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September 1, 2022 Good money habits

9 Ways To Get Prepared For A Recession

Image by Gerd Altmann from Pixabay

It hasn’t been an easy economic ride for Canadians over the past few years. We’ve had a lot of lockdowns, and now inflation is rising quickly – and we may be looking at a recession too!

I’ve gathered some tips on how to prepare for a recession. Not all of them will work for you, but hopefully, a few will!

Tips for getting prepared for a recession:

  1. Try to pick up a side hustle. There are many different ways to bring in cash – from driving for Uber to online work. Do the math and ensure you’re not operating your side hustle at a loss. You can offer to shovel snow, cut the grass, or rake leaves for neighbours for cash. This is a great way to pick up extra money with little to no overhead costs.
  2. Stock up on food. If you’re suddenly looking at reduced hours or income, having a freezer or pantry full of food will be helpful.
  3.  See if you have areas you can cut back in. You don’t need to take away all of life’s little pleasures, but there may be areas you can cut back in to help build up a bit of a cash cushion. It’s nicer to choose to give something up than feel like you’ve been forced to give something up.
  4. Pick up some new skills. You don’t have to enroll in formal education to do this – many libraries offer free access to classes online.
  5. Consider what your options are if your income is cut drastically. Will you still be able to afford your mortgage or rent? If not, what are your options for housing in this situation?
  6. Learn about the different social services available in your area. Help is available for a reason – and there’s no shame in taking it!
  7. Consider options such as a heating blanket or a space heater. It’s much cheaper to run one of these than heat your whole house.
  8. Consider getting a line of credit or low-interest credit card. These could help tide you over if you’re out of work and low on funds.
  9. Plan ahead for next year! A garden is a great way to save money – you may be able to pick up equipment or seeds on sale as summer ends.

How do you prepare for economically uncertain times?

These are just some ideas on how to prepare for a recession. I’d love to know your steps to prepare for a recession!

 

August 15, 2022 investing

An Introduction To The First Home Savings Account

Housing prices have skyrocketed in the past few years! They are starting to calm down a bit, thanks to higher interest rates, but it’s still costly to buy a house, especially if you’re living in a popular area such as Toronto or Vancouver.

One of the ways the government is trying to help Canadians afford houses is via the new First Home Savings Account (FHSA). I’ll explain:

  • What is the purpose of the First Home Savings Account (FHSA) is.
  • What the benefits of the FHSA are.
  • Why the FHSA is a better choice than the current Home Buyer’s Plan.

Note: These accounts can’t be opened til 2023, and some of this information may change by then, so please consult with an investment professional before opening one.

What is the purpose of the FHSA?

The purpose of the FHSA is to help first-time home buyers be able to afford to buy their first home. This type of account is only available to people over 18 who either don’t currently own a home or haven’t owned one in the past four years.

You can contribute up to $8,000 a year to an FHSA, with a lifetime maximum of $40,000. Your contribution room does roll over each year, so if you can’t contribute the total amount in a year, the unused contribution room will roll over.

What are the benefits of opening an FHSA?

The most significant benefit of opening an FHSA is it is a superb tax-saving vehicle! It’s similar to a TFSA when it comes to taxes but also has some of the benefits that an RRSP offers as well.

Your contributions to your FHSA are tax-deductible, and you do not pay taxes on any qualifying withdrawals for a first home purchase. In addition, you will not have to pay taxes on capital gains or income earned in your FHSA account.

Why is the FHSA better than the Home Buyer’s Plan?

There are several reasons that the First Home Savings Account (FHSA) is a better choice than the Home Buyer’s Plan:

  1. The lifetime limit is higher. You can save $40,000 in an FHSA account, whereas, for the Home Buyer’s Plan, the limit is $35,000.
  2. You must pay back all the money you take from your RRSPs as part of the Home Buyer’s Plan.
  3. If you miss any repayments, those payments count as income, and you must pay taxes on them.

What do you think of the new FHSA?

Do you think it’s a good idea? Will you be opening one? Let me know in the comments!

August 1, 2022 investing

What is an index fund and why should I invest in one?

Many people don’t like to invest because they can’t figure out exactly what they should invest in! One of the easiest and best choices for investing is with an index fund. I’ll explain:

  • What an index fund is.
  • Why you should invest in one.
  • What you should look for when choosing an index fund.

What is an index fund?

You’ve likely heard of market indexes, such as the S&P 500 or the Dow Jones industrial average. But you may not be sure what they are exactly. In layperson’s terms, an index is designed to track the performance of a group of stocks, bonds or other investments.

The purpose of an index fund is to replicate the returns of a specific market index. This is done by putting together an exchange-traded fund (ETF) or mutual fund that contains fractional shares of all the investments a particular index comprises.

Why should I invest in an index fund?

These are two of the top reasons you should invest in an index fund:

  1. Index funds tend to be low-cost and aren’t actively managed, so you aren’t paying for an involved fund manager. They also don’t have recurring transaction costs because you (or a manager) aren’t constantly picking individual stocks.
  2. Index funds enable investors to benefit from the long-term growth of a specific market. Markets generally have a solid return over time, and investing in an index fund is a great way to benefit from this!

What should I look for when choosing an index fund?

These are the top things you should look for when you choose an index fund:

  1. Check that your index fund has a low management-expense ratio (MER). This is one of the main fees you’ll pay for your investment, so it’s essential to ensure you aren’t paying a high MER.
  2. That they come at a reasonable price. While you don’t want something at a rock-bottom price (as that may indicate the fund isn’t doing too well), you also want to be able to afford shares of the fund without breaking the bank!
  3. That the index fund pays you a dividend. This dividend could be monthly, quarterly or semi-annual. You can either cash out your dividends and use them as an income stream or reinvest them to help your investments continue to grow.

Do you have any experience investing in index funds?

Have you invested in index funds before, or was this an entirely new topic for you? Let me know your thoughts in the comments!

June 15, 2022 Good money habits

Four reasons your budget may not be working

Have you finally put a budget together but found yourself unable to stick to it? You’re not alone! If you can’t stick to your budget, you may feel frustrated and wonder why you put the time and effort into creating a budget.

We’ll explain four of the reasons your budget may not be working and how you can adjust your budget to make it work better for you:

  1. Your budget is unrealistic.
  2. You’re not truly committed to living on a budget.
  3. You haven’t left any money in your budget for fun.
  4. You don’t have anything put aside for an emergency.

Your Budget Is Unrealistic

One of the most common reasons a budget fails is that it’s unrealistic. You may not have allotted enough in areas such as groceries (you can only cut back so much!), or you may have allotted too much for debt repayment. Yes, you really can allot too much for debt repayment if you’re trying to pay off debt too aggressively.

The key to success with a budget is moderation. That means you try to save more than you have been and spend less than you have been without sacrificing everything in life that gives you comfort or pleasure. It’s more important to have a budget you can stick to than pay off debt aggressively for a few months and then give up.

You Aren’t Really Committed To Living On A Budget

Another reason your budget may not work for you is that you’re just not committed to living on a budget. Or perhaps you are, but your partner isn’t. If this sounds like you (or your partner), then the best thing you can do is change how you feel about a budget.

Many people think a budget means restricting yourself and having to count every penny (or nickel, as we no longer have penny coins in Canada!). However, a budget is actually freedom. Once you know what you have to allot to fixed expenses (such as your mortgage or rent), you have the freedom to allot the rest of your money any way you want!

You Haven’t Left Any Money In Your Budget For Fun

Yes, you can still have fun even if you’re living on a budget! There are certainly lots of ways you can have fun with little or no cost, such as:

  • Going for a walk or attending a free festival.
  • Downloading books from the library – you don’t even have to leave your house!
  • Borrowing DVDs from friends or making better use of the streaming subscriptions you already have.

By doing things like this, you’re freeing up money to spend in other ways. So instead of buying four books a month, you buy one. Or you buy a fancy coffee during your walks once a month, instead of once a week.

You Don’t Have Anything Put Aside For An Emergency

Nothing throws off a budget like an emergency, whether it’s a roof leak or a job loss. That’s why it’s so important to have an emergency fund. So how can you get back on track after an emergency?

The best thing you can do is look at your budget and see where you may need to make changes. Whether that’s allocating more to your emergency fund or taking on a second job, you’ll have to redo your budget to reflect your new reality.

Have you ever used a budget?

Tell me about your success stories or where you got stuck in the comments below!

June 1, 2022 Debt

What are the worst types of debt to have?

One thing that personal finance writers focus on a lot is debt – and there’s a good reason for that! Debt can make your life very stressful and challenge your ability to achieve your financial dreams. We’ll explain why the following types of debt are the worst type of debt to have:

  • Credit card debt.
  • Payday loans.
  • Vacation debt.

Credit Card Debt

Credit card debt is one of the worst types of have for two reasons:

  • The interest rates are super high! Depending on your credit card, you may be looking at interest rates of twenty percent or more – which adds up quickly. And since credit cards let you pay the minimum balance each month, they give you the illusion you’ve got your debt under control when you don’t.
  • A lot of credit card debt is debt that could have been avoided. While you may put essentials such as your groceries on a credit card, you will likely put a lot of unnecessary items on it, like impulse purchases and meals out you couldn’t afford.

Payday Loans

Payday loans can seem very attractive when you’re in a bind, but they charge even higher interest rates than credit cards and can take months to pay off.

Here’s an example of why a payday loan is a bad debt to have:

  1. You go to a payday lender to borrow 500 dollars.
  2. Your payday loan will cost you $17 per $100 that you borrow. This is the same as an annual interest rate of 442%!
  3. You will have to pay interest as long as you owe any money on the loan, which can add up.
  4. You may have to pay additional fees on top of interest if you can’t pay your loan back in the agreed-upon period.

Payday loans are a type of debt you should avoid  – even overdraft protection on a bank account or a cash advance on a credit card are cheaper!

Vacation Debt

Now that travel restrictions are easing; you may consider taking a vacation. That’s a great idea if you’ve got the money saved for it!

If, however, you haven’t saved up for a vacation, then taking on debt to pay for one is a bad idea. There are a few reasons for this:

  • Unlike a car loan or a mortgage, you have nothing tangible as a result of taking on vacation debt.
  • You’re likely to put your vacation on a credit card, which charges high-interest rates and can take months to pay off.
  • Any good memories you have of your trip will be soured by the fact you’ll be paying off the cost of it for several months. If you save up before you go, this won’t happen.

What do you think the worst kind of debt to have is?

What are your thoughts on the worst kind of debt to have? Have you ever had a payday loan or vacation debt? Tell me in the comments!

May 15, 2022 Books

A Guide To Canadian Personal Finance Books – Part 3

15Today’s post will cover two books focusing on personal financial planning areas. If you’re interested in more general books on personal finance planning, then be sure to check out Part 1 and Part 2 of this series!

I’ll cover these two books:

  • House Poor No More
  • Beat The Bank

House Poor No More

House Poor No More, by Romana King, focuses on everything you need to know about home ownership in Canada. Her book covers the following:

  • What you need to know about buying a home in Canada.
  • What home improvements will give you the most bang for your buck.
  • How to manage your mortgage debt, so you aren’t house poor.
  • What kind of tax deductions and credits you may be eligible for as a homeowner.
  • How to reduce the monthly expenses associated with owning a home.

So whether you’re thinking of taking the plunge into home ownership or already own a home and are trying to make the most of it, House Poor No More can provide you with the guidance you need to avoid being house poor!

Beat The Bank

The full title of this book is Beat The Bank: The Canadian Guide To Simply Successful Investing, and Larry Bates writes it. Once you’ve set up a budget and paid down debt, you’re ready to start investing to save for your future – but how do you get started?

Many people are intimidated by investing, so they either avoid it and buy only “safe” investments (like bonds) or pay high fees without realizing they are doing so. And high fees can cost you thousands of dollars every year, stripping away your gains!

With Beat The Bank, Larry Bates is trying to help hard-working Canadians keep more of their money. Larry’s professional background is in banking and investments, so he knows the ins and outs of investing. With his book, he can help you:

  • Learn how to avoid high fees, which means you’ll lose less of your returns.
  • Find out all the benefits of switching to low-cost investment products.
  • Put together a simple approach to investing that doesn’t take hours upon end to implement.
  • Gain the knowledge you need to achieve long-term investing success without paying high fees.

You work hard for your money and deserve to keep your investment gains – not lose them to high fees!

Both Of These Books Are Great For Focused Financial Learning

Once you’ve got a strong base for your financial planning, you’re ready to move on to more complicated topics like investing and making the most of home ownership. Which of these topics are you more interested in? Tell me in the comments!

 

May 1, 2022 Books

A Guide to Canadian Personal Finance Books – Part 2

In the first part of this series, I talked about two great introductory personal finance books – The Wealthy Barber and Millionaire Teacher. Today, I’m going to focus on two more general interest personal finance books:

  • Money Like You Mean It
  • Debt-Free Forever

Money Like You Mean It

Money Like You Mean It by Erica Alini describes itself as a book that offers “Personal Finance Tactics For the Real World.” It was published in 2021, so it’s a great book if you’re looking for something that reflects today’s environment – not how the world was twenty years ago.

Some of the things that Erica addresses in her book are:

  • How to navigate the crazy housing market, including the merits of renting versus buying.
  • Whether side hustles are worth it or not.
  • How to negotiate a raise.
  • How to invest so you can achieve financial independence and retire before you’re 80!
  • What to do about student debt!
  • How to handle complicated issues like family finances and unexpected changes in life such as a sudden job loss

This book can help anyone but mainly aims at Millenials and Gen Z.

Debt Free Forever

Gail Vaz-Oxlade wrote Debt-Free Forever. If this name seems familiar, it’s because she’s hosted several shows about getting smart with your money, including “Til Debt Do Us Part” and “Princess.” I’ll freely admit I’ve watched every single episode of both these shows. I’m such a fan of Gail I’ve even seen in her person – and she is FUNNY!

Gail is known for being straightforward and not mincing her words. Debt-Free Forever is an excellent choice if you are feeling overwhelmed by debt and don’t know how to start digging yourself out. Debt-Free Forever explains:

  • How to take control of your spending and determine where all your money is going.
  • How to list your debts and determine just how much you’re paying in interest every month.
  • Put together a budget you can actually live on.
  • Determine how to maximize your debt repayments.
  • Understand the importance of setting aside an emergency fund and how to get started building one.
  • How to get started setting short and long-term goals for a debt-free life!

If you are looking for a book that gets into the ins and outs of investing or negotiating for a raise, then Debt-Free Forever isn’t for you. If, however, you’re looking for a book that will give you hope and a clear plan to claw your way out of debt and stay that way, then Debt-Free Forever is an excellent choice!

Which book do you prefer?

If you’re starting on a financial journey, then Debt-Free Forever is a great place to start, with Money Like You Mean It being a great choice once you’re on the path to financial stability.

 

 

April 15, 2022 Books

A Guide to Canadian Personal Finance Books – Part 1

Despite all the options for online content, sometimes it’s nice to have a book. You can make your notes and highlight things that interest you, and you don’t have to try remembering where you found a specific tidbit of information on various websites!

A book is charming if you’re looking to give a gift to someone, such as a college or university graduate just starting in life! Getting a book focusing on Canadian finance planning is essential, as many savings options (such as RRSPs and TFSAs) are specific to Canada!

This will be a multi-series post, as I’ll cover several different books. I’m going to start with these two:

  • The Wealthy Barber
  • Millionaire Teacher

The Wealthy Barber

The Wealthy Barber, by Dave Chilton, is a personal finance book that’s been around for over twenty years. One of the reasons it’s so popular is that it provides financial lessons in an easy-to-understand manner.

The Wealthy Barber contains a series of stories told by the author’s barber about how to become financially secure. He covers various topics, from retirement to investing, and is very down-to-earthly. He doesn’t get into complicated financial terms that may seem intimidating or confusing – he explains things in a way that an everyday person can understand.

This is an excellent book for anyone just starting on their financial journey. Even if you’re comfortable with some aspects of financial planning (such as buying a house) but not others (such as investing for retirement), it’s a great introductory book.

Millionaire Teacher

The full title of this one is “Millionaire Teacher: The Nine Rules Of Wealth You Should Have Learned In School,” and Andrew Hallam writes it. Andrew was a teacher who noticed that most of the people he knew who we financially successful were also teachers. While teachers get paid reasonably well and have a good pension, they found that their success went beyond that.

So he looked at what he was doing and what his successful friends were doing and diluted it into the nine lessons in his book. He provides excellent, easy-to-understand advice and some general guidance on how to start investing (tip – try index funds!)  Whether you need to know what to look out for in a financial advisor (although you don’t necessarily need one) or what to avoid when investing (if it seems too good to be true, it is!), this book is a good choice for you.

These Are Both Great Introductory Books

If you’re unsure about the books, you can always take them out from the library and buy them once you know they’re a good choice for you. Have you read either of these books? Tell me in the comments!

April 1, 2022 Lessons Learned

Building on Good Money Decisions

Question marksToday I’m going to cover a fun topic – building on good money decisions! I’ll cover:

  • What qualifies as a money decision.
  • What the best money decision I’ve ever made is.
  • How to build off good money decisions.

What qualifies as a good money decision?

To me, any financial decision that sets you on the path to financial success is a good money decision. These are some examples of good money decisions:

  • Buying a house well below the amount of mortgage you’re approved for. With house prices these days, that’s easier said than done!
  • Having a budget or a way to track your spending. Keeping on top of how much money you have going in and going out is always a good money decision.
  • Taking on a side hustle or getting a raise at work.
  • Sit down with your partner to discuss finances and ensure you’re on the same page regarding saving and spending.
  • Learning how to separate your needs from your wants.

What’s the best money decision I’ve ever made?

I’d say that I think the best money decision I’ve ever made was paying off my house as quickly as possible. I bought a house with a reasonable down payment and a modest mortgage. My husband and I were both working and had no kids, so we could focus on paying down the mortgage as quickly as possible.

I choose bi-weekly payments and then make a lump sum extra payment yearly. This is an excellent option if you’ve the self-discipline to put aside extra cash and not spend it. If you don’t have the self-discipline to put aside cash, you may prefer to look into options like accelerated mortgage payments.

This is my best decision because it gives us so much financial freedom! When we had to deal with increased expenses and a decreased income, we weren’t strapped for cash because we no longer had to pay a mortgage.

How do I build on a good money decision?

As with bad money decisions, moving forward on a good money decision is very individualized. These are just a few examples:

  • If you’ve paid off your house or car, resist the temptation to upgrade unless you need to.
  • If you’ve put aside money to invest, be sure to do your research before buying any investment.
  • If you’ve paid off debt, don’t run it up again!

Tell me about the best money decision you’ve ever made!

Let me know the best money decision you’ve ever made and how you accomplished it!

 

March 15, 2022 Mortgage

March Mortgage Madness – Introduction to Mortgage Terms: Part 2

I hope you enjoyed Part 1 of this series. So far, I’ve covered two of the most important terms you need to know – interest rates and mortgage terms. This week I’m going to cover:

  1. Pre-qualification or pre-qualifying for a mortgage
  2. Closing costs – this covers several  different costs

1. Pre-qualification

Before looking at houses or condos, you need to go to a lender (such as a bank or a credit union) and get pre-qualified (sometimes referred to as pre-approved.). When you do this, you can find out the maximum amount of mortgage you (and your partner, if you are buying a house together) qualify for. You can also determine what interest rate the lender will give you.

There are several advantages to pre-qualifying for a mortgage:

  1. You know in advance what price range you should be looking for when house shopping.
  2. You can get an idea of your mortgage payments and how they’ll fit in your budget.
  3. You can “lock” in an interest rate for up to 120 days, which protects you if interest rates go up. If they go down, you can take the lower rate instead!

For a lender to agree to pre-qualify you, you’ll need to provide them with the following information:

  • Details about any assets you have (e.g. a car) as well as any debts (e.g. car loan)
  • Proof of employment
  • How much of a down payment you’ll have
  • Proof you can afford costs outside the mortgage, such as closing costs (more on that soon!)

Once you are done pre-qualifying and have all the necessary information, you’re ready to start house hunting! Remember that it’s best not to buy a house for the maximum amount approved, as this can leave you “house poor.”

2. Closing costs

The term “closing costs” refers to the fees you must pay to finalize your home purchase. These are the three main ones:

  1. Land Transfer Tax. If a property is transferred from one person to another (basically, someone sells a property, and someone else buys it), then the buyer must pay a land transfer tax. Some locations, such as Toronto, have two land transfer taxes – a provincial one and a municipal one. The land transfer tax is a percentage of the price of the property. They vary across Canada – anywhere from 0.5% and 2%. Alberta and Saskatchewan do not charge a land transfer tax but have land title transfer fees.
  2. Legal Fees and Disbursements. Buying a house is a legal transaction, so you will have to get a lawyer involved. Your real estate agent will most likely have one they work with regularly. You’ll have to pay for preparing and recording various official documents. Depending on how complicated your real estate transaction is and where you live, you may pay as little as $500 or up to $3000.
  3. Title Insurance. You need to buy title insurance to protect yourself against a loss if there is a property ownership dispute over your house. This will typically cost a few hundred dollars. You’ll also have to pay for a title search – this is done to ensure that a) the person selling the home has the legal right to do so and b) there are no issues with the home (such as a lien on it).

I hope you’ve enjoyed learning about mortgage terms. It’s essential to pre-qualify before you start looking for a home to have a reasonable idea of how much you can afford. Happy house hunting! Let me know in the comments how you’ve found house hunting!