Category Archives for "Personal Finances"

Paying Digitally? – Tips to Stay on Top of Your Finances

By Randall Orser | Budget , Personal Finances

I never thought that debit cards would catch on but plastic has now taken over as most people's most used method of payment. During the pandemic many retailers and other businesses no longer accept cash, instead opting for contact-free forms of payment such as e-transfers, payment apps, and debit or credit cards.   This can make it difficult for some people to control their spending and stick to their budget.

Cashless transactions eliminate the need to go to the bank to withdraw cash or carry it around with you which may be a plus. However there are serious downsides to going cashless such as the risk of identity theft and credit card fraud, and it is so easy to spend more when using plastic. Researchers say that paying with a credit or debit card reduces the "pain of payment" so that it doesn't feel the same as paying with cash even though the expense is the same.

Here are some tips to help you to keep your spending in line when using your cards:

  1. Keep track of your transactions as you go using a budgeting app or a spreadsheet.  
  2. Limit your options, don't use multiple credit cards try and keep your methods of payment to your bank account on a debit card and one credit card.  Once you have control of these payment sources you can add more options but keep things simple.
  3. Pay off your credit cards, in 2019 only 56% of Canadians paid off their credit cards in full by the end of the month and the other 44% were paying the high interest from having a balance.  This is not a good situation to be in because it means that you are spending more than you make.  If you do have a credit card balance with high interest think about getting a card with a lower interest rate and no annual fees even if you have to forgo the travel points for now.
  4. Going cashless means we are more likely to impulse buy.  If you are buying on-line pause before you finalize the sale to consider if you really need the item.  Also companies track whether you have completed a transaction or not and if not they may contact you with a better price to encourage you to buy.
  5. When your mortgage comes up for renewal don't just accept your bank's offer.  Shop around to  see if you can get a better deal.  Reducing your interest rate by only 0.5% could mean that you will save thousands of dollars.
  6. Stay away from targeted ads.  Everyone is on-line a lot these days and ads on social media will target you using information from previous purchases.
  7. Check your credit score - this will not always affect your credit score as many banks offer a credit-checking feature using a simple button on their app.  Use it to check for any errors or discrepancies.

From an article by Margaret Craig-Bourdin

Over-contributed to your TFSA or RRSP? Here’s what you should do.

By Randall Orser | Investments , Personal Finances , Personal Income Tax , Retirement

It can be an easy mistake to over contribute to your TFSA or RRSP especially if you have an amount automatically contributed each month. If you find that has happened to you there are some basics that you should know to remedy this situation.

RRSP Contributions

The penalty for RRSP over contributions is 1% per month for each month that you are over the limit.  The CRA  does allow you a $2000 grace amount for over contributions but that amount is not tax deductible.  The best way for you to correct an overpayment is to withdraw the amount, though it will be subject to taxes.  You will be able to claim an offsetting deduction if you meet certain conditions (link to CRA Website).  The main condition is that you make sure the the over contribution is withdrawn in the year that it was made, the year in which you receive an assessment for the year of contribution, or in the year following each of these years.

If you meet the conditions for offsetting deduction you can have withholding tax waived on the withdrawal by filing form T3012A.  If you don't do this then the tax withheld at source can be claimed as tax paid on your tax return.  It is very important to keep track of your RRSP contributions and make sure that you withdraw any over contribution so as to penalties that may arise.

TFSA Contributions

Over contributions to TFSA's happens often especially when people have multiple accounts in different banks and they lose track of those accounts over time.  As the limits allowable have varied depending on the year it can become really confusing to contributors.  Two common mistakes are:

  • Replacing a TFSA withdrawal in the same year - if your contribution limit has already been reached you have to wait to replace a withdrawal until January in the next calendar year.  This often happens when the TFSA account is used in the same way as a savings account with repeated withdrawals and contributions which can create an over-contribution as withdrawals do not lower the contribution limit.
  • When a TFSA balance is transferred to another institution, if this is not done as a direct transfer it will be counted as a second contribution and the withdrawal amount will not be added to your  TFSA room until the following year.

TFSA over contributions are 1% per month over the term of the over-contribution until the year end based on the highest excess amount for the month.  There is no $2000 grace amount as with a RRSP and penalties for over contribution must be paid by June 30th.

For more information on TFSA contributions see the CRA's TFSA Guide (RC4466) which also provides you with a RC343 worksheet  for you to keep track of your contributions and withdrawals.  It is also important to review your notice of assessment that you receive from the CRA which states how much contribution room that you have in your TFSA and RRSP for the current year.  It is a good idea to compare the CRA amounts with your own records.   In addition you can get a copy of your contribution history from the CRA's My Account service.

From an article by Denise Deveau

Financial Considerations for First Time Home Buyers

By Randall Orser | Investments , Personal Finances , Personal Income Tax

The Covid-19 pandemic has not stopped people from wanting to buy a home for the first time.  However it is necessary to do some long term planning including preparation for the unknown before taking the plunge into the housing market.

Canadian house sales rebounded by 63% month over month in June showing that the real estate market seems to be holding steady despite the financial problems that the pandemic has caused.  However the Canada Mortgage and Housing Corporation (CMHC) predicts that home prices will fall up to 18% due to job losses, declining income, stalling construction and it has now tightened lending restrictions.  Despite this, Canadians are still feeling optimistic about the real estate market mostly due to the all time historic low interest rates.

If you are thinking about purchasing your first home you should consider the following:

1.  Adjusting your expectations - even if you are relatively unscathed by the pandemic and still have stable employment it is a good idea to weigh your needs against what you want to own and adjusting your expectations.  For example do you really need a single detached home?  If you are working remotely would living outside of the city where property is usually cheaper to buy be an option?  Do you really need a backyard? if not would a condo work for you?  Making adjustments to your expectations will help you to better assess what you can comfortably afford while maybe retaining some of your savings.

2.  What you can afford should be based on your lifestyle not low interest rates. You should not be stretching yourself beyond the limits of what you can really afford while still retaining your lifestyle.  Though low interest rates are a plus for many the CMHC says it is important to consider the losses that you may suffer should house prices decline. Making a bigger downpayment will help to protect you against these possible future losses. 

3.  Align your budget - make sure your budget is realistic and something that you can stick to. Use it to determine the down payment that you can make while accounting for your expenses and leaving some money for savings.  You should consider your cash flow and liquidity and make contingency plans preparing for a worst case scenario such as job loss or unexpected costs.   It is important to maintain your savings rather than relying on credit to help you pull through difficult times.  

4.  Plan for hidden costs - purchasing a home involves a lot more than just your down payment, mortgage payments and the interest rate and you need to be prepared for these extra costs.  These include:

  • Closing costs - legal and administration fees which can account for 1.5 to 4% of the purchase price, land transfer tax, and title insurance.
  • Upfront costs - such as property inspections, condominium fees and mortgage default insurance if required.
  • Less obvious expenses that may vary depending on where you live but for new developments can include infrastructure, planning approval and zoning fees.  It is advisable to seek legal advice to review this type of purchase agreements as the fees can mount up and it is important to set some preset limits on what they are going to be.
  • Additional expenses - besides property taxes, utilities and insurance homeowners should also have a fund to cover repairs and other unexpected costs that pop up.

From an article by Sophie Nicholls Jones

Recent and Outlandish Covid-19 Scams

By Randall Orser | Covid-19 , Personal Finances , Scams

During the pandemic fraudsters are endlessly devising new scams to trick us into parting with our money.  Jeff Thomson from the Canadian Anti-Fraud Centre says that " Fraudsters are always targeting Canada with new and old scams.  In 2019 the CAFC received more than 20,000 fraud reports involving more than $43 million in losses.  

Some of the most outlandish scams that have hit the news include: 

  • Homeland Security Agents intercepting a number of fake Covid-19 tests inside a parcel.  Toronto police tracked down the the sender and charged him with fraud and possession of a forgery device.  
  • A Toronto resident received a text message inviting her to click on a link to claim $1375.50 in emergency relief funds and her personal information was stolen.  
  • A California actor who promised a $300,000,00 return on investment to anyone who invested $1 million to back his fraudulent coronavirus cures.
  • An American company offering a coronavirus protocol kit containing tea and cannabinoid tinctures.  The FDA stopped this company from selling a product that claimed to prevent, treat or cure the virus.

Here are some of the latest scams to watch out for:

  1. Social Insurance Number scam - Getting a call from someone pretending to be from Service Canada who says that your SIN has been compromised.  This is the latest variation on the caller id scam when fraudsters disguise the ID display on a phone to trick victims into answering the phone.  Do not provide any personal information to this person as you could be at risk of identity fraud.  If you get such a call hang up then call the number on your account statement or government website to verify.  
  2. Email money transfer fraud - Often seen as a safe and secure way to transfer funds there were 371 million e transfers in 2019 worth more than $132 billion according to figures from Interac Corp.  However the method is not foolproof, the anti-fraud centre received 163 reports in 2018 of bank accounts being compromised and money e transferred out.  
    • To protect yourself from this make sure your password is strong and do not share it with anyone.  
    • Use one password per website and continually change them, choose security questions that are not easy to guess.
    • Use filters to protect from viruses and spyware.
    • Look for strange passwords such as $ being used after the amount.  
    • If you accidentally fill out personal information in a link from a phishing scam change your online banking password and inform your bank immediately.
  3. Bank Investigator Scam - There are many variations of this scam but generally victims receive a call from someone posing as a store employee inquiring about a recent purchase on a credit card and are asked to call the number on the back of their card to verify the the validity of the call.  When victims believe that they have hung up, the original caller who has not disconnected redirects the victims to imposters. To protect yourself from these type of scams.
    • As most of these calls occur early in the morning often when a victim is still sleeping so it is important that you always stay alert when dealing with your finances.
    • Do not assume that phone numbers on your call display are accurate, it easy for scammers to use call spoofing technology.
    • Financial institutions will never ask you to transfer funds to an external account for security.
    • Never give remote access to your computer systems to unknown callers.
  4. Scams targeting lawyers and trust funds - In these scams fraudsters pretend to be a client or someone authorized to give instructions on a client's behalf.  In one case a company was tricked into transferring almost half a million dollars held in trust to a different account than the original set up for the client.  In this case the email used by the trickster was identical to the one used by the client.  To protect yourself:
    • As any client or lawyer's account can be hacked, lawyers or other financial professionals should ensure that any changes to payment instructions should be confirmed by direct contact with the client.
    • Due diligence protocols should are established for transferring funds and it should be ensured that all staff receive training and adhere to the rules.
    • Be on high alert for scams during vacations.  Arrange for a competent staff member to supervise your practice and provide your contact information to your staff.

Identity theft and fraud are big concerns for Canadians so it is important that everyone is aware of ways that they can protect themselves.

From an article by Margaret Craig-Bourdin

Why the Pandemic is Open Season for Scammers

By Randall Orser | Covid-19 , Personal Finances , Scams , Technology

Did you find that during the first few months of the pandemic you got a lot less scammer phone calls?  Now the scammers are back in full force exploiting people's fears about the pandemic.  Everything from free masks (you just pay the shipping), fake testing kits, miracle cures and even cleaning services claiming to rid your air vents of the virus.  Between March 6 and April 23rd the Canadian Anti-Fraud Centre logged 643 fraud reports and 158 confirmed victims, though this is probably less than the true total as many people are too embarrassed to report that they have fallen for a scam.

The pandemic has created perfect conditions for con artists as people are alone, anxious, on-line, watching frightening news and worrying about their jobs, finances and relatives who are at high risk.  Jeffrey Thomson a CAFC criminal intelligence analyst says "It's prime time for fraudsters, an extortion scam is trying to create fear and anxiety in people to get them to react.  Now people are more likely to be constantly in that state."  

One of the most common scams is getting a text or email from someone claiming to be the government directing you to provide your SIN and banking information to claim the CERB.  As Thomson says successful scams are a game of numbers and as this one is going out in huge amounts it is taking more victims.

Phishing, extortion and emergency scams are also on the rise.  Most common are a brand offering you loyalty points in exchange for your banking information or someone impersonating a friend or relative stuck abroad and needing you to send money.  Here are some of the warning signs that you should be looking for to avoid getting scammed.

  • Be suspicious if you did not initiate contact and don't respond to unsolicited messages that sound a bit fishy.
  • Think twice before clicking any links in a text or an email from an unknown source.
  • If a friend messages via social media for financial help call them to confirm.
  • Verify any websites claiming to be the government.
  • Make sure the seller is reputable when shopping on line.
  • If a deal on Covid-19 products seems too good to be true, it probably is.

If you do fall victim to a scam collect all the details and events in chronological order and report them to the police, the CAFC, the credit bureau and your bank and credit card providers.  Even if you cannot recover your own money you may help other Canadians to avoid losing theirs.

From an article by Sinead Mulhern

Benefits and Impacts of Deferring your Mortgage Payments

By Randall Orser | Budget , Covid-19 , Personal Finances

The impacts of Covid-19 have been felt by everyone in Canada, and many are struggling financially due to loss of work or decreased hours.  For those needing help there are financial relief programs that can offer much needed breathing room.

The ability to defer a mortgage payment is an option that has been offered by most lenders. It enables people to free up cash for the short term by deferring a significant financial obligation but it is not the right decision for everyone.   Here are some of the pros and cons of deferring your mortgage payments:

1. Being able to defer your mortgage payments can provide much needed peace of mind in these difficult times.  It will improve your monthly cash flow which will cover your urgent life expenses if you are experiencing a reduction of income .

2.  Don't just miss a payment as this comes with negative consequences such as your mortgage becoming delinquent causing a negative impact to your credit rating and risking potential foreclosure.  It is important to seek advice sooner rather than later to explore your options and make informed decisions.  Work with your mortgage lender to set up the deferral if you decide that this the best action for you to take.

3. When making the decision to defer your mortgage payments it is important to understand that the unpaid interest accrued during the skipping period will be added to the outstanding principal on your mortgage, which means that you will owe more on your mortgage in the long run than if you did not defer any payments.  Reducing your monthly payments will also lead to a longer repayment period and payment of more interest over time.

4. There are other ways to free up funds if you don't think that deferring mortgage payments is a good idea for you:

  • Refinancing your Mortgage - if you have equity built up in your property you may be able to access it to pay out other debts or create some cash flow.
  • Increasing your Mortgage Amortization - this will help you to lower your monthly payments but you will be spreading out your payments over a longer period of time.
  • Adjusting your Monthly Budget - staying at home will probably have decreased your monthly spending so it is a good idea to identify where you are saving money and make sure you allocate it to necessities rather than things that you don't need.
  • Look at other deferral options - you may be able to defer your property taxes, utility payments and payments on credit cards and loans these might be better options than deferring mortgage payments.

Deferring your mortgage payments can help your immediate financial situation but you need to carefully consider the potential future financial impacts.  You should speak with your financial advisor to determine if this is the best thing for you to do or if there are better options for you to free up cash to tide you over.

From an article by Diane Amato

Bubble Friendly Ways to Vacation

By Randall Orser | Covid-19 , Personal Finances

Industry watchers have called this summer "the summer fun forgot" and even though the economy is slowly coming to life again people are still being cautious when it comes to vacations and travel.  Even though countries in Europe and the Caribbean have opened their borders and there are some flight deals the federal travel advisory to avoid non-essential international travel is keeping people from travelling.  A recent Travel Week survey found that 42.7% pf respondents would travel within Canada even if global travel resumed tomorrow.

Frederic Dimanche director of the Ted Rogers School of Hospitality and Tourism Management at Ryerson University say that "trust" is the operative word this year.  "Vacationers will want to travel with p people that they know well, are likely to stick to small groups and their own bubble.  Many people will do road trips instead of flying and return to family camping trips or drives to the lake, back to holidays they experienced in the past."

Here are someways to make your vacations memorable:

1.  Head to Cottage Country - many will be looking to rent a cottage if they don't own one and will plan to visit people who do have a cottage.  

2.  Those who want to stay inside their bubble are travelling the open road in an RV or by car but most are not travelling too far from home usually remaining in their own province.

3.  Finding adventure close to home - those who love adventure think they need to look offshore to find it but this year they are exploring their own backyard.  Companies are ready to provide private and custom trips including backpacking tours in the Coast Mountains.

4. Communing with Nature - Camping has become very popular as a vacation option but campers are advised to still keep their groups small and not mix with other households.  All campgrounds have cautions and protections in place and advise people to prepare to be self sufficient and bring extra hygiene supplies, hand sanitizer, wipes, water and food.

5. Volunteering - Transfer your vacation into a learning experience by volunteering.WWOOF is an organization that provides opportunities to work on organic farms and learn about organic food and agriculture.

6 Hop on your Bike - Biking has become the number 1 pastime during the pandemic and is a good vacation choice for many as it allows you to keep fit while enjoying the scenery.  There are plenty of places to explore by bike especially on Vancouver Island.

7. Make it a sporting holiday while still physical distancing - two sports that are ideal for this are golf and tennis.  You could also consider fishing, or rock climbing or canoeing.

8 Find new entertainment while Staycationing - there are many activities that promote family bonding such as working on your family tree or writing your family history.  You can take a variety of classes including the ever popular on-line cooking classes.  Think about that project that you have been putting off for so long, now might be the time to tackle it that might include DIY home repairs or furniture restoration both of which help increase business at your local building supply centre.

Whatever type of vacation you choose this year, there is a good chance that you will save some money which is good for your budget.

From an article by Margaret Craig-Bourdin

Will Covid-19 Relief Measures Affect my Taxes?

By Randall Orser | Business Income Taxes , Employees , Personal Finances , Personal Income Tax , Small Business

Accountants are not completely certain how the various government benefits being received by individuals and businesses during the pandemic will affect their tax bill next year.  However what will be certain is that if the benefit is a taxable benefit then you need to be prepared to pay tax on it in 2021 when you file your 2020 tax return.

As of April 2020 here is the information available from the CRA website and current legislation.

1. For Individuals

  • Any CERB payments are taxable, any payments that you have received will have to entered onto your tax return and an information slip will be available to you next year in MyAccount under Information slips so that you can enter your income in the correct boxes on your tax return.
  • One time additional payments for the Canada Child Benefit and the GST/HST tax credit are tax free and it is not expected that this will change in 2020.  The GST payment is also tax free and it is not expected that this will change.
  • If your student loan payments have been suspended then you will probably not have as much allowable student loan interest to claim on your income tax return as long as it is a qualifying student loan per CRA guidelines.
  • Deferred payments under mortgage support are added to the outstanding principal balance and are repaid over the life of the mortgage.  The mortgage support system is managed specifically by your lender and any deferral of payments is an arrangement between you and them.  The only impact on your taxes might be experienced by those who are self-employed who are able to claim business use or use of home expenses on their tax return.
  • The minimum withdrawal limit under the RRIF has been reduced by 25% for 2020 which means that if you take out less money you will pay less tax as money in your RRIF is only taxable when it is withdrawn.  

2. For Businesses

  • Tax credits and other benefits provided by the government still apply so any money received as a wage subsidy is considered government assistance and is included in the employers taxable income.  If you apply for the CEWS benefit you need to understand the tax implications of receiving this benefit.  The subsidy must be noted in your bookkeeping records and will become part of your business income that you report on your T2125.  
  • The TEWS or Temporary Wage Subsidy will be recorded in the same way.  The subsidies are a reduction in the amount that you send to the government for income taxes that you withheld from your employees and it becomes income for your business.  

It is paramount that you keep accurate accounting records throughout 2020 as they will be very important when you do your tax return in 2021.

From an article by Susan Watkin

How to Manage your Personal Finances During the Pandemic

By Randall Orser | Budget , Covid-19 , Personal Finances

The Covid-19 pandemic is causing financial stress for most Canadians as they are seeing their income reduced or eliminated and they are wondering how they will be able to pay their bills.

All levels of government have implemented emergency response plans including financial support and many financial institutions have stepped up to help by allowing people to defer payments and avoid penalties.  Here are some ways that you can reduce the financial impact of Covid-19.

The federal government started the $107 billion Covid-19 Emergency Economic Response Plan, with $52 billion direct support for employers and workers and $55 billion in tax deferrals for workers and businesses. Other financial assistance to families include:

  1.  A one-time increase to the GST tax benefit and increases to the Canada Child Benefit.
  2. A six-month interest free moratorium on the repayment of student loans'
  3. A 25% reduction in minimum withdrawals from a RRIF and variable benefit payments under a RRSP to help reduce the impact of volatile markets on senior's retirement savings.
  4. There are additional benefits to Canadians available from their province and municipality and they should visit the relevant websites for more details.
  5. Financial institutions are offering deferrals of mortgages up to six months for some customers as well as loans and relief on credit card payments and interest.

What can Canadians do to help themselves financially during the pandemic?

  • If you need to borrow money make sure that you consider the interest rates and how you will repay the loan, do not dig yourself too far into debt that it will be difficult to get out of once the pandemic is over.
  • If you have to tap into your emergency funds do it strategically, maximize all income sources first, create a more stringent budget and spending plan then consider tapping into your savings if you need to.  Always start with cash funds and TFSA's as you will not have to pay tax on that income and withdraw RRSP's on non-registered tax investments as a last resort.
  • If you are still working making saving money a priority after you have covered your necessary expenses this will help you should your job become affected.
  • Maximize help programs from utility companies that can include lower rates, deferred payments and flexible payment plans to assist residents and companies.  Many cell phone providers have removed data caps on internet and data plans and waived countrywide long distance fees.  They are also offering flexible payment plans.
  • Consider which bills you can eliminate such as subscriptions to digital services or retailers, and monthly donations.

It is important to continually assess your financial situation and if you can make changes that will help you to be more prepared for the future.

From an article by Sophie Nichols Jones 

Covid-19 Now is the Time to get Serious About Your Financial Wellness

By Randall Orser | Budget , Personal Finances , Personal Income Tax , Retirement

A survey done for the MNP Consumer Debt Index when the Covid-19 pandemic started showed that 49% of Canadians asked were $200 or less away from being able to settle their bills and 25% of these people said they were already behind on their payments. In this uncertain economic environment are many are unable to realize their life goals and some even face bankruptcy.  

Lack of financial security is a big cause of stress, lack of sleep and tension in relationships as people and couples are unsure about what their future will look like.  In fact 41% of Canadians say that money concerns are the biggest cause of stress in their life  The fear of the financial impact of the pandemic is a greater contributor to mental health than getting sick or losing a loved one.

This information begs the question "Why are people finding themselves in this financial predicament? There are a number of answers to this question including costs rising faster than wages which has caused many to incur debt, but the big reason has to be ignoring the necessity of financial planning.  Financial planning includes saving for the future, retirement and making informed financial decisions and living within one's means and building a emergency fund. The pandemic brings to the forefront this long avoided issue, it is time to become responsible for your financial health. 

Many use the lack of financial knowledge as a reason for not planning. This is no excuse for avoiding the issue as financial literacy can be gained from books, seminars, blogs, websites and from working with a financial planner, there is lots of help out there.  Here are some tips that may help your immediate financial situation:

  • Make a new financial plan, your income may have been reduced and you need to revise your budget and priorities accordingly.  If you are not able to pay your bills, you should not be contributing to your child's college fund making contributions to your RRSP.   
  • Don't worry about paying down debts quickly, make minimum payments and put the rest into an emergency fund.  Your emergency fund should be enough to cover three to six months of  expenses should your income be severely reduced.
  • Take advantage of the help that your bank may be offering such as reduced interest rates on credit cards, deferred mortgage payments and low interest loans or lines of credit to pay off higher interest debts.
  • Instead of making plans for the next 10 or 20 years make your financial plans cover a shorter period of time. 

Making the decision to start taking control of your finances or making your financial goals more realistic will help you to deal with the stress that the pandemic is causing.

See our previous articles for more information:

​Financial Skills you Should Have Learned in High School

Reasons why you Should Budget your Money