Advice for successfully handling money in Canada
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- Published on Saturday, November 15, 2014
By Scott Dyke
Branch Manager, RBC Royal Bank Neepawa
In my past year since moving to Neepawa to manage the RBC, I have noticed some trends with our Newcomers to Canada (both Temporary Foreign Workers and new Permanent Residents). First off I, along with many others in Neepawa, welcome you and we are very pleased to have you as part of our community.
Secondly, I understand that banking and handling your money in Canada is quite different than your home country. I hope this article helps you learn successful ways to handle your money in Canada and will help you achieve your dreams of bringing your family to Canada, buying a vehicle and a home.
Your pay cheque in Canada has given you the opportunity to earn much more money than you were able to in your home country. This also gives you a great opportunity to support your family back home. However, it is also important to remember to communicate to your family that it costs much more to live in Canada than it does in your home country.
Problems arise when you send too much money to family back home. I do understand the cultural importance of supporting your family. But I see too many newcomers unable to afford their payments here in Neepawa. Yet they still send hundreds or thousands of dollars home every month.
It is very important to meet with an advisor or a wise friend who can help you create a budget. This way you will know exactly how much income you have coming in each month; and how much you money you have to pay out each month in Canada. Once you know your income and expenses you will clearly understand how much extra money you have available to send home.
Another problem I see often is newcomers using their new credit card right away to send money back home. Remember, this is not free money. You have to pay it back, and it takes a long time to pay if you only make the minimum payment, and it is very expensive. Too many people forget to make a payment, and if you make a payment late it can ruin your Canadian credit history. My best advice is to not use your credit card to send money back home. Only use it for small purchases and pay it in full and on time each month.
An exciting time for most Newcomers is when they become Permanent Residents and now have the opportunity to borrow money in Canada! A dangerous temptation for many is to buy a brand new vehicle (or two) when they get their PR. With the new vehicle come high payments for a long time (typically 7 years). Having high payments not only makes it more difficult to borrow in the future when you wish to buy a home, but it also makes it difficult to keep up with your monthly living expenses.
This is especially difficult if you continue to send large amounts of money back home to family members even after your spouse and children have arrived in Canada. I encourage you to support your family back home, but please make sure it is an amount you can afford. I would advise you to purchase a used car at a lower price with lower payments. Many Canadians do the same鈥n fact even though I have a good job I still drive a 2005 van because I have no loan payments on it.
It is also tempting to take advantage of offers for credit cards from many companies and stores. Unfortunately, we see a high number of new Permanent Residents looking for a loan to pay off all of their high balances and expensive payments on their 3 or 4 credit cards. Many times we cannot help them because the payments on their vehicles are too high and they are still sending too much money back home. The danger is you may not be able to make your payments, ruining your credit history, having to return your vehicles, and not being able to afford to send any money back home.
An exciting moment for any Newcomer and any Canadian is when they can buy their first home. The best way to prepare yourself for buying a home is to: 1) ensure you saved money each pay cheque for your down payment and your legal costs, and 2) keep your borrowing payments low on vehicle loans, credit cards, and other loans. This begins from the moment you step off the plane to arrive in Canada. Not just when you become a Permanent Resident.
In Canada, you must save at least 5% of the price of the home as your down payment to buy the home. For example, a $150,000 home will need a minimum down payment of $7,500 (5%). Additionally, you need to save an additional 2% to 3% for legal costs and property transfer taxes. On the same $150,000 home, that is an additional $4,500. So, you will need $7,500 for the down payment and $4,500 for the legal costs and taxes which totals $12,000.
That is a lot of money and it will take some time to save for that. Every Canadian citizen has to do the same. If you saved $154 from every pay cheque for 3 years you would have that $12,000 saved. I warn you that if someone offers you a 鈥渇ree鈥� down payment or an 鈥渆asy way鈥� to get a down payment right away, be very careful as it may be a scam or they may be promoting something that looks easy today, but is very expensive in the end.
If you save this money in an RRSP, then the Canadian Government allows you to withdraw up to $25,000 of your savings tax free to use as a down payment on your first home purchase. Keep in mind, that if you do this, then the Canadian Government also requires you to pay that same money back into your RRSP.
I highly advise against borrowing to deposit in an RRSP, to then withdraw for a down payment on your home. It is dangerous in that by doing so you end up with a mortgage payment, an RRSP loan payment, and the Government requiring you to redeposit in your RRSP. Paying for that is very hard especially if you have vehicle loan payments, credit card payments and sending money back home.
In summary, even though you are making a good income in Canada, you need to keep in mind the importance of being very careful with your money. There are many difficulties you can experience if you are not getting the right advice. Please be sure you create a budget, save for your down payment, and are careful to borrow very small loans and credit cards. I encourage you to get advice from an Advisor at your bank or credit union to help you successfully handle your money in Canada.
