Build a Holiday Budget with our handy Budget Builder!

Build a Holiday Budget in Minutes!

According to Canadian Living Magazine, the average Canadian adult spent $766 on holiday gifts in 2015. About 27 percent spent over $800, while 23 percent spent $200 or less.

Do most Canadians stick to their budget? Yes, but…

stick-to-your-budget

Source: thechive.com

 

Our handy YNCU Holiday Budget Builder can help you quickly build a budget. Our advice? Print off a copy, fill out the first three categories, then bring it with you while shopping. Fill it out as you go so that you can stay on top of your spending. Then when January rolls around, you won’t be one of the 30% of Canadians that regrets how much they spent for Christmas!

Holiday Budget Spreadsheet

Here’s 6 reasons why a budget is your most powerful tool!

Did you know that according to the Financial Consumer Agency of Canada, less than half (46%) of Canadians have a budget, yet the vast majority (93%) of those who do budget stay within it most of the time. What does this mean for you? It means that if you put in the effort to start a budget, you will probably stick to it. It also means you can feel more confident about your future – a budget can completely change your financial destiny.

infographic - 6 reasons why budgeting is your most powerful tool

Myths about retirement – Part 2

family on beach

Last week I talked about some of the common myths of retirement, here is a continuation of some of those myths.

Myth #4 – Never touch your capital.

Conventional thinking and approaches often work on keeping your assets intact. That may work for the wealthy, whose investments generate plenty of cash flow so that they can preserve their capital for their children and grandchildren.

For the rest of us, it’s okay to spend your capital as a way of providing lifetime income. While saving may be a goal in itself during your working years, plan on an orderly spending of what you have saved during retirement. Isn’t that what you planned? It really is okay to spend your capital. That’s what it is there for.

The idea for many is to spend down in retirement. That’s why you save. Work with a retirement income planner on ensuring that you have enough capital to provide you with the cash flow you need no matter what happens; no matter how long you live. Look at alternatives to provide legacies for children and favourite causes while giving you the cash flow you’ll need.

 

Myth #5 – You need 70 to 85 percent of your current income level in retirement.

A growing number of analysts and researchers on retirement income and spending patterns have found that most people will be fine if they target 50% of their pre-retirement earnings. Statistics Canada has many years of supporting data on this.

You see, the focus should be on consumption dollars, what you spend on yourselves and your own lifestyle. For most Canadians, that excludes mortgages, child rearing costs and saving for retirement – things you wouldn’t necessarily be spending money on during retirement. You will need 100% of your consumption dollars and some extra money in the early, active years of retirement for those special trips and experiences you have dreamed about for years. Your actual replacement income goal will depend on your marital status, whether you own a home, whether you have children and how much money you earn, so the range can go from 40 to 60 percent.

Working with an advisor trained in the unique field of retirement income planning can prove greatly beneficial in order to work out what you need and what you want to do throughout the various phases of your retirement.

 

Myth #6 – You need that initial level of retirement income, indexed for the rest of your life.

I’m sure you can come up with a list of things that don’t fit the “set it and forget it” philosophy. Set the cruise control and forget it. Set the room temperature and forget it. Invest in a certain investment that has a particular risk associated with it and forget it. You need to make adjustments as the situation changes, as your needs and priorities change. Retirement income planning works like that.

Retirement isn’t one long vacation. It isn’t one period in your life. It represents the longest set of phases in your life. Each phase will have different needs for cash flow.

You’ll need more money in your early, active years. You then settle down to a more normal retirement where expenses drop. Then late in life, poor health, the loss of your spouse or partner, losing your driving license and your attitude and behaviours may cause you to spend even less money.

Yes, you may require money for long term care needs, but hopefully you planned for that before your retirement so that those needs aren’t coming out of your regular cash flow late in life. The amount of money you’ll need and the most efficient means of getting are important points you should review yearly. Set up an investment and income stream that is flexible and adaptable to changing circumstances. Stress test the plans, strategies and components to make sure they continue to do the job they were designed to do. Life changes and your needs for income will change with them.

 

Cheers

Grant Galloway, CFP, CLU, CHS

Financial Planner

Grant can be reached at ggalloway@yncu.com or at 519-579-7324 ext. 1 or 1-866-328-7324 Toll Free

 

 

The low-down on down payments

Buying a house

Recently, we discussed things you need to be aware of when buying a home – I want to talk specifically about the various options to building your savings for the all-important down payment.

Let’s say you’re a young adult, just establishing your savings plan – with the ultimate goal of, one day, owning a home. The minimum requirement for a down payment is 5% (*The minimum down payment requirement for mortgage loan insurance depends on the purchase price of the home. For a purchase price of $500,000 or less, the minimum down payment is 5%. When the purchase price is above $500,000, the minimum down payment is 5% for the first $500,000 and 10% for the remaining portion. Mortgage loan insurance is available only for properties with a purchase price or as-improved/renovated value below $1,000,000), with Canada Mortgage and Housing Corporation (CMHC) insuring your Mortgage.

There are a few ways of going about saving this money – I’d recommend using a Retirement Savings Plan (RRSP) or Tax-Free Savings Account (TFSA). Each have unique costs and benefits.

 

RRSP Savings and the Home Buyers Plan – If you are currently, or have considered contributing to an RRSP, there is a program designed to allow you to withdraw up to $25,000 from the plan (without penalty) to put towards a down payment. The plan requires that you repay the amount back to the plan, just as if you borrowed it. If you don’t make repayments over the allowed 15 year period, you would claim 1/15th of the withdrawal as income in the given tax year.

What I like best about this strategy is, you take advantage of your smart investment moves and open an opportunity for another investment. This plays very well into long-term building of your net worth and, if your employer is making matching contributions to your RRSP, you can quickly build up your savings balance.

Running short on your RRSP contributions? It might be worth considering an RRSP investment loan to catch up on unused contribution room. The increased contributions can drastically reduce your taxable income and yield a larger tax refund.

A really smart move would be to contribute that tax refund to your loan – or, contribute the refund to your RRSP’s.

More information on the Home Buyers Plan can be found on the Canada Revenue Agency website: http://www.cra-arc.gc.ca/hbp/

 

Tax-Free Savings – Similarly to RRSP’s the interest earned on any deposits in your TFSA are exempt from taxation – meaning, your hard earned dollars will receive interest and you will not need to claim the returns as income. Withdrawals from the plan are very simple – there are no penalties, and the funds can move freely from the plan to your down payment without filling out any extra paperwork.

You cannot, however re-contribute the money taken from the TFSA until the following calendar year. And, there is no additional tax benefit for contributing money to your TFSA.

While the TFSA is a great investment vehicle for short or long-term investing; I am of the firm belief that, when it comes to down payments for first time buyers – it’s best to take advantage of the Home Buyers Plan mentioned above.

red piggy bank

So, you may be asking yourself, what if I don’t have an RRSP or a TFSA and I’m not very good about saving money – what else could I do?

Well, some Mortgage companies, Banks and Credit Unions will offer a personal loan for your down payment – but I’d caution against this. In addition to making payments for the Mortgage, Property taxes, heat/utilities, insurance – you’re also going to have to make an additional loan payment. If your budget can sustain this – by all means, it’s worth looking into further.

Alternatively, you could also venture in the direction of having a gifted down payment from a family member or really good friend (and trust me, they’d be a very good friend if they are willing to give you money to buy a house). This is becoming more of a norm in the home buying market. With house prices rapidly increasing in the region, you may feel like you’ll be playing a game of cat and mouse – your savings grows, but the price of housing grows too. So, sometimes having Mom and Dad or a grandparent help out, is a great hand up.

 

Here are some great links to CMHC’s website for more information and tools:

CMHC – Homebuying Step by Step: http://www.cmhc.ca/en/co/buho/hostst/index.cfm

CMHC – Ready, Set, Home App: http://www.cmhc.ca/en/co/buho/buho_018.cfm

** Ready Set Home is a tool to help homebuyers, especially first-time homebuyers, make informed choices when buying a home. Ready Set Home offers tools to guide you to figure out how much you can comfortably afford to spend as well as keep track of all the details during your home buying process.

How to Finance a Renovation

blueprints, calculator and piggy bank

CMHC offers Purchase Plus Improvements program

My recent blogs have focused on purchasing and building new homes. I wanted to pause, re-focus and tackle a topic that is near and dear to my past: buying a house and renovating. I’m going to focus on, specifically, borrowing to accomplish both goals.

First, let me take a moment and explain a little. Typically, you buy a house – you scrimp and save for a down payment, and whatever savings is left you allocate this to your renovation; or maybe you dip into your personal line of credit; or, maybe you apply for a Home Depot/Lowes Department Card. Both seem to be the typical approach to buying and renovating. Though, I propose that there is an easier way to go about this whole project.

I talk a lot about CMHC (Canada Mortgage and Housing Corporation) – they are the folks who insure Mortgages with less than 20% down. They have programs for green financing, new to Canada purchasers, rental properties, vacation/secondary properties – but they also have a fantastic program for renovations. The program is called “Purchase plus improvements” and it deals specifically with Mortgages where the renovation budget is rolled into the balance of the purchase loan.

So, let’s pump the brakes a little here and talk about the reason behind the program. We know that as years go on, home fashions change, home systems age and become less efficient and there just aren’t enough builders and land to be building new homes. If you’ve ever spent a rainy afternoon watching HGTV or the DIY network – you’ll see that renovating a property can significantly change the look and value of the home; and taking this route is becoming more and more popular.

CMHC recognized a shift in the market – there are homes in desirable neighbourhoods that aren’t as desirable as they once were – so they created a program whereby the purchasers are able to finance their renovation project into the balance of their Mortgage. The work these buyers undertake will improve the market value – and CMHC approves the loan to be in excess of the purchase price, but in line with the return on equity with renovations.

Here’s an example of a purchase plus improvements loan we recently completed (names and addresses have been replaced with fictitious ones)

Buyers: John and Mary Smith

Address: 111 Neighbourhood Avenue, Kitchener

Purchase Price: $300,000                              Renovation Budget: $30,000

Down Payment: $16,500 (5% down + 5% of renovation budget)

Renovation plans: Remodel main bathroom, paint interior of entire home, replace air conditioner, build deck and replace main level flooring with hardwood

Improved Value: $330,000

Total Loan (net of CMHC Premiums):     $313,500

                                                                                $285,000 for purchase of 111 Neighbourhood Avenue

                                                                                $28,500 for renovations

Because John and Mary included the renovations in their Mortgage – they avoided having to pull more funds from their savings or borrowing this money from a personal line of credit. They were able to realize the potential of this home by fixing up some of its needs – and now they have the house exactly as they wished. The pre-work they invested into researching the renovation paid off big in the end.

https://www.creditsesame.com/blog/extreme-makeover-home-addition-06302011/

 

More information pertaining to the CMHC program can be found on their website:

http://www.cmhc-schl.gc.ca/en/co/moloin/moloin_020.cfm

Wondered where to get the biggest bang for your buck on renovations? Here are some great resources:

Kathy McCleary – HGTV: http://www.hgtv.com/design/decorating/clean-and-organize/which-home-improvements-pay-off

Scott McGillivray – HGTV: http://www.hgtv.ca/incomeproperty/article/top-5-renos-for-return-on-investment/

Mike Holmes – HGTV: http://www.hgtv.ca/holmesinspection/article/where-to-put-your-reno-dollars/

 

 

Buying a Home: 6 things you need to do before closing the deal [Infographic]

6 important items on your home buying checklist!

Let’s face it, while buying a new home is exciting, it can also be extremely stressful. This infographic breaks down 6 important items you’ll need to check off your list before closing day.

Mortgageinfographic1

MortgageInfographic2

Can living on a budget improve your health? You betcha!

 

woman lifting weights with trainer

5 Ways Living On a Budget Improves Your Health

You’ll be eating less food that’s bad for you

We all know how easy it is to slip through the Tim Horton’s drive through on the way to work, grab a quick lunch at McDonalds, and/or order pizza on Friday night because we’re exhausted by the end of the week. However, these spending habits add up! Several years ago my husband and I were in the habit of ordering pizza every Friday night for our family of five. With an average bill of $40 including tip, I calculated that we were spending about $2,000 a year – on pizza! We now make our own pizza every Friday night – it not only costs less, the toppings we use make it much more nutritious. Plus, it’s delicious!

2 male hikers

Budget friendly entertainment often involves more exercise

Consider going hiking, playing tag with your kids, taking a bike ride, or going to the community pool. Budget friendly entertainment can take you outdoors to explore, walk and play, which is great for both the body and mind. It’s also a terrific way to improve your health in the process.

 

When your budget is in place and you aren’t creating more debt, you will have less stress

Financial strain is one of the biggest causes of stress in most families. Added stress can lead to health issues like:

  •  Heart disease                                                       man with hands on his head because he is stressed
  • High blood pressure
  • Asthma
  • Obesity
  • Diabetes
  • Headaches
  • Depression and anxiety
  • Gastrointestinal problems

 

When you are living on a budget, you can relieve stress by paying off debt, and staying out of debt. Creating and maintaining an emergency savings fund will also help to relieve stress.

You have more money to spend toward a gym membership or equipment 

A budget does more than just provide a blueprint for living within your means. It can also help you to save money for things that really matter to your quality of life. This could include a gym membership, personal exercise equipment, or working out with a personal trainer.

Poor spending habits hurt relationships, while good spending habits can help relationships 

Relationships are greatly impacted by a family’s financial situation. The stress of poor financial decision making can cause overwhelming stress and friction between family members. Not only does this effect relationships, it can lead to worsening physical health. Changing spending habits and decreasing debt load can alleviate stress and force couples and families to focus more on their relationships. Parents also provide a good role model to kids, because kids tend to emulate the spending habits of their parents.

 

The moral of this story? Living on a budget really can help you to improve your health. Your health is more important than owning a fancy car, designer purse or an expensive house you can’t really afford . By creating and adhering to a realistic budget , you can improve both your physical and mental health.

Need help creating a budget that you can live with? Contact your local YNCU branch to make an appointment. We have locations all over Southwestern Ontario, and now in Sault Ste. Marie and Timmins too!

Building a House – Matt Lukas shares his experience

sectional couch

Subscribe to our blog to keep up with Matt’s monthly updates focusing on his house building experience.

As my wife and I do our progress inspections of the new build, we find ourselves getting into discussions about the new furniture and fixtures that will complement the house’s new style. We’ve visited a few different retailers to discuss our options – and we’ve done some research to figure out when is the right time to buy.

I’ve been a little taken back by sticker shock on some items – we want to get a new sectional sofa for our main living space, but I can’t justify spending over $5,000 for a couch, no matter how comfortable it is. The sales associate was on-the-ball noticing my look of dismay, and quickly chimed in that in-store financing was available. Not a bad idea, but not for me. couple with their dog

In my last blog I talked about budgeting, making sure my cash flow matched the needs and wants I had at the time. So while I could forego a little bit of savings to have a really nice couch – it doesn’t make long-term financial sense for me to spend the money now on furniture, and potentially forego years of retirement savings or dip deeper into my emergency savings if something bad happens.

This experience brought forward a few financial tips you may find useful.

Number one: Applying for in-store financing

Credit is important, using credit is important – but using your excellent credit to temporarily finance household goods is detrimental to your credit. Equifax Canada says that up to 15% of your credit score is comprised of the length you have established credit. New credit can hurt your score over the short run. They also note that 10% of your credit score is comprised of the type of credit you own – Mortgages, loans and lines of credit are good; credit cards are okay, in-store financing or prime lending is not so good and can hurt your score over the long-run. So, let’s go back to my situation in the furniture store.

Here I am, sitting on an expensive couch that my wife and I like, we’re feeling the pressure of buying from the salesperson and we need to make a snap decision about money. My best piece of advice, take your time and walk away if necessary. So, that’s what we did.

Number two: Do your research

It turns out, that awesome, expensive couch we were sitting on is manufactured and shipped from the States. As of right now, the Canadian dollar trades at roughly $0.75 USD – so from my perspective, the item is overpriced by 25% just based on the disparity of the currency. If I was buying last summer, this item should have cost much less.

My outlook has changed slightly, now when shopping for furniture, I’m going to ask about Canadian-made items – the pricing is much more competitive, the shipping and manufacturing time is less, and the quality is truly comparable.

Number three, my last point: Compound interest

I mentioned earlier that this type of purchase could significantly impact years of retirement income, and you may have scoffed and thought, “Really Matt, over $50 or $100 a month?”

The truth is, I’m not retiring tomorrow, and my investment time frame will be another 25 to 30 years (depending on the financial decisions I make today). The more I contribute to my savings now, the more opportunity that money has to earn interest; and, that interest earning interest, and so on. A wise man once said, “The greatest tool an investor has in their tool belt is time”, don’t squander the time you have now to plan for your future.

Tools I recommend:                                                                         

YNCU Retirement Planning Tools: https://www.yncu.com/Personal/ToolsAndCalculators/Calculators/RetirementPlanner/

Consumer Reports:

http://www.consumerreports.org/cro/index.htm

Equifax Canada: http://www.consumer.equifax.ca/home/en_ca

Follow me on Twitter @matt_at_YNCU for updates and more ways to be financially fit.

 

house under construction

Are you buying or building a house? Share your comments and questions with us!