Bankruptcies soar above 50% in June 2009 in Canada

The recession is hurting many. Losing jobs can lead to the downfall of so many parts of our lives especially if we have debt. In most likelihood we all have some sort of debt from credit card balances to car loans and mortgages. This number is most likely reflected in most nations around the world as we are all in the same boat to some extent.

http://www.cbc.ca/consumer/story/2009/08/11/june-canada-bankruptcies235.html

According to this CBC article, there were 10,823 bankruptcies in the month of June this year, up 54.3% from the same time a year before.

What Can You do to Avoid the same boat?
There are times when everything falls apart but you need to stay prepared for the worst scenario. That’s why so many talk about the “Rainy Day” fund and its importance. You need to keep 3 months worth of living expenses saved away. This basically means that you need 3 months of wages so that you can survive in the case that you lose your job.

The problem is that with the recent recession, many are unable to find a job within 3 months of losing their job. This is a tough reality since it’s getting increasingly difficult to find a job, which is evident from rising Unemployment numbers. You may have to settle for a pay cut or try and explore different career opportunities but having a job is extremely important so that you can take a positive step forward and keep your finances in order.

What part of your Finances should you make your priority?
The obvious part of this is your living expenses. Not only should you be putting out money to buy food and pay for rent, you have to sit down and look to cut costs. You have to lower your living standards if you are living paycheck to paycheck and look to save money. The more you save, the more you helping yourself move a step forward.

After you have done that, pay down the debt carrying the highest interest. Credit cards usually have effective interest rates that are insane. As long as you carry balances on any credit card, you are on the road to financial doom. Never carry a balance on any credit card! If you have a line of credit with the bank, use that to pay off your credit card.

Upon paying off your credit card and maintaining a monthly balance that you can pay off each month, look to pay down your line of credit and bring that down to a manageable amount. Thereafter you probably have bigger debt like car loans and the mortgage on your condo or house. Don’t think that you will eventually pay these off over time, strive to pay them off as soon as possible. The interest you will save over time could be better invested in stocks and other investments to make you money and lead to your financial freedom.

Check how you can pay down your mortgage, many banks have ways of making double up payments to pay down only your principal without paying interest. A couple of these payments could immense savings in interest! Don’t be surprised in bankers don’t tell you about this, they want to make money by charging interest, why on earth would they want to tell you how to lose revenue they could earn?

I’m a former banker so I can say this. If you find someone giving you advice such as this or ways to sincerely save money then you’ve found a rare breed of a banker that actually cares and should treasure their advice. But you need to do your homework so that you don’t tricked or suckered into “investing” into something you don’t want to be invested in.

Pay Off Your Mortgage!
One of the biggest expenses that we have is paying for shelter. Whether if its rent or paying our mortgage it’s usually a big chunk of our paycheck and this is why you need to do everything you can to pay down your mortgage. Once you pay off your mortgage you have taken a huge step towards Financial Freedom as you will have disposable to put in other more useful places like investing!

Make your money work for you! This is the key to financial freedom. If you can grow your wealth and reap the benefits then you will be happy with your finances and life. Hardly sounds easy and it isn’t but it will definitely be worth the effort! This is probably one of the biggest reasons to buy a home instead of renting. The next would be the value appreciating in your home. In Canada, we have the Principal Residence Tax Exemption which allows us to sell our home and upgrade without having to pay tax on our capital gains that result from the sale. Take advantage of every chance you are given.

Hope this helps!

How to Determine How Much You Need for a Down Payment for a House

Buying property is a big step in life and for many it’s probably the biggest step and investment they’ll ever make. The financial reward and strain can make or break someone’s life if the purchase of your home isn’t timed right. This is what happened to many families in the US during the Subprime crisis, people that should not have bought houses bought houses, and some of those houses were completely out of their means.

Be Smart & Be Reasonable
Houses are expensive items that can cost hundreds of thousands to millions of dollars and you have to understand what you can afford before you jump in. You have to consider your current savings, income, and debt. Your credit rating will also come in to play to see if you can get a loan at all or what interest rate the financial institution will lend you money at.

Here’s a good calculator to start off with: http://www.mortgage.com/home_buying/mortgage_calculators/default.aspx?id=2

A $400,000 home
Say that you decide on buying a $400,000 home and you think you can afford it. But it really boils down to how much of a down payment can you afford? I’m from Canada, and here there really aren’t any tax breaks for the interest we pay on our own homes. Of course, if we were ever to sell our homes in the future, at least a year and a half from now, and realize a capital gain, we won’t have to pay taxes under the Principal Residence Tax Exemption. Every country is different and you might want to discuss this with your local bank or accountant.

The 25% Rule
Some financial institutions used to offer (and I’m sure some still do) 0% down mortgages. A 0% down mortgage usually has a higher mortgage interest rate and usually requires a purchase of insurance on the mortgage itself because of the risk that is involved. Usually a 0% mortgage is a one-way ticket to financial doom. I think a 25% down payment is safe and yet strong. You have shown your commitment to save money, (in the case of a $400,0000 home, it’s $100,000 down payment) and showing the financial institution that will hopefully lend you money that they will be making a safer investment in you. That’s in comparison to someone that has a 0, 5, or 15% down payment.

Total Debt Service Ratio
Many financial institutions use the Total Debt Service Ratio when they are determining whether they should lend money to you. Read an article I previously wrote to find out more about the Total Debt Service Ratio. The TDS, as it also know, calculates your Monthly mortgage/rent + Property Taxes + Heating + 50% of Condo Fees + Debt Payments divided by your Monthly Gross Family Income. Ideally your TDS should under 40%.

Mo2 Thinks Ideally you want to be paying cash for your home, but obviously that isn’t possible for most of us. If that isn’t possible, then the least you should do is strive to reach the 25% point, if that’s too much then you should consider buying a cheaper home. You should never be stretching yourself too far when buying a home because you’re putting greater risk on yourself. You have to understand that there are other fees that will come with a home such as maintenance, moving in fees, legal fees, and the list goes on. Making home purchases is a big decision and you should consult as many experts as you can before you jump in and buy the house. It’s more than just a number you will actually be living there for some time, if not the rest of your life! So be sure to think it through and get the best advice you can before you buy. A real estate agent can be helpful but don’t forget that at the end of the day, they just want to sell the house, get the commission and move on. Thanks for reading again, please feel free to leave comments!

Thinking About Buying Property? Think Again

You often hear about the debate of buying or renting property. It really depends on your preference and financial situation. There are advantages to both and you should really think hard if you want to go through owning property and having to think about the responsibility that comes with it. While renting can be easier to deal with as you can leave whenever you want, what you pay you won’t be seeing again unlike a house that you could own.

The Advantages of Buying Property
The best thing about buying property is that you will have a place that is “yours.” The property that you buy will also be an investment for your future, as property prices will generally rise over time unless something crazy happens like the recent Subprime mortgage crisis. Having your own property can be useful in other ways such as being able to use it as collateral and can potentially improve your credit rating and get you loans at better rates.

The Disadvantages of Buying Property
The biggest pain about buying property is the down payment that you have to come up with. If you’re buying property with cash, you won’t have to worry about this obviously, but having to come up with a chunk of cash to buy a property is what keeps so many people renting. I will talk about down payments for a mortgage in tomorrow’s article.

The next big pain is paying the mortgage on a frequent basis. This can be just like rent but you can’t just opt out like rent by just moving out to a cheaper place, you are locked in unless you sell your property which you will obviously want to avoid doing.

Owning property can also lead to greater responsibility, as you will have to think about maintaining the property. Every little problem you will now have to take care of yourself unlike when you were in an apartment building. You can’t just call the building manager, you have take care of the problems and pay the bill for each little thing and that can add up over time.

The Advantages of Renting
The greatest advantage of renting is that you can simply move out when you want. There really is no obligation to stay at a place unless you are on a lease and are locked in for a certain amount of time. That leads to less responsibility, and like I just mentioned, if something goes wrong you could just call the building manager to take care of most problems.

The other advantage is that you won’t have to worry about paying a mortgage. Sure you still have to pay rent, but you can always reduce the amount you pay by moving to a cheaper place, especially when things start to go wrong such as a job loss.

The Disadvantages of Renting
When you rent, you obviously don’t own and this is the biggest disadvantage of renting property. You can also only do so much to your property and this can be a headache when you want to paint your walls florescent purple or have 4 dogs.

Mo2 Thinks
At the end of the day, it really boils down to you. What do you want and can you afford it? It also depends on the housing market. If the prices of houses are very high then it probably is smarter longer term to simply rent and wait for the market to settle so that prices become a little more affordable.

The next big issue is coming up with the down payment for a property. For many, this is a huge issue as it could tens of thousands of dollars and possibly more. Just coming up with the down payment could take years of saving and planning but should be worth it and should be the goal of many. Come back tomorrow to read about what a down payment is and how you should save for it.

Thanks for reading, remember to bookmark this daily updated finance and investing blog written by Mo2!