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5 things learned by Canadian Millennials about personal finance
Certified Financial Planner Lyn Greer recently visited the Foresters head office to host a financial literacy workshop for some of our eager millennial employees. Here are the top five things they said they learned:
1. There is no “magic” number when it comes to retirement savings – Jessica
This is because everyone’s lifestyle and expenses are different. BUT if I know when I want to retire and can estimate how much I’ll want to spend every year during my retirement, then I can figure out how much I’ll need to save before I retire. Putting money aside for retirement is definitely going to become part of my monthly planning. So there you have it, there is no magic number… but there is a magic number!
Lyn’s pro tip: Whenever someone asks me how much they need to save for retirement I always ask, “Well, what does your retirement look like?” Once you know that you can use a retirement calculator and/or a financial planner to help you find your “magic” number. Setting money aside every month is a great idea! In general I always recommend saving at least 10% of your income. Once you get comfortable with that you can try to increase it to 20%. The earlier you get into this habit, the easier it will be.
2. There are ways to pay less interest on your mortgage – T. Michael
There are a few scenarios where some of the interest you are paying on your mortgage could become tax deductible. For instance if you are renting out a portion of your principal residence or you are self-employed and are using a section of your home as your designated home office. Now if you’ll excuse me I need to go see if anyone’s replied to that ad about renting my basement.
Lyn’s pro tip: In addition to deducting mortgage interest for the pro-rated business/rental use portion of your home, you may be able to deduct a portion of your utilities, property tax and insurance.
3. You can switch from a variable to a fixed rate mortgage. But not the other way around! – Jenn
When you sign-up for a variable rate mortgage it is almost always for a five year term. But during that five year term you can switch to a fixed rate mortgage if you believe your rates will increase. However, if you start out with a fixed rate mortgage you can’t switch to variable. Basically this means that fixed rate mortgages are the adult equivalent of yelling “no take-backs!” before making a deal on the playground.
Lyn’s pro tip: With fixed rate mortgages, you are locked into that rate for the duration of the term. If you change the mortgage before the end of the term, penalties will be incurred.
4. Getting married can affect your ability to use the Home Buyers’ Plan program – Krishna
If you are a single person who has never owned a home and you marry someone who does own a home (or who has even just purchased a home sometime within the past five years) you are no longer able to withdraw money from your RRSP tax-free to take advantage of the Home Buyer’s Plan program.
This means you would be unable to withdraw the money you were saving in your RRSP to purchase your first home (without facing the regular withdrawal tax penalties). This is a very interesting point for single people who are currently using their RRSP to save for their first home and just one more thing to consider in the event that someone proposes to you. How romantic!
Lyn’s pro tip: Another good vehicle to use for home purchase savings is the Tax Free Savings Account. It’s not just for cash savings either. All investments within this account are sheltered from income tax permanently.
5. Almost every Millennial’s most valuable asset is their future earnings potential – Eric
It’s strange to think of yourself as being a financial asset, but I’m starting to think it might be necessary. Before today I never really thought about what would happen if I couldn’t work because of a serious illness or injury. Because you know, I’m invincible.
But now I’m realizing that not only would I not be able to support myself if something happened, it would also deplete my current savings and make it impossible for me to continue to save for retirement or my first home. I’m seriously considering getting disability insurance just in case.
Lyn’s pro tip: Disability insurance coverage is often overlooked. It is important to understand if you have coverage and whether or not the benefit coverage is taxable. This can make a big difference in the amount received if you need to make a claim. The younger you are when taking out a policy, the more affordable it is.
Lyn’s Bio: Lyn Greer is a Chartered Accountant and independent Certified Financial Planner with Investment Planning Counsel in Richmond Hill, Ontario. She is a past member of IPC’s National Advisory Board and has also volunteered on the Financial Standards Planning Council. Lyn’s specialty is in comprehensive tax planning which is a key focus of her wealth management approach, alongside cash flow analysis, disciplined savings, insurance, and estate planning. You can contact Lyn or learn more at The Greer Team’s official website.
Eric has an extensive background in content marketing and professional writing. He loves to write about personal finance and life insurance issues for the Lifenotes blog because he enjoys the challenge of making complicated topics fun for readers! Eric also covers community outreach initiatives.
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