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10 reasons to get yourself in debts – Debt consolidation Part I
Personal FinanceYour Wealth

10 reasons to get yourself in debts – Debt consolidation Part I

by Helen

You have debts? Then, you are in good company because we all have some debts. Some have more debts than others. I was shocked when Bank of Canada released the news that the Canadians owed $1.821 trillion in debt by end of 2017. Jesus! What did we do with this money? Buy another country? If we did, hopefully a warm place.

As for my American neighbours, you are also in debts. Granted, there are 325.7 million of you compare to a merely 36.3 million Canadians. You can totally crush us by just sheer numbers. According to the Federal Reserve Bank of New York’s Center for Microeconomic Data, the American total household debt ended with an all-time high of $13.15 trillion at end of 2017. To make the matter worse, the report indicated that American had 5 consecutive years of annual household debt growth. Sorry to be the bearer of bad news.

But if you think that debt is a North American issue, then you are mistaken. The South Koreans, the Scandinavians, the Australians and lastly the big cheese, the Chinese are heading toward the same direction. Yes, a Bloomberg’s report on February 2018 indicated that the debt burden for Chinese consumers nearly tripled in the past decade. The cupid of Chinese personal debt is the exponential rise in very cost of real estate and they also have acquired taste for finer things in life.

All this to say:  you are not alone in the debt-ridden path so don’t beat yourself up. The important questions that need to discuss are:  why the personal debt increase so much and so did quickly? Why did we get into debts? How can we get out of debt fast?  Lastly, how can we stay on debt free path and not letting it impact our mental state? Debts can seriously impact your mental health because the financial burden is one of the leading causes for depression and stress, so it should be properly managed.

10 causes of personal debts

I am a firm believer that until you truly understand the root cause of the problem, you won’t be able to fix the issue entirely. So, to solve for debts consolation effectively, we need to examine why people get into debts in the first place.

 1 – Credit, thy name is deceiving

I have a friend who is more of budget hawk and debt hater than I am. I know, you can’t believe it right? But it is possible, and she exists.  For a while, she thought she was debt free until I busted her bubbles. Yes, I wasn’t always considerate and somewhat of a smart-ass sometime. Once, this friend proudly told me that she had no debt. She was good about debt management because she rented and paid off all her student debts. I asked her: “Do you have credit card?” She replied: “Yes, off course I do. Who won’t have credit card these days”. “Well, my love! I have news for you. You have debt. Maybe a small amount, but you do. It is called credit for a reason”, I told her.

Admittedly I sounded like a tight-ass banker, but I was right. The beauty of digital banking world is convenience of usage but it comes with a cost. Credit cards make it very easy for people to get into debts so it is not a coincidence that personal debt ratio has been on the rise for first world countries and some emerging markets where credit card usage is now a way of life. We are conditioned to think of that piece of plastic as a charge card not a short term (mostly 21 days) debt. I have news for you, it is debt and it is a very deceiving one that can get you into deep trouble with a capital “T”.

In addition to ease of usage, there is also a long list of services, benefits and prestige that the growing list of elite card products entice into the spending trap. Yes, you know that I am talking about. It is black, sexy and expensive looking. And they have very catchy names.

The credit card product owners and marketers are great at making the plastic sounds sexy. Eurasian Diamond Card Visa Infinite, Citi Ultima MasterCard, BMO World Elite, American Express Centurion, and CIBC Imperial Service black card. The Canadians know what I am talking about. Who won’t feel important when you have a CIBC Imperial Service black card service? It says: I arrive! I made it! I am rich!

Carrying these types of Elite cards make us feel important because they are symbol status. I am guilty of this too. I have an Elite travel MasterCard that I use extensively and have been hooked on this card because it gives me free access to airport lounge and other perks when I travel. If you travel with a young child (say, a little mini-me) an airport lounge is a life saver because it has comfortable chair and decent foods to feed and occupy your child while you wait for take-off.

Credit card companies have many years of experience, knowledge and talents to exploit consumer’s psychology and they do it well. I came across many customers who were just dumbfounded by how they got into so much financial trouble due to usage of credit cards. In my opinion, credit card can be very dangerous for debt management because people are condition to believe that it is not a debt when it is truly a revolving door of debt.

Credit card is structured as a revolving debt instrument which means, as you pay off the balance, you can instantly re-borrow. The minimum payment feature is the worst one for consumers who are careless and or the spenders. Yes, I am talking about people who just sign the credit card agreement without reading it and the folks who just can’t stop themselves from buying that nice designer bag (my sister included).  Do you know that a merely $2,000 credit balance with an 18% annual rate, a minimum payment of 2% of the balance or $10 (whichever is greater) would take almost 31 years (370 months) to payoff completely? Get ready for the worst news: based on this, you would pay $4,931 in interest and charges which would be 146% more than the original $2000 you borrow. I will stop my credit card lecture here. You know this is bad stuff.

I know the allure and dangerous of credit card because I used to run a credit card portfolio. To be fair, credit card in responsible hands can facilitate money movements very effectively and save you a lot of time. And it is almost a necessary in the modern world that can make our lives a lot easier. But in irresponsible spending hands, it will mean debts, credit history damage and stress. So, think carefully before you tap, swipe or insert that plastic. It is money out of your wallet even when you don’t see it.

2 – Medical expenses

Medical costs have long been one of the leading causes of bankruptcy for my American neighbour. Though Canadians have universal health care, illness, injury, or health condition can incur debts as the person is able to work and generate income. So, unexpected and large medical bill can get you into debt very quickly and it is unavoidable.

 3 – Job or income loss

Losing your source of income can severely hurt you financially.  When you lose your income, it’s easy to find yourself overwhelmed by bills and expenses. Debt can quickly follow. I came across endless stories of people lost their jobs or their businesses went south and they ended up with lot of credit card and line of credit debts. By the time they gained decent income and wanted to tackle the debt, the banks refused to lend them money because their credit records were tarnished by then.

4 – Student debts

Education is costly but it is the necessary investment so we often saddled with debt early on in our lives.  If you decide to pursuit a post graduate degree, it will cost you even more. With the competitive global market, the demand for higher skills increases and thus we will likely see higher increase in student debts for the next generations.

5  – An unexpected emergency

Many people find themselves in debt because they aren’t prepared when big, bad, expensive things happened to them. I experienced this first hand when I purchased my 2nd home. Three months into the new house and my pipe busted costing me $9000 to fix all the water damage.  Yes, I pissed off the water god and he busted my pipe.

6 – Not enough or no insurance

Apart from health insurance (which is very important for American folks) there are many types of insurances that can be used for financial planning. To this day, my mother still refuses to buy critical illness insurance because she is afraid that maybe a cure for her dying sooner or having cancer.

Just a quick explanation, critical illness is insurance policy that has a lump sum payout to you if you have cancer, stroke and heart disease. I will write an article on all insurance products. Promise! Getting back to this discussion with my mother, I explained the concept of insurance to her and I assured her that the insurance man would be praying to the insurance gods (also known as the actuary. Yes, they are the insurance gods) every day that she won’t have cancer, stroke or heart attack because he won’t want to pay her out.

“Well, then insurance is a waste of money. I don’t want to be sick and they don’t want to pay, so why buy it?” she said.  Well, it can seem to be a wasted of money until you need it that is, mother! Imagine that you get the bad news from your doctor and you have no money to afford expensive treatment, a lump sum payout from a critical illness policy can be a life saver. This is just one example, I came across many customers found themselves in serious debt or even bankruptcy when a bad event occurred and they were uninsured, underinsured or didn’t have enough savings.

My mother wasn’t pleased when I ran the insurance portfolio. She still believes insurance is a scam. She is not alone, many consumers do because insurance is a weird and perplex financial planning product that you should have but don’t ever want to use it. But if use effectively, insurance can be a relatively inexpensive option to provide financial coverage for your loved one or even yourself when unforeseen event or disaster strikes.

7 – Keeping up with the Joneses

In my experience (and quite a few academic researches agreed) that keeping up with the Joneses is one of the top reasons for people getting themselves in web of debts. Our culture teaches us that we deserve more and better things, and so you may feel pressure to “keep up” with your friends’ lavish lifestyles. A lot of people fall into this trap, and get into serious financial troubles because they want to maintain an image in society. We can spend hours talking about the deep psychological issues that causing someone to feel that they need to keep up an image to feel accepted or important. But the bottom line is: living beyond your means to keep up an image will hurt you and your family in the long run, so don’t go there.

8 –  Divorce

If you think the wedding bill (especially an Asian wedding of 10 course meals for 300 relatives and friends) is astronomical, then take a look at the divorce bill and it will get your blood pressure rise even more. When a marriage ends, it can be financially disastrous for both sides if the divorce is a nasty one.

Divorce means that each person is going from two combined incomes to one. If you earn less, then you will get the short end of the divorce stick. Now, you have to acclimatize to lower income after having higher disposable income for years. It is a shock for your system on top of the mental stress and heartbreak.  Alimony and support payments can be detrimental to one’s finance and are all expected cost of a divorce. So it is not surprising that people tend to get into debts as a result of a divorce.

9 – Gambling

Vegas is built and still thrived on this industry. Gambling disorder can seriously hurt your finance and destroy the relationship you have with family and friends.

10 – The rise in real estate

My friends often said to me that I own three homes. I always corrected them that the banks owned 75% of these houses for the next 20 years. Will see how much of the houses I will own at the end of my mortgage amortization. Yes, the biggest debt for most of us is mortgage. As the cost of real estate rise, we will get into more debts.

I will end the first part of debt consolidation here. In part II, I will discuss what steps you can take to prevent yourselves from getting into debt. Talk to you soon!

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5 steps to improving your credit score – Part 2
Personal Finance

5 steps to improving your credit score – Part 2

by Karen

Now that you know what is in your credit history and how to get one, let’s take a look at what is a good credit score? And how the score is being calculated? If you have tried looking on Equifax and TransUnion website, you know that they provide VERY little information about the actual formula. These guys don’t give away much because they want to protect their little secret and their proprietary information.

In general, there are five factors that determine your credit score. This is based on FICO (Fair Isaac Corporation) score model. FICO is a global standard that most banks use for measuring credit risk in the banking, mortgage, credit card, auto and retail industries for the last 25 years. In short, these are the factors that will determine your credit score.

  1. Payment history.

Payment history account for 35% of your score. This one is the biggie so please pay attention to it. Skipping payments or late debt payment can negatively impact your credit score BIG time. Paying your bills on time, every time is a key way to help improve and even rebuild your credit score. It is important that your bill on time even just the minimum amount!

If you have public records, these can remain on your credit report up to 7 years or more. Public record refers to bankruptcies, judgments, and collection records. They are sure ways to do lasting damages to your credit score. American lenders are typically more forgiving about bankruptcy records, the Canadians are not. Bankruptcy is a really bad stain on a Canadian consumer credit record. Not just lending requests, Canadian banks also request your credit record when you want to open bank account. I witnessed customers being turned down for account open request because they had bankruptcy record.

The other sin is not paying big brother (aka: your government). If you owe government money in tax, student loan, or other government debts, they will also report the delinquent payments or non-payment on your credit history. And it is really bad news for you when they do. I lost count how many times I told young customers: “your student debt is money you owe the government. So if you don’t pay, they will put your delinquent student debt record in your credit report.  And yes, you may not be qualified for loan request if you have delinquencies.” Don’t mess with the government debt.

  1. Current debt.

The other biggie is your current debts which account for 30% of your score. If you have high balances relative to your total credit limit (i.e: utilization of available credit), this could indicate a greater risk of default and bring your score down. Yes, banks give you credit, but they don’t want you to max them out all the time either. My rule of thumb is not to draw the balance to 100% of my authorized credit limit because it will impact my score and I will have to pay a lot of interest. So, I use 1 credit card only and I pay off the balance on due date. See my post on debt consolidation. This is my sure way to make the most use of the credit card perks, save on interest payment and sustain good credit score.

  1. Length of credit history.

Accounts for 15% of your credit score is the length of your credit history. The longer credit history is better because it can demonstrate the consistency in your repayment behavior. Just to be clear! It isn’t just impacted by how long you’ve had access to credit. You need to have good trends in payment patterns and credit applications. While having a long history of good credit can boost your credit score, a habit of missing payments or applying for new credit can nose dive your score to bottom.

  1. New accounts

New credit account represents 10% of your score. Opening multiple new credit facilities in a short period of time may negatively impact your score because this could imply that you are actively seeking credit. On the flip side, a stable record with occasionally new credit account and decent repayment history will be a big plus for you.

  1. Types of credit

 Lastly, the types of credit you have, will take the last 10%. Having a mix of credit products in your portfolio such as: a mortgage, loan, line of credit and one or two credit cards is more favorable than having multiple credit cards. Striking the right balance between types of credit can improve your credit score significantly.

Keep in mind, these are the big 5 used in FICO scoring model, Equifax, TranUnion and Experian have their own model. I studied all of them.  There are differences but they are not substantial and I don’t want to bore you with all the “nerd appeal” details. Seriously, you will not be able to stay awake if I describe all these models in details. I read them because, well…I like these stuffs. Yes, you can laugh. These stuffs are fun and interesting to me. In a nutshell, if you can maintain the big 5 that I mentioned above, your credit score will be in a good shape and increase your chance of getting your loan request approve.

Other stuffs that can mess with your credit score

Now, there are other minor factors that can really mess up your credit score and you should be aware about them. They are also within your control to change and manage.

 1 – Top of the bucket is error. 

Credit reporting agencies are doing their best but they can make mistake in reporting. They are human after all. One of the major causes of point loss to your credit rating can errors that the agencies falsely report about you.  Back in 2012, the CBC report on credit reporting mistakes that seriously impacted a number of Canadians.

I was “almost” a victim of reporting error when I applied for my mortgage. There was someone who lived in Vancouver whom had the exact same name as mine but she had different date of birth and address. Somehow, my lender ended up getting this “fake” Karen’s credit report. My lender was shocked when he saw a score of 530 on the credit report because he knew me for years. To make the long story short, he got my “real” credit report at the end and I was approved. I won’t tell you my score though. It is a secret. Shush!

Credit reporting is done electronically, and Credit Bureaus accept the information they are sent without any investigation into the accuracy of the information.  So it is important that you validate with your lender the information on your credit report to ensure there is no error.  If there is any inaccurate information, contact the credit reporting agency and ask them to correct the information. Once you report the error, then it is up to the credit reporting agencies to investigate your complaint, validate the information and make the correction. This is your right as a consumer, so exercise it.

Now, just because you report the error, it doesn’t automatically mean that the agency will correct it. So it is always a good idea to follow up with them 60 days after you report the error. It can be a lengthy and time consuming process to correct error on your credit report, but this has financial consequence to you, thus I encourage you to invest your time to correct it.

2 – Too many credit checks

Try not to have too many inquiries on your credit report at one time because it can be interpreted as credit seeking activities. In short, your lender may believe that you are actively borrowing from multiples lender and thus reduce your chance of getting credit.

3 – Having no debt is also not good for you. 

When you have too much debt, it is bad for you. But having no debt is also not good news for our credit score. I know, we can’t win at all. So try if you must to see this from the banks/lender’s stand point.  Imagine, someone just tell you they are good borrower but there is no record to prove it, would you believe them? Likely not, right? The banks are the same. If you have no debt, then there is no history for the agency to determine your credit repayment behaviour.  So, the point is to have some credits and use them responsibly to show your good borrowing character. Don’t go overboard like my card collector friend. Like everything else in life, balance is the key.

Now the answer you have being waiting for: why 650 score? According to TransUnion, 650 is the magic middle number – a score above 650 will likely qualify you for a standard loan while a score under 650 will likely bring difficulty in receiving new credit.

Typically, most banks build credit score into their automated consumer lending model. 650 is a good score, but there are many other factors that banks look at to determine whether you are a worthy borrower. Factors such as: can you afford this loan, your income stability, networth level and how long have you been their customers. I promise that I will write a post on how bank assess you as a borrower and what you can do to increase your chance of getting your loan approve. So much to share and I can only type so fast.

How to raise or rebuild your credit score

Let’s get to the good news stuff because you must be exhausted from hearing all the bad news by now. So let me cheer you up with a light at the end of a very dark and frustrating credit history tunnel. Your credit score can be improved and repaired. Credit rating is a snapshot in time and not a stain you will have to live with for the rest of your life. Your credit rating is like your self-esteem, sometimes in your life it will be high and sometimes it will be low, however, you can always rebuild it. It will take time, patience and effort but it is worth it. There are couple of things you can do to rebuild your credit rating/score.

  1. Check up!

Make sure that the information on your credit history is correct. In my experience, a simple check with the credit reporting agency and correct their errors can instantly change your score. Remember that credit score repair or building begins with your credit report and the correct one. And your credit report is built by mere mortal and capable of making mistakes, so make sure they don’t mess up yours. It is a good habit to request a free copy of your credit report and check it for errors once a year.

  1. Remind me!

As I mentioned, repayment history is one of the biggie so pay attention to this. If you don’t remember your credit repayment due dates (I don’t either, shush!), then make sure you set up reminders in your Google calendar or whatever method that will give you a quick tap on your head that it is the time to pay your dues.

Some Canadian and US banks offer payment reminders through their online banking portals that can send you an email or text message reminding you when a payment is due, so make use of it. For your line of credit, consider set up a minimum automatic monthly payment. Even if you have more cash to pay off the line of credit, it is a good idea to have the automatic minimum set up so when you forget (which happen to all of us. Me included) your credit score will not be impact. You still should pay off as much debt as possible though. You know I will nag about this.

  1. Consolidation.

I love this C world. My sister thinks I am traumatized after spending quite a few years as a lender and a credit risk professional. True be told, I am a bit traumatized because I saw how much harm debt could do to someone’s life. The financial stress can manifest into health issues and relationship with family and loved ones. So, I try my best to educate my friends and family on this subject and hope that I can help to prevent people from making these mistakes or re-build their lives. If you have a lot of debts and it is getting out of control, consider consolidating all your debts into 1 big loan and pay it DOWN! Keep 1 credit card but cut the others. Read my post on debt consolidation and get going on this because the longer you delay the worst it will get.

4 – My last “tip” to having a good credit rating and a high credit score is to continually use credit and to repay that credit on time all the time.

Advises and solutions for the credit score terminal cases

Yes, I am taking to folks who committed the deadly sins of having public records such as bankruptcies, judgments, and collection records. These are the deadly sins of credit history but there are ways you can rebuild and make a comeback.  Now, it will not be easy but I believe that you can overcome them.

A consignor or guarantor to the rescue! So this is your story: you were a bad boy or girl who filed for bankruptcy. I am not judging you because we all have rough patches in life. The most important thing is you recognize the error in judgement and don’t repeat them. You learn your lesson and now want to apply for a credit card or loan to demonstrate that you are now on the straight and narrow path. Alas! none of the banks or alternative lenders would lend you a penny because you have a bankruptcy record.

See the dilemma? You need to borrow again and rebuild your credit record, but no one would lend you. Life is so hard sometime.  But there is a solution.  Do you have someone in your life who has financial strength and willing to provide guarantee for your credit card or loan? This is the time to ask mom, dad, uncle, aunt or a really good friend who can lend you a helping hand. Having a consignor or guarantor can be really helpful when your credit history is in a bad shape. The banks and lenders will likely lend to you if you have one. Lastly, your consignor or guarantor will likely have a lender that they have relationship with. It will increase your chance of approval even more if you apply for loan with the lender who already has relationship with your consignor or guarantor.

Pay your debt! I know, I know. You probably shaking your head now: “Karen, if I have the money I would pay. Thanks a lot smartass.”  As difficult as it is, I would press you to find way to pay your government debts, collection and judgement. Work it out with these creditors whether they are the big boss brother, an ex (child support is the most common judgment record that I came across) or a company. If you really can’t deal with them directly (but I hope you give it an honest try), I encourage you to work with a licensed debt consolidation agency. Be sure to do your research on the agency because there are quite a few unethical agencies out there.

One last common misconception, credit scores can be quickly increased! Credit scores are based on your credit history and can generally only be changed over time unless there are errors reported on your credit history record.  Be careful of those claims make by the debts consolidation that they can increase your credit score instantly. It can’t be done instantly. These claims are mostly false. I am not even certain if some of their tactics are legal.

Yes, you can re-build your credit score but it will take time and effort.  And it is also true that lender can still see your previous bad repayment history, but if you can demonstrate that your repayment behavior is improved and you are now on the “straight and narrow” path, you will likely get your loan request approve. We all make mistakes, but if you can demonstrate that you learn the lesson, people will give you a chance.

Credit history is important for your finance and wealth. After thousands of words later, I am sure you know the reasons. Take it from an ex-banker, maintain your credit score and you should be rewarded with likelihood of getting your debt request approve, renting a place that you like, passing the security check for your new job, and getting utilities services for your home. As always, I wish you find the balance to have a blissful and happy life. Credit is an important part of your wealth which contributes directly to your balanced and blissful life, so pay attention and take care of it.

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5 steps to improve your credit score – Part 1
Personal FinanceUncategorized

5 steps to improve your credit score – Part 1

by Karen

 

“I am dead! My beacon score is 640 only and you said 650 is a good score. It is over for me”.  My friend practically cried over the phone. “Calm down! Listen to me. It is not all bad. 640 is not the end for you. There are other ways to mitigate the issue and help you the consolidate debts.” I had to yell so he would stop and listen.  Why did I agree to help him again? Ah, yes because we were friends. Darn! I mentioned in my debt consolidation post that I had a friend whom I endearingly called “the cards collector”.

Well, he truly loved the plastic. He is cured of the plastic now. A bad financial scare putting a stop to his love of plastic. At one time, he must have every blasted credit card that ever issued in Canada.   So, it was not surprising to me when I got a tearful phone call from him couple months ago asking for advice on how to manage his debts. Let’s just say that he got into financial trouble (the big capital T) because he loved swiping, tapping and inserting way too much. The credit cards that did him in were a sexy little black thing called CIBC Aventura World Elite MasterCard and an expensive and gorgeous gold one named TD Gold Elite Visa with promise of cash rebate. They really got him good with the cash rebate promise. I hate to say it, but: I TOLD him so!

After hearing the tearful and somewhat fearful confession of his spending sins, I felt really bad for my friend. Credit card can be a wonderful financial product facilitating your daily transactions effortlessly saving you a lot of time and effort, if use responsibly. That’s a big IF, because most people don’t. When you misuse the credit card, then it can be your biggest financial downfall. My friend felt into the latter category.

I really wished that I was wrong in my prediction. Though he was irresponsible, I never wished to see anyone in this situation. After much discussion, I believed his best option was a debt consolation loan. Before we could figure out which banks or alternative lenders, we needed to understand what his credit score was.

Credit score is an important indicator for any lender. Most banks typically use beacon score as a key indicator in their lending logic. Thus knowing what his credit score was would be helpful to determine what type of lender he could approach. I also didn’t want him to apply to a bunch of lenders because too many inquiries at the same time would negatively impact his beacon score. So what is credit score and why it is so important?

What is a credit history?

You probably heard this phase from a lot of industry experts or financial planner: “650 is a magic score. Get 650”. Most people’s reaction is: sure, message received: “must get to 650 credit score”. Eh, but why 650 is the magic credit score? And how do I get to 650 credit score? Before we get there, let try to figure out what is a credit history and the rating system because it will help to explain why 650 credit score is important.

In a nutshell, a credit history is a record of debt repayment.  Yep, the first time that you received the piece of that “sexy and good looking” plastic in college or university or the first debt that you signed on the IOU dotted line, your lender started reporting your repayment history to credit agencies.

On a regular basis (typically on a monthly electronic file transfer), companies that lends or issue debts to you (including: banks, financing companies, government agencies credit unions and retailers) will send specific debt repayment information related to the debt they have with you to credit reporting agencies.

For Canadians, your credit history is recorded in files maintained by at least one of Canada’s major credit-reporting agencies: Equifax Canada and TransUnion Canada. For consumer lending, Equifax is the first choice for most Canadian banks because they have more extensive consumer data than TransUnion. Sorry, TransUnion. It is the true! Banks use TransUnion for more commercial lending request though. So, these agencies will always make their earnings. Don’t feel bad for them.

You should be aware that your lender will typically request 1 record credit history only. So my fellow Canadians, please pay attention to your Equifax credit report because your lender will most likely uses this record to determine your credit worth. If Equifax record shows a minimal history or no record, then the lender will request a TransUnion credit record.

Someone asked me if he could have a delinquent repayment record if he didn’t pay the money he owed his mom? Well, he should feel extremely awful about what he did (cheating his own mother of cash), but unfortunately the answer was no. Personal borrowing debt without an IOU can’t be reported to an agency because the debt can’t be proven. Now, if you are an irresponsible tenant and don’t pay your rent, then you bet that the landlord can report you to the credit agencies. So be responsible and pay your debts. Ok, I will stop my nagging here.

For my American neighbours, Equifax and TransUnion are also your credit reporting agencies. In addition, you also have Experian. For Canadians, you won’t hear about Experian because they shut down their Canadian operations in 2009.

Why credit score is so important?

Your credit score is an actual judgment about your financial health at a snapshot in time. Credit scoring is used by lenders, insurers, landlords, employers, and utility companies to evaluate your credit repayment behaviours and predicting the probability of you repaying your debts or obligations. The credit-reporting agencies (Equifax and TransUnion) use a scale from 300 to 900. High scores on this scale are good. The higher your score is, the better you look.

1 – Borrowing money.

As mentioned, banks and companies leverage the beacon score extensively to determine your worth as a borrower. In North America, the beacon score is still the most used and trustworthy indicator of a borrower’s repayment probability. So if you want your loan, mortgage, line of credit or credit card application to be approved easily, ensure that you pay your debt on time.

Some lenders also use your score to set the interest rate you will pay. This practice is called “risk based lending”.  In a nutshell, depending on how risky you are as a borrower the lender will set a different interest rate for you. So, you may get a loan but the lender will charge you 3% interest rate higher than an average customer if you are deemed risky due to your poor credit score. Lastly, lender may ask for collateral for your loan request (i.e: investment, house etc.) or offer you restricted lending product (i.e: installment loan vs line of credit) if you have poor credit score.

 2 – Seeking employment.

In the recent years, credit score has been increasingly used by employers to determine the potential employee’s character. Having a low score can potentially cost you a great job opportunity. If you ever want to work in financial service sector in Canada, you must clean record (no criminal history) and good beacon score. In another word, you need to be bondable. This means that you can be insured by the company in case of theft or loss.

 3 – Renting.

Landlords have been increasingly using credit score as mean to assess your worthiness as a tenant. You may lose out on a good place to live if you have poor credit score. I used credit score and history extensively when I assessed my tenant. If someone didn’t pay their bills on time nor had multiples delinquencies, I would pass on them even if I had a good impression. It is just not worth the risk to me.

 4 – Utilities and insurance companies.

These companies are also leveraging credit score to determine new customer’s worthiness. With so much at stake, it is worth your effort to keep your credit score up and you shall be rewarded.

How do I know what is my credit score?

 You can obtain a FREE copy of your credit history! Yes, there are not many free things, so take advantage of this. You can request for a free copy of your credit history report which will include a beacon score from the credit reporting agencies. For Canadians, you can get your report via mail or fax (if you still own this piece of engineering relic. The reporting agencies still do). Below are the steps to get a copy of your credit report with Equifax for TransUnion

  • Complete the form provided by Equifax and TransUnion. Click on the link and complete the form
  • You will find the mailing address as well as the fax # for page 1 of the form
  • Provide copies of two pieces of acceptable identification. Just give them a copy of your driver licence and passport. They are the most popular and easy pieces to provide

You can also call them and request over phone:

  • Equifax Canada – Tel: 1-800-465-7166
  • TransUnion Canada- Tel: 1-800-663-9980 (except Quebec) and Tel: 1-877-713-3393 (Quebec residents)
  • They will ask you a series of personal and financial questions (may include your Social Insurance Number and/or a credit card number) to confirm your identity. Don’t get agitate. This is for your protection.

You can submit your request online also.  Yes, the agencies upgrade their technology from fax to online too! But for fast and convenience service, you may need to pay a fee.  TransUnion allows you to order your credit report online once a year for free but they will charge per transaction if you ask for more.

For my American friends, you don’t have to call, use snail mail or fax, you can order online with Annual Credit Report. AnnualCreditReport.com is the official site for US citizens to get free annual credit reports. This right is guaranteed by US Federal law. There are couple of sites tried to mimic AnnualCreditReport to scam customers, so please go to CFPB site and select the link from there to be on the safe side.

In the recent year, CreditKarma has entered the credit reporting market.  Credit Karma provides free credit scores and credit reports from national credit bureaus TransUnion and Equifax for both Canadians and Americans. CreditKarma can afford to provide you with this service free of charge because they make money from advertising on their site.

I will end the first part of this series on personal credit history here. I will post the second part which we will discuss in more detail what make a good credit score and how you can build a great credit score that will guarantee your loan approval. Talk to you soon!

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5 exercises that you can do at home without hitting the gym mat
Mental HealthPersonal FinancePhysical Health

5 exercises that you can do at home without hitting the gym mat

by Helen

If you read my post on my experience hitting the gym mat, then you will know that I don’t go the gym anymore.  Staying healthy and active is one of my “must do” to have a quality and happy life. Without the gym, I found alternative solutions to keep myself in a healthy shape.  The thought of not seeing the eye candies depressed me for about 5 minutes then I reminded myself why I didn’t want to gym. What was it again? Ah yes! The sweat and gym smell. Alternative solutions it is.

One of the things that I am good at is researching. I can spend hours looking up stuffs and playing detective. So, after many hours of researching in various medical articles as well as advice from my trusted nutritionist Ariell, I found my 5 alternative exercises that would keep my heart rate up and my muscle toned. My criteria for selecting the exercise was: it must be enjoyable. Life is too short not to enjoy every moment of it. With a little bit of imagination, creativity and new perspective, you can shift your mindset to enjoy activities that you aren’t normally enjoyed.

Getting back to my alternative exercises selection. Apart from the fact that weight training and gym machines are not the ideal fitness solutions for me due to my health condition, I also don’t like the fact that I have to make the time to get to the gym. It feels like a chore instead of a lifestyle that I can truly enjoy.

Most scientific, medical and fitness articles that I came across indicated that you can get healthy by doing exercise at home. The key thing is that you do something active, somewhere, sometime and be consistent about it.  Most experts agreed that it shouldn’t take much effort or money to design an effective workout program at home.

Things like fit balls, dumbbells, exercise bands or tubing, and push-up bars are an inexpensive way to create a routine that works all the major muscle groups in your body. Seriously, even with no props or expensive work out machines, you can build muscles and burn calories with all the information that available on the internet. Bless YouTube!

5 Components of an effective workout

Based on my research, an effective fitness program has five components. The fabulous news is you can accomplish these 5 components by working out in the comfort and cleanliness environment of your home. I still can’t stand the sweat even when the guy is Brat Pitt. I could change my mind if the guy is Christian Bale though. Below are the 5 components to have in an effective fitness program:

  1. A warmup. This can be as easy as a quick walk around your neighborhood. If you have a treadmill or a stationary bike at home, feel free to slowly and steady walk for 10 minutes.
  2. A cardiovascular (aerobic) workout. For the cardiovascular portion of your fitness routine, walk or pedal faster if you prefer walking outside on a treadmill. Now, if you want to feel a bit sexier, try step aerobics with a video. Feeling more courageous and pushing your boundary a bit more, try jumping rope. The key is to get your heart rate up while doing something you enjoy. I prefer a speed walking while tightening my butt muscle. Yes, a shapely butt appeals to the superficial woman in me. There I admit it.
  3. Resistance, strength-building exercises. This is the component of the fitness routine that can make you say: Ouch! I did and many times. Resistance exercise can be as simple as squats, push-ups and abdominal crunches if you want to really tighten up certain body muscles. I have been doing consistent abdominal crunches to build more strength on my lower body (also known as my muffin top). If these “ouch worthy” exercises don’t appeal to you, try workout with small dumbbells, a weight bar, bands or tubing. The objective of this portion of exercise is muscle strength and toning to protect your joints from injury.
  4. Bend it like Beckham – flexibility moves. This portion is where you can increase your flexibility with floor stretches or yoga poses. Love my tree and warrior poses!
  5. Time for a cooldown. You start with a warm up and so you must end with a cool down! The same exercises that you use to warm your body up can be used to cool it down. If you still feeling sexy, you can also use cardiovascular work routine (aka: step aerobics) at a low level to bring the heart rate down to a resting state. Step lightly on it, ladies.

 How did I get started?

Well, I learned a good lesson from my gym experience so I listened my body this time. To start, I aimed for 35 minutes of cardiovascular (aerobic) exercise and I did them consistently at least three times a week.

In addition, I spent 20 to 30 minutes of strength work and also for three times a week. I tried to have three sets of 10-15 repetitions of each strength exercise to make sure I targeted all major muscle groups. One thing to keep in mind is to cover all major muscle groups such as your upper body, lower body, abdominal and back. By working to improve all these major muscle groups, you can build up the strength for your entire body (not just one or two parts) and protecting all your joints.

I used to have really bad back pains (one of many health issues that I used to have) but regular exercise and healthier and selective dietary have reduced my pains and aches substantially.  I still have lot of work to make my muffin top disappear but I am not in a hurry. Enjoy my workout is more important than excess weight on my tummy. I have been slowly increasing the length and repetition of the exercises as my muscles strengthen and can tolerate more exercising.

Now I will sound like a yoga instructor, but I want to leave you my first advice: stay focus on the muscles that you want to work on. Then feel it. If you are doing the abs crunches and yet you feel tightness it in your neck, then STOP. Do a quick scan of your body and let your body tell you what you should do next. I can’t say enough about the important of staying tune with your body.

My 5 most enjoyable workout routine

I set out to create my own enjoyable workout routine and I did. Here are my 5 absolute favourite workout alternatives:

1 – Long walks.

Why jump on a treadmill when you can take a walk in a trail?  Apart from walking, I can also enjoy the scenery and talk to people. I also dragged Karen into walking with me. Truth be told, she needed it more than me. When the weather permitted, we walked and we took mini-me (my niece) with us.  She rode her bike while Karen and I tried to catch up with her. I am telling you, this exercise beats jumping rope anytime and the little mini-me can bike fast. Hello aerobics workout!

The enjoyable part is talking and sharing the moment with people I love.  It is also very educational for mini-me because she constantly asks about flowers, plants and other things that she spots on the trail. So, Karen and I know quite a bit about wild flowers, plants and insects.

A pet also makes great walking companion. It is good for you and your pet. Long walk is not only good exercise but it is a great method to clear your mind.  Whenever I was stressed out or went through a tough time, long walks did amazing thing to give me clarity and declutter my mind.

2 – Swimming time.

Swimming is a really good exercise because you can work all major muscle groups. When you swim, you will engage all parts of your body into a rhythm, and you can set the pace as will. So, check out your neighborhood’s community center or a privately run pool.

3 – Playing time.

Just for fun and testing out a theory, I wore a health watch while playing with mini-me. After 30 minutes with her, I burned 200 calories. Seriously, all we did was run around the kitchen and wrestled a bit. She won the wrestling match though.  I had a lot of fun with her and we created lasting bond.

Karen is certain that my niece loves me more than her mother because I am her most reliable source of ice cream, bubble tea and cake supply but I think it is the time that we spend together. The laughter and the memories we share, and that worth a lot more than a few calories to me. So, instead of making time for the gym, spend the time to play with your kids, nieces or nephews.  It is a win – win, I tell you.

 4 – YouTube!

There are tons and tons of content creators on YouTube who provide free exercise videos. I was livid and almost kicked my own butt because I paid CAD$1000 for something I could get free of charge! $0 instead of $1000. Some of my favourite YouTube exercise routines come from Fitness Blender. I use their workout videos extensively when old man winter visited Canada and I couldn’t do outside walk. For you yogis, try YogaTX, and Yoga with Adriene.  They are my morning go-to channels.

 5 – Home gym.

Got ya! I didn’t spend money to build a home gym. I got a set of 5 lbs dumb bell for $4 at a garage sale. Best $4 spent ever! During the winter, my lazy day or when I was short on time, I stuck to a 5 minutes jumping jack, 20 squats, 20 lunges, 5 minutes arm muscle work with my $4 dumbbell and a 45 seconds planks. I repeated the routine as many as my time or lazy body permitted. If you don’t want to spend $4 (which I did for about 3 months) you can use water bottles. I know it will work because I used water bottles as weight for 3 months.

My last tips for home exercisers

My last 2 cents on home exercises and I hope you find them useful:

Challenge yourself and select the exercise that you will enjoy.

At home, you won’t have access to equipment, class’s instructor or pricey private trainer that are available at a gym. So do your research and make sure you get the good set of exercises routine that you can enjoy. I find YouTube videos very useful because I am a visual learner. Seeing the correct postures that the experts demonstrated in their video helped me optimizing my workout and prevented me from injuries.

Find an exercise partner.

You will be more motivated if you work out with a partner. Karen and mini-me are my endearing partners in my getting healthy crime.

Schedule your workouts.

I typically set a 30 minute workout to wake my body up then I work out after my dinner. Regardless of the time of the day, give yourself time to rejuvenate your body and mind. It is my little blissful moment that I look forward to everyday.

Set workout goals for yourself.

Goals help to motivate you because it is something you can’t do right now, but you know is within your reach. My goal is 2 inches of my waist and then I will reward myself with this gorgeous yellow and white summer dress that I have been eyeing. A little pick me up is a good way to make me move my butt.

Exercise is a lifestyle commitment.

You have to think of it as a lifestyle commitment and an on-going component of having a happy life. It doesn’t end when you get a nice abs or butt, it continues. Get out of the mindset that exercise is something you are only going to do for a period of time. Repetition and continuation! Like eating healthy, this journey goes on.

Ok, I will end my rambling here. Do you exercise at home? Please share your home gym idea. I love to learn from your getting healthy journey and more importantly good home gym ideas.

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Quality or Quantity – 5 Reasons to downsize your wardrobe
Mental HealthPersonal FinanceWardrobe

Quality or Quantity – 5 Reasons to downsize your wardrobe

by Helen

The beginning

Do you still remember your first love? I do, it was a pair of aqua blue 3-inch Steve Madden sandal. After that, I kept falling in love over and over again until my closets were filled with the latest trends. I didn’t really know why I felt the need to buy so much clothes but I did. And it was getting harder to find an outfit because there were so many and I couldn’t find them in the mountain of stuffs.

One morning, after spending 10 minutes to push and pull a bunch of stuffs from the tightly pack racks of clothes, I was short of breath and annoyed. I was annoyed at myself for creating this overflow mountain of clothes and I asked myself: Do I really need all these clothes? How did I get here? When did I buy this much clothe? It got me to analyze what do these clothes means to me.

While I mentally scanned my closet and its contents, I started to reflect on the journey that led me to each piece of cloth and this mini mountain of stuffs that accumulated in my closet. The trial and error, the hits and the misses and how much money did I spend on stuffs that I didn’t even wear that often or never wear at all. Back then, my motto was: latest trend and lot of it. I couldn’t care less about the quality. Quantity mattered more to me.

The Debate

Couple of days later, I got together with a friend for dinner. Over dinner, wine, career and a little bit of male bashing discussion, I posted the question of quality vs quantity clothing purchase. My dear friend was a champion of quality over quantity. She obsessed over cashmere and silk.  I didn’t know how fast she could run until I saw her making a dash to grab the last cashmere sweater at Brooks Brothers. Her ninja legs could move at the speed of a bullet train. She had some good points supporting buying quality over quantity:

1. Longer lasting clothes, less shopping more saving.

It is counter intuitive to say: by paying more per item, you will save more. Her argument was: it came down to casual wear vs office attire. You would wear your office clothes more often than casual ones because you spent an average 40 hours at work plus couple hours of traveling time. Your office wears would be worn out before the casual wear.

But the winter boot was when she got me good. She compared my $60 winter boots that I bought every year to her $300 boot which has lasted for years. If you lived through a Canadian/Siberian winter then you know what I’m talking about. I lost count how many times I stepped outside for couple minutes and then ended up with soaking wet feet because my boots are not fully waterproof.

So, I finally got smart and invested in a pair of Sorel women’s Joan of Arctic boot. These babies were expensive. I paid $300 but they lasted and so warm. Do you want to spend $60 on a pair of boot that won’t last you one winter or a $300 one will ensure you have warm feet for 4 – 5 winters? When you buy quality items, they typically last longer which means less money spent, and less trips to the land of temptation (aka: MALL) and giving in to the spending beast that I called impulse purchases.

2. You will take better care of the expensive items.

When you spend more money on an item, it usually means you really like it and it makes you feel good. When you buy quality, every item in your wardrobe is your favourite. If they are your favourite, you will care for them well and in return, your items can last longer. It is a domino effect, ladies! More importantly, when you look good in your favorite outfit, it will have a positive lifting to your spirit and mindset giving you the confident to tackle your day.

3. You will be less wasteful.

We live in a very wasteful culture. We want more and new stuffs all the time. Just stop for one second and think this through. The more crap you buy, the more crap you eventually have to get rid of. If you’re buying poor quality shirts, you will have to get rid of them more frequent. This will not do your wallet any good.

4. You will save space for more living.

Well, I couldn’t argue about this one. My small mountain of cloth spoke volume. I will shut up now. The less cloth you have also means less time to clean, care for them and ah… yes, more spaces for you.

5. You will shop less.

For the ladies who love shopping therapy likes me, this might is not a plus. What? No shopping therapy, what should we do to reduce stress? For a long time, I loved shopping but then I slowly realized I used shopping to deal with other unhappiness in my life (namely Panda boss). I brought stuffs that I didn’t use because I needed that instant few minutes of gratification to lift my spirit but that feeling was short and fleeting. I ended up not using 1/3 of what I brought and I added more stress to my life because I overspent on shopping for useless stuffs and had to work harder to pay for them. Vicious circle, I tell you

The Purge

Tipsy and deflated but I still had enough brain power to grab the wisdom of my dear friend’s logics. So, I started researching on the best way to clean up your closet. That was when I came across Marie Kondo and her KonMari method. This is one organized lady, I tell you.

To be honest, I thought she was Karen’s long lost twin because they both have this insane drive and determination to follow their convictions. Hum…Tea time with Marie and Karen, I shuddered at the thought. But I was determined to make some changes and my closet was busting at the seam, so there I went. I banned Karen from coming over to my house on the day of KonMari, because she is a first-rate cheapskate and she would talk me into keeping stuffs or grab my thing for herself (which is not recommended in the KonMari method).

It was a simple technique but it was very hard to follow because:

  • First, I had to take everything out of your closet. Cloth, shoes, purse, bags, accessories and everything else must be pull out and on the floor. Jesus! Why did I have so much stuff? I was out breath from lugging things within 15 minutes
  • Then, I had to pick up every item and asked myself this question: Does this item give me joy?
    • If the answer was Yes, I kept the item
    • If the answer was No, I throw it away
    • If the answer was Maybe, then I had one last chance to decide after careful consideration

It was a blood bath. I ended up with 6 bags of stuff to throw away. Karen helped me drop them off at the donation bins and ended up with sore arms. There went thousands of dollars.  What I realized after this awful KonMari exercise was the fact that these stuffs did not just cluster my space but also my mind. I felt lighter and happier looking at my much more organized closet.

There were actually movements in the closet and I could see my clothes finally. More importantly, all the items I decided to keep are things that bring a smile to face or they made me feel good and confident. Why did it take me so long to realize this?

So now I am embarking on a new wardrobe strategy. I planned carefully what I need instead of buying on impulse and I tried to deal with issues in my life thru other means instead of shopping therapy (long walks, punching couch pillows, etc.).

Here is my new found philosophy and method of wardrobe investment:

  • Have a plan.Rather than jumping right into a major closet clean-out blindly, always start with a strategy to keep you on track and be clear on what you need. I started out with pulling my entire closets into middle of an empty room.  Then I pick-up each item, if I feel joy it goes to keep pile. No joy? Then its discard or donation.
  • Plan and set a budget. I know you may hate the B word. I do too, but then Karen set me straight. That budget hawk has her use. Once you have your personal budget, then you can have a plan of what and when you can buy the items that you LOVE but don’t yet have. The most important part in this step is to be honest with yourself. It is what you Love not what you want on a whim. With all the daily expenses in your life, you should never go into debt for the sake of your wardrobe. The last thing you want to have is financial stress for sake of fashion.
  • Bargain hunting. I love eBay. Karen probably told you how she shops. It is true, I got really good deals on eBay for her. Now, I have semi-annual shopping trip also known as my semi-annual clothing haul. Twice a year I, my friend and Karen drive to major outlet malls in US. Armed with our lists of “must”, we brought what we love and no more. I got Tahari, DKNY, Jones NY and Ralph Lauren at bargain price and I had a day of fun with my friend and sister.

In addition, I also took Karen’s mommy’s stylish wardrobe advices. Karen is boring (ex-banker and Capricorn) but she is very logical and good with the budget. If you are also seeing your closet busting at the seam and you spending money on items that you only wear once, it is worth your time to give it some serious thoughts. I am not a therapist but I learn from my experience that:

  • Shopping therapy did not give me long lasting joy
  • Quality is way better for my wallet than quantity
  • Cluster closet is bad for my physical space and mind
  • Dealing with root cause of my issue helps me to have a more blissful and happy life instead of masking my issues with instant gratification
  • Having a plan and making strategic purchases will give me a closet full of clothes that I love and give me lot of joy and confident

There! I will finally stop now. Tell me your wardrobe story. I love to hear from you.

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Leveraging- Using equity in your house
HousingInvestment

Leveraging- Using equity in your house

by Karen

I learn tons of useful information from my first venture in real estate investment. And it got easier with each second and third purchase because I knew what to expect. Finding fund for down payment was also easier because I could leverage equity in my house for my next house purchase.

You hear this word before:” Leveraging”, sounds fancy and important, right? In a nutshell, it just means: borrowing money to invest. The beauty of leveraging is cheap borrowing cost which allows you to buy more investments than you’d otherwise be able to, thus increase your returns in short time. The downside is just as obvious. If your investment goes south, you will end up owning a lot of money to your creditor. With cheap borrowing, you can use the fund as down payment to invest in another house or invest in other investments such as stocks, mutual funds and so on that can give you a better return.

How to Leverage

It’s often said that fortunes are built with other people’s money. Empires got started with borrowed money, so you certainly can take the same approach. I have been leveraging my homeowner line of credit to invest in both stocks and real estate for more than a decade and I am happy to say I have gained more in return than the cost of borrowing of the fund. Having said that, I will emphasize that leveraging has risks and you should always thoroughly research before diving in. At the end of the day, it is your name on the I.O.U agreement with your bank so be cautious of how you will invest the fund.  There are ways to leverage your house.

Option 1- Home Equity Line of Credit

Essentially, it is a line of credit with your house as the collateral for the debt. If you already have a mortgage on the house, the lender will register a second lien on your home. Since you offer your house as collateral for the debt, your lender will most likely offer you a lower interest rate than an unsecured line of credit. This can be a great way for you to come up with fund needed for a down payment for a rental property investment.

Once you receive monthly rental income from the rental properties, you can pay just the interest and keep the excess money or invest the extra fund in other investments. Money makes money!  The other great thing about line of credit is flexibility on debt advance date. You can borrow when you want, and when you pay down on the line of credit balance, you can re-borrow again. It is not a coincident that the line of credit is flexible and convenience to use. Lenders want to make it as easy for you to spend as possible. When given access to a lot of funds and at a cheap borrowing rate, we tend to binge on spending.

When I was a lender, I came across customers who borrowed against their home owner line of credit to go on “retail therapy” or worst, gambling. Needless to say, those weren’t wise decisions. Just remember! Your home is used as collateral for this debt, so spend WISELY!

Option 2- Second mortgage or Home Equity Loan

In some cases, where the borrower has delinquent credit repayment history, the lender may not approve a line of credit. Instead, the lender may ask for an installment loan or mortgage repayment loan to ensure the debt will be repaid on time and provide the borrower with repayment discipline. The great news is this option is cheaper cost of borrowing compared to unsecured loan! The not so good news is: it is not flexible. The loan is advance on a fixed date and you will have to re-apply when you need more fund.

Option 3 – Refinancing

It just means: terminating your existing mortgage and increasing the balance by the additional funds you need. Similar to option 2, you will get both the good and bad of this option.

Now, let’s get into the “how”

How a lender determines the maximum equity available on your house? For Canada, the lender will take 80% of your house appraised value then subtracts your existing debt balance that secured against your house (i.e: mortgage, homeowner line of credit and/or loan) to find the maximum equity available in your house. This can be a bit hard to digest so let’s just take my situation as an example:

I paid $200,000 for my first home and with $15,000 down payment, so my mortgage was $185,000 at closing. Then fast forward few years later, I wanted to borrow more money using the house equity. My mortgage balance was down to $175,000. Now I know what you must be thinking: lady, you don’t have enough equity in the house: $200,000 * 80%= $160,000. That’s more than your mortgage balance of $175,000. Well, luck was somewhat on my side. A combination of house price inflation and renovation that I did to the house increased the value from $200,000 to $800,000 appraised value. So, let’s take a look at the math again. $800,000 *80% – $175,000 = $425,000. Money made money indeed.

So why do I want to borrow cheap money by leveraging my home?

Because I want to use the lower cost of borrowing line of credit to invest into something else that will give me a much higher rate of return. As I mentioned, there are risks in leveraging, but you may want to take the risks if the rate of return is attractive enough for you. One of the most common reason for people to leverage is to obtain fund to invest in real estate or stock. I have been leveraging my house’s equity to invest in real estate for over a decade. In long term, I can make substantial gain if the property value appreciates, and I can also make small gain from positive cash flow in the short term.

Positive cashflow is an interesting topic in real estate investing because most investors want to have positive cash flow so they don’t have to pay money out of their pocket each month if there is a shortfall.  All of us have our own personal risk tolerance level. With leverage, it is important for you to find a balance between reducing your down payment and ensuring you still have cash on hand at the end of the month if your budget is tight and you can’t afford to pay out of your pocket each month covering for your investment property’s negative cashflow (shortfall). Negative cash flow should be avoided in almost all situations as it will:

  • Force you to look for cash or income to feed this monthly cash shortfall when you may not have extra cash lying around. That just not ideal situation to be in
  • Likely impact your credit history and that will negatively impact your ability to seek credit in the future if you are unable to repay your debt on time

First, assess your financial situation

Both situations aren’t good news for you and that is why a balance must be struck. To avoid negative cash flow situation when leveraging, I recommend you complete an honest and simple math to determine if you will be able to support this extra debt on your current income. For example:

  • I brought a $400,000 a townhouse to rent out with $80,000 down payment and a $320,000 mortgage
  • I leveraged my homeowner line of credit for the $80,000 down payment and had to make a min $240 monthly interest only payment
  • Conservatively, I could receive $2,200 rent per month based on location of the property and market condition
  • Now, let’s do the math: $2,200 (rent income) – $1,400 (monthly mortgage payment) – $240 (Line of credit monthly minimum payment) – $ 210 (monthly property tax) – $150 (maintenance fee) – $25 (monthly solid wastes and water payment) – $80 (property insurance cost) – $34 (alarm service cost) = $61 surplus

I had a positive cash flow for this investment property. As you can see, it is easy math to determine the cash flow of your investment property. If you want to do the cash flow calculation before making the purchase of the investment property, I recommend you take a look at the average rent in the neighborhood of the property and take the lowest amount as your potential rent income. Basically, you want to plan for the worst-case scenario (i.e: you will be getting the lowest rental income possible), and if you still make a small surplus, then YEAH! Now, if you end up getting more than the lowest forecasted rent income, then you will have more cash in your pocket. Plan for the worst and hope for the best!

Negative isn’t always bad?

Now, I will say something silly which is the benefit of negative cashflow in real estate investing. How can it be a benefit when you have to pay money out of your pocket every month because your investment property has negative cash flow? Yes, it can be if you are in a high enough income bracket. Well, this is true if you are a Canadian. I don’t know about American tax code on real estate investing. For Canadian, the investment loss that you take on as a result of negative cash flow on your investment property can be used to lower amount of tax you need to pay.

A friend of mine purposely invested in a property that incurred negative cashflow (shortfall) for years to reduce his income tax. He was a private banker and made really good bonus! I know, those private bankers. I encourage you to consult with your accountant on this topic because each person’s income bracket and financial situation is unique, so talk to a professional who has good knowledge of the tax code.

Getting back to my pitiful $61 monthly surplus. It isn’t great and it doesn’t do anything for my immediate monthly cash, but it has been a great investment in a long run. In a period of 4 years, the value of the townhouse increased from $410,000 to estimated $570,000. I haven’t made any improvement to the property, it has been just purely value appreciation due to market demand. So, if I want to sell the townhouse, I would make an estimated $160,000 gain. That would mean a 114% return on my initial investment which was $80,000 down payment plus additional $60,000 on closing cost ($140,000 in total).  Not bad for 4 years, right?

So, find the balance that works for you. You can achieve tremendous positive cash flow, yet very little (if any) equity appreciation and the reverse is also true. Like any type of investing or in life, you need to be certain of what is your risk tolerant and what you can live with.  So be cautious and do the math before making your bet! I hope you find this posting useful. As always, write to me about your experience or question on this topic. I love to hear from you.

 

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Share ownership – Buying a house with your partner or friend
HousingInvestmentYour Relationship

Share ownership – Buying a house with your partner or friend

by Karen

“You Now Need $100,000 In Income To Buy A Typical Condo In Toronto”. This was the headline on a Huffington Post article this year.  As the cost of housing escalates in densely packed metropolitan, the dream of home-ownership becomes unattainable for many young home buyers. Don’t be despaired, you can still purchase your dream home if you are willing to embrace some trade-offs. I am talking about the option of purchase a house with a friend or a family member. I won’t lie, there are pros and cons to this option and the list is a long one.

The benefits of buying a house with a friend or family member are:

1 – Able to qualify for higher amount of mortgage thus able to purchase a nicer home. With combined incomes of two, it will increase your mortgage approval amount and thus giving you more funding to buy the house of your dream.

2 – Share monthly housing expenses. When you are a homeowner, it’s your responsibility to pay for utilities, maintenance, and repairs in addition to the mortgage payment. The expense of owning and maintain a house is high and thus it would be easier on you to have another person share these expenses. Also, sharing expenses will likely reduce your expense and thus allow you to save a bit more for other things that you also want.

3 – Equity gain for your own home. A house is an investment and naturally, you expect to make some gains on this investment. The good news is that the longer you live together in the property and make the mortgage payment, the more equity you will gain. Equity is the difference between your home’s value and what you owe the lender. So when you and the co-owner decide to sell the property, the two of you can split proceeds from the sale and put the money toward a down payment on your own places.

Now, it is not all rosy when you purchase a house with a friend or family, there are downsides as well:

1 – It is not easy to move out. In a perfect world, you and the co-owner will live happily till the end of time. Alas, reality can be very cruel. Problems can arise between you and you may not be able to work out your differences. When you just co-rent a place with a roommate, it’s easier to walk away.

However, it’s not so simple when you jointly own a house. Both of you are on the hook for the mortgage agreement, and therefore, you’re both responsible for the debt. To break all ties, you have to: 1) sell the house, or 2) refinance in one owner’s name. Both options will take months to sort out and require a lot of time investment from both of you to break up cleanly.

Relationship is messy in both finance and personal. I know someone who brought a condo with a longtime friend. They were great co-owners and friends for years. Then one of them got married and her husband didn’t have stable income. He was a music teacher and had a hard time finding full time employment. So, he moved in with his wife and her co-owner. Well, it did work for about five months before things got really bad. At the end, they had to sell the condo and they also ended their friendship. Yep! It was a classic case of what could go wrong in shared accommodation.

2- Potential damage to your credit score if thing goes badly. As I mentioned, both of you are on the hook for mortgage payment, thus even if you pay your half on time but if your co-owner is not you will be impacted. The bank will report you and your co-owner’s late payment to credit agencies for non-payment or in the case of foreclosure. Equal ownership and punishment!

3 – Difficulty qualifying for other loans that you may need. A big mortgage on your credit report may limit your availability to qualify for other loans. The lender/bank will look at the amount of mortgage you’re responsible to pay monthly relative to your income. Since you’re responsible for the entire mortgage payment (your co-owner is also), your ability to service additional debt will decease as a result. When I was a banker, I often encourage spouses to deal with this issue by include both of them on loan application, however, you can’t just ask your co-owner to be on your loan application

Things to Consider before buying a property with family or friend

Buying a house with a friend can work well and be beneficial for both you. I have seen several partnership home purchases and they worked out to mutual satisfactions. But as I mentioned, I also saw how bad things could be when thing didn’t work out.  Though, I am bias because I jointly own three properties with my sister and one with my “then boyfriend – now husband” in the last 12 years, I am happy to say that the co-ownership model works out well for all three of us. But it takes work, trust, being upfront and honest with each other from the very beginning.

Much like getting married, you both should be very honest and transparent about what you are looking for in the joint venture before jumping in to it. Just because you are family or you are in love today, it does not guarantee that things can’t go wrong in the future.  When people aren’t happy, they tend to call lawyer and then you have to call one yourself. The only person who will be happy is the lawyers, so you should proactively set the expectation before jumping in. There are couples of things that I recommend you consider before buying a property with family or friend (future husband and wife are also applicable):

1 – Have an honest conversation about what you both want and keep the communication line open.

You MUST have a  candid and transparent conversation about your financial situation and you need to have a plan together. I have the same conversation with my sister and my then boyfriend when we decided to buy a property together. Though I had a lot of faith and trust in both my sister and then boyfriend, buying a house was a very large investment and faith and trust alone will not protect both of us in the event that the relationship break down.

So be PROACTIVE and don’t assume you know what the other person wants because he/she may surprise you. I called it “open kimono” conversation because all parties should be very transparent and don’t hide anything even the smallest issue. Wow! I just got the visual of that statement, but I really want to emphasize the important of it.

Also, ensure that you have open dialogue and communicate what issues bother you frequently. Don’t hold it inside and then explore at your partner out of the blue. My hubby was a classic example. It took many flights and me reinstating that I wasn’t a mind reader for him to get into the habit of communicating to me instead of internalizing the issue and let it festered.

2 – Have a home-ownership ‘prenuptial’.

OK, I can practically see the judgment in your eyes. It sounds really bad and negative that I want you to think of how to end the relationship before the relationship even starts. I always prefer to think that the glass half full and giving peoples the benefit of the doubt, but this is one situation that I advocate for a pessimistic mindset. You need to lay down some ground rules and clearly define your “red lines”. That’s where co-ownership agreements come in. These documents are the prenuptial agreements of home-ownership and they are the only way to resolve ownership issues aside from court proceedings. When so much of your hard earned money is at stake, it’s important to address at least these concerns:

  • How much each of you can contribute to down payment? I highly recommend the 50/50 contribution because it is much easier to decide on ownership percentage and how to divide the house expense.
  • What are the ownership percentages? If you are a Canadian residence, you could jointly own the property as: 1) tenants in common or 2) joint tenants with right of survivor-ship. As tenants in common, each person would own a percentage of the property, and could sell his/her share or leave it to any beneficiary upon death. On the other hand, joint tenants means that each of you would have an equal, undivided interest in the property so if one of you dies, the share would go automatically to the survivor. There are pros and cons with both of these arrangements. With joint tenants option, you can bypass estate administration and taxes which is really nice solution if you want to avoid paying tax to CRA. The downside is the obvious, if you want to leave your share to someone else (rather than the co-owner) you can’t. Now, tenants in common would allow you the financial control over your share of the property and the power to leave your share to a beneficiary of your choice. Nice option heh! But there is also downside. You both have the option to sell or give your share to someone else without consent. Thus you could end up sharing ownership and/or living with someone that you don’t want as a result. I highly recommend you both to sit down with a real estate lawyer and flush out these details before deciding on the ownership model and percentage. This is an expense that you should pay because it will save you a lot of grieve in the future.
  • How are ongoing expenses divided? You need to decide who will take care of home maintenance tasks and how the bills for utilities, insurance, and unexpected repairs will be handled. Again, money causes problem so you should proactively address it.
  • How to divide up the joint household task? Silly joint household stuff like: who will take out the trash? or who have dip on the kitchen or have the bigger room should be ironed out. I am serious about this. My “then boyfriend” and I had many mini fights over whose turn to take out the trash. He can’t cook but hate washing dishes. I am the cook but I am not gonna wash dishes when I cook the meal too. You can see how this can get ugly quite fast right? So be proactive and set the expectations before you cohabitate.
  • What happens when one of you want to sell? When one of you wants to sell your share in the house, you are not required to sell to someone approved by the other owner. Well, now that is a winkle. But if you have a co-ownership agreement in place, it can grant the co-owner the right of first refusal. Again, a real estate lawyer will be very useful in helping you put in place agreements so you don’t have to deal with this headache if the worst case scenario happens.

Final thoughts

I will say it again, co-ownership is not a decision you should rush into much like a marriage. This is a decision that you should take the time to consider and investigate.  Do what the bank will do to qualify someone for a loan:

  • Do a credit check on your co-owner/owners. Know for a fact how his/her income and assets to get a better sense of how likely he/she will make timely payments as well as his/ her ability to make payments if income is lost
  • Hire a real estate lawyer to create a cohabitation agreement which outlines important details that I mentioned above
  • Lastly, it is worth considering taking out a term life insurance policy on each other. The payable amount on the policy should be enough to cover the mortgage in the event that one owner dies

Now that I sufficiently scare you off with my negative prenuptial talk, I would also like to highlight that there are benefits to co-ownership that I also highlighted above. A home co-ownership is just another relationship. If you are being honest, transparent and considerate of your co-owner, the relationship will last and you both can gain from the joint investment. I am an example of how well it can work out. 12 years later, I co-own three properties that worth over $2.5 million and my relationship with both my sister and husband are still going strong. Well, I haven’t poisoned his foods and he learns to take the trash out. My sister and I are building this blog together and we haven’t attempted to choke each other yet. I consider that a success…well…you be the judge.

How about you? Consider buying a home with a friend or family? Write to us about your co-ownership experience.

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Three ways to build your real estate investment portfolio
HousingInvestment

Three ways to build your real estate investment portfolio

by Karen

You probably can guess that I love real estate investing. While real estate investing can be risky, it is not that complicated, and I believe wholeheartedly that anyone can build up their own real estate portfolio. The text book definition of real estate investing is a broad category of operating, investing, and financial activities centered around making money from tangible property or cash flows somehow tied to a tangible property. Whew! That’s a mouthful and complicated. In short, there are many forms of investment you can dip your toes in when it comes to real estate. For most of us, the purest and simplest form of real estate investing is rental income property. In a nutshell, you acquire a property then you find someone who wants to use this property to enter into an agreement with you in a landlord and tenant relationship.

For me, rental income from real estate investments has a huge psychological advantage compared to dividends and interest from investing in equity investments. I can drive by the property, see it, and touch it. Paint the property with my favorite color or hire a builder to expand it and I can determine the rental rate and negotiate the best deal for me. The possibility is endless. So, for a self-confessed control freak, real estate gives me a lot more control over my tangible investment and immense satisfaction. There are more than just residential properties that you can invest in.

Below are the 3 types of real estate property that you can consider:

1- Residential real estate. Meaning you invest in real estate tied to houses, condos or apartments. You can do monthly rent or leases which usually run 12 months. Or if you are lucky enough to be in a red-hot rental market that gives landlord more power, then month to month rental will allow you to quickly adjust the lease rate and gain more cash flow. Nice and simple

2- Commercial real estate. Commercial real estate investment can be double edge sword due to complexity and risky nature of commercial lease agreement. These leases contract can be in years. So, when a commercial real estate is fully leased with long term tenants who agreed to hefty priced lease rates, the cash flow continues even if the lease rates on comparable properties fall (provided that your tenant doesn’t go bankrupt). This is a good scenario. But you also could be earning significantly below market lease rates on an office building because you signed long term leases before lease rates increased. There are three types of commercial real estate property that you can invest in:

  • Commercial real estate property, which investments largely consist of office buildings
  • Industrial real estate property, which include warehouses and distribution centers, storage units, manufacturing facilities, and assembly plants
  • Detail real estate investing, which include shopping centers and malls

3 -Mixed-use real estate investing. This is a catch-all category for when you develops or acquires a property that includes multiple types of real estate properties. For example, you might build a 5-story building that has stores and restaurants on the ground floor, office space on second floors, and residential apartments on third to fifth floors

There are many advantages to investing in real estate, but I will just list the 2 main ones:

1 – Tax, the three letter words. Most of us want to pay less tax unless you are Warren Buffet. As a landlord, you can deduct certain property expenses (like mortgage payment which is cost to finance the property) from your income and thus reducing the taxes you owe. If your expenses (mortgages and maintenance costs) exceed your rental income, you may be able to deduct that loss from any other sources of income you have (like your employment income). For Ontarians, the list of tax deductible includes: mortgage interest paid, property taxes, property insurance, maintenance/upgrades (keep those Home Depot and Lowes receipts, you may get tax break from CRA for those), property management (if you use an agent or property management company to manage your property) and utility bills (if you include them in the rent). An accountant would be able to give you a lot more insights rental income tax code and help you pay less to the tax man.

2 – Cash flow. You get a regular monthly cash flow. Other kinds of investments may pay out less often or income may be less predictable compare to real estate. If you have decent and stable stream of tenants, you will have steady cash flow every month

Real estate is not without risks and disadvantages. There are 3 big downsides that I want to highlight:

1 – The pains of being a landlord. It sounds nice right? You are a Landlord. But there are a lot of responsibilities and challenges of being one. When something in the property breakdown, the tenants will pick up the phone and call you. You will be responsible to do the repair and sometimes on an emergency. Once, the basement of my rental home got flooded and I had to repair the damage and reimbursed the tenants for the damages on their stuffs. Did I mention, it happened on one of the coldest day in December? It was chaotic nightmare.

Second, dealing with tenants can be challenging, especially if they don’t pay their rent on time and cash flow is tight. It could be awful and not profitable, so be sure to do credit check and know who you rent your property to.With the availability of Craiglist and Kijiji, you can post your rental listing on these sites free. You can also enlist the help of a real estate agent to lease your property. There are benefits and costs to both approaches. For me, I used a real estate agent. I found that tenants who I got through the service of a real estate agents tended to stay longer, financially stable (they didn’t miss any monthly rent payment) and more responsible.

2 – It may be difficult and costly to sell the property. If your rental property locates on a densely metropolitan and consider a “hot” housing market, you won’t have this problem. You can sell your property very quickly and make a bundle in equity gain. But in an average housing market, it can take time to sell as thus can also be costly to sell due to real estate and legal fees.

3 – It is expensive to invest. For Canadian, you must have a down payment of at least 20% when you buy a second property. You may need a mortgage. And, you will have high monthly expenses to cover when you own a building. Of course, you hope the income you receive from your tenants will cover this. In a good case scenario, it will work out and you get a surplus but it could also turns badly and you end up with a deficit.

You can tell by now that I will not just tell you the good stuffs. I will also tell you what happen when things don’t work out. With rewards, there will always be risks.  I want to provide you with all information that I know so you can make informed decision. And I would always advocate that you do your due diligent and talk to experts such as accountant or lawyer so you can make the right decision for you.

Other investment options

And I digress… getting back to real estate investing. And in a nutshell, investing in physical real estate properties can require a lot of your time and money for the reasons that I mentioned above. I ended up doing a lot of grunt works like painting, cleaning, repairing and renovating on my rental property to save some expenses. So it is a lot of hard works if you are up for it. But if you don’t feel like getting your nail chip by swinging the hammer or painting for hours, you can also get involved on the lending side of real estate investing.

For instance, you can own a bank stock that underwrites mortgages and commercial real estate loans.  This can include public ownership of stocks.  This may be a good option if you don’t have a lot money to invest and you don’t want to do the heavy lifting work. You can lease a space so you have little capital tied up in it, improving it, and then sub-leasing that same space to others for much higher rates, creating decent returns on capital. An example is a well-run flexible office business in a major city where smaller or mobile workers can buy office time or rent specific offices.

A friend of mine makes a very comfortable living for the last 10 years by owning and managing few sub-leasing office buildings. The more complicate options which include underwrite private mortgages for individuals, often at higher interest rates to compensate you for the additional risk, perhaps including a lease-to-own credit provision. Or invest in mezzanine securities, which allow you to lend money to a real estate project that you can then convert into equity ownership if it isn’t repaid.

Flipping

The last real estate investment that I want to briefly touch on is flipping. Yes, the other F word! Flipping can be very profitable if you have funding, extremely discipline and have access to a reliable group of contractors and trade professionals. Flipping has been very popular and sexy way to invest in real estate thanked to shows like Flip or Flop and many others on HGTV.  I must tell you, the reality of flipping is hard works. It is not as easy as Christina and Tarek El Mousa make it looks and it is extremely risky investment. You can win big and lose just as big. I will write a post on flipping based on my research and feedbacks from 3 flippers whom I know well as well as other business sources.

All this is to say that there are many options for you to get a bit of the real estate investment richness. And real estate investment can be very simple or complicate depending on you and what you want to invest in. For the last 15 years, I acquired 3 properties and they have been good investments for me.  So, I encourage you to research and see if real estate is an investment that you can invest in. From my experience, it has been very hard work but also very rewarding. Write to us about your real estate investing venture. We love to hear from you.

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9 steps to an ideal real estate investment property
HousingInvestment

9 steps to an ideal real estate investment property

by Karen

Recently a colleague asked me what she should be looking for in a cash flow positive investment property. She learned that I own two rental properties and she wanted to know why I brought them.  I was slightly taken back because I didn’t intend to purchase these 2 homes as rental properties initially. Circumstances (aka: my sister’s life changing decision and my husband obsession of building a family dream home) got me there. Nevertheless, I ended up with 2 rental properties and I have got decent return on my investment.

In my opinion, the criteria for buying a rental property with potential for positive cashflow is almost the same as buying a home that you will live in. In the last 3 months, I have been actively hunting for the 4th property adding to my growing real estate portfolio, and I use the same criteria that I always use to buy a house.

Here is my checklist when hunting for that perfect real estate investment property:

 1- Employment Opportunities

Whether you buy a rental or a residence, locations with a growing job market is a good one to have on the list. If it is a rental, your tenant will most likely want to be where the jobs are. And so do you if you want to spend less time to travel to work. Proximity to where hot job market is something that all of us will want. For Canadian, you can visit Statistics Canada for reliable data on the labour market for the area you are considering. If you are an America, take a look at www.usa.gov/statistics. Pay attention to the news. If a large corporation moving to the area, people will follow. For example, when Amazon announces the site of their next head office, I am sure the price of house and rent will rise substantially in the lucky city that Jeff Bezos decides upon. If you want to rent to students then college towns or areas near a popular university is highly recommended. A friend of mine owns three condos locates within 15 minutes walk of a university) and he had made good returns on these 3 investments.

2- Location, Location, Location

It is always about the L word. You can change the house interior or even rebuild it, but you can’t change its location. Take a good look at criteria, such as proximity to transportation such as highway access and public transportation, local restaurants, shopping, library, hospital and other amenities. If you want to rent to student, then a location close to university and college would be ideal. The more central the location, the greater the demand.

 3 – Safety

Safety is a number 1 on the list for all of us because no one wants to live in an unsafe neighbourhood. Statistics Canada and www.usa.gov/statistics are good sources of data for this. I went one step further by going straight into the local police department. The officers whom I spoke to were great and very helpful. They gave me a lot of goof information on type of crimes in the area as well as trouble spots. Though I was quite sure that they thought that I was nut, they kept it to themselves.

4 – Amenities

People want to have fun. I am sure you would prefer place where you can shop, enjoy a nice day in the park, movie theatre, or have great restaurants. And so, will your tenants. A neighborhood with good and variety of amenities tends to attract more tenants.

5 – Rent price

This is an important one. You need to know the average rental rates are in the area because you need to do a cash flow calculation. If you don’t want to have a shortfall (i.e.: negative cash flow) from your rental property, do the research so you are clear on rental property monthly expenses: mortgage payment, utilities, insurance, property tax and potential rent income. These are the information you will need to get the right answer. Always use the lowest rent income. It is the lender in me talking! I always plan for the worst and hope for the best. If I budget for the lowest rent income based on the area’s statistic, I will be break even at the least. If I end rent out for more than that, then I am golden! Your real estate agent is a good source for this information. I don’t use real estate agent, so I use MLS listing, Zolo and even Kijiji to find the average rent price in the area.

6 – Schools

If you are a parent, I would bet that a good school zone is top priority for you. For a long-time, there were a lot of parents in Toronto would rent a tiny place in a top school area because they wanted their kids in these prestigious public school. No, they didn’t live there, they just “fake” rent a place in the good school zone so their kids would have a better education. The extend that a parent will go for their kid is limitless. I don’t judge these parents because I would probably commit the same fraud for the sake of my daughter’s education and potential advancement. For Canadians, check out: https://www.fraserinstitute.org. Fraser Ins. is a realizable source for Canadian public-school ranking. I came across this site for Americans: https://www.greatschools.org. This organization provides review and rating on US private and public schools.

7 – Future Development

What developments are planned for the area which would positively or negatively impact the value of your investment property? I strike gold when the city announced a multi-billions budget to build and expand the public transportation line across the city and all 3 of my properties locates within the area of development. Since the announcement, the rent price and asking price of house in my areas rocketed. The neighborhood is going through a major transformation. The only drawback is we are also right in the middle of the construction zone, but no pain – no gain. I will swallow this short-term pain for greater gain in a near future. So, a neighbourhood in the early stages of gentrification or transformation will likely result in a faster and higher appreciation for your investment property.

8 – Housing Inventory

This is especially true when you buy a rental. If there are a lot of excess inventory in the area, you may have to lower your rent price because you will have more competitors and renters have more to choose from. So, make sure you look at market trends for the last 2 years for accuracy.

9 – Property Taxes

Yuk! The tax man will get you and this cost will impact your cashflow calculation so be sure to review the taxes and the current market value assessments. For Ontario residents, check out www.mpac.ca. If you live in BC, Canada then check out: www.bcassessment.ca/. Alberta residents can find information on: www.calgary.ca/PDA/Assessment/Pages/Property-Assessment.aspx. Each province in Canada has their own municipal property assessment site, I list the top 3 only. You can do a quick Google search and find the assessment site for your location. Bless Google! Regrettably, I don’t have a site for US.

 It is a long list because I like to know exactly what I get myself into before making the purchase decision. Real estate investment takes a lot of money and commitment, so it is totally worth your effort to take the time and do the research before letting go of your bundle of cash. Being a landlord is not easy and it takes up a lot of your time, but you will gain a good return if you willing to invest your time and effort.

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An efficient and stylist mommy’s wardrobe
Personal FinanceWardrobe

An efficient and stylist mommy’s wardrobe

by Karen

Like many working moms, I constantly deal with the dilemma of working vs casual attire that splitting my fashion spending wallet every month. I used to work in banking industry which was conservative and quite rigid in professional image thus what I wore to work matter a great deal. I am certain that most career women share my challenges.  You know the saying: Dress for the job you want. It is very true in professional environment. And yes, I love dressing up and look good. Who wouldn’t? Hence my constant dilemma:

  • Looking good but on a budget
  • Looking fun, stylish but professional
  • Wardrobe should be easy to maintain and almost ironing free

Those are my 3 guiding principles when shopping for clothes. My daughter (this small but destructive, energetic and constantly-on-the-move mini me) adds another interesting dilemma to my morning routine. It takes me almost 45 minutes every morning to get her ready, so I can only take 30 minutes maximum to get myself ready for work that including makeup, hair, shoes and outfit.

The list

To tackle my fashion/wardrobe dilemma I approach it likes a work issue. First make a list of the “must have”:

  • How much I can afford to spend on clothing, makeup and shoes annually?
  • How much of my budget can be allocated to work attire vs casual wear?
  • How do I want to look?
  • How much time can I afford to get ready in the morning: easy! 30 minutes in total. So no ironing and machine washable material is a MUST

You begin to get a picture of me, aren’t you? Yes, I am the budget controller in our household. I am the type of mother who makes list of all the daycares in the surrounding area, then analyzes and ranks them according to a list. Yep…that’s how I select my daughter’s daycare. You may laugh at my neurotic approach, my husband and family do regularly. Getting back to my wardrobe choice dilemma, I consulted my sister on my “must have” list and how to shop smartly based on my priorities. Did I mention, my sister is equally neurotic but in a different way?

Shopping frame

We came up with solution for my working mommy’s wardrobe:

  • Shop only 4 times a year. This includes: warehouse sales and eBay. By the way, eBay is great place to shop if you know what you are looking for (we buy from a seller call BHFO for past decade).
  • Set an annual budget for clothes, makeup and more importantly shoes
  • 60% of the clothes should be dress; 20% are suits and 20% are casual ware
  • Buy makeup on Gmarket only (or in my world, steal from my sister)
  • The clothing material should be iron free and machine washable mostly

Our reasoning is logical:

  • Setting shopping limit and budget will more likely keeping me from compulsive purchase and time at the mall so I have more time for other activities that will make me happy
  • I spend 8 hrs per day at the office, so logically more of the budget should to be allocated for professional attire. Also, professional attire tend to cost more than casual, so spending more but getting less in outfit quantity
  • To keep the “morning routine” to 30 minutes, I can only spend 5 minutes to get an outfit ready, thus dress and suit are logical choice as I don’t waste time putting matching tops and bottoms
  • I want to look fresh, fun and professional; hence dresses also work best for me. In general, sheath or A-line, knee-length dresses in jewel tones or tasteful prints couple with solid colour stiletto and neutral accessories do the trick. Moreover, dress never goes out of style in professional working environment if you keep to classic cut like: sheath and A-line.
  • I am an Asian make-up converter because… well…My sister converted me. She can tell you endlessly the innovation and benefits of Korean and Japanese makeup. But for me, it is simple: make up and skincare roll into one which saves me time and money.

So far so good

I am happy with the routine I have set. My morning-ready-for-work routine time is reduced by 20 minutes because I don’t have to think how to pair my outfit or iron it. Just a dress and a jacket then I am done! I now have a 20 minutes of morning’s “me time” to leisurely enjoy my ride to work with a cup of matcha latte while listen to music.  Don’t discount the “me time”, we can all use a 20 minutes to collect our thoughts and find the small morning bliss to start the day right. And it is important to keep finding the small bliss throughout the day to keep yourself positive and happy.

Lastly, shopping only 4 times a year also means I have more time for myself and family instead of shopping activities. And I feel confident and happy about my clothes.  I am not saying it is easy to do. The urge to browse the shops during my lunch hours is still there, but I am determined not to stray. I love to hear your stylish wardrobe story.

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