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Welcome to Canada! A little over 20 years ago, I was in your shoes.
My parents decided to move our family to Canada from the Philippines. To say that it changed the course of my life is an understatement.
I was in my mid-teens and of course I was unconvinced that uprooting our whole family was a brilliant move.
But when I hit my early twenties, I pledged my allegiance and became a Canadian citizen. The choice of moving may not have been mine, but…
I chose to become a Canadian.
(Thank you ma and dad.)
Getting your personal finances in order as an immigrant
We were lucky because friends took us under their wings when we were immigrants and had so many questions.
They drove us around, showed us where to do groceries, took us to the mall so we didn’t miss out on discounted warm winter jackets, and played tour guides for us. Such generous people. We were lucky indeed.
Part of building a new life here is also getting our finances in order.
Over the years my parents figured it out. But they probably wouldn’t have said no to a how-to guide like this one…
So let’s get started.
Want to start getting your finances in order? Grab your free copy of this Ebook – read it anytime, anywhere.
Setting up your bank account
Getting your banking in order is one of the first steps. So naturally, you wonder…
Which bank is best?
Sounds simple enough, but this is a question that only you can answer.
And the answer is highly dependent on your current needs. Here are some things to consider:
- Proximity: Which one is closest to your house/rental? The closest bank could make sense if you rely on public transportation.
- Convenience vs fees: How much do you value convenience over savings on monthly fees?
- Technology and customer service: How comfortable are you with doing ALL your banking online? Or do you prefer to deal with someone face-to-face?
The “big five” banks of Canada all seem to have a banking program for newcomers:
- Bank of Montreal (BMO) – chequing account with no monthly fee for 12 months, read the details here
- Banks of Nova Scotia/Scotiabank – no fee chequing account for 12 months, read the details here
- Canadian Imperial Bank of Commerce (CIBC) – no monthly fee banking for 12 months, read the details here
- Royal Bank of Canada (RBC) – no monthly fee banking for 12 months, read the details here
- Toronto Dominion Bank (TD) – chequing account no monthly fee for 6 months, read the details here
Other big Canadian banks offering a newcomer package are:
- National bank – free chequing account for up to 3 years, read the details here
- HSBC – up to $700 in bonuses for opening certain accounts (minimum deposit required and other tasks required), read the details here
There are a list of things to consider, including:
- Withdrawal limits – how much are you allowed to withdraw at the bank machine, in person, using Interac, paying bills, and doing a transfer?
- Cheques – if you plan to use cheques to pay for bills, how much do they cost?
- Savings account interest rate – the interest rate offered in your savings account is typically higher than chequing, but many banks don’t offer very good rates.
- Chequing account features and fees – they’ll try to entice you into a high fee account from the start, so make sure it’s right for you.
- How about other fees? Like…
- If you have a set number of included transactions monthly, what counts as a transaction and how much do extra transactions cost?
- Does it cost extra to do a debit transaction from your savings account?
- How much will they ding you if a cheque or debit transaction bounces?
- Will it cost extra to use the teller?
- What about overdraft fees?
Chequing vs Savings accounts
As you go through your research, you may wonder…
What’s the difference between chequing and savings?
With a chequing account, you can have instant access to:
- withdraw money,
- pay your bills through online or by phone,
- deposit your cash, and
- pay by your debit card or by cheque.
With a savings account you:
- may be charged extra for chequing-like transactions or be restricted from doing them, and
- usually have a higher interest rate, sometimes with a minimum amount deposited.
No fee banking
Here are 4 established financial institutions that offer no fee banking nationwide:
Whereas the no-fee monthly banking above is between 6 to 12 months, true no-fee banking is free forever.
But before you jump on the bandwagon, consider:
- Digital banks have no traditional office space you walk into, that means…
- You do MOST of your transactions online – there are a few Tangerine cafes out there, but they are few and far between with limited services.
Talking to someone in person and processing your documents face-to-face could make the application process much easier.
Pro tip: Down the road, when you’re more settled and familiar with how banking works – and if saving on monthly fees becomes your priority – you can always make a switch to no fee banking.
Just like the big banks, credit unions offer chequing accounts, mortgages, and business loans. Unlike the big banks – with centralized leadership from their head-office – leadership in credit unions is localized.
That means you should have better access to a decision-maker to let them know what’s working – and what’s not working for you.
An even bigger difference is ownership.
You need to become a member in order to join and start banking with a local credit union. Because the basic idea with credit unions is that they’re owned by members who also use their products and services.
So not only do you have better access to decision-makers, you are one. As a member, you can voice your concerns and vote on what’s important to you.
If it sounds like credit unions fit your values, then this locator is a good place to find which is closest to you. Not all credit unions are listed, but most are.
Banking with a credit union has its own limitation: fewer locations for cash withdrawals. Credit unions just don’t have a good location density, while there are big banks at pretty much every major intersection.
To combat this inconvenience, credit unions have joined together so their members have access to ATMs all over Canada that belong to The Exchange Network. Check their list for participating credit unions and financial institutions.
There’s also a slightly higher chance of a credit union running into financial difficulty or offering limited products and services. Don’t worry, your money is protected by the CDIC up to $100,000 if they do become insolvent – but nobody wants to deal with all of that.
Making a choice
The freedom to choose is one reason why I love Canada.
While the answer to the question “which bank is best” may not be simple and is highly personal, how fortunate we are to have great options to choose from.
Here are some final pointers when deciding which bank is best for you:
- Make a list of things that are most important to you. Remember:
- convenience vs fees,
- technology and customer service.
- Narrow your choice by doing a search on which banks are closest to where you live or work.
- With your short-list in mind, compare the banking packages available.
- Do your research, get familiar with their websites, have a list of questions, and call around to get the missing details.
When you have the full picture of your needs and what’s available, you’ll have your answer.
And don’t worry. Choosing your bank now doesn’t mean you’re locked into it forever.
If after a few years, you find your needs and priorities are different, you can always re-evaluate if making a switch makes sense then.
Related: Canada’s Top 10 Places To Live
Building your credit history
There are two credit bureaus in Canada:
Before any financial institution agrees to loan you money (like a mortgage or a car loan), they need to assess if they’ll be able to get their money back from you.
They make that assessment by examining your credit score and your credit history.
Credit scores range between 300 to 900. The higher the credit score the better your credit trustworthiness (likelihood that you’ll pay what you owe). Lower scores, like less than 650, start to make companies and financial institution nervous, and they could either:
- not approve your loan, credit application, or request for service.
- raise the interest they charge to make up for the increased perceived risk they’re taking on.
- require you to put down a deposit or pay in advance for your credit card or service.
So you want to have a high credit score, not only to have a better chance of approval for your credit applications, but also to get the best rates available.
Because you’re new, you may need to start from the ground up.
To establish and build your score, you’ll need to get and use credit responsibly. That means paying your credit on time. A steady income and the same mailing address for at least 1 year could also help.
A good place to start would be getting a secured credit card, or taking advantage of the newcomer credit card offers from the banks listed above. Here are a couple of cards that can be secured and have a high chance of approval:
Home Trust Secured Visa Card– offers no annual fee and an interest rate of 19.99% across the board and a high chance of approval MBNA True Line Gold Mastercard– offers the lowest interest rate of 8.99% with a $39 annual fee
Once you have an established credit, you can switch to a regular credit card that fits your needs better.
Speaking of credit cards…
Having a credit card in your wallet offers incredible convenience and rewards potential.
However, if you don’t watch your numbers carefully, you can also overspend and go into debt in no time.
Let’s be clear: anything you spend using a credit card is borrowed money. That means you’ll need to pay your balance in full and on time.
Otherwise not only will you have to pay the principal amount, you’ll also have to pay the unforgiving interest on top.
What’s more? Your fragile credit score will also take a hit if you pay late.
The point is: applying for a credit card isn’t a necessity…It’s a choice.
You don’t need to have one – and you can get by without one.
However, if you do decide to apply for one, make sure to avoid these 12 credit card mistakes. And keep these 2 things in mind:
Do a credit card comparison
There is no need to sign up for credit cards from the same financial institution where you decide to do your banking.
You can – and should – assess where you do your banking and which credit card to apply for independently.
You may decide to open an account with one bank, however if another financial institution offers the best credit card for you, you don’t need to get whatever card your bank is offering…
You have a choice.
Do your research, compare your credit cards, and get one that fits you best.
If your goal right now is to build your credit, then having a secured credit card with guaranteed approval could make the most sense for now. Going with your primary bank might also make sense, but only if it gets you approved easier today.
You can always re-evaluate after a year or so after your credit score has improved or if you find your needs and priorities are different.
Pay your balance in full each and every month
This is worth repeating again…and again.
You’re in a lot of trouble the minute you treat your credit card as a source of extra income. Because it’s not.
You get dinged by hefty interest rates (from the day each purchase is made) the minute you don’t pay your balance in full and on time. Depending on the card, interest rates can vary, but the most common is 19.99%.
Filing your taxes
FIling your taxes for the first time can be daunting and confusing. Luckily this government resource sets out a step-by-step guide on how to do your taxes.
Start a folder for your tax slips, pay stubs, child care receipts, education receipts, and other deductions, credits, and expenses. When in doubt, keep the receipt for now, and then find out if you’ll need it to file your taxes later.
Help filing your taxes
If your total family annual income is considered modest, you could qualify to get help to file your taxes for free with tax preparation clinics, which are offered between February and April each year. Here’s list by province.
Free Tax Software
Hiring an accountant is expensive and doing your taxes yourself by paper is very time consuming and confusing. Good tax software will make filing your taxes SO much faster and easier than DIY.
UFile is great tax software that my family has been using for free to file our taxes. It’s free to use if you’re a newcomer to Canada and this is your first year filing your taxes, if you’re a student, if your tax return is very simple, or if you earned less than $20,000 in income during the year. And it’s always free to try it out – you only pay when you file.
SimpleTax is a newer tax filing solution that is 100% free to use and file with. I’ve never used it myself, but I’ve only heard good things about it. They do ask for a donation if you’re able to so they can keep their company afloat, but that’s completely up to you. Give it a try here.
Investing your money
In Canada, we have two vehicles that the government set-up to invest our money long-term and take advantage of compound interest…as well as save on taxes:
Tax Free Savings Account (TFSA)
Some say that TFSA is the best thing the government has done for us.
Starting 2009, Canadians over 18 year old can contribute into their TFSA up to a maximum annual amount, which changes depending on the year.
Any unused contribution room in one year can be carried over to the next year so your contribution room is always adding up. After you contribute, your money can grow tax-free…and you can withdraw it whenever you want, also tax-free.
Registered Retirement Savings Plan (RRSP)
Another way to invest and save on taxes is through an RRSP.
The amount you invest through RRSP is tax deductible (it effectively reduces your taxable income by the amount you contribute) and grows tax free as well.
As with the TFSA, there is a limit to how much you can contribute in your RRSP per year which is 18% of your income from the previous year. This amount can be carried forward to future years if not used fully.
Unlike TFSA, withdrawals from RRSP is taxed at your current income tax rate. Because RRSP is meant to house your money long-term until you retire.
To get the best value from your RRSP, you want to contribute in years when your income is high and withdraw when your income is lower. Be sure to use your TFSA for low income year contributions.
3 ways to invest
You can hold almost any type of investment inside both a TFSA or an RRSP – even cash. And…
There are lots of ways to invest, including: mutual funds with the help of a financial advisor, do-it-yourself index investing, using a Robo Advisor, buying individual stocks, or maybe investing in a property.
For now, we’ll discuss the first 3 briefly and provide additional resources for further reading.
A mutual fund is a group of stocks and bonds managed by a fund manager who buys and sells mutual funds on behalf of the group of people invested in this mutual fund.
As an investor, you own shares of the companies that belong in mutual funds you’ve invested in.
As you get settled and start getting finances in order, you may get a call from a financial advisor who sweet talks you into managing your hard earned money. But before you do, make sure you do your due diligence. Asking these questions may be a good place to start:
- What asset allocation do they recommend for you?
- How do the mutual funds recommended compare to index?
- How much would their management fees (Management Expense Ratios or MERs) be?
- Are there any extra fees for buying or selling the funds they recommend?
If you’re looking to learn more about investing in Canada, check out these 3 books:
- The Millionaire Teacher
- Wealthing Like Rabbits
- What’s Good, Bad and Downright Awful in Canadian Investments Today
Do-It-Yourself (DIY) Index investing
There is no doubt that DIY investing gives you the lowest MERs – and therefore the maximum profit from your investment.
The problem: you need to know what you’re doing.
You’ll need to do lots of research and reading on the subject to be comfortable. And once you’re comfortable with the investing knowledge you’ve gained, the danger becomes overconfidence and making emotional short-sighted decisions.
One approach to DIY investing that minimizes short-sighted and emotional decision-making is the couch-potato approach. A different topic altogether. (For now, here is a good place to start from Mr. Couch Potato himself.)
If mutual fund MERs hold your investment returns back and DIY investing is too time-intensive, the middle ground could be investing with robo advisors. Here’s a good guide about the robo advisors in Canada.
The bottom line
Give yourself time to adjust to your new life as an immigrant to Canada.
It’s not easy to pack up, leave everything behind, and start from scratch. And the adjustment period is different for everyone…but expect that things may not click right away. That’s normal. And its ok.
The great news is that in Canada, there’s plenty of opportunities to learn, to work hard, to try and do better.
So be patient with yourself. Because soon enough, maybe in a few years, you’ll hear yourself calling Canada…home.
Download your copy of this Ebook – and start getting your finances in order.