Saving For Your Child’s Education

By Boomer | October 26, 2010 |

When my children were born I believed it was important for them to get a post secondary education (yes, even at that early age) and I planned to save as much as I could for that purpose.  Of course, there was no RESP at that time, but I did receive monthly Universal Family Allowance payments (starting at $16 for my first child).

Saving For Post Secondary Education

Savings and investment options were very limited at that time, especially for small amounts and I dutifully deposited the Family Allowance (or Baby Bonus as it was called) into a savings account.  When I had sufficient funds, I purchased Canada Savings Bonds each year.  As mentioned in previous posts, I subsequently purchased mutual funds and (for my youngest son) real estate.  From those small initial deposits they ended up with over $30,000 each by the time they finished their post secondary education.

With all the options available these days I think one could easily double or triple that amount (and more).  An RESP (Registered Education Savings Plan) is the obvious first choice and the Education Savings Grant of up to $600 annually is a nice bonus to help increase your returns.  If you are eligible for the Child Tax Benefit you can start an RESP with the Canada Learning Bond of $500 to start with and $100 a year until your child turn 15 years of age, without even putting a penny of your own money towards it.

Another way to save for post secondary education is to open a regular investment account as an informal trust.  The account is in your name “in trust” – you don’t have to name a beneficiary.  This is what I did.  There are no restrictions on the amount you invest, you are not penalized if your child doesn’t attend a post secondary institution and you retain ownership and control of the account and can access the money at any time for any purpose.

Until your child reaches the age of majority, you have to pay tax on any interest or dividend income and your child pays tax on any capital gains and reinvested interest or dividends.  For this reason, growth mutual funds are a popular choice for informal trusts.

Any income earned from invested Child Tax Benefit payments deposited into a non-registered “in trust” account is taxed in the child’s hands.  Just make sure you keep records tracing the investments back to these payments in case you’re audited by the taxman.

It may seem daunting when you see what tuition may cost in eighteen years but you’ll be amazed to see how fast your savings can grow after the first couple of years.   Just remember:

  • Start early, invest regularly and stay the course (Hmm, I think I’ve heard this before)
  • Don’t make unnecessary withdrawals (fund that trip to Disneyland some other way)
  • Review your investments periodically.  New investment options are available all the time.  Be sure to investigate and do your due diligence to see if they fit with your objectives and circumstances.  You don’t have to stick with the same plan indefinitely if a better option comes your way.

Finally, once you’ve started your savings plan, don’t worry about it.  Enjoy your children now, while they still think you’re wonderful.

Check out The RESP Book to understand how RESP accounts work and how to get one started, what kind of RESP account to set up and what kind of investments to buy.

Upgrading Our House: Part One

By Robb Engen | October 25, 2010 |

A few weeks ago I met with our mortgage specialist at TD Canada Trust to discuss the process of upgrading our house.  With a growing family, one of our goals is to move out of our 2 bedroom 1 bathroom house and build a larger house closer to where I work.  This is an exciting time for us, however there are a few things for us to consider during this process:

  1. How much can we afford to spend on our new house?
  2. How much will our down payment be?
  3. When do we put our house up for sale?

The bank determines how much you can afford to spend on a house by looking at your income, your debt expenses including loans, leases, credit cards, and line of credit, as well as your estimated monthly heating costs and property taxes.  Then they look at your down payment amount and the interest rate that you will be paying.

Related: Changing The Way We Think About Mortgages

In order to qualify for a mortgage, you must qualify at the 5 year fixed rate, even if you opt for a variable rate or shorter fixed term.  The current 5 year fixed rate is 5.29 percent.  We will likely choose between a variable rate mortgage or a 1 year fixed rate mortgage, as both will likely save you money over the 5 year fixed rate.

The minimum required down payment for a mortgage is 5 percent.  Any down payment amount less than 20 percent is subject to CMHC fees, which is mortgage loan insurance that lenders are required to purchase for high-ratio mortgages.  The lender passes on those fees to the consumers, which are between 1 – 3 percent of the mortgage value.  A $300,000 mortgage with a 10 percent down payment would be subject to a 2 percent CMHC fee, which would add an extra $6,000 to your mortgage.  We want to put at least 20 percent down on our new house to avoid CMHC fees.

The builder that we would like to work with typically takes between 4 and 5 months to build a house.  This leaves us with a few options for our existing house.  We can put it up for sale immediately upon beginning construction of our new house, and hopefully the timing will work out between our possession date of the new place and the sale and possession of our current house.  Or we can try and sell our house prior to starting construction of our new house, but then we will have to find a place to rent while the new house is being built.

The other option is to enter into an “intent to purchase” with our builder, which means they would start building our house and we would put our current house up for sale, but after 3 months if we haven’t sold our house we can opt out of the agreement.  The drawback to that option is that we most likely wouldn’t get to customize the house to our tastes, since the builder would want the house as close to the original plan as possible in case we don’t buy it and they have to sell the house to someone else.

As you can see there is a lot to consider in this process.  In Part Two, I will discuss how we intend to proceed with upgrading our house.  Stay tuned.

Let The Flood Waters Stop!

By Boomer | October 21, 2010 |

A year ago we had a horrible experience.  Our basement flooded so badly that most of it had to be redone, and it took a year to get everything finalized.

As much as I tend to bad-mouth insurance companies and their practices, I have to admit that they covered my repairs and losses to my satisfaction and they must have paid out quite a bundle in the process.

I have never had a home insurance claim before, especially one of this magnitude, and I have come up with a few tips to minimize the process if (heaven forbid) it should happen again.

  • Include a water damage clause to your home insurance policy.  At about an additional $15 a year it’s very inexpensive protection.
  • Make sure your sewer drain has a back-up protection valve.  Some insurance companies won’t cover sewer back up without this in place.
  • Get rid of anything you don’t need.  When I purchase a new item, I have a bad habit of storing the old one in the basement to sell at a garage sale, give to my kids or otherwise donate, or what if the new one breaks (?).
  • If you store items on the floor, put them in waterproof containers.  My treasured, irreplaceable art books that were temporarily placed in a box on the floor were destroyed, while my ratty old Christmas decorations were safe in their Rubbermaid tote.
  • Take pictures of, or otherwise record all your belongings including insides of closets, cupboards and drawers and keep them in a safe place because you won’t remember all of what you own.  Our restoration crew consisted of mainly “very-little-English-speaking” workers who listed the items that were thrown out.  To this day I still don’t know what some of the items were from their vague (and strange) descriptions.
  • Also, keep receipts for furniture, electronics, renovations done (carpet, etc) and other expensive belongings as long as you own the items.
  • Get the adjuster’s instructions and other information in writing.  We had several misunderstandings with our adjuster when she told us conflicting information about purchasing our replacement items.

All in all, while we had a stressful year, the results were satisfactory.  Although our planned upstairs renovations were temporarily put on hold, we ended up with a brand new basement with new drywall, flooring, furniture, accessories and other assorted items.  Now, all I need to do is get over my fear of heavy rainfall and we will be back on track.

Have you ever made a home insurance claim?  Do you have any tips to share?

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