Wednesday, March 11, 2015
My experiences in the Financial industry. From a down to earth point of view!: Why a Tax Free Savings Account
My experiences in the Financial industry. From a down to earth point of view!: Why a Tax Free Savings Account: Why have a Tax Free Savings Account I've been thinking a lot about my future retirement lately and thought I would write down some of...
Why a Tax Free Savings Account
Why have a Tax Free Savings Account
I've been thinking a lot about my future retirement lately and thought I would write down some of my thoughts and ideas, while they are top of mind.
Yes, I'm only 35, but personally I want to start on my plan now, so I have 20-30+ years to works towards my goals. I want to be able to enjoy my time in retirement and hopefully retire early. I don't think my future Canadian Pension will be enough, so that is why I want to start early. I do have some planning in place already, but need more.
I'm lucky to currently not be working and enjoying some free time in Japan, while my husband works here. So my hope is to build a solid plan/focus now, and work on it when I return to Canada.
Today I want to talk about the Tax Free Savings account, which I will refer to as a TFSA.
When I worked in the banking industry, I had many clients mention that they hate Registered Retirement Savings Plans (RRSP's). I feel that many people think RRSP's are the option for retirement savings, however that is not true. There are so many different sources of retirement savings, and RRSP's are just one of them. The main reason I hear people complaining about RRSP's is that their taxable! When you put the money in, you get a tax return, but when you take it out, you need to claim the money you take as income and pay tax on it.
I strongly feel there is a time and place for RRSP's in most people financial plans, but they are not right for everyone and they are not the only solution.
When I/you retire you need to claim any Government Pension in your taxes, you also need to claim your Company Pension and you need to claim your RRSP income. These are only a few things that are TAXABLE in retirement.
That is why I want to use the TFSA to supplement my retirement income. No, you don't get a tax deduction when you put money in a TFSA, however when you take the money out in retirement the withdraws are not taxable. There are some other rules you need to watch out for with a TFSA to make sure your not penalized, however this tax free benefit is huge for me! If all your money/income is taxable in retirement, you may end up paying a huge amount of tax, so why not have some sources taxable and some not?? Makes sense to me.
My plan and recommendation to myself and others is to have a TFSA set up and set up an automatic contribution to it. Choose an amount that is right for you, that fits into your current budget and is enough to help you achieve your future goals. You can stop this automatic contribution anytime you want. You can also increase or decrease it anytime you want.
There are many other things a TFSA can be used for, and retirement is just one of them. I.E. saving up for a down payment on a home, saving for a vacation, saving up for future education etc etc etc... The plan is yours, so you choose what your goal is!
Educate yourself and your children about TFSA's!!
Some facts about Tax Free Savings Accounts
- There are limits on how much you can put into it, so double check this with your banker- As of January 1, 2013, Canadian residents, age 18 and older, can contribute up to $5,500 annually to a TFSA. This is an increase from the annual contribution limit of $5,000 for 2009 through 2012 and reflects indexation to inflation.
- Investment income earned is tax free
- Withdraws are tax free
- If you haven't used your previous contribution limits, they can be carried forward i.e. someone that was 18 in 2009, and hasn't put any money into a TFSA should have a contribution limit of around $36,500
- Depending on what your investing in you should be able to take the money out anytime, so if something comes up, you can still access your money in case of an emergency or to use for another need. If you invest in a locked in GIC, you may have to wait until the end of the term.
- If you withdraw from a TFSA, the amount you withdraw will be added back to your contribution limit, the FOLLOWING YEAR. Re-contributing in the same year may result in an over-contribution amount which would be subject to a penalty tax.
- Within the TFSA you can invest in cash, Guaranteed Investment Certificates, bonds, stocks, mutual funds and more
- Contributions are NOT tax-deductible, if your in need of something tax-deductible, you will need to look to an RRSP.
- TFSA assets can generally be transferred to a spouse or common-law partner upon death.
There you go. So again the main reason I want to look at building my TFSA, is so that not ALL my income in retirement is taxable, plus is a disciplined way to invest, if you stick to it.
If you have any comments or questions, please let me know
Tuesday, July 8, 2014
Set short term and long term goals
Hello again,
For step #3, I mentioned the importance of setting up short and long term goals. This one is hard to talk in detail about, as everyone's goals will be quite different, depending on your lifestyle, financial situation, stage of life etc. I will touch on a few, and try to give some tips, that I have learnt over the years.
Why set up goals:
Setting goals allows you to think about your future, and what you want to achieve. To set them, is one thing, the next part is to have the motivation and ability to achieve them. Setting up a long term goal is usually based on what you want to do in life, and short term goals are set up, to help you achieve your long term goals.
My feelings on setting goals:
I feel that setting goals if very important. In most instances, when I had a client in my office, and asked them about their long term goals, they had no idea. Most would come in, tell me what they were there for (usually a short term need) and they didn't care about or want to talk about anything else.
For example, I would have clients come in asking to buy a car. Instead of just doing the car loan, I would ask about their overall debt situation, not just the car loan. In some instances, my clients would have a large amount of other debt, however when I asked about their goal to pay off their debt, they had no idea how to pay it off, or when it would be paid off. I also had many clients whom would come in to acquire new debt as soon as their other debt was paid off, or would come in to apply for more debt because they couldn't afford something they wanted. In many instances, it is fine to apply for debt, but I recommend having a short term/long term goal to have it paid off. Short term may be a 3-5 year vehicle loan, medium term may be a 10 year repayment of a large school loan, long term may be a new mortgage.
Some examples of short term goals are:
1) Buy a vehicle in 1-3 years
Well if this is your plan, then why not doing research on the cost now and start saving now. Many people go to the bank to finance all or most of their vehicle purchases. This means a longer time to pay it off, a large monthly payment that will effect their current budget, and/or higher interest costs. However, if you know now, that you will need a new vehicle in a few years, then why not set up a vehicle account and put money into it each month. This will save you money in the long run. If you have to finance it all, and have a payment of $500/month, for example, you may not be able to afford the $400/month towards your retirement goal (to be discussed later), therefore not planning for your short term needs will have an effect on your long term desires.
2) Go on a trip
Try to figure out your family travel plans for the next 1-2 years, see how much they would cost and set up an account to save money. This way, you can afford to pay for most or all of it, with cash. Sometimes, what I do, is set my trip around a time that I know I will have a lump sum of money come in. I.E. when I am expecting a bonus from work, when I am expecting a tax return, or because I am paid bi-weekly I plan it around a month where I will have 3 paycheques.
Some examples of long term goals are:
1) Paying off your home
I put this as a long term goal, as for most people, it will take 20-30+ years to pay off a mortgage. Even if you just bought your home, or have several years left, look at the calculations NOW. You may notice, by adding an extra payment of $200/month will pay off the mortgage SEVERAL years sooner, and will save you a large amount of interest. I always try to have my clients DEBT free, for when they retire. So if you have a goal to retire at 60 (for example), and your mortgage won't be paid off until 65, then maybe look at a payment that will have it paid off by 60, and see if you can manage that payment now. You can add it as a double up payment, and depending on the bank, should be able to stop this double up payment if something comes up in the future, and you can't afford it anymore. If you look at this early, the extra payment may be small, however if you look at this at age 58, the payment required may be huge. If you still have a large mortgage when you are close to your retirement age, it may mean you have to work longer, or may not be able to enjoy all the things you want to in retire. Plan EARLY, so you enjoy your retirement goals, whatever they may be.
2) Retire
I put this as long term, as I am 34 and have several years to retirement. Obviously, others are closer to retirement, so this may be a short term goal for them.
Look at calculations to see, how much you NEED during retirement. Then figure out from there, how much you need to save now, in order to have that amount when you retire. This planning really takes some time, as you need to sit down and look at several things a) what your lifestyle will look like b) what sort of monthly expenses will you have (i.e. will your mortgage be paid or not, do you want to travel, etc). c) What other income sources will you have, this is just a few things to look at.
I will touch a bit on point (C), what other income sources will you have. For everyone this is different. The main two things most people look at, are CPP and OAS. However, it is hard to determine exactly what CPP and OAS will look like, years from now. As of now, the maximum is around $1500/month (depending on many factors), and this IS taxable. For most people $1500 minus taxes is not enough. Another source of income may be your work pension, however some people work for companies that don't even have a pension. If you do work for a company, with a large pensions, great, but seldom have I seen someone getting a large amount of company pension. I am not saying it doesn't happen, but most company pensions are not huge. The amount you get depends on the company you work for, what type of pension plan you opt for (defined benefit or defined contribution), how many years your with the company for, what age you retire at, and more. It is good to look at what you company pension income may be when you retire. Look at this EARLY.
For most people, they will need to supplement their pensions with other income. This may be working longer, selling assets or investing NOW for your future retirement. There are several investment plans that can help with long term retirement, and I suggest talking to someone, to see which plan, is best for you. The main point I make, is to start early and contribute regularly. Another point here, is that a government pension is taxable, a company pension is taxable and RRSP's are taxable. That said, if you have a good size pension already, you may want to look at sources other than RRSP, so that not all your sources of income are taxable. For example, when you take money out of a tax free savings account, it is not taxable. So it may be a good way to supplement your income in retirement, if you're going to have a large amount of taxable income already. Tax Free Savings accounts and RRSP's do have different tax consequence, so it's important for you to look at both and decide which one is best for you.
In the above, I only touched on a few examples, but my main point is to plan now. Even if you have a goal that is 20-30 years from now, don't procrastinate. If you do, it may mean you will have to wait even longer to achiever your goal, or may have to adjust your goal even if you don't want to.
All the best with your planning :))))))))))))))
For step #3, I mentioned the importance of setting up short and long term goals. This one is hard to talk in detail about, as everyone's goals will be quite different, depending on your lifestyle, financial situation, stage of life etc. I will touch on a few, and try to give some tips, that I have learnt over the years.
Why set up goals:
Setting goals allows you to think about your future, and what you want to achieve. To set them, is one thing, the next part is to have the motivation and ability to achieve them. Setting up a long term goal is usually based on what you want to do in life, and short term goals are set up, to help you achieve your long term goals.
My feelings on setting goals:
I feel that setting goals if very important. In most instances, when I had a client in my office, and asked them about their long term goals, they had no idea. Most would come in, tell me what they were there for (usually a short term need) and they didn't care about or want to talk about anything else.
For example, I would have clients come in asking to buy a car. Instead of just doing the car loan, I would ask about their overall debt situation, not just the car loan. In some instances, my clients would have a large amount of other debt, however when I asked about their goal to pay off their debt, they had no idea how to pay it off, or when it would be paid off. I also had many clients whom would come in to acquire new debt as soon as their other debt was paid off, or would come in to apply for more debt because they couldn't afford something they wanted. In many instances, it is fine to apply for debt, but I recommend having a short term/long term goal to have it paid off. Short term may be a 3-5 year vehicle loan, medium term may be a 10 year repayment of a large school loan, long term may be a new mortgage.
Some examples of short term goals are:
1) Buy a vehicle in 1-3 years
Well if this is your plan, then why not doing research on the cost now and start saving now. Many people go to the bank to finance all or most of their vehicle purchases. This means a longer time to pay it off, a large monthly payment that will effect their current budget, and/or higher interest costs. However, if you know now, that you will need a new vehicle in a few years, then why not set up a vehicle account and put money into it each month. This will save you money in the long run. If you have to finance it all, and have a payment of $500/month, for example, you may not be able to afford the $400/month towards your retirement goal (to be discussed later), therefore not planning for your short term needs will have an effect on your long term desires.
2) Go on a trip
Try to figure out your family travel plans for the next 1-2 years, see how much they would cost and set up an account to save money. This way, you can afford to pay for most or all of it, with cash. Sometimes, what I do, is set my trip around a time that I know I will have a lump sum of money come in. I.E. when I am expecting a bonus from work, when I am expecting a tax return, or because I am paid bi-weekly I plan it around a month where I will have 3 paycheques.
Some examples of long term goals are:
1) Paying off your home
I put this as a long term goal, as for most people, it will take 20-30+ years to pay off a mortgage. Even if you just bought your home, or have several years left, look at the calculations NOW. You may notice, by adding an extra payment of $200/month will pay off the mortgage SEVERAL years sooner, and will save you a large amount of interest. I always try to have my clients DEBT free, for when they retire. So if you have a goal to retire at 60 (for example), and your mortgage won't be paid off until 65, then maybe look at a payment that will have it paid off by 60, and see if you can manage that payment now. You can add it as a double up payment, and depending on the bank, should be able to stop this double up payment if something comes up in the future, and you can't afford it anymore. If you look at this early, the extra payment may be small, however if you look at this at age 58, the payment required may be huge. If you still have a large mortgage when you are close to your retirement age, it may mean you have to work longer, or may not be able to enjoy all the things you want to in retire. Plan EARLY, so you enjoy your retirement goals, whatever they may be.
2) Retire
I put this as long term, as I am 34 and have several years to retirement. Obviously, others are closer to retirement, so this may be a short term goal for them.
Look at calculations to see, how much you NEED during retirement. Then figure out from there, how much you need to save now, in order to have that amount when you retire. This planning really takes some time, as you need to sit down and look at several things a) what your lifestyle will look like b) what sort of monthly expenses will you have (i.e. will your mortgage be paid or not, do you want to travel, etc). c) What other income sources will you have, this is just a few things to look at.
I will touch a bit on point (C), what other income sources will you have. For everyone this is different. The main two things most people look at, are CPP and OAS. However, it is hard to determine exactly what CPP and OAS will look like, years from now. As of now, the maximum is around $1500/month (depending on many factors), and this IS taxable. For most people $1500 minus taxes is not enough. Another source of income may be your work pension, however some people work for companies that don't even have a pension. If you do work for a company, with a large pensions, great, but seldom have I seen someone getting a large amount of company pension. I am not saying it doesn't happen, but most company pensions are not huge. The amount you get depends on the company you work for, what type of pension plan you opt for (defined benefit or defined contribution), how many years your with the company for, what age you retire at, and more. It is good to look at what you company pension income may be when you retire. Look at this EARLY.
For most people, they will need to supplement their pensions with other income. This may be working longer, selling assets or investing NOW for your future retirement. There are several investment plans that can help with long term retirement, and I suggest talking to someone, to see which plan, is best for you. The main point I make, is to start early and contribute regularly. Another point here, is that a government pension is taxable, a company pension is taxable and RRSP's are taxable. That said, if you have a good size pension already, you may want to look at sources other than RRSP, so that not all your sources of income are taxable. For example, when you take money out of a tax free savings account, it is not taxable. So it may be a good way to supplement your income in retirement, if you're going to have a large amount of taxable income already. Tax Free Savings accounts and RRSP's do have different tax consequence, so it's important for you to look at both and decide which one is best for you.
In the above, I only touched on a few examples, but my main point is to plan now. Even if you have a goal that is 20-30 years from now, don't procrastinate. If you do, it may mean you will have to wait even longer to achiever your goal, or may have to adjust your goal even if you don't want to.
All the best with your planning :))))))))))))))
Wednesday, May 7, 2014
Get an idea of your Networth
This is step 2 of my 10 recommendations, for a financial
tune up. This one is easier than sitting down and setting up a budge but is
still very important.
Before I start on this step, I wanted to mention that
the new Excel 2013 has tons of different budget templates. I recommend
people to take a look at the family budgets, they are easy to use. There are
also templates to budget for a wedding, a renovation and much more. I love it!!
Figuring out your Net Worth is pretty easy. You take all
your assets and minus all your debts. It is how much money you would
have, if you sold all your assets and paid off all your debts. If you Google
Net Worth calculator, you can find many calculators online.
Assets = Cash in hand, funds in bank accounts, Retirement
savings, Vehicle, real-estate, stocks, bonds, life insurance (if it has any
cash value), personal items (jewelry, artwork, furniture, collectables etc.).
Liabilities = mortgage, credit lines, installment loans (for
vehicle or other purchase), credit cards, student loans, home equity loans,
back taxes etc.
Even though you most likely will never sell all your assets
and pay off your debts, knowing your net worth will hel0p you make better
decisions on how to accomplish your financial goals. It will also help you be
prepared, when you go into the bank and ask to borrow money, as Net Worth is
one of the many things they will review with you.
Be prepared that this number may be low or even negative,
especially when you’re young. A large mortgage, student loans or steep credit
card/credit line debt could send you into negative territory. A negative net worth
isn’t always bad. For example if you just finished school and started your
first job, most likely you will be negative. This is expected and doesn’t
reflect on bad finances.
USUALLY your Net Worth will be low when you are young, as
MOST young people will have a lot of debt and little assets. We acquire student
loans, car loans, mortgages and much more in our younger years. The goal is to
track your Net Worth and for it to increase overtime. As you pay down your
debts your Net Worth will increase and as they are fully paid off, it will free
up cash flow to put towards other purchase of other assets or invest.
Tips
to increase your Net Worth:
Pay off your debt quicker. Avoid debt if/when you can
-
Change your debt payments from
monthly to bi-weekly, if possible. Bi-weekly payments allow for more money to
go to principal and will have the debt paid off faster, with less interest.
-
Increase your debt payments. Same as
above, it will help your debt to be paid off faster, with less interest. Even
if you can afford to increase them by just a small amount, do it, it will add
up and have them paid off faster.
-
If you have a debt with a large
payment, then look at possibly selling an asset, you are not using. This will
free up cash flow to go to other expenditures.
-
AVOID using a credit card, unless
you can pay it off in the short term. Credit card interest is usually high and
the minimum payments are so low that you are usually paying mostly interest and
fees. Many people use a credit card as an emergency reserve account, ahhhhh,
don’t do that. Please try to avoid this and instead pay a certain amount each
month to a savings/emergency reserve account and use that money when an emergency
arises. Not to say, I haven’t had to do this before, I have, but have learnt
from it!
Increase
your income/cash
flow
-
Get a second job for the short or
long term (depending on your situation) to help you pay off some debts and/or
save
-
Get the kids to help out. If you
have teenage working kids, have them help out towards phone, internet bills and
possibly rent (depending on your situation). I have had clients in my office
that wanted to buy EVERYTHING for their child, their education, vehicle, etc.
This would be great, but this particular client I am thinking of came in to
borrow the money every time and was getting largely into debt. This was not
helping her situation
-
Take on a roommate or live in
student. Use the extra income to pay down some debts and/or save
Decrease
unnecessary expenditures
-
Look at your monthly budget and see
if there are expenses you can cut back on and use those savings to pay down
some debts and/or save. I touched on
this in my last blog
Make good decisions.
Wait till you’re ready and do research, before making big purchases
-
Be careful when buying cars. They
can be a money pit. Buying a car with a large monthly payment is going to take
away from your money being saved. If you buy new that car, it will most likely depreciate
to next to nothing in 7 years. I am not saying don’t buy a car, if you really
need one, just be careful. The monthly expense of the car payment, insurance,
gas, maintenance can really add up. Try to buy a vehicle that is going to last
a long time and that will fit into your monthly budget, while still allowing
you to put money towards savings.
-
Don’t buy a house until you are
really ready! Look at renting vs. buying and make sure you know that with that
mortgage payment will also come property taxes, utility payments, maintenance
and much more.
-
If you are going to buy a house try
and save as much as you can to put towards the down payment. Many people put 5%
down just because that is the lowest they can do, but with that will come extra
mortgage insurance fees and if you need to sell in the short term, your
mortgage may end up being more than the property price.
-
When shopping around for a mortgage
make sure to find out all the features/benefits of the mortgage you are
choosing. Many people go with the lowest rate, but I also recommend look at the
pre-payment options and other features. Going for a mortgage with a SLIGHTLY lower rate won’t do
you any good if there comes a time you want to make extra payments and can’t.
Increasing your mortgage payments by $100/month and/or making a lump sum
payment every year and/or choosing bi-weekly payments vs. monthly can save you
way more than an interest rate that is marginally lower.
Start
Early
-
Get on track EARLY. Learn about
money, set up a budget and track your Net Worth from a young age. Focusing on
debt repayment and starting to save at an early age can really pay off HUGE!!!
I recommend for people to look at some calculators online i.e. take a look and
see if you were to save $100/month form age 20 to 65 vs. from age 25-65 and see
how much a difference it makes. You can Google and find all sorts of different
calculators to help you with this
-
Take a course on investing. I had to
do this before becoming banker obviously, but I truly feel that everyone can
benefit from taking financial courses.
Invest
-
Invest in your future. Put money
towards your short term and long term savings each month. I.E your savings
account, Tax free account, RRSP etc.
-
Put a monthly amount of money
towards your child’s education as soon as they are born. If you hope to pay for
some/all of your child’s education, then start early. Tuition and other fees
can be expensive and will most likely continue to increase. If you can do this,
it will help you/them in the long run to not have to borrow as much later.
-
Look at investing in income
producing assets. I.E dividend paying stocks. Talk to an investment
professional about this one.
All the best in your ventures towards tracking and
increasing your Net Worth!!
Wednesday, April 16, 2014
My thoughts, points and examples on budgeting
I could go on and on about budgeting, as you will see below :)
Creating a budget plan can help you see how much money you have, how much more you need, or how to cut back on non-necessary expenses. You can use a budget to see where you may be unnecessarily spending money, or where you could be saving money by cutting out extra fees and charges for some item.
Budgeting can be even more crucial for those who are self-employed or are on commission, and don't have a fixed amount of money coming in each month. If your income varies, determine the least amount of money you expect to make in a month. Build your budget around that amount; you can put windfalls from better months savings or to get ahead on other bills.
If you are a seasonal worker, then make sure to put money aside for the periods you are not working.
Here are some points and suggestions on budgeting:
#1) Everyone should have one
No matter what income bracket or stage of life, I do feel everyone should have one. Well maybe if your a big star making millions a year it doesn't really matter :)
I believe it's important to always have short term and long term personal & financial goals in life. To help set financial goals you need to know where your money is going each month and areas that you should adjust due to putting to much/to little into certain categories.
#2) Detail is key
You need to be as detailed as possible or the budget won't be accurate.
When I worked at the bank there was over 100 items in the system to work from. This seems excessive, but it was so I could try to get as accurate a budget for my clients as possible. Many items would end up being $0.00, but it helped open my clients minds. They may have forgot about certain items such as coffee, clothes, hair cuts, bank fees, annual fees on your visa, magazine subscriptions, Netflix monthly payments, vet bills, parking, vehicle maintenance etc. etc. etc.
Many people deal with certain items as they come up. I.E a $300 maintenance bill on your car every 3-6 months for oil changes and other tune ups (of course this could be less or MUCH MORE depending on your vehicle. Why not have this as a monthly expense, then when it comes time to do the work you don't need to put it on credit. For example I put $50.00 a month away into a separate account called vehicle maintenance and then have $300.00 every six month. You can only do your best to predict what these amounts are going to be and if you don't end up having enough when the time comes, well then at least you have some cash to put towards it.
#3) Avoid visa debt at all cost
I bring up visa debt here as I know many people use their view in their monthly budgeting. Honestly, I use my visa on a daily basis, so I can get visa points and insurance on certain items, but I make sure I have it in my budget to pay it off right away. Don't do this unless you feel you are disciplined enough to make sure it's payed off ASAP :)
If you are as detailed as possible in your budget, including things like vehicle maintenance, vacation allowance, household maintenance etc. etc. Then it will help you avoid putting it on visa which is most likely 10-20% interest, ouch!
I know this point is easier said then done, so if/when you do need to use visa, please adjust your budget for a few months to have it paid off ASAP. There is always a place in time for visa debt and other debt, but trying to avoid paying the 10-20% interest is in everyone's best interest.
#4) Review the budget on an ongoing basis
Things change by the day, month, year, so make sure to update your budget accordingly. I usually check my budget every day, this may be a bit excessive, but the reason I check it every 1-2 days, is because I adjust it for items we bought that week (you will see an example later). If I go in every day or two then I remember better, what I actually spent the money on. I use excel and minus money from our budget items based on what we spent that day. I then see what money we have left to spend on that item and see if the total amount we NEED adds up to the total amount in our BANK ACCOUNT. If we have less money in our bank account than we NEED then adjust variable items such as eating out, entertainment etc. If we have more money then we increase my variable items. This takes me 10-20 minutes a day to complete
I don't write everything I purchase down on paper, I go based off what I remember. If you find it easier to have a notepad and write things down to be more accurate, then do so. If it's your first time budgeting then maybe have everyone in the family write things down for the first month or two and review it together. Don't forget that cup of coffee, pack of smokes, shampoo you bought etc etc.
#5) Pay yourself FIRST
What I do, is as soon as my husband and I are paid, I look at my budget for that PAYDAY, look at the TOTAL amount I NEED and compare it to the ACTUAL money in our BANK ACCOUNT. I add items that have come up that month, that aren't usually in the budget (items I bought online, course I registered for etc.). I then see what I have left over and put it all towards savings. This savings may be an RSP, tax free account, vacation account or other savings account. People may do the opposite, as they want to see what money they spend first, then at the end of the pay period, put anything left over to savings, as they are worried that things may come up. This is understandable, but I find if I transfer the money right away, then I don't even notice and don't miss it. If something does come up, you usually access a tax free account or savings account very easily and just transfer it back if needed.
I always put SOME money towards savings, even if I do have debt. The reason is, if something major comes up, then I have some savings to put towards it, which helps avoid me going into more debt. That said, if you do have large amounts of debt and/or lots of high interest debt, it may make more sense to put all the money you have left over to that debt first, then once its paid work on your savings. Everyone is different.
#6) Look at your short and long term personal and financial goals and add them in the budget
Again everyone is different, but here are some examples.
Example: If you like to travel and want to go on a trip that is $2000 and your paid twice a month, then put $83 away per cheque into an account specifically set up for travel. You will be surprised how it adds up. If there is a major expense along the way you can then take the money out and use it for that expense and skip the travel if needed, boooo!
Example: If you like to buy nicknacks, then have it in your budget. I have $200/month in our budget to buy nicknacks i.e. computer games, toys for our daughter, plants, crafting supplies etc.
Example: If you want to buy a used car in 2-3 years then start saving now. Many people don't do this, and honestly I didn't do it the first time I bought my car either, I put it ALL on credit. At the end of the day the more money you have saved, the less you need to borrow, the lower your monthly payment will be and the less interest you pay :) I.E if you want to buy a vehicle worth $10,000 in 2 years and are paid twice a month you would need to put away $200 per pay. If the vehicle you want is more or less than this obviously adjust as needed, this is just an example. If that $200 is way more than you can afford now, then put in less now and more later (if you can) or only put some money down and borrow SOME, you will still have a lower payment and interest cost. I.E say you have a visa debt then maybe put $100 per chq to the car now, pay off your visa in the first year and then put $250-$300 towards the vehicle in year two. Again all just examples, but the point I am getting to is plan ahead for bigger priced items as again the less you borrow, the less interest you pay and the less STRESS it causes.
#7) If you have automatic withdraws/payments, make sure to include them in your budget!
One mistake many people make is to set bills on automatic withdrawal, and then forget about them. This can lead to overdraft charges, which is usually a high amount of interest. If you include that payment in your budget plan, you'll be more likely to remember it, and you'll be controlling your
spending with that payment in mind.
#8) Make sure to include everyone who is earning and/or spending your budget planning and discussions
Some households leave the budgeting up to one of the partners. I believe having both included in each step of the planning is key! Each spouse has different hobbies, interests and thoughts on money, so each should be included. Also make sure to include the children, once they reach an appropriate age. Include them in all of it or some of it. This will help them learn about money, be aware they can't just buy everything they want and help you understand what is important to them. Show them how much your putting away each month for their future car and/or education, I think they will appreciate it more, see where it's coming from and learn from your experiences!!
Be honest with each other! I had a set of clients come into my office in a panic. One of the partners had spent a significant amount of money on gambling, the other spouse had no clue until recently. Even worse, the funds were put on their credit line. Money can cause huge rifts in relationships, so be honest and up front with each other. My husband often wants to buy video games. I start the conversation with "where is that money coming from". In the end he gets the game, as he doesn't buy them often and we can usually work it in the budget, but it makes us sit down together to look at our budget and goals that month. I am sure he sometimes gets annoyed by this, LOL, but he knows in the end it's helping our entire family now and in the future.
#9) Ask for payment dates that work for YOU
I have had many clients say they get behind because they have to many expenses on the 1st of the month or that they have very random due dates such as the 8th or 22nd and they are paid on the 1st and 15th and therefore find it hard to keep track of the random dates. Choose dates that work for you. If you have a large MONTHLY mortgage payment on the 1st that isn't working, ask your bank to change it so you pay it semi-monthly or bi-weekly (depending what works for you). Call your phone/internet/cable company, see if they can change your due date. Call the providers of your loans, credit lines, visa again see if they can change your due date, to fit your needs and make things easier for you. Sometimes this can't be done, but it's worth a try.
Idea of how I do my budget
There are tons of worksheets online that you can look at and chose which one is best for you. Here is an idea of what I do:
- As I mentioned above I use excel
- I have two SEPARATE sheets one for the First of the month and one for the Middle of the month
- Under each sheet, on the LEFT column I have my budget category i.e. gas, car insurance, bank fees, entertainment, eating out, monthly vehicle maintenance, savings, emergency account, travel etc. etc.
- On the right I have the amount of money I budget to spend on that category that pay.
- At the bottom of the RIGHT column, under the AMOUNTS, I add a formula that sums up the total of the above column. I then see how much money I NEED to meet all my budget amounts that pay. Example my formula shows =SUM(B1:B22) as I have 22 items. I hope this makes sense, if not pop me a question anytime :)
- Then for example on May 1st, I will go to my budget for the first of the month, see the TOTAL I NEED and then see the TOTAL in our bank account. We are paid salary, so this is almost always exact.
- I then add items that have come up that month i.e. I sometimes add gifts for that month for a birthday, if we have family coming into town then I increase our grocery expenses etc..
- I then also adjust each category total depending on things that come up i.e. I usually spend $100 on our phone bill, but maybe something came up that it's higher, so I would then increase the phone amount by the required amount and decrease my amount towards a variable item such as travel, savings, entertainment, eating out. I try to always decrease eating out or entertainment first, as I really want to have savings and money for travel. That said, we like to enjoy life to, so I always try to keep in money for eating out once a week and going out for entertainment and buying those bottles of wine 1-2 times a week. Everyone is different of course! Then at the first of the month I know exactly how much I can spend on my variable items and keep them in mind when I am spending.
- On the 1st of the month AFTER I have made my adjustments as per above and see that I am on track, I then PAY MYSELF FIRST. I put the money I have budgeted towards savings, vacation, emergency, vehicle repairs, nicknacks etc. etc. into my other accounts. I get the money OUT of my day to day spending account as quickly as I can, so I don't miss it. For me, I have one main account for my day to day spending and I have several other savings accounts nicknamed so I can track my money easily. I put money in and out of them as needed. I.E I have a savings account named emergency funds, one named vacation, one named vehicle maintenance etc etc etc. for everyone, this will look different
- Going forward, at the end of EACH day or two, I go into my budget and deduct things that I have spent. I.E if I spent $100 on gas and my gas spending is $200 then I will change it to $100 (as I already paid $100). I continue to do this almost everyday. You can do this daily, every few days or weekly. Again I try do it daily so I remember easier and so I have fresh in my mind how much I can spend.This takes me 10-20 minutes if that. I again match up the TOTAL sum of what money I still NEED that month based on my excel sheet and compare it to what is in my ACCOUNT. I adjust as needed. Maybe we spent a bit more than I remembered, so I will take away from variable categories such as entertainment, eating out, nicknacks etc.
Fixed Expenses
Some expenses that qualify as fixed for most people may be non-fixed, or variable, for you. I.E everyone has different phone bills, some are fixed, some are pay as you go, for those that use long distance a lot it can change greatly each month.
For the example above, in excel I would recommend to put all your FIXED expenses first and VARIABLE expenses second. Money to savings is always a variable expense, as you can stop it anytime, but for me I really try to keep it FIXED as much as I can.
Fixed expenses are those that usually stay the same each month
Examples: mortgage/rent, car loan, condo fee, property taxes, installment loans, insurance, utilities (if you signed up for a fixed amount), cable, childcare, internet, phone (unless you go over your plan allotments), child support, tuition, bank fees (unless you go over). A point here, which I may touch on later, REVIEW your bank statements, see how much your spending in service fees, go to your bank if you feel it's to much. For example I had a client who was a student and opened her first savings account, which you pay per transaction. I checked her account two months later and she was paying over $50.00/month in service fees. She already had a chequing account, but she was using both the chequing and saivngs for day to day items. I called her in to review her accounts and she was happy, but if I didn't check for her, she may have gone on doing this for months/years without even realizing it. If you use a lot of debit you may need a unlimited bank account. Some accounts are unlimited, some you get a certain amount of transactions a month and if you go over the charges can be high!
Can you cut down fixed expenses?? For everyone the answer is different, but for most yes you can. Here are some ideas if you need to cut them back.
Mortgage = If you are in a difficult situation, maybe check with your mortgage company to see if you can lower your payments. This is going to make you pay more interest in the long term, but if your in a situation where you really need this, then you can check. If you have a large expense come up suddenly, maybe skip a mortgage payment (if possible, check with your bank to see if it is) and use the money to pay it, instead of high interest credit.
Cable= Look at different cable companies, change to a cheaper package, cancel it. Share the bill, if you have a teenager that really wants certain channels maybe ask them to chip in, this will help them learn a bit about the value of money. When I was living in Canada we were paying tons towards cable and internet. I didn't think I could live without cable. I now live in Japan where the cable is in Japanese, so we don't bother ordering it. We find other things to do instead, go outside, find programs on you tube or other means.
Phone- Go to a more basic plan. Use Skype instead of long distance, get teenagers to chip in etc.
Loans- If your paying high interest or several loans maybe go to the bank to look for lower rates or to put them to one payment. This may or may not save you money. Don't have your credit pulled to often, as it effects your credit score! I put this here because if you plan to shop around at different banks, just make sure they don't all pull your credit report.
Other tips to decrease expenses:
One by One: Study your budget to see which fixed expense you might be able to get rid of. Choose one monthly bill, such as your car payment, that you will eventually pay off. Set aside as much as you can to pay it off early or sell an asset and pay it off. Even if you only make one extra payment a year, you can really make a difference. Remember, anytime you can cut out an expense, you now have that extra amount to save or put toward other expenses.
Downsize: Get a more economical vehicle, downsize your home
Share: Get a roommate, have an exchange student come live with you for a few months or the full year to share some of the expenses.
Variable expenses
Variable expenses are not definite and can change. I really TRY to FIX almost all my expenses each month. However in the back of my mind, I know when OTHER things come up, I can decrease or eliminate variable expenses for a short or long period of time.
Examples are groceries, retirement savings, education savings, eating out, entertainment, poker nights, money going towards vacation, money going towards vehicle maintenance, money going towards household maintenance, utilities (if your on a variable plan), money going towards personal and pet medical bills.
These are items you really need to watch. If its your first time creating a budget, go back 3-6 months and look at your bank account and visa statements to see how much you have been spending on areas such as eating out, entertainment and groceries, you may be spending way more than they think. You can do this manually or some banks have programs that can do this for you.
Cut back if/when needed, but still make sure you enjoy life!!!! Life is sometimes to short and you could be spending hundreds of dollars towards your future retirement and never get to use it due to major life event.
Everyone is different for how much they need. For example if you own a very large home, you would need to put away more money than someone who is renting. If you own a condo a very large levy can be put on you at any time, due to the needs of your building, so make sure to have some money put aside. I had this happen, and had to come up with $5000.00 within a couple of months. I had a client that needed to come up with way more!
The Bottom Line
If you need to start cutting back on costs, look at both your fixed and variable expenses. Devoting a Saturday afternoon to reviewing all of your subscriptions, insurance plans, and recurring monthly bills may help you trim hundreds of dollars from your fixed monthly budget.
What to do if your expenses are more than your income
- Use your bonus, commission cheque or tax return to pay down debts if it makes sense.
- Go to your bank, see if you can decrease mortgage/loan payments and or banking fees.
- Get a second job or work overtime. I don't like this one as I am a strong believer in enjoying life also, but if you have to do it for the short term to get ahead and help your planning then maybe it's a solution.
- Have someone in your household that is at home look for a job
- Look at where your money is going and decrease spending in some/all areas
- Have someone rent an area or room of your home
- Sell some assets to pay down some of your debts and get rid of items that have huge expenses attached to them i.e. a vehicle with large loan payments, parking costs, maintenance and insurance. Compare other methods such as transit vs. having that vehicle. Then maybe rent a vehicle when needed for longer trips. Sell that boat or trailer that you don't use. I have had many clients come to me, in a financial crisis, who didn't want to give up their boat/trailer/quad etc. even though they didn't even use it. As I mentioned, you want to enjoy life, so if you and your family actually do use these items, then try and make a way to keep them in your life. However don't let them pull you down either!
- Ask family to help out. Many people don't want to do this, but it is a choice. I had a set of clients that lived in a very small town that was struggling. They both lost their jobs and had to sell their house at a loss of roughly $30,000. They also had about $20,000 in other debts. Their parents really wanted to help. What we ended up doing is putting a 10 year mortgage on their parents home and having the payments come out of their children's account. The children didn't qualify on their own and even if they did the loan would most likely have to be paid over 5 years, which means a high payment. At this point they had found new jobs, but were stuck with this debt and very high payments. This decreased their payments greatly and got them a low interest rate. This type of suggestion I had only made once in my career, but the parents were very eager to help. They knew the risks going forward if their children couldn't pay and were willing to help them.
If you have made it to the end of this blog, then THANK YOU :) I hope some of my thought, points and examples help you out. If you feel embarrassed about your current situation, remember I am sure there are MANY others out there feeling the same way. Share experiences with friends/family/kids/colleagues etc. as I am sure we can all learn from each other! If my tips make you a millionaire, then make sure to share some with me, LOL, just kidding!
All the best,
Jackie
Creating a budget plan can help you see how much money you have, how much more you need, or how to cut back on non-necessary expenses. You can use a budget to see where you may be unnecessarily spending money, or where you could be saving money by cutting out extra fees and charges for some item.
Budgeting can be even more crucial for those who are self-employed or are on commission, and don't have a fixed amount of money coming in each month. If your income varies, determine the least amount of money you expect to make in a month. Build your budget around that amount; you can put windfalls from better months savings or to get ahead on other bills.
If you are a seasonal worker, then make sure to put money aside for the periods you are not working.
Here are some points and suggestions on budgeting:
#1) Everyone should have one
No matter what income bracket or stage of life, I do feel everyone should have one. Well maybe if your a big star making millions a year it doesn't really matter :)
I believe it's important to always have short term and long term personal & financial goals in life. To help set financial goals you need to know where your money is going each month and areas that you should adjust due to putting to much/to little into certain categories.
#2) Detail is key
You need to be as detailed as possible or the budget won't be accurate.
When I worked at the bank there was over 100 items in the system to work from. This seems excessive, but it was so I could try to get as accurate a budget for my clients as possible. Many items would end up being $0.00, but it helped open my clients minds. They may have forgot about certain items such as coffee, clothes, hair cuts, bank fees, annual fees on your visa, magazine subscriptions, Netflix monthly payments, vet bills, parking, vehicle maintenance etc. etc. etc.
Many people deal with certain items as they come up. I.E a $300 maintenance bill on your car every 3-6 months for oil changes and other tune ups (of course this could be less or MUCH MORE depending on your vehicle. Why not have this as a monthly expense, then when it comes time to do the work you don't need to put it on credit. For example I put $50.00 a month away into a separate account called vehicle maintenance and then have $300.00 every six month. You can only do your best to predict what these amounts are going to be and if you don't end up having enough when the time comes, well then at least you have some cash to put towards it.
#3) Avoid visa debt at all cost
I bring up visa debt here as I know many people use their view in their monthly budgeting. Honestly, I use my visa on a daily basis, so I can get visa points and insurance on certain items, but I make sure I have it in my budget to pay it off right away. Don't do this unless you feel you are disciplined enough to make sure it's payed off ASAP :)
If you are as detailed as possible in your budget, including things like vehicle maintenance, vacation allowance, household maintenance etc. etc. Then it will help you avoid putting it on visa which is most likely 10-20% interest, ouch!
I know this point is easier said then done, so if/when you do need to use visa, please adjust your budget for a few months to have it paid off ASAP. There is always a place in time for visa debt and other debt, but trying to avoid paying the 10-20% interest is in everyone's best interest.
#4) Review the budget on an ongoing basis
Things change by the day, month, year, so make sure to update your budget accordingly. I usually check my budget every day, this may be a bit excessive, but the reason I check it every 1-2 days, is because I adjust it for items we bought that week (you will see an example later). If I go in every day or two then I remember better, what I actually spent the money on. I use excel and minus money from our budget items based on what we spent that day. I then see what money we have left to spend on that item and see if the total amount we NEED adds up to the total amount in our BANK ACCOUNT. If we have less money in our bank account than we NEED then adjust variable items such as eating out, entertainment etc. If we have more money then we increase my variable items. This takes me 10-20 minutes a day to complete
I don't write everything I purchase down on paper, I go based off what I remember. If you find it easier to have a notepad and write things down to be more accurate, then do so. If it's your first time budgeting then maybe have everyone in the family write things down for the first month or two and review it together. Don't forget that cup of coffee, pack of smokes, shampoo you bought etc etc.
#5) Pay yourself FIRST
What I do, is as soon as my husband and I are paid, I look at my budget for that PAYDAY, look at the TOTAL amount I NEED and compare it to the ACTUAL money in our BANK ACCOUNT. I add items that have come up that month, that aren't usually in the budget (items I bought online, course I registered for etc.). I then see what I have left over and put it all towards savings. This savings may be an RSP, tax free account, vacation account or other savings account. People may do the opposite, as they want to see what money they spend first, then at the end of the pay period, put anything left over to savings, as they are worried that things may come up. This is understandable, but I find if I transfer the money right away, then I don't even notice and don't miss it. If something does come up, you usually access a tax free account or savings account very easily and just transfer it back if needed.
I always put SOME money towards savings, even if I do have debt. The reason is, if something major comes up, then I have some savings to put towards it, which helps avoid me going into more debt. That said, if you do have large amounts of debt and/or lots of high interest debt, it may make more sense to put all the money you have left over to that debt first, then once its paid work on your savings. Everyone is different.
#6) Look at your short and long term personal and financial goals and add them in the budget
Again everyone is different, but here are some examples.
Example: If you like to travel and want to go on a trip that is $2000 and your paid twice a month, then put $83 away per cheque into an account specifically set up for travel. You will be surprised how it adds up. If there is a major expense along the way you can then take the money out and use it for that expense and skip the travel if needed, boooo!
Example: If you like to buy nicknacks, then have it in your budget. I have $200/month in our budget to buy nicknacks i.e. computer games, toys for our daughter, plants, crafting supplies etc.
Example: If you want to buy a used car in 2-3 years then start saving now. Many people don't do this, and honestly I didn't do it the first time I bought my car either, I put it ALL on credit. At the end of the day the more money you have saved, the less you need to borrow, the lower your monthly payment will be and the less interest you pay :) I.E if you want to buy a vehicle worth $10,000 in 2 years and are paid twice a month you would need to put away $200 per pay. If the vehicle you want is more or less than this obviously adjust as needed, this is just an example. If that $200 is way more than you can afford now, then put in less now and more later (if you can) or only put some money down and borrow SOME, you will still have a lower payment and interest cost. I.E say you have a visa debt then maybe put $100 per chq to the car now, pay off your visa in the first year and then put $250-$300 towards the vehicle in year two. Again all just examples, but the point I am getting to is plan ahead for bigger priced items as again the less you borrow, the less interest you pay and the less STRESS it causes.
#7) If you have automatic withdraws/payments, make sure to include them in your budget!
One mistake many people make is to set bills on automatic withdrawal, and then forget about them. This can lead to overdraft charges, which is usually a high amount of interest. If you include that payment in your budget plan, you'll be more likely to remember it, and you'll be controlling your
spending with that payment in mind.
#8) Make sure to include everyone who is earning and/or spending your budget planning and discussions
Some households leave the budgeting up to one of the partners. I believe having both included in each step of the planning is key! Each spouse has different hobbies, interests and thoughts on money, so each should be included. Also make sure to include the children, once they reach an appropriate age. Include them in all of it or some of it. This will help them learn about money, be aware they can't just buy everything they want and help you understand what is important to them. Show them how much your putting away each month for their future car and/or education, I think they will appreciate it more, see where it's coming from and learn from your experiences!!
Be honest with each other! I had a set of clients come into my office in a panic. One of the partners had spent a significant amount of money on gambling, the other spouse had no clue until recently. Even worse, the funds were put on their credit line. Money can cause huge rifts in relationships, so be honest and up front with each other. My husband often wants to buy video games. I start the conversation with "where is that money coming from". In the end he gets the game, as he doesn't buy them often and we can usually work it in the budget, but it makes us sit down together to look at our budget and goals that month. I am sure he sometimes gets annoyed by this, LOL, but he knows in the end it's helping our entire family now and in the future.
#9) Ask for payment dates that work for YOU
I have had many clients say they get behind because they have to many expenses on the 1st of the month or that they have very random due dates such as the 8th or 22nd and they are paid on the 1st and 15th and therefore find it hard to keep track of the random dates. Choose dates that work for you. If you have a large MONTHLY mortgage payment on the 1st that isn't working, ask your bank to change it so you pay it semi-monthly or bi-weekly (depending what works for you). Call your phone/internet/cable company, see if they can change your due date. Call the providers of your loans, credit lines, visa again see if they can change your due date, to fit your needs and make things easier for you. Sometimes this can't be done, but it's worth a try.
Idea of how I do my budget
There are tons of worksheets online that you can look at and chose which one is best for you. Here is an idea of what I do:
- As I mentioned above I use excel
- I have two SEPARATE sheets one for the First of the month and one for the Middle of the month
- Under each sheet, on the LEFT column I have my budget category i.e. gas, car insurance, bank fees, entertainment, eating out, monthly vehicle maintenance, savings, emergency account, travel etc. etc.
- On the right I have the amount of money I budget to spend on that category that pay.
- At the bottom of the RIGHT column, under the AMOUNTS, I add a formula that sums up the total of the above column. I then see how much money I NEED to meet all my budget amounts that pay. Example my formula shows =SUM(B1:B22) as I have 22 items. I hope this makes sense, if not pop me a question anytime :)
- Then for example on May 1st, I will go to my budget for the first of the month, see the TOTAL I NEED and then see the TOTAL in our bank account. We are paid salary, so this is almost always exact.
- I then add items that have come up that month i.e. I sometimes add gifts for that month for a birthday, if we have family coming into town then I increase our grocery expenses etc..
- I then also adjust each category total depending on things that come up i.e. I usually spend $100 on our phone bill, but maybe something came up that it's higher, so I would then increase the phone amount by the required amount and decrease my amount towards a variable item such as travel, savings, entertainment, eating out. I try to always decrease eating out or entertainment first, as I really want to have savings and money for travel. That said, we like to enjoy life to, so I always try to keep in money for eating out once a week and going out for entertainment and buying those bottles of wine 1-2 times a week. Everyone is different of course! Then at the first of the month I know exactly how much I can spend on my variable items and keep them in mind when I am spending.
- On the 1st of the month AFTER I have made my adjustments as per above and see that I am on track, I then PAY MYSELF FIRST. I put the money I have budgeted towards savings, vacation, emergency, vehicle repairs, nicknacks etc. etc. into my other accounts. I get the money OUT of my day to day spending account as quickly as I can, so I don't miss it. For me, I have one main account for my day to day spending and I have several other savings accounts nicknamed so I can track my money easily. I put money in and out of them as needed. I.E I have a savings account named emergency funds, one named vacation, one named vehicle maintenance etc etc etc. for everyone, this will look different
- Going forward, at the end of EACH day or two, I go into my budget and deduct things that I have spent. I.E if I spent $100 on gas and my gas spending is $200 then I will change it to $100 (as I already paid $100). I continue to do this almost everyday. You can do this daily, every few days or weekly. Again I try do it daily so I remember easier and so I have fresh in my mind how much I can spend.This takes me 10-20 minutes if that. I again match up the TOTAL sum of what money I still NEED that month based on my excel sheet and compare it to what is in my ACCOUNT. I adjust as needed. Maybe we spent a bit more than I remembered, so I will take away from variable categories such as entertainment, eating out, nicknacks etc.
Fixed Expenses
Some expenses that qualify as fixed for most people may be non-fixed, or variable, for you. I.E everyone has different phone bills, some are fixed, some are pay as you go, for those that use long distance a lot it can change greatly each month.
For the example above, in excel I would recommend to put all your FIXED expenses first and VARIABLE expenses second. Money to savings is always a variable expense, as you can stop it anytime, but for me I really try to keep it FIXED as much as I can.
Fixed expenses are those that usually stay the same each month
Examples: mortgage/rent, car loan, condo fee, property taxes, installment loans, insurance, utilities (if you signed up for a fixed amount), cable, childcare, internet, phone (unless you go over your plan allotments), child support, tuition, bank fees (unless you go over). A point here, which I may touch on later, REVIEW your bank statements, see how much your spending in service fees, go to your bank if you feel it's to much. For example I had a client who was a student and opened her first savings account, which you pay per transaction. I checked her account two months later and she was paying over $50.00/month in service fees. She already had a chequing account, but she was using both the chequing and saivngs for day to day items. I called her in to review her accounts and she was happy, but if I didn't check for her, she may have gone on doing this for months/years without even realizing it. If you use a lot of debit you may need a unlimited bank account. Some accounts are unlimited, some you get a certain amount of transactions a month and if you go over the charges can be high!
Can you cut down fixed expenses?? For everyone the answer is different, but for most yes you can. Here are some ideas if you need to cut them back.
Mortgage = If you are in a difficult situation, maybe check with your mortgage company to see if you can lower your payments. This is going to make you pay more interest in the long term, but if your in a situation where you really need this, then you can check. If you have a large expense come up suddenly, maybe skip a mortgage payment (if possible, check with your bank to see if it is) and use the money to pay it, instead of high interest credit.
Cable= Look at different cable companies, change to a cheaper package, cancel it. Share the bill, if you have a teenager that really wants certain channels maybe ask them to chip in, this will help them learn a bit about the value of money. When I was living in Canada we were paying tons towards cable and internet. I didn't think I could live without cable. I now live in Japan where the cable is in Japanese, so we don't bother ordering it. We find other things to do instead, go outside, find programs on you tube or other means.
Phone- Go to a more basic plan. Use Skype instead of long distance, get teenagers to chip in etc.
Loans- If your paying high interest or several loans maybe go to the bank to look for lower rates or to put them to one payment. This may or may not save you money. Don't have your credit pulled to often, as it effects your credit score! I put this here because if you plan to shop around at different banks, just make sure they don't all pull your credit report.
Other tips to decrease expenses:
One by One: Study your budget to see which fixed expense you might be able to get rid of. Choose one monthly bill, such as your car payment, that you will eventually pay off. Set aside as much as you can to pay it off early or sell an asset and pay it off. Even if you only make one extra payment a year, you can really make a difference. Remember, anytime you can cut out an expense, you now have that extra amount to save or put toward other expenses.
Downsize: Get a more economical vehicle, downsize your home
Share: Get a roommate, have an exchange student come live with you for a few months or the full year to share some of the expenses.
Variable expenses
Variable expenses are not definite and can change. I really TRY to FIX almost all my expenses each month. However in the back of my mind, I know when OTHER things come up, I can decrease or eliminate variable expenses for a short or long period of time.
Examples are groceries, retirement savings, education savings, eating out, entertainment, poker nights, money going towards vacation, money going towards vehicle maintenance, money going towards household maintenance, utilities (if your on a variable plan), money going towards personal and pet medical bills.
These are items you really need to watch. If its your first time creating a budget, go back 3-6 months and look at your bank account and visa statements to see how much you have been spending on areas such as eating out, entertainment and groceries, you may be spending way more than they think. You can do this manually or some banks have programs that can do this for you.
Cut back if/when needed, but still make sure you enjoy life!!!! Life is sometimes to short and you could be spending hundreds of dollars towards your future retirement and never get to use it due to major life event.
Everyone is different for how much they need. For example if you own a very large home, you would need to put away more money than someone who is renting. If you own a condo a very large levy can be put on you at any time, due to the needs of your building, so make sure to have some money put aside. I had this happen, and had to come up with $5000.00 within a couple of months. I had a client that needed to come up with way more!
The Bottom Line
If you need to start cutting back on costs, look at both your fixed and variable expenses. Devoting a Saturday afternoon to reviewing all of your subscriptions, insurance plans, and recurring monthly bills may help you trim hundreds of dollars from your fixed monthly budget.
What to do if your expenses are more than your income
- Use your bonus, commission cheque or tax return to pay down debts if it makes sense.
- Go to your bank, see if you can decrease mortgage/loan payments and or banking fees.
- Get a second job or work overtime. I don't like this one as I am a strong believer in enjoying life also, but if you have to do it for the short term to get ahead and help your planning then maybe it's a solution.
- Have someone in your household that is at home look for a job
- Look at where your money is going and decrease spending in some/all areas
- Have someone rent an area or room of your home
- Sell some assets to pay down some of your debts and get rid of items that have huge expenses attached to them i.e. a vehicle with large loan payments, parking costs, maintenance and insurance. Compare other methods such as transit vs. having that vehicle. Then maybe rent a vehicle when needed for longer trips. Sell that boat or trailer that you don't use. I have had many clients come to me, in a financial crisis, who didn't want to give up their boat/trailer/quad etc. even though they didn't even use it. As I mentioned, you want to enjoy life, so if you and your family actually do use these items, then try and make a way to keep them in your life. However don't let them pull you down either!
- Ask family to help out. Many people don't want to do this, but it is a choice. I had a set of clients that lived in a very small town that was struggling. They both lost their jobs and had to sell their house at a loss of roughly $30,000. They also had about $20,000 in other debts. Their parents really wanted to help. What we ended up doing is putting a 10 year mortgage on their parents home and having the payments come out of their children's account. The children didn't qualify on their own and even if they did the loan would most likely have to be paid over 5 years, which means a high payment. At this point they had found new jobs, but were stuck with this debt and very high payments. This decreased their payments greatly and got them a low interest rate. This type of suggestion I had only made once in my career, but the parents were very eager to help. They knew the risks going forward if their children couldn't pay and were willing to help them.
If you have made it to the end of this blog, then THANK YOU :) I hope some of my thought, points and examples help you out. If you feel embarrassed about your current situation, remember I am sure there are MANY others out there feeling the same way. Share experiences with friends/family/kids/colleagues etc. as I am sure we can all learn from each other! If my tips make you a millionaire, then make sure to share some with me, LOL, just kidding!
All the best,
Jackie
Monday, April 14, 2014
Financial tune-up.
I haven't posted in a while as I wasn't sure how my blog was coming across :) I am passionate about trying to help people get through the mumble jumble of finances, however I have never sat down to actually write about it. Also, I can't say I am an expert by any means, I worked in the bank for 12 years and have completed some financial courses but do not have a Financial Planning degree. That said, sometimes I feel I lack the experience to actually sit down and give advise on money :).... My posts are more about trying to increase knowledge of finances.
I do truly feel that we should be taught about money from a young age. I am sure some people are, but most people I ask say they were never educated about finances. I have for sure made my share of mistakes and am far from perfect with my own finances, but feel I am better with my finances compared to where I would be if I didn't work at a bank for 12 years. That is where I gained my knowledge, not in school, not from mentors, but from hands on experience at the bank. Not everyone wants to be a banker (and I don't blame you), so who better to get a bit of info from, then from a previous banker??
I am not an expert writer, so hopefully what I say makes sense, if not I am open to feedback and questions. Also, feel free to share your experiences as I am sure we can all learn from each other.
My topic today is 10 items I recommend you do in the next 12 months to give yourself a financial tune-up. Some of you may have done none of these, some may have done a few and some may have done them all. Anyway, here we go with the basic points, and I will expand on each of them, one at a time, in future posts.
1) Create a Budget.
2) Get an Idea of your Net worth
3) Set short term and long term goals
4) Make sure to pay yourself first with AUTOMATIC contributions
5) Work TOWARD being and staying debt free.
6) Look at your interest rates
7) Never forget to set up and review your emergency reserve account
8) Make sure your family is protected
9) Check your credit report
10) Check your investment portfolios, learn about what your invested in and re-balance them if needed
I do truly feel that we should be taught about money from a young age. I am sure some people are, but most people I ask say they were never educated about finances. I have for sure made my share of mistakes and am far from perfect with my own finances, but feel I am better with my finances compared to where I would be if I didn't work at a bank for 12 years. That is where I gained my knowledge, not in school, not from mentors, but from hands on experience at the bank. Not everyone wants to be a banker (and I don't blame you), so who better to get a bit of info from, then from a previous banker??
I am not an expert writer, so hopefully what I say makes sense, if not I am open to feedback and questions. Also, feel free to share your experiences as I am sure we can all learn from each other.
My topic today is 10 items I recommend you do in the next 12 months to give yourself a financial tune-up. Some of you may have done none of these, some may have done a few and some may have done them all. Anyway, here we go with the basic points, and I will expand on each of them, one at a time, in future posts.
1) Create a Budget.
2) Get an Idea of your Net worth
3) Set short term and long term goals
4) Make sure to pay yourself first with AUTOMATIC contributions
5) Work TOWARD being and staying debt free.
6) Look at your interest rates
7) Never forget to set up and review your emergency reserve account
8) Make sure your family is protected
9) Check your credit report
10) Check your investment portfolios, learn about what your invested in and re-balance them if needed
Monday, November 11, 2013
My experiences in the Financial industry. From a down to earth point of view!: Set GOALS and set up separate ACCOUNTS for each on...
My experiences in the Financial industry. From a down to earth point of view!: Set GOALS and set up separate ACCOUNTS for each on...: Why I chose this topic: Using one account for all your goals makes it difficult to keep track of your finances. Whether they write them ...
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