you and your money - prince edward island · 2005. 4. 1. · you over- or underestimated. there may...

Youand Your

You

MoneyMoney

Reality Choices22

Making decisions in a changing consumer marketplace

and Your

What is a spending plan?A spending plan comprises your answersto three questions:

1. Where am I now?2. Where do I want to be?3. How will I get there?

The most important question is “Wheream I now?” Consider how much it costsyou to live each month, the amount ofyour income, whether you are spendingmore than you are making and, if thereis money left over, what you are doingwith it.

When you ask yourself, “Where do Iwant to be?” you are working towardgoal setting. Perhaps you are aiming fora nice trip in six months, purchasing acar right now, going back to school ina year or buying a house in five years.

Answering, “How will I get there?” willdefine your plan — balancing spendingand income and making sure you havemoney set aside for your goals.

What if I don’t want to planmy spending? I’m young andI have lots of time to thinkabout this later.If you don’t want to plan your spending,your only control is your paycheque. Ifyou spend it all during the month, don’tcommit yourself to any credit payments.This isn’t the best method but it shouldkeep you out of debt.

I’m making it each month so Ishould be okay. Is a plan reallynecessary?Consider the following questions:Do you have a balance on your creditcard(s), and are you prepared for gift-giving occasions and car insurancepremiums?

Making it each month includespreparing for expenses you know aregoing to arise, such as car insurance.The Money Planner on page 8 ofthis booklet identifies some of theseexpenses and shows you how to fitthem in your plan.

Why did you ask about creditcard balances?If you aren’t paying your credit cardbalances in full when they are due,you could be subsidizing your incomeusing credit. For example, if you’recarrying a balance of $250 on yourcredit card every month, you couldbe spending $250 a month more thanyou earn. If so, it could be a recipefor financial difficulties.

Figuring out where I am soundslike way too much work. Whybother?It can be as much work as you wantit to be. Decide which spending areasyou need to keep track of and thendo it for a month or two. In general,the “problem” expenses are food,personal spending and the irregularannual expenses. They are a good placeto start recording. If you are just startingout, you may want to track all yourspending for a couple of months.

You and Your MoneyGood money managers spend within their income, plan for thefuture and solve financial problems. Poor money managers paymore, do without and fall behind.

If you find yourself in the second category, you can do somethingabout it. You can learn to take charge of your finances.

Find information fordifferent jurisdictionsthrough the following links:

Canadian ConsumerInformation Gateway:ConsumerInformation.ca

You may also consult yourprovincial or territorial officeof consumer affairs.

Quebec residents mayconsult the Office de laprotection du consommateur:www.opc.gouv.qc.ca

Financial Planning FAQs

Reality ChoicesMaking decisions in a changing consumer marketplace

You and YourMoney

2

Some articles suggest I spendX percent of my income onfood and Y percent on housing.Why can’t I just do that?Percentages don’t take into account yourgoals, preferences and, in some cases,where you live. How you spend is aboutyou and what you want to do. You canchoose to spend less in one category andmore in another (e.g. take a bus insteadof buying a car, so you can afford thevacation you want). Percentages justdon’t work.

What is the best advice you cangive someone about planning?� You should know how much it costs

to live each month including yourirregular annual expenses.

� You shouldn’t spend more than youearn; avoid using credit to subsidizeyour income.

� You should put money awayfor emergencies.

� You should plan what you want yourmoney to do for you by setting goals.

Money management starts with thinkingabout how and why you spend. Are yougetting what you need and want? Whatwould you like to do differently?


You and YourMoney

3

So How Do You Spend Your Money?Complete the following questionnaire to learn more about your spending habits.

Your Financial Check-Up Yes No

1) Do you plan ahead and save for large expenditures?

2) Are you planning so that you are not broke before you get your next paycheque?

3) Do you think that you spend a reasonable amount of money on personal items (eating out, clothes, etc.)?

4) Are most of your purchases needed?

5) Are you self-supporting? Do you find yourself needing toborrow money from family or friends, getting a cash advance on a credit card or using a line of credit?

6) Do you know how much money you spend monthly on food eaten away from home?

7) Do you make it a habit to go to more than one store to compare prices and quality before deciding on a big purchase?

8) Can you resist buying items you don’t need even though they’re on sale?

9) Are you debt free?

10) Do you know what your usual monthly expenses are?

Source: Adapted from Making Your Money Count, Level 2, Manitoba Agriculture. Used with permission.

If you answered “No” to any of the questions in the above questionnaire, it may be timeto start taking steps to managing your money more wisely.

Completing the Money PlannerBefore you can plan, you need to knowhow much money you have to spendand how you are spending it now.The following information will helpyou to be as accurate as possible whenfilling in your Money Planner.

(i) How much money do you haveto spend?

Take-home income means what is leftafter deductions such as income taxand unemployment insurance. List onlyregular income, not money you receivefor occasional overtime or bonuses.

If you are paid on commission, or receiveyour income on an irregular basis, enteran average monthly amount.

(ii) Where does it all go?

Complete the rest of the Money Plannerchart. Keep these points in mind:

� Write down the amount that youactually spend not what you thinkyou should spend. Your chequebooks,credit card records and old receiptswill help you determine some ofthe expenses.

� Do not worry about making yourincome and expenses balance on thefirst try; that comes later. For the timebeing, just list your expenses asaccurately as possible.

If you don’t know how much you spendin a category, now is the time to keeprecords for that category until you haveaccurate figures.

Income and expenses will changethroughout your life, and so will yourspending plan.

List your short-term goals here.


You and YourMoney

4

Setting goalsSetting financial goals is a key first stepto becoming a better money manager.They will help you prioritize whereyou want to spend your money. Whatdo you need and want in the next fewmonths, in the next year and in themore distant future?

For goals to really work they have to bemeasurable. How will you know youhave reached them? Ask yourself: What

do I want? How much will it cost?When do I want it to happen?

What do you want to do in the next3–12 months that will cost money?Perhaps you want to pay off the $1000you owe on a credit card account, buy anew sound system for $2000, put $1000in a Registered Retirement Savings Plan(RRSP), or spend $20 000 on a new car.These qualify as your short-term goals.

1. Where am I now?

2. Where do I want to be?

GOAL WHEN? HOW MUCH?

1.2.3.


You and YourMoney

5

Planning the detailsTake a couple of days to think aboutyour current situation and how youmight make it better. Start by studyingyour completed Money Planner. If youcontinue spending your money as youare doing, will you be able to live withinyour income and achieve the goals youset? If you can’t, what is preventing you?What can you change? Are your debtsgetting you down? (If this is the case,take a look at Reality Choices —Dealing With Credit.)

Analyse your current situation

Look at every expense item on theMoney Planner chart. Do you want tospend more or less than you arecurrently spending on each item?Would you rather spend the money onsomething else? Amazingly, people oftenspend lots of money on things they donot value without even thinking. Thisoften means they cannot buy the thingsthey really want. Put your money whereyour desire is.

Make changes

Think back to the goals you set. Oftenwhen people look closely at theirfinancial situation, their goals change.If you want to change your goals,now is the time.

You have now finalized your goalsand thought about how to make yourcurrent situation better. Change theMoney Planner chart accordingly.This time, ensure that your incomeand expenses balance.

Follow your plan

It is not necessary to do a new planevery month. Your completed MoneyPlanner chart is a spending plan thatyou can follow until your income orexpenses change or until you decide tochange your goals. Keep the chart in ahandy place so you can refer to it often.

Your first plan may not work perfectly.There are bound to be some expensesyou over- or underestimated. There

may even be expenses you have totallyoverlooked. If this happens, reviseyour plan and try again.

Consider a savings plan

Without savings, long-term goals maynever happen. Is that area blank on yourchart? If so, consider the changes youcould make in other areas to start aregular savings plan.

If your current financial situation willnot permit savings, keep them in mindfor the future. This might be the case,for example, if you have decided to useas much of your income as possibleto pay off debts.

Emergencies!

Life is never as smooth as you mightlike. A sudden death, a serious accident,a strike, an unexpected downturn in theeconomy — any of these could put aserious strain on your income. Even asmall but unavoidable overexpenditure

It’s more difficult to be specific withlong-term goals such as taking anextended vacation, going back to schoolor buying a home. However, it’simportant to be as precise as possible.Here are some ideas that will help youthink about your future:

� How is your income likely to changein the next 5, 10 and 15 years?

� Do you plan to stop working toreturn to school?

� Will you finish schooling and startearning more money?

� Will your family status change?

� Will you need to buy or replacefurniture, major appliances orvehicles? When? How much will this cost?

� What type of housing will you needin the years to come? Will you buy orrent? How much will this cost?

� What are other probable expenses inyour future?

� Are you preparing for retirement? Ifnot, when will you begin doing so?

� How much money do you owe? Inview of your income and expensesfor the next few years, is your debtload too large or is it reasonable?

3. How will I get there?

List your long-term goals here.

GOAL WHEN? HOW MUCH?

1.2.3.

If you were to go on strike, how much strike pay would you receive and for how long?

If you lost your job, would you be able to collect employment insurance? How much and for how long?

If you had an accident or illness that kept you from working for a prolonged period, would you still receive an income? How muchand for how long?

If you were to die suddenly, would your family have immediate access to sufficient cash for funeral arrangements and day-to-dayexpenses? How much money would they need immediately?

What is the deductible on your car insurance policy and on your household policy?

What emergencies other than those already mentioned may happen to you?

Is there another income earner in your family? What is that person’s monthly net income?


You and YourMoney

6

Source: Taking Charge, Alberta Government Services. Used with permission.

in one budget category could begina destructive cycle of borrowing froma second category to pay the first,from a third category to pay thesecond, and so on.

Having an emergency fund is one wayof meeting these financial challenges.Here is how to set up such a fund.First, decide the total amount of moneyyou would like to have in your fund.A general guideline is to set aside anamount of money equal to what youwould need to live on for three months.

You might need more or less than threemonths’ living expenses; it depends onthe types of emergencies you are likelyto face and how much money you cancount on in each case. Once you havedecided how much is appropriate foryou, start saving monthly.

What financial emergencies mightyou have to deal with in the future?Calculate how much money you couldcount on in each case. Answering thequestions in the following box willget you started.

Emergency Fund Tips

� Keep your emergency fund separatefrom the rest of your money — noborrowing.

� Your emergency fund needs to bereadily available.

� Your emergency fund must bereviewed yearly to ensure theamount is adequate.

� If you withdraw money, replace it assoon as possible.

� Use the emergency fund foremergencies only — not for carexpenses, holidays or Christmas.


You and YourMoney

7

Net Worth —Another ToolA net worth statement shows you thestrong and weak points in your currentfinancial situation. It is also a way ofkeeping score. By comparing statementsover the years, you can easily see if youare making progress toward yourfinancial goals.

Preparing a net worth statement(See chart, page 11.)

Your net worth is the amount of moneyyou would have left if you cashed ineverything you own and paid off allyour debts. Be as accurate as possibleas you complete the chart. Net worthstatements should be prepared on ayearly basis.

� If you have near-cash assets that canbe cashed in before they mature,record their present value — that is,their face value plus accrued interest.For other near-cash assets, list theirface value.

� To find the market value of corporatebonds, common shares and mutualfunds, consult the financial pages ofthe newspaper. Call your broker if anitem is not listed.

� Use the tables in life insurancepolicies to calculate their current cashvalues, or call your agent. Note thatnot all insurance policies have cashsurrender values.

� Contact the appropriate company orfinancial institution to ask how muchmoney you would receive if youcashed in your RRSP.

� If you have a pension plan at yourwork place, talk to someone in yourpersonnel office. He or she should beable to tell you how much cash youwould receive if you quit the plan.

� It is difficult to put an accuratemarket value on a home, propertyand collectibles. Of course, you canhire an accredited appraiser to do anevaluation, but this can be expensive.To value your home and property, youcan usually find out the asking pricefor similar properties in your area.Remember, though, that the askingprice is rarely the final selling price.Some real estate agents offer a freemarket evaluation service. When youcall for an appointment, tell theagent the reason you want anevaluation done.

� Check the classified ads in thenewspaper to find out the askingprice for cars similar to yours.Remember that the asking price isusually higher than the final sellingprice. You can also look in one of theguides to used car prices. TheCanadian Red Book and the Gold Bookof Used Car Prices, usually available inlibraries, show average prices forspecific models based on recent sales.

� It is also difficult to determine thevalue of home furnishings andrecreational equipment. Although youmay have paid a lot of money forthese items, there is often no marketfor them. Do not write down whatyou paid for them. Estimate howmuch money you would receive ifyou sold these items. Be conservative.

� Do not overlook any assets. Thinkcarefully. Do you supply your owntools or equipment at work? Do youhave an annuity? Make a list of theseitems and attach it to your net worthstatement for future reference.

The amount of money you owe isusually easy to calculate. Check yourlatest statements to find out how muchyou owe. If they are not available,contact the lenders and ask how much itwould cost to pay off the debt in full.Unpaid bills, such as rent or utilities thatare due or past due, should be included

in your net worth statement. Do notinclude bills that you know you willhave to pay in the future but have notyet come due (e.g. next month’s rent oryour car insurance that is due fourmonths from now).

Using your net worth statementWhat does your net worth statementtell you about your current financialsituation? Are you comfortable withthe amount of money you owe comparedto what you own? If you are not, whatchanges will you make? Is too muchof your money tied up in depreciatingassets such as cars and householdfurnishings? If so, what can you doto change the situation?

Are you pleased with the amount ofmoney you have in savings such asyour RRSP, term deposits, CanadaSavings Bonds? The whole idea behindpreparing the statement is to identifythe strengths and weaknesses in yourcurrent situation, then make plansto maintain the strengths and reducethe weaknesses.

Now, think ahead. What do youwant your net worth statement tolook like next year, in 5 or 10 years,or in 25 years? When you retire? Theseare just other ways of defining yourfinancial goals for the future. Comparingnet worth statements over the years willhelp you confirm that you are makingthe progress you planned.

Taking charge of your finances seemslike a lot of time and trouble, but moneymanagement never goes away. Acquiringthe skills now will pay off well intothe future.

For more information, visit the MoneySavvy 101 section of the ConsumerConnection Web site(consumer.ic.gc.ca).

MONTHLY TAKE-HOME INCOMEWages/salaryWages/salaryPension/child tax benefitOther regular monthly incomeTOTAL MONTHLY TAKE-HOME INCOME

MONTHLY SPENDINGMONTHLY Emergency fundSAVINGS Goals

TOTAL MONTHLY SAVINGS 1

MONTHLY Food (plus other grocery store items)LIVING Housing 1st mortgage or rentEXPENSES

2nd mortgageUtilities (total from Box A of Spending Details)Household incidentals (dry cleaning, newspapers, etc.)Transportation Gasoline

Bus fareParking

Personal allowances and recreation (total from Box B of Spending Details) Monthly requirement for irregular and annual expenses(total from Box C of Spending Details)

TOTAL MONTHLY LIVING EXPENSES 2

MONTHLY CREDITPAYMENTS

TOTAL MONTHLY CREDIT PAYMENTS 3

TOTAL MONTHLY SPENDING (add lines 1, 2 and 3)

8



You and YourMoney

MONEY PLANNER

MONTHLY UTILITIESPowerWater/sewage/wasteTelephone Local

Long distanceNatural gasCable TV/pay TV

TOTAL MONTHLY UTILITIES Box A

MONTHLY PERSONAL ALLOWANCES AND RECREATIONPersonal allowances

Family recreation

TOTAL MONTHLY PERSONAL ALLOWANCES AND RECREATION Box B

IRREGULAR AND ANNUAL EXPENSES(All figures on this chart should be annual not monthly amounts)

Clothing (annual amount for each member of the household)

Insurance (if you pay directly; do not include if deducted Vehiclesfrom your paycheque) Life

Property

Other

Medication/medical fees

Dental/optical

Education Tuition

Books and suppliesTaxes (if you pay directly) Property

Income


You and YourMoney

SPENDING DETAILSTransfer the totals from boxes A, B and C to the appropriate line on the Money Planner chart.

9

IRREGULAR AND ANNUAL EXPENSES (continued)Licences Vehicles

OtherMaintenance Vehicles

Home and gardenFurnishings

Gifts/festivities Holiday givingOther

Travel/holidays Annual holidayOther travel

Contributions/donationsMemberships/season ticketsOther (subscriptions, items you plan to purchase

TOTAL IRREGULAR AND ANNUAL EXPENSES MONTHLY REQUIREMENT FOR IRREGULAR AND ANNUAL EXPENSES Box C(divide total by 12)


Notes to Self



You and YourMoney

10

next year, etc.)

ASSETS (what you own) CURRENT VALUECash on handChequing accounts/savings accounts/broker accountsCanada Savings BondsTerm depositsInvestment certificatesMoney owed to you on demandOtherGovernment bonds/corporate bondsCommon shares/preferred sharesMutual fundsReal estate investmentsBusiness interestsOtherCash value of life insuranceRegistered Retirement Savings PlanPension plan/profit sharingOtherPersonal residenceRecreation propertyVehiclesRecreation equipmentHousehold furnishings/equipmentCollectibles (art, stamps, coins, jewellery, etc.)Other

TOTAL ASSETS

LIABILITIES (what you owe) AMOUNT OWINGCharge accounts/credit cardsLoansTaxes (income or property tax currently owing)Charitable pledgesUnpaid billsOther (family obligations, life insurance loans, etc.)Home mortgageOther mortgage loansOther (line of credit, margin account, etc.)

TOTAL LIABILITIES

NET WORTH equals TOTAL ASSETS minus TOTAL LIABILITIES


You and YourMoney

NET WORTH STATEMENT

PERSONALASSETS

LONG-TERMASSETS

MARKETABLEASSETS

CASH ANDNEAR CASH

SHORT-TERMDEBT

LONG-TERMDEBT


11

Aussi offert en français sous le titre L’argent et vous.

G O V E R N M E N T S I N V O LV E D I N T H I S P R O J E C T I N C L U D E :

CONSUMER PROTECTION is an important goal for federal,

provincial and territorial governments in Canada. In the spirit

of cooperation, and to improve efficiency on the consumer front,

the Consumer Measures Committee (CMC) was created under

Chapter Eight of the Agreement on Internal Trade. This agreement

is designed to provide a framework for federal, provincial and territorial

governments working together in the area of trade within Canada.

The CMC, which has a representative from the federal government and

every province and territory, provides a forum for national cooperation

to improve the marketplace for Canadian consumers by harmonizing

laws and providing information. Consumer information targeted to young

Canadians between the ages of 18 and 30 is important as these consumers

are faced with first-time choices in a complex and changing marketplace.

Youand Your

You

MoneyMoney

Reality Choices22

Making decisions in a changing consumer marketplace

and Your

you and your money - prince edward island · 2005. 4. 1. · you over- or underestimated. there may...

Documents