Blog - Page 6 of 9 - Ellen MCKAY

May 1, 2021 Good money habits

Understanding and Tracking Your Expenses

Welcome to my second post in the Managing Your Money series. Now that you’ve taken step 1, making a budget, it’s time to start tracking your expenses.

Why do I need to track my expenses?

To be able to manage your money well, you need to know exactly what you’re spending it on! You’ve probably found yourselves reaching the end of a week or a month and wondering exactly where all your money went. When you start tracking your expenses, you’ll have a better idea of exactly what you’re spending your money on – and where you can cut back to save more!

What’s the best way to track my expenses?

The best way to track your expenses is whatever way works for you. Here are some ideas to get you started:

Write them down at the end of each day.
Put everything on debit or credit so you have an online record.
Keep all your receipts and then enter the amounts in a spreadsheet.
Use an app to keep track of your spending.

If you start trying to keep track of your expenses one way and it doesn’t work, don’t just give up. Keep trying until you find a method that works for you!

What kind of expenses do I need to track?

The point of tracking your expenses is to get as accurate a picture as possible of what you’re spending your money on. So it’s important to track every single expense!

Here are some sample expenses:

Common expenses such as a mortgage or rent, utilities, groceries and eating out, gas, and insurance.
Less common expenses such as home or car repairs, gifts, vacations, and clothes.
Don’t forget to track things that are auto-deducted such as gym subscriptions, streaming services, or meal-kit delivery.

Tracking all of your expenses will help you get a better handle on where you’re spending your money.

The Takeaway

Tracking your expenses isn’t that exciting – it’s certainly not as much fun as spending your money! But it’s a critical step in helping you get a better handle on how you’re spending your money. Let me know what your biggest surprise was when you started tracking your expenses in the comments!

April 15, 2021 Good money habits

Create a monthly budget

One of the first steps in taking control of your money is to put together a monthly budget. A budget can help you save money and get a handle on your expenses.

Your budget should be broken up into the following sections:

Fixed costs
Short-term savings
Long-term savings
Fun money!

Fixed Costs

Your fixed costs are amounts that don’t change from month-to-month such as your mortgage or rent, a car loan, and your cell phone bill.

Other costs vary each month but will generally average out to be the same, such as your grocery bills and utilities. If you’re looking for somewhere to save on fixed costs, groceries are one of the few areas of you can you have a little wiggle room.

Fixed costs will likely take up to 50 to 60 percent of your income.

Short-Term Savings

Short-term savings are exactly what they sound like – money you’re putting aside to cover big expenses shortly. This money can be used to cover everything from vacations to a new laptop. The key is that they are an extra item you want or need, and you should save up for them.

Not expecting to make any major purchases in the next few months? That’s great – but it doesn’t mean you should avoid putting money into short-term savings. Any money you don’t use for expected purchases can be used to help build your emergency fund in case you suddenly lose your source of income.

For short-term savings, you should be putting aside 5 to 10 percent of your income.

Long-Term Savings

Long-term savings are the opposite of short-term savings – this is money that you’re putting aside for the future. Whether that’s a down payment for your house, your retirement, or your children’s education, it’s important to make sure you put aside money for your long-term goals.

It can be easy to let this part of your savings go, as the goal and rewards aren’t immediate. But unless you have a real financial crisis, it’s important to make sure you save up for your long-term goals.

Long-term savings should be 10 percent of your income.

Fun Money!

Now we get to the fun part. Part of the reason we like to earn money is that it buys us things we enjoy! Whether that’s dining out, getting the latest video game, or buying some new clothes, it’s important to spend some of your hard-earned money on something pleasurable.

Spending money on things you enjoy shouldn’t be seen as a luxury but as a necessary investment in your physical and mental well-being.

You can spend anywhere between 20 to 35 percent of your income on the fun stuff. This is an area where you definitely have some wiggle room, so if you end up with an unexpected expense or want to boost your savings, you can temporarily cut back in this area.

The Takeaway

Having a budget may seem constraining, but it really isn’t. Having set percentages to spend your money on, you actually give yourself the freedom to spend money on something pleasurable without feeling guilty! And you know that you’re still saving money for your long and short-term goals.

April 1, 2021 Good money habits

Managing Your Money – A Series

I’m putting together an end-to-end series on everything you need to know to manage your money. I’ll cover the following topics:

This may seem overwhelming – but you don’t have to do everything all together at once! I’ll break it down and cover one topic in each post.

March 15, 2021 Good money habits, investing

How do you get your personal finance advice?

There are so many ways to learn about personal finance these days – there are TV shows on it, books, online articles, and more! Here are some of the many ways you can get advice:

Podcasts

There are lots of podcasts of all different aspects of personal finance – from how to get out of debt to how to invest. If you’re the kind of person who wants to learn, but doesn’t have a ton of time to sit and read, then podcasts may be a great choice for you.

Personal Blogs

Personal finance is definitely a hot topic for personal blogs, and some have amassed quite a following! Some of them are from people who have professional training, whereas others are like me and just want to share the knowledge they have.

Books

I haven’t bought a ton of personal finance books, but I did enjoy “The Wealthy Barber” by Dave Chilton and “Millionaire Teacher” by Andrew Hallam. No links because I recommend you support a local bookstore or try your local library! They are both great books that explain a variety of personal finance issues in an easy-to-understand way.

TV Shows

As my husband can attest, I used to be addicted to “Til Debt Do Us Part” with Gail Vaz-Oxlade. She’s written a number of books as well and also hosted two other money-based TV Shows. She’s blunt and funny. Her shows give you a chance to watch how other people re-examine their spending habits and may encourage you to do the same thing yourself!

What’s your favourite way to learn about personal finance?

Do you like to settle down with a good book? Or perhaps you have a favourite blogger that you’ve read every post of? Tell me about it in the comments!

March 1, 2021 investing, Kids, Saving money

What is an RDSP?

In my previous posts, I’ve talked about three different types of government savings plans:

Today I’m going to talk about a savings plan not a lot of people are familiar with – a Registered Disability Savings Plan.

What is an RSDP?

A registered disability savings plan or RDSP is a savings plan for parents and others (e.g. grandparents, aunts and uncles, etc.) that is intended to provide anyone who is eligible for the disability tax credit with long-term financial security. A beneficiary can only have ONE RDSP at any given time.

Who is eligible to be the beneficiary of an RDSP?

The following criteria must be met in order for someone to be the beneficiary of an RDSP. They must:

Have a valid social insurance number
Be eligible for the disability tax credit (DTC)
Be a resident of Canada when the plan is opened
Be under the age of 60

To be eligible for the disability tax credit, a qualified medical practitioner must have filed in Form 2201 Disability Tax Credit Certificate and the government must have approved it.

How do contributions and government matching work?

There is no yearly maximum for RDSP contributions, but there is a lifetime maximum contribution of $200,000. And the government will match your contributions up to a certain amount, depending on your household income. If your income is low enough, they will give you a contribution via a bond even if you have made no contribution.

Canada Disability Savings Grant

If your family income is $97,069 or less:

on the first $500 contribution—$3 grant for every 1 dollar contributed, up to $1,500 a year
on the next $1,000 contribution—$2 grant for every 1 dollar contributed, up to $2,000 a year

If your family income is more than $97,069:

on the first $1,000 contribution—$1 grant for every 1 dollar contributed, up to $1,000 a year

Canada Disability Savings Bond

The Government will pay a bond of up to $1,000 into an RDSP – even if you haven’t made any contributions! No contributions have to be made to get the bond. The amount the government contributes will be based on the beneficiary’s adjusted family net income as follows:

$31,711 or less — Bond $1,000
between $31,711 and $48,535— Part of the $1,000 is based on the formula in the Canada Disability Savings Act
more than $48,535—No bond is paid

RDSPs are a great savings vehicle

With the government providing a match to your contributions – or even a bond if you make no contribution, but have a low income, RDSPs are a great savings vehicle! Do you know anyone who has an RDSP or is contributing to one?

February 15, 2021 Saving money, Uncategorized

What are the benefits to an RESP?

Image by free stock photos from www.picjumbo.com from Pixabay

In my last two posts, I talked about how to use RRSPs and TFSAs to save for your future. Today I’m going to talk about RESPs or Registered Education Savings Plans.

What is an RESP?

A Registered Education Savings Plan is a great way to help a special child in your life save for their education. Whether it’s your child, grandchild, nephew, niece or another child you want to help – you can save them a lot of stress and expense down the line by contributing to an RESP for them. RESPs came along too late for my parents to take advantage of them – but they did help me pay for school, which was fantastic and enabled me to graduate without debt.

What are the benefits of an RESP?

There are several benefits to using an RESP to save for a child’s education:

There’s no yearly maximum or minimum – so you can make contributions when and how it works for you.
Any growth in them is tax-sheltered.
The beneficiary of the RESP can use them for a variety of post-secondary costs including housing and tuition.
Government matching – They’ll match 20% of your RESP contributions up to $2,500 each year – with a lifetime maximum of $7,200.

What happens if the child the RESP is for doesn’t want to attend any post-secondary schooling?

Depending on the type of plan and who opened the RESP, you can:

Transfer the funds to another child.
Transfer the funds to your RRSP.
Close the RESP.
Transfer the funds to an RDSP, if the child qualifies for one. I’ll talk more about RSDPs (Registered Disability Savings Plans) in my next post.

How can I get started?

Before you open an RESP, you’ll need a Social Insurance Number (SIN) for the child. It may be tempting to open an RESP individually for a child if you want to make contributions – but it’s likely better just to have one RESP open, instead of several. So if you aren’t the child’s parent or grandparent, talk to them about making RESP contributions through them if they’ve already opened one.

You’re Ready To Get Started

Now you know all about the benefits of helping a child pay for their education via an RESP. Even if you can only contribute a little bit each year, it will add up – especially with the matching government grant. Have you contributed to an RESP for someone? Tell me in the comments!

February 1, 2021 Saving money

Why you should have a TFSA

In my last post, I talked about RRSPs – formally known as registered retirement savings plans – and why should you use one while saving for retirement. Another great way to save for retirement – or just a general future expense like a house down payment is to use a TFSA. You can use a TFSA for any kind of savings goal you want!

What is a TFSA?

TFSAs are short for Tax-Free Savings Accounts. But you don’t just put money in them and hope for a little interest. You can use them for a variety of investments – from bonds to mutual funds to ETFs.

The most important thing you need to know about a TFSA is the magical phrase “tax-free”. This means that you aren’t taxed on any gains in your account – and you aren’t taxed on any withdrawals!

So what’s the catch?

You may be thinking that a TFSA sounds too good to be true. But the Canadian government wants to encourage Canadians to save – whether it’s to buy a house or provide additional income in retirement. After all, the more money you have in retirement income, the less you’ll be eligible for from the Canadian government in benefits like Old Age Security. So the government isn’t entirely selfless here.

How do contributions work?

The TFSA contribution limit for 2021 is $6000. TFSA limits have changed over the years – from being as low as $5,000 to as high as $10,000. Like RRSPs, contribution room rolls over – so if you don’t have enough money to make the maximum contribution one year, you can always catch up another time. Unlike RRSP contributions, all TFSA contributions must be made in the year they are intended for – so you can’t make a contribution to your TFSA in January 2021 and actually have it count towards your 2020 TFSA.

How do I know when I should choose a TFSA over an RRSP?

In an ideal world, we’d all have enough money to maximize out our TFSAs and our RRSPs every year. However, that’s just not realistic for most of us.

If you want to save for a specific goal that isn’t retirement – like a car, a vacation, or renovations for your house – then a TFSA is definitely the way to go. In addition, if you make a fairly low income and won’t really benefit from RRSP deductions or may need your money before retirement, then a TFSA is also the way to go.

If you make a high income and can benefit from RRSP deductions as well as the security of not needing your money until retirement, then an RRSP may be a better choice.

Now You Know!

You’re ready to get started contributing to a TFSA and saving for your future! Let me know in the comments – do you prefer a TFSA or an RRSP?

January 15, 2021 Saving money

It’s RRSP season – are you ready?

Image by 3D Animation Production Company from Pixabay

The first two months of any year are often referred to as “RRSP” season. This is because you can make contributions to your RRSP in the current year – but have them actually count towards the previous year’s contributions. If I’ve lost you, don’t worry – I’ll explain more below!

What is an RRSP?

An RRSP is short for a registered retirement savings plan. The government introduced them in the 1950s as a way to encourage Canadians to save for their retirements. As many places of employment don’t offer a pension anymore, RRSPs have become more and more important over the years.

Why would I want to contribute to one?

There are several reasons to contribute to an RRSP:

You are saving for your future. Presumably, you don’t want to work your entire life – so putting money in an RRSP ensures you have money waiting for you when you retire.
You can use your RRSP contributions to cut down on your tax bill. Any money you contribute to an RRSP is EXEMPT from taxes. For example, you made $40,000 and put $2000 into an RRSP. The government will then consider your income to only be $38,000 for the year.
You aren’t taxed on any growth in your RRSPs until you take money out. If the stock market is going crazy, don’t worry – you won’t be hit with a huge tax bill! Your RRSPs grow tax-free.

What are the rules about contributing?

For 2021, the maximum amount you can contribute to your RRSP is $27,830. However, unless you’ve made a very high salary, you likely won’t have this kind of contribution room. You “earn” contribution room every year you are working – and the maximum amount you can contribute is based on your salary. The good news is that your contribution amounts carry over – so if you have years with a lot of expenses, you can contribute less to your RRSPs and make up the difference later.

You can put a lump sum into your RRSP, but most people prefer to make monthly, automated contributions to spread out what they are putting in, and ride out any market volatility. For your 2020 RRSP, you can make a contribution any time during 2020 or in January or February 2021.

You’re ready to get started

Now you know the basics of what an RRSP is and how it works. It’s not too late to make contributions for 2020 – or start planning ahead for 2021!

January 1, 2021 Good money habits, Holidays, Saving money

Why our New Year’s resolutions will be less expensive this year

Normally, one of the biggest things people pledge to do for New Year’s is to start eating right and exercising. So they sign up for expensive gym memberships and fancy weight loss programs and then frequently stop committing to both within a month or two.

The good news is that we can’t waste our money on stuff we won’t use this time. Most of Canada is in lockdown in one form or another, so you can’t sign up for the gym, and you can’t go buy expensive shakes and other weight-loss concoctions you really don’t need.

The good news is that if you do really want to lose weight and exercise you can still do it – just without spending a lot of extra money.

Exercise

The easiest exercise to do is right outside your front door – just put on your boots and go! If you don’t feel safe going out because it’s icy, you can walk in place in your house, or go up and down the stairs.

And there are tons of Youtube videos and programs that show you how to use your body weight to do strength training.

Always remember, the right exercise program is one you stick to! Being able to exercise from the comfort of your own home with objects you have around the house (like soup cans!) makes it easier to stick to being active. Even if you start with a few minutes a day, it’s a step in the right direction!

Eating Right

Like exercise – it’s not that we don’t know how to eat right – we’re just not too great about sticking to it. Eating properly doesn’t have to be expensive – it just takes a bit of planning. Unless you’re really good at it, sticking to a type of eating that cuts out one or more types of food entirely (e.g. carbs) may not be a great route. It’s better to plan a balanced diet with some room for treats.

There are also lots of free calorie counting apps you can use to quickly and easily see what your calorie intake should be if you want to lose weight. You can also use the app to log your calories each day to keep on track.

The Takeaway

You can still achieve your New Year’s goals in regards to exercise and eating right – without spending a fortune. Dust off some fitness equipment you already own or put on some boots and go outside! You can choose in seasons vegetables and cheap protein (like beans) to make filling and healthy meals – batch cooking is a great way to save time and money.

How do you plan to eat well or exercise without spending a lot?

December 15, 2020 Holidays

How much do you spend on Christmas?

I’m taking a brief break from the Economics 101 posts to concentrate on one of the most expensive times of the year – Christmas!

Where do we spend our money at Christmastime?

Here are all the ways you can spend money at Christmas time – and it can add up!

Buying presents. In addition, you have to pay for shipping or gas for your car to go shopping.
Food. Christmas dinner, Christmas baking, and of course – a few treats for yourself!
Decorations – if you like things like a holly wreath and a live tree, then you’ll be shelling out every year for these. Things like Christmas tree ornaments and lights can be reused every year, so you shouldn’t be paying for these every Christmas.
Travel. For some folks, it’s just a drive down the street – for others, it’s a plane ticket to see family.
Alcohol – whether it’s for gifts or just to keep your sanity – this is another expense.

According to a study from Deloitte, Canadians can spend up to $1700 a year on Christmas!

How things will be different this year?

It’s too early for any studies to be out – but based on my own experience, I can guess the following:

People will either be spending a lot less on Christmas because they just don’t want to go out shopping or they don’t have the money to spend. OR they will be spending a lot more because it’s one of the few things they can do. Just depends on the type of person they are.
Travel costs will definitely be down – a lot of people who’d normally fly to see family just won’t be doing that.
Food costs may end up being higher. Instead of one person springing for dinner and everyone bringing a side dish, we may all be doing our own small dinners this year.

What kind of economic lesson can we take from this?

I think the biggest thing to learn is that you don’t have to go overboard on Christmas. If you can’t afford to buy gifts for everyone that’s fine. If you want to host, but can only afford a basic dinner – that’s fine too! Anyone who truly cares about you should be understanding of your financial situation, whatever it is. While it’s tempting to splurge and get everyone a blowout Christmas, it’s not worth going into debt for.

How do you normally celebrate Christmas?

I’m usually pretty low-key – presents for my parents and any kids in the family only. Some nice dinners and some basic decorations. I do love lights though – they are so cheery when it’s cold and dark out! Let me know in the comments how you normally celebrate Christmas.