Money Questions

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    Alice from Toronto Asked:

    What should I do with my savings if I have maxed my RRSP and TFSA?

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    Congrats on your financial success, this is a great problem to have and our Financial Planner & Cashflow Specialist, Lisa Elle shares her thoughts:

    First of all, congratulations on maxing out your TFSA and RRSPs! Did you know that only 5-6% of Canadians have their RRSPs maxed out and 7-8% maxed out their TFSAs? So pat yourself on the back for a job well done in savings and investing and paying yourself first!

    So where do you put your money once you have maxed out your registered accounts?

    You can put your money into the same investments that you put your TFSA or RRSPs into, such as GICs, Mutual Funds, Stocks, Bonds, Real Estate Investment Trusts, Precious Metals (such as Gold or Silver) and the list can go on.

    If you are saving for something specific (like a car, trip, new home down payment) make sure that your investment risk level and strategy matches the time horizon. If your time horizon is less than 2 years, I would recommend a high interest savings account. There are some great banks that offer up to 2% interest for these accounts. This way you have easy access to your money at a better rate than the big banks!

    These accounts that you set up are called “Non-Registered Accounts” or we can also call them OPEN money, meaning there is no restriction on how the money can be moved around and no need for reporting, like the reporting that needs to happen with CRA for RRSPs and TFSAs.

    Also, this money is put into these accounts with after-tax dollars, that means that you will have to keep track of the amount invested and the growth (capital gain) or loss (capital loss) that is connected with these investments. This is sometimes given to you on organized statements from your bank or investment firm, however more than not, you have to keep track of how much you bought and sold for. This reporting is not done for you and is based on the honour system for the most part. Although with technology, this could change.

    Plus, once more room is created in your RRSP or TFSA account in a new calendar year, then it’s easy to keep those accounts maxed out by transferring your non-registered assets into these accounts, if this is tax beneficial to you. Again, on that note, to see if it is of tax benefit to you

    Keep up the awesome saving and investing!

    Answered on March 21, 2017 Ask Another Question
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    Amber from Montreal Asked:

    How can I budget and save without a secure income?

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    Budgeting without a secure income is the expertise of Lisa Elle who is both a Financial Planner & Cashflow Specialist. Here’s her answer:

    Budgeting and saving is sometimes challenging for most of us. Not to mention if you do not have secure or consistent income. So how do you budget and save without a secure income? What if you are on commission or unsure of the exact amount you will earn each month?

    I recommend before you take a commission based job without a secure income or base salary to have at least 1-2 months income in the bank as your safety net. If you are already working a commission job, this may be tricky, but best to have that buffer available to you. This may require some financial sacrifice for a few months. You may have to cut back on lattes and dining out for a little while until you have established enough savings that you feel comfortable with. I do think it is important to get a few months ahead, meaning don’t spend what you earned this month, but spend what you had earned a few months ago.

    Once you have your “buffer” savings set up, I would then recommend starting an emergency savings account in separate account. It’s okay if you have to build up your emergency savings fund slowly.

    It is best to set an amount you feel comfortable with and every month have that amount transferred automatically to your emergency fund.

    Without a secure income it can be frustrating to juggle your finances. Creating a safety net account and emergency fund will give you a sense of confidence and security.

    Most importantly, do not be too hard on yourself if you have a bad month. I have worked commission jobs many times. You have to take the good months with the bad months. It’s usually the good months that get us into trouble and give us a false sense of security. When money is flowing, that is when we need to be setting some aside for the bad times.

    Answered on July 18, 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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    Nassim from Toronto Asked:

    How much on average should I be saving a year relative to my salary?

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    How much should you be saving a year… this is a great question although there isn’t a one-size fits all answer, but here are my thoughts.

    No matter who you are, what age or how much money you make you should be saving at least 10% of your after tax income.

    Even if you don’t make a lot of money and your budget is tight, you need to be saving. It is inevitable that eventually you’ll want or need to spend money on something that is not part of your monthly expenses.

    What should your savings be allocated towards?

     1. Emergency Fund

    The first thing everyone should save for is an emergency fund! Despite all planning, unexpected expenses and decrease or loss of income occur more often than you might think. You need to be prepared for the unexpected. The great thing with saving an emergency fund is once you’ve saved enough, you can stop contributing to it and allocate your savings elsewhere

    2. Retirement Planning

    Retirement saving is critical! I can’t express enough how important it is to put money into your retirement fund on a regular basis. It often feels unnecessary or premature to take your distant future into consideration, however, you will be so grateful down the road when your retirement will be adequately provided for. In order to properly fund your retirement years, you should start putting money aside regularly as soon as you can, even if it is just a small amount. Don’t forget when you start saving early, you have the benefit of compound interest.

    3. Large Ticket Items & Life Style Changes

    Any large ticket items, such as a vacation, a special gift, a car, a wedding or some other large expense should be planned and saved for. If you’re someone who enjoys indulging in high price items or experiences, you need to save for them. Also, if you’re thinking of making a significant lifestyle change like going back to school or taking a year off work for maternity leave, you have to plan in advance in order to cover the cost of living during that time.

    One way to increase your savings is to save a portion of every raise you receive. An example would be, if you get a promotion with a 4% increase you could save at least 2%. You were hopefully doing just fine before, so you won’t miss the extra income.

    Be careful to avoid lifestyle creep. This is when you get a promotion with a raise and you buy a new wardrobe to match your new fancy title.  Sometimes those “matching accessories” can cost you even more than the increase in pay you received.

    To sum it up, life can be expensive which is why is pays to save in advance. 10% is the minimum you should save, but if you can save more, good for you… definitely go for it!

    Limor Markman
    Answered on March 22, 2016 Ask Another Question
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    Saving for vacation
    Saving for vacation
    Adi from Sydney Asked:

    Vacations are a must for me! How do I balance being able to go on vacation and save for my future?

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    We all have elements of our lifestyle that are important to us, and if saving for vacation is important to you, then so be it.  Don’t feel bad about it, all you have to do is plan for it and realize that there is an element of trade off.

    If you value saving for vacation, you have to decide what area of your life you are going to reallocate your money from.  Perhaps you can live in a smaller home, dine out less, give up your membership at your overpriced gym, or something trade off from some other aspect of your life (it can even be a series of small trade-offs).

    There are also a range of different types of vacations from camping nearby to five star hotels at exotic destinations.  You can still achieve that relaxed and exciting away from home feeling no matter where you go, so take that into account when you make your getaway plans.

    I believe in having a spending plan that allows you to allocate money to what is most important to you in your life. You have to be mindful and intentional about what your money goes towards and having a plan and tracking it, will ensure you have money for what you value most.

    I can’t tell you what to not spend money on, but you must realize that not every area of your life can be equally important and something has to give.  I do urge you not to cut back on your emergency fund or your long term savings. Trust me, you’ll be grateful at some point down the road that you had foresight to allocate funds to these areas.

    You may want to check out LimorTV episode on Saving tips for ideas!

    Have fun on your guilt free vacation!

    Limor Markman
    Answered on February 19, 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
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    Shawna from Brampton Asked:

    Should I take advantage of my employer matching my investment contribution?

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    Taking advantage of employer matching is like free money!

    As long as you don’t have to go into debt to cover your monthly expenses, my opinion is YES you should!  When you have an employer matching program it is like having  100% guaranteed return on your investment, what could be better than that?!?

    I’m continuously boggled by the staggering high number of employees who don’t take advantage of free money. I know sometimes the enrolment process for these programs can be a little cumbersome, but really? I would fill out piles of paperwork to get free money, but hey, that’s me!

    Employer matching on your investment also creates a bit of forced saving for you. Every month or pay cheque you’ll be putting money aside, whether it is for short term or long term savings. You probably won’t even notice that those few extra dollars aren’t making it into your checking account.

    With the current volatility of the stock markets and low rate of return on low risk investments, 100% return is as good as it gets. So I urge you to sign up for matching, whether is RRSP, stock purchases or any other program… and tell your colleagues to sign up too, while you’re at it!

    Enjoy the free money.

    Limor Markman
    Answered on February 6, 2016 Ask Another Question
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    Emergency Fund
    Emergency Fund
    Jeremy from Toronto Asked:

    What is the best way to create an emergency fund?

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    You need an emergency fund, because eventually it rains…

    I know this sounds simple, but to build an emergency fund, you have to start to put a little money aside every single time you get paid, even if it is just a few dollars. You may even want to ask your bank to automatically move the funds.  Also if you don’t have an emergency fund and you find yourself earning a little extra unexpected income rather than treating yourself put those funds towards your emergency fund.

    The point of an emergency fund is to have cash available in case you have unexpected expenses come up.  For some reason this seems to happen all the time even if you are very good at planning and budgeting. You also want set these funds aside in case of unexpected decrease in income.  If you have money put aside for the unexpected, then you won’t have to go into debt or borrow the money.  Emergencies by nature can be very stressful and you don’t want to have to stress about how to get the money at the point in time.

    You’ll also want to ensure that your emergency stash is large enough so that it can see you through the emergency!

    Limor Markman
    Answered on February 5, 2016 Ask Another Question
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    Rebecca from Winnipeg Asked:

    I only save a small amount every month, what should I invest in?

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    Only save a small amount of money… that’s ok!

    First of all good for you for making investing a priority even if you are only able to save  a small amount of money each month for investing.  We all have to start somewhere and developing the discipline of investing early and understanding how it works is great!

    As you know, I’m not a financial planner and even if I was, I wouldn’t be able to give you specific investment advice without understanding your broader financial picture and your goals.

    Questions you should be able to answer about this investment should include:

    • What is the purpose of this investment? Short term, emergency fund, buy property, retirement etc.
    • When do you expect to need these funds?
    • What kind of risk are you willing to take on? (how much are you willing to lose in a worst case scenario)
    • Have you maxed out your tax-free savings account (TFSA)?

    Depending on how you answer these questions, how you invest your funds will vary greatly.

    You should speak to a financial advisor or financial planner to be able to determine what is the best investment for you. Make sure you find out the fees upfront, as fees can really eat into the upside of your investments. You can also use online investment management companies that typically have lower fees and can also help you meet your objectives, but make sure you do your research as not all online investment management companies are created equal.

    Regardless of which way you decide to go, make sure you understand how your money is invested and what the risk is even if you are investing a small amount. Don’t ever let anyone make you feel obligated to invest in something that you are not comfortable with.

    I advise you to keep setting aside money every month for your future and over time, do your best to increase the amount you are saving and investing! Down the road you will be grateful for all the efforts that you made.

    Hope you find this journey a rewarding one.

    Limor Markman
    Answered on February 4, 2016 Ask Another Question