5 Ways to Avoid a Personal Financial Crisis

Here are some tips on what you should do to avoid a personal financial crisis:

1) Have an emergency slush fund

You should have at least 3 months of living expenses put away in case the worst happens. I am not talking about putting it in your mattress or in a coffee can. These funds should be liquid and fairly easy to access quickly but not so that you can dip into them & buy something if the whim strikes you. My wife and I have used an ING investment savings account, you could do something similar or open a Tax Free Savings account, that way your emergency fund is tax protected.

2) Know your income and expenses

Most people might know how much they make but have no idea how much they are spending. When I got out of University I worked as a personal trainer for a few years. When I took on a new client, I would have them keep track of what and when they ate for a week to give them a better idea of what is really going on in regards to their health. Your finances are no different, take a 30 day period, create an excel spreadsheet for example and track all income and expenses. Then sit down and take a real good look at it and decided if it is needed or not. Trim the fat and put the saving’s into your newly developed emergency fund.

3) Diversify your income

What I mean by this is don’t put all your eggs into one basket. Develop a secondary income stream incase something were to happen to your day job. Turn that passion or hobby into a business. Invest in real estate. Build a residual income stream by joining a network marketing or direct selling company. Make sure that what ever you do, it’s something that you are passionate about and will allow you to add to your bottom line. The other advantage is that your new business could become a great tax deduction, check with your accountant to make sure that it is structured properly.

4) Give your self an immediate 18-20% return!

How is this possible you may ask? It’s easier than you may think. Do it by paying off your debt. Start with your higher interest debt, your credit cards which are anywhere from 12%-18%, or if it is a department store card, it could be as high as 24%. Next your car payment, unless you have a 0% loan, you are probally paying 7-9%. Lastly your mortgage 3-7%. If you need a detailed plan on how to do this quickly, let me know I have designed quite a few of them.

5) Lastly make sure that your affairs are in order.

I am not trying to sound morbid, but we don’t live forever. Have a proper estate plan, have health insurance for your and your loved ones, and have an insurance policy big enough so that the one’s you leave behind are not faced with an immediate financial crisis. For this point I suggest consulting with your personal estate lawyer as well as your financial planner. If you don’t have one I can suggest for legal advice or here are two good options for financial planning.

Bonus point….and this should be a no brainer.

To achieve anything on this list, you should have a plan. Start with a clear picture of the current state of your finances. How much time do you have between where you are now and where you want to be? With the help of one of the financial planners above or your own, develop your plan and work your plan. Remember to be flexible in your approach, know what’s working or not, and be willing to make the necessary changes to insure that you achieve your goal.

*Note that I receive no gain monetary or other wise from promoting the services or products in this post.

As always, feel free to contact me if you have any questions and I look forward to hearing from you.

Cheers,

Pat

p.s- You can find me on Twitter,Linkedin, Facebookand friendfeed.

Make a difference

Earlier this week I received a story in my e-mail that I want to share with you.

I made a difference to that one…

A man was walking on the beach and ran into a little boy throwing starfish into the ocean.  When the man asked the little boy what he was doing, the little boy explained that the tide had gone out and left the starfish on the shore.  They wouldn’t survive the day in the sun and if they didn’t get back in the water, they would dry out and die.

Amused, the man looked down the beach and noticed that there were thousands of starfish washed up on the shore and they went out as far as the eye could see.

“Little boy, while I appreciate what you are trying to do, there are thousands and thousands of starfish on this beach. You can’t possibly make a difference.”

Without flinching, the little boy picked up another starfish and threw it back into the ocean.  “I made a difference to that one!”

While we can not help them all, we can make a difference to the ones that we do help. If you can do one thing to make a difference today, you should think about donating to your local Red Cross
. Organizations such as these are usually the 1st on the scene to aid the victims of disaster such as the one that just hit Japan.

If there is anything that I can do to help you, please feel free to contact me.

Cheers,

Pat

Economic stats for March 2011

Bank of Canada Interest Rate

January 18, 2011 1.00 %
March 1, 2011 1.00 %
April 12, 2011 Next meeting date

Bank Prime Lending Rate

January 19, 2011 3.00 %
March 2, 2011 3.00 %
April 13, 2011 Next meeting date

Conventional Mortgage – 5 Year Rate*

January 19, 2011 5.19 %
February 9, 2011 5.44 %
February 23, 2011 5.44 %

*Determinant for high ratio mortgage variable qualifying rate

US Federal Reserve Board Discount Rate

December 14, 2010 0.00 % – 0.25 %
January 26, 2011 0.00 % – 0.25 %
March 15, 2011 Next Meeting date

Exchange Rate $CDN($US)

January 31, 2011 0.9985 $CDN ($US)
February 11, 2011 1.0134 $CDN ($US)
March 1, 2011 1.0257 $CDN ($US)

Government of Canada Bonds

Bond Type January 26, 2011 February 9, 2011 February 23, 2011
1 year Treasury Bill 1.33% 1.36% 1.36%
3 year Benchmark
Bond Yield		 1.91% 2.06% 2.15%
5 year Benchmark
Bond Yield		 2.56% 2.74% 2.61%
10 year Benchmark
Bond Yield		 3.31% 3.95% 3.32%

Total New Housing Starts (Seasonally adjusted and annualized)

Province November

2010

 November 2009 December 2010 December 2009 January 2011 January 2010
Newfoundland/Labrador 3,100 3,200 3,200 4,200 3,800 3,600
PEI 1,000 1,000 1,100 1,300 800 600
Nova Scotia 3,600 2,800 2,800 2,900 4,600 2,800
New Brunswick 3,600 3,900 3,100 3,600 3,500 5,200
Quebec 44,100 40,400 47,900 51,600 48,800 55,100
Ontario 83,300 53,000 46,400 56,300 51,400 55,500
Manitoba 5,500 4,200 6,500 3,400 3,900 5,100
Saskatchewan 9,400 6,100 7,500 4,500 6,100 6,400
Alberta 21,500 24,800 20,500 27,800 19,300 23,500
British Columbia 20,800 19,200 30,000 22,200 28,200 27,600
CANADA 195,900 158,500 169,000 177,800 170,800 185,400

Source: CMHC Housing Now – February 2011 and February 2010. This seasonally adjusted data goes through stages of revision at different times of the the year.
Average MLS® Resale Price for Local Markets

City January 2010 January 2011
Halifax $241,968 $252,141
Saint John $168,439 $171,788
Quebec $224,088 $240,646
Montreal $284,384 $294,436
Ottawa $323,762 $329,640
Toronto $409,058 $427,159
Hamilton/Burlington $288,397 $325,732
Winnipeg $213,134 $229,716
Saskatoon $270,191 $300,353
Regina $240,276 $260,133
Calgary $382,009 $394,455
Edmonton $314,783 $315,483
Vancouver $637,637 $762,562
Victoria $509,514 $486,384

Source: Canadian Real Estate Association
Household Financial Vulnerability

The index is not a predictor, but is aimed at capturing which regions are more vulnerable in the event of an unexpected adverse economic shock, such as a rise in the unemployment rate or a spike in interest rates.
Snapshot of Canadian Household Debt Indicators by Region

level as of 2010-to-date*

Debt-to- Income Ratio (%) Debt Service Ratio (%) % of households

with a debt-service ratio above 40%

 Debt-to- Asset Ratio (%) Home Price to Income Ratio Personal Savings Rate (%) Est.
Can 127.0 18.6 6.5 28.7 5.9 3.9
Atl. 96.7 17.3 6.3 29.8 3.7 0.7
QC 99.5 16.9 5.6 29.3 5.2 4.2
ON 135.2 18.9 6.9 28.6 5.3 2.9
MB 100.1 14.3 1.9 25.5 4.1 3.1
SK 116.8 18.1 8.8 25.7 4.4 4.1
AB 143.2 19.2 8.4 30.2 4.8 15.0
B.C 160.5 22.0 5.9 27.2 8.8 -4.2

Source: Ipsos Reid Canadian Financial Monitor, Statistics Canada, Haver Analytics

TD Economics, February 2011

Note: Note micro-data data differs from national aggregates due to methodological differences

*Includes first three-quarters of 2010, for households who hold debt

To break or not to break?

Well that is the question. Wondering whether to break your current mortgage to take advantage of the lower rates that are currently offered. Well here is an example that you can apply to your situation to see if now is a good time to take advantage of the lower rates.

Interest Rate Differentials (IRD)

Often a client needs an “idea” of how much their existing mortgage penalty might be before he decides to refinance or do an “early switch” with pre-payment penalty.

If the penalty is based on a rate differential, here is a BASIC calculation to figure out a close amount…..

Based on a:

$200,000 with 3 years remaining on a 5 year term of 5.70%….

…because there are 3 years remaining, the current 3 year rate is used to calculate the differential.

If the lenders current 3 year rate is 4%, there is a difference of 1.7%. Because there’s still 3 years left, the principal is also multiplied by 3

$200,000        x      1.7%      x       3     =       $10,200 penalty

(remaining principle)(Difference btw rates) (# yrs remaining)

**This is an estimate and will change every time rates change. If the differential increases, the penalty will also increase.

Now next you have to determine if the savings will exceed the penalty, and make the refinance worth while so here is another example. Interest rate in the before example is 5.7% and after is 3.99. Both with a 20 year amortization and a $2,400 annual tax bill included in with the mortgage payment, and house value of 400,000.

Before
After
Creditor
Balance
Payment
Creditor
Balance
Payment
Mortgage
$200,000
$1,590.89
Mortgage
$280,200
$1,681.02
Credit Line
$10,000
$300.00
Credit Line
0
0
Bank Loan
$20,000
$405.53
Bank Loan
0
0
Credit Cards
$40,000
$1,200.00
Credit Cards
0
0
Total Owing
$270,000
$3,496.42
Total Owing
$280,200
$1,891.65
Your Savings
$1,604.77

So as you can see in this case you will save $1,604.77 in monthly payments. Here is the big picture, by paying the $10,200 penalty, you will save $57,771.72 in payments over the next 3 years.

Please contact me for your personal analysis of your debts as every situation is different.

Cheers,

Pat

Thanks to Rachelle Gregory-Marshall my business development manager with Merix Financial for this great example of how to calculate our IRD penalties.

* Penalties in every mortgage are different. Please contact me to see if you are able to break with a lower penalty.

Rate decision

Bank of Canada leaves key rate unchanged

Malcolm Morrison, The Canadian Press

The Canadian dollar gave up early gains and moved lower after the Bank of Canada’s announced it was leaving interest rates unchanged and warned of the negative effects of a rising currency.

The loonie was 0.12 of a cent lower to 102.82 cents US after the central bank announced its decision to keep the key interest rate at one per cent.

The bank observed that the economic recovery in Canada is proceeding slightly faster than expected and that “while consumption growth remains strong, there are signs that household spending is moving more in line with the growth in household incomes.”

But the bank also warned that “the export sector continues to face considerable challenges from the cumulative effects of the persistent strength in the Canadian dollar and Canada’s poor relative productivity performance.”

The currency is riding at a three-year high.

http://www.winnipegfreepress.com/business/breakingnews/canadian-dollar-up-traders-await-bank-of-canada-rate-announcement-117145598.html

Bank of Canada maintains overnight rate target at 1 per cent

OTTAWA – The Bank of Canada today announced that it is maintaining its target for the overnight rate at 1 per cent. The Bank Rate is correspondingly 1 1/4 per cent and the deposit rate is 3/4 per cent.

The global economic recovery is proceeding broadly in line with the Bank’s projection in its January Monetary Policy Report (MPR), although risks remain elevated.  U.S. activity is solidifying and remains supported by stimulative fiscal and monetary policies.  Ongoing challenges associated with sovereign and bank balance sheets will limit the pace of the European recovery and are a significant source of uncertainty to the global outlook. Robust demand from emerging-market economies is driving the underlying strength in commodity prices, which could be further reinforced temporarily by supply shocks arising from recent geopolitical events.

The recovery in Canada is proceeding slightly faster than expected, and there is more evidence of the anticipated rebalancing of demand.  While consumption growth remains strong, there are signs that household spending is moving more in line with the growth in household incomes. Business investment continues to expand rapidly as companies take advantage of stimulative financial conditions and respond to competitive imperatives.  There is early evidence of a recovery in net exports, supported by stronger U.S. activity and global demand for commodities. However, the export sector continues to face considerable challenges from the cumulative effects of the persistent strength in the Canadian dollar and Canada’s poor relative productivity performance.

While global inflationary pressures are rising, inflation in Canada has been consistent with the Bank’s expectations. Underlying pressures affecting prices remain subdued, reflecting the considerable slack in the economy.

Reflecting all of these factors, the Bank has decided to maintain the target for the overnight rate at 1 per cent. This leaves considerable monetary stimulus in place, consistent with achieving the 2 per cent inflation target in an environment of significant excess supply in Canada. Any further reduction in monetary policy stimulus would need to be carefully considered.

Information note:

The next scheduled date for announcing the overnight rate target is 12 April 2011. A full update of the Bank’s outlook for the economy and inflation, including risks to the projection, will be published in the MPR on 13 April 2011.

Service Please

For those who don’t know, we took advantage of the kids two week break to take a little vacation. The reason that I am telling you this is to tell you a story about good service. Something that we far too often take for granted until we experience the complete opposite. 

P1000634We took a Disney Cruise out of LA down to the Mexican Rivera and it was awesome, and the service was fantastic. Food was great, ship was nice and clean and the staff were wonderful. On the way back home we flew with United airlines from LA to Chicago, during this flight one of my girls became ill and was getting sick. My wife rushed her to the bath room while holding on to an air sickness bag. The bath room closest to us was occupied so my wife took her to the next closest which was in the business class section. No member of the flight crew attempted to help her or check to see if she was alright, in fact an off duty flight attendant sitting in business class told her she could not use that bath room. To top it all off they canceled our connecting flight from Chicago to home and then lost our bags.

The moral of this story is that we should not take good service for granted. We ended up flying Air Canada back home and I doubt we will ever fly United again.

My service promise to you is that I will return calls within 2 business hours, e-mail’s same day and always present the best rates and terms for every situation.

P1000644

Cheers,

Pat

p.s- You can find me on Twitter,Linkedin, Facebookand friendfeed.

Here is my wife’s take on United’s lack of service, from the letter that we sent to United Airlines Customer Service Dept;
To whom it may concern,

Firstly I would like to advise you I will, in no uncertain terms NEVER fly United Airlines again!  Here is why. On February 21 my family and I boarded our flight in Los Angeles after a lovely 7 day cruise to Mexico.  My husband and our 3 children(our 6 year old twin girls and 4 year old son) had flown down 12 days prior on our national carrier Air Canada .On which, our son became ill and vomited about 40 minutes after leaving Toronto for L.A.  The attendants on Air Canada promptly helped helped my son get cleaned up gave him a blanket and pillow and did not charge us for our meals. My son arrived in L.A in underwear and a T-shirt, but in no way was I disappointed in the treatment I received from the airline.
Twelve days later we boarded our flight in L.A with United Airlines, not long into this flight my 6 year old daughter began vomiting. I immediately ran her to the nearest bathroom, which was occupied, on the advice of another passenger I ran her down the aisle to the first class bathroom(air sickness bag over her mouth ) where I was stopped by a male attendant who advised I was in the wrong section. When I advised of my child’s situation he relented.  After coming out of the bathroom, no attendant inquired about my child’s well being. I had to ask the same attendant for more airsickness bags and he told me they were in the bathroom.  At no point in the duration of the flight, in which my child vomited throughout, did any staff on the plane offer any help or even inquire about my child.
As we departed the plane she was sick again-nothing, NOTHING!!!!!! I cannot imagine a group of people so singularly without a shred of compassion(for a child no less!) . I even met up with the male attendant in the airport a little later and advised him of my displeasure, he had the nerve to tell he was a passenger ( yet in his uniform) and not working-SCUM!  We were then stuck for the next 5 hours (my child still vomiting) at O’hare before our flight was cancelled.  Luckily we did get rescheduled the next day with Air Canada!!!  My disgust with United Airlines  is so immense, it was hard to put into words.
I do not expect a response from you, nor do I think this will even be read, but I felt it needed to be said.  I would like to commend Ruth in customer service who helped find a very frantic and tired mother a way home. As we are members of Air Canada’s Aeroplan and thus their Star Alliance program, we would expect higher level’s of service from their member partners.

Customer Service
Excellence in customer service is a key to United’s success. Each employee is expected to deal fairly, honestly and ethically with all customers to ensure customer satisfaction.  You may want to get the members of your flight crews to look at your customer service code of conduct and know it by heart.

Sincerely,
Gillian Sawler

Committed?

Are you or should you be? To your goals that is. This hit me when one of my friends from the gym saw me today and commented that I must not be committed as I did not make it in for my regular workout time of 05h30 yesterday. My excuse was that one of our kids was up a few times over night. However excuses be gone, come hell or high water I will certainly be there for tomorrow.

When you think about it, are you committed to the successful attainment of your goals? If you are not, or worse if you don’t have your goals written down ( shame on you if that is the  case) then you are just breathing and not really living.

If getting out of debt is your goal. Then you should write your goal like this, ” I am making X per month or year” rather than ” I am paying off my debt”. When you include what you do not want in your goals, you end of thinking of what you do not want. See your self as already having acheived your goal, feel it and live it.

Want help in creating your plan? Then feel free to give me a call, I would be glad to help you.

Cheers,

Pat

p.s- You can find me on Twitter,Linkedin, Facebookand friendfeed.

I owe, I owe

So as the dwarves in Snow White say “It’s off to work I go”. Below is a great article from The Vancouver Sun, talking about our ever increasing debt load. In fact, that is the number one reason that the finance department reacted with changes to mortgage financing yesterday. As always feel free to contact me if you have any questions.

Cheers,

Pat

Our debt-to-income ratio hits an all-time high

BY JULIE FORTIER, CANWEST NEWS SERVICEFEBRUARY 17, 2010 1:14 AM

Although the recession may technically be over in Canada, many households sank even further into debt in 2009, creating the highest debt-to-income ratio ever in Canada, according to the Vanier Institute’s annual assessment report, released Tuesday.

Read more

Rules, Rules, Rules

Here is the information regarding the new mortgage rules that will come into effect on April 19th of this year. The changes are not as bad as some were predicting. This is the summary, and the text is below.
Starting April 19th
1. Borrowers need to qualify using the 5 year fixed rate
2. Refinances maxed out at 90% LTV
3. 20% downpayment for mortgages tied to non-owner occupied properties bought for speculation.
Canada will bring in new mortgage rules to cool the country’s red-hot housing sector, but does not think the market has entered into bubble territory, Finance Minister Jim Flaherty said on Tuesday.Concerned that new homebuyers may overextend themselves, the government said it is implementing three changes to mortgage rules that will help prevent the problems seen in other countries that helped trigger the global financial crisis.

“Today’s measures are part of a larger picture. We will continue to closely monitor developments in the housing sector in Canada,” said Flaherty at a news conference in Ottawa.

“There is no compelling evidence of a housing bubble, but we’re taking proactive, prudent, measured and cautious steps today to help prevent a housing bubble.”

Changes to Canada’s mortgage insurance guarantee framework that come into effect on April 19 include the requirement that borrowers will need to qualify for a five-year fixed-rate mortgage even if they go with a lower variable rate.

The government will also lower maximum amounts that can be withdrawn when borrowers refinancing mortgages. And it will require a minimum downpayment of 20 percent for insured mortgages tied to non-owner occupied properties bought for speculation.

Flaherty described the housing market as “healthy and stable” and said that the government’s early action can help prevent negative trends from happening.

The government has been concerned that some borrowers who are taking out variable-rate mortgages will struggle with their monthly payments when interest rates rise.

Bank of Montreal, while noting it did not believe the country faced a housing bubble, said it supported the government’s actions.

Feel free to contact me if you have any questions, and I look forward to hearing from you.
Cheers,

Pat

p.s- You can find me on Twitter,Linkedin, Facebookand friendfeed.

October 2009

Here is October 2009’s monthly update on key economic data. Please contact me if you have any questions.
Cheers,
Pat

p.s- You can find me on Twitter,Linkedin, Facebookand friendfeed.