What is reasonable when it comes to bank fees?


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What is reasonable when it comes to bank fees?

Tagged: Budgets Financial Planning

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Personal bank fees can be costly depending on what services are used. Fees are charged for services such as monthly withdrawals/cheques, on-line transactions, ATM withdrawals, credit cards, and overdraft protection.

Most consumers don’t review the fees they are paying, which could result in paying more than necessary.  Take a look at what bank services you are using and the associated fees and compare these to other banks.  Some banks have a no-fee account that may meet your needs, while others have a package that covers all fees.  Be an informed consumer and check out the ideas here on how to keep bank fees to a minimum.

ATM fees run upwards of $1.50 per transaction when using your own bank and as high as $5.00 for another bank’s ATM.  By planning and budgeting your cash withdrawals and spending, you can keep these fees to a minimum.  Try using cash back at a retail store as this allows you to get cash without having to pay a withdrawal fee. You can also use your credit card for purchases; however, it’s important to have the cash available to pay the credit card bill off at the end of the month. 

Paying your bills online or via telephone banking is usually free.  But if you do have to write a cheque, then look for an account that allows a limited number each month with no fees.

Some banks may charge lower fees, or may not charge fees at all if you maintain a certain balance in your account.  If you don’t need the funds on an ongoing basis, then this can be an economical way to reduce bank fees.  It is important to understand the terms and conditions to ensure that there aren’t any surprise fees if you go below the minimum balance.

If you use a lot of bank services and frequently travel, you may want to look into bundled services that allow you to manage your fees and ensure the services and fees meet your needs and budget.

Some accounts may have special services such as bank drafts, money orders, and certified cheques, which are not used very often and can be expensive on a transaction by transaction basis.  If you need to use these services, review the fees ahead of time so that you can manage the costs.

The Financial Consumer Agency of Canada has an Account Selector Tool that allows you to compare features for different bank accounts, monthly fees, transaction fees and services.  It helps you determine what services you need and what financial institutions provide the lowest fees.  Got to http://www.fcac-acfc.gc.ca/Eng/resources/toolsCalculators/Pages/BankingT-OutilsIn.aspx.

Many consumers stay with the same bank because of the amount of work to change banks. If you find fees lower at another bank, consider discussing this with your bank to see if they will match the fees. If you do decide to change banks, then make sure you inform any organization that automatically deposits or withdraws funds from your account to ensure that all your bills are paid on a timely basis.

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I’ve been married for over 8 years, but my partner and I still keep our finances separate. I know it’s a personal decision, but are there any benefits to combining our finances?

Tagged: Budgets Financial Planning

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To be clear, this discussion focuses on finances and does not address tax issues. There are many potential benefits of combining finances:

Trust: Learning to trust each other with money is a great start to earning trust in other areas.  If either partner is unwilling to combine finances, it is an indicator of hesitancy to approach decisions with a ‘team’ mindset.  If keeping separate finances means there is no communication, there is a much bigger chance of failure in either your personal or financial life.  If you reason to keep separate finances is to have a financial backup plan in case things don’t work out, what you are saying to each other is “I mostly trust you, but not with my money.”

Budgeting: Combined finances increases visibility of spending habits, which can lead to better overall decisions for the household.   If you have to be accountable to one another, you may actually have to change some habits to benefit the team.  Unified budgeting and goal setting  (i.e. to eliminate debt ) can be more effective and help you get to your goal lines quicker.

Ease of access: Paying bills and moving money is just simpler when either spouse can easily access the money.  If you have several separate accounts, it actually complicates the process because there are simply more moving parts.

Discounts and bonuses: If one of your goals as a couple is to reduce bank changes and fees, then combining some banking and investment accounts gets you to the minimum balances for preferred rates that much faster.  You could be eligible for premium services that institutions offer only to clients with larger account balances.

Credit score: While credit rating is always single, never joint, scores are based on the history of account payments including paying bills on time.  Building a strong credit score of your own is an important component of your financial stability. Combining your loan accounts and credit cards and making timely payments will improve credit scores for both of you.  In the event of becoming widowed, divorced or starting a business, borrowing money is only possible with your own strong credit score.

Many couples point to financial conflict as the reason leading to divorce.  I would challenge that belief as I have found that financial conflict is usually a symptom of other underlying trust and communication problems that exist in the relationship. More important than the mechanics of keeping joint accounts, separate accounts or a combination of the two is healthy transparency and decision making together as a couple. The best financial health will inevitably involve tracking how you are spending money (no secrets), setting your financial priorities together (reducing debt as a family) and discussing finances together on a regular basis. Combining finances does not mean exclusively joint accounts but rather about combining your decision making and harnessing the power of ‘team’ rather than individuality. - SM

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As a new registrant, I’m worried about how to budget now that I’m self-employed. How much of my earnings should I be saving to pay my taxes? How can I properly calculate my income versus my expenses?

Tagged: Budgets Financial Planning Saving Taxes

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Congratulations on becoming a new registrant, and on joining the self-employment world.  No one likes the dreaded ‘B’ word – budget - but now that you are self-employed, your ability to budget will be very helpful in preventing surprises when you file your tax return.

In order to determine how much you should be saving for your taxes, you do have to prepare some type of budget to determine how much money you plan to make, and therefore how much tax you need to pay.

Taxes are determined based on your net income for the calendar year – January 1st to December 31st.

First, you must estimate how many courses of care, and therefore how much income you will earn in the calendar year.  This will represent your total professional revenue.  The next step is to determine the expenses you expect to incur during the course of the same period.  There are always expenses that will be fixed (for example, your membership dues, professional fees, accounting fees, professional development and training courses will generally always be around the same amount no matter how many courses of care you bill).  Then there will be expenses that will vary based on how busy you are – car expenses, meals and entertainment, office supplies, and other supplies, which may be more discretionary.

Once you have calculated your revenues, less expenses, consider if you have any other sources of income – interest, dividends or other employment income. Are you making additional RRSP contributions that will reduce your income? Calculate all the income, less all deductions and now you have your taxable income.

Canada has multiple tax brackets, which have increasing amounts of tax the more money you earn.  This is called marginal tax.  The more you earn, the more tax you pay.  In 2014, the tax brackets in Ontario are as follows (the information below has been updated to reflect 2015 tax rates, combined Ontario and federal tax rates as noted here:

Tax Bracket Rate
Up to $40,922 20.05%
$40,923 to $44,701 24.15%
$44,702 to $72,064 31.15%
$72,065 to $81,847 32.98%
$81,848 to $84,902 35.39%
$84,903 to $89,401 39.41%
$89,402 to $138,586 43.41%
$138,587 to $150,000 46.41%
$150,001 to $220,000 47.97%
$220,001 and Over 49.53%

So based on the above, you should save accordingly.

The biggest surprise when someone first becomes self-employed, is the requirement to contribute both the employer and employee portion of Canada Pension Plan as part of your personal tax filing.

The maximum CPP contribution amount for a self-employed person in 2015 is $4,959.90.  If you earn less, you pay less. If you earn more, this is the maximum you will pay.  Although you get a non-refundable tax credit for half of it, it is still an amount that you must pay – so it should be part of your budget as well (updated to reflect 2015 amounts).

The second year of self-employment does get easier, in that CRA will begin to request installment payments. These are quarterly payments wherein they ask you to pre-pay the taxes you owe. This way, you don’t have to wait until the each April to pay. CRA will request payments on March 15th, June 15th, September 15th and December 15th. However, if your income fluctuates, the ability to budget for how much you owe will still serve you well so you don’t have to pre-pay too much.  A warning to those who choose not to pay their taxes on a timely basis – the penalties and interest can be quite costly.

Remember, it is important to obtain tax advice whenever you deal with the CRA. Be sure to contact your tax adviser for assistance if you have any questions about your tax installment requirements. - RMI

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Is it better in the long run to buy or lease a vehicle?  

Tagged: Budgets Financial Planning

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‘Better’ is dependent upon your lifestyle and habits.  In the long run, buying a car and driving it as long as possible is usually the cheapest option, but that may not suit you and your family.  There are some factors to consider in your decision;

  1. Mileage limits

    Leases include clauses with expensive mileage maximums.  If you drive less than 24,000 km per year, leasing could work for you.  If you go over the mileage maximum in your agreement, it tends to be very costly at the end of the lease term.  
  2. Wear and tear

    There are high costs at the end of leases if there is excessive wear and tear on the vehicle.  If you are lax about maintenance, then damage in dents, paint damage, missing equipment, cracked glass, holes, tears or burns can be very costly at the end of a lease term.
  3. Tax write off

    Leasing is a form of financing.  When comparing vehicle deals, be sure to compare leasing rates versus borrowing rates to obtain a loan to buy a vehicle.  Each deal should be reviewed to compare predicted costs over time.  If the vehicle is used for business purposes, then the lease payment or a portion of it can be written off along with the Harmonized Sales Tax (HST). Note that the interest on the equivalent loan along with the capital cost allowance (tax version of depreciation) is usually an equivalent tax write off over time and the full HST is refunded when the purchase is made.  The issue is essentially about cash flow, not tax deductibility.
  4. Cash flow

    Generally, lease payments are lower than loan payments because the lease payment usually covers only the depreciation of the vehicle to the end of the lease along with the finance charge but reading the fine print on any legal agreement is important.  Sales taxes are only on the monthly payments.
  5. Flexibility

    It’s costly to terminate a lease early if your driving needs change.  If you are not sure how long you need a vehicle, then for the immediate term, buying a cheaper used vehicle is probably a better option.  Arrangements for lease payments can be very flexible with optional down payments or a longer lease period negotiated.

Many non-financial factors may impact your decision to lease or buy such as how important it is to you to have a new vehicle every 2-3 years,  new vehicle reliability and  whether you dislike the hassle of negotiating a trade-in.  

Leasing looks great in the short run, however, from a purely economic decision, the “rule of thumb” is that it’s better in the long run to buy than to lease.  -SM

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