Tears, Lunch and 34 Cents

This was the scenario at my home a few months ago.  A special lunch was coming up at my oldest kid’s school.  It was Subway.  Cost: $6.  She diligently pulls out her spending money only to find out she is 34 cents short. 

 Now, 34 cents is literally pennies, but that’s not the point.  She simply didn’t have enough.  As we expected, she was disappointed.  She was worried of being the only one to not get special lunch.  She was upset. 

 We could have easily lent her the 34 cents, and she could have paid us back from her future allowance.  But the idea of extending credit to my seven year old was really unappealing.   It reminded me a lot of the difficult decision we made to let her “cry it out” when she was 11 months. 

 That Friday was special lunch.  I was anxious all day, worrying about her eating her humble sandwich while the other kids unwrapped their subs.   After school she bounced off the bus.  When I asked her about the lunch she said “Oh, it was fine, I just ate my lunch,” and proceeded to chatter on about the other events of her day.  Turned out the whole issue was ‘NBD’ as we say in our house – No Big Deal.

 We’ve had other money lessons since then.  When she has been short on other occasions and she has time, she can earn a little extra money making me one of her pretty homemade cards.  I am always sending cards and am happy to pay her rather than the store. 

 She also had difficulty keeping track of her mitts this past winter, and was reluctant to have them attached to her coat like her little sister.  After losing her first pair, I agreed to buy her another with the agreement that if these were lost, the next set would be up to her.  Sure enough, pair #2 disappeared.  Off to the store where she decided to dole out $12 which was more than the plain black ones, but less than the ones she really liked.  She hasn’t lost these mitts yet.

 I’ve noticed that she is now more selective about buying special lunches and snacks.  Realizing that the world kept spinning and that her friends didn’t care, she now only purchases these foods if she thinks it’s worth it.  Like the time it was pizza and she shelled out $9 so she could get two of them.  That’s over 4 weeks’ worth of spending money for her.

 But she felt it was the right decision for her and nowadays, I am trusting her judgment. 

 – MU

Why We Give Interest-Free Loans to the Government of Canada

When it comes to taxes, you might think “I don’t mind paying my fair share, but I will not pay a penny more!”  If you usually end up receiving a tax refund, then you are paying more than you need to.  More accurately, you have lost out on money that could have been in your pocket months sooner.  Money that could have been invested or used to pay down debt. 

There is a work-around.  It is the unceremonious form T1213 “Request to Reduce Tax Deductions At Source.”  It allows you to pay less income tax off your paycheque.  If you regularly contribute to RRSPs, donate to charity, pay child care, or incur rental losses, then you are a candidate. 

Now the rational, smart, savvy and mathematically-correct decision is a no-brainer:  submit the form, take the approval letter from CRA to your employer, and pay less tax off of every paycheque.  When tax time comes and you don’t get a refund, you should be thrilled that you denied the government the chance to use your money for months without any interest or even a thank-you!  While everyone else is “celebrating” their tax refunds, you will know who the real winner is. 

Here’s where things get muddled.  We are not always logical creatures.  I consider myself a decent money manager, but question how wisely we would handle the extra dollars floating around each month.  How nice that wiggle room would be.  We could actually go on dates!  On the flip side, we are excellent with bonus money, splurging a little but funnelling 80% or more toward increasing our net worth.

Here’s the best plan: Use the T1213 to reduce the tax off your paycheques.  Immediately set up an automatic contribution for the difference towards your debt or investments.  Pretty simple stuff.

That’s the common sense, sound approach.  For now, I’ll just keep illogically enjoying our “bonuses” each year.  Government of Canada, you’re welcome.




The 4% Vacation

A recent Globe & Mail article recommends that you spend no more than 4% of your annual earnings on vacations.  Gail Vaz-Oxlade from ‘Til Debt Do Us Part’ advocates that no more than 15% of your income go toward transportation costs.  

I am a big believer in rules of thumb, but not always in the context of money management.  The great thing about budgeting is that you can spend as much as you want on whatever you want.  The caveat is that the numbers must work out.  For that to happen, you likely will have to make trade-offs, sometimes significant ones.  

The first step to “spending whatever you want” is to make sure your debt is in control – this means credit cards paid off in full every month, not using your line of credit to fund monthly living expenses, and all debts on track to being paid off.  Also, you are saving for retirement, emergencies, kids’ education, annual expenses and any other priorities you have. 

After that, no one can pass judgment if you want to spend an unreasonable amount on cute sweaters for your pets. 

A budget is not the beast of burden many think they are.  Instead, they are incredibly freeing.  They let you enjoy a daily latte, an expensive hobby or nice clothes – without guilt!  So, go ahead and have that vacation even if it’s more than 4% of your income.  You just might have to give up Amazon, the car you want and after-work drinks to get it.    


For Employers: We Offer a Group RRSP. Are We At Risk?

Over the past few years, terms like “corporate governance” and “fiduciary duty” have become more commonplace.  As an employer, they may seem vague, far off and not compelling.  However, following some clear guidelines today means decreased odds of future litigation.

Defined Benefit plans are giving way to alternate plans such as Group RRSPs.  The result is a shift in financial risk from the employer to the employee, opening the door for legal action. For example, a 2010 survey of employers cited the top three likely causes of future litigation to be:

1. Inadequate retirement income realized

2. Poor investment performance

3. Inadequate communication and education

In 2004, four regulators got together to publish the Capital Accumulation Plan (CAP) Guidelines.  The CAP guidelines are simple and straightforward, and they are designed to help protect you against liability.  These guidelines are applicable if you offer Group RRSPs, DPSPs, RESPs or TFSAs, as well as Defined Contribution pensions. 

Here’s how to use them.

1. CAP – If you are en employer and haven’t read the CAP guidelines, take ½ hour to do so.  

2. GAP – Next, write a CAP report and make a reminder to update it annually.  Your broker or plan provider might have templates to help you.  Otherwise, Standard Life has a simple checklist to follow, and Manulife also provides a good example of a final report.

3. ASAP – if you realize you are deficient in any areas, put an action plan in place to address them.

Don’t panic.  Your Plan Provider covers off a lot, but not all, of the CAP requirements for you.  The Plan Sponsor – that’s you, the employer – is ultimately responsible for these guidelines.  Following the CAP guidelines doesn’t guarantee an employer will avoid liability.  The courts decide that.  However, the time and trouble you take today could go a long way to protecting you tomorrow. 

– MU




I Know I Shouldn’t Have Bought It, But I Mis-Wanted It So Badly!

“Word Power” is an age-old feature in Reader’s Digest where you can learn all sorts of vocabulary.  The February 2012 edition focused on words that are currently used, but not yet listed in dictionaries.

After learning about “pronoia”, “chartjunk” and “shopdropping”, I came across a word that was so succinct that I tore the page out right away.

“Miswant” means to mistakenly believe something will make you happy.  I then started to think about some things in the past that I have miswanted.  Some that I actually bought, and others that I didn’t buy and had no regrets about.

For example, on the weekend I visited Ten Thousand Villages with my daughter in order to buy a present for an upcoming birthday party.  I am not sure what kind of mood hit me, but all of a sudden I wanted to buy, buy, buy.  Those sleek bird statues made my home decor seem boring.  Those silver earrings would match my necklace so well, how could I not have them?  And what about the wooden mobile that would be perfect for the newest addition coming to our family in May.  Doesn’t our new baby deserve something beautiful?

Through sheer willpower, we walked out of the store with our planned birthday present, and nothing more.

Three days later, I have no regrets.  As I reviewed my budget, I was happy that everything was still on track. The credit card bill will be paid off in full as usual, and we can sleep peacefully.  I didn’t know I wanted those things until I saw them.  I “miswanted” them.

The moral is, be aware that many wants (and the wants that we trick ourselves into thinking are needs), are miswants – things that we think would make us happy, but inevitably won’t.  Miswants can be big ticket items too, like expensive clothes, appliances, cars and even houses.  The short term happiness that miswants bring can end up causing a lot of grief.

Email us your miswant story morgan@centsability.ca.  If your story is shared, all names will be kept anonymous.


The Idea of Tracking Every Single Expense Got You Down? Try This!

Even David Chilton, author of “The Wealthy Barber” and “The Wealthy Barber Returns” has come around: tracking your expenses is necessary!  Tracking your expenses will help you to:

1. Become aware of how much you are actually spending

2. Figure out your “leaky” spending areas

3. Realize that those little expenses that we ignore really do add up

In fact, the very act of tracking your expenses has been shown to help you spend less.  Must be our consciences whispering in our ears saying “you’re going to have to admit to this!”

If you think you can’t do it, put yourself up to the challenge for at least two weeks.  Even in that short time frame, you will find surprises.

You can track your expenses many different ways, and it doesn’t need to be fancy.  Some people use notebooks, others plug everything into their phone, or a spreadsheet.  Another method is to use a calendar, writing on it each day what you’ve spent.  Many banks offer tracking systems if you do online banking.  There is no right or wrong way.

You may also consider a website called Mint.  Mint is free, and “brings all your financial accounts together online or on your mobile device, automatically categorizes your transactions, lets you set budgets and helps you achieve your savings goals.”

In other words, Mint does all your tracking for you, and does its best to categorize your spending.  All you have to do is look at it, ideally every day or close to it.  Mint works well for those who:

– use more than one method of payment (e.g. cash, debit, credit) and/or

– use more than one financial institution

For Mint to work best, you do need to review which categories it chooses for your purchases.  For example, if you buy your transit tickets at Safeway, this will show up as groceries.  However, you can quickly and easily re-categorize.

Note on security:   Mint uses bank-level security, and has a reputation to consider being owned by Intuit, makers of QuickBooks.   Read up on Mint’s site to make sure you are comfortable.

Mint might not work for everyone, but after using it for over a year, I have found it to be the best system for me.  Over the months, I have tweaked how I use it.  Now it is even more meaningful and relevant to the way our family budgets.

How do you track expenses, and what have you found?  Let us know at morgan@centsability.ca and we can anonymously share some good tips in our next newsletter!


Unbiased Sources of Financial Literacy – Fact or Fiction?

“Canadians must be able to distinguish unbiased sources from ones that are self serving.”  (FCAC, Jan 2012)

Undoubtedly, Canadians need access to unbiased financial literacy information.  The problem lies in the rarity of truly impartial financial education.

Many Canadians’ primary source of financial literacy is banks.  However, banks are caught between two responsibilities which are often at odds:  Do right by the consumer vs. Do right by the shareholders.  For example, it may be bad for a client’s financial health to receive a credit card, but good for the bank’s bottom line.  The question is: Should a profit-driven entity be expected to provide unbiased information?  The same extends for credit card companies, payday loan companies, car dealerships, and more.  There are arguments on both sides.

In the meantime, where can Canadians get honest-to-goodness unbiased advice?  Here are some trusted internet sources worth bookmarking:

Financial Consumer Agency of Canada

The Investor Education Fund

Office of the Superintendent of Bankruptcy Canada

Face to face unbiased advice is harder to find.  Some non-profit organizations (e.g. Momentum in Calgary) do offer financial literacy classes and counselling for those living on lower incomes.  Individuals able to pay can enlist the services of Money Coaches Canada and Money Mentors.  In a society trained to expect financial education for “free” from banks and other institutions, the notion of paying for this service is still unfamiliar to most Canadians.

CentsAbility believes that the workplace is a natural platform for unbiased financial education to occur.  Regardless of whether financial literacy is the responsibility of the employer or not, investing in this training provides a direct return on investment to the employer.  Financially literate employees have lower stress, absenteeism and turnover, and higher productivity.  A recent Met Life survey found that 78% of employers believe their workers are less productive when worried about financial problems, and 58% attribute employee absences to financial stress.

The good news is that governments, media, organizations and individuals are recognizing the need for unbiased financial education.  This is a necessary and notable step in Canadians’ journey to being able to truly define ourselves as financially literate.



A life-changing day, and…vehicle registrations?

Today is your day.
You’re off to Great Places!
You’re off and away!

– Dr. Seuss

The official launch date of CentsAbility is today, January 10 2012. But, enough about us. (Although I do want to thank all of our supporters, associates and cheerleaders).

Once a year, Albertans receive notice that their vehicle is up for renewal. Since renewal date is based on last name, many families will have two (or more!) renewals due at the same time. While this is likely not a family’s largest once-a-year cost, it nonetheless is a good reminder that having money set aside for annual expenses is imperative to good money management.

Imagine all the other potential annual costs we have that we may not be immediately aware of: Taxes, Insurance, Vacations, Emergencies, School fees, Holiday expenses, Home & Yard maintenance, RESP/RRSP contributions, Activity fees, Appliances…the list of items that fall outside of our regular monthly budgets are many. But more importantly, they are real. These once in a while costs don’t come with a matching boost in income.

So, how to handle them? Here are a few suggestions:

1. First, add up as best as possible what your annual expenses are. Divide by 12. Be sure to incorporate this number into your monthly budget as a separate item.

2. If you receive additional income once in a while (extra-large commission, bonuses, etc), save this money in a separate account so that it is ready to pay your annual expenses. It feels so good to pay a large bill without having to use a credit card, line of credit or otherwise throw your budget into disarray.

3. Set aside the monthly amount from #1 into one or more separate accounts. Most people will want to separate their emergency fund from anything else so that it doesn’t ‘accidently’ get used for a vacation. But you may also want to separate out other expenses so that in your mind, you know what is what. You can do this using separate bank accounts, or keep tabs on your own.

So, cheers to New Years, new starts and new money management skills!

– MU



Forget Freedom 55. Not even 65 is likely for most Canadians

New Stats released Jan 5, 2012  – source: TD Age of Retirement report

Canadian Stats: 

  • Assets: 53% of baby boomers (aged 47 to 64) and 62% of GenXers have less than $100,000 in household assets, not including employer pensions, life insurance policies or home equity. 16% of Canadians report having “no financial assets whatsoever.
  • Debt: 44% expect to carry some debt into retirement, including 13% who expect to retire with a “significant amount of debt

Alberta Stats

  • Assets: 51% of adults 25-64 have less than $100,000 in household financial assets, not including employers pensions, life insurance policies or home equity.  13% of Albertans report having no financial assets whatsoever.
  • Debt: More than one-third (37%) of Albertans expect to have debt when they retire; 15% say it will be a significant amount of debt.

For more info, see http://opinion.financialpost.com/2012/01/05/how-can-we-retire-at-61-with-less-than-1000000/

Multiple bank accounts – friend or foe?

For some people, multiple bank accounts are great way to keep your budget on track.  You might choose to have one bank account per savings goal (e.g. vacation, emergency fund, vehicle, down payment etc).   But this method can also be a pain to manage.  How can you know if its a system that works for you?

The bank account approach may be appropriate if you:

  • Have a steady income
  • Take the time to set up automatic withdrawals from your main account
  • Find enjoyment in watching yourself reach each goal slowly but surely

It might not work if you:

  • Will just shift money around anyway to use for whatever goal is most important at the time
  • Don’t plan to use a bank that offers very low to no cost banking
  • Can’t keep track of when withdrawals will happen, potentially resulting in costly NSF charges

If you are naturally a great saver then this system might not be necessary.  But we support any and all methods of savings, and this approach works for many.  Find a first hand account of blogger Krystal Yee who started using it five years ago, and has lately had a change of heart: