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I'm on holidays this week, so we're running out a couple of the most read editions of Carrick on Money from 2017. This particular newsletter looks at the reasons why people feel stuck in a rut financially. There will be no newsletter on Tuesday December the 26th. Happy holidays!
The Canadian economy has finally started to build some momentum – that's why interest rates moved higher in 2017. Do you feel like you're getting ahead financially? If not, here are some fresh insights about personal finance habits that may help. They come in the form of five misconceptions about money that touch on some important themes, notably that being in debt is the new normal.
There's no doubt that low interest rates have made us more comfortable holding debt, be it a mortgage, line of credit or car loan. But rates have edged higher in the past few weeks and could do so again. As rates rise, I'd like to see debt reduction become the new normal.
There's reason for optimism about Canadians finally curbing their appetite for debt. In the first quarter of this year, household income rose more than debt levels. Borrowing growth has long exceeded increases in income, so this is a good start. The payoff from debt reduction is more household cash flow left over after paying your fixed costs. It's like getting a raise.
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Rob's personal finance reading list…
These are the flood risks threatening your house
How four types of flooding are treated by your home insurer. Read this item and then check your policy to see how you're covered. Here's a recent column I wrote on how water is probably the biggest threat to your home.
Canada's hidden debt problem
How the low default rates on mortgages can camouflage hidden debt problems – "the mortgage is the very last thing to slip when people's finances get tight."
Essential reading for people who buy used cars
Driving used vehicles instead of buying new is a point of pride with many frugal people. But are they buying the used cars that will cost the least to own? Some surprising news here on where to find the best buys.
Today's featured financial tool
What to bring to your first meeting with a financial planner so you can get right down to business. This list is provided by the people who administer the Certified Financial Planner (CFP) designation in Canada, which is a standard accreditation in the planning business. Two others are the Registered Financial Planner (RFP) and the Personal Financial Planner (PFP).
Ask Rob
The question: "I recently sold a rental property and have a lot of cash as a result – $150,000. We are looking for another property for ourselves. My question is where to park this large sum of money for three to six months or more. I know high-interest saving accounts are an option, and I do want to protect the money. But I have been investing for 20 years and would like a slightly better return then today's rates give."
The answer: To me, the safety of a high-interest account rules. Potential for higher returns exists if you invest the money over this short timeframe, but it's matched with an equal potential for lost money. For peace of mind, make sure your $150,000 is fully deposit-insured. If you're dealing with members of Canada Deposit Insurance Corp., consider putting somewhat less than $100,000 in one account and the rest in another. Remember, CDIC's $100,000 coverage limit per eligible account includes principal and interest.
Do you have a question for me? Send it my way. Sorry I can't answer every one personally. Questions and answers are edited for length.
In case you missed these Globe and Mail personal finance stories
– How helping your adult kids financially became the new normal
– Five simple ways to de-stress your investing plan
– Suburban couple look to get their savings back on track
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