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Taking Control of Your Money

Budgeting and Goal-Setting


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Your Financial “Health”How financially “healthy” are you? Do you know your net worth? Do you have a budget or spending plan and financial goals? Do you know the basics of money management and how to keep more of what you earn?

There are endless choices to be made about what to do with the money you earn and as many options for saving more of it. To keep from getting in over your head financially, you need to be financially healthy. With some knowledge and effort on your part, financial health can be a reality for you and your family. This course can be a good start.

Quiz: Are you financially healthy?How financially healthy are you? The following is a summary from the online quiz. Some of the information is adapted from the Canadian Bankers Association. (www.cba.ca).

� I know my financial worth.

� I make good spending choices.

� I pay high-interest debts before low-interest debts.

� I set financial goals for myself.

� I have an emergency fund to cover about 6 months of living expenses.

� I pay my bills and credit card balances in full each month.

� I have adequate life, medical, property and disability insurance.

� I have an up-to-date will.

� I have a diversified portfolio of investments.

� I keep my financial records organized.

� I have a financial plan for retirement savings.

� I take full advantage of tax credits and deductions.


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What is your financial net worth?The first step towards financial health is to find out your financial net (i.e. total) worth. An accurate financial picture allows you to plan for the future, whether it is three months or 10 years down the road. It also helps you when you apply for loans or make spending decisions.

Your financial net worth is the difference between your assets (the things you own that have monetary value like cash savings, investments, equity in your home) and your liabilities (any money you owe like credit card and student loan debt, your mortgage, etc.).

Your financial net worth changes over time. So if you are unhappy with the outcome of this exercise remember that this is just a snapshot of where you are at this particular moment. And as with any snapshot, when you take another again in the future, it can be different. If you want to make a change, now is the time to start planning.

To calculate your net worth, add up all of your assets (the value of what you own) and all of your liabilities (the value of what you owe). Then, subtract your liabilities from your assets.

Record the information in the columns on the following page. Be as accurate as possible. Refer to any documentation you have.

About assets

Be realistic and conservative when evaluating the value of your assets. For stock options, retirement accounts, and bonds, use the current value, not the value at maturity or the value on the date you are fully vested. Life insurance policies also have cash value but only use the value you would get if you cashed the policy in today. For other assets, use your best estimate of the fair market value (e.g. if you sold your car, how much would you actually get for it?). And always take into consideration taxes that can reduce the actual value of your assets.

About liabilities

Liabilities include the outstanding balance of your mortgage and car loans, any property taxes or income you owe, credit cards, personal lines of credits, and other loans and debts.


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What is your financial net worth?

Assets (what you own) Total $ =

Chequing account(s) ...................................................................................................................................

Savings account(s) ........................................................................................................................................

Real estate .......................................................................................................................................................

Equity in home ..............................................................................................................................................

Equity in vacation home(s) or co-owned property ..........................................................................

Automobile(s) ................................................................................................................................................

Term Deposits/GICs .....................................................................................................................................

Stocks, bonds, mutual funds .....................................................................................................................

RSPs ...................................................................................................................................................................

Pension Holdings..........................................................................................................................................

Annuities, surrender value of ...................................................................................................................

Life insurance, cash value of ......................................................................................................................

Other .................................................................................................................................................................

Total Assets

Liabilities (what you owe)

Mortgage (balance outstanding) ...........................................................................................................

Income/property taxes ...............................................................................................................................

Car loan (balance outstanding) ................................................................................................................

Credit cards ......................................................................................................................................................

Personal line of credit .................................................................................................................................

Unpaid bills .....................................................................................................................................................

Other .................................................................................................................................................................

Total Liabilities

Net Worth (date) Assets – (minus) Liabilities =


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What does money mean to you?Many people go through life giving little thought to the meaning that money has in their life. Since your beliefs about money determine how you approach money management, take a few moments to examine your thoughts about money.

Think about your answers to these questions. Have your partner and/or family members also write down their responses and then discuss your answers together.

1. When you determined your net worth in the previous exercise, what did the result mean to you? Were you surprised? Are youpleased or upset by the result? If so, why?

2. What is more important to you—being debt-free or using borrowed money to finance purchases you cannot afford to paycash for (e.g. an expensive car, the latest technology gadget, a mortgage)?

3. Are you comfortable with the amount of money you make and how you spend it? If not, what can you do to change this?

4. How much more money would you need to feel it was enough? What would this extra money help you achieve? What wouldyou be giving up, or have to do, in order to earn this extra money?

5. Are you a risk-taker with your money or do you like to play it safe?

6. Do you believe you know how to make investment decisions that fit your risk tolerance and investor knowledge? If not, whatcan you do to change this?


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7. Do you think you should have specific financial goals? If so, what are they? If not, why don’t you?

8. What are your retirement goals? What actions are you taking now to work towards these goals?

9. If circumstances prevented you from earning an income for 6 months (e.g. job loss, injury) what would you do? Do you havean emergency fund to cover this possibility? If not, why not?

10. What are your thoughts about carrying a credit card balance and only paying the minimum amount required by the lendereach month?

11. Do you believe that it is important to take care of your loved ones financially in the event that something tragic happens toyou? If so, what steps have you taken towards ensuring that they are taken care of (e.g. adequate life and disability insurance)?

12. How much time each month do you think you should spend reviewing your financial situation? What would be the advantageor disadvantage of spending more time, or less time, doing so?


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Budgeting and Goal-SettingWhy budget?Handling money is a talent few of us are born with. But it is a skill that can easily be learned.

This section of the course is about budgeting and financial goal-setting. No matter what you call it—a budget, a savings-and-spending plan—there is no better way to precisely determine how much you are spending each month, what you are spending it on, and how much you can actually afford. A budget also helps keep you on track towards your financial goals.

Budget guidelinesA good budget is flexible. Here are some general guidelines to the percentage of your income that should be put towards various categories of expenses. Your particular situation may vary (e.g. housing costs vary widely across the country) and some financial planners are reluctant to put percentages on these categories, but many people find that these percentages are a good reference point. If your situation differs greatly from these averages, be certain that there is good reason for this.

35% Housing. Includes mortgage/rent, taxes, repairs, insurance, and utilities.

20% Transportation. Includes gas, oil, repairs, insurance, parking, public transportation, and monthlycar payments.

15% Debt. Includes credit cards, personal loans, student loans and other debts.

20% Other expenses. Includes all other expenses. Food, insurance, prescriptions, doctor/dentist bills,clothing, and personal items.

10% Investments and savings. Includes cash, stocks, bonds, and retirement savings.

=100%

+

++

+


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About budgetingYou may be surprised at how much you actually spend to live in the manner to which you are accustomed. For example:

• How much do you spend on a gym membership each month?

• How much do you spend on car insurance premiums each year?

• Do you take vacations? How much do these cost you (including all the money you spend while away)?

• What does your home cost to maintain?

• If you have pets, how much does their care and feeding cost?

• How much do you spend on clothes each month?

• What do you spend on gifts for weddings, birthdays, etc.?

• Do you have monthly car payments?

• How much do you spend each month on revolving credit payments (furniture, appliance loans, etc.)?

Step 1: Prepare

There are many ways to budget (e.g. day-to-day, week-to-week, month-to-month). A monthly budget is usually detailed enough. If you get paid every two weeks it may be easiest to let your budget follow your pay schedule.

Do you have a notebook or somewhere to make your budget notations? Use something small that you can carry with you at all times to make notes in and hold receipts. If you use a software program for your budget, you may still need some way to record the information throughout the day before you transfer it to the program. Do not rely on memory—write down all purchases immediately after you make them.

• Record everything you spend every day for a month. Show the total amount that you paid, including any taxes, andwhether you used cash, debit, or credit card (credit card purchases should be recorded at the time of purchase, not whenthe bill is paid).

• Save receipts from all purchases. If you don’t usually collect receipts, now is the time to start.

• Keep track of the costs to make your purchases (e.g. debit card fees, ATM fees).

Note: If your other/miscellaneous column adds up fast, you may need more categories.


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Step 2. Calculate your monthly income

When you calculate your monthly income, include your salary (after taxes and deductions), any commissions or bonuses you receive, child support or alimony payments, interest income, investment income, rental income, student loan income, etc. Don’t count overtime pay, tax refunds, or bonuses as regular income. Instead, consider these to be money you can put towards financial goals (e.g. saving for a holiday). It is always best when budgeting to be conservative and err on the side of having more money left over at the end of a month than you expect.

Salary* (after taxes and other deductions) ..........................................................................................

Commissions ..................................................................................................................................................

Contracts ..........................................................................................................................................................

Child support/alimony ................................................................................................................................

Interest income .............................................................................................................................................

Investment income .....................................................................................................................................

Rental income ................................................................................................................................................

Student loan income ..................................................................................................................................

Other income .................................................................................................................................................

Total Monthly Income ..................................................................................................

Note:

Since this is a month-to-month budget, you may have to estimate the value of your income for a one month period. For example, if you receive quarterly student loan payments, calculate how much this income equates to per month. And if you are going to estimate, be conservative. It’s better to underestimate your income than overestimate it. That way, you are more likely to have money left over at the end of the month.

* To calculate your monthly income:

� If you are paid weekly, multiple your net pay (your take-home pay after deductions and taxes) by 4.333

� If you are paid biweekly, multiply your net pay by 26 then divide by 12


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Step 3. Start recording

At the beginning of the month, fill in all of the upcoming fixed expenses that you will have to pay (e.g. pre-authorized payments for rent or mortgage, memberships, etc.).

Each day make a note of what you spend. Be accurate. Make another note of which category of expense each transaction belongs to (e.g. housing, transportation). The budget worksheet that follows may be helpful, or create one that works for you.

At the end of the month, add up your expenses for each category, and the grand total for all categories. Include any expenses that have shown up during the month that you had not recorded (e.g. bank statements listing transaction fees).

Step 4. Calculate your monthly expenses

There are two categories of expenses—fixed and variable.

Fixed expenses are expenses you pay month-to-month or year-to-year that remain relatively the same. These include mortgage or rent, phone, utilities, cable, internet, car payments, insurance, loan payments, credit card payments, savings contributions.

Variable expenses are expenses that vary month-to-month. They include food, clothing, transportation, fees and memberships, vacations, gifts and contributions, recreation, pets, spending money and other miscellaneous purchases.


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Sample Budget Worksheet for (month) _____________________

Fixed expense Total $ Category*

Rent/mortgage ........................................................................................................................................

Utilities ........................................................................................................................................................

Childcare expenses .................................................................................................................................

Cable TV/specialty channels/internet ..............................................................................................

Condominimum strata fees .................................................................................................................

Alimony

Insurance payments:

Car insurance ............................................................................................................................................

Home/tenant insurance .......................................................................................................................

Life/disability insurance ........................................................................................................................

Medical insurance ...................................................................................................................................

Monthly savings:

RSP/RESP contributions ........................................................................................................................

Holiday/events fund ...............................................................................................................................

Regular savings ........................................................................................................................................

Loan payments:

Student loan ..............................................................................................................................................

Credit card ..................................................................................................................................................

Car loan .......................................................................................................................................................

Other ............................................................................................................................................................

* Expense categories

1-Housing

2-Transportation

3-Debt

4-Investments and savings

5-Other expenses/misc.


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Sample Budget Worksheet (continued)

Variable Expense Total $ Category*

Car maintenance and repairs ..............................................................................................................

Gas/oil ..........................................................................................................................................................

Parking ........................................................................................................................................................

Public transportation, taxis ..................................................................................................................

Dining out/take out ...............................................................................................................................

Groceries .....................................................................................................................................................

Clothing ......................................................................................................................................................

Dry cleaning ..............................................................................................................................................

Babysitting .................................................................................................................................................

Home maintenance/repairs .................................................................................................................

Telephone (including cellular/long distance) ...............................................................................

Pets (veterinary bills, pet food, pet insurance) .............................................................................

Personal care .............................................................................................................................................

Other ............................................................................................................................................................

Total Monthly Expenses:

Monthly Budget Summary

Total monthly income:

- (minus) Total monthly expenses:

= Cash remaining

* Expense categories

1-Housing

2-Transportation

3-Debt

4-Investments and savings

5-Other expenses/misc.


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Step 5. Evaluate your budget

Once you have tracked your income and expenses for a month, you can determine if you have a positive cash flow (your income is greater than your expenses) or a negative cash flow (your income is less than your expenses).

To determine if you have a positive or negative cash flow:

Subtract your monthly expenses from your monthly income. If your result is positive, you are spending less than you make and that’s good. If your result is negative, you are spending more than you make.

If you have a negative cash flow each month (on average) you have three choices: increase your income, decrease your expenses, or do both. If you are contributing to investments and savings, but have a negative cash flow, be certain that you are not investing money that should be used to pay off high interest loans (e.g. credit card debt).

Monthly Budget Summary (from your completed budget chart)

Total monthly income:

- Total monthly expenses:

= Cash remaining

Next, compare the percentage of your income that you spend in the various categories (e.g. housing, transportation, debt) to the budget guidelines presented at the beginning of the worksheets. Add up all of the total expenses for each category separately. Use this formula to determine the percentages:

(Total expenditures for category) divided by (Total income for the month) = ______ x 100 = ______%.

Example: $125.00 for transportation divided by $2000.00 income = .0625 x 100 = 6.25%.


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Set financial goalsSetting financial goals is an important part of financial planning. A list of tangible, realistic goals can serve as a roadmap to achieve your desires by providing you with an easy way of knowing exactly where you are and where you’re headed financially.

Step 1: List your goals.

Make a list of your financial goals. Try to be as specific as possible. Ask yourself:

• What do I want to achieve financially (e.g. save for an emergency fund, save towards a child’s education)?

• What do I want my financial life to be like in one year? Five years? Ten years or more?

Step 2: Refine your goals.

Refine your goals and be specific. Ask yourself:

• When do I want to achieve this goal?

• How much money will it take to achieve it?

• How much progress have I already made towards achieving this goal?

• What action can I take to make this goal a reality?

Revise each goal until you are left with a simple sentence that clarifies what you are trying to achieve, in what timeframe, and a specific plan of action to achieve it.

Step 3: Categorize and rank your goals.

Categorize your financial goals in terms of whether they are short-term goals (to be achieved in less than 1 year), medium-term goals (1 to 3 years) or long-term goals (5 years or more). Then, prioritize them within each of the categories.

My short-term goals: 1.

2.

3.

My medium-term goals: 1.

2.

3.

My long-term goals: 1.

2.

3.


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Step 4: Create an action plan item for each goal.

What specific steps are you going to take towards achieving each goal? Write at least one action step for each of the prioritized goals.

Step 5: Evaluate your progress.

Review your progress monthly, quarterly, or at any other interval you feel comfortable with, but at least semi-annually, to determine if your plan of action is working. If you’re not making satisfactory progress on a particular goal, re-evaluate your approach and make changes as necessary.

Throughout the year, you’ll achieve some goals and make progress on others. In the same period of time, your personal circumstances and your financial situation may change, making adjustments to other goals necessary. For this reason, it’s important to review your goals on a regular basis and revise them accordingly.

Examples

To give you an idea of how to structure goals properly, review the following samples:

Short term:

Emergency fund: By the end of the next calendar year I will have an emergency fund totaling six months of my living expenses.

Action 1: I will cut back on my dining out expenses by $100.00 each month and use that money to put towards this fund.

Action 2: I will use all overtime, bonus pay and tax refund money to put towards this fund.

Action 3: The next time I want to make a clothing purchase, I will put the money towards this fund. The only exception is for essentials.

Medium term:

Replacement car. In three years it will be time to replace my pickup truck.

Action 1: I need to save approximately $8,000 dollars each year for the next three years. I will start doing research on potential used vehicles now so that I can be well-informed when it comes time to make my purchase.

Action 2: I will put all of my overtime pay and tax refund money into a car-savings account and not spend this money on anything else.

Long term:

Child’s education: In 15 years we want to have enough money saved to help fund our child’s post-secondary education.

Action 1: We will do some research into what an education program might cost and how RESPs work.

Action 2: We will set aside an appropriate amount each year to make contributions to reach this goal.


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Create a spending planNow that you know exactly how much income you have each month and where that money is spent, you can decide if you are saving and spending wisely in order to meet your financial obligations and save towards your goals.

• Make a note of your fixed and variable expenses. When you total your expenses, they should be equal to or less than yourincome.

• If your expenses are too high (i.e. you have a negative cash flow) review all of your variable or irregular expenses anddecide which you can reduce. Think about which expenses you can reduce without sacrificing the quality of your lifestylealthough in some circumstances the reality is that you may need to adjust your lifestyle downwards. Fixed expenses areusually harder to adjust and may require longer-term planning. The next session (Session 3) has helpful information aboutthis.

• If you have money left over each month (i.e. a positive cash flow) consider using that money to fund your goals (e.g. anemergency fund, depositing into your RSP) or use it to pay off debts.

• Evaluate your spending on a regular basis. Is it still helping you meet your needs and achieve your goals?

• Look at different categories and decide if you are satisfied with how you’re spending your money. Adjust those expensecategories accordingly.

Set aside time each month to total the preceding month’s worksheet and review.


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Finding More MoneyIf you have a negative cash flow (spending more than you are earning), if you are trying to cut back on expenditures to save more money and work towards your financial goals, or if you just want to be sure you aren’t wasting your hard-earned income, this section of the course can be very helpful.

Plug spending leaksStrategy 1: Review and reduce variable expenses

Review your budget to find areas to cut back on variable expenses (expenses that vary from month-to-month and that you have some control over such as food, clothing, transportation, gifts, recreation).

How can you reduce your variable expenses? Here are some tips.

Food and clothing

� Shop for bargains and use coupons.

� Make a list before you go grocery shopping and stick to it.

� Buy generic products.

Insurance (e.g. car, home)

� Shop around for the best insurance rates (e.g. car insurance).

� Raise your deductible.

� Review your coverage carefully and make sure you are not paying for extras that you don’t need.

Taxes

� If you get a tax refund each year ask your employer to reduce the amount of tax withdrawn from each paycheque (you will not receive the same refund amount, but throughout the year more of your money will be available for paying down debt, saving, etc.).

� Make sure you are getting all of the tax deductions you are eligible for. Educate yourself by reading financial publications, speaking with a tax advisor, visiting the Revenue Canada website, etc.

Home maintenance

� Do minor home repairs yourself.


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Transportation

� Use your car less.

� Walk or bike.

� Carpool.

� Take public transportation.

� If you have two cars, sell one.

Housing

� Look for cheaper accommodation.

� Rent out a room.

� Pay your mortgage bi-weekly (you can save thousands of dollars of interest payments and reduce your mortgage term by many years).

Entertainment

� Share video rentals, magazine and newspaper subscriptions with neighbours, friends, and coworkers.

� Borrow books, magazines, and DVDs from the library instead of purchasing them.

� Visit movie theatres on cheaper dates and times.

Personal

� Quit smoking. A two-pack-a-day habit can cost thousands of dollars per year.

� Cut back or stop drinking alcohol.


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Review your budget and spending plan. For each item you spend money on during a month, what can you do to reduce that expense?

1. Food and clothing

2. Insurance (e.g. car, home)

3. Taxes

4. Home maintenance

5. Transportation

6. Housing

7. Entertainment

8. Personal

9. Other


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Strategy 2: Reduce bank service fees

Choose your financial institutions and your account type(s) carefully. Just as with any service you buy, you need to shop around for the best deal and make sure that you are paying a competitive price for only the services you need and use.

All financial institution have brochures that explain their service fees and account plans and packages. These are useful tools to compare accounts from institution to institution and many can be found online.

Tips for Reducing Service Fees (adapted from the Canadian Bankers’ Association)

• Carefully identify and document your needs before shopping for an account.

• If you make withdrawals at an ATM, use your own financial institution’s ATM to avoid paying extra fees and make largerwithdrawals instead of several smaller ones.

• Set up pre-authorized payments to pay monthly bills.

• Consider a monthly flat-fee plan to reduce the cost of transactions.

• Consider consolidating your accounts if you have more than one.

Strategy 3: Stop impulse buying when you shop

Ask these questions before making a purchase:

• What am I doing here (e.g. did you have a specific purchase intent that motivated you to go shopping or did you goshopping because you had nothing better to do)?

• Is my purchase decision being influenced by my needs and research or am I here because of persuasive advertisingmessages?

• How do I feel (e.g. I am stressed, I am sad)? Don’t make purchases when you feel unsettled.

• Is this a “want” (an optional purchase) or a “need”?

• What will happen if I don’t buy this item?

• What will happen if I do buy this item?

Strategy 4: Avoid using credit cards

• Leave your cards behind. Impulse purchases are tempting when you carry credit cards. These add up and they basicallydestroy your budget and erode your commitment to responsible money management. Consider the cards as anemergency backup not a constant companion.

• When you pay cash or cheque you may significantly reduce the amount you spend. And you avoid interest rates that canadd up quickly.

• Try to limit yourself to one or at most two credit cards.

• Don’t be lulled into thinking you need a credit card to establish a credit rating, you don’t.


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Save more moneyStrategy 1: Earn Additional Income

• Do research to find out what others in your job and with your job skills are earning (use the library, internet, contact tradeassociations, your alumni association, etc.). If you find your wage is lower than average take your research to your bossalong with a thoughtful list of your accomplishments and specific job skills, and try to negotiate a raise or other benefitthat is of value to you (e.g. extra time off, reimbursement for additional skills training).

• Turn a hobby or skill set into a money-making venture. For example, if you make cabinetry in your spare time, can youearn money using this skill?

Strategy 2: Automate your savings

Set up a savings account that is separate from your other accounts.

• Do not spend the money in this account on monthly expenses. Let the money grow.

• If you’re employed, automate your savings process by arranging for automatic deduction (or into an RSP program orother type of investment).

Strategy 3: Reduce your taxes

• Contributing to an RSP may reduce your take-home pay but it also reduces your tax liability. In other words, you are taxedon the money remaining after your contributions are deducted from your gross income.

• The earlier you start building your fund, the more it will be worth when you retire.

• Contribute monthly rather than at the end of February. Your money will grow larger faster, and you will reduce the riskthat the price of your investment will be at its highest when you buy it.

• It is easy to arrange with your bank to contribute each month a set amount into your plan.

• Charitable donations also reduce taxable income

Strategy 4: Save all ‘found’ money

• Consider all ‘found’ money as direct contributions to your savings plan (e.g. monetary gifts, dividends from investments,bonus pay).

• When you have finally finished paying off a car or installment loan, continue paying that same amount (or a largepercentage) directly into a special savings account. You will have already learned to live without that income so you won’tnotice any change (except that your savings will grow!).

Strategy 5: Pay your credit balance in full each month

If you use credit cards, pay off your balance every month before the grace period expires. Do not waste money paying high interest rates. If you can’t pay the full balance, pay as much as you can above the minimum required and stop spending money until you are back on top of your finances.

Strategy 6: Invest your money

Making your dreams come true takes some serious financial planning and smart investing. Financial investing involves putting money into an investment such as stocks, mutual funds, bonds, and Guaranteed Investment Certificates (GICs) in order to earn a return or profit. A smart investment strategy involves balancing how much money you need today with what you’ll need in the future.


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A major key to making your money work for you is compound interest – earning income on your income. You receive income not only on your starting amount, but also on any previous income accumulated in your investment. For example: you deposit $5,000 into a term deposit for 5 years at 6% interest compounded annually. In the second year, the $300 of interest earned is added to the $5,000 principal. In the second year, you earn interest on $5,300. The compounding carries on, so that by the end of the fifth year your $5,000 is now more than $6,690.

There are many investment options available today – each has a different level of risk and expected return. Investors willing to accept a higher risk expect to be rewarded accordingly. Those looking for safety or income from their investments know their return won’t necessarily be as high, but they don’t run the risk of losing some or all of their investments.

Investments fall into three categories:

1. Cash and cash equivalents. These are assets that can be quickly turned into accessible cash. They include savingsaccounts, treasury bills, and money market mutual funds.

2. Fixed income investments. These provide a source of regular investment income which remains the same over time.Examples include term deposits/GICs, bonds, and income mutual funds.

3. Equity investments. These are assets that can grow in market value, but don’t necessarily pay dividends to the holder.Examples are stocks and equity mutual funds.

The type or mix of investments you choose depends on your investor profile, your time frame for investing, and your appetite for risk. You may decide to seek out a financial advisor. Before deciding who to work with, check out his/her qualifications, what their fees are, and make sure this person understands your financial needs and goals.

One of the most popular forms of investment these days that you should know about are mutual funds. A mutual fund is an investment product in which your money is pooled with the money of many other investors and is invested by a professional money manager. There are a range of mutual funds available and they generally fall into five categories: money markets, income, balanced, equity/growth, and international.

As with any type of investment, there is an element of risk with mutual funds. Although the fund is diversified, it will still reflect the performance of the securities in that fund. It is also important to be aware of the fees involved with mutual funds. Some funds charge an initial fee (a front-end load), some charge a fee when you sell (a back-end load), and with others there are no fees (no-load funds). All mutual funds have a fee known as the Management Expense Ratio (MER) which is the annual cost of managing and operating the fund.

Strategy 7. Take advantage of Registered Savings Plans

The Government of Canada has developed incentive programs to help you save for retirement and for your children’s higher education.

A registered Retirement Savings Plan (RSP) is a great way to save for your retirement (over and above government and employer-sponsored pension plans). Your annual RSP contribution can greatly reduce the amount of income tax you pay in that year, and the money you put away can have years of tax-deferred growth potential. When you withdraw your money after you retire, all withdrawals are fully taxable, but your rate should be lower than when you were working and collecting a salary. RSPs are available through chartered banks, trust companies, and other financial institutions.

A Registered Education Savings Plan (RESP) is a special savings plan in which money grows tax-free until it is withdrawn for education after high school. Contributions to an RESP are made by a subscriber on behalf of one or more beneficiaries named in the plan. The Government of Canada will increase the amount you put aside for a child’s education with a Canada Education Savings Grant (CESG) that is 20, 30, or 40 percent added to the money you put into an RESP, depending on your family net income. A Canada Learning Bond (CLB) is an additional grant worth up to $2,000 to help modest-income families start saving for the education after high school of children born after December 31, 2003.

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