How can I spend for tomorrow's spending when I cannot keep up with paying for yesterday's? Part 1
There is hope yet.
This article is for someone like me. I have always been good with other people's money but not mine. I have always played the safe card with others money but with my money I have blown the lights out experimenting. Thats why I am like He is my health insurance,that is, till I can make enough earth money to afford a health insurance here.
Yesterday I found out, courtesy of my wife, that a certain so-and-so also similarly employed like me, seems to have a bigger RRSP and RESP saving then us. (I have always marvelled at how wives manage to find out all this "inside' dope on other people). One way to meet all my expenses is to earn more, duh. Another way is to get a handle on our spending, that is to improve my spending (she does not spend). That does not mean spend less, spend in line with 'what is' and not 'what will be'. I guess its both, earning and spending.
That's why my friends who have similar income and expense seem to stashing away a little something for those "rainy days".
My common lament is "Yes I know RRSP & RESP are good, but we are already upto our necks with today's expense, how can we spend for tomorrow savings with today's earning when we cannot even meet today's expenses which anyway is mostly yesterday's expenses?" Bad debts, credit card bills, line of credits. For them (which includes me) I have one word "Plan". I am surprised and annoyed to learn how much I could have saved had I planned my expense better. You know like better cash flow, my cash flow so far has been like cash Niagara.
It might surprise some to know that you do not need to save from your expense cash to get your gravy train rolling. All you want is cash flow financial planning. I am talking abt tax saving money.Like some people think RRSP loan is a bad idea, it is a sophisticated tool, it has to be implemented in a certain fashion in order for it to give good results. Like some people have so much money idling away in GIC's and no one has told them better.
First you have to find out your equity ratio. Your equity ratio for your personal assets is a measure of the extent to which you have borrowed to finance these purchases. Suppose Hrehan and Shannis, own a home which can sell in the market for $180,000, and a mortgage of $ 60,000 + $10,000 worth of other debts. Hrehan and Shannis's personal asset equity ratio is 61.11% calculated as ((personal assets - outstanding loans) ÷ personal assets) or (($180,000 - $70,000) ÷ $180,000). That means they are positive financial territory. As long as they are above 40% they are just abt OK, above 60% they are good, above 80% they should begin sophisticated investment earning/ tax saving strategies. For those below 50% equity ratio, pay off your old debts that is the best investment advise I can give you. If you score more than 50% I might be able to assist you move forward, make sense of it all.
Second you have to make a simple cash flow statement.
If you have problems handling credit or controlling your spending habits, or if you have complex or irregular cash flow patterns, a comprehensive approach step by step is as follows:
1.Direct all of your income into a collection account. Ideally, this should be an interest bearing account, such as a money market mutual fund. These funds are liquid and can be encashed instantly.
2.Transfer a fixed amount of money from the collection account to an investment account to fund your objectives. This transfer should be done monthly. Like PAC, pre authorised payment through a void cheque.
3.Transfer a fixed amount from the collection account to your chequing account each month for expenses
4.You can use any amount remaining in your collection account as your emergency fund. You should have enough money in your emergency fund to fund 6 months of living expenses,
5. Carry over any balance in this account semi-annually and transfer any excess from the emergency account into your investment account.
6. Repeat, steps 1 to 5, the simple saving matrix
Now remember this plan works well for those with regular incomes, mostly. In part 2 I will discuss ways to implement a financial plan when income is erratic but spending is fixed, when the budget is in red constantly. That is a more complex plan. Hence I will discreetly send that plan schematics to only those who request for it.
Lossing weight the natural way, forget the pills, try shovelling.