One Distinctive Difference Between ETFs and Mutual Funds

There are currently 7 providers in Canada offering ETFs and more on the way. Since its journey began on the Toronto Stock Exchange in 1990 for the first time, ETFs have become a global phenomenon and are trading all major global exchanges around the world. On one side ETF markets are exploding around the globe, but on the other side mutual fund markets are shrinking.

Savvy investors are switching from mutual funds to ETFs due to their much lower cost and the flexibility of trading on a stock exchange just like a stock. If there is a major distinctive difference you want to point out between mutual funds and ETfs – it would be that mutual funds are sold, not bought, while ETFs are bought, not sold.

Most investors hold mutual funds because they were sold to them by their advisors. Mutual funds pay upfront and ongoing commissions to advisors when they sell these to their clients. However, as ETFs trade on exchanges just like stocks, advisors don’t get any compensation for recommending them to their clients. So there is no point selling something that does not make money, although the costs to hold ETFs are ridiculously lower than mutual funds.

The main reason investors refrain from buying ETFs over mutual funds is because a trading or brokerage account is required to buy ETFs, but advisors can sell mutual funds by opening a simple investment account at the financial institution they are associated with – and no brokerage or trading account is required.

Opening a trading account and buying ETFs may require more work and research, but the costs you will be saving over a lifetime is worth the hassle. All the information you need is available online for free to learn more on ETFs and to become a better investor. Visit the A Dawn Journal ETF Section to learn more about ETFs and I discussed how to open a trading account in my own book Invest Now in simple words.

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Canada VOIP Home Phone Plans

There are so many VOIP home phone services available these days that it can be confusing and hard to decide on one. Today, I will touch base on three home phone services that you can consider and decide upon based on your needs.

Fongo – Fongo offers unlimited minutes and 11 premium features for $4.95 per month. You need to buy a home phone adaptor for $59 to get started with your Fongo home phone services. Visit Fongo website for more information.

Ooma - For $3.98 per month, Ooma Basic service gives you 5000 minutes and 21 features. For $9.99 per month, Ooma premium services give 44 features. Your initial device cost is approximately $150. Visit Ooma website to find out more.

Nettalk - For $3.30 per month, Nettalk basic calling plan gives you 3000 minutes many features. Nettalk’s advanced plans are simple 2 separate North America and International add-ons. There are 3 different devices you can choose from costing $44.95 to $74.95.

Now, the obvious question you may ask, which offers the best value for your money? You need to do thorough research before picking up a service that meets your needs. A point worth mentioning is that while I was looking up information online, I noticed that Nettalk customers complained the most compared to the other two mentioned here. But everyone’s experience is unique and you may not face the same issues as someone else.

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Beware of No-Name ATMs

Technology is improving security features on your ATM cards and bank machines. And con artists or scammers are upgrading their skills to keep up with the technology. Using some simple tips and common sense can go a long way to save your money from the con artists. Here are a few tips today:

- Be extremely careful using no-name ATM machines. No-name machines are owned by private businesses or individuals, not any financial institutions. Always use precautions when using these stand-alone machines. Not only you are paying additional ATM fees, but also you are taking additional risks of getting scammed using these machines.

- Scammers use high tech devices such as hidden cameras, scanning devices, and card readers to copy your debit or credit card information and then they make clone cards to empty out your bank or credit card accounts. If you notice or feel something unusual such as slot is too tight for your card, visible attachment to the machine, signs sticking on the wall asking you to use one particular machine, someone standing nearby the machine and pretending to read a newspaper, or anything that does not make sense, leave that spot right away and go to different location.

- Cover your keypad so any person behind you or any video camera cannot see your password input on keypad.

- Your card should enter through the slot smoothly. If you struggle to enter your card or notice anything unusual on the slot, do not use that ATM. If the ATM eats your card, call your bank immediately.

- Always be vigilant, take precautions, and use your common sense. For example, if you see an ATM that is not well-lit, or an ATM in a bad neighbourhood, or anything suspicious, do not use that ATM.

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Retirement Saving Now

If you are new to the workforce or in the workforce for a while and still haven’t thought of retirement, follow these simple tips to start your retirement planning journey.

The Time is Now – It is never too late or too early to start your retirement saving journey. Start now if you haven’t started already. You need to get rid of your all excuses to start saving. Don’t wait.

Start With Any Amount – If you are putting off saving because you can’t contribute large amounts, change your approach. As a start, don’t worry about how small or big the amounts are. Start with anything you can right now, even if it’s $25 a month. And gradually increase your monthly contributions.

Stick to It Like Crazy Glue – Use automatic electronic deductions from your bank account to invest for your future. Stick to investing like crazy glue and make it a lifetime habit. Do not allow yourself to take out money from your retirement savings, regardless of how urgently you need the money.

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How to Shop at Dollar Stores

I still remember that day when I first found out that I was paying ten times or more for the same item at a regular retail store than a dollar store. It was a plastic shower curtain. I bought it somewhere for $10, and then accidentally I found out that the dollar store located next to the other store had the same item for $1. Since then, whenever I need to buy something and I doubt that there is a possibility that this product will be available at a dollar store, and it is not on my not-to-buy-at-dollar-store list, I check at a dollar store first. Today, I will go over some items I consider buying and some items I would never buy at dollar stores.

What Not to Buy

Do not buy any food items, drinks, soap, can food and vegetables, shampoos, baby food, toothpaste, shaving products, lotions, razor, sanitary pads, pregnancy test tools, vitamins, pills, school supplies, pens, perfumes, and so on. You should be very cautious about buying anything you eat, drink, or put on your skin from dollar stores. The quality of these products usually is very low and you don’t want to jeopardize your health in the short or long term to save a few bucks. There is no way to know what they put in these in factories in China.

What to Buy

You can buy items like cleaning products, decoration products, kitchen products, disposable items, greeting cards, small tools, craft items, and so on. You will have a good idea of what types of items can be bought at dollar stores after going through what I mentioned. Items that have no direct relation to your health, consumptions, contact with skin, etc. can be bought at dollar stores.

What to Try

There are some items at dollar stores that you can try to check if these are worth buying later on. Some of these items are toys, educational supplies, pet toys, and so on.
Dollar stores give you the opportunity to save some money. However, money can be totally wasted too if you don’t shop smartly at dollar stores.

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Minor RRSP

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Contrary to popular belief, there is no age restriction to open an RRSP (Registered Retirement Savings Plan).
Here are the requirements to open an RRSP for minors:

- A SIN (Social Insurance Number)

- Legitimate earned income

- Recorded income with proper documents

- Filed T1 tax return

Advantages of a Minor RRSP

There are lifelong advantages of opening an early age RRSP. Here are some of them:

- There is no need to make contributions right away. Contributions can be made anytime later – with no time limit.

- RRSP room keeps accumulating, which can be carried forward indefinitely

- Increases lifetime contribution limits

- Allows minors to contribute to RRSP right after starting in the work force because of the available contribution room.

- RRSP deduction can be claimed later on when there is enough taxable income.

- Provides income-splitting opportunity for business-owner parents. Kids can work as an
employee for their parents’ business and salary paid to them will be tax deductible and it will create contribution room for kids.

- Provides an opportunity to teach kids about personal finances.

- Contributions start growing tax free inside an RRSP.

Disadvantages of a Minor RRSP

- Not all financial institutions offer minor RRSP.

- A co-signer may be required.

- Financial institutions may limit what types of products can be purchased.

The best thing to do would be shop around and find the right institutions that suit your needs. Minor RRSP can be a great investment vehicle towards a better financial future with lifelong benefits for kids.

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The Rule of 72

Have you ever wondered how long it takes to double your money? There is a simple formula to calculate how many years you will need to double your money.

The simple formula is called The Rule of 72. This rule only works when you compound your interest annually and do not take out money from your account. To find out how many years you need, divide 72 by your interest rate. Here is an example: Assume your interest rate is 12%, you will double your money in 6 years (72/12=6).

If you add more money monthly to your initial investment, your time to double investment will be less. Investment is a discipline and don’t expect to double your money overnight. Start investing at an early age, keep adding more money on a monthly basis, and stick to it for the long run – you will achieve your financial goals.

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Some Highlights from the Recent RBC Canadian Consumer Outlook (CCO) Index

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The RBC Canadian Consumer Outlook (CCO) Index released on Thursday, February 9, pointed out that Canadians are increasingly worried about their overall personal finance situation and it seems to be deteriorating in some aspects. The RBC CCO looks at Canadian economy, personal finance situation, and consumers expectations annually.

Let’s look at some important highlights:

- 32 percent Canadians are positive about Canadian economy (down from 42 percent last year).

- 36 percent Canadians believe that personal finance situation will improve (down from 38 percent last year).

- Personal debt stands at $11,729 on an average (down from $13,020 last year).

- 57 percent Canadians have no emergency savings fund.

- 53 percent will change timing on major purchases due to economic conditions.

- 31 percent will focus on reducing debt and spending less.

- 22 percent will focus on saving and investing more.

- 30 percent would move to another part of the country or change careers for better jobs.

- 20 percent working in a different field than they are skilled at.

The full report can be accessed here: The RBC Canadian Consumer Outlook (CCO) Index 2012. Where do you you fit in? If you are reading this article now here on Canada Personal Finance Website, it shows that you are someone who would like to build a better financial future and congratulations on that – and don’t forget to read my other personal finance website regularly.   

 

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Close Credit Card Accounts Before Throwing Out

4 Common Credit Card Mistakes

We all have credit card accounts here and there we are not aware of. Sometimes we just throw away credit cards once we don’t use them anymore. But is that the proper way of getting rid of those credit cards you don’t need?

For regular credit card accounts, if you just throw away or destroy your credit card your account remains active with the issuing financial institution. That means on paper you still hold that credit card and your credit account will appear on your credit report, regardless of whether you physically have that credit card or not.

For store credit card accounts, it depends on that store’s policies. Some of them will close your account if you are inactive for some time and some of them will keep it active regardless of whether you are active or not.

So if you were applying for store credit cards at different places just to get the 10 percent off on the first purchase and forgot about it after, you may have many credit cards appearing on your credit report you were not aware of – and when you apply for a new loan or mortgage the lender may not like seeing too many open credit accounts.
The best way to get rid of any credit cards is to call the issuer and close the account. Then shred it or cut it into pieces and trash them separately in separate garbage bags.

So next time, pick up the phone and close your account first before getting rid of those cards you don’t need. 

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Avoid These Common Credit Card Mistakes

Credit cards are a part of our daily living and they are good things, if you know how to manage them. Today, I will talk about how some common and simple mistakes can ruin your credit score. These small mistakes are so negligible that we often forget they can have a big impact on our finances. Learn these mistakes, avoid them, and make them a thing of the past.

Making Late Payments – This is the most common mistake we all make. A late payment can incur late payment charges and bump up your interest rate higher. It can also hurt your credit score, depending on how late it is. Use online tools like Google Calendar or anything that works for you to remind you 3 days ahead of the actual due date so you don’t get caught up making late payments.

Paying Only The Minimum – In Canada, by law, credit card companies now have to show how many years it will take to pay your full balance if you only make the minimum. Add some extra dollars with your minimum, whether it’s $20 or $50 a month, and you can shave off years and save lots interest costs on your credit card balance.  

Using a Credit Card for Cash Advances – Withdrawing cash using a credit card hurt you 2 ways. The first is you pay a high cash advance fee. This fee could run from $20 to $50, depending on your bank. The other bad thing is you start paying high interest the moment you take out cash advances. Never use credit card for cash advances. It’s the worst way to borrow money.

Paying Annual Fees - Many credit cards will try to hook you up offering reward points or cash back in exchange for annual fees. Just to cover these fees, you have to spend more than $20,000 or $30,000 annually. Read the fine print and figure out if it’s really worth it to spend that much money for reward points or cash back after covering annual fees. Use a no annual fee reward or cash back credit card instead; there are lots of them available in the market.

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