Settling into a new country can be an exciting journey, but also a stressful one. From learning a new culture and searching for a new job, to finding the best financial institution for your banking needs, starting a new chapter in a different country requires consistent effort and knowledge. Newcomers can find the Canadian banking system to be very different from their hometown, and knowledge about different types of bank accounts, investments, and saving strategies will need to be learned from scratch.
The Canadian financial system offers numerous options and opportunities for new Canadians to build their wealth. Now is the perfect time to upgrade your financial knowledge and develop the financial skillset to become financially healthy and wealthy in Canada.
Set yourself up for success with the right financial institution
One of the first steps a newcomer will take when they arrive in Canada is to open an account with a financial institution. Canada has many banking options including, the Big Banks, competitor banks, and approximately 200 credit unions. They all offer similar banking products and services, but some may offer better rates or programs specifically for newcomers which could mean more savings in the long run.
As community-based financial institutions, credit unions may be more likely to provide additional support to newcomers that go beyond their finances, such as housing and job search tips, local community information, and providing avenues to build connections to help you get settled faster.
Establish your credit history
After selecting your financial institution, the next step is establishing your credit history. A good credit history is extremely important as it can help your pursuit of renting a home, buying a car, and more. To build your credit history you can apply for a credit card, get a cell phone, or purchase an item on a payment plan. Whatever option you choose, remember to pay your bills in full and on time to ensure a good credit rating.
Understand your finances in Canada
Part of financially responsible banking will require you to learn how to effectively manage your money. This means creating a financial plan that highlights your understanding of the cost of living in Canada, setting realistic budgets, and understanding your cash flow. It is also important to understand the difference between good debt and bad debt. Newcomers can face several cultural and language barriers that could hinder their understanding of the financial landscape making it more difficult for them to make informed financial decisions. Credit unions offer free financial literacy workshops through the Each One, Teach One (EOTO) program that can help support newcomers with these issues and more. Workshops are delivered in plain language without any ties to products or services, with the sole goal of empowering Canadians and newcomers to take control of their financial future.
Building Wealth: Investments and Government Savings Plans
Once you’ve developed the financial basics and secured a stable job, it’s time to focus on saving, investing, and identifying your short and long-term financial goals.
While you might face a learning curve while trying to establish the saving and investing basics, the key is to pay close attention to the cash flow that is coming in and out of your account and how much of your income is available to invest or save. When you are first starting to save, a recommended starting point is to transfer 3%-10% of your paycheque into a savings program, and to increase this percentage over time if your income allows.
A few savings plans that are unique to Canada, and worthwhile considering when looking to save, invest, and protect your money are:
- Tax-Free Savings Account (TFSA)
- Registered Education Savings Plan (RESP)
- Registered Retirement Savings Plan (RRSP)
Tax-Free Savings Account (TFSA)
A Tax-Free Savings Account (TFSA) will allow you to set money aside throughout your lifetime. This is a great savings option for newcomers who want to invest soon after arriving in Canada. Funds in a TFSA can be invested in products such as mutual funds, stocks, bonds, and more; and any investment income earned by residents will not be taxed by the government. Funds may also be withdrawn tax-free whenever needed, for emergencies or large-scale expenses. So, whether you are looking to save for a new car or build an emergency fund, get instant access to your funds with a TFSA and get even closer to reaching your financial goals.
Registered Education Savings Plan (RESP)
If you have children, a Registered Education Savings Plan (RESP) will allow you to save for your child’s post-secondary education. The savings will be tax-free until money is taken out for their education. As an added bonus, the Canadian government also matches 20% of your contributions each year (up to $500 per year, and a lifetime total of $7,200 per beneficiary) through the Canadian Education Savings Grant (CESG).
Registered Retirement Savings Plan (RRSP)
Consider this to be one of your long-term saving plans! An RRSP is a Registered Retirement Savings Plan that you can contribute to over the course of many years. Whether you are just starting your career or at the peak of your profession, it’s never too early to start investing in an RRSP to help you retire comfortably. Contributions to retirement can be made until age 71. Once you retire, this account can be used to withdraw monthly income.
Although this savings plan is meant to help you build wealth for your retirement, funds may also be withdrawn to purchase your first home through the Home Buyers Plan (HBP). First-time homebuyers can withdraw up to $35,000 from their RRSP to put towards their first home and have 15 years to repay the funds to their account with no tax penalty. The benefits of investing in an RRSP don’t stop there! If you are thinking of going back to school, you can borrow up to $10,000 per year for two years with the Lifelong Learning Plan (LLP) from your RRSP to help finance full-time education for you, your spouse, or your common-law partner at no tax penalty. Upon completing your education, you’ll have 10 years interest-free to return the money to your RRSP. However, the Lifelong Learning Plan cannot be used to finance your child’s training or education – consider an RESP to meet these needs instead.
With so many different plans and investment options available, it can be difficult to understand what is right for you and your eligibility. Consider speaking with a financial advisor to get a holistic picture of your short and long-term financial goals so you can determine the best financial vehicle to build your wealth.
Make a credit union part of your wealth-building strategy
Planning for the future is an integral part of building wealth. Credit unions are an excellent option to help you save for your financial needs of today and tomorrow. Find your nearest credit union click here.