Financial Planning, Retirement Issues


Easy Ways to Cut Spending in Retirement

April 7th, 2015 ernie Posted in Consumer Budgets No Comments »

Easy Ways to Cut Spending in RetirementMany consumers feel that they should just continue living life in retirement the same way they did when they were working. They do not consider that they may have to cut spending in retirement. The unfortunate reality is that with less income they are going to have to make some choices regarding their lifestyle and how they spend their money. There are some easy ways to cut spending in retirement. Fortunately some expenses will decline naturally. For example they will no longer need to pay to commute to work every day, so there is less wear and tear on the car and there is less operating costs to be concerned about. But this might not be enough and they will need to reduce expenses in other areas. We put together a list of areas to look at that can be considered to reduce your overall spending. They may not all apply to you personally, but even if one area does, then it means there is more money left in your pocket to be used for other priorities.

Easy Ways to Cut Spending in Retirement

  • Track Spending
  • Trim Food Costs
  • Pocket Savings From Sale Items
  • Reduce Your Rent
  • Shop for Best Price for Services
  • Hunt for Travel deals
  • Shave Savings from Spending Categories
  • Ask For Discounts
  • Pay With Cash

Track Spending – once you know where you are spending your money, better decisions can be made regarding where to trim expenses.

Trim Food Costs – buy in bulk, freeze leftovers, look at the expensive items to see if they can be reduced or eliminated

Pocket Savings From Sale Items – when you buy something on sale (which you should always do and never pay full price) pocket the savings and set the savings aside for an emergency

Reduce Your Rent – if possible by negotiating with the landlord, rent out a room, or downsizing

Shop for Best Price for Services – always compare the cost of services and what they are providing, ask for discounts, senior discounts, cash discounts etc.

Hunt for Travel deals – travel off-season, look for sales and take advantage of all-inclusive packages which are often less expensive that paying individually for airfare, hotel and meals.

Shave Savings from Spending Categories – look at each category of spending and ask yourself if you can reduce spending in each area by 10%

Always Ask For Discounts – the worst that will happen is that they say no. Often business people will reduce the cost by 10% or throw in a needed service that you were putting off for free.

Pay With Cash – only when they offer a discount for cash. Many gas stations do this and some stores will also offer discounts when you pay cash. Take advantage of these offers to save even more money.

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Living Pay Check To Pay Check

January 7th, 2012 ernie Posted in Consumer Budgets 1 Comment »

Living Pay Check To Pay CheckLiving pay check to  pay check is something that many people do all over the US and Canada, as well as around the world. We normally talk about retirement planning and getting ready for retirement, however we felt that this topic was so important that we wanted to post it here on this website. If you can get your monthly budget under control and develop some savings, you will be at far less risk of losing your home as well as being ready to retire when the time comes. Saving money around the home will make it much easier to survive a job loss and other major expenses that you have not planned for.

The following survey is a sad picture of Canadian savings habits. It also high lights the exposure that over 60% of Canadians have to lose their homes, cars and more if they were to lose their jobs. We suspect that Americans are in the same position. The blunt advice that these people need to follow is :

  • Save 10% of your paycheck every month
  • Have 3 months salary in  savings available if you should lose your job
  • Get your budget under control and learn to live with less money so you can prepare for the future.

Living Pay Check To Pay Check – Survey

The results of the survey follow and it is a sobering message for many Canadians.Almost 60 per cent of Canadians live pay check to pay check and say they’d be in financial difficulty if their pay check was a week late.

A new survey from the Canadian Payroll Association released Monday showed some troubling signs about Canadians’ personal finances.

The 59 per cent figure is the same rate as the one found in last year’s survey. It is the second year that the agency has undertaken the payroll survey.

Almost half of respondents to a national survey said they are saving five per cent or less of their income. Financial planning experts generally recommend a retirement savings rate of about 10 per cent of net pay and save  three months’ worth of expenses in an emergency fund.

Although they don’t appear to be having much success doing so, 60 per cent of respondents said they were trying to save more money than they used to. The remaining 40 per cent said they were not trying to save any money at all.

“The most significant result of Canadians continuing to live pay check to pay check  is its impact on their concerns about personal finances and retirement,” CPA chair Cindy Forget said.

Younger workers feel especially vulnerable, with 65 per cent of respondents aged 18 to 35 saying they would find it difficult to make ends meet if they missed a single pay check.

More than two thirds (69 per cent) of respondents said it would be difficult to find comparable employment with a similar salary if they lost their job.

For the survey, the agency interviewed 2,766 Canadian employees across the country. The survey is considered to be accurate within 1.86 per cent, 19 times out of 20.

It was taken between June of 2009 and July of 2010.

“End of Survey”

In case US citizens are reading this and feel that they may be better off than Canadians, think again. You have just gone through and are beginning to come out of a major recession which Canada pretty much avoided. You need to adopt these savings approach even more than Canadians, since jobs are more difficult to come by in the US than they are in Canada.

In fact emergency savings are probably the single most important thing to do, next to putting food on the table and paying for somewhere to live. Invest wisely and conservatively.  If you are able to save a lot of money, diversify and avoid the get rich quick schemes. Only a few people succeed at this approach and most just end up losing their hard earned savings. Hire a competent financial manager, but always do your own research and make your own decisions.

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Balanced Budget – Stress Test Your Budget

April 14th, 2010 ernie Posted in Consumer Budgets 2 Comments »

Stress Test Your BudgetCorporations stress test their budget all the time, so why shouldn’t ordinary consumers do the same thing – stress test your budget. Planning cash flow and monthly payments whether you are a CFO for a large major corporation or a homeowner trying to manage his budget and meet his monthly payments is of the utmost importance to avoid missing payments and being declared delinquent on loans or mortgages. They also assume worst case scenarios and assess whether their companies can handle these situations and survive.

Stress Test Your Budget – Personal

Consumers can do this easily by stress testing their budget while at the same time, saving themselves thousands of dollars in interest payments. For example, if you buy a home and go with the minimum down payment, your monthly payments are going to be high.

The interest rate you pay will be higher and the total amount of interest you pay will be thousands of dollars higher than it needs to be. Those dollars can be used for other things for your family, however unfortunately it is all going to the mortgage company.

On the other hand if you make the maximum down payment and also make extra payments each year to your mortgage, you can save thousands of dollars in interest charges which of course are always better in your account than the mortgage companies. Over the life of a mortgage, you can literally save thousands of dollars depending on the term of the mortgage and the interest rate.

A proper stress test requires a detailed budget that includes all of your expenses for your current lifestyle and the home that you have or are purchasing. Make sure that you are very realistic and include all of the miscellaneous things that we all purchase from time to time.

If you do not have a balanced budget, then you will have some more work to do to make sure that you are not spending more than what you are taking in.

Plan for Emergencies

Once you have a balanced budget, the next step is to assess what emergencies could occur that would place stress on your budget and your ability to meet your budget. Various things come to mind, however it really depends on your personal life.

Examples include major car repairs, a new roof, furnace repairs, additional children, loss of job etc. Any of these items can place major stress on your budget. Determine what the impact is and assess what you would need to do to accommodate this additional expense on your budget.

During good times, it pays to pay your mortgage down as fast as possible and save thousands in interest charges. You also need to save for these emergency expenses. You may not know which one will occur.

However for most of us there will be an emergency of some kind that we will need to deal with. Develop a savings plan as part of your budget that calls for some amount of money to be set aside from every pay check.

A savings plan will give you the freedom to deal with your emergency when it comes, without causing catastrophic problems for your budget. If you suddenly need a new roof for an example, you can draw from your savings instead of taking out a new loan with the corresponding interest charges and monthly payments.

A new loan payment could jeopardize your budget and put it in a negative loss situation or putting it another way you are spending more than you are taking in.

We have added a few tips to consider for your review of your budget.

Top Tips to Consider:

Develop a budget

  • Stress test your budget to see how well you can absorb emergency expenses
  • Make sure you have a balanced budget, cut expenses if it is not balanced
  • Your budget should include a savings plan for emergency expenses
  • Review your budget and your stress test at least once per year and also after any substantial change in your financial situation

Buying a house is a major financial commitment, so we have included a few tips covering this area as well.

Take a shorter mortgage amortization:

  • The shorter the life of the mortgage, the less you pay in interest.
  • Cutting your amortization period by 5 years from 30 to 25 years could  save you over $53,000 in interest. You will be mortgage-free faster and your monthly payments will only increase by $84

Make a larger down payment:

  • If you can provide a bigger down payment, it’s an excellent way of helping you pay less interest over the life of your mortgage.

Make sure you can afford what you signed up for:

  • Stress test your financial budget using a mortgage payment based on a higher interest rate
  • Total housing costs (mortgage payments, property taxes, heating costs, etc.) should not consume more than one-third of household income.

Make pre-payments when you can:

  • Pay weekly or bi-weekly instead of monthly.
  • Take advantage of 20+20 prepayment privileges:
  • Increase your mortgage payment (principal and interest) by up to 20 per cent over the current payment. This option can be exercised   once each calendar year, at any time, without charge.
  • Prepay up to 20 per cent of the original mortgage principal each calendar year.

Always make sure you save for a rainy day:

  • If you are up to your maximum in debt, you may not be well prepared for the leaky roof along the way.
  • Have savings payments deducted directly off of your pay check so you are not tempted to spend your savings.

Think carefully about fixed vs. variable:

While variable rates mortgages have been a winning strategy over the long term, fixed rate mortgages (currently at historic lows) come with the peace of mind of being insulated against rate increases.

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