Expect the Unexpected in Life: An Insurance Blog

Hey Everyone!

Many of you are graduating or have graduated from university or college in the last few years. You're starting your career and you're making the biggest amount of income that you ever have in your life.

I've been talking about investing a lot in this blog and today is no different. Financial success doesn't necessarily mean being rich but it's making smart moves with your money while you have the opportunity. I've been told many times "Buy things that increase in value and lease things that lose value." Owning something that increases in value is always a smart move.

Houses generally increase in value after you buy them. They are an asset that is just as important as your RRSP.

So much so that the government has a special option to use with your RRSP. Its called the First Time Home Buyers Plan. It allows you to withdraw up to $20k from your RRSP without being taxed.

You may think that it's silly to withdraw these funds from your rrsp while you're saving for you retirement. If they go towards an investment that increases your overall net worth then it's a smart move.

The fact is within then next 5 to 10 years or even sooner you'll be looking to buy a house. Why not have the down payment ready for when you're ready to buy? This will save you a lot of hassle and scrimping and saving!

The kicker on top of all of this is you get to claim the amount you contributed into the RRSP on your tax return. Based on your income tax rate you will receive a deduction from the government!

Doesn't this sound like something you should be persuing?

Give me a call or toss me an e-mail if you're interested.

Take it easy!

Mike

Liz requested that I write a little bit about how to come up with a budget for yourself including how much you should spend on what.

In my past I was very careless with my spending. I bought whatever I wanted when I wanted even if I didn't think I could afford it. I lived paycheque to paycheque while I had one coming in. I'm a changed man! :P lol. Now that Megan and I use a budget we've been able to curb our unessesary spending (mostly) and save for the things we've really wanted like our wedding, a trip to NYC this Nov., paying off debt etc.

A budget is key if you're looking to manage your money and your spending. You can see your entire necessary expenses and see how much you have left to spend after this. This way you always have a handle on where your money goes.

Before I get into how to make a budget here's something I found in another blog about how to divide your budget.

Housing with insurance 25-35%
Transportation with insurance 10-20%
Food 15% - 20%
Debts 10%
Savings 10%
Recreation 5%
Health Care 5%
Utilities 5%
Others 10-15%

http://goodlifebudget.com/budget/how-to-divide-up-your-budget/
He compliled these numbers from articles that he found. They seem very reasonable to me.

Now life is never perfect (sorry perfectionists). There's always something unexpected that will make you spend more than you wanted. In order to find out what percentage of your income you are spending on what you first need to find out how much you are spending on everything.

Here's a link to a budgeting tool from RBC: http://www.rbcroyalbank.com/savingsspot/easy-budgeting-tool.html. This is basic and it shows you how much you have left to spend each month or if you are over your spending.

What Megan and I have done is taken an idea like this and made it into an excel spreadsheet (I have a few made that I can send to you if you want). Basically you take the categories from the budgeting tool and add 12 months. Make sure you have your bank/credit card statements handy so you can tell exactly what you've spent money on.

First you want to have your after tax income.

Second you should have all fixed expenses:

Mortgage/Rent
Utilities
Transport
Phone/internet/cable
Debt
Gym membership
Savings
Insurance

Anything that's a monthly fee/deposit. Make sure you include savings here even if it's 0$. You can change this number at the end. There's a saying that my dad likes to tell me and that I've seen on the interwebs quite a bit. "Pay yourself first!" Carrying a savings can help you be less stressed about your money and when you aren't stressed life will be more enjoyable.

Next you find all of your variable expenses.

Food
Booze
Gas
Clothes
Entertainment
Misc.

Anything that could be different every month. Always make sure you add in the Misc. In a second worksheet list exactly what each of the misc. expenses were.

Minus all of the expenses from your after tax income. This will show you how much money you have left over each month. Once you see this amount you can make an educated decision on how much you'd like to save. If you'd like to start a TFSA or RRSP let me know, it can be a monthly deposit from your account so you don't even have to think about it.

It's a great idea to keep your money in a savings account until you need it. This way if you don't spend all of your money the remainder stays in a savings account where it's easily accessible. This is called your emergency fund & everyone should have one. This is in the event that something happens that you didn't expect (expect the unexpected!) you don't have to go into debt.

Generally an emergency fund should be 3 months of your income (this is usually how long it takes for disability insurance to kick in). However if you're just starting just make sure it's a comfortable amount for you. Any extra above your emergency fund amount should go into a higher rate of return savings like a TFSA or RRSP.

Take your categories and find out the percentage you spend of your income on each and compare it to the percentages above. My guess is there will be something you love to spend money on that you don't need to spend as much money on each month ie. booze. Cutting back a little on your spending in certain areas will help allow you to start saving some money.

If you want my spreadsheet let me know I can send it to you by e-mail! Good luck with your budgets! I was always intimidated with budgets before, probably because I didn't want to face the reality of my spending. However, once you face reality your eyes are opened to new and exciting things!

Sorry I'm posting this today. I meant to do this last night but got sidetracked with going to see the movie in the park! I recommend Coroline to everyone!

See ya!

Mike

Ok, so pretty much all of you watch TV and you've seen commercials for CIBC or RBC and they throw a whole bunch of crazy abbreviations at you that you've never understood. Today I'm going to take any lack of understanding about these acronyms and blow it out of the water...hopefully anways! :P I'll give you the abbreviation, what it stands for, then what that means to you.

RRSP - Ah yes the Registered Retirement Savings Plan - This is probably the most important one that any of you will come across...unless you're American of course! When you invest your money any income you earn (growth) will be taxed by the government. However, if you invest using an RRSP all of that growth is tax sheltered. This means it grows tax free. If you decided to take the $$$ out before 55 (which I wouldn't suggest anyway) then you would have to claim that as income on your taxes and will have to pay income tax on it.

RRIF - Registered Retirement Income Fund - Once you retire you convert your rrsp into an rrif. This allows you to pay yourself a set income per year in your retirement.

Non-registered - Not an abbreviation but something you should know - Investments where the growth is not sheltered by the government.

TFSA - Tax-Free Savings Account - I'm sure you've seen all the commercials for the TFSA. This is basically a mini-rrsp, there is a $5,000 limit on the amount you can deposit per year, but you can take the money out whenever you like tax-free!

RESP - Registered Education Savings Plan - Allows for tax-free growth on an investment to be used towards a child's education after highschool. The government will grant up to 20% of the first $2,500 invested each year. This means they add up to another $500/year for the investment.

Alright I think this is enough for today! I don't want your brains to explode or anything ;)

These are all ways in which you can invest your money. You can have multiple investments in any of them. From mutual funds, segregated funds, GICs, GIOs, bonds, T-bills etc.

Well I hope this has been informative for all of you. And just so you know, yes, I can help you with any of these. If you're looking to start an RRSP, have wondered about a TFSA, or just strictly want to start saving your hard earned dough give me a call!

Have a great one!

Mike

Everyone has a past, present, and future. Our memories are our past, we are our present, and our future is the unknown.

Many people have a fear of the unknown. This is why we are afraid of the dark or of death. The future is unknown, but, you can certainly make a fairly accurate prediction of where your future will take you. Everyone dreams of how their future will look. This is what I'm going to ask you to do right now.

Imagine, if you will, a crystal ball in front of you. In the crystal ball you can see your life 10 years from now. What do you see?

Me? I see two kids, a bigger house, a nicer car (even though I love my current one!), my two cats will be older, I'll probably have a dog and I see a cottage.

Probably not a whole lot different than what you see in your future now is it? I'm guessing you'll see kids, a house, marriage, a nicer job etc.

How are you going to pay for the down payment on your house? Down payments are 5% of the value of the mortgage, so if you were to buy a house for $400,000 (fairly reasonable price for a detached home) then your down payment would be $20,000.

How are you going to afford your wedding? Ours was $13,000ish and we basically did as much as we could on the cheap.

Do you have $20,000 just sitting around waiting for one of these moments? Probably not, if you do then good job!

These are things you need to prepare yourself for. It's a lot easier to start putting money away now for the things that you'll need in the future than to just happen to have the money in the future!

There are ways of paying for the down payment on a house with an RRSP. Or you can use a TFSA to save for a wedding. These two things will both give you much better growth of your money than just putting it away in the bank.

If you want we can get together and talk about how you can plan for your future. All my info is in the right hand side of this blog!

If you know someone who's looking to buy a house or who is getting married in the next year send this link to them, I'd love to sit and talk with them!

Hope you all have a wonderful day!

Mike