A common financial mistake that people make is not investing in their Registered Retirement Savings Plan (RRSP) or Tax-Free Savings Account (TFSA) early enough. They often don’t start contributing until later in life when they are more financially stable. The truth is, starting smaller and earlier, will be more beneficial. Your retirement fund could grow to seven figures, even if you only contribute a fraction of the allowable yearly maximums.

If you make $60,000 a year, you can contribute over $10,000 to your RRSP account and another $6000 to your TFSA annually. There are huge tax-saving benefits that come with this as well.

It’s important to note that your yearly contribution limits can be carried over as you grow older and have more disposable income. However, you do need to be very disciplined with your spending. As you get older and start earning more, you will also likely spend more. Think kids, vacations, cars, etc. That extra disposable income you were envisioning may not materialize until you are in your mid 50’s. But if you scrape together what you can now, it will make a huge impact in the long run, even if it’s just saving 5% ($200/month at a $60,000 salary). Investing $200 a month from age 18 to 65 at 7% would give you $790,139. The same $200 at 7% from age 28 to 65 would yield just $384,810.

There are plenty of rules, regulations and strategies to consider and every angle of the TFSA vs RRSP debate has been extensively written about. While you do need to understand the basics of how they work, the simple goal for the vast majority of us should be to put something, anything, into one (or both) of these accounts on a regular basis and start investing — you can’t go wrong!

An investment property can be a great option if you’re looking for a way to generate additional monthly income. It can also be a great opportunity to help grow your wealth over time. We’ve summarized three key benefits of owning an investment property below.

1. Supplement your income now and boost your future pension, creating more financial freedom
2. Buy your dream retirement home now and rent it out until you’re ready to use it
3. Increase your monthly cash flow for potential expenses beyond retirement savings

However, before you buy an investment property, there are a few things to know:

• Buying a property for the purpose of renting it out comes with different qualifying criteria and mortgage product options, than traditional home purchases.
• The minimum down payment required is 20% of the purchase price. It is important to note that these funds cannot be gifted; they must come from your own savings or the equity in your current home. Consider factoring the funds in for closing costs, potential repairs and maintenance if you’re refinancing to use equity.
• Only a portion of the rental income can be used to determine how much you qualify for. Some lenders will only allow you to use 50% of the rental income, while others may allow up to 80%.
• Interest rates usually have a premium when the mortgage is used for a rental property. The premium can be anywhere from 0.10% to 0.20% on a regular 5-year fixed rate.
• When it’s time to sell, you will be subject to capital gains tax.

With the right purchase price, this can be a great way to supplement income and make the most out of your retirement. You will have the opportunity to produce monthly cash flow now, and cash out by selling the property later.

Before getting started, it is important to calculate the cost of your investment (purchase price and closing costs), as well as the maintenance (approximately 1% of the property value for the year). Then, compare it to the current rental prices to be sure it’s a profitable investment.

If you’re looking to purchase an investment property, be sure to reach out to us here to discuss your options and understand what’s required.

Creating a monthly budget is the quickest way to take control of your finances and understand where your money is going. You can then review your monthly spending habits to get a snapshot of your incoming and outgoing transactions, and determine areas for improvement.

Step 1: Calculate Your Income

The very first step to creating a budget is determining your income. It is important to know what your net income is each month, so that you know what you have available to spend.

Step 2: Track Your Spending

Once you have determined your income, you will want to take a look at your spending. Reviewing and categorizing all your monthly bills can help you break things down. To start, list out your fixed expenses – these are things like car payments, loans, rent or mortgage costs that do not change on a monthly basis. Next, take a look at your variable expenses – things like groceries, gas, entertainment, etc., and determine your average spend. This is typically the area where people are able to cut back.

Step 3: Set Realistic Goals

Realistic goals are vital for long-lasting financial health. It is important to determine what you cannot live without and where you can cut costs or scale back on spending. Ideally, when it comes to your monthly budget, you want to consider the 50/30/20 rule, which applies the following:

• 50% of your spending is for NEEDS such as rent or mortgage payments, car payments, utilities and groceries
• 30% of your income goes to WANTS such as shopping, vacations, streaming services, etc.
• 20% of your income goes to SAVINGS OR DEBT such as emergency funds, retirement, child’s education and/or credit card payments

Step 4: Make a Plan

Once you have your goals set, you can now make a plan to tackle your financial position and ensure a healthy cashflow each month. For some, setting realistic spending limits for each category works well. For others, taking a look at their expense list and re-prioritizing can free up funds.

Step 5: Adjust Your Spending

Now you can take a look at adjusting your spending to ensure you remain on budget. This is also a great time to review your fixed expenses. Perhaps you can save money by getting a better interest rate on your mortgage or changing your payment schedule for your loan.

Step 6: Stay on Track With Your Budget

Lastly, once you’ve tracked all your spending and income, and determined a monthly budget, you will want to stay on track. Tracking your budget on a monthly basis is important to catch any changes in your spending habits. It is also a good idea to conduct an annual review and take into account any increase in expenses or wages that may require shifts in your overall plan.

Remember! A healthy, well-thought-out budget is key to financial freedom and comfort.

Looking for financial advice on your personal finances? Here are five timeless recommendations:

1. Start Investing Small and Early

Only around 5% of Canadians under 25 have a TFSA (Tax Free Savings Account), which means 95% have already missed out on seven years of compounded returns. Starting small could be as little as $100 month, and starting early means now! Invest what you can and don’t ever think that any amount is too small.

Investing $100 month at 5% for 47 years (age 18 to 65) will give you $68,754 more than someone who did the same starting from age 25.

2. Make More OR Spend Less?

Our financial advice is to do both, but there are limits on how much income you can generate and cutting back on expenses has a bigger impact on your bottom line. If you’re lucky, you may find some expenses you could easily do without, like that lightly used gym membership or seldom watched 200-channel cable package.

A part-time job or side hustle isn’t a bad idea, but you will spend more time working and less time enjoying life. Don’t forget that any extra income is fully taxable — you might need to earn $10 in order to get the same result as a $7 spending cut.

3. Re-Evaluate Your Wants and Needs

A 1200 square foot bungalow was the standard for most families in the early 1970’s. These days, houses are now over 2000 square feet on average and come with plenty of high-end finishes. Being able to live comfortably later in life will come from making smart spending decisions.

4. Understand Credit and Debt

131 months! That’s how long it takes to pay off a $1000 credit balance paying the minimum amount — Plus it will cost you almost $1000 more in interest charges! Many people carry a credit card balance and are blissfully unaware of just how much it is costing them each month.

The key is to be knowledgeable about your debt. Track what you owe and how much that debt is costing you. For example, refinance your mortgage or draw on home equity to pay off higher interest loans and credit cards.

5. Get Financially Literate

Managing your money has become more difficult as we have a lot more spending, saving, and investing options. But, we also have access to a lot more information and tools to help us. For example, diving into the real impact of those investment fees on your mutual funds (it’s a lot!) can easily be investigated online in just a few minutes.

Yesterday the Bank of Canada surprised all economists and financial industry professionals by an increase to the overnight target rate of 1.00%. This was in response to the continued rise of inflation across the country.  Most were only predicting an increase of 0.75%, so the 1.00% was higher than expected.

Here’s what you need to know about yesterday’s increase:

• The Prime rate pertaining to mortgages and lines of credits will increase to 4.70%; most will be today or at the first of the month
• Your discount off of your mortgage will still apply, meaning that if you have a mortgage at Prime -0.90%, your new rate would be 3.80% (4.70% – 0.90% = 3.80%)
• For every $100,000 in mortgage amount, it will cost you an extra $55 per month
• A Variable Rate or Adjustable Rate will determine if your payment changes when Prime does; call our office if you need help to clarify that
• The Bank of Canada indicated that they are predicting we will see additional increases by the end of the year in order to combat inflation.  Until Canadians slow down on spending, whether it’s cars, houses, entertainment or shopping, the Bank of Canada will do what it can to curb spending. You need to budget and plan accordingly with your finances in the next 12-24 months
• Avoid jumping to conclusions when you hear things in the media. We can do a full analysis of your mortgage if you reach out to us.  Please call us directly at 604-552-6190 or email trish@primexmortgages.com
  
• There are a number of options that we can look at when deciding how to handle future rate increases, whether it is locking in, transferring your mortgage, extending your amortization or consolidating other debts

As we have said before, it is important that you do not panic! Let us help you work out the best strategy for your unique situation.

Mortgage pre-approval means that a lender has stated (in writing) that you qualify for a mortgage. They will specify the term, interest rate and amount you qualify for based on the documentation you submitted of your current income and credit history.

There are three benefits to getting a mortgage pre-approval:

1. It confirms the maximum amount you can afford to spend

People are always tempted to start their search at the top of their budget but it is important to remember that there will be additional fees. Closing costs can range from 1% to 4% of the purchase price. By factoring these into your budget, it can help you narrow down a home that is affordable and ensure future financial stability.

2. It can secure you an interest rate for 90-120 days while you shop for your new home

Getting pre-approved guarantees that the rate offered to you will be locked in from 90 to 120 days. This helps if interest rates rise while you are still shopping. However, if the rates decrease, you would be offered the lower rate.

3. It lets the seller know that securing financing should not be an issue

Lastly, having a pre-approval lets the seller know that you are able to make the purchase. This can be very helpful in competitive markets.

Once your pre-approval is in place, you’ll want to make sure that you do not jeopardize it. It is important that you don’t quit or change jobs, buy a new car, transfer large sums of money between accounts, leave bills unpaid or open up new credit cards.

If you have any questions or want to get your pre-approval started today, don’t hesitate to reach out to us at 604-552-6190 or by applying online here.