4. Benefits
• Budgeting is a best way to reach your financial
goals.
• It help to live within income.
• Meet financial Emergencies.
• Gain a sense of financial Independence.
Budgeting
4
5. A Budget Tells us what we can’t afford,
but it doesn’t keep us from buying it.
William feather
5
7. • Include al Fixed bills such as rent, electricity and
gas bills etc.
• Subtract these bills from your income then you
know how much you left.
• Save left money for emergency financing
situation.
• Make Asset debt statement
7
17. • Record all your expense on paper or spreadsheet.
• Review your each month expense.
• Buy what you need , not what you want.
• Make it habit to check your bank ,credit and saving
statement.
• Try/strive to own a house instead of renting.
• Avoid from bank loans because they charge interest
on it.
Money Management
17
18. • Stay away from short cuts to wealth such as
gambling and other schemes to make rich.
• Seek a financial adviser to help you plan your
finances and investments.
Money Management
18
21. • Near-cash assets: record their present value
• Corporate bonds: check their current market value
• Use tables in life insurance policies to find value
• Find out what you’d get for your RRSP
• Find out the current value of your pension plan
• Look for comparable home values
Preparing a net worth statement
21
22. • Check classifieds for value of vehicle
• Canadian Red Book / Gold Book of Used Car Prices
• Furniture, etc. – what would you get if sold?
• Don’t overlook anything
• For debts, check statements or call lenders
• Don’t include future bills
Preparing a net worth statement
22
25. Other Resources
25
Offices in Edmonton, Red Deer, Calgary,
Lethbridge & Grande Prairie
Toll-free in Alberta: 1-888-294-0076
www.moneymentors.ca
Canada’s Office of Consumer Affairs
Industry Canada
https://www.canada.ca/en/services/finance/
manage.html
Consumer Contact Centre
Edmonton: (780) 427-4088
Toll-free in Alberta: 1-877-427-4088
What if I don’t want to plan my spending? I’m young and I have lots of time to think about this later. That’s a common way of thinking, actually. But if you don’t want to plan your spending, your only control is your paycheque. If you spend it all during the month, make sure you don’t commit yourself to any credit payments. This isn’t the best way to handle your finances, but on the plus side it should keep you out of debt if you’re careful.
I’m making it each month so I should be okay. Is a plan really necessary? Well, consider the following questions: do you have a credit card balance? Are you prepared for gift-giving occasions? Are you accounting for car insurance premiums? Making it through each month means also preparing for yearly expenses, such as car insurance. The Money Planner (included in the print version of this module) identifies some of these expenses and shows you how to fit them into your plan.
Figuring out where I am sounds like too much work. Why bother? Truth is, it can be as much work as you want it to be. Decide which spending areas you need to keep track of and do it for a month or two. In general, the ‘problem’ expenses are food, personal spending and the irregular annual expenses. They are a good place to start recording.
We’re going to talk about the net worth statement, and how it can help you determine where you stand financially.
Your net worth statement shows you the strong and weak points in your current financial situation. It is also a way of keeping score. By comparing statements over the years you can easily see if you are making progress toward your financial goals.
Your net worth is the amount of money you would have left if you cashed in everything you own and paid off all your debts. It’s important to be as accurate as possible when you complete the net worth statement, and to prepare a net worth statement every year.
Some articles suggest I spend X percent of my income on food and Y percent on housing. Why can’t I just do that? Well, percentages don’t take into account your goals, preferences, and in some cases, where you live. How you spend is about you and what you want to do. You can choose to spend less in one category and more in another (for example, take the bus instead of buying a car so that you can do the holiday traveling you want). Straight percentages just don’t work.
If you’re looking for the best advice you can get about planning ahead, here it is:
Know how much it costs to live your life each month, including your irregular annual expenses, like car insurance, property taxes and Christmas gift purchases.
Spend less than you earn each month, and avoid using credit to subsidize your income.
Put money away for emergencies.
Plan what you want your money to do for you by setting goals.
Money management starts with thinking about how and why you spend.
You have to ask yourself, are you getting what you need? Are you getting what you want?
What would you like to do differently?
Before you can plan, you need to know how much money you have to spend and how you are spending it now. The Money Planner is a handout that accompanies this presentation, and it will prove an invaluable tool in helping to clarify the state of your finances.
In the first section, you calculate all the money you have coming in from all sources.
Next, you jot down how much you are putting aside for emergency fund savings, or any other savings goals you have. These are subject to change of course, and you may not be able to figure out these numbers until you have completed the remainder of the Money Planner.
The next section of the Monthly Planner deals with your monthly expenses.
First you have your living expenses. There are sections for figuring out the details of your utilities, personal allowances and annual expenses a little later on. You want to be thorough in this section in order to get a clear picture of your situation. When it comes to your monthly spending, you want as few surprises as possible.
Next it’s important to detail any credit payments you are making each month, be they to a credit card, a line of credit, a student loan, a car loan, and so on. Again, be thorough.
Once you have figured out the full amount of your monthly spending, you can add together your monthly savings contributions, your living expenses and your total monthly credit payments to figure out what your total monthly budget will be.
Next the Monthly Planner will help you to figure out the details of your expenses for you to enter on the previous chart.
Monthly utilities go up and down each month, so you will want to take an average of your last twelve months in order to fill in this chart. Remember that utilities like power and natural gas can go up in the winter, your phone bill may fluctuate with long distance or data overage charges, while your cable bill will probably stay fairly constant throughout the year.
For your personal allowances and recreation, you will want to allow yourself some breathing room. Be thorough, but keep in mind that this is where you will need to trim if you find your expenses and savings are outpacing your monthly income. These two totals will then get transferred to the previous sheet.
Setting financial goals is a key first step to becoming a better money manager. They will help you prioritize where you want to spend your money. For goals to work, they have to be measurable, otherwise how will you know you have reached them? Ask yourself:
What do you want to do in the next 3-12 months that will cost money? What do you hope to do beyond that time?
Perhaps you want to pay off the $1,000 you owe on a credit card, buy a new home theatre for $2,000, put $1,000 in an RRSP or spend $20,000 on a new car. For each item on the list, it’s important to calculate your costs as accurately as possible.
Anything you want in the next 3-12 months will qualify as your short-term goals. Anything beyond that would fall into the category of long-term goals.
It’s more difficult to be specific with long-term goals, such as taking an extended vacation, going back to school or buying a home. However, it’s important to be as precise as possible.
We’re now going to talk about emergencies, and how you can best be financially prepared for the unexpected.
Life is never as smooth as you might like. A sudden death, a serious accident, a strike, an unexpected downturn in the economy – any of these could put a serious strain on your income. Even a small but unavoidable over-expenditure in one budget category can begin a destructive cycle of borrowing from second category to pay the first, then from a third category to pay the second, and so on.
Having an emergency fund is one way of meeting these financial challenges.
Here are some ideas that will help you think about your future.
How is your income likely to change in the next 5, 10 and 15 years?
Do you plan to stop working to return to school?
Will you finish schooling and start earning more money?
Will your family status change? Will you get married or have kids?
Will you need to buy or replace furniture, major appliances or vehicles? When? How much will this cost?
What type of housing will you need in the years to come? Will you buy or rent? How much will this cost?
What are other probable expenses in your future?
Are you preparing for retirement? If not, when will you begin doing so?
How much money do you owe? In view of your income and expenses for the next few years, is your debt load too large or is it reasonable?
Take a couple of days to think about your current situation and how you might make it better.
You should start by studying your completed Money Planner. Ask yourself, you continue spending your money as you are doing, will you be able to live within your income and achieve the goals you set?
If you’re concerned, what is preventing you from achieving those goals? What can you change? Are you worried about your debts?
Next you’ll want to look at every expense item on your Money Planner chart. Do you want to spend more or less than you are spending on each item? Would you rather spend that money on something else?
Amazingly, without even thinking people often spend lots of money on things they do not value. This often means they cannot buy the things they really want. Put your money where your desire is.
Once you have established where you are and where you want to go, the next step is to do what you have to do to get there.
Think back to the goals you set. Often when people look closely at their financial situation, their goals change. If you want to change your goals, now is the time to do so.
Once you have finalized your goals and thought about how to make your current situation better, you’ll next want to change your Money Planner chart accordingly. It’s important to keep this up to date.
This time, you’ll want to make sure that your income and expenses balance.
If you’re worried about your debt making it difficult to find balance within your Money Planner, there are people out there who can help you out.
Money Mentors is a not-for-profit consumer debt counselling service that offers a number of debt repayment options. They are the only organization in Alberta legislated to provide the Orderly Payment of Debts program to Albertans. Their staff has specialized knowledge in family financial management and consumer debt handling strategies. They will work with you to develop the best solution for your personal situation.
Here are some tips for preparing your net worth statement:
If you have near-cash assets, like government bonds or long-term investments that can be cashed in before they mature, calculate their present value. That’s their face value plus accrued interest.
To find the market value of corporate bonds, common shares and mutual funds, check online or consult your broker
Use the tables in your life insurance policy to calculate its current cash value, or call your agent. Note that not all insurance policies have cash surrender values.
Contact the appropriate company or financial institution to ask how much money you would receive if you cashed in your RRSP.
If you have a pension plan at work, talk to someone in personnel or HR to see how much cash you would receive if you quit the plan.
To find the value of your home and property, you can usually find out the asking price for similar properties in your area. Some real estate agents will offer a free market evaluation service – this can be an even more accurate way of determining your home’s value, as the asking price of similar homes may not be the final selling price.
A few more tips for compiling a thorough net worth statement:
Check classified ads in the newspaper or online to find out the asking price for cars similar to yours. Remember that the asking price may be higher than the final selling price.
You can also have a look in the Canadian Red Book or the Gold Book of Used Car Prices, which show average prices for specific models of cars, based on recent sales. You can usually find these in local libraries.
It’s difficult to determine the value of home furnishings and recreational equipment. You may have paid a lot of money for these items, but the market to sell them used usually isn’t great. Estimate how much you would receive if you sold these items. Be conservative.
Don’t overlook any of your assets. If you supply your own equipment at work, if you have an annuity, make sure to include these items as part of your net worth statement.
To figure out how much money you owe, you can usually look at your most recent statements for loans, lines of credit, credit cards, etc. You can also contact your lenders to ask how much it would cost to pay off the debt in full. Make sure you include any unpaid bills, such as rent or utilities that are due or past due.
That said, do not include bills that are not yet due but will have to be paid in the future, like next month’s rent or your car insurance that is due four months from now. Just focus on what is due presently.
What does your net worth statement tell you about your current financial situation? Are you comfortable with the amount of money you owe compared to what you own? If not, what changes will you make? Are you pleased with the amount of money you have in savings, such as your RRSP, term deposits or Canada Savings Bonds? The whole idea behind preparing the statement is to identify the strengths and weaknesses of your current situation, then make plans to maintain the strengths and reduce the weaknesses. Comparing net worth statements over the years will help you confirm that you are making the progress you planned.
Here are a few other resources for you.
First there’s Money Mentors. They have physical locations in Edmonton, Red Deer, Calgary, Lethbridge and Grande Prairie.
Canada’s Office of Consumer Affairs website has some great tips and information for Canadian consumers.
Of course you can always reach out to Service Alberta’s Consumer Contact Centre for answers to any of your consumer questions.
