Budgets, Debt Management and Financial Planning for Women

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August 2015
« Jul    


Previous Posts

  • What Would You Do If You Won The Lottery?
  • Advice From Exceptional People
  • What Happens If Mortgage Rates Go Up?
  • An Extra $120 Per Month? I’ll Take It!
  • Money Stress – What to Do When You Lose Your Job
  • Wardrobe Budget Blues
  • Tax Refund Revelry
  • What do Budgets & Diets Have in Common?
  • The Value of Prevention
  • What to do With Our Tax Refund?
  • What Would You Do If You Won The Lottery?

    I imagine we’ve all spent a little time day-dreaming about ‘if we won the lottery’ – the reality is that ordinary people win.  You can’t win unless you buy a ticket and no one wants to be the lone worker-bee if the group pool hits it lucky so I imagine most of us buy a ticket or two. 

    I suppose problems can arise if: 

    • You spend more on lottery tickets than coffee
    • Winning the lottery is your retirement plan

    It would be easy lose track of the money, spend like crazy and in short order have little or nothing to show for it. Is that a wasted opportunity? It’s windfall money…unexpected and some would say carpe diem! 

    As an accountant, I struggle to take this point of view and would hope that I could make good decisions that would lead to opportunities and positive outcomes. My plan is:

    • To do the math – how much would it take to stop working a ‘regular’ job?
    • Make wise choices – Is it enough to buy a new home, vehicle and travel?
    • Figure out how to share the good fortune?

    Ah well, it’s a plan…I think it’s a lot of fun for $3.


    Advice From Exceptional People

    I attended a conference last week and two of the keynote speakers stood out from the others:

    1. A Canadian astronaut
    2. A former Whitehouse Chief Information Officer

    Although each had very different experience and delivery style, their messages were based on common ground:

    1. Set goals and develop a plan to get achieve them
    2. Run the ‘worst case’ scenarios in order to learn how to better manage adverse events by improving your processes and systems, mitigating the risk of an event occurring and/or to setting up contingency plans
    3. Team work and understanding others’ perspectives

    I think this is great advice for life in general and financial management!  


    What Happens If Mortgage Rates Go Up?

    Many of us have never known ‘normal’ let along high mortgage interest rates although it wasn’t that long ago that 6 or 6.5% was the norm for a 5 year mortgage. When I started working at the bank (in the mid 90′s) the rates were closer to 10%!


    How much difference would a 1% rate increase make to your monthly payment? Your monthly mortgage payment would increase by a little over 10%. If your mortgage payment is $1,500 per month, it would increase by $175 to approximately $1,675. Not much you say….but could you afford it? What if the rates increased by more than 1%?


    What is your plan if you are faced with this challenge? What expenses do you control and/or resources do you have access to? Perhaps you could increase your income or rent out part of your home. Changes to your lifestyle could mean reduced expenses. It’s worth a conversation because knowing how you would deal with this hurdle can reduce worry about the unknown or the ‘What if?’.

    An Extra $120 Per Month? I’ll Take It!

    I thought the days of the UCCB (Universal Child Care Benefit) were gone once our girls turned 6. Although the $100 per child per month wasn’t much and certainly didn’t cover even a tiny amount of their child care fees, it covered half of their annual RESP (Registered Education Savings Plan) – $1,200 of $2,500!

    We received mail last week saying that as of July we would receive $60 per child per month until they turn 18. Hmmmm - We still pay much more per month for child care – $400 per child per month is ingrained in our budget and we’ve become used to setting aside $400 ($200 each) per month to their RESP.

    I am wondering how to make the most of an extra $120 per month ($60 each)? If it lands in our general account, it will simply disappear. However, if we think of it as $1,440 per year …. it has possibilities. We could increase our mortgage payments, our RSP (Retirement Savings Plan) or our travel savings. Or a combination! We’ll put a plan in place by July. What would you do with an extra $120 per month?

    Money Stress – What to Do When You Lose Your Job

    Even though it was years ago, I remember the collision of thoughts and feelings when I heard the words ‘we don’t have a position for you after maternity leave’. I was on the receiving end of restructuring. I found out a couple weeks before I was supposed to return to work. Wow.

    I don’t remember the order of what thoughts popped into my head but here are some of them:

    • We have a mortgage to pay
    • I’ve committed to a second child care spot
    • I’ve paid for a child care spot for our eldest during my second maternity leave to hold our current spot and earn sibling priority placement for our youngest – a lot of money paid and a lot of money to pay
    • What are we going to do?

    Never mind all the other questions and issues to work out, my priority was crunching some numbers to figure out how to deal with this massive curve ball!

    Whether you are a single or double income household, any disruption to income is a big deal. The bulk of your financial obligations don’t change in this scenario but it’s important to find out what you can adjust to best meet any reduced income.

    How much income will be coming in and at what points might it change further (i.e. Will you receive a severance package, how much will you receive and for how long? Will you qualify for Employment Insurance (EI), how much will you receive and for how long?). I found it easiest to put the information on a timeline.

    Note your minimum required monthly obligations cutting out any extras (i.e. cleaner, gardener, pedicures, manicures), savings and cut back on any accelerated debt payments and reduce discretionary spending to the absolute minimum. Consider what you must maintain even though you’re not working right now – reliable child care is so important to parents and impossible to replace if you give up your spot so we chose to continue with this ‘investment’ knowing that we would need it as soon as I found a new job. Others may choose to give up their child care and figure out an alternative when needed – given the amount of the expense, this may not be a choice for many. Don’t forget to consider any large, annual expenses such as property taxes, car insurance, holiday season and vacations.

    Do the math – compare the expenses to the income at the different milestone points on your timeline. Does the income cover the expenses? If not, where else can you adjust? Give yourself some brainstorming time – it’s amazing how resourceful you can be. If income is greater than your minimum expenses – perhaps thanks to a nice severance package, calculate the monthly difference (excess). If you set this aside each month, it will be there for you when/if it runs out before you’ve found another job – at least to tide you over and cover your minimum expenses a little longer.

    Note your Plan B for if/when the time comes that you need to cut further and what that will mean (i.e. no longer insuring or running your vehicle, selling assets) and mark this on your timeline. Severance and EI all run out at some point.

    Other tips include:

    • Make sure you have medical coverage
    • Get going on any paperwork to apply for EI or any other programs
    • Review your insurance coverage and determine if you must find alternative coverage for insurance such as life, disability (short and long term) and dental

    This happens to lots of people and some people have to deal with it more than once. Most Canadians do not have an emergency or contingency fund and so, some quick number crunching and planning is the best way to arrest the anxiety and stress that comes with this lousy life event.


    Wardrobe Budget Blues

    We’re going through our closets in an effort to divest ourselves of some ‘stuff’ and claw back some space. We went through the girls’ closet last weekend. It’s not a job I enjoy because even though we’re lucky to have lots of hand-me-downs and I’ve carefully sorted the clothes and labeled the boxes – It takes ages! Invariably at the end of the day, there are fundamental pieces missing such as a bathing suit which means a trip to the store to find one that a) fits well enough and b) they like. Yes, we’re at that stage where they like to have input. Anyway, it was relatively painless to solve with a visit to one store and a 10 minute stint in the change room for the bathing suits (they tried on other items over top of the clothes they were wearing!). Some new underwear, $150 and we were out of there!


    It got me thinking though….in a previous post, I suggested that clothing budgets be guided by the value of your current wardrobe. For example, if the replacement value of your clothes, shoes, jackets etc. is $10,000, then perhaps 10% is a reasonable amount to budget annually for clothes. Is this enough? Are clothes your thing? They’re not really my thing but I recognize that depending on your job, the sports you may play and choices made between quality and quantity, 10% might not be enough. If it was up to my husband, it would be more than enough because his philosophy is – you can’t wear 3 sweaters at one time!


    This may be a slight exaggeration  but he might have a point in that there’s value to planning a wardrobe (ensure you have basics, shop with a list and buy only items that fit well and you like wearing) and spending more to buy quality classic pieces that will last longer. Like most things, the amount spent on clothing is a choice and it isn’t a good reason to blow the budget but what is the right balance between having the basics, dressing neatly and appropriately and taking pleasure from your clothes?

    Tax Refund Revelry

    If you owe money to CRA (Canada Revenue Agency), you’re not a happy camper but if you have a tax refund coming to you…you are likely smiling! 

    Essentially it’s money you’ve paid to the government in one form or another but after reconciling your 2014 income and deductions with what you truly owe, you didn’t need to pay quite so much. It’s very similar to forced savings and can be a tidy sum that lands in your pocket. The trick is not to let it trickle away…..

    What will you do with your tax refund? If you were expecting a refund, perhaps you have a plan (savings or repay debt) and if so, allocate the funds as you intended. If you didn’t, it only takes a moment to make the most of it. Depending on the amount you expect to receive, you could consider splitting it 3 ways between savings (retirement or other), debt repayment and something fun for yourself and/or family. Alternatively and if you’re committed to reaching your financial goals sooner rather than later, a 2 way split between debt and savings will see you to the finish line faster.

    Either way, don’t delay – deploy the money as soon as it arrives in your account.

    What do Budgets & Diets Have in Common?

    Quite a lot – I think. No one likes them and neither one is the ticket to success.

    That’s the first question – How are you defining success? The key is to define your goal using SMART elements (specific, measurable, achievable, realistic and timely). You may begin by saying that you want to lose 10 pounds however if you are more thoughtful about this goal, you may be able to make it easier for yourself and ensure that the results are sustainable J Taking a closer look at this goal in the context of SMART goal setting will allow you to consider supporting plans and specific actions you can take to achieve it.

    The goal is a new (10 pounds lighter!) stable weight:

    Is this realistic? Have you done the math in terms of increased calorie burn by exercise and reduced calorie intake? How many calories do you take in now (assuming your weight is stable)? If 1 pound = 3,000 calories, what changes will you make to remove or burn below your ‘stable’ calorie level over the period of 1 week? What milestones will you set? 1 pound per week or ? Can you do it? How will you do it (specifically)? Will you reduce what you eat? Eat differently? Or a combination of both? Will you increase exercise and if so, what type and how often? A diet without a supporting plan has a low probability of success but a diet with a well thought plan of action will see you achieving your goal.

    How is a diet similar to a budget? A budget is a tool that can be used to help you achieve your financial goals but other important components must be incorporated in order to ensure success. What do you want? Do these objectives align with your values and lifestyle? Have you done the math to understand whether you have the income to meet your expenses and have enough left over to put towards your plan? Have you translated this knowledge into action such as developing a budget that supports your plan? Have you set up systems to help such as monthly automatic savings or increased monthly debt repayments?

    A budget alone will not ensure that you realize your dreams but if used properly, it can be a useful tool that increases the likelihood of achieving your objectives.

    The Value of Prevention

    It’s like taking your car in for a scheduled service in that you dread the phone call if they find anything to fix. But isn’t that better than being stuck on the side of the road in the pouring rain with a broken car? Or worse, in an accident caused by a mechanical failure? The cost of a service is often $150 to $200 including an oil change which you would typically do a couple times a year anyway compared with an unplanned break down and repair. The only thing that dulls the edge of that kind of inconvenience is Automobile Association coverage that ensures a safe, friendly and knowledgeable mechanic will come to help you…you may wait awhile though depending on the time of day, weather and location.

    The reason I bring this up is because some dental surgery I’ve had was no fun and not covered by insurance. The initial consult was but not the subsequent surgery. Go figure…the theory was that one particular area needed some attention now in order to avoid exposing bone to potential erosion and a much more costly repair in the future. Having the work done now versus more expensive and invasive work later seems like a wise decision to me which is why we ‘invested’ in my teeth. 

    How do you and your family make these decisions? Insurance companies base their decisions and premiums on risk factors and the likelihood of occurrence.

    I suppose it’s a bit like the value of planning. I don’t believe that planning for something that could be perceived as negative (i.e. contingency or emergency planning) will make it come true but I do believe that planning for something positive leads to a greater likelihood of it coming true. Practically, if you have a plan and take action, you will achieve part, most or all of your goal.


    What to do With Our Tax Refund?

    If a client asked me that question, how would I respond? That’s easy – I’d suggest they check their plan!

    Our plan has 4 key objectives:

    • RSP and RESP Savings
    • Extra Mortgage Payments
    • Big Trip Savings
    • Other Big Item Savings

    The majority of RSP and RESP savings is achieved through regular monthly savings incorporated into our budget. Funds towards the other items come from tax refunds, employment bonus, ‘extra’ pay cheques (I am paid 26 times per year but we align our budget to 24 pays per year) and the difference in pay cheques once CPP and EI premiums are maxed. I estimate how much we might receive from these sources and invariably they won’t be enough to meet our targets but depending on the year, they may be close. By having a plan, we don’t have to think very long how to best deploy the money and the less chance there is of it trickling out of our account!

    What is the highest priority? I can be a challenge to prioritize your financial plan objectives and the trick is that they’re not necessarily time sensitive or mutually exclusive. For example, we can split our tax refund between 2 or 3 of the goals above and add to them as we go through the year and have a better idea of what other funds may be forthcoming. The other point to consider is that if we invest in RSP’s, we will likely receive a greater tax refund next year and it can be used towards any of the goals above as they are all medium to long term objectives.

    We’ve decided to split the refund between RSP’s, RESP’s and our summer trip savings. We made the ‘sensible’ decision with respect to RSP and RESP savings but balanced it with our planned trip (we must pay for the plane tickets this month!).

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