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Financial Success

Sticker Shock – Tips to Fight Inflation

Unless you’re living off the land deep in the Northeastern BC wilderness, it’s likely that inflation is hitting you in the pocketbook — hard. 

Here’s a news flash: inflation — when the demand for goods outpaces supply — is getting worse. 

Month-over-month inflation is driving prices higher at the grocery store and gas stations, with predictions of $2.50/litre of fuel by summer. Consumer goods like furniture, used cars and car rentals, airline fares and hotels are shooting upward. House prices across BC have jumped significantly.  

Here are some figures to chew on: Statistics Canada reports that the Consumer Price Index, which represents changes in prices as experienced by Canadian consumers, rose 5.7 percent in February from the year earlier — the highest inflation rate in 30 years. Gas prices rose by 30 percent in 2021. Food prices, which increased by 3 to 5 percent in 2021, are expected to leap another 5 to 7 percent this year.

Production shortages and shipment bottlenecks — holdovers from the pandemic — are largely to blame for higher prices. The rise in fuel has a lot to do with what’s happening globally.   

If you’re like most Canadians, you’re feeling the weight of household debt. Inflation is an added burden but you can tackle debt and inflation by creating a budget. It’s simpler than you might think, and if you need help, North Peace Savings & Credit Union is here for you. 

Track expenses

  • How much are you spending and where? Inflation will affect areas of spending differently. If you’re a family with kids, more of your income will go towards groceries. 
  • Establish “needs” versus “wants.”
    • Needs include: mortgage or rent payments, groceries, utilities, insurance and medications. 
    • Wants include: the latest iPhone, new car, dining out, a trip to Mexico — even alcohol. 

Create a balanced budget

  • First, establish “needs” in your budget, which gives you a sense of how much leftover income you have for investments as well as “wants.” 
  • Current inflationary rates must be taken into account when establishing as budget, as you need to anticipate increases in food, transportation, utilities and clothing.
  • Identify potential savings — even small ones — such as using credit card points to pay down debt or buy gifts etc… 
  • Find potential fuel savings by downloading the GasBuddy app. 
  • Walk or cycle more to save fuel and get into shape.  
  • Plan on a “staycation” for your summer holiday. No place is more beautiful than Northeastern BC. 

Investments 

  • Don’t neglect your investments, down payment fund or retirement plans, even though your budget is feeling stretched. Consider putting more into real estate and equities, which provide better protection against inflation in comparison to GICs or bonds.
  • Establish a rainy-day savings fund to help buffer against future price shocks and emergencies: your vehicle breaks down, the furnace dies or Max the dog gets sick. 
  • A North Peace Savings & Credit Union Advisor can help you re-balance your investment portfolio or make new investments that reflect your changing financial circumstances. 

Credit Card Debt 

  • If you have more than one credit card, pay off the one with the highest interest rate first and pay the minimum payments on the others. As soon as you’ve cleared the balance on the first card, increase the payment on the card with the next highest interest rate. Eventually, your cards will be paid off. 
  • Talk to a North Peace Savings & Credit Union Advisor about a low-interest line of credit to pay off high-interest cards. 

Worried about inflation? Connect with North Peace Savings & Credit Union and let an Advisor help you develop a plan. 

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Financial Success

How to Start Investing

So, you’ve landed your first “real” job!

Now’s the perfect time to create your first investment plan

First, let me congratulate you on getting through school and starting your first “real” job. You’ve worked hard to get here, and I’m sure there are many things you’ll want to spend your new paycheque on. An apartment of your own, some decent takeout (not from a student cafeteria), maybe a little travelling.

You should do those things, as long as they fit into your budget. You’ve earned a little breathing room. But now that you have some stability, you should also start thinking about investing for your future. Here are three ways to get started.

1. Pay down debt

As a student, you may have accumulated a mix of debt, from student loans to credit cards. Create a debt-repayment plan that focuses on paying off your high-interest debt, like credit cards, first.

Student loans often carry lower interest rates – and in Canada, the interest you pay on many student loans is tax-deductible – so these loans might not be your top priority. At the same time, many student loans require you to make a minimum monthly payment shortly after you graduate, and you only have so much time to repay the entire loan. So, you need a loan-repayment plan to make sure you don’t default on these loans.

2. Build your emergency fund

Post-graduate life isn’t all sunshine and rainbows. Sometimes your air conditioner breaks down in the middle of a heatwave or your car dies on the way to a meeting. I suggest putting 10% of your paycheque into an emergency fund to cover unexpected expenses. The goal is to eventually have enough money in your emergency fund to cover three to six months’ worth of expenses, but it can take a while to get there.

Your emergency fund should be low risk and easy to access. You can use a regular savings account, but there are tax benefits to using a Tax-Free Savings Account (TFSA). The investment income you earn within your TFSA isn’t taxed, and neither are your withdrawals.

3. Think about retirement

This is the best time to take advantage of the power of compounding. If you start putting just $200 a month into your Registered Retirement Savings Plan (RRSP) at age 25 and let it grow over the next 40 years at a 4% rate of return, you’ll have about $237,000 in your RRSP when you turn 65.

Wait another 10 years to start investing the same amount at the same rate of return, and you’ll reach age 65 with about $140,000 in your RRSP. That’s a big difference.

There are many ways to save for retirement, but RRSPs offer the most significant tax advantages. You can deduct your contributions from your income taxes, and you won’t pay taxes on any investment income you earn within the plan until you start making withdrawals.

If you’re ready to start investing, contact me today about creating your first investment plan.

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Financial Success

RESP Or TFSA? A Primer On Saving For Your Child’s Education In Canada

It’s easy to shut out the noise about rising tuition costs when your kids are still trying to navigate the early years of grade school. But ignoring the conversation altogether does a disservice to you further down the road.

In Canada, the average tuition cost for university – before the cost of books, travel and supplies – sat around $6,500 for the 2017-18 year rising to between $8,000 and $22,000 for higher-cost programs in medicine and law, according to Statistics Canada. And it’s consistently on the rise. Tuition costs 40 percent more than it did a decade ago.

But the price tag comes with a benefit. Research from organizations like the OECD has shown that people with a post-secondary education often out-earn, and outperform peers without some form of post-secondary education.

For a parent who sees the value, the question then becomes: what’s the best way to save for your child’s education?

RESP or TFSA or both?

I often point to two vital tools for building your child’s education: the Registered Education Savings Plan and the Tax-Free Savings Account. Both allow your after-tax contributions to grow sheltered from tax while that money is held in the plan. But both also come with their own unique set of rules.

Let’s start with the RESP – a plan set up to be used specifically for education expenses. With an RESP you can contribute up to $50,000 per child. The main draw with the RESP is government-matching under the Canada Education Savings Grant (CESG) – which pays up to 20 to 40 percent on the first $500 of annual contributions (dependent on your family income) and 20 percent on the next $2,000. The maximum annual matching amount falls between $500 and $600 with a lifetime limit of $7,200 per child.

You pay tax on any growth from investments in the RESP and CESG when the income is withdrawn. If your child chooses not to go to school, there are ways to transfer the money to another child or into an RRSP – both of which I can help facilitate.

The RESP is the best spot to put the first dollar for your child’s education and opening one makes them eligible for the Canada Learning Bond if your family falls into a lower income bracket. But the TFSA shouldn’t be discounted.

Unlike the RESP, the TFSA has no stipulation over how the money can be used which makes it a solid part of a wider savings strategy for your child’s education. Suppose you want to help your child out with rent or a car to get to-and-from school? The TFSA is your vessel. The contribution limit is currently $6,000 a year, which you start earning at age 18 (since it began in 2009). You can hold all sorts of investments that are widely available in Canada together with GICs and savings accounts, and income is tax-free.

The Final Word

Both RESPs and TFSAs are great ways to save but it’s important to remember that a holistic education savings plan is comprised of a number of working parts.

Contact me to set up a strategy unique to your needs.

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Financial Success

Good Debt Versus Bad Debt – Understanding The Gray Area

Debt is due for a rebrand. So often when we hear about debt in the news, it’s within the context of “bad debt” – households in over their heads with credit card bills and interest payments; students working three jobs to chip away at college loans; house-poor millennials saddled with mortgage payments because they tried to get in on the market before it moved even further from reach.

But not all debt is bad. There are ways to leverage it in order to open up economic opportunities that will advance your financial plan. The key is to learn how to talk about it and cut through the noise.

While mortgages, student loans and investing in your business are often classified as good debt, and cars, credit card debt and vacations are commonly seen as bad debt, it’s a bit more complicated than that. For instance, what if that car helps grow your business opportunities or what if you’re living beyond your means with the mortgage?

It’s time to re-calibrate the way we look at debt and see how it can be used to your advantage.

Understanding the gray area

I often look at the dividing line between the two as if it increases your net worth or has future value, it’s good debt. And if it drains your wealth and decreases your value, it’s bad debt. But this also negates the point that all debt comes at a cost and that cost of borrowing needs to be considered. Further to that, the cost of your debt should be considered in your financial plan.

Ask yourself: Are you borrowing money at the best possible rate and are you prepared if interest rates rise in the future? How will leveraging this debt improve your finances in the future? And what’s your response if things go awry?

Part of keeping good debt from turning into bad debt is stress-testing the different scenarios, knowing your comfort level, and developing a plan.

Using debt to your advantage

My role as your financial adviser is to set you up for the future, and part of that is managing debt. Together we can identify strategies that help you use debt to your advantage – from mapping out your cash flow and identifying the debt problem areas to prioritizing expensive delinquent accounts over lower interest and less pertinent debts. Debt can be restructured into more beneficial vessels that allow you to draw equity or consolidate the amounts you owe.

So don’t let debt’s bad rep get in the way of a good strategy. Talk to me about how it can fit into your plan.

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Financial Success

Buying A House? Get A Mortgage With Extra $ For Renos

Buying a home and becoming a homeowner is an exciting time in life that requires you to know a bit about the steps to get into your new home and the types of mortgages available.

A great option available is the Purchase Plus Improvements Program  (PPI) which allows you to make improvements to your home immediately after taking possession of the purchased property. 

Here’s how it works:

When applying for a Purchase Plus improvements mortgage, your application needs to include a contractor’s quote for the improvements you’d like to make. This step is done upfront with the offer to purchase the home. 

The contractor’s quote does not mean we need to specify exactly what materials will be used, but just more generally what will be improved along with the cost. For example:

  • Kitchen: New cabinetry, countertops, sinks and faucets, flooring, paint and backsplash.
  • Bathrooms: New toilet, paint, flooring and vanity.
  • Basement: Finished or partially finished including flooring, drywall, mudding and paint, ceiling and lighting. 

After the home purchase is complete, you need to come up with the funds to pay for the improvements, and then after the improvements are finished, the Financial Institution will release the improvement funds back to you from the mortgage. The contract work typically needs to be completed within 90 days. 

Speak with one of our North Peace Savings and Credit Union Advisors who can see if a Purchase Plus Program is right for you. 

Get started today! Contact an NPSCU Financial Advisor at 1-877-787-0361 

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Financial Success

Buying A House? Home Ownership May Be In Reach With Only 5% Down

Many people would love to buy a home, but don’t have the 20% down payment needed for a conventional mortgage.  But there’s good news. Homeownership may still be within your reach. That’s because you may be able to buy a home for as little as 5% down if you also buy mortgage default insurance.

What is mortgage default insurance?

Mortgage default insurance protects your lender if you default on the loan.  If you default on your mortgage, your lender can start proceedings to sell or take over your property. The insurance covers your lender’s losses after the property sells.

How do I get mortgage default insurance?

Your financial institution will arrange this insurance for you through Canada Mortgage and Housing Corporation (CMHC). They pay the insurance premium directly to the mortgage insurer and add these costs to your mortgage principal. You pay this insurance back to the lender, with interest, as a part of your mortgage.

Speak with one of our North Peace Savings and Credit Union Advisors who will discuss the options available to you. 

Get started today! Contact an NPSCU Financial Advisor at 1-877-787-0361 

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Financial Success

Buying a House? What Type of Mortgage Is Right For You?

Buying a home and becoming a homeowner is an exciting time in life that requires you to know a bit about the steps to get into your new home and the types of mortgages available.

Knowing the many mortgage options can help you select the mortgage that’s right for you. The 3 key areas to select from include rate type, payment schedule and amortization period (this is the length of time to pay off your new home).

RATE TYPES:  

FIXED-RATE: The interest rate and payment amount are locked in over the term. Great for those who want the security of knowing their payments will remain the same.

VARIABLE RATE: The interest rate will fluctuate with the Prime rate over the term of the mortgage. Great for those who think rates will decline so they can pay down more principal.

FIXED & VARIABLE RATE: A mortgage with a mix of fixed-rate and variable-rate components. Great for those who want the security of a fixed rate with the flexibility of a variable rate.

PAYMENT SCHEDULES:

MONTHLY: You make 12 payments a year due on the same day of every month. Great for those who want to keep flexibility in their budgets.

ACCELERATED BI-WEEKLY: Your monthly mortgage payment is divided in two and that amount is due every two weeks. Great for those who want to save in interest and pay off their mortgage faster.

WEEKLY: Your monthly mortgage payment is multiplied by 12 months and divided by 52 weeks to get a weekly payment amount. Great for those who use a weekly budget to keep close track of their finances.

AMORTIZATION AND TERM LENGTHS

AMORTIZATION PERIOD: 25 years is typical. A great choice for first-time buyers with less than a 25% down payment.

TERM LENGTHS: Term length can range, but many first-time buyers choose 5 years. Great for those who want to lock in their interest rate for a longer period of time.

Speak with one of our North Peace Savings and Credit Union Advisors who will find the right mortgage for you. Get started today! Contact an NPSCU Financial Advisor at 1-877-787-0361

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Financial Success

Buying A House? Info You Need To Supply

Buying a home and becoming a homeowner is an exciting time in life that requires you to know a bit about the steps to get into your new home and the information you’ll need to provide your financial institution to get a mortgage. 

Knowing what information is required can make you be better prepared for what is the largest transaction in most peoples’ lives.

Before preapproving you for a mortgage, a lender or mortgage broker will look at:

  • your assets (what you own)
  • your income (what you earn)
  • your level of debt (what you owe)

Financial institutions need you to provide the following:

  • identification
  • proof of employment
  • proof you can pay for the down payment and closing costs
  • information about your other assets, such as a car, RV or boat
  • information about your debts or other financial obligations

For proof of employment, you may have to provide:

  • proof of your current salary or hourly pay rate (for example, recent pay stubs)
  • your position and length of time with the employer (employment letter)
  • notices of assessment (NOA) from the Canada Revenue Agency for the past 2 years 

Your lender or mortgage broker may ask you to provide recent financial statements from bank accounts or investments. This will help them determine if you have the down payment ready. 

Your debts or financial obligations may include your monthly payments for:

  • credit card balances 
  • child or spousal support
  • car loans
  • lines of credit
  • student loans
  • other debts

At North Peace Savings and Credit Union, we pride ourselves on providing the best advice to our members and would be happy to help you on your path to homeownership. 

Get started today! Contact an NPSCU Financial Advisor at 1-877-787-0361 

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Financial Success

Buying A House? The 10 “Must-Know Steps”

Buying a home and becoming a homeowner is an exciting time in life that requires you to know a bit about the steps to get into your new home and your responsibilities along the way.

Did you know that more than one-third of Canadian homeowners polled in a Manulife survey shared that they were caught short of funds at least once this past year? About 10% said it happened to them a few times and around 4% percent stated that they were in a financial shortfall almost every month. 

Most home buying experiences are unique to the person and the home that they are buying but there are 10 must-know steps in the home purchase process that are common to almost everyone. 

Knowing what they are can make you be better prepared for what is the largest transaction in most peoples’ lives.

Step 1. Confirm Your “Readiness” 

Homeownership is a very big decision, and it involves a large upfront purchase and ongoing maintenance to preserve the value of the home and property. It also involves knowing what laws and bylaws apply to the land and home that you purchase so that you know what you can and cannot do with them. Some people think that they can do whatever they want on their property, but this is not the reality in today’s highly regulated world. 

Property use is regulated by local zoning bylaws and individual land titles often have things like covenants, building schemes, easements and other restrictions on them. In addition to the costs and responsibilities of homeownership, there are risks. For example, in the North Peace region, we get large snowfalls that have the potential to do damage to homes and most people purchase insurance to address the potential risks thereby adding to the ongoing costs. 

Knowing and understanding what is involved in the purchase of a home is an essential first step in the home buying process. If you are a first-time buyer check to see if any government plans apply to you (federal or provincial).

Speak with one of our North Peace Savings and Credit Union Advisors as they can certainly assist in this big decision.

Step 2. Know Your Credit Rating

Most likely, you’ll need a mortgage to buy your house. Your credit rating is important and impacts your mortgage interest rate.  Your credit history is maintained by at least one of Canada’s two major credit-reporting agencies. They are TransUnion and Equifax Canada. North Peace Savings & Credit Union and other financial lending agencies use the reports generated by these organizations to decide whether or not to give you credit. The poorer your credit the higher your risk and the more you will pay to borrow money. If your rating is low enough you may not even qualify to borrow money. It is very important to know and understand your credit rating and score so that you understand your financial health from the perspectives of the potential lenders. 

We can help you better understand these credit scores which range from 300 to 900 in Canada and are produced under names such as Beacon and Credit Score. For example, a score of:

  • 300-559 may be considered poor
  • 560-659 fair
  • 660-724 good
  • 725-759 very good 
  • 760 and above is excellent. 

The specific numbers may vary slightly between financial organizations depending on the Credit Agency they use.  Higher numbers are better and will provide us with an indication of how well you manage your financial affairs and therefore the likelihood of successfully paying your mortgage payments. 

Do you know your credit score, what it means and how to maintain or even improve that number? 

One of our North Peace Savings and Credit Union Advisors can certainly review where you are and provide guidance on how you can improve on this important financial score. 

Step 3. Get Pre-Approved 

Getting pre-approved for a mortgage is very important before you start to shop for a home. That is why it is important that your financial institution works with you so they can work with you on a pre-approval to ensure you know how much you can afford, what type of mortgage you can afford, and also talk about elements such as down payment, closing costs, and any other conditions that would have to be satisfied….all this needs to be done before you go house-hunting. 

Understand, however, that a pre-approval is different from a pre-qualification. If a lender only prequalifies you, they are only providing you with an estimate of what you could borrow. It does not mean that you will get that amount. 

If you’re pre-approved for a mortgage, that means the financial institution is generally prepared to give you a mortgage after reviewing your financial information. While you are getting pre-approved, and if you are a first-time buyer ask your Financial Advisor if there are any benefits that may apply to you as a first-time buyer. 

Step 4. Your Needs, Wants and Goals. What are they?

Thinking about what you need and want is also very important. How does a house purchase fit into your short, medium, and long-term financial goals? What must you have in a home and property to meet the needs of your family? What would you like to have if you can afford to pay for it? Do you really need to have a nice view or is being close to schools a more important need? Taking the time to think through and document your needs and wants will help you decide when you do start looking for a home. 

Buying a home can take the form of an emotional experience for some people. After all you will be purchasing your private residence and sanctuary and you will be living in it each day of your life.  Have your needs & wants clear so you can narrow down your search; things like location, lifestyle, family & leisure, a yard for children/pets, local amenities, garage/parking and storage.  Remember that severe weather winter conditions in our area create slowness in our real estate market and listings.  Keep this in mind when planning to buy and move. 

At North Peace Savings and Credit Union, our advisors will work on getting to know you, your family, and your financial goals and aspirations and then start developing a financial plan for your future.

Step 5. Get A Real Estate Agent.  

The real estate industry is not well understood by too many people. This is borne out by statements such as: I am not willing to commit to a single agent; I am going to interview agents before I hire one; and I do not need the services of a real estate agent. The laws and regulations in BC stipulate that an agent cannot interfere with the professional relationship you have with an agent. In other words, you cannot have more than one agent working for you in the same area. If you choose to “interview” an agent, it is important to remember that they are also interviewing you because they will be committing their time and money to help you so the fit has to be both ways. As well, as a home buyer, you can engage the services of a real estate agent without having to pay anything for their professional services. When you buy a home the agent is paid by the seller through the agent’s agency after the deal completes. Why would you want to do it alone if you can get the help of a professional without having to pay for the services that you receive?

In British Columbia, you can engage the services of a real estate agent as either an unrepresented party or as their client. To understand the difference, think of a professional business relationship like this. As a customer of the agent, they will be selling you a home. As a client, they are doing whatever they can to help you meet your needs in buying a home. The current law that applies to this relationship is referred to as the law of Agency and the current version is explained in a British Columbia Real Estate Council Pamphlet called Disclosure of Representation in Trading Services. As a buyer you are best served by being a client of the agent and the agent should be working exclusively for you as your buyer’s agent.

Step 6. Understand The Market & Start Your Search

Market conditions can and do affect the price that you can expect to pay for a specific home. Competent real estate agents will understand all of the factors that go into the preparation of an offer and they will be able to advise you on things like terms, conditions, price and down payment. Choosing the right agent is important. 

When it comes to looking for homes there are many sources of information. Magazines, newspapers, and the internet all can provide information on homes for sale. Choose a general location and look at local Multiple Listing Service (MLS) listings.  The home buying process usually involves a process of elimination that starts with choosing a rural or urban area that works for you. The more you can narrow down your search to a specific area or areas, the more time you can spend looking at specific neighbourhoods, homes and the features that they offer.

After you secure the services of a real estate agent, they should be able to create an account for you and send you MLS listings as soon as new listings come on the market to help you in your home search.  

Step 7:  View Homes & Select Your Top Picks

Viewing homes in person is an absolutely essential step. This is best done after you are preapproved. Why you ask? If you find “the home” and fall in love with it, especially in a fast-moving real estate market you will need to be ready to make an offer on it to have a chance at buying it or risk disappointment and losing out on it. 

If you have to sell your existing house, you can make an offer on a home subject to the sale of your current home. This condition may not be something that some sellers are willing to accept in some types of market conditions. Sometimes sellers will ask real estate agents to ensure that buyers who wish to view their homes are both qualified and serious and in some conditions, they will also ask if the buyer has a home to sell before they can buy when they are not prepared to consider offers of that type. 

Most buyers will narrow down the homes to a shortlist of their top picks. When you have narrowed the list down to about three homes that could meet your needs it is time to take a second look. Bring a piece of paper and make notes. Jot down what you like and do not like and what you would want to be included in an offer and if there is anything that you would want to be excluded. Once you select the best of the three you should be ready to make an offer. 

Step 8. Make an Offer

The real estate offer is where the rubber meets the road. The preparation of an offer requires discussion of price, deposit, and terms and conditions. Most real estate offers will have conditions in them. These are commonly referred to as “subject tos”.  The most common address things like title searches, property disclosure statements, financing, inspections and insurance. 

The offer has timelines as to when the conditions need to be removed. The investigation may involve other professionals such as home inspectors, septic inspectors, land surveyors, biologists, municipal offices, notaries and lawyers etc.  It is important to allow enough time for the condition removal period so that they can be scheduled for the appointments and for them to do their jobs and then for you to receive and review the information and then make a decision.

The removal of conditions in a real estate contract is an extremely important step. Once conditions are removed and a contract becomes unconditional you have purchased the home via a legally binding contract.

Step 9. Complete the Buy

The final step of the process involves contracting a lawyer/notary who will deal with the next step of title and money transfer as well as the signing of final mortgage documents.

Step 10. Arrange to move into your new home!

If you are planning on purchasing a home in the near future, let NPSCU help you through the buying process and discuss mortgage pre-approval.  Get started today! Contact an NPSCU Financial Advisor at 1-877-787-0361