The Struggles of Saving

January is the month where most financial goals are set. If you think you messed up with your finances last year, then you might want to read on as we will point out the common reasons why some people can’t save money. However, if you have stumbled upon this article in the middle or last quarter of the year and your bank accounts have little to no activities in previous months, then you have all the more reason to read, reflect, and reset your financial goals.

Many people ask question, “Why Can’t I Save?”. In order to find the answers to this, one must first understand the underlying causes. Can your salary sustain your needs? Do you need budgeting assistance? Are there ways to cut your weekly or monthly costs? Do you need part-time jobs to support your “extra expenses”?

When we say extra expenses, these are the unnecessary purchases and charges. To identify these expenses, make an inventory. List all your bags and shoes, sort your clothes, check your accessories and makeups, and all the other stuff you most likely spend on. That way, you will know how much you have and you can quantify your needs best.

Clothing is considered as basic necessity but, it becomes a financial burden if you buy clothes more than what you need. You might say, “I need a good dress for my office meeting next week!”, but remember, you thought about it too the last time you had a meeting and you bought a nice dress. That dress might be as good as new or you might have forgotten the expensively good-looking pair of blouse and slacks you wore during your office presentation.

Next is to decide whether a designer bag can make you happy or a fat bank account. If you think overly spending on high class bags and shoes can make you enjoy life even more then this could not be the right article piece for you because we cannot help you until you realize the importance of saving money today and for the future.

The common reason why most people, if not all, buy high end accessories is for them to have something to show off. Your officemate got a latest, high-end phone last week and you don’t want to be outshined, so you head on and used your credit card to get a new phone while still being under the contract of your current mobile provider. This will make your monthly bills pile up and can be one of the root causes of your unexplained high monthly obligations. Harsh, but true because it happens most of the time.

Each time you have an urge to purchase something, make a financial evaluation first. Do you really need it? Can you survive the next 48 hours without it? Will you be using the item for the next couple of months or will it start rotting in your closet next week once your happy-meter subsided?

10 Ways To Teach Kids About Money

Did your parents teach you about money when you were growing up? Did they emphasize the value of having good credit and how to live within your means? Did they teach you how to buy groceries, put money aside for emergencies, and pay yourself first? What are some ways that you can pass this knowledge on to your own kids?

Here are 10 ways to teach kids about money.

1. Bring your kids to the bank and the ATM when you deposit and with draw money. Get them familiar with how the banking system works.

2. Explain to them that the money they earn is usually electronically deposited into their bank account and that it is important to pay themselves first, ten percent of the amount deposited. This ten percent is then automatically put into some sort of savings account. The rest of the money is reserved for living expenses.

3. Talk to them about paying rent or a mortgage, spending money on food, fuel for the car, car expenses, TV expenses, electricity, heating etc. Explain the importance of turning off lights when they leave a room.

4. Teach them to delay instant gratification by saving for the item they want. They will appreciate and value it more when they acquire it.

5. Teach them what it means by depreciation. Explain that when a new car is driven off of a lot that it instantly loses value. Would it not be more prudent to purchase an older car for them to use as their first car. Explain what it means by getting value for their dollar.

6. Teach them how to cook from scratch. Not only will they eat better but they will save a lot of money by not eating in restaurants.

7. Teach them how to properly use credit cards. If they have a balance on a credit card they must pay off the credit card in full each month. They may opt to purchase credit cards that they put a limited amount of money on it instead of carrying cash in their pockets.

8. Teach them to only purchase items they want on sale. Regularly bring them to thrift shops to buy items that they need. Have them celebrate whenever they acquire something 50-75% off the regular price.

9. Teach them about the magic about compound interest! This one tip may make them millionaires by the time they retire!

10. Teach them to take courses on how to invest of their money. As they get older have them find a mentor that has achieved what they want to achieve financially and have them do what he or she did. Remember, one of the most important skills they can learn is how to handle their own money.

The RESP: Frequently Asked Questions (FAQ)

An RESP is a “Registered Education Savings Plan” and it is a popular tool to save for education. The idea of the RESP is that you would contribute money into an account, and the government would contribute 20% of what you put in up to $500 per year. There are additional grants available, but there are conditions based on having lower income. The other reason why the RESP may be beneficial is that the income generated in the account would grow tax free until it is withdrawn. This would happen when the child goes to school, which is usually 18 to 20 years from when the child is born. There are limits to what you can put in – $50,000 lifetime per child, and the government will only give up to $7,200 lifetime in grants. The money the government gives you is called the Canada Education Savings Grant (CESG). The subscriber or contributor is the person who contributes money into the RESP and the beneficiary is the person who receives the benefit or the money. The child also has to have a SIN number to have an RESP for them.

What if I Don’t Contribute Every Year?

You can catch up your contributions up to $1000 in grant money each year. You can contribute any amount at any time as long as the lifetime amount contributed is under $50,000.

Can the Child Waste the Money?

In order to withdraw the money, the child must have proof of enrollment in a qualifying school (College, University, and specialized schools like trade schools) the first time the money is withdrawn. After this, the money can be taken out whenever it is needed for books and other school costs. Also, the parent has to ask for the withdrawal from the institution and must direct whether to withdraw from contributions or income for tax purposes.

What if I Have More Children?

You can start a second RESP or transfer the first RESP to a second child if they use the funds instead of the oldest child. Transferring between children can be done with any type of RESP account. The second child would have to be named the beneficiary on the RESP before they can have access to money.

What if My Child Does Not Go To School?

There are several options. The first is to keep the RESP in case your child changes their mind. You can keep an RESP open for 36 years after it is started. The money can be transferred to another child if you have more than one. Any money that is contributed can be taken back by the contributor without penalty. The CESG grant money would go back to the government. All of the income generated is taxed at your income tax rate at the time of withdrawal plus 20%. You can transfer this money into an RRSP if you have RRSP room.

Transferring to an RRSP

If you know for a fact that your children will not be going to post-secondary education, you should stop contributing to your RRSP about 3 to 4 years in advance of this date to allow RRSP room to build up. If you do this, any RESP money that is not utilized for education can be transferred to the RRSP without tax penalty. The government grant would be taken back, but you would be saving taxes on the income generated before your children go to school. The current penalty is 20% taxes on the income generated, which could be quite a lot of money. There is still plenty of time to plan for this and it is something to keep in mind once your children reach their teenage years.

Does My Child Have to Be Full Time in School?

A part time student also qualifies for withdrawals from an RESP.

Does it Have to Be a College or University or Can it Be Any Type of School?

It can be a college or university as well as a trade school, CEGEP (province of Quebec) or any institution approved by a provincial authority under the Canada Student Loans Act, Canada Financial Assistance Act, Province of Quebec Act for financial assistance, an institution certified by the federal Minister of Human Resources and Skills Development, or a school outside of Canada. Visit the web site “Canlearn.ca” for more details.

What Type of Account Do I Need and Where Do I Open it?

There are two main types of accounts, a pooled or group RESP and a self-directed RESP. The group plans tend to have a lot of restrictions so the self-directed type of account is the one recommended. This type of account can be opened at any bank or institution. There are also family plans and individual plans. There is not much difference between these plans in terms of what you can do or not do. To ask for a self-directed RESP, ask for a plan that allows you to buy individual stocks and Exchange Traded Funds (ETFs)

What Can I Invest In?

Any investment that can be held in other registered accounts can also be held in an RESP. This would include, cash, bonds, equities, mutual funds, Exchange Traded Funds (ETFs) and other securities that are traded on an exchange or in a market. Limitations would depend on what type of RESP account you have and where it is located. It is advised to account for the time horizon and timing of withdrawals, risk tolerance, comfort level, and knowledge of investments as well as fees and account restrictions.

Are There Rules When I Take the Money Out?

The money inside the RESP that is paid out is divided into 2 parts: money that was contributed (or Post-Secondary Education Payments), and money that was given by the government or came about as a result of growth of the money inside the plan (Education Assistance Payment). The rule is that if you contributed the money, there are no taxes on it and no limits as to when it is taken out. For money that comes from somewhere else, there are limits so taxes and timing are important.

During the first 13 weeks of school, you can only withdraw $5,000 worth of money that you did not contribute. After that, you can withdraw more of this type of money without limit. The advice is to take out other people’s money before taking out the contributions in case your child does not finish school. If there is grant money left in the RESP and no child can use it, the grant money is given back to the government.

Can I Use an RESP As an Adult?

Yes, by opening an individual non-family RESP and naming yourself both the subscriber and the beneficiary, you can contribute up to $50,000 total over the life of the plan. The attraction lies in the fact that you are eligible for the EAP regardless of whether you attend or pass the class, and that correspondence classes qualify. Although RESPs for adults are not eligible for the Canada Education Savings Grant, they can be one of the few investments that allow assets to grow on a tax-deferred basis, which is particularly valuable if you don’t have any RRSP or Tax-Free Savings Account (TFSA) contribution room.

January’s Financial Stress

Christmas is over and the bills are arriving. It’s time to figure out how you are going to handle the January financial stress. Following are some hints that will help you to get back into control again:

REGULAR REPEAT EXPENSES:
1. Prepare a chart with headings that include: Item; Amount; Due Date; Minimum Payment; Interest charged; Notes
2. Go through your bank statements and invoices entering information about recurring expenses in the chart. These are things that you cannot change and must pay based on your contracted arrangements.
3. Consider ways that you might be able to reduce these costs. For example, calling your telephone, internet or cable companies may provide you with options to move to a less expensive plan.
4. Think about how larger decisions might improve your finances within the next few months. Maybe you can move to a less expensive location or sell a vehicle for example.
5. Total the amount that you need to pay all of these expenses each month without having to pay a penalty.
6. Set a plan for the next twelve months to pay off as many accounts as possible that incur interest.
7. Do not add any new accounts or items. For example, it is much less expensive to pay for repairs on a vehicle than to incur an ongoing payment.

DISCRETIONARY EXPENSES:
1. Make a chart with the same headings as you did for the Regular Repeat Expenses.
2. List all of the things that you need (not want) each month. These would include things such as food and hairstyling.
3. Consider the things that you can reduce or eliminate from your list. You might, for example, decide to make your lunch instead of eating out or get your haircut every six weeks instead of every five weeks.
4. Use what you already have. You can likely dress appropriately with the items you already own or read a book rather than going to the theater.
5. Allocate the amount you can save on discretionary items towards paying off things in #6 above.
6. Use cash instead of credit or debit cards so that you can more easily connect with your spending habits.
7. Make payments on #6 items more frequently. For example, paying a small amount weekly rather than a larger amount once a month will reduce interest charged.
8. Pay extra amounts on the item or accounts with the highest interest rate first.
9. Close accounts as you pay them off – especially credit cards.
10. Stay out of the stores as much as possible so you won’t be tempted!

INCREASE YOUR INCOME:
Even if you only earn an additional $20.00 a week, you will have an extra $1,040.00 per year. When applied to an account with a 21% interest rate, you save at least $218.40 compounded, reduce your debt and improve your sleep factor!
Imagine what would happen if you could earn $200.00 extra a week.