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Personal Finance Basics: Build an Emergency Fund

Alan Schram — Wed, 01 Feb 2012 10:00:44 +0000

Last week we talked a little bit about some personal finance basics. First things are first, and you should start to spend less than you’re making. If your expenditures are greater than your income, it doesn’t matter how well you invest or how good of purchases you make, you’re still going to end up in a bad financial situation. So make sure that step one is to start your finances moving in the right direction. So what’s next? If you’re spending less than what you’re making, what should you do with the extra money? Should it just sit in your bank account, should you move it into investments, should you dump it immediately into debt? What’s the best thing to do?

What is an emergency fund?

At first, by far the best thing to do (other than making sure you’re not missing debt payments) is to build an emergency fund. What is an emergency fund? An emergency fund is simply a separate stash of money that is reserved exclusively for emergencies. Ideally, it is a separate bank account that is more difficult to access, so that you’re not tempted to use it – but accessible from anywhere, so that you can get it, in case of an emergency. Why not just use a credit card? When an emergency happens, and it will happen, it is obviously a lot better to simply have an interest free way of getting out of that situation. If you are forced to use a credit card, your emergency gets that much worse as now you have a deadline to get that money back, or else you’re paying interest on top of it. As a result, the best option for an emergency fund is an online bank account like ING Direct, or a separate bank account through your normal bank where you can stash the cash until you need it.

How big should your emergency fund be?

There’s plenty of advice out there about different formulas you can use to determine just how large your emergency fund should be. Dave Ramsey says it should be a thousand dollars, assuming you have debt to pay back. Get your emergency fund to 1k, then pay off debt, then make your emergency fund bigger. Others say the best thing to do is to figure out how 2 months worth of expenses, and save up that amount. That way, in case of emergency, you have 2 months to figure something out before you start going back into debt. In reality, it all just comes down to personal opinion. Do whatever makes you comfortable, but please save at least a minimum of a thousand dollars before you cut off saving for your emergency fund. You’ll thank me later.

How to save money in your emergency fund

What’s the best way of getting all that money into the emergency fund? Simple. Set up an automatic transfer (ING is really good with this, get a head start with an orange key) for the day that you normally get your paycheck. Set it for something easily manageable, like $30 or $50. Then, just wait. If you have a lump sum that you can set aside, then definitely put that in there straight away to get it going, but even with a modest regular deposit, you can grow your emergency fund in no time. Even at $50/paycheck, you can have your thousand dollar emergency fund in less than a year, and because you’re taking it out on the day that your paycheck goes into your account, you’ll never even notice the difference. Just make sure that you adjust your other spending accordingly so that you don’t start spending more than you make. Keep tracking your finances!

When should you use your emergency fund?

Finally, when should you use your emergency fund? Again, there’s plenty of rules and guidelines you can attempt to follow, but you simply should use your best judgment. If you think that buying a new TV is the best use of your hard earned money that you’ve been saving for an emergency, well then, go for it! Have fun! But when your car breaks down on the way home from the store, and suddenly you don’t have the cash for the mechanic to fix your only mode of transportation, well then, I guess you can’t blame me for not warning you. To best honest, my wife and I have dipped into our emergency fund for non-emergencies. When we purchased our car we drained it so that we could pay for the car outright, as opposed to getting a loan. We deemed it was worth the risk, even though it wasn’t an emergency. It worked out well in our favour, but we both were quite stressed about our finances until we built it back up again.

Do you have an emergency fund? Have you ever dipped into it? Why or why not?

Personal Finance Basics: Build an Emergency Fund originally appeared on Canadian Finance Blog on February 1, 2012.

Which Service Plan is Right For You?

Alan Schram — Wed, 26 Oct 2011 09:00:42 +0000

As everyone who has been through puberty knows, self perception is often quite wrong. Even though if feels like everyone in the world is constantly watching you, judging you, and waiting for you to fail, it takes a few years to realize that everyone else was just as concerned with how they were being seen to bother paying attention to you. However, even as you grow and age, your self perception will fail you.

Just think of these classic examples. The soccer mom who thinks she is her teenage daughter’s best friend. The elderly man who thinks his eyesight is just as good as it was 40 years ago. The driver who thinks everyone else on the road is a horrible driver. Your self perception will fail you, and it could cost you money when it comes to signing up for services.

When you sign up for your cell phone bill, the sales person will often ask you what types of services you will need. Do you want to access your email on your phone? Do you like always having your phone with you? How often do you send or receive text messages? These types of questions will help them determine just what level of package you might need.

The problem is, you are probably the last person they should ask to see how you are going to use your phone. Why? Because you will answer based on your self perception. “Oh, I call my mother all the time! I best get a long distance plan”. Even worse, you might answer based on what you are hoping you will use the service for. “I’m going to use this new cell phone to text message all my old college friends! It’s going to be so fun”! How do you stop the cycle? How do you prevent this from occurring? You have two options. You either let someone else pick your service plan for you, or you go with what you think/hope you will use, and re-evaluate after 6 months. Has it already been six months? Let’s look at your service level plans.

Cell Phones

How much of your cell phone do you actually use? Did you get a smart phone because your teenage kids thought it would be the best/coolest phone you can get? Do you ever actually use the data plan that you are paying so dearly for? Go take a look! Most cell phone providers will be happy to provide you with that information. Either give them a ring, or go to your service provider’s website. Most companies will now show you your historical usage.

For example, I have Bell as my cell phone provider. They actually provide me with a “6 month trend” of my usage. In my case, I have up to 350 talk time minutes per month that I can use. I use approximately 1/3 of that each month. There’s potential savings! As for data, I use between 250-750MB per month. I pay for 1GB, and the next lowest option is 500MB. So I am probably best off staying where I am, or dropping down a level and seeing if I can restrict my usage a little more.

Television

How many channels do you actually watch? I can’t tell you how many times as a kid I wished I had more channels to watch. I was so sick of there being nothing on the 20 channels that we had. Every so often, at a friend’s house, I would get to watch Satellite TV. There were hundreds of channels, and within an hour or two, I would be bored. I was spending more time trying to find something to watch than actually watching it, if I could even find anything good to watch. There’s plenty of options, but when your options are primarily infomercials, local news for places that aren’t local, and reruns for B-movies, there aren’t actually that many options.

So take a week and write down which channels you actually watch throughout the week. There’s a good chance you are not using all of your channels. Once you do, take a look at your provider’s website, or give them a call. You may be paying extra for channels that you don’t actually watch. It’s worth checking periodically as well, as channel lineups and provider packages seem to change on a regular basis.

Internet

How fast do you need your Internet to go? How large of a bandwidth cap will you use? Just like your cell phone bill, you may be paying more than you need to for your service. The speed of your Internet will rarely affect your user experience. As long as the YouTube video loads after a few seconds, you should be good. As long as the download from Microsoft takes minutes, and not hours, you will be fine. As long as your games don’t lag and you can Skype your grandmother, there’s no real reason to need a faster Internet.

Most provider’s regular package should be more than enough for you. Don’t get me wrong, I love having a fast Internet, but there are few occasions where I can justify the additional cost for a few seconds difference. As for bandwidth caps, your provider should again be able to provide you with how much you have been using, and whether or not it is worth going up or down in cost for your personal needs. It could save you money!

How do you select your service plan level? How do you justify the additional costs?

Which Service Plan is Right For You? originally appeared on Canadian Finance Blog on October 26, 2011.

Want Your Kids to Manage Money Well? Teach Them

Tom Drake — Mon, 24 Oct 2011 09:00:00 +0000

When we think about the lessons we as parents want to teach our children we think of things like religious beliefs, values, and encouraging them to attain the highest levels of education but we don’t often think of practical lessons on money management.

Schools don’t teach money management. They teach algebra, calculus, and geometry and although each of those is useful for developing abstract thinking, these skills have little practical purpose when it comes to everyday money management. (When was the last time you used a quadratic equation?)

If you want your children to someday become independent adults you have to teach your children these lessons. What should you teach your children about money? Here are a few ideas.

Saving

Teach your children that money isn’t meant to be spent, it’s meant to be saved so the person later has options. Those who save have little exposure to economic events because saving gives a person options. The nation’s richest people are often vilified but most are rich because they’ve managed their money well and that first starts with savings instead of spending.

Pay your Credit Cards off Each Month

Ideally, cash would be the ideal way to live but in a digitized world, cash is becoming less practical although still very possible. Teach them that if they’re going to use a credit card it must be paid off in full each month and if they find that they can’t do that, get rid of the credit card and only use their bank card or cash.

Where Does Money Come From?

Money comes from work. It doesn’t come from government assistance programs, the lottery, gambling, or get rich quick schemes. Money is the direct result of working hard every day. This lesson is best taught practically. If your children want money, they should do something around the house to earn it. Since education often equals higher paying jobs, pay them to reach the highest educational goals.

Giving

Money should be saved but it should also be used for the good of society. Teach your children to find valuable, true needs in the world and donate. Set up an account in their name on sites like Kiva to allow them to understand the power of giving. Although Kiva isn’t a true donation, it allows them to lend it back out to somebody else in need making the giving perpetual allowing your children to continue learning this lesson over time.

Live By Example

What’s the best way to teach your children how to be good money managers? Live the life and show them real world examples of how you save today for prosperity tomorrow.

Kids who don’t learn how to manage money become adults without the skills needed to live prosperously. Prosperously doesn’t have to mean rich. It only needs to mean comfortable and with the ability to purchase what you need without resorting to credit cards and for those who hope to be among the nations wealthy, spend less and invest more.

Want Your Kids to Manage Money Well? Teach Them originally appeared on Canadian Finance Blog on October 24, 2011.

Need A Reminder? Using Alarms to Save Money

Alan Schram — Wed, 12 Oct 2011 09:00:04 +0000

I don’t exactly have the best short term memory. I remember being a teenager living with my parents. They would ask me to do something, like, clean my room or take the dog for a walk. I would agree to do so, and almost immediately forget. It wasn’t a vindictive thing, where I would intentionally forget, I was often willing to do the thing they asked me to do. I just plain forgot. It would even apply to things that I would clearly want to do, like eat dinner. I would make myself something in the microwave, step away from it for a moment, and only realize an hour or two later that I had already made dinner and it was just cold again. This, unfortunately, has carried over into my adult life. I often get the feeling that I am forgetting something, whether it is while I am at the grocery store, or if I am just sitting at home.

In order to combat this, I’ve gotten used to making lists. I will write everything down that I need to know so that it doesn’t matter if I forget or not. I typically use Evernote as a capture-all device to get everything that is in my head out onto something that I can access anywhere. My new problem, however, is remembering when to access Evernote for necessary tasks. While I have the information that I need, I don’t always access it at the right time, and in doing so, suffer the consequences of tardy action. For example, I will write down that I have an appointment on Tuesday, but Tuesday will come and go without me remembering to check my list for things I need to do on Tuesday. Or I will write down that I need to call the Bank on Friday, but Friday will come and go without me looking to see what should be done on Friday. So I’ve come up with a new solution that has, thus far, saved me a lot of time, energy, and money. I use alarms.

Daily/Weekly Alarms

A specific timed alarm is a great way for you to force yourself to take action on specific tasks. If nothing else, it is a physical reminder of something that you need to do, increasing the chance that you will actually do it. I use primarily for daily or weekly tasks that I have a hard time remembering. For example, I use alarms for daily tasks like getting out of bed and taking my vitamins. Every weekday I have two alarms. One for getting up and out of bed to start my day, and another one about 30 minutes later to remind me to take my vitamins for the morning. I’ve tried all sorts of ways of remembering to do vitamins, and the only way that has worked so far is having an alarm.

I also use alarms for weekly chores, like taking out the garbage and the recycling. Because we just moved, I’m not used to the schedule of refuse and recycling pickup. They come on different days, and on different weeks, so it is difficult for me to remember when I am used to the same day, each and every week. So I set up an alarm to go off just before I would normally head out for work, as a way to provoke myself to leave a little early and to take the trash out with me when I go. I may eventually get used to the habit and get rid of the alarm, but until I stop getting surprised from the alarm going off every other Wednesday, I’m keeping it. It saves me the stress of trying to figure out whether or not they are coming to pick up the garbage this Wednesday, or next, and it saves me from having to make a trip to the dump with my trash.

Monthly/Yearly Alarms

I think monthly tasks are the best suited for setting up alarms. They come infrequently enough that it is very difficult for them to become a habit or ritual. I set up alarms for monthly tasks like paying bills, or going over bank accounts. These are things that need to be done on time each and every month, but are often neglected or forgotten about. Setting an alarm will not only force you to remember, but will also guilt you into knowing that you no longer have a choice about whether or not to balance your chequebook. It’s that time of the month, it needs to be done. Missing a bill payment or two can really add up financially, so it is definitely in your best interest to make sure that you are always remembering to pay your bills on time. Setting up a specific alarm for the task may just be what you need in order to consistently get your bills paid on time.

Finally, I use alarms for yearly events like Birthdays/Anniversaries, setting up or updating a will, making changes to benefit plans, and the like. There are tons of things that can only be done once per year, and if you miss it or forget, you’ll probably end up paying for it more than just financially. I set up yearly alarms to remind me before it is too late so that I can take action.

I use a combination of devices for my alarms. I primarily use my iPhone with an audible alarm for my daily or weekly reminders. I do this because I always have my phone on me, and this way ensures that I am visibly and audibly reminded when I need to do something. You could use a regular alarm, but the ability to store multiple alarms is a must. For the biweekly, monthly, or yearly alarms, I use Google Calendar’s alarm feature to send me an email shortly before the event occurs, and at that point, I can choose to create another alarm if I feel it is necessary. Do you use alarms to remember tasks? How do you remember?

Need A Reminder? Using Alarms to Save Money originally appeared on Canadian Finance Blog on October 12, 2011.

Tips For Growing Your High Interest Savings Account

Guest — Sat, 01 Oct 2011 09:00:00 +0000

Do you have or are considering opening up a high interest savings account? High interest accounts are a great addition to your financial portfolio and allow you to earn money while saving. To make sure you get the most out of your account, here are some key tips to follow :

Find the Highest Interest Rate You Can Get

If you are placing your hard earned savings into a savings account that doesn’t give you the highest interest rate you can get, you are leaving money on the table and not giving your savings account the best chance it has to grow. Over the course of time, even small increases in the interest rate you receive can have a large impact on the amount your account will grow to.

With the Internet, it is easy to research and find the best interest rate for high interest savings. Online banks are typically able to offer higher interest rates because they have less overhead, but with a simple click of your mouse, you can peruse many banks to find out their minimum opening requirements and interest rates are as well and schedule of fees.

Try to find banks that offer savings accounts that compound the interest daily. Most banks only compound interest on a quarterly basis, so look around for a daily compounding bank.

Start Saving While You Are Young

The power of compound should be used to your advantage. The longer period of time you can save, the more powerful the compounding will be. If you can start saving while you are young, you can save large sums with relatively small deposits.

Make Regular Deposits Into Your Account

It is wonderful if you have a large amount of money to place into your savings right away, but that is not an option for most people. Saving money can seem difficult, but if you make small, regular deposits, it is easier to save than you think.

The best way to make regular deposits is to set up automatic withdrawals from your checking account and have the money sent to your savings account every month or on a weekly basis if you prefer.

Start with an amount you can handle, whether its $10 a week or $50 or $100 per month. You can always increase the amount later as you make more money. The key is be faithful to your savings plan and not to deviate from it.

Do Not Withdraw Money Out Of Your Savings Account

A savings account is meant to be left alone to grow. Resist temptation to treat your savings account like a checking account. After you put money in the savings account, do everything you can to not take the money out. One way to leave the money alone is to make a list of emergency situations that would warrant taking money out of the savings account. If a situation doesn’t appear on that list, then don’t take the money out of the savings account.

Avoid Paying Banking Fees

Be sure to always read and understand the terms and conditions of the account you choose to watch out for hidden fees. Some banks offer high rates of interest, but watch out for high fees that are imposed if your balance drops below a certain minimum level. Some banks may charge fees if you want paper statements or using other bank’s ATMs. Many banks charge maintenance fees every month. Be sure to avid fees that exceed what you make in interest.

Set a Budget and Stay Focused on Savings

Saving money and sticking to a budget go hand-in-hand. If you stay within your budget, it is easier to save money as planned. There are many websites and software tools that can help you set up a budget and save.

Many money experts recommend that you try to save ten percent of your income on a regular basis. Even if you can’t save ten percent, pick an amount you can respect and stick with it.

Even small amounts saved regularly can add up to large sums over a period of years. Speak with a financial advisor or your bank manager about the best option for your personal situation.

Tips For Growing Your High Interest Savings Account originally appeared on Canadian Finance Blog on October 1, 2011.

What Is Simple Interest and Compound Interest?

Tom Drake — Mon, 12 Sep 2011 09:00:00 +0000

We hear about it all the time. There are few things in the financial world that are givens but even in the most uncertain environment, interest or in terms of stocks, dividends are one of those income streams that make us feel good. Often seen as unchanging, nearly all consumers understand interest because they often pay it on their loans or they earn it in their savings accounts.

If you’ve ever applied for a car loan, one of the items you look at first is the interest rate. We all understand that the higher the interest rate, the more money we will pay in the end but let’s look at a few other facts about interest rates that you may not know.

Simple interest is not as SIMPLE as you think

Simple interest is the easiest type of interest to understand. If you loaned a buddy $100 and told him that when he pays you back, he has to pay you $106, you charged him 6% on the loan. In finance terms, simple interest is calculated by multiplying the principal amount (100) times the rate (6%) times the amount of time (let’s say 1 year) 100 X .06 X 1 = $6. Pretty easy.

Banks are much more savvy than that, though. They aren’t going to give you $10,000 for a car and charge you 6% each year spread equally between interest and principal. They front load the interest in case you pay the $10,000 off early. If you looked at the amortization table that came with your loan documents you noticed that more interested is factored in to the first few years of the loan and as you reach the end, it becomes almost all principal.

This is far from “simple” and if you saw the calculations, you would agree. If you didn’t know what an amortization table was before now, just remember that it lays out how your total payment is broken down. If you want to see how interest is frontloaded in your loan, you can create your own amortization table by going to www.amortization-calc.com.

If you own certain fixed income investments the interest being paid to you is paid using a simple interest formula. You can reinvest your dividends (called the coupon) if you would like but it’s not compounded within the investment itself.

Compound interest IS SIMPLER than you think

Compound interest is more difficult to calculate and for most of our purposes, the way it is calculated isn’t overly important. Since there is a seemingly endless supply of compound interest calculators, we won’t worry about the particulars but here’s what you need to know when you’re shopping around: Unless you’re working with six figure numbers, the type of compounding is unimportant. Let’s look at an example:

I found a compound interest rate calculator at webmath.com and came up with these figures:

Let’s say that you have $50,000 in a 1 year Guaranteed Investment Certificate at 5% interest that is compounded monthly. After one year you will have in your account $52,558.09.

Now, let’s say that you have that money in a GIC from a different bank but the interest is compounded daily. After one year you will have in your account $52,563.37.

Although many unknowing consumers find themselves comparing the different types of compounding, in reality, it makes very little difference. Some may argue that if you’re investing in GICs for 30 years that $5 difference adds up. It’s true. Over 30 years that would be about $674 but once 30 years of inflation eats in to it, that $674 is far less impressive.

Look at the “Y” instead of the “R”

When comparing loan rates, don’t look at the APR. The APR or annual percentage rate is the amount of money you would pay or receive if the interest was calculated using simple interest. Since the APR doesn’t account for any compounding, look at the APY or annual percentage yield. The APY takes into account the type of compounding used.

For example, if a car dealership offered to finance a $10,000 loan at a 5% APR, you could go to another dealership and get the same APR but pay those couple of dollars more per year because of the compounding. A $10,000 loan at 5% compounded daily has an APY of 5.13% but if it is compounded monthly the APY is 5.12%. (By the way, the difference annually is all of $1.05)

Don’t Count on Compounding

If you’re investing, there’s no doubt that when you reinvest your returns over time, compounding does wonders for your portfolio. You can’t live on your RRSP contribution alone for entire retirement so you have to rely on compounding to grow your nest egg.

However, you can’t use compounding as an excuse to not take an active part in the management of your retirement plan. If the world markets have another meltdown, compounding isn’t going to save you if you’re close to retirement. Make sure you have a qualified and more importantly, approachable investment advisor.

What Is Simple Interest and Compound Interest? originally appeared on Canadian Finance Blog on September 12, 2011.

Why It’s Important To Teach Children About Savings

Guest — Sat, 10 Sep 2011 09:00:00 +0000

With the current economic climate turbulence (to say the least), people may be finding it harder than ever to save. If you’re raising children, things can be even tighter – but you should make sure that you don’t neglect to teach your children about savings, even if you’re not doing it yourself.

But at what age should you introduce your children to the concept of putting money aside for a rainy day and what are the best ways to go about it?

There are a number of savings accounts out there, such as a TFSA (or cash ISA in the UK), but children are not eligible for it.

The general consensus is that it is never too early to start introducing your children to the concept of money and saving, as long as it is done in an appropriate manner. Toddlers are unlikely to grasp the finer points of pension arrangements after all!

However, even very small children can begin to learn about money with a simple cent jar at home and a basic explanation that Mommy and Daddy have to work hard to pay for things such as toys, food and the house.

Once children are old enough to have an allowance, a well-used tip is for them to have three piggy banks – one for charitable donations, one for saving and one for spending. As long as some money is put in each piggy bank from their allowance each week, it doesn’t matter what the ratio is.

The idea is that children establish saving habits from a young age and a pattern develops of putting money aside, even if it is only a small amount.

Once the savings start to mount up, an account should be opened at the bank, any kind of savings vehicle is suitable, but a high interest account from banks like ING Direct or Ally might be best.

When the statements arrive from the bank, the child can be shown how they are earning ‘free money’ just by putting their savings into their account.

Children will often view their savings as getting bigger all on their own as quite an exciting event and will look forward to receiving their bank statements to see how much their money has grown by.

By setting the basics of savings in place, children should become accustomed to putting money aside and continue this habit as they grow older, albeit with larger amounts.

As children mature, it is important to continue to build on their financial know-how by involving them in household budgeting and explaining how to spend money wisely.

One way to help teach teenagers about how to run a household is by allotting them a fictitious amount of cash and asking them to go online and put together the grocery shopping for the week. Whilst this will be bewildering at first, it is a fun activity for the youngster and will quickly teach them how to budget and look for bargains.

As they grow through their later teenage years, explaining more complex financial terms such as APR and what to check for on credit cards, loans and savings accounts such as a TFSA or RRSP is very important to equip them for becoming financially independent.

If you are unsure of how these products work yourself, many banks will be willing to help out if you book an appointment to see a personal advisor, especially if the teenager has held a savings account there for a number of years.

The most important thing is that children get used to learning about the value of money from a young age and by the time they are ready to move out of home, they are used to managing a range of financial transactions themselves.

Why It’s Important To Teach Children About Savings originally appeared on Canadian Finance Blog on September 10, 2011.

Making Smart Financial Decisions with a New Baby

Guest — Thu, 09 Jun 2011 09:00:00 +0000

It’s no secret babies are expensive. Even the most frugal couples find themselves throwing their carefully planned budgets to the wind in preparation of the arrival of a new baby. But some forethought can save you some serious cash on your upcoming bundle of joy and set you on the right path financially after the baby arrives. Here we’ll explore some cost-saving measures you can take to save you money in the long run and some financial decisions you should think about before the baby arrives.

Network for gently-used items

Many parents follow a common line of thought that since the baby is new that everything the baby will use must be new as well. In reality, you can get your fill of “new” things at a baby shower and rely on used items for the rest. Products for newborns and babies are notoriously overpriced because retail stores know proud parents will pay a premium for them. But the following facts remain unchanged: babies outgrow clothing incredibly quickly, lose and break countless toys, and use age-specific furniture for only a few short years. So that pricy solid oak crib, bassinet and dresser drawer set you’re drooling over at that department store? It’s a poor investment. Most of it will be collecting dust in your garage three years down the road. Petition your friends for their used baby clothing, furniture and toys and search online for deals on used items. If you are paying full price for baby clothing, furniture or toys, you’re paying too much.

Prepare for the possible loss of one income

In two-parent households, mothers often opt to stay home and raise their baby full-time while their partner resumes work. If the mother had been contributing to the family income, this can mean quite a bit of financial adjusting, particularly since many women today are the primary bread-winners in their household. Couples will not only need to adjust their budget to account for the loss in income, but they will also need to account for the addition of a new little mouth to feed. The lifestyle changes involved in this financial adjustment could be dramatic.

Consider cloth diapering

Using cloth diapers instead of disposable diapers may take a little extra effort, but can add up to hundreds of dollars in savings on diapers every year. In the past five years alone, cloth diapers have seen a resurgence in popularity, particularly among the “natural parenting” set. Now the frugal community has started embracing cloth diapers as a cost-cutting opportunity for parents. The initial up-front investment in cloth diapers is always higher, but in the long-term, most parents report using cloth diapers saves them a great deal of money in the long-term.

Begin saving for college

The arrival of a new baby marks the time to begin planning for that child’s future. It’s a good time to open a Registered Education Savings Plan (RESP) to help your child pay for his or her college education down the road. The government encourages kicking off an RESP by offering financial incentives.

Don’t give in to “baby guilt”

Finally, when your friends are pulling out all the stops to paint and deck out a baby room for their new baby, buying $500 strollers and other expensive items, it can be tempting to believe you’re a bad parent for not doing the same. But would you really be going all out for the baby? Does the baby care that he sleeps in a freshly painted room with an $80 mobile twirling above him or is it you who cares about these luxuries? Ask yourself these questions before needlessly spending based on “baby guilt.”

Author Bio: This guest contribution was submitted by Pamelia Brown, who specializes in writing about associates degree. Questions and comments can be sent to: pamelia.brown @ gmail.com.

Making Smart Financial Decisions with a New Baby originally appeared on Canadian Finance Blog on June 9, 2011.

Balance Your Savings and Investments While Raising a Family

Robb Engen — Tue, 03 May 2011 09:00:48 +0000

There has been a lot of talk recently about the financial state of 30-somethings. Apparently the future does not look very bright for those of us caught at the tail end of Generation X and the beginning of Generation Y.

The amount of financial responsibilities facing this age group can seem daunting. Raising a family is expensive enough without having to worry about setting up an emergency fund, paying down the mortgage, putting away money for retirement, saving for your child’s education and everything else that comes along with improving your financial situation.

So how do you balance your savings and investments with the everyday costs of raising a growing family? You can start by setting up a simple plan for each of these categories to ensure that you are on the right financial path.

Streamline Your Mortgage

Many 30-somethings entered the housing market during the peak of the housing boom with long amortization periods and little –to-no down payments. Luckily there are two quick fixes you can make to your mortgage immediately to pay off your balance faster and save on interest.

The first is to switch your payments from monthly to bi-weekly. On a $300,000 mortgage at 5% interest amortized over 30 years, switching to bi-weekly payments would only cost you $133 more each month and would save thousands of dollars and over 5 years off the life of the mortgage.

The second way to help streamline your mortgage for the future is to switch to a variable interest rate, but maintain your payments at the fixed interest rate. Using this technique while interest rates remain low will further reduce the principal on your mortgage while still giving you a cushion for when interest rates start to rise again.

Utilize Your TFSA for Short Term Savings

The Tax Free Savings Account allows you to contribute up to $5,000 per year and withdraw that money anytime without paying any taxes on your gains. This is a perfect savings vehicle for someone in their 30’s who has many short term savings goals.

As a couple, make it a priority to contribute and fully fund at least one of your TFSA accounts each year. Create a list of short term goals that need to be looked after in the next 1 – 3 years and use this money to pay for these items in cash.

Your list might include anything from buying a new car to doing some minor renovations or repairs in the house, taking a family vacation or upgrading your furniture. You don’t want to go into debt for something you could have easily planned for a year or two in advance.

Contributing to an RESP

An RESP (Registered Education Savings Plan) is a great way to start saving for your child’s education. The mistake a lot of 30-somethings make is to try and maximize their RESP contributions before they even have their own finances under control.

After your child is born, make sure you get the account open and take advantage of the initial grant money, but then just contribute what you can afford in the beginning. If you are eligible for the Child Tax Benefit you can start an RESP with the Canada Learning Bond of $500 to begin with and contribute $100 a year until your child turns 15 years of age, without even putting a penny of your own money towards it.

Once you are comfortable increasing contributions to your child’s RESP you can maximize the account by contributing $2,500 per year, which will get you the maximum annual CESG of $500 in free money from the government.

Saving for Retirement

Retirement savings is the most common thing put on hold by most 30-somethings until they have a firm grip on everything else that comes with raising a family. There is still plenty of time to focus on saving for retirement once the rest of your finances are in order.

Setting up an RRSP is simple and with a low cost index fund like TD E-Series you can contribute as little as $25 per month towards your retirement account. Again start small with what you can afford and then slowly increase the amount until you are contributing about 10% of your income.

One thing to take full advantage of is an employer matching program. Some employers will match your RRSP contribution dollar-for dollar up to a certain percentage of your salary. Calculate that amount and make sure you are contributing at least that much in order to receive the full amount from your employer. You can’t beat 100% returns on your investment.

Light at the End of the Tunnel

There are so many financial pressures facing 30-somethings today that it’s no wonder the so-called experts doubt what the future holds for this generation. We can’t possibly maximize every savings vehicle and make extra mortgage payments without sacrificing the joy of creating memorable experiences and spending quality time with our families.

The key is to strike a balance in your 30’s where each aspect of your finances can be set-up for continuous improvement, all while taking care of everything that comes with raising a young family. It’s not an easy task, but if done properly you can help dispel the rumours of our doomed financial future.

Balance Your Savings and Investments While Raising a Family originally appeared on Canadian Finance Blog on May 3, 2011.

3 Ways for Kids to Start Saving for Their College Fund

Guest — Thu, 28 Apr 2011 09:00:00 +0000

Children need to understand from a very young age, that college doesn’t come cheap. In order to start saving enough for a college fund to comfortably enter college later, one needs to take certain measures.to ensure that they finish college without student loan debt. Parents, too, need to have a guiding hand in their kid’s lives, so that both parties can be able to skip the worry and the anxiety that will certainly come once your teenager is ready to enter college. We have gathered some tips that we are confident that any kid wanting to go to college can use, regardless if this child is well-off or middle-class. Parents and children should take a look at these tips together, as to best to figure out the best tip to start out with.

1. Start early. If you start saving for college when your child is already in his last year of school, chances are you won’t get very far. Considering the cost of college these days, it is better to start a college fund early. Starting early doesn’t only affect financial matters drastically, but it is also good training for your child to learn the art of saving for something important. Kids should consciously be taught to put away some of the money they earn from odd jobs into something that can benefit them when they become a college student on a budget and in the future after college.

2. Practice creativity in looking for financial resources, all the money doesn’t have to come from the child or his parents. Kids can use their creativity to get other financial sources. A great way would be to request for Christmas and birthday presents in the form of contributions to a college fund. I’m pretty sure most relatives would love knowing that they are contributing to a higher and of course, noble cause.

Another option that kids can go to would be to do something that your parents or a neighbour would usually pay someone else to do. Chores include cleaning the pool, mowing the lawn, painting the house. If you can do this, they can pay you instead, and have that amount go towards your college savings.

Another way would be to try your luck in contests, especially if you have a talent, such as writing, singing or dancing. Many kids these days, who have a passion, get paid small amounts through adsense on their blogs or partnerships in youtube. Kids can explore this option too.

3. Work closely with your parents in planning out your college finances. More often than not, your parents will contribute to a significant part of your college expenses. You have to show that you are a responsible child who has serious ambitions to go to college. You may also ask them to explain their plan on how to pay for your college tuition, so you can bring up suggestions and of course, your own contributions.

Author Bio: Sam Briones is a freelance writer who covers an array of topics from finding cheap auto insurance to safety tips.

3 Ways for Kids to Start Saving for Their College Fund originally appeared on Canadian Finance Blog on April 28, 2011.