Prepared for an Emergency?

This is an article I have updated a few times over the past few years.  I thought that with the hurricanes shutting down much of the eastern coast this week that it was worth posting again.

Are you prepared for an emergency?  There are some areas of the world where they have become accustomed to evacuating their homes at a moments notice.  Hurricanes, tornadoes, and forest fires are just some of the natural disasters that affect people’s lives annually.  As a result, people who live in areas plagued by these events have 72 hour kits that allow them to leave home quickly, and be prepared to live away from home for at least 3 days.  Many have suitcases packed to help them live for up to a week without access to their home.

The basics around a 72 hour emergency kit are:
1. Know the risks
2. Make a plan
3. Get a Kit

Avoid Skimming Crooks

Over 84% of Canadian adults have at least 1 debit card and about 74% have at least 1 credit card. Despite the convenience and popularity of these cards, there is a risk of fraud. It is important to protect your cards, just as you would cash or cheques. Some of the risks associated with debit/credit card fraud are the same as carrying around your account numbers, so protect your card information in your wallet, online and over the phone.

There is, however, another threat to card users that is unique - it's called "skimming." Skimming occurs when thieves set up a device that captures the magnetic stripe and keypad information from point of sales terminals.   It is important to note that debit card fraud has been decreasing in Canada because of the conversion away from magnetic striped to chip cards, but skimming with magnetic stripe cards still occurs.  By doing the following you will reduce the risk of having your information stolen.

What New Mortgage Rules Mean

CMHC Mortgage Insurance Rules Changes

Effective Monday, July 9, 2012, the Canadian Mortgage and Housing Corporation (CMHC) only provides mortgage insurance for loans with an amortization of 25 years or less when the borrowed amount is 80% or more of the property value.  Canadian law requires insurance on mortgages that exceed 80% of a property's value.

Amortization - This lowers the amortization limit from the 30 year maximum set out in 2011.  It was as high as a 40 year amortization in 2006, but the amortization period has been lowered by the federal government over the past several years in an effort to encourage consumers to pay off debts more quickly.

Debt Ratios - The government has also set the maximum gross debt service (GDS) ratio at 35% and the maximum total debt service (TDS)  ratio at 42% in order to qualify for CMHC insurance if you have a beacon score of less 680.  The ratios are at a GDS of 39% and TDS of 44% if the beacon score is over 680.  We calculate the GDS by adding up mortgage payments, property taxes and heat costs, and dividing by the borrower's income. TDS adds in other debt payments such as lines of credit and credit cards to get total debt payments.

Which Mortgage Is Best?

There are a variety of mortgages, and each one has its advantages and disadvantages.

A fixed rate, closed mortgage - about 75% of mortgages across Canada are fixed rate, closed mortgages.  Typically someone locks in their rate and payment for 5 years.  This lets consumers know what their payment will be every month and how much will be left on the mortgage at the end of the 5 year term.

A variable, closed mortgage - this mortgage has a rate that floats with a financial institution's prime lending rate and is often for a 5 year term.  Usually the payment is set at the current rate and then the actual interest rate goes up and down throughout the mortgage.  The advantages are that this rate is usually lower than a fixed rate and that if the rate decreases your payment is paying more towards the mortgage principal.  However, the disadvantage is that if the rate goes up you will pay more in interest and it is possible that very little of the principal is paid down by the end of the term.

Fraud Prevention Month

March is Fraud Prevention month.

I have written several articles for this blog about fraud over the past few years.  My goal with each article is to help people recognize fraud and to help them warn others about it as well. 

Fraud covers a lot of categories; from identity theft to lying about damage to a home that is for sale, from stealing a credit card to billing someone for work that was never done.

Two of the most famous types of fraud are the Nigerian Prince Letter Scam and the International Lottery Scam.

The Nigerian Prince Letter Scam is quite old and is so-named because the letters originally said they were from a Nigerian Prince who is a prisoner in his country after a violent government turn over.  The Prince has money in another country but cannot access it.  If you would be willing to send money to a contact that will bribe the guards keeping the Prince under house arrest, he could sneak out of the country and then reward you with millions of dollars for the help.  The reality is if you send money they will keep asking for more as long as you are willing to send it.

Financial Security in Retirement

Term Deposit and Savings Account rates have dropped to 50 year historic lows.  The Federal government is talking about adjustments to various pension programs.  How do you ensure that you have a financially secure retirement with all of this uncertainty?

Establish your financial foundation - Many people have an idea of when they would like to retire but have little idea how much money they have already saved up.  Between work pension plans, mutual funds, term deposits, RRSPs and TFSAs, people can have money spread out among many investment options.  Before you decide when to retire you should know how much you have available to you today as a starting point.

Determine how much you need in retirement - Some people plan to do a lot of travelling in retirement and others plan to stay close to home and family.  Some will still have debt going into retirement and others will have been out of debt for years.  Your retirement can sustain any of these choices if you have planned and prepared for it.   To begin planning start by figuring out how much you will really need to live on during retirement.  Take into account that your health costs may increase over the years. Once you know how much you will need to live on each month you can work those numbers back to determine how much you will need to have saved upon retiring.  A financial planner can help your numbers be realistic and they can help determine any potential OAS and CPP cash flow into your monthly budget.

CPP, EI and Tax Rates for 2012

It is a new year and the new tax rates are in.  There were not a lot of changes from last year.  Most money ranges and limits moved with the government's inflation index.

Federal Income Tax Rates	2012	2011
Basic Personal Exemption	$          10,822	$          10,527
15% on the first:	$          42,707	$          41,544
22% on the next up to:	$          85,414	$          83,088
26% on the next up to:	$        132,406	$        128,800
29% on the income over:	$        132,406	$        128,800
Alberta Income Tax Rates	2012	2011
Basic Personal Exemption	$          17,282	$          16,977
Tax rate	10%	10%
CPP	2012	2011
Maximum Pensionable Earnings	$          50,100	$          48,300
Basic Exemption	$            3,500	$            3,500
Rate	4.95%	4.95%
Employee & Employer Max.	$            2,307	$            2,218
Self Employed Max.	$            4,613	$            4,435
EI	2012	2011
Maximum Insurable Earnings	$          45,900	$          44,200
Employee Rate	1.83%	1.78%
Employee Max.	$               840	$               787
Employer Rate	2.56%	2.49%
Employer Max.	$            1,176	$            1,101

2011 RRSP contribution deadline is February 29, 2012. The contribution limit is $22,450, although if you have not contributed to the maximum in past years you have additional contribution room. You can contribute to RRSPs until you turn 71 when RRSPs must be converted into something else like a RRIF (Registered Retirement Income Fund).  The limit for 2012 is $22,970.

2012 TFSA contribution room is $5,000. If you haven't contributed in past years you can contribution up to $20,000.