Money 101 E-Book

Ellen Roseman

• Herausgeber: John Wiley & Sons
• Kategorie: Fachliteratur
• Sprache: Englisch

Seitenzahl: 367

Veröffentlichungsjahr: 2015

Beschreibung

Money 101 The One Class You Can't Afford to Cut! You are working hard and trying to save some money, but at the end of the day, there never seems to be enough to go around. Money 101 is a crash course on financial basics from one of Canada's most trusted personal finance columnists. Ellen Roseman offers easy-to-understand advice on a wide range of topics, including tips on spending less and saving more, managing a budget, negotiating mortgages and car leases, getting the insurance you need, investing, saving for children's education and your own retirement, and much more. Money 101 helps you master personal finance without pain, whether you're a novice or experienced. Your own personal tutor, it'll teach you to get better control of your money so you'll have more to save and invest. Portrait Photography by Joseph Marranca. Used by Permission.

Leseprobe

Table of Contents

Title Page

Copyright Page

Introduction

part one - Getting Started

Keep track of your spending

Find areas where you can cut back

Seven easy ways to save money

Get the best deal on banking

Save money with online banking

Consider joining a credit union

Take care when using debit cards

Know how your savings are protected

Put your savings to work

Set aside money for emergencies

Protect yourself with life and disability insurance

Top up your health insurance

Insure your home and belongings

Protect your car against theft and accidents

Keep in touch with your auto insurer

Be cautious about buying extended warranties

part two - Borrowing Money

Shop around for a mortgage

An RRSP loan can cut mortgage costs

Are you pre-qualified or pre-approved?

Save money on your car loans

Check out zero per cent financing

Don’t think car leasing is cheaper

Watch out for car lease penalties

Don’t carry a balance on credit cards

Pick the right card for your needs

Find out how interest is calculated

Check out the benefits of premium cards

Preserve your good credit rating

Check out your credit report

Protect yourself from identity theft

part three - Saving for Retirement

Deal with debt before saving for retirement

Don’t count on early retirement

Maybe you’ll never retire

Get to know your retirement benefits

Find out how your company pension works

Top up your pensions with an RRSP

It’s never too late to start an RRSP

Build a nest egg outside an RRSP

Your home is not your retirement plan

Find a good financial adviser

Do you want to pay for advice?

Beware of free investment seminars

part four - Investing Money

Get a handle on your emotions when investing

Put your investments on autopilot

Buy stocks with dividend reinvestment plans

Buy stocks as an inflation hedge

Test drive your broker before signing up

A few things to ask your broker

Buy bonds for income and stability

How to pick mutual funds

How many funds do you need?

How to save money buying funds

Look at low-cost index funds

Beware of the year-end surprise

Wrap accounts can be costly

Surf your way to investment knowledge

part five - Financial Planning

Practise safe income splitting

Get Ottawa to subsidize your kids’ education

Questions to ask about RESPs

Look at in-trust accounts for kids

Life insurance can be used for education

Search for scholarships and bursaries

Think of marriage as a business partnership

Understand obligations of common-law partners

New rights for same-sex partners

How to share assets after divorce

Ending fights about child support

Preserving financial health for widows

Dealing with a terminal illness

Write a will for family harmony

How to cut probate taxes

How to cut estate taxes

Don’t forget a power of attorney

Read a good estate planning book

Now get going!

Index

Copyright © 2002 by Ellen Roseman

All rights reserved. No part of this work covered by the copyright herein may be reproduced or used in any form or by any means—graphic, electronic or mechanical—without the prior written permission of the publisher. Any request for photocopying, recording, taping or information storage and retrieval systems of any part of this book shall be directed in writing to CANCOPY, 1 Yonge Street, Suite 1900, Toronto, Ontario, M5E 1E5.

Care has been taken to trace ownership of copyright material contained in this book. The publishers will gladly receive any information that will enable them to rectify any reference or credit line in subsequent editions.

This publication contains opinions and ideas of the author. They are not presented to provide a basis of action for any particular circumstances without consideration by a competent professional. The author and publisher expressly disclaim any liability, loss, or risk, personal or otherwise, which is incurred as a consequence, direct or indirect, of the use or application of the contents of this book.

National Library of Canada Cataloguing in Publication

Roseman, Ellen, 1947-

Money 101 : every Canadian’s guide to personal finance / Ellen Roseman.

Includes index.

eISBN : 978-0-470-67537-3

1. Finance, Personal--Canada. I. Title. II. Title: Money one hundred one.

HG179.R.024’00971 C2002-905390-0

Production Credits

Cover & interior text design: Interrobang Graphic

Design Inc.

Printer: Tri-Graphic Printing Ltd.

John Wiley & SonsCanada, Ltd6045 Freemont Blvd. Mississauga, ON L5R 4J3

Introduction

You want to make your money go further and set a little aside for savings. But your eyes glaze over when you hear about the dividend tax credit, dollar-cost averaging or derivatives.

This book is for you.

Money 101 is about mastering personal finance without pain. Think of it as a slow jog along the highway from idiocy to literacy.

My aim is to make the information understandable to everyone. This means breaking each topic into bite-sized chunks and keeping the writing simple (but not condescending), lively and opinionated.

The goal is to demystify money, to defeat the impression that only a math whiz can grasp the ins and outs of the subject. That’s why there are no graphs or charts in these pages.

I want you to sense the urgency of getting a handle on your finances, even if you’re uncomfortable with numbers and never follow the business news.

Why is it so important for everyone to go through a basic course in financial literacy?

• The income of the average Canadian family is stagnant. Only a few are doing better than inflation. Most households struggle to maintain their standard of living by working more, spending less or taking on higher levels of debt.

• The education system does a lousy job of teaching money skills. Teenagers graduate from high school knowing little about credit cards, car loans and chequing accounts—things they will soon confront.

• Many of us learn about money through trial and error, a costly way to find our bearings. We sign one-sided contracts without getting advice. Only then, after we have a problem, do we read the fine print.

As a consumer reporter for 30 years, I always keep the consumer’s interest in mind. What is the danger, the drawback, the downside, to a deal? Where are the hidden traps to watch out for? What’s not being said?

I hope to help readers avoid making expensive money mistakes. You can cover the cost of this book if you find just one or two tips that will improve your financial decision-making. But I’m sure you’ll find more than that.

Here’s our itinerary, the road map for the trip we’re taking together in these pages.

We’ll start by looking at how you spend your money and how you can save for the future. Then we’ll move on to borrowing money for mortgages, car loans and credit cards. This is all part of shoring up your financial foundation.

Our next step is to look at retirement planning. Don’t think this is a subject you can put off till you’re over 40. You can start saving in an RRSP when you’re a teenager and withdraw the money for a first home or an educational program. Or you can devote yourself to paying off your debts before you quit work. Some people retire early and then come back to work, while others never leave. But all of us have to think about it and make some plans.

After that, we’ll look at investments. You need to understand the difference between stocks and bonds and know what fits within your comfort zone for risk. Do you have the temperament to be a successful investor? Or will you sleep better if you stick to mutual funds and put your investments on autopilot?

Next, we’ll look at your family arrangements. How do you protect your own welfare and that of your loved ones when you marry, divorce, live in a common-law relationship or become widowed? What are the best ways to save for children’s post-secondary education? How do you practise safe income splitting to pay less in taxes?

Finally, we’re at the final stage of life. Death and disability are uncomfortable subjects, so it’s only natural to avert your eyes. But that’s how you can get into financial trouble, by failing to plan or not sharing your plans with your family.

We’ll take a clear-eyed look at writing a will, developing an estate plan and appointing someone to make decisions on your behalf if you’re sick or mentally incapacitated. At the end, you’ll be aware of the risks of doing nothing, and you’ll be motivated to get going.

Money 101 is a journey. And like most journeys, it has a few rough spots. Not everything is smooth sailing. You lose your way sometimes, you get disoriented and you find your arrangements have fallen apart. But you learn to overcome disappointments and get back on track. That’s what seasoned travellers do.

I hope you like this book, which started with an idea I had to do a series explaining the basics of money management in a step-by-step fashion every Sunday in the Toronto Star. I’ve updated and expanded the original columns, while adding stories from readers and some of their feedback. There’s an enormous appetite for this kind of writing, I found. Readers kept asking for copies, so I figured it was time to organize them into a single volume.

The journey continues. Money 201, the next instalment, now runs every week in the Toronto Star. It’s a more in-depth look at some of the topics covered earlier and some new ones too. I want to thank the editors of the business section, Colin MacKenzie and then Kenneth Kidd, for encouraging me to do the series and Rick Haliechuk, the editor who puts it together each week.

I think of my role as that of navigator, helping you get around the twists and turns of the road and warning you about potholes. Our goal: To drive more safely and stay on the financial straight and narrow.

part one

Getting Started

You make a decent salary, but you spend all you earn and then some. You wish you could put something aside for unexpected expenses. But when your car breaks down or your basement floods, you charge the repairs to a credit card. Gradually, the bills mount up, and you’re not comfortable with how much you owe. You want to cut back on your spending, but you’re not sure where the money goes.

Tracking your expenses is the first step on the ladder to financial well-being. Once you categorize your spending, you can start reducing it. I’m not talking about a slash-and-burn operation, but about a few modest trims here and there. Budgeting that hurts too much is not sustainable.

With better control of your money, you can start a rainy-day fund and save a little for the future. That’s your security blanket in case life throws you some curves, a safety cushion that makes you stronger and gives you an alternative to putting everything on plastic.

In this section, I’ll also look at how to save money on banking. Many of us drift into a relationship with a financial institution through habit or convenience and end up paying more than we should. It’s important to pick the right bank products and services, then stay on top of what you’re paying. To get a better deal, you may have to do some of the work yourself or venture outside of the big banks.

Debit cards can also be dangerous to your financial health if used carelessly. We’ll give you tips to prevent thieves from getting access to your debit card and personal identification number.

Insurance is another key part of your financial foundation. It helps protect you against adversity and maintains your lifestyle in case of death, accident, illness or theft. But you have to pick the right insurance policy and the best level of coverage. Otherwise, you may be wasting your money.

Finally, we’ll look at how your savings are protected if a financial institution goes out of business. The compensation depends on where you keep your money and how much is in your account, so you need to tailor your savings accordingly.

Keep track of your spending

Do you know your true cost of living? Unless you keep every receipt and write down details every time you open your wallet, you probably don’t have an accurate picture.

You may remember the big-ticket items—rent or mortgage payments, groceries, utility bills—but lose track of how much you dribble away on extras.

Want a surprise? Record every penny you spend and see where the money goes. Do it for at least a month. Three months is better, but you’ll probably get bored.

“People tell us it’s a lot of work to record everything they spend,” says Laurie Campbell, program manager at the Credit Counselling Service of Toronto, which helps overextended borrowers. “I’ve done it myself and I can tell you it’s no fun.”

Budgeting programs such as Quicken or Microsoft Money are great, but they cost at least $60 or $70. And you still have to transfer the information to a computer. Nothing can replace a pen and notebook to record expenses as you go.

Carry your notebook with you and jot down everything you spend (with sales taxes). Write down whether you use cash or cheques, credit cards or debit cards. And make sure to include transactions where you arrange for payments to be taken directly from your bank account.

If you track spending for only a month, no doubt you’ll miss a few things. So keep a separate list of expenses that crop up unexpectedly or occur only once or twice a year. I’m talking about professional fees, home and car repairs, furniture, vacations, gifts and donations.

Be honest. “You’re always on your best behaviour when there’s monitoring going on,” Campbell says. “Don’t cut back. Spend as usual.” Be vigilant about not letting things slip through the cracks.

• When you eat in a restaurant or get your hair cut, don’t forget the tip.

• Jot down the loose change you give to your kids or people on the street.

• Include the fees for automatic teller machines not owned by your bank.

Then add up the totals and be prepared to gawk at the results. You’ll probably find you lose a lot through “leakage,” relatively small amounts spent on purchases such as snacks at work, CDs, videos and paperback books. These expenses mount up.

Find areas where you can cut back

Once you track your expenses for a month or two, you’ll see where the money is going. This will help you decide if you’re overspending in certain areas and if there’s room to squeeze something out.

The goal is to gain better control of your money, so you’ll have more to save and invest. Don’t call it budgeting, which implies restraint and self-denial. Call it cash-flow management that keeps money from slipping through your fingers.

I’m not advocating that you wipe out all the things that make you happiest. If you find a caffe latte or cappuccino makes you work more efficiently, then keep that three-dollar daily expense in your budget. Everyone needs a little luxury.

But if the bill for fancy coffees seems high relative to your take-home pay, try to cut out one a week and bring your own beverage to work. If you spend too much on the latest books (that’s my vice), buy fewer each month and check out bestsellers from the library.

You don’t want to feel you’re skimping on small pleasures. That’s a recipe for failure. You’re just trying to rein in costs a little. Taking baby steps, or cost-cutting by increments, works better than slashing entire categories of spending.

Let’s focus on an area where it’s shamefully easy to go overboard: eating out, takeout and last-minute food purchases. Here are ways to finagle your food budget:

• Eat breakfast at home. If there’s no time, pack it up and take it to work. And buy a covered coffee cup or thermos. Fill up at home and drink en route to work.

• Restaurant servings are often big enough for two. Dig into an appetizer for dinner, or share appetizers and main courses with a companion.

• Start bringing your lunch to work. The $5 to $8 you spend on takeout is costing $100 to $120 a month, enough for one really great meal at a fantastic restaurant.

• If you must have chips in the afternoon, buy a big bag at the supermarket and take a little bit to work. It’s cheaper than buying from a vending machine.

• Shop with a buddy. If 12 rolls of toilet paper are too much, split with a friend. Single people who buy individual-size servings get hit hard at the grocery store.

• Eat vegetarian more often. Meatless meals are less expensive and healthier than burgers and fries. If you’re a sworn meat eater, veg out three times a week.

• Save containers for leftovers and to store dried goods like rice, which are cheaper to buy in bulk than prepackaged.

Finally, learn how to cook. On weekends, prepare a large quantity of one dish. Chili, maybe. Next weekend, lasagna. Then, meatloaf. Package everything in meal-size portions and put them in the freezer. Eat from your stockpile a few nights a week. That alone will save you hundreds of dollars a year.

You’re frugal with food? Then try to trim costs on something else where you tend to splurge (such as music, movies, haircuts or clothes). Shifting your spending shouldn’t hurt much, if you set firm limits and remember why you want to save.

Seven easy ways to save money

Here are a few steps that can help put more money in your pocket immediately:

1. Pay off your credit card balances. Trim a little from your monthly miscellaneous expenses and begin paying more than your monthly minimum on each card as quickly as possible. Remember, paying off your credit card balance can be one of the highest-yielding investments you can make.

2. If you can’t pay off your balance, transfer your credit card debt to a card that charges a lower interest rate. When checking for a new card, make sure that you’ll get the lower rate you want for at least six months. If you have a good history of timely payments with your own credit card company, call and ask them to lower your interest rate and lower or waive some of the fees in return for your continued use of their card. Many companies are willing to do so.

3. Pay bills on time and avoid costly late payment fees.

4. Check your utility bills. Taking even a few simple steps can add up to hundreds of dollars in savings. For example, lower your hot water heater to 120 degrees Fahrenheit (which is recommended for families with small children anyway) and you can save 10 to 15 per cent. Turn off lights when you are not in the room. Check with your electric or gas company to see if you can save money by doing your laundry or dishwashing at non-peak times.

5. Review your phone bill to see how much you’re paying for services that you don’t really need. Your phone company can help you choose a calling plan that may give you better rates for the calls you typically make. Check out what you’re paying for long-distance fees. Often phone companies will reduce your rates if you call to say you’re considering switching to a cheaper plan offered by a competitor.

6. Make one extra mortgage payment per year. Write “to principal” in the memo portion of the cheque so your bank will know you want to apply the entire amount to your principal. By lowering your principal, you’re also lowering the amount of interest you owe on your mortgage, which can lead to substantial savings and can cut years off your mortgage.

7. Review your insurance policies. Are you paying for more coverage than you need? By visiting Web sites like www.kanetix.com, you can comparison shop for many types of insurance policies (including term life insurance, homeowners insurance, automobile insurance and travel insurance). It’s worth a few minutes of research to determine if you could lower your monthly insurance rates and still receive the coverage you and your family need.

Get the best deal on banking

Are you paying too much for basic banking services? Those nickel-and-dime service charges taken from your account each month add up to a chunk of change over a full year.

Service charges are lucrative for Canada’s banks. The bulk of their earnings now come from fees, rather than the spread between what they pay on deposits and what they charge on loans.

If you hate being dinged for each transaction, there are ways to cut the cost of service charges. You can hold a minimum balance of $1,000 or sign up for a low-cost package plan.