With that, the opportunity to make some promising changes.
Some people 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.
So why not make a resolution you can keep? How about a resolution to create a budget?
What if we told you it would only take you less than an hour or so??
What if we told you it may result in a surplus of income by the end of the year?
Well it's true, and we can help…but before we get ahead of ourselves, there may be some who don’t know much about us and we thought it would be good to give those people a bit of insight.
Most people already know FOCUS is not your typical run of the mill mortgage brokerage. For starters, we drink on the job, laugh at fart jokes, and we listen to Zeppelin on vinyl…okay, only two of those things is true…we’ll let you decide.
So what is it that we do differently? It’s quite simple really - we give a damn.
That is to say, we really do value our clients. We really do care about them. We genuinely want to do everything in our power to help them. We’ve demonstrated it hundreds of times – and we will continue to do it hundreds of times more.
Some call it “going the extra mile”, we call it, “going to work and doing our job.”
Yup, that about sums it up. And that’s why we are putting in the time to create this “how to budget” posting for those who may not know where to start. Let’s get at it!
Your Net Income is the actual income you get to take home. It’s the stuff left over after your employer does their deductions of income tax, EI, CPP, Union Dues, etc. The easiest way to find this is to locate your Year End Pay Stub and look for your Year to Date Net Earnings.
If you are Self Employed, your Net Income is what’s left over after you remove your business expenses.
Once you have located or figured out your Annual Income, round it down to the nearest $1000.00.
For example, 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!!)
This one is a little tougher. Only because there are 2 categories of debts we have to account for, Fixed Debts and Variable Debts.
Fixed Debts: Debts that are constant and/or necessities.
2. Mortgage/Rent/Lease Payments
3. Personal Loan Payments
4. Property Taxes
5. Condo Fees
Variable Debts: Debts that you have control over.
1. Credit Cards
2. Lines of Credit.
3. Entertainment Subscriptions (Spotify, Amazon, Netflix, etc.)
The priority here is your Fixed Debts, but that doesn’t mean we disregard or ignore the Variable Debts…but we’ll get to those in a moment.
Start by writing down and adding up any Mortgage, Rents, Lease or Personal Loans you may have. Next add in your remaining 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 a fiscal year or so. 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.
In a perfect world, 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 earning" cards that you use for your monthly expenses (groceries, fuel, utilities, etc.), 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 figures...now, subtract all the fixed stuff.
Once you’ve deducted the fixed debts from your income, now we can use the remaining funds to attack the variable debts.
As a general rule, your regular payments on variable debts should be no less than 3% of the actual credit card balances…if you do this, and you can avoid using the card, you will have the total balance of the card paid off in about 36 months.
Total Family Annual Net Income: $85,300.00
Adjusted Family Annual Income: $85,000.00
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 and Insurance Payments: $12,700.00
a. Auto Loan/Lease: $6000.00 ($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)
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
Total Net Family Income: $85,000.00
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.
That's a good piece of change left over! Just imagine what you could do without those Credit Card Payments!!
Building a budget may only take a day to do…but enforcing it is a Day-to-Day challenge.
If you are married, have your spouse keep you accountable and you keep your spouse accountable. If you are single – the challenge then is to exercise self-discipline.
If you are like most of us, self-discipline is more of a “theory” than a practice…and that makes the challenge even more difficult when Impulse kicks in.
“It was a good deal” is not always a good reason to buy something. It’s better to ask yourself if you can continue to live without it before you commit to buying it!
Your situation is likely to be completely different from the example above.
There's a chance you may have a larger surplus that you can use to pay down those large credit card balances, and there's a chance you may end up having a deficit situation where you can't make ends meet...and that could be an indicator that it may be time to look at a Mortgage Refinance to consolidate your debt, or see a Bankruptcy Trustee who can provide you with other options.
We can handle the Mortgage stuff, but we are not a bankruptcy trustee.
We recommend Tami Rogers and her team over at 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. Give Tami a call at 306-949-3328.
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!