How optimizing your finances can give you a $5,000 raise

Alex Conde
by Alex Conde October 11, 2018 / No Comments

Living a lifestyle that you can’t afford can seem like a seductive dream to some, and a debt trap to others. Marketers everywhere present us with options for lifestyles we want but can’t afford.

Or can we?

If you play your financial cards right, you can make your money work harder than you expect and get far more from it than you might expect. In fact, we crunched the numbers and it can work out to as much as five thousand dollars depending on exactly what changes you undertake.

Being fully transparent, this will take work to set up, but the reward might be worth it.

Saving money on shelter costs – mortgage rates and rent costs

Mortgages

The average home price in Canada was $494,000 in February – is it surprising that a home is the largest purchase most of us make in our lives? The good news is that the largest purchases also offer some significant opportunities to save when it comes to your mortgage.

Let’s assume you have 20% saved for a down payment ($98,800) and see what your mortgage would cost based on currently available Ontario mortgage rates.

One of Canada’s largest banks is currently offering a five-year fixed mortgage rate of 3.74% — not bad. If you were to amortize that mortgage over 25 years, it would cost $2,024 per month.
However, a quick search online reveals the best mortgage rate currently offered by a big bank is 3.49%, which would cost $1,971 per month.

That’s still not the best rate available, though. No, the lowest rate currently being offered for a mortgage in Toronto is 3.13% at time of writing, which would result in monthly payments of $1,897.

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It took less than five minutes to find these numbers. That five minutes could save you $127 per month, or $1,524 per year.

But what about if you rent instead of owning your home?

Rent

Rent can be one of the highest fees people pay on a month-to-month basis, but there are options for how to pay rent that can get you a bit of money back.

Rentmoola is a company that allows tenants to pay off their monthly rent through a credit card instead of a cheque or bank transfer. The fee for paying via credit card on Rentmoola is 1.99%. That might seem high, but if you get one of the best cash back credit cards, you can earn as much as 4% for the first four months, meaning that you get an extra 2% on your rent (if your landlord accepts Rentmoola). For example, if you sign for the BMO CashBack MasterCard, you’ll earn 4% cash back (up to $125) for the first four months, meaning that you get an extra 2% on your rent. If your monthly rent is $1,500 you can earn $30 in rewards after fees, which adds up to $120 over the four months of rewards – after those first 4 months, you can move to another cash back card that offers 2% cash back on purchases which earns you another few dollars throughout the year. Plus, as a Rentmoola customer, you’re entitled to additional perks such as discounts on travel, clothing, eyewear, among other things. Of course, if you are using your credit card for rent, make sure that you’re able to pay off your credit card bills each month and are not using credit to subsidize your lifestyle.

Using your credit card for your rent can be a bit intimidating for some people, but debit is far less problematic. If your landlord or rental company accepts debit payment, paying with a Scene debit card from Scotiabank can earn you 1 point for every $5 spent on the card. If your rent is $1,500 per month, you’re earning 3,600 Scene points on that expense alone, plus a 10,000 point sign up bonus. Together, that’s enough for almost 14 free movies (potentially worth about $182), just from paying your rent! You can also choose travel points as an option. If you’re interested in this, check out the Scotiabank Scotia One chequing account.

How much can you benefit? A lot depends on the specific rent you pay, and the method you use to pay it, but let’s use the $182 in benefits from Scene Points as a good benchmark.

Your chequing accounts, savings accounts, and GICs

While 46% of Canadians pay nothing in chequing account fees (through keeping the minimum balance or using a no-fee chequing account) most of us still pay quite dearly for our chequing account usage – with the average fees coming in close to $100 per year. Simply exploring chequing accounts and finding the best low-fee/no-fee chequing account that gives you the services you need can save you as much as $100-125 per year.

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This doesn’t just include issues from chequing accounts, many of us are in underperforming savings accounts that pay little in interest, which can add up to a huge opportunity cost for your savings over time. If you’ve been keeping thousands of dollars in your chequing account in order to secure fee-free service, moving that money to a high interest savings account in Canada can earn you as much as 2.3% or more depending on promotions at the time.

This doesn’t even include GICs. The spread in rates between providers for 5-year GICs can be as high as 2%. GICs can be a handy way to store money that you know you will need in the future (such as a home down-payment or wedding fund) that you can’t afford a risk of loss for. GICs are guaranteed and putting your savings in the place where it earns the most money for you can mean hundreds or thousands of dollars more per year for you.

Minimizing your bank fees and earning the best interest rates possible for your savings can help you save quite a bit of money depending on what you have in your account, but for many of us, savings of $150 per year are not unreasonable.

Your credit cards

The importance of having the right credit card can’t be overemphasized when it comes to achieving the perfect optimization of your financial lifestyle.

In a survey we conducted earlier this year, we found that Canadians were frequently missing out on thousands of dollars in potential credit card rewards.

But what does this mean in terms of specifics?

Based on the 2016 Statistics Canada Census, the average Canadian household spent $84,489 for total expense. $18,032 of that was related to the cost of shelter (rent, mortgage, utilities, etc.) and the other $66,457 was related to other expenses such as clothing, food, furnishing, transportation, restaurants, entertainment, etc.

The best credit cards in Canada can earn you between 2-5% on those non-shelter expenses. Specifics vary, for example, the American Express Cobalt gives you 5 reward points for every dollar spent on transportation and groceries, while the Tangerine Mastercard gives you 2% in cash back for spending in specific categories.

Let’s assume that you can average a 2% earnings rate (or equivalent in points) on all of your expenses. If you spent $66,457 (the average household expenses) on your card, you would earn $1,329.14 in rewards. If you maximize your earnings by using cards that apply higher bonuses to areas where you spend more money, you could manage significantly better than that.

Credit card bonuses

Any discussion about credit cards would be incomplete without mentioning card bonuses. In an effort to gain new customers, credit card companies can offer significant sign up and spending bonuses that encourage people to adopt a new credit card and make it a regular part of their life.

These bonuses can be so significant that a subset of credit card users, known as “churners” has arisen, where people sign up for a new credit card, qualify for any sign up and spending bonuses, and then move on to the next card. Depending on how active they are, churners can easily sign up for 5-10 credit cards per year. Using our comparison of the best travel credit cards in Canada, it’s not impossible for bonuses to be $200-300 (or more) per card.

For this example, let’s say that you only sign up for three new credit cards in a year, you could potentially earn another $900 in rewards from your credit cards.
Overall, maximizing the benefits from your credit card usage could potentially earn you another $2,200 per year.

Insurance

Most of us prefer to think of insurance as little as possible. Using your insurance means something bad has happened to you, your car, your house, or someone in your family.

However, insurance should be reviewed regularly so that you can update your profile. There are a whole host of factors that can lower your auto insurance rates. Also, as you grow older and more experienced as a driver, your risk profile can change as well. Taking the time to compare car insurance can save you a significant amount of money.

The benefits don’t end with your auto insurance. You can also get home insurance quotes or life insurance quotes to see if you’re paying too much for the coverage you have. There also might be discounts if you bundle your different insurance policies with a single provider or prepay them for a year in advance. Do your research, and you might be surprised at how much you can save.
Total savings from this vary significantly depending on the coverage you’re looking for but can potentially be significant.

Fintech Apps

A large number of alternative financial services are popping up in the digital space. These programs can help you better organize your financial life and do more with your money, and sometimes that means getting a bit more too. While there are a huge number of apps out there related to finances, we’ll just look at two.

Butter

Butter is an app to help you manage your subscription services. On the surface, that might not sound terribly impressive, but when you realize how much of your life is becoming subscription based, it gets a bit more interesting. Netflix, DropBox, Goodlife, SoulCycle, CAA, HelloFresh, Dollar Shave Club, and thousands of more companies are classified as subscriptions under Butter. The app helps you monitor your subscription spending, determine which ones are valuable to you, and most importantly, it gives you cash back.

On memberships and subscriptions that Butter supports, you can get 1% cash back. If you’re paying for 5 meals per week on HelloFresh, that can easily be $225 per month depending on your meal choices. Add in a Netflix subscription for about $14 per month, Dollar Shave Club for $6.50 per month, a top of the line Goodlife membership for $72 per month, and $70 per year for your CAA membership, and you’re spending a fair bit on subscriptions. It comes to $3,880 per year, meaning Butter can give you $39 back for that. It might not seem like a lot, but the true power of many of these financial apps is that you can use them to “double-dip” and gain rewards for items you are already earning rewards for via your credit card. And, truth be told, with all the subscription box services out there, you can easily spend thousands more than this on subscriptions in a year!

On top of the earnings, Butter offers you some membership deals as well, which can further increase the value of the points you can earn.

Drop

Drop lets you earn points on purchases with their partners as well and redeem these points for cash and other rewards. You can collect Drop points on a variety of purchases, such as Starbucks, Walmart, Whole Foods, and other options.

As you can imagine, some of the real power of drop happens when you can stack your rewards. For example, if you shop at Whole Foods, you can earn up to 5% in rewards with specific credit cards such as the American Express Cobalt. Now, if you also use Drop for those expenses, you can leverage that to get even more rewards on what you buy. So, if Canadians spend about $200 per month on food, and that entire amount was spent at Longos, you’d earn 5 Cobalt Points for every $1 spent (as much as 12,000 per year, equaling $120 in rewards) and 5 Drop points for every $1 spent (as much as 12,000 per year, equaling $120 in rewards). By stacking the reward points, you can double your reward earnings.

Drop isn’t just limited to groceries, it can give you rewards for all sorts of things in your life, from buying coffee to buying clothes. They have a convenient app, which can help you spot the deals on things you want to buy. Special sign up deals can help you earn tens of thousands more in points!

Collectively, smart usage of fintech apps like Butter and Drop can potentially earn you another $500 (or more) per year.

Other Reward Cards

Following up on the theme of double-dipping with your rewards, there are a number of reward programs that can exist separately from a credit card. For example, Shoppers Drug Mart, Loblaws, and No Frills participate in the PC Optimum program. You can get a credit card that offers PC Optimum point rewards, but by using the reward card and credit card in combination, you can multiply your reward earnings.

Some reward programs that can be used in addition to credit cards are Airmiles, Aeroplan miles, Scene points, Petro Points, and there are many more. If you have those in your wallet, you can double (or triple, or even quadruple) the number of times you earn rewards for each individual purchase you make. The exact amount you earn depends on what you spend and where you spend it, but smart use of in-store reward programs can potentially earn you several hundred dollars more each year.

Do the work, reap the rewards

In this article we’ve really just scratched the surface of what we can do to optimize our personal finances, but it’s a great start. It can be a bit of work to set up, but the rewards you reap will vary depending on the effort you put in.

And how much do those rewards add up to? Well, a lot depends on your specific scenario, but based on the examples we’ve discussed in this article, it could put up to $5,000 (or more) in your wallet each year depending on the financial decisions you’ve made in the past.