Talking about money can be awkward and uncomfortable. And, comparing yourself to your sister, brother, friends, neighbours, and coworkers certainly doesn’t help. The state of your finances does not determine what kind of person you are, and the topic is no longer taboo. So, why aren’t we talking more about money? Once you ask those lingering questions, you may get some much-needed answers. These next five questions are a good place to start.
- How much should you tip?
- How much should you be saving?
- How much should you have in an emergency fund?
- When should you start investing?
- How often should you check your credit score?
1. How much should you tip?
With access to chip cards, tap, and mobile wallets, it is easier to pay for purchases without cash. This is great for goods, but what about services? It is customary to leave a 15 to 20% tip at restaurants, taxis and rideshares, and a few dollars for valets, hotel staff, and food delivery. Many forget to tip tattoo artists, estheticians, hairstylists, movers, and masseuses, but it is standard practice in these industries too. So, make sure you always have some cash on hand before you visit your barber or use amenities that may not have a point of sale (POS) terminal.
When a POS device is available, there are still a few details to pay attention to before you insert your credit card. The custom pre-set tip amounts seem to be climbing. A screen that once read 10%, 15%, 20% now reads 5% higher per option. However, there is another catch. Most often, when clicking the percentage option, you are tipping on top of the tax value. That means you could be tipping an extra 13% if you are in Ontario. Although you may feel pressured to choose one of these options, you should not feel guilty about selecting the “other” button and specifying a dollar amount.
If you have a smartphone handy, bring up the calculator to multiply the pre-tax amount by 0.15 (15%) or 0.20 (20%) to calculate your tip. If you have a bill of $25.75 and wish to tip 15%, you could leave $3.86 or round up to leave an even $4.
2. How much should you be saving?
There is no one exact number for how much you should be saving, although the Canadian government does recommend 5% or more of your income. To hit your savings goals, it is important to budget and track your expenses.
The Financial Consumer Agency of Canada recommends the following budget guidelines:
- Savings: It is recommended you put at least 5% of your annual income toward retirement savings, income tax, car, house, education, and retirement funds.
- Debt repayment: The average debt repayment is 15% or less of your annual income. This can include your credit card, line of credit, personal loan, student loan, or other debts.
- Housing: Your housing budget should be no more than 35% of your income. This includes rent, insurance, furniture, appliances, hydro, water and sewage, and heating.
- Communications: It is recommended you put no more than 5% of your income toward communications, including your cellphone, cable, internet, and subscription services like Netflix.
- Food: You should allocate no more than 20% of your budget to food, including groceries, restaurants, and take-out.
- Transportation: Rideshare, car payments, car insurance, gas, registration fees, parking, and public transportation should be 20% or less of your income.
- Education: Tuition and school supplies should be 8% or less of your income.
- Recreation: Travel, club memberships, tickets to events, sports equipment, and other recreational fees should make up 15% or less of your income.
- Personal care: Haircuts, skincare, and beauty supplies should be 2% or less of your budget.
- Clothing: Accessories and clothing should make up 1-5% of your income.
- Medical: Dentists, specialists, health benefits, and other medical expenses should fit within 5% or less of your budget.
- Pets: Vet bills, food, and supplies should make up no more than 2% of your budget.
- Fees: Banking and credit card fees, as well as professional dues, should make up no more than 2% of your income.
- Gifts and donations: Spending money on gifts and donations should be 5% or less of your budget.
3. How much should you have in an emergency fund?
If your car broke down tomorrow, would you have enough money to fix it? How about if you lost your job? Many unforeseen expenses seem to pop up when you least expect it, from needing a new phone to vet bills. It is important to have an emergency fund to cover these surprise costs.
Experts recommend that you save the equivalent of three to six months of your regular expenses to start. From there, saving three to six months of your wages is the suggested target. It may seem farfetched but can be more attenable than you think.
It’s okay to start small. By making your coffee at home, you can save around $40 a month. This would equate to $480 a year. If you’ve got it, $20 a week is $1,040 a year. Creating a specific saving account for these funds can ensure they remain untouched. And, choosing to automatically transfer these funds on payday or at the end of the month can help you stay on track.
4. When should you start investing?
There was a time when employee pension plans were the norm, and houses and tuition prices were more affordable. But gone are the days. Growing your savings and building an investment portfolio may be more important than ever. So, when should you start investing?
The answer is now if you are able. It is never too early to invest, but you can be too late. Contributing to products like your registered retirement savings plans (RRSPs) or purchasing guaranteed investment certificates (GICs) are great options to help your money grow with time. GICs can be purchased for 30 days to 10 years, with longer terms typically featuring higher interest rates.
RRSPs can lower your taxable income each year you contribute, which may result in a tax return. These investments grow tax-sheltered, though, in the end, they are not tax-free. You will see taxes when you withdraw the funds. First-time homebuyers can also benefit from their RRSP through the government’s Home Buyer’s Plan if they meet the requirements. However, removing money from your RRSP under normal circumstances, before the age of 71, can result in penalties.
Another great savings opportunity is a tax-free savings account (TFSA). A TFSA offers high-interest savings, tax-free, up to the contribution limit, and you can access your funds without penalty. So, it’s best to weigh your options between a TFSA vs. RRSP based on your current circumstances.
5. How often should you check your credit score?
Filling out a rental application may be one of the first times you check your credit score. However, your score has been evolving since the moment you opened a credit account, most likely your credit card or a postpaid phone plan.
Your credit score can help you get an apartment, finance a car, or get a mortgage. It is important to know your number, catch any mistakes, and improve it where you can. To do this, you can request a copy of your credit report from two nationwide monitoring agencies, Equifax and TransUnion. Both are reputable; however, your mortgage lender, landlord, or car dealer may prefer one over the other.
Even if you are not applying for credit, it is recommended you check your credit score annually at a minimum. Fortunately, Canadians are entitled to a free copy of their credit report every 12 months from each bureau.