Ways to Save More and Reduce Debt

We as Canadians are riding a wave of self destruction if we don't get our debt under control. As a society we have "grown" comfortable with the fact of owing back and forget that there is a cost of borrowing.....its call interest. Today we are at historical low rates but like any cycle it has to increase so now is the time to reel in those IOU'S. Here is a list how to save more and get out of debt faster  A) Set up an automatic transfer of money into a high interest savings account every time you get paid...out of sight, out of mind as they say.  B) Ask your lender if you can increase your mortgage payments by 10% and save huge amounts of interest owing to them. C) Increase your regular contributions to your RRSP ( Registered Retirement Savings Plan) or TFSA  (Tax-Free Savings Account) by the same amount your take home pay goes up each year.  D) Pay off any Credit Cards or Lines of Credit within 20 months and save on its high interest charges. E) How is it possible you might ask with the above list?  Track your monthly household expenses and cut down your biggest non-essential payouts......remember our previous blog on wants and needs people and lets start controlling our own destiny.

Tips for Home Buyers

So we are going down the real estate highway which by the way is the biggest purchase most of you will ever make in your lives, so here are a few tips to make it has painless as possible. A) Get a pre-approved mortgage before hiring a realtor, that way your not wasting yours and the agents time looking for a home above your means B) Get your finances in order, first examine your credit report ( scores range from 220-800 of course the higher the better and easier to qualify for a mortgage) and be prepared for the down payment on the mortgage to your lender of choice (5-10%) and also closing costs which is an additional 5% + of the amount paid for your abode ( legal fees, deed transfer tax, fuel adjustment, moving costs, power hookup, tax adjustment, fire/homeowners insurance, maybe water quality/septic field testing and so on....lets not forget about appliances and curtains etc   C)  Do your homework on what you want in a home;
features from how many bedrooms/bathrooms, size of yard, age of home, etc. D) Don't become "Mortgage Poor" and take on too much as you don't want to be living on the edge each month and have nothing left to enjoy life. E) Know your move in date, also when your lease ends or if you can sublet till your home is ready.  F) Get a professional house inspection and if possible a warranty from the builder/seller to cover any defects for the first few years. G) Be realistic as you may never find your perfect home. Good Luck!

Self Employed and to get a Mortgage

So you want to be a home owner, but working for yourself its tough to convince lenders your business is a good as you claim it is (lol). They will use the average income of the last 2yrs to determine the amount you can borrow and equally important the interest rate which the loan will be at.  What to do you ask?...first is to give up some of your deductions, perhaps forward them to a following year like your depreciation of equipment, travel expenses, medical etc. This will bring your income up and get that debt to service ratio in the right direction but on the down side your tax bill will be higher, but hey something got to give hahaha. Ask others in your type of business who they use for a mortgage broker, a person that would know your industry and its quirks. A savvy agent can get around roadblocks that some banks put up or maybe even use private lenders. Finally, having more than the minimum down payment will make any lender take notice plus your eliminate
the high mortgage insurance fees.               Happy House Hunting!!

To Start Your Own Business

So you want to venture down that road of self employment?  Well I've been on that highway my entire life and for me there is nothing better than controlling your own destiny!  Here are a few tips that maybe you can use to save some time and also get by those growing pains. A) Start with a good business plan, make sure its feasible as most entrepreneurs have the mindset and great ideas but maybe not have a good business sense.... remember passion doesn't pay the bills!  B) Incorporate your business, it might seem like an added expense but well worth it as it will protect your personal assets,  lower your tax rate, allow you to invest within your own Ltd., pay yourself etc. C)  Have a good accountant as this is paramount in the business world.  They are experts in the tax codes/issues and finances, certainly someone to have on "your" team to save you money.  D) Payroll;  Set it up with your local bank to do it for you with all its deductions to the various government agencies plus do direct deposit for your employees. The cost is minimal compared to the time saved.  E) Be prepared to put in at least 5yrs of long days to get the business up and running, also you'll find that your staff will be your biggest headache (everything from poor work habits, not showing up for their shift, theft etc)  My solution?.....make some of your employees owners, as then they has a vested interest in the business to make it grow. So what you do is through your accountant get a value of your company, so for example we shall say XYZ Ltd. is worth $100,000 and your selling to 3 of your staff 10% each so they individually need to come up with $10,000 to be part owner of XYZ Ltd.  The best way is to take it out of their pay over 5yrs, so believe me they will watch the shop for you lol  (plus you the owner don't give up control because you still have over 51% stake, and don't have to be there all the time so you can concentrate on other things)   The payoff for them is they become owners without any money down and in 5years the value has gone up for all partners.....so a win/win!!

To be a Landlord

So you want to be a landlord, there are advantages .... writing off the interest on the mortgage, insurance payments, repairs etc while your tenant pays down the cost of the house as (hopefully lol) the value goes up. This is what I've learned having a few home rentals on the go and you can decide if its for you or not.  A) Location (like your principle residence) is key, as you want the price of your rental to go up so make sure the area is desirable, also if you can afford it look for a duplex or triplex so if one renter leaves you still have income coming in.  B) Borrow as much as possible for the building,  follow the Golden Rule  (get wealthy by using someone else's money) so you get the tax benefit of writing off the mortgage interest (more borrowed, more interest) to offset the rent as that's considered an income plus this way your keeping

your own money to pay down your own mortgage/bills and putting the extra into other investments. Also most banks will ask for15-20% down payment because they deem it a business, so what i did was lived in

the house for awhile that way there was a

lower minimum amount required (as its considered principle residence), then moved out and started being a landlord. C) Try to be handy with repairs or have friends who are as paying a tradesmen for all your issues will make you not want to be in the business. Or I always looked for a tenant who was of that talent and i reduced the rent for them so a win/win as they took pride in their work as they got paid for it and you had no worries with all the little things that would arise.....and trust me, everything does gets beat up a lot quicker than your own home. On that thought, at first i had to keep telling myself not to be in "love" with the property, as it was an investment and don't be disappointed if your folks didn't keep it just so. For example i went with commercial carpet or laminate hardwood floors, stuff that is durable  but it wouldn't be what i would use in my own residence   D)  Look for smaller yards as its less to take care off and a deterrent for those big backyard bashes   E) Be

diligent in collecting the rent and trust me you ll hear every story you could ever imagine why they are not able to make the deadline   F) On that note, if you find good tenants do everything possible to keep them by maybe reducing the rent, upgrade the washer/dryer, buy them a vacuum cleaner etc, as all landlords have horror stories so well worth doing the little things to keep your sanity  G) Finally my experience with management companies that collect rent/screen applicants hasn't been good, they charge 50% first months rent  then usually 10% for each month after. Some issues i had is they would never go out to check the property as they had the tenant mailed in post dates and that's what you want as a landlord is those 'eyes' to protect your investment by going to your rental for a physical check Or when checking out references they would call the names on the applications, which turned out most times it was relatives who gave glowing reviews only to find out to my chagrin  not so good, plus the process cost you hundreds of dollars! (half first months rent)  So there is my list of the dos and dont's and have known some folks that have done very well in the landlord game.....i had my taste of it, personally i rather have a piece of paper (stock/mutual fund) that doesn't call me on a weekend night saying the toilet is plugged or Aunt Mabel needs a kidney transplant (true story!!) and needs the rent money to be bedside lol

Index Mutual Funds

What is an investor to do to combat all these hidden/high fees that effect your bottom line? Well maybe look into Index Mutual Funds....its an investment vehicle to match/track the components of a market index ( such as Standard & Poor 500 Index)  So you get the wider range of exposure ( in this case 500 companies) low operating costs and smaller turnover ( certain criteria to enter this funds). The drawback with this strategy is you cannot control the amount of one company that you buy into as your purchasing the whole fund, so if ABC Company is a dominant player within the fund you are exposed to its swings in the market place. So to finish up with my opinion on this subject, i look for Equity Mutual Funds that have at least 1 Billion in total assets and pays out a dividend that i roll back into the fund ( as stated in the last blog to reduce your "real cost")  Again there are thousands of mutual funds out there, but i believe that only 10% are worth having and remember what i have stated in this past 2 blogs, look for a good fund manager that has a proving track record......this is paramount!

Dollar Cost Averaging & Dividends

A savvy way to invest/reduce risk of market swings, plus pay yourself back!!...... i thought that would get your ears up (lol) The joint power of constant Dollar Cost Averaging and Reinvesting Dividends will result in your "real cost" ( what you paid in) to be lower, that in time with any uptick in equities creates a nice profit. To explain; Dollar Cost Averaging is buying a set amount of investment each month and thus provides insulation against changes in market price. Say we put in $100 per month and the unit cost $10 in January and so we get 10 shares, same $100 in February and the unit price drops to $5.00, so we pick up 20 shares, March, $100 goes in and the unit price has bounced back to $7.50 per unit and we get 13.34 shares. Now looking at this from afar, you say i started out at $10 per share, fell to $5 and rebounded to $7.50, I've lost money, but wait....... that's the magic of Dollar Cost Averaging as you picked up more shares when the price was down during those months. So you ended up with 43.34 shares x $7.50 ( March Unit Price) = $325.00 and your "real cost" was $300.00  Next we buy units that pay a dividend (which is when a company earns a profit and it distributes up to 4x per year) Say Company xyz paid you a $50 dividend for its 1st Quarter in February, so you would of received 10 shares ($5 Feb unit price into $50) again this will bring down your "real cost" as you have more total units. Now if investing larger amounts per month, the entry point into the market is key, this is where a good investment company comes into play. Also ask/watch the management expense ratios (MERs) or sales commissions ( front end loads and deferred sales charges) as these fees can put a huge dent in profits. In Canada, we have some of the highest mutual fees in the world
and most are hidden or never seen on your statements!!