Borrowing Funds: The Foundation

We’ve all borrowed in our lives, $20 from a friend, $200 from a family member and $5,000 from the bank. Don’t forget $10,000 on the Mastercard. Well, this is similar to my borrowing mix. You may ask me ‘why do I need all that “credit”?’ I really don’t but I also like an emergency resource for…well emergencies. In this blog entry, I will go over the basic uses of borrowing products.  This will provide a solid foundation on the borrowing products available to you and their affects on your life.

The root of our conversation starts off with credit score. This is the “score” each individual has that evaluates how credit worthy they are to lending institutions. What the credit score tells us your previous and current lending products and how well were/are you at maintaining that product. A bad credit score can lead to higher interest rates and turned down applications for mortgages, car loans, and credit cards. Credit score is not the end-all-be-all in determining the worthiness of an applicant but it is a good indication of how they borrow.

Credit Cards – normal interest rate of 18-20%
This is the most basic lending product, giving you a revolving limit of a minimum $1,000. There is no collateral needed, unless you are not a resident of the country you are borrowing from, and funds can be accessed immediately. Credit cards give you access to funds and as you repay those funds your available amount returns to your credit limit. The normal interest rate is 19.5%.

Loans – normal interest rate of 8-13%
Loans can be for a variety of things: cars, education, debt consolidation and even investment purposes. Loans allow an individual to borrow a specified amount that will be paid back at given amounts and intervals. Once you pay back the loan you cannot have access to those funds again, making loans a non-revolving product. In some cases collateral must be taken if a person isn’t eligible for a non-collateral loan, or a co-signor must be added to guarantee the individual’s ability to pay.

Lines of Credits –normal interest rate of 3-9%
There are no restrictions when it comes to line of credits and their uses. Lines of credits are like credit cards but the interest rate is lower. They allow an individual to borrow minimum $5,000 for any purpose, usually used for large purchases. Lines of credits can also be secured against your house, this provides you with a larger limit and significantly lower interest rates. Similarly to a credit card, as you pay down your line of credit you have access to your original limit.

Mortgages – normal interest rate of 3-5.29% for 5-years
A mortgage is a loan against your house, with a maximum amortization of 25 years and terms of 1-10 years. Amortization is how long (ideally) it will take to pay off your mortgage, while the terms of mortgage is how long that specific interest rate will be in effect. Having a 20% down payment of the value of the house does not require you to insure your mortgage and avoid extra costs. If you have less than 20% down payment the mortgage must be insured, costing you more.

We’ll cover each borrowing product individually in future blogs. This just looks at borrowing at its basic. Until next time!

 

*Leave any questions you have.

Tags: education debt

Update!

I know I haven’t been keeping up but it’s been a busy couple of months. 

Things I’ve done: 

• Canadian Securities Course Exam 1 
• Las Vegas in October
• Traveled to Toronto numerous times 
• Prepping for internal audit at work
• Jeux Du Commerce Central (JDCC)

Things coming up:

• Training in Toronto (1 week) for lending courses
• Currently doing online training for Lending 
• Christmas break in Toronto, back to Ottawa then back to Toronto for New Years
• Planning for JDCC Social
• Planning for Entrepanuerial Adventures with my teacher Amanda M. and her grade 4 class. 

Blogs in motion: 

• Your Credit Score and You. 

Until next time! 

Tax-Free Savings Account: Smart, Quick and Useful

The Tax-Free Savings Account (TFSA) turned three! What started as a savings generator in a down economy has become widely known across Canada but the potential of a TFSA is unheralded. Working in the banking industry has allowed me to view personal investment products and the potential behind them all. Aside from setting up a Registered Retirement Savings Plan, all Canadians should set-up and utilize the TFSA to it’s maximum potential.

 

Quick facts:

• The TFSA was established in 2009 with an annual contribution limit of $5,000 per year. Any amount that was not contributed that year can be carried forward. I.e. starting a TFSA account in 2011 gives you a maximum contribution level of $15,000 this year.
• Contributions cannot be tax deducted unlike RRSP contributions to lower personal net income.
• Withdrawing from the account and putting the same amount back in can push you over the contribution limit for the year. Any excess contribution will be taxed. i.e. If I contribute $14,000 this year and withdraw $3,000 to go to Las Vegas and put my $2,000 in winnings back into my TFSA, I’ve over contributed by $1,000. This is because the TFSA isn’t a revolving contribution. But for the next year I can contribute $8,000 ($3,000 I took out last year and $5,000 for the next year).
• Any gains/interest accrued in the TFSA will not be taxed.

 

100% Utilization

Most individuals just think a TFSA is just a savings account that earns higher interest than a typical savings account. Fact, a TFSA can be a savings account, but it can be more than that. The TFSA is a tax-sheltered umbrella, where you can have a variety of investments, ranging from: a the savings account mentioned above, a Gauranteed Investment Certificate (GIC), mutual funds, and Electronic Traded Funds (ETFs).* Depending on what you’re saving for (another trip to Las Vegas and New York City) these different investments can help you get there. Utilize the TFSA and realize you can be earning a lot more than just a savings account rate and reaping the tax-free earnings that can be used for your next big purchase.

 

Learn the potential of a TFSA by using BMO’s TFSA calculator. This gives you an example of what you save and how it is taxed against what you saved in a TFSA.

 

Quick tip: The rate of inflation is around 2% per year, if your investment is making under that then you aren’t keeping up with inflation which means you have less purchasing power with your investment in the future. You cannot compare peanuts to peanuts any more because peanuts now will cost more in the future. Consult your go-to financial person to see what you can do to maximize your return.

 

*Some mutual funds, GICs and ETFs are restricted in the plans they are eligible for. I.e. some mutual funds aren’t eligible for RRSP or TFSA accounts.

Tags: Savings

Student Banking: Shop Till You Drop

Earlier this week my roommate came to one hard realization: she has to pay for banking fees. She didn’t realize banks charge monthly service fees and found it completely absurd that they did. This is when I realized if she wasn’t aware of banking fees, many students/grads aren’t either.

Banking fees are an added payment that can often be avoided, or at least minimized, for students and recent grads.

I researched banking plans for students and then their equivalent plans once students have graduated. Take a look and see how your plan compares to others out there.

Take into consideration that a transaction can be an Interact payment, direct deposit, withdrawal, deposit and money order. Be very aware of the fees you’re charged when you withdraw money from other banks’ machines – your bank may charge you $1.50, but so will that bank machine. An extra $3 to pull out $20 could easily be avoided by planning ahead and budgeting.

Final Thoughts
If you’re with a bank that your parents set you up with, look into your fees and consider starting fresh if you don’t like your fees. Everything seems attractive at first, but do your research before your decision.

Hopefully this helps you realize the actual cost of banking, and makes you find a plan and bank that can work best for you.

For me, it comes down to two things: the costs of banking and the customer service at the branch. In this day and age, most transactions can be done online. I don’t often have to worry about going into a bank, so when I do, I expect great customer service.

Until next time!

Blog coming soon!

Hey folks,

I’ve been busy with work and some great weekends. Haven’t forgotten about this, expect a post soon!

Hint: why pay money to keep it stored away?

The Drop part ii: “Entering the Draft”

In Canadian terms, the “draft combine*” is fast approaching. Recruiting season is only two months away, and some employers and industry groups may already be arranging networking sessions. The “draft combine” can be a grueling three weeks where you need to bring your A-game to each and every event. This gives you the opportunity to shine and get noticed. Through networking, you can be the prized gem of the draft – or the bust. In my previous post, I discussed tips on networking tips. Today we’ll focus on getting ready for the “draft combine”.

*For those who don’t know what a draft combine is, it’s where scouts (employers) test the skills and personalities of prospective players (in this case, you) in a series of tests. After the tests, scouts rank players on how well they performed and the maturity of their game.

Tips to becoming the prized possession:

• Clean up your act. Employers know you’re in university and they know what goes on. But they could have graduated before you were even born – times have changed and some things have become more socially acceptable. Clean up your Facebook page and get rid of pictures that are embarrassing and easily accessible. Make your Facebook un-accessible to non-friends. Better yet, delete Facebook for that month. Here is hockey’s take on social media for players looking to enter the draft: http://bit.ly/7KPcJx
• Search yourself up on Google. Employers can “Google” your name very easily, and will, especially if you’re a top prospect. Having seen what shows up may deter them . “Google” yourself before recruiting season and see what gem or bomb the site brings up. If it makes you a bomb, more than likely you can clean it up.
• Polish that resume. You would never go into the season without preparing and training before hand. Take this summer to prep that resume. Having it looked over continuously and nit-picked is a great thing. Don’t be offended by criticism, take it as a sign of continual growth. Structure your resume towards the industry group you’re headed towards, and shows off your strengths, leadership and initiative. (Plus a few awards here and there… Ahem, rookie of the year.)
• Make an effort towards dressing appropriately. A player never goes to the rink without their gear, imagine your business attire as your gear. But a magnificent pinstriped black suit with a bright blue shirt and simple black tie is your gear in this case. Plan your outfits before each event. If you are going to class before, make the sacrifice and show up to class ready to go networking. Dress how the employees at your potential employer dress.

These are the simple tips; though potentially time consuming. Each opportunity is a door opened and your effort is another inch towards propping that door wide open.

My “unofficial” mentor once told me: “You are hungry. I know you want it and everyone can see that – so don’t give up and put all your effort into it.”

How hungry are you?

Welcome + The “Drop” part i

Welcome to the first of hopefully many posts about the guide to the real world. You are probably thinking, “real world? I live the real world everyday!”

You’re right – but as a recent graduate I never really considered my post-secondary experience as being part of the real world. Once you are out in the work force and Statistics Canada counts you as part of the employed – or unemployed – sector, that is when you know you are part of “The Real World”.

There is no choice once you graduate high school or post-secondary – you’re thrown into the real world where you can either make it, or break it. Mind you, you don’t need to be making 60k + a year to be “making it”. Making it is getting to a point where you have most of it figured out. In turn, “breaking it” is being stuck in utter confusion of the real cost of living.

The Drop

Before you make it or break it, you need to find a job to get a start on your official career. We have ambitions to rule the world, stand on top of the C.N. Tower and yell to everyone below, “I made it! Take that real world.”

But we all know it only takes one drop to create a ripple throughout our life. Here is some advice on creating your drop.

I graduated university without a job set up. I spent a month unemployed, using my resources and connections to get my first real world job. I currently work for one of the Big Five banks in Canada – and it wasn’t an online job application that got me here. It was my ability to network and show my applicable job skills that got me where I am now – employed.

The one thing that helped me and is often an untapped resource is networking events. Mind you, I didn’t get hired just because of networking events, but they certainly helped.

The simplicity in these events should make it relatively easy to get a job, or build connections to further the job search. I’ve been to many, many, networking events, so here are some useful tips:

1) If it’s offered, go to it. Go to every event your school, potential employers or industry group offers. Getting your face out there is one of the key things you can do to get noticed. Jake Gyllenhaal didn’t get his first movie roles but picking and choosing – he probably went to every single casting call he could get into.

Being seen is more important than you think. You’re not going to get drowned out by the 40 to 50 other candidates that show up, you’re going to get drowned out by not showing up.

2) Talk to every employee at the organization that attends the networking events. The more people you speak to, the more exposure you’re getting. Make sure you hand out your business card to each person you talk to.

3) Get business cards! They become such a critical tool when conducting your day-to-day business, no matter what field you are in. The employees who attended the networking event put down business cards to compare who was memorable.

You’d never forget to bring your hockey stick to the rink, so treat business cards with the same importance.

4) You probably already know the industry you’re getting into, so don’t bore employers with typical questions you already have the answers to. Come prepared with topics you want to talk about, with appropriate and more insightful questions than the typical, “what is it like working at ABC Inc.?”

5) As contradictory as it sounds to my second point, pick the people you want to talk to first. If you have a gut feeling that you’ll have a connection with someone, talk to them first and establish that connection. They’ll probably introduce you to someone else after that, leaving their senior co-workers with a favourable impression.

If you’re still in school, hopefully this gets the wheels in your head turning. Never tell yourself “this is stupid and will never work” if you’ve never tried it. Don’t be scared, worried or overwhelmed with the idea, just remember the person standing next to you at the event is exactly in your shoes (except maybe comfier ones).

Until next time!