Family Financial Planning Tips

Family Financial Planning Tips

You may not know it, but every year you’re losing thousands of dollars.

An excellent way to put this money back in your pocket is by making smart choices in selecting financial products and services.

I’ll sheepishly admit I’ve flushed thousands down the drain making poor and uninformed decisions in this regard over the years. So please learn from my mistakes and more recently found wisdom shared free of charge below in my 3 Family Financial Planning Tips.

Working in business I know it’s all about giving the customer what they want. With that in mind it’s a no-brainer to pay special attention to the results of the newly introduced blog poll. The people have spoken and in terms of desired future topics “how to save more” is inching out “how to earn more” by a single vote (total votes cast to publishing date…three).

Secure your mortgage using a brokermortgage broker

Thinking of buying your first or a new family home? For most people this is the biggest purchase in their life, so it’s wise to do a bit of due diligence to ensure you’re getting a good deal.

There are at least three big pluses that come from using a mortgage broker:

1) Normally no cost as their fee is paid by the mortgage lender;

2) Most have instant access to the lenders offering the lowest rates;

3) They do all the heavy lifting (save you time).

My perspective here is that what really matters with a mortgage is the lowest possible interest rate.

Service counts for something no doubt – but a mortgage is typically something that requires very little servicing anyways (and personally I’m willing sit on the phone 5 minutes longer from time-to-time if it saves me thousands of dollars – more to come on this point).

I’m being a tad simplistic as there are other terms that will be important for some mortgage holders (i.e. prepayment options without penalty, ability to convert from variable to fixed, etc.). But for the average mortgage holder, focusing solely on obtaining the lowest rate is how the big bucks are saved.

I’ve found lenders that harp on all the great secondary terms (i.e. other than the interest rate) of their mortgages often do so because, put eloquently, their rate sucks.

If using a broker is one end of the mortgage sourcing spectrum, the other goes something like this: the proud homeowner to-be heads to the large institution she’s been banking at since age 9 (ever since her parents took her to open her very first chequing account with Grandma’s birthday cheque).

The homeowner is so ecstatic that someone is willing to lend her a few hundred thousand so no negotiation on interest rate occurs (not to mention shopping around). As a result, she pays an inflated rate needlessly.

And to add insult to injury, every five years the mortgage is blindly renewed at the same institution for whatever premium rate is currently being offered – how is that for 20 + years of loyalty, eh?

Shaving half a percentage point over the term of a 25 year mortgage will save thousands of dollars even on small mortgages. I use half a point as anecdotally that seems to be the spread between the large lenders you bank with and the smaller lenders you’ve never heard of that offer better rates (that are totally legitimate and viable options).

So the keeners out there are asking themselves “how do I know a broker will actually get me the lowest rate possible?”

Well…what you’re going to do is check out the Canadian website ratehub.ca. They post the absolute lowest rates by region coast-to-coast. Let you broker know you insist on their posted rate or lower. I actually connected with my broker through ratehub. The “get this rate” button puts you in contact with a third party broker. Somewhat surprisingly, I’ve found the level of service and online account options with my current no-name lender superior to my larger former lender.

Minimize bank account feesbank fees

Are you paying $10, $20 or more in monthly account fees? You’re probably doing so needlessly as the age of “no fees” personal banking has more than arrived. Saving even $10 or $20 a month will add up over the years. Particularly for couples with two or more accounts.

ING Direct (now Tangerine) is generally credited with making this business model work in Canada. At the risk of showering praise on a specific company, my wife and I bank with Tangerine and pay nothing in monthly fees…and don’t even get my started on the free email money transfers. Not only that, the service and account options seem to stack up against the larger banks whom typically charge a monthly fee. I’m sure there are other viable no-fee banks out there – those with knowledge please leave a comment.

A word of caution as many of the no-fee banks operate predominately online (i.e. no branch to walk into for a face-to-face). You’ll need to be comfortable with online and mobile banking to make this work. In the case of Tangerine, they are owned by Scotia so I’m able to use Scotia ATMs.

I know similar arrangements exist with other no fee banks to keep things convenient for customers. Nonetheless, be sure to understand all of what you’re giving up before leaving your big bank (in a lot of cases it will be nothing).

Now if only I could figure out a way to save the $6 ATM charge for that unnecessary late night shot of Jager I’d really be savings the big bucks! Again, helpful comments are welcomed.

Maximize interest on short-term savingsshort term savings  

Let’s say you’re saving up for a car or a house. As this will typically occur over a few years or less, you don’t want to put the savings in the stock market. The smart choice is to park your savings in a safe interest bearing investment. Your two likely options are a high interest savings account (“high” is an industry misnomer we’ll ignore) and a GIC. Generally I prefer the savings account as getting at your cash quickly and without penalty is usually easier than with a GIC.

This is another story of the little guy normally being a better option than the big household names. Other than short-term (3-6 months) promotional offers, don’t expect to earn more than 0.5% from a high interest savings account at a big bank. So what’s the alternative? Well, I’m currently saving for a home and earning 2% at a small no-name bank (and not too long ago it was 3%). The online account functions well and transferring money in and out is free and simple.

A Google search along the lines of “best rate on high interest savings account” will bring up a few websites that track rates across all the big and small players.

Avoid paying tax on the interest earned by setting up the high interest savings account as a TFSA.

One thing to insist on before opening an account: ensure the bank has deposits insured by the CDIC. The CDIC is a federal organization that insures bank deposits up to $100,000 should a bank “go under.” This should alleviate any fears stemming from putting you money in a bank you’ve never heard of.

Final Word

Smart consumers should be completely agnostic when it comes to selecting their financial institutions.

Instead their focus should be on getting the best products and services at the lowest possible cost. This approach requires only a marginal time commitment and is guaranteed to save thousands of dollars. In the business world we call this a serious return on investment!

It would be great to hear about other smart choices when it comes to financial products and services…Let me know below on some quick wins you’ve experienced on interest rates or banking fees.

The author, Pat Kenney, is a Certified Professional Accountant. He has worked in public practice at a local boutique CPA firm in Mississauga for 9 years. He currently holds a senior management position.

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About Jonny

Jonny

20 comments

  1. What a awealth of information you have provided here. It covers so much and you offer details for each of the topics you have presented. Too often people ellude to something but never really give you the details of it.

    This is a post well written. Thank you for the information.

    Wondering, what happens when you haven’t come across this article until yuor finances are truely messed up and you are having trouble paying bills because you have never taken the opportunity to put a savings in place?

    • Hi Debra, thank you for the kind words – keep it up and I just may have to quit my day job.

      If you are truly having trouble paying your day-to-day bills, I would check out Jon’s post of earlier this week: Debt Free Life Part II. He lays out structured options to assist people in getting back on the right track. If you’re looking for sound strategies to boost savings, I liked Bruce Sellery’s book – Moolala (taken out for free at a public library of course).

      The only thing I’d add to Jon’s comments below regarding a mortgage is that there are instances when it makes sense to pay a penalty and break your mortgage before renewal. This is most often the case when the existing rate is really high and its early in the mortgage term. Someone with finance acumen (perhaps yourself) would need to “run the numbers” to see if the savings from a lower rate at another institution is higher than the penalty. Be wary of any such calculations put together by the prospective new lender given there motivations.

  2. Jonny

    Hi Debra – A lot of people jump into these decisions without much information and as Pat eluded to in this post, the often just go with their large bank (or their parents bank).
    Often the wheels are already in motion, but luckily there are usually opportunities to find better rates once the mortgage term (usually five years) is up.
    Thanks for reading!

  3. “Smart consumers should be completely agnostic when it comes to selecting their financial institutions.
    Instead their focus should be on getting the best products and services at the lowest possible cost.” Absolutely. Fees are one of the biggest inhibitors to attaining wealth.
    SavvyJames recently posted…Learn About the EconomyMy Profile

  4. Great post! Thank you for sharing. I’d like to hear more from you.

  5. Planning your financial is very important. It will help you make sensible decisions about money that can help you achieve your goals in life. Thank you for sharing this tips.

  6. I like your tip to try to minimize bank account fees. Like you said, there are plenty of banks nowadays that offer banking without fees, so switching to a smaller bank if needed can help reduce costs overtime. However, like you implied, smaller banks have fewer available ATMs, so you should decide whether reducing bank fees is worth an occasional ATM charge. Thanks for the financial planning tips!

  7. Saving just a little at a time can indeed get you a really good amount of cash down the road. Even if you just save ten dollars a day, that is three, almost four thousand dollars a year! Do that for a few years and you have a down payment on a house.

  8. Thanks for the great financial planning tips. I had never thought about the benefits of using a high interest savings account for short-term savings before. You are right though, it makes sense to use that when saving for a car or a home. My wife and I are saving for a car right now, so I will talk about this with her.

  9. In my younger years, I probably spent more on a house than I should have, but now I live in a home that’s just right for me. I completely agree with a monthly payment that you can easily afford in case things don’t improve or actually get worse. That way if you have enough money, and your other financial needs are taken care of, you can always make extra principal payments on your mortgage.

  10. Hi,

    I really like your post!! It really helped me a lot!!

    Make a list of all your anticipated expenses. These include hospital bills, doctor fees, maternity clothes, birthing classes. Then, calculate the total. You now have to rework the budget you and your partner are currently on to include this cost. Expect that there will be expenses that have to be added in the future but don’t fret; you will be able to figure them out as you go.
    Budgeting will give you a clear picture about how much you’ll need to spend on a monthly basis. It also paves the way for more savings as you’ll also be able to identify the needless expenses.
    Lyle L. Ketner recently posted…July 2016 Video Blog #5My Profile

  11. I like your tips for secure your mortgage using a broker. It will help you for making sensible decisions about money that can help in achieving goals of your life. Saving just a little time at a time can indeed get you a really good amount of cash down. Thank you for the financial planning tips!

  12. Hi,

    I liked the tips shared by you here. Saving is the essential part of raising your bank balance unless you are earning a good salary. The tip: Maximize interest on short-term savings is the best. Very few people share such information online.

    Thanks for sharing the tips. :)

  13. Thanks for these beautiful tips. It will help to save our money and with the help of this saving we will achieve our life goals. Thanks again for sharing these tips.

  14. Hi,
    I think this is worth reading post And thanks for sharing your thoughts.
    Maybe you are a couple approaching the age of retirement, you will be able to build plans on where you’ll pass your leisure years. Family financial planning with long-term and short-term goals will aid you to finalize your fiscal plans. So set future financial goals is very important.
    Hope this makes sense and helps you.
    Ruby J. Cummings recently posted…How to Ensure You Won’t Run Out of Money in RetirementMy Profile

  15. Awesome. I love the tips and will sure use this on my business. Hope it works good. Thanks.

  16. wealth management of family is very important to enrich your life. how to invest and where to invest is big question that to be solved by getting good financial advice by people like you.

  17. When people think about retirement plans they get the idea of fun and relaxing. But it also involves financial management.

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