Tag Archives: budget

Withdrawing From Your RRSP

A recent Bank of Montreal survey found that the amount we’re withdrawing early from our RRSPs has increased to an average of $21,000, and 40% of us are taking money out of our RRSPs way before retirement.

Why? The top three reasons are to pay for living expenses (23%), for an emergency (21%), and to pay off debts (20%). It’s a horrible idea for all three of them.

The survey inconveniently leaves out the fact that this figure of $21,000 includes the people taking money out for first time home purchases, which inflates the average by quite a bit.

But for those of us taking out money for bills, emergencies, and debt – don’t do it. I know it’s hard to breathe and even harder to sleep and function when you’re in financial trouble. I’ve been there – and I’ve done it. But take a time-out and look at every alternative before you kill your retirement money, because there are alternatives.

First, you think you’re solving a problem today, but you are creating three much bigger ones: Next April you’ll have to pay tax on that RRSP withdrawal. Since you clearly aren’t flush with cash now, you won’t be next April, either. You’ll also have tax withheld off the amount you’re cashing out. So cashing out $10,000 from your RRSP really only gets you 80% of it, or $8,000.

And finally, that $10,000 isn’t growing and compounding inside your RRSP anymore. In 20 years from now, that’s cost you around $30,000 in lost income. Out $2,000 tax withholding – out more tax next April, and out $30,000 or so when you get close to retirement. It’s an entire chapter in the Money Tools book called “Today’s problems become tomorrow’s nightmare.” Go down to Mosaic and invest the $20 in the book that’ll save you $35,000 or more in this example alone!

The book will also give you a ton of ways to solve your cashflow problems without killing your RRSP. You need to decide if the problem today is so bad and urgent that you’re willing to trade some relief today for significantly increased financial problems by not having that money when you’re retired.

Is your emergency a real emergency or something you can save your way into over a couple of months? Do you understand the math of paying off a debt today and how little that saves you when compared to five to ten times the cost of cashing part of your retirement savings? Can you take a deep breath and finally do a 15-minute budget to see where your money is going? Will you acknowledge that your current financial plan sucks and this is going to be necessary again unless you’re prepared to change some things around? Can you get an overdraft, instead? Yes, it’s a horrible idea, but better than the alternative you’re considering? How about taking it out of a credit card? No, it’s not a good idea, but the lesser of two evils even at 20%. Yes, there are more alternatives. I hope you read the “tomorrow nightmares” section of the book BEFORE you make the call to get the money.

George Boelcke – Money Tools & Rules book – yourmoneybook.com

Would You Be Willing to Cancel Christmas This Year?

Well, maybe that’s a little extreme – but I’m just talking about the excess spending part of the holidays.

On average, we’re going to spend more than $700 on gifts this year. But we’re already spending over 165% of our household income each year, and our savings rate is barely four percent. That means most of our holiday spending will need to go on credit cards. Ouch!

When asked, the average person claimed it took two months to pay off their holiday shopping. Yet the actual time was over six months! Let’s face it – July is NOT when you want to deal with last years’ holidays!

Last year, credit card purchases during the holiday season increased over 21%, and it’s a sure bet that this trend will continue.

And it’s not just the gifts we buy, but also the added spending for trips, the tree, decorations, cards, postage, concerts, clothes, hairdressers, all that food, and the total amount quickly adds up.

So here are five tips to financial survival this years’ holidays:

 Cash is king – when you’re paying, there’s a very different feeling to laying a bunch of $20 bills on the counter instead of using a credit card. With a number of cards, there’s no reason to stop, and merchants know that the average purchase is much higher when customers pay with by credit card!

 Get realistic – make some kind of simple budget, stay within it, and practice the four most powerful words nobody ever wants to say: “I can’t afford it.”

 Know what’s important – resolve to make this holiday season less about money. Focus on the difference between the meaningful and the meaningless. This might be time with your family, a donation to your favourite charity, your faith, or many other things.

 Speed kills – it’s not just a traffic rule, but also includes your impulse purchases.  It will almost always cost you more money if you don’t take the time to shop around.

 Make a list and check it twice – it works for Santa, so discipline yourself as well. Don’t leave the house without a list and a good idea of what you’re looking for, as well as a price range. Cruising the stores is frustrating and many people tend to just buy something – anything – just to get on with it, and that’s never a budget smart way to make purchase decisions.

Would You Like Me to Just Send You $1000 a Month?

 

Whenever I get emails from people asking for feedback or help with a financial mess, I’m more than glad to help. No, I don’t charge for it. I believe God gave me a purpose and passion and it’s called paying it forward.

But at some point, most people are really not interested in doing much (or any) heavy lifting. And I can’t fight harder for them than they’re prepared to fight for themselves. That was confirmed again by the last BMO Savings Survey. 30% of people want to save more but do not want to change their spending habits. Sorry: You can’t get there from here – it can’t happen.

The emails have a pretty consistent theme: Someone is spending more than they’re earning and they’re in pretty deep debt. I’m not in the middle of their mess, so it’s easier to see the fixes that’ll turn things around. Here are some of them that will sound so obvious, but they’re anything but when you’re in the middle of it:

No, you can’t send your two kids to private school when your income is $45,000. You can’t afford it. It doesn’t make you a bad parent, it makes you a great and responsible parent who can do 5th grade math.

You have a cell bill of $140 a month. That’s insane. It wasn’t that long ago you managed to live without a cell. Now anything but a full unlimited plan is  a necessity that you can’t do without? Mine is $39 with data.

Sell your car and get out from under the $1,100 car payments. They’re killing you. Drive a $3,000 used, reliable car that you buy for cash until your debts are paid. When you can afford it, you can turn right around and get an idiotic $1,100 car payment again if the debt-free thing doesn’t work for you. But you won’t do with, giving me two or three totally bogus reasons…actually…excuses why you love that $1,100 payment more than you’d love saving the same $13,200 a year.

You say you need to keep $4,000 in your savings account at half a percent while paying 22% on your credit card. Keep $1,000 as a starter emergency account; pay the rest on your credit cards today!

You don’t know the interest rate on your credit card and only know that you’re paying minimum payments of around $200 a month while charging about $800 or more. So you’re going further in the hole each month and tell me you have to have your credit card. Yes, you do. Because you’re so far in debt, that’s your only way to buy groceries and gas right now.

That’s just some of the very common ones. So what exactly do you want help with? You won’t downgrade your car, your cell phone, switch to an 11% credit card instead of 22%, or stop your credit card addiction. News flash: I’m out of ideas to help you. The only other thing left is for me to send you $1,000 a month. Is that why you got in touch with me? That’s not being rude, it’s caring enough to be honest, and seeing the reality of your income and expenses. Numbers don’t lie.

You don’t have a money problem as much as a spending, thinking, planning and discipline problem. You want your toys, gadgets, and vehicle more than you want financial freedom and becoming really wealthy.

Can You Do One Cash-Flow Statement?

Last week we briefly touched on the fact that gas and groceries keep going up. That makes your expenses go up and harder to save anything.

If all or part of your logical brain knows you’re spending more than you’re earning, that’s frustrating. But you can’t turn it around without a budget. That’s something 95% of people won’t do, because they somehow think it puts them in a straight-jackets. But it’s quite the opposite: A cash-flow statement, even just once, sets you free. You’ll know how much you’re prepared to spend for what each month. You’re not spending an unlimited amount of money that you don’t have groceries, lunch out, or the kids.

The best way is having the cash in a number of jars or envelopes. One envelope will be for groceries and food stuff. Every two weeks, the cash from your pay goes into the envelope. When you go to the store, it’s paid out of that money. When it’s gone – you’re done until the next payday. It works – but will you do it?

Hear me really clearly: You will never have enough money for what you WANT to spend. Never – no matter how much you earn. But you do have enough money for what you need to spend. But you have to manage your money, and not have your money manage you. I guarantee that most of us have a lot of our expenses go to the category of “not really sure.”

Save two weeks of your net pay in a separate emergency account.
Do a cash-flow statement of where your money is going to go for a full month. You’ll be really bad at it for the first three months and then you’ll love it and be really successful with it AND have at least $200 or $300 left over each month compared to right now.

People don’t decide their financial future with specific goal setting. They decide their habits, and their habits determine their financial future.

What’s Your Credit Limit?

What’s an expensive night out? I’m thinking $100 maybe $200 tops. Well, there are people with much higher budgets for a night on the town than you or me.

We talked in 2011 about the six Boston Bruin’s players who charged up $158,000 at the Foxboro Resort to celebrate their Stanley Cup win. But if you thought that was expensive – not really:

Could you charge $241,000 on your credit card? Apparently Robert McCormick managed to do it on his American Express. The CFO of Savvis Inc., a Missouri Internet hosting company expressed concern on the company web site that most people had never heard of his firm. That’s all changed now after some huge media coverage. You see, one night two years ago, his boss, Robert McCormick took some clients to a New York “gentlemen’s club” called Scores.

We don’t need to get into the details, but suffice it to say that Scores claimed he spent time with as many as 15 of their dancers for an all-night event. Even with drinks at $22 a pop, it takes a lot of effort to run up $241,000 in charges. But then the vast majority was apparently in tips for these ladies. The reason it came to the attention of the public? Well, it turns out his company is refusing to pay the American Express bill. They are disputing the amount and accusing Scores of “padding” the bill, something the New York Attorney General is investigating. At this time, Mr. McCormick is suspended and American Express has sued for payment. There is an ending to this in that Amex settled for an undisclosed amount and Scores is now out of business.

It’s another valuable lesson that a credit card should stay in someone’s wallet…and pants.

That must be some kind of limit. But then, maybe you’re more like Brittany Spears. According to The Insider on ABC, she couldn’t get her credit card approved at Barney’s in New York. And then it was: Ooppss I did it again – when her second card was also rejected. However, her bodyguard stepped up to cover the purchase on his card.

Best guess: It’s been reported that her husband Kevin loves to spend and apparently she cancelled a number of credit cards for just that reason.

According to In The Money, J Lo also had hers declined before Christmas at a fundraising gala when both her credit cards were maxed out.

More of Getting Financially Fit for 2013

Last week I promised that we’d talk about some specific small steps you can take to change your finances around. Why small steps? If it’s too big, your sub-conscious mind will revolt against huge goals which seem impossible to reach.

You’re not going to lose 60 lbs, but you can lose a pound a week. You won’t run the marathon this summer, but you can go for a 15 minute walk each day. You also won’t be debt free by March, but you can start on that journey with one step at a time.

Resolve to say no: Whether it’s to yourself when it comes to spending, to your kids, people at work, or anywhere else. It’s the one word that’ll change your financial life and overspending.

Set yourself a credit limit for the next month. Pick a dollar figure below which you’ll pay by debit card or cash. Maybe $20 or $30 bucks – that’s it. Anything below that, you’ll pay with real money, instead of running up debts. It’ll become a great habit and will cut down your credit card balance in huge ways.

Take your credit cards out of your wallet for two weeks. You don’t need them just to go to work and home. That way the temptation and impulse spending is gone. Take a $20 bill and hide it in your wallet or purse for an emergency. If it’s really for an emergency you’ll still have it in there in six months. With credit cards we spend 12 to 18% more than paying by debit card or cash. When you don’t have them on you, you can’t overspend.

Keep your car for another year. If you believe a cool car is a status symbol and a must-have, you’re doomed to be in debt for decades to come. Not to mention that almost 50% of people trade their vehicle and STILL owe more than it’s worth. The goal should be to drive a reliable vehicle that doesn’t have payments with it, which are killing your chances to save, or to get ahead financially.

Annual bills kill your budget, but they’re not a surprise. You know they’re coming – but you don’t have the money to pay them. Open a savings account and add up what you’ll need for next years’ Christmas bills, your property tax and car or home insurance. Divide it by 12, and put that amount away monthly. A small amount each month is doable, a huge bill sets you back months.

Pay off one bill. Minimum payments buy you another month – nothing more, and it’s treading water. Credit cards and debts are not your friend. They’re financial dream killers, suck money out of your pocket, and add a ton of stress to your life and your relationship. Take your smallest bill and put every dollar you can towards it while paying minimum payments on everything else. When it’s gone, you know it’s not coming back. If you want – and you should – take the next smallest and focus only on it. This step-up plan will get you debt free in less than half the time. It’s an entire section of the It’s Your Money book and will change your financial life forever.

Test drive these six suggestions for the next two weeks or the rest of the month. It’s not overwhelming and it’ll be easier than you think. Then you can choose to carry on with some or all of them for another month. By that time, it’ll be habit and part of your life. If nothing else, at least resolve to make this the year where you spend more time planning your finances than your vacation.

Financial Trouble for Seniors?

Anecdotally, more and more stories are showing up about the financial troubles of seniors. These range from bankruptcy filings to collection troubles and living life below the poverty line. That’s pretty serious when those who have worked hard all their lives are having significant troubles making ends meet. However, it started way before retirement:

An RBC Consumer confidence index earlier this year found that 57% of us have nothing set aside for an emergency. If there’s not even a one-weeks’ pay set aside, what are the odds those people have any retirement savings?

Then there was a study a few years ago that almost 50% of us do not believe that a debt-free retirement is a must. I was somewhere between stunned and in disbelief. Is that really true? Do we believe having a bunch of monthly payment is OK when we reach the point of living on a fixed income and there’s no more extra money coming in? Or have we just thrown up our hands and given up and given in – to the fact that we’ll never be debt free? It’s just so wrong, and so dangerous, to carry any debt into retirement, because your golden years shouldn’t be spent working at the golden arches.

The biggest pre-retirement step you have to take is that your retirement savings have to come ahead of helping your kids with university costs or other loans or gifts. There are a number of ways to pay for university, but there is only one way to save for retirement, and that is you and your savings. You cannot help others if you cannot help yourself. If you are already retired:

-Cut up your credit cards: At 19% interest they are way too dangerous, and even the minimum payment is robbing you from money for necessities. Never mind that the balance will become almost impossible to pay in full. If you’re going to ignore that advice, at least call them and get your limit reduced to $500 or $1,000.

-Do a budget: You need half an hour to put in writing where your net income is going. Start with the priorities of shelter, food, utilities, medical expenses and the likes. THAT is how you will need to spend your income. It cannot be making a credit card payment first. If the card goes in arrears – so be it.

-If your kids owe you money you need to have a family meeting. Get them in the same room and explain the reality of finances for a retired person. Put the pressure on and demand to get paid back. The niceties are over, it’s time for them to grow up and pay up. You can’t care any longer if they get a loan, line of credit or put it on their credit card – you want to be repaid.

-If you have payments on a vehicle, it has to get sold – today. Those payments are a budget killer for everyone, especially those on a fixed income. You can’t afford them.

-If there is a possibility of collections down the road, your savings and pension money has to be in a bank different from the bank who has your credit card, line of credit or overdraft. Banks have the right to just grab your savings to offset what you owe them. Before that happens, move your money to a financial institution where you do not have any borrowing. It’s critical that you do this or they will wipe out your savings to pay themselves back.

Are You Going Out For Lunch Today?

If so, you’re not alone. According to a Visa survey released yesterday, 60% of us eat out once a week or more. The highest percentage is in Ontario while the Western Provinces tends to eat out the least.

Eating out is convenient, it’s faster than making lunch and – well, we can get kind of lazy. But convenience comes at a price. On average our eating-out meal is just under $9 a pop. Not that big a deal if it’s once or twice, and a lot more for a family of four. At $9 it adds up quickly, and even quicker for the 61% of people whose average is up to $13 at a time.

Who cares? That depends on the state of your finances. It’s certainly ironic that this survey was done by a credit card company. When we pay by credit card, no matter what it is, we spend an average of 12 to 18% more than paying cash. McDonalds has an almost 50% increase in per person sales on credit cards, and vending machines who take them increase their sales 178%.

For anyone who is in debt, these little $10 lunches here there, and all the time, are some of the biggest killers to getting out of debt. There isn’t one magic bullet to changing your finances around, it’s all the $10 and $20 buck stuff like a leaky faucet. If you’re broke or on a budget you shouldn’t see the inside of a restaurant, unless you work there – period. Eating out is 75% ambiance and 25% food costs! There’s nothing wrong with that, but broke people can’t afford it.

If you want to turn your finances around, you need to do a budget. You’ll need to put in writing at the beginning of the month what money you’re spending on what category. Once the budget is set, the only way to spend extra money is to take it out of another category. It’ll give you total control of your money, and you’d be amazed at what you’ll discover about your spending. I’ll guarantee that anyone who does a budget for two months will find at least a couple hundred dollars in savings!

When it comes to eating out – go for it. But it has to be in the food budget. When the food budget is done – you’re done! With the food category, the most effective way is to take the cash budgeted for food for the next two weeks and put it into an envelope. That cash, and only that cash, is used for food. It’ll be very powerful to see that money shrink and shrink – but you’ll actually see it. Paying some of it on credit card, using a debit card for lunch here and there, or buying the odd thing with cash means you’ll have no idea of what it all adds up to. But an envelope with the cash for the next two weeks is powerful and visual – and it works, and you’d be amazed at the money you’ll save.

Living on a cash food budget takes discipline. Plus, your broke friends at work will make fun of you when you don’t go out for lunch with them all the time – that’s why THEY are broke and will continue to be. Anyone who is trying to get ahead, also on a budget, or debt free, will be your biggest cheerleader. But there are more broke people than debt-free people, so get ready for them to pick on you.

One last thing we talked about three weeks ago: If you want to save some money in the kitchen, stick to a budget, and/or reduce waste, there are two new web sites that are kind of cool. Both are set up for you to enter the ingredients you have in the house and will ‘translate’ them into figuring out what you can make for dinner with what you have! The two sites are www.saymmm.com and www.supercook.com

Three Money Insights for Wednesday

Another huge wave of phishing scams are showing up in your e-mails. These two are predominantly from E-bay and Amazon. The Amazon one works for the crooks because so many people have dealt with the company. The e-mail will state that your order has been cancelled and to click on the link. Tons of people do and are asked to enter their password. Once that’s entered, the crooks can go into the real Amazon within minutes and place orders for hundreds or thousands of dollars and have them shipped wherever they want. Amazon allows third-party shipping and retains your credit card information on your profile.

Don’t click on an e mail – almost never. Go to the real Amazon or E-bay on your browser. And you can also hover your mouse over the hyperlink the crooks want you to click where the bottom left side of your screen should show you the actual web site it is re-directing you to.

If you want to save some money in the kitchen, stick to a budget, and/or reduce waste, there are two new web sites that are kind of cool. Both are set up for you to enter the ingredients you have in the house and will ‘translate’ them into figuring out what you can make for dinner with what you have! The two sites are www.saymmm.com and www.supercook.com

What would you pay to have lunch with one of the richest and most successful investment people in the world, Warren Buffet? Lunch with Buffet was auction off last Friday at $3.5 million. It’s an annual auction in support of the Glide Foundation helping the homeless in San Francisco. I’m sure it’d be great investment insights but at a big price…