In the 90s, when you ran out of money you stop doing things. -Louis C.K.-

There was a time, not so long ago, before the widespread use of credit cards, a time I like to call the green ages; a time where people carried paper instead of plastic. Now, paper itself is no better than plastic, and vice versa. However, how they are used and what they represent gives the user (you) a very different idea of ones wealth and spending capacity.

During the green ages, if you ran out of money, you stopped doing things (for a good rant on this watch “Everything is Amazing and Nobody’s Happy” on YouTube). Even if you knew that you had money coming in next month, it did not help you because you had none right now. So instead you were forced to budget and manage your money in order to do the things you wanted to do. You also had a better understanding of how much money you had since your wallet would literally feel lighter as you spent more.

Today, if you have no money to go to the movies, you would just use the credit card company’s money to pay for it instead. You would accumulate a bunch of these purchases over the course of the month, and when the money came in you would pay part of it off. Wash, rinse and repeat! Keep on doing this and you magically accumulate debt. Welcome to why the average Canadian consumer debt is 25 960$ as of February 23 2012 according to an article in the globe and mail.

Now it is so easy to say: “I’ve got a paycheque coming in, therefore I can afford this”. The problem is, you can’t. You actually don’t have the money to buy it; the credit card company can afford it, not you. Most people assume they are spending their future earnings when they use a credit card, or that they are alleviating the cost of a large purchase by paying it in smaller more manageable chunks.

The truth is that you are not spending your future earnings; you are spending the credit card company’s money (I know I’ve said it before and I will say it again). Now there are some purchases that are too large to make and require some form of debt and/or leverage combination, but lets be honest do you really need to finance your movie ticket, that new jacket you will probably only wear once or twice, those shoes you just had to add to your collection of 50?

Let me put it this way, if the general population used credit cards the way they are supposed to the credit card companies would have gone out of business a long time ago. If everyone paid their bills in full and on time, the general population would remain richer and the credit card companies would become significantly poorer. Fortunately for them (and unfortunately for you), the average person is absolutely terrible at understanding this concept.

Here it is: If you have expenses on your credit card which are not critical to your life (i.e. your life or the life of people around you) and you are unable to pay them off on time in full, chances are you are incorrectly understanding how much money you actually have.

What can you actually do about it? Well the first step is realizing how much money you actually have to spend. This is done, like in the green ages, by budgeting your money. If you don’t know how much things cost you over time, how will you ever know how much you can actually spend before falling into debt?

Secondly, realize that sometimes you actually can’t afford certain things, and most of the time those things are actually quite useless. If you took a look at your credit card statement from 5 years ago, I bet you that for half the purchases on there, you wouldn’t remember what happened to the items.

Thirdly, think forward instead of backwards. For the items that cost a lot of money save up for them instead of paying interest on them. Allow the bank to help pay for part of the cost by giving you interest on your money even if those interest rates are at record low levels. And the items that are not worth it, well if you can’t buy them with your money don’t buy them with someone else’s.

There will always be unforeseen events were a credit card will come in handy. However it should not be your main source of payment. Not to say you should not pay things with your credit card; this should be done when you have the money before hand to pay it off in order to accumulate cash back and points from your credit card company as well as increase your credit rating.

Just a little tip to get you started:

My college roommate did this, and although it was weird at the time, I have to say it is quite helpful to understand the statements I made above. If you can’t do it for the full duration, at least try it for a little while, or until you go insane and cannot go without spending someone else’s money.

The next time you pay off your credit card completely, try the following.

• Take your credit card (s), freeze it (them) in a block of ice in your freezer
• Try making your purchases for the month with the money you make and have
• At the end of the month, see how much money you have left over

This is how much money you actually have to spend, and this is what your lifestyle should actually be like. If you want a more lush lifestyle start working towards making more income, not spending the credit card company’s money (told you I would say it again).

Note: if an emergency does come up, don’t put it in the microwave to un-thaw it…. A bowl of warm water is your best bet.

Author Bio: My name is Joey Odman and the reality is that I am not a financial expert, nor do I claim to be. I studied something completely unrelated, managed to get a decent job with a good degree and quickly realized that although I was not an expert, over my short time on earth I had acquired a series of skills and convictions which made me quite good at managing money, accumulating wealth and staying away from debt. I am currently trying to teach these skills to the people around me in a way that everyone can understand and use everyday.

Related Posts:

• How Credit Cards May Be Obsolete in 5 Years
• Using Credit Cards the Right Way
• How To Use Credit Cards Without Bankrupting Yourself

The Green Ages: Life Before Credit Cards originally appeared on Canadian Finance Blog on May 17, 2012.

Item trading becomes real money

Soon, an economy sprung up around the game. Different found items had different values, the more rare the item, the more valuable the item. You would have to trade a lot of gold or other gear in order to get the best items for your character. People started to capitalize on the demand for higher end gear, and a real world economy was also formed around the game. You could go to the rather new eBay.com and purchase items for your character with real money. Once the auction was complete you’d meet the character in game and get the item you purchased – hopefully, anyways.

Not long after it was discovered that there was actual money to be made from the game, overseas companies started farming the game for higher end items, selling them in mass quantities on foreign websites. Soon you could purchase characters as well, so that you wouldn’t have to spend the time levelling up a character in order to take advantage of that shiny new axe or ring. Blizzard, the company that made the game, tried to stop the transactions, saying that these items and characters are not for the players to be bought or sold, as they are all the property of Blizzard. That shut down most eBay auctions, as they’re hosted in the US, but foreign websites still were able to make real world money off of the game.

What about selling items in Diablo 3?

With Diablo 3, Blizzard is not only seeking to control the real world economy of Diablo 3 items, they are looking to make a profit. They’ve created an auction house, similar to the World of Warcraft auction house, that will allow players to sell their unwanted items for in-game gold, or real world money. Blizzard will charge a small fee to the seller of the item, either a percentage or a flat fee depending on the type of item being sold. The upside being that there will now be a legitimate way to make some real world money off of the game.

So is there money to be made from the game? Should we all quit our jobs, buy Diablo 3, and get ready to play video games for a living? No. We should not. The problem is that there is no way to control the economy, and it will take a lot of time and investment in order to make any sort of profit from the game. Most lower tier items will sell for very little real money, so the rush will be for the highest tier, rarest item. Even if you do find one, it’s value is constantly going to plummet, as there’s no limited supply of that item. It’s just going to keep getting found by more and more people, and its rarity will simply decrease over time. Even if you do spend a ton of time on the game, farming the highest level items, getting tons of gold and selling it all through the auction house, you have to remember that Blizzard is going to be taking a cut on each item that you sell, and when you attempt to withdraw the money into your PayPal account, they’ll take another 15% as a transaction fee.

In Diablo 2, the best way to make money, at the time, was to sell character accounts. In Diablo 3, there will be no legitimate way of doing this. Each player character is tied to a battle.net account, so you’d have to purchase the game and create a battle.net account for each character that you wanted to sell. So they would start at $60, plus the value of the character(s) on the account. I expect to see some accounts pop up on Ebay or various foreign sites, but I definitely do not recommend trying to purchase from them.

Will there be crazy success stories? Yes, of course. The first person to find a particular lusted after item will probably be able to sell it on the auction house for $20 or $30, creating a frenzy of activity while people try to find that item and get similar results. As more and more people play the game, and as more and more items are discovered and sold, their value will plummet down to a buck or two. Personally, I doubt I will be spending much money on the auction house. I’d rather play through the game with the items that I’ve found rather than pay $5 and breeze through the game. If I am able to find and sell some items I don’t want or need, I may re-invest that money into the game in order to get an item that I may never otherwise find. I’m probably amongst the majority there, and I believe that this is Blizzard’s intention – simply provide a legal way of being able to make the game a little bit more fun, or a little bit easier, at a fairly small price. Which, to be honest, is a much better way of introducing an income stream to a game after it’s launch than forcing customer to purchase DLC to unlock the rest of the game they already purchased.

Are you playing Diablo 3 right now?

Related Posts:

• The Cost of Online Gaming: Free to Play
• The Economy of Doubt
• Does EI Inhibit the Overall Economy?

The Economy of Diablo 3 originally appeared on Canadian Finance Blog on May 16, 2012.

My two-year-old daughter is convinced that there is no need to feed our fish because we can simply replace them when they die. My four-year-old son cannot understand why we do not buy a boat on a whim. My nine-year old neighbour insists on having the latest tablet to replace last year’s model. My colleague washes his kitchen floor with a disposable mop pad rather than with vinegar and water. The middle-aged couple I met on the bus bought a house for the third time in seven years because they would rather move than renovate.

From homes, toys and technology to food and water, we are part of a society that consumes in excess without much thought for long-term consequences. We seem to always be seeking the newer and better, and these throw-away habits are depleting our finances and natural resources. What’s more, change seems improbable considering that our attitudes and impulses are rubbing off on our impressionable children who are growing up to believe that all is dispensable.

The absence of personal accountability is so prevalent that we even encourage (directly or indirectly) our children’s tendency to abandon commitments that are difficult to sustain, whether it be sports, music or part-time jobs. No longer are our children willing to tackle a challenge, instead we are reinforcing the prevalent attitude of a generation that thrives on instant gratification.

The solution: raise conscientious and responsible children who will lead future generations in sustainability instead of waste. The method: get them involved!

1. Recycling: Teach your children about recycling by having them sort garbage, packaging and compost. By having them identify what bin an item should go into, children become actively involved in the recycling process and internalize eco-friendly habits more easily;
2. Eating Food: Serve small portions of food at meals, allowing for second helpings if needed. Explain the importance of finishing what is on the plate before taking something more. Save and serve leftovers! Stress how precious food is and teach children to be grateful for what they have;
3. Growing Food: Grow a garden in your backyard and get the kids involved! They will have tons of fun digging, planting and cultivating, while tangibly learning how to grow food. By experiencing the cycle first-hand, they will be more reluctant to waste;
4. Water: Teach your kids how to conserve water. Turn the tap off while you lather the soap in your hands or brush your teeth. Take shorter showers and water your garden in the evenings to avoid evaporation. Given that some families struggle to survive on one litre of water per day, it should be a punishable crime to ‘sweep’ your asphalt driveway with the hose;
5. Reuse: Once kids have outgrown their clothes, shoes or toys, get them to help package and distribute the items to others in need. Encourage them to wear second-hand clothing. In fact, they sometimes prefer wearing clothes that belonged to an older cousin or neighbour whom they admire.

It is never too early to introduce the value of conservation; however, modelling the behaviour rather than simply preaching it is fundamental to the assimilation of this lesson. More importantly, stop believing that happiness is directly proportionate to material gain and begin to modify your own consumerism. Quickly, you will lighten your financial burden and reduce your environmental footprint.

Author Bio: Jennifer Chauhan is a freelance writer based in Ottawa.  In addition to writing her own blog, Mother Miser, Jennifer regular contributes to other personal finance blogs and magazine publications. A literature graduate of the University of Ottawa and the University of Sydney in Australia, she has always been passionate about writing.

Related Posts:

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• Will Future Returns Suck?
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Is The Future Disposable? originally appeared on Canadian Finance Blog on May 8, 2012.

The Dollars and Cents

There are 3 time periods that you are allowed to claim as a Canadian going into the USA. The first one is the basic 24-hour exemption. This exemption had allowed you to bring back $50 tax-free. HOWEVER, if you went over that $50 you lost the exemption altogether. The new 24-hour exemption allows for $200 worth of goods (and that is per-person in your vehicle). The 48-hour exemption was raised from $200 to $400 a few years ago, and this newest modification has it sitting at $800! Finally, the 7-day+ exemption was formerly $750, and has now been raised to $800 as well. I’m not quite sure why this exemption was proportionately raised so much less, but my best guess is that it will be the next one to rise in a couple of years.

Manitoban Case Study

If a family of four heads down to Grand Forks, North Dakota for the weekend (basically a rite of passage if you are from Winnipeg) these savings can really start to add up. The extra $400 exemption will allow each person to save an extra $48 in taxes at the border (7% PST, 5% GST) as well as any duties (especially pertinent on clothing not made in Canada or the USA). So that’s nearly $200 in savings right off the bat. Some states also allow you to apply to get your sales tax back, or else don’t charge any sales tax at all. This means you basically are shopping tax free! If you include the exemptions for a couple bottles of liquor (taxed to a crazy extent in Canada) you save almost another $100 bucks quite easily. Not that I would ever encourage an addiction to nicotine of any kind, but these products can also be had for 20-25% of the price in Canada. If you fill up your gas tank with cheap American gas (roughly $2 per gallon cheaper than our tax-laden petro products) the vacation or trip can easily pay for itself just in shopping savings (or at least that is what my girlfriend convinces me of).

Yay For Our “Petro Currency” as Mr. McGuinty Calls It

There has never been a better time to take advantage of these savings in terms of the buying power of the Canadian dollar. This actually helps cross border consumer in a couple ways. The obvious impact is that you can simply buy more with your dollar down there, since when you exchange your money you get more USD for it. The other thing that most people don’t realize is that your Canadian exemptions at the border are calculated after you convert the value of your American purchases into CAD. When the dollar was low, that would mean that buying $300 (USD) worth of goods, would net you a total of $400 (CAD) or more when figuring out your exemption at the border. With the dollar at parity, it helps you on this side of the equations as well.

Buy Canadian?

I’m not exactly sure why the Canadian government decided to increase these exemption limits. It seems like a curious policy in that it is encouraging Canadian retail dollars to leave the country, especially with the dollar being pushed higher and higher. Some people have moral qualms about supporting another country at the expense of their own. I am not one of those people. The free market should take care of the problem in my mind, and as long as Canadian retailers can’t compete for my dollar, I will continue to take advantage of the situation.

Related Posts:

• 10 Ways To Save Money On Back To School Shopping
• 10 Ways To Save Money On Christmas Shopping
• Annual Shopping Tips

Cross Border Shopping Exemptions originally appeared on Canadian Finance Blog on April 26, 2012.

Car Commuting

Cars can be expensive. Monthly insurance costs can start at about $100 a month, per car, and go up from there. Then you have to refill it with gas, the cost of which does seem to just keep getting higher and higher. Our average gas bill, for example, is between $70 and $100. So right there you have costs that are around $200 a month per vehicle. The major benefit of car commuting, however, is that it takes the least amount of time.

Transit

Your transit costs depend largely on where you live. In Vancouver, for example, an average bus pass costs $110. In Toronto, it’s a little more, and in Calgary, it’s a little less. That, however, is the extent of your costs. You don’t have to pay for gas, and you don’t have to pay for insurance. The other nice thing about the transit pass is that it is a consistent price, and a monthly pass is eligible for a tax credit. The downside, however, is that you’re dependent on the bus schedule and it takes much longer than car commuting.

Cycling

If you live within a reasonable distance of your workplace (<10km), definitely consider riding a bike to work. If you already own a bike, there’s no upfront cost. There’s also no monthly fee involved with cycling. If you don’t own a bike, then there can be a fairly large initial purchase. Commuting by bike can also take a long time, but in certain scenarios (my commute to my work, for example), it will actually take less time to hop on a bike and ride there than walk to the bus stop (early, so I don’t miss the bus), wait for the bus, ride the bus, and then walk another ~ 8 minutes to my workplace. You are also the most exposed to the elements, so cycling to work in the winter is far less of an option than going during the summer, but you also get exercise and will most likely be happier as a result of cycling to work.

So which is the cheapest? If you have a bike already, it’s probably cycling. If you don’t have a bike, then it depends on how often you will be able to use your bike. Even in the most ideal situations, you’re not going to be able to bike to and from work each and every day, especially if you haven’t already been doing it for years. If you want to start cycling to work, then consider the initial cost investment of the bike (starting at at least $400, going up exponentially from there) and determine how many months of transit you can get for that. In my case, as I don’t use the bus to and from work every day, I only spend about 40 dollars a month on transit passes. At $40 a month, I can transit to work for about a year before it would start to pay off buying a bike – and that’s assuming I bike to work 5 days a week for all those 10 months.

Combinations

Right now my wife and I use a variety of commuting options. We have one vehicle, so sometimes we drive to work. We also have decent access to transit, so we often make use of the bus as well. Instead of a monthly pass which locks us into using it throughout the month, we buy a selection of tickets so that we can use them as and when needed. I also bought a bike recently, and because I live pretty close to my work, I may start commuting to work on my bicycle as well. I will, however, most likely get a ride home from either the bus or our vehicle so that I don’t have to bike home in the dark. It’s a mix of the cheapest options and the most convenient options. What’s your commuting combination?

Related Posts:

• Best Inexpensive Commuting Bike Options
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Cost of Commuting – Driving versus Transit versus Cycling originally appeared on Canadian Finance Blog on April 18, 2012.

Over time, repeatedly buying low-cost items to replace broken and worn out items can add up. In many cases, if you had spent more and purchased something of a higher quality, you can save more in the long run.

What Items Should You Spend More On?

There are a few items that it might be worth it to spend more money on. If you are careful about what you buy, you can get a higher quality item that lasts longer, and that can result in long-term savings. Here are some items that you should consider spending more on:

1. Shoes: Better shoes will last longer than cheap shoes. Consider: If you spend $40 on a pair of cheap shoes, they may not fit right, and they may wear out quicker. You could easily buy more shoes in four to six months, depending on how much walking you do. Plus, your feet could be sore all the time because of the low-quality shoes. Instead, consider spending $100 on good shoes that fit well. Your feet are happier, and you could even save money in the long run. Instead of buying new shoes every four to six months, you might be able to get away with buying them every 18 to 24 months. In the long term, that could save you money and time.
2. Tools: Low quality tools break and wear out faster than high-quality tools. A drill of reasonable that costs $50 is likely to work longer and better than a $20 cheapie. Plus, cheap tools can present a safety hazard. If your tool, whether it’s a screwdriver, hammer, or nail gun, malfunctions while you are losing it, it could cause harm to you or a bystander. Pay a little more for something that is up to the job.
3. Appliances: If you want your appliances to last longer and work better, it can be worth it to pay a little more. A good washing machine can be energy efficient and last 10 to 15 years — or more. A low quality appliance, though, might only last five to eight years. Then you have to spend hundreds more to purchase a new one. You’re already spending hundreds of dollars; another $50 to $200 can get you a better quality appliance that will save you in the long run.

Paying Extra for Convenience

Another consideration is whether or not it is worth it to pay extra convenience. How much is your time worth? Is it worth it to save $50 on a plane ticket that routes you through extra stops? What about the red eye, and the hassles that come with extra jet lag? For some people, saving time by paying a $1.50 convenience fee to buy a movie ticket online, rather than wait in line for an hour or more, is worth it.

Sometimes, it is worth it to spend more for a better experience, such as buying good quality dark chocolate, or paying extra for a better hotel room. Consider what you are willing to pay for, and consider that it might be worth the extra money.

Related Posts:

• Perks or Pay? What Makes a Job Worth It?
• Self Worth and Net Worth
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Could it be Worth it to Spend More Money? originally appeared on Canadian Finance Blog on March 26, 2012.

Most things, however, are a pretty good value. I pay a reasonable price every month for housing, at least in my own mind. I think the same way about the cost of owning my car, as well as the price of food, and a full 99% of the things I buy. Saying that, there are a few things that are just absolute rip-offs. The companies that sell these things are making great profits, off of our hard earned cash! I say we boycott all these items and really show these companies who’s boss! That’ll show em!

On second thought, nah. They’re just too awesome to not buy, no matter what the price is.

1. Movie theatre popcorn

Oh man, do I love movie theatre popcorn. Apparently it packs in a whole bunch of calories, so you’re not going to want to eat it too often. Considering how much it costs, you can’t afford to eat it that often anyway. A decent sized container costs north of $5 these days. The cost of the popcorn kernels probably checks in at a quarter. Add a little extra for the butter, and what do you get? A great money maker for the theatre.

2. Text messaging

How many of you have signed up for the unlimited text messaging on your cell phone plan, at a cost of $15 per month, even though you send like 94 texts a month and receive 96? I’m guilty of it. I read that each text sent costs the phone company between a fifth and a third of a cent. Good thing I have shares in Telus.

3. Expensive coffee

Admittedly, I’m not a coffee drinker. I have no idea how all you people manage to choke that stuff down. Most of you are hooked on the stuff, and some of you are hooked on fancy $4 coffees from Starbucks. There’s like 38 cents worth of coffee in there. While I avoid the expensive coffee, I have to admit that the fancy hot chocolate is pretty tasty. What? It has whipped cream.

4. Hotel Movies

After a hard day of being on holidays, you retire to your hotel room. The kids are being annoying, so you hope to shut them up with a movie. Congratulations, you just spent like $12. Hotels sure are smart when it comes to taking advantage of your laziness. Hotel minibars are just as bad. Next time, pick the hotel close to a convenience store.

5. Bottled Water

You do realize water from the sink is basically free, right? Even if you buy one of those fancy Brita filters, your cost jumps to like a penny and a half per glass. Bottled water is a rip-off.

6. ATM Surcharges

Ever been somewhere and needed cash, but the only ATM had a gigantic surcharge on it? I know, we should all plan ahead so this doesn’t happen, but it does. When I was in Vegas a few weeks ago, I paid $3.50 for the privilege of withdrawing $40. Believe me, I would have withdrawn more, except I was going home the next day and had no need for extra American cash. I paid almost a 10% surcharge to withdraw my own money from my own account.

7. Fountain Soda

So let me get this straight. You’re going to charge me $2-$3 for a pop, and in just about every fast food restaurant out there, I have to pour it myself? At least I get free refills… most of the time. How much does the soda and the cup cost the restaurant? A quarter?

8. Cables

Have you ever bought a Monster brand HDMI cable? That’ll set you back like $40. Even USB cables these days will set you back $10-$15 dollars if you buy them in the electronic section of the store. Both the store and the companies that make the cables are banking on the fact the cable is an impulse buy after the big TV or home theatre system. After dropping $500 on a TV, a $40 HDMI cable doesn’t seem so bad. Buy these online for a fraction of the cost.

9. Glasses and Contacts

I sometimes think that if I had my life to do over again, I’d become an optometrist. Glasses frames probably cost $5, maybe the glass costs $10. And then they sell the whole package to you for $250. The margin on contacts isn’t quite as bad, but is still pretty high. Buying contacts online is a pretty straightforward process, but it’s still dicey to buy your glasses online.

Readers, what do you think are the biggest rip-offs out there?

No related posts.

The 9 Biggest Rip-Offs Ever originally appeared on Canadian Finance Blog on March 1, 2012.

That’s right: You can be financially responsible and still use a credit card. I’ve been using the TrueEarnings Card from Costco and American Express for a few months now, and it is clear that you can incorporate a rewards credit card into your efforts to be financially responsible and get ahead.

Start the New Year off Right

The very first thing to do is to stop spending more than you earn. Take a look at your income and your expenses, and make sure that what you make exceeds what you spend. Consider your priorities, and what’s important to you. Look at the spending you have that doesn’t match your values and financial goals. Those are the purchases you can stop making to bring your spending in line with your income.

Make a plan to pay down any debt that you have, and stick with that plan throughout the year. You want to make sure that you are getting rid of debt so that your financial resources are your own. Consider a realistic plan for paying off debt, and work on that.

Next, look for ways to earn more money. If you are concerned that there is only so much cutting you can do in your budget, or if you are looking for ways to increase your income so that you have more available cash to help you invest for the future, consider your options. You take a second job, start a side hustle, or look for passive income sources. And, if you want to earn money without doing anything markedly different from what you do regularly, you can consider using a cash back credit card.

Use Cash Back as Part of Your Plan

Cash back cards can be a great way to improve your ability to live in a financially responsible manner. Make a list of all your regular expenses — the things you plan to buy anyway. Then, use a cash back card to make those purchases.

You will be surprised at how quickly you can earn money — earning up to 2% on eligible gas purchases, 3% on eligible restaurant purchases, and 1% everywhere else. Let your money sit in an interest-bearing account all month, and use your cash back card as much as you can, all the while adhering to your budget and living within your means.

When you pay off your card each month, that money becomes earnings that can be put to good use. The year-end rebate from Costco when you use TrueEarnings is a lot like a windfall. I received nearly $50 cash back after having the card for less than six months, a full year would technically pay for my Costco Executive membership on it’s own! I received a rebate in the mail which I could use at Costco or exchange for cash. I used the cash reward while I was shopping, so it helped cover the majority of my grocery bill. If you are not shopping that day and want to be financially responsible, some of the ways to use this money can include:

• Put it in your emergency fund so that it is ready to be called into action when you really need it.
• Pay down debt so that you get ahead that much more.
• Buy something you need, that you have been saving up for.

When used wisely, there is no reason that your TrueEarnings credit card, or other rewards card, can’t be part of your efforts to get on the right track with your finances in the coming year.

Related Posts:

• What Would Cripple You Financially?
• Financially Supporting Charities
• My Thoughts On The TrueEarnings Card from Costco and American Express

How to be Financially Responsible in 2012 originally appeared on Canadian Finance Blog on February 13, 2012.

The program profiles families that are preparing for certain doomsday scenarios. One family is prepping for an economic catastrophe, one that will see hyperinflation render their savings useless. Another family is preparing for a significant natural disaster, like a super volcano.

Their preparation methods are all pretty standard. They’re all stockpiling food, water, firewood, and most importantly, bullets. Hey, you gotta be prepared for the worst, right? When the unthinkable happens, these people will be prepared, and the rest of us will be regretting our lack of preparation.

But until this happens, these people are just a bunch of crazy extremists. We can all point and laugh at their crazy antics, content in knowing we’re all safe and sound, at least for now. As I watched the show, a personal finance related theme came to mind. Forget about the end of the world, or some major disaster, or anything else really bad happening. Let’s talk about needs, and what you really need.

We Can Live Without A Lot

Just 50 short years ago, we lived without smart phones, iPads, the internet, cable TV, satellite radio, Coke Zero, personal computers in general, calculators and reality TV. All of those things are pretty awesome except one, which I’ll leave up to you to decide.

It wasn’t that long ago we did without all these things, and we did just fine. Is it really so bad if our friends can’t text us every single minute of the day? Is listening to the radio with commercials really that bad?

Yet, when you make your budget, how many of these so-called necessities have you pencilled in there? If you’re anything like me, a whole bunch. I have cable TV, the internet, (obviously, since you’re reading this) an iPhone, along with probably a dozen other things I don’t need.

At the risk of sounding a little condescending, I’m quite okay with all the luxuries in my life. I don’t struggle with making ends meet every month. I save a comfortable percentage of my income. This post is being written in a hotel room a long ways from home, a trip I didn’t even have to budget for. I just dipped into my savings and was off. I’m in the position that I can afford a few luxuries.

What if you’re one of those people who struggle to make ends meet? Should you be cutting out some necessities.

You sure should be.

The Biggest Luxury of All

Okay, it’s not really the biggest luxury of all, but I needed a catchy title to get your attention. What is, at least in my opinion, the #1 thing you should be cutting out if you’re carrying any sort of consumer debt? No, it’s not your cell phone, or your cable TV, or even your Netflix subscription.

Nope, it’s travel.

It seems like everybody is touting the benefit of travelling these days. I’d agree with them for the most part. Going from cold, cold Canada to somewhere warmer in the winter is fantastic. Seeing the world is a pretty cool experience. I’m not here to bash travel.

I am here to bash travel when you can’t afford it. I know all sorts of people who are still paying off vacations they took years earlier, since they put them on their credit card. I also know all sorts of people who at least didn’t finance their holidays, but don’t have an emergency fund or any savings to speak of, because they’ve spent all of their excess cash on travelling.

Travelling is good. Putting yourself at financial risk to do it is bad. It’s the same thing with having a cell phone, or cable TV, or satellite radio. Travelling is hardly a necessity, just like any of those other luxuries.

Cutting Out Is Important

Take a good long look at some of the unnecessary luxuries in your life. Most of them are there for one purpose – to entertain. Just how entertained do you need to be?

The world is filled with free or almost free entertainment options. The library is filled with all sorts of stuff to keep you amused, basically for free. Going for a walk is free, assuming you don’t buy a pair of shoes just for walking.

How many of you actually use your Netflix subscription? Or your satellite radio subscription? Finding a substitute wouldn’t be that difficult, and can save you some money each month. Is cable no longer important? Then cut it. Don’t just keep it because it doesn’t seem like that much. These recurring costs have a way of adding up over time. What are you waiting for?

No related posts.

How Many Of Your Needs Are Actual Needs? originally appeared on Canadian Finance Blog on February 9, 2012.

Change Nothing – Track Everything

The very first thing you want to do about your financial situation is to not change a thing. Just go about your regular business, spending money when and where you normally would. If you are absolutely desperate, of course, I’m not suggesting going even further into debt. In fact, the absolute best way would be to track backwards if possible, but most people spend cash and don’t keep receipts so it is hard, if not impossible, to figure out where exactly your money went – and that is precisely what we want to do. We want to track where your money is going for two reasons. One, by simply tracking and adding up how much money you are spending, it often results in less money spent. A lot of people don’t realize just how much it can cost to get out two or three times a week, and have better priorities for that money. The only way to change where that money goes is by knowing where it went. So for the next two or three months, track everything. Write it down on a piece of paper, keep track of it on your computer, put all the receipts into a basket, using a webapp like Mint, whatever you need to do. At the end of every month, tally it all up into categories.

Determine Your Income

Figuring out your income can be a lot easier. Some people get a steady paycheque every two weeks, others income can vary from cheque to cheque. Look back through your bank account history, figure out how much you make over each month, and determine the average of the last 6 months. That’s your new goal. That’s the number that you have to meet each and every month, going forward. So now start comparing your income and your expenditures. Do you spend more or less than what you normally make? If you’re spending more, then look back over your categories and find one that you can drop. Does that bring you below your average income? If yes, then stop for now and maintain that spending point for a month or two. If no, then keep going, unless your spending is less than what you made that month.

Start Making Progress

So that’s it. Now that you’re spending less than what you’re making, you can start making a positive impact on your finances. What do you do with the extra cash flow? Well, that’s up to you. Some great options would be to start paying off debt, to start building an emergency fund, or to put money aside for the future. It really is as simple as that.

Related Posts:

• Personal Finance Basics: Build an Emergency Fund
• Back To The Basics Of Personal Finance
• Personal Finance Basics: Become Debt Free

Personal Finance Basics: Spend Less Than You Make originally appeared on Canadian Finance Blog on January 25, 2012.