Personal Finance

Laws Affecting Money

Growing up I think it’s safe to say that, we all learned how to earn money. Go to school, do well then get a good job. A good job with benefits that pay well and has security. Then there are jobs that aren’t secure and most times don’t require good education. They are the jobs that are based on commission. For many people, it’s a bad word that they run away from but for the ones that work at it, it pays well. Dividends. Whichever way you choose to earn money, your goal should be to earn as much as possible when you’re young. Earning money is simpler than making money but the result is the same, you would have obtained money that needs to be managed. The choice to make money instead of earning money will most times depend on how you were raised. Employees earn money and the self-employed or business owner make money. Either way we choose to get money, we are all subject to laws that regulate the various methods. If you are an employee then your concern should be the Employment Standards Act, which protects the rights of employees. The ESA sets out the minimum you should be paid, how you should be treated and a few benefits that you are entitled to such as vacation pay and holiday pay. If you’re self-employed or own a business then Income Tax Act and various Municipal By-laws should be of more concern for you.

Managing money, not a lot of us were taught this or it wasn’t emphasized. Managing your money is all about budgeting it. Simple, yes but a difficult habit for many to adapt. Most people just think of their bills when they get paid. Now the tools for creating a budget can be as simple as a piece of paper and a pen or a software like excel or even more advance Microsoft Money. Whichever you choose it is important that you make it a habit. Don’t worry too much about staying on track because that comes with time. Just start. When you start try to create budgets that are one to two months ahead only till you get better at staying on track. If you are not paying your bill on time you may end up in collection where a collection agency starts calling you to get you to pay your debts. In this case you would be affected by Consumer Protection Act and the Collection Agency Act. “The average Canadian’s consumer debt load hit $27,485 at the end of 2012, a six per cent increase over the previous year’s level and the first time the figure has been above $27,000.”, according to¬† This amount doesn’t include mortgage debt but things like credit cards, car loans and lines of credit. Here is a tip about dealing with collection agencies, you can request that they only contact you by mail and not call you anymore. If they don’t comply with your request then you can report them to Consumer Affairs which would issue them a fine. Individuals whose income and other assets are not sufficient to pay their financial obligations as they come due are insolvent. At this point you might have to declare bankruptcy. In which case, you would be affected by the Bankruptcy and Insolvency Act. This act performs 3 functions: protect creditors, give debtors a clean slate and help debtors and creditors compromise. So it is important that you manage your money well.

Now if you can do a decent or great job at the former two then you have some money to invest. Now you’re ready to have money work for you instead of you working for money. At this point I suggest you speak to a financial professional. Make sure they are qualified. It’s best to talk to your bank. Make your banker your friend. Have a regular dialogue with an account manager at your bank. Do your own research on investments but keep it simple. If the book starts out with formulas then put it down and look for another book. There are 4 basic things you should know about investing. One, start now. Long-term compounding is one of the most powerful tools available to investors. With compounding, your savings generate earnings, which are then reinvested to generate their own earnings. It’s never too late to start, but the sooner you begin, the better. Two, don’t avoid risk; manage it. A well-balanced portfolio divided among asset classes such as stocks, bonds and cash equivalents may help you manage risk and reduce the ups and downs of the market. This is where your banker plays a big part when you’re starting. Three, maintain a long-term outlook. Investing is not a sprint, it’s a marathon. Four, Avoid or postpone taxes when possible. This means deposit heavily into your RRSP then into your TSFA then if you got any left over to invest talk to your banker. The Securities Act protects investors from unscrupulous investment professionals and other investors.