by admin | Consumer Proposal, Credit Counseling, Uncategorized
If you run your own business, you’re familiar with Entertainment Expenses. That’s the category to which you can assign money you spend entertaining clients or potential new clients, with the final resolution that you drum up some business.
The idea is that you spend a little to make your clients feel appreciated, and they give you back more than the cost of a dinner, sports tickets or a break at a café. Canada Revenue Agency generally allows you to claim 50% of a reasonable dinner/entertainment bill. The idea is that you consume half of what your total bill is, and they’re not going to pay for your meal. There are exceptions for occupations such as long-haul truck driver or bike courier, because they are required to eat in order to continue doing their jobs. For the average entrepreneur, the CRA doesn’t usually bat an eye if you spend $650 per year on entertaining.
But what about in terms of your household budget? Should you factor in some “entertainment” expenses if for nothing else than to feel as if you’re not spending everything you make on the drudgery of staying afloat financially?
Most experts agree that you should. But how much of your monthly budget should you assign to it?
If you work with the CRA figure, a person may think about spending $55 a month on entertainment (movies, fast foods, afternoon lattes, etc.). That’s for one person. If you want to budget for your wife or children, you may want to expand on that. Most experts agree that you shouldn’t be budgeting more than 5% of your paycheque, though, since there are other things that should take priority in your spending (utilities, debt repayment, rent, etc., and yes, even savings).
So, if you’re bringing home $1,000 every two weeks, for example, and you’re effectively covering off your house payments and debts, you may consider putting $50 into the “fun” jar.
You may think that doesn’t allow you much fun outside of your everyday routine, and so vacations are out of the question, but vacations are probably best included in your long-term planning, a separate budget category that is taken care of by your savings.
Your savings is money for your future, so in effect you’re stocking money away today for future fun — short-term financial pain for longer-term financial fun, if you will. Some people put savings away for their retirement and forget about having fun until then. There are examples of couples investing heavily in their retirement, with hopes of travelling the continent in a motorhome, only to have one of the spouses pass away suddenly and the surviving one wishing they had spend more money on living with each other now, rather than waiting for a tomorrow that now will never come.
Say you put away 10% of your paycheque into a high-yield savings account (which these days is about 3%). At the end of the year, you’ll have over $2,600. That’s a pretty good vacation for two every couple years, even at today’s prices, and you’re still contributing toward your retirement (albeit, not much).
As with any budgeting, the idea is to make your paycheque cover the essentials and plan for the things you want to do, rather than build up more debt living unsustainably.
So, figure out what you can afford to put away for “fun” and be regimented in making sure you put that money away. And be patient about spending it. The money will eventually be there to take off for Cuba, or buy a big screen TV, or just have a meal at a fancy restaurant and perhaps spend the night away at a downtown hotel. You just have to wait for it to arrive.
by admin | Credit Counseling, Uncategorized
Was Shakespeare right when he said, “Neither a borrower nor a lender be?” It often depends on the nature of the relationship. Borrowing and lending makes the world go round when it comes to national economies, corporations, or small business, but it’s a very different story when it comes to your spouse.
Debt can have a devastating effect on a relationship. It’s often cited as the No. 1 reason couples argue, and among the most common causes of divorce.
An American university study last year reported that couples who argue about money early in their relationships are at greater risk of divorce, whatever their income, debt or net worth. The 2012 study, “Examining the Relationship Between Financial Issues and Divorce,” also said that arguments about money were longer and more acrimonious than arguments about other topics. Another university in 2009 found that couples who disagreed about finances once a week were more than 30% more likely to divorce than couples who reported disagreeing about finances less often.
The best way not to join their ranks is to make good choices from the beginning. When you’re contemplating a major relationship commitment, talk to your partner about money.
Talk about your attitudes, your culture, what you think money is and its role in society. Talk about your financial priorities. If one of you wants to save for retirement and the other wants a speed boat, you’ll need all the open communication you can get. Disagreeing doesn’t mean your relationship is doomed, but it will take continued non-judgmental communication and regularly revisiting the issue to keep from developing resentments and creation
financial tensions down the road. Talk specifically about the debts you bring to the relationship, and be absolutely honest.
If you’re in a relationship with someone whose debts far outstrip yours, or who seems to constantly be accruing more, consider waiting before making a long-term commitment. Give him or her the chance to straighten out their financial difficulties, or at least take the right steps towards doing so, before you walk down the aisle.
If you’re already married and you or your spouse is in financial trouble, it doesn’t necessarily mean both partners are in the same boat. A debt that is yours alone (for which they did not co-sign) does not affect your spouse’s credit, and a bankruptcy affects only the insolvent spouse. Joint debts can be a different story, and can even your ex-spouse’s (or one from whom you are legally separated) behaviour can affect you financially.
If you’ve got concerns about your financial future, or that of your prospective spouse, talk to a qualified Credit Counselor today.
by admin | Consumer Proposal, Credit Counseling, Uncategorized
It’s amazing what we can convince ourselves we “need.” When in truth we need to look after our families, sleep indoors, eat nutritious meals and drink clean water, we convince ourselves we need a cell phone, a gym membership — and new furniture. We work hard, and certainly in theory we do deserve to have the things we want, not just the things we need. When the springs start to poke through the couch cushions and the mattress has more lumps than grandma’s gravy, we convince ourselves we need new furniture, even when we can’t afford it. At least furniture, unlike a vacation, is around for a while, but except for your house and your car, you should start working towards habits that let you pay cash for everything else. If you can’t quite bring yourself to do that, at least be very careful not to fall into the rent-to-own furniture trap. The allure of rent-to-own retailers is that you can make small monthly payments — smaller than you would pay if you financed the furniture through your bank. The downside is that payment often stretches over so long a length of time and at such a high interest rate, by the time you actually own the furniture you could have paid off a bank loan twice. In addition to interest rates that are substantially higher than the going bank rate, there is always a lot of fine print. If you decide to return the item early, you’re out whatever you’ve already paid on it. Of course, if you miss a payment, the company will repossess it, and quick. They don’t report timely payments to credit bureaus, but they don’t report missed payments either, because technically it’s not a loan. Rent-to-own prices are much higher than other retailers, often shockingly so. We did a quick check on one rent-to-own website and found a 32” Toshiba LED TV for $10 x 156 months, or $1,560. We found the same TV at an electronics retailer for $275. A certain Acer laptop was $549.99 at the electronics store; it was $1,976 ($19/week for 104 weeks) on the rent-to-own site. If that’s not enough, rent-to-own retailers are often under fire for complaints to the Better Business Bureau and consumer advocate groups. The bottom line is that these companies exist to serve
customers with poor or no credit who can’t get traditional financing. With today’s rampaging consumer debts, rent-to-own furniture, electronics and appliances retailers are more popular than ever, but they’re seldom a good idea.
by admin | Credit Counseling, Uncategorized
If you’ve ever been to one of those payroll loans shops and taken an advance on your salary, you might be in financial trouble. If you barely make it — or can’t even quite make it — to your next pay day, you’re living in a vicious financial loop where you can never get ahead. You’re likely paying exorbitant interest because you can’t make more than minimum payments on your debts; you may never build up equity in your home. Even the smallest of emergency situations, like an unexpected car repair or a sick pet, can be a trial. Big, life-altering situations like serious illness or divorce can be devastating. A resort vacation or a new car? Forget it.
It’s a hard habit to break, but it can be done. The first thing it will take is the acknowledgement that you didn’t get here by magic — the decisions you’ve made in the past and the way you’ve chosen to handle your money are why you’re living paycheck to paycheck. Once you get real about what got you here, it’s time to get real about your spending. Check out our last post for some help making a spending plan.
Be prepared to cut. Do whatever it takes for as long as it takes — getting off the paycheck-to-paycheck merry-go-round will be worth it. Start with little things, like turning off lights when you’re not in the room and taking your lunch two or three days a week. Move on to carpooling and ditching your cable television. Then, take on the big stuff, like selling your motorcycle or getting by with one car between you. Then, start talking to your family about the really, really big stuff, like whether you should be selling your house, using the equity to pay off your debts, and renting an apartment for a couple of years.
Start putting away a small amount for savings, even if it’s just $25 or $50 a check. Have it taken directly from your bank account on pay day and put into a tax-free savings account (TFSA), where it will require a special request and 24 hours’ notice to get at it. It makes it hard to buy on impulse, and over time, you’ll be surprised how much small amounts add up.
Pay your bills as soon as they’re due, and pay more than minimum on credit debts, even if it’s just $5 or $10 more. It will make a big difference in how long it will take to pay them off, and how much your borrowing will cost you. Get in the habit of keeping just one credit card with you, with a small limit, strictly for emergencies, and leave the rest at home.
Also get in the habit of tracking your spending, maybe forever. Keep a little journal and write down every penny you spend for the first few weeks, and then when you’ve developed better habits, start looking at your spending
perhaps once a week. If your expenses start creeping up again, act to reduce them. Consider turning a hobby into a part-time venture, or volunteering for overtime at work to increase your income.
Take responsibility and act now. Enlist the help of a qualified Credit Counsellor to help you stop living paycheck to paycheck.
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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