Finances 101: Stuff We Wish We Learned in School:

Savings

Many banks offer higher interest rates, closer to 2%, for high-interest savings accounts in exchange for limited account accessibility/functionality. For example, a high-interest savings account may provide limited withdrawals or transactions. These accounts can be useful when you don’t necessarily need to spend the money in the near-term and can afford to put the money aside and earn some extra cash. Before you open any bank account it is important to understand whether there are fees associated with the account because these can eat into your precious interest payments.

Investments

Under the investment bucket, things get a little more exciting. Here, we’ll include stocks and bonds to keep things manageable. Stocks come in a variety of flavours and risk levels. In general, diversifying your portfolio across multiple stocks helps reduce your exposure to the risk of one specific company. Funds, especially Exchange Traded Funds (ETFs), can be an easy and low cost way to invest in a broad basket of stocks. ETFs can also include bonds as well. Some ETFs even include stocks and bonds in what is usually termed a ‘balanced’ fund. Before investing in any stock or bond we recommend that you understand the risks and costs that are associated with the investment, and whether it is suitable for your specific needs. It may even be helpful to speak with a professional.

Loans

Next, there are traditional loans or lines of credit available through traditional financial institutions. With loans, the interest rate can vary depending on whether it is secured (backed by other assets) or unsecured. As a rule of thumb, experts generally recommend that total debt payments such as credit card, line of credit, mortgage, car payments, etc. should not exceed 40% (total debt service ratio) of your monthly before-tax income.

We’re not here for small talk. We’re here to get into the nitty-gritty details and tackle the fears every parent-to-be faces.

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