Personal Finance For Canadians For Dummies

Eric Tyson, MBA, is a renowned finance counselor, syndicated columnist, and author of numerous bestselling financial titles. Tony Martin, B.Comm, is a nationally-recognized personal finance, speaker, commentator, columnist, management trainer, and communications consultant. He is the co-author of Personal Finance For Canadians For Dummies.

Introduction 1

About This Book 2

Foolish Assumptions 3

Icons Used in This Book 3

Beyond the Book 4

Where to Go from Here 4

Part 1: Getting Started with Personal Finance 5

Chapter 1: Improving Your Financial Literacy 7

Talking Money at Home 8

Identifying Unreliable Sources of Information 10

Understanding the dangers of free financial content online 10

Recognizing fake financial gurus 11

Publishers pandering to advertisers 14

Jumping over Real and Imaginary Hurdles to Financial Success 15

Discovering what (or who) is holding you back 16

Developing good financial habits 16

Chapter 2: Measuring Your Financial Health 19

Avoiding Common Money Mistakes 20

Determining Your Financial Net Worth 22

Adding up your financial assets 22

Subtracting your financial liabilities 23

Crunching your numbers 24

Interpreting your net worth 24

Examining Your Credit Score and Reports 25

Understanding what your credit data includes and means 25

Obtaining your credit reports and score 26

Improving your credit reports and score 28

Getting credit report errors corrected 29

Knowing the Difference between Bad Debt and Good Debt 30

Consuming your way to bad debt 31

Recognizing bad debt overload 32

Assessing good debt: Can you get too much? 33

Playing the credit-card float 34

Analyzing Your Savings 35

Evaluating Your Investment Knowledge 36

Assessing Your Insurance Savvy 38

Chapter 3: Managing Where Your Money Goes 39

Examining Overspending 40

Having access to credit 40

Misusing credit cards 40

Taking out car loans 41

Bending to outside influences and agendas 42

Spending to feel good 43

Analyzing Your Spending 43

Tracking spending the low-tech way 44

Tracking your spending on “free” websites and apps 49

Chapter 4: Establishing and Achieving Goals 53

Creating Your Own Definition of Wealth 53

Acknowledging what money can’t buy 54

Managing the balancing act 54

Prioritizing Your Savings Goals 56

Knowing what’s most important to you 57

Valuing retirement plans 57

Dealing with competing goals 58

Building Emergency Reserves 58

Saving to Buy a Home or Business 59

Funding Kids’ Educational Expenses 60

Saving for Big Purchases 60

Preparing for Retirement 61

Figuring out what you need for retirement 62

Understanding retirement building blocks 64

Crunching numbers for your retirement 77

Making up for lost time 79

Part 2: Spending Less, Saving More 81

Chapter 5: Dealing with Debt 83

Using Savings to Reduce Your Consumer Debt 84

Understanding how you gain 84

Finding the funds to pay down consumer debts 85

Decreasing Debt When You Lack Savings 86

Reducing your credit card’s interest rate 86

Understanding all credit-card terms and conditions 87

Cutting up your credit cards 87

Discovering debit cards: The best of both worlds 88

Turning to Credit-Counselling Agencies 89

Beware biased advice at credit-counselling agencies 90

Ask questions and avoid debt-management programs 91

Filing Bankruptcy 92

Understanding bankruptcy benefits 93

Coming to terms with bankruptcy drawbacks 95

Seeking bankruptcy advice 96

Considering a Consumer Proposal:

An Alternative to Bankruptcy 97

Stopping the Spending/Consumer Debt Cycle 98

Resisting the credit temptation 98

Identifying and treating a compulsion 99

Chapter 6: Reducing Your Spending 101

Unlocking the Keys to Successful Spending 101

Living within your means 102

Looking for the best values 103

Cutting excess spending 108

Shunning consumer credit 109

Budgeting to Boost Your Savings 109

Reducing Your Spending 110

Managing food costs 111

Saving on shelter 115

Cutting transportation costs 117

Lowering your energy costs 120

Controlling clothing costs 121

Repaying your debt 122

Indulging responsibly in fun and recreation 122

Lowering your phone bills 124

Technology: Spending wisely 126

Curtailing personal-care costs 126

Paring down professional expenses 127

Managing medical expenses 128

Eliminating costly addictions 129

Keeping an eye on insurance premiums 130

Trimming your taxes 131

Chapter 7: Trimming Your Taxes 133

Understanding the Taxes You Pay 133

Focusing on your total taxes 134

Recognizing the importance of your marginal tax rate 134

Defining taxable income 136

Being mindful of the second tax system: Alternative minimum tax 136

Trimming Employment Income Taxes 137

Contributing to registered retirement plans 137

Shifting some income 138

Increasing Your Deductions 139

Childcare expenses 139

Alimony and maintenance payments 140

Child support 140

Annual union and professional fees 140

Business losses 141

Interest on investment loans 141

Moving expenses 141

Making the Most of Tax Credits 142

Understanding how the federal and provincial tax systems work together 142

Maximizing your tax credits 143

Trading consumer debt for mortgage debt 147

Deducting self-employment expenses 148

Reducing Investment Income Taxes 150

Selecting other tax-friendly investments 150

Making your profits long term 150

Enlisting Education Tax Breaks 151

Getting Help from Tax Resources 153

Obtaining CRA assistance 153

Consulting preparation and advice guides 154

Using software and websites 154

Hiring professional help 154

Dealing with an Audit 156

Getting your act together 156

Surviving the day of reckoning 157

Part 3: Building Wealth through Investing 159

Chapter 8: Considering Important Investment Concepts 161

Establishing Your Goals 161

Understanding the Primary Investments 162

Looking at lending investments 162

Exploring ownership investments 163

Shunning Gambling Instruments and Behaviors 164

Forsaking futures, options, and other derivatives 165

Ditching day trading 165

Understanding Investment Returns 166

Sizing Investment Risks 167

Comparing the risks of stocks and bonds 167

Focusing on the risks you can control 168

Discovering low-risk, high-return investments 169

Diversifying Your Investments 170

Spreading the wealth: Asset allocation 171

Allocating money for the long term 173

Sticking with your allocations: Don’t trade 174

Investing lump sums via dollar-cost averaging 175

Acknowledging Differences among Investment Firms 176

Focusing on the best firms 177

Places to consider avoiding 179

Seeing through Experts Who Predict the Future 183

Investment newsletters 184

Investment gurus 184

Leaving You with Some Final Advice 186

Chapter 9: Understanding Your Investment Choices 189

Slow and Steady Investments 189

Transaction/chequing accounts 190

Savings accounts and money-market funds 190

Bonds 191

Building Wealth with Ownership Vehicles 193

Socking your money away in stocks 193

Investing internationally in stocks 194

Generating wealth with real estate 201

Investing in small business (and your career) 205

Off the Beaten Path: Investment Odds and Ends 208

Precious metals 209

Bitcoin and other cryptocurrencies 209

Annuities 211

Collectibles 211

Chapter 10: Investing in Funds 213

Understanding the Benefits of Mutual Funds and Exchange-Traded Funds 214

Exploring Various Fund Types 215

Money-market funds 215

Bond funds 216

Stock funds 217

Balancing bonds and stocks: Hybrid funds 218

Canadian, U.S., international, and global funds 218

Index funds 219

Specialty (sector) funds 220

Selecting the Best Funds 221

Reading prospectuses and annual reports 222

Keeping costs low 222

Evaluating historic performance 225

Assessing fund-manager and fund-family reputations 225

Rating tax-friendliness 226

Determining your needs and goals 226

Deciphering Your Fund’s Performance 227

Interest and dividends 228

Capital gains 228

Share-price changes 229

Evaluating and Selling Your Funds 229

Chapter 11: Taking Advantage of Registered Retirement Savings Plans 231

Understanding How RRSPs Work 232

The benefits of tax-deductible contributions 232

The payoff from tax-deferred compound growth 233

Maximizing Your RRSP’s Growth 234

The payoff from starting an RRSP early 234

Increasing your returns 235

Examining the Contribution Rules 237

Checking out the contribution limits 237

How much can you contribute? 238

Types of Registered Retirement Savings Plans 241

Taking Money Out of Your Plan before Retirement 243

Regular withdrawals before retirement 244

Special circumstances 244

Closing Down Your RRSP 245

Registered Retirement Income Funds 246

Annuities 249

Chapter 12: Investing in Retirement Plans 253

Allocating Your Money in Retirement Plans 254

Understanding the difference between a retirement plan and the investments inside a retirement plan 254

Prioritizing retirement contributions 255

Allocating money when your employer selects the investment options 256

Allocating money in retirement plans you design 259

Understanding annuities: An odd investment 266

Transferring Retirement Plans 267

Transferring retirement plans you control 267

Moving money from an employer’s plan 269

Chapter 13: Investing Outside Tax-Sheltered Retirement Plans 271

Getting Started 272

Paying off high-interest debt 272

Taking advantage of tax breaks 273

Taking Advantage of Tax-Free Savings Accounts 273

Understanding how much you can contribute 274

Understanding your investment choices 275

Making withdrawals 275

Understanding Registered Disability Savings Plans 276

Determining whether you’re eligible for an RDSP 276

Earning disability grants 277

Withdrawing funds 277

Understanding Taxes on Your Investments 278

Fortifying Your Emergency Reserves 279

Bank and credit-union accounts 279

High-interest savings accounts 280

Money-market funds 281

Investing for the Longer Term (Several Years or Decades) 284

Defining your time horizons 285

Bonds and bond funds 285

Guaranteed investment certificates 287

Stocks and stock funds 287

Annuities 288

Real estate 288

Small-business investments 288

Chapter 14: Investing for Educational Expenses 289

Strategizing to Pay for Educational Expenses 290

Estimating university or college costs 290

Setting realistic savings goals 291

Strategies for Saving for Education Expenses 292

Registered Education Savings Plans 292

In-trust accounts 296

Obtaining Loans, Grants, and Scholarships 297

Government student-loans programs 298

Canada Student Grants 300

Tips for getting loans, grants, and scholarships 304

Investing Educational Funds 305

Good investments: No-load mutual funds and exchange-traded funds 305

Bad investments 306

Overlooked investments 306

Chapter 15: Investing in Real Estate: Your Home and Beyond 309

Deciding Whether to Buy or Rent 310

Assessing your timeline 310

Determining what you can afford 310

Calculating how much you can borrow 311

Comparing owning versus renting costs 313

Considering the long-term costs of renting 316

Recognizing advantages to renting 318

Financing Your Home 318

Understanding mortgage essentials 319

Examining the difference between fixed- and variable-rate mortgages 323

Checking out the Home Buyers’ Plan 324

Avoiding the down-payment blues 327

Finding the best lender 329

Increasing your approval chances 331

Finding the Right Property 332

Condo, town house, co-op, or detached home? 332

Casting a broad net 333

Finding out actual sale prices 333

Researching the area 334

Working with Real-Estate Agents 335

Recognizing conflicts of interest 335

Looking for the right qualities in real-estate agents 336

Putting Your Deal Together 338

Negotiating 101 338

Inspecting before you buy 338

Remembering title insurance 339

After You Buy 340

Refinancing your mortgage 340

Considering mortgage life insurance 342

Weighing the pros and cons of a reverse mortgage 343

Selling your house 344

Part 4: Insurance: Protecting What You Have 347

Chapter 16: Insurance: Getting What You Need at the Best Price 349

Discovering the Three Laws of Buying Insurance 350

Insure for the big stuff; don’t sweat the small stuff 350

Buy broad coverage 355

Shop around and buy direct 357

Dealing with Insurance Problems 360

Knowing what to do if you’re denied coverage 360

Getting your due on claims 361

Chapter 17: Insurance on You: Life, Disability, Long Term Care, and Medical 367

Providing for Your Loved Ones: Life Insurance 368

Determining how much life insurance to buy 368

Looking at the Canada Pension Plan and Quebec

Pension Plan’s survivor benefits 369

The impact on Old Age Security benefits 370

Comparing term life insurance to cash-value life insurance 371

Making your decision 374

Buying term insurance 375

Considering the purchase of cash-value life insurance 377

Getting rid of cash-value life insurance 377

Preparing for the Unpredictable: Disability Insurance 378

Deciding whether you need coverage 378

Determining how much disability insurance you need 379

Identifying other features you need in disability insurance 380

Deciding where to buy disability insurance 381

Planning for Nursing-Home Care: Long-Term-Care Insurance 382

Getting Care for the Road: Travel Medical Insurance 383

Determining what coverage you already have 383

Buying travel medical insurance 384

Chapter 18: Covering Your Assets 385

Insuring Your Home 385

Dwelling coverage: The cost to rebuild 386

Personal property coverage: For your things 386

Liability insurance: Coverage for when others are harmed 387

Flood and earthquake insurance: Protection from Mother Nature 388

Deductibles: Your cost with a claim 390

Special discounts 390

Buying homeowner’s or renter’s insurance 390

Auto Insurance 101 391

Bodily-injury and property-damage liability insurance 391

Uninsured or underinsured motorist liability 392

Deductibles 392

Special discounts: Auto edition 393

Little-stuff coverage to skip 393

Buying auto insurance 394

Protecting against Mega-Liability: Umbrella Insurance 395

Planning Your Estate 395

Wills, living wills, and medical powers of attorney 396

Avoiding probate through living trusts 397

Planning your estate to minimize taxes triggered by your death 398

Part 5: Where to Go for More Help 401

Chapter 19: Working with Financial Planners 403

Surveying Your Financial Management Options 403

Doing nothing 404

Doing it yourself 404

Hiring financial help 404

Deciding Whether to Hire a Financial Planner 407

How a good financial planner can help 408

Understanding why planners aren’t for everyone 409

Recognizing conflicts of interest 409

Finding a Good Financial Planner 413

Soliciting personal referrals 413

Seeking planners through associations 414

Interviewing Financial Planners: Asking the Right Questions 414

Learning from Others’ Mistakes 418

Chapter 20: Using Technology to Manage Your Money 419

Surveying Software, Apps, and Websites 419

Adding up financial software benefits 420

Understanding how apps can benefit and harm your bottom line 421

Surfing hazards online 422

Accomplishing Money Tasks on Your Computer, Tablet, or Smartphone 425

Paying your bills and tracking your money 425

Planning for retirement 427

Preparing your taxes 428

Researching investments 428

Trading online 429

Reading and searching periodicals 430

Investing through automated investment managers: Robo advisors 430

Buying life insurance 431

Preparing legal documents 431

Chapter 21: Online, On Air, and in Print 433

Observing the Mass Media 433

Alarming or informing? 434

Teaching questionable values 434

Worshipping prognosticating pundits 435

Rating Radio and TV Financial Programs 435

Finding the Best Websites 436

Navigating Newspapers and Magazines 436

Betting on Books 437

Part 6: The Part of Tens 439

Chapter 22: Survival Guide for Ten Life Changes 441

Starting Out: Your First Job 442

Changing Jobs or Careers 443

Getting Married 444

Buying a Home 446

Having Children 446

Starting a Small Business 449

Caring for Aging Parents 450

Divorcing 452

Receiving a Windfall 453

Retiring 455

Chapter 23: Ten Tactics to Thwart Identity Theft and Fraud 457

Save Phone Discussions for Friends Only 458

Never Respond to Emails Soliciting Information 459

Review Your Monthly Financial Statements 459

Secure All Receipts 460

Close Unnecessary Credit Accounts 460

Regularly Review Your Credit Reports 460

Keep Personal Info Off Your Cheques 461

Protect Your Computer and Files 461

Protect Your Mail 462

Clean Out Your Wallet 462

Glossary 463

Index 477