Comparision between Buying and Renting

There are many different factors on which buying and renting can be compared:

• First factor is cost, in renting mostly monthly payments is low whereas if you buy it will increase amount of money you pay per month.

• A huge factor that can change your mind before making any deal is on renting your money goes to landlord or anyone who is renting you their property but if you buy you build your own equity as you make payments for property bought.

• Flexibility factor favours renting as it is flexible to move if you are renting any house or property but this does not work well if you have bought any property and it may cost you mortgage penalty.

• In case of house renting maintenance is key factor because maintenance expenses are not a big responsibility for tenants but if you buy any property there can be unexpected maintain expenses that has to be paid by landlord.

• Renting helps you to generate income by subletting and if you buy a property that helps you generate income monthly basis by renting and an additional advantage it has that you can borrow money by using it as security.

Some question you should ask yourself:

1. Do you have potential to buy?
2. Are you ready to take responsibility of ownership?
3. How soon you change your place?

source:http://www.getsmarteraboutmoney.ca/en/managing-your-money/investing/real-estate/Pages/Renting-vs-buying.aspx#.VPzgvULZpUQ

answer these questions and ask any question regarding the topic in comments.

Mortgages explained

Mortgage is usually a long term loan secured by the property which is also known as claim on property. Property buyer is entitled to monthly payments of which is basically of principle and interest. In case buyer is unable to pay his/her monthly instalments bank can sell that property to pay its debts and also can vista the tenants in case of a house.

Two main types of mortgages are:

• Fixed-rate mortgage
• Adjustable-rate mortgage

Fixed-rate mortgage usually come with 15 years term and 30 years of term. In this borrower pays fixed monthly payment of principle and interest from its first payment to last payment. If market interest rate rise due to any change in market or prime rate decreased by Reserve bank of Canada borrower don't have to pay more. In case of drops in the interest rate borrower has option to to secure that rate with refinancing the mortgage. It is also known as 'Traditional mortgage'   

Adjustable-rate mortgage as from the name it shows, it adjust with the market interest rate. Usually we can borrow money at lower rate in adjustable rate mortgage but it changes with change in the market rate or any change in  prime rate by Reserve bank of Canada. It can make difficulties for borrower if rates rise as the monthly payments become unaffordable for borrower. it can also be beneficial if rates go down as it will decrease monthly payment of borrower. 
source:http://www.investopedia.com/terms/m/mortgage.asp

Here is a video that also explain mortgage:

RRSP's

RRSP's stands for Registered Retirement Saving Plan
This is plan to save money for retirement. It has many advantages.

Main benefit of RRSP is that a contribution to a certain limit is tax free and money compounded in it is tax free. It is basically holding an investment people often confuse it with investment but its just a holding of an investment.

Eligibilities for RRSP:

• if you file tax with the Canadian government.
• under 69 years of age
• if you have a constant income.

So, there is a capping to certain limit of holding investment as its tax free so government has law that restrict RRSP buyers to hold a certain amount of money. Here is an example that may help you to understand it:

  Josh earns $50,000 and if he wants to buy a RRSP, 18% of $50,000 is $9000 whereas, his brother Mark who is well settled businessman and earns $200,000 if he buys RRSP he can contribute 18% of $200,000 that is $36,000 but government capped it at $22,000 so he just can contribute and $22,000 out of $200,000 and has to pay tax on rest $164,000.

Important things to remember:

• Do not take money out.
• Start investing early because compounding is a big factor.
• RRSp's grow tax free.

source:http://www.investopedia.com/university/rrsp/

Here's a video that will walk you through details of RRSP

Understanding Bonds

Government, a company needs capital to expand their infrastructure and emerge in new markets. Money sitting at one place never grows. Capital that is being used is market is what helps to grow. Solution to this was borrow money and government and companies started borrowing the money in form of bonds.

No one is interested to give away their hard earned money. So, for lending their money lenders were provided interest on their money for the time period money is being borrowed.

Here is a sample of a bond:

source

Key terms used while dealing with bonds:

Coupon rate- It is an interest that bond will pay on principle like coupon with 5%  will yield 5% of principle however its compounded.

Maturity term- It is an term for which bond is issued on maturity as per agreement bond will be paid interest with principle.

Face value- Amount paid when a bond gets matured. it is also known as par value.

At premium- When a bond is traded above the par value.

At discount- when a bond is traded below the par value.

An example to understand how a bond works:

A bond is issued at 10% coupon rate annually and bond is of $1000. so if bond is issued on January 15, 2010. It will mature on January 15, 2020 and it will $1000 as principle and $100 as an interest.

Advantage of a bond is you become a creditor to the corporation or government when you buy a bond and you know amount you will get at the time of maturity and bondholders have first claim on assets in case of bankruptcy.

Risk in the bonds is minimum so they yield fixed low income.

source:http://www.investopedia.com/university/bonds/bonds1.asp

In last two posts Stocks and Bonds were covered at a basic level. As it is a vast topic a video here can help to understand it in depths:

Feedbacks and questions are welcomed in comments.

Understanding Stocks

What is a stock?
Its very simple, stock is a share in the ownership of a company. More shares you buy, greater is the ownership stake in the company.
Shares, Equity and Stocks are same thing with different names.

there are mainly two types of stocks:

• Common stocks
• Preferred stocks

Common stocks as from the name we can understand that its common, stocks people usually talk about are common stocks. People who own stocks of a company are members of that company and holds a vote per share to elect board members.

Common stocks yields higher returns but with higher returns comes higher risk. if company goes bankrupt and is entitled to liquidate its assets to pay debts, Common shareholders are last to get paid after creditors bondholders and preferred shareholders.  

Preferred stocks are ownership of an company up-to some extent. preferred shareholders are not entitled to vote and company can purchase their shares from shareholders at anytime.

Preferred shareholders have advantage of guaranteed for fixed dividend forever and on the time of liquidation of a company preferred shareholders are paid before common shareholders.

Trading of Stocks:
Stocks have two markets primary market and secondary market. Primary market is where IPO issues securities and secondary market is where investors trade and secondary market does not involve company directly itself. 

Every company has its unique symbol on different exchanges:
Royal Bank of Canada has RY.TO on Toronto stock exchange.

i have been tracking RY.TO from last 4 weeks and heres a picture of stock: 

 source

Any question regarding stocks will be answered as soon as possible to make it clear. Please comment your questions.
Source: http://www.investopedia.com/university/stocks/stocks1.asp

Importance of Personal Financial Planning

source

What is personal finance?

Personal finance is the financial management which an individual or a family unit is required to do to obtain, budget, save, and spend monetary resources over time, taking into account various financial risks and future life events.

Financial Planning Process

source

An example to understand financial planning:

Rob wants to buy a car. First step he will go through his income and expenditures to figure out his net income. Second step after knowing how much he can spend on car he will choose a car. Third step Rob will decide weather to finance a car or lease it and pen down all the expenditures like monthly payment, insurance expense and maintenance expense. Fourth step will be purchasing a car according to the plans. Fifth step will be monitoring the plan.

Source:http://www.investopedia.com/terms/p/personalfinance.asp