I really want to send out a huge thank you to Daniel Martens (financial advisor) at Martens Financial who helped create this blog, and helped create this super informative blog, and provide some excellent insight on money saving tips. Daniel and I have been referring clients for over a year, and has been an amazing Financial Advisor to work with for myself as well as my clients. He can be reached by phone at (902) 394-0502 or by email at daniel@martensfinancial.ca.
With costs of living skyrocketing, it is no surprise that many of us have faced credit challenges in the past. Although your past repayment history does weigh on your chances of getting a mortgage, it’s also about how you recover from these slip ups when life happens. Some of the topics that we will touch on in the blog include what you can do when money is tight, how to start saving for a down payment, how to boost your credit, as well as how to save in ways that you may not have thought about.
How to save Money
Money can be tight, especially with record high rent price, having student loans to repay, and credit card bills. Not everyone has the good fortune of being able to pay off their bills in full every month. So how can you get ahead? Let’s start with some of the basics that you may not be aware of. In recent years, we have seen a significant shift to SaaS (Service as a Subscription). Services like Netflix, Spotify, YouTube Premium, LootCrates, etc… are becoming more and more popular, and unknowingly to us, end up costing hundreds of dollars every single month. Many of these services actually offer us ways to save on their subscriptions. Start by looking at what subscriptions you might be signed up for. Check your emails for monthly recurring billing and see if there is anything that is not necessary to you and cancel that subscription. Talk to a few close friends or family members and sign up together if possible because you can end up saving quite a bit by signing up for a family plan such as on Spotify - $14.99 CAD for a Family plan which allows you up to 5 individual accounts. Although it may not seem like much, if you and 4 of your friends sign up for this, that’s a saving of 84$/year by changing 1 subscription. Netflix will allow you up to 4 devices at any given time for $13.99 CAD per month - $66/year in savings! You’ve already saved $150/year by sharing 2 subscriptions with friends and family. Don’t forget to evaluate your need for these subscriptions. Often times, you can go without the need of some of the subscription services that you may be paying for.
Banking fees can add up as well. Find a financial institution that will wave monthly banking fees; Banking fees generally range from $13/month upwards of $30/month ($159/year). In PEI, if you are under 25, you can bank for free with Provincial Credit Union. Other financial institutions have minimum monthly balance requirements that will wave their monthly fee if you never go under that minimum. This again can result in hundreds of dollars in savings per year.
Make the minimum monthly payment on all of your mandatory payments. Credit card balances can be quite high, and intimidating to pay in full. Make sure that you are at least making the minimum monthly payment. The same rule applies to your Cell Phone bill - I cannot stress this enough - I have seen excellent mortgage candidates get turned down due to late cell phone bill repayments. If you have a cellphone and you own it outright, more often than not, your cellphone provider won’t discount your plan once your tab is paid off. Shop around for the best BYOP (Bring Your Own Phone) plan. You can easily save $15/month by doing this, as many companies offer even better savings for these type of month-to-month contracts, not to mention, you don’t need a minimum contract plan - $180/year in savings at the very least. You don’t have to make the full monthly payment if you cannot afford it, but at the very least, make the minimum payment so that it doesn’t reflect poorly on your credit bureau.
Stop eating out! While this may seem like an interesting way to save money, by buying food at the grocery store, and setting yourself a grocery limit, this will help you become more disciplined with your spending, and save on your overall food costs. For example, I limit my groceries to $125 per week, and that actually buys quite a bit of groceries, and can be made to last a full week. $125 is approximately 10-15 fast food meals, on top of your groceries that you are already buying, will save you quite a bit as well. If you are interested to see how much you could be saving on eating out, sit down and spend a couple of hours studying your spending habits. You'll be surprised how quick a daily Tim's run can add up. You really want to identify any unjustified spending that you can easily save some money on in the long run. A few dollars here and there ends up saving you hundred (as shown above), if not thousands of dollars, especially if you are wanting to get a little further ahead financially.
Many provinces have some sort of Student Loan forgiveness programs to help you get out of debt faster. With the help from the Province of Prince Edward Island Debt Reduction Grant, you can receive up to $2,000 dollars per year of study as long as you are borrowing $6,000 or more with a minimum of $100 being provincial student loans. You must have PEI and Canada Student loans to qualify for the PEI Debt Reduction Grant. If you earn a low income, you can apply for the Repayment Assistance Program through National Student Loan Services Centre to lower your monthly payments while the federal government pays the interest for you.
Putting that money away
Now that we have gotten creative in saving money, let’s talk about how to start saving money for a Down Payment. Consider using some of the money saving methods above to put money aside into a separate bank account. Talk to your Bank about opening a TFSA (Tax-Free Savings Account), and setting up automatic transfers that coincide with your paycheque to automatically deposit a portion into a TFSA. This is an easy way to save if you don’t want to see the money coming out.
RRSP’s are another way to do this. Check with your employer if they have a RRSP Savings Plan. Many employers will also contribute to your savings plan as long as you are contributing - Free money! Again, this doesn’t have to be anything drastic - Even 15$/pay can mean $180/year that you have saved. By putting money into an RRSP, you can save the taxes on this as you are allowed 18% in RRSP contribution up to a maximum of $26,230/year. You can also use your RRSP savings up to $25,000 towards a Down Payment on your first home purchase.
We started to save a bit of money, and it wasn’t too painful. Another easy way to save more is by paying off your credit card balances quickly. Consider using the above savings tips to slowly pay off your credit card balance, and save the 19.9% interest on your credit card, or your highest interest account first. Paying off accounts with high interest is another fantastic way to save money that you don’t have to pay. Spend an evening on your computer and sign up for Credit Karma (free) to see what trade accounts might be in your name and write down all of your open accounts. Rank them from Highest Interest to Lowest Interest, and start chipping away at accounts that have the highest interest. Keep in mind that although you can get your credit score for free from Credit Karma, or you can pay for your credit score, this is often not the same score that banks, or brokers will use to qualify you for a mortgage. It is a great baseline for yourself to evaluate, but it is not to be relied on.
Rebuilding Credit
If you have a credit card (it’s 2018, most of us do!), setup your monthly subscriptions to charge to that card. Try and keep your balance at a maximum of 35% of the credit limit to really maximize your credit score. Keeping your credit utilization at 35% at max, is a very easy way to boost your credit. With accounts being paid off and using the 35% rule, you will see your credit score go up substantially.
Any accounts that you may have in collections, give the collections agency a call and setup a plant to repay those accounts in full. You can get away with settling, but financial institutions will want to see that the accounts are paid in full as opposed to partial repayment, and settling. If you only have a couple of accounts that do not have a late payment on them, once you have put yourself in a position that allows you to save, sign up for a Line of Credit, or RRSP loan, and make regular monthly payments on these accounts and DO NOT miss a single payment. These accounts with excellent repayment will be extremely useful to you when it comes time to apply for a mortgage. The more accounts (2 or more, at least!) with excellent repayment, the better off you will be. Mortgage approvals often heavily rely on the last 2 years of repayment history to really consider you, and obviously the longer you have gone without a missed payment, the better. Again, you only need to make minimum payments at the very least!
Now that we have gone over some creative ways to save money, lowering your student loans, saving on some unnecessary fees, saving money for a down payment, and how to boost your credit, get out there and start saving! If you have any questions about any of this, reach out to me and let’s chat! If you are interested in speaking with a financial advisor so that you can start using some of your savings to generate income, I have some excellent referrals to really help you maximize your savings.
If you have any questions about any of the above information, please reach out to myself or Daniel so we can help get you on the right path!