Wednesday, 18 November 2015

Why NOT to Get Mortgage Insurance

Why you should turn down bank offered mortgage insurance.

If you have (or have ever had) a mortgage, you'll know that the bank will often push mortgage insurance on you when you're signing on the dotted line. Now to be clear, this is the additional insurance your bank will offer you when you get a mortgage and not the CMHC insurance that is required when your down payment is less than 20%. Sometimes the bank will even go so far as to assume you'll get the coverage and you'll actually have to opt-out. They'll throw out some small premium amount that will just get tacked into your mortgage payment, and you'll think sure, sounds great...but does it. Ok, I already spoiled this with the post title...but no, it shouldn't sound so great. 

Now don't get me wrong, insurance is necessary, especially when it comes to covering your debt but there is a better way of doing it. Let's first figure out what exactly mortgage insurance is. Sounds simple enough, it's insurance to cover your mortgage. If you pass away the mortgage insurance will step in and cover the balance of your mortgage. The problem is that the balance you owe on your mortgage continues to go down as you make your payments, but the premiums you pay will remain the same. See the problem? You're basically paying the same amount for less and less coverage. At the beginning of your mortgage term this isn't so bad, but the more you pay off, the less money the bank will have to pay up. Plus, the payout goes straight to the bank, so you have no control over it. Not so great now huh?

A better option is to look at getting term life insurance in an amount that will cover your mortgage. A term life insurance policy will more than likely be cheaper than mortgage insurance, the payout will not decrease, and that payout will go directly to the beneficiary who can then use it for whatever they want. The amount of term insurance you get is also not tied to your mortgage, so if you want to get coverage for more than just that you can. This can be especially helpful if you have children and would like to leave money for their care and/or education. Life insurance will also stick with you for as long as the term whereas you will need to reapply for mortgage insurance anytime you move your mortgage. Cheaper, guaranteed payout amount and no need to renew if you change mortgage holders...lots of positives! 

Let's work through an example just to highlight this. Pretend you took out an original mortgage for $300,000 and paid it down to $200,000 after 4 years before tragically passing away. If you had mortgage protection insurance through your bank, they would eliminate that remaining $200,000 balance, and your beneficiary wouldn't have to worry about. Not bad, but what if you had skipped the mortgage insurance and instead gone with a term life insurance policy for $300,000. In that case, your beneficiary would (let's assume it's your husband) receive a cheque from the insurance company for $300,000. With that money, he could decide to pay-off the mortgage or continue making mortgage payments as before and invest that money, or set some aside for any children you have, or go on a fancy trip. Maybe some options are better than others ;) but you get the jist...more money overall and more flexibility on what happens to the money.

If you thought mortgage insurance initially sounded like a good idea and did sign up for it through the bank, don't worry. Most policies can be cancelled, you'll just need to give them a call. If not then just make sure you don't reapply at your next mortgage renewal. 

Why you should turn down bank offered mortgage insurance.

Friday, 13 November 2015

Credit Cards: Best Bang for Your Buck

Which credit card is the best for you?

A couple of weeks ago I talked about whether or not using cash or credit cards was a better option. As you know from that post, I'm not against using credit, as long as you pay off your balances in full each month. A big perk of plastic is that many cards have added features that get you cash back or travel rewards to save you money. Today we're going to look at a few of the available credit cards that have some of the best bonuses. You'll first want to decide which category will work best for you. If you're still catching up on debt and carry a balance, you'll want to go with a low-rate card, but if you're pretty good at paying them off every month, you'll want to start reaping those rewards. If you travel a lot, you should look at a card that pays out in travel rewards. Otherwise, a cash back card is likely the best option. 

Best Low-Rate You should try as hard as you can to not carry a balance on your credit card but if you absolutely must (I get it, things happen) you should look into a low-rate card. Even paying a small annual fee can be worth it if you carry a balance. The American Express Essential card will get you an interest rate of 8.99% with no annual fee. Just remember, if you're paying off your card every month don't even consider a low-rate option, move right on down to something rewarding. 

Another option to look at if you're paying off debt is to take advantage of a balance transfer. This will allow you to get a promotional interest rate on a new credit card that will likely be even lower than the lowest interest rate card you can find. One of the best balance transfer cards is the MBNA Platinum Plus Mastercard, which gives you 0% interest on balance transfers for the first 12 months. There is no annual fee for the card, but you will have to pay a 1% fee on the amount you transfer. No interest payments for a year is an excellent way to jump start your debt repayment.

Best Cash Back If you spend a lot on your credit card but aren't a big traveller, then you should look at an option that pays you a percentage back. The Tangerine Money-Back card will get you 2% cash back and has no annual fee. Another good option is the SimplyCash Card from Amex with 1.25% cash back and also no annual fee.

Best Travel Rewards If you're an avid traveller (or would like to become one), then getting yourself a travel rewards credit card can get you off on trips more often. A lot of cards also have sign-up bonuses that can equal a free flight or hotel stay right off the bat. There are people out there who hack travel reward programs like it's their job. If you're interested in getting into that then check out Rewards Canada, they'll keep you updated on available offers. 

As for card options, the Scotiabank Gold American Express card and the BMO World Elite Mastercard are both good options that aren't tied to a specific airline. Both have an annual fee, but you'll likely get that back and then some

Best Retail Rewards If you're not much of a traveller another option is to earn rewards to use at places you spend money. The PC Financial World Mastercard will earn you PC points to save money on your grocery bill. If you shop at Superstore (or other Loblaws stores) and already collect PC points this, no fee option might be a good choice for you. Another good option, if you're a Rogers customer, is the Rogers First Rewards Mastercard. This is another no fee option that can earn you money off your phone bill. The Scotiabank Scene Visa is also a good option if you're a frequent movie goer, but they did just increase the number of points you need to get into Imax or other premium movies so keep that in mind.

If you want more details on these or some other good options check out the RateHub website. They give detailed breakdowns of all the credit cards and how much you can earn in rewards. 

Which credit card is the best for you?

Tuesday, 10 November 2015

Your Investment Options

What investments are out there?

Investing can be overwhelming for beginners, especially when it comes to deciding what type of investments will work best for you. You've likely heard terms like mutual funds, stocks, bonds, and maybe even ETF's, but do you know what each one is and the differences between them? Before buying anything with your hard earned dollars, you need to understand it and how it can benefit you. 

If you are just starting to save money the first thing you want to do is save up an emergency fund. That will cover you if any unexpected expenses come up and will prevent you from having to dip into your long-term savings. You want to keep your emergency fund safe and easily accessible, so I recommend putting it in a high-interest savings account. You won't earn much return on it, but you'll never lose money, and you can get at it right away. For longer term savings (we're talking 5+ years out), it makes sense to start investing that money to get it to grow. Remember, anytime you have money in the market it can be volatile, so you need to have an idea of how much risk you are willing to handle. Higher risk can often mean higher returns, but it also means increased volatility and more potential for loss. 

I'm going to talk about a few of the most common investment options to help you determine which ones are the best fit for you. And remember, you're not tied to any one can always mix and match to get a well-balanced portfolio. 

GICs (Guaranteed Income Certificates)
GICs are the ultimate in safety when it comes to investments because, just as the name suggests, they guarantee your return. Now that sounds great, right? Sure, but the downside is that you're not going to earn much growth on them. That is especially true in today's low-interest environment...think 1.50% on a 5-year GIC. The concern with such a low return is that your money may not even beat inflation, which means you're actually losing money in the long term. You know how a dollar doesn't buy you as much today as it would have done 50 years ago? That's inflation. The Bank of Canada tries to keep inflation between 1% and 3% every year, so if you're only earning 1.5%, then your money might not be keeping up. The other concern with GIC's is that most are locked in for the entire term, so you can't get access to your money if you need it before the maturity date.

Now onto more complicated matters...bonds. There are many types of bonds, but they are all basically debt investments. You loan the issuer money, and in return, they pay you back your principal investment with added interest. Bonds are usually a low-risk investment, but it really depends on the type of bond you buy and the trustworthiness of the issuer. You can get government bonds (think Canada Savings Bonds) or corporate bonds that could be backed by very solid companies, but there are also less established bond issuers who have a higher chance of going under. With that said, even if a company goes under, bond holders get paid out before stock holders which make them inherently less risky.

Bonds are also a lot more challenging to buy as they aren't traded in the same manner as stocks. For most retail investors, the easiest way to hold a bond component in your portfolio is through a mutual fund that invests in bonds. 

If you're familiar with any type of investment, it is likely stocks. Like bonds, stocks are issued by companies looking to raise capital. The difference is that instead of loaning a company money like you do with bonds, stocks allow you to actually buy a share in the company. Stocks are a riskier option, but they are also where you can earn the highest returns. High risk, high reward right? Stocks don't always have to be high risk, it really depends on what company you are investing in and how well situated they are. Even big companies you might think of as super successful (think Twitter), can have disappointing results in the stock market.

Making money in stocks is simple in theory, but actually choosing companies with enough upside and not too much downside is really hard. Even the experts often get it wrong. What you want is to buy shares in a company, hold them for a bit, then sell them at a higher price. It doesn't always work out that way, but that's the goal. That difference in purchase price and sell price is called a capital gain (or loss). You can also earn money from a stock through dividends. Many companies (but not all) will pay you to hold their stock so monthly, quarterly, or annually they will pay you what is called a dividend just for maintaining your stock position. A lot of people out there (dividend investors) seek out stocks that pay high dividends instead of focusing solely on growth. 

Mutual Funds 
Mutual funds are basically just a collection of stocks that are chosen by the fund manager, packaged together, and then sold to the investor. You can buy a mutual fund that covers just about any part of the market, whether it be targeted to a specific risk level, geographical region or corporate sector. Because you are buying a whole bunch of stocks instead of just one or two, mutual funds are more diversified and often less volatile than individual stocks. You do, however, have to pay for the expertise that the fund manager brings they come with higher fees than other types of investments. The guys and gals that run mutual funds are good at their jobs and have all possible research, analytics and models available to them to help them succeed. Stock picking can be fun, but you just aren't going to have the time or resources to do the job they do. Many people are against mutual funds because of the high fees, but I'm OK paying them so I can be less involved. If you are a new investor with limited assets, funds can also be a way to get into a few sectors of the market with smaller amounts of money.

Index Funds and Exchange Traded Funds (ETFs) 
Index funds and ETFs are created to mirror an index (such as the S & P 500) which basically means they hold the stock positions used in that specific index. Like mutual funds, they are a good way to diversify your account, but they won't cost you as much because they simply buy what's in the index and aren't actively managed. Just remember that while you won't do any worse than the index, this doesn't mean you are always going to have positive returns. The markets aren't always up and can sometimes be a lot.

Hopefully, this helps you understand some of the different components you can use in building an investment portfolio. It can feel really complicated and overwhelming when you're a newbie investor, but if you keep things simple by investing in balanced funds or ETF's or a few large-cap companies you have confidence in, then you can learn the ropes without taking a ton of risk. 

What investments are out there?

Tuesday, 3 November 2015

Tipping Etiquette

To Tip or Not to Tip?

What do you guys think about tipping? When do you do it and how much do you give and what makes you tip a lot or a little?

I feel like I'm a pretty generous tipper in most situations, but sometimes I get cranky at how many places now prompt for tips....I'm looking at you Starbucks and your annoying push notifications on my phone. 

I've been a server/bartender in the past, so I know it's a tough job and you definitely depend on tips. Because of that, I almost always tip about 20% (unless the server is straight up rude). Lots of things can happen that are completely out of your server's hands, so as long as they're polite, relatively efficient and helpful if anything does go wrong, I think they've done their job and deserve to be rewarded. I always say that everyone should be a server at least once in their life because you learn a lot about how that dish actually makes it to your table and gain a whole lot more empathy for those working in customer service. So, in a restaurant...tip generously and don't necessarily blame your server for everything bad that happens.  

Recently there's been a few restaurants that have opened that have eliminated tipping and pay their staff a higher wage. What do you guys think about that? I've never eaten at such a restaurant but I kind of like the idea. I wouldn't mind paying slightly more for food items instead of tipping, but wonder if the service level would suffer? It must be nice for the staff to have a more consistent income though. I know when I was serving, during my broke student years, it was stressful walking out after a bad night. One thing many people don't know is that in most restaurants servers actually have to give a portion of their tips to hostesses, bussers and kitchen staff...and that's based on their sales, not tips. 

What about food delivery? We actually hardly ever order food. Once in awhile, we'll get pizza, but we have lots of great restaurants near our house and usually just go there. Even with my lack of first-hand knowledge, I do know that food delivery has become more and more popular with services like Skip the Dishes and Uber Eats. But what does that mean for tipping? From what I know, Skip the Dishes charges a delivery fee that goes directly to the driver but does that mean they don't expect a little extra when they actually show up? I hate this...what if they are super slow or don't secure your food and it spills? That actually happened to a co-worker of mine when he ordered lunch recently. I thought the whole point of tipping was to reward good service if it's not optional then it kind of defeats the point. 

I also tip for spa type services like haircuts, massages or when I get my nails done but less, usually around 10%. I know it can get confusing at some hair salons when you're supposed to tip all sorts of different people but luckily for me, my hair dresser does everything herself. Massages are always a bit weird because they feel more like a health care thing, but I guess it depends on where you go. I used to work at a physiotherapist clinic, and there were massage therapists on staff and tips were rare. It seems more normal to tip if you get a massage at a spa but my go to therapist is at a non-spa place, and there's always a tip option (which I do use). 

Ok, so those places are all pretty standard for tipping but what about all those places (like Starbucks, Booster Juice, etc.) who have tip prompts. For places like that, I very rarely tip, and if I do it's usually a $1 or less. I figure that tipping is for excellent service, and how exemplary can your service be in the 30 seconds of contact we have when I'm pulling through the drive thru. Sorry but no.

Am I totally offside on any of this? Let me know your thoughts and if you ever get frustrated by tipping. 

To Tip or Not to Tip?