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Better Finances for a Better You

Section: Word of the week

← Curating the web to find the most interesting and helpful information about your money.

FIRE (Financial Independence, Retire Early)

FIRE is an acronym which stands for Financial Independence, Retire Early. FIRE is a lifestyle movement with the goal of gaining financial independence and retiring early.

How to retire as early as humanly possible →

Dividend

A dividend is a sum of money given to shareholders by a company from its profits. A corporation can distribute a portion of its profit as a dividend to shareholders when it generates a profit or surplus. Retained earnings are sums that are not dispersed and are reinvested in the company.

What are dividends and how do they work? →

Fixed Mortgage

The interest rate on a fixed-rate mortgage does not change over a certain period, often two to five years. This offers security and predictability because your monthly mortgage payments will remain unchanged over this set term.

Find the best 5-year fixed mortgage rates in Canada →

Closed-loop prepaid card

Only specific merchants allow the usage of this kind of card. A closed-loop card can only be valid at a certain store or collection of retailers. A good example is a closed-loop prepaid card card used on your local public transit system.

You can track all your closed-loop prepaid and gift cards at Neontra →

Capital Appreciation

A rise in an investment's value is known as capital appreciation, often known as a capital gain. It is the difference between an asset's acquisition price and selling price.

Capital Appreciation: Meaning, Types and Examples →

Capital Gains

The difference between an item's current value and its initial purchase price is known as a capital gain. When you sell an investment, you have to pay taxes on both short-term capital gains (less than a year) and long-term capital gains (more than a year).

A closer look at Capital Gains Tax in Canada →

Frugal

When it comes to handling their finances, someone who is particularly cautious about spending less and saving more is said to be frugal.

Living frugally and happily in retirement by Investopedia →

Equity

The term "equity," which is frequently used in numerous financial contexts, can be confusing to many. To put it simply, equity is ownership of a business or an asset. It can be represented as stocks, real estate, or any other type of investment instrument.

What you need to know about this often-used financial term →

Loud Budgeting

The Loud budgeting movement pushes individuals to be open and honest about their financial situation and to refuse offers of goods or activities that they cannot afford or do not want to spend their money on. It's a tactic meant to make your financial goals visible and audible to friends and family. The notion is that you should keep to your budget to support your financial goals rather than going beyond to live up to others' expectations.

Loud Budgeting – What it Is and how it can work for you →

80/20 Budget

According to the 80/20 budgeting strategy, 20% of your income is allocated to savings and investments and the remaining 80% is used for monthly expenses and spending. Of course, not everyone will benefit from the 80/20 budget rule. If you have a specific financial objective in mind, such as debt repayment or an early retirement, you may allocate more than 20% of your income to that purpose.

Find other budging methods that may work better for you →

Variable APR

Variable APRs are subject to change at any time and are based on changes in the prime rate.

What causes variable APRs to change? →

Penalty APR

When you make a late payment, card issuers have the right to penalize you with a penalty annual percentage rate (APR) that is greater than your standard APR.

Start planning to pay off your credit card with our credit card payoff calculator →

Prime Rate

The best interest rate that lenders charge customers is known as the prime rate, or prime lending rate. It's possible that your credit card's real interest rate is higher than the prime rate. Variable APRs frequently fluctuate in tandem with changes in the prime rate. It follows that your variable APR will probably increase if the prime rate does, and vice versa.

Here’s a breakdown of the most common personal finance terms →

Purchase APR

Purchase APR, which can be fixed or variable, is the interest rate applied by credit card companies to new purchases you make on your credit card when you don't pay off your full balance.

Learn more about Purchase APR and how it impacts you →

Credit Card Cash-Advance APR

The interest rate that applies to cash advances made using a credit card. Often, this is one of the highest annual percentage rates that you may pay. Cash advances have no grace period and start accruing interest right away.

See other key terms to increase your knowledge and guide you to financial wellness →

Balance Transfer APR

A balance transfer APR (Annual Percentage Rate) is the interest rate you'll pay on balances you transfer balances from one credit card to another. Some credit cards offer a promotional balance transfer APR. You may be eligible to receive one of these promotional offers when you transfer credit card debt to their card from an existing credit card.

Best balance transfer credit cards of April 2024 →

Annual Fee

The annual levy imposed on credit card holders. The first year's yearly charge may be waived for some cards.

Use our free Credit Card Payoff Calculator to find out how fast you can be debt-free and how much you'll save →

Balance Transfer

Transferring debt from one credit card to another with an introductory 0% APR for a predetermined amount of time—typically six to 21 months—is known as a balance transfer. Balance transfers give you extra time to pay off debt and can result in interest savings. Be aware that you cannot move balances from one card to another issued by the same bank.

11 best balance transfer cards with 0% APR of April 2024 →

Simple Interest

Simple interest is interest that borrowers pay lenders for a loan and does not take into account the interest that has been added to the account; rather, it calculates interest just on the original amount. Simple interest does not just relate to loans. Banks sometimes pay customers simple interest on their savings accounts.

Simple Interest: Who Benefits, With Formula and Example from Investopedia →

Billing Cycle

A billing cycle is the interval of time between the last statement closure date and the subsequent date is known as a billing cycle. The CARD Act stipulates that billing cycles must be at least 21 days long.

What Is a Billing Cycle and How Does It Impact Credit Score? →

Grace Period

A grace period is the amount of time between the end of a credit card billing cycle and the day when your bill is due. During a grace period, interest is often not charged on your balance. Although the grace period varies per credit card issuer, it must always be at least 21 days following the conclusion of the payment cycle. Remember, grace periods do not apply to cash advances or debt transfers!

25 key terms everyone with a credit card should know →

Rebalancing

Rebalancing entails adjusting your investment holding to desired percentages for your stocks and bonds. Let's take an example where your target allocation is 20% bonds, 20% cash, and 60% stocks. You may now have a 70 percent stock, 10 percent bond, and 20 percent cash allocation if the stock market has done really well over the last year. You can sell some stocks and reinvest the proceeds in bonds to rebalance your portfolio, or you can add more bonds to the portfolio to restore its original balance.

How To Rebalance Your Investment Portfolio →

Term Life Insurance

Term life insurance is a guaranteed life benefit paid to beneficiaries for a set amount of time (e.g. 10, 20, 30 years) When your coverage expires, you can renew it at your discretion and determine the duration. However, once you renew, your premiums (monthly or yearly expenses) can go up.

You can easily track all your life insurance policies at Neontra →

Permanent Life Insurance

Permanent life insurance gives you lifetime coverage. If you pass away while your insurance policy is still in force, your beneficiaries will receive a death benefit. Permanent life insurance policies usually build up a cash value. You will get your money back if you decide to terminate your coverage. The amount would be less than what you spent in insurance premiums.

You can easily track all your life insurance policies at Neontra →

Avalanche Method

With the avalanche debt payoff strategy, you focus on repaying debts based on their interest rates. This method prioritizes interest rates and paying off debt with the highest interest rate first. You move on to the next highest interest rate debt after the first is paid off. This helps you pay less interest over time.

Strategies for Paying Off Debt Faster →

ATM

An "automated teller machine," or (ATM) is a machine that lets bank customers perform basic transactions, such as deposits and withdrawals. They are usually located in a wall outside of a bank or shop. Be careful of ATM fees.

Do you know how much you are paying in ATM fees? →

Cash Flow

Your personal cash flow is your income minus your expenses over a certain period of time — typically a month. To analyze your personal cash flow take your monthly income after taxes and subtract all your monthly outflows - items like rent, mortgage, credit card payments and other expenses. That number tells you if you’re living within your means.

Balancing lifestyle costs with regular saving and investing is the toughest part of personal finance →

Life Insurance

Life insurance coverage can help protect you and your loved ones. Life insurance provides a tax-free cash payment to your named beneficiaries (such as your spouse or children) when the insured person dies in exchange for premiums paid by the policy holder during their lifetime.

You can now easily track all your life insurance policies at Neontra →

Snowball Method

The snowball repayment method consists of listing all your debt balances and tackling them from smallest to largest depending if the interest rates are the same. This method prioritizes balances as you move on to the larger ones next. This helps build momentum and motivation by settling debts faster.

Explore different strategies for paying off debt faster and how you can utilize our debt payoff calculators →

Gift Card

A gift card is a prepaid card used to pay for purchases. You can use gift cards at a single retailer or at a group of retailers, such as a chain or shopping mall. Generally, gift cards come with money already on them. Gift cards can be a physical card or an electronic card.

Prepaid Cards vs. Gift Cards: What's the Difference? →

Savings Ratio

This ratio indicates how much a person should save for their future objectives. Savings / Gross Income is the savings ratio. Gross income is the total of all earnings, including bonuses, dividends, interest, royalties, rent, and money received from a business or profession.

Neontra automatically calculates your personal savings, expenses and debt ratios →

Co-Borrower

When two people apply for a loan or credit line together, they are known as co-borrowers. The money associated with the loan are equally accessible to the co-borrower. Payment obligations fall on both the principal borrower and the co-borrower. A common example of this is a married couple that applies for a mortgage or auto loan together.

What Is a Co-Borrower? Role in Loan Documents and Vs. Co-Signer →

Time Value of Money (TVM)

The idea that money that is available now is worth more than the same amount in the future is known as the time value of money, or TVM. This is due to the fact that money that is invested has the ability to grow, and the longer it is invested, the more value it will gain. Money acquired later is viewed as having less value since it has less time to increase through investments.

Model and forecast the growth of your money. Define projected growth rates & visualize likely scenarios →

Federal Student Aid (FAFSA®)

You need to complete the Free Application for Federal Student Aid (FAFSA®) form to apply for federal student aid such as federal grants, work-study funds, and loans. Completing and submitting the FAFSA form is free and easier than ever, and it gives you access to the largest source of aid to help you pay for college or career school.

What is the FAFSA® form and why should I fill it out? →

Collateral

Capital or asset pledged to a bank or other lender in the event that the borrower is unable to make all of the repayment instalments on a loan.

Collateral Definition, Types, & Examples →

60/40 Budget

Richard Jenkins, financial journalist and author of A Simpler Way to Save: the 60% Solution advocates: 60% of your income goes to fixed expenses: - Housing - Utilities - Groceries - Transportation 10% to retirement savings 10% to long-term savings 10% to short-term savings 10% “fun money” for activities, trips, or other infrequent splurges

How to Make A Budget: The 60% Solution Explained →

Creditworthiness

The term "creditworthiness" describes the degree of a lender's trust in a borrower's capacity to return a loan. The borrower's creditworthiness is mostly based on how successfully they have handled their prior financial commitments.

Discover how long it would take to pay down your credit card with our free credit card payoff calculator →

Annuity

An annuity is a type of insurance contract in which the insured (you) and the insurer (insurance firm) agree that the insurer will pay you either on a regular basis or one-time disbursements to you as a payout for your contributions. Usually, people utilize an annuity as a retirement income source.

Use our free retirement calculator to see how an annuity make get you closer to your goals →

Financial Exposure

Investor risk, which is defined as the possible loss an investor may incur by investing, is referred to as financial exposure. Investors use strategies like investment hedging and diversification to try to reduce their financial exposure.

Take your first steps into the investment world without risking losing any money →

Diversification

A fundamental investing strategy that distributes investment funds among multiple asset classes is diversification.

What Is Diversification? Definition as Investing Strategy →

Amortization

The amortization period is the length of time it takes to pay off a mortgage in full. The amortization is an estimate based on the interest rate for your current term.

Learn more on how your amortization period affects your costs →

The 30% Rule

How much should you pay in rent? As a general rule, housing should be no more than 30% of your total monthly income, including utilities. The 30% rule is based on how much you can reasonably spend and have money left over for everyday expenses like food, clothes and transportation.

Neontra auto-categorizes your expenses so you can quickly see how your budget is tracking →

Asset Allocation

Asset allocation is where you choose to put your money. The three primary asset classes are stocks, bonds, and cash. Choose those that best match your goals, risk tolerance, and time schedule.

Neontra aggregates and tracks all your assets in one place so you can monitor your allocation easily →

Financial Advisor

A financial adviser is a professional that possesses the certifications, abilities and experience to help with a number of financial matters. The term's broad definition encompasses a variety of specialities and qualifications. A financial advisor may assist you in deciding how to manage your finances for long-term goals like retirement and your children's education, purchasing a home, or more immediate goals.

Choosing a financial advisor →

Credit Limit

The most you can spend with your credit card is determined by your credit limit. When you first receive a credit card, the issuer sets your limit. You can request a decrease or increase.

What Is a Credit Limit? How It's Determined and How to Increase It →

Credit Utilization Ratio

A comparison of your available credit to how much you have actually utilized. A good credit score can be attributed to a low utilization ratio. The ideal target is to use 30% or less of your available credit.

You can view your personal ratio with our Health Check →

Consumer Price Index (CPI)

A measure of the average change over time in prices paid by consumers, for a basket of consumers goods and services.

Why the Consumer Price Index (CPI) is Important →

Overdraft

An overdraft occurs when you do not have enough money in your bank account to cover a payment or withdrawal. These transactions may include: - Debit purchases - Bill payments and pre-authorized debits - Cheques - Withdrawals - Transfers between bank accounts

Learn more about getting overdraft protection →

FICO

The three-digit FICO Score, or a Beacon Score, determines whether your credit is good or bad. Fair Isaac & Company, also known as FICO, is a US-based business that sells Equifax and TransUnion Canada their unique rating system. When you apply for credit, lenders can quickly and reliably learn details about your finances thanks to the FICO Score.

Getting your credit report and credit score →

Interest

Typically, interest is paid on deposits to savings accounts. Your savings will increase as a result of the interest you earn on money you save, particularly if you have a higher-interest savings account. Simple interest - is paid on some investments and does not take into account the interest that has been added to the account; rather, it calculates interest just on the original amount. These investments often have a slightly higher interest rate. Compound interest - is the interest on savings calculated on both the initial principal and the accumulated interest from previous periods. Compound interest is the norm for savings accounts.

See an example of how simple and compound interest differ →

Bonds

Governments and businesses both issue bonds as a form of investment. In exchange for a predetermined rate of return, you lend money to these organizations when you purchase a bond. Although historically yielding less than stocks, bonds are thought to be a safer kind of investment.

How to Buy Bonds in Canada →

Essential Expenses

These are expenses that are necessary. Another way to identify these expenses is to determine if they are 'needs' rather than 'wants'. Essential expenses might include: - Rent/Mortgage - Groceries - Utilities - Medical Expenses Unlike, restaurants, and entertainment, that are 'wants' or non-essential expenses and do not need to be made.

Follow every dollar - Track and analyze your non-essential expenses →

Credit

Credit is money that you may borrow from someone (like a bank or credit card company). You must consent to repaying them on a predetermined timeline, typically with interest, by signing an agreement. The four basic types of credit: - Revolving credit - Charge credit - Instalment credit - Service credit Each serves a different purpose and works in a different way.

Learn more about credit and why credit scores are important →

Liability

Any debt that lowers your financial worth is referred to as a liability, whereas owning an asset would raise it.

Learn more about specific liability types and examples →

Asset

An asset is anything you own that increases your financial value, whereas a liability is money you owe that would decrease your financial value. Assets include a laptop, bike, car, house, and bank accounts.

Learn more about specific asset types and examples →

Financial Literacy

Financial literacy is the ability to understand and effectively use various financial skills, including personal financial management, budgeting, and investing. The earlier you start, the better off you will be, because education is the key to success when it comes to money.

Financial Literacy: What It Is, and Why It Is So Important →

Non-Essential Expenses

These are expenses that are not necessary. Another way to identify these expenses is to determine if they are 'wants' rather than 'needs'. Non-essential expenses might consist of: - Coffee - Entertainment - Subscription services (Netflix, Disney+, etc.) - Meal delivery services (Uber Eats, DoorDash, etc.) These are unlike rent, mortgage, and food which are 'needs' or expenses that must be met.

Follow every dollar - Track and analyze your non-essential expenses →

Cost of Borrowing

The total cost for you to borrow money. This includes the principal amount of the loan, interest, fees and any other costs associated with the loan.

Keep track of all your debt and the true cost of borrowing →

Emergency Fund

This is money that's set aside as a financial safety net. Depending on how much you have saved, an emergency fund could cover long-term expenses if you lose your job or with short-term unexpected events.

Start tracking your emergency fund today →

Credit Score

"Your credit score is a three-digit number that comes from the information in your credit report. It shows how well you manage credit and how risky it would be for a lender to lend you money. Your credit score is calculated using a formula based on your credit report. Note that you: - get points if you use your credit responsibly - lose points if you have trouble managing your credit Your credit score will change over time as your credit report is updated."

Learn more about your credit score →

Exchange-Traded Fund (ETF)

An ETF is essentially a basket of investments such as stocks or bonds. In this sense they’re similar to mutual funds, but unlike mutual funds, shares of ETFs can be traded throughout the day on an exchange, much like an individual stock.

Learn about the benefits of ETFs →

Net Worth

Your net worth is simply the difference between your assets (what you own) and liabilities (what you owe).

See your net worth and take the pulse of your overall financial health →

Annual Percentage Rate (APR)

APR stands for Annual Percentage Rate. It's the yearly interest rate you pay on a loan or credit card. However, a credit card's advertised APR isn't the true interest rate because it compounds daily.

Learn how to calculate the effective APR to find a credit card's true interest rate →

Compound Interest

Compound interest is the interest on savings calculated on both the initial principal and the accumulated interest from previous periods.

Discover the magic of compounding and why it's important to increasing wealth →

Deposit Insurance

Deposit insurance protects your savings if your financial institution fails. The Canada Deposit Insurance Corporation (CDIC) automatically insures your eligible deposits. This applies to deposits held at CDIC member institutions in Canada.

Find out if your financial institution is a member of CDIC →

Inflation

Inflation is a persistent rise in the average level of prices over time.

Price check: Inflation in Canada →

GIC (Guaranteed Investment Certificate)

"Guaranteed Investment Certificates (GICs) and term deposits are secured investments. This means that you get back the amount you invest at the end of your term. The key difference between a GIC and a term deposit is the length of the term. Term deposits generally have shorter terms than GICs."

Learn about the key details before buying a GIC →