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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    Financial gift
    Financial gift
    Naomi from Calgary Asked:

    If I get a significant financial gift from a family member, do I have to pay income tax on it?

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    Receiving a financial gift and it’s tax implication is a question for our accountant, Cara Orzech:

    Who doesn’t like to receive a financial gift? Whether it’s a birthday, graduation or wedding, $10 or $10,0000, while the benefactor (the person giving the gift) is alive or as a result of their death, it is common to provide financial gifts to loved ones. But what are the tax implications of a financial gift?

    A gift, as defined by the Merriam-Webster dictionary, is something voluntarily transferred by one person to another without compensation. For tax purposes, a gift is a transfer of property where less than full value (or less than fair market value) consideration is received in exchange. Unlike the U.S., Canada does not have a gift tax. This means that there is no limit to the amount that can be gifted to a family member, and no taxes are payable by the recipient at the time of receipt of the gift.

    However, there are other tax and legal implications to consider before making financial gifts to loved ones.

    When making a gift, the benefactor is deemed to dispose of the gifted property for notional proceeds equal to either the original cost of the property (for gifts to a spouse), or the fair market value of the property (for gifts to anyone other than a spouse). Gifts of property other than cash, that are subject to a deemed disposition at fair market value, can attract tax where the property has increased in value since the time of original purchase. However, where the financial gift is cash, the deemed disposition would not attract tax to the benefactor.

    If the recipient of the gift is a minor (<18 years of age), or a spouse, there may be further tax implications to the benefactor after the time that the gift is made. In these instances any future income generated from the investment of the gifted property (cash or otherwise), will be taxable to the original benefactor. This concept, known as attribution, ensures that financial gifts are not made to spouses or minor children for the purpose of shifting income to another taxpayer. The attribution rules may also apply if a financial gift is made to a person (other than a spouse or minor) for the purpose of avoiding tax.

    If a significant financial gift is made to a family member during the benefactor’s lifetime, it may be prudent to prepare a deed of gift, or to document the benefactor’s intent. Post-mortem legal disputes can arise where a financial gift is made during the benefactor’s lifetime, but family members disagree as to the benefactor’s intent at the time of the transfer. Preparing supporting legal documentation can help to avoid future family disputes.

    Answered on July 11, 2016 Ask Another Question
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    partner
    partner
    Katie from Brampton Asked:

    How do I start to talk about finances with the new partner I’m dating?

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    Talking to your partner about finances can be tricky, our Financial Planner & Cashflow Specialist, Lisa Elle:

    Cupid has been working his magic and you finally have this great guy in hand. Things are heating up with your partner and your relationship is progressing nicely. You are wanting to take it to the next level.

    Naturally, the subject comes up about moving in together, joining forces financially, or getting married. However, the awkward subject of money has not come up yet. Deep down you know you have to have this conversation at some point but you are procrastinating big time (worse than the laundry you’ve been meaning to do).

    So how do you bring up the conversation in an easy way? Simple. Start slowly. It is not wise to have your financial conversations all in one sitting.

    Bring up easy and fun money questions with your partner by slipping them into dinner conversation, for example. Start by talking about stories from your past. Talk about how you and your partner were raised and the beliefs you hold around money. This keeps it light and fun before you start getting into the harder issues.

    It doesn’t take long to figure out if you are both on the same page financially. (By the way, if you aren’t on the same page, this could be a big red flag and may signal that this relationship is not for you. Trust your intuition here!)

    Here are some questions to get the conversation started:
    What is your earliest memory around money?
    What did your parents teach you about money?
    Did your parents make you save money as a child?

    What did money feel like to you growing up?

    Did your parents help you pay for college/university?

    What do you think is the purpose of money?

    When you start easing into the conversation, it naturally leads to discuss more complicated financial matters and there is another bonus, you get to know your partner better.

    Answered on June 27, 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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    disability insurance
    disability insurance
    Hanna from Edmonton Asked:

    What is the difference between disability insurance and critical illness insurance? Which one is right for me?

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    Let’s ask our Living Benefits Insurance Specialist, Adam Gordon about disability insurance and critical illness insurance:

    In my time as a Living Benefits Specialist and Business Coach, I have found the discussions and resulting confusion around disability and critical illness insurance to be tremendous. We can solve much of the confusion by first understanding what the two products are and then understanding how they can potentially fit within your financial plan.

    Let’s start with a better overview of the products:

    Disability Insurance: Disability insurance is a product that is meant to replace your income if you are unable to do the regular duties of your job, due to an illness or injury. Most of the products in the market give disabled clients the ability to receive an income until they are 65 years old, often on a tax-free basis.

    There are many unique options that disability carriers offer (i.e. inflation protection), especially for those who purchase the product outside of an employer sponsored plan. Disability insurance usually provides about 2/3 of your income, however this is a general rule and you should always have a qualified advisor review your policy in order to properly guide you in this area.

    Critical Illness Insurance: Critical illness insurance is a product that has been in Canada for around 20 years. It was created by a Doctor in South Africa in conjunction with the insurance companies, to help clients financially recover from a critical condition, such as Cancer, Heart Attack or Stroke.

    Critical illness insurance provides a lump sum of money (usually tax-free) to a client if they are diagnosed with one of 25 or so conditions. The money can help with costs associated with hospital visits; drugs not covered by the province or your health plan, home care and even allow a spouse or family member to have the financial ability to take time off work to help support their sick loved one. Also, many policies in Canada have options that allow you to receive 100% of your money back if you do not claim within a certain time period.

    Which one is right for me? This is a frequent question I get. Most people tend to be scared of a critical illness because of how it has impacted them personally. Also, the fact that you get your money back if you never get sick has great appeal. However, the products are meant to complement and not replace one another.

    The best way to think about them is to use your car as an example. Disability Insurance is like you seat-belt. It is a must-have given that it protects your most valuable asset…your ability to earn an income. A $3k/month benefit may not sound like much, but amounts to $36k per year. If you are 25 and permanently disabled, you could be looking at a payout in excess of $1.4 million dollars.

    Critical Illness insurance is like the air bag in your car. You would never buy a car without one, but would never choose it over your seatbelt. It allows you to deal with a pay-cut when you are receiving disability income, while protecting your assets and giving you choice at a time you need it most. The reality is that most policies in Canada have a face amount of around $100k…enough money to make a difference during a health crisis, but not enough to replace the income you stand to earn in your career.

    Answered on June 13, 2016 Ask Another Question
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    Melissa from North York Asked:

    How does a buyer representation agreement work? Do I have to sign one?

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    Our Realtor, Sohail Dhanani, is best equipped to explain the buyer representation agreement:

    To answer your second question, first… technically no, you do not have to sign a buyer representation agreement.

    Most, if not all brokerages and their respective sales persons will request a buyer client to sign a buyer representation agreement during the offer process if not before showing any homes. It helps protect the brokerage, the agent and the client.

    To answer your first question… The buyer representation agreement is a document that outlines the details of the working relationship between a client and the brokerage representing them.

    The document is actually between the brokerage and a client, and not the sales person.

    The buyer becomes a client of the brokerage itself.

    Now, I know that some people shy away from signing agreements and that’s okay.

    However, having the buyer representation agreement in place, or any agreement for that matter, lays out exactly what the terms of the relationship will be.

    The buyer representation agreement details:

    1. The parties involved in the representation agreement.
    2. The term of length, or the duration, of the agreement.
    3. The property type that the agreement is intended for purchasing or leasing.
    4. The geographic location of the property.
    5. The commissions that will be paid for the transaction.
    6. Multiple representation and what it entails.
    7. The agreements of conduct when a property is found.

    This, in my opinion, is a good thing!

    Having an agreement in place, leaves little to no room for miscommunication, misunderstanding or discrepancy between what the terms and responsibilities are between each party.

    The buyer representation agreement provides clarity.

    And clarity is power.

    Like it or hate it, the written word is very powerful.

    Speaking of the written word…

    I’m not a lawyer so please don’t consider this a legal explanation!

    If you’d like the exact legal explanation of what a buyer representation agreement is, please consult a lawyer.

    That’s my Disclaimer. 🙂

    Answered on May 16, 2016 Ask Another Question
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    car rental insurance
    car rental insurance
    Rachel from Toronto Asked:

    Do I need car rental insurance if I have my own car insurance?

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    Car rental insurance… Let’s get the opinion of our Home & Auto Insurance Specialist, Ilana Corstine:

    Before I became an insurance broker, I often wondered this very thing myself whenever I went to rent a car while on vacation or for business.

    There are some instances where your current insurance will cover you and some instances where it won’t. The safest thing for you to do is to call your insurance broker or car insurance company and ask what your current policy covers you for while renting a car. The responsibility lies on you to make sure you are insured.

    To get a little technical, Rachel, since you are in Ontario, I’ll use your geographic location as an example. If you are insured in Ontario and have an endorsement attached to your current auto policy called the OPCF 27 also known as the “Rental Vehicle Insurance Endorsement”, you do not have to purchase the additional car rental insurance, as long as you are in Canada or the U.S. (Mexico is not included). If you do not have the OPCF 27 endorsement on your current auto policy, then you would have to purchase the additional car rental insurance from the rental place. But again, please call your own broker or insurance company to double check.

    In addition to your existing coverage, if you’re paying for your rental with a credit card, call your credit card company to see what additional car rental insurance is provided. If you charge the full car rental fee to your credit card, it will most likely cover you for collision damage but not necessarily for third party liability (if you were to be sued by someone you got into an accident with). Credit card insurance varies and so this is not necessarily the case for all credit cards. Please always check with your credit card company for more details.

    In short, it’s in your best interests to check what your current auto policy covers you for instead of guessing or making assumptions before renting a car. There are some auto policies that cover rental cars, so just be sure you’re covered.

    Making a last minute decision while at the rental counter could end up costing you more than it has to, whether you get into an accident or not. Get informed and always be prepared with the information ahead of time.

    I hope that helps!

    Answered on April 25, 2016 Ask Another Question
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    mortgage insurance
    mortgage insurance
    Daisy from Brampton Asked:

    I just bought my first home. My mortgage provider offered me mortgage insurance…should I take it?

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    Mortgage insurance can be tricky, let’s hear what our Living Benefits Insurance Specialist, Adam Gordon has to say:

    For Most Canadians, a mortgage on their home is their single biggest investment; maybe their biggest liability.

    Most mortgage providers, such as banks and trust companies, will offer their borrowers a product called either mortgage insurance or mortgage life insurance.

    The product is sold on the concept that if an untimely death were to happen to the borrower, the mortgage insurance provider would pay off the remaining mortgage balance. This would allow the surviving family to have a home without any money owing on it.

    While this concept sounds great in theory, the challenge is that most people do not understand how mortgage insurance works, or how it compares to individually owned life insurance. 

    Here are a few key points for you to consider:

    Mortgage insurance is a product that is owned by your lender. Each time you either renew or change your mortgage provider, you have to re-apply for the mortgage insurance. If your health has changed at all, you may have a more difficult time getting approved for the new coverage.

    Individually owned Life insurance is a product that you own, not your lender. Life insurance can offer a contract that remains under your control for your whole life. Once your policy is approved, you do not have to re-apply for new coverage if you change your mortgage provider.

    Mortgage insurance charges the borrower the same amount of money every month, however the amount of coverage that it provides decreases every month. This is because each mortgage payment you make reduces the amount of “principal” that you owe your lender.

    Life insurance on the other hand does not reduce the amount of coverage you have, even as you pay down your mortgage. This can be important as we tend to have more financial responsibilities as we get older, not less.

    Lastly, Mortgage insurance providers often investigate a person’s health records after they pass away. This allows them to potentially find minor health information that can allow them to decline paying out a death claim.

    Life insurance providers do their health investigations up-front, before they even offer a policy. This is important as you do not want to pay for a product that will not be there for you at a time you and your family need it most.

    There are many more reasons to consider Life insurance versus Mortgage insurance, so make sure you choose the one that is truly best for you. Contact a licensed advisor to learn about the benefits and flexibility of Life insurance.

    Answered on April 11, 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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    Jessica from Toronto Asked:

    What tips do you have for negotiating a salary with a new potential employer?

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    Negotiating a salary is a question best answered by our recruiter, Lauren Markman Ritchie:

    You did it! You landed your dream job. Now the last hurdle before you walk through the door is signing the job offer, which in an ideal world is perfectly aligned with your expectations, but in most cases falls short and requires negotiation. For many people, this is the uncomfortable part. You’ve worked hard to make a good impression on your potential boss and now you need to negotiate with them.

    In an ideal world, you’ll be working with a recruiter who can take the lead in negotiating a salary on your behalf, but that’s not always the case.

    So how do you approach negotiating a salary? How do you decide where to push back and what to accept? How do you come across as confident but not overbearing?

    Here are some tips:

    • Do your homework! Know your value in the market taking into account geographic location, position and years of experience.
    • Identify your salary range and ask for the upper end of that range to provide flexibility for negotiation.
    • Give an exact number, however it is a good idea to express a willingness to negotiate based on the overall compensation package. For instance, if they were to offer a lower base but a higher bonus structure, you would still consider the offer.
    • Be sure to factor in all elements of your package including salary, bonus, stock options, benefits, vacation and travel time/cost.
    • Don’t sell yourself short. If they don’t meet your expectations, be willing to walk away.

    Staying confident throughout the process of negotiating a salary is critical to your success. Remember your potential employer has already invested time in you and wants you on their team. If they don’t play their cards right and negotiate fairly they will lose their target – you! It is in both parties’ interest to strike the right balance and seek a win-win.

    Keep these tips in mind and Go Get It!

    Good Luck,

    Answered on April 1, 2016 Ask Another Question