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How to master your finances as a university student

Handling your finances as a student can be crazy stressful, and we wanted to help make it easier. Here are some words of advice to help you crush your finances this school year.

Weigh your income against your expenses

Everyone is always yelling at students to save money. After awhile, it stops registering. So try this instead: Calculate the difference between your income and your expenses. Are you spending as much or more than you earn? What do you think you should do about it? The answer is different for everyone, but if you really want to master your finances, you have to understand your personal financial situation and draw your own conclusions.

Quick Tip: There are lots of online calculators, like this one from Smart Asset, that you can use to help you compare your income and expenses.

Let’s get digital

Leverage the power that technology will give you over your finances. Budgeting and saving are the bread and butter of financial literacy, and now there are many tools you can use to help craft your first budget (like Mint) and automatically save the suggested 10-15% of your income (like Moka). If you can afford to save more, do it.

Quick Tip: Set up a recurring deposit with Moka. This will ensure you’re putting money aside every week.

Give yourself some credit

Many students have misconceptions about the use of credit: They think credit is just a card you use to make large financial purchases. It’s true you can use a credit card to buy things, but your personal credit rating is something different. It’s a standing score that lenders use to decide what rate they will give you when you borrow money. If you have a bad credit rating, you probably have a history of not paying your bills on time, and banks will likely charge you a higher interest rate when you want to borrow money. This can be really costly over time. Paying your bills on time (and not buying things that you don’t have the money for) in university will help you in future.

Quick Tip: Check your credit score for free with Mogo. Contrary to popular opinion, when you check your own credit rating, it won’t have a negative impact on your score.

Apply. For. Scholarships.

Fifteen million dollars of scholarship money goes unclaimed every year in Canada. To be clear: that’s not individuals who win a scholarship and then don’t claim the money. That’s money that no one even applies for. That money could be your money. Apply for as many scholarships and bursaries as you possibly can.

Quick Tip: Scholarships Canada is a hub where you can find $200 million in awards. The Government of Canada also shares merit-based scholarships for post-secondary students.

Find a mentor

Have some frank conversations about finances with your parents, if that’s an option for you. If it isn’t, find someone else that you trust who can give you some unbiased advice (i.e. not someone who is trying to sell you something.) A financial planner may be trying to push a product you don’t need, like a loan or credit line. And no, you don’t have to find a financial expert to mentor you. The point is to start talking about your finances so that you can start building your awareness and figuring out what you don’t know!

Quick Tip: Ask any question you want on this Reddit thread for Canadian personal finance or find a finance-related club at your university.

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7 tips for first-time homebuyers from Canada’s top real estate agents

Thinking about purchasing your first house? This is one of the biggest decisions you’ll make in your life, but that doesn’t mean you have to walk in blind.

We reached out to some of Canada’s top real estate agents and curated their best advice for first-time homebuyers. Keep reading to learn how to find your new home.

1. Figure out what you can actually afford

In the world of house hunting, figuring out your finances comes down to getting preapproval for a mortgage. Toronto realtor Zuzana Misik says getting preapproved is vital. “First time buyers (and actually all buyers) need to get preapproved so they know exactly how much they can afford,” Misik says.

Checking your budget before you check out any houses also makes the process more enjoyable. Stephanie King, a Toronto real estate agent who personally closed 24 sales last year, recommends meeting with a mortgage agent to determine exactly how much you can spend. “This way, we’ll know the price range we should be looking in and you won’t be looking over budget, which can be discouraging,” King says.

Montreal real estate agent Amy Assaad also points out a practical benefit to getting preapproved early. “There are often multiple offers on a good property. You’re more likely to be considered than a person who doesn’t have their financing in order. It will make your offer a lot stronger,” Assaad explains.

 

2. Budget for more than just your mortgage payments

Preapproval is important, but purchasing a house involves a variety of costs that many first-time buyers don’t consider.

Ottawa realtor Mario Lemieux recommends that all first-time buyers make a budget so they really understand their financial commitment. Check out Lemieux’s website for a comprehensive list of what to include in your budget. You’ll see that Lemieux recommends including purchase-related expenses like inspection, insurance and legal fees as well as additional costs that you may rack up as a new homeowner, such as the price of new appliances or condominiums fees.

3. Research your real estate agent

Before you find a house, find the right real estate agent for the job.  If your real estate agent is familiar with your dream neighbourhood, then they’ll be able to save you time and money by recognizing a good opportunity when it comes.

“Select a good experienced realtor that will work hard to assist you in finding the best property possible within your budget, location, and criteria list,” Lemieux says.

A  good real estate agent should also be respectful of your needs and wants. You will be spending a lot of time with your agent, so chose one that you can speak with candidly.  “Make sure that you and your agent are on the same page,” Zuzana Misik adds.

4. Make a three year plan

You might think your first home will be  your forever home, but Amy Assaad says her clients want to upgrade sooner rather than later.   “You’ll get a boyfriend, you’ll get married: Life changes so fast!” she explains.

Assaad recommends making a three year plan and looking for a house that addresses your needs within this time period. In fact, searching with a three year plan (instead of a longer plan) in mind will open up more opportunities (i.e. properties) because your wishlist will be shorter.

Make sure you also consider how a three year plan will affect the mortgage you select: You’ll want a mortgage that is portable so you and your mortgage can move to a new property when you’re ready.

5. Create a very short wishlist

Toronto realtor Nikki Singh says you should “make a REALISTIC list of what you’re looking for and be open to adjust that list on your journey for the perfect home.”

Amy Assaad agrees, and suggests answering these four simple questions before you start your search:

  1. How many square feet do I need?
  2. How many bedrooms do I need?
  3. Do I need parking or will something close to public transit be okay?
  4. What neighbourhood do I want to live in?

Sure, a walk-in closet, jacuzzi and marble countertops would be nice to have, but you may miss out on some stellar properties if your wishlist is too detailed.

6. Look for a property with high resale value

Your house doesn’t have to be perfect. In fact, you may get a better deal if it isn’t, and this gives you more room to profit on the property when you’re ready to upgrade to something bigger.

Assaad recommends thinking about supply and demand in the market and buying something that is likely to be more valuable soon. For example, if you live in a city, a dated detached house may be easier to resell than a modern apartment in a 300 unit building, simply due to the scarcity of single family dwellings. 

Assaad also points out that you can renovate your property, so that your house is more likely to sell for more than you bought it.  Upgrading a bathroom or kitchen can add a lot to the listing price, and landscaping a yard, adding hardwood floors or installing better lighting can also do a lot towards winning over buyers in the future.

7. When the time is right, it will happen!

It’s easy to get swept up in the excitement of buying a home, but remember that good things take time.

“First time home buyers want to jump in with two feet!” says Stephanie King. “This is great and I would never want to hold anyone back, but ensure your realtor is doing their proper due diligence by checking comparables in the neighbourhood and adding conditions, such as a status certificate or home inspection, to your offer. If you love a property, that is great,  but ultimately it should also be a smart investment.”

Nikki Singh agrees. “Don’t rush to purchase property. Once you are fully satisfied with the property, price, and neighbourhood, make an offer,” Singh says.

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Mortgage shopping? These 5 things are just as important as securing a low interest rate.

Many first time homebuyers are too focused on getting the lowest interest rate on their mortgage. I was, too, when I bought my first home five years ago at age 27. Luckily, I worked with a mortgage broker who educated me about why the mortgage with the lowest rate isn’t necessarily the best mortgage for me.  I became a mortgage broker myself so I could help others avoid this same mistake.

While finding a low mortgage rate is important, finding a mortgage that’s best suited to your financial needs is just as important. As I like to say, the mortgage with the lowest rate can help save you hundreds, but the wrong mortgage product can end up costing you thousands.

Here are the top five factors to consider (aside from a low rate) when you’re shopping for a mortgage.

1. Fixed vs. variable rate mortgages

If you’re a first time homebuyer, don’t automatically sign up for the safety and security of a 5-year fixed rate mortgage.

With a fixed rate mortgage, you don’t have to worry about your mortgage payment and interest rate changing because they are fixed for the duration of your mortgage term. Signing up for a fixed rate mortgage is sometimes referred to as “locking in.” Often, you’ll pay a price for that certainty: fixed rates are typically higher than the lowest interest rate offered by variable rate mortgages.

With a variable rate mortgage, your mortgage rate can change during your mortgage term based on a change to your lender’s prime rate. Although each lender sets its own prime rate, they almost always move in lockstep with the Bank of Canada’s overnight lending rate. (If our central bank increases interest rates by 0.25 percent, your lender’s prime rate is likely to go up 0.25 percent, and vice-versa.) Depending on your lender, your mortgage payment amount may or may not change when prime rate goes up or down–that’s why it’s so important to work with a mortgage broker who knows their stuff.

Carefully weigh the pros and cons of fixed versus variable before making a decision.

2. Prepayment privileges

If you want to pay off your mortgage faster, generous prepayment privileges come in handy.

Prepayments are powerful because they go directly towards reducing your mortgage balance, unlike a regular mortgage payment, which is split between interest and principal. In the early years of your mortgage, most of your money goes toward interest.  Prepayments can help you save thousands in interest and pay off your mortgage years ahead of schedule.

Types of prepayment privileges include options to increase your payment, double up your payment or make lump sum payments. While most lenders offer prepayments, some lenders are more flexible than others. Monoline lenders (or lenders that are only in the business of mortgages) tend to offer more generous and flexible prepayments. If prepayments are important to you, a broker can match you with a lender that lets you maximize them.

3. Mortgage penalties

Now, I know what you’re thinking. I’m signing up for a mortgage. Why should I care about mortgage penalties? There’s no way I’m going to break my mortgage. While you may be right, there’s a chance you could be wrong. The facts speak for themselves. According to Canadian Mortgage Trends, 6 out of 10 will break their mortgage at some point. If you end up breaking your mortgage, wouldn’t you rather be with a lender that treats you fairly in terms of its mortgage penalties?

With a variable rate mortgage, you’ll typically pay three months of interest as a penalty for breaking your mortgage. With a fixed rate mortgage, your penalty can be a lot heftier. You’ll usually pay the greater of three months of interest or something called the Interest Rate Differential, which factors in your lender’s mortgage rates today against rates from the day you initially signed your mortgage. It’s this calculation that can result in heavy mortgage penalties. Each lender’s calculation of the Interest Rate Differential is different, but monoline lenders tend to offer fairer mortgage penalties than big banks and credit unions. If there’s any chance you could break your mortgage, look for a lender with a lower mortgage penalty.

4. Portability

If you don’t enjoy paying hefty mortgage penalties (I have yet to meet someone who does), then it helps to choose a lender with a mortgage that’s portable. With a portable mortgage, you can take your mortgage with you should you choose to sell your existing property and move to a new one during your mortgage term, and you’ll avoid paying a mortgage penalty. Some lenders let you blend and extend your mortgage if you’re buying a home for a greater purchase price.

5. Standard vs. collateral charges

Before signing up for a mortgage, be sure you ask if it comes with a standard or collateral charge–this information is often buried in the fine print. The word charge may be a little confusing, because this isn’t a fee that you must pay. A charge is the name of the document you sign to secure your mortgage; this is the document that your lender registers with the provincial or territorial land registry. A standard charge covers the specific amount, term and interest rate of your mortgage. A collateral charge, on the other hand, can be used to register multiple loans with the same lender, for example a mortgage and a line of credit.

A standard charge mortgage makes it easy to shop around and switch lenders when your mortgage comes up for renewal, usually at no cost to you. With a collateral charge mortgage, it makes it easier to take out a home equity line of credit (HELOC), but that convenience comes at a cost. You may be required to pay legal and appraisal fees to switch lenders. If you don’t plan to take out a HELOC, you’re probably better off with a standard charge mortgage.

Next steps

Buying a home is most likely the single biggest financial transaction of your lifetime, so give it the attention that it deserves. Before you start shopping for a mortgage, take the time to figure out what your personal financial priorities are so it’s easier to work with a broker to find the mortgage that works best for you.

 

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The three-step guide to budgeting for people who hate budgets

So you hate budgeting. The  good news is there’s a way to hate it less. Don’t believe me? Here’s my three-step guide to budgeting for people who’d rather be doing literally anything else.  Give it a try.

Step 1. Figure out what you need

This first step means making a date with your bank statements. Pick a rainy day (and yes, you can watch TV at the same time).

To figure out how much you need, pull up your last two or three months of credit and debit card records and creep your spending.

How much money do you need to spend on a monthly basis? Housing, groceries, and utilities are non-negotiables. Decent internet, a phone plan, transportation expenses, insurance, and loan payments can also count as necessities.

Next, grab an old calendar and write down what you paid for necessities on specific days.

This simple activity gives you an idea of when money normally leaves your account, so that you know what expenses you have to cover at the end of your pay cycle. This exercise can also make you aware of spending patterns, like how often you stock up on groceries and about how much you spend each trip to the store.

The shortcut

Skip the calendar and just make a list of numbers that cover what you need for a month. Add up these numbers. Yes, of course, you can use a calculator.

Step 2. Figure out what is leftover

This step involves some simple subtraction. Take the amount you get paid in a month (hint: peek your paycheque), subtract the amount you need to spend on necessities, and bam.

(What you make) – (what you need) = what is leftover

You can spend the leftover money on anything you want, which is not really the kind of freedom you think of when you hear the word “budgeting,” right?

Pro tip

Consider paying yourself first (i.e. saving) a necessity.. Try setting up a recurring weekly deposit with Moka and put away at least 10% of what you earn. Oh, and if you’re freelancing or self-employed, don’t forget to save money for taxes, too.

Step 3. Spend the leftover, if you want

This last step is the fun part: You can spend as much of the leftover money as you want. Overpriced lattes, fancy exercise classes, concert tickets, you name it.

Don’t have a lot leftover? Maybe that’s the wake-up call you need to ask for a raise or eliminate unnecessary recurring expenses, like old subscriptions or surprising bank fees. Sure, it may take a few months before you can afford something you really want, but you’ll never be scrambling to pay your electricity bill if you stick to this budget. Plus, you’ll avoid racking up debt and the expensive interest that comes with it.

Just remember to stop spending when the leftover money is gone.  Try keeping a simple running tally of every fun (i.e. not necessary) purchase you make and when you’re close to the total, you’ll know it’s time to slow down.

The shortcut

For an automated solution, set up an extra bank account. Every time you get paid, transfer the leftover to your extra account and leave the money for your necessities in your original account.

This means you’ll have one card just for fun spending and one for the necessities. Make sure that any automated payments are coming out of the right account and you’ve got a hands-free solution that does your budgeting for you.

That’s it

See, that wasn’t so hard, was it? A budget is just a plan for how you’re going to use your money to do as much of the stuff you want as possible.  If your goal is to feel like you still have flexibility and fun built into your plan, this simple approach is a great way to have your budget cake and eat it, too.

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How to slay your student debt years ahead of schedule

You don’t have to live with that pesky, lingering student loan forever. You can crush debt instead of letting it crush you.

As a financial coach, I’ve seen many of my clients pay off their debts faster than they thought possible. In fact, one of my clients paid off her student loan eight years ahead of schedule by using some of my easy tips and tricks. Interested? Here’s how you can graduate from debt for good.

Stash cash

The first step to paying off student debt actually starts with saving for a rainy day.  No matter how you slice it, there will come a time when you’ll need a little extra to help you out of an emergency financial situation. If you don’t have anything put aside, you may need an emergency loan. That’s why a rainy day fund is key: You’re trying to pay off debt, not rack up more of it!  To start tackling your student loan as soon as possible, save at least one month’s worth of basic living expenses, including the cost of housing, groceries, transportation, and utilities.

What to do: One of the easiest ways to save a month’s expenses quickly is to try a no-spend challenge by eliminating a specific category of spending from your lifestyle for awhile. My husband and I recently stopped eating out for month and we were able to put a sizeable sum in our basic emergency fund.

Embrace spreadsheets

The fastest way to eliminate that student loan is to give it all you’ve got! This requires some real-talk with yourself about your spending. How much you do you actually need to live? Think rent, utility bills, transportation costs, and basic groceries and household items. Now subtract these essentials from your monthly income. The difference? That is what you can really contribute to your monthly debt repayment.

What to do: Use a zero based monthly budgeting template to allocate a dollar amount to your most basic living costs, and then throw any extra from your monthly income towards your debt balance.

Prioritize payments

Not all loans are the same. In fact, federal, provincial and private loans have different interest rates and payment terms. High interest charges stack up fast and can significantly increase the size of your debt over a short period of time. That’s why it’s critical to create a repayment plan that minimizes the amount of interest you pay: You’ll save money overall and climb out of debt faster.

What to do: Prevent high interest charges from accumulating by prioritizing loan repayments for higher interest loans first. Generally, loans from private lenders or lines of credit have high interest (plus, the interest charges are not tax deductible) so they are good place to start. Next, compare interest rates on your provincial and federal loans.

Stay humble

You should definitely celebrate your financial success, but you don’t have to celebrate by blowing your whole paycheque!  People often fall into the trap of lifestyle inflation by spending more money when their income increases. Try to avoid this mistake by keeping your living costs low as your income goes up over time. If you get a job straight out of school, don’t drastically (and expensively) change your life. You’ll end up with more in the bank when it’s all said and done if you pay off debt first.

What to do: Avoid the temptation to overspend on purchases like a new TV or car. If you’ve got a roommate, keep them around a little longer and you’ll potentially save thousands.  Remember, student loan repayment is the goal.

 

Paying off that pesky student loan fast will require focus, but the sooner you get started, the better. Build a safety net, plan, prioritize, and keep your spending simple so that you can throw more at that student loan and be free of debt, forever.

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Vacation calling? Here’s how to save on summer travel

Warm weather is on its way, which means it’s time to start thinking about your summer vacation plans. The cost of travelling the world can be expensive, but it doesn’t have to be. These tips and tricks will ensure that you’re getting the experiences you want without destroying your wallet.

Be flexible

If you’re flexible with your travel plans, then you can find some serious deals. First, consider where you want to go. Want to visit Asia? Thailand can be significantly cheaper than Japan. Prefer the Caribbean? The Dominican Republic offers more value compared to Jamaica. The day you depart can also make a difference. Flying out on a Tuesday, Wednesday, or Thursday will usually be cheaper than flights that take off Friday through Monday. Also, take a look at departure times. Morning flights are often less expensive than an evening or overnight flight. And if you’ve got the time, opting for a connecting flights instead of a direct route can also help you save.

Book early

Many companies offer incentives for booking well in advance of your trip. Contiki has a book early and save promotion that applies to itineraries all around the world while AccorHotels offers up to 30% off when you make a reservation at least 30 days in advance.

When it comes to flights, booking early also pays off. Sure, it’s possible that airfare prices will drop, but there’s also an equal chance of them going up. If you wait until the last minute, you’ll definitely end up paying a premium. To get the best deals, try to plan your travels at least six months in advance.

Do the math

When it comes to saving money on travel, everything starts with a budget. Decide how much you can afford to spend on travel and then try to put a little aside for your adventures every paycheque. Saving $200 every month for travel will add up to $2,400 to spend on vacation each year. Take as many trips as you want as long as you don’t exceed that amount. Alternatively, you could do a reverse budget. Let’s say you’re estimating a two week trip to Europe is going to cost you $3,750 and you’re not going away for 15 months. That means you need to put aside $250 a month to reach your goal. Having a defined budget keeps you on track and ensures you won’t come back home in debt.

Don’t eat out every meal

I love to eat, but trying to hit all the popular restaurants while on vacation can bust your bank account. Try to balance your meals by making trips to the grocery store where you can buy snacks, water, alcohol, and prepared meals. If you’re staying with AirBnB, you can can really cut back your expenses by cooking meals at home. Another way to eat cheap while abroad is to look for street food or markets where you can eat like a local. If you do decide to go to a restaurant, aim to go at lunch when prices tend to be lower.

Use the right tools

There are a ton of apps and tools out there that can help you save. Hopper predicts when airfare will go up or down so you can plan accordingly. For last minute travellers, Hotel Tonight will find you a cheap room that night. KAYAK has a price alerts feature which will email you directly when your selected route drops in price. When you make five reservations with Booking.com, you automatically become a member of their genius program which gives you discounts as well as early check in and late check out at select properties. If you’re a student, remember to bring your student card when you travel since many attractions and even some restaurants offer a student discount.

The final word

Travelling doesn’t need to be expensive, but you can quickly go over budget when you don’t plan things in advance. That being said, sometimes travelling is all about being spontaneous. If you plan your trip in advance, you’ll have the freedom to explore within your means from the minute you touch down. Whether you want to go backpacking in Malaysia or hang poolside in Miami, your dream destination is not out of reach.

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Would you wait for marshmallows? Your answer says a lot about you.

The way we relate to time can have a significant impact on how we manage our marshmallows and our money. Let me explain.

In the late 1960s, a psychologist at Stanford named Walter Mischel ran a clever experiment known today as the Marshmallow Test. To study delayed gratification, he asked preschoolers to choose: They could have one fluffy confection immediately or wait fifteen minutes for two.

Decades later, follow-up studies found that the children who had waited for two marshmallows reported better life outcomes. Good things came to those that waited in this experiment. The two marshmallow kids had higher test scores, lower drug use and healthier body weight.

So what do marshmallows have to do with money or time management? This simple experiment led to research into a concept called time discounting, which says that some of us have a tendency to see a reward as less valuable when it’s further in the future. To a person who discounts, two marshmallows in 15 minutes are less enticing than one marshmallow right now. To them, the second marshmallow isn’t worth the cost of waiting 15 minutes. For the ones who wait, two marshmallows are worth the extra time spent.

Scenario One Scenario Two
Cost = Waiting 0 minutes 15 minutes
Benefit = Marshmallow 1 marshmallow 2 marshmallow

Time discounting has huge repercussions on the way people manage their schedule and also on the way they manage their finances.

Let’s swap sweets for cash: Would you choose $10 today or $100 next month? If you discount time heavily, chances are you’d pick $10. This may not seem that significant until you consider what effect this could have on your finances (and your life) over the years.

Imagine if someone gave you the choice between $10 and $100 every month? A year of discounting (choosing the $10) would lead you to make $120. If you waited for the $10 everytime, you could make $1,200 by the end of the year.

Time discounting can make it hard to save money because the future feels so far away, and this can also have a big impact on the quality of your life. Last year, I went to South Africa with a research team to study a form of time discounting in the outskirts of Cape Town. Our preliminary results suggest that future-oriented people might be more likely to escape poverty than people who tend to discount time more.

If you’re a one-marshmallow person, don’t worry. There’s a simple way that you can manage your life and finances to improve your savings: Bring the future closer to you.

Don’t worry. This doesn’t have to involve any time travel. Bringing the future closer to you is as easy as setting intermediary goals. For example, if your goal is to save $20,000 for a down payment on a house, start small. Set several smaller monthly goals that are easier to reach. Achieving incremental wins will feel rewarding and give you the motivation to keep moving closer towards your larger goal.  

In fact, this technique can make saving feel easier for anyone, regardless of what you think about marshmallows.