Test 4 Flashcards
What are some ways to save money? List at least 3
- choose free options when going places
-share food/servings
-put a dollar or so in a jar everyday
-coupons/sales
-be patient and wait to see if you really want it
-repurpose things/fix them up
-make it yourself (DIY)
-don’t spend on things you don’t need
What is credit?
Money that the bank loans you that you can spend. You have to pay that money back by a due date.
What is debit?
Money that comes from your own bank account.
What is interest?
Money that you have to pay if you don’t pay your amount due from a credit card by the due date.
Why is it not efficient to only pay the minimum amount when repaying credit card debt?
Because interest continues to raise the amount you need to pay back, and the amount you’re paying to pay back your debts isn’t really doing anything.
What are the 7 types of savings accounts?
-Regular savings account
-Emergency savings fund (ESF)
-Tax-free savings account (TFSA)
-Registered retirement savings plan (RRSP)
-Registered education savings plan (RESP)
-Guarenteed investment certificate (GIC)
-Non-registered mutual funds
What is a regular savings account? What are the advantages/disadvantages?
Another account that’s separate from your regular bank account that’s usually used for saving money for big things (eg: house, car, vacation). Usually has a higher interest rate than your regular bank account.
A : you can withdraw at any point with no financial penalty
D: you can withdraw it at any time, which may mean you withdraw it before your planned amount (especially if you’re a more Impulsive person).
What is an ESP? Advantages/disadvantages
Emergency Savings Plan
A separate account set aside as savings for an emergency. If something bad happens you have this store to replace it. (Eg: water heater breaks, roof leaks, dishwasher stops working)
A : you can withdraw it at any time without financial penalty
D : you may take it out for more fun things instead of leaving it for emergencies
What is a TFSA? Advantages/Disadvantages
Tax-Free Savings Account
An account where you can set aside money. Only for people above 18 and have a valid social insurance number.
A :- any amount contributributed or earned (including when withdrawing) is generally tax free.
-can be withdrawn at any time
D : -you can only contribute a certain amount per year
-can be withdrawn at any time and used for more fun things if you’re an Impulsive person
-contributions to a TFSA are not deductible for tax purposes
What is a RRSP? Advantages/Disadvantages
Registered Retirement Savings Plan
A retirement savings plan that you establish and the governement registers. Both you and your spouse or common law partner can contribute. The amount you can pay yearly is based off of how much your income is yearly.
A : your RRSP contributions can be used to allow you a tax deduction
-you will not be taxed for this money when you withdraw it
D : you have to pay a financial penalty if you withdraw this before you retire
-you will be taxed when you cash in your RRSP, even if you wait until you’re retired
What is an RESP? Advantages/Disadvantages
Registered Education Savings Plan
An account registered by the government, to be used for your child post-secondary education. You can contribute up to 50,000$ in one RESP
A : -your money grows tax free in the RESP
-the money your investment earns while in an RESP will not be taxed until you go to withdraw it for your child’s education
-since many students have little to no income they can usually withdraw the money tax free
-you can transfer the account to another child if your child chooses not to pursue post-secondary education
D : -you do not get a tax deduction for money you put into an RESP
What is a GIC? Advantages/Disadvantages
General Investment Certificate
A low-risk way to invest your money because your interest rate will stay the same as when you opened the account. You pick an amount of years 3, 5, 10, etc. for your money to mature in this account.
A : -guarenteed to make money so low-risk
-no limit to the amount you can invest
D : you cannot get your money back before the term ends
-you cannot get tax deductions for your GIC investments
-savings are not tax-free
What is a Non-registered mutual fund?
A non-registered mutual fund is a collective of investments. (Eg. Stocks, bonds) They are open ended, so as more people invest the fund issues new units and shares
A : there is not limit to the amount of money you can invest
D : no tax deduction benefit
-not tax-free
-you can lose money on your investments if your funds don’t do well
What is budgeting?
A way to organize your money so you know how much you’re spending and what you’re spending it on.
A budget is planning where you’re going to spend your money.
How do you budget?
Your income - expenses = 0
Assign your money to different categories and amounts, so every category has a certain amount you’re allowed to spend on it that month. (Eg: clothes 50$)
