Photo by Didier Weemaels on Unsplash
Here’s the thing: money is gas. It is this thing that drives every car, and most positive experiences (maybe even those involving other people) that we want to have in our lives.
Despite that popular catchphrase, money does not talk: it’ll come to you, in spades, if you work hard, save hard, and have a goal and a vision of where you want to be financially in the future. Every intention of mine, in relation to money, is that it comes to me, and I use it (like the gas that it is) to drive positive life experiences and circumstances. I have money, it doesn’t have me.
Some time ago I promised you a money post. This post will hopefully satisfy that promise, and it will also hopefully be useful to my fellow millennial Canadians who are trying to make it financially. I think that sharing these money terms as a list lets you see it in black and white. So, without further ado, here is a list of the terms that I have learned throughout my adulting/looking towards my future process:
1. Registered Retirement Savings Plan (RRSP)
A tax-sheltered account, offered by financial institutions, that allows you to save for your retirement and lower your income taxes. If you’re a first-time home buyer, you can actually borrow up to $25,000 from your RRSP (although you will be taxed 30% from that $25K when you do or 20% if it’s under $25K). If you’re borrowing to pay for school (under the Lifelong Learning Plan (LLP)) you can take up to $20,000 for part-time or full-time schooling. Contributing to this means they are taking pre-taxed money (so you do have to file your RRSP file to the tax man every March/April).
2. Tax-Free Savings Account (TFSA)
This is a good way to save towards purchases in the near future (like a house or a wedding). There is no penalty for taking money out, and the interest you get is tax-free. However, if you take money out in say April, you can’t put it back in until the following January. At that time you could replace the money and contribute up to the maximum too (which is increasing every year but is currently at $5,500). Unlike the RRSP, you contribute taxed income.
3. High-interest Savings Account (HISA)
This one, according to my research, is good for building up an emergency fund which accounts for up to 3-6 months of your expenses.
This is the excess of assets (re liquid money and investments) over liabilities (which is basically debt). It’s important to have more assets than liabilities, and you can get more assets by not going into debt (so hard to do in this day and age), saving money, and investing in property (which can give you a good amount of assets), and or non-brick and mortar investments (such as stocks).
5. Capital Gain
This is the profit made from the appreciation in value of a capital asset (such as stocks or real estate) over its purchase price. If you buy a house at $250,000 (I wish!) and a real estate expert says that it’s worth $350,000, then that’s a capital gain of $100,000.
6. Canada Revenue Agency (CRA)
The money monsters! The department of the Canadian government that rules financial affairs such as tax law and a lot of the socio-economic benefits and tax programs in Canada ( such as employment insurance, income tax and GST/HST credit). You must tell them if you get married, divorced, change your last name, if someone dies, or if you move.
Kind of obvious, but since I’ve mentioned real estate several times already….it’s when you take out a big loan (from the bank, most likely) to buy a house or a condo. You obviously have to have good credit in order to get a loan, so pay your bills!
8. Credit Card
Not free money! It is a card (most likely given by a bank), which allows you to buy things (both essential and non-essential) on credit. There might even be a rewards incentive attached to it (such as cash back, vacation credits, or gifts).
9. Line of Credit
Again, it’s not free money! It is an amount of money (most likely issued by a bank) that you can use for purchases. People often use a line of credit to renovate their home.
10. Credit Check
A credit check is when a financial body or institution checks to see how often you pay the balance on your credit card(s), whether you pay your balance(s) on time, how much money you owe, how many cards /accounts you have open (tip: less is better), and how long have you owed the money. All of this accounts to what they call creditworthiness. If everything looks sketchy/bad (re: you are reckless with your credit card(s) and you owe a lot – and worse still on several cards) then you have bad credit. If you pay your bills on time (within the grace period is ideal), don’t open too many accounts, and you have a good-looking record then you have good credit. Some employers do a credit check (if you work in the finance sector or if you’re a person who literally collects money on behalf of credit companies from people in “collections” for not paying their credit cards), and landlords often ask for your “credit score” (which means you have to get a credit check).
11. Credit Score
An official number that tells you whether you have good credit or bad credit. Essentially, you are judged based on what they find in your credit check, and it impacts anything to do with borrowing money (how much and at what interest rate), living in some places, or getting some jobs (particularly if you want to work in the debt collection industry or perhaps for a credit card company).
12. Fun Money
The money in your budget which goes towards spending on whatever you want. This is ideal to have in your budget because it keeps you feeling like you are free financially. It keeps you living. Some people have as little as twenty dollars of fun money and others have as much as one thousand or a hundred thousand (but everyone should have a limit). What’s my fun money budget? I’ll never tell. 🤗
13. Grace Period
The amount of time (between charging to your card and making a payment) before interest on the account balance starts to be tacked on. As I said, it’s best to charge and pay (so make sure you have the money before you charge your card). The grace period can be anywhere between fifteen to thirty days (depending on the credit card company).
14. Account Balance
The amount owed on a credit card. It’s best to owe nothing. Pay as you go, and use that card for rewards.
15. Interest Rate
The percentage of a loan (on your card, line of credit, or any other loan) that is charged in addition to the amount borrowed. Interest is calculated against the amount you still owe the lender. There are low interest rates (that are as low as 5-13%), rates that are right in the middle (such as 12-14%), and high interest rates that are high (such as 15-25%). Higher than high is called predatory lending (from a loan shark, and it’s not OK).
You guys, because of the fact that I did not major in finance, and because I am in fact just well-read civilian who wants to maintain a healthy relationship with the gas of the earth, I would recommend that you check out the following sites for more information on money management💰:
Photo by Fabian Blank on Unsplash