financial institution

Be Prepared, Because Life Happens!

~ Rachael Barton-Bridges ~ Leave a comment

An emergency fund is an essential part of your personal finances. Its importance is stressed in almost every personal finance book and budgeting blog, and yet 27% of Canadians have one month or less of expenses in their emergency fund.

If an emergency fund is, in fact, so important, why doesn’t it seem that way? Why is it so easy to procrastinate on emergency-fund saving?

The term itself could be a source of confusion. The word “emergency” brings to mind images of car crashes, natural disasters and terrible accidents—and although these are valid examples of emergency expenses that affect people all across the country every day, they’re extreme enough that it’s difficult to imagine ourselves in those situations. It can be difficult to set aside a large chunk of change for emergencies when you “just don’t feel that your car is going to break down today”. Our wants (or discretionary spending) often feel more immediate than our need to cover hypothetical and unpredictable emergency expenses.

The reality is that emergency expenses come in many forms and that there are less traumatic examples out there that would be equally good at messing up your financial situation, so it might make more sense to think of your emergency fund as a “life happens” fund.

But, whatever name you give it, absolutely everyone needs an emergency fund in place because no one is exempt from life’s surprises and obstacles—and while we can’t completely prevent emergency situations, we can at least limit their potential damage. An emergency fund allows you to respond immediately to financial emergencies, which allows you to handle the situation without having to deal with additional stresses like struggling to make ends meet or spiraling into a cycle of debt.

If an expense is unexpected (or it results from an unexpected circumstance) and it has the ability to derail your regular cash flow, then it’s an emergency expense. By that definition, a delayed insurance reimbursement is as much of an emergency expense as a meteorite landing on your car. The important part is being prepared for those expenses, no matter how mundane or how extreme they turn out to be.

Let’s look at what types of expense should—and shouldn’t—be dealt with by an emergency fund.

Expense Type #1: Known unknowns

“Known unknowns” are situations that we can partially anticipate—so this is the type of expense that should not be dealt with by an emergency fund. These situations are on our radar (known), even if we don’t know exactly when they will happen (unknown). For example, if you own a vehicle, you know that at some point it will need repairs, just like you know that your home will eventually need a new furnace or that your pet will eventually need a visit to the vet.

A good budgeting exercise is to make a list of all the known unknown expenses you can think of. Then compare the list to your budget and see if there are any categories you’re not currently saving for. Odds are that there are probably a few areas your current budget doesn’t cover, so you’ll want to adjust it to include these additional categories.

Expense Type #2: Unknown unknowns

“Unknown unknowns”, which are the types of expenses that emergency funds are truly designed for, are situations that take us completely by surprise. We don’t know when they will happen, how much they’ll cost or even what they will be until they’ve happened. For example, a family member could suddenly fall ill and you need time away from work in order to care for them. Hopefully, you’ll never experience an unknown unknown, but if you do, the knowledge that you have an emergency fund to cover additional expenses will undoubtedly help to ease a stressful situation.

Expense Type #3: Underestimated known unknowns

Although your emergency fund is not intended to cover known unknowns, if one of those situations has spiraled into a bigger-than-expected expense, that is something your emergency fund would be able to cover. For example, although you have a budget for regular vet visits, you discover that your beloved pet needs surgery, which will cost $2,000. Or you might have savings to cover your car insurance deductible, but it takes three months longer than expected to receive reimbursement from the insurance company. In these situations, it makes sense to dip into your emergency fund to cover an underestimated known unknown.

How much money should be in your emergency fund?

Emergency funds vary widely from person to person. The regular recommendation is six months’ worth of expenses, but some prefer having nine months’ or a year’s worth tucked away. It’s a significant amount, as it should be—it’s what you would be living off if you didn’t have an income for an extended period of time. Whatever amount you choose, it’s a hefty savings goal and it will take time to meet it, but it will make all the difference in tough times. When setting your emergency-fund savings goal, consider the following:

  • Set mini-goals: Saving six months’ worth of expenses might sound downright impossible right now—and that’s a completely normal reaction. Instead of feeling overwhelmed and giving up on the idea, choose a smaller goal and then gradually increase it over time. When you’re just starting out, aim for $500 in your fund; once you’ve reached that goal, congratulate yourself and then set a new goal of $1,000. Once you get there, consider setting weekly or monthly contribution goals to stay on top of your savings.
  • Avoid wishful thinking: According to a 2014 Workopolis survey, it takes four months on average to find a new job. When planning your emergency budget, you might like to think that if you lost your job, you could turn it all around in two weeks—but that could be setting yourself up for a very stressful situation. It’s not fun to think about a worst-case scenario, but when it comes to emergency-fund planning, that kind of thinking can help you come up with a more realistic savings goal.
  • Imagine your lifestyle: If you had to quit your job in order to handle an emergency situation, what would your lifestyle look like? Would you be willing to rough it until you found a new job? Or would you need things to stay pretty much the same to stop your stress levels from skyrocketing? Consider your desired lifestyle carefully when planning your emergency fund. If maintaining your current lifestyle in times of emergency is a priority to you, you may want to save nine months’ worth of income, rather than nine months’ worth of expenses. But if rolling with the punches and going back to a diet of ramen noodles while you figure things out is more your style, then a smaller emergency fund would likely be able to meet your needs.

Ultimately, your emergency fund is about your peace of mind. Design it to fit your specific needs.

Boost Your Credit Score: 4 Myths Debunked

~ Tara ~ Leave a comment

Credit scores are an area of personal finance that seem a lot more mysterious than they actually are. Many people believe that improving them is a matter of trial and error and, as a result, there’s a lot of “credit score advice” floating around that can end up doing more harm than good. Four common credit score myths have been rounded up and debunked below:

MYTH #1: You have no control over your credit score

There are a lot of factors that make this myth easy to buy into—credit bureaus keep their exact credit score formulas a secret, you can’t access your credit report whenever you’d like online without paying a fee and it’s possible to be financially stable and still have a miserable score. It’s OK to find credit scores confusing, but if you have an accompanying “there’s nothing I can do about it” mentality, ditch it right now! Your credit score is a reflection of your borrowing and repayment behaviours, and that means you have a lot more control over it than you think.

MYTH #2: There’s a “quick fix” for your credit score

Although junk mail and late night commercials try to convince you otherwise, boosting your credit score doesn’t happen overnight. The good news is that the things you can do to positively influence your score are simple and don’t require a lot of time (or even that much effort!)—but the trade-off is that you’ll have to be patient while waiting for your new good credit habits to take effect. Your credit score is more of a track record than a snapshot, so consistency is key.

MYTH #3: Checking my credit report will negatively affect my score

This myth comes from confusing two different types of credit score inquiries: hard inquiries and soft inquiries. Hard inquiries are made by lenders or credit card companies when you apply for a new line of credit (a loan, a new credit card or a mortgage, for example). Soft inquiries are made by you or by others for background check purposes (a potential employer or landlord, for example). Because hard inquiries suggest you might be taking on more credit soon, they usually lower your score by a few points. Soft inquiries, on the other hand, do not affect your credit score in any way. This means you have nothing to lose by accessing your own score—in fact, doing so will help you understand what your current credit activity looks like and how you can improve it.

Note: there are some situations (like renting a car or a landlord running a credit check) where either a hard inquiry or a soft inquiry can be made. In these cases, it’s a good idea to find out beforehand what kind of inquiry will be made so that you know what to expect.

MYTH #4: Opening or closing a bunch of credit cards will improve my score

Even though these actions are the complete opposite of each other, this myth is still widespread—and very misleading. This is because opening and closing credit cards affects several different aspects of your credit score.

Opening new credit cards gives you more available credit, which in turn lowers your credit utilization ratio. This is a fancy term for the amount of available credit you actually use each month. (For example, if you have one credit card with a $1,000 limit and charge $200 to your credit card that month, your credit utilization ratio is 20%). Lowering your credit utilization ratio is a good thing, so opening new credit cards to boost your score might seem like a solid strategy. But remember those pesky hard inquiries? Opening a bunch of new credit cards means a sudden increase in the number of hard inquiries. Each hard inquiry docks a few points from your score, and if many are made within a short amount of time, it makes you look risky, which can further influence your credit score in a negative way.

So then closing a bunch of accounts must be the way to go, right? Not quite. Depending on the accounts you close, you could unintentionally be raising your credit utilization ratio and shortening the overall length of your credit history. Both of these consequences lower your credit score.

The best approach is to space out any credit account openings or closings. Try to time them in a way that any short-term negative impact on your credit score won’t interfere with an important upcoming car loan or mortgage. Do your research, only apply for credit products you need, and understand what a specific credit card is contributing to your score before making the decision to close it (that first college credit card may have a low limit and no rewards, but if it’s adding a few years on to your credit history, it’s best to keep it in rotation).


5 Identity Theft Jackpots (and How You Can Safeguard Against Them)

~ Tara ~ Leave a comment

Identity theft is nothing new, and yet it still manages to cost its victims billions of dollars (yes, that’s billions with a “b”) globally each year—not to mention the time and hassle involved in recovering a stolen identity.

The good news is that there are tons of things you can do to deter identity thieves. The bad news is that many of us do little beyond choosing a decent password—and some people don’t even bother doing that! Here are the top 5 information jackpots for identity thieves, along with helpful tips on what you can do right now to protect yourself.

  1.  Your Trash Can

Even if you’re really careful about the information you put online, your trash bags and recycling bin can still be an easy target for identity thieves. Dumpster diving may sound old school, but it’s still an easy way for identity thieves to get access to your personal information.

  •  Get a shredder (a basic model will run you $20 to $30 at a big-box store) and use it!
  • Get into the habit of shredding things before throwing them out, especially things like bank statements, expired credit cards, utility bills, cellphone bills, paycheque stubs, old boarding passes and travel itineraries, and ATM receipts.
  • Don’t forget to check your envelopes! Anything with your name and address on it needs to be shredded, too.
  1. Your Phone

Odds are that you’re carrying a lot more in your phone than just your contact list. With smartphone theft on the rise, protect yourself:

  • Have a password-protected lock on your home screen. This is a standard feature on all smartphones for a reason, so take advantage of it! Bonus points if your smartphone also has location tracking (also known as the “find my phone” feature).
  • Public Wi-Fi networks are not secure, so avoid checking your bank accounts or doing your online shopping from the local coffee shop or during your layover at the airport.
  • Do not store sensitive information on your phone—storing passwords or login information in a note-taking app is bad news.
  1. The PIN Pad

It seems like every few months a new point-of-purchase scheme emerges—skimming devices, keystroke loggers, ATM hacking… the list goes on! Here are some good practices for when you’re out and about:

  • When making a purchase, keep your debit or credit card in sight at all times.
  • Use your hand to block the buttons when entering your PIN number, even if there’s no one immediately behind you—a camera can always be watching.
  • Choose a good PIN. Avoid PINs derived from your personal information, like your telephone number, address or birthday. Avoid an easy-to-guess PIN, like the dreaded “1234”.
  • Change up your PIN, especially if you use the same combination for your debit card and for unlocking your cellphone.
  1. Your Mailbox

Like the trash-picker approach mentioned above, mail tampering is a low-tech but relatively easy way for identity thieves to compromise your personal information. Here’s what you can do:

  • Familiarize yourself with your billing cycles. A late credit card statement or a bill that never shows up could be a sign of mail tampering.
  • Identity thieves will sometimes request a change of address to illegally reroute your mail to a different location. If you suddenly stop receiving mail, check with the post office to make sure this isn’t the case.
  • Use a mailbox with a locking system to deter thieves.
  1. Your Computer

You would think that this one would be common knowledge by now, but every so often a virus or scam comes along that trips us up. Stay one step ahead of scammers:

  • Keep your firewall, anti-virus and operating system software up-to-date. No matter how new and fast your laptop is, it still needs protection.
  • Enable spam filters on your email accounts.
  • Look out for sketchy links and emails. Ignore any suspicious password reset requests, unexpected tracking numbers or anything that asks for your personal information via email.
  • Don’t overshare on social media. Do your Facebook friends really need to know what year you were born? Can people tell when no one is home based on your Instagram feed? Keep your accounts private and make sure you’re not accidentally broadcasting sensitive information.

By being aware of the top 5 information jackpots and by implementing these simple strategies, you can keep identity thieves at bay.

Some Choices Matter

~ Tara ~ Leave a comment

Some choices matter – including where you choose to bank. You will probably do more business with your financial institution than any other corporation in your lifetime. So why not take the profits your financial institution makes, and put them to work for you and your community?

Banks vs credit unions: what you need to know

~ Tara ~ 1 Comment

What was the very first financial choice you ever made? It likely took place before your first job, even as far back as when your annual income consisted of money from the tooth fairy and lucky pennies. The very first financial decision you ever made is also one of the most important choices—where to keep your money.

When you first made that decision, piggy banks, sock drawers and buried-in-the-sandbox- like pirate treasure all seemed like perfectly acceptable options. As it turns out, they aren’t nearly as super-secret as you might have hoped. Opening a bank account is the best solution, but in order to do that, you first need to choose a financial institution—so, your choice is between a bank and a credit union.

Banks and credit unions offer essentially the same products and services, but there are huge differences in the way they operate. Despite this, many people put more thought into building their Netflix queue than they do choosing their financial institution. We are here to help fill in the gaps and show you how the differences can affect your dollars. Whether you’re just starting out or rethinking your current financial setup, here is what you need to know.

The main difference between banks and credit unions is in their structure. Banks are purely for profit, while credit unions are member-owned. This means that banks have numerous expenses that credit unions simply don’t have. Banks have to pay their shareholders and their private investors in addition to regular operating costs. Banks are set up in a way that allows a select group of people to make money off of your banking activity.

Credit unions, on the other hand, are set up in a way that allows all of their members to benefit from their profits. Once the operating costs are covered and reserves are set aside, the profits are distributed back to members in the form of dividends, patronage and community investment. Credit unions are accountable to their members, and therefore accountable to the communities that they live in. First Credit Union gives thousands of dollars back every year in the form of donations, sponsorship, scholarships, and youth leadership programs.

Credit unions sound pretty great, right? You might be wondering why some people choose banks over credit unions, even though credit unions consistently outperform banks when it comes to deposit and loan rates and customer service.

The simple answer is that banks are bigger, and some people believe bigger is better. A more effective approach would be to figure out your banking priorities. Here are some factors to consider:

1) Am I eligible for an account? Banks are open to anyone. Some credit unions have membership requirements, but don’t let that intimidate you! Requirements can be as simple as living in a certain community or working in a certain field. First Credit Union has very open membership requirements.

2) How much does it cost to get set up? Are there any fees associated with opening an account? Is there a minimum balance required? Joining a credit union involves purchasing a share, but this is different from a fee—it means you’re a member-owner of the credit union.

3) Will I have good access to ATMs? You might feel as though you see bank ATMs everywhere, but credit union ATMs are just as accessible. Credit union members have access to a network of thousands of ding free ATMs from sea to sea. In fact, the largest credit union ATM network in Canada is larger than the networks of both Scotiabank and the Bank of Montreal. You can find the closest ding free ATMs with the ding free ATM Locator App.

4) What can I do online? More and more financial institutions are offering online banking services. Find out what you can do from your computer and smartphone. Can you check your balance? Schedule payments? Transfer money between accounts? Taking advantage of online products can be super-convenient, and can avoid a trip to the ATM or the nearest branch.

5) And speaking of the nearest branch, where is it? Find out what the hours of operation are and how they work with your schedule. Find out if you can bank through other branches, too. This could come in handy if there’s a location close to work or school.

6) What can my financial institution do for me? Ask about products that are tailored to your situation. How do the interest rates compare to other financial institutions? Are there free products you’re eligible for? Don’t settle for a financial institution just because you need an account—you should also want to have an account there.

At the end of the day, choosing a financial institution is a personal decision with a huge influence on how you manage your money and your time. If you make the effort to ask questions and compare services, you’ll find the best home for your finances.