Building financial literacy as a newcomer to Canada is a crucial step in establishing a stable financial future. Need some help getting started? Speak to your local credit union for some real-world strategies to set you up for success.
Check out our YouTube channel here to hear a conversation between Immigrant Services Calgary and Servus Credit Union on financial challenges faced by newcomers and how credit unions can help. Or read below for some tips on how to build your financial future with a credit union.
1. Open your first account
The first thing any newcomer needs to do is open a new account with a financial institution such as your local credit union. Any basic account will do (such as a chequing or savings account) to help you start establishing a credit history while giving you access to banking services, debit cards and online banking. It’s also a good idea to familiarize yourself with the various types of accounts available – read more here.
2. Build your credit
How credit works in Canada can be quite different from how it is used in other parts of the world. Before opening a new credit account or signing up for a new credit card, you need to learn how credit works at Canadian financial institutions.
One of the most important things to understand is what a credit score is. A credit score a three-digit number, typically between 300 and 850, designed to represent your credit risk, or the likelihood you will pay your bills on time. In Canada, credit scores are essential for getting loans, mortgages and even for things like renting an apartment.
If you are new to Canada, start by opening an account (you may require proof of employment or residency) and use your account to deposit your pay and manage your bills. Once you have some proof of income (for example, several weeks or months of pay stubs), apply for a low-limit credit card to build your credit score. To build credit, you need to use your credit card for small purchases (that you can afford to pay back) and always pay it off in full.
3. Create your budget and savings plan
A budget – whether you use a spreadsheet, paper and pen or a phone app – is a great way to keep track of your income and expenses and monitor your spending and savings to ensure you stay on track. Part of the budgeting process should also be setting some short-term and long-term financial goals, such as saving for emergencies, retirement, or big purchases like a car or house.
For example, it is a good idea to save three to six months’ worth of living expenses in a separate account for emergencies such as job loss, health issues or unexpected bills or other costs to give yourself some financial security.
Part of your budget can also include investing or long-term savings plans, such as retirement savings. There are lots of investment options available from credit unions – learn more about how to start investing here.
4. File your taxes
Canada has what is called a “progressive tax system” which means that the tax rate on taxable income increases as the amount of taxable income increases. There are both federal and provincial taxes, and they are applied not just to your income but also to the goods and services you buy.
The tax year in Canada runs from January 1 to December 31, and tax returns are usually due by April 30 of the following year. The Canada Revenue Agency (CRA) website offers free resources to help you file your taxes.
5. Find your home
Housing is typically one of the largest expenses in Canada. There are options to rent a home (from a company or a individual) as well as to buy your own home with a mortgage from a financial institution.
Many newcomers start off in the rental market, and it is important to understand what kind of lease you are signing 9for example, month-to-month versus a year lease) and always read the full rental agreement before you sign, including the fine print. You may also be required to pay your own utilities (e.g., heat, electricity and hot water) as a renter, and you may have to pay things like condo fees or internet fees on top of your rent. All of these costs should be counted for in your budget before you find a rental unit to ensure you can afford the rent payments as well as the extra costs.
If owning a home is your long-term goal, saving for your down payment should also be part of your budget. You can read more about mortgages here.
6. Get help and advice
To get some extra support, you can join financial literacy groups or online forums, or even attend workshops or education sessions with other newcomers in the community . Sharing experiences and asking questions can help you learn faster.
Another way to get good advice is to speak with a financial advisor at your local credit union. When you join a credit union you are a member and owner, and credit unions put the needs of members and the community first. Find a credit union near you here!