Wednesday, 16 August 2017

10 Steps to Organized Finances

Getting your finances in order in 10 simple steps.

Maybe you're sitting there looking through credit card statements and bank transactions wondering how the heck you got yourself into this financial mess. Or maybe you think you're on the right track but not quite sure what you need to work on next.

Today I'm going to break your finances down for you into 10 steps, so you have a coherent plan (and a fun little infographic) to follow. The system is straightforward, but I'm not going to tell you it will be easy. Paying off debt, saving money and applying for insurance require you to do some work and might make you feel a little guilty about how much money you spend on fro-yo (or coffee, or avocados, or speeding tickets). For that, I'm sorry (only a little though), but I promise that once you've made it through each of these ten steps (especially the last one), you'll be thanking me and a lot happier with yourself.

I recommend doing the steps in this order, but if you're already on the journey to being the Queen (or King) of your financial domain, then feel free to jump in wherever you need to.

Getting your finances in order in 10 simple steps.
1. Track Expenses
The very first thing I want you to do is to figure out where your money is going. Grab a big cup of coffee and gather up your account statements for every bank account and credit card you own. If you currently use an app or spreadsheet to track spending then fire that baby up instead. I recommend going back at least 3 months to get a good picture. Don't forget about annual or quarterly payments you might have.

If you use cash for the majority of your purchases, then this exercise becomes a little more challenging. Likely you aren't writing down or inputting each transaction, but now that's exactly what you have to do. Start up a note (Evernote is my bff) in your cell phone and make a point of entering each purchase you make for a few months.

Your goal here is to split up your spending into two main categories; essentials and non-essentials. I use an excel spreadsheet for my tracking/budgeting because it gives me more flexibility than any of the apps I've tried. If you'd like a copy of my spreadsheet, you can sign up for my email list (over on the right of the screen), and you'll get free access. Once you've entered all your expenses, you're ready to start tweaking the numbers.

2. Make a Budget
Now that you know how much you are spending and where it's all going, you are ready to determine where you have excesses or shortages. The only way to get ahead financially is to bring in more money than you spend every month. To see if that's you then take your monthly income (from, side hustle, rental income, etc.) and then subtract the total amount of spending (essential and non-essentials). Did you get a positive number? Yay, you! You're not completely off the hook though. I bet there is a bit of trimming we can do to make that positive number grow even higher. If you're instead in the negative, then we've got some work to do.

Go through the line-items of your budget and determine what spending categories you can lower or completely eliminate. This will leave you with more excess at the end up every month.

Once you know that excess amount, you need to redirect it....onto the next step!

3. Tackle High-Interest Debt
Paying off debt is going to be the least fun step, but it's also the most important and will have the biggest impact. If you are one of the lucky few who has no debt, then pour yourself a glass of wine and skip ahead to number four.

I've written more extensively on debt repayment in the past so check out this post for all the details. You want to choose either the 'Debt Snowball' or the 'Debt Avalanche' repayment strategy and start directing the excess in your budget towards getting that debt paid off. For now, just focus on your high-interest debt and don't worry about making extra payments on your mortgage or student loans. 

4. Emergency Fund
Next up is building up a safety net so that you don't go back into debt if (when) you have an unexpected expense. Some people argue that you should load up your emergency fund BEFORE paying off debt, but I like this method better. Your debt will accrue more interest for every day that you have it so getting that out of the way first will save you in the long run. If you run into an expense before you have an emergency fund then yes, you are going to have to use your credit card, but you're not any worse off than if you had done it the other way around.

My recommendation is to have AT LEAST three months of living expenses in your emergency fund at all times. That's a minimum, and the actual amount will depend on your situation. If you have a stable income with good job security, then you are likely ok with the 3 months. If your job situation is a little more precarious or you are self-employed, then you might want to increase that to 6 months.

Your emergency fund should be kept in a high-interest savings account so it is easily accessible and not affected by the market. It's a bit of a balancing act; you want enough money so you're covered, but not too much because it isn't earning you much.

5. Open a TFSA
Now you're rolling and onto the fun stuff...building your net worth! All of a sudden (ok, maybe it felt like forever), your debt is paid off, your emergency fund is fully funded, and you have this excess amount in your budget that you don't know what to do with. Save it! The next two steps can likely be started at the same time, depending on how much money you're making and which makes the most sense. Check out this post to figure out if a TFSA or an RRSP is a better option right at this moment. Spoiler: RRSP's are better for when your income puts you in a higher tax bracket, TFSA's are good...well always. Likely the best solution will be a mix of both, this gives you both the tax advantage and the flexibility.

You can open a TFSA with just about any financial institution in Canada as long as you are over 18 and a resident of Canada with a valid SIN. As of 2017, you have a total of $52,000 of contribution room available (assuming you were 18 or older when the plan was introduced in 2009) and you want to take advantage of all that room before you start investing in a non-registered account.

6. Open an RRSP
You earn RRSP room for every dollar of income you earn, which means you likely have a good chunk available already. As I said above, RRSP's are the most beneficial when you contribute during your highest earning years and then withdraw in your lowest income years.

Your RRSP and TFSA contributions will run indefinitely, so these two steps are about getting started and not hitting an end goal. My suggestion is to get the accounts open, start automatic monthly contributions (set it and forget it) and then move onto step 7.

7. Term Life Insurance
Time to start thinking big picture. Insurance is not my favourite subject to talk about which I why I don't tackle it that often on the blog, but for some people, it is very, very necessary. If someone's life (financially) is going to be turned upside down if you die then you need term life insurance. Most commonly this would be a couple who relies on income (either from one or two people), have children and a mortgage. If one of them passes away, then it will be a struggle for the survivor to pay the bills...that's where life insurance comes in.

If you are a single renter with no children, then it's very likely a hard pass.

One of my favourite bloggers (Desirae from Half Banked) recently wrote a fantastic post about term life insurance so instead of getting into it here I'm going to send you over there and let her drop the knowledge on you :) I completely agree with her stance on whole life insurance and that term life insurance is the way to go.

8. Make an Estate Plan
Creating an estate plan is another one of those things that is essential for people with dependents and assets that will need distributing, but not so much for people who don't. Full disclosure...I don't have an estate plan, but I promise it will be one of the first things I do after having kids. Right now, the majority of my assets are shared with my common-law bf, and so it would all pass to him if I were to die. I'm good with that, so I haven't had the need to get a lawyer to write up my will.

If you have children, then you need to get this done so that they have a caregiver assigned. It will cost you a few hundred bucks to get an estate plan completed by a lawyer, but it is worth it. They know the ins and outs and will ensure it is correct, something you can't be sure of with one of those 'Write Your Own Will Kits' you can get at the As Seen On TV Store.

Another thing to consider is whether or not your own parents have an estate plan in place. If you've never had that nice little dinner-time chat with them, then I'm adding that as a requirement in this step. Push them to do it if they haven't already, and if they have, go over it with them, so you know what to expect and can respect their wishes.

9. Short-Term Savings
Phewf, you're doing great, and all the hard stuff is done. That death talk was depressing hey? Sorry about that.

It's now time for a little freedom. You've got your debt paid off, emergency fund is good, savings are automated, and your future has been secured. I think it's important to enjoy life now and not always be looking down the road at retirement, so I want you to start a savings account for short-term goals. This will be separate from your emergency fund but you will still want to keep it pretty low-risk since it is short-term. Save a little into this new account each month and use it for the fun stuff...whether that's a trip to Paris, a kitchen renovation, or your dog. Not having to go into debt to pay for a vacation is an amazing feeling and you'll feel a whole lot less guilty about it.

10. Celebrate!!!
You're done, way to go! While many of these steps are a lifetime commitment, you'll find that everything flows a lot better and won't take much brainpower once you have it all set-up. Now you get to reap the rewards of your hard work and use that short-term savings account for whatever you dreamed up. Happy spending!

What step in organizing your finances are you on, and which do you think is the biggest challenge? Feel free to share your experiences in the comments and help motivate everyone else :) 

Getting your finances in order in 10 simple steps.

Wednesday, 9 August 2017

Home Ownership Is Not Your Right

Buying a home as a millennial takes work, hard work.

Owning your own home is the dream right? Even with the current bloated house prices and terrifying real estate market 86 percent of millennials still consider home ownership important. The problem? It costs a hell of a lot of money to buy a place. The average house price in Canada is sitting at $504,458 (as of June 2017), so even if you put down the smallest possible down payment, that is still going to be over $25,000. If instead, you want to avoid having to pay additional mortgage insurance to CMHC, you are going to have fork over a 20% down payment, and that will cost you over $100,000. That's a lot of money, and it doesn't even factor in the additional costs associated with your first home. 

And I'm going to go out on a limb and guess that you don't have Rihanna levels of know, since you're reading a personal finance blog and all. 

This is the part where I remind you that buying a home isn't easy, it's a lot of work and requires determination, commitment and cash hoarding. Maybe that's why so many of my generation haven't made that first jump. Of the 63 percent of millennials who want to buy a home within the next five years, 44 percent haven't started saving. I'm going to go out on a limb and say that saving $100,000 (or even $25,000) in less than five years is next to impossible. This is what I mean when I say that home ownership is not your right. 

The real estate market doesn't care if owning your home is part of your big plan or dream life, it only cares that you can show up with dollar bills. 

I don't disagree that buying a home is more challenging today than it was for our parents. The increase in house prices has outpaced the rise in wages over the past 30 years. That's not the only factor though. Lower interest rates in recent years and decreased requirements for minimum down payments give today's buyers an advantage. Buying a home has always been hard, us millennials don't get to claim all the injustice on this one. We can complain and whine all we want, but it's not going to change anything...the only way to check big goals off your list is to work, work, work, work, work (how many Rihanna references do you think I can fit into this post). 

I bought my place seven years ago, and I remember the struggle of saving up enough money. I knew that I wanted to stop paying rent, wanted to be able to paint, and wanted a yard for a dog. I was ready, but my wallet wasn't. That didn't mean it wasn't in the cards, it just meant I had to get serious about saving. If you're in that boat and looking for some advice, I've got a couple of tips for you: 
  • Make a plan! Stick to that plan! Yes, you're going to need to decrease your spending, and it wouldn't hurt to make a little more too. This is how you earn the right to owning a home. 
  • Weigh your desire to buy a home with your current lifestyle to determine what you are willing to sacrifice. It can be worth it to extend your timeline if it means not cutting out all spending that makes you happy. 
  • You will get there when you get there, and the right house will be there when you're ready for it. 
  • Don't start looking at houses until you are ready (aka have the money). 
  • Be VERY firm with your budget and when you do look at houses, don't even consider anything that is over it. 
What's worse than wanting a home? Not wanting a home! 
Obviously, there is still a lot of pressure on millennials to be home owners but there are 504,458 reasons not to give in to that pressure before you are ready. I do not regret buying a home, but I seem to be in the minority on that front...81 percent of millennials who have jumped into the market are now planning to sell their homes and it's overwhelmingly about money:
  • 63 percent say mortgage and housing costs are making them cash poor.
  • 57 percent fret that rising interest rates will make it harder for them to meet their mortgage payments.
  • 36 percent feel that renting is the 'better option.'
Those stats are scary and upsetting. I can't imagine the stress of thinking you found your dream home just to find out that you can't actually afford it and have to deal with selling. Please don't get yourself into that situation. 

I know it might seem like I'm spitting stats at you and trying to quash your dreams of being a home owner but that's not my intention. My intention is to make sure you are ready to take that step and that it is actually what you want. Buying a home does not check off some hypothetical box on your 'adulting' checklist. It doesn't even have to be something you want. I might be in the pro owning a home camp, but it's not for everyone. There are plenty of perks to renting. You don't need to concern yourself with the ups and down of the real estate market, there's stability in your rent payments, it's easier to move, you're not responsible for repairs and maintenance, and it is often cheaper. I have an Aunt and Uncle who have rented for as long as I can remember. They are both comfortably retired and being lifetime renters has not negatively impacted the rest of their finances. 

Whether your goal is to buy a home next year or to continue renting indefinitely, having financial goals to strive for will motivate you and make you work harder. And sometimes, working hard is exactly what us millennials need to do to get those boomers off our backs ;) 

Where do you sit on the home ownership spectrum? Current home owner? Hopeful future home owner? Or satisfied renter? 

Buying a home as a millennial takes work, hard work.

Saturday, 5 August 2017

Taking the Hassle Out of Editing

Getting a little help w/ proofreading (Grammarly Review)

Today's post is sponsored by Grammarly, but I promise that all opinions are my own. I've been a paying customer with Grammarly since March and am only promoting it because I really do think it's great. Check my disclaimer for more information on sponsored posts. 

I am always looking for ways to save me time, especially when it comes to blogging. Any fellow bloggers out there will understand that writing posts is the easy part, it's all the other stuff that takes up your time! The staying on top of social media (I'm looking at you Pinterest and all your challenges), finding and creating images, reading and commenting on other peoples posts, and ALL the editing. 

Like most bloggers (I'm assuming), I started my blog because I've always enjoyed writing and I wanted my own little space to put down my thoughts and be more creative than what my day-job offered. I love it, most of the time, but it really is a lot of work and does feel like a second job that I only sometimes get paid for. 

Coming up with things to talk about and the actual writing process has never been a problem for me, but proofreading and editing posts drives me crazy. You don't even want to know how many partial posts I have just sitting waiting to be edited...I hate it. There's nothing worse than writing the last word on a post and then knowing you still have to proofread before you can happily click that publish button. Maybe I'm being a little dramatic, but it wouldn't be the first time. 

One thing that has really helped me out when it comes to editing posts is Grammarly. It's an automated proofreader that catches common spelling, punctuation and grammar mistakes and also provides suggestions for better vocabulary and sentence structure. Even better, it actually works! I had been using the free version of Grammarly for a few months before upgrading the full version, and I don't see myself going back. After upgrading, I went back through all of my old posts to clean them up, and it caught a lot of things I wouldn't even have noticed (apparently I'm not as good of a writer as I like to think) and simple to use. Here's a screenshot of some of the recommended changes Grammarly gave me for this post: 

It is still an automated program, so it won't completely eliminate your need for proofreading but using it has significantly limited the time it takes me to edit a post. There are a couple of options to get Grammarly proofreading your work. You can simply copy and paste your work into their site, or you can install their browser extension and get editing on the fly on any websites you type into. I use it for blogging (obviously) but also on my email, Twitter, commenting on other blogs, and anywhere else I'm writing. It's also really easy to turn-off the browser extension if you don't want to use it for a specific site. Just click on the little icon beside your search bar and unclick the box. 

Is it Worth the Cost?
For me, yes. If you really enjoy editing and proofreading your own work then likely not (but also, you're crazy). The annual plan (lowest monthly cost) is $139.95 but if you're not in a big rush then maybe wait for a deal. I was able to get the annual plan for $69, which was why I finally bit the bullet in March. Before that, I had been using the free plan, which works great but has limited features. Definitely, give the free version a shot and see how you like it. It is still an automated program, so it won't completely eliminate your need for proofreading but using it has significantly limited the time it takes me to edit a post, and that time-saving is worth it to me.

How do you handle the editing process for your writing? Have you tried Grammarly before? 

Getting a little help w/ proofreading (Grammarly Review)

Wednesday, 2 August 2017

Should You Dip Into Your RRSP?

Is it a bad idea to use your RRSP to pay off debt?

Life is anything but predictable, and sometimes a curveball will come flying out of nowhere. Maybe you're coasting along quite nicely when, all of a sudden, your furnace bites the dust or your dog swallows a tennis ball and needs emergency surgery. Whatever it is, you are now stuck with a big bill and aren't sure how you're going to cover the cost. The question you might be asking yourself is whether or not you should consider withdrawing money from your RRSP. 

Short answer...No.

Don't worry, I'm not going to just assume you'll accept the short answer so, long answer time. 

The biggest problem with pulling money out of your RRSP is the tax. Every time you withdraw money from your RRSP, the government requires withholding tax be taken off by your financial institution, and it is no small amount. For withdrawals less than $5,000 you will have to pay 10% tax, between $5,000 and $15,000 you'll pay 20% tax, and for anything, over $15,000 you'll pay 30% tax. This means that if you need $7,500, you will actually have to withdraw $9,375 from your RRSP and $1,875 of that will go straight to the government. The reason they're charging so much tax is that money taken out of your RRSP is included in your income for the year, so CRA is actually trying to do you a favour and make sure you don't end up with another unwanted bill in April. Depending on what your income level is, you may get some money back when you file your taxes, but you could also potentially end up owing even more. 

Another issue is that you don't get back that contribution's lost forever in the intergalactic world of lost RRSP room. You earn contribution room by working. For every dollar of income you make, you can put 18% of that into your retirement account, up to an annual maximum (for 2017 that maximum is $26,010 which would apply to anyone with an income over $144,500). Once you make a deposit that room is used up and there's no way to get it back. If you're more familiar with TFSA's, then this might come as a surprise. If you make a withdrawal from your tax-free account, you get the full amount back in contribution room the following year. It might not seem like a big deal when you're strapped for cash and far from retirement, but you could have many years of high income (here's hoping!) in your future and want every dollar of RRSP room possible. 

What other options do you have?
The best case scenario (aside from not having a broken furnace or sick dog obviously), would be to have a fully funded emergency fund that can cover you. Situations like this are exactly why people like me and other PF bloggers (here, here, and here) nag you so much about building up your can (and will) save you from serious headaches, like wondering if you should use your RRSP or not.

I'm going to go ahead and assume that if you are considering reaching your cash strapped hands into your RRSP, you don't have an emergency fund at the ready. I'm not going to shame you, everyone needs to start somewhere. How about we just make a deal that you'll start saving into an emergency fund as soon as this is settled up ok? 

Not all investments have the same withdrawal consequences as RRSP's. If you have a TFSA or just a plain old non-registered account, then those are good options to take the money from. Even if you have to sell off investments that have been growing, it's still a better option than taking on high-interest debt. 

Some mortgages have a 'skip a payment' option which could free up a sizable chunk of cash in your budget. Usually, you need a certain amount of equity built up before the bank will allow it but it's worth a shot if you have a mortgage. 

Sometimes going into debt will be your only option. You will want to search out the lowest interest option you can find. If you own a home, then you should first look at a secured line of credit. These will use the equity you've built up in your home as collateral for a loan and will come with a lower interest rate. Unsecured lines of credit do not use collateral for the loan and will charge you a higher interest rate but still lower than most credit cards. If those options are off the table because of a not so stellar credit history, then you're looking at a credit card. Again, low interest is key. There are credit cards out there for everything from earning travel rewards to free movies, but you want to focus on those that have low-interest least until you have your balances paid off in full. 

Once you've found the lowest possible interest rate it's time to run some numbers...the RRSP option might not be 100% off the table just yet. 

You can use this calculator to figure out how much your debt is going to cost you. Plug in the balance, the interest rate and how much you can afford to pay toward the balance each month. The calculator will determine how long that debt will take to pay off and how much interest you will pay over that term. Compare this amount to the amount of tax you will lose if you withdraw the same amount from your RRSP. It's not quite that simple, but it's a good start. You will still want to weigh the loss of contribution room and the lack of potential growth on the withdrawn amount. My suggestion, if the credit card amount is lower, the same or even slightly higher than the RRSP withdrawal tax, then you'll want to go the debt route and keep your RRSP intact. 

If you do go the debt route, then you need to formulate a plan to get it paid off as soon as possible. Click on over here and pick your debt repayment poison.

The exception for pulling money out of your RRSP is if you are doing so to buy your first home. The Canadian government has a program called the Home-Buyer's Plan that allows you to withdraw money from your RRSP and not have to pay the standard withholding tax. You have to repay the amount over the next 15 years, but that means you don't lose the contribution room, so the only downside is lost investment growth. 

Have you ever withdrawn money from your RRSP to pay off debt? And if so, do you think it was the right decision? 

Is it a bad idea to use your RRSP to pay off debt?

Wednesday, 26 July 2017

5 Money Lessons I Wish I Learned Sooner

What I Would Teach My Younger Self About Money

Through my 30 years of living, I've had moments where I've been great with money and moments where I've been down right bad. I don't have any big ticket purchase regrets, but I've bought loads of small items that were a complete waste. And you know why? I didn't realize the consequences of irresponsible spending until I was much older (and I even had good financial role models in my parents). I was lucky to not get myself into more trouble because of my lack of knowledge. When you're a teenager you don't necessarily concern yourself with the future but poor spending habits can be established at that age, and you can get yourself in a debt hole real quick. 

If you follow the blog regularly, you already know that I have pretty strong feelings about financial literacy (see here and here), and that's because learning about money earlier is always better than later. So without further ado, here are the 5 concepts I wish I understood sooner:  

1. Compounding Really is Your Best Friend
You know how people always highlight the importance of starting to save for retirement as soon as you can? Listen to them! The reason it's such a huge deal is because of compound interest. You invest a little bit of money, it grows, and you have more money. Then that larger amount grows even more, and you end up with even more money. On and on and on until you're rich! If you need a little more convincing (some hard numbers) then check out this post, it breaks down compounding with a bunch of examples to show how much less you need to save overall if you start early. 

2. Saving Isn't the Same as Investing
But both are important! There's a time and place for saving money, and there's a time and place for getting some (most) of that money invested. Saving is the act of setting aside money for a later date, whether that's for a vacation next month or retirement in 30 years. Investing is the process of taking that money you've saved and actually purchasing stocks, mutual funds, ETF's, etc. to hopefully earn more money. If you just transfer money to a standard savings account every month, you are not investing it. You'll earn a small amount of interest, but you're never going to be bragging about how you beat the market. And that's fine...sometimes. This is 100% the method you should use for your emergency fund or for any other short term goals. That money, by its very name, is there for emergencies and you need it be accessible and not have gone down in value. 

For longer term savings (especially retirement), you need to get that money into the market. That's how you make your money work for you. Even if you are a novice investor, there are options out there for you. You can ask for help from friends or family or find yourself a financial advisor to get you started. Get yourself into a balanced mutual fund that will provide you with some upside but minimal risk, at least until you can build up your investing knowledge. There's no need to take crazy risks, but growing your money is essential to hitting your savings goals. And I get it, the stock market can be scary and volatile, but the historical trend is upwards. Even more incentive to get and stay invested for the long term. 

3. Budgeting Doesn't Have to be Hard (or Time-Consuming or Restrictive)
There's this impression that creating and sticking to a budget is all work and no play, but that doesn't have to be the case. Yes, you need to do the initial set-up and check-in every so often but once you're in the habit of budgeting, it practically runs itself. I have a budget spreadsheet that I use to guide spending, but I don't track where every dollar goes. Once you've spent a few months working within your budget, you'll know when you have money to spend and when you don't. And budgets don't have to be set in stone. Give yourself a little leeway to make changes as you go along. 

The important thing is that you know how much money comes in each month and how much money goes out. Then it's a balancing act with your bills, your saving and your spending. Some people get real joy out of super detailed tracking of their spending and budgeting down to the last penny, but it's not at all necessary. Do it once and make it a habit and you'll be surprised by how little time you actually need to be one of those financially savvy people ;) 

4. There's NO Such Thing as Good Debt
Debt can be a controversial subject for us personal finance folk. It's obvious and agreed upon that high-interest debt, like credit cards or unsecured lines of credit) are bad news, but there are differing opinions on whether low-interest loans should be bulked in with the rest of the bad debt. These would include mortgages, secured lines of credit or student loans. In my opinion, all debt is bad...there is just some debt that is worse. 

Let's take mortgages as an example. Interest rates have been very low for almost a decade. If you've had a mortgage in that time period, it's likely that the rate you're paying (mine is currently 2.49%) is significantly lower than the returns you've seen in your investment portfolios. That makes a strong case for why you should invest instead of paying off low-interest can basically use the bank's money to make money. And you know what? I'm not actually against that, and it's the reason I've kept my focus on investing instead of making additional payments to my mortgage. But does that mean that I think my mortgage is good debt? Nope. If I didn't have that mortgage payment I would have an extra $1,300 to invest each month, I wouldn't be paying any interest to the bank, and there would be no risk of losing my house if rates suddenly skyrocket or a job is lost. The bank still owns your house until that mortgage is paid in full and they'll come collecting if you stop making those payments. Priorities can shift in importance between paying off debt and investing, but I will always take the position that no debt is always better than any debt. 

5. Clearance Does Not Equal Love
I used to be a huge sucker for a bargain. When I was younger, I used to go shopping all the time (total mall rat), and I had a hard time resisting the temptation of a sale. There's nothing wrong with seeking out a bargain if it's for something you actually NEED. My problem was that I would end up buying a terrible item of clothing just because it was cheap, and it would sit in my closet with the tags still on until I finally threw it out. Might as well have just burned that $10 for entertainment. 

Looking back now all I can think about is the lost compounding...ok not exactly, but there's definitely spending guilt. I'm going to refer to this not so rare phenomenon as 'Clearance Blinders', and guess what? There's a cure! Remember that budgeting thing we talked about a few minutes ago...that's step one. Step two is removing the temptation. If you suffer from 'Clearance Blinders', then stop browsing the mall, remove yourself from promotional email campaigns, and make a pact to only buy things you need. I've come out the other side and promise there is currently no item in my clothing that still has the tags on. 

If there is one thing I know, it's that everyone has made mistakes with money in the past. If you could go back and teach your younger self one thing what would it be? 

What I Would Teach My Younger Self About Money

Wednesday, 19 July 2017

Interest Rates are Up, Up and Away

What you Need to Know About Rising Interest Rates

You've likely already heard that the Bank of Canada raised their overnight interest rates last week from 0.5% to 0.75%, but do you really know what that means and how it affects you? For the last decade, we've been living with historically low rates in Canada, and this is the first time in 7 years that rates have gone up. If you're a millennial like me, you've lived almost your entire adult life under these conditions, but that doesn't mean it's the norm. Take a look at the graph below; it was way back in 2008 when rates plummeted after the financial meltdown. I was still in University way back then with little to no clue (or interest) in how that would affect me. 

Flash forward to 2017, and I have to say that I have benefitted quite substantially from the low-interest rate environment. We bought our house in 2010 and at that time signed up for a 5-year variable rate mortgage. At the time we thought rates would go up near the end of that term but that the initial savings would still set us ahead. When our renewal came up two years ago, rates were still low, but we thought there was no way we'd make it through another term without a raise and locked in after that drop in 2015. Honestly, the timing couldn't have been more perfect for us, and we've been able to put a big dent in our principal because of the low rates. Next renewal I don't think we'll be so lucky though!  

Now let's get into why the current conditions have set the stage for the rate hike by the Bank of Canada. 

What is the Bank of Canada? 
The Bank of Canada isn't like the normal bank you periodically visit to do your day-to-day banking (does anyone actually go to the bank anymore?). Instead, they're the bank for the government. Their primary goal is "to promote the economic and financial welfare of Canada" (Bank of Canada Act). That means they are in charge of maintaining low and stable inflation by controlling interest rates and the amount of money in circulation, designing and distributing those colourful plastic bills we're famous for, managing the debt and foreign exchange reserves for the government, and keeping the Canadian banking system safe and efficient. 

The bank controls interest rates by altering what is called the 'overnight rate'. Retail banks (BMO, TD, CIBC, etc.) are constantly borrowing money from each other, and the overnight rate is the one-day interest rate they are charged for such borrowing. In turn, the banks use that overnight rate to determine their 'prime rate', which is what they base your borrowing rates on. When the banks pay more, they pass on that additional cost to us consumers. 

Why Inflation Matters to You

Inflation is basically your buying power, and it's the reason that $1 was worth more in the past and will be worth less in the future. Remember when you were a kid and you'd go to the convenience store and buy a bag of 5 cent candies? Those little frogs, eggs, and coke bottles will now cost you 10 cents a pop! That's inflation. The Bank of Canada aims to keep inflation between 1 and 3 percent, thus ensuring that your dollar is going to maintain most of its value year over year. Crazy high inflation wreaks havoc on an economy and puts its citizens in a very tough spot because wage increases rarely keep pace. 

Interest Rates and Inflation

What exactly is the relationship between the two? Inflation decreases when interest rates go up, and it increases if rates go down. This is all tied back to consumer spending. When the government wants to stimulate the economy and therefore increase inflation, they will lower rates to encourage citizens to borrow and spend more. 

This is why the Bank of Canada recently raised rates, they think the economy has stabilized and are concerned that inflation will get too high. 

And Why Do You Care?

That quarter point increase might not sound like a lot but if you are carrying a substantial amount of consumer debt you might be in for an unfortunate surprise. This won't be the case if you have a fixed rate loan, your time will come when you're up for renewal again (like me). However, if you have a variable rate loan, then your payments will be going up right away. Variable rates are based on the prime rate, which has gone up from 2.7% to 2.95%, so you'll be paying an additional 0.25%. Variable mortgages aren't the only loans that will increase, many lines of credit or student loans are also based on the prime rate and would see payment increases. 

If this is the situation you find yourself in, then don't freak out. The first thing you need to do is figure out how much your payments are going to go up. Likely your bank will be sending you out a notification indicating exactly this, but if they haven't then reach out to them. Work those new numbers into your budget and see how it looks. You might have to make a few cuts in other categories to make up the shortfall, but that's the big perk about having a budget...there's always room to play around and make the numbers work. If you don't have a budget then you can sign up for my email list to get the template I use for free; better late than never ;) 

You also have the option to lock-in your mortgage to a fixed rate if you are really concerned about your ability to handle increasing payments. Rates have already gone up, and you'll likely have to pay a penalty for making a change part-way through your term but knowing your payments will remain consistent for the remainder of your contract might be worth it for your peace of mind. There seems to be a consensus that another rate hike or two will be on the way so if you're going this route then sooner is likely better.

The majority of credit cards and car loans are based on fixed rates, so it's unlikely you'll see any change in those (aka the high rates will remain high, so they're still not a good idea). 

What's the Good Side?

Canadian households have over $2 TRILLION in debt; that's over $55,000 for every single person. I can't even imagine what that number would be if you eliminated all the kids, retired people, and super savvy people who have no debt. While increased interest rates can have an immediate negative impact on those with variable debt, it can have a positive long-term effect on the overall debt levels of this country. It will also likely have a cooling impact on the out of control real estate markets in Toronto and Vancouver. The Canadian dollar also rose sharply after the rate increase announcement, but we'll have to wait and see if it can hold some of that momentum. Savers might also see a slight increase in the interest rate they earn on their savings account, this won't be substantial, but every penny counts right? 

Take the opportunity to use this as a reminder of the downside of debt. For a long time credit has been cheap and a lot of people have taken advantage of that. Even after this increase, rates are still low, but you can see how even a small rise can cause problems. 

In Conclusion

Interest rates have gone up, and there's a good chance more rate hikes will be coming. If you have variable rate loans, you will see your payments increase, but there are steps you can take to limit the impact including amending your budget and switching to a fixed rate contract. 

What you Need to Know About Rising Interest Rates

Wednesday, 12 July 2017

No, I Won't Do 61% of the Housework because I'm a Girl

The gender gap at work and at home.

This one is for all the couples out there. I'm intrigued by where you guys and gals sit on the gender division of labour? You know, who brings home the most money and who takes on the bulk of the household chores? Are you even splitters (high five!) or does one person take on the bulk of the work?

I was recently reading (listening - that always feels weird for me to say when talking about books), Lean In (yes, that's an affiliate link, and you can get more info on my disclaimer) by Sheryl Sandberg and she talks a lot about the importance of having a partner who pitches in. I totally get that! I honestly don't know how some women handle working all day only to go home and have to do the bulk of the childcare and housework. And I don't even have kids. It's a much more even split in my house, and I wish that were the norm for everyone. There have been slight improvements in this area over recent years but the stats are still not great, and heavily lean towards women taking on more and earning less. Here are a few that I found that really highlight the disparity: 
  • The employment rate of women between the ages of 25 and 54 has increased from 48.7% in 1976 to 77.5% in 2015. (Source)
  • Despite the increase in work outside the home, there has not been a similar decrease in mother's participation rate in household work. That rate has remained at 93% from 1986 until 2015. The rate for fathers has increased over that period from 51% to 76% but mothers still complete 61% of the hours spent on household work. (Source)
  • The same pattern applies when we look at the division of childcare. Mothers care for children 66% of the time across the survey period, while fathers rates have gone from 33% in 1986 to 49% in 2015. (Source)
  • Women earn $0.87 for every dollar earned by men. (Source) This amount is bad enough, but it's even worse in the States where the pay gap is $0.79 to every dollar. (Source)
I know these outdated beliefs still exist, but I like to think that my generation will be the one to raise children who refuse to accept the gendered wage gap, childcare gap and household work gap. 

How we do it...
You are likely already aware that I don't exactly fit (or agree) with the 'traditional' gender role expectations that are still annoyingly prevalent. I work in finance, which is still very male dominated, the bf and I have been dating for over a decade, and marriage has always been on the back burner, I despise cooking, and I'm pretty iffy about whether or not children will ever become part of the picture. If I compare all these life choices to those of my mom's, they are in stark contrast. She worked part-time in a female-dominated healthcare role, married young, had a child (although only one), and was always the person cooking and cleaning. Now, this isn't to say that she agrees with this set-up, it's just the way things were. My Dad worked full-time and had a long commute, so he just wasn't home enough hours to actually contribute. 

Back to the present and our situation. Employment wise we are on a very similar track, in that we both work full time and have somewhat similar salaries. Ok, as the bf likes to remind me, I'm not exactly full-time...I usually work 9 am - 3 pm and have Monday's off in the summer, but I do work longer hours during our busy season (plus I blog which takes up a lot of my time). Let's just call it even on this front then ok? 😉 

I feel fortunate to have a partner who contributes around the house. Writing that statement actually just made me cranky. I am lucky, and do feel lucky, to be in this situation but I kind of wish I didn't. Not feeling lucky about this would mean it was a rule and not an exception. We really do split chores evenly. As I said above, I hate cooking...and I'm terrible at it. I'm the girl who puts a pot of quinoa on the stove to cook, forgets about it and nearly burns down the house (this happened last month). The bf, on the other hand, enjoys cooking and is great at it, so willingly takes on 99% of the food prep in our house. However, since my organization skills are slightly (more than slightly) better than his, I take on the role of meal planning. We always do one big grocery shop together each week, and before that I make a list of what meals we're eating and what we need to buy. That's teamwork folks! 

As for the rest of the household chores, I would say that I do the bulk of the cleaning but not everything. And let's be honest, our house is a mess most of the time. This would be the one category where we actually abide by fairly traditional roles. Laundry, dusting, floors, etc. are all on my chore list whereas shovelling snow, mowing the lawn, and taking out the garbage are more frequently done by the bf. For us, this works. Do I still dread mopping the floor? Absolutely, but it makes it easier knowing that I won't also have to cook dinner after. 

I also like to think that if we added children to the mix, we would balance their care equally. Neither of us wants to give up our careers and become a stay at home parent so we'd have to factor in daycare costs and packed schedules. How do you parents do it!?

So, that my life. Let me know in the comments how you handle the work/life balance with your partner? 

The gender gap at work and at home.

Wednesday, 5 July 2017

Keep your Food Budget in Check

Lower your Food Budget without Wasting Time
Today we're talking about food...whoop! Eating takes up a lot of my time. That's kind of embarrassing to admit, but it's the truth. Not only because there's the meal planning, shopping for food, cooking and the actual eating part but a lot of my social activities also revolve around food in some way. Whether that's going out for dinner with friends or going to a baseball game and getting a hot dog (because you can't not do that). This also means that food makes up a sizable portion of our monthly budget. So, how do we keep that in check? Well, there are a few tricks we've adopted along the way that have helped. 

Stop Eating Out
I know, I know...this one goes without saying, but I'm repeating it because it's the one that can really make or break your budget. Eating out even just one meal at a restaurant will often cost you as much as an entire weeks worth of groceries. I'm not saying don't ever eat out, that just wouldn't work for me. We factor eating out once a week into our plans, and sometimes that's a pricier dinner and sometimes it's a cheaper meal from a food truck. Find a system that works for you but don't overdue it. This goes for lunches, too. I'm much worse for going out to eat with my co-workers than I am at home (victim of peer pressure). The more often you eat at home, the less you'll spend on food. 

Tap Water Won't Kill You
In fact, it won't even hurt you, and no, it doesn't taste funny. You won't have any bottled water in my house. In Canada alone, bottled water generates $2.5 billion every year, and it can take up to three litres of water to process one litre of bottled water. So not only is it hurting your wallet it is also horrible for the environment. People stop! Go ahead and buy yourself a fancy, reusable water bottle and fill it up with good old fashioned tap water. Even this adorable puppy hates plastic water bottles (any excuse for a dog GIF). 

Ditch the Meat
This isn't always easy for everyone (my bf for one) but limiting the amount of meat you eat can really lower your grocery bill. I've never been a big meat-eater so this one's pretty easy to be but it's always a bit of a battle in our house. I'm super fussy with meat and will cut off every bit of fat I can find which makes it a hassle. I'd rather a plate full of vegetables or tofu any day. We aim to go meatless for at least two dinners every week, and I've found quite a few vegetarian recipes that we both enjoy. Here's five that regularly make it into our meal plans and even satisfy my carnivore bf. 
We also buy the majority of our meat at Costco and freeze it. It's not always the cheapest (usually though), but the quality of their meat is top notch and always have a stockpile in the freezer helps us avoid last minute trips for take-out. 

Stock up on Snacks
Have you ever been sitting on the couch after dinner and get a craving for something sweet? That's me, pretty much every night. I also have no willpower, so if I don't have something at home to snack on then I'm going to end up in the Dairy Queen drive-thru at 10 pm. Not good for my wallet or my waistline. I don't necessarily like the idea of spending $15 on a Costco size bag of trail mix, but if it prevents me going out for food, then I call it a win. If you're not a snacker, then you can obviously skip this one, and then tell me what sort of Jedi mind tricks you use! 

And I don't mean the TV show...did anyone else think that show was terrible? It has rave reviews, but I could NOT get into it. The best way for me to not spend money on eating lunch out is by bringing leftovers. I love leftovers, seriously! Give me leftovers over a sandwich or salad any day. Even if it means buying extra so that you have enough food to do you for dinner and lunch the next day it's worth it. A cheap lunch out will still cost you $10 to $15, and there's no way a few extra grocery items will add up to that much. Plus, dishing up an additional serving into a Tupperware container is much easier than making something from scratch. Easy always wins in my world. 

Shop Once, Eat for a Week
My final tip is to avoid going to the grocery store as much as possible. It's basically the worst place ever, so you'll be a happier (and richer) person if you aren't there every other day. We do one big shop every Sunday and pick up everything we need during the week. If there's something on the meal plan that needs to be fresh, we just make sure to cook it on Sunday or Monday. Planning ahead is essential so figure out what is on the schedule and choose your dinners accordingly. I've written before about the importance of meal planning, so if you're not already in the habit then go check out that post for a little inspiration (and a two-week meal plan). 

These are all relatively straightforward tips that work for me and won't have you clipping coupons or searching through multiple flyers for the best price. I don't have time for that, so I focus on things that make life easier while still saving money. 

Do you guys have any tips you use that I haven't included here? 

Lower your Food Budget without Wasting Time