So, you’ve made the move to Canada. Congratulations! But what next? As a newcomer, things can be both exciting and stressful at the same time. With the cost of living, taxes, banking, and everything else, managing your personal finances as an immigrant may seem daunting. At Evermore, we want you to understand some personal finance basics so you can spend more time and energy just settling in.
But before we get started, there are some basic items you will need. Be sure to obtain a Social Insurance Number (SIN), as well as a driver’s license and health card. You will also need to keep all your immigration and citizenship documentation. These documents will be important in getting set up.
Now, here are 5 things newcomers need to know about personal finance in Canada.
Set up your bank account
Once you’ve arrived in Canada, setting up a bank account may be the first thing you want to do. Generally, there are two types of bank accounts; chequing and savings accounts. A chequing account is a basic transactional account that can be used on a day-to-day basis. This account is also usually where your salary will be deposited. A savings account is an account that can keep the money you may not be using right away. With savings accounts, you can keep some funds aside, allowing them to earn interest. You can also easily transfer funds from your chequing account to your savings account and vice versa. When setting up your bank account in-person or online, be sure to have your SIN and one or two pieces of identification (i.e., driver’s license, citizenship certificate etc.) handy.
Invest in registered accounts
A registered account is an investment account that is registered with the Canada Revenue Agency (CRA). Investing in these accounts allow you the benefit of tax-free or tax-deferred gains, and possibly even government contribution matching, depending on the type of account.
There are several types of registered accounts, each with their own rules and advantages, but three types are very commonly used: the tax-free savings account (TFSA), the registered retirement savings plan (RRSP), and the registered education savings plan (RESP).
A TFSA can be opened by any Canadian resident with a SIN who is 18 years or older, and is typically used to keep emergency savings or investing for retirement. Interest and dividends earned on your investments will not be taxed, even when you need to make a withdrawal of any amount. The contribution room depends on the year, and previous years can apply, too. Learn more about TFSAs here.
An RRSP is an account dedicated to retirement investing, and can be opened by a Canadian resident up until the end of the year in which they turn 71. The contribution limit is 18% of your previous year’s income (up to a certain amount for the year). This account also allows you to grow your money tax-free until withdrawal, and allows you to lower your taxable income in the year you contribute. Learn more about RRSPs here.
Finally, RESPs are intended for saving and investing for a child’s post-secondary education costs. You can open RESPs for any child with a SIN. This type of account also allows for tax-free growth of investments, and even offers government matching of 20% of contributions, up to $500 per year!
You can open TFSA, RRSP, and RESP investing accounts with most of Canada’s direct investing platforms.
Build your credit score and obtain references
Credit scores are used to provide proof to financial institutions that you are responsible when managing your money. The higher your credit score, the better. But why do you need to build a credit score? If you’re applying for credit of any sort (e.g., apartment lease, car loan, mortgage etc.), lenders and landlords will check your credit score to make sure you have the ability to pay your obligations. A low credit score may cause you to be denied a loan or charged higher interest rates. You can start building your credit score by opening a credit card under your name and making payments on time.
If you’re planning on applying for a loan, you may also need to obtain references. Personal references are used by lenders to verify that the information in your application is true. The lender will most likely reach out to your references to double check that your place of work and residence is as indicated on your loan application. Your references can be family members that don’t live with you, friends, or anyone of close connection.
Coming to a whole new country can be intimidating both on the emotional and financial level. However, by setting goals and planning ahead, you can decrease the stress that comes with personal finance. After spending a few months in Canada, you should have a better understanding of your monthly expenses including rent, groceries, car insurance, and more. Consider using this information to create a budget and set financial goals to ensure you can stay on track. Your budget can be broken down into categories depending on the types of expenses you expect to incur. Click here to get more information on budgeting and download a free household budget template.
Start saving and investing!
Of course, moving to a new country involves a lot of expenses. However, saving money is also very important. Whether you’re starting with an emergency fund, saving for retirement, or saving for a house, putting money aside for your future can help you achieve financial stability in the future. Contributing even small amounts at a time can go a long way, especially considering the power of compounding!
This article is for information/educational purposes only and must not be construed as specific financial advice. Where relevant, consult a licensed professional financial advisor for help tailored to your specific circumstance.