Debt & Frugality

As Didi says in the novel (Findependence Day), “There’s no point climbing the Tower of Wealth when you’re still mired in the basement of debt.” If you owe credit-card debt still charging an usurous 20% per annum, forget about building wealth: focus on eliminating that debt. And once done, focus on paying off your mortgage. As Theo says in the novel, “The foundation of financial independence is a paid-for house.”

 Budget and Stick to it: 18 Steps

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Image courtesy Terkel/Pexels Kindel Media

To help you create a budget and stick to it for achieving your financial goals, we’ve gathered advice from 18 professionals, including CEOs, founders, and VPs. From leveraging public accountability to reviewing and adjusting your budget regularly, these experts share their top steps to take for effective budgeting and saving. 

  • Leverage Public Accountability
  • Negotiate Lower Fees
  • Celebrate Budgeting Successes
  • Automate Your Savings
  • Identify Cost-Cutting Opportunities
  • Track Expenses and Income
  • Eliminate Unnecessary Expenses
  • Create a Realistic Budget
  • Prioritize Necessary Expenses
  • Monitor Financial Metrics
  • Automate Savings Consistently
  • Use the 50/30/20 Rule
  • Utilize a Monthly Bill Calendar
  • Limit Online Shopping Access
  • Establish a Purpose and Set Goals
  • Use Cash Stuffing With Discipline
  • Create Organized Sub-Budgets
  • Review and Adjust the Budget Regularly

Leverage Public Accountability

In my personal journey toward financial wellness, one of the most effective strategies I’ve employed is leveraging public accountability to create a budget and stick to it. I started by sharing my financial goals with my circle of trusted friends and family, which made the goals feel more real and tangible. 

Whenever I felt tempted to stray from my budget, the thought of explaining my overspending to them motivated me to resist. In fact, one time I was really close to buying an expensive gadget on a whim, but the idea of having to admit this unnecessary expense to my accountability partners made me rethink, and I decided against it. 

Using public accountability in this way can be a powerful tool to reinforce your commitment to your financial goals, and I encourage you to try it.  — Antreas Koutis, Administrative Manager, Financer

Negotiate Lower Fees

One example of a strategy not commonly undertaken when creating a budget is to negotiate lower fees on existing bills such as cable, internet, or cell phone plans. 

As the market becomes increasingly competitive, companies are more likely than ever before to reduce customer bills if they know they may otherwise lose that customer’s business. 

This can lead to significant savings without having to decrease spending on existing items. With the resulting saved money, you can then allocate it towards your financial goals, more easily allowing for what was once considered unattainable! — Carly Hill, Operations Manager, Virtual Holiday Party 

Celebrate Budgeting Successes

Creating a budget and sticking to it, in my opinion, is difficult work. Celebrate your accomplishments along the way. In the long run, I believe that this will make it easier for you to stay on your budget and will help keep you motivated. 

Treat yourself to a small reward if you reach a savings goal or pay off a debt, for example. Just make sure the prize is within your financial constraints! — Bruce Mohr, Vice-President, Fair Credit

Automate your Savings

A lot of people tell you to pay yourself first. I think a better approach is to save for yourself first. Set up automatic transfers to your various retirement and savings accounts. That way, the money isn’t just sitting in your checking account and tempting you. 

This works even better when you have high-yield savings accounts and retirement funds that aren’t linked to your main bank account. Spending habits are hard to break, but it can be easier to form new ones if you automate your savings. — Temmo Kinoshita, Co-founder, Lindenwood Marketing

Identify Cost-Cutting Opportunities

Of course, the goal of budgeting is to save money, but one step you need to take in order to be successful and reach your financial goals is to look for ways to save. You can do this by reviewing your budget and pinpointing areas where you can cut costs to save money. 

For example, if you find that you spend a lot of money on going out to eat, you can cut down spending here and instead cook your meals, which ultimately will be the cheaper alternative. 

You may also cancel subscriptions you don’t use or negotiate your bills with your service providers to see if you can get a discount. Overall, there are multiple ways to cut down your spending and save money—you just need to figure out which areas you can negotiate or compromise! — Bill Lyons, CEO, Griffin Funding

Track Expenses and Income

You can find areas where you might be overspending or where you can reduce expenditures by keeping track of your expenses and income. Additionally, you may utilize this data to make wise decisions on future purchases and investments, ensuring that you are deploying your resources as effectively and efficiently as you can. 

You may keep yourself motivated and on track to accomplish your goals by routinely evaluating your financial accounts and your progress toward them. Additionally, it can assist you in seeing future difficulties or obstacles, enabling you to modify your plan and change the route as necessary. — Michael Lees, Chief Marketing Officer, EZLease

Eliminate Unnecessary Expenses

A major problem people have when sticking to a budget is the little purchases they make along the way. Many of us are guilty of ordering takeout after a long day of work, picking up a daily Starbucks order, or wasting groceries. 

While these small purchases may seem innocent enough, they quickly add up and get you off track toward reaching your financial goals. Before making a purchase, ask yourself, do I need this? Or if you need extra motivation, consider how many hours of work it takes you to purchase these daily items. 

By cutting out or at least reducing some of these mundane purchases, you’ll notice your bank account feeling a little healthier and lower stress knowing you have enough money to put towards your financial goals and still pay your bills. — Brandon Brown, CEO, GRIN

Create a Realistic Budget

Often, I see people attempting to budget just for the sake of budgeting without considering its implications on their overall lifestyle. If you want to religiously follow your budget, make it realistic. Realistic financial goals will provide you with a head start in creating an achievable and sustainable budget.

Create a budget that takes into account not only your financial goals but also your lifestyle behavior and the situation you are in right now. If you regularly eat out, set aside money for that based on how much you anticipate spending and how much you are willing to spend.

Moreover, don’t make your spending plan too strict. What’s the purpose of working if you can’t occasionally treat yourself to a sumptuous meal or a new pair of boots? After all, you deserve to feel human.

If you don’t make room for the things you want, you’ll eventually give in and ruin your spending plan. Just make sure to plan ahead and remember that the ultimate goal is financial security and independence. — Jonathan Merry, Founder, Moneyzine

Prioritize Necessary Expenses

Pay all your bills before buying anything discretionary. When you’re trying to save money, it’s essential to cover all necessary expenses before you try setting money aside. This way, you have a better idea of how much money you have left for casual spending and savings. 

Paying any obligations first allows you to avoid surprise expenses after you’ve already started spending, which in turn helps you avoid having to pull money out of your savings. The best way to stick to your budget is to pay what you need to first. — Max Ade, CEO, Pickleheads

Monitor Financial Metrics

Entrepreneurs should track financial metrics to monitor their success. A metric for entrepreneurs to measure is customer lifetime value, which is the total amount of revenue that one customer generates during their entire interactions with the business. 

Monitoring this metric helps entrepreneurs understand how much revenue can be expected from a single customer and what marketing strategies are most effective at keeping them engaged. 

Additionally, tracking customer lifetime value allows entrepreneurs to maximize their returns on investment as they can target customers who spend more money and reward existing customers who have already demonstrated loyalty and commitment. — Julia Kelly, Managing Partner, Rigits

Automate Savings Consistently

Automating savings is a surefire way to help you stick to saving money and reaching your financial goals. Too many situations can thwart your best intentions to regularly add to your savings yourself: mainly forgetfulness since an additional task is the last thing anyone needs.

If you don’t automate, you may rationalize not regularly adding to your savings account because of an extra purchase you think you need or deserve. That could snowball into a pattern of doing it less than you initially wanted or not at all.

“Out of sight, out of mind” is an advantage of automating your savings: If you don’t see that money sitting in your checking account, you won’t spend it.

Disabuse yourself of the notion that you need a large amount of money for an automatic savings plan. Start with $5, $10, or $20 at a time. You can increase that by looking for ways to decrease your expenses, such as comparison shopping for your car and home insurance or requesting lower interest rates on credit cards. — Michelle Robbins, Licensed Insurance Agent, Clearsurance.com

Use the 50/30/20 Rule

To create a budget and stick to it, prioritize your expenses and allocate your income with the 50/30/20 rule. This rule suggests that 50% of your income should go towards necessities like rent, utilities, and groceries, 30% should go towards discretionary spending such as dining out and entertainment, and 20% should go towards saving and paying off debt.  Continue Reading…

How to Live Life to the Fullest when you don’t have a Lot of Money

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Image by Pixabay.com

By Beau Peters

Special to Financial Independence Hub

They say that money doesn’t buy happiness. But when funds are tight it sure can feel as though life is a little constrained. You may constantly feel as though you’re missing out on opportunities or fun events.

Learning to live within your means is a hard lesson, but many people who achieve it never feel as though they are going without. In fact, most have found ways to live their lives to the absolute fullest. Sometimes all that is required is a change of perspective or a minor reorientation of values.

It may come as somewhat of a surprise, but having a great and fulfilling life often isn’t tied to how much money you make or the fancy things you’re able to spend it on. Some of the most important things that really make life worth living don’t cost much and many come for free.

Improve Life, Save Money

Entertainment can be one of the draining items on your budget. A couple drinks with co-workers after work one night, going to a show with a gal pal another, maybe paying for tickets to the big game the next. It seems like everything fun costs money and over the course of a week or a month that really adds up.

But not all hobbies have to cost a lot of money, or really any money at all. Rather than grabbing drinks after work, you can invite people over to your house to hang out around the fire pit and have a potluck-style barbeque. Or instead of going to a show with a friend, you strive to attend free local events like music in the park, farmers’ markets, or explore new neighborhoods. Maybe instead of paying for a ticket to the big game, you can invite your friends to a tailgate in the parking lot. Continue Reading…

How cent-sible mothers can give their children financial independence

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By Anna Smith

Special to Financial Independence Hub

As a mother, I know the importance of raising my daughter to be independent and confident. One of the most significant ways I can do this is by instilling in her the value of financial literacy. By teaching her to be financially independent, I am setting her up for a future where she can make sound decisions with money and have the freedom to achieve her dreams. I feel every mother should share this responsibility and nurture the financial skills of their children, especially when we consider the uncertainties of the current global economic climate.

Growing up and learning to manage money through lived experiences, I discovered that some of those life lessons can be painful. My immigrant parents were so focused on working hard to provide the basics for the family, financial literacy lessons weren’t really a priority for my sister and me. All we were taught was to save and keep on saving. In fact, my sister and I would sometimes skip lunch at school just to save the allowance our parents gave us. I learned the hard way that while saving is part of being financially literate, it can’t just stop there; a significant next step is to find safe, reliable methods to growing your wealth.

Not knowing better, when I was 18, one of the earliest financial mistakes I made was getting multiple credit cards, which eventually resulted in a lot of debt (because which teenage girl doesn’t like shopping?). I had to work hard to pay it off and it was a tough lesson to learn, but it was valuable because it made me realize the importance of being smart about money from a young age.

After that, I started seeking support to become more financially literate from any source I could get my hands on. The internet was my best friend and I got into the habit of listening to podcasts about investing and best financial practices. When I started working, I was lucky enough to find a trusted mentor who taught me that putting 75 per cent of my paycheque toward smart investments was smarter than spending the money on any big-ticket item immediately.

As I became better with money, I went from only knowing how to save money to growing my wealth through investing in stocks (ETFs) and real estate and having a diverse portfolio. When it comes to investments, I now know it’s important to maintain both passive and aggressive investments. Having said that, choosing between good investments and bad ones can be daunting and that’s where financial advisors come in. Engaging a trusted advisor who is experienced in investing in different asset classes can make all the difference in the world because they often have access to wealth management tools and data that make investment proposals more reliable and easier to understand.

Teaching children about saving and investing — and the mindset behind both

Although I eventually found my financial footing, others are not so lucky and many have never been able to recover once they get into debt, which can be crippling. Now that I have a family of my own, one of my top priorities is to make sure my daughter has a strong foundation in financial literacy, with all the tools she needs to make better decisions when managing money.

One of the things that we’ve started working on together is to get her to save regularly, like I did as a child. But more than teaching my daughter good saving habits, I believe what’s important is to show her the difference between the money-going-out and money-going-in concept. Very often, children are no strangers to the former because they see us making purchases daily and this makes it easy for them to learn spending (or worse, impulse spending). The latter, however, is more difficult to emulate because they rarely witness the act of saving. This is especially true now that we live in a world where most financial transactions are digital. Though this speaks to the convenience of innovation, how do we curb impulse spending in our children beyond merely saying “no” (and parents, I’m sure you’ll agree that saying “no” doesn’t always elicit the best response from children)? Continue Reading…

Do you really need an Emergency Fund?

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Photo by Mark König on Unsplash

By Anita Bruinsma, CFA

Clarity Personal Finance

One of the most agreed-upon financial planning concepts is the importance of an emergency fund. Having quick access to money to pay for an unexpected expense or job loss can prevent unwanted credit card debt and can lower stress levels.

Not everyone is on board though. Some people feel that keeping money in cash instead of investing it means you’re sacrificing too much potential growth. This might be a particularly true for people who are targeting financial freedom. Since investing is an important component of reaching financial goals, it’s understandable that you don’t want to drag down your overall rate of return by holding cash.

Having access to money for unexpected expenses, though, is important for pretty much everyone. So do you need an emergency fund and if you do, how much should it be?

Do you need an emergency fund?

If you have a home equity line of credit (HELOC), you might not need funds sitting in a savings account. Whether it’s a good idea to depend on your HELOC as an emergency fund depends on two main factors: if you had to borrow from it, how long would it take you to pay if off and what is the rate of interest you’re paying?

Generally, as long as the rate of interest on the line of credit is below what you could expect to earn in the stock market, and assuming you’re able to pay down the line of credit within a reasonable time period, then using your line of credit isn’t a bad idea. The key is to make sure you are disciplined in paying down the line of credit quickly, otherwise the interest cost will outweigh what you could earn in the market.

How much do you need?

For those who don’t have a HELOC or who prefer to have a safety net in cash, determining the right amount of money to keep in an easy-to-access, low-return account is important.

There are really two kinds of emergency funds: one that will pay your expenses if you lose your job or can’t work for a period of time, and one that will pay for the large, unpredictable expenses that crop up in everyday life.

The job loss emergency fund

Job loss can mean you were laid off or that you can’t work due to illness, an accident, or a personal/family crisis. You might have heard the standard advice that says you need 3-6 months’ worth of living expense to protect against a job loss. Like all personal finance shortcuts, this isn’t necessarily helpful. How much you need in an emergency fund is highly dependent on your situation.

Here are the main factors that influence how much you should have set aside in your job loss emergency fund:

  1. Do you have job stability? If your industry is known for sudden layoffs or if your role might be considered non-essential to an organization, you have a higher risk of losing your job and it might take you longer to find a new one. It would be wise to have a bigger cushion than someone who works in a stable industry or performs an essential role.
  1. Do you have disability insurance? If you have an accident or get really sick, you’ll receive some kind of payment while you have to take time off work. It won’t necessarily be enough but it will help and you’ll need a smaller emergency fund. If you expect to receive no pay if you need to take time off work, you need a bigger emergency fund.  
  1. What kind of lifestyle do you want to maintain? If you are laid off, you’ll need to pare back your spending. But to what extent? What do you consider to be “essential”? Are the kids’ swimming lessons essential? What about your gym membership? Understanding what essential means to you will help you decide how much to set aside.
  1. Do you have a partner or spouse? If you have a partner or spouse with whom you share the financial responsibilities of running a household and they are employed, would they be able to cover the essentials if you lost your job? How would your lifestyle be impacted? What is their job stability like? Do they work in the same industry as you do? If so, there might be a higher risk of both of you being laid off at the same time.
  1. Do you have savings in a TFSA or a non-registered account? If all of your money is in RRSPs or your pension, you don’t have any good options for withdrawing money in an emergency. However, you could choose to rely on your TFSA or non-registered funds for a portion of your needs.

The large expense emergency fund

For your large expense emergency fund, the amount you want to have available depends on how many opportunities for unexpected expenses you are exposed to and what other resources you could draw on. Continue Reading…

Tips for Buying a House for those with Poor Credit

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By Brittany Cotton

Special to Financial Independence Hub

For people with bad credit, the experience of buying a home can be quite difficult and daunting. It’s a tricky time that necessitates careful planning and preparation.

However, despite the difficulties that low credit scores may present, there are several tips and strategies you can employ to help you navigate the home-buying process. This article highlights some of these innovative strategies.

How to Buy a Home with Less than Stellar Credit

Here are some pointers to help you buy a home even if you have bad credit:

Consider Special Programs

There are numerous loan programs that do not require a high credit score or a down payment if you are a first-time homebuyer or have a low income. Some options [in the United States] to consider include USDA loans, VA loans, and the Fannie Mae HomeReady and Freddie Mac HomeOne and Home Possible loan programs.

Look for the Best Deal

Different mortgage brokers offer various rates of interest, so shop around to find the best deal. According to studies, trying to compare multiple rate quotes could save you a substantial amount of money in the long run.

Look into Down Payment Assistance

If you’re concerned about saving for a down payment, there are more than 2,500 down payment support programs available across the country for which you could be eligible. However, you need to avoid major financial changes. Taking on new debt or making a large purchase can lower your credit score, so avoid doing so while applying for a mortgage.

Things you should know about the Homebuying Process

Before you start looking for a house, you should educate yourself on the ins and outs of house purchases. Here’s a rundown of some key points to keep in mind:

Recognize why you want to Buy a House

Buying a house is a significant investment that shouldn’t be taken lightly. If you don’t know why you would like to buy a house, you may come to regret your decision later on.

Check your Credit Score

Your credit score will help you in evaluating your payment plans; lenders use it to set loan pricing and determine if you can repay your mortgage. The more favorable your credit history, the better your chances of obtaining financing at the best terms and rates. Continue Reading…