Archive for the ‘General’ Category.

Is time your friend or enemy? On the path to saving and paying off debt

Time is a very crucial concept when it comes to saving money and paying off debt. It could be your friend or enemy, depending on how much of it (time) you have. Generally and simply put, the more time you have, the more you are able to save money and pay off debt. Having said that, is it really as simple as that? Other than having a time machine, how can I make sure I have more time to be prepared financially? The key is to be prepared and able to anticipate upcoming situations where money is needed. Let us go through this checklist which ensures you are prepared, whether you have little or a lot of time on your side.

 

Planning ahead

You know you tend to go on vacations at least once a year, so why leave it to the last minute to save money for an upcoming vacation? Even if you don’t know when or where you will be going next (Vegas in August?) you should still have an idea of how much you need to save.  In fact, travel for some of us is such a big and routine part of our lives, we have integrated it within our financial budgets (see next point.)  Same goes with general life savings. You know you need to save money for the future (retirement, new house, etc.) so why not give yourself more time and start early? one of the most asked financial questions by by baby boomers is whether they will have enough time to save for retirement. Had they started early (in their 20s or even 30s) they wouldn’t have to ask that question.

Budget for it

Like we mentioned, the solution to having little time on your side is to use your budget. For example, if you have to make a down-payment on a car in 3 weeks, and you don’t already have the money, you can either borrow money or use your credit card and then use your budget to pay off this money that you have to borrow.  This is why it is crucial to start early so you are not faced with a situation like this.  The sooner you know about an upcoming purchase or debt repayment the better it is of course. So your forecasting has to be pretty good, to give yourself enough time. And when you have an idea of what you have coming, it will allow you more time to integrate it into your budget.

Emergency Fund

In the finance literature, the important of an emergency fund can’t be underestimated. It is of vast importance, especially in situations where time is not on your side. Such a fund can be used to pay for an unforeseen or unexpected financial emergency.  Obviously, it wouldn’t be an emergency if you had enough time to deal with it. If you car breaks down, that is an emergency that you have to deal with almost immediately, unless you had a second car to use.

 

So while you may not be able to create, bend or pause time to work in your favour, you can still do a few things to be prepared, even
when you don’t have a lot of time on your side. The key is to be prepared and realize that time will not always be on your side and there will be situations when your past preparations will help you deal with the immediate situation.

And remember: time is, you got it, money!

Are people actually waiting for a real estate crash?

There is no denying that we have officially-some time ago actually-entered an unchartered territory for Canadian real estate prices.  Prices for houses and condos are through the roof. They are up some 10% in just the last 12 months which is quiet amazing!

Some of these price increases are fueled by competition and price wars. Others speculate that wealthy Asian immigrants are fueling this even further, paying a fortune for what other average Canadians couldn’t, thus keeping the latter group from being able to get into the market.

Which brings us to this question: are those would-be buyers, who can’t compete with the other buyers, waiting or hoping for a crash? We keep reading that a correction or a full crash is just a matter of time.  Both Macleans and Canadian Business magazines have predicted that the Canadian real estate bubble is about to burst. But what is the timeline and how would you know if it is a good time to buy?

I think it is better to wait and play it safe for now. For one thing, the market is being flooded with condos and many of those would-be home buyers who can’t afford to buy a house will opt for a condo instead. In other words, the demand for condos will continue to rise while demand for houses will stagnate or even fall. This is bound to keep prices level or even down soon.

Then there is the issue of Canadian debt-to-income which is at historical highs and that could accelerate a crash in the market. While we may not see a dramatic crash like that we saw in the US 4 years ago, it will still be significant and cause house prices to go down.

And last but not least, there is the issue of interest rates which are at a historical low and are bound to go back up again. As rates begin to go up, less and less people will be willing to take the dive. That is bound to put pressure on the price of houses and condos.

So to those who are waiting or even hoping for a crash, your wish may come true. When? that is the half a million or million dollar question. For now, just keep saving for that big down payment.

 

The New World of Efficiency and Austerity and how you can stay ahead

You hear it all around you, cutbacks, austerity measures, new efficiency programs and other measures that are being implemented by companies and government worldwide.

It is the new world we live in. World economies and finances are in the worst shape they have been in decades. It all started in 2008 with the US sub-prime mortgage and credit crisis. Ever since, and despite having hints of a recovery, the situation is still dire and in fact turning worse in certain places like the European Union.

So if this is norm and the new world we live in, how can you be ready, immune from it all and stay relevant? As an employee, consumer, or someone responsible for a family, there are a few things you can do to protect yourself and even thrive in the face of these sweeping waves:

-As an employee: be as productive and indispensable as you can be. If there are cut-backs at your company, the last one to go should be those that are the most efficient and valuable to the company. Be sure you are one of them. Learn as many things as you can about your job and those related to you so that you are flexible and can transfer to other roles should yours become obsolete.  The new emphasis is on those who can multi-task and have various skills that are transferable to other roles.

-As a consumer: with the economy tanking, people are spending less which means prices are coming down. Whether it is low-priced items such as food and clothing or something as high as a new car, companies want your business and will compete for it. So be sure to shop around and negotiate. Case in point, when shopping around for my wedding recently, I made sure I look at many different vendors before making any final decisions. Hungry for business, companies are reducing their prices and more.  Did I mention ‘don’t pay the full price!‘?

-As a family: with so many job cuts happening, don’t take your job for granted no matter how safe it seems. Star networking now.  And should the worse happens and you lose your job, you have to have a plan of survival in place, until you find a new job. Most importantly, this is where an ’emergency fund’ comes very handy. This is not your RRSP money of course but something else like your regular savings or TFSA account. How much should this account hold? For the average family, anywhere from 1.5 to 3 times your gross monthly income. The more, the better. Also, ensure you have a budget in place and that you are not paying for things you don’t need around the house.

Heck even the Pentagon is completely overhauling the US military to make it it smaller, leaner and generally more efficient. So if the powerful and huge US military can go smaller, you probably can too.

In this new world, the old adage ‘Less is more…’ couldn’t be more accurate.

Are you lean and efficient enough for the new world?

Good News for 2012: Food price increases to ease!

Let me try and blend both the good news and bad news together: while  Canadian (and North American in general) food prices will continue to go up in 2012, the increases won’t be as large as the ones we saw in 2011. According to an article in the Toronto Star:

University of Guelph economists predict that while food prices will continue to inch ahead, the rise will be modest compared with the spike in prices in 2011

Compared to the average 4.9% increase we saw this year, 2012 will see an increase that is less than half of that; just about 2%!

Meat products will see a 3% increase compared to the 5% we saw in 2011. As for fresh vegetables, you will be relieved to learn that the increase will average about 1-3% compared to the dramatic-up to 10%-increases that we saw in 2011.

Thanks to various factors-weather, increased world demand, higher energy prices-food prices have been going up every year for the last 10 years. 2012 may be the first year in a long time where consumers will see less pressure. But like I mentioned earlier, let us not fooled by this: there will still be an increase, not a reduction in prices, albeit a smaller one than we have been seeing last few years and this year (2011). Some necessary items, though, will see a price decrease actually, notably core grains and sugar.

This is a much welcome news for families and individuals, especially those who have been struggling to make ends-meet or having trouble paying down debt.

 

Budget Sense is 1 Year Old: What have we learnt in the past 12 months?

Our blog is 1 year old! Thank you for helping us get here.

So, what have we (the bloggers and our readers) learnt? lots of things. Most importantly, things that will make a difference in your personal finance matters and at the end of the day put more money in your pocket.

Most importantly, a frequently recurring theme has been that of smart spending and efficient saving. You have to do your best to minimize your spending and maximize your saving. As you go along you will discover that this becomes easier, to the point of becoming a habit or a routine.  If you haven’t even tried toying with these fundamental and powerful concepts in personal finance, it is time you did.

When it comes to saving, anything and everything helps. Even small pennies and spare change.  In fact, we recommend you diversify your sources of saving for a better future.

We also learnt-and probably bored some people to death-about the very important and almost unavoidable concept of budgeting.  This whole blog is based on this powerful tool upon which any successful personal finance strategy would depend. We learnt that to manage your finances better and smarter, you have to have a budget. Once that budget is created, you then learnt to live with it, tweak it, update it and be creative with it to maximize your income value and savings.

Going forward, our focus and effort will continue to revolve around topics that help you get the most out of your personal finance. And we will continue to deliver that in simple and easy to understand language.

Please let us know if you have any topics you would like us to cover by emailing us at: moremoney@budgetsense.ca

And please don’t forget to leave your comments below.

 

Start Budgeting for Christmas Shopping from now

It is early November and we are now less than 2 months away from Christmas, which is about enough time to do all your Christmas shopping.

But instead of putting it all on your credit card this year like you have often done, why not start budgeting and saving for it from now? you have at least 4 pay periods from now till the last few days before Christmas and if you allocate a small amount or percentage from each check towards Christmas shopping, you will have more than enough to get all you want for yourself and for your family and friends. And by doing this simple strategy, you get to spend January relaxed and not worrying about upcoming credit card bills.

For example, if you deduct $100 to $150 from every paycheck (less if you get paid weekly), you will have saved anywhere from 500-600 dollars for Christmas shopping which is close to the average amount that North Americans spend on Christmas shopping.

And as an added bonus, you can still go ahead and pay with your credit card to get their loyalty points, and then pay it back right away with the cash you have saved.

The depression that usually sets-in after the holidays are over,  can be partially eliminated this year by following this simple strategy. Not to mention, you are learning a very important lesson in budgeting and finance that can apply to many other situations in your life.

What are your biggest financial mistakes and regrets?

We all have our life mistakes and regrets. That crush you had on that girl in high school which you now look at as a waste of time. How about that decision to not finish high school? But what about your biggest financial mistakes, the ones that you have regretted till this day? We all have them and it is not about making them but how much we have learnt from them. In talking to people I know, reading people’s admissions online and from my own person experience, here are some of the most notable ones.   Some people regret these so much so that they would hire an exorcist to erase their ghosts from their memory if they could.

 

Taking on too many credit cards and debt at once

I couldn’t resist putting this on the top of the list and I am sure many of you agree. In fact, I am guilty of this myself.  While in school and a few years after graduating, I was carrying up to 4 different credit cards at once! I look at that stage in my life with total financial disgust. How was I able to manage? well I wasn’t really and it took me years to eliminate all but one of these cards.  People have gone credit-crazy in the last few years, ignoring the very bad economic situation we have been in for the last few years. People are refinancing their mortgages so they can do expensive home renovations and buying new cars they don’t even need.

 

Not starting to save early

In his book “Debt Free For Life…”, famous financial author David Bach confirms that it is never too late to start saving and I agree. While that may be true, it is not telling us the full picture though: the later you start, the less money you can save. In fact, when you are young, you generally have less expenses than when you are with a family, a mortgage to pay and other life expenses.  As youngsters, the tendency or motivation to save is usually not that strong as it is later on in life.  Make use of TFSA, RRSP and other saving programs out there, from as early an age as you can.  For example, if you are wise enough to start saving at the age of 18, and assuming you are able to put $250 a month on average, by the time you reach 35, you will have close to $56,000! (assuming an accumulated 2.5% interest)


Cars, cars and more cars

There is no question about it, cars can be big suckers of your income money. Sometimes up to half of your income if not more. There it insurance, maintenance, finance payments and of course, gas! Most of these costs have been on the rise as of late. I am not saying people shouldn’t buy a car if they need one but the mistakes lies in what people bought and how frequently they replaced their cars. Some people would buy a new car, make the payments for a few months, and then sell it for half the price to buy a newer or better model. Total madness! Buying a new car in and of itself usually means you will end up losing money as the price depreciates over time. But to buy a new one before you have had time to pay off the first one is setting yourself up to lose lots of money for years to come. And let us not forget to mention money spent on expensive car re-modelling and upgrades. 


Selling and Buying stocks at the wrong time

This is a tough one to judge since no one chooses to buy or sell stocks at the wrong time. It is simply a matter of wrong guessing or bad timing. I was reading an interview with one of Canada’s millionaires and renowned entrepreneurs and he talked about his regret for selling a certain stock too early. Had he waited a few more years he would have made close to a quarter billion in profit! To minimize your losses, be sure to diversify your portfolio and invest based on your risk tolerance.

 

School and Career mistakes

Few people know what they like to specialize in before entering higher education and even then, many don’t stay in the same program and end up changing it. Sometimes more than once. Others regret dropping out and not graduating at all which I agree to be one of the biggest mistakes, particularly in situations where you are more than half way to graduation.  For those, they paid thousands in school and tuition costs only to see it gone down the drain.

 

The fact that we are humans is enough of a guarantee that we will always make mistakes. No one is without one. The real question is not whether you have made financial mistakes in your life but more importantly, how much have you learnt from them? If you read the biographies of people who have accomplished a lot in their life-including top billionaires- you will often notice something common between all of them: they either built on the mistakes of others or learnt from their own mistakes and did things differently in their new attempts. Learn from your mistakes and don’t dwell on them. While you can’t undo what is in the past, you can certainly change how your future will shape up to be.

Duck for Cover, a New Global Recession May hit us Again but you can be Safe

Are we about to be hit with another recession and a global economic slowdown? many signs are leading us to believe this may be imminent.

Regardless of what happens, it is better to be ready for something that won’t happen than not be ready when something bad does happen.

You would like to think that people have learnt a lot from the economic downturn of 2008 and 2009, but I don’t think that to be the case.  People have a very short memory.  People are spending more than before, accumulating more debt and generally not caring about the state of their financials.  Sure, spending is generally good for reviving an ailing economy and to bring it out of recession, but we are talking about healthy spending and not credit card and borrowed spending!

To be ready for whatever comes, here are some of the ways to weather any upcoming recession or a downturn in the economy.

Tighten your spending: this is the easiest and most obvious one. This is one that you have full control over. Tightening your spending helps in saving you money that you will need in a rainy day. It will also help you get used to a frugal life should things get hard later on. And last, reducing your spending will mean you will only have to spend on things that you need, and avoid maxing your credit card and loans on things you don’t even need nor want-you buy them simply because you think it is cool or have been tricked by promotions and advertising.

Time for a budget: hey,  there is that ‘budget‘ word again! Surprise surprise! Well get used to hearing it over and over until you either leave this website for good or finally decide to give up and create one.  A budget, whether in good or bad economic times, makes a lot of sense. But when it comes to a downturn in economy or even a recession, it will help you prioritize your spending and purchases.  When money is tight, the last thing you want to do is spend it blindly without any accountability. A budget will be your guide through tough times.

Solidify your Job and Networking: So you have a job now and you think your position is very secure and have nothing to worry about? well tell that to all the millions of people who were laid off from their jobs during the recession, many of whom had thought their jobs were very stable.  Like a hurricane that sweeps through a town and doesn’t care about what objects it encounters, a recession is the same: no matter how much seniority or experience you have, when a company decides to lay down the axe, you could easily be let go. If anything, companies will try to save as much money as they can during a bad economy which means firing and laying off those that make the most money. Conversely,  if you have the least seniority and experience in a company, you could be the easiest and cheapest human asset they could let go without feeling a pinch to the operations of the company.  The point is, during a recession, anyone is vulnerable to lose their job.

This requires that you solidify your position at your current job and enhance your networking reach. That is, make your position as recession-proof as possible. Make yourself a very valuable commodity and asset to your company. If what you do is general and doesn’t require a lot of analytical thinking or specialized skills, you may want to learn something that is more specialized and precious to the company’s operations.  For example, if you are in an IT Help Desk doing general troubleshooting, you may want to look into that position of troubleshooting ‘servers.

Strengthening your networking reach and circles is also crucial.  You don’t want to lose your job before you start networking with people to find a job. You should build and grow your network while you still have a job! Make use of all your current coworker and other contacts you deal with, get their contact information etc.

 

So while it may seem like there is nothing you can do to weather a recession storm, there actually is like we outlined above. The key is to be ready and not live like there is no tomorrow.

 

Carrying Larger Bills could help you Save Money

Before, it was about common sense and conventional wisdom. Now, it is has been proven through real research.

According to a study published in the Journal of Consumer Research, shoppers are less likely to spend their money if they are carrying cash in large denominations. There is even a name for this social phenomenon: ‘denomination effect.’ Through experiments, the study shows that if people carry a $100 bill, they are less likely to spend it than say a $20 bill. The lower you go, the more likely it is that you will spend it. The psychological rational behind this is that our brains overvalue larger bills and undervalue smaller ones. In other words, we think of a $100 bill as much more valuable than 5 bills of $20-essentially the same amount of money.

So what are some real life implications for this other than the obvious ones? well for one, while your wallet shouldn’t be empty, if you have to carry cash, make it in a larger bill.  For general day to day activities, I am personally not in favor of carrying very large bills – say a stack of 100 dollar bills- I think $50 is the best thing.

Try to do your own experiment in real life. See what a different it makes when you have larger bills compared to those times when you have smaller bills. Better yet, compare it to those times when you have spare change. Do you spend more with spare change? For me, I have been applying this way before I read about this study and it always works. In fact, I generally like to divide my ‘personal spending’ money from my budget into some large bills and some small ones. This way, while I will go through the small ones, I may think twice about spending the larger ones, because as we all know, once a big bill has been broken, it is hard to stop spending it all.

But be careful not to take this to the extreme by not taking any cash at all, and substituting it all with credit or debt cards.  This would be a lot worse where there is no guilt and you could end up spending more.
Remember, as per our ‘5 principles to successful budgeting and finance’, psychology plays a big part in your journey, and it couldn’t be more applicable than this topic of ‘large vs. small bills’

Keeping a Log will Expose your Financial Leaking Holes

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?