GETTING INTO YOUR FIRST HOME MAY BE EASIER THAN YOU THINK After my wife and I got married we decided that we would slash our spending and start tracking our expenses so we could save aggressively for a down-payment on a home for us. This wasn’t the birth of our budget rather we were spending less than we earned but we had no idea how much savings power we gave up going this route until the CBB Budget was created. Once we felt we were nearing our 20-25% down-payment goal that we wanted to have for a house priced around the $200,000-$300,000 price tag we started chatting with a real estate agent. Thankfully we have a friend who has been servicing our community as an agent for many years. Since I was new to Canada one of the questions that came up was whether we could participate in the RRSP Home Buyers Plan (HBP) in Canada for first time home buyers. It was clear that I had never purchased a home in Canada before but this wasn’t Mrs. CBB’s first rodeo in real estate. It was still worth looking into though. If the HBP means nothing to you […]
Should you Invest in an RRSP, TFSA or Non-Registered Account?
UNDERSTANDING HOW YOUR MONEY IS INVESTED IS HALF THE BATTLE One of the most common questions I hear in my job is ‘what type of account should I be saving in?’ If you are just getting started with investing, then you may have heard about RRSP’s and TFSA’s but not really know the difference between them and when you should be using each one. That’s what I’m here to talk about today, the pros, the cons, and the best time to use each of these accounts. When it comes to basic investing you have three main account types you can use; an RRSP, a TFSA, or a non-registered account. Each of these have their own positives and negatives, so it’s helpful to figure out the most valuable for your current situation. You can hold a variety of investments (stocks, mutual funds, ETF’s, etc.) in any of these accounts; there are a few limitations in RRSP’s and TFSA’s, but unless you are a very high risk, speculative investor, this will likely never come up. RRSP’s (Registered Retirement Savings Plans) Since you are here reading a blog about finance, I’m going to assume that you have heard of an RRSP. […]
Reader Question:Do I Have To Share My RRSP With My Spouse When I Get Divorced?
Another reader of the Canadian Budget Binder blog asked the question, “Do I have to Share my RRSP with my Spouse When I get Divorced”? In Ontario there is the Family Law Act. In simple terms all property acquired after the date of marriage, up until the time of marriage breakdown is deemed to be the property of both parties. The ownership of the property is not a factor. So in short each person is entitled to 50% of the total family property. There are certain exceptions like the family home that was brought into the relationship or received as a gift or inheritance. However to keep things simple we will ignore this. RRSP’s, Stocks, Bonds, Pensions, are all subject to being included under Family Law. So if one spouse had a significant RRSP and the other nothing then the spouse with nothing would be entitled to 50% of the spouse’s RRSP. Note: the courts adjust the value of the RRSP down, by the amount of withholding tax that would be payable if the RRSP were cashed in. So the figure used is less than fair market value of the RRSP. To understand this fully the courts ask each person […]
Reader Question: Is It Savvy To Cash In My RRSP’s To Pay Off Debt?
ONE OF THE HARDEST FINANCIAL DECISIONS OF YOUR LIFE MIGHT BE WORTH IT A reader question about whether it was savvy to cash in an RRSP to pay off Debt was submitted to Mr.CBB. He forwarded it to me to share my opinion on this topic with all of you. My short answer is that it depends. Cashing your RRSP’s There are several factors to consider if you are thinking about cashing your RRSP’s. The age of the person The withholding tax on the funds withdrawn on the RRSP The amount of debt and its’ interest rate The type of investment held in the RRSP The opportunity cost of the withdrawal To keep things simple let me say if you are doing this and are under 30 then it might not be a bad thing. At older ages you have a shorter accumulation period and time and the magic of compound interest work against you. I have always maintained that paying off debt is one of the best investments someone can make. Let’s say you’re carrying a credit-card balance of $1,000 with 18 percent simple annual interest. That’s $180 a year in charges. Pay off that debt […]
Straight Talk About Fees and Penalties on Mutual Funds
Mr. Canadian Budget Binder received a question from one of his readers and asked me to craft a guest post to answer it. Question: Can you explain MER Fees and Penalties regarding investments? What Does MER stand for? MER means Management Expense Ratio. There are a variety of expenses that make up MER. Some are: The fee paid to the fund managers for managing and investing your money Legal and audit fees of the fund Advisor sales compensation and trailer fees (ongoing service fees) Advertising expenses that promote the fund The cost of buying and selling the stocks the fund holds How does this impact my investing return? All published returns for a fund are net returns, after the MER has been deducted. In simple terms Fund A has a return of 10%. Its MER is 2.5%. The net return to the investor is 7.5% Fund B has the same 10% return but has an MER of 2%. The net is now 8%. The lesson we can learn from this is that lower MER’s usually mean more money for the investor all other things being equal. Some investors have focused exclusively on buying investments with the lowest cost. There are investments […]
