Can't find a job? Consider moving back home

When job opportunities are not presenting themselves, moving back in with your parents is an option to help ease any financial burden you may be facing.

 

Today's millenials face a tough road ahead of them thanks to the unfortunate effects of the recession. With the unemployment rate for those aged 15-24 at a whopping 14.7 per cent in Canada, double that of the national rate, more and more young adults are graduating into a tough job market.

 

The lack of jobs coupled with high student debt is a common reason for youth to move back home, but other crises like ending a romantic relationship or living with bad roommates can also influence a return to the nest.
Rob Carrick, an Ottawa-based personal finance columnist for the Globe and Mail newspaper and author of a financial guide for young adults, How Not to Move Back in With Your Parents, says it's the most sensible solution for someone who doesn't have a job.

"Ideally, you won't have to pay rent and you can live pretty much cost free," he says. "It means you don't have to go into debt to pay your day-to-day living costs... It gives you a chance to plot a strategy for moving forward without digging yourself into a worse hole of debt."

Before the move
Christina Newberry, a Vancouver-based author and founder of The Hands-On Guide to Surviving Adult Children Living at Home, says before the move happens, both sides need to sit down and discuss:

1. Why you're moving back home
2. What you plan on doing during your time living at home
3. How long you plan on moving back for
4. Other details about your stay such as rent, computer, car, and TV privileges, curfew, and your significant other

There's a huge sacrifice made when both sides agree to live together again. She suggests putting together a contract that serves as a reference whenever there's a problem.

If you move back home again, it is up to the child to renegotiate the terms, says Carl Pickhardts, a psychologist in Austin, Tex., who specializes in parenting consultation about adolescence.

"There's no fixed schedule for the achievement of full independence, it varies for young person to young person and that is OK," he says.

Should you pay rent?
Newberry moved back home twice, once for eight months after she graduated from university and again for two months after a romantic relationship ended. When Newberry moved back the first time, the family decided she didn't need to pay rent, unless she stayed past a year. But she thinks other young adults should.

"It helps maintain that pattern of having that monthly expense to consider," says Newberry who covered her personal expenses during both times. "It also helps the adult child feel less like they're mooching off of their parents — they're making some contribution to the household."

Carrick says the young adult should offer to pay rent and let their parents decide.

How much is enough for rent? It's impossible to suggest a figure, says Newberry, but the family should put together a budget and calculate the financial impact of the adult child moving back. If the child can't cover the cost, then rent could be a percentage of their income.

If your parents won't let you pay rent, lend a hand with household chores, pay for groceries or utilities and treat your parents to dinner to show your appreciation. Use the money you would have used for rent to pay your debts or put it towards the down payment on a house, Carrick adds.

Plan an exit strategy
Avoid becoming a kidult and use your time wisely, says Newberry.

"Some people get into the mindset that they're going to live with their parents until they land the perfect job," she says. "[Instead] focus on the opportunity to really develop your skills because you don't have the obligation of a huge monthly rent or mortgage payment."

Before moving back home, estimate and negotiate the length of your stay and what you plan to do while living there.

Moving back out
If you just landed a job, congratulations, but don't move out right away, says Carrick. To move out, you'll need first and last months' rent, enough money to cover food, the move and any other expenses. Also, if your workplace has a probation period it's safer to stay at your parents' place until that period is over, he adds.
"When you're moving out, you want it to be a one-way trip. You don't want to put yourself in the position of going back a second time," he says.

 

By Josephine Lim, Bankrate.com, June-14-12



How Do I start Saving?

How do I start saving my money?… I get asked this question a lot from young Canadians. Saving money can be very hard for some people who have accumulated debt such as student loans, car loans, credit cards, and other consumer debt. The average Post-Secondary school graduate will end up graduating with roughly $30,000 to $40,000 worth of debt.
From my experience most recent grads are excited about entering the real world, the stress of school is gone and it’s time to start making some real money, the only unfortunate thing is for recent grads is the pressures to find a job in the field that they have studied for the past 4 years.

Most recent grads are resulting too find part-time or full-time jobs outside of their field of study until job openings appear in the industry where they intend to begin their career. The average post secondary school graduate will make anywhere from $24,000 to $35,000 their first year in the work force, as mentioned above most of the money that you make will go towards paying off any outstanding loans, lines of credit, or credit card debt.

Now we go back to the original question….How do I start saving my money?

One of the most important parts of your budget is saving for your future. It doesn't matter how much, the important thing is to get started, even a few dollars saved each month can add up over time.

The standard guidelines to saving is to save at least 10% of your pay.
Example: If you make $2,000 per month you should try and save $200 per month
If your income changes each month, adjust your savings accordingly
Build Savings into your monthly budget, it can help you stick to your plan.
Each year challenge yourself to reach a higher savings goal
Save more if your pay goes up or you get a bonus at work
If you have a lot of debt try saving a smaller amount until you’re debt-free.

Where can we start saving?

Most Canadians have a  standard checking and savings account, the checking account is where we put our paychecks and any other earned income aside, our savings account is typically where we put our money aside and expect it to grow which we can use for a rainy day or emergency. When we put money into our savings account we expect that money to grow, but little do we realize the banks are only giving us 0.25% on every dollar that we have inside out savings account. Not the typical return most Canadians are looking for.

My Suggestions

Open a TFSA (Tax Free Savings Account) where you can choose a high interest savings account that is earning you 1.35% to 2.00% interest on every dollar OR choose a fund that will invest you’re your money into markets/industries specific to your risk tolerance with a higher growth potential then a high interest savings account.

Start a PAC agreement (Pre-authorized check) which allows the financial company to transfer a specified lump sum of money of your choice each week into your TFSA from your checking account, this way your money is working for you and each week you wont have to worry about setting aside money because it is automatically set aside through the PAC agreement. Setting aside at least $20 per week with accrued interest can help you become financially stable even if debts are still outstanding.

Finally, When RRSP season comes around typically from January until Midnight March 1st, if there is any unused income inside your TFSA, open an RSP (Registered Savings Plan) which will allow you to save for your retirement and put any unused capital from your TFSA into the RSP tax free. While you can contribute to your RRSP at any time during the year, many Canadians wait until January and February to take advantage of this tax break.

In closing, don't forget: saving is something you do for your future. How much you save depends on your situation. It's a question of finding the right balance for you.

How will getting married change the way we handle money?

The biggest concerns for many life partners have to do with money. Who will spend what? How will you share the bills? How much will you save? You should discuss these questions even before you say 'I do' or move in together.

Four big money questions for couples

1. Will we combine our finances? If so, how? Some couples share everything. They have one joint account and share all the bills. Others share a few things or keep everything apart.

Example: Morris and Sam each have their own bank account. Plus, they each contribute $1,000 each month to a joint account to pay bills or save for shared goals.

2. How will we spend our money? Now is the time to set up a budget with clear spending limits. For example, agree on how much you each can spend without checking with the other, such as $100 or $200. For bigger purchases, you'll talk about it first.

If you keep your money separate, make sure you plan who will pay which bills. Also discuss how you will handle your debts, including credit cards and student loans. Sometimes, one partner has more debt than the other. Sometimes, there are children from a previous marriage to raise. How will you share those costs?

3. How much will we save? The experts say you should always pay yourself first, even if it's just $10 each week from each pay cheque. Some day, you'll be able to use this money for big purchases like buying a car or a new home.

4. How will we take care of each other if life changes? Discuss what will happen to your money if one or both of you gets sick or dies. If you don't have insurance at work, you may want to buy life insurance and disability insurance. If only one of you is working, it's even more important.

Also, as soon as you marry, any will you made before is no longer valid. If you have children from a previous marriage, you'll want to make sure you have a good plan for their future as well.

Remember: There's more than one way to handle money as a couple

You need to find what works for you and your life partner. Sometimes one person is more of a saver while the other person may be more of a spender. Make sure you talk about those differences. Then, work out a common approach you can both accept. If you find it hard to agree, a visit to a financial adviser may help.

Life Insurance replaces Mortgage Insurance?

Home is not only where the heart is, it's also the largest single debt for most Canadians. But that's OK, because your home is the centre of your family's life. That's why you should consider mortgage insurance.

Traditional mortgage insurance can be obtained from your lender as part of your overall mortgage package. The premium is added to your monthly mortgage payment.

• The policy has no cash value and the benefits are paid directly to the lender.

• Your lender owns the policy. If you decide to change your lending institution to get a better mortgage rate or move to a new home, you have to re-qualify medically for new protection, potentially at higher premiums.

• Your coverage ends when the mortgage is paid off.
  
  
• Although it is unlikely, the fact remains that the insurance company that underwrites the policy could change the rate structure or cancel coverage as a whole.
  

Personal life insurance is all yours. You own the policy and it insures you, not the mortgage. You decide on the type of policy that's best for you -- either term or permanent insurance -- and you choose the beneficiaries who can use the funds to pay off the mortgage, provide an income or cover immediate expenses.

• Your coverage isn't reduced by a declining mortgage balance, so your beneficiaries stay protected. Any benefit payout in excess of the amount owing on the mortgage is available for use by your beneficiary.
  
  
• If you choose term insurance, you can convert it to permanent insurance at a time suitable to you.
  
  
• Your coverage goes everywhere with you -- from home to home, mortgage to mortgage -- and you can reduce the amount of coverage any time you want.
  
  
• It's your plan, with the options, features and premiums that fit your needs and budget. And you can add disability and critical illness insurance that can include the benefit of waiving your premiums should you become disabled, providing the money to continue making mortgage payments or paying your medical expenses.

Your home is your family's protective nest. It makes sense to protect it (and your family) with the right type of mortgage insurance. As a professional adviser I help you get the right protection that blends with your overall financial life.

Young Adults Worried About Retirement: Don't Get Mad, Get Saving

When William Lem, 24, thinks about the recent bump up in Old Age Security age eligibility, he feels angry, frustrated and discouraged.

“With this cutback, I know I will need to put away that much more – and I still need to pay off all of my debt. It just makes me want to give up.”

The main source of his financial frustration is a $20,000 debt load. Half of that is from student loans and the rest of it from what he calls “stupid” consumer debt, including four maxed-out credit cards.

The debt has forced Mr. Lem, who runs a small business as a videographer, to move back into his parents’ Bolton, Ont., home. Looking ahead, he knows he won’t be in the same boat as his father, who he says has worked at the same company for 25 years and can retire at the age of 58.

“I don’t have a pension plan,” Mr. Lem says. “And I would love to put $100 a month into an account that I won’t touch until I am 60, but that $100 is paying off the interest rates on four credit cards and my student loan.”

Young Canadians, a generation saddled with record high student debt and facing an expensive housing market, tight job prospects and stalled earnings, are still absorbing news that they might need to work two years longer than their parents.

The latest Conservative federal budget calls for the eligibility age of OAS and the closely tied Guaranteed Income Supplement to rise from 65 to 67, over a span of six years starting in April, 2023.

What that means is that if you are 54 or younger and decide to retire at 65, you’ll be getting $13,000 less. Not everyone qualifies for the OAS benefit: If you earn more than $69,562, you must repay some of it. If you make more than $112,772, the full amount is clawed back.

So what steps can low-to-middle-income earners, like Mr. Lem, take to adjust their financial plans?

Caring for Clients financial planner Rona Birenbaum has stopped incorporating OAS into the retirement projections of anyone under the age of 40 – in part because she believes it could be clawed back further.

“As a conservative approach, we are now taking it out entirely,” Ms. Birenbaum says.

The maximum amount Canadians can receive in OAS is $540.12 a month, which works out to more than $6,000 a year. “That can make a big difference in a retired person’s life. So taking this out of retirement projections, it is no joke,” she says.

The solution to the OAS cutback is simple: Young Canadians need to save more. “It means reviewing your cash flow and finding ways to allocate more of your income toward reducing debt and saving for retirement,” she says.

The challenge, Ms. Birenbaum says, is that younger Canadians are “a demographic that loves to live well, that will live longer and will be more responsible than ever for funding their retirement lifestyle,” she says. “I don’t think it is a panic situation, but it requires some focus on planning.”
Today’s twenty- and thirtysomethings don’t believe the government is going to take care of them in their old age, Ms. Birenbaum says.

“I have had more young people approach me for financial plans than ever in my 20-year career. These are people in their late 20s and early 30s who want to make good decisions now and are not willing to wait until they are 55 and hope for the best.”

Malcolm Hamilton, an actuary at Mercer Human Resource Consulting and an expert on Canadian retirement saving, says that for most people, the changes are not crushing. “As retirement events go, this is more a tremor than an earthquake.”

What it means, is that anyone under the age of 54 who wants to retire at 65 and replace the missing OAS benefit, will need to save an additional $13,000, he says. For someone who earns $50,000 a year, for instance, that translates into an extra three months on the job.

Low-income earners, those who do not make enough during their working lives to save for retirement and rely on government benefits like OAS, will be most affected.
“People in this category, it means their lives will not become pleasant until 67 instead of at 65,” Mr. Hamilton says.

Tina Di Vito, the head of BMO’s Retirement Institute, says the best thing young Canadians can do is to get informed, start thinking about where their retirement income will come from and if possible, set aside even small amounts at an early age.

Ashley Winsor, a 32-year-old Labrador native who now calls Fort McMurray, Alta., home, is not expecting the government to prop him up in his golden years. “I feel that I will need to actively save if I want to retire at a decent age,” he says.

Mr. Winsor, a shuttle-bus driver, and his wife are almost debt-free and want to get their retirement plan on track before they start a family. “I want to make sure that when we do decide we want to retire, we can live comfortably without having to rely on the government system, because who knows if that will be around when I am in my 60s.”

What young people can do right now to get their retirement on track
Tina Di Vito, the head of BMO’s Retirement Institute and the author of52 Ways to Wreck Your Retirement, has these six suggestions for young people wondering how to set themselves up for their golden years:

1. Contribute early Contributing $5,000 every year – growing at 5 per cent a year over a 30-year period – will build to nearly $350,000. Total contributions of $150,000. (The same annual contribution of $5,000 and return of 5 per cent over only 20 years grows to approximately $174,000 with $100,000 of contributions.)

2. Set up automatic payments The change in OAS means Canadians will receive about $13,000 less. So a 25-year-old will need to save an additional $325 annually. The sensible way to save is through smaller, regular contributions (rather than a lump sum). Set up monthly payments of approximately $30 a month.

3. Educate yourself about your employee pension plan It is more important than ever to understand and take advantage of employee retirement plans. Many workplace pension plans offer various options, such as employee matching programs, or features like automatic enrolment and auto-escalation of contributions.

4. Balance debt repayments with savings plans If you have a lot of high-interest debt like student loans or credit cards, it’s best to pay those off first. If debt is manageable and low-interest, like on a mortgage, balance your budget between saving for retirement and debt repayment. Paying down your debts should be the priority because once you are debt-free you can allocate the extra funds to retirement savings.

5. Remember tax-savings strategies OAS is a taxable pension benefit. As an alternative, contribute the maximum amount of $5,000 a year to a Tax Free Savings Account. According to a BMO study, the average TFSA contribution is $3,700. Upping the amount over a 10-year period gets you another $13,000, equal to that $13,000 OAS loss.

6. Keep in mind where you live To be eligible for OAS, you must be a Canadian resident for a minimum of 40 years after 18 years of age. A few exemptions apply. If you have an opportunity to travel or work abroad, keep in mind how many years you will have been a Canadian resident before retiring if you plan on receiving OAS benefits.

Protecting Your Business

If you own and operate a small business, you need to think about what would happen if you were suddenly unable to perform your responsibilities.

Like a lot of small businesses, your business is probably incredibly dependent on you. Your top- to- bottom knowledge and above-average time commitment would make it very difficult to replace you. In the extreme, your business might need to find a successor or be sold.

In the meantime, the company might not be able to conduct itself in its usual fashion, missing opportunities and potentially creating losses that would need to be financed.
Having a life or disability insurance policy to protect your spouse or family in the event you could not contribute in the usual fashion is commonplace. You should give that same consideration to your business.

One way to do that is through key-person insurance.
Key-person insurance (commonly referred to as key-man Insurance) is a life or disability policy placed on the owner, director or employee of a company who is crucial to the business, where the business or a related party (such as a shareholder or lender) is the beneficiary. Such a policy would provide funds to your business to give it time to react to your absence. It could be used to pay off debts (as a lender might insist on) or finance losses.

While it seems fairly practical, it’s not free. Policy costs will likely mirror similar coverage on the personal side but who, how and when it would pay out out is a little more complicated. Why? Taxes. Not surprising, is it?

The deductibility of insurance premiums and taxability of benefits is highly dependent on the type of coverage and the type of payout and beneficiary. It’s not a foregone conclusion that the business would pay the premium. It might be more efficient to pay it personally – again, depending on who the beneficiaries are and how the benefits are paid.

If you have a simple small business, you probably just need a simple key-person policy. Insurance agents who specialize in such policies would be a good bet to turn to, as they likely know the ins and outs and standard structures. A quick call to your accountant never hurts. Your lawyer can probably sit this one out.

Where possible, insure and pay for your personal life policies personally and insure and pay for your key person insurance corporately, and keep it as simple as your business structure allows.

More important, don’t put it off. Think of how hard you have worked and what resources your business would need to deal with your unexpected departure. You wouldn’t want it to fail due to lack of planning, nor burden your estate or employees with an overwhelming challenge.

I wish this advice would add to your bottom line in the short term. It won’t. But it’s the right thing to do when considering the long-term value of a business you have worked so hard to build.

60% of Canadian Retirees are in Debt

More than half of retired Canadians hold some form of debt which may cut into their retirement plans and cash flow, a new poll suggests.
According to the survey conducted by Harris Decima, 59 per cent of retired Canadians are currently in debt, compared to 76 per cent of non-retirees.

The CIBC, which funded the survey, says the results highlight the need for Canadians to have a good debt repayment strategy, especially as they approach retirement. That's because fixed incomes make it more difficult for retirees to pay down their debt.

“While retired Canadians carry less debt than the national average, their debt could be stagnant and may end up costing them more in interest costs over a longer period of time,” said Christina Kramer, executive vice president of retail distribution and channel strategy at the CIBC.

“You really have to think about the debt you are retiring with because the regular repayments you make will directly affect the discretionary income you have.”

That's because for retirees, who have fixed incomes, all monthly payments must come from retirement savings or pension earnings. This can affect how much money they have left to cover their day-to-day expenses.

Only 27 per cent of the retired Canadians surveyed say they have made an extra payment towards their debt in the last 12 months, compared to 42 per cent of non-retired Canadians.

On average, retired Canadians carry 1.65 debt products with a balance, such as mortgages, lines of credit, loans and credit cards. In contrast, non-retired Canadians carry 2.64 products with a balance.

The percentage of retired Canadians with debt was highest in Atlantic Canada, at 76 per cent. All other regions hovered just below 60 per cent.

The telephone poll of more than 2,000 Canadians is considered accurate to within 2.2 percentage points, 19 times out of 20.

A survey released in the spring suggests that being debt-free is key to the idea of a successful retirement for nearly nine in 10 Canadian homeowners.

The dream of being debt-free was more important to the roughly 2,000 respondents than living near family, keeping busy with a hobby or volunteer work or having a broad group of friends.

Only having good health was listed by more people, according to the survey conducted for Manulife Bank.

Kramer recommends working with a financial advisor to plan out how to best repay your debt. She also suggests setting your debt payment slightly higher than the required payment to reduce overall interest costs.