Rocky Credit Union Speak

Banking Changes Over 20 Years

2011-12-22T08:32:00.000-07:00

The ways that people access and use their money has changed a lot over the past twenty years.

Twenty years ago the standard way to do financial transactions involved: going into your local branch during banking hours, waiting in a line, doing your deposits, transfers, bill payments, withdrawing your cash, and leaving to do your other business. Bills were often paid by mailing a cheque, which usually took a few weeks to come out of your account, and if you ever wanted to pay for something without a cheque you had to go back to your branch again to withdraw cash during banking hours.

Today consumers have a variety of ways to do their financial transactions whenever and wherever they want, faster and more accessible than 20 years ago. Between debit cards, online banking, mobile banking (using cell phones), e-mailing money, and ATMs.

In addition to the convenience and speed of these electronic services, the decrease in cheque usage has resulted in retailers receiving far fewer NSF cheques which saves stores both time and money. Instead of waiting for cheques to be deposited, and hopefully not bounced, debit machines allow an instant transfer of cash from the purchaser to the retailer.

Most payroll deposits are now automated, which saves businesses the cost of printing cheques and staff the time needed to deposit them.

Every auto-deposited government cheque (CPP, OAS, Child Tax Credit...) saves tax dollars by eliminating the cost of printing and mailing them out, plus the government funds are deposited into your account directly on the appropriate day, regardless of the weather or date. Auto-depositing government cheques also helps fight mail theft and cheque fraud because it helps keep the cheques and personal information out of mailboxes and trash cans.

With these many financial conveniences also comes the need to protect your information. As you use online banking or debit cards make sure that you protect your passwords by doing the following:

Do not use your children's or your birth date, your address or phone number, or easy to guess numbers like 1111, 1234, or 9999.
You should change your password on a regular basis. Most privacy experts recommend changing your passwords at least annually.
You should use a mixture of letters and numbers, and symbols like # or % helps make the password even more secure.
Do not use the same password or debit PIN (Personal Identification Number) for every account. If a criminal discovers your one password, you could be giving them access to all of your e-mail accounts and online banking accounts unless you have a different password for each one.
Do not keep your passwords in your wallet, a paper in your desk or stored on your computer or tablet under a folder named "Passwords." This may seem obvious and silly, but it happens too often.
Do not share your password or PIN with anyone. A common form of electronic financial theft occurs when a family member or friend knows your PIN and then uses it to withdraw cash for themselves.
Use reliable anti-virus software and keep it updated. You should also run a thorough virus scan on your computer once a week to look for anything that may steal your information or damage your computer.

All of these precautions can make using debit cards and online banking seem like they may be unsafe. The reality is that when used properly electronic services are very convenient and secure, and the financial services industry is working to make them even safer.

This past year all debit cards, credit cards, and Point of Sale machines at businesses were converted to Chip Cards. The chip is a mini computer, which gives the card the ability to store and process data securely. Unlike a magnetic stripe, this processing power makes it extremely difficult to copy and reproduce cards and card information.

Secondly, this processing power is used, together with cryptography (series of mathematical algorithms), to allow the card and terminal to communicate with one another and carry out security checks to ensure the card is valid.

These chips require you to enter a PIN instead of writing a signature. Throughout the years the PIN has proven to prevent fraud better than the signature, so a PIN has become the new standard on Chip cards.

This new technology makes doing banking easy, fast, and convenient for your personal schedule. If you ever have questions about your electronic banking services, contact your local financial services provider. Jerry

Safe Online Shopping

2011-11-28T09:01:00.001-07:00

I posted the following advice over a year ago, but with so many more people shopping online this year I figured it would be worth re-posting.

Online purchases have grown dramatically over the past decade. Whether you are looking for auto parts, books or even clothing, you can buy them online. While many people want to see and touch the items they are buying, more and more feel safe about purchasing their goods over the internet.

There are security risks, but if you follow the tips below you can have more confidence in your online shopping experience.

Make sure your information is being entered on a secure site.
Look for the latest credit card password procedures
Know who you are buying from. Use stores you are familiar with or people you know have dealt with.
Beware of refurbished items, often a detail buried in small print.
Check the store’s return policies before you buy.
Use a separate credit card for online shopping, preferably one with a low limit in case the number gets stolen.
If the deal sounds too good to be true, it probably is.
Online deals can seem great, but what do you do if something goes wrong with the product? Check out local retailers too as they can often provide faster service than the online merchants.

Christmas is coming, so if you are looking for a specialty item you just can't get nearby, feel free to do some online shopping, but keep safe. Jerry

New Polymer $100 Note

2011-11-10T08:32:00.002-07:00

Used with the permission of the Bank of Canada.

Ottawa, Ontario -

The Bank of Canada unveiled a new polymer bank note series today at its head office in Ottawa. Information on the polymer material and advanced new security features was released, along with the images and designs of the soon-to-be-issued $100 and $50 bank notes, and the themes for the remaining notes in the series.

Minister of Finance Jim Flaherty and RCMP Commissioner William J. S. Elliott joined Bank of Canada Governor Mark Carney for the unveiling ceremony.

Minister Flaherty spoke of the importance of cash as a means of payment in the daily lives of Canadians, adding this is why it is important Canadians see their story reflected in the designs. “These bank notes evoke the country’s spirit of innovation, and their designs celebrate Canada’s achievements at home, around the world and in space,” he said. “Bank notes are cultural touchstones that reflect and celebrate our Canadian experience.”

The $100 note, which is to be issued in November 2011, features images that focus on Canadian innovations in the field of medicine: from pioneering the discovery of insulin to treat diabetes, to the invention of the pacemaker and to the role Canadian researchers have played in mapping the human genetic code. Sir Robert Borden, Prime Minister of Canada between 1911 and 1920, in an updated portrait, remains on the front of the note.

The $50 note, which will be issued in March of 2012, features images of the Canadian Coast Guard Ship Amundsen in the North, reflecting Canada’s leading role in Arctic research. It also evokes the part that Canada’s northern frontier—with its vastness and splendour—has played in shaping our cultural identity. An updated portrait of William Lyon Mackenzie King, the Canadian Prime Minister between 1921 and 1930 and again from 1935 to 1948, is on the front of the note.

The notes will contain a number of unique features that expand the frontiers of bank note security and will make them difficult to counterfeit but easy to check. Most prominent are two transparent areas: the larger area extends from the top to the bottom of the note and contains complex holographic features; the other is in the shape of a maple leaf.

“The Bank’s objective with every new series is to produce a bank note that Canadians can use with the highest confidence,” said Governor Mark Carney. "The Bank is combining innovative technologies from around the world with Canadian ingenuity to create a unique series of bank notes that is more secure, economic and better for the environment."

RCMP Commissioner Elliott stated that, “These new and technically innovative notes will go a long way to deter the threat of counterfeiting in coming years.” He added that the RCMP will “continue to work with the Bank of Canada, and our policing partners, to maintain public confidence in Canada’s currency.”

In the next six months, the Bank will focus on raising public awareness of the coming note series. It will also continue to provide information to the cash-handling industry to help prepare the system for polymer notes, and will work to inform retailers, financial institutions and law enforcement agencies about how to check the new security features once the notes enter circulation.

Starting with the $20 note in 2012, the remaining bank notes in the polymer series will be issued by the end of 2013. The themes of the other denominations will be:

$20 The Canadian National Vimy Memorial—evokes the contributions and sacrifices of Canadians in conflicts throughout our history. (Portrait: HM Queen Elizabeth II)
$10 The Canadian train—represents Canada’s great technical feat of linking its eastern and western frontiers by what was, at the time, the longest railway ever built. (Portrait: Sir John A. Macdonald)
$5 Canadarm2 and Dextre—symbolize Canada’s continuing contribution to the international space program through robotics innovation. (Portrait: Sir Wilfrid Laurier)

The specific designs and detailed images of these notes will not be released until their official unveiling dates.

- Excerpt from Bank of Canada Announcement

Links to examples of new notes and security features

October 2011 - How Money Flows— Distributing Canada’s Polymer Bank Notes

June 2011 - Introducing Canada’s New Polymer Notes

Link to Bank of Canada page with Youtube videos about new notes

Tax Free Savings Accounts (TFSA) Info

2011-11-01T10:14:00.000-06:00

The Tax-Free Savings Account (TFSA) is a flexible, registered general-purpose savings vehicle that allows Canadians to earn tax-free investment income to more easily meet lifetime savings needs. The TFSA could be best described as a Tax Free Investment Account because you can invest in stocks, term deposits, and mutual funds as well as applicable savings accounts.

The TFSA was started in 2009 allowing an investment of up to $5,000 per Canadian who is 18 years old or older. The $5,000 amount is cumulative, meaning that if you haven't invested in a TFSA before, as of 2011 you could invest up to $15,000 ($5,000 for each investible year). In January, 2012 you will be able to invest up to $20,000.

How the Tax-Free Savings Account Work:

Canadian residents age 18 or older can contribute up to $5,000 annually to a TFSA.
Investment income earned and capital gains in a TFSA are tax-free.
Withdrawals from a TFSA are tax-free.
Unused TFSA contribution room is carried forward and accumulates in future years.
Full amount of withdrawals can be put back into the TFSA in future years.
A withdrawal does not decrease the maximum amount that can be invested in a TFSA, but the TFSA reinvestment must wait until the next calendar year.
Choose from a wide range of investment options such as mutual funds, Guaranteed Investment Certificates (GICs/Term Deposits) and bonds.
Contributions are not tax-deductible.
Neither income earned within a TFSA nor withdrawals from it affect eligibility for federal income-tested benefits and credits, such as Old Age Security, the Guaranteed Income Supplement, and the Canada Child Tax Benefit.
Funds can be given to a spouse or common-law partner for them to invest in their TFSA.
TFSA assets can generally be transferred to a spouse or common-law partner upon death.
Similar to RRSPs, TFSAs can be transferred from one financial institution to another, usually with some fees involved to cover the paperwork required by the Canada Revenue Agency.

The TFSA has many great benefits. To get the most out of your TFSA, make sure you talk to an investment professional. Jerry

Showing Aging Parents You Care

2011-10-19T15:11:00.000-06:00

Is it too late to consider long-term care insurance for an aging parent? If your parent is in good health, the answer is no.

Many healthy aging parents have no coverage for a simple reason: it’s just not a concern. But if the need for long-term care moves from being a remote possibility to a reality, the financial burden could be significant. Making sure your parents have long-term care insurance can be one of the smarter financial moves you can make.

The costs of an extended-care facility or in-home care can quickly deplete finances. Adult children may then be required to help pay the expenses, negatively affecting their finances, and perhaps their own family’s standard of living.

It’s best to purchase long-term care coverage before age 65 — the earlier the better. Not only will the cost of premiums be lower, purchasing coverage early will also eliminate the possibility that parents will later suffer health issues that could disqualify them from coverage. Most insurers allow the purchase of long-term care insurance up to age 80, although at this age you’ll have to carefully weigh the much higher costs of coverage versus the benefits.

If your aging parents are without long-term care coverage, talk to them about why they might need it. If they’re not in a position to pay the premiums, it might be wise to share the cost or to purchase insurance on their behalf.

We can help you determine whether it makes sense to purchase long-term care insurance for your parent or another relative.

Ealine Kautz, CFP

Credential Financial Strategies Inc. is a member company under Credential Financial Inc., offering financial planning, life insurance and investments to members of credit unions and their communities. ®Credential is a registered mark owned by Credential Financial Inc. and is used under licence.

Overpayment Scam Returns

2011-10-07T13:34:00.000-06:00

Two years ago I posted an article on our blog about how crooks are using classified ads and other websites to perpetrate a scam that can be called "Overpayment." The scam artist says he will buy your $2,000 stereo from you based on the ad he has seen in the newspaper or online. He sends a cheque for $4,000. You, being the honest person you are, e-mail him saying that he overpaid. The scam artist replies that it was his secretary's fault and says it would be easier if you just deposit the cheque and than mail a money order for the difference back to him, even offering $100 as a reward for your honesty.

You deposit his cheque, take out the $1,900 as a money order and mail it off. A day or two later you find out that his cheque was fake and that it has bounced, while the money you sent from your account as a money order is very real. This overpayment scam has grown and is being used all over the country, including targeting people in the Rocky Region. It is generally best to meet the buyer/seller in person so you can see the goods or the money you will be getting.

A new version of the scam

There is a slightly modified version of this scam going around this past year. It preys on people who are looking for work. It goes like this:

The scam artist advertises for someone to make money by being a mystery shopper at financial institutions. When victims respond to the ad, the con artist tells them that they will be checking on how well a financial institution is following legislation regarding wiring money. The scammer mails a cheque or two to the victims, instructs them to deposit the cheques and then to wire the money to a certain account that is provided. The victims follow the instructions, keeping $200 for themselves as pay for services. Unfortunately, it turns out the cheques sent by the scam artist are fake and they are rejected within a day or two, while the money the victims wired out was real and out of their own account.

It is important to note that most ads for selling/buying and hiring in the classifieds or online are real ads, but there are also crooks trying to steal your money. If, however, someone is giving money up front before a job or transfer of goods is actually done, then the job is probably too good to be true. Please be aware of the different types of fraud that go on, both to protect your own hard earned money and the assets of your loved ones.

The RCMP have a website dedicated to fraud. You can get a lot of useful information at Phonebusters.com, and that information can help you keep your money safer. Jerry

In Case Of A Car Accident

2011-09-14T14:30:00.000-06:00

An opinion piece by Jerry

A few weeks ago my wife and I were involved in a collision that could have ended much worse than it did. While traveling north on a primary highway a car coming south turned left across our lane. I was able to stomp on the brakes and yank steering wheel to the left so that we just clipped the other car's right rear bumper at about 50 km/hr.

Fortunately no-one was injured. We each were able to drive off the road into the nearby gas station. There we exchanged insurance information and business cards. We pulled off the pieces of our right headlight and duct taped the wires down so we could continue driving. Both vehicles were quite functionally usable.

This was the first time I had ever been in an accident when I needed to make a claim. It was a learning experience for me. Here is what I learned from this incident:

Get more information at the accident. While we both took each other's insurance information, we should have gotten the license plate and driver's license information as well.

If there are witnesses, ask for contact information so that they can tell the police or insurance company what they saw.

Pictures are great. We had a camera in the van, so we took pictures of both vehicles and the intersection. The pictures reminded me of details I had forgotten, like that the road was mostly dry, but it had rained earlier that day. The pictures can also help show both the police and the insurance company what happened. Use the camera on your mobile phone if you need to, but get some pictures. They help keep everyone honest.

Contact the insurance company quickly. They can walk you through the steps you need to take.

I went to the RCMP at a later date to report the accident. They told me not to bother until I knew it was over $2,000 in damage. The insurance company sent an appraiser who then told us it was over $2,000. I returned to the RCMP and told them this, and filled out an accident report.

If the vehicle isn't drivable or someone has been injured the police should be called to the site.

We were fortunate with our accident as no-one was injured, and the driver of the other vehicle has accepted full responsibility for the accident. This means we do not need to pay our insurance deductible and our vehicle insurance will not have a price increase.

Still, no matter how well things turn out, an accident and vehicle repairs create a stressful time. We are still waiting for the autobody repair shop to contact us with a time to bring in the vehicle. As a one vehicle family, we hope to have it repaired and on the road quickly. Jerry

Saving Money Is A Choice?

2011-09-06T10:49:00.000-06:00

An opinion piece by Jerry

My wife and I finished buying our children's clothes and school supplies 2 weeks ago. It was a lot of money to spend in one weekend, and there is more to come with school fees and the fall sports/activities registration coming up. In fact we have found mid August to mid September to be more expensive than Christmas for our family.

We are fairly frugal, and my wife is amazing with a budget. Before we did any clothes shopping she went through the kids current clothes to see what still fits and the shape of the clothes. None of them had much of a growth spurt this last year, so many of the clothes can be worn again, those that didn't fit were given to friends that could use them or to goodwill. There were a few new things they needed, so we made a list. We went to Old Navy and stuck to the list. Old Navy carries its own brand and doesn't carry popular brand name clothing, but the quality and prices are decent, although we did notice price increases over last year.

We purchased school supplies through our local school. They have a program where the teachers list all the supplies needed and the school will do then through a supplier and just have the supplies available the week before school starts for pick up. The price is actually quite good, so we went with the school program, but still had to buy supplies for our other 2 kids. We ended up doing Staples for the remaining 2 because the whole selection was there and the prices were pretty much what we wanted. We bought our oldest one brand name binder that cost 4 times as much as the regular binders, but everything else was purchased on the inexpensive side.

We ended up spending about $700 for 4 kids' school clothes and supplies for the new school year. It could have been much more, but that was a big enough hit to our budget that we are glad we were able to keep it down.

Compare this to a close friend's family. She has 3 kids in school and spent about just over $1,000 on clothing and supplies. When we were talking with here about costs she asked us how we kept the costs down. She also then explained to us how she felt it was important for kids to have brand name items to feel good about themselves. When we talked about buying a $17 hoodie vs and brand name one for $55 the difference in costs became quickly apparent, but our friend says she just can't see reducing the purchases because of the types of clothes she wants her kids to wear.

We have had the same discussion with other people about birthday parties. We did what is now the standard party of having 8 to 12 kids, pizza, a birthday cake, and then goody bags worth about $6 to $10 for each attendee. We ended up spending over $200 without even including the price of the gift. With as many kids as we have my wife and I decided that we needed to do something different that would not impact our budget as much.

We now offer our kids $100 cash for their birthdays along with 1 friend for a sleepover. They get our family dinner of the b-day child's choice (often Kraft Dinner, sometimes spaghetti) and a movie rental of the b-day child's choice, along with popcorn. Plus they get their gift. For each additional child they want for the sleepover they get $25 less, until at 5 kids they get no cash. We still make the party fun with activities and games and a great homemade cake, but we don't do goody bags unless they are taking home a craft they made at the party.

We have heard from friends that they wish they could do what we do, but they feel obligated to do the $200 party because their kids' friends do those types of parties. They feel like it will make their children feel bad to do less or different than the other kids. I'm not sold on that. We have decided that clothes, school supplies and birthday parties are not a competition. Our kids are involved in community activities and groups. Do we need to spend more money on these other areas too? I think it doesn't hurt to lets kids know there are budgets and limits to what they can have or what we as parents can do for them.

Let me know your thoughts about spending on kids. Jerry

Life With Low Rates

2011-08-26T11:23:00.000-06:00

An opinion piece by Jerry

With the Federal Reserve in the U.S. announcing that rates will be kept low until into 2013, Canada's own government bond rates have dropped and will most likely stay relatively low for the next year and half as well.

What does this mean? With an almost guarantee of low rates for the next few years this will mean something very different to 2 groups - the savers/investors and the borrowers.

Savers & Investors - Low rates mean low returns on the safest investments. This means bonds, GICs and term deposits. With so many baby boomers looking at retirement over the next dozen years (or much sooner) they want a good return to build up their retirement fund. The reality is that returns will be low, unless they go into riskier investments like mutual funds and stock markets. However, principal and returns are not guaranteed with mutual funds and stocks, so investors need to be careful how much of their portfolio they put into the riskier investments while hoping for higher returns.

With investments earning lower returns, baby boomers will need to invest more of their money each year to get to the desired investment amount. Hopefully they will not have a mortgage or credit card debt any more and be able to put those funds into their retirement savings.

For people who are already retired and depending on cash flow from investments, these low rates will hurt, and they will hurt for a few years. Your biggest priority is to protect the money you have saved over the years. Do not invest in something that could lose your principal, unless you can afford to put some of your savings at risk. Your second priority is finding somewhere to get some returns. That will be difficult as no risk means almost no returns. I would recommend talking to a financial investment expert to discuss what you can do. Otherwise, the next few years will probably mean living life a bit more frugally than you had planned 5 years ago. Doesn't sound like fun, but our grandparents were able to do it and I'm sure the baby boomer generation can do it as well.

Borrowers - These low rates means the interest cost on housing, vehicles and other types of loans is at an all time low. While this is good for the interest you currently pay, it has a side effect of promoting the purchase of more or bigger items that people would when rates are at more normal levels. I would encourage everyone to take advantage of the low rates to make additional payments that knock debt down quickly and can free you from interest payments when the interest rates start to rise, which they will eventually.

So, savers and investors will have a tough time for the next few years. If you are not retiring for 15 to 20 years you can have confidence that rates will increase sometime in your time horizon. If you are ready to retire or have already retired, I hope you are debt free and have a good budget that you can live with. For borrowers, don't fall into the trap of spending more than you should, because if you are locking into a 5 year mortgage today, when it renews in 5 years the odds are that rates will be higher, possibly 50% higher. To everyone I say - Protect yourself, plan ahead, and you will be able to ride out the bumps in the economy better than those who do not plan. Jerry

Extra Payments Pay Off

2011-08-19T08:52:00.000-06:00

Taking a mortgage out over 25 years or more helps make the monthly payments more manageable, but by extending out the loan for so long you really increase the amount of interest you pay.

To help reduce the total interest you pay on a mortgage (or any loan) I would encourage you to make extra payments. If you get a tax return or a bonus, make sure at least some of it goes to repaying debt. High interest debt, like credit cards, gets top billing as my first recommendation for extra payments, but reducing mortgages help long term as well.

For example, if you have a $10,000 credit card balance at 19% annual interest (store cards range from 24% to 28%) and have to make the monthly interest payment and the monthly minimum principal payment of 2% (some are 3%) with a minimum payment of $20, you will pay the credit card off after 13.5 years and will have paid over $7,500 in interest. If you can make an additional payment of $600 each year in the first 5 years you will knock off over 3 years of payments and save over $2,300 in interest. It is well worth your time and money to try to pay off credit cards quickly, and not add to the credit card debt as you pay it off.

If you don't have much high interest debt, it can be a good idea to pay off low interest debt, like mortgages, early in the amortization which can also greatly reduce the interest you pay.

For example, let's say you have a $200,000 mortgage at 4.5% and you make monthly payments of $1,111.66 per month for 25 years. Assuming the same interest rate for all 25 years (which is improbable but necessary for the example) you will pay just over $133,000 in interest. If you can put down an extra $2,000 onto the mortgage every 12 months in the first 5 years, you will knock off 24 months worth of payments and save yourself over $15,500 in interest over the life of your mortgage. The extra payments more than pay for themselves.

As your debt is being repaid and your payments are no longer primarily going to interest, then you can start thinking about investing for the future. Hopefully you can reduce your debt early in life so you can start investing and saving for the rest of your life. It will be worth the sacrifice. Jerry

Risky Market News

2011-08-09T15:17:00.000-06:00

Stock markets have dropped a lot in the past 2 weeks. Term deposit and savings account interest rates are dropping as well. What do you do when the world seems crazy?

Evaluate your risk tolerance - The markets go up and down, sometimes rather dramatically, but over the long term they tend to go up. If the ups and downs of the current market keep you awake at night, your investment portfolio is probably too heavy in the markets. Everyone wants a great return, but a great return also means a great risk. Low risk means low returns, so you want a balance. You need some risk if you want to earn better than inflation returns. Before you invest anything a financial advisor should go over what kind of risk you are comfortable with for your investments.

Look at your time frame - If you are retiring in less than 5 years, than you should not be putting much of your portfolio at risk because you may not have enough time to recover if the markets have a bad few years. A good financial advisor will warn you of this. If you are planning to continue to invest or do business for at least 10 years then your portfolio can be in the riskier investments (with higher potential return) because it is more likely if the markets go down that your portfolio will have time to recover. By looking for returns over the next 10 or 15 years you can afford to take a little more risk today. Concentrating too much on the short term means you will be constantly anxious about what is happening. Investing is best done over the long term, not in a short burst of a couple years before retirement.

Diversify your investments portfolio - This is something your advisor should be doing with you annually. While certain industries have had a great run (technology stocks in the 90's, oil from 2002 to 2008) they also have crashed in big ways. By placing too much of your portfolio in specific industries that have good returns, you are also placing your investments at risk of a serious drop. By diversifying your portfolio you can have some money in high risk/high return areas, but also protect yourself to the downside with steady dividend stocks, bonds and term deposits.

It is natural that the older one gets the less risk they tend to take, however a lack of a proper retirement fund by many baby boomers, or having lost and not regained from the downturn in 2008, has encouraged many people to try and "catch up" by taking more risk to get better returns. Investment portfolios are not best designed to provide good 1 year returns. They work best providing solid returns over a long period of time. Don't try and take more risk to get ahead, and you shouldn't over-react by going to zero risk either as the returns are very low when risk is minimal. It is a balance of having some secure and some risk in order to earn solid returns over the long term.

This is why it is important to have an advisor help in the investment process. A third party without the emotional involvement will provide an objective, more realistic opinion than you have when you are feeling a lot of anxiety. Decisions should rarely be made in an emotional state, whether in distress or exuberance, we tend to emphasize too much of the good or the bad and not make a rational decision. Help can avoid those types of emotional decisions.

If your investments have been done correctly for your risk level and your time frame, whether the markets go up or down should not really influence you too much during the chaos of this past week. The above advice is the same as the advice I would give during calmer times.

6 Ways to Save $ at College

2011-08-02T08:32:00.000-06:00

Going to college or university costs money. Tuition and books prices have been increasing at about 2 to 3 times the annual inflation rate for the decade and a half. In Canada tuition is kept relatively low because universities and colleges are heavily subsidized by the federal and provincial governments. Usually the greatest costs for students are not directly related to school: rent, food, vehicle and entertainment.

Here are 6 ways that students can save money while going to school:
1. Room mates. A 2 bedroom apartment can cost over $700/month, plus some utilities, meaning just living quarters are about $450 per month. If there are 2 people per bedroom, you cut the cost per person down below $250. I once shared a house with 6 guys, and our rent was down to $150 a piece. It worked well for us since most of us were at the library, lab or work most of the time anyway.

2. Food. As convenient as it is to have microwaveable quick food, those pizza pockets and microwave dinners cost money. It is far less expensive, and healthier, to buy real food and cook it. A little bit of extra time spent on meals can save a lot of money, and provide the health benefit of helping you to think more clearly while you are in class or working on homework.

Attached to the food topic is avoid eating out. Even having a cheap sub sandwich adds up, unless you have half at lunch and half at supper. Eating out once or twice a week can easily add up to over $40 more each week that you could save by doing a home party or something besides going out to eat. Add alcohol onto the bill, and that will add at least another $20 per week. That is over $240 per month just at restaurants, when eating at home could cost less than half of that.

3. Vehicles. Having a car while going to school is incredibly convenient, especially if you are not from that city. However, a vehicle is quite costly. Insurance, gas, maintenance, and parking are all expenses that add up. When I went to college the insurance cost me $150/month (I was 22) and gas was another $40/month, and I didn't go on any big trips. I didn't keep track of the maintenance, but it was a 10 year old K-car and I was in at the garage every second or third month for something. It isn't convenient to go without a vehicle, but it will save you a lot of money.

4. Entertainment. Whether it is going to the bars, the movies, restaurants or buying video games, all of these things will cost you money. Add on the number of students that go skiing or on a spring break trip to warmer weather, and you are using up a lot of money when you have little to no income. Be careful with spending in this area, because while these activities are fun, they are a straight cost. There are often low cost campus activities (Sports, clubs, events...) that are fun and located close to school.

5. Books. University and college bookstores have a high mark up that helps pay for the bookstore. This costs you more money, especially when a new version of most textbooks come out every second year, outdating previous ones quickly. If you can get your class book list early, order your books through Amazon.ca or go through the many other websites that offer them second hand.

6. Avoid interest and late fees. Try not to use your credit card. They will be freely given to you when you start school, but the cost of using them is far from free. Having one or two is not bad, but don't get used to using them. Also, pay your bills on time. Late fees and interest add up and are usually unnecessary. Plus some of those late bills will report on your credit history and get you off to a bad start.

Going to university or college can be one of the most challenging and enjoyable periods of your life. Enjoy it, take advantage of the new experiences, but don't leave school owing a pile of debt that will drag you down for the next 12 years. A few years of fun shouldn't leave you with a dozen years of difficult debt. Trust me, I'm telling you this from experience. I am very happy I went to school, got my education and had the experiences I had there, but I wish I could have left with a lot less debt. Paying student loans back was difficult, and those difficulties impacted me and my family for 10 years after I graduated. I wish I had learned the lessons above earlier. Jerry

Save Money On Summer Vacation

2011-07-25T08:35:00.000-06:00

Summer provides us with an opportunity to spend time with family, but it is also a time when we spend more on driving, camping, hotels and restaurants. With so many people taking a hit in the wallet the past 2 years there are many who are looking for ways to have the family trips without blowing their budget.

Hotels: Hotels have a wide variety of costs. Sometimes paying for the most expensive hotel does not mean the nicest stay (although the service is usually better), but choosing the lowest priced hotel can often lead to a bad experience. There are many websites that allow former customers to rate their hotel stay. People will submit their opinions on location, service, cleanliness... It's a great way to see if a hotel is worth staying at.

You can lower hotels costs by using websites that offer last minute discounts at hotels, like hotels.com or priceline.com, but by waiting until the last minute you may not get a room at the hotel you want or close to the location you would like. You can also use the internet to find coupon codes that can drop the price of a hotel room by up to 20%. Lastly, if you are willing to stay in a 2 star hotel instead of a 3 star hotel, you will often get a room for about $40 cheaper.

Camping: Many people go to the same campground each year because they have found a place they enjoy. They know the costs, the amenities and the distance and are not looking for a change. However, there are many others trying to find a site that they like and don't know where to look. There are many websites that use similar reviews as the hotel sites. They can help you decide whether or not you want to use a certain campground.

Camping costs vary. A tent is much less expensive than a trailer or RV, but then you have the inconvenience of having to pack up everything whenever you go camping. A tent also doesn't offer a lot of protection from the cold, whereas a trailer can. A non-powered tent site can be from $15 to $3$ per night depending on the campground. Most people in trailers want a powered site, which can cost anywhere from $5 to $25 more per night than the non-powered sites.

With camping you need to bring your food, cooking gear, heat for cooking (usually propane and stove), and ice or some other way to keep food cold. At most sites you also have to pay for wood, often at $7/bundle. A bundle can provide a small fire for a couple of hours. If you want a bigger fire, you will need 2 or 3 bundles for one night.

While the costs of camping can add up, they are usually cheaper than staying at a hotel and provide a different experience than what most people have throughout the rest of the year.

My family recently went on a camping trip for 2 nights. We have a large tent, but stayed at a powered site because were with family who has a powered trailer. The cost was $30/night for the site. We planned out a menu ahead of time and purchased the food the day before going camping. We had 2 coolers that had ice (3 bags at $2/bag). We did the typical hotdogs, hamburgers with basic condiments of ketchup, relish and mustard. We sort of skipped lunches, and just had carrots and crackers for snacks. We had instant pancakes for breakfast. The total cost of the food was around $35. We brought our own wood (tight fit in the van). The total cost of camping plus food was around $100. This may seem like a lot, but it is far cheaper than staying at a hotel and eating at restaurants.

We also had a lot of fun hiking and playing games together, making the camping vacation totally worth it to us. A trailer would be nice and convenient, but our tent cost less than $200, whereas even a cheap tent trailer would be over $3,000. It would take a lot of camping to make up for that difference, never mind the cost of RVs. We will probably have to go with the tent as long as we are putting money into our home to get it in the condition we want. Jerry

5 Tips To Better Mileage

2011-07-18T11:28:00.000-06:00

Summer is a time when people drive. They drive for family reunions, for vacations, and just to get out while the weather is nice. It is also a time when gasoline prices rise and everyone grumbles about them. There isn't really anything we can do about gas prices, but there are 5 things we can do to improve our mileage so we don't have to buy as much gas.

1. Driving at the right speed. Most vehicles built since 2001 get their best mileage between 90 km/hr and 105 km/hr, which speed is best depends on the vehicle. Fuel mileage declines rapidly as you go over the 105 m/hr mark. A heavy foot will cost you money for gas. Slow down a bit and you will save.

2. Avoid stomping on the gas and then stomping on the brakes. A vehicle uses a lot of gas when it is trying to accelerate, even more if you are trying to accelerate quickly. Learn to slow down a bit arriving and leaving intersections and stop lights. This will reduce gas usage and save you money.

3. Don't idle a vehicle. Idling not only uses up fuel, but it is also hard on an engine and not good for the environment. The engine does not fully burn the fuel because it is not running at its hottest, meaning you are just wasting fuel. Many people run a vehicle to run the air conditioning or the heater. For air conditioning, it is far less expensive to roll down the windows and turn the vehicle off. For warming up a vehicle in the cold winter, it is far better to let it run just for a minute or 2, and then drive (with the windows scraped off). The engine warms up much more quickly driving than it does idling.

4. Maintain your vehicle. This includes everything form having the proper tire pressure to having clean filters. If your vehicle is not well maintained it has to work harder to do the same work, meaning it is using up more fuel.

5. Use a fuel efficient vehicle. This may sound silly, but I hear people with big SUVs or dually trucks complaining about their mileage all the time. The reality is certain vehicles simply get poor mileage. If you use a truck to drive by yourself into town to get groceries and other running around, then the mileage will be bad. If you use a small car, the mileage will be much better.

As an extra, in the research I was doing for this article one interesting item popped up: tighten your gas cap. Gasoline wants to vaporize, and given the chance much of it will simply vaporize into the air, especially on hot days. Tighten your gas cap to prevent your gas from just floating away.

None of the above items are new or astounding, but unlike gas prices, you can control the items listed above. Enjoy the summer and the beautiful country we live in, and get the best mileage you can by taking care of your vehicle. Jerry

Debit & Credit Card Fraud

2011-07-11T10:48:00.000-06:00

I wrote the following article in November of 2010, but thought it would be worth re-posting as everyone sets out to travel around the country this summer. Please protect your cards.

Over 84% of Canadian adults have at least 1 debit card and at 74% have at least 1 credit card. Despite the convenience and popularity of these cards, there is a risk of fraud. It is important to protect your cards, just as you would cash or cheques. Some of the risks associated with debit/credit card fraud are the same as carrying around your account numbers, so protect your card information in your wallet, online and over the phone.

However, there is another threat to card users that is unique - it's called "skimming." Skimming occurs when thieves set up a device that captures the magnetic stripe and keypad information from ATM machines, gas pumps, restaurants, and retail stores. By doing the following, your information will be protected and you will reduce the risk of having your information stolen.

Cover the PIN machine when you are entering your code. This will help block a camera’s or other person’s view of your PIN number.
Never let the card out of your sight. Watch as the retail person swipes it to make sure they only use the store cash register.
Check your bank statements immediately upon receipt in the mail. Make sure all payments are yours.
Regularly check your account balance and transactions, by utilizing online banking and telephone banking.
Contact your financial institution immediately if your card is lost, stolen or subject to fraudulent use.
Keep a record of card numbers, PINs, expiration dates and 1-800 numbers so you can contact the issuing financial institution easily in case of theft.
Memorize your PIN number. Do not use your birth date, address, phone number or social security number. Never store your PIN with your card, and do not make it available to others.
Keep your receipts. You'll need them to check your statement. If they have your account number on them, tear up or shred receipts before throwing them away.
Mark through any blank spaces on debit slips, including the tip line at restaurants, so the total amount cannot be changed.
Know your limits. Many issuers limit daily purchases and withdrawals for your protection.
Do not use an ATM if it looks suspicious, it could be a skimming device.
Be wary of those trying to help you, especially when an ATM "eats" your card, they may be trying to steal your card number and PIN.
Do not give your PIN number to anyone over the phone, often thieves steal the cards and then call the victim for their PIN, sometimes claiming to be law enforcement or the issuing bank.

By protecting your cards, you will be protecting yourself. Keep your information safe as you use your cards more this Holiday Season. Jerry

Finances in Your 50s

2011-06-30T11:42:00.000-06:00

On past blog posts I wrote about how your 20s and 30s are mostly about debt - gaining debt and trying to control debt. In your 40s you are transitioning away from gaining debt to paying down debt and hopefully starting to build up assets that will support you in retirement.

In your 50s you should be completing the transition away from debt and focusing on preparing for retirement. You should be making some extra payments on your mortgage, paying off credit cards completely whenever they are used, and have all vehicle loans at a minimum.

As the debt decreases, the ability to add more to your retirement fund grows. Throughout your 50s you will most likely be at the height of your earning potential, which will also allow you to add more of your income to your investment portfolio. Usually, if you are in a relationship, both people are working, which provides a greater opportunity to increase your retirement fund holdings.

Your lifestyle is changing as well. Without young kids in the house you can start to purchase higher quality items without the fears of someone breaking them. This will range from dishes to furniture and even vehicles. As children leave home you can get a vehicle that should last for several years as its usage decreases quite a bit.

Your children will present some interesting financial challenges in your 50s. Most of them are probably leaving home, but about 1/3 of them will return to live at home for 6 months or more, sometimes with their own family. Your children will also struggle to pay for school and possibly a first home. Your, and their, ability to pay for these things will depend on the financial planning and budgeting that you did together while they were growing up.

As you are approaching retirement you will also need to think of how you may want to take care of your loved ones after you have passed on and what you want to happen if you are not able to make decisions for yourself. Both of these involve some estate planning and creating a will and a living will. None of these topics are fun to talk about, but by preparing for such incidents beforehand you are saving your loved ones a lot of grief. It's your money and your life, you should take the time to make sure things happen the way you want to before you can't make those decisions yourself.

Lastly, take care of yourself physically so that as the time comes you can enjoy a lower stress life. Grandchildren may soon arrive, retirement isn't very far away. Make sure you are in good health so you enjoy all those great things that will soon happen. Consider them to be the harvest of the crops you have planted all life. Jerry

Money Lessons My Kids Taught Me

2011-06-24T11:27:00.000-06:00

My family reserves one night a week for just us. We try not to book anything else so that we can do an activity together, like swimming, playing board games, and sometimes holding a family council.

This past week I was taught an important lesson concerning how to teach my kids. It came in 2 parts.

Part 1: For our family night my wife and I decided to help teach our children about budgeting and saving money. We went through a brief discussion about separating their allowance (based on chores done properly) into spending, savings, and long-term savings. We used lots of examples of things they could save for that would take a few months to do (iPod Touch, horse riding lessons...). We tried to emphasize that by saving some of the spending money they would achieve their goals more quickly. We then decorated 3 boxes for each child, giving them a place to store their money as they saved it for the 3 different purposes. I though it went pretty well, until we were starting to clean up and the 3 oldest immediately asked if they could go to 7-11 to buy a slush. It was a "slap my forehead in frustration" moment.

Part 2: We pay our kids an allowance based on a chore chart. If they do a chore each day, they get a sticker for that chore. After a month we count up the stickers and pay the kids. Some chores pay a bit more (feeding and cleaning the rabbits pays more than unloading the dishwasher) and the kids can trade with each other if they both agree on the deal. A few of the kids always trade off the harder chores for the easier ones, but the easier ones pay less. One child in particular doesn't mind doing the harder chores and tends to get paid a fair bit more because of it.

This past week my wife paid the kids. Usually we just count everything up and pay each child one on one, but this time my wife put the money on the table and called all the kids together. She paid them in front of each other and told them the amount each one received. The one child received twice as much as the others. The others, of course, didn't think that was fair, but my wife then listed off all the harder chores the hard worker had done over the previous month and it was like a light bulb turned on for all the kids. Even the hard worker hadn't really thought much about how much the chores paid, she just liked doing the rabbit work, which pays more.

What a difference that lesson has made. Our oldest actively has looked for chores to do all week, and has done an excellent job of them. He now has firmly linked hard work and a job well done to be rewarded appropriately. There are some chores the kids have to do just because they live in the house (laundry, clearing their own plates, yard work...) but it is nice to see them catching onto the value of a good day's work for a good day's pay.

So, back to the lesson I learned: It's important to talk to the kids about money, but it is more important and meaningful to show them those lessons about money. Now I have to figure out how to do that consistently so that they don't make all the same money mistakes I have, and hopefully they will be far better off for it. Jerry

BoC concerned about debt

2011-06-17T13:22:00.000-06:00

The Governor of the Bank of Canada, Marc Carney, made a few comments this week about his concern for Canadians' debt, savings levels and how rising rates will impact Canadian households. About our debt and savings levels he said:

"Financial vulnerabilities have increased as a result. Canadians are now as indebted (relative to their income) as the Americans and the British. The Bank estimates that the proportion of Canadian households that would be highly vulnerable to an adverse economic shock has risen to its highest level in nine years, despite improving economic conditions and the ongoing low level of interest rates. This partly reflects the fact that the increase in aggregate household debt over the past decade has been driven by households with the highest debt levels.

There are some offsets. Debt is largely fixed rate and household net worth is at an all-time high. However, borrowers should remember that a fixed-rate mortgage will reprice a number of times over the life of the mortgage and, while asset prices can rise and fall, debt endures.

The fact that the “official” personal savings rate in Canada has remained consistently positive is of limited comfort. The personal savings rate has fallen to historically low levels, despite the fact that the baby-boom generation is entering its highest saving years. Adjusting for housing expenditures, Canadian households have now collectively run a net financial deficit for 40 consecutive quarters, in effect, demanding funds from the rest of the economy, rather than providing them, as had been the case through the 1960s, 1970s, 1980s and 1990s."

Spending and savings habits have changed in Canada, much of it as a result of an increasing demand to consume goods have more experiences (like vacations) throughout a lifetime. These changes in behavior have raised concerns for economists and financial advisors alike. I am also concerned, but recent statistics and surveys have revealed how this increase in spending and decrease in savings is impacting people: People are working longer - While Freedom 55 sounds nice, the reality is that most people will not retire in their 50's, and many will be working into their late 60's. Baby Boomers are realizing that they may not be able to afford everything they had hoped for, so many are finding jobs they enjoy that they can do part time to supplement their retirement income.

In the United States people have responded by reducing debt and increasing their savings rate, a reverse of the trend that started in the mid 1990's and went until 2007. Canadians have not started doing this, yet. I think if jobs recover well in the next year most Canadians will continue to spend, but if there is increased fear about jobs Canadians will start to change their habits.

The whole point of this blog is to encourage and hopefully educate people about being responsible with their money. We hope that through good financial management that everyone can enjoy a life with less stress caused by debt and greater peace of mind as a result of sound investments, good planning, and not needing to rely on an ever-changing government for your retirement funds. The Governor of the Bank of Canada has some concerns about Canadians financial behavior, and I hope everyone can take advantage of the low rates today to pay down debt quickly and be prepared to invest as the opportunities arise. Jerry

Kids Learn about $ from Parents

2011-06-13T09:52:00.000-06:00

I've written articles about teaching youth about finances before. I wrote about using games like Monopoly or the Game of Life to teach youth about budgets and incomes.

Rocky Credit Union goes into schools (those that let us in) to teach a class about needs vs. wants, online banking, debit cards, credit cards, and student loans. In these classes I often ask the students "How do you learn about controlling your money?" The usual response is from parents, friends or their job. A few students have responded that they don't ask their parents because they are always in debt and can't teach them anything about handling money, and a few others have said they really haven't learned anything about money from anyone. This is scary considering most of these students are grade 10 or 11 and half of them already have part time jobs.

There are 2 key things parents do to teach kids about money: 1. Teach by example, and 2. Talk to kids about money.

1. Teach by example - As a parent, what are your spending and saving habits teaching your kids? Are you saving for things, or borrowing on credit cards or lines of credit for vacations and snowmobiles? Have you made a will? Do you have life insurance? Are regularly putting money away for retirement or an emergency savings fund? Do your kids know you are doing these things?

Those are some hard questions to ask yourself, but your kids see and hear what you do. I taught a Junior Achievement class last year. The class was an entrepreneur class, so we covered the basics of how to start a business. Many of these kids already knew the definition of sole proprietorship, partnership and corporation because their parents are involved in a business. I was very impressed with how many of the answers these kids knew just by observing and listening to their parents. What you do with your finances is teaching your kids, and they are watching and learning to do the same thing.

2. Talk to kids about money - In addition to kids learning by example, they also learn by what you say to them. I mentioned in another article that when my oldest used to ask for things we would respond simply that "We don't have the money." He ended up thinking we are poor because we never have money and started telling his friends that he couldn't do certain thing with them (ie. go to a movie) because we were broke. My wife and I adjusted our response to "We choose not to spend money on that toy because we have chosen to spend money on swimming lessons, tae-kwon-doe, scouts and piano lessons."

It's important to let youth know that spending money is a choice. Once you've gone into debt to purchase something, you don't have a choice; you have to make payments to pay the money back. But until then you have the choice of to buy or not to buy. I know families that let the kids plan their vacation, giving them a budget and general guidelines and letting the youth pan what they are going to do and how they are spending the money. Some families give their children a small budget at the beginning of the school year and let their kids choose their clothes. Once a 13 year old sees that one pair of jeans is $80 and another is $25, they start to understand more about spending choices.

So, make sure you talk to your kids about money, the choices they can make, and don't be afraid talk about some of the choices you are making with your money and why you are making those choices. It may help your kids in the future to know what their families went through to put them in hockey, band, or 4H. Jerry

Rent Vs Mortgage

2011-05-19T10:38:00.000-06:00

Over the past 20 years Canadians have decided that owning a home is a great financial investment. While owning a home has many advantages, there are also many reasons you may not want to own a home. The following is a short list of some of the main reasons for and against owning a home:

Pros -

Sense of ownership
Build equity in an asset rather than paying it all to someone else
A house usually grows in value at, or above, the inflation rate
Privacy
Freedom to do what you want with the house for decorating and renovations
Financial security for retirement

Cons -

Tied to that housing market when it is time to sell
As people's jobs become less fixed, the ability to stay in one place also decreases
Costs are more than just a mortgage payment (property taxes, utilities, maintenance...)
Rent is usually cheaper than the total costs
Difficult to come up with the down payment (higher down payment is better)
Housing values can, and have, dropped
A house isn't worth any money until you actually sell it

3 guidelines for buying a home are:

Buy what you can afford, not what you want, with some money left for extras.
If you are going to live somewhere for less than 3 years, renting usually makes better financial sense (closing costs for each purchase add up).
Think of your house as a home, not an investment. If it's worth putting in better windows to keep you warm, then do it. Don't just think of the resale value, but of what your life is like living in the house. Keep in mind not to overspend, however, as hardwood floors and marble kitchen counters in a neighborhood of linoleum and Arborite will not even come close to recovering costs if the house is sold.

Just a few items to think of as you look at renting versus buying. While I have enjoyed owning a home, the constant maintenance work and costs, along with the rising property taxes, do sometimes make me long for the ease of renting. But I could never tear down a wall in the basement and add a bedroom in a rental, making the basement just the way I want it. Jerry

72 Hour Emergency Kits Are Important

2011-05-16T08:30:00.000-06:00

This is a repost of an article I wrote back in Nov of 2009. I thought that with the recent evacuations around Alberta and the Rocky area that it was worth posting again.

Are you prepared for an emergency? There are some areas of the world where they have become accustomed to evacuating their homes at a moments notice. Hurricanes, tornadoes, and forest fires are just some of the natural disasters that affect people’s lives annually. As a result, people who live in areas plagued by these events have 72 hour kits that allow them to leave home quickly, and be prepared to live away from home for at least 3 days. Many have suitcases packed to help them live for up to a week without access to their home.

The basics around a 72 hour emergency kit are:
1. Know the risks
2. Make a plan
3. Get a Kit

Know the Risks – Each person and home is subject to different risks. While the Rocky Mountain House Region isn’t likely to have a hurricane, we have seen some pretty powerful winds that could knock out
electricity for a few days. Other potential risks include forest/home fires that result in evacuations and snow/ice storms that could knock out electricity and limit your mobility. The 72 hour kit is usually designed for the risks that result in you having to leave your home very quickly, so consider the risks that could cause that course of action.

Make a Plan – You should make a plan that works for you and your family. The plan should include things like:

How to get out of the house in case of fire
Where to meet for a head count
Contacts for emergencies – hospital, police, friends and family
Where your supplies are stored, fire extinguisher. First aid kit
List of the valuables you want to take with you (family pictures and history…)

Get a Kit – You will want your kit to be in something you can carry (backpack, duffle bag) and can be easily stored in your house, garage, or vehicle. It should include:

72 hours of drinking water
Food that won’t spoil if wet or banged around
First aid kit
Battery powered or wind up flashlight and radio
Medication, toiletries, infant formula or diapers (if needed)
Weather appropriate clothing
At least $20 cash, and some coins for phones or vending machines
A copy of your emergency plan, and a list of where important documents are stored (wills, insurance, family contacts)
A copy of all of your family’s personal information in each person’s pack (photo, name, address. contacts…) This helps with identification of children in case you get separated.
Books, cards, pen and paper, thing to keep you and kids busy

The assumption with a 72 hour kit is that the worst of most emergency situations will occur in the first 72 hours. For more details about 72 Hour Emergency Plans check out the Canadian Government site – getprepared.ca

The following link is PDF of a 72 Hour Emergency Kit checklist
Jerry

Costs of a Home

2011-05-09T16:57:00.000-06:00

A couple of weeks ago I spoke with a 23 year old, single young man who has been living with his parents for the past 18 months. He was talking about saving up money for a down payment on a home. He already has a pretty good idea about what mortgage payment he can afford. He is buying a small house, with the hope of moving into a larger one in several years.

I threw him for a loop, though, when I asked him about property taxes and maintenance costs. He had not thought about those costs. He figured property taxes would be about $400, but when I told him to expect property taxes to be around $2,000 or more his jaw almost hit the floor. He had no idea the taxes would be that high.

There are always added costs to owning a home. Here are a few I could think of:
Property Taxes - these always seem to be more than you thought, and they tend to increase pretty much every year, sometimes by several percent. It often means having to put away $150 to $300 away each month to pay for them, a cost that can really add up.

Insurance - there is mortgage insurance, which may cover your mortgage in case of death or accident, and then there is home insurance which covers damages to your home. Each one has fine print about when and what they cover, so you will want to shop around and do comparison for the benefits. Costs also vary widely, so again you will want to shop around to get the coverage you want at a cost you can afford. You are not required to have these insurances, although some lenders and some loans may have the requirement. To be uninsured means taking the chance that everything will always go the way you plan.

Utilities - there are hook up costs, and then the costs of the monthly utilities themselves. Heat, electricity, water, sewage, garbage and phones all add up, and again, these are not costs that tend to go down. When natural gas was past $8 kj, that heat bill that came back really hit a lot of people's wallets in a bad way. Make sure you leave some room for growing utility bills.

Maintenance and upgrading - most people expect maintenance costs on an older home, but even newer homes will require upkeep that costs money on a regular basis. Here are some typical rules of thumb:

Floors: In high traffic areas like the living room and hallways, a general guideline is the flooring will be replaced at about 10 years. Some people will change more often if they have pets or simply want a decorative change.
Paint: If you do the work yourself, painting can change the whole look of a room/house at a fairly low cost. Hiring out increases the cost, a lot. Usually you will paint the main rooms when you move in and then again every 3 years or so.
Cabinets: Kitchen cabinets are quite costly and tend to stay up for around 15 years. They may be changed more often for decorative purposes, but the high costs encourage people to keep the same cabinets longer than they do the flooring.
Bathrooms: Fixtures can be changed quite easily, and if tub and shower seals are maintained a bathroom can last for 20 years without a need to change the appliances. When it is time to change the tub or shower, this can be a major job that requires removing or replacing the toilet and bathroom cabinets as well. It is not cheap, especially if you want to change the position of the plumbing for the new bathroom appliances.
House siding and shingles: Many brands of shingles are sold as 20 year shingles. The reality is that do to ice and hail, most people replace their shingles at about 15 years. The same goes for many types of siding. You should inspect your shingles and siding every couple of years to make sure moisture isn't getting through and that they are still in good shape. If the siding or shingles are not functioning properly, this can cause a large amount of damage and create costly repairs.
Appliances: fridge, stove, washer, dryer, water heater and furnace - these can all be expensive if you buy high end appliances. It seems like they all have shorter lifetimes than those that our parents bought back in the 70s and 80s. Because there are several items here that are constantly used, the odds are that once a house is a few years old, you will be repairing or replacing at least one of these every 2 years or so. Than it becomes a matter of quality vs. cost.

Each of the above can be quite expensive if you choose high end materials and hire people to install or repair the items. You can save money with lower costs items and by doing the work your self, buy you will always want to make sure the job is done right, as the repairs can easily cost more than if you had hired someone to do the job the first time.

Once I walked through these items with the young man, he started asking if he would be better off renting than buying house. I'll go through the comparisons for buying versus renting in the next blog post. Jerry

Rates Are Going To Rise

2011-05-02T14:04:00.000-06:00

Rates have been at historic lows for about 2 years in Canada, and about 3 years in the United States. As the international and national economies improve, interest rates really have nowhere to go but up, and that is going to impact you.

There are 2 groups of consumers who will be most concerned with increasing rates: Investors/Savers and borrowers. The first wants rates to increase, the latter does not.

Investors/Savers have had a tough go of it over the past 3 years. Mutual Funds and stocks lost as much as 30% of their value in 2008, and then the rates at the banks and credit union all dropped along with the Bank of Canada rate. Stock prices have mostly returned, but that means investing in non-guaranteed funds, while the guaranteed investments have only made 2% to 4%. This group will be quite happy to see rates rise so that they can get a better return on their guaranteed investments and savings accounts.

Borrowers will not be happy as rates rise. This will impact mortgage rates, with an immediate impact on variable mortgages. It will also hit lines of credit, authorized overdraft rates, variable rate personal loans, and new or renewing mortgages. Rates have been extraordinarily low over the past 3 years, but people have gotten used to them being this low. Hopefully most people take advantage of the low rates and pay off as much debt as possible before the interest cost of their loans increase.

If you have locked in to a 5 year mortgage at today's low rate, be aware that at your renewal time in 3 to 5 years, your payments may increase by a fair bit, depending on how high and how fast rates rise. Currently most banks think the bank prime will rise from today's 3% to about 5% by the end of 2012. This could mean your 5 year rate increases from 4.2% to about 6% upon renewal. That's increase of over 40%, which means your payment may increase by that amount as well. Can you afford it? Just keep that in mind if you are looking to buy a house, as that will hit your wallet when the time comes.

So, the forecast is, rates will rise. They will probably increase at a slow, steady pace over the next 2 years, unless inflation comes on strong. Most consumers will be impacted, but if they plan well the rates can work for them (investing instead of borrowing). Jerry

Why Rates Go Up Or Down

2011-04-25T13:48:00.000-06:00

There has been a lot of talk in the media about the effects of rising interest rates and what they will do the economy. Some say it is a sign of growth, others say it will harm growth and kill the middle income Canadian family. Let's start off with some basic facts about interest rates:

Interest is the cost of borrowing or the return for lending money, depending on if you are the borrower or the lender. The rates at which lenders are willing to lend at are determined by risk, lending competition, and the desired rate of return. The general rates at which borrowers borrow money at are determined by almost the same things; risk, lending competition, and the forecast rate of return.

Risk - If risk is considered high, than rates increase. There is a lot that goes into high level risk assessment some of them working against or with each other: the state of the economy (federal and international), inflation, Central Bank intervention, and the supply and demand for money.

If an economy looks to be risky or declining, rates go up, and if it looks good rates go down.
Inflation is the rate of increasing or decreasing cost for goods and services. If inflation is rising, rates go up as those who lend money want to keep their returns above the inflation rate. If inflation decreases or is stable, rates will relax as lenders are less afraid of losing money due to inflation.
Central Banks often try to have a target level of inflation, hoping to keep it low and stable so that people aren't afraid to invest in companies, equipment and technology. Central Banks control overnight rates at which they lend money to major financial institutions, thus influencing the cost of money that the banks use. Usually increases or decreases by the Central Banks are eventually passed on to consumers and commercial borrowers.
If there is high demand for money, the money supply tightens and the rates go up. If there is low demand or there is a lot of supply, the rates go down.

Lending Competition - There are a variety of organizations looking to lend people and businesses money. The most well know are banks and credit unions which traditionally lend out money that has been deposited with them and is protected by some form of deposit insurance. The depositors get paid interest, or a return, and the banks get paid interest by those who borrow from them. Because each bank or credit union has similar costs of deposits and technology, their rates are usually quite competitive with each other. They are also directly impacted by rate changes at the Central Bank, so their rates often adjust up or down in a similar time frame. There are some slight differences based on the individual needs of each organization, but the rates are usually very similar to each other, leaving their service levels as the main differentiator between them.

Rate of Return - The rate of return is what a lender receives from a borrower for the use of his or her money. If the risk of not being paid back for the loan increases, than the expected rate of return increases as well. If a loan is secured with something of value, like a mortgage is a loan secured by land and buildings, then the risk of loss decreases to the lender and the expected rate of return. Inflation is a risk that the value of something may decrease over time, so loans made over longer periods of time tend to have higher rates than those over a one year period to make up for the possible decrease in value of the money leant out.

So, those are the basics about why rates go up or down. The next post will be about the impact of the upcoming rate increases. Jerry

Credit Card Can Be Like Fire

2011-04-18T15:27:00.000-06:00

Using a credit card is very similar to using fire: using and controlling it can be incredibly beneficial to you, but let it get out of hand and you face a disaster.

We are seeing many people trying to clear up their most expensive debt, the vast majority of which comes from credit cards. People get into a lot of trouble by not understanding what credit cards do and how they work. The following are 5 simple facts about credit cards.

1. High Interest Rates - They charge higher interest than bank loans because they are easy to acquire, and the credit card companies don't have your house or vehicle as collateral. In order to make up for this increased risk of no collateral, they charge higher interest rates. The standard card today charges around 18.9%, with some store cards charging as much as 28%. There are lower rate cards around, but the low rate is usually an introductory offer and increases to regular rates after 6 months or a year. A good credit bureau score can get you a better rate.

2. Payment Calculations - Most credit cards charge interest monthly and require a payment of 2% of the credit card balance each month. If you owe $5,000 on a card that is at 19% annual interest, your interest payment is around $79, and your principal payment is $100, which means you must pay $179 as a minimum payment to the credit card company. The following month, if there were no further purchases, the balance of $4,900 would have an interest payment of $77.50 and a balance payment of $98, for a minimum payment of $175.50. While $175 may seem manageable, the problem is so many people don't stop at $5,000 on a credit card. Those small amounts add up very quickly.

3. Grace Period - Some credit cards offer about 21 days after your purchase before they start applying interest. Most start applying interest the day of the purchase, unless you pay the card balance off in full by the due date. For specific details you need to look at your own card's details.

4. Cash Advances - Cash advances count as withdrawals off a credit card, whether through an ATM, in branch, credit card convenience cheques, and often advances at casinos. Cash advances often have fees, usually ranging from $2 to $5 for each advance, plus interest starts being charged on the amount the day of the advance. Some cards charge a higher rate for cash advances than regular purchases, so you will want to check the details on your cardholder's agreement before you use it that way.

5. Missing Payments - Because the credit card companies do not have any physical security on your credit card loans, they not only charge high interest rates but they also have stiff penalties if payments are missed. Most cards will raise your interest rates if are late or miss a payment. Rates for a late payment rise from 2% to 8%, depending on the card issuer. They also report to the credit bureau if you missed a payment due date. This then shows up for all financial institutions to see. One miss is not bad by itself, but if there are multiple late payments over a few years, it can lower your score enough that you may no longer qualify for loans, or your rate is increased by lenders.

The credit card is very useful. Online purchases, hotel bookings, and emergency usage (vehicle repairs) are perfect for credit card usage. People get into trouble as they start using the card and not paying it off quickly. That goes into a discussion on budgeting, which has been written about on this blog previously, but it is a lesson that never stops. If you have any questions about credit cards, please let me know. Jerry