New Year New You. The Perfect Time to Get Your Finances in Order



2018 is in the rearview mirror and 2019 is on the horizon!

With that, the opportunity to make some promising changes.

Some have made resolutions to eat less, drink more water, spend less time on social media, etc...and like most resolutions - they will be broken before the month of January is out.

But what if you could set a resolution to create a budget?  What if I told you it would only take you an hour or so??  Lastly - what if I told you it could possibly result in a surplus of income by the end of the year if you knew where to "tighten the belt" and also how much to tighten the belt?

Well, it's all true.  And we can help.

Most people already know FOCUS is more than just a mortgage company - primarily we are educators of sorts...we help you understand the technical stuff about finance so that you can make educated decisions about your financial future.  In a sense, we give you the tools, and show you how to use them...then we act as your Cheerleaders as you progress...just don't ask us to dress up for you - some of us might get arrested!

So what exactly do you gotta do to create a budget??  

First off, start with your basic stuff, like your basic income (Net Income...the stuff you take home after the tax-man slices off their piece), and then your fixed debt...hold off on your variable debt for the moment.

 

Ah...good question.  Here's a nice little breakdown to understand each - quick and dirty - just how you like it!  Lol.

Fixed Debts - Debts that are constant and necissities.  Typically this includes the following:

Utilities.  Mortgage/Rent/Lease Payments.  Property Taxes.  Condo Fees.  Personal Loan Payments.

Variable Debts - Debts that you have control over.  Typically this included the following:

Credit Cards.  Lines of Credit.  Entertainment Subscriptions (Spotify, Amazon, Netflix, etc.).

...now that we've sorted this out - let's get back to it.

Start with adding up your total Annual Income...then round down to nearest $1000.00.  So if your annual net income is $63,843.00 - round that down to $63,000.00 (remember that surplus I talked about...well, here's where it starts!!)

Next, add up all of your FIXED Debts.  Start with all of your personal loan and mortgage obligations, then add in your housing debts...so condo fees, property taxes, monthly utilities*, etc.  

*NOTE:  Utilities are not generally a constant, unless you are set up on equalized payments, you may have to do a little dirty work here and pull up your last 12 months of statements, or payment history from your personal banking information, when you add them all up - round UP to the next $100.00 dollar.  So if you have a total of $1,265.00 in Power bills - bump that up to an even $1300.00.  Do this for each of your utilities...water, energy, cable, phone, etc.

Next, and here is where it gets a bit tricky.  It's time to consider your variable debts...the ones you can control.  This one isn't going to be easy - but with a bit of effort, you can get through it.  The key here is to look at how much you owe in total on each and put a plan to pay them off or pay them down - and set a realistic timeline.  For balances under $10,000.00, it should be realistic to pay them off in 1 fiscal year.  However, if you have multiple balances over $10,000.00 then focus on paying off and closing 1 of them annually going forward...start by paying off the item that has the highest rate of interest.  You should have 1 Visa and 1 Mastercard in your wallet.  Anything more than this is not recommended for a good budget.  If possible, make those "reward" cards that you pay for everything with and you pay off monthly before the due date.

Ok...you've got all of your income, and your fixed and variable debts all tallied up in to their Annual or Monthly figures...now, subtract all the fixed stuff.  From what is left over (if there is anything left over - if not, maybe time to see a Bankruptcy Trustee!), you can now use to attack those variable debts.  As a general rule, you should make your monthly payments based on 3% of their actual balances (or more if you have the capacity) which translates in to a 36 Month plan to pay off the existing balance.

Before the train gets off the rails - how about an example?

Total Family Annual Net Income:  $85,300.00

Adjusted Family Annual Income:  $85,000.00

Fixed Debts:

1.  Annual Mortgage Payment Total ($700.00 Bi-Weekly): $18,200.00

2.  Annual Property Taxes ($300.00/month): $3600.00

3.  Annual Utilities:  $5280.00

a.  Power ($125.00/month):  $1500.00

b.  Energy ($125.00/month):  $1500.00

c.  Cable/Phone ($100.00/month): $1200.00

d.  Water ($90.00/month): $1080.00

4.  Annual Loan Payments:  $12,700.00

a.  Auto Loan/Lease:  $6000 ($500.00/month)

b.  Insurances (Home and Auto, Life/Disability, etc):  $2500.00

c.  Personal Loan (Student Loan, Consolidation Loan, RRSP Loan, etc.):  $4200.00 ($350.00/month)

Variable Debts:

1.  Credit Cards Total Balance as of December 31st:  $12,000.00 

a.  RBC Visa:  $4100.00

b.  Costco M/C:  $3100.00

c.  Capital One M/C:  $4800.00 

2.  Line of Credit Total Balance as of December 31st:  $17,000.00

a.  RBC Line of Credit:  $17,000.00

3.  TOTAL OF VARIABLE DEBTS X 3%:  $10,440.00

a.  $12,000.00 x 3% = $360.00/month X 12 Months = $4320.00

b.  $17,000.00 x 3% = $510.00/month X 12 Months = $6120.00

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The MATH!

Total Net Family Income:  $85,000.00

SUBTRACT

Total Fixed Debts: ($39,780)

Total Variable Debts: ($10,440.00)

Balance of Funds from Total Net Family Income:  $34,780.00...or $2898.33/month for other expenses like Food, Fuel and Entertainment.

 

So what to do with this Balance of Funds?  Well, as I pointed out, it is the balance for those necessities we can't account for - Food, Fuel, and Entertainment.

Statistics Canada reports that the AVERAGE Canadian family spends $214.00/month per person in the family. As for Fuel, depending on your commute, you should allow for up to 2 or 3 Full Tanks per month for Fuel per vehicle.

For our example, let's assume a typical family of 4 with 2 vehicles.  Let's assume one is an SUV like a Toyota Rav4 and the other is Light Duty Truck.  The SUV costs approximately $70.00 to fill and the truck in at $100.00 to fill.  

Food for 4 people per month, according to Stats Canada would be $856.00/month.  This does NOT included restaurant meals.  Annually this is $10,272.00

Fuel for 2 vehicles at 3 fills per month (to be on the high side) ($70.00 X 3) + (100.00 X 3) = $510.00.  Annually this is $6120.00

Add these up and subtract them from our Balance of Funds from earlier...$34,780.00 - $16,392.00 = $18,388 annually or $1532.33/month Surplus.

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That's a good piece of change left over!  Just imagine what you could do without those Credit Card Payments!!

And hey, your situation will be totally different.  There's a chance you will have a larger surplus that you can use to pay down those large credit card balances - or you may end up having a deficit situation where you can't make ends meet...and that, as I hinted at before, could be an indicator of seeing a Bankruptcy Trustee who can provide you with other financial options.

We recommend BDO as a trustee.  They have demonstrated time and again they care for their clients in the same way we at FOCUS care about our clients.  

Happy budgeting everyone!

Enjoy 2019 and be sure to take every opportunity you can to smile or to make someone else smile.  

Be good to one another!

 

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