Finding timeless advice in the ever-changing world of personal finance can be difficult. Here are five pieces of advice you should take on:

1. Start small and start early with investing

Canadians can open a Tax-Free Saving Account (TFSA) as early as age 18. About 5% of Canadians under the age of 25 have a Tax-Free Saving Account (TFSA). It means most young Canadians have missed out on seven years of compounded returns. You can start to invest small, can be as little as $100 a month.

Investing $100 per month at a 5% compounded annual return for 47 years (age 18 to 65) will give you $70,345.98 more than someone who did the same starting from age 25. Time is money when it comes to compounded returns, so you should start saving as early as possible.

2. Make more or spend less?

The advice is to do both. However, there are limits on how much income you can generate and how much you could cut back on expenses. You may find some lifestyles you could easily do without – like that lightly used gym membership or rarely watched 200-channel TV package.

A part-time job or side hustle can be a good idea to generate extra income. However, you will spend more time working and less time enjoying life. Also, any generated income is fully taxable. You might need to earn $10 to get the same result as a $7 spending cut.

3. Re-evaluate your wants and needs.

A 1,200 sq ft bungalow was the standard for most families in the early 1970s. Today, houses are over 2,000 square feet on average and come with plenty of high-end finishes. Lifestyle creep is not limited to our housing needs and now influences what we drive, how often we eat out, and where we go for vacation. Satisfying your wants later in life will only come from making smart choices on your needs earlier in life and freeing up the cash to start saving and investing.

4. Understand credit and debt.

Many people carry a credit card balance and are blissfully unaware of monthly costs. If you have a $1,000 credit card balance, you will need about 131 monthly payments to clear off the debt with the minimum amount. It will cost you almost $1,800 more in interest charges.

The key is to be knowledgeable about your debts. These include what you owe and how much that debt costs you. Also, any alternatives that may lower that cost. You can refinance your mortgage or draw your home equity to pay off higher interest loans or credit cards.

5. Get financially literate.

Managing your money has become more difficult as we have more spending, saving, and investing options. We also have access to more information and tools to help us. Therefore, you should dive into the real impact of those investment fees on your mutual funds. This information is available to you online in just minutes.

An investment (rental) property can be an excellent option for generating additional monthly income. It can also grow your wealth over time if done correctly.

This strategy has multiple options and outcomes that can benefit you:

• Supplementing income now and boosting pension in the future create more financial freedom.
• Allowing you to buy your dream retirement home now and rent it out until you are ready to use it.
• Increase monthly cash flow for potential expenses beyond retirement savings.
• Utilize a multi-unit home (such as a duplex) by renting out one of the units.

Buying a rental property comes with different qualifying criteria and mortgage product options than traditional home purchases. Before you purchase a rental property, be aware that:

1. The minimum down payment required is 20% of the purchase price. Also, the funds must come from your savings. You cannot use gifted funds from an immediate family member. Another option is to utilize the existing equity in your primary residence and refinance for the cash to purchase your rental or investment property. Be sure to factor in funds for closing costs, potential repairs, and unforeseeable maintenance.

2. A portion of the rental income can be used to support the mortgage. Some lenders will allow you to use 50% of the rental income towards the total income amount. Others may allow up to 90% of the rental income and subtract your expenses.

3. Interest rates usually have a premium for rental property mortgages. This premium can be anywhere from 0.10% to 0.25% on a regular 5-year fixed rate.

Rental properties can be a great way to supplement income and make the most out of your retirement. It can offer you the monthly cash flow and will have the ability to sell the property in the future. The sale of a rental property will be subject to capital gains tax. Your accountant will help you with that aspect if you decide to sell in the future.

Lastly, it is essential to maintain a cost-effective calculation. These calculations involve the cost of your investment and consider maintenance amounts. You will compare the result to current rental prices to be sure it is a profitable investment before purchasing.

If you are planning to purchase an investment property, be sure to reach out to your mortgage professional to understand the requirements and discuss your options. 

It can get exciting to see campaigns around “cash-back mortgages.” Before you get too far along, here are three things you might not know about these types of mortgages:

1. Occasionally you will see campaigns on cash-back mortgages. These types of mortgages are available through a few lenders. It can be helpful to shop around to see different terms and conditions as this will affect the overall loan.

2. When it comes to cash-back mortgages, you are getting a loan on top of your mortgage. The interest rates are calculated to ensure you will have to pay the lender back the money they gave you (perhaps a bit extra!) by the end of your term. Be mindful that these loans can come with higher interest rates. In some cases, the extra can be more than you got in cashback.

3. Typically the cash-back mortgage operates on a 5-year term. While you may not plan to move before the mortgage term is up, sometimes unforeseeable things happen. If you break a cash-back mortgage, you will have to pay the standard penalty. You will also have to pay back a portion of the cashback. For example, if you are three years into a 5-year term, you would have to pay back two years or 40% of the cashback amount. Combined with the standard penalties for breaking your mortgage term, this can add up if you’re not careful!

Before signing for a cash-back mortgage, it is a great idea to discuss your needs with your mortgage expert. I can advise regarding all cash-back mortgage availability, lines of credit, purchase plus improvement loans, or flex down mortgages that may be better for your situation.

What is the difference between pre-qualification and pre-approval?

A pre-qualification can give you a ballpark estimate of what you can afford. A pre-approval is where the real magic happens.

Mortgage pre-approval usually specifies a term, interest rate, and mortgage amount. Lenders will project the details based on your current income and credit history at the submission. The pre-approval is typically valid for 90-120 days from your application submission, assuming various conditions are satisfied.

There are three benefits to pre-approval:

1. It confirms the maximum amount you can afford to spend

A pre-approval makes the search easier for you. It helps your realtor find the best home in your price range. The temptation will always be to start looking at the top of your budget. It is important to remember that there will be additional fees. These include mandatory closing costs, which can range from 1 to 4% of the purchase price. Factoring these into your maximum budget can help you narrow down a home that is entirely affordable and ensure future financial stability and security.

2. It can secure you an interest rate for 90-120 days while you shop for your new home

A pre-approval does not commit you to a single lender. It guarantees the rate offered to you. This rate will be available to you for 90 to 120 days which helps if interest rates rise while you are still shopping. If interest rates decrease, you can still have the lower rate.

3. It lets the seller know that securing financing should not be an issue

Lastly, pre-approval lets the seller know that you can make the purchase. It can be helpful in competitive markets where many offers may be coming in, as it helps to inform the seller that you’re a sure thing versus other potential bidders who may not have pre-approval.

Remember that once you get your pre-approval, you will want to ensure not to jeopardize it. Until your mortgage application and sale are completed, be sure you do not quit or change jobs, buy a new car or trade up, transfer large sums of money between bank accounts, leave your bills unpaid or open up new credit cards. You do not want your financial or employment details to change until you have completed the new mortgage.

If you have questions or want to begin your pre-approval process, don’t hesitate to reach out to me today!