money for dummies

Reznik · May 2016

For reference: I am in Ontario, Canada

So I'm at that point where I have to learn how to be an adult with money and I'm just kind of generally confused about how all this stuff works.

Financially I'm not in a bad position or anything. I basically have a pile of money and am going "wat do??". I went to talk to somebody at the bank today and the plan so far is to immediately pay off the last of my student loan. Then a chunk is going in a GIC and a chunk is going in RRSPs and I guess this is pretty much risk free and will give me a tax break at the end of the year? So that's cool.

But while he was explaining all these things to me I was basically sitting there nodding and going "mmm hmm. I know some of these words". Is there any place I can go and just learn about mortgages and interest rates and credit scores and all this stuff in a fairly straightforward manner? I would like to actually know what I'm getting into instead of basically just taking the bank guy at his word (although I'm not saying he's giving bad advice or anything). Up until this point my financial strategy has been take money > put in bank > pay bills > don't buy things you cannot afford. But if I can learn to make my money make money that would be pretty neat.

pls advise.

Enc · May 2016

Give me your money. I will see that it is looked after.

Enc · May 2016

Also, in more useful information, this site was made by my institution as a resource for our students in dealing with financial independence, but has a pretty ok long term investments area that could help you get an idea of where to start: http://finaid.ucf.edu/Financial-Literacy/index.html

Terrendos · May 2016

In terms of general advice, I recommend you maintain enough cash on hand or otherwise easily accessible cash to last 6 months, in the event of emergency. Then you can consider investments and such. Investment in mutual funds/the stock market is a good idea for long term saving (like retirement) but generally a bad idea in the short term.

Check with your company to see what sort of investment plans they have as well. I imagine that Canada will have something similar to 401k matching that you should absolutely do.

Daimar · May 2016

I am not the best with dealing with excess cash, but I have opinions about GICs. My problem with them is that once you deposit the money it is locked in until it matures so it is not a good rainy day fund since you don't have immediate access to cash in emergencies. You would probably be better off putting that money in a TFSA (tax free savings account) if you don't want it in an RRSP since it is at least accessible and there is no penalty for withdrawing it.

While you're young and presumably don't have your RRSP limit all used up that will be the best bang for your buck on investing since you get $1 of tax back for every $3 you invest, aside from extremely risky stocks or insider trading you can't get that kind of return anywhere.

For general investing you may want to check out meetups.com or similar sites since there is usually an investing group or two in most major cities where people of all experience levels get together to talk about what to invest in, how to do it, and general support.

bowen · May 2016

Best I can do is give you general advice since I'm US based:

- Pay off debts unless they're good debts (in the US that's mortgage and federal student loans)
- Invest in retirement accounts (pension, 401k, IRA in the US) to the best of your ability
- Save 3 months of emergency spending (6 months is by far more preferable)
- Set up goal savings, if you want to buy a house or a new car, set aside money for that
- Invest in mutual funds and markets if you feel inclined to do so (you might be better off paying someone to do this rather than do it yourself)

I assume mortgages are fairly similar to US mortgages. 5-20% down payment plus another 5% cash on hand for closing, but other than that it works just like any other debt. Also you're young, live a little, buy things you want, don't waste your life away saving for what could be and never utilize your money while you're able to enjoy it. Budget for it. It's okay, put it in your goal category.

Reznik · May 2016

Thanks for all the advice.

I'm a contractor so I don't think the agency I'm working through has anything like a 401k or whatever the Canadian equivalent would be - we don't get any benefits. I'm looking to try and work my way in to a FTE spot with the government but I have no idea when that might happen since there's a big budget crunch right now. So I guess I'll keep putting some cash into RRSPs. And the GIC that I set up is only for a year so once that's up I can move that to a TFSA.

As far as savings go, after I pay off my student loan I'll have almost exactly 6 months expenses saved, so that won't be an issue. I've also got another account at a Credit Union back home with some money in a TFSA (I think? My mom kind of set that one up so I have to double check), so I'll eventually be moving that over to my current account (they don't have any branches here so I had to open another account with a different bank).

My two main goals right now are:
- trip to Europe next year (at least to France but hopefully more countries) for the 100th anniversary of Vimy Ridge
- buy a house, rent out the basement, use rent to pay off mortgage

Mortgages seem to make sense now. If I have a good credit rating it'll get me better rates on a mortgage, right?

I guess investing is the confusing thing, but probably something I shouldn't worry about until later? I'm also super risk-averse so that might not even be for me anyway. I know my dad ended up losing a lot of money on stocks and stuff when Nortel went south so I've always been leery of all that.

Enc · May 2016

Reznik wrote: »

Mortgages seem to make sense now. If I have a good credit rating it'll get me better rates on a mortgage, right?

It helps (and generally is mandatory), but it's not the only factor. How much you have to put down, the property in question and trend in current values, your personal baking and work history, all of these things can impact your rates (and do).

Reznik wrote: »

I guess investing is the confusing thing, but probably something I shouldn't worry about until later? I'm also super risk-averse so that might not even be for me anyway. I know my dad ended up losing a lot of money on stocks and stuff when Nortel went south so I've always been leery of all that.

There is investing and then there is investing. Stocks aren't the only means of investment, and safer bets (such as various forms of bonds) can be much safer and regular means of return. Generally the "common wisdom" is that the safer the return, the less money you will make. This isn't always the case, and if you plan on doing actual investing do a lot of research on the process and options before you commit.

Daimar · May 2016

Reznik wrote: »

Thanks for all the advice.

I'm a contractor so I don't think the agency I'm working through has anything like a 401k or whatever the Canadian equivalent would be - we don't get any benefits.

Employer matched RRSPs are basically the Canadian equivalent. Some employers will deduct RRSP contributions off of your paycheque that they will match up to a given %, 5% is standard. If anyone ever has a chance to take advantage of that they should because it is basically free money with an added benefit when you file your taxes. If you get a job with a government agency there is a good possibility they'd have a pension plan rather than the matched RRSPs.

- trip to Europe next year (at least to France but hopefully more countries) for the 100th anniversary of Vimy Ridge

Best trick to save money for that is to work out a budget for how much you'll need for the trip and set up a separate bank account that you can throw a calculated chunk of money into every month so that you have your budget when it is time to take the trip. As long as the savings account isn't connected to a debit card you won't be able to dip into it for impulse buys.

AngelHedgie · May 2016

Also, stick to index funds - most money managers don't beat the market.

Farangu · May 2016

Reznik wrote: »

Mortgages seem to make sense now. If I have a good credit rating it'll get me better rates on a mortgage, right?

As mentioned credit rating helps, but be careful about going to a large number of different lenders - each one of them will end up pinging your credit history to see how much of a risk you are, and excessive checks can take your score down.

Bowen also had the right range for money down. One US caveat that I believe applies to Canada too - coming to the table with less than 20% down can apply a significant mortgage insurance premium to your monthly payment. For us, coming with less than 10% puts it on the loan damn near permanently. Also, when you're looking at house prices look at the given tax amounts and insurance estimates for the year and imagine if you could handle the payments if those amounts went up by 10-15% - it's seldom that those rates don't change over the course of a mortgage.

Of course, depending on how young you are and your current stockpile, it might be best to not even worry about mortgage details and instead focus on saving up more for a down payment/your personal life goals. That's probably a balance question that only you can determine an answer to.

Djeet · May 2016

For your stated desires, just save and don't spend. You're not going to invest your way into a better vacation. If your goal is to secure a mortgage, then don't try to chase short-term returns. Focus more on how to make yourself more creditworthy (and saving piles of money and not having payment delinquencies will help you there). Even if you're 1-2 years out from buying a house, pay a realtor $30-40 now to pull your credit history so you can start addressing any issues (lots of times there are errors, and sometimes even legit bad stuff can be addressed with a letter).

I'm also super risk-averse. Most of my egg is not in the equities market, and there's not anything wrong with that. I may not be making as much of a return on those monies, but I'm pretty much guaranteed some return and my capital back. This is tactical though since I think US equities are overvalued, but I don't want to get into a protracted investment advice discussion since I will not advise particular investments anyways.

tinwhiskers · May 2016

Reznik wrote: »

I guess investing is the confusing thing, but probably something I shouldn't worry about until later? I'm also super risk-averse so that might not even be for me anyway. I know my dad ended up losing a lot of money on stocks and stuff when Nortel went south so I've always been leery of all that.

I'm assuming you are somewhere between like 18 and 35 with this. But you should be investing in equities(stocks), probably via some sort of index fund, preferably in a vehicle with tax advantages(the RRSP seems to be that).

Set up something that puts in $XXX dollars every month/week.

You are literally never too young to start investing. Here's a decent calculator, but (assuming 3% inflation 8% growth till retirement 5% after retiring at 65 living till 85). To retire on 75% of your salary if you were 25 today, you need to save 10.6% of your income annually till you retire. If you were 26 its 11.5%, if you are 35 its 19%.

One thing is to essentially forget about the money you are putting away. Its not for next year, or in 3 years or 10 years it's for decades from now. Lots of people try to time the market, and most professionals aren't able to beat it consistently, most amateurs have no chance. Don't worry about individual companies, just stick with a market fund. You don't have to worry about transitioning out of growth and lowering your risk for 20+ years at this point. Look in on it once or twice a year just to be mindful of it, but don't tinker with it cause its down 2% this quarter.

Paladin · May 2016

Have you considered a consultation with an enrolled agent (accountant)?

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