Related: Avoid These 4 Investing Mistakes

Cautious

While no one would advocate taking imprudent risks, being too cautious with long-term investments and sacrificing long-term return for short-term “safety” makes it harder to meet retirement objectives.

Being too cautious gives rise to procrastination.  It’s a big decision.  When people don’t know what to do, they don’t do anything because they’re afraid of making a mistake.

When stocks have fallen they’re too scared to buy into the market.  When stocks are high they fear the market is too expensive and that a downturn is imminent.

Related: Stock Market Corrections – Do You Buy, Sell or Ignore?

On the other hand, some beginning investors become overly aggressive and chase returns following short-term industry performance ratings and are not prepared for any downside.

They sell their assets when they fall in value, thereby ensuring they take a loss.  After being burned they become overly cautious and swear they’ll never invest in equities again.

For many retirement plan investors this is their life savings, no matter how large (or small) the account, and they don’t have any other monies to fall back on.

Many of these investors are cautious because they can’t afford to lose anything.  The first sign of a drop in the market causes them to go into protection mode and try to salvage what’s left.  This leads to the high probability of not recouping their losses.

Related: Can You Succeed With An All-GIC Portfolio?

Conservative

Failure to understand your own personal objectives, risk-tolerance level and time horizon makes you unable to make the right investment decisions for yourself.

Some people fear risk unduly when it comes to investing, so too many save instead of investing for the long term – putting billions of dollars into low interest savings accounts, term deposits, money market products and GICs.

As we approach and enter retirement our ability to take financial risks decreases so it’s logical to lower our equity allocations.

However, one of the biggest mistakes people make is being too conservative.  It might seem smart to be very conservative with your money, but it might not grow enough to support you in retirement.

After inflation and taxes, the return on these is next to nothing leaving you with loss of purchasing power in the future.  For most people, investing in this manner just won’t get the job done.  The real risk they face is running out of money, not losing it.

Related: Are Bonds A Good Investment Today?

Cheap

“Why am I paying my advisor for something I could easily do myself?”

“I took his advice and ended up losing money!”

“Financial planners are a waste of money.”

“These investment fees are way too high!”

We’ve all heard some version of these outraged comments.

People are cheap.  If they don’t see any value from the fees they pay, they bail.  They open a low cost discount brokerage account and begin on-line trading.

For every proficient do-it-yourself investor, there are probably at least 10 who have no clue how to choose and research an investment purchase.  They make decisions based on their emotions and get tips from their co-workers.

They choose investments with the lowest MERs regardless of relative performance.  They attempt to time the market.  They don’t have a plan.

Related: Why Index Funds Outperform Equity Mutual Funds

They try to do their financial planning by themselves without seeking outside advice.  They think a financial planner is going to cost them money when they can often save them money.

Final thoughts

It’s never too late to improve your financial health.

• Work with an advisor.
• Pick an asset allocation and stick with it.
• Educate yourself.  The more you improve your investing knowledge, the more comfortable you will feel.
• Don’t look at short-term media reports.
• Invest in great companies and, apart from monitoring their performance from time to time, forget about them.

There’s a good chance that you are in better shape than you realize.  

The post The Three C’s Of Canadian Investors appeared first on Boomer & Echo.

On the surface, TFSAs are a simple personal savings program which allows Canadians over the age of 18 to contribute $5,500 per year into a plan and then withdraw the money, tax free.

Related: Ways To Save Inside Your TFSA

In reality, the rules about contributing and withdrawing from the plan are complex and so many of us don’t use it properly.

How TFSAs Can Make You Rich:

Personal finance expert Gordon Pape wrote the first book on TFSAs when they were introduced in 2009.  Earlier this year, Pape released an updated edition called, How TFSAs Can Make You Rich.

I had the opportunity to read the latest version, which is packed with useful information and strategies on how to make the most of your Tax-Free Savings Account.

Rob Carrick, personal finance columnist at The Globe and Mail, calls it, “The definitive TFSA owner’s manual.  I use it myself.”

The basics on TFSAs

In the book you’ll find the basic rules about how to open an account, what the contribution limits are, and how carry-forwards work from year-to-year.

Many of us use our TFSA as an emergency fund.  Pape agrees with the need to set aside a rainy day fund, and that sheltering your interest income is a better idea than having it taxed in a regular high interest savings account.

But Pape also says you should aim for higher returns in your TFSA.  While you don’t need to take needless risks with your TFSA money, you don’t need to be so conservative either, especially if you’re younger than 50.  Earning an extra percentage point will add thousands of dollars to your portfolio over the years.

TFSA vs. RRSP

Tax-Free Savings Accounts offer an opportunity for even modest income earners to build up a large nest egg over time.  Pape argues that, because of the low contribution limits on TFSAs, big savers are better off using RRSPs because they can shelter more money from taxes.

Related: Benefits Of TFSA vs. Non-Registered Accounts

You should also contribute to an RRSP before a TFSA if you expect to be taxed at a lower rate after retirement.  If your tax rate is likely to be higher than it is right now, as is the case for many young people, use the TFSA first.

If you belong to a pension plan, contribute to TFSAs to supplement your retirement savings, especially if you have little or no RRSP contribution room.

If you plan to buy a house, Pape suggests to save for your down payment in an RRSP rather than a TFSA and make use of the RRSP Home Buyers’ Plan.

(I disagree – First Time Home Buyer: HBP or TFSA?)

TFSAs for Seniors

If you’re not yet retired, Pape says to give careful thought to what your income is likely to be after you stop work and how much tax you’ll pay.  It will help you decide whether or not to make any more RRSP contributions.

If you plan to move after you retire, check the tax rates in the province to which you are relocating.

Invest any unneeded RRIF withdrawal money in a TFSA, up to your annual limit.

Related: Using Tax Free Savings Accounts In Retirement

Other TFSA Strategies

Splitting income – Pape says TFSAs can be used to split investment income between you and your spouse, which can potentially save thousands of tax dollars over the years.  Get your spouse to open a plan as well, to double the tax saving potential.

Estate planning – Move assets from non-registered accounts into TFSAs to reduce taxes at death, beginning with securities that are likely to appreciate most in value.  Name your spouse the successor holder when you open your TFSA.

Early withdrawals – Consult a financial professional before deciding whether to make early withdrawals from an RRSP and RRIF in order to make TFSA contributions.

Loan collateral – TFSAs can be used as collateral for a loan, and the interest may be tax-deductible if the money is used for investment purposes.  If you are experienced and knowledgeable, you can take advantage of this to increase the size of your investment portfolio through leveraging.

Related: Is Your Investment Loan Tax Deductible?

Final thoughts

That just scratches the surface on what to expect from, How TFSAs Can Make You Rich.  From there, Pape describes how to invest in your TFSA and includes sample portfolios for different types of investors.

He spends 32 pages answering reader questions he’s received over the years, from basic to complex.  The book then takes a look at four fictional couples and how they can end up with over a million dollars in their TFSAs.

It ends with two quizzes on how much you’ve learned about TFSAs – a beginner and an expert quiz.  The expert quiz was tough!

Money Savvy Kids

I’ve also had the chance to read, Money Savvy Kids, a book Gordon Pape wrote with his daughter, Deborah Kerbel.

Related: Your Kids and Money

This book was a fun read and is aimed at parents with kids between the ages of 5 and 17.  Money Savvy Kids talks about:

• How to teach the ‘value’ of money
• Are allowances a good idea and, if so, how much?
• Saving, spending, and sharing
• Teaching your kids to shop smart
• Great games, websites, and apps that teach money skills
• Saving for college

Time for a giveaway

Thanks to the folks at Penguin Canada we’re giving away a copy of, How TFSAs Can Make You Rich, to one lucky reader.  Because we love our readers we’ll make it a two-for-one giveaway special and throw in a copy of, Money Savvy Kids, for good measure.

Here’s how you can enter to win the books:

• Leave a comment below telling us what you like most (or least) about the TFSA (one entry)
• Subscribe to receive new posts by email (one entry)
• Subscribe to our exclusive, bi-weekly newsletter (one entry)

If you already subscribe then just leave a comment below and you’ll automatically be entered for a chance to win.

We’ll take entries up until 5pm EST on Thursday May 23^rd, 2013 and then we’ll announce the winner on Friday May 24^th, 2013.

The post How TFSAs Can Make You Rich appeared first on Boomer & Echo.

You’ll go through them from the time you walk into the airport to when you get off your flight at your destination.  Some are mild annoyances while others can cost you a substantial sum.

Related: Are Road Trips Really Cheaper Than Flying?

Here are eight hidden costs of travel:

Seat selection

Before you even walk into the airport, some airlines may charge around $10 to select your own seat as part of the ticket purchase process.

For those who are quite tall, this may be money well spent to get the few economy seats with extra leg room.

Upgrading your seat

Right when you check in, airline staff have the opportunity to up-sell you on a bigger seat.  This may be called something like club class, premium economy or something similar.

Related: The Best Credit Cards For Travel Rewards

The upgrade will be positioned as a bargain, though the cost will vary by the length of flight.  Let’s say for the sake of argument that an upgrade costs $199 or more.  This is a cost which is completely unnecessary.

If you opted to buy an economy ticket in the first place, upgrading sort of defeats the purpose of buying a cheap seat!

Airport lounge access

The airport lounge, a nice to have but not a necessity for leisure travellers.  Some airlines charge to use their lounge ($25 or $50, Air Canada), others may give you free access but charge you for food and drinks.

Free access sounds like a good idea however the airline is using this as a loss leader.  They figure that you’ll end up consuming enough food and drink to make up for the cost of the lounge.

Related: Air Miles Travel – Redeeming For Flights

Given that the mark-up on alcohol is easily over 300%, this is a great way to increase profits.  Buy a few drinks in the airport lounge and you’ll be out of pocket $20 or more.

Additional baggage fees

It seems like every airline has different luggage weight allowances, so be sure to check what these are before packing up and leaving for the airport.  Having an overweight bag could cost over $70.

Rather than getting caught off guard and having to pay the fee for an overweight or second bag, use your scale at home or buy one specifically for weighing luggage.

Duty free round one

Now that you’ve checked in, you’ll inevitably have to walk through the duty free section.  All those bottles of alcohol, cartons of cigarettes, souvenirs, chocolates and candy call out to us.

Spend too much time here and you’ll easily end up spending $75 or more.  Your waistline may also suffer!

Related: Don’t Leave Home Without Travel Medical Insurance

Comfort kits

Once the plane has finally taken off to your chosen destination the flight attendants will come around with some mixture of ear phones, blankets, eye shades, socks, slippers, etc.  These kits cost between $3 and $10 per person.

In flight food & alcohol

While flights with higher end air carriers will usually include food and drinks, discount airlines may not.  Expect to pay $7 to $15 for a meal and a drink.

Alcohol of course will be extra.  Though I’m not a big drinker, I will definitely have a one on a flight where I want to get some sleep!

Related: 3 Habits that are draining your wallet

Duty free round two

If you didn’t buy something in the airport, the airlines give you another chance on board the flight.  Expensive watches, alcohol and bizarre gadgets are all available in the glossy in-flight magazine.

I hardly ever see anyone buying these items but they must sell or the airlines wouldn’t carry them!

Flying is expensive enough, it gets worse with all of the products and services that are made available to us throughout the experience.  The best way to combat additional flight costs is to be prepared and don’t get lured in!

Related: Three Ways To Save Money On Your Family Vacation

Bring your own earphones, sweater and sandwich and be content with your choice of seat.  Avoid duty free and you’ll not only save money but you’ll also improve your health by staying away from alcohol, sugary snacks and cigarettes.

By keeping these hidden costs of travel in mind you can easily save hundreds of dollars every time you fly.  For those with families, remember that these costs really add up!

Andrew is a Canadian personal finance and investing blogger who recently moved to London, England.  He has a background in technology and a passion for travel.  His blog, She Thinks I’m Cheap aims to help Canadians build wealth by sharing facts, stories and advice.

The post The Many Hidden Costs of Travel appeared first on Boomer & Echo.

You don’t have to be wealthy to make a financial plan.  A financial planner can help you in the following ways:

1.  Clarify your current situation

A planner will provide you with a personal and financial data-gathering document to fill in with information about your family, your job, spending habits, your assets and liabilities, and your goals and objectives.

They’ll also look at your investment statements, loan statements, your pay stub, income tax returns and assessments, employee benefits statements, insurance policies and perhaps your will.

If you decide to see a fee-for-service planner who charges by the hour, it’s best to be as organized as possible with your paperwork, or it could get expensive.

2.  Identify your financial and personal goals and objectives

The planner will review your stated goals and objectives and can help you establish time horizons and estimated costs for each one.

Related: Why A Fiduciary Standard For Investment Advisors Is Needed In Canada

Personal financial values and attitudes should also be discussed so the planner has a clear understanding of what is important to you and your family so any recommendations won’t make you uncomfortable.

3.  Identify potential problems

The financial planner can identify certain precarious situations such as too much credit card debt, income tax inefficiency and too much risk exposure that could make you vulnerable if a crisis occurs, and provide you with sound advice.

4.  Provide written recommendations

Once the planner has reviewed your situation, clarified your goals and identified barriers to those goals, he or she can prepare a plan providing specific recommendations that should move you toward your goals.

Related: Why Your Financial Plan Sucks

He or she should also provide you with various alternate solutions for you to consider so you can choose what feels most comfortable.

5.  Implementation

Your plan will only work if you implement it, and you should be free to use any financial services adviser to do so.  However, your planner has a responsibility to see that the plan is put into motion, and may help you co-ordinate with other knowledgeable professionals.

6.  Periodic review and revision

A financial plan must evolve as your life circumstances change over time.  The planner should review your plan with you periodically – typically once a year – to account for changes in your lifestyle, economic conditions and tax legislation.

If you implement a debt reduction or savings/investment program, the planner should monitor your progress to ensure you are on track.

Do-it-yourself

The above is the six-step financial planning process that is standard for members of the Canadian Association of Financial Planners.

You can certainly do them yourself if you are motivated, knowledgeable and have the time to do research.  Many people enjoy the process.

Some people, however, need a plan – a map if you will – to get them started on their financial journey.  There are many excellent personal finance and investment books available, but sometimes it can be difficult to translate the concepts to your own personal situation.

Related: Why I Became A DIY Investor

Often an objective observer can be very helpful in figuring out a direction or setting goals and mapping a plan to achieve them.  An outsider can make you more accountable in implementing the plan and avoiding procrastination.

Final thoughts

Developing a plan will give you an opportunity to realize your financial goals and develop your wealth as time goes by.  Whatever your age or circumstances, it’s never too late to begin.

There are many people who enjoy spending a lot of time reading financial literature, researching investments, and building and monitoring their own portfolios.

Some people need a bit of help to get them started and, once the plan is in place, they can continue to manage it on their own.

Others are willing to have a trusted advisor implement their plan and make investment purchases, with only periodic reviews for review and monitoring purposes.

Related: Investors Getting Short Changed From Banks, Advisors

Then there are those who have no specific financial plan, who go half-cocked in many different directions solely dependent on the latest news item or hot investment tip and wonder why they are not making any progress.

Which one are you?

The post 6 Steps To Creating A Sound Financial Plan appeared first on Boomer & Echo.

Sounds like I was off to a great start, right?  Wrong!

Related: How Young Investors Can Get Started

Even though my intentions were good, my first attempt at investing for the future was a complete disaster.  Here’s why:

No Plan

It’s good practice to save a portion of your income for the future, even at a young age.  The problem for me was that I was still in school and didn’t have a plan – I didn’t really know what I was saving for.

I had read The Wealthy Barber and The Millionaire Next Door and so I knew the earlier I started putting away money for retirement, the longer I’d have compound interest working on my side, and the bigger my nest egg would be.

Related: The Best Time To Start Saving Is Now

Unfortunately I was saving for retirement at the expense of any other short term goals, like paying off my student loans, buying a used car or saving for a down payment on a house.

No Budget

I worked part-time while I was going to school, but the hours were irregular.  I never developed a proper budget to make sure that my school expenses, living expenses and partying expenses were under control.

The results were predictable; I spent more than I earned and then resorted to using a credit card to get me through most months.  It didn’t take long to build up $5,000 in credit card debt, when all the while I was still putting a couple hundred bucks per month into my RRSP.

Related: The Best Balance Transfer Credit Cards

No Savings Account

Speaking of RRSPs, what was a 20-year old kid doing opening up an RRSP when he’s making $15,000 per year?

There were no real tax advantages for me to save within an RRSP when I was in such a low tax bracket.  I’m sure I blew my tax refunds anyway, so what was the point?

Granted, the tax free savings account hadn’t been invented yet, but I would have been better off using a high interest savings account for my savings rather than putting money in my RRSP.

And carrying credit card debt (at 18% interest) alongside of my investments was a bad idea.

No Clue about Fees and Tracking Performance

Like a typical young investor I used mutual funds to build my investment portfolio.  I was encouraged to select all-equity growth funds because, I was told, they would deliver the highest returns over the long term.

What the bank advisors don’t tell you is the management expense ratio (MER) on some of these funds are over 2.5% and those fees will have a negative impact on your investment returns.

Related: How Index Funds Compare To Equity Mutual Funds

Bank advisors also don’t tell you what benchmark these funds are tracking (and trying to beat) so when you get your statements in the mail it’s impossible to determine how well your investments are doing compared to the rest of the market.

No Choice but to Sell

My credit cards were maxed out and I was living paycheque to paycheque with no way to break the cycle.  I had no choice but to raid my RRSPs to pay off my credit card debt and get my finances back on track.

Taking money out of your RRSP early means you’ll owe taxes up front.  Withdrawals up to $5,000 are subject to 10% withholding tax, between $5,000 and $15,000 will cost you 20%, and withdrawals over $15,000 will cost you $30%.

Your financial institution withholds tax on the money you take out and pays it directly to the government.  So when I took out $10,000 from my RRSP, the bank withheld $2,000 and I was left with $8,000.

Related: Selling Your RRSPs Early Will Cost You

In addition to the withholding tax I also had to report the $8,000 as taxable income that year.

While I can’t really argue with my reasons for selling, my dumb decisions beforehand cost me a lot of money and caused me to start over from scratch.

Final thoughts

If I had to do things over again today I would have done the following:

1. Create a budget – This is the foundation for responsible money management.  Had I used a budget and tracked my expenses properly from an early age I would have lived within my means and kept my spending under control.
2. Open a tax free savings account – Yes, the TFSA wasn’t around back then but for today’s youth it makes much more sense to save within your TFSA instead of your RRSP like I did.  You can put $5,500 per year inside your TFSA and withdraw the money tax free.  You’ll contribute with after-tax dollars, so you won’t get a tax refund, but you’ll likely be in a low tax bracket anyway, so contributing to an RRSP won’t give you much of a refund either.
3. Make a financial plan – We all have financial goals and even at a young age I should have identified some short-and-long term priorities to save toward.  I’d take a three-pronged approach where I used a high interest savings account to fund my short term goals, my TFSA to fund mid-to-long term goals, and eventually open an RRSP to save for retirement.  No doubt I’d be much further ahead today if I took this approach earlier in life.
4. Use index funds or ETFs – Now that I know how destructive fees can be to your portfolio, I’d look into building up my investments using low cost index funds (like TD e-series) or ETFs.  The advantage to using index funds is that you can make regular contributions at no cost while achieving the same returns as the market, minus a small management fee (the MER on TD’s Canadian index e-series fund is just 0.33%).  Some brokers, like Questrade, also offer free commissions when you purchase ETFs.

Related: 4 Investing Mistakes To Avoid

Did you make similar mistakes when you first started investing?  How did you overcome them?

The post The Beginner’s Guide On How NOT To Start Investing appeared first on Boomer & Echo.

Related: Where Do You Get Your Financial Information?

And understanding investing can be complex enough.  On top of that, there are many different investment styles and products to choose from.

This post will explore some of the basics that young investors need to understand in order to invest successfully.

Save Capital & Avoid Debt

Lack of funds is big issue for many young people.  Many are forced to bridge the gap by borrowing from parents and taking out student loans or running up credit card debt.

Think long and hard about whether going into debt is a good idea.  Some may champion the idea of taking out loans to pay for education, but be careful.  Excessive student debt will seriously hamper your ability to save capital and take the steps needed to build wealth.

Once you have your debt under control, your next step is raising capital.  Pay yourself every week by automatically funding your savings and retirement accounts – the rule of thumb is to put 10% away.

If you have a RRSP or equivalent plan, make sure you are funding it with every paycheque (note that with the TFSA and your saving ability, there may be other beneficial tax strategies).  Take advantage of any company matching contributions if it’s present.

Save as much money as you can in your 20s and going into your 30s.  That way you can build a substantial capital position and start to make larger investments as time goes on.

Education

Educate yourself on investment topics and learn as much as you can.  Read books and expand your knowledge.  Here is a list of investment and personal finance books that I have found useful.

• The Millionaire Teacher – Andrew Hallam
• The Lazy Investor – Derek Foster
• The Intelligent Investor – Benjamin Graham
• One Up On Wall Street – Peter Lynch
• How To Make Money In Stocks – William J. O’Neil

Virtual stock trading accounts and games can be a good way to test the waters and get your feet wet before committing any actual capital.  However, be very conscious that once it’s your money, the psychology is different but it’s a good way to make mistakes early.

Open Accounts

Once you have your finances in order and you are ready to make your money work for you, open a discount broker account and setup all the accounts necessary.

Related: Questrade Tutorial – How To Use The Trading Platform

Don’t forget that saving money is going to be your best portfolio grower.  See my dividend income reports for the past 4 years as an indication that my investing income is mostly fueled by my savings and some dividend increase.

• RRSP
• TFSA
• RESP
• Cash Account

Investing Strategies

Once you have your account opened and funded, you will need to decide on an investing strategy or combine more than one.  There are many different styles to choose from or combine together.

There are many investing strategies that you can study first and read on.

• Dividend Investing (that’s my strategy)
• Index Investing
• Value Investing
• Momentum Trading
• Options Trading

There are also multiple type of investments such as

• Stocks
• REITs (A type of stock)
• Preferred Shares (Also a type of stock)
• Mutual Funds
• ETFs
• Bonds

You want to understand the tax advantages of your different accounts available along with the tax advantages on the investment types.

Keep Learning And Experimenting

Investing is a lifelong process.  Keep learning as much as you can and experiment with different styles.  Just be sure to never commit more than you can afford to lose.

Keep risky investments to a minimum, at least until you fully understand how they work.  Start with small positions and gradually work your way up as you gain knowledge.

About the Author: Eric @ The Passive Income Earner is a DIY investor and software engineer by trade.  He has a passion for building a retirement portfolio to retire from the income it generates.  Subscribe to my newsletter for more unique content on investing.

The post How Young Investors Can Get Started appeared first on Boomer & Echo.

When my parents bought their first home here, after immigrating to Canada in the mid 1960’s, their choices were very limited – a down payment of a minimum of 25% and a 6% interest rate for a full 25 years.  They had a mortgage payment of $101 a month and no prepayment options.

Related: How Much House Can You Afford?

Mortgages are no longer one size fits all.  Many people become too fixated on the lowest interest rate, but there are numerous other choices they need to make to tailor a mortgage to best suit their needs and fit their lifestyle.

Conventional vs. high ratio Mortgage

A conventional mortgage requires a down payment of at least 20 per cent.

If you have a down payment of less than 20% of the purchase price, you’ll have a high-ratio mortgage, which must be insured.  The minimum down payment you’re required to make is five per cent.

Mortgage loan insurance, usually from CMHC, protects the mortgage lender in case you aren’t able to make your payments.

Related: Why Mortgage Life Insurance Is A Bad Idea

The premium varies depending on the percentage you have as a down payment.  Rates can be higher in certain circumstances such as irregular income, self-employment, or if more than one advance is being made. Typically they are as follows:

• 80+ – 85%  = 1.75%
• 85+ – 90%  = 2.00%
• 90+ – 95%  = 2.75%

You can pay the premium yourself but most people choose to add the funds to their mortgage.  (Remember this when looking at houses within a pre-approved mortgage amount.)

With the low interest rates available today there is often no benefit in continuing to rent while trying to save 20% to eliminate the CMHC fee.

Related: Pros And Cons Of Waiting To Buy A Home

Little known features of CMHC insurance

1. If you want to renegotiate your mortgage (e.g. to get a lower interest rate), most financial institutions will charge a prepayment penalty that is the greater of three months interest or the Interest Rate Differential or IRD (the difference between your mortgage rate and the current rate on the outstanding balance for the remainder of the term).  However, if your mortgage is CMHC insured the prepayment fee is always the three months interest penalty.
2. The CMHC insurance paid on a mortgage after April 1, 1997 is portable to another property. 

Open vs. Closed Mortgage

An open mortgage gives you the flexibility of paying down as much as you’d like at any time with no penalty.  Interest rates are usually higher so it would only make sense if you’re expecting a large sum of money to come in, you get regular large bonuses during the year, or you expect to sell your home within the term.

Most mortgagers opt for a closed mortgage term.

Mortgage terms

Open mortgages are available in six-month and one-year terms.

With a closed mortgage you can choose from a six-month, or one-, two-, three-, four-, five, seven- or ten-year term. The longer the term, the higher the interest rate.  Rates are most often negotiable.

Related: Why A 1-Year Fixed Rate Mortgage Is Worth A Look

When choosing a term think about how long you plan to stay in the home and any future life changes.

Fixed vs. variable rates

A fixed interest rate will stay the same for the duration of the mortgage term, whereas a variable interest rate will fluctuate based on market conditions (the payment remains the same but the amount paid to the principal will vary).

While some people are comfortable with the perceived risks of a variable rate, most people like to lock into a fixed interest rate.

Payment schedule

Mortgages are set up to be paid once monthly, but if your cash flow allows you may consider more frequent payments.  For example, many people are paid bi-weekly and choose this frequency for their mortgage payments too.

Weekly and semi-monthly payments are also available.

Related: Take A Mortgage Payment Vacation?  No, Thank You!

If you want to pay your mortgage down faster make sure you choose “rapid” frequent payments.  Paying a few dollars more can lop years of the amortization and save thousands of dollars in interest.

What is the Interest Adjustment Date (IAD)?

Unlike rent, which is paid ahead, mortgage payments are paid for the period of time that has gone past.  If your possession date is not on the first of the month, or you choose more frequent payments you will in most cases be charged the IAD.

Ben and Caitlyn move into their new house on Wednesday, May 1.  They chose biweekly mortgage payments to coincide with their pay deposits, the next one being Friday, May 10.  Since this is not a full payment period, they will pay an interest adjustment of 10 days interest on May 10 and their first full biweekly payment will be due on May 24.

Prepayment options

Financial institutions allow different prepayment options.  Amounts from 10% to 20% of the original balance can be paid once per calendar year (not only the mortgage anniversary date as many people think).

The payment can be made without penalty only once in the year.  Other lump sums will be charged a fee.  That means if you make a lump sum payment of $5,000 in March you can’t make a $50,000 prepayment without charge in September, even if it’s within an allowable 20%.

Related: Our Fast Track To Financial Freedom

Sometimes it’s easier to increase your mortgage payment rather than save up a lump sum.  Increased payment options vary from 10% to 100% more.

Check to see if you can change this payment in the future and if there will be a charge to change it.

Final words

Buying a new home is exciting, but it can also be stressful.  Taking out a mortgage is a long term and expensive commitment.

Take the time to review all the options available right from the beginning to get the best mortgage product for your needs.  Set up your automatic payments and then start decorating.

The post How To Pick The Perfect Mortgage appeared first on Boomer & Echo.

Wealthy Barber author David Chilton suggests you should save 10% of your gross income for retirement.  Any other savings, like for a down payment on a home or for a dream vacation, should be made on top of your core 10% retirement fund.

Related: Why The Best Time To Start Saving Is Now

Saving 10% of your income for retirement is a good rule of thumb.  Unfortunately that’s become tougher to do these days when the high cost of housing eats up a good chunk of our take home pay and wages aren’t rising at the same rate as inflation.

In 1990, the average family saved $8,000 per year, which was about 13% of their gross income.  By 2010, household savings had dropped to $2,500 per year – just 4.2% of gross income.

Today’s 20-and-30-somethings likely aren’t too concerned about saving for retirement when they’re saddled with huge mortgages or massive student loan debt.

That’s why the majority of us neglect our retirement savings – it always gets put off until after we’ve paid off our consumer debt, our student loans and our mortgage.  Sometimes it gets put off forever because we’ll never run out of financial priorities to look after.

Related: Why Baby Boomers Aren’t Prepared For Retirement

You’ll have kids and then you’ll want a bigger car and a bigger house (or a renovation).  Then you’ll need to take a big family vacation every year because you deserve to get away.

The problem is that the longer you put off saving for retirement, the more you’ll need to save later on.  That’s fine, you say, because once your mortgage is paid off then you’ll ramp up your savings and take advantage of all your unused RRSP contribution room.

That’s a great idea in theory, but it doesn’t always work out in practice.  Just because you’ve paid off your mortgage early doesn’t mean you’ll direct all your extra cash flow to retirement savings.

The psychology of money is fascinating.  Much like the people who spend their tax refund instead of saving it, many people who’ve paid off their mortgage early just end up spending the extra cash.

So there’s no guarantee you’ll have the time (or the will) to save more for retirement down the road.

You’ll need to start saving early, but how much of your income should you save?  That depends on your age and stage of life, but you’ll want to start with something – even if it’s just 3 or 4 percent of your gross income.

Related: Why Do We Save?

The key is to make it automatic – have the money come directly off your paycheque and into your RRSP or TFSA.  Save what you can afford and increase your contributions every year whenever you get a raise or a bonus.

Once you’ve reached a financial milestone, such as paying off a loan or saving for a car, it’s important to continue saving that amount toward another goal – like your retirement.

When I started tracking my finances in 2010, I was still in the midst of paying off student loans and a line of credit.  Most of our extra cash flow was earmarked toward paying off those debts quickly.

I was barely saving any money outside of my work pension.  Once those debts were paid off, however, our goals shifted from debt reduction to saving for the future.

Related: Our Fast Track To Financial Freedom

Take a look at the chart below, which outlines how much of our income we’ve devoted to saving.

As you can see, we’ve always tried to direct a quarter of our income toward saving or making extra payments toward our debt.

Our focus for the past two years has been to pay off our mortgage faster and to increase our RRSP contributions.

This year we’re on track to save over 35% of our income.  We’ll save more than 18% of our gross income for retirement, while another 10% will go toward extra mortgage payments so we can be mortgage free faster.

We’re having trouble saving for both our RRSP and TFSA so we’ve decided to focus more on RRSP contributions to reduce our taxable income.  There’s only so much money to go around so you’ll need to prioritize your goals.

Related: Should You Pay Off Your Mortgage Early Or Invest?

How much of your gross income do you save, and what percentage do you allocate toward retirement versus other financial priorities?

The post How Much Of Your Income Should You Save? appeared first on Boomer & Echo.

There have been numerous hacks of these sites and the people who use them in recent years.

Celebrities had their Twitter accounts hacked in 2009 and LinkedIn passwords for 6.5 million people were hacked in 2012.

While hacking social media accounts can be quite easy there are few simple things you can do to make it nearly impossible for the bad guys to break into your accounts.

Enable security features

All social media, web mail and online (cloud) storage sites provide a reasonable level of security.  The problem is these security settings might not all be enabled by default.

In order to make these websites easy to use by the entire population on the Internet, companies try to provide a simple user experience.

Strong security however usually translates to a less user friendly experience, so companies don’t always enable all the security features for you.

Related: How To Deal With Technology Outsourcing

These security features include: encryption, two factor authentication, password recovery and security questions.

Encryption prevents your information from being intercepted by bad guys as it travels from your PC out over the Internet.

Two factor authentication uses a second device, usually a mobile phone, to add another layer of protection.  In order to login to a site that uses this technology, a user needs to enter an additional PIN that gets sent to their phone via SMS.  This is usually only done once per computer.

If a hacker gets a hold of your password, they won’t be able to login because they will not have this second PIN code.

Password recovery options and security questions help to strengthen your security by requiring additional information in order to reset a password or manage your account.  The bad guys can use password reset functionality to take control of your account, these options help prevent that.

Social media sites also provide privacy controls to limit how much information you expose to the general public.

Related: Why Electronic Banking Is Safe

Let’s take a look at the different options that are available on some of the big sites.

LinkedIn

LinkedIn has the least number of security options available however it does have an option to enable encryption.

To enable this click on your name and then go to Settings -> Account -> Manage Security Settings and enable “When possible, use a secure connection (https) to browse LinkedIn”

Privacy options are available under Settings -> Account -> Profile -> Privacy Controls

Facebook

One of the better sites from a security perspective, Facebook offers several security features.  To find these, click on the Cog (options) -> Account Settings -> Security.

Related: Is Social Media The Next Bubble?

Facebook provides encryption (secure browsing) and two factor authentication (login notifications & approvals).

Privacy options are available under Cog -> Account Settings -> Privacy

Google

Big G provides some of the best security options for their services.  If every web company invested this much in security the number of successful hacks would decrease significantly.

To view security options, click on your Google profile picture and go to Accounts -> Security.  From here you can set up two factor authentication (2-step verification), password recovery options and security questions.

Google enables encryption by default.

Privacy controls are found here Account profile -> Account -> Profile and Privacy

Twitter

Twitter is improving their security controls after the recent flash crash which occurred due to a fake Tweet posted by hackers on the Associated Press’ Twitter account.

Security options are available by going to Cog -> Settings -> Account.

Twitter has encryption enabled by default and also supports security questions (require personal information to reset my password).  They are in the process of developing two factor authentication.

Microsoft

Similarly to Google, Microsoft enables encryption by default and also supports two factor authentication.  They also provide an optional feature to force you to reset your password every 72 days.

Related: Smart Watches – All Hype or Innovative Product?

These options are available under Account Name -> Security Info

Apple

It took me a long time to find this site, but security options for your Apple ID are available at https://appleid.apple.com/.

Apple provides encryption by default as well as password recovery options and security questions.  These are available under Password & Security.

DropBox

For those that use this cloud storage site, DropBox provides encryption by default as well as two factor authentication.

To find these settings, go to your account -> Settings -> Security

Every company is different

As you can see every web company approaches security differently and provides different options.  The key is to understand what options are available and most importantly, to use them!

The trend in the last couple of years has been to roll out two factor authentication.  Since passwords can be very weak, adding in the second factor (usually a phone) can greatly enhance your personal security.

Related: What Will Our World Look Like In 2050?

It might seem like a pain but we need to realize that our digital security is extremely important.

What additional steps do you take to protect yourself online?

Andrew Martin is a Canadian personal finance and investing blogger who recently moved to London, England.  He has a background in technology and a passion for travel.  His blog, She Thinks I’m Cheap aims to help Canadians build wealth by sharing facts, stories and advice.

The post How To Secure Your Social Media & Online Presence appeared first on Boomer & Echo.

Polonius in Shakespeare’s Hamlet knew that lending money to a friend or family member often results in the loss of both the money and the relationship.  But when someone you love is in a serious bind and you have the means to help it can be impossible to say no.

So what do you do when someone asks if they can borrow some money?  Take the time to consider your answer.

Related: Home Equity Line Of Credit: Friend Or Foe?

Deal with cash only

Don’t apply for a credit card in your name for someone else to use.  Consider carefully if you are asked to co-sign a loan.

Never put yourself in a position where someone else’s actions could affect your ability to secure credit in the future.

Prepare for the worst.  Only lend what you can afford.  Are you willing to forgive the debt if it’s not repaid?  Can you afford to give the amount as a gift?

Get full details

Find out what the money is for.  Is it an emergency, or the result of poor spending decisions?  If the friend or family member becomes offended by your questions, take that as a red flag.

Related: Why Do We Save?

How well do you know the person?  Is it someone you’ve known for a long time, or a new friend or relationship?  Are they responsible and trustworthy, or a moocher?

Does the person have the means to reimburse you?  Try to evaluate their money situation.  What other avenues have been sought?

Discuss terms

Talking about money with loved ones can be awkward but you need to be clear about your expectations.

Discuss the repayment plan while everyone is friendly and anxious to make this work.  Don’t leave the loan open-ended.

A small loan could be repaid in full by next payday or if a lump sum is expected shortly.  A larger sum may need regular payments to be made.

Related: Quick Cash Solutions – A Dangerous Game

Get it in writing

A verbal agreement might be considered legally binding, but it still comes down to your word against someone else’s – even someone you trust.

It’s difficult to ask for money back when you don’t want the borrower to feel awkward but you don’t want to worry about when you’ll be repaid, either.

For large loans, a promissory note outlines a reasonable repayment plan.

Many websites (like this one) offer free promissory note forms that you can print out and fill in the blanks.

Will you charge interest?

What will happen in the case of late payments, – or no payback at all?

What about collateral?  Something of the perceived value of the loan amount could be held until the loan is repaid.  If you decide to add your name to the registration of a vehicle or house it would be a wise move to set it up with a lawyer.

Distance yourself

Deal with problems with late payments right away if necessary, but once you’ve agreed to lend the money it’s no longer in your control.  Don’t obsess about how it is spent.

Related: Why Gadgets And Travel Are Today’s Status Symbols

You don’t have the right to inspect chequebooks or make lifestyle judgments (“You’d have money if you quit smoking!”) or try to manipulate the person.

Consider the impact

Lending to one family member or friend and not another could impact relationships and cause conflict, especially if they see favoritism or enabling behavior.

Make sure your spouse is on board with the decision or it could result in considerable stress if you are lending family money.

Consider what will happen if you die before the loan is paid back.  Will the loan be forgiven?  Still owed to the estate?  Or subtracted from the beneficiary’s share of the inheritance?

Just say no.

If you’re not comfortable with lending money to friends and family, it may be in your best interests to decline the request.

Don’t feel guilty or pressured or beat around the bush.  Don’t keep the asker hanging – respond in a timely manner.

“I’d love to help but I’m not in a position to lend you money right now.”

Perhaps you can help in some other way, or find other options.  Trust your instincts.

Final words

Sometimes relationships trump traditional money sense.  Make sure you’re being smart about it.  Being too trusting or forgiving may be admirable but it can also lead to being taken advantage of, even by someone who has the best intentions.

Don’t become the go-to lender in your circle of family and friends.  Once you’ve lent money that person may ask again or others may also ask for loans.

Don’t dip into your retirement plan or plunder your emergency savings.  What if you might need the money in the future?  No one knows what tomorrow holds.

If payments are irregular, then sporadic, then occasional, expect that the nature of your relationship will change – it will never revert back to normal.

Money can drive apart friendships and family relationships.

Related: Do You Play Dumb About Your Personal Finance Knowledge?

Try to make lending money a positive experience for the people involved.

Have you ever lent money to a friend or family member?  Or, were you a borrower?

How did that work out for you?

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