Category Archives: Blog

This Is Your 10-Months Notice

With the extension of the Canada Emergency Benefits of $2,000 a month, vast numbers of people (that aren’t back to work) are now able to bridge their income for 24 weeks and a total of $12,000.

This is your 10-months notice that you WILL be paying tax on this money. You do on your earnings, on any EI you collected and on these benefits.

If your total earnings this year will be roughly the same, just take last years’ tax return and divide your total income line by the total tax you owed and/or paid. That’ll give you your tax rate. No matter what, it’ll be 20 to 30%. Since there isn’t tax deducted from your Emergency Benefits, you’ll need to be ready. At 20% that will have you owing at least $2,400 in taxes. With 10 months notice, that’s setting aside $120 every two weeks. If you choose to ignore that oncoming train and wait until January, you’ll need to save $600 a month since you’ll only have four months left before it’s due.

Your choice: $120 now or $600 later. But then, “later” don’t complain that you didn’t see this coming!

The Huge Squeeze For Lower Income People

The last few months of having the economy pretty much shut down is generally described as ‘inconvenient’ or ‘hard.’ But the people who are making those statements are likely politicians, economists, talking heads on cable news or medical people. Almost to a person, ‘hard or inconvenient’ is how they view it. However, these politicians, economists, TV anchors or medical professionals are all earning over $100,000 a year.

Put yourself in the shoes of someone who earns between minimum wage and maybe $3,500 a month. To them, it’s a nightmare and not just an inconvenience. Where you are on the income scale makes all the difference in how you see and feel and hurt in this pandemic.

The US Bureau of Labour Statistics (used from a CNN podcast this past weekend), which wouldn’t be any different here in Canada, reports that of the top 25% of income earners, over 60% are working from home and getting their paycheques. But in the bottom 25% of income earners less than 10% are able to work from home. THAT is the difference in the mindset and language of someone who is inconvenienced having to work from home but still getting full pay and the lower income 25% who need to GO to work to get paid. Plus, 13% of those over $100,000 have been laid off versus almost 40% of those under $40,000. That’s pretty staggering and changes the situation from hard or inconvenient to devastating and a nightmare.

The lower income 25%, or those earning less than $40,000 are also the largest group of renters. What’s happened to rents over the last 10 years? Rent keeps increasing because of property values, taxes, utilities, etc. going up. The top income earners either don’t have a mortgage or can make a call to their bank and may get deferrals or at least a line of credit to ride out the storm. What do families making under $40,000 do?

In the last 10 years, according to a report by Statistics Canada, rents in Toronto have gone up 47%. In Vancouver up 50%, and in Edmonton – not exactly a hot real estate market, rents are still up 25%. You know that incomes haven’t even kept up with inflation. So in a so-called good or normal economy the squeeze was already happening. How do you afford a rent increase over double your raise? With borrowed money for the difference – if not a second job. After all, you can only downsize your rental place to a certain point.

I don’t have answers, but if nothing else pay attention to the language you hear being used in an economy worse than the great depression. The perception of how ‘inconvenient’ these times definitely depends on your perception and reality…measured in large part by your income…

Avoid the BIG Financial Decisions Right Now

Hello George: Thanks for taking the time to read this.

I listen to you on am1150 with Phil Johnson as often as I can. I really enjoy what you have to say.

I really need your advice: I live in Kelowna but sold my place just before the covid19 hit and I have to be out in a few months.

I placed an offer on a townhouse pending mortgage approval. My issue is I just lost my job from c19 and I will have to get a mortgage from the “b” lenders. If they even accept me, will a higher interest kill me? Do I kill the deal and rent? That’s if I can even find an affordable place! It’s crazy out there right now. Any advice would be greatly appreciated.   R

Hello, R: Thanks for the note and kind feedback! YIKES! The perfect storm… The great news is that you sold your place and will have money.

I only ever answer questions of what I’d do and don’t have all the details: But this one is easy: RENT RENT RENT

I wouldn’t take on that insane rate AND fees buried in there, and the stress of not having the income. There’ll be tons of other places to buy – don’t sell your soul to do this.

You’re not the only person in this situation, right? So will home values go up or down? Right – so that’s benefit #2.

Will you be back to regular income when you’re less stressed, less in debt, less panicked and under less time constraints? That’s benefits #3-6.

Yes, rent may be so-called ‘wasted’ money, but it buys you peace of mind and no hassles, no 7-10% interest rate, and a BIG penalty to get out of it AND maybe $1k to $2,000 in fees in there.

You need a real lender, and not one that’s taking advantage of you and that can’t happen with no income right now – period. Rates aren’t going anywhere until next year at the earliest, so there’s no rush – no downside – and only benefits to waiting.

IF you can afford it, consider getting your realtor to just ask the buyer if they’d like to move out the possession. The sale is still valid and legal and binding – just changes how long you can stay in there, OR maybe they aren’t fixed on moving right in and will rent it back to you for 90 days? Doesn’t cost or hurt to ask…

Does that give you something to mull? Keep your head up, your stress down and your priorities straight!

If You Received A Loan, Mortgage or Line of Credit Deferral:

Banks started offering payment deferrals about a month ago, and it’s now over half a million who have done so – and that’s just mortgage payments. But there may be a problem, especially for the early applicants: It may have destroyed your credit rating.

But let’s back up a minute first. There are two credit bureaus in Canada. TransUnion and Equifax. Unfortunately Equifax has 90% of the business and is the primary source for almost everyone but Scotia. They’re just a really horrible company for lots of reasons. But both credit bureaus, when the thought of extensions started immediately called on the banks to set up the correct coding for these extensions. But the banks were slow to get this done.

If our listeners had only a one number code to rate the segment, it might be 1 for great, 2 for boring, 3 for make George go away, or 4 for average. That’s it – four codes. That’s how the credit bureau does things. But a deferral didn’t have a code set up. So a ton of the first deferrals went through as unpaid – which means behind in payments – which means a huge drop in your credit score until the banks reported the deferrals with a new code.

The how to check your files is in the credit burau chapter of the Money Tools book. Just go online to Mosaic or yourmoneybook.com if you don’t have a copy.

If you’re impacted, it’s obvious that you need to get this corrected – and that could be a part-time job. If you deal with the Royal, their Canadian President had an ad in newspapers across Canada the first week in April. In there, it stated that they will “ensure credit scores are not impacted by deferred payments.” Here is the full ad:

If yours was, here is the contact information for the President who wrote the ad:

Neil McLaughlin, Group Head – Personal & Commercial Banking 200 Bay Street, PO Box 1, Royal Bank Plaza Toronto, ON  M5J 2J5 Phone: 888 212 5533 (your odds are zero of even reaching his EA, though and you want your issue in writing anyway) Fax: 416 955 7800

If your credit report problem is not with the Royal, you’ll need to do some online searches for their head office and/or a Regional VP and an address.

And here is a form letter that you can use. Search under radio stories to get the information on how to complain effectively that we talked about a few months ago. Keep it simple, keep it short, factual, and state what you want to achieve. And always always keep every copy of every letter or email and a record of every call and the time, date and who you spoke to. This is too critical not to be disciplined!

If you don’t deal with the Royal, you can use the same letter, just take out the section referencing their advertisement.

Dear Sir:

Re: Incorrect credit reporting of my deferral

Your bank processed a deferral of my (mortgage/credit card/line of credit/loan) payment in the month of xxx.

However, my credit report since that deferral shows it reported by your bank as past due. That is NOT correct and has to be corrected. As you know, this has a huge impact on everything from my insurance to interest rates and future borrowing! As you also know, the credit bureaus (TransUnion and Equifax) cannot fix this error as (you) the lender has to submit the right reporting information to them.

Your national advertisement the first week in April, under your signature, stated that you were “ensuring credit scores are not impacted by deferred payments…”

I need to have someone in your office correct the coding from the incorrect “past due” to the corrected “deferral,” and re-report it to the credit bureaus.

Or in the alternate supply me with the proper person, their address, and/or email in your bank that I need to contact to get this corrected immediately.

I look forward to hearing back from you – thank you in advance,

Yours truly,

(Your name)

Address:

Telephone #:

Branch you deal with and main account #:

Account # of deferred credit card, loan, line of credit or mortgage

AND send or deliver a cc copy of this letter to your branch as well!

When You Get Told “You Need to Contact The Credit Bureau”

Good morning George! I listen to you every Wednesday and I hope you can help! We returned from Arizona on March 15th and went into mandatory quarantine. We addressed a ton of mail after 4 months, during that time my RBC(Westjet)credit card had renewed and I had numerous letters from RBC concerning payment. Two weeks ago was the first opportunity to go into my bank to pay the full amount as I never had my RBC on my online banking.

I have always had a strong credit rating in the 800’s on my credit score. I was shocked to see my credit score now was dropped to 721 due to this one bill. I have spoken to numerous contacts within RBC and all they do is point me to the credit bureau. Due to their reduced hours/staff I have been unable to get thru to them. I feel under these circumstances it is really unfair and wondering if you can assist me in any way.    N.B.

Thanks for the email, N.B. While I understand your disappointment and frustration, reporting your missed payments to the credit bureau was factual and correct. Yes, there are always reasons, but you were past due.

It’s a common question, so let’s go through three things:

Read the chapter of the Money Tools book on credit reporting, the impact on your credit score and how to deal with it and/or fix it. A great credit score such as his, with one past due plummets it by about a hundred points – as N.B. pointed out. It’ll come back within a couple of years and it’s still good enough to not impact him that much. I call this a stupid fee: Almost a hundred bucks in late fees is a reasonably cheap lesson.

You need to make a minimum payment or 31 days later the lenders’ computer tells the credit bureau – period. It takes less than 10 seconds to set any bill up online. Whether it’s travel, missing statement, forgetting, or whatever – none of that matters. I have a small chart that I use every month with the bill and the due date. Mortgage 27th, tax 30th, utilities 8th, Amex 10th, etc. to make sure I never forget – ever.

Now to what the Royal is telling you, which is that you need to deal with the credit bureau on this. It’s a big fat lie that every lender from banks to credit card companies to GMAC, Ford Credit – literally everybody uses. It’s a quick way to shift blame. It’s a lie. Who told the credit bureau that you were late? Right – it was the Royal. So they’re telling you to go to the people who just note down the information and not the people who told them to do it!

In this case, the Royal Bank computer downloads every card holders information for the month: The credit limit, balance on your statement, last payment made or not made and the amount, and whether the account is up to date, a month, two months, etc. in arrears. The two credit bureaus take the information and file it on your account that other lenders can now access and see.

When the Royal told you to call the credit bureau they knew they were lying to you. But it worked – you went away and tried to contact the bureau. Bad news: The odds of reaching them are zero – most of their staff is in India and you’re dealing with companies that don’t care and can’t help you. They didn’t do the damage as I explained, and you’re not their customer: Their customers are lenders, landlords, bonding agencies, etc. who purchase their credit reports.

If there is factually incorrect information on your file, then it’s the credit bureau who needs to fix it. If you have a car loan on there and you don’t owe money on a car, if you have a collection showing up that isn’t yours, or stuff from an identity theft, that is the responsibility of the credit bureau to fix and/or remove by law. That’s the case for around 25% of files and the reason to check your report at least every couple of years.

It was accurately reported by the Royal. The only way to get them to have a heart and forgive and forget this one mistake is for the Royal to fix their computer. It can be done if you are a valued client with lots of business with them. Tell them it’s a one-time error and ask them to remove it or you’ll take your business elsewhere. In this case, N.B. only has the credit card with the Royal and isn’t likely to have a chance of getting it removed.

The New Financial Reality Part II

Two weeks ago we talked about what to do: Getting the family involved, stopping any savings and investments, and your financial priorities of prescriptions, food, shelter, utilities, basic clothing and transportation.

However, the reality of $4,000 in bills on $2,000 of income brings up three big “should you” questions:

Should you pay minimum payments on your credit cards? If you can – absolutely. If you have the available credit, I would also take a cash advance then use that money to make the minimum payment. It’s not a solution, but it’s a way to tread water and protect your credit rating. If you can’t – plan B may be to ask the card issuer for a deferral, but that depends on how much the minimum payment is, whether you’re prepared to go through the qualifying again on the phone, and your priorities.

Should you get some money out of your investments or Tax Free Savings Account? Yes – if that’s what it takes to make minimum payments for some of your debts. It’s better to borrow from your future self than a deferral that just stalls things off and compounds interest.

Should you cash some RRSPs? That’s different than other investments, because there are big tax implications next April since it’s considered taxable income for 2020. If you have absolutely no choice – the answer is clear. If you can avoid it for at least another month or so – that would be even better…

There is a really important chapter in the Money Tools book called “Today’s problems become tomorrow’s nightmare.” Before you cash any of these, you really really need to read that chapter.

When you need to relieve the today pressure with tomorrow money, there’s a steep price to pay down the road. Cashing any investments relieves the financial pressure today but leaves you in trouble down the road. Not investing right now is totally logical, but cashing out requires you to remember that the $5,000 today isn’t growing anymore for retirement. That $5,000 today, if left alone, turns into $40,000 that you do not have in 21 to 25 years when you may really need it.

Secondly, the government programs of the $500 a week or your EI are fully taxable. So the today help is great, but you will need to pay tax on that come next April. No, you probably can’t set aside the 20 to 25% you’ll need for tax today. But you also can’t claim that it’s a surprise you’ll have to have the money to pay your taxes.

Lastly, something a little more hopeful if you have a mailbox. I found a great picture that might prevent you from getting more bills that you don’t really need right now. Oh if only that would work….

Your New Financial Reality Plan (or not…)

Firstly, and arguably most important: The major Bell sponsorship of Mental Health day in January isn’t just a one-day and one-off. It’s just as important today as next week and every day. Taking care of yourself is not an occasion – it’s a process. So, go to letstalk.bell.ca for a lot of tips, insights and practical tools. In addition to that, talk to someone. Being able to talk it through is an incredible tool that doesn’t cost anything, but pays off in measurable ways, because you’re not alone.

When it comes to your finances, there are two different issues: The today actions and the down the road issues that we can talk about another day.

Psychologically we tend to think the good times, good incomes, or investment returns go on forever. They don’t. We also tend to think that, in bad times, they’ll never end – they do. You decide how long this storm is going to last – then make a financial game plan of how to get from here to there with a lot less income and the same bills you’ve always had.

1.. Your entire family has to be involved, in the know, and on board. Your partner is a given, but I would also explain what’s happening in financial terms to your kids in language and information that’s age and maturity appropriate. If you can explain why grandma can’t visit you can certainly explain some basic financial realities in the same way.

2..Stop anything that takes away money on a monthly basis that is optional: Stop your RRSP contributions, children’s education savings, any amount auto transferred to your savings, payroll deductions for investments or retirement plans – everything. For the next few months, you need cash and not a long-term wealth building plan which takes money away from the today storm. Every one of these money-savers are far preferable to any deferrals of your bills – period.

3..Write down your financial priorities: They will be the same for every person: Prescriptions, food, shelter, utilities, basic clothing and transportation. You can look at financial books from the 1950s to someone like Dave Ramsey on about 400 radio stations in the US, and others that’ll all be the same. (I added the prescriptions for obvious reasons). Those are the order of your priorities. Besides these first priorities, write down what those cost you each month. Does whatever income you have now cover these basics? If so, you’re doing well and should give yourself permission to breathe!

Reality stinks right now, but reality is that less income means less money can go towards non-priority payments. You cannot print money, and you are not exempt from the law of gravity or math: $2,00 of income will not cover $4,000 of monthly bills.

4..When the first priorities are paid, if there’s money left over, the decision of what other bills to pay is yours. That’s very subjective and everyone will make very different decisions.

Some Mortgage Deferral Details:

Two weeks ago, we talked about a PR release from the six big banks that they’ll help you with up to six months of mortgage payment deferrals. Reaching your bank may be a challenge as Scotiabank alone has been receiving around 80,000 calls a day to at least inquire about payment relief, according to one of their spokespeople.

As predicated, the rules and criteria are still evolving. One RBC employee stated that they were “changing by the hour” in a CBC interview. With that in mind, this is what appears to be happening now:

You may be able to defer your full mortgage payment for up to six months. It appears all the banks have a notice on their website to point out that your interest will continue to accrue. You are not getting a pause button, just an extension.

The bank will add the interest you are not paying with the deferral and adding it to the principal owing. In other words, if you have a $300,000 mortgage and take six deferrals, that $4,500 in interest is added to what you owe. You will then be paying interest on top of interest since your balance went from $300,000 to $304,500. The increase in your balance will now give you a higher payment when your renewal comes up. You’re adding the skipped interest to the next 15, 20 or 25 years.

As we talked about two weeks ago, the banks aren’t out one cent – in fact, they’ll make a profit on your deferrals. But for those who need the breathing room and help, it’s probably not the time to look gift horse in the mouth…

It is not an automatic approval. A former Bank of Montreal manager was asked to supply a new full credit application to see if he qualified. But the BMO wouldn’t actually tell him what the new approval criteria was! A few days ago, a CIBC customer with mortgage and line of credit was on hold for 11-hours and 5-hours the next day only to be told by their call centre that there was nothing they can do for her. So much for the press release that the banks would “work with Canadians.”

Yes, they will update their information on you first. It’ll take them one second to look at your credit score. Internally, they’ve set a number: If you’re below that, you will not qualify as they deem you too high a risk for a deferral – whether that’s your mortgage, credit line or credit card. They’ll want to know if you’re temporarily laid off or not likely to go back to work. And they’ll look at your other debt levels off your credit bureau report. In other words, it’s not just a quick call and you’re done.

Coming Next Month: My New Home Buying Experience

There should be nothing more exciting than purchasing a brand new home. Well, that didn’t last that long for me…We’ll talk about it in April as it’s been 60 days.

Here’s a small insight: THIS is what I got from Bedrock Homes (Carrington) in the year 2020 in my brand new house: 37 regular light bulbs! Hands up if you have at LEAST one LED (now under $1.60 each) or at least a spiral light anywhere in your home. Yup – that’d be everybody in the country. (Bedrock saved some more money by not having any bulbs in two light fixtures…)

THIS is what is STANDARD in every new home with another builder by the name of Jayman Homes. Yup…electric plug-ins for hybrid vehicles. But it gets worse…I’ll explain next month…

How to Gift Money To Your Adult Kids

Hi George: I sure do enjoy listening to you and Phil. I have 2 sons in their 20s, they have TFSA’s but my husband & I would like to put some money away for them. If we set them up with $10,000 each, what would you suggest we do? Thanks, B

Thanks for listening, B! Good question. But I only ever answer what I would do, so here’s some feedback that may or may not apply:

Most people in their 20s have a constant need for more money – for a car, bike, holiday, running a little short each month, etc. If you gift it to them for a TFSA they can take it out with 10 minutes notice and no penalties. It may be the equivalent of just giving it to them to put into their bank account. If you’re fine with them spending it on ‘whatever’ go ahead. Just keep in mind it’s a max of $5,500 a year – so you’d have to spread it out over 2 years.

If your intent is to have them save it and put it away to grow for retirement – it should be into an RRSP. Assuming they won’t have a defined pension (that they don’t work in healthcare, civil service, etc.) an RRSP is better anyway due to the tax refund it triggers with the contribution. And it’ll cause a tax penalty if they take it out in a few years and that may make them think twice before doing it.

Have them read the Money Tools chapter of Making your teenager a millionaire. No, they’re not teens but the logic is the same. Make sure they understand that money doubles every seven years. That they understand you are not gifting them $10,000 but $20k seven years out, $40k 14 years out, $80k 21 years out, $160k 28 years out, $320k 35 years out. So your $10k today is $320,000 when they’re barely 60!!!!

I’d also do it on a matching basis so they feel they’re earning it. IE: You (kid) save into your TFSA and show us  your receipts for 2020 and before December 31st this  year we will give you the same amount (to a max of $5500) into your RRSP. You will then have DOUBLE the money AND April 2021 a tax refund of around $1,500 because of it. We will do the SAME in 2021 for part 2.

Hope that gives you some feedback and ideas to make it a win-win and not a give-spend plan.