By Selina Jacobson, Registered Insolvency Counsellor
Every purchase we make is an attempt to solve a problem. When we’re hungry, we buy food. When our car breaks down, we look for a new one. When we feel burned out at work, we plan a vacation. It often seems like the only thing standing between our current tension and immediate release is whether we have enough money to connect the dots.
Of course, with a range of financing options at our fingertips, we can easily solve that problem, too. We use credit cards, loans and lines of credit to bridge the gap between what we have and what we need (or want) – and pay the difference over manageable monthly installments. It’s only when the bills begin piling up that we realize we never really fixed anything; we simply shifted our problems from one place to another. And now we’re paying interest on them to boot.
It can feel tempting, even exciting to forge ahead with a big purchase – and imagine how much better our lives will be for it. But there’s value in stepping back and considering what we might be giving up – what unintended consequences may result and what alternatives we may be ignoring by financing our road to contentment.
What Qualifies as a Big Purchase ?
In short, it depends. A big purchase could be anything from a new pair of jeans to a renovation project, a business investment or going back to school. Essentially, it’s anything that you don’t have the cash on hand to pay for in full. In other words, if you require credit anywhere in the process, it’s a big purchase.
Keep in mind that even if you do have the funds available, a high value transaction may still trigger unease and apprehension. While the long-term financial consequences will not be as significant, it may still be worth listening to your gut and taking a moment to reflect before moving ahead.
The Benefits of Waiting
Think back to your last big purchase. Do you remember feeling torn between two conflicting voices in the back of your head ?
One was urgent, persuasive and demanding. It painted a convincing picture of how much happier and better your life would be after you signed on the dotted line. It didn’t want you to think – only act.
The other was subtler, gentler, quieter. If you listened, you’d have heard it ask some important questions, like:
The first voice is all about now. It doesn’t care how you’ll feel in a week, a year or a decade. Nor does it care about the other problems you’ll inevitably encounter on the road ahead.
The second voice plays long game. It wants you to be able to solve not just this problem, but each one that comes after it, with confidence and ease. It wants to help you build a sustainable life, not just pour water on a series of increasingly uncontrollable fires.
What Kind of Shopper Are You?
People tend to shop on a spectrum, with frugality at one extreme and impulsiveness on the other. If you’re still reading, it’s probably safe to assume you’re somewhere in the middle or lean more toward the latter. But there’s no judgement and it certainly doesn’t mean you can’t inject some more structure and intentionality into your shopping habits.
The following techniques can help you make more strategic and financially sound purchase decisions:
Set Your Price and Pre-Shop
Set clear boundaries around what you’re willing to spend. If you need to make sacrifices, your monthly budget will tell you what they are. Avoid forcing the numbers by sacrificing either your savings or leisure allowance. Whatever you’re buying, don’t let it dictate your enjoyment of the present or future.
Next, start pre-shopping online. Many websites allow you to narrow your search by price and features, so you can target only the items which fit your preferences. You can also compare the features and functions of several different options, so you can get a like to like understanding of what works best for you and why.
Be Firm with the Salesperson (and Yourself)If you’re not careful, a skilled salesperson will find a way to sway you toward a more expensive and feature-laden option than you need. This is where research pays off. If you must deal with a salesperson, be clear on what you want and what you expect to pay.
If you don’t trust yourself, bring along a friend or family member for moral support. Tell them about your research and your budget and ask them to intervene if it seems like you’re straying from your goal. You may even bring a copy of your budget along as a reminder. Lastly, only bring the cash you’re willing to spend and leave your credit cards at home.
Predict the Future
Of course, you really can’t predict the future – especially when it comes to finances – but that’s the reason unexpected expenses are unexpected. You never know when they’ll happen; all you can do is prepare.
Have you considered all the irregular costs you have on the horizon?
And how’s your emergency fund?
Most financial planners recommend setting aside between three and 12-months’ living expenses to get you through a worst-case scenario – such as a job loss, illness or caring for an ailing family member, major home or vehicle repair / replacement, divorce, etc.
The truth is, even if you have the cash to make a purchase but don’t have an emergency fund – or if your purchase will get in the way of an irregular expense one or several months down the road – you can’t afford it right now.
Own Your Life
Convenience is more accessible than ever. You can use credit cards to buy things when you don’t have the cash. You can get free two-day shipping on most online purchases. Many services offer hassle-free one-click ordering. But it begs the question: who is really in control?
Removing some immediacy and convenience from the process ensures whatever you do buy adds value to your life, now and over the long term. What this process lacks in spontaneity and thrills more than makes up for in long-term satisfaction, comfort and peace of mind. Ultimately, though, you need to decide which sounds more appealing.
Life-Changing Debt Solutions
If you’re struggling with unmanageable debt due to one or more big purchases, you don’t have to suffer alone. During a Free Confidential Consultation, your Licensed Insolvency Trustee will review your entire financial situation and explain your options. Whether you qualify for a Consumer Proposal, bankruptcy or one of several other debt solutions, your trustee will help you choose the best path toward a financial fresh start.
This article was originally published by MNP. To view the original article, click here.
By Selina Jacobson, Registered Insolvency Counsellor
Of course, this is a trick question… Everyone needs an emergency fund. More importantly, you need an emergency fund. Financial emergencies don’t discriminate and the consequences of being ill-prepared can add up quickly.
What is an emergency fund?
An emergency fund is a readily accessible savings pool intended to help you through stressful and potentially costly life events – such as a vehicle breakdown, job loss, extended absence from work or a costly vet visit. Ideally, you will have between six and nine months of living expenses set aside in a designated account that you use only for these kinds of expenditures.
Why have an emergency fund?The word ‘emergency’ doesn’t often inspire feelings of happiness and excitement, does it? These are typically some of the most traumatic and worrisome experiences you can imagine. And that’s before you realize the pressure they’ll put on your personal finances.
An emergency fund helps alleviate the strain of an unexpected cost by ensuring you still have enough money to pay for your rent/mortgage, utilities, groceries and other regul ar expenses. It also guarantees you won’t have to make an unpleasant situation even worse by offsetting the cost with interest-accumulating debt.
But isn’t that what credit is for?Contrary to what creditors and predatory lenders want you to believe, credit is not a sustainable way to get you through a financial emergency. In fact, credit cards, lines of credit and especially payday loans will likely add more problems than they remove. At the end of the day, the only thing debt does is postpone, prolong and – thanks to unsustainable interest costs – ultimately increase your financial, mental and emotional stress.
Can’t I borrow from family and friends?
Shakespeare hit the nail on the head when he wrote, “Neither a borrower or a lender be; For loan oft loses both itself and a friend…”
Ultimately, it’s your choice whether to ask those closest to you for help. Certainly, most would be willing to do so. But you also need to consider the potential strain that might place on them and your relationship.
First, you don’t know what their financial situation is. Wouldn’t it be heartbreaking to learn they fell into a crisis because their emergency fund is financing your unexpected expense? Moreover, you don’t want to have the black cloud of an outstanding debt hanging over your relationship until you’ve managed to repay it. And you don’t want to be that person who’s always asking for money, do you?
What if I can’t resist the urge to spend my savings?First thing’s first: congratulations! Acknowledging this common challenge requires a great deal of self awareness – and it’s the first step in addressing the issue head on. It’s also why you need to draw a clear line between your emergency fund and regular savings account. In fact, rather than designating one blanket ‘savings’ line item in your budget, I recommend you create three.
Bucket 1 – Emergency Savings: This is a designated amount that contributes towards your six to nine months of living expenses. Contribute to this bucket every pay period until you reach that threshold. If you need to withdraw money for a necessary but unexpected expense, resume contributing to this bucket until you have returned to that magic number.
Also, consider creating this account at a different institution than you usually bank with and avoid having a debit card for it. That will force you to be more deliberate and intentional when deciding whether to transfer money out of this account.
Bucket 2 – Retirement: This is a designated amount that contributes towards your retirement goals. You’ll be adding money here every month for the rest of your career. Ideally, you already have an RRSP or other investment portfolio established. If you don’t, consider meeting with a financial professional to get one started.
Bucket 3 – Savings Goals: This is a designated amount that contributes towards things you want to buy but can’t currently afford – such as a new car, vacation, home purchase, computer, etc. Here’s where you can indulge your inner spender guilt-free.
It may initially feel difficult to incorporate this three-bucket system into your budget. When starting out, consider contributing the majority (approximately 50%) to your emergency savings, the second largest portion (approximately 30%) to your retirement and whatever you have left over (20% or less) to your savings goals. Once you’ve reached your six- to nine-month goal, you can increase what you contribute to your retirement (60%) and savings goals (40%).
Step 1: Review Your Budget
Note the essential monthly expenses you cannot live without – such as rent or mortgage, utilities, groceries, car payments, fuel, insurance, medical costs, debt payments, etc. – add these up and multiply by six. Caution: this will be an enormous number (like tens of thousands, large) But don’t fret; it’s only your long-term goal.
Step 2: Establish Your Checkpoints
How do you eat an elephant? One bite at a time! Create a series of attainable mini savings goals you’re confident you can hit over the next six months, one year, five years and so on as you work your way to that big long-term savings goal. Start at $500, for example. Then $1,000. Then $5,000, $7,500 and so on. Make a game of it and challenge yourself.
Step 3: Build Momentum
By far the hardest part is getting started. But once you’ve turned saving into a habit it’s going to feel like the most natural thing in the world. Make that first transfer next payday and every pay period thereafter it will feel easier and easier. Pretty soon, you’ll notice the stress of everyday life fade away knowing whatever challenges come your way, at least you’re financially prepared to face them head on.
Life Changing Debt Solutions
Life happens and along with it comes the likelihood of unexpected financial blows. If you’ve found yourself in a situation you feel is beyond repair or you’re facing multiple financial difficulties and struggling with debt, MNP can help.
During a Free Confidential Consultation , your Licensed Insolvency Trustee will review your situation and help uncover opportunities for a financial fresh start. Whether you qualify for a Life-Changing Debt Solution such as bankruptcy or a Consumer Proposal or would benefit from several other helpful services – they’ll help you choose the right option to defeat your debt for good. You don’t have to suffer alone, we can help you get back on your feet and on the road to a more secure and confident future.
This article was originally published by MNP. To view the original article, click here.
By Selina Jacobson, Registered Insolvency Counsellor
Everyone has financial dreams. Whether it's getting out of debt, building a nest egg for retirement, purchasing a home or going on vacation – visualizing any number of desired results comes naturally.
It's easy to dream. Fun even. But it's rarely rewarding because dreams don't produce results. Goals do. Yet far fewer people have financial goals. And fewer still have effectively structured goals that maximize their chances of success.
Dreams vs. Goals
The difference between a dream and a goal is simple. Dreams fixate on an ideal outcome. Goals focus on the process, steps and sacrifices required along the way. Dreams are about achievement. Goals are about planning and execution.
An Enduring Question
At last reference, a Google search for "how to set financial goals" returns upwards of 11.7 million results. Could there possibly be 12 million different goal-setting methods? Not likely. But it's safe to say the supply of answers reflects the demand.
We live in a world of hacks and apps and shortcuts. We usually know what we want, but often don't know how to get it. We're great at dreaming, but often struggle to find the consistency, persistence and discipline that goals require.
No tool can help us find that. But there is a time-tested framework that has continuously proven effective.
The easiest way to tell if you're working with a financial goal or merely a financial dream is to test it using the acronym SMART. If you can define each of these elements within the framework of your goal, you know you're on the right track.
S = Specific: Be as clear and precise as possible about what you want to achieve.
M = Measurable: Structure your goal in a manner that allows you to track progress over time.
A = Attainable: Be realistic about what you want to achieve given your resources (e.g. time, income).
R = Relevant: Your goal must be enough of a priority that you'll make sacrifices to achieve it.
T = Tentative: Life happens. Your goal needs to be flexible enough to weather unexpected challenges.
Write it Down
Have a goal in mind? Great! Write it down. A recent study on goal setting demonstrated people are 42 percent more likely to achieve your goals when they write them out. Once the idea is committed to paper, it's real, visible and concrete. You can also post it somewhere you'll frequently see it and reference it often to keep it fresh in your mind.
Of course, writing it down isn't enough. That's where SMART can help bring your goals to life. Let's illustrate this using a trip to Las Vegas as an example.
Do a brain dump of all the available information you have about your goal. Some questions you'll want to answer include:
Q: What do you want to achieve?
A: Four-day trip to Las Vegas for two people
Q: What are the costs involved?
A: Grand total – $3,150.00
Flight and accommodations – $1,350
Meals/groceries – $800.00 ($200.00/day)
Spending – $400.00 (100.00/day)
Entertainment – $200.00
Miscellaneous – $400.00
Q: What is my timeline?
A: Eight months
Now, rather than saying "My goal is to go to Las Vegas," you can say something like, "I want to save $3,150 to take a four-day trip to Las Vegas with my spouse in eight months."
Next you need to calculate your monthly or semi-monthly contributions and decide how you'll monitor your progress.
For the first part, divide the cost of your vacation ($3,150.00) by the number of months to save (8). This tells you that you need to set aside $393.75 per month (or $196.88 every paycheque) between now and when you want to leave.
Does this fit within your budget without sacrificing your needs and debt repayment? If so, great! Now you can create a spreadsheet, write a journal or download an app to provide a visual representation of how your vacation fund is growing over the next few months.
If not, the next step may help.
Anything you put your mind to is attainable, it just might not be attainable right this moment. Avoid setting a goal so far out of reach right now, it stops you from even trying to achieve it.
Let's say your monthly budget won't accommodate the amount you came up with. How can you make this vacation goal attainable?
Add time: If saving for your trip in eight months time is not realistic, what is? Add more time until the savings amount is attainable. For instance, an additional six months reduces your monthly contribution to only $225.00.
Reduce Vacation Costs: You could still take an incredible vacation with a little compromise. Let's say you'd planned for a four-night stay at the Bellagio.
Opting for a less expensive hotel could save you $100.00 per month.
Any goal requires sacrifice. You could spend that $393.75 per month on a lot of things – emergency savings, a down payment on a house, debt repayment, new clothes. You're giving up a lot to take this trip to Las Vegas. You need to feel inspired or it's not going to work.
This is especially true for any joint goals such as those between you and a spouse or your entire family.
For example, you and your spouse want to experience the night life in Vegas, but your children want to go to Disneyland. It's safe to assume the kids won't respond favourably to cutting the monthly movie budget so Mom and Dad can have their vacation. However, if you frame the choice between seeing the new Cars movie or seeing the actual Cars in Radiator Springs at Disney, their outlook might change.
Tentative doesn't mean you're unsure of the goal or you won't stick to it. It just means life happens and you'll need to be flexible. Unexpected expenses pop up. Your car might break down. You could lose a filling. Or your kids may get sick, requiring you to miss a day of work and pay.
When these things happen, it's possible you'll need to use your monthly vacation savings to cover the costs.
Contingency planning will help offset the effects of worst-case scenarios. Here are two strategies to help you stay on track:
Increase your income or reduce your expenses: Could you work an extra shift or take on some overtime to make up the difference? Could you give up something this month (e.g. eating out) to offset the added cost? Could you negotiate a payment plan with your dentist or the mechanic?
Adjust your travel date: If unexpected expenses have put you behind a month or two, push your trip back a few months. If you haven't booked it yet, you'll have the freedom to do so.
Practice Makes Perfect
Can you see yourself reaching your goals using this framework? No matter what you want to achieve, using the SMART principle will help you get there faster and more consistently. The more you use it, the more effective you will be in reaching your goals and achieving your dreams. And, frankly, it's a lot better than sifting through 12 million online resources to find the "perfect" tool for you.
This article was originally published by MNP. To view the original article, click here.
By Leah Drewcock, Licensed Insolvency Trustee
Which word is more cringe-worthy to you, budget or diet? Sadly, for many of us, we view those words with the same disdain.
We all know how important budgeting is, so why do we keep failing at it? My take on budgeting is that we avoid it because we think it is too much work and we have enough work in our day already. What is the reward for budgeting? Much like exercise and diet, we tend to avoid the things that are best for us if we see them as work.
Think about how when starting a new exercise routine, you get yourself prepared by making sure you have the right tools and time set aside. You might feel excited about starting a new journey so the first few days or weeks you are motivated and pleased with yourself for finally committing to an exercise routine.
Then, after a few sessions you may start to feel less motivated; maybe you aren't seeing the results as quickly as you like, maybe it is starting to feel like work. Pretty soon, you are skipping workouts, making excuses and before you know it, you have quit altogether.
So, can the same things that help us stick to an exercise routine and healthy diet help us to succeed at budgeting?
Build a Solid Budget Routine
The same characteristics of a successful exercise or healthy eating plan should be present in the tools we use for budgeting:
For as many different exercise plans out there, you will find as many budgeting tools. It is important to find the one that works best for you or you won't stick to it.
There are paid and free apps or mobile phones and tablets that work with both iOS and Android platforms. Some of the more popular and free apps include:
Additional on-line tools
If you prefer to put pen to paper, you can print any of the downloadable expense trackers and budget forms and fill them out manually. If you struggle to remember to keep receipts for small purchases, try keeping a small notebook in your purse or pocket and whenever you make a purchase write it down. Then you can transfer these expenses to your worksheet when you get home. Cross check your spreadsheet with your monthly bank statement to account for expenses you may have missed and for automatic withdrawals and bank fees.
What else do I need to know about successful budgeting?
Finally, you are bound to experience budgeting ups and downs. Remember, budgeting requires long-term dedication. Don't give up – like diet and exercise you must keep trying; you don't usually achieve your goal weight in a month and you don't master your budget in a month either. But with perseverance you can achieve your financial goals and live debt-free!
Leah Drewcock is a Licensed Insolvency Trustee at our Prince George location. To learn more how Leah can help, contact her at firstname.lastname@example.org or 250-596.4901.
This article was written for MNP Ltd. and was originally published here.
by Nora Edwards, Licensed Insolvency Trustee
Every parent knows just how busy – dare I say hectic – family life can be. Between work, school, extra-curricular activities, making sure everyone is fed and clothed and still trying find the time to sleep – you're probably wondering who in the world has time to budget.
But the truth is as dynamic and time consuming as family life can be, it's also pretty expensive. Without a plan to get or stay out of debt, many households may inadvertently be setting themselves up for failure.
That's the bad news. The good news is that budgeting doesn't have to be a complicated or drawn out affair. By following a few simple steps, any family can get themselves confidently on the road to financial well-being and prosperity – regardless of what expenses they have or how much time they are able to dedicate to the task.
Step 1: Setting Priorities
The first and most important step of any budget is to understand what matters most for your family.
It could be as simple as just keeping a roof over your head and putting food on the table without relying on debt to make ends meet. It could also be as complicated as affording for all your children to take part in the sports, clubs and activities they're passionate about and the peripheral costs that go along with them.
Every family will be different, and that's okay. Odds are there will be several financial goals you're trying to balance. What's important is that everyone is clear on what your priorities are and their order of importance. That way everyone is working toward the same shared goal and are mutually contributing to your family's long-term financial success.
Step 2: Income
The next step is to figure out how much money is coming in each month. This includes all employment income, government subsidies (childcare benefit, GST/HST refunds, etc.), investment income and any other money that can be consistently relied upon to support your family. Whatever this amounts to will be the upper limit of what you can afford to spend, so it is important to know it intimately and immediately off-hand.
Also, if there are any sudden changes to your family income – such as a job loss or illness – knowing what that reduction will be is helpful for quickly making the necessary adjustments to weather that storm.
Step 3: Expenses
Just like you want to know just how much money is coming in each month, you'll also want to know exactly how much money is flowing back out. For your budget to work properly, this number needs to be the lower of the two.
Begin by documenting your fixed expenses – such as rent or mortgage, property taxes, car payment(s), cable and internet, mobile plans and insurance; all the costs that stay consistent from month to month.
Next, estimate your variable monthly expenses by calculating the average of what you've spent on each over the past six months. These might include utilities, groceries and fuel costs. Finally, decide how much you would like to set aside for savings. Remember, many irregular expenses such as birthday or Christmas gifts may not fit neatly in any of the above categories. Be sure to include them in your savings plans to avoid being caught off guard when they come up.
And, of course, if you have any outstanding debts, you will also need to factor those into your expenses as well. Ideally, paying these off will have been listed as one of your top priorities.
Step 4: Tracking and Maintaining
This is the tricky part. You know how much money you're able to spend each month and you're aware of how much money you need to spend each month. Now you must do the hard work of staying within that limit – which is usually easier said than done.
Everyone has been there. You rush home from work, drive one child to dance class and quickly dart across the city to drop the other one off at hockey practice. Without time to make dinner, you find it easier to just stop by the closest fast food drive through on the way home. After two weeks of constantly telling yourself it's "just this once", you realize you've spent your entire food budget for the month.
Sticking to your budget requires continually planning and tracking your spending. It means sitting down at the beginning of the month and looking at your family's schedule, so you can plan out grocery trips, set time aside to prepare meals in advance, anticipate any irregular costs and solve any potential challenges before they arise. It also means meticulously documenting every dime you spend. Whether you use an app, a spreadsheet or good old-fashioned pen and paper – having a running record of what you've purchased, and your available budget remaining is the best way to keep your mind clear and reduce the stress and anxiety in your already busy lifestyle. It has also proven, time and again, to be he most effective way to reach your financial goals.
Step 5: Review and Re-evaluate:
Finally, remember that your family is dynamic and constantly changing. So too are your needs, wants, finances and priorities. Set aside time –quarterly, every six months or annually – to review your budget and goals. Make adjustments as required and keep the lines of communication open. That way everyone will feel like they're contributing to the same result. By working together, your chances of getting wherever you want to go will be much improved and you'll find a lot more joy and cooperation on your journey.
If you and your family are struggling to balance your budget due to overwhelming debt, a Licensed Insolvency Trustee can help. During a Free Confidential Consultation, we will review your financial situation and all your options to determine which Life Changing Debt Solution might best fit your unique needs. Together we can get you on track to the financial fresh start you deserve.
Nora Edwards is a Licensed Insolvency Trustee with MNP Ltd., serving clients in Burnaby, Port Coquitlam and Port Moody. To learn more about how Nora can help, contact her directly at email@example.com or 778-374-1850.
Confronting your debt can be overwhelming. Perhaps you’ve stopped borrowing, but mounting interest means you still owe more and more each month. Maybe you’re keeping up with minimum payments and have avoided any nasty collections calls. But that’s only stopped things from getting worse. You want to reset your budget and get out of debt for good – but you may not know where to start. Listed below are five ways to get your finances back on track and under control.
1. Regular Monthly Payments
With some credit cards, payday loans and other high interest debts, it can take anywhere from 20 to 75 years to eliminate the balance completely making only the minimum payment each month. If you’re going to make a meaningful impact, you’ll need to make regular monthly payments against the principal value wherever possible. To figure out what you can afford and what you will need to contribute, use the following method:
To figure out what you can afford:
To figure out what you will need to contribute:
In the above example, you would need to contribute $403 per month between both of your credit cards to come close to your goal of paying both off within 36 months. With $550 in disposable income, that would leave you with $147 per month left over for saving or other miscellaneous spending, such as entertainment or dining out. Though interest will still accumulate and you will not be completely debt free at the end of three years, you will be very close and much closer than had you not set up these regular monthly payments.
In the event your required contribution is more than you can afford, adjust the number of months to pay off your debts until you reach a monthly amount that works for your budget. If the contribution amount is at or less than your minimum payments, you may want to proceed directly to the Bankruptcy and Consumer Proposal section of this article.
2. Consolidation Loan
If you qualify for a bank loan sufficient to pay your existing balances in full, a consolidation loan can often be the least costly and most efficient path to becoming debt-free. This is especially true if the bulk of your debt is on high interest devices such as credit cards or payday loans. Instead of worrying about multiple creditors each month, you would only be required to make one payment and could see anywhere from a 50% to 75% reduction in interest costs.
If you do opt for a consolidation loan, however, it is important it be through a bank or credit union. Other lenders may charge you interest rates comparable to – or even higher than – what you are already paying, which will do little to help you get out of debt faster and could even make your situation worse.
3. Increase Your Income
Provided you have the time, energy and existing resources, taking on part-time employment or some form of income generating activity can accelerate your debt repayment goals. Several companies such as Uber and Skip the Dishes allow drivers to set their own hours, allowing you to work as much or as little as you want. Online classifieds such as Craigslist of Kijiji often have help-wanted ads for odd-jobs you may be qualified for. Online marketplaces such as Amazon, E-Bay and Etsy are great places to sell handmade crafts, gently used items you no longer need. Traditional part-time employment opportunities, such as the retail or restaurant industries, may also work for you.
If you do opt to take this route, remember the added costs it will take to get started – including childcare, fuel, tools and other supplies. The promise of added income can be lucrative, but you want to ensure your efforts produce a sufficient benefit. Otherwise, the outcome may not be worth your investment.
4. Liquidating Assets
If you have assets which can easily be sold or liquidated to pay off your debts, this may be a quick and effective solution to significantly reduce your personal debt load. Everything from an old car which is rarely used, to gold or silver jewelry you are willing to part with, GICs that have reached maturity, real estate and other investments you own are potential opportunities for generating cashflow.
With that said – you will want to seek professional advice before liquidating any investments or registered savings plans to ensure the potential tax costs do not outweigh the debt reduction benefits. Withdrawing from your RRSPs, for example, will reduce your future contribution room and may trigger a tax debt you’ll be required to pay in the future.
5. Bankruptcy or Consumer Proposal
For many people, a bankruptcy or consumer proposal is a last resort and one they would rather avoid. However, for those who qualify, it can often be the Life Changing Debt Solution they need – as well as their best and fastest route to a financial fresh start.
Though they differ in process and requirements of the debtor, both bankruptcies and consumer proposals are formal repayment plans which are governed by federal legislation and executed by a Licensed Insolvency Trustee. Each allows creditors to receive full or partial repayment of the funds they are owed while offering honest consumers a clear path to freedom from debt. As long as the debtor fulfills all the requirements they and their creditors have agreed to, they will be able to start over with a clean slate once the term of their bankruptcy or consumer proposal is complete.
If you’re considering a bankruptcy or consumer proposal or are interested in learning how an MNP Licensed Insolvency can help you on your journey to becoming debt-free, call us for a free confidential consultation to learn about your options and which one might be best for you.
Based out of Abbotsford, Linda Paul is a Licensed Insolvency Trustee and Senior Vice President at MNP LTD. To learn more about how Linda can help, contact her directly at 604-870-7445 or firstname.lastname@example.org.
The best way to avoid using credit during a financial emergency is to create an emergency savings fund. The experts recommend having no less than three to six months' worth of your regular net income set aside to get you through any short-term financial rough patch.
Saving six months - or even three months - of income is no easy feat when the average Vancouver resident owes almost $25,000 in non-mortgage debt and has significantly higher housing costs than most of the country. In fact, a recent survey by the Canadian Payroll Association found that more than a quarter of all B.C. workers (27%) say they would likely be unable to scrape up $2,000 for an emergency expense within the next month. Sound familiar? If so, read on.
When you already feel caught in a financial rut, the thought of saving extra money can seem like an unattainable goal. However, anyone can set aside emergency savings if they make the decision to do it, and break it down in to manageable steps.
Here are five simple steps you can take to build your own emergency savings plan.
Step 1: Set Your Goal
If you begin with the goal of saving three months of net income, figure out what that number is. For example, if you earn $3,000 per month, you will need to save $9,000 to in order to reach your goal.
Step 2: Determine Your Time-Frame
Pick a reasonable time-frame for achieving your goal, keeping in mind that it won't happen overnight, and probably not in 12 months either. For example, if you would like to reach your goal of saving $9,000 in 24 months, you will need to save $375 per month. If you need to take 36 months, you have to save $250 per month.
Step 3: Find the Money in Your Budget
Once you have figured out how much you need to save each month, look closely at your cash flow (a fancy way of saying budget) to determine where you will find the money. The first place to look is at non-essential spending, such as vacations, entertainment, dining out, and clothing and accessories. Next, have a look at how much you are spending on needs, such as food, transportation and housing. Just imagine if you could cut your expenses by 10%. If your typical monthly expenses are $3,000, you could save $300 per month.
Step 4: Put your Plan into Action
As soon as you have completed Steps 1-3, it's time to start saving. Open a separate savings account for your emergency savings and don't use the account for other purposes. Once you have opened your emergency savings bank account, next set up a regular, automatic transfer from your chequing account to your emergency savings account. If it's easier for you, consider spreading your monthly savings goal between your pay periods, whether they are weekly, bi-weekly or semi-monthly.
Step 5: Periodically Review and Adjust Your Goal as Necessary
To ensure you reach your goal, it is important to review your progress regularly and adjust as necessary. If you experience a change in cash flow, you may need to adjust your monthly savings amount, which might mean it will take longer to reach your goal. That's perfectly okay, but it's important that you never give up! Even if it takes 5 years or more to reach your goal, isn't that better than never reaching your goal because you stopped trying? Alternatively, you may find that you are able to reach your goal sooner than you planned, allowing you to work on other financial goals.
Having an appropriate emergency savings fund will help you weather most short-term financial storms and, more importantly, it will ensure that you don't need rely on credit or borrowed funds when the unexpected happens.
If you are already struggling with debt and it is eating up most of your cash flow after (or worse, before) you've covered basic living expenses, you should speak with a Licensed Insolvency Trustee who will recommend an appropriate debt solution. It may be necessary to address a debt problem prior to or while you build your emergency savings fund.
Consumer Proposals are the leading alternative to bankruptcy in Canada for individuals who wish to negotiate a more favourable debt repayment plan with their unsecured creditors.
Under a Consumer Proposal, most consumers are able to reduce their unsecured debt by up to 80%, freeing up their cash flow to better manage basic living expenses. While a Consumer Proposal can free up cash flow, it doesn’t solve a spending problem. Now that you’re back on track for a strong financial future, consider these tips to cool off your spending after filing a Consumer Proposal.
1. Take advantage of insolvency counselling. Individuals who file a consumer proposal must complete two mandatory financial counselling sessions with a qualified insolvency counsellor. The cost of the two sessions is already included in the proposal administration fee so there is no extra cost to you. The insolvency counsellor will cover things like budgeting, shopping and spending habits, use of credit in the future among other things. Take this opportunity to address any spending issues and to set up a realistic budget with the help of your counsellor.
2. Set a financial goal, whether it is saving for an emergency fund, contributing to an RRSP, or paying off your Consumer Proposal early. It will be much easier to cool your spending if you have created a good reason to do so, as this will help keep you motivated to change your spending habits.
3. Use cold hard cash for variable expenses such as food, clothing, transportation and gifts. Using cash (as opposed to a debit or credit card) reduces overspending because it is a concrete reminder that money is a limited resource – i.e., you cannot spend what you do not have.
4. Remind yourself that you control your finances and not the other way around. Too many individuals in debt feel that they had no choice but to use credit to get by. The simple fact is that we have a myriad of choices – granted, not all of them are pretty. Take a step back. Think about what you have, what you need and what you must do differently. The earlier you do this in any situation, the more choices you will have.
If you’ve found debt relief through a Consumer Proposal, enjoy the feeling of freedom from crushing debt! But remember that dealing with your debt is only one part of the equation – take control of your spending now so you never feel the burden of debt again.
Lana Gilbertson, Licensed Insolvency Trustee