For young couples starting families, buying their first home and/or other real estate. Covers mortgages, credit cards, interest rates, children’s education savings plans, joint accounts for couples and the like.
I like to keep tabs on my finances for both the short and long term. A monthly spending summary is great for keeping track of where your paycheque goes, and an annual forecast works well for spotting trends and opportunities for your money.
But it’s also nice to gaze into the future. I want to know what my finances will look like in 20+ years so I use a spreadsheet to take a 50,000-foot view of my long-term finances.
Sheryl Smolkin’s Retirement Redux site passes on recent financial institution surveys that show The Majority of Retirees Enjoy Their Lifestyle. Well I should hope so, after spending decades slaving and saving for this pivotal life event!
But in this weekend’s lead editorial, on behalf of the Canadian economy, the Globe & Mail begs the nation’s seniors to “please don’t retire yet.” It invokes Sun Life’s Unretirement index survey reprised in Friday’s blog here at the Hub. Well, actually, Mr. Economy, there’s a lot of age prejudice in the workplace and people don’t always choose to retire.
For those just starting on their journey to financial independence, take heart from Punch Debt’s declaration that saving up The first $100,000 is the hardest. I dare say your first million is no walk in the park either!
Via Sliced Investing, The Chicago Financial Planner (aka @rwohlner) provides this primer on hedge funds.
You can find more on the same theme here at Financial Highway, where the writer goes beyond the beaten path with his suggestion of writing a love letter. Or a “personal gift card” providing various future services to be rendered. (around the house, of course!)
In many ways, Elizabeth Warren’s 2005 bestseller All Your Worth was ahead of its time. Warren, a relentless consumer advocate, eschews mindless frugality and focuses instead on finding the right balance so you always have enough to pay your bills, have some fun, and save for the future.
The author suggests a simple formula for spending your after-tax dollars on needs, wants, and savings:
Allocate 50 per cent to needs: These must-haves include housing, transportation, groceries, insurance, and clothes that you really need.
Spend 30 per cent on wants: Wants include cable television, clothing beyond the basics, restaurant meals, concert tickets, hobbies, etc.
Set aside 20 per cent for savings: This includes both short- and-long term savings, as well as debt repayment.
Warren encourages saving AND having fun rather than scrimping and pinching pennies on the things that make you happy. That means saving money on big-ticket items like housing and transportation – effectively reducing the amount you spend on needs to free up money to save for the future and spend on wants.
“If you can’t afford to have fun, you can’t afford your life.”
When I applied this formula to my own spending I found the following breakdown:
Needs took up 53.5 per cent of our monthly budget, including the mortgage payment, property taxes, car payment, insurance (life, home, car), groceries, gas, utilities, cell phone, hair cuts, prescriptions, and clothing.
Wants made up just 18 per cent of our monthly spending, including cable and internet, restaurants, alcohol, children’s activities, hired cleaners (bi-weekly), credit card annual fees, subscriptions and memberships, gifts, summer vacation, and discretionary spending.
Our car will be paid off late next year, which will free up $10,000 per year and reduce our “needs” allocation from 53.5 per cent down to about 44 per cent. Ideally, I’d prefer to shuffle that money over to savings and build up our TFSAs; however, I’ll keep the idea of balance in mind and consider adding a few thousand dollars into our “wants” allocation.
Final thoughts
A balanced financial plan will ultimately lead to a happier and more fulfilling life.
Too many of us are living close to the edge financially because they’ve over-extended themselves on house and car payments and can’t afford to live.
Good news for homeowners today with the surprise announcement interest rates in Canada are being cut by 0.25% (to 0.75%).
In her MoneySense.ca column today, real estate columnist Romana King predicts there will be an imminent price war among financial institutions offering home mortgages.
That can only be good for those renewing mortgages or about to buy their first home. One of the charts Romana describes shows five-year fixed rates could even fall below 5%.
Of course, as someone who preaches that the foundation of Financial Independence is a paid-for home, I’d still rather have no mortgage at all. But rock-bottom rates are the next best thing and it seems they will continue for as long as the eye can see.
My only caveat: be wary of buying more house than you really need. Use the gift of continued low rates as a way to accelerate the paydown of your mortgage. Because ultimately we value Financial Independence more than having a monster home in which to store more “stuff.” Don’t we?
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