Map out your future, but do it in pencil.
~ Jon Bon Jovi
Well, after the last 2 years, my pencil is 2 centimetres long and my eraser – well, let’s just say I have a new one. Budgeting and goal setting have been a real challenge recently for reasons outlined in Our Money Story (Part I & Part II) last week. Still, that hasn’t kept me from trying, and sometimes failing.
I normally might have finished my 2010 list of goals some time in December in years past. This year, I just couldn’t do it. There seemed to be too many uncertainties surrounding 2010, and frankly, after 2008 and 2009, I was afraid to write anything down because I was pretty sure all my plans would eventually get scrapped anyway.
But as sure as flowers in springtime, my annual New Year’s burst of energy and optimism kicked in. I’m ready to go with as many pencils and erasers on hand as it takes to get it right – or at least avoid steering us into the financial ditch!
Before I get into specifics, I have to say that I really have no idea what our income will be this year – hence the procrastinating. Mr. Cents’ new job involves a base salary plus commission, with the option to convert to straight commission whenever he wants. Having set the background, here’s the plan:
- Make sure basic living expenses are covered by the base salary.
- Plan for 25%-30% extra income from commission, as it is almost impossible that the commission would be zero. This money will go to covering some of the budgeted items that are outside of the “basics” category, paying down the mortgage, and contributing to the TFSAs and RESP- in that order.
- Find a way to cut cable T.V. expenses. We do not watch much T.V. but I have some channels that I really do like to have. Each one happens to necessitate a whole new fee level from the cable company. For example, I like to have BNN and CNBC. But I also like to have SportsNet in the summertime, as watching baseball is my summer happy place. I wish we could pay per channel, but that doesn’t seem to be a possibility. Further, it seems we need the more expensive digital cable to have more parental controls, which almost seem to be a must these days. (Have you seen some of the stuff on T.V.? I know my parents didn’t have those kinds of worries.)
- Closely monitor grocery and dining out expenses. In the past, we had a small monthly budget for “cash”, which I usually didn’t track closely. Usually, the cash was spent on groceries (stocking up on sale items) or dining out. When things got tighter last year, I decided that I needed to know where that money was going, so I set up a “Cash Account” in Quicken where I keep track of it. This means I don’t have as accurate a spending history as I would like, so I’m going to have to make adjustments as 2010 progresses.
As mentioned in Our Money Story, our mortgage is currently at the manageable level of $34 000. I have recently reduced our weekly mortgage payment to accommodate our lower income level. Even at that, I took some money out of our TFSAs at the end of 2009 to cover budget expenses for 2010 as the base salary won’t quite do it. Paying off the mortgage is a huge priority for us, as it would give us a lot more breathing room given our inconsistent and uncertain income situation. We have no other debt.
- As mentioned above, I took about 80% of the money we had in our TFSAs out at the end of last year in anticipation of a budget shortfall. This way, if things go better than expected, we can put that money back and still contribute up to $5000 more for each of us for 2010 if we are able to do so.
- The remaining 20% constitutes a $2000 emergency fund, which will also cover our home and vehicle insurance deductibles. We have the highest deductibles we are allowed in order to save on insurance costs.
- Last year, we contributed quite a bit to our RRSPs because of a deferred compensation package that Mr. Cents received. Due to current conditions, it is unlikely that we will contribute anything further this year unless Mr. Cents has such a spectacular year that we need the tax break. That is not on my list of most likely scenarios though.
- Currently, all of our investments are in cash. I may consider select investments in stocks as the year goes on, but for now, it’s safety first.
- We can use some of the RRSP money if a true catastrophe occurs, so that helps me sleep at night. But I am planning to leave that money alone and keep it for retirement.
- We are definitely behind on our RESP contributions considering that 2 of our 3 children are already in Grade 9. Our third son is currently in Grade 5.
- Should the income scenario turn out more positively, I would like to take advantage of the 20% CESG to boost the account.
- I’m uncertain about whether to put excess cash into the RESP or TFSA first. At the moment, I’m leaning toward a 50/50 split.
There you have it. I hope that this might help some of you who aren’t sure about the mechanics of setting up an annual financial plan. As you can see, a lot of the details depend on your unique situation, and also on the assumption that you already have some type of budget in place. The key is to have a plan that works for you. I will update this plan quarterly and you guys can hold my feet to the fire on sticking to it.
How about you? Have you got your stack of pencils and erasers working yet? Do you see any glaring errors in my plan? How could I improve it?
Update: Many thanks to Emily Starbuck Gerson of creditcards.com for including my post on 6 Remedies for a Debt Hangover in her list of favourite posts from last week. There are some other good ones there as well. Plus, I got to share some screen time with Elvis. Check it out!