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FINANCIAL FOCUS | 2020

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2020

EDUCATE ORGANIZE ASSESS PLAN INITIATE PROTECT

product of


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FINANCIAL FOCUS | 2020

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financial focus

2020

EDUCATE ORGANIZE ASSESS PLAN INITIATE PROTECT

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What young Canadians should know about RRSPs

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Five ways to meet your savings goals

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Saving and investing: 3 advantages of automated plans

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How financial stress impacts your physical and mental health

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How to survive a layoff

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Five Facts about RESPs

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How hiring a tax professional saves you money

Available on-line at:

www.pgcitizen.ca General Inquiries | 250-562-2441 Publisher | Colleen Sparrow Editor | Neil Godbout Director of Advertising | Shawn Cornell Design & Layout | Allan McIntyre

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What young Canadians should know about RRSPs What is an RRSP? A Registered Retirement Savings Plan (RRSP) is a type of savings account that you can set up with a financial institution such as a bank and that’s registered with the Canadian government. There are special rules relating to how you and the government can treat money contributed to this kind of plan.

more, the money you put in an RRSP isn’t subject to taxes until you withdraw it, so it grows faster than in other types of accounts.

An RRSP is just one of many own future, the sooner you’ll strategies that can make your be able to feel secure in your money work for you. The soo- financial life. ner you start investing in your

Why is it a good idea? Because of the special tax exemption rules, an RRSP is typically considered to be a safe and steady way to grow your money over a long period of time. If you’re far in your future, you may want to consiWhat is it for? An RRSP is meant to encou- der a higher-risk account, like rage you to save money in the a Tax-Free Savings Account long term by earning interest (TFSA), in addition to an on the money you’ve contri- RRSP. Once you get closer to buted. If you contribute money retirement and value security from your salary to your over growth, the RRSP is a RRSP, that money can also be more reliable choice. deducted from the income Contact a financial taxes you file yearly. Furtheradvisor and get started!

Preparing for retirement: 5 reasons to get help from a financial pro Your savings and investments are the key to a comfortable retirement. However, many people find navigating the world of finance confusing. Luckily, financial professionals make managing your money easy. Here are five reasons working with a financial adviser or planner is the smart way to prepare for retirement.

3. They can tell you which of your expenses will increase when you retire and which are likely to decrease.

1. They know the ins and outs of the industry and can offer up-to-date advice.

5. They’ll advise you on what actions you need to take to achieve your financial goals.

2. They’ll take your whole financial situation into account to create a money management plan tailored to your unique circumstances.

4. They understand the different investment options available and can guide you towards those that best suit your needs.

With the right financial professional, you can rest easy knowing that your needs are

met. And if you have any questions, they’re just a phone call away.


More than just a rate

FINANCIAL FOCUS | 2020

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PROVIDED CONTENT

by Christine Buemann, Mortgage Expert

Y T L A PEN T

he most important part of your mortgage financing is the rate, right? But what if that rate had the potential to cost you thousands more down the road in penalties? Although rate is definitely an important factor, it is certainly not the only one to consider. One of the most commonly overlooked differences between mortgage options is the payout penalty. Paying out your mortgage before the end of your term often results in a penalty (which varies drastically among lenders and products).

A variable rate mortgage will almost always be a three month interest penalty. A fixed rate mortgage is typically the higher of three month’s interest or their interest rate differential (IRD) calculation. It is important to note that every lender has their own IRD formula. Let’s break it down in numbers: We will assume you bought your house with a mortgage starting at $400k, 3 years ago and chose a 5 year fixed rate of 3.49%. You are now in a position where you have to pay off your mortgage.

What is the cost to do so? With one lender, your payout penalty would be roughly $3210*, while with another, it would be approximately $10,070*. If the mortgage balance, term, rate and amortization are all the same – why such a large variance? The main difference is in the rate used for the IRD calculation. Most big banks have higher posted rates which are factored into their payout formulas and result in a much higher penalty. There are also many other important elements to consider when

mortgage shopping. Is your mortgage portable? How often does the interest compound? Are there restrictive terms that could stop you from selling or refinancing? How easily can a co-signer be removed? How do you “lockin” your variable rate? Is yours a collateral mortgage? As you can see, the most effective way to save money is to work with a professional who is able to help you understand all of the terms and conditions associated with your new mortgage as well as what different options are available for you.

*Based on current balance $368,180.56, assuming the 5 year posted rate for time of qualifying was 5.34%, using comparison rates of First National (2 year rate of 3.19%) and RBC (2 year rate of 3.89%) and amounts calculated as per the associated online payout penalty calculators


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Five ways to meet your savings goals Whether you’re saving for retirement or a house, having a savings goal is an essential part of financial stability. Between unexpected illnesses and little weekly luxuries, however, meeting that goal isn’t always an easy task. Here are five tips to help you stay on track: 1. Get invested in your savings. The more educated and active you are when it comes to making your money work for you, the more it will feel like an accomplishment to see your savings increase. 2. Set savings milestones, and budget in a reward for yourself when you meet them. 3. Prevent yourself from spending if you have to. Credit card issuers and banks now have lots of ways for you to enforce spending limits on yourself. Don’t be embarrassed to take advan-

tage of them if you feel they might help. 4. Don’t worry too much about your luxuries. What matters is how much you’re spending on luxuries like clothes or fancy dinners. Don’t feel bad about what type of luxuries you buy as long the costs stay within budget. 5. Be open to new plans. A savings plan is just a rough draft. While you should remain focused on a specific savings goal, don’t be afraid to change your method along the way if an opportunity presents itself. Once you have more experience with money management, you might take on more risk than when you’re just starting out. With a combination of planning and flexibility, anyone can meet their savings goals.

Second mortgages: the pros and cons A second mortgage, also called a home equity loan, involves borrowing money against the portion of your home that you own. To put it simply, if you have a $350,000 mortgage on a home you bought for $400,000, you have $50,000 of equity and may be able to use some of it to consolidate debts or finance a project. Here are the pros and cons of doing so. Pros A common reason for taking out a second mortgage is to consolidate debts with a loan that has a lower interest rate, thus saving money in the long run. In addition, it offers flexible payment arrangements, as you can also negotiate for a longer or shorter amortization period, which is the length of time you have to repay the loan. Cons The interest rate will be higher than that of your first mortgage. In addition, you need to have enough equity to cover the entirety of the debts you mean to consolidate. The most serious downside, however, is that paying off credit card debt with a se-

cond mortgage means transforming an unsecured debt into a secured debt by putting your home up as collateral. If you fail to make your payments, the bank may be entitled to foreclose on your home.

Before applying for a second mortgage, speak with your financial adviser. If you’re struggling financially, it may also be a good idea to seek debt counselling to assess whether a second mortgage is the best option.


FINANCIAL FOCUS | 2020

Saving and investing: 3 advantages of automated plans If you want to start saving but aren’t sure where to begin, then an automated plan might be what you need. Here’s why.

together. Even if you’re tempted to dip into your savings, you won’t be able to unless you jump through a few hoops first.

It makes saving easier Saving small sums is easier than trying to put large chunks of money aside. You can start with a manageable amount like $50 a month, and then increase it as your situation allows. You can also reduce the amount if you need to.

You can benefit from compound interest Aside from your regular savings account, you should also put a portion of your money into an investment portfolio. This allows you to benefit from receiving compound interest. Your investment’s interests are periodically added to the invested capital, meaning that they’ll start accumulating inte­r­est as well. For instance, at an average yield of three per cent, sa­ ving $150 a month for five years will net you $700 in compound interest.

It enforces good habits By arranging for a pre-determined portion of your income to be deposited into a savings account, you’re creating a habit. And if you automate these payments, you won’t be tempted to spend the money you intend to save. In addition, many such accounts impose penalties for withdrawals or prevent them al-

To learn more about automated savings plans, talk to a representative at your bank or a financial planner.

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Identity theft: prevention and intervention How many times over the past year have you entered your name, address, phone number, email address, birthdate and other sensitive information into a sign-up form? Unfortunately, this information can be used by fraudsters to usurp your identity, allowing them to obtain credit in your name or perform other criminal acts. Here’s how you can reduce the risk of identity theft, and what you should do if it happens to you. Prevention While a large proportion of personal information is leaked through corporate data breaches, it’s still important to exercise caution. Here’s how to minimize your risks: • Always check your bank and credit card statements for sus-

picious activity. • Only use trusted and protected websites to make payment transactions. • Don’t use password auto-fill features, as these store all your passwords in one place, which could be disastrous if someone gains access to it. • Shred documents containing sensitive information when you don’t need them anymore. • Never give sensitive information (like your credit card or social insurance number) over the phone or by email. • Leave your passport and social insurance number at home unless you absolutely need them. • Consult your credit report once a year. Intervention If you think you’re the victim of identity theft, contact the police immediately and then

notify the relevant governmental authorities, your financial institution, the credit companies you have accounts with and any other organization who could be affected by the incident.

To report a fraud to the Government of Canada or find out more about the types of fraud affecting Canadians, visit antifraudcentre.ca.

Additionally, you should ask for your credit report and close any fraudulent accounts. You’ll also need to cancel all unauthorized transactions individually by contacting the affiliated creditors directly. Rebuilding your credit after someone steals your identity may be challenging. Some experts recommend investing in identity theft and fraud insurance, which is sometimes offered by financial institutions.

How financial stress impacts your physical and mental health Worried about your finances? If so, you’re not alone. According to a recent survey by the Financial Planning Standards Council (FPSC), Canadians ranked money as their greatest

source of stress. Worrying about your finances, however, can take a serious toll on your physical and mental health. Financial stress has been linked to symptoms of

depression and anxiety as well as other health problems such as substance abuse, insomnia, migraines, high blood pressure and cardiovascular disease. Financial stress can even put you at greater risk for heart attacks and strokes.

tor or mental health professional for advice on how to manage and reduce your levels of stress.

If financial stress is affecting your well-being, it’s important to take action before it gets worse. To address the root of the problem, talk to friends and family about your financial worries and consider meeting with a financial adviser.

According to Statistics Canada, Canadians have more household debt and less disposable income than ever before: the ratio of debt to income has steadily increased over the last 30 years, from 66% in 1980 to 170% in 2017.

Developing a realistic budget and educating yourself about personal finance can also help to decrease your anxiety surrounding money. You should also talk to a doc-


FINANCIAL FOCUS | 2020 PROVIDED CONTENT

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CAR HEALTH/LIFE HOME MORTGAGE TRAVEL Car insurance. Home insurance. Health insurance. Travel insurance. Mortgage insurance. Life insurance. Do you really need so many insurance policies? Even the ones that aren’t mandatory? With­out a doubt, the answer is YES. Of course, when everything is going smoothly, it can be a bit frustrating to pay for all kinds of insurance policies. But think about it: robberies, fires, accidents, severe

illnesses, job layoffs and sudden deaths don’t always happen to strangers. Since no one’s immune to life’s unexpected roadblocks, it’s better to be over-prepared than inadequately so. If you don’t take the right steps now, you’re setting yourself up for a potential financial disaster down the road if ever things take a turn for the worse. Don’t deny yourself the peace of mind of knowing that you and your loved ones are

financially protected against a wide range of contingencies. Shop around Today’s insurance market encompasses a staggering variety of coverage options. Always take the time to shop around for a solution that’s right for your needs and your budget. Keep in mind that insurers frequently offer discounts when you purchase more than one type of policy at the same time.

How to survive a layoff If you’ve been laid off, it’s important to reevaluate your finances. Here are some tips to help you manage the situation until you find another position. Evaluate the situation Review your savings and adjust your budget accordingly. List your recurring expenses, including those for your cable, cell phones, medications, rent and mortgage. Then, tally up what income you have, if any, and determine for how long you can make ends meet. Decide where to cutback You probably won’t be able to maintain the lifestyle you’re used to while you’re unemployed. Start by making sure you can cover essential costs, such as those for food, medication and shelter. Then, cut back on unnecessary spending (such as by terminating subscriptions or at least putting them on hold). You should also talk to your financial

institution to see whether you can renegotiate bill and credit payments. It’s also important to avoid taking on any new debt. Secure income sources You’ll likely need to supplement your savings while looking for work. Don’t wait until you’re struggling to meet basic living expenses before looking into securing un­ employment benefits. You may also want to consider getting a part-time job until you can find something more permanent. For more advice, don’t hesitate to speak to someone at your financial institution, as they could help you find ways to minimize costs while you find work. Be prepared

Experts recommend having an emergency fund with sufficient savings to let you live for three to six months. In addition, maintaining a strong professional network could make finding a new job much easier. Periodically updating your resume and attending networking events is a good idea, even if you aren’t expecting to be laid off.


FINANCIAL FOCUS | 2020 PROVIDED CONTENT

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Five facts about RESPs The Registered Education Savings Plan (RESP) is one of the best tools available for parents wishing to alleviate — or eliminate — the financial burden of their children’s future educational endeavours. Here are key things to know about these tax-sheltered accounts. 1. RESP contributions cannot be deducted from income tax, but earnings accrued via interest will not be taxed until the funds are withdrawn. 2. There is no annual cap on contributions to RESPs. However, there is a lifetime limit per child of $50,000. 3. Under the Canada Education Savings Grant (CESG), any RESP beneficiary stands to gain up to $7,200 in grant money from Employment and Social Development Canada (ESDC). ESDC pays 20 per cent — up to $500 per year — of annual contributions to an RESP, regardless of family income.

4. In addition to the CESG, ESDC issues the Canada Learning Bond to modest income families, depositing up to $2,000 into each child’s RESP. Families that qualify for the National Child Benefit Supplement (NCBS) — now packaged within the Canada Child Be­nefit (CCB) — are eligible. The ESDC grants an initial $500 to open the RESP and $100 for each subsequent year (up to 15 years). 5. If the beneficiary doesn’t pursue post-secondary education, his or her RESP can be transferred to a sibling. Alternatively, you can move your investment and the accrued interest into an RRSP or cash it out. In both of these cases, government contributions (and any interest they’ve generated) must be returned to the government.

Contact a financial advisor and get started!

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RESP beneficiaries stand to gain an additional $7,200 in grant money from the Canadian government.

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How hiring a tax professional saves you money E

very April, taxpayers rush to get their taxes in before the deadline. While it’s possible to save money by doing your taxes yourself, here are two important reasons why you shouldn’t. You’ll avoid mistakes and omissions When people file their own taxes, even with the help of software, they often make mistakes. These errors typically involve failing to claim certain types of tax credits or claiming credits that don’t apply to the person filing. The first kind of mistake will cost you money, but the second may be considered a form of tax evasion. While a mistake doesn’t mean you’ll be convicted of tax fraud, you could be audited, which is a lengthy and inconvenient process. You may also have to pay a fine. Furthermore, people who are selfemployed, especially when working at a home-based business, often aren’t aware of the complicated rules governing their tax situation. Merely being in business for yourself is oftentimes enough to flag the interest of the Canada Revenue Agency. You’ll get all the credits you’re owed There’s a staggering number of tax credits and finding out which ones you’re eligible for can be a herculean task. Keeping up to date with those credits every year is simply not possible for most people.

A good tax accountant will be aware of all the credits you’re entitled to, ensuring that you don’t pay a cent more than you absolutely have to. This is especially important if your financial situation is complicated or you’re self-employed. The bottom line is that filing your taxes with the help of a professional means you’ll benefit from every credit you’re entitled to while avoiding costly mistakes. This year, be sure to hire an expert.


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