15 things to know about Personal Finance Canada
This article will break down everything you need to know about personal finance in Canada so you can learn how to increase your wealth and live your best life.
What is Personal Finance?
Personal finance Canada is a term that covers all finance-related topics related to money management with a Canadian focus. This includes budgeting, investing, stocks, real estate, financial freedom, building your credit, retirement planning, estate planning and much more. Managing your finances is like any other skill you have learned – it takes practice to get good at it.
Every day we make decisions that impact our financial situation. It can be as small as choosing to make a coffee at home instead of buying it at Tim Horton’s to opening a new bank account. I aim to teach you about all the necessary personal finance topics that impact Canadians to empower you to take control of your financial situation.
Personal Finance Canada topics
The first step to getting control of your finances is to build a budget. To do this, start by reviewing your income and expenses from your bank statements for the last six months. Break them down into revenue and expenses, and look at the actual inflows in your bank account. Group them into sources of income such as a job or salary, investment income, real estate/rental income and many others. Look at all of your expenses going out of your bank for your home, food and restaurants, shopping, and all other costs.
This will be the starting point of your budget for revenue and expenses. Look at the details of each category and find ways to increase income and reduce costs realistically. Now you have a budget that you can hold yourself accountable to.
Calculate your net worth
Your net worth is simply Assets less Liabilities. To calculate net worth, you need to summarize all of your assets and liabilities. Assets will include your cash, vehicles you own, real estate and investment accounts. Your liabilities will be any credit card debt, student loans, mortgages or amounts owing to anyone else. Once you have the list of assets and liabilities, you can calculate your net worth as assets – liabilities.
Building sources of income
Most people have one source of income – a full-time job. That’s great, but what will you do if you get laid off? Build multiple streams of income by buying assets like stocks & real estate. Ideally, you will have seven sources of revenue.
If you want to learn more about building income streams, check out my post on how to make money online in Canada and the best business you can start today in Canada
Investing – Stocks
For the most part, any financial plan should include investments in stocks. By investing in stocks, you are purchasing a share of a company and sharing in the returns either through growth in the value of the stock or dividends from the company to shareholders. While many investors will try to pick individual stocks, almost all investors & hedge fund managers underperform versus the stock market average. If you want to do it yourself, I suggest investing in a well-managed ETF that gives you exposure to many companies, such as Vanguard’s ETFs. This will diversify your investment and bring you closer to achieving the stock market’s average return.
Investing – Real Estate
Investing in real estate means buying a physical asset like a house, multifamily, or commercial property. By owning just one rental property, you can generate multiple income streams such as rental revenue, appreciation and depreciation. The barrier to entry can be high for real estate investments as you generally need 20% down on a property. However, there are other ways to invest in real estate, such as private lending, syndications and joint ventures.
Investing – Syndications (Real Estate)
A syndication is formed when a group of investors invest in a project together. This is a common way to purchase a multi family property – one partner will operate the property and raise money from investors for the down payment and capital requirements. By investing in a syndication, you can own real estate for a lower cost than buying the property yourself. If you want to be completely hands-off and collect a return, syndications can be an excellent real estate investment.
Investing – Private Lending
Private lending is when a person or business loans money to someone for a set rate of return (similar to a bank lending money). Private lending can earn you anywhere from an 8% annual return in the first position to a 15% annual return through unsecured promissory notes. Be sure to consider your risk tolerance and make the decision that best suits your investment needs.
Alternative investments are investments in cryptocurrency, collectibles, real estate investing, or start-up companies. These alternative investments should make up a portion of your total investments, but you should balance each of these alternatives based on your risk tolerance. I’ve summarized the best crypto exchanges in Canada to help you start investing today.
Building your credit score
If you want to invest in real estate or own a home in general, you need to start building your credit. It would be best if you started building your credit score as high as possible by paying all of your debts on time and trying to lower your credit utilization to less than 30% of your total credit available. Click here if you want to learn more about how to build your credit score
Leveraging credit cards
Credit cards allow you to make purchases on credit conveniently. They can be instrumental if you pay them off on time in full and do not incur interest charges. By getting a credit card and paying it off monthly, you are building your credit score. Additionally, many credit card companies offer low to no annual fees and come with big signing bonuses.
Click here for the best cash back credit cards in Canada or here for the best cards for all scenarios
Click here for the best student credit cards in Canada
Click here for the best Mastercard Credit Cards in Canada
Prepaid Credit Cards
Prepaid credit cards work similarly to regular credit cards, except instead of buying things on credit, you are buying items with preloaded funds. They are easier to qualify for and usually will not require a credit check because they are not extending credit to you. They let you take advantage of cash-back rewards associated with credit cards and can be used to lower your expenses. The KOHO Premium Prepaid Mastercard is the best one in Canada currently.
Buy Now Pay Later options
Several companies offer to buy now, pay later payment services. This usually will require a hard credit check so that they can extend you credit at a high-interest rate. This payment type is growing in popularity, and some services, like Klarna, allow buy now, pay later options with only a soft credit check and no interest charges. Click here to learn more about Klarna Canada.
Banking – chequing accounts
choosing the right bank and bank account can have an impact on your every day spending. Chequing accounts let you access your funds to pay bills, make e-transfers and manage your expenses. Depending on your needs, there are accounts with no monthly fees as long as you maintain a minimum balance or unlimited transactions. If you are a student, there are many no fee bank accounts with unlimited transactions.
Read more: The best bank accounts in Canada for Students
Read more: The best business bank accounts in Canada
Read more: The best chequing accounts in Canada
High-interest savings accounts
A high-interest saving account is a great way to earn interest on any excess cash you have. By moving any excess funds that you don’t need for at least a week, you can earn interest on your bank balance. This helps you combat inflation and earn a higher interest rate than a traditional bank account. I recommend holding no more than a 6-month reserve in a high-interest savings account, as you could easily earn more interest on a secure investment over six months.
Read more: Simpii Financial High Interest Savings account review
Minimizing Income Tax Liability
Regardless of how you earn your income, you will need to pay income tax to the Canada Revenue Agency. Active income is taxed at the highest tax bracket, while investment income & capital gains are generally taxed more favourably than active income. In addition, you can also leverage Tax Free Savings Accounts and Registered Retirement Savings Plans to reduce or defer your tax liability.
Income earned from an employer will automatically have income tax deducted from each pay cheque. When you earn additional income on the side, no one takes the tax liability off for you. I recommend setting aside the tax liability from additional funds outside of your primary income. If your marginal tax rate is 30%, I would keep 70% of additional income and set aside 30% for your tax liability.
Regardless, you will still have to file income tax returns annually. I have reviewed the best tax software in Canada to help make filing your taxes as painless as possible.
Applying your Personal Finance Canada knowledge to your life
I hope I have shown and taught you about some of Canada’s important personal finance topics. Over time I will continue to build up this post to cover all personal finance topics. Remember to start planning out your finances and work towards achieving financial freedom.
About the Author
Nick Robert is the founder and creator of Nickrobert.com. I created this website to educate Canadians about everything related to personal finance. As a Chartered Professional Accountant & Chartered Accountant, I have worked with many Canadians to achieve their personal finance goals.
To contact me, you can visit my contact page to email me directly, or you can visit and participate in my subreddit. Let me know about any topics you would like me to cover. If you are interested in guest posting on this website, message me through the contact page.