Given all the turbulence recently in the Canadian markets and hoping to calm your fears, we wanted to remind you of the basics of financial security (remembering that investing based on newspaper headlines (emotion!) is almost certainly a bad way to make decisions regarding your financial future).
Like any building your financial security must have a good foundation ... we set out below the basics of financial security. Make them part of your New Year resolutions.
1 Spend less than you earn. Sounds easy but many people find this basic building block the most difficult to achieve. We could have said have a budget and stick to it, which would indeed be excellent, but keeping track of what you spend allows you to identify areas for saving (more) money.
2 Have an emergency fund. This is to cover unforeseen emergencies (not general overspending !) and our advice would be to hold 3 months worth of expenses (more if you can manage it) in an easily accessible savings account.
3 Have adequate insurance. How much is adequate depends on your personal circumstances and this will change over time. This includes life, disability, health, household and car insurance as a minimum.
4 Save regularly. Actually this is an outcome of #1. Get into the habit of "paying yourself first", in other words have your savings either taken directly off you paycheck before you get it or arrange for a direct debit to your savings to coincide with when you are paid.
5 Avoid credit card interest as this is the most expensive form of borrowing possible. Always pay your credit card balance in full each month. If you are carrying a balance, eliminate it as fast as possible.
6 Ensure you have a will, a power of attorney (for your financial matters) and a personal directive (for health matters).
7 Write down you long-term objectives. Unless you know where you want to go, how will you know when you get there? Just the writing down of your goals will hugely enhance the likelihood of achieving them.
So these are the basics. Once you have them in place you can start to plan for retirement, wealth accumulation and goal achievement. Without these basic building blocks you may not be successful.
You would probably be surprised how many of our clients approach us for advice about such things as retirement savings, investment returns, fees, tax effectiveness etc. without having put in place the basis for their financial security. So put the foundation in place before building your financial house!
Maternity leave can be a bittersweet topic for young families. If you are employed but aren't going to receive an EI top up from your employer, then you need to make sure that you can afford to only receive about half your pay. Many young couples struggle with this. It often results in families using credit to stay home or returning to work sooner than they'd hoped. Preparing for an upcoming maternity leave can be really stressful, so I've decided to share my journey and how I managed to stay home from work for one full year with only half of my traditional pay check.
I knew that having basically half my pay would not allow me to be home for a year. Unless I planned very carefully, I would be back to the grind in just a few short months. In my town, it was hard to find people who could care for a small infant, but I REALLY felt that it was important to be at home with my baby for as long as possible. So, with some careful planning, I was able to save and prepare to be financially secure once my baby arrived.
I thought I had a little bit of time on my hands, but sometimes babies have their own agenda!! My sweet bundle of joy arrived two weeks early!! This meant that I missed out on an entire pay check that I was relying on. On top of that, EI takes a minimum of two weeks to begin. Two weeks! If you don't get top up from your employer, like me, that's two weeks with no income. Unless you've saved, that is.
My first step was to make a budget of our current family expenses to see where we would fall short given I would receive half my pay. I looked at all our expenses and determined that if I could save $400 per month for my entire pregnancy, then I would have accumulated enough money to probably make it through a year of maternity leave. I factored in birthdays, holidays and also wanted to make sure I had a little extra for emergencies. All in all, $400 per month would do it.
There's an old adage that if you want to save more you either have to earn more or spend less. While preparing for my leave, I did both. At the time I was on shift work, so I worked as many extra shifts as I could, including every statutory holiday as these paid time and a half. I also worked a second job and was able to get as many shifts there as my pregnant self could handle.
I am a girl who loves anything to do with points. It's like free money! If you have to shop, why not make your money work for you?!! I cashed in credit card points to get gas gift cards, I saved my favourite pharmacy points for makeup and toiletries, and I hoarded every gift card I received during my pregnancy. This helped out more than I anticipated and I would do it again in a heartbeat - especially the gas gift cards.
Now, was it all glorious? Was my budget accurate? Of course not … My air conditioner broke, and so did my car, fridge, and furnace - all around the same time. Good news is .. I had the savings to manage these crises and I didn't have to rack up debt. However, I was able to reduce expenses as well. I called my car insurance company, my cable provider and my phone provider and negotiated better deals which helped us save even more cash. I also didn't hesitate to explain that I was about to be off for a year on EI benefits with a baby, as I figured there was no harm in explaining why I was being such a tough negotiator. My husband and I benefited even more as we had an opportunity to re-negotiate our mortgage a few months early, which was right before my due date. We got a much better rate compared to the previous one and that freed up some more cash.
I'm not saying my plan was perfect; there were unforeseen events but it was essential that we looked at our finances to see what we could do without or work harder for. For us, my plan helped manage the household emergencies, participate in gift giving and enjoy the year without incurring unmanageable debt. It allowed me to focus on being a new mom, which is the important part.
Lisa’s 6 steps to maternity leave security:
1 Review all expenses and see what adjustments have to be made with just half an income
2 See where you can cut costs/earn more money
3 Establish what you have to save during pregnancy .... and save, save, save !
4 Renegotiate expenses where you can
5 Use points!
6 Enjoy your new arrival and spend your savings!
If you can reduce the money worries, then the time spent planning your maternity leave finances will benefit both you and baby.
I used to think Christmas shopping kicked off in early December but now, with Black Friday and Cyber Monday occurring in November, I have to reconsider my dates! With that in mind I thought it was time to talk about a Christmas budget.
Its so easy to get caught up in the spending frenzy at Christmas time. My wife and I spent most of Black Friday shopping for Xmas presents. We have a lot of people to shop for as I'm sure most do. It's very difficult to stick to a budget at this time of year because it's so easy to get caught up in the excitement of the holiday season. If you create a budget and stick to it, you will avoid the perennial January question ... How do I pay for all this?
In our home, a budget at Christmas generally comes down to spending less than we would really like. Of course we want to spend more on family and friends but we realize we can buy nice gifts without breaking the bank!
Here are a few tips to help you with your Christmas budget.
1 Sit down with your spouse/partner and make a list of all those people you have to buy gifts for and attach a dollar limit to each. Add up the total, gasp (!!) and try to bring the total to an acceptable level ... always bearing in mind what you can afford. By the following February/March some of the people you bought for may not even remember the gift, so why spend beyond your means.
2 Agree on a total to be spent. It is very important to set a realistic total spending amount ... only you know what you can afford.
3 Write down the final listing and pat yourself on the back to celebrate being one of the 5% of Canadians who undertake this exercise !!
4 Go shopping and track your expenses. There are many electronic ways to do this but pen and paper are fine!
5 Be flexible on individual gifts but always bear in mind your total spending.
6 Don't forget to include expenses for family dinners or eating out if you wish to include all your expenses over the holiday period.
7 Pay off your credit card in full in January. If you ever have doubts about doing this, just take a look at the box on your credit card statement which tells you the number of years it will take you to pay off the balance using the minimum payment required. That number may scare you! So the bargain that you just couldn't resist is no longer such a bargain!
Pat yourself on the back again if you pay the full amount owing as roughly 30% of Canadians carry a balance on their credit cards.
We recommend this exercise as it will remove one huge area of stress from your lives over Christmas and the New Year.
Remember that time spent with family and friends is beyond value.
Have a great Christmas.
You have probably read many articles in newspapers and online, emphasizing the benefits of choosing a fee-only planner (and who am I to argue!!) but, to be quite honest, a lot of people do pretty well in managing their own finances. So why should you go out of your way to pay money for something which is pretty straightforward?
Let me share with you the analogy of our recent kitchen renovation. As we are pretty handy and frugal, my wife and I were able to remove the old kitchen (the Habitat Restore was grateful!) and could have done a lot more by reading tips in books or online for some of the electrical or plumbing work. Thankfully I remembered the last time I had done plumbing work and stopped immediately! It didn't take us long to realize that calling in the experts would save us time and money in the long run.
So for a higher upfront cost we gained peace of mind and expertise; experts who were qualified to do the job. Similarly with a fee-only planner you get expertise and long-term comfort from your initial investment.
Here are some of the concerns our clients had and how we were able to help:-
- "We are OK financially but are too busy to sit down and plan for our future. We have been able to save but we don't know if our priority should be to save for the kids' education or retirement". Hammond Financial summarized their financial goals, analysed their existing RRSP portfolio, created a written personal statement of investment policies and developed a plan to achieve this.
- "We never seem to get ahead. There is always something unexpected like a car repair or a furnace repair .... both happened to us in the same month!" We adopted a similar approach to the client above but in addition we added a summary of income and expenses and suggestions as to where savings could be found.
- "I just contribute to my RRSP to get the tax refund but feel I should be doing more than that". We analyzed their RRSP portfolio, assessed the client's risk tolerance and investing horizon and developed a comprehensive long-term retirement plan.
- "How much do we need to retire comfortably?" This is probably the most common question we are asked and the most personal to answer. The solution depends (fundamentally) on what lifestyle you want in retirement and how much you can save between now and then.
Given the recent fluctuations in the financial markets worldwide, there is extra benefit from using a fee-only planner and, based on our experience, we offer five suggestions to ensure peace of mind.
1 Focus on why. Why are you saving, what are your goals? This perhaps is very obvious but, for example, with the recent wildly oscillating global stock markets, it pays to remember your long-term goals. 'Investing by newspaper headline' is NOT a good way to plan your future.
2 Write down your plan or goals. Again sounds simple but this is such a powerful tool !
3 Educate yourself. Your planner is there to help you but the more you know about financial matters, the better your outcome will be! I personally recommend Canadian MoneySense magazine as a great, reasonably priced, resource.
4 Reward yourself. Unless you are the type of person who can live on Kraft dinner in a bare room so that you can retire early with enormous savings, I suggest you reward yourself (modestly, of course!) when certain financial goals are attained.
5 Have a regular check up with your planner. This does not have to be every year but base this on a time frame that suits you.
So, a fee-only planner has many advantages for you. Please consider Hammond Financial when you are making the decision to secure your future.
Since it has taken me a long time to actually start this blog, I thought I should start by talking about procrastination! I admit, I am a habitual procrastinator - inherently if I can put anything off, I will. I am motivated by deadlines but otherwise I can justify doing almost anything else from following my beloved soccer team, Charlton Athletic, to checking e-mails etc.
Originally the word procrastinate, which is derived from two latin words meaning "for tomorrow", would have had positive connotations as was likely very useful to wait to see what an enemy was doing before rushing out and attacking him. However the dictionary currently defines procrastinate as to "postpone or delay needlessly" which has really bad connotations!
So, from a financial perspective, procrastination can often be good as it avoids us making rash and reckless decisions which often, in a financial sense, result in lost money. So it's OK to procrastinate in these situations :
Buying anything from a door-to-door salesman or at a timeshare presentation. Beware the high pressure sales pitch to buy today.
Buying any complicated financial product, be it your mortgage or life insurance policy.
Signing up for any special offers such as a gym membership or Costco executive membership. Take the time to calculate the pay back.
Investing on the basis of a hot tip from a friend or family member.
However here are some situations where procrastinating is downright bad for your financial health :
Delaying contributing to your RRSP. You need to get into the habit of saving and, in my opinion, it is always better to invest now rather than wait for the market to improve/find a better opportunity.
Setting and writing down long term goals. As J.M. Keynes said, "In the long run we are all dead" !
Setting and adhering to a budget. Seriously, what are you waiting for ... divine intervention?!!
Believing that the task is complicated. Yes, some things are complex but many solutions are simple and straightforward financial decisions are absolutely the best.
So sometimes to delay and weigh up all the options is good and in financial decisions this is especially true. However we all have to recognise when we have enough information to make a decision and then act.
So how do I overcome my inherent desire to delay ?
I break tasks into small steps and list them out. That way I get a great sense of achievement when I can cross them off .... and being the personality type I am, just crossing them off is a great motivator !!
I personally follow the KISS (Keep It Simple 'cos I'm Stupid) principle in all my financial decisions. If I can't explain to a family member what I am doing then I probably shouldn't do it.
I keep my long term financial goals in mind with every investment decision I make. That way decisions are always in line with the plan.
I deliberately ask why not do it now ..... amazing how that works !
So I promise to procrastinate no longer and will blog regularly in future !!