397 Ways to Save Money: Spend Smarter & Live Well on Less - PDFDrive.com
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youarecurrentlypaying$1,500eachmonthinrentbuthave$30,000
available as a down payment on a home. If you invest this at 5% per year,your$30,000willgrowtoalmost$105,000after25years.If,on
theotherhand,youusethe$30,000asadownpaymentona$300,000
home at 4.5% over 25 years, your mortgage payments will be $1,578
each month, about the same as your rent. Assuming the property appreciates in value at 2.2% yearly, it will be worth almost $520,000
whenpaidoff.Whileyouwon’tbeabletotakeadvantageofthisequity
withoutsellingyourhome(possiblybydownsizing),yournetworthwill
besignificantlymoreinthiscaseifyouownratherthanrent.Remember to budget for the additional costs of maintenance, property taxes and utilitieswhenyou’redecidinghowmuchyoucanafford.
BOTTOMLINE:Dothemathtoseeif,withhouseprices,rentalcosts
andthesizeofyourdownpayment,buyingmakesmorefinancial
sense than renting. Check out the website for Industry Canada (ic.gc.ca)andusetheirRentorBuyCalculator(you’llfindalinkto itintheA–Zindex)toseeifyou’reinafinancialpositiontobuy.
CHAPTER2
Homeownership
Moneyisahousekeepingitem.Withoutit,youcan’tkeepyourhouse.
Thiswasmyparents’mottowhenIwasgrowingup.Ourhousewasn’t
large and lavish with a gourmet kitchen or spa bathroom. Our
neighboursdidn’twalkbyourhomewantingtolivelikeus—butthey
should have. While they paid for swimming pools and sun rooms, my parentspaidofftheirmortgageandputtheirsavingstoworkbyfunding theirretirementaccountsandhelpingmysisterandmegotouniversity.
There’s no doubt that buying and maintaining a home is expensive.
There’s saving for the down payment, financing the mortgage and replacingtheroofwhenyouleastexpectit.Alongwiththeseexpenses,
therearealsovariablecostslikeutilitiestoconsider.Additallupand you’repayingbigbucksforhomesweethome.Despitethecosts,though,
buyingandowningyourownhomecanbeawisefinancialdecisionin
thelongrun.Byremovingemotionandcrunchingthenumbers,it’sclear
to see that having a large enough down payment on a property well withinyourbudgetandamortgagewithprepaymentoptionscanmake
owningahomefinanciallybeneficial.
So before hiring a realtor to go house shopping, it’s important to determine how much home you can truly afford. When it comes to determining home affordability, the Canada Mortgage and Housing
Corporation (CMHC) recommends that your monthly housing costs
should not exceed 32% of your gross household monthly income. If you’recarryingothertypesofdebt—carpayments,creditcarddebt,etc.
—thenyourentiremonthlydebtloadshouldnotbemorethan40%of
your gross monthly income. Don’t forget to factor in retirement contributionsandotherareasrequiringyourfinancialattention—suchas debt repayment, emergency funds, education for the kids and home maintenance costs. The CMHC’s home affordability numbers don’t
accountforyourretirementorsavingsgoals,andyoumayfeelstretched
ifyoubuytoomuchhouseandhavelittleroomleftforbuyingfurniture orputtingawaysavings.
Ifyou’rereadytotakethefinancialleapandlandyourselfsomereal
estate,therearenumerouswaystosavemoneyonbuyingahomeand
reducingtheinterestonyourmortgage.
Knowwhatyoucanafford. Formostofus,ourmortgagerepresents our biggest debt and the only kind financial experts consider “good”
debt. But an over-your-head mortgage is one of the quickest routes to bankruptcy. Knowing what you can afford could spare you financial catastrophe in the future. The CMHC website contains questionnaires and calculators for those looking to crunch numbers, and they’re well worth your time. An excellent way to see how a mortgage feels is to practicepayingitbeforeyoubuy.Payyourlandlordyourrent,thentake thedifferencebetweenthatamountandyouranticipatedmortgagecost
andputthisadditionalmoneyintoahigh-interestsavingsaccounttouse laterforyourdownpayment.Ifyoucan’tcomeupwiththisadditional
monthlycash,thenyouknowthemortgageistoosteepandyouneedto
either continue saving for a bigger down payment or look at lower-pricedhomes.
BOTTOMLINE:Itpaystocrunchthenumbersandknowwhatyou
can afford before viewing homes and falling in love with a
property. A too-high mortgage can leave you resorting to credit cards and lines of credit to pay everyday expenses—a downward spiralthatcouldcostyouthousandsininterest.
Get a home inspection before purchasing. Getting a home
inspectiondonebeforeyoumakeanofferonahomemaybethebest
money you ever spend. A home inspection uncovers unseen problems that may cost you thousands of dollars down the road. A home
inspectionalsoservesasanegotiationtoolwithsellers,astheymayfix flagged issues or reduce their selling price. Take the time to find the righthomeinspector,andbeawarethatitmightnotbetheoneyour
real estate agent recommends. Check references, ideally from
homeownerswhohavebeenintheirhomeforafewyearssothatany
potentialtroubleshavesurfaced.TheCMHCwebsiteoffersassistancein
findingahomeinspectornearyou,orcheckout TheHolmesInspectionby MikeHolmestolearnhowtogetthemostoutofyourinspection.
BOTTOMLINE:Hiringahomeinspectorbeforepurchasingahome
may cost you around $500 but is well worth it considering the thousandsyoumighthavetospendtofixunseenproblemsbehind
thewalls.
Don’t buy someone else’s renovation—be cautious of “flipped”
homes. Falling in love with the seemingly fresh look of paint, new flooringorneatlypottedplantsintheyardcanbeafinancialdisasterif the structure of the home is not sound. The finish of the home is important, but be sure to look past a new bathroom or kitchen renovationandlearnwhatlurksbeneaththesurface.Youmaydiscover
thatnewplasterandpaintareafacadedisguisingmould,waterdamage
oracrackedfoundation.
BOTTOM LINE: Look past the surface when you’re househunting,
andbecautiousaboutrecentrenovations.Thehomeownermaybe
tryingtodisguisesomethingthatreallyneedsanexpensiverepair.
Downsizeorbuyasmallerhome. Palatialhousescostbigbucksin buyers’fees,downpaymentsize,mortgageinterest,homemaintenance
and utilities. Buying a smaller home reduces these costs. Let’s assume you pass on a $350,000 home in favour of a less expensive $325,000
property. The price difference of $25,000 is substantial and saves you $5,000 on a 20% down payment. Assuming a 25-year mortgage at a 5.5%interestrate,yourmonthlypaymentis$122.81less,savingyoua
total of $16,845.25 in interest over 25 years. Add it all up, and a $25,000-less-expensive home saves you $41,845.25 in interest plus principalonthemortgage.(Thiscalculationdoesnotincludeclosingfees and maintenance costs.) The true benefit? Perhaps retire from work a fewyearssooner.Besides,heatingacastleinthemiddleofaCanadian
winteriscostly.
BOTTOM LINE: Opting for a smaller ho
me over a larger, more
expensive one could save you not only tens of thousands off the stickerpricebutalsothousandsmoreinmortgageinterest.
Make a larger down payment and pay less mortgage loan
insurance. Rushing in to buy a home without a good down payment willcostyouinpayinghighermortgageloaninsurance.Thecostforthis legallyrequiredinsuranceisapremiumofbetween0.5%and2.9%of
the total mortgage. If you have a bigger down payment, you pay less mortgage insurance because the loan is no longer classified as a high-ratio mortgage. For example, on a $300,000 home, increasing your downpaymentfrom5%withapremiumof2.75%toadownpaymentof
20%withapremiumof1%savesyou$5,437.50over25years.
BOTTOM LINE: Paying 20% down on a home purchase saves you
from paying mortgage loan insurance—money you could use to
increaseyourmortgagepaymentsandpayoffyourdebtfaster.
Don’tgetsoldmortgagelifeinsurance—buytermlifeinsurance.
Mortgage life insurance is a waste of good money. You may need life insurancetoprovideforyourdependantsandhelpmeetlargefinancial
obligationssuchasmortgagepaymentsoreducationforyourkidsorto
putfoodonthetable.Butmortgagelifeinsuranceisoverpricedforthe policyholderandlucrativeforthepolicyseller.Generally,mortgagelife insurance covers only the outstanding principal on a mortgage should the homeowner pass away. The premiums stay the same even as the mortgagereducesasyoupayitoff—youpaythesamepremiumforless
andlessvalue.
BOTTOMLINE:Putyourdollarstowardtermlifeinsurancetocover
yourfamilyaboveandbeyondmortgageexpensesforhalfthecost
ofmortgagelifeinsurance.
Negotiate your mortgage. Before sitting down with a prospective mortgagelender,getyourcreditscoretoknowwhereyoustand.Check
outEquifax(equifax.ca)orTransUnion(transunion.ca)togetyourcredit scoreonlineforabout$25.Onceyouknowyourcreditscore,don’tbe
afraid to ask lenders for a better rate. Shop around and play multiple offers off each other. A half a percent rate reduction will save you thousandsoverthespanofyourmortgage,soit’swellworthyourtime.
Ifalenderoffersyouperkslikegiftcertificatesforfurniture,loyaltycard pointsoratrip,takeapass.Theseso-calledperkscomeatthecostofa
higherrate.Ifthebanksarenotbudgingontheiroffer,consultwitha mortgage broker. Mortgage brokers are paid finder’s fees by banks—
thesefeesgenerallydonotdifferfrombanktobank,sothebrokerhas
limitedincentivetoactoutsideyourbestinterest,thusfindingyouthe bestdealpossible.
BOTTOMLINE:Dosomeresearchandknowyourcreditscorebefore
approachingalenderforamortgage.Knowinghowlendersseeyou
financiallycanhelpyoutonegotiateforbettermortgageratesand
terms.Ona$285,000mortgageover25years,negotiatingyourrate
from5.5%downto5%willsaveyou$25,220.32ininterest—soget
negotiating.
Getamortgagewithgoodprepaymentprivileges. Afavourablylow interestrateisonlyonecriterionwhenshoppingforamortgage.Look
beyondinterestratesandaskforamortgagewithprepaymentprivileges.
Prepaymentsarelump-sumpaymentsyoumakeoutsideofyournormal
mortgagepaymentschedule,where100%ofthepaymentgoesagainst
the principal. Prepayment privileges are your best financial friend becauseyouwillpayoffyourmortgagesoonerandsavesignificantlyon
interest.Also,lookforamortgagethatallowsyoutoincreasethesizeof yourpaymentwithoutpenalty—soyoucantakeadvantageofaraiseor
extrajob.
BOTTOMLINE:Gettingamortgagewithprepaymentprivilegescan
saveyouthousandsininterestbypayingdowntheprincipalfaster.
Ona$250,000mortgageat6%over25years,oneprepaymentof
$1,000eachyearwillsaveyou$26,671.63ininterestandhelpyou
payoffyourmortgagetwoandahalfyearssooner.
Pay your mortgage biweekly rather than monthly. Paying your mortgageevery twoweeks savesyou an astoundingamount of money
andpaysoffyourmortgagesooner.Withbiweeklypayments,therewill
beafewmonthswherethreemortgagepaymentsaredue,dependingon
howtheweeksfall,butifyouareonbiweeklypaycheques,youwon’t
noticethedifference.
BOTTOM LINE: When compared with monthly payments, a
biweekly-paymentstructuresavesyou$11,000ininterestandends
your mortgage three and a half years sooner. (This calculation assumesa$90,000loanat5%interestwitha25-yearterm.)
Save big on smart homeowner insurance. Homeowner insurance deductibles can start at $250. By increasing your deductible to $500, you could save 15% on your insurance costs. The higher your
deductible,thebiggeryoursavings,becauseyou’renotmakingmultiple
smallerclaimsthatwouldincreaseyourpremiums.Youcouldalsoget
up to a 5% discount by installing smoke detectors, carbon monoxide detectors, deadbolt locks and alarms to increase your home security.
Another home insurance discount can be had by putting expensive jewelleryinasafetydepositbox.Mostbankschargearound$45ayear
forasmallersafetydepositbox,whilelargeronescancostupto$200.
Be sure to keep your bank receipt and claim the cost of your safety depositboxonyourtaxes—itcountsasataxcredit!
BOTTOM LINE: Increase deductibles, install smoke detectors and put Grandma’s ring in a safety deposit box to reduce the cost of yourhomeownerinsuranceandsavehundredsofadditionaldollars
peryear.
Movetoyourbasementapartment. Ifyou’relivinginahousethat’s muchlargerthanyouneed,whynotmovetoyourbasementapartment
forafewyearsandrentouttheupstairs.Youcouldmakeahugedenton payingdowntheprincipalbykeepingyourownmortgagecontributions
steadyandaddingintherent.Forexample,ona$285,000mortgageat
5.5%over25years,yourpaymentsareabout$1,750amonth.Addthe
$1,000yougetforrentingouttheupstairsfor25years,andyoucould
save$135,555.71ininterestchargesandpayoffyourmortgage13years
sooner.
BOTTOMLINE:Movingintoyourbasementapartmentandrenting
outtheupstairscouldhelpyoupayoffyourmortgagefaster,saving
youtensofthousands.
Buyforthelongterm. Ifyouplanonmovinginafewyears,consider renting instead. Buying a property for the short term rarely makes financialsense.Afterpayingrealtorcommissions,lawyers’bills,closing costs,landtransfertaxesandinsurancepremiums,thetransactioncosts
onsellingrealestatearehigh.Torecoupthiscash,you’llneedtosell your property for roughly 10% more than what you paid for it. In Canada,realtorfeesaretypically3%to7%,paidbythepersonselling
the home. Add moving costs, light renovations and the previously mentionedcostsandyou’reatafinanciallossonsale.Stayrentingand keepyourcashinvestedinahigh-interestsavingsaccount.You’llearna guaranteedreturnonyourinvestmentwithasavingsaccount,andhave
a better down payment when you’re ready to stay put for the longer term.
BOTTOMLINE:Ifyou’relookingtomoveintheshortterm,consider
stayinginarentaltoprevent
thecostsofsellingfromeatingaway
atyourinvestment.
CHAPTER3
FinancialChoices
Money can be expensive when you have to spend a lot just for the privilege of saving it. When you look at your annual credit card fees, consider the small, seemingly insignificant charges in your daily bank account and calculate management fees on your portfolio of mutual funds,italladdsuptohundredsandthousandsayear!Onthewhole,
Canadiansspendfartoomuchmoneyontheirfinances.Buthowmuchis
toomuch?Mygeneralruleisifyoucouldbepayingless,thenyou’re
payingtoomuch.
Thesurprisingpartisthatreducingboththelargeandsmallfeesyou
payiseasy.Youdon’tneedtobeacertifiedfinancialplannerorhavea PhD in economics to stop the fees from feeding on your cash. A few phonecallsandabitofpaperworkwillsaveyouhundredsayear.
Imustconfessthatrealizinghowmuchmybankingandmyfinancial
plannerwerecostingmewasnotajoyousmoment.Butitwasn’tlong
beforeIhadmovedmybanking,switchedmycreditcard,transitioned
myretirementsavingsandcutmylifeinsurancepremiumsinhalf.Some
of these changes took a few hours while others took days. But consideringthethousandsofdollarsI’vesavedbyputtingintheeffortto managemymoney,itcertainlyaddeduptoaverynicereturnonmy
time.
Considering there are quite literally thousands of different ways to manageyourmoney,yourfinancialsituationmightbesimilartomineor
it might be vastly different. Regardless of where you’re at, there are manyopportunitiesforyoutosavemoneyonyourfinancialexpenses.
CreditCards
Acreditcardcanbeanexpensivepieceofplastictocarry.Withsome
credit card interest rates over 18%, it’s easy to lose a bundle by not
paying off monthly balances. If you love paying with plastic, then consider some of these tips to keep hefty interest charges from eating awayatyourprincipaldollars.