Almost everyone has access to credit these days. Teenagers and adults use credit cards, lines of credits, vehicle leases, loans and mortgages. They may be different in how they work but at the end of the day, it’s borrowed money. There are various associated fees including:

• Interest
• Cardholder fees
• Legal fees
• Transactions fees
• Currency exchange fees

Credit has its uses and benefits and can include less cash to carry around, global access to cash and the ability to buy things before you pay for them. That’s the key. If you don’t have the money to pay for it today or when the bill arrives, you will be charged fees and interest – that’s how the credit companies make their money.

It’s so easy to pay by credit but the balances can mount up if you don’t pay them in full each month. If you start to slide down this slippery slope you may find yourself quickly at a point when paying even the minimum monthly amount is onerous and that’s when your financial state can crumble.

Here are some tips to managing credit:

• Whatever you borrow, make sure you can afford the payments – do your own math.
• Bank with a reputable bank. If you must borrow, they assess your financial ability to repay using reasonable standards and typically don’t lend more than you can afford.
• Avoid using a credit card or line of credit to pay for things you can’t afford now.
• Pay off any balance in full each month.
• If you do have a balance on a credit card or line of credit, make sure that you make at LEAST the minimum payment and pay it ON TIME. This is how they measure you as keeping your account in good standing.
• Use 1 card and keep 1 in reserve.

If you have many outstanding debts it can be easier to tackle 1 at a time. Continue to make the minimum payments on all your cards and loans but choose the highest rate debt to make extra payments against.
If you’re still struggling….put the cards away and work with cash!

Emergency savings, contingency fund? Who has one? How much do you have?

I suspect the answers are along the lines of:

• What?
• How do I get one?
• How much do I need?

Without any warning, an emergency such as a sick family member, job loss or car repairs can throw a wicked curve ball. Few of us have emergency savings. You may have a plan in terms of pulling out a credit card or borrowing some money but this means paying extra.

Most of us avoid amassing contingency savings because there are many other things we’d like first. There is however, nothing worse than being faced with an emergency and having the added stress of finding the money to cope with it. Things happen along the path of life that we face – it’s not a matter of if, it’s a matter of when.

Here are some tips to grow an emergency savings account:

• Open a separate account
• Set up a monthly savings plan – transfer a set amount of money into this account each month
• Add ‘found/extra’ (tax returns, overtime, bonus) money

How important is it? That’s for you to decide. It can be a huge stress relief to know that you have a little set aside for when you need it.

Most of us face a cash crunch every now and again and this can cause anxiety.

Many of us receive a steady pay check however those who don’t have a stable source of income often wonder whether there will be enough in the account to pay the bills at the end of the month. Cash flow calculations can be tricky.

Here are some suggestions:

· Calculate your minimum monthly expenses (necessities – typically these are fixed or very predictable)
· Calculate your discretionary expenses (ones you can control)
· Calculate your average monthly income (you may have to look back over a long period of time)
· Take note the lowest monthly income you’ve received

Now to use the information you’ve collected:

1. Does your average monthly income cover your expenses?
2. Yes? Great.
3. No? If not there are 2 options – earn more money, reduce expenses

Below are a few suggestions to manage fluctuating income:

• Keep your minimum monthly expenses as low as possible
• Maintain an ‘extra’ amount in your account equal to 1 month’s expenses (a float) to cover unpredictable income
• Have a plan for monthly income over the average – put it into a savings account for the months when you earn lower income
• Save up for large purchases or savings such as RSP’s and make then when you’ve got the money instead of taking a loan which increases your monthly obligations

The key to cash flow is knowing what’s coming in and what’s going out! For many of us, what’s coming in is fairly steady. We’ll take a look at managing cash flow for self-employed, contract or part time income next time.

That leaves us with what’s going out … expenses. The most important piece of information is how much you must have each month to pay for necessities (housing, food, utilities, loans). Add these amounts up and this is the minimum monthly amount required to cover these bills. The next layer of information is knowing how you typically spend discretionary income – how much for what types of expenditures. It can be helpful to set guideline amounts and prioritize them. Add them up and this is another amount of money to bring in to support your lifestyle.

Another layer is saving for longer term items. Future planning is just that, for the future. Saving for years and years in advance may seem to far forward to think about but saving for a fabulous vacation is easier done over time. It can be very motivating to picture yourself on a beach relaxing or waiting in line for the Eiffel Tower with a cafe latte and pain au chocolat.

Why isn’t there enough money in the bank account at the end of the month? In today’s age of debit and credit cards, it’s easy to access money to pay for things. When cash was it, there were either dollars in your wallet or not!

This means that it is doubly important to have a handle on your cash flow because it’s a problem if the money isn’t available at the end of the month to pay rent or the mortgage. Credit is a short term solution which can grow into a huge problem if it’s not handled responsibly.

The posts over the next week will address the following points:

• Minimum cash required to cover necessities – know what it is
• Fluctuating income – self employed
• Contingency fund
• Credit and debt management – when you need to use it, how to handle

I’m wrapping up a week of single parenting while my other half traipses around China visiting Shanghai, Shenzhen and Hong Kong. While I don’t envy the 15 hour flights and managing the 12 hour time change, he is staying in some lovely hotels and is without the regular ‘routine’.

I’ve had a great week with our 2 young children. It’s gone more smoothly than I anticipated. I have reflected on it and imagined what it would be like to be a single parent on a permanent basis. I realize that 1 week isn’t even close to the reality that many face every day, week and year. An unrelenting daily life as the responsible adult to get your children to and from care, yourself to and from work, put food on the table, run errands and keep a house going.

Another facet to single parenting is the finances. Most people in this situation started out married and have divorced. The bottom line is that no one wins emotionally or financially. Necessity type expenses (housing, food and utilities) are no longer shared and in many cases double. Care and support expenses also increase as there’s no longer a team to trade off. Incomes do not increase and therefore the same couple is now running 2 households on the same income. No wonder the entire family’s standard of living decreases. There are some creative options to ease the burden and hopefully a support system to help out but either way, a realistic budget and a solid understanding of your financial situation is more important than ever.

How do you live on a tight budget? A tight budget means there isn’t much to spare at the end of the month. Expenses may equal or be very close to household income. There are varying degrees of a tight budget.

• Necessary expenses take up the majority of or all of your disposable income
• You spend freely leaving little at the end of the month for emergencies or longer term plans

There are really only two solutions to a tight budget:

1. Reduce expenses
2. Earn more money

Tips and tricks to living on a tight budget:

• Keep your necessary expenses (needs) to an absolute minimum
• Keep other purchases (wants) to a minimum
• Shop on sale, with coupons or second hand
• Share expenses
• Use cash, jars, envelopes to manage your spending

Very few Canadians have enough household income that they don’t have to worry at all. How do you keep within your budget?

We just spent a blissful 4 days in the North Okanagan. A fantastic break from the busy city. The question we were asking ourselves was … Where do we want to live? There are obvious pros and cons. The big city has employment options and career opportunities. Scrumptious restaurants and lots and lots of stores. Small towns afford children the ability to explore with great freedom. Access to fabulous, local food and an easy sense of community.

This is where the junction between values and financial realities intersects and where we must find the right balance between the two. No easy feat when we factor in kids, family, friends, earning opportunities and lifestyle. Time for a pro/con list, a point system or a good old fashioned debate…hard to say, change is inevitable.