, save for a down payment on a home, or increase your savings.

    Decide where you want to be financially next year and the year after. Knowing what you want to do with your money will guide you as you figure out how to budget, and it will greatly increase the likelihood that you’ll stick to it.

    2. There’s No One Size-Fits-All Budget — Find a Plan That Works for You
    There are so many budgeting methods out there, and every guru says theirs is the best. But ultimately you have to choose the one that works for you.

    If you’ve got an ambitious goal, we recommend trying a zero-based budget first. To make a zero-based budget, start by prioritizing your expenses from essential to nonessential. Then, assign every dollar in your paycheck a “job” on the list until you run out. The most important things — housing, food, minimum debt payments — get taken care of first, and you can disburse the remaining money for your goals and fun in their order of importance to you. Zero-based budgeting is great for ‘Type A’ planners.

    If you prefer to be a little more loosey-goosey, a 50/20/30 budget is a great option. With this approach, you don’t have to think too much about your expenses. You just allocate 50% of your income to your needs, 20% to savings and 30% to wants.

    3. Use a Budget App or Envelope System to Track Your Spending
    It’s hard to lug around your laptop or binder to keep up with each budget category, so a budgeting app is a great tool for updating your budget on the go. There are many out there, whether you like to enter each transaction manually or see everything updated automatically.

    If your goal is to take an intense look at your spending, manually tracking your transactions is going to work best. Once you’ve been budgeting for a while and you’ve got a grasp on your spending, syncing transactions automatically works fine. If you still can’t stick to your budget, the envelope system can help you succeed without so much emphasis on constant tracking.

    After you decide how much money goes toward each of your expenses, put the money you’ll spend for each expense in a given week into separate envelopes and carry them with you. Once an envelope is empty, you’re done spending in that category. You can keep receipts in the envelope and examine your purchases later.

    Envelopes are best for categories you’re prone to overspending on. You probably don’t need envelopes for things like gas and utilities because you’re not likely to go on a gas-buying spree. Popular categories for envelopes are restaurants, groceries, clothes, and entertainment.

    4. Use the Past to Predict Your Future Income & Expenses
    Whether you choose a zero-based budget, 50/20/30 budget, or some other method, you’re going to have to calculate your income and the amount of money you want to put toward every category or individual expense.

    Salaried employees will get off easy when they calculate their incomes. If you have a variable income or side hustles, you’ll need to do some digging. Look back at your income from the past six months, or as far back as you can if you’ve been at your current job for less time. Then find your average monthly income and the average amount of each paycheck.

    Expenses like utilities can also be unpredictable. Check your online statements to see which months were higher versus which were lower so you can make future budgets. You may not be able to take that impromptu weekend getaway the month your electric bill will be $300, but it might be totally feasible during a month it’s going to be $75.

    5. Don’t Confuse Infrequent Expenses with Emergencies
    These aren’t the unexpected expenses that you’d cover with your miscellaneous or emergency categories. Infrequent expenses are the charges that come up once or twice a year — but we always seem to forget will happen. Like when it’s December 23 and you’re still not done with your holiday shopping. Who could’ve predicted Christmas would be on December 25 again?!

    Keep a chart that includes your semi-annual and annual expenses to determine what you need to save every month to cover them. Open a separate checking account or savings account where you put money every month to cover these expenses.

    6. Remember the Obvious: You Need to Spend Less
    Count this among the budgeting tips no one wants to hear. Once the planning is done, it’s time for the hardest part: sticking to your plan. If you’re in the habit of spending more than you make, your first priority is to find ways to save money. We don’t mean you need to find better sales and clip more coupons. The most important thing you can do is buy and spend less.

    Some of good tips to cut spending are:

    • Make a meal plan and stick to your grocery list
    • Prep meals on Sundays so you’re less likely to eat out during the week
    • Treat yourself to a coffee once a week instead of daily or cut them out completely
    • Opt for free events in your area instead of pricy activities or bars
    • Try running and body-weight workouts instead of paying for a gym membership

    There are countless ways to save money. Do everything you can to resist the temptation to make impulse purchases or spend beyond your budget. An easy way to do this: Leave your credit card at home and use cash envelopes or a debit card.

    7. Use the 30-Day Rule to Stop Impulse Shopping
    If you still need to curb impulse shopping, follow the 30-day rule: When you want to buy something that’s not in your budget, make note of the item in question for next month’s budget and revisit it in 30 days. If you still want it, you can consider buying it if you can afford it.

    8. Negotiate Your Bills to Save Money
    People often take for granted that what they’re paying for their phone, internet and insurance is what they have to pay. By contacting your providers to negotiate your bills, you could lower your bills once or twice every year.

    9. Remember That Things Will Go Wrong
    Student loans and credit cards aren’t paid off overnight. And the perfect budget isn’t made in a day. Things will change and go wrong. Impulse purchases will be made, and budgets will get obliterated by life’s little surprises. The most important tip for budgeting is to not give up. When things go wrong, alter your budget to compensate. Move money from one category to another, put less in savings, or try a side hustle to add some wiggle room. And know that sometimes you’ll find yourself ripping up the entire budget and starting again from scratch in the middle of the month. Eventually, you’ll get this whole budgeting thing down. But it’s going to start with some bumps in the road.

    10. Have an Income-Sinking Fund for When Your Income is Lower
    Living off tips, sales commissions or freelance work can make for a flexible lifestyle, but it also makes it hard to budget. When you have an inconsistent income, you can follow all the budgeting tips above, but having this additional category may help.

    When you calculate your income and get your monthly average, compare it with your income each month throughout the year. In months you expect to make more than average, take the difference, and transfer it to your income-sinking fund. It’s a separate account where you put money you plan to take out in the near future for a specific purpose, such as supplementing your income on low-earning months. During months when you expect to make less, you can withdraw up to your monthly average to help with expenses.

    The key to any good budget is consistency!

  • The Smart Way to Use Your Tax Refund

    The Smart Way to Use Your Tax Refund

    There’s at least one nice thing about doing your taxes: the possibility of getting a refund. According to figures from Revenue Canada, just over half of the nearly 25 million tax returns filed in 2019 received a refund, at an average amount of $1,670.

    If you did receive a refund, you need to decide what to do with it. The temptation to spend your refund immediately can be strong. Who doesn’t want a vacation, a new car, or that kitchen renovation you’ve been hoping to start? However, it’s important to consider all your options, such as paying down debt or saving for the future.

    Whether you’re beginning your career, starting a family, or saving for a down payment on a home, below are some suggestions about smart ways you can put your tax refund to use.

    Pay Down Your Debt
    According to a survey conducted by Global News at the end of 2019, the demographic with the most debt appears to be Generation X (loosely defined as people aged 35-54), who report an average debt of over $10,000, not including their mortgage. This includes credit card debt, which can carry interest rates nearing 20%. Monthly payments at such high rates can quickly eat a big hole into your budget.

    The Financial Consumer Agency of Canada (FCAC) offers advice on how to manage your debt. It recommends paying off higher-interest debt first, such as payday loans and credit cards. This will help lower your interest costs and free up more money to reduce your overall debt.

    The debate about whether you should invest your money or use it to pay down debt is strong and ongoing. This choice depends heavily on prevailing interest rates, the amount you owe, and your financial situation. Online calculators can be a great resource to help you decide whether paying down your debt is the right choice for you.

    Save for Retirement
    The internet is full of statistics about Canadians not saving enough for retirement. Government programs such as the Canada Pension Plan and Old Age Security will provide a basic income for many Canadians in retirement, but you need to consider your own retirement wants and needs in deciding how much more savings you need. The good news is that the earlier you start saving, the more your money could grow with the benefit of smart investment choices.

    A Registered Retirement Savings Plan (RRSP) is the most well-known retirement savings option in Canada. It allows you to contribute money each year, while avoiding taxes on those contributions until you withdraw it later in life (hopefully at a lower tax rate). In fact, RRSP contributions can help increase the amount of money you receive as a tax refund.

    Tax Free Savings Accounts (TFSA’s) are another great option for long-term savings, as any capital gains you accumulate inside a TFSA are not taxable. Luckily, there is no shortage of options when it comes to saving your money for retirement. Canada Life offers a range of saving and investing solutions, including mutual funds and more comprehensive retirement plans.

    Start an Emergency Fund
    There are several reasons to save beyond the long-term goal of retirement. The FCAC recommends Canadians set up an emergency fund to cover unexpected expenses, such as the loss of employment or a medical emergency. An emergency fund can be set up slowly, with small weekly contributions to a dedicated savings account. You can also use part of your tax refund to set up a base from which to build over time.

    This process can also be applied to other savings goals, such as a wedding or a down payment on a new home. You can set aside a portion of your tax refund, and then make smaller contributions on a regular basis to meet your goal.

    Save for a Child’s Education
    If you are expecting a child, or are the parents of a recent newborn, you’ve probably thought at least in passing about the costs associated with their education. The average cost for a year of undergraduate tuition in Canada hit $6,571 in 2019, reports Statistics Canada. And tuition levels are widely expected to continue rising. Luckily, there are government programs to help you save money for your children, the most well-known is the Registered Education Savings Plan (RESP).

    You can open an RESP as soon as your baby is born. The earlier you start saving, the more you can potentially grow your money by the time he or she is ready for post-secondary studies. The federal government will contribute up to $500 per year to any deposits you make into an RESP (based on a formula of matching your own contributions to the account at a rate of 20% annually). So if you’re putting in less than $2,500 each year (about $200 per month) to your child’s RESP you’re missing out on those government amounts.

  • Meal Planning: The Money-Saving Ingredient

    Meal Planning: The Money-Saving Ingredient

    Meal Planning: The Money-Saving Ingredient

    Let’s call it a Wednesday, mid-afternoon. Lunch is a distant memory and you’re starting to feel a bit peckish. Just then, your phone buzzes. It’s your partner, roommate, or child, asking, “What’s for dinner?”

    If you’re like most people, that question is a source of low-volume stress every single day. In fact, the average person faces these five stumbling blocks:

    • No idea what to cook
    • No groceries to make whatever idea we do come up with
    • Short on skills or equipment
    • No time
    • Out of sync (not everyone in the house eats the same things or at the same time)

    There’s a fix to all of these problems, but it isn’t particularly glamorous or thrilling, and you might groan at the next two words: meal planning. Hear me out! Meal planning creates a framework to fall back on. It’s the first line of defence against all the dark arts conspiring to make you order take-out or convincing you to eat cereal standing over the kitchen sink. It puts you in the driver’s seat and makes you proactive instead of reactive. After decades of teaching home cooks, I can vouch that meal planning and shopping are the two most underrated, under-discussed (and yet most critical) elements of getting dinner on the table.

    Having a meal plan is also the best way to save money on your weekly food bill. With a plan, we make fewer impulse buys when grocery shopping and decide against picking up those aspirational ingredients we buy then never use (I’m looking at you, jar of sauerkraut at the back of my fridge), as well as those extra ingredients that end up in the compost bin. Plus, with a plan in place—and the groceries on hand—we’re much less likely to order take-out or delivery. Don’t worry if you’ve tried meal planning before and found it didn’t stick. I bristle against rules, so the classic two-week meal plan has never worked for me. Luckily, there are four other methods that still deliver all the benefits.

    The Camper method assigns a theme or protein to each day of the week, just like at summer camp (e.g. Taco Tuesdays, Chicken Wednesdays, Breakfast for Dinner Thursdays). The themes repeat every week or two, but the recipes themselves can change.

    Maybe you have time on the weekend to stock the fridge and freezer with big-batch recipes, then dish them out over the week. The Batcher system is perfect for people who have next to no cooking time during the week.

    If your day-to-day schedule changes on a dime, you might prefer to pencil in just three or four dinners and lean on quick pantry meals on other nights. This Semi system works well for me, and it’s also a perfect starter system for anyone who is reluctant to try meal planning.

    The fourth system, the Wingnut, is for those people who truly prefer to fly by the seat of their dinner chairs and simply rely on a well-stocked fridge and pantry. It’s a great system for retired chefs or young couples who don’t mind popping out to the grocery store at the last-minute, but not terribly helpful for most of the rest of us.

    Whatever framework makes sense for your life, there are two critical pieces I recommend for everyone. First, have a back-up plan—what I call a back-pocket dinner. This is a meal you can make without a recipe, using pantry staples, and in very little time. Back-pocket dinners are typically really simple dishes. My own is garlic spaghetti—a dish of pasta, oil, garlic, and Parmesan. If I had a dollar for every time, I’ve been so close to ordering delivery only to realize that garlic spaghetti is faster, cheaper, and smarter, well, I’d be rich. So bring on the grilled cheese sandwiches, the fridge-clearing omelettes, and the pita pizzas. When you can feed the family from what’s in the pantry, you’ve got a superpower.

    The second piece is to designate one night a week to eat what’s in the house. Whether that’s leftovers or something from the freezer, eating what you’ve got before buying anything new just makes sense. In our house, we call it Scraps Night and it’s usually on a Monday when we have a variety of leftovers from the weekend. This simple weekly ritual dramatically reduces food and money waste. If there’s nothing obvious to use up or eat up, just lean on that back-pocket dinner.

    While meal planning might feel tiresome or limiting at first, it will likely grow on you. I love how meal planning saves time, money, and energy, but most of all, I love having an answer to that daily “What’s for dinner?” question. It eliminates the dull stress of decision fatigue, and that’s a high-five everyone needs!

  • How to Find the Best Mortgage

    How to Find the Best Mortgage

    When shopping for a mortgage, it’s important to do your research. A mortgage is, after all, the biggest financial commitment most Canadians will ever make. So it’s no surprise that one of the first things prospective homebuyers do is to shop around for the best mortgage rate they can find. And while getting a great rate is important, if that’s your only focus, it could end up costing you.

    Beyond the Rate – What to Look for in a Mortgage?
    With so many banks and financial institutions vying for your business, mortgages these days come with a variety of options. In a way, shopping for a mortgage is like shopping for a new car. But you would never base your car buying decision on one single factor, would you? The same goes for your mortgage. Let’s take a look at some of the things you should look for in a mortgage, and why they’re important.

    The Difference Between Mortgage Term & Amortization
    Both the term and amortization of a mortgage refer to a period of time. The amortization of a mortgage represents the entire repayment period of the mortgage. In other words, the number of years before your mortgage will be paid in full. In Canada, the standard amortization period for most mortgages is 25 years, in fact, 25 years is the maximum amortization for any mortgage that is insured by the Canada Mortgage and Housing Corporation (CMHC). Conventional mortgages (non-CMHC) can often be stretched over 30 years.

    Conventional vs Insured Mortgages (CMHC)
    Whether your mortgage will be conventional or CMHC insured depends on the amount you have available for a down payment. To qualify for a conventional mortgage, you’ll need to provide at least 20% of the purchase price as a down payment. That can be difficult for many new homeowners, especially in expensive markets like Toronto, or Vancouver, which is why CMHC enables borrowers to obtain an insured mortgage with as little as 5% down.

    The impact of CMHC premiums on the overall cost of a mortgage can be significant and should be considered when deciding how much mortgage you can afford. To illustrate the difference between conventional and CMHC, let’s assume the purchase of a $300,000 home:

    Conventional Mortgage (20% down payment)
    Purchase Price $300,000 – Down Payment $60,000 = Total Mortgage Amount $240,000

    CMHC Insured Mortgage (5% down payment, with 4% CMHC)
    Purchase Price $300,000 – Down Payment $15,000 + CMHC $11,400 = Total Mortgage Amount $296,400

    In the first scenario, assuming a 25-year amortization, monthly payments, and an interest rate of 2.87%, your total cost to pay off the mortgage would be $335,952. Using the same criteria, the CMHC mortgage would cost over $414,000, a difference of almost $80,000. Of course, interest rates will change over the years, and there are other incidental costs not included here, such as the PST on the CMHC premium, but this gives you an idea of why getting the best interest rate shouldn’t be the only consideration when shopping for a mortgage.

    Fixed Rate vs Variable Rate
    One decision you’ll need to make is whether to go with a fixed or variable mortgage. With a fixed mortgage, the bank is guaranteeing you an interest rate that won’t change for the length of the term you choose. For example, if you went with a 5-year mortgage term, at a rate of 2.99%, you’d have the security knowing that your rate won’t change for the next 60 months. You have a peace of mind knowing that your mortgage payment amount also, won’t change.

    With a variable rate, you’re choosing a floating rate that is tied to a benchmark rate, usually the Bank of Canada prime rate, or your bank’s prime rate, which may differ slightly. While fixed rates offer safety, and cost certainty, variable rates offer their own advantages. With a variable rate, you stand to benefit in a falling rate environment. If the Bank of Canada reduces the prime rate, your mortgage rate will drop accordingly. Not only that but if fixed rates drop, you usually have the option of switching into a lower fixed rate at any time. With a fixed rate, it’s much more difficult to get out of your existing term without paying a large penalty. The risk with a variable rate mortgage is that if rates increase sharply, you could find yourself in the precarious situation of having to increase your mortgage payment in order to keep up with the contractual amortization.

    Open vs Closed Mortgage
    Most borrowers will choose a closed mortgage, regardless of whether they’re going with a fixed or variable interest rate. The reason is simple: closed mortgage rates are lower. An open mortgage, on the other hand, is just as it sounds. The borrower has the option of breaking the term, or paying the mortgage in full, without incurring a penalty (in some cases, you may see an administration fee associated with breaking an open mortgage).

    There are situations where it may be worth going with an open mortgage, even at a higher interest rate. For example, if you were planning to payout your mortgage in full in the near future, you would avoid the costly penalties associated with a closed mortgage. Potential scenarios would be if you were expecting a large inheritance, or if you were selling your home, with no intention of buying another one, or you were planning to rent a house or apartment instead.

    Understanding Your Mortgage Prepayment Options
    This is one that not a lot of people think about when shopping for a mortgage. Even if you go with a closed mortgage, most financial institutions will allow you to pay the mortgage down ahead of schedule, by providing the borrower with various prepayment options.

    However, not all mortgages are created equal. In other words, the prepayment flexibility can vary greatly between mortgage providers. Some banks or credit unions will allow you make lump sum payments of 10% of the original mortgage amount each calendar year, others will allow 15%.

    To use another example, both CIBC and TD Bank will allow you to increase your regular monthly principal and interest rates by double (100%) without any penalties, while other institutions will only allow you to increase your payment by 10-20%. If you have a lot of budget flexibility and plan to pay down your mortgage more quickly, the difference in policy could save you thousands. When shopping for a mortgage, make sure you understand the prepayment options that are offered.

    Dealing with the Bank or a Mortgage Broker?
    One of the decisions you’ll need to make when you begin your search for a mortgage is whether to go directly through your bank or deal with a mortgage broker. For years now, mortgage brokers have been a popular option, and represent a perfectly valid solution. A mortgage broker offers some key advantages. For starters, they deal with dozens of financial institutions, so they really are a great place to go, to source out the best mortgage rate.

    If you’re not considered a strong borrower, perhaps your credit history isn’t great, a mortgage broker can find a financial institution that will be willing to take on your application. Generally speaking, Canada’s big six banks tend to be the most conservative when it comes to mortgage lending, so it can be tough to meet their criteria if your credit is less than stellar, or your employment situation is not standard. This is where a broker can add value.

     

  • How to Prepare for the Upcoming Tax Season

    How to Prepare for the Upcoming Tax Season

    Many Canadians’ year-end tax prep may be a little different as 2020 draws to a close. Taking a close look at your personal balance sheet before December 31 is a routine exercise that can help you make the most of your savings, reduce your tax bill and boost your tax refund in the new year. But a slew of pandemic-linked emergency benefits and relief measures this year means there may be some additional financial housekeeping you need to do this time. Here are some tips to make sure you start off the 2021 tax season on the right foot:

    Paying Taxes on Your Emergency Benefits
    The first round of emergency benefits Ottawa rolled out during the pandemic did not have any tax withheld at source. If you received either the Canada Emergency Response Benefit (CERB) or the Canada Emergency Student Benefit (CESB), you’ll have to include 100% of those payments in your 2020 tax return. The government will send you a T4A tax reporting slip for 2020 showing the total amount you report.

    How much tax you’ll actually end up paying depends on your overall income for 2020. For example, if you made $27,000 from work in 2020 and received $8,000 worth of CERB, your taxable income for the year would be $35,000. Both the income you received from CERB and your job would be taxed in the same way.

    You May or May Not Have to Pay Taxes
    “If you’re under $12,000 in total income for the year, you don’t have to worry about any income taxes next year,” says Frank Fazzari, a chartered professional accountant at Fazzari & Partners. With the second round of COVID-19 benefits that became available in September—the Canada Recovery Benefit (CRB), Canada Recovery Sickness Benefit (CRSB), and Canada Recovery Caregiving Benefit (CRCB)—the government is withholding 10% in taxes at source.

    This, however, may be insufficient to cover your tax liability, Jamie Golombek, managing director of Tax and Estate Planning with CIBC Private Wealth Management. In addition, when it comes to the CRB, you may have to pay money back if your additional income for 2020 is more than $38,000. The claw back rate is $0.50 for each dollar of CRB received for net income over this amount. If you’ve received either round of benefits you may want to set aside some funds to cover any taxes or payments, you may owe come tax season next April.

    Repaying Emergency Benefits You Don’t Qualify For
    If you have to repay any COVID-19 benefits you didn’t qualify for, it would be best to return the funds by the end of the year. There is no obligation to return the payments by the end of the year. But repaying after December 31 means the amounts will show up on your T4A for 2020 and you may have to pay taxes on them. If you end up paying taxes on money you return, the CRA will eventually make you whole but you may have to wait until you file your 2021 tax return in the spring of 2022 until that happens. The process is based on general tax rules in the Income Tax Act that apply to repayments of taxable income.

    The Simplified Home Office Deduction
    If you’re one of the 2.4 million Canadians who’ve been working from your couch, the kitchen table or the kids’ bedroom this year because of COVID-19, you’ll likely be able to claim some home-office costs on your 2020 tax return without having to sift through receipts or ask your employers to fill out forms.

    If you’re an employee who’s been toiling at home more than 50% of the time over at least four consecutive weeks in 2020 due to COVID-19, you’ll be able to claim a deduction of $2 for every work-from-home day up to a maximum of $400. This is what the CRA is calling a temporary flat-rate method of calculating the home office deduction. If you’re an employee with significant home office expenses, you can use the current “detailed method” of calculating the home office tax break, the CRA has said.

    TFSA Withdrawals
    There are no COVID-19 rule changes affecting tax-free savings accounts, but many Canadians have ramped up their contributions this year, according to a recent study from BMO. While a smaller percentage of Canadians was able to put as much money as they had planned into a TFSA this year, those who did were able to save up a little extra, the data suggests. Overall contributions were up 9.5% year over year.

    If you’re planning to draw down on some of your TFSA savings soon, you may want to do so before the end of the year. Whenever you take money out of a TFSA, an equivalent amount of TFSA contribution room frees up in your account—but that doesn’t happen until the following calendar year.

    RRIF Withdrawals
    If you turned 71 in 2020, you have until December 31 to convert your registered retirement savings plan (RRSP) into a registered retirement income fund (RRIF) or registered annuity—that’s standard. If you already have an RRIF, though, remember Ottawa reduced the required minimum withdrawal for 2020 by 25%.

    One-time COVID-19 Payment for Persons with Disabilities
    Ottawa has also established a one-time, non-taxable payment of up to $600 for persons living with disabilities to help soften the impact of extra expenses caused by the pandemic. Being eligible and applying for the disability tax credit is one of the qualifying criteria to receive the payment. If you haven’t applied for the DTC yet, you’re still in time. Ottawa moved the application deadline from September 25 to December 31.

    Charitable Donations
    Charitable donations are especially important in a year that has seen jobless numbers skyrocket, domestic violence spikes, and marginalized communities struggle disproportionately with the impact of COVID-19. Both the federal and provincial governments offer donation tax credits that, when combined, can result in tax savings of around 50% of the value of your gift in 2020, depending on where you live. From the federal government alone, Canadians get a tax credit of 15% credit on the first $200 of charitable donations and 29% on anything beyond that amount.

     

  • Money Management Tips for 2021

    Money Management Tips for 2021

    Have you made your New Year’s resolutions? You might have already dusted off some of those perennial favourites: lose weight, drink less, travel more, etc. But what about resolutions for your wealth? Just as “lose 10lbs by visiting the gym twice per week” is a better goal than “get fit,” setting specific, measurable goals for your finances is an important step in achieving them. If you’re unsure of what to focus on beyond “spend less, save more”, let these 6 money-saving tips guide your resolutions to make 2021 a financial game changer.

    1. Invest in Yourself
    One of the best investments you can make is in yourself. The best areas to focus on are your earning potential, financial literacy, and mental health. 2020 was a difficult year for most, and caused significant upset to people’s careers, savings, and lifestyles. While no one could have prepared for a global pandemic, we can fix any vulnerabilities it identified. Now, more than ever, people are understanding how big their Emergency Fund should really be and why investing in the stock market is essential to financial security.

    This is a great time pursue extra education and credentials that can increase your earning potential. You might even want to switch to a new career entirely. Likewise, the stress of the past 12 months has emphasized how important it is to take care of your health. Go ahead and adjust your budget to fit essentials like a gym membership or therapy to ensure you can really go into 2021 ready for whatever the year has in store.

    2. Get Rid of Your High-Interest Debt
    Carrying multiple balances, especially at varying interest rates, can feel like death by a thousand paper cuts when your bills come in the mail. If one of your goals is to get your debt under control in 2021, consolidating that debt on a low-interest loan or line of credit might be the answer.

    Debt consolidation means moving all or most of your debt to one place, so that you can experience the joys of having only one interest rate, one minimum payment, and one repayment term. You can do this by taking out a line of credit, debt consolidation loan, or credit card and using it to pay off all your existing balances. Not only will credit consolidation alleviate the headache of managing a number of different payments, it can also reduce the carrying cost of your debt and even get you out of debt faster. It’s also likely to give your credit score a boost right off the bat!

    3. Start Saving for a Big Goal
    If you really want to start the New Year off right, take your first steps to accomplishing something big with your money. This can be anything from saving up a down-payment for your first home or finally starting a retirement savings account. Whatever your goal, make sure you know exactly what you’re saving for and the specific dollar amount you need.

    Once you know your money wish and the price tag, it’s time to plan. If you want to hit your target by the end of 2021, all you need to do is divide the amount you need to save by 12, and that will tell you how much you need to set aside each month. For example, this might be the year you finally make good on your promise to yourself to have an emergency fund. If you want to have $2,000 saved by the end of the year, you’ll need to set aside $167 per month to accomplish this goal.

    Once you know what you’re saving for and how much you’ll need, open a dedicated high-interest savings account, and start saving right away. Bonus points if you open the account with a financial institution other than your primary bank, so you don’t see the cash and are tempted to spend it every time you log in to your online banking. To give your goal an extra boost, don’t wait until your first paycheque in January to start saving. Even if you only have $10 to spare right now, deposit it in your new savings account to give your goal some momentum.

    4. Introduce Good Financial Habits
    The best way to ensure your meet your financial goals in 2021 is to set up good routines and habits that ensure your success happens automatically.

    Commit to “No-Spend” Days
    One of the best things you can do is commit to 1 or 2 two “no-spend” days per week. These are days where you don’t spend any money. You make coffee at home, you don’t order-in dinner, and you definitely don’t make any online purchases or visit any stores. No spend days help get you identify what spending is really necessary and how much you do just out of habit.

    Check Your Finances
    Another great thing you can do is set aside 1 or 2 hours each week to review your finances. This is a great thing to do Sunday night before the start of your week. Block off some time to review your spending, pay any outstanding bills, and check up on the performance your investment portfolio. Even if you have a budgeting app that tracks all your spending, you still need to go over everything and make sure there are no mistakes that are costing you.

    5. Reduce Your Financial Stress
    Managing your debt, saving for the future, and trying to earn more money all at one time can be exhausting, and make it difficult to do any one of those tasks well. To free up the emotional and mental energy you need to tackle big financial goals, focus on optimizing the little things first.

    Here are some quick ways to reduce the mental load of regular financial housekeeping, so you can focus on bigger tasks at hand:

    • Sign up to receive your credit report emailed to you monthly so you always know exactly where you stand
    • Automate all your regular bills to a single cash-back or rewards credit card
    • Set up a weekly transfer from your chequing account to your retirement investments to ensure you’re always saving for the future
    • Look for discounts by bundling services from one provider
    • Review your insurance coverage, and make sure you have the often-neglected but always-needed coverage, like disability insurance
    • Rid yourself of subscriptions

    6. Plan for the Future
    As soon as you have assets, whether they be in the form of property, stocks, investments, or a vehicle, you should start thinking about putting together a legal will. If anything were to happen to you, this is the only way to ensure your wishes are respected and your assets are disbursed how you want them to.

    Every day is a chance to start fresh with your finances, but there’s something about the New Year that can inspire that extra boost to get your bank account in order. There’s never been a better time to remedy old mistakes and reach new money milestones, so when you sit down to make your 2021 resolutions, make sure to include a few that will put more money in your pockets–now, and for many years to come!

  • How to Set Up Your Holiday Spending Budget

    How to Set Up Your Holiday Spending Budget

    Did you know Canadians spent $25 billion last holiday season? And retailers expect shoppers to spend even more this year, despite the pandemic. That’s a lot of photo cards, candy canes, CD’s, and sparkly ornaments. But unless you plan on skipping Christmas this year, you’ll find yourself a part of that $25 billion machine. To enjoy the gift-giving season without any guilt-ridden overspending, set up your Christmas budget now—and then stick to it like sap on a fir tree.

    First things first: It’s time to do some digging into your Christmas budget. That means you need to ask yourself the following questions to see where you stand now so you can know how much to spend on presents later.

    How much do you have saved? Before you know what you can spend, see what you’ve got to work with. Hopefully, you started saving early. If not, we’ll talk about how to get extra money, so you don’t end up just doling out coal this year.

    What budget lines can you tweak? Even if you started saving early, you might still need more cash to cover all the Christmas costs. Look through your normal budget and figure out what budget lines can get trimmed down to free up gift money for your Christmas budget.

    Don’t know where to start? Here are a few nonessential budget lines you can probably cut back: restaurants, clothing, personal spending, entertainment, and gourmet coffee.

    How can you boost your income? If you’re able, boost your income for a couple weeks as a way to up your spending power. You could sell some things, take on extra hours at work, or start a side hustle. Get creative: Babysit so parents can go Christmas shopping alone, shovel driveways and sidewalks, offer gift-wrapping services… you get the idea!

    What Christmas traditions can you skip? You can save money this year by cutting some expenses—and that includes traditions that don’t really matter (like the annual office ornament swap). Be open and honest with your budget and your loved ones.

    Do you have a shopping list? If not, make one! You need to list out every person you’ll need to buy for and start brainstorming present ideas.

    How can you save on gifts? Shop sales. Use coupons. DIY and make homemade gifts. Skip random gift exchanges. These are just some of the ways you can save serious cash this Christmas on presents.


    How to Set Up Your Christmas Spending Budget

    1. Plan how much you’ll spend this year.
      Last year, the average Canadian was expected to spend $1,593 on holiday spending. And remember, retailers expect even more this year! First of all, you should never feel pressured to spend that much. You should spend what you’re comfortable with based on what you make, what you’ve saved, and what you can move around in your budget to get the job done. So, crunch some numbers and see how much you’ve got to play around with this year.
    1. Add the names of everyone who need a present.
      Once you’ve set up your budget, make a list of each person you have to buy for. Now, go ahead and assign spending limits to each person.
    1. Track your spending as you go.
      Want to know how you don’t overspend? You track. You track hard. You track often. Keep up with all that spending as you go.
    1. Move amounts around when needed.
      Oh no. You overspent on Mom by $5. What will you do? It has to come from somewhere. You can lower Dad’s line (sorry, Dad!) by $5 and use it to up Mom’s line. Move that money around until your budget balances again.
    1. Budget early for next Christmas.
      Here’s a quick shout-out to planning early—do it! Put a sinking fund in your budget as soon as January to start stashing away cash for next year’s Christmas. If you do it little by little, month by month, coming up with Christmas money won’t hit you like the reindeer that ran over grandma in that song that’s now stuck in your head!
  • Inside the Mortgage Approval Process

    Inside the Mortgage Approval Process

    Documents Required to Get the Best Mortgage Rate

    So, you’ve found the perfect home, you put in an offer and it’s accepted­­—with the condition of financing, of course. Now it’s time to seal the deal and this boils down to money. So you call your lender to finalize the mortgage. That’s when you’re going to get hit with a list of paperwork that’s required for your application. Below is a list of paperwork that you may need to complete your mortgage application:

    Personal information: Age, marital status, number, and age of kids.

    Employment details: This includes proof of income (such as T4 slips, copies of your last two paystubs, personal income tax returns, Notice of Assessments from CRA for the last two tax filing years, and a letter from your company stating your position, length of employment and salary).

    If self-employed you’ll need to provide: Incorporation documents, if applicable, as well as financial statements for the corporation for the last two to three tax years. You’ll also be required to submit full personal tax returns as well as CRA Notice of Assessments for both the corporation, as well for you personally. The lender may also ask to see portions of your books, such as your General Ledger or Profit & Loss statements. Talk to your accountant or bookkeeper for these reports.

    Other sources of income: Typically this is a statement on your part, but the lender could ask for back-up documentation. Other income can include pension, rental income, part-time work, etc. You’ll probably be asked for copies of your tax returns, or copies of paystubs or rental income documentation.

    If you already own property: A copy of the mortgage statement on your current property and a copy of last year’s property tax statement and, perhaps, this year’s up-to-date property tax statement.

    Current banking information: Including bank, branch, accounts, and balances.

    Verification of your down payment: This can be a snapshot of a bank account where the money is currently deposited, or a letter from a family member stating that the money is a loan or gift.

    Consent to run a credit history search: Every lender will either verbally ask for permission (and then obtain your Social Insurance Number) or ask you to sign an authorization form allowing them to pull your credit history.

    List of debts (otherwise known as liabilities): This is where people sometimes opt to exclude a few items owed, but you need to resist this urge. Your credit history will show all outstanding money owed, so be upfront and honest. Provide a list of what is owed, to whom you owe it to and what monthly payments, if any, you put towards paying down the debt. The list should include student loans, credit card balances, car loans, monthly lease (or lease-to-own) arrangements and personal loans.

    Copy of the listing: You will need to print off a copy of the listing and include this in your mortgage documentation package.

    Copy of purchase document: You will need a copy of the document you signed to buy the home. Known as the Agreement to Purchase and Sale, it’s the document that states the address, what’s included/excluded and the price, deposit, and down-payment you agreed to.

    Condo documentation: If you’re buying a condo or strata-townhome, you’ll also need to include the condo corporation’s financial statements and status certificates.

    Rural property: You’ll need to include the certificate for the well and/or septic tank if you’re property isn’t on municipal water and sewer.

    If you want to reduce your stress during the financing phase of your home purchase, and you don’t want to or can’t submit all this information prior to finding a property then consider gathering up all this documentation ahead of time. Just having all the documentation at the ready will reduce your workload and free you up to concentrate on last-minute requests.

     

  • Tips for Reducing the Overall Cost of Your Mortgage

    Tips for Reducing the Overall Cost of Your Mortgage

    Should You Pay Off Your Mortgage Early

    When you get your first mortgage, it’s hard for many people to focus on the end game, especially given that so many people put so much effort into saving up the minimum down payment, or even making use of grants or various cash-back programs that some lenders offer. It’s important that you keep all your options on the table so that when you’re ready to focus on your long-term strategy, your mortgage allows you to take action, whatever that may be.

    Option #1: Start smart and maximize your down payment.
    While it’s possible to get away with only putting 5% to 10% down on a home purchase, the single biggest cost-cutting measure you can do is to maximize your down payment. Not only will you owe less, reducing the overall interest you pay, but you’ll avoid having to pay mortgage loan insurance premiums—a fee buyers pay for the privilege of putting less than 20% down on a home.

    Option #2: Buy what you can afford.
    It sounds simple. Buy a home that fits your budget; the reality is when it comes to buying a home most of us struggle. On one side we want our dream home. On the other is the desire to be fiscally smart. Quite often, it’s a trade-off. But if you focus on buying within your budget (not the maximum mortgage amount your bank has agreed to lend you, but the mortgage that works with your financial plan), then you’re less likely to dip below the 20% down payment, and more likely to stick to your plan of paying off the debt sooner.

    Option #3: Shop for the best rate.
    Buying a home is stressful. Quite often, buyers will stick with banks or financial institutions they know. But when shopping for the best mortgage rate, it’s actually better to cast your net wide and far. Consider credit unions, as quite often these institutions can offer much better rates and terms than some major banks.

    Option #4: Pay attention to when interest is charged.
    Most standard mortgages in Canada charge interest semi-annually—that means twice a year the lender calculates what interest you owe, based on the outstanding principal debt and the accumulated interest on that outstanding debt. This is known as semi-annual compounding interest (compounding because it’s interest on interest). The rate at which compound interest grows depends on the frequency of compounding, the higher the frequency, or the number of compounding periods, then the greater the compound interest. For that reason, a loan with a 10% interest rate, but compounded annually, will actually accrue less interest than a loan with 5% interest that is compounded semi-annually, over the same time period.

    Option #5: Accelerated payments.
    When finalizing your mortgage consider going from one monthly payment to accelerated payments. This adds two extra payments per year, which reduces your principal debt just a tad bit faster.

    Option #6: Lump sum or extra payments.
    But the real key to paying off your mortgage debt faster is to get a mortgage that allows you to make extra payments. Most mortgages allow borrowers to make annual prepayments of 10% to 20% of principal, without extra fees. These extra payments go directly towards paying down the principal. If possible, however, try and avoid mortgages that only allow you to make extra or lump sum payments on the mortgage anniversary—as this can reduce the likelihood of the extra payment.

    Option #7: Lower your amortization.
    Those who want to pay off their mortgages sooner should choose the shortest possible amortization. While typical amortization periods are for 25 years, you can opt for as short as 10 years or as long as 30 years (if you made a down payment of 20% or more on your home). Forcing yourself to pay off the mortgage in fewer years translates into lower interest costs and substantial savings. The hitch? Your regular monthly or accelerated payments will be much higher.

    Option #8: Increase your regular payments.
    To give yourself the best of both worlds, consider going with a longer amortization, but increasing your regular payments using your mortgage loan prepayment privileges. For instance, if your monthly mortgage payment is $1,000 you could increase this to $2,000 per month if your loan terms allowed for double-up payments. In effect, you would be paying off a 20-year mortgage in just 10 years. Better still, you’d have the flexibility to switch back to the lesser regular monthly payment if you were to experience any changes like a sudden job loss or the birth of a child.

    In the end, the answer as to whether or not you should pay off your mortgage early really boils down to what’s important to you in both your short-term and your long-term financial plan.