Personal Finance for the Newcomer to Canada – The Entire Walkthrough
Are you new to Canada? Is all the new personal finance differences in Canada hard to wrap your head around? Well I’ve been there before and have spent a lot of time digging through different resources and experiencing up front how easy (or hard) it can be to set up a personal finance plan here in Canada. Below are specific tactics that you can use to set up your personal finances here in Canada and save you the time of digging for information.
Getting a Canadian credit card
Unfortunately your credit score does not follow you from country to country. Your credit history and score starts from scratch. While I have heard some instances where American Express (Amex) will take some of your credit history if you owned an Amex in another country, most are not so fortunate.
I see two routes here. First, you can get a secured credit card. This is where you lock up money up front for the limit of your credit card as collateral for the credit card issuer. After a year you can then get a regular credit card, assuming you have paid your bills on time and you have kept a low credit utilization score (more on that later).
The second route is to set up a regular chequing account with a bank that issues credit cards as well. I went with CIBC (no particular reason – although they do have a no fee cash back credit card that’s fairly decent). Once you have done this, you just need to get yourself a job and have a pay cheque coming in. Once you can show you have been with a company for a while and are receiving regular pay cheques, you can then go into your branch and get a credit card without too much resistance. This is the route I took and it worked out fine for me.
Handy tip here – Make sure you opt in for some sort of physical monthly statement from your chequing or credit card account. Having these statements make it easy for you to get your health and library card.
Building your credit score
Once you have your credit card – it’s time to start building your credit score. I don’t want to get too technical here, so here are two important tips: First, pay your bills in full on time for everything including your credit card. Second, try and keep your spending low compared to your limit on your card (this will give you a better credit utilization score).
Don’t underestimate the power of a great credit score. You can win big here when it comes time to getting your first mortgage. A great credit score gets you a better mortgage rate – thus saving you tens of thousands of dollars over the course of your mortgage period.
Setting up an RRSP and TFSA – ETFs or Index mutual funds?
Assuming you are going to be here for the long term, you should definitely set up your RRSP and TFSA.
There are a lot of rules that govern both, so definitely read up on both. However here’s a quick rundown of each and what I recommend you should set up:
RRSP – This allows you to essentially delay when you will be taxed on your contributions to when you go to take the funds out. So contributing to an RRSP gives you a tax credit in the short term. Use this as your retirement account or account to save up for a first home (only up to $25k for the later).
If you are using a RRSP for a retirement account, I would recommend going with a low MER index fund or with ETFs. ETFs only make sense if you have $50k or more due to the fees for selling and buying them (more on this later).
TFSA – This is essentially what it’s called – a tax free savings account. You don’t get any tax credits for contributing, but any income made within this account is not taxed. The income in this also does not affect any claw backs on government retirement initiatives when in retirement as it doesn’t count as taxable income.
So essentially both accounts can shelter you from tax depending on how you use them. As a newcomer, once you have a permanent SIN number you can get a trading account with Questrade (low fee and highly recommended – although they won’t let you set up an account with a temporary SIN number). You can do this for either or both your RRSP and TFSA accounts. I recommend reading up on ETFs and buying these for the long term according to a couch potato strategy. Remember that this is only suitable for long term investments.
Another approach mentioned earlier if you want to invest long term is to go with low cost index funds. Check out the e-series funds offered by TD bank. These are the lowest MER index funds in Canada. It was simple to open an account for this. I walked into TD and spoke with an investment advisor to set up a TFSA/ RRSP investment account (without buying any funds). While you are there, you can ask them to link your bank account for buying funds. Also set up Easyweb access while you are there too. Once you have done these steps, you will need to send in a letter to change the account to an e-series account. The letter can be found here.
Of course for both an RRSP and a TFSA, you can have multiple accounts for different investments. You can also go for GICs as well as just a regular interest rate without investing using these tax-sheltered accounts.
Once you have figured out, set up and started contributing to these accounts a huge burden is lifted off your shoulders. I highly recommend you do the research and get the ball rolling on the above as soon as possible.
There are some good options out there for Canadians. Cutting to the chase here – I use Mint for budgeting. It’s easy to set up and there is an Android and iPhone app too. It’s a great budgeting tool that links up with your bank accounts very easily.
There are others out there for sure, but I am sold on Mint because it works well for me and it’s also 100% free. With budgeting software one size does not fit all. I recommend testing to find one that is a great fit for you.
The feeling of being responsible and organized with your personal finances is amazing. I used to always postpone this sort of stuff and I never really had a plan. I finally took the time to better my credit score, set up the right accounts and use a good budgeting tool last year and the resulting feeling has been amazing. Do your future self a favour and get moving on your personal finances today!
Which personal finance tactic are you going to start working on first?
About the Author
Edwin Chan is an avid writer and marketer at 9th sphere. He currently resides in Toronto and loves reading up on ways to better manage his money and help others in the process.