Money Questions

Because we all have them...

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    Tina from Sudbury Asked:

    I have over $50,000 in credit card debt, no assets and am considering filing for bankruptcy, what should I take into consideration when making this decision?

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    Bankruptcy is not something to take lightly, our Financial Planner & Money Coach, Trevor Van Nest tells us why:

    First of all, you should do all you can to avoid declaring bankruptcy. The reasons – future job prospects, home ownership, a destroyed credit record for several years, and honestly, just the process is one that feels like a financial scourge.   There are many alternatives that should be explored before deciding this ‘last option’ is your only option.

    Why are you in this position? Is it job loss? Illness? School debt? A trip, car or renovation? A combination?

    The answer to this one is important. Living below your means is easier said than done, but debt (for whatever reason) as a 14-year old reminded me the other day, is a result of ‘spending more than you make’ and doesn’t make any sense.

    If debt is coming from this simple truth, then declaring bankruptcy won’t solve anything. In fact, it is shocking how many people line up for a second bankruptcy. It’s generally because they didn’t reflect on the root cause of the debt or they didn’t put in place the actions required to avoid the disaster a second time.

    Budgeting is a skill

    It’s easy to say ‘Spend less than you make’ – but more difficult to do. Understanding how to live below your means, month after month, is a skill. And those that master it save cash for things, avoid debt and enjoy a level of financial peace throughout their life.

    If current debt is $50,000, current minimum dues are probably between $500 – $1,500 (depending on the mix of credit cards/lines of credit, interest rates and the financial institutions). While this might seem onerous, every effort should be made to find these dollars by simply spending less.

    Millions of Canadians have been able to avoid consumer proposals and bankruptcies by taking control of their discretionary expenses and paying down debt over time. This should always be the preferred choice.

    Answered on August 9, 2016 Ask Another Question
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    Natalie from Ottawa Asked:

    What is the best strategy for negotiating the price of a home in a seller’s market?

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    Negotiating in a seller’s market take’s expertise, let’s get our realtor, Sohail Dhanani‘s thoughts:

    Ask questions and stand out.

    Yup, that’s right, ask a lot of questions and do something different.

    Every agent and buyer is doing what the others are:

    1. Put in an offer at the highest price a buyer can afford… and then some in most cases.
    2. Waive the financing condition. (This scares me a little… and that’s a discussion for another time).
    3. Waive the home inspection condition. (Again a discussion for another time)

    Basically, go in high and go in firm.

    And by the way, in a hot multiple offers seller’s market, you have to do this… unfortunately.

    To tip the odds in favour of my buyer, there are several strategies that I implement to differentiate my buyer’s offer from the rest.

    First and foremost, one of the most effective strategies that I implement is that I befriend the listing agent and I try and get myself in front of the sellers.

    There are way too many agents that I’ve seen that think that the opposing agent is… well, their opposition. I don’t understand why an agent would ever think that of another agent!

    If I’m the buying agent on behalf of my client for a particular home and I’m dealing with a listing agent for that same home, then don’t we both have the same objective in selling a home?

    So if we have the same objective, why not befriend the other agent and the seller and gain as much information from them as possible?

    What does the seller actually need not just want?

    Of course, sellers ‘want’ to sell their home for top dollar, but what does the seller actually ‘need’?

    Maybe they have kids and they don’t want to uproot and move them during the school year and moving in only July and August is what they really ‘need’ as that’s what’s most important to them?

    Ask questions and find out the seller’s real needs.

    Additional strategies I implement to help my buyers win in a seller’s market are:

    1. Stand out and always present in person, no matter what instead of faxing or emailing in the offer.
    2. Stand out by creating a cover letter with a photo of the buyers and tell their story. Sellers want to know whom their home is going to. Facts tell, stories sell.
    3. Present a ‘bully’ offer early before the offer presentation date, if there is one. This way you’re not competing with other offers and present in person with a cover letter and photo.

    Remember, listing agents and sellers are people too! Treat them as such.

    Work together to determine what they really need, appeal to their emotions and create WIN-WIN.

    People buy and sell on emotion and follow it up with logic and rational.

    Happy bidding, errr… I mean buying!

    Limor Markman
    Answered on July 4, 2016 Ask Another Question
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    Suzanne from Toronto Asked:

    How do I choose a financial planner who is reputable and has my best interests at heart? Fee based or commission?

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    Knowing how to find a financial planner, can be tricky, let’s hear from our Financial Planner & Money Coach, Trevor Van Nest:

    The first thing you should be aware of is that there are tens of billions of dollars in profit made in financial services in Canada. Not only is it profitable from a corporate standpoint, but those attached to it – bankers, advisors, agents, counsellors and professionals of all kinds – are also able to earn significant earnings from the industry.

    I mention this because where there is profit, there is bias. There may be aggressive sales people. There may be win-lose conversations happening. Knowing how someone is paid can either remove this bias or at least keep you fully aware of when your best interests may not be aligned with the interests of the professional you are working with.

    Now, think about what your needs are. Are you struggling with debt and would benefit from a cash flow expert? Are you looking to invest and in need of investing advice? Are you unsure what to do with an inheritance? Do you know what you want to do, but are just unsure how to execute the financial plan?

    Once your needs are determined, the goal should be to seek an experience and qualified professional who can assist you. While I have my own opinion on this, if you want to ensure that your advisor’s interests are aligned with yours, make sure that they are a flat-fee (or fee-only) planner. And the Certified Financial Planner® designation – the gold standard in the industry – will bring additional confidence to your process.

    In my experience, process is far more important than product. There are thousands of ‘financial products’ and while implementation is an important part of a comprehensive financial plan, I believe that the education process is critical to helping a client achieve their financial goals. Being aware of the principles that will lead to an empowered financial life is far more important than the blind purchase of a mutual fund.

    Feedback from my clients these past 6 years as a full-time Money Coach has confirmed my belief that the best way for someone to improve their financial position (regardless of the tax bracket they might be in, or the challenges they may face) is to improve their own financial literacy. Trusting someone else with your financial future – who might profit from the decisions made – is dangerous. Remember, what is better for the seller is often worse for the buyer. And vice versa.

    So to summarize: consider what your needs are, what experience, expertise and qualifications you are looking for in a professional, interview a few different professionals to determine fit and comfort, know how someone is paid and do your best to minimize bias in the process, and consider the benefits of a fee-only financial planner.

    Answered on June 20, 2016 Ask Another Question
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    Dani from Toronto Asked:

    I find making budgets complicated. What is the best way to make one, and then follow through by tracking and sticking to it?

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    Budgets… Ahhh! Our Financial Planner and Cash Flow Specialist, Lisa Elle, has got you:

    First of all, I don’t blame you at all for feeling that budgets are complicated. Actually, I think most people would agree that budgets can make you feel constricted, weighed down, and want to poke your eyes out. 

    Budgets feel like you are putting your money on a diet, and let’s be real here – that is NO FUN. If a budget makes you feel good, then by all means, please do one. However, as a financial planner, I have found that traditional budgets do not work for most people. 

    Traditional budgeting shows where all your money goes for a period of time, usually a month. Then we have to reconcile our plan to what actually happened. It’s like a test, putting pressure on us to see if we “passed” and followed the budget we created for ourselves.

    Budgets don’t actually put any plans into action. They are a snapshot of where our money went for that month. Budgets don’t inspire. Budgets don’t help you accomplish your financial goals. 

    Money should be fun. Let’s allow ourselves to make it fun again! So let’s reframe, throw out the word budget and all the negative feelings that go with it and create a cash flow plan.

    A cash flow plan looks at your income, expenses, lifestyle, and financial goals. They allow you to enjoy the things you don’t want to give up, like lattes and handbags, without guilt! And still help you fund your dreams. 

    Cash flow plans vary from person to person, however, here’s a simple formula to start with if you are feeling overwhelmed with where to start. You can change the ratio of this to suit your financial goals depending upon where you are. There are no set rules of money because everyone’s financial situation is so different.

    budget

    Also, set up separate accounts for savings goals, debt repayment, etc.  I find it so much easier when you have separate accounts set up for specific money goals and can direct money to them. Most banks allow you to have free bank accounts as part of your monthly fee packages. You can also automate money transfers to these accounts as well. Make sure to nickname them with your money goal as well (I have one account nicknamed Shoes!)

    This formula will get you headed in the right direction. Taking action will make you feel good about your financial situation. The bottom line is that you are only going to stick with a plan that you see is working, fun, and easy to stick with. 

    Answered on April 18, 2016 Ask Another Question
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    Irene from Wassaga Asked:

    I live with my common-law spouse, but I’m not in his Will, if he dies am I entitled to our home?

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    Common-law spouse logistics is our lawyer, Rebecca Fisch‘s expertise, let get her thoughts:

    So this is a big one – and there isn’t a clear-cut answer. The first question I have is whether you are on title to the home, and if so, how?

    If you and your common-law spouse are both on title to the home, we would need to look at how title was registered. There are different ways that couples (or anyone that owns property jointly) can hold title. Typically, property is held either as joint tenants or as tenants in common.

    If you and your common-law spouse own the house together as joint tenants, then title automatically passes between the two of you on the death of the first. So if you were to die first, your common-law spouse would own 100% of the home. If your common-law spouse were to die first, you would own 100% of the home.

    If you own the home as tenants in common, things are a little bit trickier. Owning a home as tenants in common means that you each own a percentage of the home. So depending on how title was registered, you may own 10% or 50% or 99% of the home (or anything in between). In that case, if your common-law spouse were to die before you, your share of the home would be yours. That’s the good news. The bad news is that his/her share of the home would transfer to whomever he/she has chosen in their Will.

    This is obviously not an ideal situation, as you may end up sharing the ownership of your home with someone you have no intention of living with! Typically, if that happens the property would be sold and you would each walk away with the percentage of the sale proceeds that you owned.

    If you move in with a common-law spouse and are not on title to the home, things are far more complex. In that case, you should speak directly with a lawyer about how best to protect yourself in case something should happen to your common-law spouse.

    Moving in with someone brings a lot of joy as well as many challenges. Every situation is unique, and in each case I would advise speaking with a real estate lawyer and an estates lawyer about the implications of your decisions.

    Answered on April 15, 2016 Ask Another Question
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    Jess from Vaughan Asked:

    What is asset allocation and what should mine be?

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    Asset allocation is definitely best explained by our Financial Planner &  Money Coach, Trevor Van Nest:

    You may have heard that, when it comes to investing, your asset allocation is the most important factor.

    Generally the process starts by completing a risk profile questionnaire that poses questions about your level of sophistication and knowledge when it comes to investing, your investment timelines, and how you would feel under certain circumstances.

    Example question:  “How would you feel if your portfolio dropped by 25% tomorrow?”

    Example answer:  “Ahhhhhhh!!!!!!”

    This might indicate that a portfolio comprised of a single equity sector (that’s one stock / industry) is not right for you.

    The objective of the risk profiling exercise is to understand what your asset allocation should be.  Asset allocation refers to the percentage of your portfolio that should be held in stocks, bonds and cash (generally).  You might also hear it referenced as equities, fixed income and cash. They each have different risk levels so you’ll want to have the mix that meets your risk and growth needs.

    Someone with long investment timelines, more knowledge, and a comfort level with risk will likely be directed to a portfolio more heavily weighted towards stocks/equities (meaning an ownership stake in a number of companies).  Someone with shorter investment timelines, less knowledge and a desire to retain capital (so more risk-averse) will likely be directed to a portfolio with more bonds, GICs and cash (lower return and lower risk products).

    Once an investor’s risk profile is determined, asset allocation is a relatively simple exercise.  And the experts don’t argue much about the percentage weightings for an aggressive vs. a conservative investor.

    When you hear the term ‘balanced portfolio’, this generally means a portfolio equally weighted between equities and fixed income investments and usually has only moderate risk.  It is typically recommended for those with medium to long term timelines, some knowledge and a balanced view on growth. This mix takes into account that some capital may need to be at risk in the short-medium term in order to achieve better average long-term returns.

    It’s important to keep in mind though that one investor may have multiple objectives.  If they have a retirement account for themselves, and a savings account for their next car purchase, each of these portfolios requires a different assessment of risk, and a different portfolio asset allocation.

    It should also be noted that ‘geographic’ diversification is also critical as Canada only represents about 4% of the global equity opportunities available.  Most balanced portfolios have about twice the weighting in International equities as Canadian.

    Remember, understanding your own personal investment risk profile is important.  There are as many opinions as there are products, so the more you improve your own financial literacy, the more likely you’ll know what is best for you.

    Answered on April 8, 2016 Ask Another Question
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    Tax Bracket Image
    Tax Bracket Image
    Dan from Montreal Asked:

    How do tax brackets work in Canada?

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    Any question about tax brackets is best answered by our accountant, Cara Orzech:

    What percentage of my income will I have to pay in taxes? A good question, with a more complicated answer than you may think.

    The Canadian tax system is a progressive tax rate system. As your taxable income grows, so too does the tax rate applied to that income.

    A tax bracket is the rate of tax applied to each dollar of taxable income, up to a specific limit. Once your taxable income surpasses the upper limit of a tax bracket, the next dollar of income is taxed at the subsequent tax bracket’s rate.

    Tax brackets serve to tax lower income earning individuals at a lower overall tax rate than higher income earning individuals. However, as a result of its progressive nature, all individual taxpayers have access to the lower tax brackets. This is why determining your effective tax rate (the actual percentage of tax that you pay on your income) is not easy.

    The following table shows the Federal tax brackets and limits for 2016. You should know that tax brackets are adjusted each year for inflation.

    Tax Brackets

    The provinces and territories determine their own tax brackets and limits which are available on the Canada Revenue Agency’s website (http://www.cra-arc.gc.ca/tx/ndvdls/fq/txrts-eng.html). The federal tax bracket and your provincial tax bracket are combined into one, which people refer to more generally as a tax bracket.

    To complicated matters further, not all sources of income are taxed in the same way. The income that you earn and “taxable income” are two different concepts – but we’ll save that discussion for another day.

    Hope this helps,

    Answered on April 4, 2016 Ask Another Question
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    Tax - Hiring an Accountant
    Tax - Hiring an Accountant
    Dani from Calgary Asked:

    I’ve always done my taxes on my own, but am considering working with an accountant, what are the benefits of hiring an accountant?

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    Hiring an accountant to help with your taxes is a personal decision, let’s hear our Accountant, Cara Orzech‘s perspective:

    In this world nothing can be said to be certain, except death and taxes – Benjamin Franklin. Perhaps this is why hiring an accountant evokes a feeling of fear and panic. But finding the right accountant to work with can ease the anxiety associated with paying and filing taxes, and save you money in the long run.

    There are a variety of tax implications associated with significant life events – college, marriage, purchasing a home, child rearing, investing, starting or selling a business, retirement planning and death, to name a few. When hiring an accountant, s/he becomes a trusted advisor to help guide you through these milestones and ensure not only that you are compliant with the tax rules, but also that you retain as much of your income as possible.

    I strongly believe that every young adult should experience preparing their own taxes, to gain some appreciation of how the Canadian income tax system works. If your tax situation is relatively simple preparing your own taxes may feel like an achievable goal. Mass market tax preparation software, like Turbo Tax or Dr. Tax, provides an inexpensive way to ensure that your tax return is completed and filed in the proper format. The Canada Revenue Agency (CRA) also has an extensive library of information and guides available online to help you.

    However, as your financial situation matures and becomes increasingly complex, so too do your taxes. This is when hiring an accountant for professional advice and assistance becomes essential. Chartered Professional Accountants (CPAs) have a specialized knowledge of the Canadian tax system to help you maximize your tax refund and minimize the stress associated with preparing and filing your taxes.

    If you feel overwhelmed by the idea of filing your own taxes, or are just unsure of how to maximize your after-tax dollars, hiring an accountant you trust can provide some much needed relief.

    Answered on February 28, 2016 Ask Another Question
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    Number one tip
    Number one tip
    Susanna from Barcelona Asked:

    What is your number one tip regarding personal finances?

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    Personal finance number one tip!

    As the musician, Laurence Peters said, “if you don’t know where you’re going, you will probably end up someplace else.”

    To me, the number one tip for managing your finances is to have a specific goal. The goal doesn’t even have to be solely money related, in fact the more rooted it is in a desired experience, the more likely you are to take the financial steps to achieve it.  Some examples of goals are completing an MBA, buying a house, traveling to Europe or paying off debt.  Really, a goal can be anything you want in your life, I’ll bet in some way shape or form it relates to money!

    Money is not the be all and end all, to me it is life’s greatest enabler. So once you know what you are planning to achieve you need a matching plan for your finances to ensure that you get there.  That may mean putting money aside regularly to save up towards something or it may mean regular contributions to achieve debt reduction.

    So wake up with a purpose or a dream and take steps with your finances to help you achieve it.

    Limor Markman
    Answered on February 12, 2016 Ask Another Question
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    Rebecca from Winnipeg Asked:

    Should I pay off my debt or invest?

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    Wondering whether to pay off debt or invest is a common question and a great one!

    I wish I had a one size fits all answer for you. Pay off debt or invest should really be evaluated on a case by case basis, and really depends on your objectives.  Generally, my thoughts are that if you can pay off your debt in a few months to a year, you should focus on it primarily until your debt is paid off.  This is especially important if you are paying high interest rates.

    If you have a large amount of debt and it will take you a number of years to pay it off, I would suggest creating a small emergency fund in your savings account.  The purpose of an emergency fund is to have funds available to you should unexpected costs arise. This would help to avoid further debt accumulation, which may come with an even higher interest rate.

    If it will take you a number of years to pay off your debt, you may not want to wait that long to start investing. If you do, you will be giving up the advantage of time to grow your investments (think compound interest).  Therefore, I would recommend starting with small contributions to an investment portfolio.

    Don’t forget to take into consideration the interest you are paying on your debt and compare it to the kinds of returns you’ll be able to make on your investments.  To me it doesn’t make sense to pay high interest on debt when you only make a few percent return on your investments. Pay off debt or invest is something you should think about from a few angles before you decide your approach.

    Hope this gives you a factors to take into consideration.

    For more on the topic, you may want to watch the LimorTV episode on The Magic of Compound Interest.

     

    Limor Markman
    Answered on February 7, 2016 Ask Another Question