Money management and understanding the financial system when you move to a new country could be tough initially. In fact, many people I have met have very less understanding of the financial system as many things in Canada are completely different from what we have experienced in India.
The first thing we all do when we land in Canada including me is the conversion of Dollars to Rupees and then comes a shock. Well, for the initial days this will take some toll on you but that is normal. The reason is that you have earned and spent in Rupees all your life and the money you bring to Canada still has the anchor value of India. This will subside with time, for a few it might take months and some up to a couple of years.
It is important to note that costs of fulfilling the basic needs are different here — from housing, transportation, to groceries and much more. This will linger until you start earning in Canada.
I have put together a guide with the best tips to manage your finances when you come to Canada as a newcomer, be it a student, worker, or Permanent Resident. I am sure the provided information will help you prepare for long-term success in Canada and manage your income and expenses better, so you enjoy the benefits of living in Canada.
- Understand the financial system in Canada
To begin with, let us understand the Canadian banking system: The banking system is like what we have in India however there are a few deviations. Therefore, you must get used to these changes early to make the right financial decisions.
Canada has five major banks namely Royal Bank of Canada (RBC), The Bank of Montreal (BMO), Canadian Imperial Bank of Commerce (CIBC), The Bank of Nova Scotia (Scotiabank), and Toronto-Dominion Bank (TD), it’s representative online banks Tangerine (a subsidiary of Scotiabank), Simplii Financial (by CIBC), Equitable Bank (EQ Bank) etc., a few smaller community and regional banks, and credit unions.
The biggest difference you will notice upfront is the type of bank account you want to open. Unlike in India where you have savings account as your normal bank account where you can deposit money and earn some interest, in Canada it is split between Chequing account and a Savings account.
A chequing account is the same as the savings account in India minus the interest earned on the deposits. This is the simplest type of transactional account used daily for the following:
- Deposits (cash and cheques)
- Withdraw money (at ATMs, bank tellers, etc.)
- Daily purchases (groceries, gas, etc)
- Pre-authorized payments (like credit card payments, mobile bill payments etc.)
- Money Transfers (between accounts of the same institution)
- Interac e-Transfer® transactions (money transfer using mobile number of email)
Whereas a Savings account is specifically used to earn interest on the money you set aside for specific needs or short-term or long-term saving targets. This account is not meant for day-to-day transactions like the chequing account
You will need the following to set up a bank account:
- Identification like a passport
- Immigration papers (Study Permit, Work Permit, CoPR, PR card etc.)
- Social Insurance Number (SIN) if you have one
- Proof of address (Utility bill, Provincial ID with address, phone bill etc.)
When choosing a bank, you must look at fees levied on these accounts. If not selected carefully, you may end up paying more than you need to in monthly fees and transactional fees and limitations like the number of withdrawals, cheque issuance, Interac e-transfer limits etc.
To avoid the monthly transaction fees, you may want to keep a minimum daily balance in your account as prescribed by the bank or evaluate the big Online Banks in Canada with no monthly fees but offer similar services. However, a major disadvantage is and as the name suggests these online-only banks with no physical branches. So, if you are a person who likes to do personal banking by visiting a branch, these banks are not for you. Also, most of the big banks have some attractive offers for the newcomers. Here are a few offers for March 2022.
Canada offers one of the lowest interest rates, so it is not in the best of your interest to open or save money in a savings account; there are many other saving and investment instruments for that. Therefore, I was not at all interested in opening a savings account.
- Acclimatising to the financial system and preparing for emergencies
When you move to a new country, getting used to the new culture and system may take some time. Relax and take it easy but prepare yourself mentally for some expected and unexpected problems. Although Canada and Canadians are considered to be the most immigrant-friendly country in the world, I have learned that money is your best friend in an adverse situation.
Be prepared for advances to be paid for your rental, strata management fees, transportation cost is too high, just in case something goes wrong, and you must change neighbourhood etc. When you set up a new house, you have a lot of initial expenses, especially with family. Saving some money (at least 3 months of your expenses) for unanticipated expenses and financial surprises will help you get through your first few months in Canada, easily.
Tip: the Facebook marketplace is a good place to buy the stuff you need initially like furniture, vehicle, appliances etc. For day-to-day shopping, nothing better than Walmart and then you can explore Costco, once you better understand the system. Dollarama and Dollartree are good to buy things you don’t want to spend too much money on. You will find cheap stuff like a weekly market in India.
- Understanding the Income and Taxes in Canada
You will be surprised to know that Canada’s personal income taxes are among the highest among the developed countries. In order to calculate taxes payable, you need the following chart:
Federal tax rates for 2022 Source: Canada.ca
- 15% on the first $50,197 of taxable income, plus
- 20.5% on the next $50,195 of taxable income (on the portion of taxable income over 50,197 up to $100,392), plus
- 26% on the next $55,233 of taxable income (on the portion of taxable income over $100,392 up to $155,625), plus
- 29% on the next $66,083 of taxable income (on the portion of taxable income over 155,625 up to $221,708), plus
- 33%of taxable income over $221,708
In addition, every province has its tax bracket. Here is the link for provincial taxes in 2022
Here is an example of taxes in Ontario in 2021:
|Federal tax bracket||Federal tax rates||Ontario tax bracket||Ontario tax rates|
|$49,020 or less||15.00%||$45,142 or less||5.05%|
|$49,021 to $98,040||20.50%||$45,143 to $90,287||9.15%|
|$98,041 to $151,978||26.00%||$90,288 to $150,000||11.16%|
|$151,979 to $216,511||29.00%||$150,001 to $220,000||12.16%|
|More than $216,511||33.00%||More than $220,000||13.16%%|
In addition to the Federal and provincial income taxes, there are other deductions you will notice in your pay stubs like Canada Pension Plan (CPP) or the Quebec Pension Plan if you live in Quebec. A part of your earnings will also be deducted from Employment Insurance (EI) programme. It helps unemployed Canadians (who lose their jobs), who are unwell, pregnant, caring for a new child, or caring for a sick family member, with cash aid.
Read more about taxes in Canada
- Planning your household Budget and expense management
Once you arrive at your net household income after taxes (that’s what you can eventually spend), it is time to evaluate your expenditure:
- Essential spends: Any expenditure which cannot be avoided like house rental/maintenance, groceries, transportation, car/house insurance, cell phone, utilities etc.
- Debt repayment: Mortgage payments in Canada, Home/study/personal loan from home country, facility responsibilities in the home country etc.
- Self-spending: TV subscription, gym, clothing, dine-outs, ordering food, entertainment, travel, co-curricular activities for kids and self etc.
- Savings & Investment and Emergency Funds: Retirement funds, Shares, Crypto currencies, Children education and emergency funds
Here is what I do to split my money for the following activities:
- Essential spends: 40%
- Debt Management: 25%
- Self-spending: 20%
- Savings & Investment and Emergency Funds: 15%
Every household situation is unique and may have to make a few adjustments. In case the percentage gets skewed towards any of the categories, here is how I prioritize my spending:
- Priority 1: Essential spends: 40%
- Priority 2: Debt Management: 25%
- Priority 3: Savings, Investment and Emergency Funds: 15%
- Priority 4: Self-spending: 20%
- Essential Spends and Debt Management can borrow first from Self-funding and then Savings
- Self-spending may not borrow from any of the categories
- Building your credit history
As soon as you open an account in a bank, they will offer you a credit card. Credit cards are not always bad, in fact, if you are a wise spender and use it strategically it can help you build wealth and a strong credit score over time.
You must bear in mind that no matter how strong credit history you have in your home country, you will have to build your credit scores and credit history from scratch in Canada. You need to have a good credit score to make the biggest purchase in Canada, a house and that’s why is very important to start building your credit from day one.
There are several strategies to build your credit history and improve your score, however, all begins with using a credit card judiciously.
Tip: A lot of financial analysts claim using 30% of your credit limit will help build a good credit score. However, initially, you may not be able to do so as the credit limits for a newcomer is low (unless you have a very high income). Using your credit card up to 50% and a max. of 70% of the available credit limit and making payments on time is the best way to build your history. Utilization of over 70% may adversely impact your credit score (it happened in my case).
- Start learning about the saving and investment opportunities in Canada
It is always advisable to learn about the financial system of the country where you live to make the best use of your money. Although it is too early when you first move to a new country to start investing you must start reading and talking about the savings and investment opportunities available for you. This will help you start preparing for the future.
Registered Retirement Savings Plan (RRSP), Registered Education Savings Plan (RESP) and Tax-Free Savings Account (TFSA) are the main tax saving and planning instruments in Canada.
- Save yourself from financial fraud in Canada
Financial fraud and scams are rampant in Canada – Yes, you read that right! Many scammers target the newcomers as they don’t have an in-depth understanding of the Canadian banking system and may get trapped in phishing attacks or scam calls.
As we have learned over the years, we must be wary of financial fraud:
- Never disclose credit/debit/CVV card information on call or email
- Do not respond to unsolicited calls
- Do not click on the emails which seem dubious
- While transacting on the Facebook marketplace or any other online website like job posting or house rent or car purchase etc. you must research about it thoroughly
In the end, I would say that money management may initially seem daunting however if you learn the basics, you can easily navigate through the system. Always refer to authentic sources for information and talk to licenced or reputed financial advisors so you can achieve your short-term and long-term financial goals.