Oh hey! So, this is my (Shannon Lee Simmons) first ever sponsored blog post on the website. As a fee-only, unbiased financial planner, I’m careful about what information I share or promote. I was always afraid that working with a financial institution could come across as biased, and as a financial planner, I knew I could only comfortably work with a company that shares my mantra of supporting people getting their finances on track.
But then, I was asked to work with Interac and got excited because I genuinely support using debit as the go-to spending method over credit or cash (It’s in my book again and again and again). So, if paying with debit is now easier for people, I think that’s great.
So, here we are!
In my book, Worry-Free Money, I talk about something called the Spending Vortex. It’s that moment when you feel like your paycheque comes in and it’s already spent before you even get to debate ordering a pizza. Poof! Usually, you’re left feeling broke, like you’ve overspent – and that makes most people feel frustrated.
A lot of times, this happens as a result of how you spend money. Sometimes you pay with debit, sometimes you pay with credit, sometimes cash. Maybe all your rent is due with one paycheque and then you feel like a baller on the next. But, with no spending strategy, you’re never really sure if you can actually afford something. This leads to a lot of money anxiety. But, it doesn’t need to be that way! Here’s how.
Step 1: Stop budgeting with 50+ spending categories.
Coffee shops, takeout, clothes, pet, housing, bills – the list goes on. Budgeting like this sets most people up for failure. You forecast your spending goals in these very restrictive categories than do you best to live within the confines of the rigid budget. It’s so unrealistic! What if one weekend your family comes over and you need to buy a lot of cheese? What if the next week you need to buy a new shirt for work? Enough already. There are only 4 types of money that you need in your budget: Fixed Expenses, Meaningful Savings, Short-Term Savings and Spending Money.
Fixed Expenses are expenses like bills, housing, insurance, minimum debt payments, etc. The bills you must pay each month whether you like it or not.
Meaningful Savings is money that is being put aside to improve your net worth by increasing your assets or decreasing your debts.
Short-Term Savings is money you should be stashing away for emergencies and spikes in spending.
Once you calculate this, everything left over is Spending Money. That’s the money that you have to blow to zero every pay period for your life – groceries, gas, takeout, clothes, fun, and entertainment – cheese (real and vegan)!
- After-Tax Income: $3,000
- Fixed Expenses: $1,700
- Meaningful Savings: $400
- Short-Term Savings: $200
Money You Cannot Spend = $2,300 ($1,700 + $400 + $200)
Money You Can Spend = $700 ($3,000 – $2,300)
Step 2: Calculate how much you have to spend each pay period.
Once you’ve calculated how much money you can spend each month, separate it by how often you get paid. For example, if you’re paid twice a month and your Spending Money is $700, each paycheque you can spend $350 ($700 divided by 2). You don’t have to budget this $350. It’s yours to spend each payday however you wish, as long as it’s within your limit!
Step 3: Separate the Spending Money from the rest of your money.
In the book, in my practice and to my friends and family, I always suggest having a separate chequing account for your Spending Money. It’s also good to stick one payment method. This helps you set an actual limit to your spending and keep tabs on it so you don’t have to worry about receiving a bill that you can’t pay off at the end of the month.
If you’ve separated your Spending Money into a separate chequing account, you can easily see if you can afford things. If it’s the day before payday and you have $50 left in there, the question “Can I afford takeout tonight?” is easy to answer. It becomes “Is there money in my spending account?” Yes? Great. And now you know to keep it under $50.
I also suggest spending out of this account using debit. Why? Because this way you’re actually spending your own money. If you spend using debit, your bank balance will be an indication of how much money you actually have left to spend until the next pay period. In addition, it beats cash because there’s an electronic log of your transactions. You can see where you spent your money in case you ever need to go back and use that information.
If you like the convenience of contactless payments you can do that now with debit! When you think about paying with debit card, you’re likely used to using a PIN number to pay, but now there are options like Interac® Flash which gives you the convenience of contactless payment. This means you can pay by just holding your Interac Flash-enabled debit card in front of the reader at checkout and you’re good to go – no PIN required. If you like to use your phone to pay, there’s also the option of using Interac® Debit on mobile so you can use your phone to pay with your own money. Since you’re using debit, you don’t have to worry about going over your budget because it’s all tracked in real-time, from your Spending Money account, and with a mobile banking app you can check your balances whenever you want.
Step 4: Spend safely and securely
A spending strategy is one thing, but you also need to know the payment method you use is safe. Contactless payment technologies make it easy to flash your debit card or mobile device quickly and securely to pay for everyday items like groceries, gas or your morning coffee using your own money. Interac Flash is one of the safest forms of payment because your debit card number can’t be used to make a purchase on its own in store, and it has built-in spending limits that are set by your financial institution. For example, a transaction limit of around $100 means you can’t spend over that limit by flashing your card, as you’d have to insert your card and use your PIN to verify the payment. There are also cumulative limits and once you reach that limit, you need your PIN to proceed. That’s great from a budgeting perspective but more importantly, it protects you if you lose your card. Also, the Interac Zero Liability Policy means you don’t have to worry about what happens if you lose your card because you are not responsible for losses beyond your reasonable control.
Take the stress out of your spending money! Once you know what you can safely spend to zero each pay period without jeopardizing your bills and savings, your work is done. I give you permission to spend your Spending Money without guilt, or a budget.
Tomorrow I give birth to a giant cyber baby – Canada’s First Personal Finance School. It’s the biggest thing I’ve ever done. (pees pants a bit).
Who knows what tomorrow will bring? Right now, on the eve of the launch, I can still be optimistic. The programs aren’t online yet and I can still believe that anything is possible and that this school will help more people than I’ve been able to reach before.
Once launched, I have to face reality. It’s possible that I was right. It’s also terrifyingly possible that I was wrong. Any entrepreneurs/budding entrepreneurs out there probably know all about this launch-fear.
But, if you don’t believe that what you’re doing is going to make waves or change your life in a HUGE way, why would you stay in Friday nights while all your friends are together, weekend after weekend? (#fomo) Why would you set alarms for 6am on Sunday mornings while everyone else is asleep? How could you end up crying, alone, at the office until 11pm a week before launch-day and only realize that you’re NOT OK when the wonderful maintenance staff offers you a Werthers Original, and tells you “it’s time to go home”.
When you push this hard, you have to naively believe… you have to be so stupidly optimistic or else, you’ll just give up.
I’ve cried almost every day over the past 6 months. Sometimes, from joy. Most times, sheer frustration and exhaustion.
So, I just want to sit and revel in this moment.
Everything is done. It’s all out of my control. There is literally nothing for me to do but take a deep breath in and wait to see if the world believes in this school as much as I do.
This is a rare, magical moment in life. It’s like being in free-fall. It’s silent, but loud. It’s peaceful, but manic. It’s terrifying, but exhilarating.
I know I’ve packed the parachute the best I can. I’ve done all the work. I’ve made the leap and now there’s nothing left to do as I fall but trust, and wait for the parachute to open at the right time.
I think this is why I became an entrepreneur. I’m addicted to the free-fall. This, to me, is living. I feel truly alive because of the entire spectrum of emotions that comes with building, planning, obsessing, and believing in something you’ve created from nothing. I am fully self-expressed and so f*cking appreciative for that.
I’m usually pretty light-hearted in my writing/videos, but I wanted to give this moment the earnestness it deserves. This is a big one for me and I wanted to write this post from a place of gratitude and to be a letter to my future self.
Dear Future Self,
You are about to launch the biggest project you’ve ever taken on. Good on ya.
If things don’t pan out the way that you planned, that’s okay – you are not a giant failure.
No matter what happens, you have so much to be proud of. Be proud of what you’ve created, it’s amazing. Be proud that you are not afraid to work your ass off for something you believe in. You have put your WHOLE SELF into something that you will put out there for anyone in the world to judge. Being vulnerable like this is a really scary thing, you are brave. Lastly, celebrate the fact that you are facing your fear of failure like a boss. Please don’t stop being stupidly optimistic…. Ever. It’s your special skill in life. Remember, that no matter what happens, it’s the journey that defines you in the end and this journey has been truly epic.
Thank you for being one of my fierce supporters. I couldn’t have done any of this without you. Stay tuned with me tomorrow as I continue to free-fall and we’ll find out if the chute opens.
Shannon Lee Simmons
Almost-Official Founder of The New School of Finance
THE 2015 BUDGET IS HERE… dun dun dunnnnn
So, like, what does that even mean and why should you care? The budget affects you in SO MANY WAYS but often people don’t even know about it!
The 2015 Federal Budget outlines your tax rates, tax breaks, changes to your savings and how much money is going back into your wallet each year. It’s a BFD.
Rob Carrick nailed it in his recent article by noting that this budget definitely favours seniors and that GenY/Millenials didn’t get much attention.
But, here are some things in the budget that will affect GenY/Millenials/GenX
1) TFSA or Tax Free Savings Account Increased Contribution Limit
The TFSA is the bomb. It’s an amazing savings account for everyone and for both long and short-term savings. The money that grows inside the TFSA is NOT taxed when you pull it out. I repeat – NOT TAXED. This is key. When you pull your money out of an RRSP account you must include it in that year’s income and be taxed on it (iccccky).
NEW BUDGET THANG: The TFSA contribution limit has been raised from $5,500 to $10,000 effective immediately. Hella yes. More room for tax-free savings? YES PLEASE!
2) Benefits for Post-Secondary Students
The budget assists university students starting in 2016. Usually, to be eligible for Canada Student Loan Programs, it’s dependent on what your parents are forking over/their incomes. i.e. if you’re parents made a certain level, you wouldn’t qualify. In addition, for every dollar YOU earned in school over $100 a week, that amount was deducted from your loans.
NEW BUDGET THANG: If the parental units are forking over for your education whether the total amount or in part, your parents aren’t expected to pony up as much as before to make you eligible for the Canada Student Loans Program. Also, you can now earn money while a student without the amount you earn effectively becoming a drag factor on your student loan. WOOT!
3) Help for Parents with the UCCB and Children’s Fitness Tax Credit
While you may be sleep-deprived, there is a small token of appreciation for your current condition in the budget. The UCCB or Universal Child Care Benefit has been increased from $100 per month up to $160 per month for each child in your family under the age of 6.
The UCCB is taxable money from the gov that parents get REGARDLESS OF THEIR INCOME.
NEW BUDGET THANG: Effective from the beginning of this year, the cheques are in the mail as of July 2015 – PARTY!! Also, the budget has doubled the children’s fitness tax credit to $1,000 starting in 2015. Kid’s activities are so friggen expensive, amirite? Now, at least you get back 15% up to $1000. Little Billy can go to swimming – hurray!
4) Tax Rate Decrease for Small Businesses
NEW BUDGET THANG: The tax rate for small businesses will be reduced from 11% to 9% in 2019. (Now why would you give someone a gift that is so far off in the future? Oh yeah – it’s election time again). Note that this is only for CORPORATIONS – not sole-props or freelancers.
If you are curious about any of the four points above or of finding out in plain language how any of this applies to you, it may be time to book a financial planning sesh to flush out how you can leverage this 2015 budget like a boss.
There are so many different words floating around out there to convey someone who helps you with your money. Here are some – by no means all – that you may be familiar with: financial planner, financial advisor, investment advisor, money coach, fund representative, portfolio manager, stockbroker, and on and on…
That alone is confusing enough to the layperson (who exactly are you supposed to tap for help with your particular financial situation?) – but now on top of the various words used, an extra layer of complexity is added! This layer has to do with how that person is compensated for helping you with your money.
Here’s another list, by no means exhaustive: commission-based, transaction-based, fee-based, fee-only, advice-only, fee-for-service. One might start to wonder if there is a raison d’etre for the proliferation of so many descriptors.
And hey, what about accreditation? You should probably use someone who is accredited so they know whereof they speak and there is a whole list of designations for this, which will not be produced here.
Let’s just go with the fact that it’s a better bet to use someone who has a designation. Here’s an acronym for you: FPSC or Financial Planning Standards Council. This is a body that oversees approximately 17,000 Certified Financial Planners (CFPs). Out of these, the stats are that fewer than 1,000 are true “fee-only” planners.
That’s an interesting thing. Why would that be? Some say that there just isn’t that much demand for fee-only planners. I suggest that education comes before demand. If people knew the difference, would the demand grow?
FEE-ONLY FINANCIAL PLANNERS
So what is a fee-only financial planner? It is someone who receives a fee from you for delivering unbiased financial planning and advice to you for your benefit. They sell you nothing but their own expertise applied to your particular situation. This fee could be set at an hourly rate or it could be a flat fee established ahead of time for a certain service that you are seeking, e.g. retirement planning or entrepreneurial planning.
COMMISSION-BASED FINANCIAL PLANNERS
Compare that to commission-based financial planners who get paid not by you but by companies who make the financial products that they sell to you. Who would you rather get your advice from: someone you are paying or someone another entity is paying? That’s a rhetorical question.
FEE-BASED FINANCIAL PLANNERS
Compare that to fee-based financial planners who get paid a percentage of assets under management. This feels better, doesn’t it? Definitely there is more transparency here. At least you are playing on the same team in that if your assets increase in value, the fee-based financial planner stands to make more money. But let’s look at it from the other side. If your assets decrease in value, you lose money but they continue to make money as they always get paid whether your assets grow or shrink. Yes, to be sure, they make less if your assets shrink but they still make something whereas you lose. Also, fee-based does not negate commissions being paid to the advisor and you know only if commissions are paid to them if they are forthcoming with this information and I’m sure some of them are.
It is your money and definitely your choice.
The New School Team
READ THIS IF: You are selling goods to people in the EU and you are afraid that those goods are considered “Electronically Supplied Services”.DISCLAIMER: EVERYONE IS DIFFERENT. THIS IS NOT ADVICE. PLEASE SPEAK TO YOUR TAX PROFESSIONAL. MORE INFO IS COMING EVERY DAY. STAY TUNED. WATCH WEBINAR: HERE
QUESTION 1: What is EU VAT?
It’s a sales tax – like HST/GST/PST in the EU. Each Member State (country ) in the EU has a different rate that they charge. Like Canada, where each province can either be a HST/GST/PST combo at a certain rate, each Member State sets it’s own rate. This rate is charged ON TOP of the price of goods/services sold, just like HST/GST/PST.
New law as of January 2015 – DOES THIS AFFECT YOU?
From 1 January 2015, EU VAT will be charged in the country where products are bought (where your customer lives) as opposed to the country where they are sold (where you live). The legislation applies to electronically supplied services.
QUESTION 2: Are you selling electronically supplied services?
DEFINITION: “‘Electronically supplied services’ shall include services which are delivered over the Internet or an electronic network and the nature of which renders their supply essentially automated and involving minimal human intervention, and impossible to ensure in the absence of information technology.”
TRANSLATION: Where there is automated delivery following the sale, it’s a e-service.
- Basically, it all depends on whether the seller is manually involved or not at some level of delivery and confirmation after sale
- POTENTIAL WORKAROUND: If you MANUALLY email and MANUALLY ATTACH CONTENT then it may not be considered an e-service. HMRC stated this in an online discussion on Nov 27, 2014. YOU MUST HAVE A PERSON MANUALLY ATTACH AND EMAIL CONTENT TO CUSTOMERS IN EU (This could change)
- NOTE: E-books, courses and downloads that automatically send to customer and email them automatically ARE CONSIDERED ELECTRONICALLY SUPPLIED SERVICES. CDs, floppy disks, potentially USBs are NOT… this may be a work around – ship your content in another way than auto-download.
TAKE ACTION: Are you able to manually email and attach content for any customers in the EU? If so, you may not have to worry about this because you’re not considered to be selling electronically supplied services. How manual/human interaction can you get?
QUESTION 3: Who Are You Selling To?
For non-EU businesses selling to the EU
If your customer is a business in the EU, they should be registered for their own VAT number and as a business, they are responsible for collecting and remitting VAT. You don’t have to.
Take Action: Go through your EU clients, who are businesses (B2B) and who are consumers (B2C). Write down which Member State (which country) they live in and how much money you made from each Member State (country) so you know where the important ones are.
You sell to Business: (B2B) If you sell to businesses, you will need to collect their VAT number and confirm that they are responsible for paying VAT on their own revenue and expenses. THIS IS IMPERATIVE. Without their VAT number, you cannot escape the EU VAT. This may be something you require on your site. Maybe customers from the EU need to enter in their VAT number and agree to a waiver or something to accept responsibility. Please wait for more details on this.
You sell to Consumers: (B2C) They don’t have a VAT number and you ARE selling Electronically Supplied Services. This affects you.
QUESTION 4: What do you need to do?
- You can register for MOSS (apparently you have 10 days if you sell to someone in EU after Jan 1 until you register. First quarter filing is March 2015). This is a “Mini-one-stop-shop” in the EU. Instead of registering in each 28 Member States in the EU, you can do it in one place.
- Choose which countries you want to continue selling to and know the laws there (invoicing rules, VAT rates etc.)
- YOU GOTTA KNOW YOUR STUFF
- You are required to monitor WHICH country your client is from
- You are required to monitor WHAT RATE to charge depending on what country they reside in (each country has it’s OWN rates)
- You are required to know what INVOICING RULES for EACH COUNTRY. Invoicing is MANDATORY. E-Invoices are allowed, E-invoices may be sent using two methods (e-signatures and EDI) as long as each invoice fulfills two main conditions:
- the customer must accept receipt of invoices by electronic means (e-signatures and EDI)
- guarantees need to be provided for:
o the authenticity of the invoice’s origin; and
o the integrity of the invoice’s contents.
4. You are required to get TWO (non-conflicting) PIECES of evidence (it’s been suggested to ask for THREE) of where that customer normally resides. (There is a movement to get micro businesses exempt from this since most of the payment systems cannot provide that information – stay tuned)
5. Filing for MOSS is quarterly (20 days after quarter end) online and payment made (this hasn’t been fully flushed out for non EU businesses)
6. Keep the evidence for 10 years
7. Make Your Web-store VAT friendly.
i. Get the billing info
ii. Get the IP address
iii. Show different currency
iv. Show different VAT rates applied
v. Allow for electronic invoicing and e-signature
SOME OPTIONS: No matter what, find a way to TRACK WHERE YOUR CUSTOMER IS. When dealing with EU customers, keep it manual (manual email, manual attachment, manual manual, manual). Maybe try to change your services so they don’t fall under an Electronically Supplied Service. SEE WEBINAR ABOVE. Have your administrative team on board for the additional work. You need to put some sort of notice on your sales page for customers from the EU. If they are from the EU, they email you directly, they DO NOT fill out your regular online shop/marketplace inputs form where they would receive an automatic email or download. (STAY TUNED FOR ANY CHANGES)
If you choose to register for MOSS and go forward, you may want to select only a few number of countries where most of your clients are to sell in. Know the rules inside and out for each of these places, register for MOSS, follow the rules and find an online market place that will help you collect your TWO NON-CONFLICTING PIECES OF RESIDENCE DATA. More on this to come. It is onerous.
Question 5: Is there hope?
Yes. The last person in the supply chain to the customer is responsible for the VAT. If you sell on an online shop/marketplace, things could change.
You are responsible for paying and remitting the EU VAT if the online store/marketplace is ‘acting as an agent’ only – AKA, you are selling directly to the customer. This is likely to be true if, for example, you’re the one processing card payments for your sales like PAYPAL. PAYPAL WON’T HELP YOU HERE
The online store/marketplace needs to do the following in order to be considered the FINAL stop, selling directly to the customer and responsible for EU VAT.
- Authorizing payment
- Authorizing delivery
- Setting terms and condition of sale
AKA, the online store is ‘acting in their own name’. You sell your services to the online store and then they sell to the customer.
You should check with the company you’re working with. CONFIRM THEIR ROLE.
Amazon and Apple currently pay the VAT for their sellers and Google Marketplace is said to be changing their terms from the first of January 2015.
Also – hopefully micro biz is exempt from the onerous two pieces of evidence and can just go by what the customer puts as their billing address.
This is a quick note regarding the new rules from the EU VAT.
This directly affects those who sell digital products (like e-books, e-courses, etc) to customers in the EU as of January 1, 2015.
There’s a lot of panic out there, but everyone just remain calm until we have all the facts. I’m working on figuring out best practices, who needs to register, where to register and how to reduce administration for you, the entrepreneur, so you can keep selling internationally. I’m looking into the One-Stop Shop EU VAT implications and the online tools that may be able to help you out.
If you’re interested in keeping abreast of the situation, I’ll likely be hosting a spreecast/webinar on it shortly to get the word out fast/effectively.
Sign up below and I’ll keep you posted.
4 ways for house to earn you money
Your home is a haven, but it can also be a cash cow if you know how to milk it. Today I’m going to give you the 4 best ways to make extra money from your house.
Method 1 – Use Air BnB
Who: Air bnb is a website that allows you to rent out your home like a hotel.
What you need: All you need room for someone to sleep in.
Risk: Letting someone unknown into your house.
Payout: Slightly below market rent. For a weekend in a major urban center, you could charge anywhere from $80 – $150/night! You don’t need to provide any amenities except a bathroom and a bed.
When to use: If you spend your weekends at the cottage or away, rent out your space to travelers and earn some money!
Method 2: Parking Spot
What you need: An unused parking space.
Risk: You probably have to shovel.
Payout: Glorious. Most parking spots go for $80 – $250/month in the GTA depending on location.
When to use: Year round if you are sans car.
3. Garden Rental
What you need: An unused garden space with optimal growing sunlight.
Risk: Someone comes into your backyard.
Payout: Renting garden space can go from $40 – $200/month depending on size and demand.
When to use: Spring/Summer.
4. Workshop Host
What you need: A big enough room that could seat 10 people at least.
Risk: People coming to your home for workshop.
Payout: Small businesses in the GTA are desperate for locations to host small workshops all the time. Most places in the GTA are expensive. If you’ve got a big living room/family room/kitchen, offer it up on craigslist. The average workshop would pay between $20 – $150 depending on how much they were charging guests to come. Alternatively, you could ask to take 20% of all the ticket sales for the use of your home.
When to use: Whenever you don’t need access to your space!
So you want to start a business? The days of sticking with the same job for 30 years and getting a cushy pension are ending. Freelancers, entrepreneurs and small businesses are the future.
The first thing you may want to do is figure out what steps you need to do to make it official, and that’s determined by your ownership structure, which is jargon for are you a sole proprietor? Partnership or a corporation.
Guest Post I wrote for SeeChange Magazine
Community bonds offer a new asset class for investors, but what are the pros and cons of this social investment option?
A nonprofit/social enterprise walks into the bank.
We’d like to borrow $80,000 of capital to fund our social enterprise.
No. This is new and scary.
Banker flees the scene. Social enterprise gets creative and reaches out to the community.
Nonprofit/Social Enterprise (to the community)
How would you all like to help fund our social enterprise by purchasing community bonds?
The Investment Community
What are those?
Well, each of you could purchase a small bond, let’s say $1,000, which we will use over the next five years. In five years, we will return your investment plus 5% interest.
The Investment Community
Wow! I’ve always wanted to invest locally and socially beyond socially responsible mutual funds. Where do I sign up?
Eighty community members purchase community bonds. The nonprofit/social enterprise is a complete success. Everyone rejoices.
Want to invest socially and locally? It’s time for investors to start thinking about community bonds as a new asset class.
Community bonds are a new addition to the growing movement called social finance. Many times, we only hear about the benefit of community bonds from the social enterprise/nonprofit perspective, but we rarely hear about the pros and cons of investing in community bonds as a new asset class for investors.
So, what are the risks and rewards of investing in your local community?
1. Further diversification for private investors. Community bonds are not correlated to financial markets like publically traded bonds. Therefore, they offer an amazing opportunity for investors to invest in fixed income products whose prices and yields are not impacted by market interest rates.
Jargon-free translation: If you purchased a community bond offering 5% over five years, you’d earn 5% in five years regardless of whether market interest rates dropped.
2. Offers greater yield than most GICs.
Community Bonds are structured like a non-redeemable GIC, a guaranteed investment certificate. While there are several types of GICs, for the purposes of this article, we will stay with the most popular type of GIC, which is a non-redeemable GIC. With a non-redeemable GIC, you lend the bank $100 when you buy a $100 GIC and they promise you a 2.5% return if you don’t sell that GIC for however much time, let’s say five years. So, in five years, you’ll get back $102.50 back – guaranteed.
Right now, most five-year non-redeemable GICs at the major banks are offering interest rates of 2-3%. Most community bonds offer 5% over five years, which is much higher.
3. Low-Risk – Most community bonds add your investment to a pool of money that is designed to fund a portfolio of social projects, not just one. A great example of this is SolarShare. Solarshare Community Bonds help to fund The SunField Projects– 17 solar installation projects in Ontario and the WaterView Projects.
By investing your money into many different projects, the default risk is lowered. If one project fails, there are 17 other projects providing cash flow. Additionally, many of the social projects have existing government contracts, so the future cash flow for the projects are guaranteed.
Community bonds are not risk-free like a GIC. Do your research. Find out what projects you’re investing in and what the company plans to do about it if they don’t meet their targeted goals.
4. Many community bonds are sold in small increments, from $500 up to $10,000 bonds, to make it accessible for everyday investors.
1. Not a lot of options. Community bonds are an up and coming asset class. Right now, there are only a limited number of social enterprises that are starting to raise money this way, and community bonds can sell out very quickly.
2. Only a few are RRSP eligible. Mostly, community bonds end up being a non-registered investment. This means you will pay tax on any interest earned. Some community bonds, such as Toronto’s Centre for Social Innovation, were RRSP eligible, however, your bank may not be equipped for you to hold them in your RRSP, so returns remain taxable.
3. Little to no liquidity. Like a non-redeemable GIC, once you’ve purchased your community bond, the money stays there. There is no secondary market to buy and sell your bonds, so if you need that money within the investment period, you won’t be able to cash out. Over time, I foresee community bonds as the next emerging asset class for private investors looking for a low-risk social investment.
Some examples of community bonds in Ontario
Series of Solar Powered Projects, renewable energy
$1,000 bonds + $40 co-op membership fee = 5%/year over 5 years.
Developing a 500KW bio gas plant in Toronto
$500 – $5,000 community bonds
7% over 7 years
3. Options for Green Energy
Series of green initiative projects
$100 for co-op membership + loan amount = 5% guaranteed on the amount you invested over 5 years.
4. West End Food Co-op
Sustainable food in Toronto’s West End supporting new community Food Hub at Queen and Dufferin, including a community kitchen, local food workshops and events, and a retail space featuring local farmers and producers. (closed)
$500 bond + $5 co-op membership = 2.5% over 2 years