The result: rising levels of consumer debt and declining household savings rates. But in 2008, this culture was hit hard by economic reality. As a result of the credit crisis and ensuing economic recession, savings rates rebounded. For those who had been living beyond their means for years, it suddenly got a lot harder to make ends meet. And, although the government tends to encourage spending during economic downturn and statistics may lead us to think that overspending is normal, it is often a risky choice.

Here we’ll take a look at the most common financial mistakes that often lead people to major economic hardship. Even if you’re already facing financial difficulties, steering clear of these mistakes could be the key to survival.

Mistake No. 1: Excessive/Frivolous Spending

Great fortunes are often lost one dollar at time. It may not seem like a big deal when you pick up that double-mocha cappuccino, stop for a pack of cigarettes, have dinner out or order that pay-per-view movie, but every little item adds up. Just $25 per week spent on dining out costs you $1,300 per year, which could go toward an extra mortgage payment or a number of extra car payments. If you’re enduring financial hardship, avoiding this mistake really matters – after all, if you’re only a few dollars away from foreclosure or bankruptcy, every dollar will count more than ever.

Mistake No. 2: Never-Ending Payments

Ask yourself if you really need items that keep you paying for every month, year after year. Things like pay television, subscription radio and video games, mobile phones and pagers can force you to pay unceasingly but leave you owning nothing. When money is tight, or you just want to save more, creating a leaner lifestyle can go a long way to fattening your savings and cushioning your from financial hardship.

Mistake No. 3: Living on Borrowed Money

Using credit cards to buy essentials has become somewhat normal. But even if an ever-increasing number of consumers are willing to pay double-digit interest rates on gasoline, groceries and a host of other items that are gone long before the bill is paid in full, don’t be one of them. Credit card interest rates make the price of the charged items a great deal more expensive. Depending on credit also makes it more likely that you’ll spend more than you earn.

Mistake No. 4: Buying a New Car

Millions of new cars are sold each year, although few buyers can afford to pay for them in cash. However, the inability to pay cash for a new car means an inability to afford the car. After all, being able to afford the payment is not the same as being able to afford the car. Furthermore, by borrowing money to buy a car, the consumer pays interest on a depreciating asset, which amplifies the difference between the value of the car and the price paid for it. Worse yet, many people trade in their cars every two or three years, and lose money on every trade.

If you need to buy a car and/or borrow money to do so, consider buying one that uses less gas and costs less to insure and maintain. Cars are expensive. You might need one, but if you’re buying more car than you need, you’re burning through money that could have been saved or used to pay off debt.

Mistake No. 5: Buying Too Much House

When it comes to buying a house, bigger is also not necessarily better. Unless you have a large family, choosing a 6,000-square-foot home will only mean more expensive taxes, maintenance and utilities. Do you really want to put such a significant, long-term dent in your monthly budget?

Mistake No. 6: Treating Your Home Equity Like a Piggy Bank

Your home is your castle. Refinancing and taking cash out on it means giving away ownership to someone else. It also costs you thousands of dollars in interest and fees. Smart homeowners want to build equity, not make payments in perpetuity. In addition, you’ll end up paying way more for your home than it’s worth, which virtually ensures that you won’t come out on top when you decide to sell.

Mistake No. 7: Living Paycheck to Paycheck

The cumulative result of overspending puts people into a precarious position – one in which they need every dime they earn and one missed paycheck would be disastrous. This is not the position you want to find yourself in when an economic recession hits. If this happens, you’ll have very few options. Everyone has a choice in how they live, so it’s just a matter of making savings a priority.

Mistake No. 8: Making A Payment Vs. Affording A Purchase

To steer yourself away from the dangers of overspending, start by monitoring the little expenses that add up quickly, then move on to monitoring the big expenses. Think carefully before adding new debts to your list of payments, and keep in mind that being able to make a payment isn’t the same as being able to afford the purchase. Finally, make saving some of what you earn a monthly priority.

Toronto Bankruptcy

Personal debt  and bankruptcy is on the rise in Canada. Here’s a brief overview of the personal bankruptcy process.

Between 1990 and 2006 business bankruptcies declined by 42 per cent – but consumer, or personal, bankruptcies increased by 85 per cent, according to Industry Canada statistics. And with Canadian household debt loads continuing to rise, it’s likely that individuals will continue to have to file for personal bankruptcy. Here’s an overview of the process and some things to consider.

Insolvency

When someone is unable to meet his or her payments on debts (known as debt obligations), that person is considered to be insolvent. The insolvency process is a legal proceeding that is dealt with under the provisions of the Bankruptcy and Insolvency Act.

You are considered to be insolvent when:
• you do not currently have an un-discharged bankruptcy
• you owe at least a $1000.00; and you are unable to meet your regular payments as they become due, or you would not be able to pay all of your debts if all of your assets were sold

At that point there are really two options:

• Bankruptcy: under the guidance of a trustee, most of the assets of that individual will be liquidated to sold the debt
• Proposal: where the individual makes an offer to debtors to settle the debt. (Companies have a third option, receivership, but this is rare for individuals.) To make a proposal the individual’s unsecured debts must total under $75,000.

A licensed professional can advise you on whether a proposal or a bankruptcy best fits your situation. Once you have determined that a bankruptcy is appropriate you will need to find a licensed trustee.

Bankruptcy Trustees

Trustees are chosen by the person filing for bankruptcy and paid by the bankrupt and the assets from the estate. These fees will depend on the individual’s debt situation, but are set under the Bankruptcy and Insolvency Act. However, it’s important to understand that a trustee’s first responsibility is to represent the creditors.

The trustee’s duties are to:
• Review your situation and inform you as to the alternatives available;
• Administer the proposal – that is, to sell any assets you have that are not exempt and to distribute the cash to creditors
• Administer the estate and file the paperwork from the beginning to the end according to the Bankruptcy and Insolvency Act.

A trustee is also an officer of the court, and is generally an accountant. Once chosen, a trustee cannot be discharged (or ‘fired’) without approval from the Court.

If your case is particularly complex or you have concerns, you may want to consult an insolvency lawyer as well. The Office of the Superintendent of Bankruptcy Canada regulates licensed trustees, and provides an online database of trustees.

Once you have a trustee, you have certain obligations that you must fulfill.

Your obligations

Once you enter into the process of bankruptcy you must disclose all your financial information to the trustee: income, expenses, debts, and assets, along with information about any property you have sold in the last year. You will have to turn your credit cards over to the trustee. You must stay in touch with the trustee during the process and advise them of any address or telephone number changes.

You may have to attend an examination before the Official Receiver. This examination takes place under oath and is designed to discover the cause or causes of your bankruptcy, look at any property recently sold, and the status of current assets. Your conduct is also examined.

You may also have to attend a meeting of your creditors, if one is requested. This is to confirm the appointment of the trustee, give creditors information about the bankruptcy, and to appoint inspectors to oversee the process.

And you will have to attend at least two counseling sessions that discuss issues around personal finance and bankruptcy.

Which debts are covered by bankruptcy? What do I keep?
Debts that are not secured, such as credit card debt, and in many cases debts to the Canada Revenue Agency (taxes) are dealt with through bankruptcy. Debts to family must be included in the bankruptcy process – you cannot continue to repay family members the full amount of a loan while settling with other creditors for less.

Secured loans, such as mortgages and car loans are not covered by bankruptcy. However your trustee may be able to help you in surrendering those assets and receiving a receipt.

Other debt not covered by bankruptcy includes:
• student loans, if it is less than 10 years since your schooling finished
• fine or penalty imposed by the Court
• alimony
• liability for dividend to an undisclosed creditor
• debt obtained by fraud
• liability for support or maintenance of spouse or child under an agreement or Court Order

Which assets remain yours (or are exempt from the bankruptcy) depends on your province.

Once you file for bankruptcy most wage assignments and garnishments will stop. The trustee will review your income and expenses and compare these to guidelines set out by the Superintendent of Bankruptcy. If you are considered to have extra income it may be assigned to your creditors.

Assets that you acquire during the bankruptcy period – for example, if you were to inherit property – become a part of the bankruptcy.

Discharge of bankruptcy
For first-time personal bankruptcies the bankruptcy is automatically discharged after nine months. There are however, several kinds of discharge:

Absolute discharge: You are no longer responsible for unsecured debts incurred prior to bankruptcy except for those which were not included (such as child support payments).

Conditional discharge: You may have to make payments to your creditors through the trustee for a specified period. You will not receive an absolute discharge until that period is over (and all payments have been made).

Discharge refused: The Court may refuse a discharge in unusual circumstances, such as:

• your assets are less than 50 per cent of the amount owed
• you continued to obtain credit while unable to pay your existing creditors
• you contributed to bankruptcy by extravagant living or gambling
• you failed to perform any duty imposed by the Bankruptcy and Insolvency Act

Once your bankruptcy is discharged it will take six years for it to be removed from your credit report.

For more information:
http://strategis.ic.gc.ca/epic/site/bsf-osb.nsf/en/h_br01545e.html

At first glance, this may seem a pointless topic for an article. Who would want, after all, to declare bankruptcy? Most Americans are well aware of the far-reaching financial consequences of bankruptcy protection. Bankruptcy can immediately and significantly lower FICO scores, darken credit reports for up to a decade and, depending upon the situation, forever prevent you from some sorts of financing or employment. In the more popular games bankruptcy means, simply, that you lose the game. Even as a form of speech – being morally or spiritually ‘bankrupt’ – the notion’s hardly complimentary.

Nevertheless, as spiraling bills force more and more borrowers to sadly ponder what would’ve been once unthinkable, many consumers are forced to consider bankruptcy as a final alternative to seemingly insurmountable debt-loads. And, because bankruptcy’s so well-known as a final resort, a good number don’t bother to investigate the actual truths of bankruptcy (particularly after the restriction-tightening recent legislation) before succumbing to the inevitable.

More than ever before, this is a shame. Bankruptcies are no longer a guarantee of debt liquidation, the negative impacts can well beyond credit score repercussions, and, especially now, other bankruptcy alternatives may serve the average consumer better as they seek debt relief. Even on a Chapter 7 bankruptcy – and even though Chapter 7 notation would appear on your credit report for seven to ten years following – it’s possible that not all debt would be eliminated. In other words, the unlucky filer could yet adopt all the corrosive drawbacks of bankruptcy without the expected benefits. Considering this, it’s more important than ever for all borrowers even beginning to think about bankruptcy to closely analyze all aspects of the new legislation.

First of all, it’s no longer wholly the consumer’s decision on which sort of bankruptcy to file. As most past debtors attempted the Chapter 7 (which did, whatever the negative effects upon credit, liquidate most outstanding bills), this should be the most striking difference for average borrowers. Under current legislation, the courts must subject your income from six-to-nine-months ago to what’s become known as ‘the means test’. This test compares past income (no grace given if, say, the borrower has since changed jobs) with the average income from the state and then subtracts arbitrarily decided living expenses. Even avoiding the obvious regional and career differences (with housing prices in Fresno rather less expensive than those in Southern California, say, or the vehicle needs of a contractor more expansive than secretary), this allows a court trustee or their assistant to, upon their whim, change every bit of your life. Families have been forced to move or pull children out of private schools with little warning. Allowing the government free rein to budget and plan your family’s future carries obvious risks.

In previous years, of course, whomever went bankrupt would have to face the threat of their property and possessions being taken by the court and sold off to pay the creditors – every once in a while the news would cover an auction of celebrity memorabilia essentially being run by the IRS, for example – but ordinary debtors rarely had to worry about the loss of household items since their collected value, after depreciation, simply wasn’t worth enough for the government to bother with. Now, however, the tax laws insist all possessions (hobby equipment, children’s toys, family heirlooms) be listed according to their replacement cost: sentimental value, as you’d expect, not to be considered.

More worrisome, any significant investments (aside from custodial trusts or tax-deferred retirement plans like Individual Retirement Accounts) could be liquidated. Second homes and second vehicles are also fair game. Depending upon your specific state’s exemptions, even your residence or primary vehicle could also be forced towards auction. Essentially, the exemptions protect some degree of equity for the home, but, if the borrower had paid down too much of the mortgage balance, the courts could insist the home be sold with all excess equity given over to creditors. It’s imperative that every homeowner even considering bankruptcy search out his or her state’s specific protections and talk to a bankruptcy attorney about the potential fall-out.

There’s another even more significant reason to ensure you’ve a well-trained attorney with whom you feel comfortable. It’s considerably easier under the 2005 act for both creditors to sue for fraudulent bankruptcy filings and for the government to initiate criminal proceedings. Obviously, there should be safeguards in place to prevent the genuinely mercenary from taking advantage of bankruptcy protection, but gray areas within the law can also unnecessarily vilify even those honest borrowers that underestimated a motorcycle’s worth or forgot about accounts they hadn’t touched for a decade.

Again, obviously, for many consumers – those without investments or significant equity in their homes or vehicles; those willing to forego all accumulated possessions; those that wouldn’t mind the government planning their family’s budget for half a decade; those that can’t imagine needing credit reports or FICO scores again – personal bankruptcies can still be of some use. Even for those desperate souls, though, we still urge the consultation, whatever the cost, with top bankruptcy attorneys. For all others, it almost always makes sense these days to do whatever possible to avoid bankruptcy altogether – especially as other alternatives, such as debt settlement, have become increasingly popular. It was always meant as the final option, but, after the recent legislation, that can be all too true.

North Americans are a collection of spenders who must learn the hard way to practice what our grandparents have always known: A penny saved is a penny earned.

Consider that about 43% of North Americans spend more than they earn, according to estimates from the federal government, and the average household carries some $8,000 to $10,000 in credit-card debt.

To make matters worse, the average North American no longer saves money. That’s tumbled from a 10.8% average savings rate in 1984 into negative territory today. It’s no wonder that many of us have been living way above our means for some time.

But that is getting harder and harder to do. Available credit for people to finance their lifestyles has shrunk if not dried up altogether and many North Americans are standing by in shock watching their mortgage payments surge while the value of their 401(k)s / RRSP’s drop.

It’s clear we need to start spending less and saving more. That may sound easier said than it’s done. The key is to be aware of your where your money is going and take steps to stop the leaks.

Here are five simple tips that could save you hundreds of dollars a month:

1. Cash back at the pump

In the past five months gasoline prices have dropped 56%, from an average price of $4.11 to $1.80 a gallon or 72 cents a litre. Somehow, households found the money to pay the higher price and survive so now people should take that excess money they are saving and bank it.

Jean Chatzky, author and personal finance expert suggests using the money you were spending on gasoline to build up that rainy day fund or to pay some your holiday expenses instead of racking up more debt.

2. Dinner Savings

Another great way North Americans can cut costs each month is to eat at home, says Jonathan and David Murray, twin brothers who are financial advisers.

According to a recent Zagat survey, North Americans will spend an average of $34 this year every time they go out to eat dinner, that’s for one dinner, drink and gratuity; $76.00 if they live in one of the 20 most expensive cities. If a couple does that four times in a month the expense is close to $300 in low-cost areas and $600 in higher-cost regions, and if you have more than one drink or are treating family or friends, costs can add up quickly.

Plan a dinner or party at home and ask guests to bring a dish. If you’re big on getting together with friends, family and work associates, this could save you hundreds of dollars a month.

3. Renegotiate Household Bills

You may not be able to negotiate with the gas company or the electric company, but you can with credit cards, cable and phone services, among others. Do the homework and find out what competing cable companies, for example, are offering and ask your provider to renegotiate your bill. You may have to get through to a manager but Chatzky said she recently did this and got her monthly bill reduced by $50.

4. Smart shopping

Retailers are poised to have one of the worst holiday shopping seasons in decades and are offering deep discounts to move merchandise. But smart shoppers can save even more money by hunting down coupons. Before ordering online or going to a store, go to sites like Couponcabin.com and Ultimatecoupons.com or Google the name of a store and often you’ll get a coupon code to enter at checkout. You can save 10% to 20% or more on the total order or maybe get free shipping.

There are also coupons to print out and take to the store for deeper discounts. And don’t be afraid to pit one retailer against another by asking for a price match on sale items.

5. Keep the receipt

It is important to hang on to all your store receipts and keep track of sales. Savvy shoppers can possibly save even more on purchases by checking back to see if the retailers lower prices even further. If that happens within two weeks of your purchase, most stores will credit you the difference.

We hope that you can layer into your shopping habits the following tips as a means to start saving money fast and easy.

Toronto Bankruptcy Trustees

The closest many people get to budgeting is depositing their paychecks into their checking accounts and buying everything with an ATM card until the money’s gone.

While there are certain advantages to this method, such as not incurring credit card debt, there are also major disadvantages, such as not quite knowing where all that money’s going and not contributing enough to your savings because there’s never anything left over.

Even though budgeting is a wonderful tool for managing your finances, many people think it’s not for them. The logic they use, however, is often flawed. Below is a list of 10 budget myths that stop people from saving as much as they could – and should. Do any of these budgeting myths apply to you?

1. I don’t need to budget.
The truth is, almost everyone, even those with large paychecks and plenty of money in the bank, can benefit from budgeting. Keeping track of your monthly income and expenses allows you to make sure your hard-earned money is being put to its highest and best purpose. For example, if you knew how much money you were spending on restaurant meals every month, you might decide that you’d rather be putting that money toward something else, like a nicer vacation.

2. I’m not good at math so I can’t manage my money.
Thanks to budgeting software, you don’t have to be good at math, you simply have to be able to follow instructions. Many of these programs are free and can be safely downloaded without fear of viruses or spyware from CNET’s download.com. If you know how to use spreadsheet software, you can even make your own budget. It’s as simple as creating one column for your income, another column for your expenses and keeping a running tab on the difference between the two.

3. My job is secure.
No one’s job is truly secure. If you work for a corporation, downsizing or losing your job to overseas workers is always a looming possibility. If you work for a small company, these concerns may not apply, but if the owner died suddenly, the company might die with the owner. You should always be prepared for a job loss by having at least three months’ worth of living expenses in the bank. It’s a lot easier to accumulate this money if you know how much money you’re bringing in and laying out each month.

4. Government-sponsored unemployment pay will tide me over if I lose my job.
Unemployment benefits are not a sure thing. Let’s say a bad situation at work leaves you with no choice but to quit your job. Because you weren’t laid off, leaving your job will be considered voluntary and it’s very unlikely you’ll receive any benefits. It won’t help if you decide to remedy this problem by getting yourself fired, as those who are let go for bad behavior are also very unlikely to receive unemployment assistance. On top of that, getting fired will make it harder for you to get a new job.

5. It won’t happen to me.
We all think that unexpected high bills and tragedies won’t happen to us. With the number of things that can possibly go wrong in life, hoping for the best is the most logical emotional survival tactic. However, you might lose your job, be in a car accident, get cancer, or need to help a friend or family member who falls on hard times. It’s best to be prepared and hope that you’ll get to use the money for something fun one day instead.

6. I don’t want to deprive myself.
Budgeting is not synonymous with spending as little money as possible or making yourself feel guilty about every purchase. The crux of budgeting is to make sure you’re able to save a little each month, ideally at least 10% of your income, or at the very least, to make sure that you aren’t spending more than you earn. Unless you’re on a very tight budget (and we all are sometimes), you’ll still be able to buy baseball tickets and go out to eat. Tracking your expenses doesn’t change the amount of money you have available to spend every month, it just tells you where that money is going.

7. I don’t want anything big so I don’t need to save for anything big.
This one is tricky. If you don’t have any major savings goals to buy a house, a new car, or to save enough money to quit your day job and take a stab at starting your own business, it’s hard to drum up the motivation to stash away extra cash each month. However, your situation and your attitudes are likely to change over time. Perhaps you don’t want to save up for a house because you live in New York City and expect that renting will be the most affordable option for the rest of your life. But in five years, you might be sick of the Big Apple and decide to move to rural Vermont. Suddenly, buying a home becomes more affordable and you might wish you had five years’ worth of savings in the bank for a down payment.

As another example, many people thought home ownership would be forever out of reach when the housing bubble was pushing prices ever higher, so they gave up on the idea of owning a home. After the bubble burst and prices sank, however, those who previously couldn’t even afford condos sometimes had the income to afford houses. Even FHA loans require a down payment, though, so those who saved their extra money when prices were high put themselves in a great position to buy when prices dropped.

8. Any money I save would just be taken when I apply to grad school/an MBA program or when I send my kids to college.
Yes, the catch-22 of student financial aid is that the more money you have, the less financial aid you’ll be eligible for. That’s enough to make anyone wonder if it isn’t better to just spend it all and have nothing in the bank in order to qualify for the maximum amount of grants and loans.

When you apply for federal student aid such as the Stafford Loan, Perkins Loan, or Pell Grant, you will fill out the Free Application for Federal Student Aid (FAFSA). Whether you are an adult student going back to school or the parent of a student headed to college, this form does not require you to report the value of your primary residence (if you own a home) or the value of your retirement accounts. This means that if you want to save money without compromising your financial aid eligibility, you can do so by using your savings to buy a house, prepay your mortgage or contribute more money to your retirement accounts. The savings you put into these assets can still be accessed in the event of an emergency, but you won’t be penalized for them. Paying down credit card debt and auto loans can also serve as a form of saving that won’t detract from your financial aid eligibility. Just think of all that interest you won’t have to pay when your balances go down or are even paid off completely.

Another issue is that even if you employ all the legal strategies available to you to maximize your financial aid eligibility you still won’t always qualify for as much aid as you need, so it’s not a bad idea to have your own source of funds to make up for any shortfall in the aid you’re offered.

9. I don’t need to budget because I’m debt-free.
While being debt-free is unusual and commendable, it won’t pay your bills in an emergency. A zero balance is better than a negative balance, but that zero can quickly become negative if you don’t have a safety net.

10. I don’t need to budget because I always get a raise/bonus/tax refund.
It’s never a good idea to count on unpredictable sources of income. Your company may not have enough money to give you a raise, or as much of a raise as you’d hoped for, even if you’ve earned it. The same is true of bonus money. Tax refunds are more reliable, but this depends in part on how good you are at calculating your own tax liability. Some people know how to figure to the penny how much of a refund they will get (or how much they will owe) as well as how to adjust this figure through changes in payroll withholding throughout the year. Others find W-4 forms, 1040s, and tax tables incomprehensible and April is always a surprise. You might be expecting a $1,000 refund only to find that you’re getting $300 – or worse, that you owe.

Solutions
If you’re still not convinced that budgeting is for you, here’s a way to protect yourself from your own spending habits. Set up an automatic transfer from your checking account to a savings account you won’t see (i.e., a savings account at a different bank from your checking account) that is scheduled to happen right after you get paid. If you are saving for retirement, you may have the option of contributing a regular, set amount to a 401(k) or other retirement savings plan. This way, you’ll always pay yourself first, you’ll always have enough money for the transfer, and you’ll always pay yourself the same predetermined amount that you know will help you meet your goals. If you don’t think you have the discipline for budgeting, this is your best bet.

However, a better solution is to make this automatic contribution in conjunction with starting a budgeting spreadsheet or using budgeting software. This way, you won’t run into any unpleasant surprises, like your checking account balance reaching zero when your car insurance is due and you don’t get paid for another week.

Conclusion
To manage your monthly expenses, prepare for life’s unpredictable events and be able to afford more expensive purchases without going into debt, budgeting is a great idea. Keeping track of how much you earn and spend doesn’t have to be drudgery, doesn’t require you to be good at math and doesn’t mean you can’t buy the things you want. It just means that you’ll know where your money goes, you’ll have greater control over your financial situation and you’ll probably be able to sleep more soundly at night.

Budget Myths

Unfortunately, one of the factors that will prevent many people from becoming financially successful is their false beliefs about money. In fact, widespread financial myths can negatively impact both your short- and long-term net worth. Throw away these top 10 money myths, and you’ll avoid the consequences of believing them.

1. If I get a raise that bumps me into a higher tax bracket, I’ll actually take home less money.

Thankfully, this isn’t true. Moving into a higher tax bracket only increases the rate of tax paid on the last dollars you earn. Suppose you’re filing single, your old salary was $30,000 a year and your new salary is $33,000 a year. According to the IRS’s 2007 federal tax rate schedules, when your salary was $30,000, your marginal tax rate was 15%. With a salary of $33,000, your marginal tax rate is now 25%.

The key to unlocking this myth is the word “marginal”. In this scenario, your first $31,850 of income is still taxed the same way it was before you got your raise. With a $30,000 income, your take-home will be $25,891.25. If you make $33,000, you will take home $28,326.25. This is because only the extra $1,150 above $31,850 is taxed at 25% – not the whole $33,000.

2. Renting is like throwing away money.

Do you consider the money you spend on food to be thrown away? What about the money you spend on gas? Both of these expenses are for items you purchase regularly that get used up and appear to have no lasting value, but which are necessary to carry about daily activities. Rent money falls into the same category.

Even if you own a home, you still have to “throw away” money on expenses like property taxes and mortgage interest (and likely more than you were throwing away in rent). In fact, for the first five years, you are basically paying all interest on your mortgage. For example, on a 30-year, $250,000 mortgage at 7% interest, your first 60 payments would total about $100,000. Of that you “throw away” about $85,000 on interest payments.

3. You get what you pay for.

Higher-priced items are not always higher quality. Generic drugs are medically considered to be just as effective as their name-brand counterparts. A million-dollar home that falls into foreclosure and is repurchased for only $900,000 may still have $1 million worth of value. When the price of Google’s stock drops on a random Tuesday because investors are panicking about the market in general, Google isn’t suddenly a less valuable company.

While there is sometimes a correlation between price and quality, it isn’t necessarily a perfect correlation. A $3 chocolate bar may be tastier than a $1 bar, but a $10 bar may not taste significantly different from a $3 bar. When determining an item’s value, look past its price tag and examine its true indicators of value. Does that generic aspirin stop your headache? Is that home well-maintained and located in a popular neighborhood? Then you’ll know when paying the higher price is worth it when it isn’t (and you’ll be on your way to understanding the venerable principles of value investing, too).

4. I don’t have enough money to start investing.

It’s true that some brokerage firms require you to have a minimum amount of money to invest in certain funds or even to open an account. However, if you wait until you meet one of these minimums, you may get frustrated and have a harder time reaching your goal.

These days, it’s easy to start investing with very little money thanks to the proliferation of online savings accounts. While traditional bank savings accounts generally offer interest rates so low that you’ll barely notice the interest you accrue, an online savings account will offer a more competitive rate based on how the market is currently doing. In 2007, it was common to find online banks offering 5% interest. 5% is a pretty good return on your low-risk savings account investment when you consider that stocks historically return an average of 9-10% annually. Also, some online savings accounts can be opened with as little as $1. Once you’re in a position to start investing in stocks and mutual funds, you can transfer a chunk of change out of your online savings account and into your new brokerage account.

Alternately, you could open a brokerage account with minimal funds through one of the online trading companies that have cropped up. However, this may not be the best way to start investing because of the fees you’ll pay each time you purchase or redeem shares (generally $5 – $15 per trade). While these fees have been drastically reduced from when you had to trade through human stockbroker, they can still eat into your returns.

5. Carrying a balance on my credit card will improve my credit rating.

It’s not carrying a balance and paying it off slowly that proves your credit worthiness. All this strategy will do is take money out of your pocket and give it to the credit card companies in the form of interest payments.

If you want to use a credit card as a tool to improve your credit score, all you really need to do is pay off your balance in full and on time every month. If you want to take it a step further, don’t charge more than a small percentage of your card’s limit because the amount of available credit you’ve used is another component of your credit score.

6. Home ownership is a surefire investment strategy.

Just like all other investments, home ownership involves the risk that your investment may decrease in value. While commonly cited statistics say that housing appreciates at somewhere between the rate of inflation and 5% per year, if not more, not all housing will appreciate at this rate.

In fact, it is perfectly possible for your home to lose value over the years, meaning that if you want to sell, you’ll have to take a hit. The only way you’ll avoid realizing a loss in such a situation is if you continue to own the home until you die and pass it on to your heirs.

Even in a less drastic situation, a job transfer, divorce, illness or death in the family could compel you to sell the house at a time when the market is down. And if your house appreciates wildly, that’s great, but if you don’t want to move to a completely different real estate market (another city), the profit won’t do you much good unless you downsize because you’ll have to spend it all to get into another house. Owning a home is a major responsibility and there are easier ways to invest your money, so don’t buy a home unless you are attracted to its other benefits.

7. One of the major advantages of home ownership is being able to deduct your mortgage interest.

It doesn’t really make sense to call this an advantage of home ownership because there is nothing advantageous about paying thousands of dollars in interest every year. The home mortgage interest tax deduction should only be looked at as a minor way to ease the sting of paying all that interest. You are not saving as much money as you think, and even the money you do save is just a reduction in the costs that you pay. Interest tax deductions should always be considered when filing your taxes and calculating whether you can afford the mortgage payments, but they should not be considered a reason to buy a home.

8. The stock market is tanking, so I should sell my investments and get out before things get any worse.

When the stock market goes down, you should really keep your money in. This way, you can ride out the dip and eventually sell at a profit. In fact, stock market lows are a great time to invest even more. Many seasoned investors consider a decline in the market to be a “sale” and take advantage of the opportunity to pick up some valuable investments that are only experiencing a temporary dip.

9. Income tax is illegal.

Sorry, folks. There are quite a few different arguments here, but none will hold up in court. One is that the tax code says that paying taxes is voluntary. Another is that the IRS is not an agency of the United States. The IRS considers all of these arguments to be tax evasion schemes and will punish so-called tax protesters with penalties, interest, tax liens, seizure of property, garnishment of wages – in short, whatever it takes to get tax evaders to pay the full amount due when they’re caught. Most tax protester arguments and the IRS’s rebuttals can be found on the IRS website. Don’t fall for this shenanigan - it will ultimately cost you much more than you were hoping to save by not paying your taxes.

10. I’m young — I don’t need to worry about saving for retirement yet. / I’m old — it’s too late for me to start saving for retirement.

The younger you are, the more years of compound interest you have ahead of you. Compound interest is like free money, so why not take advantage of it? Someone who starts saving and earning interest when they’re young won’t need to deposit as much money to end up with the same amount as someone who starts saving later in life, all else being equal.

That said, you shouldn’t despair if you’re older and you haven’t started saving yet. Sure, your $50,000 nest egg may not grow to as much as a 20-year-old’s by the time you need to use it, but just because you may not be able to turn it into $1 million doesn’t mean you shouldn’t try at all. Every extra dollar you invest will get you closer to your goals. Even if you’re near retirement age, you won’t need your entire nest egg the moment you hit 65. You can still sock away money now and make a considerable sum by the time you need it at 75, 85 or 95.

The Bottom Line

Just because a belief is common and widespread doesn’t mean that it’s true. So, if you hear something about money or finance, give it some thought before taking it to heart – financial myths will only stand in the way to your financial success if you believe them.

I came across this fantastic news today in the Toronto Sun newspaper that will give investors some peace of mind:

If you find yourself in financial trouble and have to declare bankruptcy, your registered retirement savings are now safe from your creditors.

Recent amendments to Canada’s Bankruptcy and Insolvency Act now rule that for bankruptcies occurring after July 7, 2008 creditors can no longer go after your Registered Retirement Savings Plans (RRSPs), Registered Retirement Income Funds (RRIFs) or Deferred Profit Sharing Plans (DPSPs) to pay off owing debts.

In the past, only some of your investments such as certain segregated funds and pension funds were protected from creditors. Now, you don’t have to worry that all your retirement savings will be forfeited if you go bankrupt. However, to prevent intentional protection of funds, any money put into registered plans in the 12 months before a bankruptcy (or longer) may not be subject to this new rule.

Several provinces (Manitoba, Saskatchewan, P.E.I., and Newfoundland) already provide creditor protection. Those laws will remain in place and the new federal law applies everywhere else. Quebec law protects some registered retirement plans but this new law appears to cover all RRSPs in Quebec.

All Canadians will benefit from this new rule change in the following ways:

– Retirement protection for small business owners:

In 2003, the Canadian Federation of Independent Business conducted a survey of members that found 91% of small business owners used RRSPs as a retirement savings vehicle. CFIB has been calling on the government to protect these retirement savings for years. Many small business owners and professionals put their personal assets at risk. The CFIB survey says only 28% of small business owners have already-protected formal pension plans. This rule will help small business owners protect one of their main retirement savings strategies while still investing other money in their business.

– Greater diversification:

As we all know, you should spread your investments around to reduce your risk. Before this amendment, if protection from bankruptcy was a concern for your retirement savings your investment choices may have been limited. Now you and your advisor can look at the universe of investments to choose what works best for your retirement portfolio.

- Potential fee savings: Bankruptcy-protected segregated funds have higher fees due to the creditor protection and other unique features. Investors can now work with their financial advisers to see if there are appropriate alternative strategies that can save them some money.

Most GTA – Greater Toronto Area -  financial advisers can help you determine if this rule change affects your personal financial planning strategies. Consult a Toronto bankruptcy expert to find out more details about how these changes could affect your situation. If you find yourself in financial difficulty consult your local non-profit credit counselling agency. Their counsellors can help you decide if bankruptcy is the right course of action for you.

Bankruptcy Toronto

I came across this very sad Toronto Sun story about an abusive collection agency that took harassment to a new level, phoning a debtors 81-year-old dad and a neighbour, telling them he owed money and he better pay up.

When the man’s 14-year-old daughter got a harassing call and was so overcome with fear she decided to offer $400 in babysitting money to help her cash-strapped dad get out of financial hot water, he cried. And called the Toronto Sun.

“I know I owe money and I’m not running away from it. But they’re harassing me, making me feel worthless. I’m not a deadbeat. I’m a hard-working family man who may lose my job,” says a sobbing 47-year-old Robert, who has worked on the line at General Motors for the past 27 years.

Robert is among a growing number of Canadians struggling to keep up with the bills, while a layoff looms.

Last week GM announced it would shut its truck assembly operation in Oshawa, putting 2,600 out of work. Robert is one of them.

With total household debt in Canada at a record $1.1 trillion and consumers owing 124% of real disposable income, many aren’t keeping their heads above water. Personal bankruptcies hit their highest level in more than four years in April.

In total, 8,035 consumers declared bankruptcy, as did 592 businesses. Some of the biggest increases were in Ontario, where the economy has been hit hard by a U.S. economic meltdown.

Up until a year ago, staying ahead of the bills wasn’t a problem for Robert, who earns a decent wage of $33 an hour. His 45-year-old wife earns $17 an hour working as a nurse in Whitby.

But this past winter Robert was laid off for 31/2 months and his wife was forced to take time off work to deal with skin cancer. After that, she had a scare with breast cancer.

Luckily Robert is not one of the cash-strapped Canadians who’ve borrowed against their home equity or opted to play the game of 0%-down mortgages or 40-year amortizations.

His $180,000 mortgage on a three-bedroom Oshawa home valued at $285,000 is in good standing. But with rising property taxes, it’s a struggle to fork out $1,700 a month on home ownership costs.

Then, there’s skyrocketing hydro bills (their home is heated by electricity), plus the rising cost of food, gas and insurance. One car now sits in the driveway of this two-vehicle family.

CREDIT CARD WOES

What got Robert in hot water was his Visa credit card. When he was out of work, he racked up debt of $4,600, and with interest and late payment penalties, the total now sits at $5,620. At first, he was able to make minimum payments, then all he could afford was partial payments. It wasn’t long before a letter arrived warning that he was in collections, and then the phone calls began.

“I tried to explain my predicament, but they were very rude. On the third call, they told me obviously I didn’t want to settle the matter and they would take other action,” he recalled.

Robert did the smart thing and visited a credit counseling agency for help. A consumer proposal was drawn up that sets out a repayment plan he can handle, while waiving interest, fees and late-payment penalties.

What he wanted to know from me was what were his rights when dealing with a harassing collection agency.

Laurie Campbell, executive director of Credit Canada, explains collection agencies have to abide by rules set out in Ontario’s Collection Agencies Act.

With the latest bankruptcy numbers indicating more and more loan defaults are on the way, she advises that consumers understand what an agency can and cannot do.

Campbell also points out it’s high-cost credit card debt that sinks families, a burden made worse by gouging interest rates that average more than 19% on standard cards, and head even higher when a payment is missed.

“It can be very stressful to manage your financial life when collection agencies start calling,” she said.

A review of Ontario’s Act reveals the collection agency dealing with Robert broke a few rules.

For starters, the Act is clear. An agency cannot contact a spouse, family or household member, relative, neighbour or acquaintance unless the person contacted guaranteed the debt. The only time they’re allowed to contact these people is to ask for an address or telephone number.

Robert is adamant. Not only did this collector call his father and a neighbour but spilled the beans that he owed money. “My father called me and said, ‘Bobby, what kind of trouble are you in?’ ” Robert recalls.

Another rule this agency broke was calling Robert at 6 p.m. on a Sunday. On Sundays or holidays, calls can only be made between 1 and 5 p.m.

And collectors can’t use “threatening, profane, intimidating or coercive language,” the act states, “or use undue, excessive or unreasonable pressure.”

According to Robert, not only was this collector intimidating but was urging him to sell his house.

Other rules include:

- A collector is only allowed to contact you six days after sending a written notice stating the name of the creditor, the balance owing, the name of the agency and its authority to demand payment.

- A collector can’t contact you if a registered letter is sent to the agency saying you dispute the debt and suggest the matter be taken to court.

- A collector can’t contact you if you sent a registered letter stating to deal solely with your lawyer.

- A collector may not contact you other than by ordinary mail more than three times in a seven-day period without your consent, once the agency has actually spoken with you.

- A collector can’t continue to contact you if you have told him you’re not the person he’s looking for, unless he takes reasonable precaution to ensure you’re that person.

- They can’t give false or misleading information.

- They can’t recommend to a creditor that a legal action be started against you without first sending you notice.

- They can’t contact your employer except on one occasion to obtain your employment information, if your employer has guaranteed the debt, if the call is in respect to a court order or wage assignment, or if you’ve provided written authorization to contact your employer.

If any of these rules have been broken, you can file a complaint with the consumer protection branch of Ontario’s government and consumer services ministry.

Meanwhile, for Robert money’s so tight, he’s considering signing up to test drugs for a pharmaceutical firm that will pay $3,600. Also, his 20th wedding anniversary is this Tuesday. Robert can’t afford much, so he asked that I print this message for his wife:

“Happy anniversary, honey. You have given me the best 20 years and the meaning of love.”

Debt Collection Toronto

Bankruptcy often has a huge stigma attached to it but if you are struggling under a huge pile of unmanageable debts then it is something you may want to seriously consider.

It is not something that you should enter into lightly but can also free you from your debts and help you start again. It will mean that your assets will be taken away to pay off any creditors and will affect your status in the future but it doesn’t last as long as many people think.

What is Bankruptcy?
Bankruptcy is a legal status that you can enter into when you are unable to pay off large debts that you owe. Sometimes you might enter into voluntarily or a creditor may force you to make the move so that they can get their money.

Either way, a court will declare you bankrupt and then this status usually lasts for a year during which time they will use your assets and any excess income to pay off the debts that you owe.

What Bankruptcy Means For You
Once you have been declared bankrupt you will be allocated an official receiver who will be in charge of managing your assets to pay off the money that you owe. This means that they can sell things such as your car or your home to pay off the debts. Items that you need for your work or in the household are exempt from this though.

You will still be required to pay your rent/mortgage and bills once you are made bankrupt. Your official receiver will look at your income and decide how much you can pay towards your debts each month.

Long-Term Effects
The status of being bankrupt only lasts for one year, during which time all your assets and extra income will go towards paying off your debts. After this time, as long as you have behaved responsibly and co-operated with your order then you will be discharged from your debts. After this, however, the fact that you have been bankrupt will affect your ability to get further loans or credit. The details of your bankruptcy will stay on your credit report for six years after you have been discharged.

What are the Alternatives?
If you can avoid it then it is best not to be declared bankrupt. It should only be used as a last resort and there other ways that you can get your debt problems under control. You can enter into an individual voluntary agreement (IVA) with your creditors. This will help you work out a payment plan that you can manage and is a legally binding agreement that you must stick to. Also, there are a number of agencies that will help consolidate your debts and work out a payment plan but be careful about hoe much they may charge.

It is never good to be in a position where you are considering bankruptcy but if you are it can turn out to be a good move. Once it has been declared by the court you will lose all your assets and any extra income will go to your creditors. After a year though your debts will probably be discharged and you can start again, albeit with a bit of a rough credit rating.

Bankruptcy Toronto

Most people are very concerned about their home and what happens to it if they file bankruptcy. There are only two options: you keep it or you lose it.

To keep your home you need to answer YES to the following questions:

Do you want to keep the house? (Not everyone wants to keep their house. If you don’t then filing bankruptcy will allow you to “walk away” from a house).

Is the mortgage current or if it is not current, have you negotiated a plan with your mortgage company to make it current? (Your mortgage is “current” if you aren’t behind in any of your payments.). If it is not current your mortgage company may have concerns about your ability to pay.

Are your property taxes and utilities current? If they are not, your mortgage company may be concerned about the city or the utilities registering liens against your house.

Do you have the ability to make your future mortgage, property taxes and utilities payments? Even if you’ve never missed a payment in the past, if it looks like you aren’t going to be able to make your payments in the future then your mortgage company may use your bankruptcy to cancel your contract (and that means sell your home).

Can you afford to pay for the equity in your home? If you think that you may have equity in your home or you aren’t certain what this means then go to “What if there is equity in my home?”

If you answered NO (or even MAYBE) to any of these questions you should probably consider whether or not you can afford to keep the house you’re in. Keep in mind that when you file bankruptcy you no longer have to make payments towards your unsecured debts and therefore you may actually have more money available to pay your mortgage, property taxes and utilities. If you haven’t already done so, flip to our page on budgets to determine whether or not you have the ability to pay for your house.

If you answered YES to all of these questions then, in most cases, your house will not be affected by your bankruptcy. That’s not to say that your mortgage company can’t cancel your mortgage contract if you file bankruptcy – legally they can demand full payment. It’s just very unlikely that they will. The mortgage company makes their money off the interest that you pay (and not by selling houses). If you have been a good customer and you have the ability to continue making payments, then that’s what the mortgage company is going to want you to do.

It’s very important that you know your rights and responsibilities in regards to your secured creditors, including your mortgage, BEFORE you file bankruptcy. Be certain to discuss your situation in detail with your trustee.
What if there is equity in my house?

If there is equity in your home when you file bankruptcy then you’ll be required either to pay the trustee an amount equal to your equity or the trustee will be forced to seize and sell your home.

The following example demonstrates how a trustee might determine if you had any equity in your home.

“A real estate agent appraises your house at $150,000 and you owe the mortgage company $120,000. I’ve got $30,000 in equity, right?”

Not necessarily. The amount of equity in this house should be calculated as follows:

In this particular example, the trustee would expect the bankrupt to pay $14,500 before their bankruptcy was completed, if the bankrupt wanted to retain possession of their home.

You should discuss the equity in your home and the required repayment terms with your trustee before you file your assignment.

Bankruptcy Toronto