Oh hey! So, this is my (Shannon Lee Simmons) first ever sponsored blog post on the website. As an advice-only, unbiased financial planner, I’m careful about what information I share or promote. I was always afraid that working with a financial institution could come across as biased, and as a financial planner, I knew I could only comfortably work with a company that shares my mantra of supporting people getting their finances on track.
But then, I was asked to work with Interac and got excited because I genuinely support using debit as the go-to spending method over credit or cash (It’s in my book again and again and again). So, if paying with debit is now easier for people, I think that’s great.
So, here we are!
In my book, Worry-Free Money, I talk about something called the Spending Vortex. It’s that moment when you feel like your paycheque comes in and it’s already spent before you even get to debate ordering a pizza. Poof! Usually, you’re left feeling broke, like you’ve overspent – and that makes most people feel frustrated.
A lot of times, this happens as a result of how you spend money. Sometimes you pay with debit, sometimes you pay with credit, sometimes cash. Maybe all your rent is due with one paycheque and then you feel like a baller on the next. But, with no spending strategy, you’re never really sure if you can actually afford something. This leads to a lot of money anxiety. But, it doesn’t need to be that way! Here’s how.
Step 1: Stop budgeting with 50+ spending categories.
Coffee shops, takeout, clothes, pet, housing, bills – the list goes on. Budgeting like this sets most people up for failure. You forecast your spending goals in these very restrictive categories than do you best to live within the confines of the rigid budget. It’s so unrealistic! What if one weekend your family comes over and you need to buy a lot of cheese? What if the next week you need to buy a new shirt for work? Enough already. There are only 4 types of money that you need in your budget: Fixed Expenses, Meaningful Savings, Short-Term Savings and Spending Money.
Fixed Expenses are expenses like bills, housing, insurance, minimum debt payments, etc. The bills you must pay each month whether you like it or not.
Meaningful Savings is money that is being put aside to improve your net worth by increasing your assets or decreasing your debts.
Short-Term Savings is money you should be stashing away for emergencies and spikes in spending.
Once you calculate this, everything left over is Spending Money. That’s the money that you have to blow to zero every pay period for your life – groceries, gas, takeout, clothes, fun, and entertainment – cheese (real and vegan)!
- After-Tax Income: $3,000
- Fixed Expenses: $1,700
- Meaningful Savings: $400
- Short-Term Savings: $200
Money You Cannot Spend = $2,300 ($1,700 + $400 + $200)
Money You Can Spend = $700 ($3,000 – $2,300)
Step 2: Calculate how much you have to spend each pay period.
Once you’ve calculated how much money you can spend each month, separate it by how often you get paid. For example, if you’re paid twice a month and your Spending Money is $700, each paycheque you can spend $350 ($700 divided by 2). You don’t have to budget this $350. It’s yours to spend each payday however you wish, as long as it’s within your limit!
Step 3: Separate the Spending Money from the rest of your money.
In the book, in my practice and to my friends and family, I always suggest having a separate chequing account for your Spending Money. It’s also good to stick one payment method. This helps you set an actual limit to your spending and keep tabs on it so you don’t have to worry about receiving a bill that you can’t pay off at the end of the month.
If you’ve separated your Spending Money into a separate chequing account, you can easily see if you can afford things. If it’s the day before payday and you have $50 left in there, the question “Can I afford takeout tonight?” is easy to answer. It becomes “Is there money in my spending account?” Yes? Great. And now you know to keep it under $50.
I also suggest spending out of this account using debit. Why? Because this way you’re actually spending your own money. If you spend using debit, your bank balance will be an indication of how much money you actually have left to spend until the next pay period. In addition, it beats cash because there’s an electronic log of your transactions. You can see where you spent your money in case you ever need to go back and use that information.
If you like the convenience of contactless payments you can do that now with debit! When you think about paying with debit card, you’re likely used to using a PIN number to pay, but now there are options like Interac® Flash which gives you the convenience of contactless payment. This means you can pay by just holding your Interac Flash-enabled debit card in front of the reader at checkout and you’re good to go – no PIN required. If you like to use your phone to pay, there’s also the option of using Interac® Debit on mobile so you can use your phone to pay with your own money. Since you’re using debit, you don’t have to worry about going over your budget because it’s all tracked in real-time, from your Spending Money account, and with a mobile banking app you can check your balances whenever you want.
Step 4: Spend safely and securely
A spending strategy is one thing, but you also need to know the payment method you use is safe. Contactless payment technologies make it easy to flash your debit card or mobile device quickly and securely to pay for everyday items like groceries, gas or your morning coffee using your own money. Interac Flash is one of the safest forms of payment because your debit card number can’t be used to make a purchase on its own in store, and it has built-in spending limits that are set by your financial institution. For example, a transaction limit of around $100 means you can’t spend over that limit by flashing your card, as you’d have to insert your card and use your PIN to verify the payment. There are also cumulative limits and once you reach that limit, you need your PIN to proceed. That’s great from a budgeting perspective but more importantly, it protects you if you lose your card. Also, the Interac Zero Liability Policy means you don’t have to worry about what happens if you lose your card because you are not responsible for losses beyond your reasonable control.
Take the stress out of your spending money! Once you know what you can safely spend to zero each pay period without jeopardizing your bills and savings, your work is done. I give you permission to spend your Spending Money without guilt, or a budget.
Tomorrow I give birth to a giant cyber baby – Canada’s First Personal Finance School. It’s the biggest thing I’ve ever done. (pees pants a bit).
Who knows what tomorrow will bring? Right now, on the eve of the launch, I can still be optimistic. The programs aren’t online yet and I can still believe that anything is possible and that this school will help more people than I’ve been able to reach before.
Once launched, I have to face reality. It’s possible that I was right. It’s also terrifyingly possible that I was wrong. Any entrepreneurs/budding entrepreneurs out there probably know all about this launch-fear.
But, if you don’t believe that what you’re doing is going to make waves or change your life in a HUGE way, why would you stay in Friday nights while all your friends are together, weekend after weekend? (#fomo) Why would you set alarms for 6am on Sunday mornings while everyone else is asleep? How could you end up crying, alone, at the office until 11pm a week before launch-day and only realize that you’re NOT OK when the wonderful maintenance staff offers you a Werthers Original, and tells you “it’s time to go home”.
When you push this hard, you have to naively believe… you have to be so stupidly optimistic or else, you’ll just give up.
I’ve cried almost every day over the past 6 months. Sometimes, from joy. Most times, sheer frustration and exhaustion.
So, I just want to sit and revel in this moment.
Everything is done. It’s all out of my control. There is literally nothing for me to do but take a deep breath in and wait to see if the world believes in this school as much as I do.
This is a rare, magical moment in life. It’s like being in free-fall. It’s silent, but loud. It’s peaceful, but manic. It’s terrifying, but exhilarating.
I know I’ve packed the parachute the best I can. I’ve done all the work. I’ve made the leap and now there’s nothing left to do as I fall but trust, and wait for the parachute to open at the right time.
I think this is why I became an entrepreneur. I’m addicted to the free-fall. This, to me, is living. I feel truly alive because of the entire spectrum of emotions that comes with building, planning, obsessing, and believing in something you’ve created from nothing. I am fully self-expressed and so f*cking appreciative for that.
I’m usually pretty light-hearted in my writing/videos, but I wanted to give this moment the earnestness it deserves. This is a big one for me and I wanted to write this post from a place of gratitude and to be a letter to my future self.
Dear Future Self,
You are about to launch the biggest project you’ve ever taken on. Good on ya.
If things don’t pan out the way that you planned, that’s okay – you are not a giant failure.
No matter what happens, you have so much to be proud of. Be proud of what you’ve created, it’s amazing. Be proud that you are not afraid to work your ass off for something you believe in. You have put your WHOLE SELF into something that you will put out there for anyone in the world to judge. Being vulnerable like this is a really scary thing, you are brave. Lastly, celebrate the fact that you are facing your fear of failure like a boss. Please don’t stop being stupidly optimistic…. Ever. It’s your special skill in life. Remember, that no matter what happens, it’s the journey that defines you in the end and this journey has been truly epic.
Thank you for being one of my fierce supporters. I couldn’t have done any of this without you. Stay tuned with me tomorrow as I continue to free-fall and we’ll find out if the chute opens.
Shannon Lee Simmons
Almost-Official Founder of The New School of Finance
THE 2015 BUDGET IS HERE… dun dun dunnnnn
So, like, what does that even mean and why should you care? The budget affects you in SO MANY WAYS but often people don’t even know about it!
The 2015 Federal Budget outlines your tax rates, tax breaks, changes to your savings and how much money is going back into your wallet each year. It’s a BFD.
Rob Carrick nailed it in his recent article by noting that this budget definitely favours seniors and that GenY/Millenials didn’t get much attention.
But, here are some things in the budget that will affect GenY/Millenials/GenX
1) TFSA or Tax Free Savings Account Increased Contribution Limit
The TFSA is the bomb. It’s an amazing savings account for everyone and for both long and short-term savings. The money that grows inside the TFSA is NOT taxed when you pull it out. I repeat – NOT TAXED. This is key. When you pull your money out of an RRSP account you must include it in that year’s income and be taxed on it (iccccky).
NEW BUDGET THANG: The TFSA contribution limit has been raised from $5,500 to $10,000 effective immediately. Hella yes. More room for tax-free savings? YES PLEASE!
2) Benefits for Post-Secondary Students
The budget assists university students starting in 2016. Usually, to be eligible for Canada Student Loan Programs, it’s dependent on what your parents are forking over/their incomes. i.e. if you’re parents made a certain level, you wouldn’t qualify. In addition, for every dollar YOU earned in school over $100 a week, that amount was deducted from your loans.
NEW BUDGET THANG: If the parental units are forking over for your education whether the total amount or in part, your parents aren’t expected to pony up as much as before to make you eligible for the Canada Student Loans Program. Also, you can now earn money while a student without the amount you earn effectively becoming a drag factor on your student loan. WOOT!
3) Help for Parents with the UCCB and Children’s Fitness Tax Credit
While you may be sleep-deprived, there is a small token of appreciation for your current condition in the budget. The UCCB or Universal Child Care Benefit has been increased from $100 per month up to $160 per month for each child in your family under the age of 6.
The UCCB is taxable money from the gov that parents get REGARDLESS OF THEIR INCOME.
NEW BUDGET THANG: Effective from the beginning of this year, the cheques are in the mail as of July 2015 – PARTY!! Also, the budget has doubled the children’s fitness tax credit to $1,000 starting in 2015. Kid’s activities are so friggen expensive, amirite? Now, at least you get back 15% up to $1000. Little Billy can go to swimming – hurray!
4) Tax Rate Decrease for Small Businesses
NEW BUDGET THANG: The tax rate for small businesses will be reduced from 11% to 9% in 2019. (Now why would you give someone a gift that is so far off in the future? Oh yeah – it’s election time again). Note that this is only for CORPORATIONS – not sole-props or freelancers.
If you are curious about any of the four points above or of finding out in plain language how any of this applies to you, it may be time to book a financial planning sesh to flush out how you can leverage this 2015 budget like a boss.
There are so many different words floating around out there to convey someone who helps you with your money. Here are some – by no means all – that you may be familiar with: financial planner, financial advisor, investment advisor, money coach, fund representative, portfolio manager, stockbroker, and on and on…
That alone is confusing enough to the layperson (who exactly are you supposed to tap for help with your particular financial situation?) – but now on top of the various words used, an extra layer of complexity is added! This layer has to do with how that person is compensated for helping you with your money.
Here’s another list, by no means exhaustive: commission-based, transaction-based, fee-based, fee-only, advice-only, fee-for-service. One might start to wonder if there is a raison d’etre for the proliferation of so many descriptors.
And hey, what about accreditation? You should probably use someone who is accredited so they know whereof they speak and there is a whole list of designations for this, which will not be produced here.
Let’s just go with the fact that it’s a better bet to use someone who has a designation. Here’s an acronym for you: FPSC or Financial Planning Standards Council. This is a body that oversees approximately 17,000 Certified Financial Planners (CFPs). Out of these, the stats are that fewer than 1,000 are true “fee-only” planners.
That’s an interesting thing. Why would that be? Some say that there just isn’t that much demand for fee-only planners. I suggest that education comes before demand. If people knew the difference, would the demand grow?
FEE-ONLY FINANCIAL PLANNERS
So what is a fee-only financial planner? It is someone who receives a fee from you for delivering unbiased financial planning and advice to you for your benefit. They sell you nothing but their own expertise applied to your particular situation. This fee could be set at an hourly rate or it could be a flat fee established ahead of time for a certain service that you are seeking, e.g. retirement planning or entrepreneurial planning.
COMMISSION-BASED FINANCIAL PLANNERS
Compare that to commission-based financial planners who get paid not by you but by companies who make the financial products that they sell to you. Who would you rather get your advice from: someone you are paying or someone another entity is paying? That’s a rhetorical question.
FEE-BASED FINANCIAL PLANNERS
Compare that to fee-based financial planners who get paid a percentage of assets under management. This feels better, doesn’t it? Definitely there is more transparency here. At least you are playing on the same team in that if your assets increase in value, the fee-based financial planner stands to make more money. But let’s look at it from the other side. If your assets decrease in value, you lose money but they continue to make money as they always get paid whether your assets grow or shrink. Yes, to be sure, they make less if your assets shrink but they still make something whereas you lose. Also, fee-based does not negate commissions being paid to the advisor and you know only if commissions are paid to them if they are forthcoming with this information and I’m sure some of them are.
It is your money and definitely your choice.
The New School Team
Find out what the competition is offering!! Check out Lowestrates.ca
Get motivated to save for Retirement!
Calculate your net worth!
Watch here to see if you’re on track with your finances! Use the Link below
[(current age – 27) X ANNUAL PRE-TAX INCOME]/5
So, you’ve saved up a down payment, you know you’re not going to be house poor and now you want to start your house search. Before you begin, you should get pre-approved for a mortgage from your financial institution.
Here’s how to wow your financial institution before you buy a house.
1. A credit score of 700 or over will show your bank that you are able to handle making debt payments.
2. Your Total Debt Service Ratio should not be more than 40% of your monthly gross income to be a desirable candidate for a mortgage.
Your totally debt service ratio is your entire monthly housing costs plus all of your other debt payments divided by your monthly GROSS income.
Your monthly housing costs are (mortgage payment, property tax and heating costs). Other debt payments include car leases, credit card payments, student loans etc.
My total housing costs $2000/month and my car payment and student loan payments are $500. I make $50,000/year (gross) so my monthly gross income is $4166.
In this example, my TDSR is 40% so I’m in the clear.