home – money – life
CRA Canada Revenue Agency – this is a federal body for collecting taxes, with far reaching legal powers for ensuring your taxes are paid on time and in full. The CRA website is a wealth of information (pardon the pun) of strategies for managing your money and investing wisely.
GIC Guaranteed Investment Certificate – a low risk form of investment where your principal amount of money invested is protected, and the investment term is quite short (1-5 years). Your money is locked in for the duration of the term, and available only when that time period is up (so these would not be good for immediate emergency savings). The rate of return on GICs is quite low compared to other investment vehicles, but the security of your initial investment is guaranteed (hence the name). These may be a good tool for short term needs, if you need a great deal of security and can survive having your money locked in, however there is little growth on your investment.
Guaranteed Investment Certificates (GICs) are a common investment tool sold through banks, and require very little management on your part. Your money is effectively locked up, and invested through the bank with a set rate of return (the rate of return is posted and based on the length of time you’re investing). Terms include one, two, and five year plans, the caveat is you cannot access your money until the completion date of your term (i.e. you cannot access your money on day 362 of a one year plan), but will be guaranteed all the money you invested, plus interest.GICs may be a form of forced savings for some people, however regular contributions to a TSFA or mutual fund a may give better return on your dollars. Talk to your financial advisor about the best investment or savings vehicles for your goals.
Grant – is money given to you, usually for a specific purpose, and often through the government or another agency. In the case of Canada’s Registered Educational Savings Plans and Registered Disability Savings Plans, there is a strong incentive program for investment, where families may receive grants depending on the amount invested, and they may also receive additional grants if their family income is low.
Income Tax – tax paid to the federal government based on your total income (money coming into your hands) for that year. You can expect to pay tax on income from sources such as earnings from employment, investment gains, selling investments, etc. It is a legal obligation to pay taxes, and failure to do so will result in severe penalties from Canada Revenue Agency (CRA), including freezing bank accounts, garnishing your wages, and seizing your assets.
There are a number of strategies for reducing your total income so you pay less tax overall, and a financial advisor can assist you in selecting the right strategy for your unique situation. Note that I’m not talking about illegal tax evasion, simply investing in Registered Savings Plans (RSPs) and TFSAs that are appropriate to your family’s needs.
Insurance – is an umbrella term for a policy to provide payment in the case of loss, such as compensation for repairs and injury in a motor vehicle accident, or, in the case of life insurance, provide payment in case of the death of the insured person.
Insurance can provide coverage for your home (the property and contents if owned, or just contents if you’re renting), vehicle, business, critical illness or disability, or life.
Life insurance – there are two types, Term, or Permanent (Universal Life or UL) – both work in a similar manner, providing payment upon the death of the insured, the difference is the length of time of coverage (hence the ‘term’). Insurance policies provide coverage as long as the policy is paid for, so if you miss a payment, your policy could lapse, and leave you without coverage.
‘The insured’ is the person for whom the insurance policy is purchased for, and it is their passing that generates payment.
‘Beneficiary’ is the person who receives the insurance payment from that policy. This can be a spouse or dependent or person of your choosing.
Term Life Insurance provides coverage in the case of death within a set period of time (usually 10-20 years), provided that you make ongoing payments into the policy for the duration of that time. Once that time period is up, you have the option to renew the insurance policy to provide continued coverage. If you do not renew it, you will not have further coverage. Term insurance is significantly less expensive than Permanent or Universal Insurance.
Permanent Insurance (also known as Universal) provides coverage until the end of your life, provided that payments to the policy are made. This is significantly more expensive than Term Insurance, and often has a cash value portion attached that may be accessed while the insured is still alive (think of it like an emergency fund) or used to provide additional money for your beneficiaries.
The costs of insurance are banded, depending on your age and any pre-existing health information, and based on the statistical likelihood of death / serious illness. It is far less expense to purchase insurance while you are young and healthy, and carry it for a long time, rather than purchase as you grow older. You may require a medical exam to ensure you are in good health, before the policy comes into effect.The purpose of life insurance is to cover final expenses such as taxes and funeral costs, and help offset the cost of living for a spouse or dependents. The care of children or purchase of a family home, given the loss of the insured’s income, can be a tremendous burden for those left behind. The ‘final legacy’ aspect of insurance is a very important consideration, and should be done in consultation with a financial advisor who can guide you through considerations such ensuring education plans are paid in to, costs of caring for those dependent on you, or how to disburse your wealth in a fiscally sound (i.e. tax efficient) manner.
Investment – simply, to put your money into something in hopes of an eventual greater return. In all areas of our life we invest our time and effort into various projects in hopes that things will turn out the way we’d like (think about the latest home renovation project you’ve undertaken – is the paint dry yet?).
In the world of finances there are different tools for investing, depending on your needs (short term or long term or tax efficiency). Short term vehicles for investment include GICs, savings accounts, and may include TSFAs; longer term ones include Mutual Funds, Stocks, Bonds, and Registered Savings Plans such as RRSP, RESP, RDSPs etc.
Check out the Ontario Securities Commission page GetSmarterAboutMoney
Mutual Fund – this is a compiled group of funds (all with ownership of stocks or parts of companies) that are professionally managed. The premise is that as the stock market rises with time, your investment will appreciate in value.
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