Thursday, September 25, 2014

Ho! Ho! Ho! Are You Ready For Christmas

Every year Christmas comes as a financial shock (and burden) to many who are unprepared for the annual holiday even though everyone knows it is coming.  Judging by the calendar today, it soon will be here. Christmas should not catch us off guard. Here are some C-H-R-I-S-T-M-A-S tips to prepare you.

C Create a Christmas list and budget early (now is a good time but preferably January).  Write the name of each person and set a price limit.  Tally up the total and revise the list if the budget is significantly high.  Discuss Christmas gifting with family members and friends.  Set protocol in regards to price limits, the concept of exchanging names, and conditions such as buying only for children and excluding adults.

HHunt for an appropriate gift for each person on your list. Once you know what you are buying, scout for the items all year around.  Ensure you are checking your list more than twice.  Keep your eyes open when you go on your regular shopping excursions.

R - Routinely “stash away cash” from each pay cheque to save for your Christmas expenditures.  Setting up automatic transfers to a separate “Christmas Savings” account is a sure way of preventing you from accessing the funds. To calculate the amount of your PAC (Pre-authorized Contribution), divide the amount of your budget by the number of pay cheques in a year.   By saving, you will not rely on credit cards and pay the high interest charges when the credit card balance is not paid in full. 

I - Investigate, investigate, investigate.  Treat Christmas shopping like a scavenger hunt.  Look for the best price (prices) in sales flyers, on-line, and in stores. Chat with family and friends about the items they own and places to shop.  Compare brands, features, warranties, and service. Consider everything which will secure a pleasing purchase. 

SStay smart about spending.  Ask yourself, “Will the recipient of this gift love me more if I spend more; and (or) less if I spend less?”  Seriously, if love and appreciation is determined by the cost of the gift, you need to re-evaluate your motives (or theirs).

TTrain yourself to say, “No!”  Do not allow yourself to give in to compulsive shopping.  Regardless of how cute something is; no matter how much Johnny would love a new toy; or “Gee, we only have one grandchild; let’s spoil her”, the answer should still be, “No!”  You are not Scrooge; you are Frugal.  There is a difference.  

MMake Christmas fun by keeping it simple and sweet.  Keep the joy of Christmas and the intent of giving in proper context.  One gift or ten gifts ~~ maybe, just maybe, one gift would suffice and the other gift could be a contribution to your children’s education savings plan.  

AAssess, assess, assess! People who are known to start Christmas shopping early in the year are also known to spend more than they intend. They simply forgot what they bought.  Is this you? Keep track of your purchases.  Another misconception is every child should receive gifts of equal monetary value.  No one except you will know how much you spent on a gift for one child as opposed to another.  Don’t make up the difference by buying more presents to ensure the purchases are equal.  You can’t compete with that logic.     

S Stick to your Christmas Budget.  In the end you will be glad you did, for the simple reason that you will be stress-free.   Always remember: once this Christmas passes, you should start preparing for the next. 

From the tips above, you may take what you need and leave the rest.  If you do a great job, you may have enough money to buy yourself a Christmas present.  Nevertheless, enjoy the holidays with family and friends.  For this is the true gift of Christmas.  

Thursday, September 18, 2014

Are You Prepared for Any Emergency?

Is saving the same as investing? It can be yet it depends on your intent.  Do you plan to spend this money in the next year or in retirement? Both actions appear the same. You tuck money away for a future event but what if something happens unexpectedly?  These unexpected and unwanted events are emergencies. The question is, “Are you prepared for them?
The Importance of Emergency Savings

By not having emergency savings, you are forced to rely on credit. When you borrow money to cover unexpected expenses, the loan has to be paid back. At times, it may be necessary to borrow. However, if you don’t qualify for credit, then you’re stuck.  This is not a “happy place” where anyone wants to be.  Another downside is even if you qualify for the loan, the interest rate may be ridiculously high.  Add interest to the cost of your unexpected event and the expense can be enormous.  Using credit as your initial back-up plan only works until you build up your emergency savings.
The Amount Needed for Emergency Savings
Generally, the minimum amount is three months of your monthly living expenses. However, a better safeguard is six months.  I often hear, “It’s a shame to let the money just sit there” yet it isn’t sitting there. The money is waiting for that emergency.
  • The fridge crashes; now you need to shop for a new one.
  • The encounter with the deer on highway left you stranded without a vehicle.
  • The fall off the ladder created additional medical-related expenses.
The above emergencies appear minor in comparison to other tragedies.
  • Being laid off from your job.
  • An illness in the family which forces you or your spouse to take a leave of absence from work.
  • An unexpected death in the family.
If you’ve never had an emergency, then you may know friends and family who had one. What have you learned from their episode? Were they scrambling to borrow money to cover their needs? Were they unable to get credit and forced to rely on extended family for financial help?
© <a href="">Jackmicro</a> | <a href=""></a> - <a href="">Gold Coins In Pot Photo</a>
With so many reasons to save, start by determining your pots of gold.  Multiple pots are required because you have multiple intentions:  emergency savings, planned spending, yearly expenses (i.e. Christmas, insurance, property taxes); and then the elusive future savings for children’s education and retirement.  Our focus now is strictly on emergency savings. 

Two Methods to Save
1. If you are a disciplined saver, your emergency savings can be mingled with savings for other purposes in one account.  For example, once you establish the first $5,000, this amount is ear-marked as emergency savings.    Any savings above this is for other goals. Once you establish your threshold, the plan is to never spend any of this emergency amount for any other purpose than an emergency.
2. If you are a saver who likes separate accounts, money can kept in a daily savings account labeled as “Emergency Savings”.  The power is in the name. Before you tap into the account, ask yourself, “Is this truly an emergency?” 
Best Type of Accounts for Emergency Savings
You can keep your “emergency savings” in a daily savings account held either in a Tax Free Savings Account (TFSA) or an open (non-registered) daily interest-bearing account. Understanding the different types of investment accounts is important when you match them with your goals and time horizon. {This topic will be discussed at another time.}
It’s important to understand the value of your savings should not fluctuate.  When you save a dollar in this account, you want access to this dollar a week, a month or a year from now.  Wouldn’t it wonderful if the value could double? However, since the timing of your emergency is unknown, the plan is to stick with the safe and sure path. The “tiny-bit” of interest earned in a daily savings account or money market fund is reassurance your money will be there when you need it.  Explain to your investment advisor that your principal investment needs to be protected in case of an emergency. “Nothing fancy, please!”
How to Save
To build your emergency savings, you must first determine how much you need to save.  Start by adding your monthly expenses (everything) and then multiply this amount by six to ensure you cover six months’ worth of expenses. Begin tucking money away. Use every method possible to build your emergency savings.
  • Set-up automatic transfers for a specific amount to coincide weekly, bi-weekly, or monthly with your pay periods.
  • Transfer excess earnings above your regular pay from bonuses or over-time.
  • Deposit money earned from different money-earning activities. For example, playing in a band, cutting grass, and writing free-lance articles.
  • Save the money reimbursed for medical expenses covered by your health care.
  • Save the money reimbursed for employment-related expenses, for example, mileage.  
  • Deposit your tax refund in your emergency savings.

Acceptable to Start Again  
Give yourself permission to start over if you slip-up. Forgive yourself. We learn from our mistakes.  Tell yourself,
“The next time I will do better.” 
 “The next time I will stop myself.”
“The next time I will walk away.” 
You are striving to create security for your family and you. Once you catch the fever of savings, you will experience empowerment. Then regardless of the emergency, you will be prepared for it.  

Thursday, September 11, 2014

Don't Wait - Just Start!

What things are you putting off that need your attention?  I am talking about the things you may procrastinate about that shouldn't wait.  You may be telling yourself, “I’ll get it done when I have more time, more money, or when I get that new job”.  But are we being honest with ourselves? What’s stopping us from attending to the things we should?

Napoleon Hill, renowned author of the book, Think and Grow Rich, said, “Do not wait; the time will never be ‘just right.’ Start where you stand and work with whatever tools you may have at your command and better tools will be found as you go along.” Now this may seem a little strange.  Last week, I told you to “wait for it”; and now this week, I’m telling you the exact opposite. 

Don’t wait – don’t procrastinate. Just start.  I’m talking about things that cause anxiety, fear, and insecurity to build. When it comes to money matters, everyone’s priority is different. You may have good intentions to start saving for your children’s education, your retirement, or to pay down debt yet you never do.

I feel part of my role as a financial planner is to motivate you to take action.  I will do what it takes to inspire, educate, and provide resources to help you.  The only thing I can’t do is MAKE you do something you don’t want to do.  But I will do what I can to help you understand “why” action is important. Are you ready? 

Start by listening to what Brian Tracy, author of the book, Eat That Frog, has to say about “Procrastination.”  When this video was shared with clients, they immediately recognized the important things they had put off.  Their wills haven’t been updated; their insurance coverage was inadequate; and they didn’t have any savings for emergencies.   

Take control. Simply take the next “right” step for you. What are all the things you haven’t done that need your attention?  Click here for a list of ten financial items every Canadian should have. Review the list, prioritize the items which need your attention and set deadlines when you expect to complete each task.  One day you will be glad you did.

Thursday, September 4, 2014

Wait For "It"

Capturing the perfect image of the ocean splashing onto the rocks requires patience.  When you wait, you get the perfect snapshot.  This scene sends an important message: “Wait for It.”  Wait for the things you want in life.    The blood, sweat and sacrifices (and of course, discipline) you pour into savings will pay off because you’ll have a greater appreciation for the things you purchase. 

BUT do we? Do we “wait for it"? Most times the answer is “No!” We’re bombarded with marketing ads.  The advertisement tells us, “Why wait when you can have it now?  The advertisement tells us,  “It’s easy! With these low monthly payments, it’s yours.”  The advertisement also tells us, “There are only a couple items left in stock and then they’re gone.” The pressure is on to buy. And we buy.  In the end, do we actually own it or do we owe money for it?

Most times I see people fall victim to the easy purchase plan (myself included.)  If we are not able to pay the debt in full, the payments seem to go on and on forever.  Having payments restricts our ability to do anything.  If you have ever felt like a prisoner, this is probably the time.  It’s easy to get into a cycle.  When our debt payments escalate, income is restricted for day-to-day lifestyle expenses, forcing us to buy essential items, like groceries, on credit.  Debt begets more debt.

Living in a world which provides easy access to credit and promotes instant gratification comes with a cost.  The cost is the interest you pay over time for the purchase.   

Recognize that some things are worth the wait. When you focus on your goals and dreams, you avoid the temptation of buying things on impulse. You may be able to relate to two experiences you’ve had in the past.  One, when you saved for something you really wanted.  The second, when you bought an item using credit obligating you to make payments.  Which did you prefer?

If you have the ability to make loan payments, wouldn’t it be just as easy to start saving for the item in advance?  Rather than pay "interest", you can actually earn “interest” while you wait. One easy way to save for what you want is to hide the money.  {Well, not exactly!}  We know we can be our own worst enemy; so to avoid temptation, the best solution is to set up automatic transfers to an account (like a mutual fund) which puts your savings out of reach. This prevents dipping into your “pot of gold” until the time is right.  

In the end, when you wait for it, you get what you want and more: freedom to move onto your next purchase, peace of mind knowing you have no payments, and a sense of accomplishment knowing you worked hard to save for the things you wanted without incurring debt. 
No one says, “Wait for it” is easy; but the one sure thing is, “It’s worth the wait”.