Does CPP expansion help low income earners?

By Sheryl Smolkin

Low earners stand to gain little from an expanded Canada Pension Plan (CPP), according to a new C.D. Howe Institute report. In “The Pressing Question: Does CPP Expansion Help Low Earners?”, authors Kevin Milligan and Tammy Schirle show the large differences in the net payoff from the expanded CPP for lower and higher earners.

Federal and provincial finance ministers agreed in June to expand the Canada Pension Plan. Under the status quo, CPP offers a 25% replacement rate on earnings up to a cap of $54,900. The expanded CPP will add a new layer that raises the replacement rate to 33.3% up to a new earnings cap of about $82,900 when the program is fully phased in by 2025.

To pay for this, both employer and employee contributions will be raised by one percentage point up to the existing earnings cap, and by four percentage points between the old and new earning caps. This expansion will be phased in during the period 2019 to 2025 for contributions, with benefits being phased in over the next 50 years commensurate to contributions paid.

This reform will substantially raise expected CPP benefits for most young workers now entering the workforce. For lower- and middle-earning workers, the higher replacement rate will lead to an eventual benefit increase of about 33% over existing CPP benefits.

For a high-earning worker, the maximum CPP benefits will increase more than 50% over the status quo. These expansions are large enough to make a noticeable difference for the younger generation of workers as the expanded CPP matures over the coming decades.

However, the C.D. Howe study authors note two important shortcomings of the new package hamper its effectiveness, both related to low earners.

First, low earners are already well covered by the existing suite of public pension benefits – many now receive more income when retired than when working. Why expand coverage where it is not needed? As a contributory pension, the CPP risks worsening the balance of income between working and retirement years for low earners.

Second, the income-tested withdrawal of some government-program benefits wipes out much of the impact of extra CPP benefits for many low-earners. Around one-third of Canadian seniors currently receive the income-tested Guaranteed Income Supplement (GIS), so concerns about interactions with income-tested benefits have a broad base.

In order to be eligible for the GIS in 2016, a single, widowed or divorced pensioner receiving a full OAS pension cannot have over $17,376 individual income. Where a couple each receives a full OAS pension they will not be eligible for the GIS if their combined income exceeds $22,944.

To summarize these issues: expanding CPP for low earners risks making some Canadians pay for pension coverage they don’t need. To make matters worse, extra contributions may reduce the living standards of low earners today for modest net rewards in retirement tomorrow.

The CPP agreement-in-principle reached by the finance ministers may address some of these concerns by offering an improvement to the Working Income Tax Benefit alongside the CPP expansion. It is possible that an expanded WITB could effectively counteract increased CPP contributions by some low earners, but no details of the WITB expansion have been provided to date. Nevertheless, low earners would still face the problem of CPP-GIS interactions that undercut the impact of expanded CPP benefits.

In a Globe and Mail article, authors Janet McFarland and Ian McGugan also note that expanded CPP does not do much to help people who do not collect CPP in the first place. That describes many senior women who spent most of their lives as homemakers and so earned little or nothing in CPP benefits. About 28% of single senior women over 65 live in poverty, according to a study this spring for the Broadbent Institute by statistician Richard Shillington of Tristat Resources.

In addition they say the planned CPP changes will also do only a limited amount to help affluent savers because the maximum amount of income covered by the plan will increase to only about $82,800 by 2025. Therefore, those with six-figure incomes will still have to save on their own if they want a retirement income that will replace a considerable portion of their incomes above the expanded limit.

Sept 19: Best from the Blogosphere

By Sheryl Smolkin

The discussion about whether or not to buy a home and if home ownership is a good investment rages on, particularly among younger people living in expensive urban areas who may be contemplating the purchase of their first property.

While purchasing property is definitely a huge financial commitment, there is also a strong emotional component in every decision to make an offer for real estate. Even if the house turns into a “money pit,” it’s YOUR money pit and no one can kick you out unless you default on the mortgage.

Sean Cooper, who bought a house at age 27 and paid off his mortgage three years later, believes the home ownership dream is still alive and well. He says, “By being laser-focused on paying down your mortgage quickly, you can reach financial freedom years sooner…..A paid off home gives you choices: you can quit the rat race, travel around the world, start your own business or take a job you truly enjoy.”

On Millennial Revolution, FIRECracker does the math to see if she and her partner The Wanderer would be richer if they bought a house in 2012, instead of investing their $500,000 down payment and renting. Based on Toronto Real Estate Board figures for the period, she estimates she would have made a respectable 7.8% if she sold in 2016. However, expenses like real estate commission, lawyers’ fees, maintenance, utilities and additional furniture would have reduced their profit. so by investing instead of buying, their gains were 2.61 times the gains from the house.

On their very first outing with a real estate agent, Jessica Moorhouse and her husband bought their first place, officially becoming homeowners. They ended up buying a two-story stacked townhouse in Toronto’s west end. “We knew that if we found a place that ticked off all of our boxes and was within our budget, we needed to act fast,” she says. “Places like the one we got do not come around often, and I am seriously so thrilled we’re living in this place!”

Those of you who already live in your own home and want to move up face the classic homeowner’s conundrum: Should you buy first or sell first? The choice depends on the people, the house and the city, realtors say, though there are some constants that hold true for most situations. “If it’s a seller’s market, then you need to be buying first. If it’s a buyer’s market, then you need to be selling first,” Ara Mamourian, broker and owner of Spring Realty in Toronto says.

And once you do own a home (or at least the bank does) the next question you will likely face is Should You Save Money or Pay Extra On Your Mortgage? Bridget Eastgaard’s spreadsheet shows that after 25 years, homeowners who opted to put $5,000 extra into a their TFSA instead of towards their mortgage, would come out $80,000 dollars richer than the person who thought it was worthwhile to put the cash towards his mortgage, just to become debt-free five years faster. Nevertheless, she acknowledges it really only works this way because mortgage rates are so low in Canada.

Do you follow blogs with terrific ideas for saving money that haven’t been mentioned in our weekly “Best from the blogosphere?” Share the information on http://wp.me/P1YR2T-JR and your name will be entered in a quarterly draw for a gift card.

Majority of Canadians would change jobs for retirement savings

By Sheryl Smolkin

What’s most important to you when you are looking for a new job? A higher salary? Career development opportunities? Dental benefits? You may be surprised to learn that a new survey from ADP Canada reveals that retirement benefits such as a pension or a group Registered Retirement Savings Plan (RRSP) can be a deciding factor in a job change.

According to the survey, over three-quarters of Canadian workers (77%) say they would consider jumping ship if, all other things being equal, another employer offered retirement support. Furthermore, there was no significant difference in willingness among different age groups, with almost 78% of Millennial workers saying retirement benefits would prompt a job change.

Employees also report that medium-sized businesses (51-500 employees) are the most at risk to lose talent (86%) if they do not offer a retirement savings arrangement as compared to small businesses with under 51 employees (70%) or larger organizations with over 500 staff (74%).

“We were surprised to see the difference in willingness to change jobs among employees in mid-sized companies, versus smaller organizations“ says Sooky Lee, Division Vice President and General Manager HR Business Process Outsourcing at ADP Canada. “This could be because employees in larger organizations expect their employers to have more robust programs around retirement.”

Although the data shows that retirement support is a competitive factor, employers should note that compensation takes many forms, and is just one factor in employee retention. “In a competitive labour market, retaining top talent becomes more difficult, so organizations should combine a competitive financial package with other perks.” Lee explains.

Other factors important to survey participants “beyond the money” include:

  1. Working Remotely: Some employees may appreciate the flexibility of working from home regularly or on a casual basis.
  2. Flex-time: Flexible hours can allow workers to manage busy home and work commitments, which can decrease their likelihood to jump ship.
  3. Compressed work weeks: Some companies offer employees the option of working a little longer for four days so they can take a fifth day or half-day off. Consider special summer hours that let employees slip out a little early on Fridays.
  4. Extra time off: Offering someone extra time away from the office to unwind is a nice way to say thank you for long hours or show appreciation for good work.
  5. Casual day or casual workplace: Dressing down to support a charity or as part of your corporate culture can boost employee satisfaction.
  6. Gift of giving back: Give employees time to volunteer in their communities or provide donation-matching programs.

The Saskatchewan Pension Plan offers employers the opportunity to add a smart, simple and flexible pension plan to their total compensation package. There is no cost to join or set up payroll deductions for the plan and no required payments. Contributions can be made by the business, employees or both.

SPP is locked-in until age 55 following the initial six-month refund period. This ensures that that contributions made by the employer and the employee are used for retirement. SPP is also portable so when employees move away they can continue the pension plan the company started for them.

For information about SPP for business, click here.

Sept 12: Best from the Blogosphere

By Sheryl Smolkin

Blogging is essentially self-publishing. Because it is so easy to get started, it’s not surprising that there are new blogs popping up on every subject daily. I must admit it’s easier to keep going back to the ones I know and like instead of constantly monitoring some of the newer (or new to me) guys on the block.

But one blog that I must confess I’m becoming addicted to is Millenial Revolution by Kristy Shen and Bryce Leung. The two 30 year olds write about how they got rich and retired to travel the world by not joining what they call “the home ownership cult.” Start with their How we got there series. See my comments on their strategy from the perspective of a semi-retired boomer in Rent vs Buy: A reality check.

But I’m also working my way through a list of the 2016 Top 25 Retirement Bloggers on Personal Income. Many of the blogs on the list are directed at U.S. readers, but much of the commentary on retirement is generic. Here are a few I sampled this week:

In A Wealth of Common Sense Ben Carlson writes about What it takes to retire early. He cites stories from other bloggers who:

  • Retired early by using rental income and moving abroad.
  • Saved $1 million by choosing to live in a place with a low cost of living to retire in their early 40s.
  • Retired in their 30s (Shen and Leung noted above) by avoiding home ownership in an expensive real estate market.

He concludes that to retire really early you have to save lots of money and have very little need for a large annual income in retirement.

Retire by 40 author Joe Udo analyzes the rule of thumb from the early retirement community that suggests you need to accumulate 25x your annual expenses. This benchmark is derived from the 4% withdrawal rate. So if you have 25x your annual expenses, the premise is that you would be able to support your lifestyle by withdrawing 4% from your investment every year. But Udo retired at 38 and four years later he says lifestyle inflation can easily erode retirement savings. So he suggests that extreme early retirees may need a cushion of 30x annual expenses or even more to cover a possible 50 years of retirement.

Mark Miller blogs on retirementrevised. When not to save for retirement may appear to challenge conventional retirement savings orthodoxy, but in fact it makes perfect sense. He says for many people, saving for retirement actually should be fairly low on the financial priority list – well behind the more immediate goals of building a rainy day fund and reducing their consumer debt.

Our next life by Mr. & Ms. ONL asks What Are Your Early Retirement Deal-Breakers? They are not willing to move to a low cost-of-living area they don’t like just to get by or give up a home base entirely and embrace a fully nomadic life. Nevertheless they say, “Life is short, our time here is precious, and even if we have only a short time to climb mountains around the world like we hope to, it will be more time than we would have had if we’d stayed on the usual career treadmill.”

Do you follow blogs with terrific ideas for saving money that haven’t been mentioned in our weekly “Best from the blogosphere?” Share the information on http://wp.me/P1YR2T-JR and your name will be entered in a quarterly draw for a gift card.

How spending declines with age

By Sheryl Smolkin

A recently retired actuary I once met at a conference told me that retirees worry primarily about their health and their money. Even retirement savings that seemed perfectly adequate when you hand in your office keycard for the last time seem to be eroded by the unrelenting drip, drip of inflation.

That’s why the lucky few who have indexed or partially indexed defined benefit pensions (most common in the public sector) are the subject of “pension envy” by the 80%-85% Canadians who do not have access to any form of workplace pension.

But according to a new C.D. Howe research paper by actuary Fred Vettese, retirees actually spend less on personal consumption as they age. He says, “This decline in real spending, which typically starts at about age 70 and accelerates at later ages, cannot be attributed to insufficient financial resources because older retirees save a high percentage of their income and, in fact, save more than people who are still working.”

Vettese cites evidence showing that compared to a household where the head is age 54, the average Canadian household headed by a 77-year-old spends 40% less. None of this drop in spending is attributable to the elimination of mortgage payments because they are not considered consumption. Much of the fall in spending at older ages was traced to reduced spending on non-essential items such as eating out, recreation and holidays.

The author focuses on public sector pension plans, which are fully indexed to inflation. His findings show that these plans could move to partial indexation, generating significant savings. “Given that more than 3.1 million active members are contributing to public-sector pension plans, the total annual savings could add up to billions of dollars, he says.” At the individual level, he suggests these savings would allow public-sector employees to increase current consumption or to reduce debt.

Given this phenomenon, cost-of-living indexation of workplace pension benefits could be reduced without sacrificing consumption later in life, Vettese concludes. He also notes that, “Reduced pension contributions would free up money to be spent today when families struggle to raise children and pay down mortgages on houses, thereby raising plan members’ collective economic welfare over their lifetimes.”

The average resulting reduction in required total employer/employee contributions to public-sector plans is of the order of $2,000 a year per active member. There are over three million active members in Canada’s public-sector DB pension plans, most of which provide full inflation protection or strive to do so to the extent that funding is available.

Nevertheless, Vettese says Pillar 1 (OAS/GIS) and 2 (CPP) pensions should not be subject to any reduction in benefits or contributions because these plans are generally designed to cover basic necessities, such as food and shelter. In the absence of evidence to the contrary, he believes it is reasonable to assume that spending on such necessities does not decline very much, if at all.

I have heard the three phases of retirement described as “go-go”, “slow-go” and “no-go.” My mother at 88 no longer drives a car and can’t to get out to shop very often anymore, so I am prepared to concede that many of her expenses have been reduced. However, her memory isn’t what it used to be and she has had several bad falls, so paying for 24-hour care in her own condo is a huge drain on her assets. Also taxis to multiple doctor’s appointments and medical supplies are expensive.

While Vettese suggests partially eliminated or reducing inflation-protection for indexed pension plans could allow public-sector employees to enhance current consumption and reduce debt, I’m not sure that’s necessarily a laudable or desirable objective. Mom saved and scrimped all her life and because my Dad was a disabled WW2 veteran she gets a tax-free, indexed pension for life. She also collects CPP and OAS.

I’m glad she has the additional disposable income so she can stay in her own apartment with the necessary support system as long as possible. Even though older retirees may no longer go on extended vacations or eat in fancy restaurants, they still have other equally compelling expenses in order to live out their remaining days in dignity and comfort.

Now if we could only figure out a way to help raise the bar for all seniors to be able to afford the same well-earned privilege.

How will your kids pay for higher education?

By Sheryl Smolkin

Going to school after high school can be costly.

A student attending trade school, college, CEGEP or university full-time today can expect to pay between $2,500 and $6,500 per year—or more—in tuition. Books, supplies, student fees, transportation, housing and other expenses will only add to that total.

In fact, full-time students in Canada paid an average of $16,600 for post-secondary schooling in 2014–2015. That is more than $66,000 for a four-year program.

If you are saving for your children’s post-secondary education, give yourself a pat on the back. Canadian parents are ahead of their counterparts in other Western nations in saving for their children’s post-secondary education.

Close to three-quarters (72%) of Canadian parents are saving for their children’s post-secondary education, putting them ahead of parents in the U.S. (65%), Australia (53%) and the U.K. (46%), according to The value of education: foundations for the future report, which includes responses from parents in 15 countries and territories.

However, only 30% of Canadian parents are funding their children’s university or college education through a savings plan specifically for education. Almost one-quarter (22%) are taking that funding from general savings, investments or insurance policies and 66% are using their day-to-day income to get their kids through school.

RESP
That’s a shame because by saving in a registered educational savings plan you are eligible for the Canada Education Savings Grant and the growth in the fund can be tax-sheltered until the student eventually withdraws money for school expenses when he/she is likely to be earning less than you are now.

Employment and Social Development Canada pays a basic CESG of 20% of annual contributions you make to all eligible RESPs for a qualifying child to a maximum CESG of $500 in respect of each beneficiary ($1,000 in CESG if there is unused grant room from a previous year), and a lifetime limit of $7,200.

ESDC will also pay an additional CESG amount for each qualifying beneficiary. The additional amount is based on net family income and can change over time as net family income changes.

For 2015, the additional CESG rate on the first $500 contributed to an RESP for a beneficiary who is a child under 18 years of age is:

  • 40% (extra 20% on the first $500), if the child’s family has qualifying net income for the year of $44,701 or less; or
  • 30% (extra 10% on the first $500), if the child’s family has qualifying net income for the year that is more than $44,701 but is less than $89,401.

Unused CESG contribution room is carried forward and used when RESP contributions are made in future years provided that the specific contribution requirements for beneficiaries who attain 16 or 17 years of age are met.

Impact on your retirement
Given the increasing cost of post-secondary education it is not surprising that many Canadian parents are also concerned about how their children’s educational costs will affect their own finances, with 43% worrying about the cost and 31% concerned about how paying that expense will affect their other financial commitments. If their financial situation becomes difficult, many parents’ long-term savings and retirement plans may be in jeopardy.

Exactly half of Canadian parents believe funding their children’s schooling is more important than contributing to long-term savings and investments and 43% state that they prioritize their children’s post-secondary educational expenses over saving for retirement. More than half (54%) said they would be willing to go into debt in order to afford university or college expenses.

In addition, survey results reveal that Canadian parents are thinking about these expenses early in their children’s lives as 28% of parents start planning ways to fund these expenses when the child is born; 9% before the child is born; and 24% look at these issues before their child begins primary school.

Even so, half of Canadian parents expect their child to contribute financially toward those educational expenses and 39% say their university-aged children are helping to fund their own education, which is one of the largest proportions of all of the markets surveyed, the study notes.

To estimate your child’s future education costs and see how your planned RESP including contributions and grants will cover those costs, plug some numbers into the GetSmarterAboutMoney.ca RESP Savings Calculator.

Aug 29: Best from the Blogosphere

By Sheryl Smolkin

Late August is one of the most expensive times of the year for families with young children. Kids seem to grow like weeds in the summer and often have to be outfitted from head to toe. And expensive computers, tablets, smart phones and sports equipment are now on many back-to-school lists list along with low tech supplies like pencils, pens, binders and post-it notes.

Here are some ideas I have gleaned from other bloggers to help save you money:

  1. Check with the school: Find out from your child’s school what exactly you are expected to provide. There is no sense buying all sorts of notebooks, binders and pens if the basics are already handed out to students.  And teachers often have strong preferences about how they want students to complete and organize their work.
  2. Make a list: Before heading out on a shopping trip for school supplies, check what items from previous years are unused and which binders and back packs can be re-used because they are still in good condition. Then make a list and stick to it.
  3. Take inventory: Try on coats, boots and other clothing items to see if anything still fits. Where you have several children close in age, determine what can be handed down. Consider a clothing swap of gently used items with friends and neighbours.
  4. Spread it out: While you may feel pressured to buy everything at once before school starts, you won’t need snowsuits and boots until November. Spreading out necessary purchases over the next few months until you see great sales will take the pressure off your budget.
  5. Online deals: Major retailers with bricks and mortar stores often offer deals online. In addition to using coupon sites, like RetailMeNot, there are a number of price comparison sites, including shopbot.ca and ShopToIt.ca, that list how much an item costs at various retailers. When shopping online, choose retailers that offer deals such as free shipping, promo codes and discounts.
  6. Buy generic: Pre-teens and teens in particular may be into “name brands” that can cost hundreds of dollars more than generic equivalents of similar quality. Giving your children a limited clothing budget or telling them they have to earn the money to buy trendy items will help them to better understand the value of a dollar and keep your overall costs down.
  7. Shop alone: This may or may not work depending on the age of your child and what you are shopping for. However, the easiest way to avoid arguments about buying more expensive school supplies and clothes with the latest Disney characters may be to shop without your kids so they won’t distract you from your mission of finding and buying items that are the best value.
  8. Used sports equipment: Children grow out of skates and skis every year. Outfitting a minor hockey player can cost hundreds or even thousands of dollars a year. Some sports stores sell hockey equipment starter kits for better prices than if you buy each item individually. You may find gently used equipment on sites like Kijiji. Craigslist, Ebay or a local classified website. Some arenas have sports exchanges or you can talk to parents of older hockey players.
  9. Last year’s model: Contrary to what your kids may tell you, they don’t need the latest iPhone or iPad. The odds of mobile devices being lost or broken are very high. Earlier models may be offered by carriers for under $100 and you can often share minutes on a family plan. Also, kids typically text as opposed to sending emails so a costly data plan may be unnecessary.
  10. Extra-curricular activities: Extra-curricular activities like dancing, swimming, sports and music lessons are an important part of every child’s education but they can add up. Don’t fall in to the trap of signing your children up for more activities than the family schedule can mange for more money than you can afford. Go over the brochure for the local community centre with each child and pick one or two convenient activities that are offered at a price that fits within your budget.

Also see:

Back-To-School Costs: How To Avoid Blowing Your Budget
How to Save Money on School Supplies
Back-To-School Shopping: Five Money Saving Tips
Back-to-School Shopping on a Budget | MintLife Blog
Back to School Tips – How to Balance Your Budget with Needs and Wants

Do you follow blogs with terrific ideas for saving money that haven’t been mentioned in our weekly “Best from the blogosphere?” Share the information on http://wp.me/P1YR2T-JR and your name will be entered in a quarterly draw for a gift card.

Canadians unrealistic about retirement health, finances

By Sheryl Smolkin

My husband and I are both looking at age 65 in the rear view mirror and we are helping to manage my elderly mother’s affairs. I think we have a pretty good grasp of what retirement costs and how easy it would be to eat through our nest egg if we are not careful.

That’s why I can’t help but be surprised by the results of the recently released Morneau Shepell study Forgotten Decisions: the disconnect between the plan and reality of Canadians regarding health and finances in retirement. The survey discovered many people make unrealistic plans based on the amount of income they are actually contributing to a retirement fund versus their expected annual withdrawal.

Expected withdrawal rate unreasonable

More than one-third (35%) of employee respondents report they are saving 10% or less of their current salary for retirement. Even more concerning is that, on average, employee respondents plan to withdraw 15% of their total savings a year following retirement – four times the rate that is typically recommended.

“More than 70% of respondents are planning to withdraw more than the recommended amount annually,” says Paula Allen, Vice President, Research and Integrative Solutions, Morneau Shepell. “There is an evident disconnect between how long retirement income typically needs to last, the savings pattern of many, and the withdrawal plans of most.”

The survey also found that responsibilities in retirement may include the need to support dependants. Seventeen percent of respondents indicated that supporting dependants was among the most important financial issues. Thirteen percent indicated concern regarding their support of dependent children and 14% indicated concern about the support of elderly parents.

Under-planning for health costs

The survey found that nearly two-thirds of employees age 50 and over (61%) are currently suffering from one or more chronic health conditions. Despite this, 97$ of survey respondents described their current level of health as being good, very good, or excellent and a large number of employees (86%) are expecting to retire in good health.

“Chronic health issues are so commonplace that sometimes they are accepted as the norm. Unfortunately, this can lead to complacency and lack of investment in one’s own health and lack of preparation for health costs,” said Allen. “The cost of chronic health issues, which often increase with age, can be a big shock during retirement, as employer health benefits may no longer be available for medication and other health-related support. As well, the public drug plan covers much fewer medications than most employer-sponsored plans.”

The most common chronic conditions affecting survey respondents include hypertension (25%), arthritis (24%), high cholesterol (18%), diabetes (12%), and depression, anxiety or other mental health problems (9%).

“Health is one of the most important factors to consider when preparing for retirement,” noted Allen. The majority of respondents (59% ) indicated they will not have access to an employer-sponsored health benefits plan after they retire. Two-thirds indicated health costs as one of their top concerns in retirement.

Employer/employee perceptions differ

Of the employees surveyed, one in four (24%) indicated that when they choose to retire, they will not be financially prepared. Twenty three percent of employee respondents plan to rely on government pension programs as a primary source of retirement income.

On average, however, more than half (51%) of employer respondents indicate that their employees will not be financially prepared when they retire. Furthermore, employers believe that one-third of their employees will not be financially prepared to deal with a health crisis when they retire.

Almost all employer respondents (96 %) indicated that it is important for employees to know that health costs will impact retirement income. Despite this, a large proportion of employers (29%) reported that they do not provide retirement-related financial information.

“Employers clearly see risk in the retirement preparedness of employees, but often do not have the systems in place to offer the necessary support and education,” said Allen. “Providing employees with more knowledge on the facts and options for personal financial management and health cost issues in retirement is crucial to adequately prepare employees for their transition to retirement.”

Aug 22: Best from the Blogosphere

By Sheryl Smolkin

This week we have a pot pourri of stories from some of our favourite bloggers who have continued to write compelling copy through the now waning, long hot days of summer.

Are you a techno-phobe or an early adopter? Alan Whitton aka Bigcajunman writes about how old financial technology habits die hard on the Canadian Personal Finance Blog. Despite some lingering security paranoia, he now deposits cheques by photographing them with his cell phone.

One of the primary changes personal finance advisors suggest that clients make to save money is to put away their credit cards and start spending cash. On Money We Have, Barry Choi explores what happens if you decide to use cash and debit more. He says that depending on your personal situation, this may affect your credit score, you will forgo travel reward points and you also can lose out on other standard benefits like travel insurance and auto insurance covering car rentals.

Mark Seed on My Own Advisor answers a reader’s question, How would you manage a $1 million portfolio? His bias is to own stocks indirectly via passively managed Exchange Traded Funds for the foreseeable future to get exposure to U.S. and international equity markets.  However, he says his selection of investments will likely differ after age 65 and in future he might hire a fee-only financial advisor or use a robo-advisor to manage his portfolio.

I recently helped my son find an apartment in Toronto so I thought Kendra Mangione’s article From a house to a bedroom: What $1,000 a month can rent across Canada was particularly interesting. She says you will pay $950 for a single bedroom with an ensuite bathroom in a Vancouver suburb but $950 will get you a two-bedroom, 864 sq. ft. townhouse close to downtown Regina and the university.

And whether you have children who are new graduates or you are only beginning to help pay for your kids’ post-secondary education, check out Parents Deserve a College Graduation Present, Too in the New York Times. This piece explores a Korean-American tradition for former students to give parents sometimes lavish gifts, once they have their diplomas in hand.

Do you follow blogs with terrific ideas for saving money that haven’t been mentioned in our weekly “Best from the blogosphere?” Share the information on http://wp.me/P1YR2T-JR and your name will be entered in a quarterly draw for a gift card.

How to build up an emergency fund

By Sheryl Smolkin

You have an accident and your car is totaled. A parent or close friend is very ill and you need to fly to her side. You lose your job. Your furnace conks out in the middle of a Canadian winter. These are genuine emergencies when a little spare cash will go a long way to making your life easier.

That’s why along with paying yourself first and paying off debt, having an emergency fund of three to six months pay is part of the “holy trinity” of personal financial advice.  But if you are like almost half of Canadians polled late last year who said they are living paycheque to paycheque and would find it difficult to meet their financial obligations if their pay was delayed by just a week, where are you going to find the money to build up an emergency fund?

Here are some ideas:

  1. Take baby steps: Set low initial targets like $500 or $1000 and save $50 from each paycheck. You will have over $2,500 in a year.
  2. Automatic withdrawal: Have the savings you commit to automatically transferred into a separate account. You’ll never miss it.
  3. Extra money: If you have a good month and there are still a few dollars in the bank before your next pay cheque is deposited, transfer it to your emergency account.
  4. Review your budget: Few of us have cut all the fat out of our budgets or our spending habits. Whether it is forgoing your morning latte or packing a lunch a few days a week there are always ways to reduce expenses. Where feasible walking instead of driving is good for your health and your wallet.
  5. Better rates: When is the last time you checked to see if the amounts you are paying for car or house insurance are competitive? Can you live with higher deductibles? If you don’t do the research you could be leaving hundreds of dollars that belong in your emergency fund on the table.
  6. Quit smoking: If the average cost of a package of cigarettes is $12 and you smoke a pack a day you are burning up $4,380 a year. Save your health and save your money by quitting – not an easy task, but a worthwhile challenge.
  7. Save loonies and toonies: If you get one and two dollar coins in change when you break a larger bill, don’t spend them. When you get home put the money in an envelope and take it to the bank at regular intervals.
  8. Freelance: What are you good at? What do you enjoy doing? Think about how you can boost your emergency savings by doing something you love after work.
  9. Sell stuff: Clean out your closets. Have a garage sale or sell your oldies but goodies online. You will have less clutter and more money in the bank.
  10. Rent a room: Do you live near a university or college campus? If you are an empty nester, consider renting out a to a student room to help generate savings to top up your emergency account.

Whatever it takes to reach your goal of three to six months net pay in the bank, remember it is for a true emergency. That probably doesn’t include a new dress for an upcoming wedding when you have a close full of clothes or upgrading to the latest and greatest iPhone. When disaster hits, you will be glad you did.