Start your finances off on the right foot after becoming a permanent resident of Canada
Canada has dozens of avenues for building wealth through investments, but not all of them are ideal if you aren’t yet a Canadian citizen. Regardless of your country of origin, your profession, or your location in Canada, new permanent residents should keep their personal finances top of mind.
Some of the most important aspects of personal finance in Canada include
- Building credit and maintaining a good credit score
- Saving for retirement
- Buying a home
- Paying for education
- Investing to build wealth
How does a newcomer build credit in Canada?
Your credit report is automatically created as soon as you take out a loan or apply for credit. Your credit rating develops over time based on how you manage your credit.
Positively affect your credit rating by paying your credit cards, rent, mortgage, and hydro bills on time. Occurrences such as paying bills late, requesting multiple loans or credit cards, and exceeding your credit limit will negatively impact your credit score.
A clean credit report is important for obtaining financing, renting an apartment, buying a home, purchasing insurance, or receiving an advantageous interest rate.
A great way to build credit as a newcomer with no prior credit history in Canada is to apply for a secured credit card. The credit card is secured by a cash deposit, so if the cardholder doesn’t pay their bill, the bank simply takes the money from the deposit. Applicants with new credit or no credit history in Canada are seen as a risk, which is why banks may only grant a secured credit card. Read more about secured credit cards here.
What investment options are available in Canada for new permanent residents who want to save?
Here are some investment options for newcomers:
- Registered Retirement Savings Plan (RRSP)
- Tax-Free Savings Account (TFSA)
- Registered Education Savings Plan (RESP)
- First Home Savings Account (FHSA)
- High Interest Savings Account (HISA)
- Guaranteed Interest Fund (GIF)
- And many more
A financial advisor can help you choose the best investment options based on your risk tolerance and financial goals.
Not all savings options are the right match for everyone. For example, if you are American, then a Tax Free Savings Account may not be the right fit as it can sometimes be treated unfavourably by the IRS when it comes to taxes. A quality financial advisor will take all aspects of your life circumstances into consideration when making investment recommendations.
When can a permanent resident contribute to a Registered Retirement Savings Plan (RRSP)?
Regardless of the date when you were granted permanent residence, you can start contributing to an RRSP as long as you earn an income in Canada and have filed at least one income tax return with the Canadian government. Foreign workers and students can also start saving before becoming permanent residents.
Is it possible to withdraw funds from a Registered Retirement Savings Plan (RRSP) before returning abroad?
If the assets in your RRSP are invested in a non-locked-in plan, it is possible to withdraw them at any time. However, the amount withdrawn will be added to your taxable income for the year, and you will be taxed according to your tax bracket. Consider the tax implications of withdrawing from your RRSP.
How can newcomers plan their retirement in Canada?
Retirement planning involves many factors. Seek professional advice from a financial security advisor who can help determine your retirement goals and how much you need to save to reach them based on your income.
How can newcomers save to buy a home?
There are many tax-free plans and accounts to help you buy a home in Canada, such as:
- First Home Savings Account (FHSA)
- Home Buyers’ Plan (HBP) through your RRSP
- Tax-Free Savings Account (TFSA)
It is also important to protect your mortgage with mortgage life insurance so that if something were to happen to the primary breadwinner in the family, the mortgage will continue to be paid and your family members can continue living in their home.
Disability insurance and benefits are also available to permanent residents of Canada who have become sick or gotten hurt and are unable to work.
If you’d like to learn more about the best option for insurance as a permanent resident in Canada, contact Alan Tenenbaum directly at [email protected] or 416-930-4511.
