Spring Cleaning your finances
Everyone spends this time of year focusing on spring cleaning. Bang out the carpets, launder the drapes and scrub the baseboards, but how many people actually take the time to spring clean their personal finances? It is tedious and often un-enjoyable to dump out the files (or shoe box of receipts) and review your financial situations. Just think of the excitement you will feel when you are done and you have an extra couple hundred bucks in your pocket each month!
Step one - Review your spending on extras
How many gym memberships or magazine subscriptions do you have? How many automatic debits are there on your credit card of only a few bucks each month, that added up can be somewhat significant? Late at night, you sign up for some e-mailing list that sends you hot stock tips and you forget you have that “service” and they charge a small fee like $9.99 per month, so you don’t really see it, but remember that is $120 per year. I have seen where someone is paying for a magazine that they do not even receive, it is sent to an address they previously occupied and they forgot to cancel the magazine.
The other fees that kill you are banking fees. Start walking the extra block to your own banks machine. You are charged anywhere from $2 to $10 for each transaction that you make at an ATM that is not from your bank. Plus, you get some more exercise, two bonuses in one tip!
Step two – Your service providers
Are you getting the best possible deal from your Internet/telephone/pay-per-view providers? Are you part of their bundling package? Have they offered you the free WIFI calling features? If not, make them improve it. How? Threaten to take your business elsewhere, companies spend way more money trying to get new customers than keeping the older ones, remember, the squeaky wheel gets the grease.
Step three – check your credit
You should annually review your credit score and look at your credit report. Strange things can happen here. I know someone who paid off their credit card, only to find out 3 years later, from a collection agent, that they were default a few hundred dollars. Why? They paid off the balance, not the accured interest. So that extra interest sat, earning more and more interest. This also put a huge black mark on their credit for any further purchases.
If you are in debt, STOP DIGGING! The next step is to make a plan to pay off your debts. Take the payment, divide into the amount owing and pay off the highest ration first. Read David Bach’s books, and learn to DOLP your debt.
Step four – Learn the difference between good and bad debt
Yes, your parents were wrong, not all debt is bad! Some debt is good debt. Good debt is debt that is tax deductible. Learn what the difference is between tax deductible and non-tax deductible debts. Student loans are a great example. Often your bank person will offer you a consolidation loan for your Ontario or Canada Student loans. Do not do it! You will convert tax deductible debt into non-tax deductible debt. Instead, call the loan provider and ask them to amortize the debt over the maximum time period and keep that tax deduction rolling in. Focus instead on those credit cards, consumer cards and car loans.
Step five – make things automatic
Make your bill payments automatic. Have them auto-debit out of your bank account. That way you ensure your bills are always paid on time. Consistent late payment of bills is debilitating to your credit.
As well, it makes it easier to budget. I personally pick one day a month that is bill day. I have asked all my payees to take out their auto debits on this one day (better to choose mid-month). That way, I know exactly how much money I need on that day and can budget accordingly. I found it very difficult to budget when I had a few hundred dollars disappearing everyday. By making a change, and making it automatic, nothing slips through the cracks.
Step six – invest in real estate
By investing in real estate, you will create tax deductions. For people who are not self employed, the best way to create excess money is to invest in real estate and let the tax deductions from real estate lower the amount of income taxes you pay annually. This is a huge advantage for non-self employed people, as your write offs can include interest charges, travel expenses, maintenance, repairs, lawyers fees, property management fees, real estate fees, CCA, etc
Step one - Review your spending on extras
How many gym memberships or magazine subscriptions do you have? How many automatic debits are there on your credit card of only a few bucks each month, that added up can be somewhat significant? Late at night, you sign up for some e-mailing list that sends you hot stock tips and you forget you have that “service” and they charge a small fee like $9.99 per month, so you don’t really see it, but remember that is $120 per year. I have seen where someone is paying for a magazine that they do not even receive, it is sent to an address they previously occupied and they forgot to cancel the magazine.
The other fees that kill you are banking fees. Start walking the extra block to your own banks machine. You are charged anywhere from $2 to $10 for each transaction that you make at an ATM that is not from your bank. Plus, you get some more exercise, two bonuses in one tip!
Step two – Your service providers
Are you getting the best possible deal from your Internet/telephone/pay-per-view providers? Are you part of their bundling package? Have they offered you the free WIFI calling features? If not, make them improve it. How? Threaten to take your business elsewhere, companies spend way more money trying to get new customers than keeping the older ones, remember, the squeaky wheel gets the grease.
Step three – check your credit
You should annually review your credit score and look at your credit report. Strange things can happen here. I know someone who paid off their credit card, only to find out 3 years later, from a collection agent, that they were default a few hundred dollars. Why? They paid off the balance, not the accured interest. So that extra interest sat, earning more and more interest. This also put a huge black mark on their credit for any further purchases.
If you are in debt, STOP DIGGING! The next step is to make a plan to pay off your debts. Take the payment, divide into the amount owing and pay off the highest ration first. Read David Bach’s books, and learn to DOLP your debt.
Step four – Learn the difference between good and bad debt
Yes, your parents were wrong, not all debt is bad! Some debt is good debt. Good debt is debt that is tax deductible. Learn what the difference is between tax deductible and non-tax deductible debts. Student loans are a great example. Often your bank person will offer you a consolidation loan for your Ontario or Canada Student loans. Do not do it! You will convert tax deductible debt into non-tax deductible debt. Instead, call the loan provider and ask them to amortize the debt over the maximum time period and keep that tax deduction rolling in. Focus instead on those credit cards, consumer cards and car loans.
Step five – make things automatic
Make your bill payments automatic. Have them auto-debit out of your bank account. That way you ensure your bills are always paid on time. Consistent late payment of bills is debilitating to your credit.
As well, it makes it easier to budget. I personally pick one day a month that is bill day. I have asked all my payees to take out their auto debits on this one day (better to choose mid-month). That way, I know exactly how much money I need on that day and can budget accordingly. I found it very difficult to budget when I had a few hundred dollars disappearing everyday. By making a change, and making it automatic, nothing slips through the cracks.
Step six – invest in real estate
By investing in real estate, you will create tax deductions. For people who are not self employed, the best way to create excess money is to invest in real estate and let the tax deductions from real estate lower the amount of income taxes you pay annually. This is a huge advantage for non-self employed people, as your write offs can include interest charges, travel expenses, maintenance, repairs, lawyers fees, property management fees, real estate fees, CCA, etc
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