Monday, 15 October 2018

FALL FINANCIAL CHECK UP

When we think financial restart, it’s usually at the beginning of the year. Who can blame you, after the expensive holiday season it’s a natural New Year’s resolution ---to save more money. But the fact is summer is a more expensive time of year. The two-month long event is filled with expensive vacations and family BBQs.  All this fun can make a big dent in your financial progress. That’s why the Fall--- not Winter--- is the best time to do a financial check-up.

How much are we spending?
In its latest survey of summer spending, BMO said Canadians planned to spend an average of $5,605 during the summer.  As well a survey conducted by another bank -CIBC - revealed half of those surveyed will need to dip into their savings or use their credit cards to make the most of the warm summer months. As well, 40 per cent say they spend more money in summer than during any other season. No matter how you look at it the bills pile up more in the summer than any other time of year and that is why a financial checkup is so important in the Fall.


How to get started on your Fall Financial check up
The first step is tally up how much your summer fun costs you, then figure out how much of that is debt. This includes a line of credit loan, charges on your credit card or even a loan from a friend.  

It’s good to have have a clear picture of your personal finances.

Next list your debts in order of interest you are paying. Start with the most expensive and work your way down. Any debt held on a credit card and store cards will be first and lower on the list will be your line of credit debt or a loan from a friend.
Finally, check if there are any bills you forgot to pay. This could be a utility bill or mortgage payment. Anything that slipped your mind during the summer months.

Lay out a plan
Start your plan by finding out what your minimum payments are on each debt you owe. Now can you pay more than that? If you can put those extra payments towards your highest interest loans start there. 

Next, see what bills you can hold off on paying until October. This may seem like a bad move, but by paying a small late fee, you could free up enough cash to pay off your most expensive loans. This could result in more money to make payments on your other bills in October. Be sure to contact the companies you’re planning to make a late payment too to make sure it won’t affect your credit score.

Finally, this is a good time to check in on how much RRSP contributions you have done. Are you on track to save what you wanted for 2018. Also once your bills are paid start putting some money away for the Christmas holidays. Even $50 a week will add up to $450 in 9 weeks. Fall is the best time for a financial checkup. 

The best part is in January when everyone is scrambling to get their personal finances in order, you will be feeling completely in control of your money.  



Friday, 12 October 2018

MONEY SAVING TIPS FOR SMALL BUSINESS OWNERS

I’m honoured to be speaking at Startup & Slay on the "Managing Your Money" panel.

Organized by #howshehustles, Startup & Slay, is part of a full-day meet-up in downtown Toronto for diverse female entrepreneurs to share information, inspiration and advice on how to start & scale a business.











                      
My job is to help female entrepreneurs manage their money better.

Here are five tips:

Separate, Separate, Separate
When you first start your business it’s very easy to use your personal bank account to pay invoices and deposit income.  Even if there is a bank fee involved, the best way to keep information separate is to have a separate business bank account, or at the very least a new account that you plan to use to manage your business from.  Also for expenses apply for a new credit card to charge them too. When it comes to tax time it will be easy to reconcile all your business receipts.

Be Consistent with Invoicing
Invoicing is the way small business owners and entrepreneurs get paid. It can be overwhelming especially if you come from a background where you worked full time for a company and did not have to worry about the administrative side of your job. Set aside one-half day a month to review all your invoicing, send out current invoices and remind clients of any invoices that may be overdue. Once a month is how I do it, but if you have a busy business you may have to do this bi-weekly, weekly or even end of the day. But whatever you choose, be consistent.

Don’t Forget to Save
As a small business owner, you are required to remit HST to the CRA.  You are also responsible for paying income tax throughout the year. This amount is based on what you claimed as your total income for the previous year. When you get paid make sure you're putting money aside to pay these bills. As a small business owner, there’s no pension plan. Don’t get off track with your retirement planning, make sure you are putting away at least 10 per cent of your before-tax income. As an entrepreneur, your income can fluctuate, make sure you have an emergency fund, in addition to your retirement savings, which represents at least 6 months of your cost of living.

Watch Your Expenses
It can be really easy to overspend if you see everything as a tax write off. While its true many expenses that were out-of-pocket during full-time work can be write-offs. Parking fee for an event where you’re speaking at, write off. Pens and paper for your home office, write off.  Tickets to a conference in your field, write off. But remember you will get only a portion that money back, it only works to reduce your overall income tax bill. Keep spending in check, otherwise, you may be spending all your profits without knowing it.

Use Technology for Good
We are all guilty of putting our bills on autopilot. We set them all up to be paid directly from our credit card or bank account and forget about it. Now, this can help avoid late fees and ensure your bills are always up to date. But it can also cause us to miss extra charges and fees that we should be disputing. Also when we don’t see the bill its harder to be critical of when costs go up. Use technology, whether it be to manage you invoices, pay your bills or add up your expenses, but also keep an eye on what is coming in and out of your bank account to see where too much money has been spent. 

Video from last Startup & Slay event. 


CANADIANS NEED (AND DESERVE) HIGHER INTEREST RATES


For more for than 10 years, Canadians have enjoyed record low rates, borrowing until their heart's content.  That has left Canadians with record high debt and sent housing costs soaring in major Canadian cities.

But the days of cheap money are coming to end.  

The economy is doing well, unemployment is near a record low and inflation is in check. Added to this, south of the border the U.S. Federal Reserve continues to raise its benchmark interest rate and Canada has finally hammered out a new deal with the U.S. that will replace the old North American Free Trade Agreement or NAFTA.  

Called the United States Mexico Canada Agreement or USMCA, it lays out what our trade relationship with the U.S will look like going forward.   Good or bad, Canadian businesses and investors now have certainty. This means they can invest with confidence and make better decisions about their money.

The lack of trade policy decision was seen as a major roadblock
to raising rates. After the last interest rate meeting, when the Bank left rates unchanged at 1.5 per cent, the Bank noted, that it’s “monitoring closely the course of NAFTA negotiations and other trade policy developments, and their impact on the inflation outlook.”

Bank of Canada Governor Stephen Poloz has shown concern that the lag on negotiating on NAFTA was weighing on business investment decisions as well. Both domestic and especially foreign. With those concerns now lifted, business investment is expected to pick up.

Added to that Canada’s Gross Domestic Product (GDP) grew twice as fast in the second quarter compared to the first, accelerating to 2.9 per cent.
Exports to the U.S. are up as well.

All of this points to higher rates soon and fast. 

In his special report on the USMCA, BMO Chief Economist Douglas Porter says this move, along with recent positive economic data in Canada this “all but cements a rate hike at the next policy announcement on October 24, barring something truly shocking over the next three weeks.” Looking further down the road, most of the downside risk to the economy has been cleared. Porter says BMO economics is “now calling for three rate hikes in 2019 (January, April, and July).”

If that forecast is right, at this time next year, Canadians will be paying at least one percentage point more to service debt.

Many might be concerned about what higher rates will do to our economy and homeowner’s ability to service debt.   In some cases, they can be angry that rates are predicted to go up so fast, after remaining so low for so long. Also considering the Bank of Canada has already raised rates four times since July 2017.

Those higher rates are already affecting Canadians right now. A report by Environics Analytics shows Canadians are starting to feel the “sting” of rising interest rates.  In the report, it says, “Increasing debt levels coupled with rising interest rates mean the average Canadian household spent $544 more on interest charges in 2017.”


Some part of Canada are harder hit, the Environics report says “The effects of rising interest rates were particularly acute in Vancouver, where households on average incurred an additional $1,152 in interest charges. Overall, Canadians paid $9.0 billion more in interest charges in 2017 than they did the prior year.”

Despite all this, Canadians need higher rates, to pump the brakes on our out of control indebtedness and penchant to rely on credit to fund our lifestyle.
If Canada fails to raise rates we could face other problems. Like spiking inflation and excessive risk-taking and artificial bubbles.  A report back in 2013 by the CD Howe Institute called, “The Dangers of an Extended Period of Low Interest Rates: Why the Bank of Canada Should Start Raising Them Now,” warned of just that.

More than five years have passed since it was published.
Since then Canada has seen two emergency rate cuts by the Bank of Canada in 2015.

So rates are going higher, and an entire generation of borrowers is going to witness what it feels like to pay more to service their mortgage when they go to renew and there is a huge segment of Canadians that will be renewing soon if not already this year.

A recent CIBC report estimates that nearly half of (47 per cent) of all existing mortgage will be up for renewal in this year. That is almost double the average mortgage that is renewed every year. Many Canadians have been enticed by lower rates for shorter terms, effectively creating a glut for 2018 of the number of loans that need refinancing.

For many of those that took out a mortgage before the new rules came into effect, they may feel stuck. Some, mortgage holders will find it hard to shop around as moving your mortgage to a new lender means going through the stress test the Federal Government brought in this year. High ratio mortgage holders might fail the new test, even after year r of paying their original mortgage down.

Renewal or not, these ultra-low rates have created a generation of people who have no idea how to function in a higher interest rate environment. For the last decade, rates have only gone down and investments have only gone up. We have been winning all the time everywhere.

Over the summer federal analysis by the Finance Department revealed their concern of how higher rates will impact “highly indebted households.” These are homes that have debt-to-income levels of at least 350 per cent. According to the report, 12 per cent of all Canadian households finds themselves in this situation.  These households are middle-income earners under the age of 45 are likely self-employed and live in Ontario or British Columbia. 

But, higher interest rates will immediately get Canadians thinking more about paying debt down, saving more and being more careful when borrowing.
When rates shot up to more than 22 per cent in the early 1980s Canadians reacted by saving more and paying off debt. Then, Canadians were socking away 19 per cent of their savings. With lower rates today and little incentive to save, Canadians today are barely putting away 5 per cent of their earning. Creating more issues in the years to come with retirement income.

The economy is poised and ready to raise rates, and Canadians deserve, if not for anything but to learn how to operate in a normal interest rate environment.


Wednesday, 26 September 2018

PITFALLS OF DOWNSIZING



Retirees often get generic advice to downsize their home when their kids have moved out, as a way to free up some cash. In many cases, if you have owned your home for more than 20 years and have no outstanding mortgage, you do stand to make a huge profit.  But there are financial challenges that many seniors face when downsizing that can end up costing them more than they anticipated.
A new survey* of Canadians 55 and older by Ipsos commissioned by Home Equity Bank, finds 27 per cent of those who downsized say “the costs were more than they expected.” Another 4 in 10 who are thinking of downsizing say they are sceptical
about the savings.  Here are the financial pitfalls to consider when downsizing.

Real estate fees
When you sell your property expect to pay a number of fees and taxes. This includes a real estate commission that can be as high at 4 per cent for your agent, land transfer taxes when you buy your new home and general moving costs. If you’re downsizing to Toronto you will pay two land transfer taxes one to the city and one to the province. In many cases, this is tens of thousands of dollars to consider before you make the decision to downsize.  Consider how you could use that same amount of money to retrofit your home to make it more accessible and easier to continue living in.

Spending habits
Moving into a smaller home does mean your utility costs and maintenance costs will go down.
But if your spending habits remain the same you may find you’re not left with an extra money at the end of the month.  Monthly expenditures like groceries, travel, transportation and entertaining can take up a big chunk of your budget. Estimates of how much it costs to live in retirement run all the way from 40 per cent of what you spent when you were working to as high as 80 per cent. According to a recent CIBC poll called “Am I saving enough to retire? The vast majority of Canadians just don't know,” the magic number of what we need to retire is $756,000. That is how much it will cost to live a basic retirement life in Canada.  That same report finds Canadians have saved only $184,000.  Even selling your home may not raise the capital you need to have the retirement you desire.

Diminished income options
Often when seniors are downsizing they are moving from a large family home where they raised their kids into a condominium or smaller bungalow. This means the whole house will be occupied by you. With no extra space that you could use to create income. In a larger home, there may be an option to rent out a portion to tenants, you could create an income suite or use sites like Air BnB or HomeAway for short-term rentals. This can bring in extra income and save you the hassle of moving.

Medical services
Older Canadians have more health care needs.  The latest number from the Canadian Institute of Health Information shows the share of health expenditure spent on Canadians age 65 and older is and is 46 per cent and seniors make up only 16.1 per cent of the population. If you’re downsizing away from your family doctor or other key health services, this will mean you will be spending more time and money getting the health care you need.  Calculate the cost to go to and from your doctor on a regular basis.

Temptation
After selling the family home you could see your account, for example, balloon from a few hundred dollars to several hundred thousands of dollars. Having such a large sum of money can create the temptation to spend. After all, we’re only human. By inflating your spending on everyday items you can burn through that money very quickly. Have a plan to invest it properly so it will last you throughout retirement.
Finally, timing is everything. Don’t wait too long to downsize and have to do it in a hurry, last-minute decisions often cost more. For many downsizing can be a good move if you plan properly for a long retirement, but for others staying put make more sense

*HomeEquity Bank reached out to over 2,500 older adults in Canada (aged 55+), among which 1,870 are homeowners, in August 2018, through an omnibus survey, completed by IPSOS.
IPSOS Research Details. The poll is accurate to within +/ - 3 percentage points, 19 times out of 20.

Monday, 10 September 2018

MORTGAGE COSTS ARE GOING UP


The mortgage landscape in Canada is changing so fast that many current mortgage borrowers and first time home buyers may not realize how much it will affect their bottom line.  According to a new CIBC Capital markets reports, 47 per cent of all existing mortgages in Canada are up for renewal in the next year.  This number is significantly higher because CIBC says borrowers in recent years have taken on mortgages with two- or three-year terms, because at the time they were cheaper.  These shorter mortgages have created a refinancing glut, as they are up for renewal alongside the typical five-year mortgages.
New mortgage applicants will be affected in three major ways

Rising interest ratesBoth fixed and variable rates are higher. When it comes to fixed rates, all of Canada’s big banks have raised their five-year fixed mortgage rate. The posted rate for TD, CIBC, BMO, Scotia and RBC is now more than 5 per cent. The move is a reaction to rising bond yields. Bond yields are higher because bond prices are dropping.  This signals higher borrowing costs for corporations and inevitably means it’s costing the bank more to borrow money to lend to mortgage applicants.  When the commercial banks pay more to borrow, so do we.  Variable rates are also inching higher. They are determined by the Bank of Canada’s overnight lending rate. Last announcement they kept rates steady at 1.25 per cent. But the Central Bank is hinting that rates are headed higher soon.

Stricter mortgage rulesStarting in January anyone applying for a new mortgage is subject to a stricter set of rules including a stress test, to show you can make mortgage payments if interest rates rise. The new guidelines are published in the Residential Mortgage Underwriting Practices and Procedures document by the Office of the Superintendent of Financial Institutions Canada (OSFI.)  All borrowers have to qualify at the greater of the two. Either the five-year benchmark rate published by the Bank of Canada or the contractual mortgage rate plus two percentage points.  Currently the Bank of Canada Conventional 5- year mortgage at 5.34 per cent.  This stress test includes anyone wanting to change banks after their term is up.  Those with high ratio mortgages seeking renewal will be unable to shop around because the new rules are making it harder for them to qualify with a new application.  Many will be stuck with their current bank and the rate they are offering.

A new tool to check creditThere is a new way a lender can check your creditworthiness. It's called a Bankruptcy Navigator Index. It predicts how likely it is you could go bankrupt in the next 24 months.  For example, they will look at how much access to credit you already have, your salary, and your outstanding loan obligations. From there they can make a determination of how much of risk you are for bankruptcy, even if you have good credit.  This is on top of the already well understood, credit score, which is somewhere from 300-900.  According to the credit rating agency TransUnion, 650 is the magic number.  A score above 650 will likely qualify you for a standard loan while a score under 650 will likely bring difficulty in receiving new credit. Even though unemployment is at a multiyear low Canadians salaries have been stagnant for almost a decade. Life has become more expensive, and wages have not reflected that.
My best advice is to calculate your costs now. Using a simple a mortgage calculator you can estimate what your new mortgage payments will look like. If you can make lump-sum payments to bring you overall loan down, this will help you when you go to renew as your total loan will be lower. If you’re in a really tight situation you can also extend your mortgage back to 25 years amortization to make it more affordable. But better advice is to try to cut back now, and in the meantime do not take on any new loan obligations.

Monday, 21 May 2018

EASY WAYS TO KEEP SUMMER SPENDING ON TRACK



















The warmer weather is finally here and families across the country are starting to make their summer plans. Personal finance experts love to talk about how expensive the Holidays are in December, but we often don’t discuss how pricey summer events can be. Unlike Christmas, a one-day event, summer holidays are two months long. With endless vacations, BBQ with friends and last minute dinner plans, the costs can add up. A 2015 BMO Bank of Montreal survey of summer spending found Canadians plan to spend an average of $5,605 during the hot summer months. Here are my tips to keep your budget on track all summer long. 

Plan, Plan, Plan
Benjamin Franklin famously said, “If you fail to plan, you are planning to fail! You should apply this to your summer spending plans as well. Map out now all social events you already have planned. Summer wedding, family vacation, dinner dates. Big and small write all the events down than attach a guesstimate of how much you believe each event will cost. The BMO survey shows Canadians spend more than $2700 on social outings, entertaining friends and family and general summer activities and entertainment. By mapping out your social calendar you can easily see where you might be overspending.  You can tweak your spending now to keeps costs down, and maybe decline any invites early that might be out of your budget.

Quality over quantity
Focus on events that are most important to you. Summer spending can often get out of control when you start accepting every single invitation. What might end up happening is you find yourself spending money (and time) on people and things you don’t even enjoy. Now that is a total waste of money. Avoid all that by picking events that really mean something to you and your family and friends.

Keep it Canadian
Vacations are expensive, especially those taken outside the country. In many cases, you have to fly to your destination. The BMO summer spending survey finds Canadians expect to spend move $2,000 on longer vacations and weekend trips this summer. You can bring this cost down significantly by simply taking trips that are closer to home. Wherever you live in Canada there is often amazing vacations spots only a few hours drive. Start by drawing a radius around your home that shows all that places that are within 500 km of you (as an example.)  You can easily figure this out by using a site like freemaptools.ca. Road trips are much more cost effective than flying.  

Do a big bulk shop now
We know summer is all about the last minute get together. Be ready for all your spontaneous parties on the patio and dinner plans, by doing a big bulk shop now. Stock up on essentials like burgers and hot dogs, get some frozen vegetables to make a quick stir-fry. Have a good variety of mixers ready to go for the adult drinks. This means if you make plans in the morning to have a party that afternoon, your shopping is already 75 per cent done. Planning is key to keeping your budget in check.




Get energy efficient

Summer is hot, and it can get uncomfortable without AC. You can cut your energy bill by 15 per cent by using a programmable thermostat, which keeps the home cooler at night for sleeping, but warmer when everyone is out of the house. Keep air vents closed in the basement and make sure your window shades are turned down so your AC is not competing with the heat from the sun. Also, check that the door and window seal are in good shape so cold air isn’t escaping.


Extra childcare
Parent's are often finding themselves scrambling to get childcare for the summer months. Camps and short-term child care options can be expensive.  The best option is to take your own holiday during the summer months to bridge that gap. For the weeks when you need childcare find city-run camps for the best value. Also, check on your own condo message board to see what other families are doing for childcare over the summer.

Free first
Keeping your kids busy in the summer can be a challenge. Often it seems like the only options are expensive camps and pricey amusement parks. Focus on the free events offered in your area. Visit your city website to see what’s happening near you, there are events near playgrounds and community centres that cost nothing. Next focus on city-run programs rather than the more expensive private ones. Join your local parents Facebook group to post questions and keep in the know of what’s happening around you.

Regardless of what your plans are in this summer, it’s important to make a rough budget of what you can afford to spend. This will help keep your bank balance in check. Summer is supposed to fun and spontaneous, but you don’t want it to leave you in debt by the end of the season. With some careful planning you can enjoy all summer long without putting yourself in financial distress.