Number crunching 101: How to get the most out of online financial tools

You'd be amazed by how much you can improve your financial situation with just a web browser and an Internet connection. From the Financial Consumer Agency of Canada's Credit Card payment calculator to the Government of Canada's The Money Belt, which tests your knowledge of federal government regulations, service charges and information disclosures, online money management tools abound.


But while web-based mortgage calculators, budget trackers and financial education quizzes can help you get a handle on your debt, Chad Viminitz, a certified financial planner with RTR Advisory Group in Edmonton, Alberta, and author of "Money Assassins," warns, "With more financial know-how and online calculators available than another time in history, we are making poorer financial decision than any other time in history." 

Fortunately, Viminitz offers these tips for getting the most out of today's online financial tools.

1. Hedge your bets.
Mortgage calculators are excellent for helping consumers figure out how fluctuations in interest rates can impact your overall finances. However, Viminitz recommends that, "when playing with a mortgage calculator, plug in rates that are 2 to 3 per cent higher than current to see if your family can handle a change. This is called ‘interest rate risk' -- the idea that rates could jump up from your initial rate." 

2. Think big.
There are countless online budget trackers for the taking, many of which can be loaded onto smartphones for budget-as-you-go convenience. But while these tools help consumers identify where their paycheques are disappearing each month, Viminitz prefers "budgeting apps that categorize purchases" because "identifying your big expenditures should be a priority" when it comes to sorting out your finances.

3. Think supplement, not substitute.
Don't lose your financial advisor's number just yet. "The biggest shortcoming with these tools is that they do not give advice," warns Viminitz. Take, for example, plugging a $400,000 mortgage into an amortization calculator.

"You will get a number," says Viminitz, "but the real question is whether you should take out a $400,000 mortgage to begin with. Maybe your financial plan can only allow for a $250,000 mortgage. Technology can be helpful but it does not replace advice from a professional." 

4. Consider the source.
Because many lending calculators allow for high total debt service ratios, Viminitz says it's always wise to consider the source when number crunching. "If [the source of the tool] is a lender, their calculators are geared to lending you money, not necessarily making the best decision for your financial plan." For this reason, Viminitz recommends sampling a variety of calculators to ensure accuracy and consistent numbers. 

See related: How to manage your cash flow like a hot-shot corporation; RBC Roundtable: How to battle inflation
Updated September 16, 2011

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