Blog - Page 5 of 9 - Ellen MCKAY

October 1, 2021 Student Loans

The Basics of Private Student Loans

Another option for paying for post-secondary education is to take out private loans – that is, loans from a non-government source.

Why would I take out loans from a private source?

There are two main reasons to take out loans from a private source:

You don’t receive a government student loan large enough to cover all of your costs. Even if the government agrees to lend you money (at both a federal and a provincial level), there’s no guarantee it’ll be enough to cover all of your costs. If you don’t get enough government loans to cover everything and don’t have any other resources (e.g. an RESP or savings), you may have to get private loans to cover the difference.
You don’t qualify for government student loans. Since the government considers things like your income or your parent’s income, they may disqualify you from receiving a loan even if you don’t actually have the resources to pay for school. In this case, private loans may be your only option.

What’s a student line of credit?

When you have a line of credit, you can borrow money from it repeatedly up to a pre-set limit. So if your line of credit limit is $10,000, you can borrow $3,000, pay it back, and then borrow up to $10,000 again.

Student lines of credit are specifically designed for people seeking post-secondary education. A student can use their line of credit to cover various expenses, including tuition, books, food, and transportation.

With a student line of credit, you only pay interest on the amount of money you withdraw. Keep in mind that the interest rate on a student line of credit may be lower than the rate offered on government student loans. However, you have to pay interest as soon as you borrow money with a student line of credit, whereas with a government student loan, you don’t have to start paying interest until you finish your program or leave school.

When you apply for a student line of credit, you may need someone, such as a parent, to co-sign your application.

What’s a personal loan?

A personal loan can be used for various reasons – to pay for a car, a vacation, and school. They are offered by most banks and credit unions, and online lenders.

It’s best to get a secured personal loan (secured by your assets or those of your parents) as they come with a lower interest rate than an unsecured loan.

You have to pay back the amount you borrowed on a fixed schedule with a personal loan. And, of course, you’ll have to pay back both the principal and any interest the lender charges.

The Takeaway

If you don’t qualify for government student loans, don’t despair – you can still find ways to pay for post-secondary education! But it’s essential to be clear on when and how you’ll have to pay back your loan or line of credit to make the best funding choice for you.

September 15, 2021 Student Loans

The Basics Of Government Student Loans

Welcome to the first part of my four-part series on student loans in Canada. Today I’ll be covering the basics of government student loans. I’ll cover what you can use government student loans for, what variables impact how much of a student loan you can receive, and the basic process of a loan being approved.

What can I use my government student loans to pay for?

There are three main things you can use your federal or provincial student loans to pay for:

Your tuition. Your tuition is the cost you pay to attend your classes at a university, college, or another learning institute.
Your textbooks. Depending on the kind of program you’re in, textbooks can run you hundreds of dollars!
Living expenses. This may mean the cost of residence and a meal plan if you select to live on-campus or rent for an apartment or house, as well as groceries if you select to live off-campus.

What factors determine how much of a government student loan I’m eligible for?

The government takes into account all of the following when assessing the size of your student loan:

Income. If you are a student still living with your parents, they’ll consider your parents’ income. If you’re an independent adult, they’ll consider your income and your partner’s income.
Attendance. You will be eligible for a larger loan if you plan to attend school full-time instead of part-time.
The type of post-secondary education you’re planning to pursue. University tends to be more expensive than college, and programs vary in their costs wildly.
Other sources of income. If you have access to funds in an RESP or other savings accounts, you may be eligible for fewer student loans.
If you have any dependents. Having dependents can increase the amount of student loans you’re eligible for.
Extenuating circumstances, such as a parent being ill and unable to support you financially.

How does the basic loan approval process work?

It works as follows:

Collect all your information together.
Fill in the necessary paperwork. You should only need to submit one application for federal and provincial loans, but double-check to be sure!
If you’re approved for a loan, your money may be deposited in your bank account, or it may go directly to your post-secondary institution.

Government-issued loans do not accumulate interest while you’re a student. With federal loans, you’ll have six months before you have to start paying your loans back. The same grace period usually applies for provincial loans, but check with your loan servicer to be sure.

The Takeaway

It can be a lot of work to apply for a loan! Before starting the process, be sure you’re clear on what you can reasonably expect to receive in student loans.

September 1, 2021 Student Loans

A series on student loans – everything you need to know

Your education can be one of the biggest investments you’ll ever make. So whether you’re thinking of going back to get more education or one of your children will be ready to start college or university in the next few years, it’s important to know everything you can about student loans.

Student loans can be great if you can’t afford to pay for school. They can also put you into massive debt if you aren’t careful, though. I’ll cover the following topics:

Being able to pay back your student loans in a timely manner will have a critical impact on your or your child’s overall financial success in life. So it’s very important for you to be clear on exactly what you (or your child!) are agreeing to when they take out student loans!

August 15, 2021 Good money habits

Keep your spending limited

Congratulations! You’ve reached the last step in your money management journey. That doesn’t mean you can spend whatever you want, whenever you want, though. It just means you should now have the mechanisms in place to keep you on sound financial footing.

So what do you mean by keep your spending limited?

The best way to keep your spending limited is to plan in advance. Going out grocery shopping? Then make a list and stick to it. Check for advertised specials so you can stock up – but only if it’s something you’ll use! Going out to eat? Then check the menu online and determine how much you’re willing to spend. And always take your leftovers home!

Keeping your spending limited doesn’t mean you can’t spend money ever – it just means you try to plan out in advance how you’ll spend it!

Won’t people think I’m cheap?

You may have some friends or family members who think you’re cheap because you don’t spend as much money as you possibly can. But that’s fine. Some of them will hopefully come along with you on your financial journey and be better for it, and some of them won’t and may have regrets in the long run. Either way, you’re responsible for your own financial freedom, and it doesn’t really matter what anyone else thinks.

Any other spending tips?

One of the good and bad things about being an adult is that there isn’t anyone to tell you what to do! When you were a kid, your parents could limit what they bought you and even how you spent your own money. But as an adult, you have free reign over how you spend your money.

So it just comes down to keeping track of how you’re spending money and making sure you’re making the most of your purchases. You don’t have to limit yourself to only the bare essentials in life but think long and hard about which “little pleasures” are the most important to you.

The Takeaway

The key to keeping on track with your spending is to plan as much of it in advance as possible. You don’t have to figure out to the penny in advance exactly how much you’re going to spend on groceries or a nice meal out, but it does help to go in with a rough idea of how much you can afford to spend. And remember that impressing other people isn’t more important than your financial security!

August 1, 2021 Good money habits

Pay off your credit cards!

Congratulations! You’re really on a roll. You’ve got a budget, you’re investing, and you’ve even started planning for your retirement years.

If you haven’t started already, it’s time to get your credit card debt under control.

Why is it so important to get my credit card debt under control?

It’s important to get your credit card debt under control because you’re wasting money every month paying interest if you don’t pay off your balance in full. Unlike car debt or a mortgage, you don’t have anything to show at the end of the day with credit card debt – you just owe credit card companies a lot of money! As well, credit card interest rates tend to be much higher than interest rates on mortgages or credit card loans.

So how do I get started?

That depends on your personality. It’s best to start paying off the credit card with the highest rate. But if you’re the kind of person who needs a quick win to remain motivated, then it may be best to start paying off the the credit card with the lowest balance. Either way, the key is just to throw any extra money you have at your credit card debt.

To learn more about different approaches to paying off debt, read my post on debt avalanche versus debt snowball. There’s no one “right” approach as long as you’re paying off your debt!

Is there anything else I need to know about paying off my credit card debt?

Hopefully you’ve already slashed all unnecessary expenses, but if you find any while reviewing your credit card statements, now’s the time to cut them out. As well, you can pay off your credit card debt faster by switching to a low or no-interest credit card and then transferring over your balance to that card.

But it’s important that you read the fine print if you do a balance transfer as most low or no-interest credit cards tend to only stay that way for a limited amount of time. You also need to avoid running up your debt again, which can be tempting with a low or no-interest credit card.

The Takeaway

Credit cards can be great tools if you use them wisely. But they can also lead you down a path of overwhelming debt. So take a good look at your credit card statements, cut out unnecessary spending you see on them, and start paying off your balances!

July 15, 2021 Good money habits

Find a low or no-fee chequing account

While you may not actually write too many cheques these days, it’s still a good idea to have some kind of chequing account. After all, you need something to put your money in for everyday expenses!

Bank fees have definitely gone up over the years, so it can be harder, but not impossible to find a low-fee chequing account.

Determine what’s important to you

To make sure you get the right kind of chequing account for you, think about the following:

Do you like being able to hit up the ATM as frequently?
Do you pay people by e-transfer frequently?
Do you use your debit card a lot to pay for things or are you more interested in paying by credit card?

All of these things are important to think about, as you don’t want to end up with a chequing account that charges you a fee every time you hit the ATM or make any e-transfer!

Shop around

You can go with two options when it comes to opening a chequing account – open one with an online bank or one with a brick-and-mortar bank.

If you go with an online bank, you are much more likely to be able to find a no or low-fee chequing account. The drawbacks are though that it may not offer as many options as a brick-and-mortar one would (e.g. e-transfers or paying your credit card easily).

With a brick-and-mortar bank, you may be able to find a no or low-free chequing account, but you’ll have to keep a reasonably high balance in order to avoid getting dinged with fees. You will likely be able to get more options for services included than you will with an online bank. And with a brick-and-mortar bank, it’ll be easier to find ATMs, and online banks don’t tend to have very many!

So do a little research and see which option work for you.

Go Open Your Account

Now all you have to do is go open your account. Check ahead of time to make sure you have any paperwork or ID that may be required, and you’re good to go. Then take care of closing out your old account and be sure to move over any automated payments to your new account, so you don’t end up with unpaid bills.

The Takeaway

It can certainly be some work to find a new chequing account, but it’s well worth it and the savings will add up over time. Just take the time to do your research and find an account that suits both your budget and your needs!

July 1, 2021 Good money habits

Cutting back on expenses

So you’re doing really on your money management journey. You’ve done everything from making a budget to getting started on saving for retirement. So what’s next? Well, now it’s time to revisit your budget and see if there’s anywhere you can cut back.

How do I get started?

The easiest way to get started on cutting back on expenses is to take a good look at your budget. If you did your budget a while ago, you may want to review your last few credit card receipts or list of debit purchases. With most of us paying by “plastic” due to the pandemic, we’ve all got a pretty good record of when and where we’re spending all of our money! You may be surprised at how much you’re spending on some areas. For me, it’s always a shock how much we spend on food – whether that’s groceries or take out!

Do I really have to cut back on expenses?

This is up to you. Unless you’re in a real budget crunch, you definitely shouldn’t cut out all of life’s little pleasures! With being stuck at home more and limited options for socializing, for a lot of us streaming services and snacks are one of the few things we can rely on! The key is just to be sure you’re getting pleasure out of the little extras you’re spending your money on. A few options for cutting back on expenses without getting rid of everything you enjoy is:

If you enjoy takeout, look at less expensive options or getting takeout less often. Try picking up your takeout instead of using Door Dash or another delivery service.
Be sure you’re really using all your streaming services. How much time do you truly have to watch them? If you’ve got four or five services, you may be able to cut back on a one or two. At worst, you save money for a few months and then sign back up again when you have more time!
Purchases you have on auto ship. Auto ship is so convenient – stuff just shows up at your house on a regularly scheduled basis. But if you have more of a product than you truly need or just aren’t using it much any more, then it may be time to cancel or pause the auto ship.

Will this really make a difference?

Yes, it really will make a difference. Say for example, you do one less takeout a month, and one less streaming services, for a savings of 50 dollars a month. That adds up to 600 dollars a year. It may not seem like much, but every little bit helps when you’re saving for your future! You can use that money for everything from an emergency fund to a nice night away!

The Takeaway

Cutting back on your expenses is an important step on your money management trip! It doesn’t mean you have to give up everything in life that makes you happy – it just means you’re not spending money on things you don’t need or don’t use!

June 15, 2021 Good money habits, investing

Save For Retirement

You’ve likely been told over and over again – you should start saving for retirement! And that sounds great to you – but how do you get started?

Set up automatic savings

The key to making sure you save for retirement is to set up automatic savings. This means that you have a fixed amount coming out of your bank account every time you get paid (or on another schedule that works for you). By having your retirement savings go directly out of your account into a retirement account, you avoid the temptation of spending all your money! Plus you don’t have to worry about remembering to put money aside constantly – it’s all set up to be done automatically!

Try to aim for putting at least 10 percent aside of what you’re making in your retirement savings. If you can put aside more, great! If you can’t put aside that much, that’s OK too – the important thing is that you’re saving for your retirement.

Saving For Retirement With An RRSP

Traditionally, most people think of RRSPs when it comes to retirement. Registered Retirement Savings Plans or RRSPs came into existence in 1957, as a way to help encourage Canadians to save for retirement. They work as follows:

You can put a certain amount, up to a designated maximum, into your RRSP each year.
Any contribution room you don’t use rolls over to the next year, so you don’t lose it.
You can deduct RRSP contributions to reduce the amount of taxes you owe.
All gains in your RRSP are tax-free until you take the money out of your RRSP.

While it can benefit anyone to open and contribute to an RRSP, they are most beneficial to high-wage earners. High-wages earners benefit more from the tax deductions up front, and being taxed on their gains later in life when they’ve retired and are in a lower tax bracket.

Saving For Retirement With A TFSA

TFSAs are a much more recent way to save for retirement. TFSA is short for Tax-Free Savings Account and they’ve been around since 2009. This is how TFSAs work:

You can put a certain amount, up to a designated maximum, into your TFSA each year. Unlike an RRSP, the TFSA maximum is the same for everyone.
Any contribution room you don’t use rolls over to the next year, so you don’t lose it.
All gains in your TFSA are tax-free – you never have to pay taxes on them, even when you withdraw them!

If you have a lower income, then TFSAs may be better suited for you for retirement than RRSPs. You may not need the tax deductions an RRSP offers, and then your entire retirement income will be tax-free!

The Takeaway

There are two key things to take away from this post. One is that automated savings is the best way to keep on track with saving for retirement. The other is that it’s best to save for retirement in a manner that helps you cut back on the amount of taxes you have to pay – whether that’s via a TFSA or an RRSP or both!

June 1, 2021 Good money habits, investing

Diversify Your Portfolio

Welcome to step 4 of managing your money! So far, you’ve set up a budget, tracked your expenses, and gotten used to the idea of investing.

Now you’re ready to move forward with investing, you need to get comfortable with the idea of a diverse portfolio – that is, one that contains a variety of investments.

Why do I need a diverse portfolio?

It’s important for you to have a diverse portfolio so can balance risk with return. The amount of risk you’re willing to accept in exchange for getting potentially higher returns will depend both on your personality and what stage of life you’re at. When you’re younger and have more time to recover, you’re more likely to accept higher risks than when you’re nearing retirement age and want to protect your nest egg.

A diversified investment portfolio is the best way to ensure you can count on your investments to provide stable returns and income. Generally, when stocks are doing well, bonds tend to offer lower returns. And vice versa – when stocks are underperforming, bonds offer a better return. So you’re protected both ways!

What exactly does a diverse portfolio contain?

A diverse portfolio contains a little bit of everything. It can be tempting to want to buy only bonds so you have a guaranteed return or to buy only stocks with the hope of a big payoff. But if you only buy bonds, you’ll have a very low return on investment, and if you only buy stocks, you risk losing everything if the stock market has a serious dip.

That’s why diversity is so important! Buying a variety of investments – individual stocks, bonds, ETFs, and mutual funds is the best way to ensure you have a diverse portfolio.

So how do I create a diversified portfolio?

You may be panicking, thinking that you have no idea how to pick all of these different types of investments. That’s why ETFs (short for exchange-traded funds) and mutual funds exist! They contain a large variety of bonds and stocks, so you don’t have to shop around trying to buy a whole bunch of specific investments just to get a diversified portfolio.

Whether you work with a financial advisor or robo advisor, you need to consider how much risk you’re willing to take, what kind of investment returns you’re looking for, and how long you plan to invest for. More and more places are offering “set” portfolios designed to fit a specific age and stage in life – so you’d buy one type of portfolio in your 20’s and then gradually move towards another portfolio as you age.

The Takeaway

The notion of diversifying your portfolio can seem overwhelming, but it doesn’t have to be. No one expects to you to pick from hundreds of different investments – instead, a professional advisor or robo advisor can gather some basic information about you and then make suitable recommendations. So don’t let fear keep you from getting started!

May 15, 2021 Good money habits, investing

Start Investing

Congratulations! You’ve made it to step 3 of managing money. You’ve already created a budget and started tracking your expenses, and now you’re ready to begin investing.

Why do I need to start investing?

Once you have enough cash to cover your everyday needs, as well as to start putting money in an emergency fund (which shouldn’t be invested as you need quick access to it!), it’s essential to start investing to help build yourself a solid financial future.

Most savings accounts pay very little interest. You can open a high-interest savings account to put your emergency fund in (check into any fees first – no point in losing more in costs than you earn in interest), but that type of account won’t cut it for any other kind of savings.

Investing appropriately can help you earn money over time through the magic of compound interest! While returns vary, you’ll undoubtedly make more via the stock market than you ever could via a savings account.

What kind of investments should I get into?

What kind of investments you should get into will vary. The most common types are bonds, stocks, ETFs, and Mutual Funds.

Both mutual funds and ETFs hold portfolios of stocks and bonds, but ETFs trade on exchanges (like stocks) and tend to have lower fees. Stocks are generally considered the riskiest investments, with bonds being the least risky, guaranteeing an interest payment. ETFs and mutual funds tend to fall in the medium-risk category.

The key is diversity! You don’t want just to buy a few stocks or a few bonds. ETFs and mutual funds are good at spreading the risk out, so even if one investment is going down, another one may be going up. Your goal should be to minimize your risk and maximize your returns!

I’ll talk more about diversifying your portfolio in my next post.

How do I get started investing?

There’s the “traditional” way to get started – where you speak to a financial advisor, talk to them about your goals, and then put together an investment plan for you. The problem with this approach is that it can be pricey, as you pay higher fees, and you may get pushed into investments that aren’t necessarily right for you. If you really want a hands-on approach, ask friends and family for recommendations and make sure you’re clear on what fees you’ll pay your advisor.

The other option is a robo advisor or online broker. They tend to offer reasonably low fees, and you can select a portfolio that suits your investment goals, risk tolerance, the required rate of return. Some brokers offer only set portfolios, whereas others may provide more customized ones.

The Takeaway

This may seem overwhelming, but it doesn’t have to be. And the great thing is – once you’ve got your investments all set up, your hard work is done!