Mid-Year Personal Finance Check Up (Now What)

Looking at your mid-year personal finance check up, you can ask the all important question, “Now what?”, and as usual my mealy mouthed answer is, “That depends!“.

If you have met all of your financial goals for the year and it is mid-year, did you set your goals too low? Could be you sand bagged to make yourself feel good, or you got really lucky. No matter what reason, you can celebrate a little bit for achieving your goals, but now is the time to make some “stretch” goals for the end of the year, and prove that your success at the start of the year was not just a fluke and that you can work hard the whole year. Simply sitting on your financial laurels is just not the thing to do. Build from your success and show that you can finish strong for the year.

If none of your goals are met, and you think you will be unable to hit any of your goals this year, maybe it is time to re-vamp, or re-think your plan (or scrap it completely). Not to worry, look at where you had problems with your plan and figure out whether you were:

  1. Too aggressive in your planning, and set unattainable goals
  2. Very unlucky and the world conspired against your plan
  3. You never really planned to follow this plan

Is the answer (3)? Don’t kid yourself, you need to plan, this is going to hurt you some time soon. If the answer is you were too aggressive then maybe go back to your original goals or plan, and maybe scale them back so that they might be attainable by the end of the year (but still make them challenging).

Things going OK? You think you can succeed with your plan, good for you, you have made a good plan, and you are following it. You can celebrate a little in your success, but get back to your plan. Enjoy your success and keep up the good work.

The Series

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The Computer: Another Financial Tool

My major tool in my Financial Planning activities is my computer. I use it to track my spending, I use it to make up financial plans for the coming time, and I use it to analyze my spending habits, all in all a very powerful tool for me.

My wife prefers to use pen and paper because she likes to see the spending and such, and if that is the way you work, I have no problem with that either. It takes a little longer, but maybe when it takes longer you might notice and absorb more information from the data entry side of things.

Financial Tools

Old Laptop
Even this overheating, BSOD’ing and old piece of equipment can be used effectively.

My major tools that I use (I am not endorsing these computer tools, I am simply pointing this out to be complete) are:

  1. Quicken, first and foremost this is the tool I use to keep track of spending and attempt to report trends and such. A very powerful tool, that I still don’t think I am using completely correctly.
  2. Tax software, in this case Quicktax, but only because it is so simple when I do it this way and I can E-file my taxes which is quicker and easier for me. I also use that tool to infuriate myself figuring out what might happen if the Government supported Income Splitting.
  3. Excel or whatever spreadsheet you like. I like to extract data from Quicken and then use it for some elementary calculations and forecasts in Excel. Excel has some very powerful financial functions, but make sure you are using the Canadian versions for Interest calculations and such.
  4. Powerpoint, to present information easily to my wife or to my banker, if I am going in to try to get Free Banking
  5. Internet Explorer or a browser for On line banking, and thanks to my PC I no longer walk into my local branch weekly to get my banking updates, I get them daily on line. This is an amazing capability that we take for granted that didn’t exist 20 years ago. I pay bills that I don’t have to mail in any more either.
  6. Firefox or Internet explorer as a research tool, by looking up on Government sites I learn about Tax rules, by reading company’s web pages I learn about good investments and by reading some amazing Blogs, I learn about Finances in general (see my right bar for some excellent financial bloggers).

These tools make Personal Finance for me a little easier to deal with.

Take Care of your PC

As with all tools, you must maintain your PC. Yesterday my PC was taken away, because it was doing suspicious “Virusy” things at work and now I sit at my kids’ computer attempting to get anything done. I am lucky because I have an entire I.T. group to take care of my PC (for now), most folks do not, so here is my views on the minimal I.T. tasks you should be performing on your PC (this advice I do actually stand behind, because this is an area I think I have some expertise):

  1. Backups, backups, backups! If there is any data on your computer that is important, you must make sure itis backed up in some fashion. There are many ways to do backups
    1. Back data up to CD’s or DVD’s if you have a CD writer. If you don’t have a CD or DVD burner, go get one NOW.
    2. Norton and other services are now offering network based back up services that you can subscribe to. I would read their agreement closely to see what re-courses you have if your secret data is compromised by their backup system, but this is still another way to go.
    3. If you have TWO computers at home, make a BACKUP directory on each, and back up important data on the other machine. At least if one fails you still have your data.
    4. Floppies? Well, if you think that is the way to go, knock your socks off, but I do not recommend it.
  2. Restore! Yes this is just as important, you must test that you can restore data from your backup system! Backups are useless if you cannot retrieve your data. If you have important data already backed up on floppies, transfer it to DVDs or Cd’s or something. Also check the state of your old important backups, because the Media it is on, does degrade.
  3. Anti-Virus software, get something, ANYTHING, but do not think that your Internet Access provider or your good ideas are going to stop viruses from getting on your computer. Use Norton, McAfee, NOD or others, but use something or your machine will become compromised.
  4. Anti-Spyware software too, most anti-virus systems now come with Spyware checks as well, important to get this kind of software, or you are going to end up selling Herbal Viagra from your PC.
  5. Clean your computer. Vacuum out the fans at least, or take it to a reputable local computer shop to have it cleaned (ask for references from the local shop, if you don’t know the owner). I had a fan break on my CPU, due to dust and my machine was gone for a few days.

There are many other tricks of the trade you should think about, but this is my minimum list. If anyone else cares to comment on other important tasks, please feel free, as I don’t think this list is exhaustive, just a good starting point.

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Lower Interest Rates and the Power You Just Received

If you are carrying debt with a bank, you were just given a gift (a huge gift if you live in the U.S.), because the banks have lower interest rates yet again on loans. What will you do? Will you simply lower your monthly payment to match what the banks ask you and use the extra money elsewhere, or will you exert financial intelligence on this debt and attempt to pay it off faster?

I propose a very pedagogical example for your reading pleasure.

Scenario 1: Original Debt

If you were say a Financial blogger and say you had, $13000 on your line of credit with your banking institution, your pay off schedule for that debt might look like this:

Loan$13,000.00Interest6.500%
Monthly Payment$398.44Term of Loan36 Payments
DatePaymentInterestPrincipalBalanceTotal Interest Paid
01-Jan-08$13,000.00$13,000.00$0.00
1-Feb-08$398.44$70.42$328.02$12,671.98$70.42
1-Mar-08$398.44$68.64$329.80$12,342.18$139.06
1-Apr-08$398.44$66.85$331.58$12,010.60$205.91
etc.,etc.,
1-Nov-10$398.44$6.41$392.03$790.45$1,337.31
1-Dec-10$398.44$4.28$394.16$396.29$1,341.59

Great easy to understand and see, but wait, the bank just dropped my interest by 1/4 %!!!

New Debt Schedule with Lower Interest Rate

Well how would that look then if I was only paying 6.25%?

Loan$13,000.00Interest6.250%
Monthly Payment$396.96Term of Loan36 Pay’ts
DatePaymentInterestPrincipalBalanceTotal Interest Paid
01-Jan-08$13,000.00$13,000.00$0.00
1-Feb-08$396.96$67.71$329.25$12,670.75$67.71
1-Mar-08$396.96$65.99$330.97$12,339.78$133.70
1-Apr-08$396.96$64.27$332.69$12,007.09$197.97
etc.,etc.,
1-Nov-10$396.96$6.14$390.82$787.76$1,284.38
1-Dec-10$396.96$4.10$392.86$394.29$1,288.48

That’s kind of cool, I have saved $60 in interest over the length of the 3 year loan, that is nice.

The twist

The twist would be continuing to make the payment I would have made at 6.5%?

Loan$13,000.00Interest6.250%
Monthly Payment$398.44Term of Loan36 Pay’ts
DatePaymentInterestPrincipalBalanceTotal Interest Paid
01-Jan-08$13,000.00$13,000.00$0.00
1-Feb-08$398.44$67.71$330.73$12,669.27$67.71
1-Mar-08$398.44$65.99$332.45$12,336.81$133.69
1-Apr-08$398.44$64.25$334.19$12,002.63$197.95
etc.,etc.,
1-Nov-10$398.44$5.86$392.58$732.84$1,279.80
1-Dec-10$398.44$3.82$394.62$338.22$1,283.62

So what, I hear you say? Well I have saved about $5 in interest payments and my last principal payment is about $46 cheaper, so what? Um, that isn’t a good thing, you kept you spent $53.48  and you saved over $60 (or so) over 3 years, but you are paying this debt down faster! If you had put that money in a bank account, would you have got that kind of payback?

Don’t just play with the cards dealt you, if you have budgeted to pay off a loan with a specific payment amount and interest rates drop, then keep up the original payment amount, you will speed up your Debt Pay down!

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Bill Surfing The Next Generation

This week I have talked about the method I use currently to pay my bills: Bill Surfing which is really just a balancing of my bill payments around so that I don’t have pay cheques where I have very little disposable income. Are there other ways of doing this, glad you asked!

Bill Surfing The Next Generation

A few of my keener readers have already mentioned this type of method, and I applaud their financial saviness, and I have a new plan on how to pay my bills.

First, open a bank account with no service charges for paying your bills. ING direct and PC Financial both have such accounts (and PC Financial will actually give you points to pay bills). This is really important, don’t set up a plan that will give the Bank more money! We will call this bank account Bill Central.

Next go to your employer and see if it is possible to split your pay cheque deposit into different bank accounts. My employer does, so this works for me. If you cannot do this you will need to arrange some kind of direct payment into your new account every Pay Day (you can do this by depositing a cheque yourself, or some other method, but don’t use one that costs you money (like e-mail transfers or the like)).

Remember in Bill Surfing when I said find all of your monthly, and weekly payments and sum them up? We are doing that again. Sum all of your bills and divide that amount by 2, this number is your Pay Cheque Bill Payment Value.

Now we have that value, make sure that amount (plus maybe 5% more) is transferred, or deposited into our new account Bill Central , every pay day. The more you automate this, the less you have to worry about it.

If you can arrange for bills to be automatically withdrawn from a bank account, do this, from Bill Central since the more automated the system becomes, the less likely you are to forget to pay a bill (like I did with my cell phone bill this month). For all other bills, arrange with your bank via either their phone banking or on line banking to pay your bills automatically every month out of the Bill Central account.

Become a Tangerine client today

You are now ready to get going with your plan. Ideally you should try to seed the Bill Central account with a full Pay Cheque Bill Payment Value before you start paying bills (a buffer) to make sure you don’t over draft the account (very bad). However, do not borrow money to do this (going into debt to try to stay out of debt never made sense to me).

Now you have your bills being paid automatically (or as much as possible), the money to pay it disappears before you see it (ideally) and at the end of the year this account will actually have extra money in it (because you have two extra pay cheques worth of payments deposited).

I have not implemented this yet, but I am planning on doing something similar to this very soon

Some questions

Why is disposable income important and having a good supply of it?

Not having money for me is like carrying a long tray of water. When it is steady it is easy to carry, but if one side drops below the other, you attempt compensate and lower the other side more, and this continues until eventually all of the water is on the floor. If I don’t have enough money that is when unplanned credit card purchases occur, which then cause unplanned payments, which in turn causes more unplanned credit purchases, etc., etc., etc.,.

Whatever plan you use, keep this in mind

Aren’t there better ways to pay your bills?

There most likely is, and I am not espousing this as the only method, just that you should have a plan to pay your bills. Whatever works for you, that ensures your bills are paid on time

Enjoy the weekend folks, and for my readers in Ontario, enjoy the LONG weekend (in Ottawa we call it Colonel By Day).

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Bill Surfing (Day 3)

So far, we have talked about the different methods folks use to pay bills every month (if you get paid every two weeks). I’ve actually been having a bit of a go at my readers on this one, this whole Bill Surfing thing is pretty obvious, but maybe not, it took me a while to figure it out.

Bill Surfing Set up

  1. Make a list of all your monthly bills (with how much they are usually)
  2. Order this list by most expensive to least expensive
  3. Sum the entire list and then divide that value by 2 to figure out how much your “goal” should be for each bi-weekly pay cheque.

That’s about it, with the following caveat to watch out for. You do not want to pay any bills LATE, so if some bills must be paid earlier in the month or later in the month, that is the pay cheque it gets paid on. I almost did this with my Mortgage which actually has to be paid by the 22 of the month, so I was almost paying it late, but luckily my bank pointed out the folly of my ways.

Surfing Methodology

The first pay cheque in the month we will label Pay Cheque #1 and the second pay cheque, Pay Cheque #2 (if there are three pay cheques in the month, you don’t have to pay bills with that one, if you don’t want to).

Pay Cheque #1

First put all bills that must be paid within the fourteen day period of that month (for this example we’ll say all bills that must be paid from the 1st to the 14th of the month). These bills must be paid, so you really don’t have a choice, so pay them! Sum up how much these bills are and compare them to your “goal” bill payment. If these bills add up to the “goal” already, you are done.

If, however, you still have money left to pay bills, find other bills that need to be paid and add them to your list for this pay cheque and pay them as well, until you are close enough to your “goal” bill payment for that pay cheque. Then you are done.

Pay Cheque #2

Pay all left bills from Pay Cheque #1 (and presumably any bills that must be paid between the 15th and 28th of the month). There you have it you are done.

Pay the bills on the day you get paid (that way you are not leaving money around to accidental get spent later, leaving you in a bind).

The left over money is yours to work with now and your bills are paid, and you have one less thing to worry about.

A Few Important Points

Become a Tangerine client today

Bill surfing is just an idea to make sure you have a good money flow, and you need to work with it to ensure you pay ALL your bills ON TIME, this is the MOST important part of it.

If you have bills that are paid straight from your bank account, you need to take them into account each month as your pay cheques will move around (if you are paid every two weeks), so some months you will need to use some finesse to work around those bills.

Income tax payments are coming straight off my pay, so I don’t worry about that, but if you don’t make sure you put THAT on your list of bills as well.

Have fun with this and make it work for you, in a way that makes your life simpler.

Real Example

Here is another page from my monetary statement, that is effectively my “bill score sheet” for the month with my monthly/weekly payments sprinkled in. Feel free to use this as a template to work from:

Pay Cheque #1
lChurch donations
Kids lAllowances
lLife Insurances (plural)
l
lElectrical
lMortgage Payment (divided by 2)
lProperty Taxes (divided by 2)
lXmas Fund
lCable TV
lWater
lCharitable Donations
l


Pay Cheque #2
lChurch donations
lCar Payment
Kids lAllowances

Mortgage Payment (divided by 2)

lProperty Taxes (divided by 2)
lXmas Fund
l
lNatural Gas
lHome Phone
lCell Phone
lISP DSL Charges
l
lKids Allowances
lBank Service Charges

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