Budget Sense

You know tax filing season starts in mid February, yet you are often not prepared when it is here. As if you have never done this before. Being ready and prepared for income tax filing season could make the difference between getting a large return, or getting nothing (and even paying back to the government)

Tax season basically starts from the first day in the year! You have to set a special folder for the new year , label it, and start putting everything to do with taxes in there. This includes donation slips, medical expense records, RRSP statements, interest on student loans etc.

By having this simple folder, you are better organized and focused. This ensures that no tax related records are lost or misplaced. When tax season is here, you have all that you need to start your filing right away.

It also helps to have previous year’s return with you as well, just in case you need to refer back to it.

If you are doing your own taxes, it helps to have a good understanding of how the CRA works, and what you can deduct or use for your fillings. There are lots of Canadian books that specialize in offering advise on how to get the most out of your tax returns.

In upcoming articles, we will outline ways on how to get the most of your income tax return and avoid paying the government instead.

Just remember, income tax filing may be done in one hour, but preparation for it is ongoing from the first to the last day in the year. The more ready you are, the easier and probably better returns you will get.

I used change money to pay the down-payment on my dental treatment. That is right, I used nickels, dimes, quarters, loonies and toonies that I had saved in a piggy bank to pay more than $800 towards the total cost of getting braces for my teeth. And it took me less than 18 month to save this money.

The best thing about it all, it didn’t even feel like saving money. I was simply putting away loose change that I didn’t need.

Although this was my first experience of using change money to pay for a large purchase, other even bigger ones were done later on. So how can such small amounts of money lead to enough savings for a big purchase? Using my own long experimentation with this type of saving, here are some ways where you can save enough coins to buy some of the things in your wish list.

-Decide where you will collect and save your change: a piggy bank comes to mind, and while it doesn’t have to look like a pig, it is important that the jar you use is closed and has no way of opening it, unless you break it. You don’t want to make it easy for yourself to open your little bank, the next time you desperately need change for a coffee.

-What are you saving for? you have to decide what you are saving for. Is it a down-payment on a used car? New computer? Getaway vacation? Once you decide what you are saving your change money for, print a little sticky tag with what you are saving for and stick it on your piggy bank jar. This helps, according to our 3rd principle of budgeting and finance, to keep you focused on a clear goal.

-Target date: while it is not a must to have a target date to reach your savings goal, in certain situations you will have to specify one. For example, if you are saving for an August car show in California, then you have a clear target date to abide by. A specific target date together with a clear objective for the saving (see note directly above) will help you stay more focused.

-Where to place your ‘loose change’ bank? This is extremely important. Based on my personal experience, the car has proved to be the best place to keep my piggy bank. Why? It is so within reach to deposit all your leftover and unneeded change from any purchase. Of course, you will have to hide it from clear view for safety reasons. If you are uncomfortable leaving it in a car or don’t even have a car, next best place is somewhere that is within the view of everyone at home. This will help make it easy to reach, so you can deposit your change in it when you come back home. Occasionally your family members may (hopefully) deposit their unneeded change there too.

Although I used a piggy bank jar to save my loose change money, occasionally I would deposit small bills too. This can speed-track your savings.

Putting your loose change away in a bank has an additional benefit to your health as well. Like we noted in another article, as your wealth and health are closely related, saving your change will help you avoid spending it on junk food or high caloric beverages.

Last, you shouldn’t use a piggy bank to replace your real bank savings. The two are completely independent and this second one is more of a complimentary (not a substitute) for your real savings in a real bank.

In accordance with our 1st principle of budgeting and finance, ‘every bit helps’ and diversifying your means of savings, even through change money, will go a long way towards achieving your financial goals.

In your budget, you would naturally have a ‘savings’ category for future emergencies or just general saving purposes. But what if you want to buy a fairly expensive item (at least hundreds of dollars and up to thousands) like a vacation, new furniture, or even a car?  Do you dip into your ‘savings’ and just take the money from there? No need to do that.  There is a better and more efficient solution.

Create a new category in your budget and dedicate it to the future item that you want to buy. For example, if you want to take a one week vacation to Mexico that will cost you about $800, create a new category in your budget and call it “Mexico Vacation” . Psychologically, it makes a big difference to make it as specific as possible by calling it “Mexico Vacation-August 201” and not just some general “Vacation.” This generally helps your brain become more focused on this, since you have a clear destination and timeline.

Where do you get extra money from?

Now to the other challenge: where do you get the money from? Just because you have to save for something new, doesn’t mean you have extra money to spare. Your income is still the same (unless you are due for a raise at work, or start a new PT job) First thing to do is to conduct a budget review, line by line, and see which categories can you afford to take some money from and transfer it to the new “Mexico Vacation – August 2011” category?
The easiest and most logical place to start from is your ‘Savings’ category. This is not to suggest that you will stop saving, and just put everything towards the Mexico vacation. Rather, you would take something small from it and reallocate it to the Mexico vacation. For example, if you put $125 from every paycheck towards your savings, you can take $25 from that and transfer it over to your “Mexico Vacation-August 2011” category. You are still saving, but just not the same. But no worries, you will go back to saving the same amount once you have saved enough money for the vacation.

Keep reviewing other items in your budget to determine which other ones can you afford to transfer money from to the “Mexico Vacation – August 2011” category. What about your personal spending? Maybe your weekly ‘Grocery and Food’ category?

Assuming we have about 12 more pay periods from now till August, and assuming you can dedicate some $60-75 per cycle to the ‘Mexico Vacation – August 2011’ category in your budget, you could achieve your $800 goal that is needed for the vacation, even before August.

Bit of Effort to Save a lot

As you can see, with some crative budget re-allocation, and very minor sacrifices (patiences and discipline) , you have saved for your Mexico vacation. In other words, with a bit of planning, you can afford to go to Mexico and still be able to carry on with most of your other life activities, including saving money.

Mind you, if we have a bigger item to worry about, like a car for example, then you should look at a longer timeline (one year is ideal) and making some more sacrifices, but nothing draconian.

Last, in emergency situations, you will have to dip into your savings, and maybe temporarily make big sacrifices. But if you have prepared for it, it won’t be as hard.

When reading about how some people fell in deep debt, the story is almost always the same: it often starts when they were students in college or university. There, they are offered credit card after credit card by different companies, where the offer is too good to resist for a young person. And you know the rest of the story.

This college-born debt is killing our youth and young generations, that by the time they graduate, they have to pay both their student loans as well as other debt they incurred through reckless borrowing and spending.

Why isn’t anyone sounding a serious alarm about this ticking time bomb? Better yet, why don’t colleges do something about it and educate their students? Simply assuming that students are mature enough to think for themselves and not borrow if they can’t pay it back, is not enough. As we can see, if the majority are falling for it, then we know students can’t think for themselves, or they just need the money so badly, they don’t think about future consequences.

Solution?

There is no better solution than early education and awareness, starting from parents and high school. Almost every school offer such creative courses in arts, sports, writing etc. How about a course in personal finances? We would be doing our teenagers and youth the biggest favor by educating them early about finances and the dangers of taking on too much debt.  I have been through this too and I can assure you that if someone had educated me about this better, I wouldn’t have signed up for that credit card on campus. After all, I already had one card, why the need for a second?

This is a unique problem. When students enter university, it is a whole new world, and a quiet overwhelming experience. It is a world where there is too much pressures, demands, energy and little money to pay for it all. So when someone presents them with a magical plastic card that can pay for anything up to a car, who can resist? Some of these early college attendees may have been told by their parents about the dangers of debt, but because they haven’t experienced it yet themselves, they don’t pay much attention to the risk.   By the time they do, it is usually too late.

Certainly, we can’t ban credit cards from being offered on college and university campuses. How about keeping them but putting a cap on their limits?  After all, $1,000 limit should be more than enough for immediate and small purchases, and for anything larger and school related, they can use their student loan.

I urge every parent reading this  to spend enough time with your kids to educate them about the toxicity of easy college debt.  If you prepare beforehand, save money for college, and budget properly, you won’t need these nasty credit cards. Unless you want to spend the first decade after your graduation, paying your debt.

It is a mystery how we can spend so much money, yet not know what we are spending it on. We know the obvious items, gas, grocery shopping, phone and utility bills etc. But what about those ‘hidden’ items that we spend on, yet are almost not aware of them?  These are like leaks or holes in your budget that must be exposed and patched once and for all.

Using a log to find the holes

One way to find what hidden items are sucking your money away, is to keep a log. This is a basic journal of what you are spending on, for at least 2 weeks and up to 1 month (you can increase this more if you desire.)

Begin to write down almost everything you buy, how much it is costing you, and optionally a date too. Don’t include big fixed items and bills, since those are automated and you have to pay them anyway (insurance, rent,  etc.)

Here is a sample:

-Pack of cigarettes: $7.50 , Jan 16
-Movie night, including drink and popcorn: $22.95, Jan 17
-Taxi and Clubbing: $45, Jan 17
-New Computer accessories : $35, Jan 19
-Pizza and drinks : $18 , Jan 19
-Pack of cigarettes: $7.50 , Jan 19
-Movie Rental: $7.49, Jan 20
-Online purchase: $32.50, Jan 21
-Wings and drinks at a local bar : $28 , Jan 23
-Movie night, including drink and popcorn: $22.95, Jan 23

Looking at the above hypothetical log, you can easily find that you are spending close to $250 in less than a week, most of it on things that you probably don’t need or are not aware you are spending this much money on.  If you went to the bar to watch a game and spent $28, do you really need to go to the movies and spend another $22.95? certainly not good for either your health or wealth.

Having a visual and clear numeric log of what you are spending your money on, and how often, will most likely change your spending habits. It is all about psychology (one of the 5 principles of our budgeting education), where seeing something is much easier than to just have it out there in the background. In other words, when spending money on something, you want your senses to be fully aware of it, most importantly your eyes and hands.  Otherwise, you are spending like a drunk person, and that is never a good thing!

If interested, you can go an extra step and input your log purchases into Microsoft Excel, letting it plot it on a graph. If seeing your purchases represented by  numbers wasn’t enough to make you start cutting on certain unnecessary purchases, a graph will surely have a more deterring impact.

After all, a picture is worthy a thousand words, right?

Twitter can help you save money, if not make money! That much is known, and it is a good way to get us started with this article.

How? Let us find out.

Twitter is arguably the hottest thing on the web at the moment. Even more so than Facebook for a lot of people (it certainly is for me) It is the collective heartbeat and cyber-trails of the web, all in real time. So it only makes sense that you can use Twitter to gain some advantage, tips and advise for your personal finance budgeting. Here are some of the best ways to use Twitter for financial gains and better savings:

-Twitter Search: The first and most effective way to use Twitter to gain a financial foothold is to use it in an active way through searching. Whether it is to look for discounts on a certain item, offers at your local mall, or advise on a certain product that you are researching, Twitter search is an invaluable tool. Best thing about it, the results are mostly  real time or fairly recent, so the deals are fresh and valid in most cases.

-Expert Advise: find a few finance and budgeting experts and start following them. You will learn a lot from their daily tweets, with as little time spent reading them as you can possibly spare every day.  You never know what tweet you will read that could be so important for your financial literacy. In fact, in my 2+ years of using Twitter, I have learnt a lot of what I know today by reading random expert tweets here and there and applying them to my own situation.

-Observing Twitter Users: as you read the tweets of other friends and people in your list, especially those that have to do with finance and money, you will have a better idea of how others spend and save money, and compare it with yours. You will be amazed how much this ‘mirror’ usage of twitter can help you have a better prospective.

-Follow your favorite companies and Brands: the best and fastest way to find out about special discounts and deals from your favorite brands and companies, is to follow them on Twitter.  You will be able to find out about special deals as soon as they are posted.

-Ask others questions: the beauty of Twitter is that it is a two-way street, with communication flowing back and fourth between the ones you follow and those that follow you.   So if you can’t find answers to what you are looking for, you can simply ask the Twitterverse a question yourself. Not only can you expect an answer from your followers, others who are not following you could also find your question and answer it. This could help in situations where you are researching a certain product, or want to find discounts in a certain store or even city.

These are just some of the hundreds of ways you can use Twitter to your financial advantage. If you don’t have a Twitter account, head to www.Twitter.com and create one. Once you have your account, Twitter will recommend certain people to follow from many different categories (Business, Politics, Technology etc.) And of course, we would appreciate if you can follow us too: @BudgetSense_ca

Given Twitter’s explosive growth in the last few years, a whole literature has been dedicated to it, and we encourage you read and learn more about it.  I just happen to believe that it is generally more useful than Facebook.