Gails Blog

One of the biggest issues for people who are having financial difficulties is the fact that everything about their money is disorganized. They pay bills late, don’t pay them at all, or pay the same bill twice. Yup, I’ve seen it with m’own eyes, people. They transfer money back and forth between numerous accounts, often incurring overdraft fees because they miss by minutes. They take $100 out of the bank and 20 minutes later they’re back for another $20. Whazzup with that?

Most of us are disorganized in some way. I can never seem to find my keys. No matter how many “spots” I have in my purse, in my fanny pack, on the hook, I seem to spend more time than I should looking for my keys. Some people can’t keep their shelves organized. Other people have a junk drawer where they dump stuff until they “have the time” to get it put away. I’ve seen the Junk Drawer principal even applied to a whole room in a house. Sheesh!

Disorganization is one of life’s great stressors. Visual clutter makes us feel uncomfortable. Mental clutter keeps us awake at night. Taking the time to get your stuff organized, including your finances, will pay in time saved, reduced stress and a clearer path to being financially balanced.

People want to be organized and they’re constantly looking for an easy way to put things in order and keep them that way. When I did my speaking engagements last year, we gave away an Office in a Box at each session. People cried when they won the Office in a Box. It was relief, I think.

Build your own Office in a Box. You probably have lots of this stuff just sitting in a drawer somewhere. All you need are:

• Box of file folders (approx 30)
• Box of hanging folders + tabs (approx 25)
• Box to hang folders in
• Lables (1 box)
• Pens coloured (1 pack)
• Pencils plain (1 box)
• Eraser
• Small stapler
• Staple remover
• Scissors
• Scotch tape
• Paperclips
• IN box tray x 2
• Post-it notes
• Calculator
• Envelopes (letter sized)
• Stamps
• Accounting book — ruled

There’s no magic in getting organized. It takes time. It takes focus. And it requires that you have a process that you can follow. But it isn’t hard. Any dope can do it. 

When it comes to getting organized, everything needs a place. Gather all your paperwork and create a file folder for each of your accounts, forms of credit, home, insurance, estate, and taxes. You can use a filing cabinet or a box. The folders have to be able to stand up on their own, or you can use hanging folders to keep them straight.

Welcome to 21st Century banking.
 If you don’t already have it, set up telephone or internet banking. If you don’t have a “free” or almost free transaction account, you can reduce fees by setting up a buffer
 If you can afford it, transfer $1,000 float to your chequing account (pretend it isn’t there) and use that to minimize your banking costs. If you’re paying more than $20 a month (that’s high) for your banking, you’re a sucker!

Save automatically.
 Create an auto-debit from your chequing account to a savings account that will not be touched. Most people won’t put money into a savings account on a regular basis, opting to wait for a tax-refund or bonus before setting aside some money for the future. Establish an automatic savings deposit every month and your nestegg will accumulate faster than you think.

Create a Monthly Bill Summary. List your bills in the date order they need to be paid to prevent you from missing a bill. If you have bills that are paid automatically from your account, write an “A” beside these bills and remember to deduct them from your Spending Journal at bill payment time each month.

Set-up your in-baskets. 
Create an in-basket with two Unpaid Bills folders labeled “1-15″ and “16-31″ 
 Don’t let the mail pile up. As soon as you bring in the mail, look at the due date on the bill and put it in the appropriate folder. Recycle all the marketing crap in the envelope. 
Create a second in-basket with 3 folders labeled “bank statements”, “bills paid” and “tax receipts”.

Weekly


Make a date with your money. 
On the 12th and 28th of each month to pay bills, set aside the time in your schedule - you’ll need about 30 minutes, depending on your bills — to pay your bills.

Always pay your bills in one place that you’ve equipped with your bill paying system, spending journal, envelopes, stamps, pens, pencils, a calculator, tape, a stapler and return address labels and recycling bin for all that marketing stuff you’re going to dump.

When you pay a bill, write the cheque or transaction number, amount paid, and the date you paid it on the bill. Put the paid bill in your “bill’s paid” file. Deduct the amount you’ve spent from your Spending Journal. If a bill has not been paid in full (tax bills are paid over several months, for example) put it back in your Bills Folder so you don’t forget it.

Monthly

Reconcile you bank statements. When you bank statements come in, put them in your in-box folder. Make a date when all your statements are in (it’ll depend on when you receive them) to:

• review your statements to make sure there are no mistakes
• reconcile your Spending Register; clearly mark the cheques that have gone through your account and highlight the ones in your Spending Register that haven’t yet cleared the bank. A cheque that is taking a long time clearing the bank can lull you into thinking you have more money than you do. Go back at least a month to make sure all previous cheques have cleared.
• talk with your partner about anything unusual

Quarterly


File. 
Once a quarter, file all your paperwork to keep your system current.

Talk.
 Have a dinner with your partner and talk about the bumps, your goals and how you’re doing.

Annually


Re-vamp your budget. 
Review your budget using last years cc statements and bank statements to see what you actually spent. If you spent more on a particular category, make sure you know why, or look for ways to trim.

Clean up.
 Go through your files at the end of each year and throw out bills and receipts no longer needed for auditing/budgeting purposes.

• Tax Returns and Backup Documentation: Whether personal or business, the general rule is seven years.
• Insurance policies: Keep everything for as long as the policy is in effect. You can dump the old policy if you get a new one with your renewal each year. Don’t rely on the insurance company to provide copies of your records since any burden of proof will fall to you.
• Warranty Documents: Review your warranty file annually and get rid of documents for defunct appliances, telephones, or anything else that’s gone the way of the recycling bin. And, of course, when the warranty expires, you can chuck the paperwork.
• Home Repair Bills & Contracts: For as long as the warranty is in place, or longer if you want to prove upgrades for insurance or home resale purposes.
• Pay Stubs: Keep your last two year’s worth.
• Bank Statements: Keep a year’s worth in an accessible place so you can re-vamp your budget from accurate figures. File everything else for five years.
• Credit Card Statements: Keep the current year’s on hand for revamping your budget.
• ATM Receipts: Dump them once you’ve reconciled your bank statement at the end of the month.
• Investment Documents: If you have stocks, bonds, or mutual funds, you are buried in prospectuses, privacy notices, address confirmations, along with your regular statements. Keep the statements. Forever.
• Utility Bills: Writing off your utility bills for tax purposes? Keep them in your tax file. Otherwise, keep one year’s worth for comparative purposes. 
• Mortgage Documents: Until you die or the mortgage is paid off, whichever comes first.

BTW, people have been asking about The Budget Binder. There’s an example of how to make your own in the Your Questions section.

Most of the families I work with have a problem with impulse spending. Putting them on the Magic Jars and giving them the budget binder to write down everything they spend goes a long way to making people change their spending patterns.  If you think you might be an impulse shopper, the first step to controlling it is monitoring your urges. It’ll only take a couple of weeks of thoughtful note-taking to give you a good insight on how and why you shop.

Get yourself a small notebook, keep it handy, and every time you get an urge to shop, practical or not, write it down. Note where you were, what you wanted to buy or did buy, and how you felt. Note every time the Impulse Monkey squawks at a prize, whether it grabs you online, at a store, or when you’re flipping through a flyer. No matter how often that Impulse Monkey chatters in your ear, make a note of it.

Whether you buy the item or not, keep track of the Monkey. Many times our urges are subconscious and we can’t control our spending if we aren’t aware of it.

Once you’ve determined that you have a problem, you’ll have to take some drastic steps to get the Impulse Monkey off your back.

Avoid the mall, the discount department store, the dollar store – anywhere you can spend money. I’ve actually just started working with one fam where the Lady of the House was dropping over $150 a month in a dollar store. OMG! Just going into a store practically guarantees you’ll buy something on impulse. Find something else to do to replace your shopping habit.

When you do go shopping, go with a list. In the grocery store, use a list. In the home-decorating store, use a list. In the mall, use a list. You’re not allowed to buy anything that isn’t on the list. No matter how good the deal is. NOTHING.  

Leave your credit cards at home and only shop with cash. If you don’t have the means to overspend, it’s amazing how much self-control you can show. If online shopping is a problem, you may have to throw your credit cards behind the fridge as an additional deterrent.

Do what my friend Natasha does and keep a long-term list too.  If you have an urge to buy something, first you have to put it on your Thirty-day List. You can buy it (if you have the money) after 30 days, assuming you still want it and something else hasn’t jumped up and captured your Impulse Monkey’s attention.

Finally, use the Grocery List technique for all your “needs.” You make a grocery list to stop you from buying everything the Impulse Money squeals at, right? Well, make a Clothing List, a Home Décor List, a Kids’ Toys List… you get my drift.

Let’s look at the clothing list in more detail to see how this would work. First, you list what you must have in your wardrobe: number of shoes, shirts, suits, jeans, jackets, scarves, belts, purses, coats. Then go through your wardrobe and take inventory of what you already have, marking it off your master Clothing List. What’s left is what you need to complete your wardrobe. That’s your Clothing List and you can’t buy anything that isn’t on that list.

Another keen trick is to make a deal with yourself that every time you buy something, you must get rid of something. This avoids falling into the trap of simplifying and then going shopping to replace everything you miss. It also makes you prioritize. If you must have that new doodad, what are you prepared to give up?

Buh-bye Impulse Monkey. Buh-bye.

As usual, I’m working with a family that’s spending a ton of money on STUFF. Most people do this unconsciously, never giving a thought to how much of their life’s energy is going into the purchase. This is a concept I learned from the book, Your Money or Your Life. (Another one of those books that changed my life. I am so grateful to Gutenberg.) I’ve put it to work personally, and I’ve put it to work with my fams, and it has a big impact

Let’s say you decide you just HAVE to have the newest cell phone that spits nickels and whistles Dixie while calculating how far you haven’t walked this week.  It runs for $379.99.

Now let’s say you have a great job. You earn $75,000 a year GROSS, which means you take home approximately $50,000 NET. That translates into a net hourly income (assuming 50 weeks and 40/hrs a week for work) of $25. Yup. You make a whopping 25 bucks an hour after taxes.

But that’s NOT your disposable income. You have to cover stuff like rent, car payments, debt repayment (for the last phone and all those dinners out), savings, and the like. Okay, let’s say your Essential Expenses – rent, food, and all the other things you MUST pay to keep body and soul together – add up to $3,300 a month. That’s breaks down to $19.80 per hour. (3300 x 12 / 50 / 40)

Are you still with me?

So your actual disposable income is your net monthly income of $25 less your Essential Expenses of $19.80, which leaves a whopping $5.20 an hour.

Now here comes the really PAINFUL part.

Take whatever you’re thinking of buying, and divide the cost by your Hourly Disposable Income (HDI) to see how much of your life’s energy you have to swap for that handy-dandy new device. In the case of that Phat Phone, you’d have to work for about 73 hours. Yup. Almost two weeks.

Hmmm.

If you really want the phone, and you have the money set aside to pay the bill right off the bat, you should buy it. But you should also do this exercise since its useful for putting things in perspective. 

If you really want the phone and you’re going to put it on credit, then you have to add in the interest you’ll pay to come up with the right number of hours of your life you’ll be swapping for it.

Want to work out your Hourly disposable income?

1. Take your net pay and divide it by the number of hours you work a year. I find dividing by 40 (for hours worked in a week) and then by 50 (for weeks worked in a year) works great. This is your Net Hourly Income.
2. Then calculate your monthly Essential Expenses. Multiply that number by 12 and divide it by 40 and then by 50.
3. Subtract your Essential Expenses hourly cost from your Net Hourly Income. You’re left with your HDI.

Now, whenever your trying to decide if a purchase is really worth it, divide your purchase price by your HDI to see how many hours you’ll have to work to pay for the item.

Of course, you’d be a maniac to do this every time you’re considering buying something. Com’on. You don’t want to be OBSESSIVE or anything. But if you even give a second’s thought to the question, “Should I?” when it comes to buying something, do this calculation. Then stick the money you would have spent in your savings account. You were going to blow it on STUFF anyway, so you can consider it SPENT. 

In the pilot of Til Debt Do Us Part, we worked with a couple named Bill and Tasia – a lovely couple who were having some trouble coping with all the changes that families have to go through as they grow and change. One of the big questions they were grappling with was whether Tasia, home with two children, would go back to work since they were clearly in a financial mess. She wanted to stay home with the kids. And they’d agreed to that when they’d gotten together. But Bill was feeling a lot of pressure being the only breadwinner and was losing his resolve.

I’m about to begin working with another couple facing this dilemma. Lots of people face it. You’ve heard me say it makes no sense to go into pregnancy with your eyes closed, clueless as to how you’ll cope financially. Well, the same goes for making the decision to stay home with the kids or go back to work. It shouldn’t be a guess. It should be based on the black and red of your situation.

I am NOT making a case for or against staying home with the kids. I’m telling you to make your own best case based on having thought it out ON PAPER based on the numbers. Yup. Another math lesson.

So what numbers will you be working with? Hmmm. Let’s see…

TAXES. A lot of the income you will make will be eaten up by taxes. If you’re returning to an existing job, you need only look at an old pay stub or last year’s tax return. If you’re looking for a new job, you’ll need to figure how just how much tax you’ll pay. Here is a terrific and easy-to-use calculator.

CHILD CARE. The next biggie is paying someone to do at least part of the job you’d be doing if you stayed home. You can hire a nanny, pay for out-of-home childcare or, if you’re really lucky, rope your parents into being all things to your kids while you’re off in the mines. There’s a cost to it all, and you’ve got to figure out what that cost will be for your family.

TRANSPORTATION. You’ll have to be able to get to and from work. If you live further than walking distance to where you work, it could be as inexpensive as public transportation, or as expensive as a plane-ride. (I know a woman who lived on the west coast and commuted to Toronto to work for two years!) If you’re driving, you’ll have to not only figure out the cost of gas, but the additional wear and tear on the car, resulting in a higher maintenance costs. Don’t forget the additional trips to and from your childcare provider.

CLOTHES. If you have to maintain a “professional” appearance at work, what’s it going to cost to keep you shod? If you’re carrying a lot of baby-weight, are you going to need a whole new work wardrobe? After I had Alex, I went from being a size 8 to a 14. My feet grew two sizes, my head grew two sizes. NOTHING fit. And I took no pleasure from having to spend a ton of money to have a new set of clothes in my cupboard.

DRYCLEANING. Yup, if you’re wearing a Power Suit to work, it’ll have to be cleaned once in a while.

FOOD. I know, I know, you’ll take your lunch to work. But you should also budget for the occasional lunch out, the occasional coffee with the chicks at work, the occasional birthday celebration. That stuff happens. If you pretend it doesn’t, it’ll bite you in the budget.

GIFTS. Speaking of birthdays, let’s not forget the presents you’ll be chipping in on, or the charitable donations you may be expected to make as part of belonging to that work community.

HOUSEKEEPING. If you’re both back to work full time with a new s’mebody to look after, will you need to hire someone to do the vacuuming? Even if it’s twice a month, it’s an expense for which you need to budget.

LOST WAGES. If you’re both working, someone’s going to have to take time off if baby gets sick. Will one or the other of you get docked if you have to take the occasional day off to stay home with a sick child?

Okay, that’s the money. But there’s another equation you have to think about… the happiness equation. If you love the work you do, that’ll go in the pro column. If you’re doing a job just for the money, your motivation to leave your baby will be very low. If you’ve worked out the money thang, and it says GO BACK but you hate your job, you hate your boss, you hate your commute, you hate… well, you get my drift, it may be time to think about making money some other way.

There are lots of people who change careers, develop new skills (while off with baby in that first year), upgrade their skills. There are people who find ways to work a full week in three days, so they’re home four days with baby. There are couples who work off-shift, so one or the other parent is home with the kids. There are tons of ways to have the life you want. But you have to think about it. You have to plan.

When I had my kids I hired a nanny to come into my home. Miss Sharon was FABULOUS. My kids loved her to death and she stayed with us for seven years while I worked from home. When the kids were in school, she’d help around the house. She made my life very comfortable. But there were times when I was working only to pay Miss Sharon… there wasn’t much else left. Since I knew I couldn’t be completely out of the workforce and ever hope to work again, this was the price I paid. Willingly. With foreknowledge and a plan for the future.

That’s what you want to do… create the foreknoweldge so whatever you do, you do willingly and with a plan for the future. It’s a big decision. Good luck with it.

Back in 1883 when Chancellor Otto Von Bismarck of Germany introduced the concept of retirement at the magical age of 65, hardly anyone lived to collect. The world’s changed a lot since then. According to Statistics Canada, 82.5 years for women and 77.7 years for men. Increased life expectance is one reason retirement planning is such a Big Idea. In 2006, 1,167,310 people were aged 80 years and over, up 25% from 2001.

The struggle to balance building retirement assets for tomorrow against today’s very real demands for cash means that often the Big Idea is pushed to the side. Ooops. There goes the Big Idea, hidden behind “not enough money”, “paying down the mortgage” and “coughing up for university.”

It’s human nature to find overwhelming reasons not to change course. So starting something new, putting the Big Idea into action, takes more effort than not. Curiously, the effort is smallest when the need is furthest away.

A young person starting out can sing the popular tune, “I’ve got no money.” And it’s true. With lower incomes, student debt to pay off and retirement thirty-five or forty years away, who needs the extra pressure? The thing is the pressure never lets up, and recognizing that fact early on can mean establishing a strategy that seeks to create a balance between the present and the future.

Implementing the Big Idea when you’re young has significant benefits. First, spring chickens can set aside a significantly smaller percentage of their income to grow their retirement nest-egg. More importantly, perhaps, with a long, long, long term investment horizon, there are far more investment options available that will do the trick. Want to compensate for a small monthly contribution? Look for an investment that produces a higher-than-average rate of return. Worried that your conservative approach to investing might be limiting your growth? Don’t be. With so much time on your side, conservatism isn’t a dirty word. You can afford to make like the tortoise.

Resist the urge to dip in as you move along life’s path. Going back to school, time spent between jobs and mounting debt can all be tempting reasons to cash in retirement funds. How to overcome temptation? Have a plan.

Plan and stick to a budget that includes an emergency-only cash account, vacation savings account, and the like.

Make sure you’re covered by the right kind of insurance so your retirement assets don’t become your emergency fund.

Establish an automatic investment program.

Plan for big expenses: returning to school, a down-payment on a home, that new car.

It’s one of life’s big jokes that as we earn more money we seem to have less money at our disposal. Like a gas expanding to fill a container, our expenses grow in proportion to our increased incomes. We want to have a family. We need a bigger house. It’s time to trade the compact for a mini-van. But wait! What if you got a raise and the first thing you did was set aside a portion of that raise for the future? Before the Devil Expenses could get their hands on your money, you whisked it away into an investment program.

Here are some tips to stay on track with your plan:

Ignore the “all or nothing” message. You do not have to forgo a life in order to implement the Big Idea. The idea is to balance today’s needs with tomorrows.

Don’t make your plan so grand that you end up defeating yourself with unrealistic expectations. Start small, grow your investments over time, keep your perspective.

Pay off your consumer debt. Every dollar you pay in interest is a dollar lost to your investment portfolio.

Watching the kids go off to university or college can be frightening for parents. Empty Nest Syndrome is a well-documented stress. So, too, is the realization that you may be running out of time. You’ve got to get the mortgage paid off, buy a new car, eliminate that credit card debt, get the kids through university, all while putting together that retirement portfolio you’ve deferred for so many years.

Relax. The nice thing about retirement is you have control over when you do it. The institutionalization of age 65 as the retirement age is simply a holdover of Otto’s idea. Since then we’ve moved many of the sign-posts of life further along the road — we have children later, go to school longer, and live healthily for many more years. So we can also move forward the signpost for retirement to 70, 75, or even later. Escape the mindset that says retirement at 65 is “normal” and you can not only build more accomplishment into your life, you can further feather your nest. Extending your working life also extends your investment horizon, allowing you to maintain your investment strategy.

Things to watch for:

You’re prime filling for the sandwich between your kids’ educational needs and the help your parents may need. Consider the impact of elder-care on your investment portfolio and take the steps to mitigate that impact.

Consider government pensions to be the gravy in your retirement income. While younger Canadians have already come to terms with the fact that they will be responsible for themselves, those of us who have grown up with the security offered to our parents may be less willing to emotionally forgo our “rights.”

Hold your assets wisely: keep your interest-bearing investments inside your RRSP and hold your equities outside to take full advantage of the beneficial tax treatment on capital gains.

Over and over I meet families who are spending thousands of dollars a year eating out. And over and over I challenge them to give up buying lunches and coffees and substitute food made at home. It’s often a hard sell. I’m not sure why since I love my own cooking much more than the food I can buy in a fast-food joint, though there are times when I have a hankering for something I don’t make particularly well (like Chinese hot and sour soup that I’m still trying to master). But, on a day-to-day basis, my food is waaay better than what one of my fams referred to as, “outside”food.

A couple or so ago, I handed a chick a lunch box with my face on it and told her to use it. While her hubby was the primary cook in the family and would often make her lunch, she’d leave it behind spending between $8 and $12 a day on food at work. Hello! $12 a day, multiplied by 5 days a week, multiplied by 50 weeks a year equals $3,000 a year. That’s right, THREE THOUSAND DOLLARS.

Creating a lunch for work does take some time and planning. The first thing out of most people’s mouth is, “I don’t have time in the mornings!” Really? Then get up earlier you Lazy! Are you telling me it’s not worth $3,000 a year to you (in after-tax dollars) to get up 15 minutes earlier in the morning? Give your head a shake.

Ken and I pack lunches for the kids  – yes, I still do this for my children even though they’re old enough to do it for themselves because I LIKE TO DO IT! We get up at 6 a.m. so we have time to shower, pack the kids’ lunches, and make Malcolm pancakes before school. I want to make sure they both have a healthful lunch, which brings me to my next point.

Another great reason for bringing your own lunch to work is so that you get to make healthier choices about what you eat. You control the ingredients. You control the freshness. You can be as creative as you want to be. One of our favorite salads is lettuce, red pepper, watermelon, and feta cheese. No dressing needed because the watermelon is so juicy. Yum! You’d be hard-pressed to find a more healthy or delicious salad.

Then, of course, there’s always the sandwich. My daughter hates soggy sandwiches so we end up packing each ingredient separately so she can assemble it at lunchtime. My son is mad about fruit so we pack him two or three different fruits every day. To keep everything cold we either freeze a juice box for the lunch bag or include a cold pack. In the summer, I fill a water bottle half way up and freeze it, then add fresh water to the top before adding it to the lunch bag. You can do this with homemade ice tea or iced-coffee too.

Salads and sandwiches, of course, are easy. But there are lots of people who want a hot lunch but don’t have a microwave at work or are on the road.

Hey, ever heard of this marvelous invention called a thermos? They’re brilliant. Soups, fried rice, chili, lasagna, just about anything can go into a thermos, so you can make extra at dinner and pack the leftovers for your next-day’s lunch. Alex used to complain that the food wasn’t really hot so I now pre-heat my thermos by pouring boiling water in first for a few minutes, then dumping the water out and adding the food that I’ve reheated really well. No more complaints.

Some people say they buy lunch because they love the social aspect of eating out. Hey, I’m as social as the next guy. But being social and going broke is DUMB. So pick one day of the week when you’ll eat out with friends and give yourself something to look forward to. Maybe you’ll choose Wednesday (hump day), or Friday to celebrate the end of the week. Whatever day you choose, lunching out once a week instead of five will cut your spending a ton.

Better yet, start a Lunch Club at work and pick one day a week when you each bring something to contribute to a group lunch. Or challenge each other to find the cheapest good food in your area, and take advantage of the Lunch Special. All-day breakfasts at $2.99 can’t be beat for value.

Be creative. The idea is to have a great life and save some money, at least until you’re debt free. Hey, if you don’t owe nobody nuttin’, then you can swallow your money to your heart’s desire. But if you’re in hock, then you owe it to yourself to use all the tricks at your disposal to get back into the black.

I can’t believe the number of people who pay outrageous fees, or settle for next-to-no interest, on their bank accounts. Whazzup with that? Many of us keep our money in a Big Six Bank, earning a pittance in interest and paying liberally for service. And then we make matters worse by not managing our money properly, so we’re in overdraft, bouncing cheques, or using banking machines that not our own and paying BIGTIME for it.

One of the main reasons people won’t switch accounts is laziness. Yup, plain and simple. It takes work. And not a small amount of work either. If you have pre-authorized debits, it can feel like torture trying to get them all switched over. But if all that’s standing between you and an account that pays decent interest without exorbitant fees is laziness, you need to give your head a shake.

Start by making a list of the things you actually need on your account. Do you write cheques anymore? How often do you go to the banking machine? (If you’re going more than once a week, you’re using the ATM as a wallet. Stop.) How many swipes of your debit card do you do in a month? Do you travel a lot requiring easy, cheap access to your money when you’re on the road?

Once you know the services you need, it’s time to go shopping to compare prices and features. You can hit the pavement, let your fingers do the walking, or head on over to the Financial Consumer Agency of Canada’s website and use the interactive tool to narrow down the alternatives

Here are five easy steps to make the switch once you’ve found your new account home

Step 1. Open the new account and get all the information you’ll need like the account number, your branch number, and the like. If you’re using cheques, order some.

Step 2. List your auto-transactions. What’s being automatically deposited or withdrawn from your old account? Look over your past few statements and make your list

Step 3. Reconcile your account. You have to account for every penny so you don’t have any nasty surprises during the transition. Those six post-dated cheques to the music teacher will bounce sky high if you close the account without telling her and replacing her cheques.

Step 4. First switch over all deposits and then switch over the withdrawals. That way there will be money in the new account when withdrawals start.

Step 5. Leave the old account open for about two months with some money in it to catch any missing deposits or withdrawals. Don’t worry about the balance in the old account is just sitting there wasting time. It’s protecting you from the aggravation caused by a poor memory. Be patient and when there’s been no activity for a month, consider yourself in the clear and close the old account.

Some people are of the opinion that if they have a dollar in their pocket they should spend it. In the old days, people talked about money “burning a hole in their pockets.” So this isn’t a new problem. But as we’ve become more financially sophisticated introducing new products and services, we’ve made it easier and easier to people to put a dollar in their pockets to burn a hole.

I’m just finishing up the paperwork for a fam who have, at the ripe old age of 20-something, run up $100,000 in consumer debt. Yup. You read right. They’ve spent and spent and spent. And their various suppliers of credit have helped them by giving them access to over $130,000 in credit on a income that doesn’t come close to that. Whazzup with that?

They have no idea where their money is going. And I can only tell them a part of the story since they’re withdrawing gobs of cash and keeping no records. Bank machines may be convenient, but they’re also deadly.

Once upon a time there were a few, then we demanded more. Banks discovered that bank machines were way cheaper than bodies, and that they could eliminate the bodies completely in some places. Branches closed and were replaced by machines. According to the Canadian Bankers Association, we did over 667,000,000 cash withdrawals from banking machines in 2007. Wow!

Did you know that the world’s first banking machine was installed in a branch of Barclays in Enfield, north London, in 1967? In a little over 40 years, they’ve become synonymous with “convenience.” In fact, the CBA says, “ABMs are the primary means of banking for 34 per cent of Canadians.”

The USA was the country with the most cash machines — 405,000 — in use at the end of 2006. By comparison, Canada had 16,190 machines spitting out cash in 2006.

Since we don’t have to wait for the branch to open to get our money, and since we don’t even have to go to our own bank machine - we can get at our money everywhere from our local corner store to the gas station to the casino — we’re putting more money into our pockets to burn that proverbial hole.

As if that’s not bad enough, the money in our accounts isn’t the only money we’re spending. Nope. We’re also spending money on our credit cards (and other forms of credit), sometimes even taking cash advances - more cash in our pockets - so we can do whatever we want whenever we want. And when one card fills up, we just sign up for another, and run that card to the limit.

We’re committing financial suicide and we don’t even realize it.

As if it isn’t bad enough that we’re spending money we haven’t yet earned - yes, when you use credit, you’re spending money you’re going to earn in the future… if you’re lucky - we’re also ruining our credit scores, making it more difficult and expensive to borrow for something important like, let’s say, a home.

Whenever you use all the credit you’ve been given on a credit card, the credit scoring agencies shake their heads and say, “tut tut”, and then adjust your credit score DOWN. And the closer you get to your limit, the more they shake and tut and subtract from your score. In fact, you’d do well to type up the following and stick it to the back of your card: Danger: Your credit limit is $___________ (half of what your statement says it is) and you have $_________ (how much) ROOM LEFT!

Of course, as far as I’m concerned, you shouldn’t be carrying any balance on your credit card. If you do have a balance, put your card away so you can’t use it until the balance is completely paid off. Once you get back to zero, here’s how you manage your credit use so you don’t run into trouble again.

First, get yourself a notebook or a chequebook register (available at your bank).

• Write the current balance in your bank account at the top of the page.
• Each time you use your credit or debit card, write a cheque, or take a cash withdrawal, enter the amount you have spent and minus it from your balance.
• Every time you make a deposit, add it to your balance.

There now, you have a real-time balance that shows how much money you really have to spend, and you can’t spend money you’ve already used elsewhere (like on a cheque that hasn’t cleared, or on a credit card that hasn’t come due).

Don’t forget to debit the automatic withdrawals that come out of your account: your mortgage or rent payments, car loan, pay-yourself-first-savings, retirement account deposit, utilities, car insurance, and the like.

Finally, when your credit card bill comes in, check the transactions against your list in your notebook. If there’s something on your statement that’s not your doing, call the credit card company right away and identify the wayward transaction.

There now. You have the means to stay in the black.

The question is this: Do you have the will?

I frequently get requests from people who want to try and figure out how well they are doing financially, but don’t know where to go to find benchmarks against which to measure themselves. There are figures available from places like Stat Canada, but they are very general. It’s okay to use them when we’re talking about what we spend on average or when we’re comparing what we spend on what category to another, but I’d never use them to measure an individual’s “progress.”

CR wrote:

I love your book, A Woman of Independent Means, –so full of commonsense, practical advice. I first found it in the library, and then went on quite a hunt to track down a copy for my own collection. You are pretty nearly the only financial writer who engages the renting-versus-buying a home in a fair and equal-handed way! And I thoroughly enjoy the compassionate but realistic way you advise people on “Till Debt Do Us Part”. Kudos!

My question is this. How can one go about benchmarking how well or badly one is doing? I’m an aggressive saver with a tidy portfolio, no debt (except monthly rent/utilities and a credit card I pay off in full every month), but have no idea whether I’m doing well enough, and have never been able to find any standard against which to gauge my progress. (Obviously, by not providing figures, I’m tying your hands about evaluating my own situation, but I suspect that there are quite a few others out there, all in widely differing situations, who are asking similar questions.)

CR, you’re absolutely correct. I get this question often. And I often don’t answer because the answer is “It depends,” which most people find very unsatisfying. It depends on what you want from your life. It depends on how much you make. It depends on where you live (some places are more expensive than others.) And it depends on how greedy you are.

Let’s do Question 1 first: What do you want? If you want a simple life full of shared activities, the amount you’ll need is very different than the family who wants to travel every year and drive a new car every two years. (Hey, as long as you have the money and you’re not whining, I don’t care how you spend your money.)

So, are you happy doing what you’re doing, or are there other things you need or want to do, and would more money make those things possible?

On to Question 2: How much do you make? The person who makes $100,000 a year can’t compare herself with the person who makes $50,000 a year in terms of lifestyle or accumulation of assets. Nor should she. In fact, the very problem I have with benchmarks is that there ‘s no way to compare apples to apples realistically. And what makes one person feels like soaring success will make another feel like a pathetic failure. So it’s not really about comparisons; it about following the rules. Are you doing the detail, keeping a budget, saving enough to make sure your future is comfortable, covered by the right kind of insurance, paying your bills on time, and all the rest? If you are, then by any standard you should be fine.

Question 3: Where do you live? If you’re in a big city, your costs will be different from another person living in a rural community. More importantly, where will you live when you plan to start using your stash of cash. If you’re going to remain in the same location, will you have enough to continue meeting your needs? Or will you move so that your money will go further? If you plan to move for family or lifestyle reasons, are you familiar with the costs in your new community?

Finally, Question 4: How greedy are you? Or put another way, How Much is ENOUGH? I’ve watched people sacrifice their Present to make sure they were “comfortable” in their Future. They sometimes made it hard for themselves. They sometimes made it hard for others around them. Saving for the future is a good thing, but not when it means that you have no joy in the present. I’m not talking about Shopping Joy here – so all you shop-a-holics reading this shouldn’t go off half cocked saying, “Gail says if shopping makes me happy I should shop!” What I’m trying to say is that the accumulation of assets as the only goal in life leaves one with a lot of money and not much in the way of anything else.

I will tell you that in the corporate world there’s a thing called “financial forecasting”, which is what advisors try to do when they ask people to think about what they want from their futures and how they’ll pay for it. But it’s really an individual exercise.

It’s a matter of figuring out what your personal balance sheet looks like today – is your budget balanced, how much debt do you have, and how much do you have accumulated in assets. It’s also taking a look at how much income you’ll need later, when you retire, and you’ll be counting on those assets to provide your with grocery money.

Some people who have had a bad experience with a financial adviser don’t believe they can add value to your life. But those who have a GREAT adviser know the benefits of having some else looking over a plan, listening to dreams and desires, and help you figure out priorities.

Why not check around with family and friends, bosses and co-workers, to see if you know anyone with a GREAT advisor you can chat with. Don’t settle for less than GREAT.

When was the last time you went through your bills? I don’t mean just paying them. I mean sitting down and reading them to see what you’re spending your money on. I can’t believe the number of people with whom I work who don’t have Clue One where they’re spending their money. Man, we work so hard for it you’d think we’d take better care of it. But we’re lazy. We fall into habits and then never look for ways to break them, even when they’re bleeding us dry.

Buying newspapers is a habit. Sure, you need something to read on the way to work. Borrow a book from the library. Picking up magazines at the check-out counter is another habit. Again, go to the library, or, at the very least, subscribe and save 50%. Better yet, split your subscription with a friend and save 75%.

Okay, so we all have habits, and not reading your bills is one of the worst. People don’t read their check-out bills at the supermarket and spend a lot they don’t even know they’re spending when there’s an error. And they don’t read their bills at home either. They just pay them. Blindly.

When was the last time you looked over your phone bill? Yet you’re prepared to lay out hundreds of dollars a year on your land line. Never mind what you’re spending on your cell phone. Ditto your electrical bills, your gas bills, your credit card statements, your bank statement. I’m willing to bet you dogs to donuts right now that you can’t tell me what you paid in service charges on all your bank accounts last month.

Here’s today’s challenge: Spend one hour going over ALL your bills so you’re completely familiar with where your money is going. That’s right, gather them all up, get yourself a highlighter pen and start familiarizing yourself with where your money’s going. If you find places where you’re surprised at what you’ve been shelling out, it may be time to re-evaluate what you’re getting for what you’re spending.

Keep in mind that if you have auto payments set up, you may have to go online to get the itemized bill to see where you racked up those charges. Don’t wuss-out. Do it.

Are you paying to have movies piped in, but never seem to watch? Axe it.

Are you buying services at a premium? Move to a lower level of service.

Paying for membership at a gym that you haven’t visited in six months? Lose it.

Paid even $1 in banking machine fees? Stop it!

Got a renewal for a magazine subscription you never have time to read? Don’t just automatically renew it out of habit.

Look for all the things you pay for, but seldom use, and as you chop, trim, slice and dice, make a list of the money you’re saving.

Eliminate just $50 worth of monthly spending, and you’ll have $600 to add to your savings this year. Take that $600, invest it in an RRSP at an average return of 5%, and REINVEST your tax refund every year to make your RRSP contribution grow and in:

20 years you’ll have $29,610
25 years you’ll have $37,485
30 years you’ll have $45,360
35 years you’ll have $53,235
40 years you’ll have $95,424

… all from a measly little $50 a month. Can you imagine what you could do with $100?

Can’t find anything to trim? Really? Did you look really hard? Well good for you. It means you’re running a tight ship.