bookmark_borderMoney Management for Good Credit

Keep Track of Your Credit Score

Many people seem to share the misconception that having no debt or late payments means they have a great credit score. In fact, your credit score is based on how you use your credit; so never using your credit card may actually be hurting your score. Instead, put a monthly bill on an automatic payment plan on a credit card, then pay the bill in full each month. This will keep your credit score active and building, with zero cost to you.

Recognize Good vs. Bad Debt

There are debts that are perfectly acceptable to have. An education, for example, is a strong investment that by some measures pays out a 15% dividend over time; getting yourself into a reasonable amount of student loan debt may actually be a wise money management strategy, if you look around for low-cost educational options that provide earning opportunities. Similarly, a mortgage can be a good investment in your stability and long-term equity, so don’t be shy about signing a mortgage that is within your budget. Just because some people are over their heads in student loan debt or stuck paying mortgages on homes when they bought above their means, that shouldn’t deter someone from exercising prudence in these investments.

Your Debts are Liabilities

Too many people begin to see their debts as just a fact of life, something they carry with them forever. Whether this is because they are overwhelmed by the size of the debt – it has become so large as to have lost all real meaning – or whether there are other factors at play, it is wise to open your eyes to your debts, to understand them and what it takes to make them disappear. Probably you will have to adjust your spending habits, buying less clothing, eating out less, getting rid of unnecessary expenses, even cutting down on the driving to save on gas. But the first priority ought to be pulling yourself out of your debt situation and into financial independence. There are many websites out there devoted to helping you educate yourself about money management; take advantage of the wealth of information and take your first steps toward financial freedom.

bookmark_borderFee-Only Financial Planning

The traditional advisor tends to be the most expensive. The fees are based on the dollar amount of products you buy. As an example, if you invest $100,000 worth of mutual funds and are paying 2% fees, you are paying $2000 per year as long as you own these funds. The 2% figure is an average MER (Management Expense Ratio) based on a mixture of equities and fixed income (stocks and bonds). There may be other fees like sales loads, account fees, trading fees, trailer or referral fees, administrative fees or penalties for switching or redeeming early. To know the real cost, you would have to add up the costs for your situation.

The fee-based financial advisor may have reduced fees since they are charging a flat percentage instead of an MER plus other costs. Reduced fees are somewhere in the range of 1% to 1.5% for an entire account. The catch is that this option is available to people with larger amounts of assets since the fees charged have to be substantial enough to make it profitable. The minimum asset threshold usually starts at $500,000 in investible assets (assets in a trading account). If you have $1 million invested, this fee can be as high as $10,000 to $15,000 per year.

The fee-only financial planner charges for a plan or project using a flat dollar fee. This means that you would have a plan done once or periodically every 3 or 5 years, and you would pay somewhere between $1,000 and $5,000 per plan.

Note: don’t fixate too much on the names or titles of the person you are dealing with – i.e. financial planner versus financial advisor. These names or titles are used interchangeably in Canada and do not specify a given service or accreditation. There are also additional names like financial consultant, investment advisor, portfolio manager and so on. The key to know what you are dealing with is to ask “what are the fees in dollars?” and have this explained to you. Judging from what you hear, you will know what type of fee structure that is being presented.

The traditional advisor has to serve many masters. There is the client who is paying the bills and must be taken care of. There is the institution and the boss who wants to make the most money possible from client fees. Lastly, there is the regulator / compliance team who ensures that you the advisor is serving the client and not breaking any company, industry or criminal laws. If your company has products that are sub-par, you the advisor are now conflicted. You can sell the client a mediocre product and make your boss happy, or tell the client to go to a competitor and get a better deal which will make the customer happy. Unless you are a very experienced advisor with a substantial book of business or you don’t need the job, it is very difficult to make everyone happy.

The fee-based financial advisor has a similar dilemma if serving the client means that assets should be taken elsewhere. There is also the advice of paying down debt, purchasing real estate, using money to buy a business, starting an art collection, taking money overseas, buying physical metals and so on which are not products sold by the institution and therefore would not generate any fees.

The fee-only planner does not have these conflicts because there is only one master – the client. There are no products and no assets – only the legal system and the ethics body of the association that the advisor belongs to.

In this area, the traditional advisor has the advantage. If you are in a situation that requires a will, an accountant, an estate trustee, a mortgage broker, or insurance products, the traditional financial advisor works for an institution that can provide these services. The administrative aspect of this is also handled for you: Opening accounts, trading, rebalancing the portfolio, automated deposits and withdrawals or filling out forms.

A fee-based financial planner may be able to provide these extra services, but it will depend on the size of the firm. The smaller “boutique” firms may specialize in portfolio management or investments and you may still have to recruit a network of professionals if you have a more complex situation.

The same situation applies for a fee-only or fee for service financial planner. People who do fee-for-service planning tend to be individuals or small companies without the resources to provide a network of professionals.

If you are selling products or managing assets, the fees that pay for the whole process including the financial planning are a percentage of the amount of money being used to purchase products or assets. If the amount of money being invested is $100,000 at 2% fees, you would be paying $2000 per year. The products would likely come from a preset list. A “know your client” (KYC) survey would be filled out and products are selected rather than having a comprehensive plan done. Asset minimums for a financial plan typically start at $500,000 in product purchases or assets, but some firms may provide a plan with a smaller asset amount. In the age of robo-planning, a plan can be created using software for under $1,000, but it may not cover all of the scenarios since software is not complete versus talking to a human being.

In the fee-only financial planner case, there is no need for asset minimums because the revenue is not tied to product sales. The revenue generated is tied to time spent and work performed, and whether there is a $1000 trade or a $100 million trade in buying a product, the amount of work in creating a plan and allocating the assets will be the same.

Which type of advisor is right for you? It will depend on what you have, what you need, how much of the work you are doing yourself, and how much knowledge and comfort you have about finances.

bookmark_borderFactor To Consider Before Taking A Loan

The first factor that all the banks will look into is the ability of the borrower to repay the loan. So, banks will take into account the sources of repayment. If you are taking a loan for a business then the bank will take into account the cash flow that the enterprise can generate. The banks will also take into account another source such as collateral.

The bank will also go through the borrowers past financial record. If the business has been profitable and it can cover the debt then the bank will approve the loan. In case the business has not enjoyed success in the past as the borrower needs the funds to grow, then the bank will ask for a detailed explanation on how the loan can be repaid.

Good business credit is essential as no bank will bet their resources on defaulters. Sometimes, banks will also analyse the personal credit of the borrower. That is why before applying for a loan make sure that your credit record is good.

Your credit report will carry your credit ratings which you will have to submit to the bank. The bank will evaluate and depending on it you will receive the loan. However, different banks evaluate the credit report differently. If one bank rejects your loan application you may find another bank that would evaluate the report differently.

Your credit ratings will be a combination of a number and letter. The most important is the number; the letter denotes the type of credit. If you are rated ‘1’ then you have the perfect score. This means that you have paid all your bills in time. If you are rated ‘2’ or ‘3’ then it means that you have paid your bills two to three months late. A ‘9’ rating will mean you have defaulted on the bills and it will become very difficult to obtain a loan. It is always better if you take the help of an accountant to interpret your credit report.

bookmark_borderStress Affects Your Wallet

Positive impacts of stress on your financial wellbeing

  • An anxious mind tends to think about the possible solutions to the looming predicaments. Ergo, when you are stressed with bills in your house, the brain develops a scheme that will provide cheaper alternatives that are cost-cutting, hence more savings. The survival instincts that kick in when worry occupies can be very effective reality checks to your expenditure.
  • Stress gives you the motivation to work harder and earn more money. When you are concerned about your life after retirement, or about how you will provide for your children sufficiently, you become driven and strive to generate more income so as to be financially stable later on in life.

Negative impacts of stress on your financial wellbeing

  • Stress has a negative impact on your physical and mental well-being; the two key components of human productivity and hence ability to earn. The decreasing mental and physical health culminate to taking sick days off, lack of focus and hence reduced efficiency, quantity and quality of output, therefore, hurting your income.
  • Psychological conditions attributed to stress require either therapeutic intervention, or pharmacologic management, or both treatments. Treatment of these mental conditions is costly and can irreparably eat into your wallet.
  • Anxiety and other symptoms of depression also affect your level of productivity and ability to earn income. Depressive symptoms such as low self-esteem and poor grooming and hygiene reduce your confidence and interpersonal skills significantly leading to a reduction in your productivity and ability to achieve your full potential and earn income from the same.
  • Poor mental health impedes prudent decision making leading to impulsive expenditure and unsound financial management. These are detrimental to your overall financial being as they result in increased costs, missed opportunities for more income and wastage of dollars.
  • Stress can also lead to depressive tendencies, including self-deprecating behavior, especially overindulgence in addictive behaviours. Overindulgence entails high expenditure in unnecessary deeds, sometimes leading to addiction which attracts further costs.
  • Your concern over the prevailing conditions shows a lack of satisfaction hence the need for a better position or results. This stress emanates from the need to fit in, you may blow your hard earned money so as to appeal to a particular class and this can lead to accumulation of debts that are unhealthy. The desire to change the prevailing conditions can result in extravagant expenditures that are unsustainable at your level of income.

bookmark_borderProtect Your Retirement Accounts

Fortunately, the threat of the regulation had already started to change the way financial institutions do business. Some firms have moved away from their higher-cost products and toward making their fees easier to explain to clients.

Investors should always keep a close eye on how much they’re paying, since a fee of 1 or 2 percent can have a surprisingly large cumulative impact on their financial future if it’s charged yearly.

For example, did you know that mutual fund returns in 401(k) plans are normally reported as net returns, meaning that fees for managing your investments are subtracted from your gains or added to your losses before calculating the annual return. Other costs, such as administrative and record-keeping fees, are often divided among plan participants but are not explicitly listed on individual investment statements. This lack of transparency is frustrating for investors.

Investors should also ask detailed questions about how their advisers are being paid. What incentives do they have to steer you into products they recommend? An adviser may operate differently if they’re paid by the hour or by a percentage of the assets they manage, versus if they’re paid extra commissions for certain in-house products. Even if the rule passes, I just can’t believe that institutions are going to stop pushing products down your throat.

People who don’t know the first thing about annuity expenses, load fees, or the importance of a mutual fund’s expense ratio have been held hostage by unscrupulous salesmen.

The truth is that the financial services industry has many caring people of the highest integrity who truly want to do what’s in the best interest of their clients. Unfortunately, many are operating in a “closed circuit” environment in which the tools at their disposal are “pre-engineered” to be in the best interests of the “house.” The system is design to reward them for selling, not providing “conflict-free” advice. And the product or fund they sell you doesn’t necessarily have to be the best available, or even in your best interest.

To receive “conflict-free” advice, we must align ourselves with a fiduciary. These professionals get paid for financial advice and, by law, must remove any potential conflicts of interest (or at a minimum disclose them) and put the client needs above their own.

bookmark_borderDispute Errors on Your Credit Report

If you find outdated or incorrect information on your report that has been prepared by the credit agencies, you need to get it corrected at the earliest as it may affect your chances of getting a loan at favorable terms and conditions. It is advisable to keep a copy or record of everything that you sent to the agencies when raising the dispute. You should avoid sending original documents to the credit agencies and should only enclose copies.

The procedures for disputing errors may vary from one credit agency to the other and it is best to become aware of the standard procedures so that you may be able to dispute items on your report. You can enclose copies of the relevant documents that you are disputing along with your name and accounts details clearly mentioned in the dispute.

You can list each item that you are disputing separately and specify the reasons that you are disputing it so that it can be rectified at the earliest. It is best to follow up with a phone call and letter if you do not get an immediate response from the credit agencies.

Most individuals are not aware of their credit report rights and gaining knowledge about them can help you dispute any errors you may find in your report. After the dispute is raised with the credit agencies it need to be corrected within a specified period (28 days in most cases) and if you are not satisfied with the corrections made, you can go for a fresh appeal. The procedure for filing the appeal in various credit agencies may vary and it is important that you gain awareness about it so that you may be able to complete the process in an effective manner.

bookmark_borderEmpowerment and Equality and Finances

A recent study released by UBS shows that 58% of women worldwide defer long-term financial decisions to their spouses. This study included nearly 3,700 high-net-worth married women, widows and divorcees in nine countries. The results of the study showed that 85% of women were responsible for the day-to-day finances; just not the long-term.

What is really interesting is the generational span of this survey and, most notably, the generation most likely to allow someone else to control their decisions: millennials! Millennials are a generation well known for promoting equality and empowerment. Unfortunately, the survey results indicate the helicopter-style parenting millennials were raised with, where someone else is always ensuring their well-being, has bled into the financial realm. Fifty-nine percent of millennial women aged 20 – 34 are more likely to allow their spouse to take the lead compared to 55% of women over 50. The general excuse from the younger women is they have “more urgent responsibilities than investing and financial planning”. Even more contradictory to the equality movement is they “believe their spouses know more about long-term finances than they do”.

The challenge this arrangement poses is the lack of preparation and understanding should a life event such as death or divorce occur. The report noted that 74% of the widowed and divorced women it surveyed reported “discovering negative financial surprises after a divorce or death of their spouse.” Hindsight resulted in 74% of these respondents wishing they had been more involved in long-term financial decisions while they were married, rather than trying to navigate them while coping with such significant life changes.”

The ideal solution is for both partners in a relationship to be aware of both the short- and long-term aspects of their finances. Whether you are married, engaged, common-law or committed, financial planning is another part of creating a responsible long-lasting arrangement between two parties. In this age, knowledge really is power. So be powerful, take control of your money.

bookmark_borderQualify for a Bridge Loan Quickly

Your first step is determining the appropriate amount of money that you may require for covering the time gap between the selling of your existing house and buying of the new house or other kind of property. The exact time period within which you have to pay back this type of fund is determined by the lending organization that you have approached.

The second step that you should follow is to find out a mortgage broker or even a banker who may help you in this matter in the best possible way. It is important that you should try to find a mortgage broker or banker who can provide high quality service and who may also charge a reasonable price rate.

Once you are able to find out one such person, your next step is to evaluate your asset in the best possible way. If you evaluate your asset effectively and if you can produce it as collateral, there is possibility that you may be qualified for this type of fund as quickly as possible. It is vital that you should be able to prove the fact that you have the capability to make payment on a monthly basis. It is offered on the basis of your asset that can be used as collateral and it is also provided on the basis of your ability to repay the bridge loan as well as your monthly expenses.

You should try to decrease your monthly expense as much as you can and you should do so before you actually apply for this type of fund. Before you want to accept this type of fund it is vital that you should try to find out its policies in details.

Once you are determined that you will take it up, the final step that you should follow is to apply for this type of fund successfully. If your existing property is not sold out, it is vital that you should be able to show that you have the competence to pay your mortgage payment in the best possible way.

If you wish to purchase a new house or a new property and if you do not wish to sell your current house, it is advisable that you should get hold of this type of fund without any kind of delay. If you are able to find out valuable property, it is advisable that you should get it in order to buy it as quickly as possible.

bookmark_borderWays to Simplify Your Financial Life

There are several corners of your financial life that can be simplified through consolidation. Retirement accounts are one of those areas. If you’ve worked for several employers during the course of your career, you’ve probably acquired a few retirement accounts along the way. Accumulated assets left in a former employer’s retirement account are still yours, but they sometimes offer less investment flexibility. If you like the idea of having fewer accounts to keep track of, or if you prefer to actively manage your retirement dollars, consider consolidating stray 401(k) and IRA dollars by rolling them into a centralized retirement account. There’s a lot to consider when it comes to rollovers so it’s important to weigh all of your options carefully. (Consider a direct rollover, as withholding tax and tax penalties may apply for cash withdrawals.)

Credit cards and debt are two other areas where consolidation may be wise. Is it time to chop up the card that carries a hefty annual fee? Are you carrying a credit card balance that is snowballing due to high interest rates? It may be financially advantageous to pay off the cards with the highest interest rates and either close the account or put it away for emergency use only. It’s a relief to have fewer cards to manage, along with a plan for extinguishing debt.

As you sort through your financial choices, enlist the right team of professionals to assist you. Helpful professionals may include a tax advisor or an accountant, who can provide guidance on how to put you in the best tax situation, and a lawyer who specializes in estate planning. Also consider consulting a financial advisor who can help you streamline your financial life and accelerate your financial goals by recommending specific strategies based on your individual situation. Each of these professionals can share their expertise with you and help you eliminate unnecessary financial clutter.

bookmark_borderLoan Against Property

  • You can win your property back, if you repay the amount – It is quite obvious that you can’t let the inherited property go off your hands; if you have taken money against it, you are bound to work hard to get it back. The moment you repay the amount, you win it back for yourself.
  • You can use it anytime you want to – The best thing about having an inheritance is that it can be used absolutely anytime you want to. If you want to get some money on urgent basis, all you need to do is keep all the formal documents ready and get loan against it.
  • There are many ‘legal’ companies that are into such trade – I would call it trade because you let them use the property for a few days, against the money they give to you. Moreover, you don’t need to be worried about not getting the property back, since most of the companies that are into providing such loans, are legal and ethical. Proper documents are made before any such deal takes place between either of the parties.
  • A lot of people do this – To your surprise, even some of your closest friends would have done this in the past. Most of the people, who want to start their own business, end up taking loans against the inheritance that they have in their hands. After all, parents give you something with love and such things are bound to come in use. Since most people do this, you feel safe to do it too!
  • There are fewer risks involved – I don’t say that you are 100% safe if you get into loan against property, but all I know is that you lose the property, if you are unable to repay. This means that you are neither threatened nor do you lose your self-respect in the process!