Featured Friday – The Banker – Me Money

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Hello again everyone! I know it has been a while since I have wrote a post but I thought that for my return I would write something that you might not expect to hear, especially coming from a person who makes his living helping people plan their finances. The topic of my post today is about spending some money on yourself!

First things first, I am not going against any of the great ideas presented in previous posts and comments, and I am not going to downplay the importance of saving for the future and for the unexpected. Nor will I denounce the need to pay down your debt as quickly as possible. I am actually writing about something that should be talked about alongside those ideas.

We live in a fast-paced, stressful world and spend so much time focusing on things like family, work, school, hobbies, the list is endless. These things can cause us quite a bit of stress and, combined with financial worries, it can almost make you feel helpless. As a financial advisor I see and hear stories like these every day. That is why I truly believe that part of any good budget has to be a little “me money”.

If you have been reading the past post and particularly the previous post (March budget) you can see that we from time to time have a large Miscellaneous or Date Night expenditures. I firmly believe that these expenditures, for example spending $225 to watch an NHL team that is mediocre at best (clearly I am not a Leafs fan) (rude-J). While perhaps they are a little bit much sometimes, they’re necessary for us to maintain a healthy balance. We often speak and focus so much on debt repayment and saving plans that we can forget about having some fun and relaxing. Everyone’s “me money” will be different; might be dinners out, tickets to sports or concerts, or shopping. Whatever it your “thing” may be make sure that you take some time, and money to enjoy it and relax.

Life is short and we never know what’s coming next, why not enjoy some of it!

Debt Repayment

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Since The Banker and I combined our finances this month, we had to have a discussion about how we were going to pay off our debt. We had a few options. We could continue to pay the same amounts we had when our finances were separate; we could change my monthly student loan payment back to the minimum, and put the difference on his loan; we could aggressively pay back on specific debt while paying the minimums on the rest.

I’m happy that while The Banker is in the field, he still took my opinion into consideration, and we were able to have a good conversation about what to do. While what we’ve decided will work for us probably isn’t what works for everyone, I think it’s very important to have the conversation. There is no reason to hide anything, we’re in this together! (I just keep thinking of the How I Met Your Mother episode when Lilly has a ton of debt she’s hiding from Marshall – what a mess!)

In the end, what we decided to do was to pay off any remaining balance on our credit cards with The Banker’s Line of Credit. We did this because the LOC has a much lower interest rate than the credit cards. Also, it gets rid of 2 other payments we would have had to consider paying each month. (Now, these balances weren’t high, and we will continue to use our credit cards for the rewards, we’ll just be paying them off as soon as we make a purchase.)

We also decided that I will continue paying my student loan at the rate I have been, and that The Banker will continue his payments as usual as well. However, now that everything is together, when we have extra money (hopefully that’s often!), it will go towards The Banker’s student debt first. The reason we chose to pay that off quickest is that it has a similar balance as his LOC, with a higher interest rate. Also, his student loan is less than half of what mine is. So, while I am accruing more interest, we thought it would be best to get one fully paid and out of the way. Once his is paid off, we can take the amount we are used to putting towards his student loans and put it towards mine.

This is our plan for now, it may change as we adjust. We will also continue to put money towards savings, for a house, for the wedding, and for emergencies. How did you decide where to allot your funds when you combined? Or how do you think you’ll go about it?

Things The Banker Has Taught Me

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I hope all of the Canadian readers out there had an absolutely wonderful Thanksgiving Weekend surrounded by loved ones. (And that you stuffed your faces with too much turkey, stuffing, and pumpkin pie!)

After being with The Banker for 4½ years, I can say he’s definitely taught me a few things, a lot having to do with finance and banking (what a shock, I know). So, here are three things that The Banker has taught me so far.

  1. A Tax-Free Savings Account is a Wonderful Thing
    Before we really starting having discussions about money, savings, and investments, I assumed a Tax-Free Savings Account was really only for people who had a lot of money to put away, and that there were all sorts of conditions. Boy, was I wrong. There’s no minimum, they gain a higher rate interest than a traditional savings account, and while there is a maximum you can put in, I will likely never get there (not in the near future anyway). You can also choose if you want your money in investments or simply in cash. Right now, mine is in cash. This means it earns less interest than it could in investments, but I’m able to access the money easily if I want it. Also, since I’m really using it to save for the wedding and a down-payment, it will be there for the short-term and therefore, the benefits of investing wouldn’t pay off.
    If you haven’t already, I highly suggest you open a Tax-Free Savings Account soon!
  2. Putting a 10% Down Payment on a House is Not the End of the World
    I always believed that if you put any less than 20% down, you’d be paying for it the entire time you held your mortgage. I had heard about CMHC fees, but didn’t really understand it, or even really how buying a house worked at all. The Banker informed me that those fees are spread out over your mortgage term, and rarely add all that much to your monthly mortgage payment. While I still think putting at least 20% down is the best idea, if we can’t get there by the time we’re ready for a house of our own, I won’t be overly upset.
  3. Credit Isn’t Scary, and Can Actually Be Useful
    I always understood credit fairly well. I understood what a credit score meant, how interest worked, and paying your balance is obviously the best thing you can do. However, I still only used credit when I needed to (or, when I worked at Zellers, to rack up points!). The Banker helped me see that credit isn’t scary. As long as you use it only for items you need and that you can pay off when your statement comes due. Credit cards can help you build credit, but only if you use them. This credit can be helpful when applying for mortgages, loans, or other products at the bank. You can also use credit cards to gain bonuses for yourself. Cards with travel rewards, points, or money back can have large benefits, especially if you track your spending and ensure that you pay off your card(s) every month. Take it upon yourself to learn more about credit, and use it to your advantage!

    Hope you enjoyed reading about what The Banker has taught me so far! Look forward for more to come. Has your partner taught you anything valuable?

Featured Friday – The Banker

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Hey readers, today’s Featured Friday comes from The Banker himself! Hope you enjoy!

Hello everyone! I love the idea of this blog and I could not be more proud of my girlfriend for starting it and putting herself out there “on the line”(that is a reference to the movie “The Internship…underrated in my books), and share her triumphs and stumbles on her way to becoming debt free. High five babe! As for me, I have been working at one of the Big 5 Canadian banks for about 2 years now and have been loving every minute of it. I studied Finance at university and am thrilled to be lucky enough to use my education in my day-to-day life.

When I was asked to write my first guest post for the blog I thought about it would be best to talk about some common mistakes that I see from younger clients on almost a daily basis. So without further ado here they are:

No Budget

This could also be titled “no idea of how much they are spending”. When it comes to my younger clients, the thing I hear most often is that they have no money left over at the end of the month. I think one of the easiest and most effective ways to managing your finances is to know what you are spending and also what you are earning, you would not believe the number of people I see that do not even know the hourly wage they are earning.

 Making a budget is quite easy when you consider that it is basic addition and subtraction. You take what you earn and add it up, you then take what you spend and add it up and subtract the two numbers. The hard part is figuring out what you spend. Start by listing your fixed expense (rent, loan/credit card payments, car expense, etc), these are expenses that are necessary. Then consider your variable expenses (coffee, cable/internet, clothes, etc). The key is to separate a “want”from the “needs”.

 Once you have your budget, you are half way there; next you need to track your spending. You could create a spreadsheet in Excel and track it on your own, some banks offer programs to help you, i.e. RBC Financial Tracker, or you can employ one of many apps out in the market. I personally use an app called Mint, where you can input your budget and it helps you track your monthly spending, it will even email you when you over spend!

 

No saving plan

Another common thing that I see is that people do not have any kind of savings plan. Now I am an advocate of “paying yourself”but you also need to think ahead. There are so many things that can happen without any notice and when you do not plan ahead it have so many adverse effects on your financial wellbeing. Whether it is losing a job, a car taking a crap, or some other personal emergency, it is very important to have something put away for a rainy day.

This does not have to be sophisticated by any stretch of the imagination but you need to save something every month. Most banks offer a free savings account option and simple transferring $100 a month into one can be a start. Other options could be Tax-Free Savings Accounts (TFSA) or Registered Retirement Savings Plan (RRSP), but that’s a whole other post. Bottom line, I think that it is a necessity to end the month with something saved.

 

No (or very little) understanding of how credit works

Most young people come into my office and say something like “I need to build my credit,”but have no idea what that means. Credit is a very important part of your overall financial plan and it amazes me how many young people do not know how credit works. Whether it is not knowing how their student loans are structured or what affects your credit rating, younger clients tend to just be oblivious to how these debts can effect them down the road. Maxing out credit cards, missing payments, and even worse avoiding payments can cause problems that last years. My suggestion is always to be aware of your credit score and how certain actions affect your score. In Canada, Equifax (www.equifax.ca) and Trans Union (www.transunion.ca) are the two credit bureau companies in Canada and do have a free check option.

PS. Things like cable and cell phone bills do not show on your credit bureau but delinquencies and missed bill payments are seen by banks and do effect your ability to get approved for credit.

When was the last time you checked your credit score?