It is a parent’s responsibility and obligation to provide financial stability to their child throughout their upbringing and ensure they can become financially independent. However, a parent must know when it is time to stop the bankroll. Here are four tips to help set them up financially:
Setting Up a TFSA Account
One of the best things a parent can do for their child is to set up a TFSA account. Parents can encourage their children to fund the TFSA by making a matching contribution. So, if a child contributes $100 to the fund, the parents will also contribute $100. This process can quickly generate growth within the account once diligently supplemented.
Don’t Purchase “Extras”
Of course, the generosity of parents should stop at world cruises, luxury cars and the most recent tech gadgets – these are things the children should be purchasing themselves. They need to understand debt just as much as they do wealth.
Teach Them about Credit Cards
Parents should teach their children about credit cards. Instead of dealing with the compounding interest on an outstanding balance, they need to impress upon them the importance of paying the card off before the balance is due, so as to not rack up unnecessary interest charges.
Educate them on RESP’s
One of the first steps parents should take when having a child is to set up a Registered Education Savings Plan. This can be an effective way of alleviating the financial burden of sending a child through their education and a great way of protecting the parents’ retirement nest egg. Ensuring the RESP is consistently supplemented by the parents and the child will overtime allow the child attend a higher education. Teaching a child the importance of contributing to the RESP and why they’re doing it will hopefully lead to a greater sum of money when it is needed.
Preparing ahead financially can ease the cumbersome aspects of purchasing a home later on. Doing your research beforehand will allow you to go into the housing market with a clear head, side-stepping many common problems home buyers face. There are five key things to remember in order to buy your home responsibly:
Create a Budget
Figure out what your monthly expenses are, and then your annual expenses. Now compare that to your monthly income. The money left over can be used to determine the house price. While you’re doing this, use a mortgage calculator to figure out what the acceptable monthly amount is for the home. If you have no money left at the end of the month, ask yourself if this is the time for you to buy a home.
Pay Debt Off
If you have debt – credit card, student loan, auto loan, etc. – make sure you start paying it off or reduce it. Lenders won’t give people mortgages who can’t effectively manage their debt. You don’t need to be debt-free, but you do need to owe less than what you actually earn. Lenders will use a debt ratio to determine your monthly debt payments to the gross monthly income.
Most lenders will want you to put some money down before they give you a loan – usually 10 to 20 percent. Saving money through an RRSP can stimulate your finances. You can reduce your monthly expenses, putting the extra money into a savings account. If you can handle it, work a second job for the extra money.
Know and Increase Your Credit Score
Lenders are going to look at your credit to determine just how creditworthy you are. They want to see if you’re financially responsible. A strong credit score means you’re consistent in paying the bills and you can manage your money effectively. The better your score is, the better the interest rate on the loan.
Make sure you review your credit report to ensure it’s accurate. If you find any inaccuracies, get in touch with the credit bureaus to address them.
Talk to a Mortgage Professional
After you’ve done all this, it’s time to talk to a mortgage professional about the processes in buying a home. Get a pre-approval and find out how much they’ll loan you for a home. From that, you can find a realtor who can work within that budget and fulfill your desires.
Before you know it, you’ll have the home you want with a mortgage rate you can feel comfortable with and you won’t feel overburdened by debt when you develop a financial plan.