Banking

Current Mortgage Rates and How They Affect You

To some, the interest rate is a rather meaningless number that seems to change on an almost daily basis. However, if you are applying for a credit card, buying a new car or applying for a mortgage, this number can significantly affect how much you are paying every month and over the term, or length of your loan. At the time of writing, mortgage rates are low and it is a good time to buy a home, or refinance an existing mortgage at a lower rate.

The interest rate is defined as the amount of money it will cost you to borrow a certain amount of money from a bank or lender. It is virtually impossible to accurately predict mortgage interest rates; one of the biggest factors that influence them is simple supply and demand. If more people are buying houses, more money is being borrowed, which means that lenders can charge higher rates to borrow the money. In a slow economy, less people are borrowing money, rates are generally lower to attract customers, and there is more money to lend.

The mortgage interest rate affects you both in the short term and the long term. A rate that is lower means that your monthly payments are lower; it also means that over the term of the mortgage, you are paying less. Whereas the traditional mortgage is taken out for a period of 30 years, a lower rate means that you may perhaps be able to take out a shorter term mortgage, of 20 or even 15 years. Also, it means that you will own your home outright, sooner rather than later – a big advantage.

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September 16, 2009
Book Reviews

The Soul of Money – It’ll Change The Way You Think About Money

The Soul of Money by Lynne TwistThe Soul of Money: Transforming Your Relationship With Money And Life by Lynne Twist

Lynne Twist’s book The The Soul of Money will blow you away.  I borrowed it from the library this past weekend and couldn’t put it down.  Lynne really makes you think about your life and your perception toward money.  She is a fundraiser who has traveled around the world rubbing shoulders with the very rich and the very poor.  In her book, she challenges her readers to consider how they perceive money and to overcome feelings of scarcity and inadequacy and instead embrace a sense of sufficiency.

Lynne’s main theme is that when she saw people “aligning their money with their deepest, most soulful interests and commitments, their relationship with money became a place where profound and lasting transformation could occur.”  In other words, people had a healthier perception of money and were the most fulfilled when they used their money to support the things they believed in.

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September 14, 2009
Investing

TFSA (Tax Free Savings Account) Basics

consider a tax free savings account (TFSA)At the beginning of this year, the Canadian government introduced the Tax Free Savings Account (TFSA).  While it definitely has its perks, there are some disadvantages to the TFSA as well.

Here are the basics about TFSAs:

*Canadians 18 years of age and older can invest up to $5000.00 every year in a TFSA

*The money can be withdrawn at any time.

*You can contribute to your spouse’s TFSA

*There is not a lifetime contribution limit

*Assets from a spouse’s TFSA will transfer upon death to the other spouse without tax implications

*Any funds withdrawn can be put back into the account at a later time without reducing your contribution room

*You don’t have to pay taxes on the investment gains regardless of whether they are capital gains, dividends, or interest income.

*Money contributed to the TFSA are not tax deductible

*If you don’t invest the full $5000.00 for any one year, it can be carried forward to a future year

The Good, the Bad, and the Ugly

TFSAs are generally a great concept because they encourage people to save.  The fact that you’re not being taxed on the earnings is also very appealing.  However, there are some other aspects to TFSAs that you need to consider.  You don’t want to be paying hefty fees for your TFSA, so you need to be mindful of what your financial institution charges.  Feel free to shop around before opening your TFSA.

Another thing to consider is that if your investment in a TFSA experiences a capital loss, there is no tax cushion to buffer the loss.

Lastly, when you contribute to a TFSA you are likely to be at a fairly high tax bracket and most people want to decrease their tax bracket by contributing to something such as an RRSP.  Unfortunately, TFSAs don’t give you that benefit.  In essence, you will be paying more tax if you contribute to a TFSA as opposed to an RRSP.

Each investment option has its pros and cons.  TFSAs can be a great method of investing, but like any other option, it’s not perfect.   Check out your local financial institution’s website to see what they have to offer and start saving for your current and future goals.

September 12, 2009
Shopping

Check out IKEA – It’s An Affordable Place To Shop

I had always heard many good things about IKEA, but had never had the opportunity to visit an IKEA store until this past weekend while visiting friends in a faraway city.  I have to say, IKEA exceeded my expectations.  For those of you who have never heard of IKEA, it is a Scandinavian store that has locations all over the world.

First of all, eating out at IKEA is super cheap.  You can buy breakfast for $1.00.  They also have a lunch/supper menu that is very reasonably priced.  You can feed your entire family for a fraction of the cost of eating at any other restaurant.

Secondly, they make it easy for customers to shop by providing childcare.  Now that is practical!

Thirdly, they provide fairly decent quality products at affordable prices.  And, to make it even better, a lot of their furniture can be purchased in stages rather than having to buy it all at once.  For example, you could buy a shelf first and use it for a while, before buying the extra accessories such as the cabinet doors and drawers that can go with it. Some people prefer to only buy the barebones of the set anyway so they don’t have to waste their money on extras that they don’t even want.

Fourthly, it’s all do-it-yourself.  IKEA keeps their prices low by creating products that you can put together yourself at home instead of having to pay hefty delivery fees.  Shopping at IKEA is extremely efficient and their system is very practical.

So, although I didn’t really expect IKEA to be all that I had heard from others, I was pleasantly surprised and I would wholeheartedly recommend it  to anyone wanting to furnish their home.  IKEA also has a wide selection of kitchen gadgets that would be hard to find anywhere else.  And, if you don’t feel like cooking one day, eating out IKEA will definitely fit within your budget.

Check it out sometime.  You won’t be disappointed.  If you’re in an area like me with no IKEA store nearby, you can also check out their website .

September 10, 2009
Shopping

Buy Now & Pay Now

buy now, pay nowI’m sure everyone has heard the phrase, “Buy now, pay later.”  Almost every major furniture and appliance company has this kind of offer.   You can also often purchase electronic devices and all kinds of other gadgets this way.  Well, I want to be a bit contrary here and suggest that when you make purchases, whether they are big or small, pay for them at the time of purchase rather than waiting to pay.  Below are some reasons why I am suggesting this:

1.  Who wants extra debt?  Buy paying later you have taken on yet another debt that you will eventually have to pay.  Wouldn’t you rather just pay for it and get it over with?

2.  If you wait to make your purchase until you save up enough money, you will be more certain that it is really what you want.  You are less likely to impulse buy if you discipline yourself to ensure you have the funds before making purchases.

3.  By paying now you will eliminate the possibility of having to pay interest charges on your purchase.

4.   If you decide to pay later, there is a chance that you may forget about it and not save an adequate amount of money in order to make the payments once they begin.

That being said, there is one situation where I think buying now and paying later could be financially beneficial.  For instance, you buy a washer and dryer for $1000.  The offer is to pay for the appliances in 2010 but you don’t have to pay interest.  You currently have the money available to pay now, but since you won’t have to pay interest, you decide to invest the $1000 instead.  Then, in 2010, you pay for your purchase in full, after having earned interest on your money through your investment.  In my opinion, that would be the only time it would make sense to buy now and pay later when it comes to making small and medium-sized purchases.

September 8, 2009