Planning
Financial
Planning is the process of meeting the goals of your life through
the proper management of your financial resources. Having financial
bliss doesn’t depend on how much money you make, it depends
on how well you manage it. Therefore, it is important that you
know exactly why and how you are spending every dollar you earn,
and you attain this by simply organizing finances and setting
financial goals.
First,
find out how much you know about your financial management skills.
Answer True or False to each of the following questions.
1.
I know the current net worth of our/my household (i.e., the
value of the assets I have minus the liabilities I owe).
2. I have a solid grasp of what my fixed monthly overhead is,
including property taxes and all forms of insurance.
3. I know how much life insurance I carry (and my partner).
I know exactly what the death benefits are, how much cash value
there is in the policies (if any), and what rate the money is
earning (if applicable).
4. I have reviewed the life insurance policies sometime in the
last 12 to 24 months, and I am comfortable that we are paying
a competitive rate in today's insurance market.
5. I know how much I pay in rent, when the lease expires, how
much of a security deposit I gave the landlord, and what renewal
rights I have.
6. I know what type of homeowner's or tenant's insurance I have
and what the deductibles are. I also know whether or not my
policy would provide me with "today's replacement cost"
or actual cash value, if my home and/or property were destroyed
or stolen.
7. I know the nature and size of all of my investments, including
cash, chequing accounts, savings accounts, money-market accounts,
GICs, treasury bills, savings bonds, mutual funds, annuities,
stocks and bonds, real estate investments, and collectibles
such as stamps, coins, artwork, etc. I also know where all the
relevant paperwork is kept.
8. I know the annualized returns of all the above-mentioned
investments.
9. I know the current value of all of my retirement accounts,
including RRSPs, RESPs, company pension plans, etc. I know where
the statements for these accounts are kept and I understand
how all the accounts performed last year.
10. I know what percentage of my income I am saving.
Scoring:
Every
time you answered "True" give yourself one point,
and zero for every time you answered "False."
7
to 10 points. Excellent! You obviously have been
planning, as a result of which you have a good grasp of
the state of your finances.
4
to 6 points. You are not completely in the dark,
but there are some areas in which your knowledge is less
than adequate.
Under
3 points. You rarely think about your finances
and financial goals for the future. As a result, you are
running a big risk of being hurt financially because of
insufficient knowledge. You must learn how to gain control
over your finances to protect yourself from future financial
disaster.
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Ten Rules For Successful Money Management
1.
Plan for the future, major purchases and periodic
expenses.
2. Set financial goals including short, mid
and long range financial goals.
3. Know your financial situation by determining
your monthly living expenses, periodic expenses and monthly
debt payments.
4. Develop a realistic budget and follow your
budget as closely as possible. Evaluate your budget. Compare
actual expenses with planned expenses.
5. Don’t allow expenses to exceed income
and try to avoid paying only the minimum on your charge cards.
Don’t charge more every month than you are repaying to
your creditors.
6. Saving is good, especially for periodic
expenses, such as home maintenance. Save 10 to 15 percent of
your net income and try to accumulate three to six months salary
in an emergency fund. Put money away for retirement, by opening
a Registered Retirement Savings Plan (RRSP) and take advantage
of current income tax rules that allow for other tax-deductible
savings.
7. Pay your bills on time and maintain a good
credit rating. If you are unable to pay your bills as agreed,
contact your creditors and explain your situation. Contact Credit
Canada for professional advice.
8. Distinguish the difference from needs and wants
and take care of your needs first. Money should be spent for
wants only after needs have been met.
9. Use credit wisely and use it for safety,
convenience and planned purchases. Determine the total you can
comfortably afford to purchase on credit. Credit payments should
not exceed 15 to 20 percent of your net income and it is important
to not borrow from one creditor to pay another.
10. Keep a record of daily expenditures by
using a “Monthly Budget Tracker” daily expenses
budgeting booklet to assist you in identifying how you spend
your money and where any adjustments need to be made.
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Determining
Your Financial Goals
Goals are
basically dreams and wishes that could come true, if you want
them to. Goals give you direction, a purpose for the way you spend
your money and guideposts for the way you live. They are what
keep you motivated.
If you don’t
set goals, you’ll probably end up wishing you had. Without
focus, you can be easily sidetracked, losing sight of your dreams
and the spirit to make them a reality. The idea of goal setting
is to maintain focus. Remember to reconsider them every once in
a while because they may change over time.
Write
your financial goals down
The best way
to start setting goals is to put them in writing, be as specific
as possible and realistic. Take the time to do some research,
and ask yourself as many questions as possible to help you figure
out what you want. By asking yourself all these questions, you
will be able to create a more realistic goal and you will be able
to achieve the goal faster.
1.
What do I want or need?
For
example if you’re goal is to buy a car- ask yourself questions
such as:
• Do I want a brand new or
used car?
• How much do I want to spend?
• What make? What year? What
colour?
• Do I want power windows?
• Do I want an MP 3 player?
2. Is this goal a short, intermediate or long term? Use the
Financial planning worksheet to help you write down your plans.
3.
What do I need to do to start saving for this goal? Example:
where do I cut back on my budget to be able to afford this goal?
Visit Spend
Less Calculator.
4.
When do I want to start and why? (Don’t procrastinate)
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How
to Make A Budget
Budgeting
is a tool that increases disposable income, which in turn increases
your financial freedom. A budget is a plan on how exactly you
are going to be spending every dollar that you earn. And yes,
you must do one, there’s no way around it. Why is this so
important? Because, as Dave Ramsey said, author of “The
Total Money Makeover,” managed money works harder.
You
need to create a budget based on your actual circumstances and
follow it as closely as possible. But remember that budgets are
plans, and plans change quite frequently. So right before every
month begins, plan out on paper exactly how every dollar is going
to work for you. It’s all about organizing your monthly
expenses based on your income. This will help you achieve your
goals and fulfill your everyday needs and financial responsibilities.
Factors
that you need to take into consideration when starting a budget
include:
Net
Income: the portion of your income that you get after
all taxes and other expenses such as medical benefits have been
withdrawn by employer.
Fixed
expenses: these are expenses that are the same every
month such as rent, or a cable bill.
Variable
expenses: these are expenses that occur regularly; however,
they can vary on a monthly basis on personal use. Examples include
grooming, clothes or cell phone bill.
Incidental
expenses: expenses that happen occasionally like gifts
or travel expenses.
Needs:
An obligation or a necessity that must be met, such as food, rent
or medical expenses
Wants:
To have a strong desire for something, such as clothes, electronic
gadgets or a food craving.
To
help you with budgeting you may want to order the Monthly Budget
Tracker booklet to assist you with keeping track of your expenses
and it will also help you create a more realistic budget. Once
you know what your expenses are like or even if you are unsure,
try our Home Budget Calculator.
This calculator will let you see what your budget is like and
it might give you ideas on where to cut back.
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Credit
Management 101
Credit
can be a powerful financial tool when used wisely. To make credit
work for you, it’s important to understand some basic guidelines
to help you use it responsibly and to your financial advantage.
Once you build your credit confidence, you will be able to make
intelligent financial decisions and establish strong credit rating
that can help you to realize your financial goals – whether
it’s buying your dream home or obtaining a personal loan
to start your own business.
To
use credit in a smart way, following these guidelines:
-
Know your credit score and review it at least once a year –
This score is used by lenders, landlords and potential employers
to assess your financial integrity. Obtain a copy of your credit
score for a minimal fee by contacting TransUnion (www.transunion.ca)
or Equifax (www.econsumer.equifax.ca).
-
Pay off your credit card balance every month–
Make it a priority to pay the maximum amount of your credit
balance every month.
- Make
your payments on time– Pay close attention to
the due date of your payments since a history of late payments
may affect your credit score.
- Shop
around to find the best credit card that meets your financial
lifestyle— Shopping around can save you money
in the long-run and may even provide you with valuable rewards.
The Financial Consumer Agency of Canada (FCAC) offers a useful
credit card comparison table within the 'Credit Cards and You'
section of their Web site as a resource for consumers (http://www.fcac-acfc.gc.ca/eng/consumers/ITools/CreditCards/default.asp).
- Pay
attention to late payments, calls or letters
from credit agencies, and denied or revoked credit--
These are all signs that your credit history may be in jeopardy!
Do
NOT …
• Get into the habit of making
only the ‘minimum payment’ due on your credit balance
every month
• Open new credit accounts
for the purpose of debt consolidation without closing existing
accounts
• Obtain a new credit card
to pay off an old one unless the rate is much better
• Dip into your savings to
cover everyday expenses
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Frequent
Asked Questions About Credit
What
is credit?
Credit
is the ability to borrow money or obtain goods by paying little
or no money at the time of purchase. The remaining amount of
the purchase must be paid during a specified period, along with
the interest.
Why
is a good credit history important?
Lenders
only want to lend to people that have a positive record of repaying
their loans and making timely payments. Your credit history
will record your payments on credit cards, car loans, student
loans, or home mortgages. If you have a good credit history,
you will be able to:
• Buy a home or rent an apartment
• Get a job (employers may
conduct a credit check to indicate your financial honesty and
personal integrity)
• Borrow money (student loan,
business start-up loan, renovations)
• Obtain a credit card to
charge goods and services
• Finance a car
How
do I know what my credit history is?
Every
year, you should review your credit report. You can get a copy
of your own credit report for a small fee by contacting the
following credit bureaus:
TransUnion
Phone: 1-800-663-9980
www.transunion.ca
|
Equifax
Phone: 1-800-465-7166
www.econsumer.equifax.ca
|
Experian Credit Bureau
Fax: 1-800-644-5876
www.creditbureau.ca
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What
is a collection agency?
A
collection agency is an organization that obtains or arranges
for payment of money owed to a third party; this could be a
person or a company.
How
do I deal with collection agencies?
If
you've been notified in writing that an account has been turned
over to a collection agency, don't panic. The agency isn't in
business to make life unbearable for you — its management
just wants to collect the money you owe its client.
If
I feel I'm being treated unfairly by a collection agency, what
can I do?
Contact,
the Consumer Protection Branch.
The
Consumer Protection Branch answers telephone inquiries and mediates
written complaints between consumers and businesses. Topics
include collection agencies, credit repair, consumer reporting,
loan broker fraud, car repairs, home renovations, door-to-door
sales, health clubs, modeling and talent contracts, and condominiums.
Before
You Contact The Ministry of Government Services.
Before
you contact the Ministry of Government Services to file a complaint,
you need to take the following steps:
contact
the business clearly outlining your complaint in writing;
keep proof of delivery of your complaint and any interaction
with the business;
if you are unable to resolve the complaint with the company,
contact the ministry.
Tips:
How
To Write A Complaint Letter
How
To Write A Cancellation/Rescission Letter
How
To Write A Rescission Letter
To
File a Formal Complaint
Complaint Courier
This powerful online tool will give you instant access to the
resources and expert advice you will need to navigate the complaint
process from start to finish.
Go
to the Complaint Courier >>
If
you are unable to access the Complaint Courier, an
online complaint form is available and may be submitted
electronically.
Or, If you prefer, a form in *pdf
format is available for you to print only, complete and
then mail or fax to the:
Ministry
of Government Services
Consumer Protection Branch
5775 Yonge Street, Suite 1500
Toronto ON M7A 2E5
Fax: (416) 326-8665
What
are my rights?
The
Collection
Agencies Act prohibits collection agencies from doing certain
things.
The
Ontario Ministry of Government and Consumer Services consulted
the collection industry to develop a standard to be followed by
all collectors. Having a standard also allows the public to have
a better understanding of what collection agencies can and can't
do. The regulations forbid collection agencies from:
contacting
you until six days have passed from sending you written notice
of the following:
•
the name of the creditor
•
the balance owing
•
the name of the agency and its authority to demand payment
continuing to contact you if you did not receive the notice unless
a second copy of the written notice is sent to an address provided
by you, and then contact may only be made six days after sending
notice;
contacting
you if you send a registered letter to the agency saying that
you dispute the debt and suggest the matter be taken to court;
contacting
you if you or your lawyer notify the agency by registered mail
to communicate only with your lawyer, and you provide the lawyer's
name, address and telephone number;
contacting
you on Sunday, except between the hours of 1 p.m. and 5 p.m.,
and on a holiday;
contacting you other than by ordinary mail more than three times
in a seven-day period without your consent, once the agency has
actually spoken with you;
using
threatening, profane, intimidating or coercive language, or using
undue, excessive or unreasonable pressure;
continuing to contact you if you have told them that you are not
the person they are looking for unless they take reasonable precautions
to ensure you are that person;
giving
false or misleading information to any person;
recommending
to a creditor that a legal action be commenced against you without
first sending you notice;
contacting your employer except on one occasion to obtain your
employment information, unless your employer has guaranteed the
debt, the call is in respect of a court order or wage assignment
or if you have provided written authorization to contact your
employer;
contacting
your spouse, a member of your family or household, or a relative,
neighbour or acquaintance except to obtain your address and telephone
number unless the person contacted has guaranteed the debt or
you have given permission for the person to be contacted.
Information provided by Ministry
of Government Services Consumer Protection Branch
What
if I have a bad credit rating?
Having
a bad credit rating is serious. It can affect your financial
reputation for up to seven years and prevent you from reaching
your future goals — whether it be obtaining your dream
home or having your ideal job.
What
do I do to build a good credit history?
To
manage debt wisely and ensure a good credit history, keep the
following points in mind:
1.
Pay your bills on time. If you are unable to
pay your bills as agreed, contact your creditors and explain
your situation. Also, you can contact a non-profit credit counseling
service, such as Credit
Canada (www.creditcanada.com),
for professional, unbiased and confidential advice. They also
provide sample letters for you to inform creditors of your situation.
2.
Do not sign a credit contract until you read and understand
it. If you don’t understand it, ask questions
until you are satisfied.
3.
Never sign a blank sheet. Your signature is
your promise to pay and a contract is a legal document. Know
the implications.
4.
Try to pay off any debt quickly. Avoid prolonged
low monthly payments and avoid having to refinance at higher
interest rates.
5.
Deal with known, respected, and established companies.
6.
Make sure you understand the total cost of your purchase.
What
if I am h aving difficulties meeting my financial obligations?
If for any reason you cannot meet your payment obligations to
any of your creditors, be sure to:
• Contact the creditor
immediately and discuss your problems candidly. Creditors
are flexible when changes in your life make repayment of your
obligations difficult but you must make them aware of your situation.
Do not try to avoid your creditors; it will just make the situation
worse. Use this sample
letter to help you explain your situation to your creditors.
•
Contact your nearest Credit Counseling Service if you
find that your ability to deal with your creditors directly has
become impossible, or you cannot see a way out of your financial
situation on your own. Credit
Canada offers no cost/low cost confidential credit
counseling. It serves anyone who needs advice on how to handle
money and reduce or eliminate debt. Credit Counseling Agencies
also arranges debt retirement programs to help individuals deal
with their creditor and get out of debt. Credit Counseling Canada
(www.creditcounsellingcanada.ca)
or the Ontario Association of Credit Counseling Services (www.oaccs.ca)
has offices and affiliated agencies to serve you throughout Canada.
For a location nearest you visit their websites.
•
Think of ways to make more money - Identify ways
to bolster your income, either by upgrading your skills through
education and finding a better-paying job, or by taking on extra
work or a second job. Don't refuse a job simply because it doesn't
pay as well as the one you may have lost - those bills have to
be paid somehow.
•
Know your options if you are in debt or facing bankruptcy
- If you know your options ahead of time, it's much easier to
cope. Sell off all extra sources of debt - like a house or car
you can't afford, or contacting creditors and arranging lower
minimum payments on your debts. These measures can help you dig
your way out of trouble and avoid the last resort, declaring bankruptcy.
•
Know how to re-build your finances after serious money
troubles - Learn how to live on little to no credit,
or how to re-build your credit by securing and paying back a series
of bank loans or the balance on a secured credit card. Re-establish
yourself financially by proving yourself trustworthy with money.
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Finding
The Right Financial Advisor
To
find more information about how to manage your specific financial
situation you should contact your financial institution and speak
to a financial advisor.
Here
are a few tips you should be aware of before meeting with the
advisor:
•
Know the qualifications of the advisor/financial planner
• Know what your financial
goals are
• Know that the financial
advisor should be able to build a plan of action based on your
current financial situation and personal circumstance
• The initial meeting should
be free
• If you are not comfortable
with this person, switch and try asking friends for references
For more information visit: www.cfp-ca.org
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Tips
For Improving Your Finances
There
are many tricks to keeping your costs down. Here are some of
the most effective ones to remember.
• Everything’s negotiable
- One rule of thumb is to never pay retail because
more than likely you can usually talk the price down. This also
means that you should shop around for better auto insurance
rates, mortgage plans, credit-card interest rates, and phone
companies. You can do this by calling your credit-card companies
and/or your phone company and tell them that you are thinking
about moving your money to another company that offers lower
rates, better packages, more benefits, etc. The secret is that
most customer representatives have the authority to significantly
lower your interest rate or offer you better deals. This is
because your business is literally worth thousands to them.
Remember the first rule about negotiation: never accept the
first offer.
• Purchase store
brands - Clark Howard, co-author of “Clark’s
Big Book of Bargains” has stated that store brands usually
cost about 40% less. This is because there is no middle-merchant
who the store must purchase the products from, so quality isn’t
compromised. Every time you go to the grocery store, you should
try purchasing one more store brand product.
• Buy used over new
- This little tip comes especially in handy when you
are purchasing a car. You will be able to buy a good, high-quality
car for practically half its original price after two years
of depreciation. The trick to buying used is to focus on high-quality
merchandise. You should also think about buying used when it
comes to books, furniture, music, and anything else where the
hygienic risk you take isn’t too high. The flipside to
this rule is to sell everything! Garage sales are a surprisingly
lucrative venture, especially when you are getting money for
something that was going to end up in the trash or goodwill
anyway. And do not fret. No garage, no problem. If you live
in an apartment complex you can organize a community yard sale,
that way your neighbors could earn some extra pocket change
as well.
• Pay yourself before
paying anyone else - With every paycheck you earn,
automatically transfer part of it to a retirement account and
another part to a short-term emergencies fund. David Bach, author
of “The Automatic Millionaire” suggests saving one
hour a day of your income each week for the retirement account,
and a salary contribution equal to thirty minutes a day is a
good amount to put towards a short-term emergencies fund. By
the end of a year, you will be quite surprised what this can
amount to.
• Save on phone expenses
- Having a cell phone is convenient, but do you really need
it? Avoid having one for as long as you possibly can. But if
you must have one then the most economic choice is a prepaid
plan, and try not to agree to contracts that lock you in for
years.
• Shop around for
the best credit card that meets your lifestyle - Make
sure you select a credit card that matches your lifestyle. For
example, there are plenty of cards with rewards such as travel
rewards, gas rebates, and merchandise…the list is endless.
This helps you save without necessarily changing your buying
behaviour. To help you find the best credit card for you visit:
www.fcac-acfc.gc (Financial Consumer Agency of Canada) and check
out their credit card comparison chart.
• Exercise willpower
- This is probably the most harsh yet most rewarding tip of
all. You must exercise restraint when it comes to spending.
What this means is that instead of buying fast food, eat at
home. Bring your morning coffee and lunch to work. Want to spend
less money on gas? Stay home or carpool. You must try to spend
less than what you earn, but that doesn’t mean that your
quality of life has to decrease as well. One suggestion is that
while your in you money-saving mode (and hopefully you will
be for a while), try to avoid television, magazines and major
media sources because they have the tendency to fool you into
thinking that you need to make unnecessary purchases to be a
fulfilled human being. If you are really serious about saving,
you should even consider cutting out the cable completely. Not
only does this equal more money but also more time. Once you
start avoiding those things you will have more time to spend
with your family, friends, going outside, exercising, and doing
things that really make you happy…other than shopping!
• Beware of impulse
purchases - Buying small items on a whim may not seem
to matter to your finances; however, if you practice impulse
buying often enough, those little purchases really add up.
• Track your daily
expenses - Keep your receipts for the last three to
six months and review them, including even the small purchases
you make on a regular basis, such as a cup of coffee. Also keep
track of any withdrawals that you make at your bank. Once you’ve
gone through them, you should ask yourself what dollars actually
went towards satisfying a need, and what dollars satisfied a
want. You may discover that some dollars didn’t satisfy
either! This will help you identify any unnecessary spending
and may help you to identify those stores where you can’t
resist spending your hard-earned cash. Credit
Canada’s portable Monthly Budget Tracker is a great
tool you can take with you just about anywhere for a reliable
spending record.
• Manage your credit
wisely - Avoid paying only the minimum on your credit
card(s) and be sure not to charge more each month than you are
repaying to your creditors.
• Save money for
large purchases – If you plan to buy a large
item, save the money in a savings account first before you buy
them. Make sure everything you spend is listed in your budget
booklet (Monthly Budget Tracker) including any small items such
as coffee, gum, candy bars, etc.
• Leave your instant
teller card at home - The temptation to withdraw money
may not be as great if you have to physically go into the each
time.
• Use your “piggy
bank” to help you save - Although this is not
a planning tool, putting away your change on a daily basis can
help you save for small ticket items.
* To help you see where the reductions in your
budget could take place use Benefit
of Spending Less calculator. Let it help you find
ways of reducing your monthly expenses.
Click
here for a Glossary
of Financial Planning Terms
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