Tag Archives: Stress Test Your Budget

Retirement planning: take stock of how you’re doing

Retirement planning: take stock of how you're doingPrior to retiring you may have focused on your financial plan. You wanted to make sure that you have sufficient money set aside to lead a comfortable retirement. Your focused on the quality of life that you would like to enjoy. However there is much more to retirement planning than just making sure you have enough money to last through your retirement.

Although it is an extremely important part of your retirement there are a couple of other elements that are important that will lead to a satisfied high quality of life during retirement.

Retirement planning – Quality of Life Experience

These include assessing those factors that are important to you for a quality of life experience.

For example what will you do in your spare time? Most people will have from 8 to 10 hours of new time that is now available to them. This includes eight hours of work an hour lunch and an hour for commuting. Now you all you have to do is go down to the breakfast table have breakfast in the morning and then decide what it is you’re going to do for the rest of the day. Some people spend their time organizing their life and trying to schedule everything they can into their 8 to 10 hours of time. Others develop or reestablish hobbies, volunteer, travel, get a job, work on projects etc. What will you do with your time in the short term as well as the long term?

Retirement planning – How Much Time Do You Have Available

Is important to get a perspective on what your time is available to you and how valuable it is to you. For example many people will spend time fixing and repairing those things around the home that they may have neglected. You may set up small projects etc. or plan on volunteering. Going for coffee with ex-work employees and meeting up with various people who you enjoy spending time with.

It is also important to take stock of what your planned retirement life will be like both before you retire and then six months after you retire. Are you still enjoying and appreciating the life that you now have? Is it the quality of life that you would like to have during your retirement?

Retirement planning – Take Stock and Re-evaluate

If you cannot answer yes to some of these questions then it is time to take stock and reevaluate your retirement quality-of-life plan. Make changes that will improve your quality of life and achieve some of the objectives that you’re looking for. Don’t put these things off, you never know how much time you actually have. One last point, whatever your plans will be, they also must be balanced with the level of income that you also have available to live the life you are looking to have.

Making adjustments through out your retirement is an important step toward ensuring that you enjoy your retirement in all of the years that you have.

Paying for special needs

Paying for special needsPaying for special needs can place an extra load on a family in all kinds of ways. This post will take a quick look at retirement options and what it may mean for couples looking after someone with special needs.

Consider a special needs child who has no way of earning an income and depends on his parents for everything. As the parents plan fir retirement, they also must plan for an extra income that will look after their special needs child when they are retired and later when they are no longer alive. This is a very serious situation that keeps many people up at night worrying about what will happen to their child, their spouse or someone they are looking after. Another situation is where one spouse becomes sick or has a major health challenge and requires special care in a health facility costing thousands of dollars while the other remains at home with all of the normal home related expenses.

Paying for special needs – Set Up a Trust Fund

For many couples this means setting up a trust that will have sufficient money to look after their child as long as he or she lives. There also needs to be instructions as well for what to do with the trust when the child also passes away. There are also must be a trust administrator to make sure the trust is maintained and looks after the child’s financial requirements.

All of these factors can be handled by your lawyer or a trusted financial adviser. It is important to have things set up in a professional way with everything set out properly and clearly. While the paperwork and the financial plans are important there are other factors that need to be considered. For example, after you are gone who will administer the trust fund and more importantly make sure that your child is looked after? Selecting an administrator is an important decision.

The Personal Touch

While it is nice to have the money in place, it is also important to have someone that you trust to look after the special needs person. Usually this is a brother or sister, or a cousin that is close to the family and can be trusted to take good personal care of the person. Aside from paying for whatever services you may need, it is the personal needs, such as clothes, toiletries, visitations, medical visits etc that also need to be taken care of.

This can be a significant commitment for many people and sometimes it will be shared by members of the family so that not all of the time and the work is born by one person. When people share the responsibilities it can be much easier on everyone. Still there must be one person that takes the responsibility to coordinate and manage everything. Diplomacy is required since you want to avoid creating differences that become major issues at the same time. Choose wisely.

Balanced Budget – Stress Test Your Budget

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. 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. You can save thousands in interest charges. Plan 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

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.

Stress Test 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. Stress test  your budget at least once per year. 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.

Stress Test Your Budget now just like the professionals do at major corporations.