Archive for the ‘Debt’ Category

If you have debt and are currently reading this you have already accomplished step 1.

Step 1 – Make the decision to tackle your debt once and for all!

This is a critical step to getting your debt under control. In our consumer based, got to have the latest STUFF, no matter what the costs, society it is no wonder many are living beyond their means and racking up the debt. So if you are ready to truly deal with your debt and give yourself a better quality of life repeat after me: I have more than enough stuff! I want rid of my debt, high interest charges, stress, and frustration! I AM READY FOR A BETTER QUALITY OF LIFE!

Now repeat it again!

Step 2 – Make a list of ALL your debt!

Gather up all your bank statements, credit card statements, store credit, car loans, personal loans, lines of credit, mortgage, etc. Now on one piece of paper (if it is a long list use legal length paper) or in a spreadsheet list each creditor, the amount outstanding, the minimum payment, outstanding available credit, and the rate of interest. If you don;t know or can’t figure out how much interest you are paying – then pick up the phone call them and ask them to tell you! If you have a “DO NOT PAY FOR 18 MONTHS” kind of loan then learn how much the interest is and be sure to pay it all off before it comes due.

EXTRA: If at this point you have debt payments that total more than 40% of your gross income, you should contact Credit Canada at 1-800-267-2272 or visit their website at www.creditcanada.com . They can help educate and organize you to pay off your debt. They will show you how to communicate with your creditors to stop interest charges and reduce your payments. They can also help you to protect your credit rating and prepare to the future.

Step 3 – Organize the debt from highest interest to lowest interest

Rewrite or sort the spreadsheet from highest interest to lowest interest. Example:

Creditor	Amount Outstanding	Minimum Payment	Available Credit	Interest
Department Store Card	$      2,200.00	$     66.00	$ 300.00	28.0%
MBNA Card	$      4,850.00	$   145.50	$ 250.00	24.5%
Master Card	$      3,300.00	$     99.00	$ 700.00	19.9%
Visa	$      5,275.00	$   158.25	$ 725.00	19.5%
Personal Loan	$     11,000.00	$   220.00	$     -	12.5%
Line of Credit	$       8,850.00	$   265.50	$ 1,150.00	9.5%
Car Loan	$     14,825.00	$   450.00	$      -	6.5%
Mortgage	$   248,000.00	$1,250.00	$  12,000.00	4.8%

Step 4 – Pay out highest interest debt first!

Be sure to make the minimum payment on all debt first. This will help to protect your credit rating. Then any money you have left over take and put it all against the highest interest debt to pay it down as quickly as possible. Now look at the bottom of your spreadsheet where you have listed the debt with the lowest interest rate. Do you have any available credit at these lower interest rates? If so I want you to max out these accounts to pay off the higher interest debt as soon as possible.

Step 5 – Close your credit!

For many once you have paid off the debt it is far too easy to rack it back up! Once you have paid off the debt (highest to lowest interest) close the credit. This will help you in the future to qualify for other credit, improve your credit score and make it easier for you to stay on track for debt elimination.

Be aware that for many it may take four or five years to payout debt. The secret is that once you do start and you see those balances going down rather than up it will make you feel better and help motivate you to stick with it. By using the services of a credit counselor you may be able to save thousands of dollars in interest and having someone to talk to and work with you to accomplish this goal can make all the difference. Call or go to Credit Canada’s website www.creditcanada.com to learn more. Be sure to check out a number of great tools they have on their site that can help you to pay off your debt faster and save you more money http://creditcanada.com/financialtools.asp

Watch for my book “One Day A Month To Financial Success” due out October 2011!

There are two sides to a budget – Income and Expenses.

Many when they build a budget will take their most recent pay and use it to determine how much  income they have coming in every month. This will start their budget off by several hundred dollars!

First many get paid on a bi-weekly (every two weeks) basis. So simply multiplying by two will have you underestimating your income by 8.3%! This could represent your retirement savings!

Second Some of the deductions on your pay are considered expenses and should be put in the expense column. So you may end up double counting these expenses. Most common is retirement or pension contributions that come right off your pay cheque. Other items might be life or health insurance premiums, union dues, gym memberships, etc. These automatic deductions can skew your actual income.

Third – Depending on your income and the time of year that you run your budget you may have CPP and EI deduction being taken off or you may not. If you earn $44,000 or more you will max out your contributions to CPP and EI. Once you have reached this amount of income you will no longer have those deductions.

TIP:  If you make more than $44,000 the easiest way to deal with those deductions is to take the max CPP and EI amounts for the year and divide them by 12 and subtract that amount off your income. (2010 MAX CPP premium $2163.15 /12 = $180.26, MAX EI Premium $747.36 /12 = $62.28 )

If you are self employed, commission income, or variable income; take the income from last year and give serious thought as to whether this years income will be more or less and try your best to estimate what you think you may earn. Speak with your bosses about what they think is realistic and then once you have determined a number take off 20% to be conservative on your budget. Any extra that you do earn can to a seperate fund to pay for your “Nice To Have” goals!

If you have two or more incomes contributing to the expenses you need to do this for each one and add them all together.

To help you identify other income sources such as dividend and investment income, rental income, alimony/child support, etc; it is easiest to take last years tax returns and go through the 100′s and 200′s section of the T1 General. This is where you list all income.

Watch for my book “One Day A Month To Financial Success” due out October 2011!

When building a budget many people get to the end of the process and are surprised by the amount of money they spend, and or are surprised by how much money they should have left over every month! This is primarily due to the fact they are not calculating their budget properly.

Mistake #1 – Not everything is paid or charged on a monthly basis!

This is the biggest error. If you get paid $2000 bi-weekly you don’t make $4000 a month! You actually make $4333.33 a month! Your hydro bill comes every two months so if you didn’t account for it in your monthly budget you will be short $200 in your budget to pay for it. If you did account for it but included the entire amount in that month, your budget will show you spending more than you really are!

Solution: Identify how often something is paid – to you or by you!

Once you have identified this apply the following formulas to determine the monthly budget amount:

Weekly = $amount  X  52  /12

Bi-weekly = $amount  X 26  /12

Monthly = you don’t need to do anything here just plug it into your spreadsheet

Semi-monthly = $amount  X  6  /12

Quarterly = $amount  X  4  /12

Semi-Annually = $amount  X  2 /12

Annually = $amount /12

Mistake #2 – Not all pay cheques are equal

Many people who have salaried positions will have an easier time with this. Although there are still mistakes made. The most common is that your deduction for Employment Insurance and Canada Pension Plan max out at a certain point (depending on your income). So if you used pay cheques from the first part of the year to calculate your income, you may have underestimated the amount of income you have coming in. Bonuses, commission income and irregular hourly work can also throw a wrench into the numbers.

Solution: Use last years tax return to identify exactly what income you had.

This won’t work for everyone as variable income is hard to predict but try to identify how much you expect to make in a year and divide it by 12.

Mistake #3 – Double counting.

This is typical when people have money taken off their pay cheque for pension or RRSP or other savings. They will tend to list it again when they fill out their budget as it is top of mind! Other examples are when you include eating out or ordering in under entertainment, but also under “food” (i.e. groceries).

Solution: Be sure to start by categorizing each expense only once as you go through your credit card statements and bank statements. Do not start filling in the budget spread sheet until this is completed. If there isn’t a categorie that it will fit into than create a categorie for it. Even more so – be patient and dilligent in preparing this important document.

Mistake #4 – Not including everything!

Without going through a full years worth of statements, it is very easy to miss or forget about some items. Especially those that you only pay once a year! Maybe it is an annual dividend that is paid, or association membership, professional dues, or annual insurance premiums. What ever they are they can really throw a budget out of whack.

Solution: Build an annual payment section to your budget!

This may include memberships, dues, insurance premiums, magazine, newspaper, and website subscritptions, car registration, kids school fee’s, etc.  Once you have grouped them all together take the total and divid it by 12 to add to your monthly budget.

Watch for my book “One Day A Month To Financial Success” due out October 2011!

1) Make a Grocery List and Save 10% - Like this one: groceries list

By going into a grocery store and just walking around randomly picking out items that look good will end up costing you a lot of money. By making a grocery list that is derived from a meal plan will not only save you at least 10% at the register but likely even more as you will throw away less food. You can probably save yourself 20 – 30 minutes as well.

2) Make a Meal Plan Based On What Is On Sale That Week! Save At Least 10%

When you are sitting down to make your grocery list, take the weekly flyer’s or go to websites such as www.flyerland.ca to see what is on sale. From that make a meal plan based on the sale items.

3) Avoid The Fancy Grocery Stores. Save 10%

By shopping at places like No Frills and Food Basics and avoiding the Longos, Sobeys, and big Loblaws; you can cut the cost of groceries by at least 10%. The cost making the store fancy and nice has to be recovered through the price of the groceries.

4) Shop At Your Local Fruit and Vegetable Stand. Save 10%

You will typically find that the produce at these small local venders is fresher as this is all they sell and they have huge inventory turnover. They usually have specials where if you buy multiples of something it is cheaper. There prices on most things are at least 10% cheaper and the money you spend stays within your community, not big corporate shareholders!

Bonus: Do You Ever Have Pizza Night?

Typically when you order in pizza for a family of four it will cost $30 or more! Check out your flyers for the frozen pizza’s! These have come a long way and many of them are very good. They always go on sale and you should be able to feed a family of four for $10 or less!

Extra Bonus: Starting eating up what you have in the house!

If you are like many, you have a pantry full of food. I would think a conservative estimate would be between $200 and $300 worth of groceries! So for the next 10 to 15 weeks eat around your pantry and save yourself an addditional $15 per week in groceries!

Have you come up with some great ideas to save you money on your groceries? Please let me know! Thanks

Watch for my book “One Day A Month To Financial Success” due out October 2011!

The dreaded ‘B’ word! There is absolutly no reason to fear preparing a budget. I think the reason why many people do is that they feel it is a lot of work, they don’t really know how to do it, and those that have tried have never been able to keep it (likely because it was done wrong).

Yes! It does require some work. The good thing is that with today’s technology it is getting less and less.

So what is a budget?

Simply: a budget is a record or projection of all the money coming into the house and all the money going out of the house. Another name for it is a cash flow statement. This makes it easier to visualise. Money flows in and money flows out, and flows out, and flows out…

Why is a budget important?

A budget is paramount to financial success! You need to know how much you have and what it is being spent on to be able to prioritise spending and allocate funds towards different goals. Whether it is retirement, traveling, buying a new car/house/boat, the kids education, pay off credit card debt, or maybe a wedding – you need to understand where you will be able to get the money to pay for these things.

How do you get started?

First – prepare yourself that in order to prepare a good (i.e. accurate) budget you (and your partner) need to set aside 4-5 hours of time to complete it.

Secound – Gather up at least the last three months bank statements and credit card statements! ALL THE CREDIT CARD STATEMENTS! Not just the ones you tell your spouse about .

Third – Use this Budget Worksheet as a guide to identify the various categories to seperate out your spending. It is important to understand how much you spend on various items so you can identify where you may be overspending and can cut back.

Forth – Start going through all your statements line by line noting the category that each one belongs.

Fifth – Start fillling in the spreadsheet to determine how much you earn and spend every month!

Sixth – Once you have tallied up the income and subtracted off the expenses ask yourself this: I SPEND HOW MUCH?!?!

Be sure to read The Most Common Budgeting Mistakes!

Watch for my book “One Day A Month To Financial Success” due out October 2011!

Peace of mind and a better quality of life are simple answers.

I have been asked many times “Why should I get a financial plan? What questions can I get answers to?”

Many are not even aware of the array of questions they have when it comes to their personal finances. When I sit and chat with people about finances and mention some of the area’s to address they frequently respond with “I never thought of that before!”

To get a start here are just a few of the questions that can be answered by preparing a proper financial plan.

A financial plan will give you the answers and solutions to the following questions:

• When can I retire?
• Will I run out of money?
• What should I invest in?
• How much do I need to save?
• Should I participate in my company’s pension or RRSP plan?
• Should I pay down my mortgage or contribute to my RRSP?
• Should I contribute to my RRSP or the TFSA or both?
• Should I borrow to invest?
• Should I have a fixed or variable mortgage?
• What can I do to reduce my taxes?
• How much and what kind of insurance should I have?
• What is the most effective way to transfer my estate to my children?
• How should I set up and or structure my business?
• What is the most effective way to give to charity?
• Am I on the right track?
• Am I taking too much or too little risk with my investments
• and many more!

To start your financial plan or to learn how we may be able to help you please contact me.

I have met many people who tell me that they have a financial plan. When I ask to see it they say ” I don’t have it written down.” or they will show me one or two pages with a chart or graph showing the asset allocation of their investment assets. When I start asking question about their taxes, goals, real estate, estate plan, insurance, etc. they inevitably have little to no answer.

So what is a financial plan? and what should it cover?

Let’s start by saying what a financial plan is not!

A financial plan is not: a two page document that you get after spending 15 minutes sitting with someone at the bank that tells you how much you have to put away every month into the banks balanced mutual funds. AT BEST this may be considered a retirement goal plan – but not really.

A financial plan is not: spending an hour or two with an investment advisor at a brokerage firm review the investments you have and building a new investment portfolio strategy after answering a two page questionnaire to determine your ‘risk profile’. AT BEST this may be considered an investment plan – but not really.

A financial plan is not: sitting with an accountant to figure out how to reduce your taxes this year. AT BEST this is a tax plan – but not really.

A financial plan is not: working with a life insurance agent to get a bunch of different insurance policies and segregated funds that claim to give you retirement at 55. AT BEST this may be a combination of an investment plan, and a protection plan – but is REALLY not!

A financial plan is not: dealing with an advisor whose only solution is to offer you investments in mutual funds and GIC’s and talks of big returns! AT BEST this is an investment plan – but not really.

A financial plan is definitely not: buying lottery tickets, getting advice from Dad, hoping to sell a business, flipping real estate, gambling at the casino, or trying to pick the next Google stock! AT BEST this is entertainment – but not really.

Financial Planning is a process where you and a Register or Certified Financial Planner (RFP, CFP) go through many aspects of your life and your finances to identify and change areas to improve and achieve the goals set-out.

Through preparing a financial plan you will:
Identify and understand where and what you spend your money on

• Understand, organize, and structure debts efficiently
• Understand where and what your money is invested in
• Set goals that are specific, measurable, attainable, realistic, and time limited
• Learn effective way to reduce your taxes every year and over your lifetime
• Develop solutions to further reduce taxes and increase personal wealth
• Identify areas of personal risk and develop solutions to protect against them
• Determine investment returns needed and structure asset allocation
• Identify and structure income efficiently to reduce taxes
• Develop solutions to protect and reduce liability
• Learn and understand effective ways to donate to charity
• Learn how and when to draw income from various sources such as RRSP, CPP, trusts, etc.
• Develop income splitting strategies to reduce taxes and avoid government benefit clawback.
• Learn ways to get money out of RRSP’s effectively tax free

Most importantly: Achieve peace of mind through having a solid understanding and confidence in your finances!

As a New Year begins and we all think about resolutions and set new goals be sure to have “paying off credit cards” at the top of the list!

After all the Christmas decorations are taken down and the first set of batteries have died in the kids toys is about the time when your credit card bill arrives in the mail. Take a deep breath, open it, and resolve to tackle your debts once and for all.

The first step is to stop accumulating debt! You have all heard the saying “Don’t buy it if you don’t have the money!”

Build a budget! Start by looking at where you spend all your money. Collect up all your bank statements and credit card bills for the last three months and start identifying where it all goes.

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As we head into the holiday season, many will get the biggest surprise of all – not from the gifts under the tree – but from the credit card bill in January!

It doesn’t have to be this way if you do a little planning and stick to your list.  Below are some tips on ways to beat the January credit card blues

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