Adèle Manseau | Desjardins Group
Whether you're looking forward to doing renovations, taking a trip, or buying a recreational vehicle, cottage or condo, how will you know which type of financing is right for you?
"Before making your purchase, you'll need to ask yourself a few questions and meet with your advisor," recommends Pierre-Luc Boulanger, Personal Finance Advisor at Caisse Desjardins de la Rivière Neigette.
When it comes to financing, no two cases are the same and multiple solutions may work--you just need to find what works best for you.
The cost of financing
Whether you're borrowing or footing the bill yourself, your decision will come at a cost. If you dip into your savings, you'll earn less interest. You might also upset the balance of your current financial plan and reduce your regular income. If you withdraw money from a registered retirement savings plan, remember you'll have to pay income taxes, which can really add up.
If you're borrowing, there will be interest and you'll need to calculate the impact of payments on your budget. "Your advisor can help you figure out what you can afford at the lowest possible cost," explains Boulanger.
Related expenses and your budget
Will your big purchase involve other costs? If you're renovating, you might find it hard to avoid "while we're at it" syndrome! A second home comes with its own set of expenses like property taxes and upkeep. If it's a recreational vehicle you're dreaming of, remember that you'll have the typical costs of vehicle registration, insurance and maintenance, but also expenses for gas, camp site reservations, activity fees and so on. Basically, you need to think ahead so you can plan ahead.
"To really enjoy a big purchase, you need to have thought about all possible costs and budget for it," says Boulanger. A balanced budget is essential.
Flexibility of payment terms
How are you planning to pay off your debt? Will you pay it off as quickly as possible or will it take a bit longer? Do you think you'll make payments on the principal during the term of your loan? With your budget in mind, the answers to these questions will help you make the right decision.
While science has come a long way, no one's invincible or immortal. Boulanger points out that it's important to make sure your big purchase won't be a burden on your loved ones or your estate in the event of your death.
"Remember that making a decision without thorough consideration can limit the resources you have available for future decisions," says Boulanger.
Get a head start and assess your financing needs before meeting with your advisor: