Facing A Reduction of Income or Wage Cut

Canada Tax Preparation Software 2009

When you are made redundant, there is usually some form of remuneration payment and the prospect, no matter how bleak it may appear at the time of further and new employment. For some, the lucky few, there is the encouragement of being told that your employment is secure, and that there is also the possibility of a pay rise or promotion further down the track. However, there are some who have been given an assurance of ongoing employment, only at cost of having to work reduced hours and for a reduced pay check at the end of each week.

Meeting the challenge of a reduction in pay is something that can bring out resourcefulness in many different ways.

The first thing that should be done is to make a complete list of what income is actually spent on each month. Often, by the simple process of listing and setting out in writing what each expenditure is, it will immediately be seen which are essentials and which, consistent with maintaining a reasonable standard living can be cut out, or pruned back.

Compare the total of this list with your total after tax income and you will have a precise amount, the deficit that you will have each month if expenditure remains at the same level.

Part of the expenditure will be fixed, in the form of loan or debt repayment. You can look at taking advantage of new lower interest rates by considering a debt consolidation loan, converting all your monthly debt repayments into one, lower interest rate, debt servicing repayment, against which you may be able to offset the interest charge even more by having the repayments made weekly instead of monthly, which can save years of repayments in terms of a home mortgage debt.

Charges for Utilities, and rates are often able to be paid on a weekly repayment arrangement if you make contact with the relevant authorities and inform them of your situation, rather than having to meet the entire cost of pre-payment in one lump sum.

Expenses associated with motor vehicles can be drastically reduced, and give you the possibility of a much needed capital sum, if you consider selling one of two motor vehicles and making use of public transport and  sharing the use of the remaining vehicle. For some, using public transport might mean that a private car is no longer needed.

Look at your savings – it is a good idea to keep some on call funds for possible emergencies – but there is no point in having funds in a savings account, earning little interest if you have high interest debts that you could use this money to repay, and so reduce your monthly outgoings.

Every voluntary expense can be looked at to see what can be discarded, and which will need to be reduced. Subscriptions can be cancelled. It is often tempting to reduce expenditure on food, but this can often be a mistake, as you will need to keep healthy and fit, and to have a lot of spare energy to survive a financial crisis

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Is Brand Name Losing Its Cool?

That brand names cost more than own-brand or budget ranges is not news to anyone. That this discrepancy can sometimes be quite marked is no more of a shock to anyone who is paying attention. And yet there still seems to be a thirst for the big names among shoppers. However it seems that in the new world which has been born out of the global financial crisis, the numbers of people voting with their wallets and choosing the cheaper option are increasing. Are we finally coming to terms with the idea that all those brand names amount to very little in terms of tangible quality? Or are people simply deciding to tighten their belts temporarily?

Go to any supermarket today and you will see that people are spending longer in the aisles looking for the extra few cents’ saving than ever before. These same people two years ago may well have instantly picked up the recognisable brand name and dropped it in their trolley without so much as looking. What is going on? Obviously we are in a recession, but this time it feels very different. Almost without noticing, we have suddenly become thrifty. It seems strange to say it, but it has almost become cool to be careful.

It must be said that there are some cases where compromising on quality for the sake of price is less well-advised than in others. We can all think of a few ourselves, but suffice it to say that thrifty shopping can become a false economy when we buy the cheapest line possible and end up throwing it out because it was inedible or made us need to go to the bathroom non-stop for a day. Such a strategy is almost doomed to fail and can sour a person on the whole concept of economising. However, there are cases where dropping from top-of-the-range to mid-range constitutes very little difference.

It is no myth that in blind taste tests we will often see a mid-price item out-performing its more illustrious rivals. Perhaps more often the big name will win out, but this is to be expected. After all, reputations are built over time. The better ingredients cost more, and in cases where the mid price item is more or less copied from the bigger name, they can never get it absolutely right. As a result, the consumer will often pay for the name.

If, however, you are making a concerted effort to leave aside the added expense of buying brand names all the time, it cannot have escaped your attention that sometimes the supposed “lesser brands” can be a bargain. Sometimes too, there is so little difference between the big brand and the little one in terms of taste that it is only social conditioning making us buy the big names. It may not be for everyone, but next time you are at the supermarket throwing in the brands you have always bought, why not go downmarket? You might find that sometimes the bargain buys are very much to your taste.

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Cash Isn’t Dead

The past few years have seen a major change in the way we do things financially. More and more, we are seeing an economy that works away from the traditional methods. It used to be the case that shoppers would pay for smaller purchases with cash, and for larger ones with either cash or check, and as time went on with credit cards. As time has passed, however, there are many people who do not bother carrying cash with them and the check is now about as fashionable as velour flares. More and more, we are becoming a society of people who pay with plastic. Our weekly shopping is paid for by handing over a small rectangle of plastic and the funds are taken from our account directly.

This is a system that has taken off in no small part due to its convenience. Don’t have time to get to the ATM and withdraw cash on your shopping trip? Just hand over the plastic. Not sure how much you need to withdraw? Plastic means that the only money to leave the account will be the money you spend in the store. It’s convenient and saves on thinking. Initially it seems that it is the perfect way to do things. But this system does have its drawbacks, and people are becoming more and more aware of these and returning to good old paper money. If anyone out there is  hoping for the day when cash is entirely replaced by plastic, they probably have some time to wait. Checks may be playing less and less of a part in personal finance, but notes are still going to be used for a while yet.

The reason for this is that cash does allow you to take far more of a pro-active role in managing your money. One thing that has made paying by plastic problematic for people is that it makes it altogether too easy to spend money without really noticing. When the wages hit your account on pay day, you have a certain amount of money for the rest of the month. Paying your bills cuts away a fair section of that money. After other necessities are taken care of, you have your disposable income. Now, you wouldn’t be cavalier with the bills and necessary payments – but paying by plastic makes it all too easy to spend your disposable income, and that has to last for the rest of the month.

By withdrawing your disposable income in cash it becomes a lot easier to keep an eye on how much you are spending. Sure, you want your money to earn interest, so open a savings account and put some money in there. The rest of your disposable income can be kept somewhere safe and accessed whenever you need it. If you are keen to stick to a budget, it becomes much easier when you can physically see what you have for spending. Your plastic does not show you a running total as you use it, so the benefits of cash are surely clear. No, cash isn’t dead. Not by a long shot.

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Teach Your Kids Good Money Habits

As the old saying goes “Give a man a fish and you feed him for a day. Teach a man to fish and you feed him for a lifetime.” The same, or at least similar, applies to giving your children the best start in life financially. If your children are forever coming to you asking for money, it can be very hard not to give them a few dollars, especially if they have been well-behaved recently. However, this is something that should never become a habit. After all, you had to learn at some point that you cannot keep relying on other people. The message is that if you can save some of what you get from time to time, and find a (legitimate)  way of making to money it will stand you in much better stead for the future.

This is not a case of advising people to never give their children money. It is true that your children need to learn the value of money, but this is no more likely to be learned by giving them nothing than it is if you give them money every time they ask. All that you guarantee by withholding money every time is that they will one day start making money for themselves and rebel against everything you told them by spending like an heiress in a street full of boutiques. There is a sensible balance to be struck. If your child has a good reason for asking for the money, that scores a point. If they are not asking for much, that scores another. If they really do not ask all that often, then they deserve another point.

You can come up with your own points system, but do your best to make it fair while not being excessively flimsy. How likely is it that a child who knows they will get everything handed to them will grow up understanding that money needs to be earned. The old saying “Money doesn’t grow on trees” may be irritating, but it is also true. It has to come from somewhere, so it is worth encouraging your child – once they are old enough – to get a job which they can do on weekends earning just enough to pay for their leisure pursuits. This doesn’t mean you need to stop paying their way – it is even better if you top up what they earn with a little from your own pocket to show them that good behaviour is well rewarded.

There may seem to be some madness in the above stratagem, but rest assured there is method to it. Giving your child a decent appreciation of the benefits of working for money, a recognition that they cannot rely on someone to just hand it to them, and yet the reassurance that you will not turn them down if they really need help, is the strongest way of reinforcing the lessons of good financial behaviour, and your child will be more likely to thrive financially in times to come.

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Financial Speculation Is Generally Not To Be Encouraged

As a child, a lot of your early reading practice comes from signs. There is only so long you can get away with walking on the grass in direct defiance of a sign before the groundskeeper asks you, often quite forcefully “Can’t you read?” and points to the sign in question. The meaning of the “Wet Paint” sign is often learned in a manner more practical than academic, and results in the need for one’s parents to buy a new pair of trousers. But we learn from these signs and we learn to look out for them. As we get older, the signs change in a practical sense – sticking to speed limits, age restrictions at clubs and so forth – and also in a figurative sense.

We are in a global recession as things stand. As much as some of us will have seen it coming, there will be many more who did not. It is hard to blame them, as there were very few messages coming from a high level saying “Look out – there’s a recession afoot”. Lots of us were busy doing something else and didn’t see the sign until it was too late. In order to avoid compounding our mistakes, the most important thing we can do is be more careful about looking for signs and ensuring we understand them. The problem with economic signs is that they are not plastered everywhere that we might spend money, quite unlike the road signs that adorn every intersection. We need to be actively seeking them out.

Being aware of the financial situation at home and abroad takes work. Some of it may be outright boring. There are, many of you will agree, only so many stories about x industry in y country that you can read before the only letters you see are clusters of zzz – it does not help that economic news is treated by so many in one of two ways. Either it is delivered in a solemn baritone with countless abbreviations that make sense only to investment bankers, or it is dumbed down to insulting levels on news broadcasts and in newspaper articles that may as well be entitled “Finance for Cretins”. The average citizen is not, contrary to popular myth, a cretin. Nor are they a financial whiz kid. Hence the unsurprising lack of information that you feel you can use.

It is clear enough that now is a time when speculation is generally not to be encouraged. If you have a “can’t miss” prospect lined up then it would be positively rude not to investigate it further, but vagueness on how it will pay out, when it will pay out and why this is a certainty – or at least a probability – are the least you should be looking out for. Anything less and you need to proceed with extreme caution. At some point, the signs will change, and when they do there will be scope to take advantage of the new, encouraging signs. These will be things like employment levels rising, a boost in the travel industry or fresh investment coming to the local area. These are the kind of signs anybody should be happy to see.

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US Jobless Claims Fall And Canadian Finance Blog

Yes, this is a Canadian personal finance blog, and yes, the headline is about unemployment in the US. So yes, there may appear to be a contradiction in writing about that issue in this blog. But as we have all become more aware than we ever needed to be, the influence that one country can have on another is all the more when it comes to financial issues. Therefore, even though the figures may be coming from south of the border, it should be cause for reassurance and satisfaction to hear that the US Labour department has reported that jobless benefit claims fell to their lowest point in three months this week.

The news is, as ever, not all good. The number of people living on unemployment benefit has reached its highest level yet, but the number of new claims falling is a sign that the wave of layoffs has possibly reached its peak. The motto of the last few months where money issues are concerned is again relevant – “This is an encouraging sign, but we’re not out of the woods yet”. But living as we do in an age where perception is almost as important as hard reality, it is important to look at encouraging news as a potential springboard to a sustained improvement. Figures will not improve the situation by themselves, but investors, employers and job hunters can all play a part by showing optimism and helping to drive the economy forward.

OK, so no doubt some will be saying “this is all very well and good for America, but how does it really affect Canada?”. It is a good question, but there is an answer to it. The fact is that the US and Canada are linked not only geographically, but in business terms too. From simple matters like Canadian and US citizens in border regions crossing over the border to commute to work – then spending their wages in their home country while paying taxes in the other – to things like trade tariffs, the two countries have a mutual interest in seeing that things run smoothly with their neighbours. The worst case scenario would be protectionism in times of financial stricture, where either country moves to shore up its own interests. The likelihood of this increases in parlous economies, and decreases when news improves.

Canada, as we have discussed previously, has a lot to be proud of where handling of the recent financial crises has been concerned. Panicking will help no-one, and Canada has certainly avoided panic. Taking great care to ensure that the way we move out of the crisis is not just the quickest, but the most secure, is the only way forward. The potential for things to go badly wrong is never far away, and an increase in serenity south of the border will mean that Canadian economists can continue to steer the best path forward without the worrying distraction of things getting worse down South. And that affects everything in Canada – housing, employment, lifestyle, it all adds up.

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Canadians Showing More Caution On Borrowing

It is becoming clearer that the average Canadian is cutting right back on borrowing as the global credit crisis continues to exert its hold on the purse strings of both businesses and the individual. In a world where money is now becoming more of a luxury item, people are becoming much more likely to save than to go out and spend money that they do not really have. What is becoming more and more obvious with every new set of figures that is released, is that more and more people are coming around to the idea that this credit crisis is not something that will be here today and gone tomorrow.

It is therefore no great shock that people are seeking to feather their nests in the current climate. With the best will in the world, no one really seems to have any firm idea when things are going to be better. So while people at the beginning of the credit crisis may have taken a more gung-ho attitude and resolved to ride things out without making major changes, it would take a brave or foolhardy individual to look at the pronounced slowdown and assume that things will improve tomorrow, next month or even next year. In such a climate, the only thing that many people feel they can do is hold on to what they have and pray for a boost.

With the figures for 2009 likely to show that the market growth globally for this year has slipped into the negative numbers – the first time that it has happened since the end of the Second World War – there is an absolute necessity to live according to the realities. This in turn is posing problems for governments, though. In order for markets to recover, it is essential that consumers are spending. If consumers are to spend, it is necessary that banks will allow them to borrow. With banks going to the wall in many countries, it is unsurprising that those who remain are keeping a firmer hold on the purse strings. It all adds up to a apocalyptic vision.

Fewer people are buying homes at the moment, and now it emerges that less money is going on retail too. When you are not sure that your job is recession proof, the prospect of speculating in order to accumulate is naturally less attractive. So what does the future hold? If people do not get spending, how will the markets ever recover? What we are likely to see – and there is not a period on this – is a slow, cautious improvement when it happens, which will gradually pick up pace as people gain confidence in the markets. We must hope when this does take place that banks and governments have learned lessons from the chaotic situation which has led us where we are now – and make the changes that need to be made.

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Strict Budgeting Does Not Work

It would seem that anyone giving financial advice always begins by saying “use a budget”. Unfortunately, this to many seems restrictive and cloying, and few people do it when times are good. Budgeting is associated with periods of low income, but in reality, if you budget during the affluent times too, the benefits can be huge.

If budgeting does seem to be too restrictive for you, then introduce a flexible budget. Instead of saying that X amount will be spent on X every month, try saying between X amount and X amount will be spent on X every month. For example, a strict $300 for groceries can become $300 to $350 a month for groceries. Studies have shown that even this slight difference is enough to make people feel released from the confines of a budget.

A budget doesn’t need to be strict. Instead, it can be more of a general guide If you aren’t struggling financially, then you can make your budget as vague as you like, while the practice of actually having a budget and sticking to it will be stored for future use should your circumstances change. There’s no need to write down the exact amount of money for everything you could possibly spend it on; some budget “$10 per month for magazines”, which is a little extreme.

Why not budget just for the essentials?  . These are simply amounts that rarely fluctuate and are essential. When you know roughly how much you need for these each month, the real budgeting begins.

At this point, the most common mistakes of budgeting arise. People make the limits of their budget too strict or not strict enough. The only way to avoid this is by trial and error. Split your non-essential expenditure into different groups, rather than specific sets, to begin. Allow amounts for entertainment, going out, clothing and other such variables. At the beginning, it really is best to just guess – find an amount that you think “sounds” right. This might sound a little pie-in-the-sky, but there’s no set figure that is ideal for each person. You have to find out what works for you.

With this done, go through a month on your non-essential budget, then evaluate it. Are there areas where you have a lot of money left over, or areas where you spent more than you were expecting? Within reason, simply alter your budget for the next month to fit the discoveries you’ve made. After three or four months of this, you should have a pretty good idea of the patterns to your expenditure. After six months, you’ll have learned enough to set a semi-permanent budget. After all, if you keep changing your budget forevermore, the point of it is lost slightly!

With your personalized budget in hand, you’re ready to begin. But there’s one final addition that should be in every budget; miscellaneous. You can never know what exactly might appear over the coming months – be it an unexpected bill, or something more exciting like a gadget you just can’t resist – so by always including a miscellaneous amount, you’ve got that covered. If nothing of this type appears over the course of a month, simply roll this amount over. With a plan designed to suit you and a miscellaneous figure allowed for, you’ll soon wonder how you ever managed without a budget.

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Organizing Your Personal Finances

When it comes to finance, the temptation to just ignore everything is quite simply overwhelming. In a modern world where speed is everything and time is a premium, letting money just sort itself out can be extremely tempting. You get paid, you pay bills, you sometimes squirrel some cash away in a savings account – and that’s that. As long as some people are in the black (or as close as can be), they see no need for any further attention to financial matters.

As with anything, before you can get your finances running smoothly, you will need to invest a little time. With personal finance, the key is organization. You will need to set aside a little time to get a workable system in to place, but the rewards are ongoing. With a little initial time spent, your finances could look much healthier, and your mind could be better off, too. Knowing you have a secure financial strategy in place could put an end to those heart stopping midnight moments when you’re quite convinced you’re financially ruined. In a way, see the initial time as an investment, which is particularly apposite for what you’re trying to achieve.

To begin with, sit down and work out exactly what comes in every month. This may sound simple, but a surprising amount of people aren’t sure of the exact amount of money they have available to them each month – only realizing when there’s a problem. If your wage is variable, due to overtime or shift patterns, it is best to just start with your basic salary – anything on top of that can then be seen as a bonus. Don’t forget to include tax credits and other forms of income, too.

Then write down exactly what goes out every month, on things like your mortgage, groceries, bills and standing payments. Again, for variable bills – such as electricity – work off the basic level, remembering to increase it for seasonal variations.

When these two columns are complete, see how much money you have available at the end of the month. Your goal is now to increase this figure. To do this, look at each outgoing and see if it can be reduced. Is there possibly a cheaper energy plan you could be on? Do you have payments for things you don’t use, such as a gym membership? Is there a call plan that would reduce your telephone bill? Shop around on the Internet to find the answers, using comparison websites where necessary.

When you’ve reduced your outgoings to their lowest possible levels, the main work is complete. Set up a standing order to put a percentage of your surplus money into a savings account. Even if it’s only $10 a month, it may soon build up and can help cover fluctuations in your income and outgoings.

The final step is to write everything down. Every purchase, every bill payment and every time you use your credit card; put it on a spreadsheet. When bills and bank statements come in, check everything against what you were expecting. Errors do occur frighteningly often, and unless you are diligent, you may miss something. By keeping proper records of all incoming money and outgoings, you will see a pattern to your spending and will be able to prioritize more effectively.

Every six months or so, re-evaluate. There may be a new electricity plan that will work out better for you, so keep checking your statistics. The only way to keep your finances running smoothly is to give them the time they need and to remain vigilant to any changes. By paying close attention, you could save yourself a fortune.

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