Budgets, Debt Management and Financial Planning for Women

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April 2015
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Previous Posts

  • The Value of Prevention
  • What to do With Our Tax Refund?
  • The Free and Never Ending Turkey
  • Summer Camps….Already? Have You Got a Summer Budget?
  • Spring Break Budget
  • Tick Tock Goes the RSP Clock!
  • Plant Seeds to Grow Your Savings
  • What is a RESP and Why Would I Need One?
  • Turn Your 2015 Financial Plan Into Reality!
  • How to Get Your 2015 Plan Done!
  • 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!).

    The Free and Never Ending Turkey

    We went grocery shopping a couple weeks ago and came away with what looked like a medium sized turkey. It was ‘free’ because we spent more than $250 at the store – not hard to do when it’s a big shop day. I’ve made only 1 roast turkey before so I pulled out my battered copy of the ‘Joy of Cooking’ and called the family Turkey Expert.

    We invited friends for Sunday dinner and 6 of us ate Meal #1 which included potatoes, gravy and roast vegetables. We carved off the majority of the meat and put it in the freezer and our friends took the rest of the turkey home planning to make turkey soup. They had enough to make turkey pot pie, turkey soup and turkey stock. They gave us some soup and stock. I’m not sure how you count that but I think that’s another 3 meals.

    I used the frozen turkey meat to make a huge turkey pot pie – my first ever. I put in vegetables, potatoes, turkey stock and the left over gravy and baked it all in homemade pastry and that was Sunday dinner. It was also lunch today and there’s enough to go in the freezer for another meal for 4. I think that takes us up to about Meal #7.

    This turkey was tagged at a $30 value and with some vegetables and effort thrown in 1 turkey has produced 7 meals for between 2 and 6 people at each meal. Not bad!

    Summer Camps….Already? Have You Got a Summer Budget?

    It’s not even the end of March and already I find myself making summer camp plans for the kids! It seems early to me but the upside is that I’ll have it organized sooner. It also leads me to take a look at our summer budget and since child care is such a large component of that, now is a great time to review it.

    Oddly enough, I find that coordinating schedules is the trickiest part. Weeks spent with grandparents, holiday time, various camps and supplemental child minders for camps that are not full day make for a complex process to align a myriad of schedules.

    Our typical budget includes $800 per month for child care however this summer is 10 weeks long! At approximately $200 per child per week we would quickly blow through the budgeted $1,600 and edge towards $4,000. Along with summer child care, our holiday budget takes a beating and our home and vehicle insurances are due.

    The good news is that we save for our big holiday, summer extra travel and insurances through monthly budget allocations and by planning our big holiday over the summer weeks we won’t need child care for those weeks. All in all I think we can come in slightly under budget for summer child care which is a good thing because I think our summer travel and holiday will be a little over budget! Fingers crossed for kind exchange rates.

    Spring Break Budget

    Spring Break is 2 whole weeks!! We have 2 children and so we have a few options (the estimated cost is beside each option):

    • Take vacation time and take a vacation ($5,000)
    • Take vacation and plan a ‘staycation’ ($300)
    • Find Spring Break camps ($1,000)
    • A combination of the above (??)

    We opted for the combination option and our combination plan looks something like this:

    • We’ve teamed up with another family and each family is taking 2 days per week (I work .8 so switched my days and we each took a vacation day).
    • 1 day per week the kids are going to camp.
    • They participated in a soccer camp for a couple mornings (drop in).

    On my days with the 4 kids we’ve gone to the aquarium (thank you grandparents for the pass!), park tour on scooters, Granville Island tour on scooters and UBC Endowment Lands via transit. With a few treats thrown in at about $10 per day we’re all having fun and not breaking our budget – plus we’re still working most of our regular hours! 

    This worked out to be the best option for us because we’re planning a big trip later in the year and need to save our vacation time. With childcare over school holidays being an ‘extra’ to their regular before and after school care, it can really throw the budget not to mention that it can be a little routine if it’s the same childcare and friends as the rest of the school year. 

    How do you do it?

    Tick Tock Goes the RSP Clock!

    The March 2nd deadline is fast approaching – have you saved for your retirement? The March 2nd deadline only applies to those wanting to use their RSP contribution towards their 2014 tax year however it does serve to light a fire under those who procrastinate year round! If you plan to complete a 2014 RSP contribution, sooner rather than the last minute will save you time.

    As for retirement savings year round, here are some tips to make it easy on yourself:

    • Know your contribution limit (look on your most recent tax assessment)
    • Set up monthly automatic savings contributions
    • Top up your RSP with any extra savings when you can (work bonus, tax refund)
    • If you’ve withdrawn from your RSP’s under the Homebuyer’s or Lifelong Learning Plans, know what you must re-contribute to comply with the program and to avoid tax consequences

    Happy saving!

    Plant Seeds to Grow Your Savings

    The weather in Vancouver was gorgeous today and spring flowers have been popping up everywhere. You may wonder what on earth that has to do with money – in fact working on your finances might be the last thing you thought of dealing with today!

    The parallel is this – planting seeds today means beautiful flowers or yummy food in a few months and planting bulbs can mean beautiful plants each year. They may require a little tending but in the grand scheme of things, not much of your time and the benefit out-weighs the effort.   Saving your money to reach a goal can work the same way.

    Financial goals can seem large and virtually impossible to attain when day to day life demands our attention but whether it’s retirement, your children’s education or a first home you want to save for there are one thing to do – start now! It doesn’t have to be a lot but start with what you can afford each month and increase it when you get a raise or fewer expenses.

    TIPS:

    • Make your monthly savings via an automatic contribution
    • Add to your savings with ‘found money’ such as tax refunds, gifts or overtime

    Your savings will grow each month and you won’t have to do a thing!

    What is a RESP and Why Would I Need One?

    A Registered Education Savings Plan (RESP) is a program under which you can save for your child’s education. As parents we try very hard to give our children every opportunity and one of the foundational bricks of many paths in life is education. The cost of post-secondary education increases each year and who knows what our little ones will decide upon for their future but at least there can be something saved to give them a good start.

    Why a RESP? A RESP has benefits such as tax sheltered earnings and the Canadian Education Savings Grant (CESG). Although there are rules and criteria, the general concept is that CESG grant will be deposited into the RESP each year amounting to 20% of your annual contributions to a maximum grant of $500 per year. This is a really good thing! While the funds are in the plan, earnings and grant received are not taxed until they are withdrawn from the RESP and at that time they are taxed by the beneficiary – hopefully your child as a student!

    Rather than focussing on how much education will cost and how to afford it, I find it easier to concentrate on what we can do and how to do it. In order to obtain the maximum grant, you must contribute $2,500 per year to a RESP. You may wonder how you’ll carve $200+ each month from your budget. I decided to use the $100 per month Universal Child Care Benefit (UCCB), any money I received from relatives and the rest came from our budget. I set aside the money every month via a monthly savings plan. Here are the steps:

    • Open a RESP (you’ll need a Social Insurance Number, SIN and Birth Certificate for your child)
    • Set up automatic monthly savings contributions

    It’s amazing how quickly the savings grow and although I don’t know what they’ll choose to study or if the RESP will cover the total cost of their education, it will be a really good start and a summer or part-time job never hurt anyone! In fact, it’s just the thing to get some life experience and start off their resume.

    TIPS:

    • Check out the government site for information: Canadian Government RESP Information
    • Consider carefully where you set up your RESP – it’s best if it’s with a bank or credit union you already work with.
    • Check if there are any restrictions with respect to making changes, transferring the RESP to another institution etc. If there are penalties or fees, go elsewhere.

    Turn Your 2015 Financial Plan Into Reality!

    It’s all planning until you turn it into reality…it’s not as tricky as you might think! It helps to be organized in terms of your filing system but the organization essentials are more about minimizing the administration.

    • Credit Cards – Hold and carry 2 (put away or cancel the rest)
    • Bank Accounts – 1 Chequing & 1 Savings (+ 1 Savings account for each additional person)
    • Investment Accounts – Hold in as few places as appropriate and keep your own tracker with them all in 1 place
    • Income – Automate through Direct Deposit
    • Payments – Automate through Direct Debit
    • Savings – Automate through Monthly/Continuous Contribution Plans (direct from your account into your investments, RSP’s or RESP’s)
    • Large/Irregular Expenses – Pay monthly through direct withdrawal from your account or set up a monthly transfer to your Savings Account so the money’s there when you need it

    Some people like to use money tracker software that combines the information from accounts and credit cards or if you prefer, do it yourself. Either way, the key is to track and monitor your actual income, spending and saving to your plan so that you can take action if you’re getting off track.

    How to Get Your 2015 Plan Done!

    This is Part 1 of a 2 part process to get your plan developed and implemented because it’s one thing having a plan but it’s another to make it happen! That’s the key – put your ideas into action to make your dreams a reality.

    There are essentially 2 steps to Part 1:

    1. Understanding the cost of your goals
    2. Designing a solid budget

    1st – Take each of your goals and convert it to a monthly target to include in your budget. For example, if your top priority is to repay debt then start with knowing how much debt you have, what each debt costs you (the interest rate) and what minimum amount you must pay each month to remain in good standing. Total the total and divide by the number of months of your debt repayment target. If you have $20,000 debt and want to repay it in 3 years, then you can expect to put between $600 and $700 towards debt repayment to meet your goal. TIPS:

    • Always make the minimum required payment by the statement due date (to keep your credit rating in good standing)
    • Repay the debts with the highest interest rate first

    2nd – This is where you develop a budget based on real information, include your goals and ensure that it all adds up. Your expenses and savings and/or debt reduction (goal) plans must be covered by your income. If they don’t, you have 2 options which are to reduce expenses or increase income. Using the information you gathered that tells you what you spend on a monthly basis (on average), develop a budget. With any luck, your income covers your expenses and goals. If not, it’s time to decide how badly you want to achieve your goals and what you are going to do to make it happen. TIPS:

    • Always work with net monthly income (after taxes and deductions)
    • If you are paid bi-weekly, try to budget using 2 pay cheques per month rather than 26 pay cheques over the year and if you are paid over 10 months, either set aside enough each month so you have enough over the remaining 2 months or have another plan to bring in what you need.
    • Total up large or irregular annual expenses and divide into monthly savings instalments that you stash in a separate account so the funds are there when you need them – think property tax, vehicle insurance and vacations.

    Next week I’ll blog about Part 2 of ‘How’ – putting a system in place to support your plan.




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