Spring has arrived! The weather in Vancouver is fantastic today and it got me thinking….Debt can be such a burden. Especially if it’s invading your thoughts, interrupting your sleep or debtors are calling. Whether your debit is stressing you out or whether you just wish it would go away a little faster, spring is a great time to deal with it.

Here’s how:

1. Gather the most up to date information on your debt (Including – type of debt, amount owing, payment/minimum payment, interest rate, frequency of regular payments, projected final payment date).
2. List your debts in order of interest rate – highest at the top (if two are the same rate, in order of amount owing – smallest amount owing first).

Now the detailed plan:

• Add up all the payments (use minimum payments for credit cards).
• Calculate how much you can afford to put against debt repayment from your monthly budget.
• Allocate your budget to all your debts, making at least the required or minimum payments.
• Put any leftover amount or ‘extra’ against the debt on the top of your list (#1).
• Once #1 debt is repaid, put the regular monthly amount that was going to #1 against #2 (in addition to the amount that was already going to #2) as well as any ‘extra’.
• Once #2 debt is repaid, tackle #3 and so on.

There are some other tricks and tips for dealing with debt that we’ll write about next time!

Now that you’re organized…the next step to Spring Cleaning Your Finances.

1. Review your goals to ensure they’re clear in terms of priority, timeframe and amount.
2. Check your income in your budget – is it accurate?
3. Review your budget to ensure your regular monthly and large expenses are noted.
4. Review your budget to confirm that your goals are included in your monthly budget – saving (automatic savings) or repaying debts (increased amount or frequency of payments). If they’re not in your budget yet, add them in. Make sure your income still covers your expenses and goals.

The last step to Spring Clean Your Finances is to set a system and habits in place to turn your goals into reality. Regular and healthy habits mean maintenance instead of overhauls – Easy on your budget and your time!

It’s that in between season after RSP’s but before Tax’s. The perfect time to get organized – you’ll see the benefits immediately. Just as soon as you sit down to do your taxes or if you hand them off to someone else, they will appreciate it!

To do a thorough job, it will take a couple steps but let’s start at the beginning. This step is easy and doesn’t require any math.

• Gather all your paperwork, mail, statements, tax slips and financial paperwork.
• If you’ve got a filing system or filing box – open it up.
• Gather supplies you may need such as file folders, pens, stapler and filing spot (drawer, cabinet, box).
• Sort through the paperwork categorizing the information as you go into folders such as Tax Stuff, Credit Card Statements and Receipts, Bank Statements, Savings Statements (sort by type and bank/institution) and Employment Info.

The key is setting up the filing system so that it’s easy to access and you can file paperwork as you receive it rather than tossing it into a ‘to be filed’ pile.

Pack away old paperwork that you don’t want to get rid of, labeling it clearly. I pull out all information relating to the previous year, bundle it and pack it away (i.e. 2013). I suggest you keep all your tax information together and remember to keep it for 7 years. Shred and destroy any personal financial information that you decide to get rid of.

The next step is to tackle your 2014 financial plan starting with your budget.

Budgets are funny things because you can go to all the trouble of crafting a great budget but then…it doesn’t seem to work! There are all the usual reasons, some of which I’ve posted about but I think sometimes budgets are designed without 2 other key components.

A budget needs some support such as your plan including your goals and timeline. Without the plan, the budget lacks direction such as how much to save each month for this or that, how much to put aside for future planning or debt repayment.

A budget also needs a support structure to keep it on track. What money systems do you use? Do you use one credit card, pay for discretionary spending with cash (budgeted amount)? Are your savings amounts taken automatically from your account each month and directly invested?

These 3 components fit together very neatly and you can be assured of reaching your financial objectives if you use them together.

It’s a daunting task for sure but worth the effort and easier than you think.

1. Figure out how much monthly income you’ll need to live, pay your bills and lead the retirement lifestyle you’d like to have.
2. How much do you need to save to achieve this?
3. How much monthly income will you receive from other sources (like government pensions, from other investments or savings you may already have)?
4. Set up a savings plan to get you on the path to your retirement savings goal.

Tip: Go to your bank’s website and use their calculators to help you with 2 and 3.

There are lots of reasons to procrastinate:

• I don’t have my taxes figured out yet
• I don’t know how
• I don’t know where to start
• I don’t know how much I’ll need
• I’m young and have lots of time until retirement
• I don’t have any extra money to save for retirement, I need it now
• I have a pension/retirement plan through work

But there are better reasons to do it:

• If you have a plan, you will achieve more than if you don’t
• Starting sooner than later or not at all means you will have something saved
• A simple plan is not hard to do and a great start, it will develop as you refine your needs and grow your knowledge
• Anxiety relating to finances can be stressful, this will be a huge step to reducing your worries

Happy Planning!

It’s that time of year again when banks, credit unions and investment advisors are talking about RSP’s. There’s nothing like a deadline to prompt people to action.

How can a RSP help you?

• Saving for your retirement is a good thing to do – even though it may seem like ages in the future, starting sooner = more time for your money to grow
• While the savings are sheltered in a RSP, you do not pay tax on the investment or growth
• The impact on your income tax return means less tax paid now
• There are programs that allow you to remove RSP savings and use them towards the down payment on your first home or to return to school (review the program details to understand how it works)
• If you find yourself in a tough situation with no other options, savings are savings and they can be used to bail you out

Key points to remember:

• There is a limit to the amount you can put in a RSP – Check your income tax assessment for details
• The investment deadline to use a RSP savings tax receipt against your 2013 taxes is March 3, 2014
• Understand what you are investing your savings in – if you don’t have time to figure it out now, invest your RSP into something that allows you to change it later without restrictions or fees
• If you are married or common law, work together to learn how to structure your savings to your best advantage, now and in the future

If you’re able to set up a regular savings plan, you won’t have to worry about the deadline and invest in the busy season – much less hassle.

You’ve done the math and set the plan. How is it going? A plan is the key and a budget is simply a tool you use to reach your goals. What happens if you go off track?

The first step is to check in and see how it’s working. Compare your actual spending to your budget. It may be tempting to just check your bank balance and if the bills are still being paid, leave it at that but…..cash flow can be a tricky thing and sometimes it seems as if there’s money for all the bills but if you are spending more than you make, it will won’t be long before there isn’t enough in to pay rent or car insurance.

Checking once a month can be simplified once you’re confident that your fixed or regular bills (rent/housing, food, utilities etc.) are consistent and falling within your budgeted amount for these items. Discretionary or variable spending (entertainment, gifts, clothing, holidays etc.) can be the wild card and these are the ones to watch. Compare actual to budget so you can understand what’s fine (within budget) and what’s not.

Some tips to keep you on track:

• Set yourself a weekly spending limit on things that you know are a challenge
• Use cash to pay for items in these categories, taking out your ‘limit’ on a certain day each week
• Keep a buffer in your account of a few hundred dollars to cover off bills that fluctuate
• Set up automatic savings plans so the money doesn’t hang about in your account
• Monitor your spending against your budget
• If you are over budget, understand why and decide whether it was a manageable blip or a problem needing a solution – be creative! If it’s too tempting to buy when you’re window shopping, leave the cards at home!

You know your goals and what you typically spend each month. Before you compare it to your monthly income…..review the spend categories and consider which ones you could spend less on and how much.

Now compare your actual expenses to your monthly income. Does it cover them? How about if you add in some savings or debt repayment (whatever will help you meet your goals)?

The trick is finding the money. Before we jump to finding a second job, consider other streams of incoming money you may have. Do you typically get a tax refund? How about a bonus? Are you paid biweekly (this can equal 2 extra paychecks each year if you can live on the other 24 – 2 per month)? Do you work overtime or extra work? What does this add to? Perhaps this is a way you can fund your goals? The trick is to know what you plan to do with this money as soon as it lands in your hands….put it directly to your goal(s) rather than letting it run through your fingers.

Another place to look is to reduce expenses in areas where you have the most control such as entertainment, clothing or gifts. Other changes to cut costs may be more drastic lifestyle changes such as a change in vehicle.

Increasing income is often an option but may not give you a quick fix.

Maybe it’s a combination of the above that makes your budget balance.

Next week we’ll look at keeping on track with your plan and budget.

Before we move straight to making the 2014 plan, now is a good time to consider the reasons why this might not work. Not to be negative but often I hear people say ‘I’ve tried this before’ or ‘It never seems to work’ so let’s get the barriers to success right onto the table. They might be: