Hub Blogs

Hub Blogs contains fresh contributions written by Financial Independence Hub staff or contributors that have not appeared elsewhere first, or have been modified or customized for the Hub by the original blogger. In contrast, Top Blogs shows links to the best external financial blogs around the world.

Keeping the Family Cottage in the family

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By John Natale

Special to the Financial Independence Hub

Summers in Canada are defined by the great outdoors and one of our favourite summer pastimes is to head up to the cottage (or cabin) to lounge on chairs, enjoy some cold beverages and toast marshmallows on the campfire for a relaxing time with friends and family.

For those who own a cottage, transferring its ownership to children or grandchildren can sometimes get tricky, with many owners failing to realize the potential tax bomb that awaits. Below is one strategy that may help ensure your property remains a space that will continue to generate positive, loving memories instead of a source of worries and sleepless nights for you and your family.

 An in-depth look at the issues

For many individuals, it is important that the cottage stays in the family so the next generations can continue to enjoy it for years to come. The good news is that when you pass away, assets can be transferred to your spouse tax-free.

However, a transfer to your children, on the other hand, may trigger a capital gains tax that must be paid before the children (or their heirs) can enjoy the property. Canadian households can only use the principal residence exemption (PRE) to protect one property from tax on capital gains. If the PRE is used for the home, then the transfer of the cottage to the children will be taxable.

Over the years, many cottages and other vacation properties have increased significantly in value and are now worth much more that their purchase price. It is important to note that 50% of this increase in value is subject to taxation. Many people are not aware that this could trigger a significant capital gains tax liability for your estate and, if it doesn’t have enough assets to pay for it, the estate may be forced to sell the cottage to pay the tax. Ultimately, your family can risk losing the property altogether.

Selling the cottage now vs. later

By selling the cottage to your children today instead of transferring it when you pass away, you can cap your tax liability and pass the responsibility for any future capital gains to your children. Because the cottage is being transferred now – and will not be included as part of your estate – the family can also avoid the time and costs associated with the settling of an estate while avoiding potential claims against your estate from creditors or other interested parties. Continue Reading…

How many credit cards should you have?

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Photo by Blake Wisz on Unsplash

By Barry Choi

Special to the Financial Independence Hub

If you’ve recently walked into the mall, your bank or even the grocery store, there’s a good chance you’ve been asked if you want to sign up for a new credit card. Your first thought might be to say no since you’ve already got one, but with so many different credit cards that come with a variety of offers, it can be tempting to apply on the spot.

You may also be wondering “how many credit cards should I have” in the first place or “does it hurt me to have multiple credit cards?” There’s no straightforward answer so let’s take a look at when it does and doesn’t make sense to get another credit card.

When it makes sense: Pros

Getting another credit card can actually improve your credit score since it’ll increase your credit utilization ratio, which is one of the major factors that determines your credit score. Your credit utilization ratio is based on the amount of credit you’re using relative to the amount of credit you have available to you.

Let’s say you have a single credit card with a limit of $1,000 and you typically charge about $600 on it; that would give you a utilization ratio of 60%. If you applied for a new credit card and you were given a limit of $1,000, your overall credit utilization ratio would drop down to 30% since you now have access to a total of $2,000 in credit. As a general rule of thumb, your credit utilization ratio should be no more than 30%.

You may also want to maximize rewards by using a combination of cards for different spending categories or scenarios. For example, it would be to your benefit to use one of the best Mastercards in Canada if it earns you more points on grocery or gas spending compared to a Visa card. Alternatively, if you currently only have an American Express credit card, you could also apply for a credit card with no annual fee (Visa or Mastercard) and use it only where your Amex isn’t accepted. Since the card has no fee, you won’t need to worry about paying an annual fee on two different cards.

Sometimes it also makes sense to apply for a new credit card for a specific reason. Let’s say you like to travel, a card that comes with no foreign exchange fees or has airport lounge access would be pretty handy to have. You could also offset the cost of your trip by applying for one of the best Aeroplan credit cards, since the welcome bonus could be enough points to pay for your flight.

The above are great reasons why you should have more than one credit card, but that only applies if you’re responsible with your spending. In other words, if you’re always paying your bills in full and on time every month, then there’s nothing wrong with getting another credit card.

When it doesn’t make sense: Cons

The tricky thing about getting another credit card is that you could be tempted to overspend since you’ll have access to more credit. Studies show that people spend more when using credit cards instead of cash, so having access to a higher credit limit or multiple credit cards could potentially result in more spending.

More credit cards also means having to stay on top of more bills.
Continue Reading…

The rising cost of owning pets

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By Ted McCarthy

Special to the Financial Independence Hub

People are spending more on their pets than ever. No matter the pet type (hamster, dog, snake, etc.), people are willing to pay a pretty penny on their pets. The APPA reported that US$72 billion was spent on pets in 2018.

People are spending so much on their pets, LendEDU wondered if people were willing to go into debt for their pets, or spend more on their pets’ wellbeing than their own?

Pet insurance is becoming more popular with pet owners, with 2.1 million pets insured in 2017.

LendEDU surveyed 1,000 adult American pet owners to see how much they spend on their pets, with or without pet insurance.

Spending breakdown on pets

The survey showed the breakdown of pets:

  • 24% of expenses go to healthcare/vet costs
  • 55% of expenses go to food
  • 13% of expenses go to toys & accessories
  • 8% of expenses go other

These statistics are about in line with the APPA’s statistics, as over US$30 billion out of the US$72 billion spent on pets in 2018 was food alone.

The pet business is massive in America and will continually grow according to the APPA. As consumers treat their pets better and more as part of the family than before, spending per pet will increase, and people are willing to spend that money.

Pet types

Out of the six pet types surveyed, dog owners spent the most acquiring their pet at an average of US$327.13, and fish owners spent the least at an average of $53.58.

Monthly expenses stack up to about the same. Dog owners spend an average of US$157.39 per month, bird owners, an average of $127.38, and cat owners an average if $95.11. Continue Reading…

How to save money through home warranties

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It’s a line often touted by lenders. “Mortgages are cheaper than rent,” they say. On the surface, it’s usually true. In some urban cores, many properties are grossly overpriced. However, like most sales pitches, there’s something they aren’t telling you.

Home ownership carries with it substantial financial responsibilities. In addition to your monthly mortgage payments, you’ll owe property taxes to your municipality. Do you live in a condominium? If so, you’ll also owe building fees, which pay for the upkeep of shared systems, common areas, and landscaping.

And then there is household maintenance. Every year, Americans spend an average of US$2,000 per year just to keep their homes intact. And that’s just an average: the average American household is now 37 years old. As a result, many spend more than US$2K a year on their house.

These expenses would only be mildly annoying if the economy were genuinely thriving. However, despite the stock market reaching record highs, more Americans than ever are struggling financially. 40% of us can’t cover a sudden $400 expense, and a whopping 78% live paycheck-to-paycheck.

More than ever, we’re looking for ways to rein in costs. Misguidedly, some opt to forego maintenance. This approach always backfires, though. A famous maxim says it best: pay me now or pay me (a lot more) later.

Instead, we recommend you investigate home warranties. Depending on your circumstances, they could save hundreds or even THOUSANDS per year. In this blog post, we’ll explain what home warranties are and if it is the right solution for you and your family.

What are home warranties, and how do they work?

Home warranties have been around since the 1970s. Until recently, though, most Americans had no idea what they were. Rodney Martin, CEO of America’s Preferred Home Warranty, says only 3-4% of households had them as of 2015.

There’s a simple reason why home warranties haven’t caught on. In earlier generations, the age of the average home was younger. As a result, maintenance costs were lower. Fast forward to 2018: that year, the average house in America was pushing 40 years old.

Maintenance costs are steadily rising. People are looking for answers. Accordingly, interest in home warranties is increasing.

So, what exactly are home warranties? In a nutshell, they are contracts that cover the repair/replacement cost of appliances and systems. All machines eventually break. Because it’s an expected outcome, though, homeowner’s insurance doesn’t cover them. Home warranties fill in this gaping hole, providing their holders with badly-needed peace of mind.

Let’s say your dishwasher grinds to a halt. Stepping over a river of leaking water, you grab your phone and call your home warranty provider. After confirming they cover your issue, they dispatch a repair technician. Apart from a nominal service fee, you pay nothing more out-of-pocket.

How can a home warranty save me money?

You might still be skeptical. After all, getting a home warranty means investing significant capital in something you’re unfamiliar with. Think of it like this: right now, the average American spends US$2,000 per year maintaining their home. Some years it’s less, but in others, it’s more. Continue Reading…

Cascades retirement planning software: a case study

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By Ian Moyer

(Sponsor Content)

The task of retirement income planning can be overwhelming for Canadians as they get closer to leaving the workforce. Making the right decisions can be difficult with all the possible sources of income they might have, including Old Age Security (OAS) and Canada Pension Plan (CPP), and of course, Canada’s complex tax codes don’t make it any easier. People need help.

Cascades is a Canadian retirement income calculator that takes the difficulty out of retirement income planning. In many cases it saves retirees hundreds of thousands of dollars in income tax, while showing a year-over-year road map guiding them through retirement. Who wouldn’t want to save money? But in some cases, like the one highlighted below, it’s not about extra tax savings: it’s about having enough money to last your entire retirement.

Bob and Ann’s story is based on a real-life case we came across last week, and it’s a great example of why proper retirement income planning is so important.

Meet retiree Bob, 65, and Ann, 56, still working

Bob is currently 65 and has been retired for 2 years. He was self-employed as a cabinet maker and still has his shop at home where he works part time bringing in $12,000 annually. Because he was self- employed, Bob has no defined benefit or defined contribution pensions. He currently holds about $250,000 in his RRSP, $15,500 in his TFSA, and $50,000 in a non-registered account. Bob receives close to max CPP at $12,600 and $7,248 from OAS.

Ann is originally from the United States and met Bob while he was vacationing in Florida. She is currently 56 and plans on retiring at 63 from her job as a logistics coordinator for an auto parts manufacturer. Ann brings in $57,500 annually and has a defined contribution pension currently worth about $140,000. Ann has no other savings apart from her defined contribution pension, but will receive $4,800 in CPP that she plans to start receiving as soon as she retires at 63. Because Ann hasn’t been in Canada for 40 years since the age of 18, she will only receive $3,500 annually from OAS.

Continue Reading…