Christmas Bonus

Christmas comes twice a year for some Canadians - or so they think.

The three-paycheque month is viewed across this country as some type of well-earned bonus that comes through the sleight of hand of being paid every two weeks as opposed to twice a month.

Instead of 24 paycheques a year, you get 26. When you get that "lucky" month depends on when your two-week pay period is calculated. For whatever reason, perhaps because people budget on a monthly basis, those two extra paycheques are considered gravy by many workers.

Most people budget on a monthly basis. We know people have their monthly mortgage payments and certainly other expenses are probably monthly too but in most cases your paycheque is coming on a biweekly basis

Approximately 59% of Canadians get paid on a biweekly basis, opening up the possibility of the three-paycheque month.  The good news is that 89% of people go for direct deposit - something that probably goes a long way to eliminating that feeling of money burning a whole in your pocket.

The problem with being paid on a biweekly basis is that many people feel they have extra money to burn.  After all  you had already allocated your regular two paycheques towards your mortgage and other bills. So, bonus – right?

If your thinking is that you've got some sort of free month, then it likely means you are not doing a good job of coordinating your income with your bills.  The problem is that this is a major mistake, and at the end of the day that third paycheque should probably be thought of more as an opportunity.

 The other time people think money is free is RRSP time when they get their taxes [or refund] back from the government.

If you're complaining about not having enough money, use these opportunities to liberate what is yours. These are the times you should be dealing with your debt, if you are like many Canadians, topping up your savings or some combination of the two.

When you think about all the unpaid credit-card balances, leftover RRSP room, unopened registered education savings plans and underfunded tax-free savings accounts, there are plenty of places to put those extra paycheques.

In some ways, that extra paycheque is almost a bit of forced savings. It's yours. Do what you want with it, but why not make it go a lot further by investing it?

Of course, it is December. So if this is your three-paycheque month, Merry Christmas.

Can I stay home with the kids?

One of the big questions many new parents are faced with has to do with deciding whether or not one of the parents should stay home with the child. Obviously, if you’re accustomed to living on dual incomes, the thought of giving up an income may sound like a daunting task. Even so, if you sit down and crunch the numbers, you may find that it might be more doable than you thought.

The True Cost of Working

When you think about it, your job not only provides income, but it likely creates some expenses as well. If you were to decide to continue working with the child, you’ll probably create additional expenses in caring for the child. On the other hand, if you were to stay home, you would also eliminate many work-related expenses. Some of the expenses you may have if you decided to continue working with a child:

·                        Child care: Depending on the level of care you require, you’re looking at anywhere between $400 and $700 per month per child. It isn’t uncommon to spend upwards of $8,000 -$10,000 each year on full child care during the child’s early years.

·                        Food and Beverage: While you can save money by taking your own lunch and drinks to work, most people end up grabbing a coffee or a lunch on the go while working. Even just $5 a day on lunch adds up to about $1,300 each year.

·                        Transportation: This varies greatly depending on how far you have to commute and whether or not you have public transportation, but even if you spend just $25 each week for transportation costs (gasoline, bus, subway, etc) you might be spending another $1,300 each year just to get to and from your job.

·                        Odds and Ends: If you’re in a profession that requires certain attire, you may need to spend money on clothes or dry cleaning. This can add another few hundred dollars a year. Your job may also require certain licenses, professional fees, or continuing education courses that could tack on additional expenses annually.

As you can see, there is more to that second income than meets the eye. Most people will think of the paycheque that comes with the job and assume that’s the bottom line, but there are many other factors to consider. While giving up that job may result in a loss of income, if you consider the expenses you will also give up, the end result may not be as painful as you had suspected.

The Non-Monetary Benefits

While all of this discussion about money is good, you have to think about the other benefits tied to staying home with your child. Money can’t replace the time spent with your children, and if the bonding aspect of parenting is important to you, this can factor in greatly when determining whether or not you can give up an income. Everyone is different and your priorities may lead towards one direction over the other, but don’t overlook the non-monetary issues when making this important decision.

The Bottom Line

There’s no right or wrong answer, and as you can see, it isn’t as straightforward as deciding whether or not you can live with one less paycheque in your pocket. Depending on the type of job you have, how many hours worked, and how much money you make, you may reach the conclusion that it’s impossible to be able to provide for your family if you give up this income. On the other hand, you may find that after factoring in the expenses related to working and the other benefits of staying home, you’re giving up a lot less than initially thought.

So, take your time and go over your options carefully. The decisions you make will significantly impact your family, so it’s important to take everything into consideration. And if you do find that you can afford to stay at home, you can find plenty of assistance at Stay-at-Home Parents site.

Investing begins with Savings

How do you start investing money?  The key to investing is savings. An effective savings strategy coupled with a smart investing strategy will help you to meet your financial goals.

Every dollar saved now helps you to control your current consumption by which the size of the income that you think will be required for retirement is lowered. Also, through the power of annual compounding, it increases the size of the nest egg you’ll have for retirement.

   

SAVING AND INVESTING STRATEGY

Discipline

To achieve any goal in life, one needs to be disciplined. Similarly, saving and investing too requires discipline. A disciplined approach helps you to remain focused on your financial goals. Formulate a plan and review it periodically to ensure that you are on the right track.

  

The 10% rule

Your goal should be to save at least 10% of your total before tax earnings. This should be the minimum. Most millionaires live far below their means as they are disciplined and highly focused on their financial goals from the beginning. They are millionaires because they have decided to be so.

 Review your current consumption patterns

Conduct a careful study of your consumption patterns. Identify items of expenditures that you can do without or explore opportunities to reduce your costs without unduly sacrificing the item. Review such items as your cable bill, telephone bill, entertainment expenditure, insurance, brokerage services, utilities, cars. Divert these cash savings automatically to an investment account.

Budgeting Plan

Budgeting is vital to any savings strategy. It helps you to identify where your money is going. Wasteful consumption patterns can be controlled through successful budgeting. Often a simple spreadsheet in Excel would suffice. In fact, you can use the budget template that is already available when you buy the Home edition of Windows XP.

Plan to make saving automatic

Find out from your employer whether you can direct your paycheque to different accounts. If you don't have such a service, you can set up an account that will take the money automatically out of your chequing account each month. Let the amount be directed to an investment account. This is re-enforced savings which implies you save first and spend the rest from your paycheque.

Tips for Financial Health

Money, that fickle mistress, is very hard to keep. It seems like the more you get, the more you need. Most of us have said something along the lines of, “If I only had $X more per month, then I’d be fine,” at some point in our lives. However, it rarely works out that way. Money can be a difficult, painful, frustrating subject for anyone. It doesn’t have to be, though. With the right tips and techniques, you can start creating better financial health in your life. Here are ten of the best ways to start.

1. Slash Your Debt

Slashing your debt might seem like an easy thing to do, until you look at all that credit card debt, that is. While you might “know” how deep in debt you are, it often requires a very hard look to actually understand how bad your situation really is. The first thing you need to do is list all of your debts from smallest to largest. Start repaying them now, starting with the smallest and working your way up

2. Plan, Plan, Plan

Before you can enjoy better financial health, you have to know where you’re going. What IS financial health to you? A good financial situation is different things for different people, and how you get there is up to you. The best way to start building better financial health is to make a plan. Write down your goals (for the week, the month, the year, the decade, what have you). Having a plan will give you something to fall back on, to look at and say, “I’m here and need to be there, and this is how I’ll do it.”

3. Prepare for Hardship

This is one of the hardest things to accomplish, but you need to build a financial buffer. You need to have money in your account so that if you lost your job, or some other emergency occurred, you would have the cash to cover it. You need the security that only having good savings can offer. Moreover, this should be separate from your investments – it needs to be readily accessible.

4. Budget Your Pants Off

Any good financial situation is founded on a solid budget, even the rich have to budget some things. Make a budget before you do anything else (and it’ll help you with building that cash cushion, as well). Identify areas where you can cut back spending (stop buying $5 cups of coffee, for instance), and then DO IT. Creating a budget can be tough, but it has to be done. You can use online budgeting and financial tools to help if you’re more comfortable using these services than going it alone.

5. Build for the Future

While tough times have made the investment market a murky, frightening place, you need to keep going. Choose the safest investments out there and keep putting your money away. Sound financial health means having the money that you need when the “golden years” finally sneak up on you. Find a good financial planner or advisor who understands that slow and steady really is the best option and follow his or her advice. Keep investing, but do it with an eye for constant, steady growth, rather than making a fast buck.

6. Evaluate Your Job

While the current economy has forced slowed down hiring, it is slowly beginning to pick up steam once more. If your career is not what you want, or not enough to give you financial security, then now is the time to get where you want to go. Where do you want to be in five years? How will you get there? Make your plan, change your job (or apply for a higher-up position) and embark on your journey. Now is the time.

7. Rent or Own?

This is a question I hear quite often. Investing in real estate now might not be the best idea for you right now (based on your current situation) and you may need to rent. If your rent is low enough, this can be fine. However, if you want to OWN a home and have the credit to get a loan approved (criteria is tighter these days), then now may be a good time. You’ll enjoy lower interest and will be growing equity.  Just be sure to factor in all those additional expenses associated with home ownership like taxes, repairs and maintenance costs.

8. Slash Your Expenses

Your spending is yours to control – no one else can do it for you. You need to identify where you can cut costs and then follow through on it. For instance, if downsizing your car will save you money, and you can make it work, then do it! There’s no need to pay for more car than you need. The same principle can be applied throughout your life.

9. Communicate

Your partner needs to be kept in the loop. Communication is the cornerstone of any good relationship, and you need to make sure that you keep a two-way flow of communication with your partner at all times. Discuss your financial goals, and possible ways to achieve them.

10. Free Investment Money

Yes, there is free money out there for many folks. If your employer offers a pension or matching RRSP contribution, then take them up on it! That’s more money for you, that you don’t have to work for – free money.

Manage Money by Setting Goals

The best way to avoid financial problems is to establish financial goals and a household budget to help achieve them. Your financial goals should be specific, realistic, time based, and flexible. As you put together your financial plan, place each goal into one of three categories:

• Short-term goals: These are goals that you believe you can accomplish within the next six months to two years, such as putting a certain amount of money in your savings, paying off a loan, outfitting your kids for the start of school, or having enough money to join a health club.

• Medium-term goals: These are goals that you feel you can achieve within the next three to six years, such as having enough money for a down payment on a home, paying off a car loan, or putting a certain amount of money in your retirement account.

• Long-term goals: These are goals that you project will take you longer than seven years to achieve. They may include sending your kids to college, having enough money to retire, taking your dream vacation, and so on.

Be realistic about your goals and about how long it will take you to achieve each one. If you are not, you’ll be setting yourself up for frustration and disappointment.

Unless you are lucky enough to come into a financial windfall, you probably can’t afford to work toward all your goals at the same time. If you try to do so, you may spread yourself so thin financially that you don’t achieve any of them. Instead, prioritize your goals so you know which goals to focus on first.

Most likely you will begin working toward short-term goals first because they are probably the most pressing, but you may be able to work on some of your medium- and long-term goals at the same time. For example, maybe you want to pay off your car loan over the next six months, and you also want to start stashing money away for a down payment on a home with the goal of having the money you need in two years.

After you decide which goals to work toward first, decide how you’ll achieve each goal and set a realistic time frame for doing what you’ve set out to do. For example, you may decide to get a second job and put all the money you earn from it toward a certain goal. You may decide to finance another goal through a combination of cash and credit.

Either way you do you it just be sure to revise your budget as necessary.

Money Saving Monday - 5 Money Lessons from The Wealthy Barber Returns

Dave Chilton, author of classic personal-finance book The Wealthy Barber, has returned with a sequel. Here's what he wants you to know about money, debt and investing.

Dave Chilton, author of The Wealthy Barber always swore he'd never write a sequel to the book that sold more than two million copies nationwide.

But 22 years later, the sequel has arrived -- The Wealthy Barber Returns. In his new book, Chilton tackles society's addiction to debt, and touches upon many important and well-known personal finance lessons -- lessons he says have become lost in today's world of plummeting savings rates, skyrocketing debt and disappointing investment returns. Here are five things he wants you to learn about personal finance.

1. You have to remove temptation triggers
Chilton explains that our brains have become so wired by the emotional excitement created by temptation that it can overwhelm our common sense.

By limiting our access to the triggers that drive our temptation, we will be less likely to give in. For example, if your weakness is clothing or purses, stop going to the mall or reading fashion blogs; if you have a habit of spending your cash on lattes, stay away from ATM machines and stop carrying cash with you -- or take a different route to work in the morning that doesn't go past the coffee shop.

2. Banks are a business

Contrary to what many of us would like to believe, bankers are not looking out for the customers' best interests. Banks are a business, and their goal is to drive more money into the pockets of their shareholders -- not yours.

3. Credit cards are evil, even if you don't carry a balance
Aside from the absurdly high interest rates on unpaid balances, credit cards encourage us to become less sensitive to the true cost of what we are buying. When a clerk swipes our credit card, it's a lot easier to miss -- or ignore -- how much we are spending.

Not only that, but people who don't carry a balance on their credit cards are not immune to the credit card trap. They might be able to pay off their credit card bills every month, but using the card could still lead to overspending.

4. You can't have everything you want
Even millionaires can't afford everything. Chilton believes that making small cuts in our spending habits can lead to dramatic results -- without sacrificing our quality of life. The key is to indulge in the areas that are important to us -- whether it's travel, a particular sport or fine wine -- and cut our spending everywhere else.

5. Save when the saving's good

"It's crucial to understand that wealth flows from savings, not from income,” says Chilton. So when you get an unexpected windfall or a raise at work, or you take on a part-time job to generate more income, it's important to put away at least 10 to 15 per cent of your income. Life happens, and money might not come as easily down the road. A divorce, a bad investment return, a job loss or an illness can leave you financially crippled if you haven't planned ahead.

The Wealthy Barber Returns is a must-read for all Canadians. Chilton's easy-to-understand financial tips and humorous approach to teaching us about money makes this book appealing to people of all ages.

Money Saving Monday - Emergency Money

Keeping a budget is not enough.  Life always hands us surprises and we often end up with expenses we did not plan for.  Because of this there should be another aspect of your financial picture.  That other aspect is called emergency money.  I like to refer to this your 'OH S#!T' fund.

Emergency money is money that you put away not as an investment and not as savings, but for emergencies.  And these do happen.   It is best to put away about two months worth of income for this purpose.  Some experts say it should be three months.  The actual amount is debatable.   Whatever you decide on make sure it is enough to adequately handle whatever comes up.   The original basis for the three-month rule was the fact that most short-term debilitating illnesses require three months for healing and recovery.

How much should you save for emergencies? Calculating the amount needed should be fairly easy.   What you want is enough money to pay all of your bills and cover the normal expenses you have budgeted for a typical month.   For example, if your net budget and spending income for a month is $3000 then you should put away $9000 for emergency money.   This is not money for investments or for retirement.  Those two categories should be allocated separately.

Emergency money is used for expenses such as accidents, healthcare expenses not covered by insurance, and death and disability or other instances where you did not have a budget made for a particular expense.   Insurance is a separate issue and should be a separate part of your financial plan.   If you do have disability insurance then this will serve in some ways to protect you in the event of short-term disability.   Thus, you should determine what the benefit would be and then reduce the amount needed for emergency expenses by that number.   The bottom line is to make sure that any applicable insurance actually covers all the contingencies without any problems.  You can ensure that is the case by checking the policy or talking with your agent or financial advisor.

Where should this type of money be invested? Ideally it should be in a very liquid investment that is very easy to get to and can be accessed quickly.   Money market funds are the most popular option.  These are short term, liquid investments that most mutual funds and some banks provide for easy access and cash type liquidity.  They usually pay a nominal rate of return somewhere just above the average savings account rate of the typical bank.  The risk involved in these types of investments is nominal but should not be discounted.  The best recommendation is to read the prospectus and verify for yourself that the manager is investing in dependable and safe short-term investments.

Other possible options for emergency money is the savings account, cash or some other asset that can be easily liquidated without taking a loss.  Many CD's would qualify under this category and should be looked at as an option.  Of course when investing your emergency money you should be seeking to get the maximum return possible without compromising on safety.

Money Saving Monday - Principles of Investing

Begin Investing Now Do not procrastinate. Begin now because an early start can make all the difference. An early start provides a long time horizon for compounding to show its true benefit for the investor. Know Yourself Current situation: What is your current net worth, monthly income and expenses? Where can you reduce your expenses? How much debt are you carrying? At what rate of interest? How much are you saving? How are you investing it? What are your returns? Your Financial Goals: What are they? How much will you need to achieve them? Are you on the right track? Risk Tolerance level: How much risk are you willing and able to accept? Risk tolerance is determined by your personality, age, job security, health, net worth, emergency fund, and the length of your investing horizon. Sort Out your Finances Before you even think about investing, know where your money goes each month. Track your spending habits. If you're carrying debt at a high rate of interest, especially credit card debt, you should unburden yourself before you begin investing. Amass enough to cover three to six months of expenses for emergencies. Never invest in anything you don't understand. Invest Long Term Invest for the long term. Do not be influenced by short-term fluctuations. These are inevitable as all economies as well as businesses experience the boom and bust cycle. Don't try to time the market. Get in and stay in. Review your plan periodically, and whenever your needs or circumstances change. If you are not confident that your plan makes sense, talk to an investment advisor or someone you trust. Investing in Stocks and Mutual Funds A long term view helps you to safely invest in 'riskier' investments, such as stocks, which the market rewards in general. This requires patience and discipline, but it increases returns. This approach reduces your choices to two: stocks and stock mutual funds. In the long run, they're the winners. The additional risk is worth it due to the power of compounding. 10% a year for 20 years is 570%, but 7% a year for 20 years is only 280%. Arm yourself with knowledge. Always do your homework. Knowledge is power. Understand personal finance matters that could affect you. Understand your current investments and the risks associated with them. Be cautious when evaluating the advice of anyone with a vested interest. If you're going to invest in stocks, research companies until you understand them. Consider joining an investment club. Examine historical data or participate in a stock market simulation. If you don't have the time, consider mutual funds, especially index funds. Get Help If You Need It The do-it-yourself approach may not be suitable for everyone. If you try it and it's not working, or you're afraid to try it at all, or you don't have the time or desire, then you should seek professional assistance. If you want others to handle your financial affairs for you, remain involved to some degree, to make sure your money is being spent wisely.

Money Saving Monday - Save and Build Wealth

Start Investing and Building Wealth

There are some people who are gifted with the ability to save money and there are some that are not.  Unfortunately, most people are of the later type.  Saving money is something that requires an inordinate amount of effort for most people and only with effort can they accumulate any substantial amount.   If this profile fits you then the only way to save money is to use a system and discipline.  There are different forms of wealth, however I’m only going to focus on financial wealth.

Saving money is one of the necessary requirements of building financial wealth.  No matter how much you make, your income must exceed your expenses if you are ever to build wealth.  And the only way this figure can be adjusted is by increasing income or decreasing expenses.  Therefore, if you are unable to save money now then you have no choice but to decrease expenses.

The most obvious question to ask yourself for every expense that you incur is the question, Do you really need this right now at this point in time?  There are actually very few things that are necessary for our immediate existence.  However, as human beings we have a way of rationalizing even the most obscure purchases for the sake of necessity.  Break yourself of this habit.  Realize exactly what things are needed and what things are not needed.

The next thing to do is to create and stick to your budget.  A budget will allocate a certain amount to frivolous expenses (i.e. anything non-necessary) that should not be adjusted.  Whatever amount you decide to allocate toward frivolous expenses stick to it.  Whatever amount left over is devoted to your savings.  It is this that you must continue to build to accumulate wealth.

A good rule of thumb is to take 10% off any income you receive and set that aside for savings.  And I do mean to physically take it out.  That means you actually cash the cheque and get the 10% in cash and then do something with it like put it into a savings account or an investment account or even a retirement account.  Whatever the case, the bottom line is that the money is being placed somewhere that you can get to only with some difficulty.  This will discourage you from using that money when you have the desire to make an impulse purchase.

Once this savings account has accumulated a sufficient amount, you should then take that money and purchase an investment with it.  This is much more efficient than simply leaving it in a savings account where it will receive a minimal amount of interest.   So in a nutshell the steps are as follows:

1. Take 10% off the top of your income.
2. Place that money in a savings account or something similar.
3. Let that money accumulate until it is a sufficient sum for purchasing a better investment.
4. Repeat the process.

If you follow these steps month in and month out then you will begin to build a savings account that will make you more financially secure and much closer to your long-term financial goals.

Money Saving Monday - Dining Out

Look for Kid’s Night Deals - Many families are going back to the more traditional one income situation, so Kid’s Night deals are critical to being able to take the kids for an evening out. Most restaurants have a special kid’s night where kids under a certain age (usually 12) eat free or at a reduced cost.  Look for the places near you and make a list on your calendar so you know which restaurants have deals on any given night.

Share entrees - Entrees are growing (along with our waistlines) and so are the cheques at the end of the night. To decrease all of the above, share an entre with a friend or family member. This will ensure both of you receive your fill, pay less, and walk out a little lighter than you might have if you had tried to eat the entire portion.

Plan your budget - Many people spend too much money on eating out because they eat out too frequently and don’t plan it into their week. Pick a specific night every other week or so to go out but decide in advance which restaurant you want to go to.  Pick up a menu in advance of that night to help you plan how much you will spend as well as choosing your food in advance!

Appetizers and Desserts – These were designed with one idea in mind, to get you to order more food than you would ever eat if you cooked it, thus spending more money than you may have planned. In advance of your restaurant visit, determine whether or not you are going to order the appetizer as your meal (provided it is large enough) along with a small salad, or not at all. In doing so, you will save money and room in your stomach for after-dinner coffee. Having coffee at the end of the meal will also help you avoid the $7 desserts with the $2 portions. You will be full and won’t want dessert, thus saving you even more money and inches to the waistline.

 Sides - Many restaurants now offer sides as ala carte items. Choosing 2 or 3 sides, such as a salad, a baked potato, or a side of steamed veggies will help you choose less expensive and potentially more healthy options.

 Eating out is fun and it should remain that way. It can be done in such a way that everyone’s budget should be able to afford it on a regular, planned basis.

Enjoy!

Money Saving Monday - Pay yourself first!

I know you’ve probably heard it before but I’m surprised by the number of people who fail to do this.  I come across lots of people who are really good at paying their bills, but not so good at saving money. 

So make it automatic and soon you’ll think of it as just another bill.   Have the money come from your account monthly basis and direct it to a savings account or Tax free savings account (TFSA) if you don’t already have one.  This may be the only thing you need to do to reduce the spending on the stuff that adds no value to your life.

With this in mind, you may also try giving yourself a pocket money allowance.  Your spending on ‘stuff’ should never exceed your allowance.  Once the money is gone – it’s gone until next week, month or whatever time frame you wish to use.

Money Saving Monday - A couple bucks at a time

In our hectic day to day work lives, we often settle for the quick fix, when in fact, a little pre-planning can save you BIG bucks.

- Bag your lunch. At $6.00 each work day you are spending more than $1,500 annually on greasy food that expands your waist line and adds nothing to your bank balance.

- Brew coffee at home. On average a cup of coffee costs $1.75. Throw in a pastry and you could be looking at more than $3.00.

- Skip the mid-morning vending machine stop. Instead, pack a snack.

The Energy of Money

Have you ever asked yourself - "What is money?"

As soon as you understand this fundamental question the closer you are to being able to control it and accumulate it.  In it's simplest form, money is a method of exchange.  Instead of bartering goods we exchange money for them.  If you can remember this and recognize that money is nothing but a form of energy, all we need to do is to have a better understanding of energy, to know how to work with money.

Energy attracts more of itself.  Thus if you have debt then you will likely accumulate more of it.  Whereas, if you have money you will attract more of it.  The key then is to begin accumulating money.  Once you do this then it begins a chain reaction that will continue until you have accumulated more of it.  This is why starting a fundamental savings account is essential to building wealth.   It gives the money somewhere to go.  And it is very important that money has somewhere to go.  This is why simply keeping extra money in your checking account never works.

Energy follows the path of least resistance.  What does this mean? It means that money will flow to the areas that are needed first.  Because it is you who in fact defines your needs, it is you who can determine where this money goes.  The more needs you have defined, the more money will flow to those basic needs.   Now you may be wondering why it is important to understand this aspect of finances.  It is important for the simple fact that wealth is only accumulated when inflow exceeds outflow.   What you define as your needs make up the primary outflow for your income.  And most importantly, those who accumulate wealth are usually those who have fewer needs defined than their peers.

Everybody has different needs.  But why is it that some people require very little in order to be happy? These people also tend to accumulate wealth.  We have all heard of the little old school teacher who dies and then leaves some unfathomable sum to the local library or university.  How was she able to do this? Simple.  She had very few needs.  Thus that freed up more money to go into accumulation and over time this has power.

Energy also requires exchange.  To receive something, something must be given.  This is a fundamental law that we will be coming back to again and again.  You cannot expect to get something for nothing.  People who expect this find themselves losing money to lottery tickets and slot machines and invariably they end up broke.  Don't be one of these people.  Yes it does happen but the fact is that those who do win the lottery or win at the casino usually end up losing it all back anyway.   They do this because they have not understood the simple principles of money that are acquired by building it yourself through savvy investments and intelligent management.  It is simply not worth it to try to accumulate wealth by chance.  Thus, we come back to the law that energy requires exchange.

What are you giving in exchange for your money? The more you give, the more you will receive.   If you are just giving your body then you will receive less than if you are giving your body and mind in a job.  If you are giving your body and mind and years of experience then again that increases what you get in return.  This is why educated professionals are paid more than laborers.  It is a fundamental effect of what they are giving to their job.   Give more and you will receive more.

Thus you now have an elementary understanding of some of the ways money behaves.  Use this to analyze your current situation and gain a better understanding of your current financial situation.

Money Saving Money - Tech Tips

In today’s fast paced environment many people feel the need to have the latest and greatest technology just to keep up, while others shy away technology as much as possible.  For those of you who shy away from technology for whatever reason, here are a couple of ideas to get you going and best of all, to save you money!

- Buy refurbished equipment and gadgets. These are often just as good as new products, providing the same quality of service. While most people are familiar with refurbished car parts, a lot of popular electronic equipment can be purchased refurbished, too. For example, you can get a refurbished Mac computer, iPod, and iPhone.

- You can often get software free of charge for your computer. This is called Open Source software. Instead of blowing hundreds of dollars on Microsoft Office Suite, get Open Office. Similarly, if you need Photoshop, save another couple of hundred dollars by getting GIMP free.

Money Saving Monday - The Utility Audit

Take time to audit your own bills. Most people are used to paying whatever amount is stated on their monthly bill.   There is a possibility that there can be major discrepancies and it is best if you audit your charges once in a while. Auditing is best for telephone bills since some charges are being repeated, thus, making you pay for calls you didn’t actually make. Auditing can also be applied for your credit card bills since many companies add hidden charges.  While reviewing your bills be sure to take time to think – Do I really need these services? 

Here are two things that my family did many years ago and we have never looked back:

1 – Cancel your phone company’s call waiting, call answer and call display functions and buy a digital answering machine.  The digital answering machine can cost as low as $20 and not only allows people to leave a message, but you can hear them while they are leaving the message thus allowing you to screen your callers.  We did this nine years ago and started saving about $15/month.  The answering machine paid for itself in a month and a half and we still have the same machine.  You can do the math!

2 – Cut down your cable costs and go with basic cable service.  Do you really need 400 channels when you can only watch one at a time?  Many of the channels are probably showing reruns anyway.  Watch less TV and spend more time interacting with friends and family.  This may be hard for some of you to do, but trust me, it’s better for you in the long run!

Money Saving Money - Date Night

When thinking about a romantic evening, or planning a romantic outing with that special someone, it's not easy to see past the fact that most of the things you want to do cost a lot of money.  For those on a budget or trying to save money you need to think differently.  What you need to keep in mind is that romance isn't about the environment, or the stuff, but rather it's about the people, and the emotions.  It's about being together with someone you love and spending time together and NOT about the money spent on that time.  Most times the gifts that cost the least mean the most because you have to think about what your sweetheart truly likes..

- Instead of dining out at an expensive restaurant, why not have a picnic instead.  It doesn't have to be something elaborate, as this could be just as expensive as the restaurant.  Visit your local grocery store and buy items that are easy to transport, and require little preparation.  Choose things which are easy to eat with your fingers, and that you know your partner enjoys.  Food which is best eaten cold, and creates little mess is also a good choice!   Transfer the items into storage boxes which will keep them fresh and safe during the trip to the picnic location.  If you are having canned drinks, pick these out of the cooler cabinet.  If you are taking a bottle of wine, secure this inside a bucket with some ice and place the bucket in a clean garbage bag so that the ice doesn't melt over the car if it's warm outside!  Vacuum flasks of coffee are great for cold days.  Choose a location which has something nice to look at - either a drive out to a nearby lake or river, or into a woodland area.

- A trip to the movies is a nice way of spending a romantic evening, but again this can be expensive, so organize a movie night at home instead.  Rent a movie that you both want to see, spread a blanket and some cushions on the floor, have a bucket of warm microwave popcorn, and some tall glasses of cold soft drinks standing by.  The bonus is that instead of paying a high price to sit in uncomfortable seats, you can snuggle up together on the floor and watch the movie in real comfort.

Whatever you choose to do to, always remember that it is the time you spend creating something romantic and special that you know your special someone will really enjoy that is more important than an expensive gift that is advertised everywhere but completely impersonal.

Money Saving Monday - Be SMART!

Here are some more good tips that may allow you to squeak out another $50/month for savings.

Look for Recreation Instead of Entertainment - Movies, shows, concerts and theme parks are not only expensive but also only last for a few hours or one day. If you shift your thinking to recreational activities such as hiking, camping, skiing, beachcombing or low cost hobbies, you’ll find many of these activities offer a no (or low) cost alternative to high cost entertainment.

Skip the chai tea, pizza deliveries, lattes, specialty shops, and gourmet aisles - Ok, we’ve heard that speech before but we also know that life is meant to be lived and enjoyed. So as Ben Franklin advised, use moderation in all things even moderation. Though, don’t deny yourself too many treats or you’ll never stick to that budget.

How about giving two lattes a week for a savings of $10 and one pizza delivery for a savings of another $20? Start a rotation of items which break the budget and don’t give them up all at once but instead just buy some or a few on occasion as a treat instead of making each one a weekly ritual.

One of the most important things you can do to really get ahead is to Set Savings Goals and be Smart!

When it comes to setting your savings goals, be SMART --- Make goals that are specific, measurable, achievable, realistic and can be accomplished on a timed basis. It’s your money so have some fun with the process and above all, be creative!

Money Saving Monday - Seven BIG Money Mistakes to Avoid!!!

There are more than enough mistakes to make with money but here are seven that can stop you from achieving financial freedom.

These mistakes are commonly made, and, almost every delivery of junk mail, ad on television or magazine offers an enticement to take one of these paths.

Some money experts may even offer these as the way to getting out of trouble.  The problem is that each of these approaches can lead to even more money problems so they are best avoided.

1-     Carry credit card debt.  Credit card debt is extremely expensive and interest costs can add significantly to the original amount.  If you can’t afford to pay off your credit card balances every month, there is a problem with how much income you have and the money you are spending.  You need to increase income and reduce expenses to leave a balance to pay off the credit card debt.

2-     Borrow from a payday lender.  Payday loans are so expensive they should be criminal.  The fees and interest charges can easily add up to 400% interest.  There has to be a better option for you.  Contact a financial advisor before you ever take out a payday loan.

3-     Live above your means – buying a house.  It is all too easy to buy a house these days with interest rates being so low.  The problem comes because most people don’t allow any ‘wiggle room’.  They want the biggest house they can get because they feel they deserve it.  If you can’t afford a mortgage payment that is up to 40% higher, than what will happen if rates rise and you find yourself renewing at a much higher rate.  Look carefully at the next five years before you buy a house that might be too expensive.  Buy a smaller house or consider renting for a while.

4-     Borrow to buy your way out of debt.  It would be nice if a consolidation loan or second mortgage could fix everything but they rarely meet the borrower’s expectations.  You may make some savings on interest payments and stretch the payments over time to help with cash flow but, in the long run, you will probably end up paying more interest overall.  The best fix is to repair your income and spending imbalance in the first place.  Make more and spend less is the formula that works.

5-     Fail to save an emergency fund.  Unanticipated costs are a significant cause of personal bankruptcy.  It is so difficult to live life on the edge where one missing paycheque pushes you into financial crisis.  Saving an emergency fund of 2 to 6 months income will not only give you coverage in case something happens it will also give you peace of mind.  That peace of mind is worth a lot.  Peace of mind will reduce tension and stress and make life much more pleasant. 

6-     Let your fixed living costs increase.  Adding obligations to the monthly bills make it harder and harder to make ends meet.  Basic obligations include rent or mortgage, utilities, transportation, insurance, food, child care, child support and minimum loan payments.  Do your best to not add to the burden and to reduce those that you have. 

7-     Use your retirement fund to pay off debt.  This is similar in principle to the idea of a consolidation loan only it costs more now and in the future.  Penalties on withdrawing from RSP can easily cost 25% to 50% of a withdrawal.  And you are losing the future earning power of that money if it were left in the account drawing interest.  This approach is a heavy mortgage on your future that you will probably regret.  The only guarantee is that you will have less money when you retire – if you can.

If you can avoid these seven mistakes, you are well on your way to a successful financial future. 

Money Saving Monday

The habit of saving money is essentially the skill of spending less money than you earn. It can also be practical and enjoyable to review money saving ideas and follow through on them. When you consider money savings as a game, rather than a self-imposed discipline to survive economic challenges, it becomes easier to practice doing those things that make a difference. 

 -  Stay organized and pay your bills on time. By either missing payments or paying late, you accumulate late payment penalties. These are a total waste of money. You can easily avoid unnecessary expenses by organizing your bills when they come in and by marking your calendar when they are due.

- Buy more stuff online. You not only save on time and gas, but you may also get the products at a cheaper price because online retailers have less overhead than brick-and-mortar establishments.

Money Saving Monday

With summer vacation half way over, some of us are happy and some of us are wishing that summer lasted longer.  Whichever you happen to be, here are a couple of things to consider that will ultimately save you money.

Turn off the television. One big way to save money is to watch less television. There are a lot of financial benefits to this: less exposure to guilt-inducing ads, more time to focus on other things in life, less electrical use, and so on. It’s great to unwind in the evening, but seek another hobby to do that.

Invite friends over instead of going out. Almost every activity at home is less expensive than going out. Invite some friends over and have a cookout or a potluck meal, then play some cards and have a few drinks. Everyone will have fun, the cost will be low, and the others will likely reciprocate not long afterwards.

Money Saving Monday

Let’s talk about your homeowner’s insurance.  I find that many people get their annual renewal notice, complain about the increase and just leave it at that.  If you haven’t had your policy reviewed in the last couple of years – it’s time to get it done.   I recommend using a Broker (like Ontario West Insurance Brokers in London – ask for Traci or visit www.ontariowest.ca ).  Brokers have your best interest in mind and can shop for the best rates around.

If you don’t have someone to help here are a couple things to consider:

Raise the deductibles on your homeowners insurance. For example, raise it from $250 to $1000 and save up to 20% a year on your premiums.

Secure your home with smoke, carbon monoxide and burglar alarms, dead bolt locks, and/or a sprinkler system. Many insurance companies will discount homeowner’s premiums for these safety features.

Money Saving Monday

Has it been hot enough for you lately?  While the heat may be getting you down, let's think about something cold....your refrigerator.  We just recently had to replace ours so here are a couple of tips:

Buy a refrigerator with a freezer on top or bottom rather than on the side. They are often hundreds of dollars cheaper and use far less energy.

Think twice about refrigerators with ice makers, they usually add around $200 to the cost, and as much as $50 to your annual energy bill. They are also the most likely component to break (which will cost you more money down the road).

Money Saving Monday

Lots of people spend more money on food than is required.  I can admit that I love food too, but this is an area where a lot of my clients have been able to cut back and save a lot of money.  Here are a couple of ideas.

Cut back on the convenience foods. During our busy lives, we rarely spend enough time planning our meals – which leads to taking the quick and easy way out!  Instead of eating fast food or microwaving prepackaged food when you get home, try making some simple and healthy replacements that you can take with you. An hour of preparation one weekend can give you a ton of cheap and handy meals that will end up saving you a lot of cash and not eat into your time when you’re busy.

Get a crock pot. A crock pot is perhaps the best deal on earth for reducing cooking costs in a busy family. You can just dump in your ingredients before work, put it on simmer, and dinner is done when you get home. There are countless recipes out there for all variety of foods, and every time you cook this way, you’re saving money as compared to eating out.

Money Saving Monday

Here are a couple more tips to help you save money and begin saving.  Feel free to share some ideas of your own.  I would love to hear them!

-Exercise with friends or begin a walking regimen rather than joining a health club. Will power is free, and spending money doesn’t guarantee it. Plus, one of the best exercises is walking, and you can do that almost anywhere.

-Make saving a family affair. It’s difficult for one person to save while another is spending freely. Mutual sacrifice will yield the best results: everything from watching the thermostat to purchase decisions at the grocery store.

Money Saving Monday

Times are tough and we always need to focus on where our money is going.  Make small changes and eventually they all add up to BIG savings.  Just remember, every dollar saved should be be allocated to long term planning goals.  Here are the tips for this week:

- Lower (winter) or raise (summer) the thermostat by one degree. You save approximately 5 percent on energy costs for every degree. You can easily save 10-15 dollars per month.

- Use fluorescent bulbs and save up to 75 percent of light costs when compared to incandescent bulbs

Money Saving Monday

Well, for many of us we have reached the final week of school (for our kids that is).  So with upcoming trips and vacations in mind, I have some tips for you...

Pack food before you go on a road trip. Have everyone pack a sack lunch for the trip. That way, instead of stopping in the middle of the trip, driving around looking for a place to eat, spending a bunch of time there, and then paying a hefty bill, you can just eat on the road or, better yet, stop at a nice park and stretch for a bit. Plus, you’ll save a lot of money and a fair amount of time this way.

 Unplug most electronic items especially those that are expensive or may have valuable data on them. These can include your TV set, stereo, and especially computers. If a storm comes through while you are away, these items can be damaged beyond repair simply by being plugged into the wall outlet, so remove that possibility before you leave. Also, if you use a modem it would be good idea to unplug it as damage can also happen due to the phone connection used.

Avoid Water issues.  There is no need for your water heater to continue to operate at a high level since it will not be used throughout the time that you are gone, so turn it down to a low setting.

- Unplug your washing machine hoses. These can easily break and if they do while you are away for several days it could cause near catastrophic flood damage to your home before you would be able to do anything about it. If you prefer, simply turn off the water to the whole house.

 

Money Saving Monday

Two more tips....enjoy

Pay your life insurance annually. Insurance companies charge you more if you pay monthly, quarterly or semi-annually. Pay once a year and you’ll pay less.

Agree to limit gift giving. At Christmas and other special occasions many people go overboard when it comes to gift giving. Maybe they feel that by buying more gifts or spending lots of money, they show how much they love the other person.  Perhaps some are trying to compensate for not spending as much time with their loved ones.  Agree in advance to limit the gifts and save everybody some money.  Alternatively, limit the number of people you buy gifts for by drawing names (especially if you have a large extended family).  Believe me, others are probably thinking the same thing and you’ll be helping everyone by bringing up the idea.

Money Saving Monday

Welcome to Monday and this week's money saving tips:

- Get your books and movies from the library. I love books and read a lot. While I buy many of the books I read, I try to get what I can from the library. Our family makes use of the public library system quite a bit.  If you have not checked out what your local library has to offer, I highly suggest you make an effort to do so.  Also, many libraries have movies that can be checked out. It sure beats paying Blockbuster or Netflix.  Simply put, it’s hard to beat free – Thank you London Public Library!

- Drive your car longer. The buy new versus used debate often overlooks the most important factor–how long you own your car. Just because you’ve paid off your car, doesn’t mean you now have to get a new(er) one.  Drive it as long as you safely can and go without the payments for substantial savings.  HOWEVER, as soon as the payments are gone, be sure to redirect them to some sort of investment!

Stay tuned for more tips next Monday.

Should I Save or Pay Off My Debt?

I’m often asked – “should I pay off my debt or start saving?”  This is a common question and my answer is generally universal.

While individually these are both very important goals, they are also only two pieces in the overall puzzle that is your financial plan.  For most people retiring debt-free is very important.  Those under that shadow of debt often want to focus solely on paying down debt first.  They appear to have ‘blinders’ on and don’t see the big picture.  Focusing on debt reduction could mean sacrificing retirement savings later.

The Problem Paying Debt Only

If you focus on debt reduction first and fail to put money aside, then you have nothing but your credit cards to fall back on in case of emergency.  For most of us, you can count on some type of expense coming when you least expect it and using credit to pay for it only makes it harder to get out of debt, and that’s assuming you have the available credit to begin with.

The longer you wait to start saving, the more you have to put aside each month later in life to meet your retirement goal. If you start saving earlier, you get the benefit of years and years of compound growth on your investments.

The Problem with Saving Only

On the other hand, if you save first and don’t focus on paying down your debt, you can end up wasting lots of money on credit card interest. Since credit card interest rates are often higher than savings interest rates, you end up spending more money on debt interest than you earn on your investment.

The other problem with saving first is that you risk entering retirement with debt. You may find that you can’t live comfortably enough on your retirement savings and because you have to keep paying your debt. So you’d have to either live uncomfortably or continue to work until you can pay off your debt.

When Saving Can Be More Important

If you don’t have an emergency fund, then take a few months to start one. The ideal emergency fund is three to six months of living expenses but it can take several years to build that type of savings. At first, focus on getting a quick $1,000 in a savings account. That money will cover many small emergencies like car repairs that would otherwise be charged to your credit card. Once you build your emergency fund, then you can focus on paying off your debt.

From a financial standpoint, if the interest rate on your debt is lower than the interest rate on your savings or investment, then you’d get a higher return by saving versus paying off debt. This is often the case with low-interest rate student loans. However, debt is debt and even low-interest rate debt lowers your net worth and makes you feel burdened.

The Winner Is - Both

Ultimately, you should find a balance between the amount you allocate to pay down debt and the amount you save each month. It isn’t wise to put off either of these in lieu of the other so come up with a way to split your money between the two. For example, if you have an extra $500 each month, you can put $250 toward your debt and $250 toward savings.