Need help Saving for your mortgage down payment?
Putting a percentage of your income away so you
don't miss it, that is the goal here. With Zero down payment Mortgages so much harder to come by, a common question the Calgary Mortgage Broker is asked is do I have enough down payment? Having my Canadian Securities Course under my belt from back in the day, helping people save for objectives was an interesting and fun challenge.
Here is a little information on how to save some away. This next week will all be about Financial Fitness so pull up your chair, and prepare to learn. I hope at least one or two things, if you learned nothing, at least ask some questions!
●Automatic Savings Plans -
Money taken right from your account or from your paycheque. The time value of
money and compounding interest rates will have your money doubling every seven
years if you choose the right investment vehicle.
●Savings-First Approach - the same rule applys to things bought on
credit, you are paying interest on these items. Paying yourself first into a
savings account will save the interest charges. The first thing is to save.
●Self Reward Plans - Saving for something that has a reward and
benefit will be great incentive to do just that. Retirement, vacation,
education, flat screen TV.
●RRSP’s - Is an individual retirement
savings plan which has been registered with CRA. It permits tax deductible
contributions to the RSP, and income earned in the plan is exempt from tax
until payment are withdrawn from the plan. Contributions made reduce taxable
income, and was introduced as an incentive to save during working years.
Types of Products - Guaranteed plans,
savings funds, mortgage funds, income funds, equity funds, combination funds,
and life insurance company plans.
●Self-directed - You choose
the investment vehicle.
●Group Plans - Offered and
often matched by your employer
●Pensions - A portion of your
income is deducted before tax and is put towards your retirement.
●RSP's - Are like a little island where
things can grow and evolve by themselves, sadly it's when you want them and try
to bring them back to Canada you have to pay, as at that time they add to your
income for that year. The whole point to offset the taxes to a point in your
life when you are not making as much money or not in your peak income earning
years.
The investment basics are as follows in rising degrees of risk:
●Savings
Account - Least risky and not locked in, as a result the rate on your
average account does not put a smile on anybody's face.
●GIC -
Guaranteed investment certificate. Which guarantees you a certain rate of
return (interest) over a known period of time. The bank guarantees the rate,
and the principle on these and the term can be a short as 30 days, and as long
as 10 years. If you need the money before the term is up, you will lose your
interest, and some banks have been known to charge a penalty.
●Bonds -
These are ways a company or the government of Canada raising money to fund
projects and reduced the capital expenditure needed today. It spreads it out
over some time. Bonds are sold below what they are worth on the markets, but as
they mature they are available to be cashed in at full price. Bonds also have
yields and go in the opposite direction to interest rates that are available.
Yields act in many ways like your interest. Because you can buy junk bonds,
where the company you wanted to buy the bond from can go bankrupt, it’s best to
do some research and get ones where you know that your money is coming back.
AAA rating like the United States used to have is what is best. Like your
report card anything less than AAA is no longer a A+ rather a A- would be just one
A and B+ would be BBB Because there is risk here it’s also treated differently
when it comes to do your taxes and you don't have to pay as much as if you left
it in your savings account, or made it working.
●Mutual
Funds - This is where many like minded investors get together and pool their
resources to buy a larger basket of investments. They can consist of bonds,
stocks, Treasury bills, real estate, and even precious metals. Because you have
so many investors in this pool a portfolio manager makes all the decisions and
looks after the money, in exchange for a percentage of the portfolio. (MER-
Management expense ratio) This is important to look at to make sure he is not
getting too much. There are active and passive managed portfolios and the
passive ones are cheaper, but don't have someone looking out for your best
interests.
●Stocks -
People who buy these are buying into the futures of companies, and their
profits for the foreseeable future. It’s all about supply and demand and if
there is a huge supply and nobody wants them the price goes down. If the
company is going to do very well then everyone want in and the price goes up.
The trick here is to buy low sell high. By the time you hear about something
you already have run the risk that it’s now at its high. There have been
"real good deals" like Enron, Nortel, Bre-x, however any logical
investor should not sink their entire investment portfolio into once
investment. Stay clear of something that you heard about from a body that looks
too good to be true, as most times they are. One of the best plans out there is
to buy and hold some good solid large capitalization companies and some small
capitalization ones as well. By that we mean some that are up and running and
have been around for years, and some up and comers who have a chance at growing
in the future.
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