by admin | Consumer Proposal, Credit Counseling, Uncategorized
Money is a great tool. Properly managed, it can enhance your quality life, give your children a great start, and help your friends, family and favorite charities do good in the world. Mismanaged, it can become a source of stress and conflict, harassing phone calls from lenders and garnisheed wages.
One of the keys to getting a handle on your finances is to prepare a manageable budget, and use it to help keep you from living beyond your means. It may help to think of your budget as a spending plan instead — it shouldn’t be about deprivation. A good budget flexes with changes in your circumstances, and lets you predict how much you’ll need each week, month and year to meet your obligations and build a financially viable future.
It doesn’t matter whether you use a fancy spreadsheet or a piece of paper, just get started. First, write down your income, and remember every source, including interest and dividends, government assistance, even birthday money from Mom and Dad.
Then make a list of all your fixed and variable expenses on a monthly basis. Fixed expenses are those that don’t vary, such as mortgage payments, child support and car insurance.
When you’re writing down variable expenses (those that fluctuate from week to week or month to month) don’t forget the small stuff, like trips to the drive-through and bank charges, and the stuff you’d really rather ignore — like $158 a month in interest charges on your line of credit!
If don’t know what you spend, keep track for a couple of weeks. Finding out what you actually spend on groceries, clothes, visits to the salon and meals out can be a real eye-opener.
Also include in your plans at least some small savings, aiming for at least 5% of your income. If you can’t save that much now, put in some tiny amount anyone can scrape up, like $25/month
Remember that all your annual expenses need to be accounted for in your monthly budget. If you blow $500 on gifts at Christmas, put down $50 in your monthly budget. Remember debt repayment too, and always aim for more than minimum payments.
Once you have a clear picture of your spending and your income, it’s a simple game of pluses and minuses. If you’re spending more than you make, you have two options: make more or spend less. Preferably both. Just don’t live in denial. Be prepared to cut back on variable expenses and give up some luxuries. Whatever it takes, your budget needs to balance. Getting further and further into debt each month is no longer an option. If you have to give up eating out, colour your hair yourself, or live without a vacation this year, it’s a small price to pay for lasting solvency. Most importantly, when there isn’t money to spend, stop spending.
To stay on track, stop looking at your budget as a static tool. It’s like being on a diet: if you tell yourself you can never have ice cream again, you’ll eventually lose your resolve and eat seven pounds of ice cream in a day. If you are desperate to have a weekend away, adjust your spending for the few weeks prior; brown-bag your lunch, take the bus, do whatever you have to pay cash for your getaway. If you overspend one week, cut back the next.
Finally, get real with yourself. Distinguish needs from wants. You need food and shelter. You want a cell phone, magazine subscriptions and satellite television.
Once you get the hang of it, being in control of your finances offers a much greater feeling of accomplishment than stopping at the drive-through ever could.
by admin | Credit Counseling, Debt Management, Uncategorized
As we get closer to tax time, many start to think about the tax breaks offered by a registered plan but many may be confused about what they are looking for, what with all the acronyms.
The two most notable are TFSA and RRSP. They aren’t the same, nor do they serve the same purpose.
The Tax-Free Savings Account (TFSA) is a flexible, registered, general-purpose savings account that earns tax-free interest. Canadians can contribute up to $5,500 annually into a TFSA and can withdraw the money in the account at any time. The money contributed to the TFSA is not tax exempt, though, as it is with an RRSP. The benefit of a TFSA is that you can save up for anything and collect interest that you can put toward whatever you decide to spend it on.
An RRSP is a retirement savings plan into which you or your spouse or common-law partner contributes to a set limit, dependent on your income for that year. RRSP contributions can be used to reduce the income tax you pay and the interest accrued is also sheltered from tax. You do, however, pay tax on the withdrawal at the time of withdrawal. The RRSP is a great retirement savings tool because you can contribute to it in your high-income earning years to reduce your tax owing, and then use the money as income in the future when your earnings may put you in a lower tax bracket.
RRSPs help you meet long-term financial objectives such as comfortably living in pension years, while TFSAs allow you to save for short to long-term goals.
Both allow you to top up what you may have missed putting away in previous years, but you have to be careful with a TFSA that you don’t over-contribute per year, which would incur fees. Say you contribute $5,500 on January 1 and take all of that money out by the time you receive your tax refund. You cannot simply put the refund back into your TFSA because you would overstep your contribution limit. You have to wait until the following January to add it along with the $5,500 for that new year (so, you could add $11,000 on January 15, for example).
With an RRSP, the government tells you what you can contribute for the following year based on what you earned that year. It also factors in what unused contributions have carried over. Say your allowed contribution is $5,500; you put $3,000 into your RRSP and on your tax assessment and the government tells you that you can contribute $6,000 next year PLUS the $2,500 carried over from the previous year for a total of $8,500. You can put your tax refund toward the following year’s contribution. Say that’s $1,000, which means you can contribute another $7,500 until the deadline for the next year’s contribution. Withdrawals from an RRSP are taxable, so you cannot simply replace the money you take out (with a few exceptions, such as using it as a down-payment on a house) without it going against your allowance for the tax year.
One last important thing: on death, the RRSP is counted as income on the deceased’s final income tax return and added to the estate. The other alternative is to roll it over into the RRSP of a spouse, common-law partner or dependent, where the transfer is tax free and continues to grow tax free until such time as the new owner cashes it in or forwards it along to dependents on passing away.
On death, the amount in the TFSA of the deceased is generally passed along to the spouse or common-law partner.
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by admin | Credit Counseling, Credit Repair, Uncategorized
Perhaps the best reason to protect your credit is that good credit will help you obtain a mortgage when it comes time to buy a house, and at the best possible interest rate.
If you’ve decided it’s time to get on the property ladder, you need to be realistic about your financial management abilities and your employment stability. Remember, too, that a home costs much more than its price tag: you must also factor in property taxes, condo fees, utilities, insurance, maintenance and repairs, and all the other costs of ownership — they quickly add up.
When you’re deciding how much home you can afford, first take a good look at your household expenses and your reliable income. As a general rule, your total housing costs for mortgage repayment, taxes, condo fees and utilities shouldn’t be more than about 30% of your gross (before tax) monthly income.
Ideally, you want to save for a down payment 20% or more of the price of the house you want. You can under some circumstances in Ontario obtain a mortgage for 95% of the value of the home, but you’ll have to pay insurance fees to Canada Mortgage and Housing Corporation (CMHC) that could cost you thousands.
Before you shop, visit potential lenders and get preapproved for a mortgage. Your lender will decide how much home they think you can afford. Canadian mortgage laws are pretty strict, but it’s still possible to become overextended. It’s in the bank’s best interest to loan you as much money as they can; since they have your house as collateral and you’ll pay thousands in interest before you even begin to pay off the principal amount, they can’t lose. Don’t give into the temptation to buy more home than you really need.
Remember you’ll also need to have several thousand dollars put aside for title searches, lawyer’s fees and the like.
It can be daunting, but real estate has a reputation for outperforming the stock market in the long haul, and it’s about the only investment you can use while it appreciates. If you own your home outright, it could be a substantial part of your retirement savings. This all makes owning a home one of the smartest financial moves you can make.
If your debt load is preventing you from owning a home of your own, there are steps you can take to pay off your debts faster. Call a qualified Credit Counsellor for help today.
by admin | Bankruptcy, Credit Counseling, Uncategorized
It’s an unfortunate truth that by the time most people admit their finances are in trouble, they’re already in deep. Learning to identify a few financial red flags in their earliest stages can help you stay on top of your debt.
If any answer yes to any of these questions, you may be headed for financial trouble. Stop spending, and make an appointment with a qualified Credit Counselor.
- Am I making only monthly payments on my unsecured debts?
If payments to your credit cards and lines of credit are consistently minimum-only, you are in danger of paying nearly the principal in interest before you pay off your debt. For instance, if you owe $10,000 at a rate of 16%, with an initial minimum payment of $200 and making only the required minimum monthly payment thereafter (remember that the minimum will go down as the balance goes down), it would take you 36 years and cost you an additional $18,659 in interest charges!
- Do I pay my bills late?
If you are habitually late in making payments, it’s a sign you’re mishandling your money. It will begin to reflect on your credit rating, and will accrue additional interest as well.
- Have I been turned down for credit?
If you’ve been denied a new loan or a credit card, it means the potential lender took a look at your credit history and your credit score, plus some additional factors like how much of your total available credit is currently in use, and decided you were a bad risk for timely repayment. If you’re overextended, it’s time to stop charging and start tackling your balances.
- Am I charging monthly expenses?
If you find yourself using credit to pay for groceries, gas, prescriptions or other necessities, it’s a sign your spending is outstripping your earning. The solutions are simple: make more or spend less. If you can’t pay your credit card bills in full each month, put them away and go cash-only.
Of course, the key to effectively managing money is as simple as living within your means. Stop spending, pay off your debts, set up some savings for emergencies, for big-ticket items, and for retirement, and you’ll be amazed at how quickly your nest egg grows. Call GTA today and let us help you stop trouble in its tracks.
