Gails Blog

Spending is a significant part of money management, so it makes sense to try to help kids figure out the best ways to use their money.

The fact that nobody taught most of us about smart shopping is evident in the way we abuse plastic. More than half of North America’s credit-card holders have balances owing, paying what can be exorbitant interest rates on products and services that may not even outlive their repayment schedules.

While our values are very different from our parents’ - who typically spent only what they had - our “spenditis” is in large part because the money game has changed. It is in our generation that credit cards have become currency. And the statistics on credit-card usage and balances are staggering.

Whether we are aware of it or not, we already play an important role in teaching our kids how to shop. Each time hit the mall, we model what a consumer looks like. And whether our model is positive or not, our kids are learning. Teaching our children about becoming smart consumers may mean looking closely at our own spending patterns and developing some new habits. Teaching our children also requires that we take an active role in explaining what we are doing and why. And that’s where relative value comes into play.

Relative value refers to the relationship between what an item costs and what you have to do to pay for it. If it costs $140 for a concert ticket and you earn $10 an hour, you would have to work for more than two days to be able to afford that concert ticket. That puts a whole new spin on the real cost of that ticket.

As your children’s primary financial guide, you have to look for ways to bring home the lesson of relative value. If your child has a job, talk about relative value in terms of how many papers have to be delivered, how many lawns have to be cut or how many baby-sitting jobs have to be done relative to the cost of an item.

Now, here comes the hard part. It’s time to share your financial reality with your Mini-me. Now, don’t go screaming from the room. What are you afraid of? If you aren’t prepared to share your own financial circumstances with your kid, why should he listen to your money advice?

Tell Junior how much money you make per hour; if you aren’t paid by the hour, work it out. Deduct your total expenses (including income tax) from this hourly wage to show your remaining disposable income per hour.

Now it’s time to go shopping. Tell your child to pretend she has your hourly disposable income to spend on a new computer. Ask her to choose a computer she would like to have and write down the price. (You can make this as simple as a look through the ads in the newspaper, or as detailed as a visit to one or two stores.) Divide the price by the hourly disposable income amount to show how many hours she would have to work to buy the computer. Ask your child if she would be prepared to work that many hours for that specific computer. If she chose a less expensive one, how many hours would she have to work?

Repeat the exercise with a holiday purchase, the purchase of a new TV, a snowmobile, a bicycle, whatever is the “hot buy” in your kid’s mind.

Teaching relative value shouldn’t be arduous. Resist the urge to make every purchase into a lesson. Opportunities will naturally arise when you can reinforce the concept. Don’t lecture. Teach.

It’s the height of RRSP season and everywhere I go people are asking RRSP questions. For our American cousins, an RRSP is like your 401K… it’s a retirement savings plan.

One woman wrote to say she’s expecting a pretty hefty bonus in a couple of years, and her financial advisor has told her to hold off on making contributions to her retirement savings so she can save up her contribution room for when she gets her bonus, reducing her tax then. But since she’s saving enough to max out her RRSP, and she has no consumer debt, she’s of two minds. Hmm.

I’m with you, chick. I don’t understand why your advisor would tell you to save the room now if you would benefit from the tax deduction now. If you wouldn’t, you could still put the money in the RRSP based on your current contribution level, get the money earning a tax-deferred return, and claim the deduction when your marginal tax rate is higher - say, when you get the bonus. The problem I have with the advice you receive is that it completely ignores the fact that the compounding return is the true magic of contributing to a retirement plan of any kind. Without knowing more such as what your current income is, and what the amount of your bonus will be, I can’t add any more.

Marijke wrote that she has heard that paying down a mortgage a little every year helps more than purchasing RRSPs and wants to know if this true. Her issue is further complicated by the fact that she wants to make sure her money isn’t “tied up” in case she needs it for an emergency.

Marijke asks two questions that I get all the time. The first question about paying down the mortgage versus contributing to an RRSP, is easy: do both. Contribute as much as you can to your RRSP and then take your tax refund and use that as a principal prepayment against your mortgage. See, who says you can’t have your cake and eat it too?

The second question is also one that swims around in lots of people’s minds: how to balance short term needs (for an emergency fund, for example) with long term needs for saving. The answer to this question is exactly the same as for the first question: do both. You need an emergency fund. But you also need to do some long term planning. If you don’t, then you’ll just end up OLD and POOR! Yuck!

Another question I get often is this: does it make sense to take the money out of my RRSP to pay down debt. The answer is NO, NO, NO, NO, NO, NO, NO. The tax implications of deregistering the RRSP are too frightening to even think about. I know people who have taken money out of their RRSPs and they are NEVER prepared for the amount of tax they will have to pay on those withdrawals. Of course, if you have unregistered investments - mutual funds, GICs, and the like that are not in an RRSP - and expensive consumer debt, then it makes sense to sell those investments and pay off the debt. Then rebuild your investments. Take the money you would have used monthly for debt repayment and start an automatic investment plan.

A lot of people have been asking about the office in a box and how to get financially organized. Go and read Gail’s 12 Steps to Getting Organized Financially. As for what goes into the office in a box, you should decide that based on what you think you will use. Just take a walk down the aisle of your local business supply store and make a list, price it out, and then budget for it.

It’s quiet at my house this morning. After the constant movement of the week, it’s nice just to sit and watch the snow falling. I’m tap, tap, tapping at my desk, and Ken and Malcolm are doing the same. It is so good to be home listening to the blue jays scream for breakfast. When I’m done here I’m going out to the paddock to get a hug from my pony, Pony. My llama, Llama, will peer curiously at me, but won’t come near enough to hug anymore. He’s too much of a teenager now. Pony is still my cuddle-bunny.  I was in Nanaimo this week, speaking for Credential. Lots of people came to see me and tell me how hard they are trying and how much they are accomplishing. I am so proud of you all. It’s no easy feat facing up to your credit woes and deciding to make the change. I may have had my first real Nanaimo bar ever. While I love Nanaimo bars and have eaten my fair share, the ones I was served in Nanaimo were truly scrumptious… the base was moist and delicious, the yellow was creamy and custardy (the ones I’ve eaten tend to be just a tad too crystally… too much sugar?)  Well, now that I know what it’s really supposed to taste like, I’ll not settle for the stuff I’ve been oohing and ahhing over. The bar has been raised.  Speaking of things being raised, I got a wave in Nanaimo. Uh-huh. You read right. A wave. (I, of course, planted the seed for said wave, but was still surprised when it came.) So the bar has been raised for all you people in Saskatoon, Winnipeg and Toronto. Let’s see some enthusiasm. Enthusiasm is the thing that probably makes me the happiest when I’m off doing these talks. When I see the way people are willing to embrace a new way of thinking and do things differently, I am just blown away. People are truly getting it now. And there seems to be a shift in attitude from “what am I doing wrong?” to “how the hell do I fix this?!” There are lots of answers on my site and if you don’t see something you need, you can ask me a question and I’ll put something new on the site for you. That’s how it was for Leah, whose mother wanted me to counsel her before she gets married. Well, I wrote a bunch of articles on getting ready to get married on the site, Leah read them, and then her mom sent her to Nanaimo to get a little more Gail. Boy, we should all have a mom like that! It was great to hug, Leah, and I hope you remembered to give your mom the one I sent for her!   I didn’t get a chance to hug enough people in Nanaimo because we ended up doing two shows to squeeze everyone in and we were pressed for time, so I came home hug-deficient. Booo.  I stayed in Toronto to do Metro Morning and then Ontario Morning (did y’all hear me?) and then drove home to my hubby’s loving arms. Gosh, I miss Ken and the kids when I’m away. It’s sooooo goooood to be home.  Well, I’m off to have a cuppa and feed the cats. I am looking forward to climbing on the couch with Alex and Malcolm on top of me. I’m doing the Vagina Monologues again tonight in Port Hope — the final show — and if Shannon, a co-performer,  wants to go out after, I’m going with her. She’s funny and makes me laugh.  Then I’m spending Sunday doing NOTHING. Well, maybe I’ll cook a little something. But NOTHING ELSE! Have a great weekend, y’all.   

I was talking to a friend a few days ago about the pros and cons of overdraft protection and I thought about all the people I’ve worked with who have this feature on their accounts.

Overdraft protection is usually sold to people when their open their accounts as the way to ensure that bounced cheques don’t ruin their credit ratings. When you try to spend money you don’t have in your account, the bank covers the withdrawal - be it a cheque, debit or cash withdrawal.

Don’t confuse the kind of overdraft protection you “buy”, for which you sign an agreement, with what some banks call “bounce protection” or “courtesy overdraft protection” which they offer to save you from the embarrassment or hassle of a returned cheques (which, I admit, can be very expensive).

According to www.bankrate.com, the average courtesy overdraft fee is $29, but fees can be substantially higher. And since the fee is levied regardless of the amount you go into overdraft for, it can be astronomical when you calculate it as a percentage of the “loan.” One woman wrote me to say that she was appalled when her statement came in and she had over $160 in bounce fees.

I’m all for the traditional overdraft protection for which you sign an agreement so you know what you’ll pay in interest (it is much higher than you might think). It beats the pants of NSF fees and the bruise on your credit report.

What I’m not for is the idea that overdraft protection gives people a license to ignore their cash management. They can spend whatever they want, whenever they want, because overdraft protection is there to catch them like a safety net.

While some of you might think, as I do, that overdraft protection is a short-term affair - most overdrafts are said to last only about 5 days or less - I’ve met oodles of people who practically live in overdraft.

The banks don’t mind one little bit when you go into overdraft, since overdraft interest rates are well above regular lending rates - one bank I checked charges 21% interest on your outstanding overdraft — and going into overdraft automatically triggers a monthly fee. If, in fact, overdraft is just for the odd slip as the marketing material says, then why do some banks offer the option of going $5,000 or more into overdraft? That’s NOT a little slip.

The answer to running into overdraft is not overdraft protection, it is to better manage the cash in your account so you don’t try to spend money you don’t have. Hmmm. What a concept.

How do you do that?

Easy.

Get yourself a notebook. When you put money in your account, add it to your balance. When you spend money from your account (be it a cheques, bill payment, a debit card transaction, or a cash withdrawal) you debit that amount from your balance. Keep your eye on the balance.

If you think that sounds like too much work, you’re a dope. You’d work at least this hard to find where gas is selling for a penny less, or where tuna is two for $1.39, or where wings are all-you-can-eat for $3.99. Staying out of overdraft is one of the best deals going.

Did you read the book or see the movie about Dr. Doolittle? There was an animal call the pushmi-pullyu (pronounced “push-me-pull-you”) with two heads facing in different directions. Clearly this creature had difficulty trying to decide which direction to head off in.

People face the same kind of dilemma when they’re trying to decide whether to pay down their debt or save. And when the media-focus on retirement saving heats up, the push to save can make a person question the pull to pay down debt.

Is it any wonder, then, that I get lots of questions about this very issue: whether people should be putting money away for the future or focusing first on paying down their debt.

Jean Leggett wrote:

At the beginning of July, I will be receiving a RRSP bonus from work on the 3rd anniversary of my employment. It is 6% of my last two years salary, about $5,000. I still have $14,000 in student loan debt. Does it make sense to pay the penalty and cash out the RRSP and pay down my student loan?

ABSOTIVELY, POSOLUTELY NOT!

Whenever I tell people to sell assets to pay down debt, it is always unregistered assets. The tax implication of cashing out registered assets, like an RRSP, are so horrible it makes me shudder. So Jean, please leave your savings in place. If you want to pay off that student debt faster, (I love this about you), use any tax refund you get from having made an RRSP contribution as a lump sum payment against your student loan. Or get a part-time job for a short while to make more money that you can put towards your loan. Or find a way to trim your expenses.

Sarah wrote:

Hi Gail, I make $88,0000 a year and am a single mother of two children. I receive no child support. I am currently $16,000 in credit card debt. I have learned the errors of my ways regarding over-spending and now I am working very hard to pay off my debt at $1000 per month. I am currently saving $200 a month in cash (I have $2000 in savings) and $100 - $200 per month in RRSP. I have $5800 total in RRSP. My question is, should I stop contributing to my RRSP and put everything I have into paying off my credit card debt? I know I have to keep saving $200 a month. Thank you.

Sarah, I’m a big fan of finding a balanced approach to handling your money. Doing any one thing to the detriment of another won’t create the kind of balance you need to keep you safe. So I’m glad you’re committed to putting that $200 away, just in case.

Having some savings is important. And planning for the future is important. Just as important as paying down your debt. So I would not stop contributing to the RRSP,

I know that lots of people promote the idea that focusing on your debt repayment should be your first priority. I agree that debt repayment should be a top focus. But it shouldn’t pull all the light off having a plan for the future.

Missing even one year of return on your retirement plan can mean huge dollar difference when it comes time to pick up the gold watch. And not having any long term plan can play serious havoc with your peace of mind. Since I’m a big believe in both compounding return and peace of mind, striking a balance is my default position.

I would encourage you to ensure you are paying the least amount of interest possible on that credit card debt: do a balance transfer to a low-interest card, get a consolidation loan, call and negotiate a lower rate by threatening to move your biz. Do whatever it takes to reduce your costs. With teaser rates of less than 1% out there right now (I just got one from President’s Choice MasterCard), there’s no reason you should be paying through the nose.

Jen Milan wrote:

Hi Gail, I love your show! I’m 22 years old and currently a student, I’m debating between investing in RRSPs (I haven’t started yet) or paying down my student loan which currently at approximately 20,000 $. Also this will probably sound silly and I guess also for future reference, but I was wondering if you should open up a separate account for an emergency fund, and then a separate one for retirement savings, or keep them in the same savings account? Where would recommend putting miscellaneous savings such as money for Christmas presents? Would you recommend taking cash out and setting it aside or in another account?

Okay, Jen, now you know the answer to the first part of your question, let’s deal with the second part: the use of multiple accounts.

This is a purely personal thing, hon. Some people like to have a separate account for each category, and as long as it’s not costing you anything in terms of fees (which most savings accounts don’t) and you keep track of the paperwork (like your passbook or statements) so you don’t lose the money (people do this!), go ahead and create a separate account for each of your goals.

The one benefit to having all the money in one account (your chequing account) is that many accounts give you all your transaction for free when you maintain a minimum monthly balance of, say, $1,000. Then you would track the account on a spreadsheet, with each of the balances for each of your goals highlighted separately, but totaling so you could compare it to your account balance.

Hey, it’s your money. There’s no right or wrong way to keep track of it, as long as you’re keeping track. Try something, if it works and feels comfortable, stick with it. If it isn’t working, try something new.

I am so please y’all are even debating the issue of savings and debt repayment. I take that as a huge step forward. Pass it on.

Everybody wishes they owned their own home. Well, maybe not everybody. But lots of the people who write to me. And lots of them are looking for me to confirm what they’re hearing about no-money down, take-forever-to-pay-off-your-home plans. 

This never used to be an issue. To get a mortgage you had to come up with 25% down. Then Canada Mortgage and Housing Corporation (CMHC) started offering Canadians the opportunity to have a high-ratio mortgage… with as little as 10% down and a willingness to pay an insurance fee you could get into a home of your own. Amortizations started to lengthen … first to 30 years, then 35 years. Downpayments started to shrink, from 10% down to 5%. Finally, we’ve hit the current standard: zero down, amortize for 40 or even 45 years.  

The argument made is that most people can’t afford to save 25% down, not with housing prices where they are in big cities. And if you can get into a home with as little as possible, you can begin to build wealth through home ownership and the appreciation of your primary asset. I get that. I get how hard it is to save money in a world where everything costs a lot of money. I get that homes are expensive. My husband paid $28,000 for his first home in London, Ontario in the early 70’s. Compare that to the $350k we laid out in Toronto in 1993, or the $650,000 it sold for in 2003.  

But I also had other experiences that make me more balanced than some when it comes to how the housing market moves. I bought my first home in 1990, a nan0-second before the last real estate market slide. I paid $300,000 for my semi and then watched it erode away.  I was okay. First, I’d put down 25% so I was able to bounce back from the erosion in my equity faster than those who slid into seriously negative territory because they had little or no equity to begin with. Second, I hadn’t taken a mortgage sooooo BIG that the slightest change in interest rates had me squirming. I had room to move.  

And that’s the biggest problem I have with no-money-down plans. People don’t use them to just get into a home. They use them to get into a big, expensive, more-than-they-could-afford, how-the-hell-are-they-going-to-carry-it home.   

A single mom living in Montreal wrote to me recently asking for some advice about buying a home. She wants to know how much she should put down, and how much she should put aside for on-going maintenance. Both are very good questions. I hope she’s ready for the answers.

First off, you should know that lenders use a calculation called debt service ratio to calculate how much they’ll lend you based on how much you can afford to repay each month. They usually won’t allow your debt service ratio to go above 30 percent. So you can use this as a starting point to determine how much you can afford. If you make $5,000 a month before taxes, 30% of that would be $1,500 a month, which is what the bank will say you can afford in mortgage payments. With an interest rate of six percent, you could afford a mortgage of about $187,000. Add on your downpayment and violá, you’ve got the amount of house you can afford.

Now I say all this as a guide. And it’s a good guide. But since people are getting into houses today, who would never have qualified to buy five years ago, before you jump into the fray, you need to know the facts.

Let’s work with the following. Let’s assume you’re buying a $200,000 home (well below the average cost of a house at the time of writing: $335,000 but more reflect of the whole country), that current interest rates are 7.5 percent, and that you’re taking advantage of the no-money-down option.

First let’s look at how your amortization affects your long-term interest costs.

     Amortization     Monthly Payment     Total Interest Paid

     25     $1,463     $238,900

     30     $1,383     $297,880

     35     $1,332     $359,440

     40     $1,299     $423,520

So, if you take a 25 year amortization, you’ll pay more than double the cost of the home, and if you take a 40 year amortization, you pay more than three times the original cost of your home by the time the mortgage is paid off.

The big argument for extending the mortgage amortization from 25 to 40 years is that you’ll be able to work a lower payment (yes, the payment goes down from $1,463 to $1,299… that’s a whopping $164 a month) into your cash flow. And with no money down, you’ll be able to get into a home that will appreciate substantially, building up your equity. Hmmm. Equity. On a 40-year amortization my home would have to triple in value for me to break even on the interest cost. And equity is only something you can take advantage of if you sell your home and cash out. So, are you planning to sell your home and rent next? If not, then all your equity gives you is the ability to borrow more money.

But that’s not all. If you buy a home with anything less than 25% down, you’re going to have to buy high-ratio mortgage insurance. This insurance premium is calculated as a percentage of the loan amount, and the percentage depends on the loan to value ratio. The higher the loan to value ratio, the higher the premium cost. In other words, the lower your downpayment, the more expensive the insurance. This premium may be paid in cash (nobody does this) or added to the mortgage amount (making your mortgage even larger).

So, back to our example. On a $200,000 house with no money down, the mortgage insurance would be 3.1 percent of the value of your home or $6,200. Added into your mortgage, that mortgage insurance premium would end up costing you $13,605 if you amortized for 25 years, or $19,330 if you amortized for 40 years. Hey, that’s peanuts right? I mean, if you’re already prepared to lay out another $423,520 in interest for your home, what’s a measily little insurance premium of almost $20,000?

Now let’s see how it applies to the “average” house in Canada that’s valued at $335,000. Put no money down and your premium cost will be $10,385. Amortize for 40 years and your true cost will be $32,381. All that for buying a home you can’t really afford.

That’s what this all boils down to, people. If you can’t afford to save a downpayment - and by that I mean 25% down — what makes you think you’ll be able to afford to maintain the home (rule of thumb: budget 3-5% of the value of your home for up-keep every year), pay your property taxes (yes, they will go up each year), and deal with the general challenges of home ownership.

I’m not trying to scare y’all away from home ownership. I’m trying to impress upon you that home ownership is a BIG responsibility, not one to be taken on lightly. And I’m trying to show you that spending a little time saving for a downpayment makes way more sense than locking yourself into a mortgage payment that strangles your cash flow, while paying exorbitant amounts in interest and insurance premiums.

Lori from Vancouver wrote on my comments page about her confusion in trying to figure out which income numbers to use on her budget. She said:

For people paid bi-weekly such as myself, you tell them to take their net income x 26/12. When I do this it leaves me in a deficit monthly. For example, if the net income is $1500.00 biweekly x 26/12 = $3250.00 doing it the way you suggest. However the actual monthly income would be $3000.00, until we hit May and August where we are paid 3 x. If these were my numbers I’d be in the hole $250.00 a month until then. I think I must have done something wrong!!

No Lori, you haven’t done anything wrong. This is where the theory of math bumps heads with the reality of your bank account. You’re absolutely right, in fact, and the only solution is to budget with the lowest monthly amount you receive over year

I often tell people who receive commissions or bonuses that they can’t “count” on their bonuses for their monthly income planning. Don’t know why I haven’t taken the same approach with pay, except that it is guaranteed, just not “regular”.

I’m going to revise the budget page instructions based on my rethinking (because of this question) and tell people what I’ve said here: use your lowest monthly income as your base, and use any extra money you receive to boost your planned spending (for things like furniture acquisitions, vacations, and the like).

Have y’all signed up for the free Toronto seminar I’m doing for Credential on February 13th. If you haven’t, you better hurry up. The registrations closed early in Winnipeg and Saskatoon because the demand was huge and space was limited. If you don’t sign up TODAY, don’t whine to me that you couldn’t get in!

The credit crisis in the US (can ours be far behind) has been all the news of late. The latest bad news from the financial markets is that the Bears are eating the Bulls. For those of you who think I’m talking zoo-garble, I’m not. I’m talking investor-babble. The Bulls are those who believe the stock market is going up. The Bears are those who believe the stock market is going down. Markets all over the world took a hit this past week, virtually wiping out the gains of 2007.  According to the Toronto Star, “four days of heavy selling caused Canada’s benchmark stock index to record its worst weekly drop in about seven years.”

So, if you’re holding investments should you be panicking? No. This should be the wake-up all that reminds you that markets rise and fall. All markets. Stock markets. Bond markets. Credit markets. Housing markets. Life is cyclical and so are markets. And just because things are going well, and have been doing so for a while, doesn’t mean there’s no likelihood that things will ever change. Get real. Things change all the time.

Having a balanced financial plan means you don’t panic. You can withstand changes and wait for said same markets to move into the next phase - going up again - because you have time on your side. And because you are not leveraged - read “in debt to your eyeballs”.

So, assuming your financial house is in order and you’re following the golden rules of investment (you do know what these are, right?), you just have to wait out the latest bump.

This, too, will pass.

I received a question from Beverley who wanted to know what I thought about borrowing money to catch-up unused RRSP contribution room - you know, all those contributions you didn’t make because you’d spent all your money!

I thought this might be on more than one person’s mind since it’s RRSP season and the marketing material is flying in the door at a wicked clip. Remember, by its nature, marketing material is designed to show you the positive side of a strategy so you’ll want to take advantage of the “offer.” But not all offers are worthy of your attention.

Beverley borrowed $65,000 last year and thinks she might borrow again this year to complete the catch-up of her unused RRSP room. These “Catch Up Loans” were popularized by a particular bank that sold the pants off them, and laughed all the way to the vault.

If she goes through with her plan, when all is said and done, Beverley will have an outstanding loan of $103,000 at “prime” (because she’s tied the loan to her home equity) and plans to repay $1,000 a month.

It will take over TWELVE YEARS for Beverley to repay this loan.

It will cost Beverley over $42,000 in interest by the time the loan is repaid, assuming her interest rate does not go up one iota over the next decade. Hmmm. I wouldn’t take that bet!

Do I think this is a good idea?  I DO NOT.

I hope Beverley’s income is high enough - in this case well over $100,000 a year - so she’s getting full use of the RRSP tax deduction? If not, then what’s the rush? Keep in mind, too, that if interest rates go up Beverley could find her payments increasing putting more pressure on her budget, since the loan rate is only fixed for the first year

With loan repayment eating up a large slice of her budget pie, will Beverley be able to afford to make her regular RRSP contributions?”  If the answer is “No”, at the end of the catch-up loan, she would have to catch up the contributions she didn’t make while she was repaying the loan. Sounds like a Catch-22 to me.

Here’s an option Beverley might want to consider instead of taking out another loan. She could make her maximum RRSP contribution for this year using a monthly investment plan. Then she could also contribute the amount she would have made in loan payments to her RRSP on a monthly basis. It may take a little longer to catch up, but she would have no interest costs. All her money will be working for her, instead of making a bank even more profitable.

I wonder, too, if Beverley knows what the Alternate Minimum Tax (AMT) is? The purpose of the AMT is to ensure that people who make a certain amount each year don’t get off scot-free tax-wise by accumulating deductions. She should do the AMT calculation before deciding how much she will catch up at one time.

I’m not a fan of catch-up loans. I think they play into people’s needs for immediate gratification. And that immediate gratification comes with a heft price tag. In Beverley’s case, that would be over $42,000 in interest.

We’re moving into very uncertain economic times. The US economy looks like it’s headed for the dumper. The markets are zipping and diving, dodging and weaving. No body knows what’s going to happen next. And we haven’t seen the last of the billion-dollar write-downs for misjudging the credit marketplace. This is no time to be taking on debt.

Saving and investing are long-term, slow and steady propositions. If you want to catch up your RRSP unused contribution room, trim back on your expenses or make enough extra money to sock away what you want. Don’t borrow it.

You only have to look at the comments section of this website to see that living within your means is something you can do. I’m always getting messages from people about how well they are doing living on cash, keeping track of their budgets, taking control of their money. Sometimes the messages come from the darndest places.

This came from one of the directors of my show, Til Debt Do  Us Part. Seems I’m seeping into people consciousnesses.

I don’t know if I mentioned to you that for the past 3-4 months, [my wife] and I had put ourselves on the jars.  I had actually gone to the trouble of tracking our expenses and it had turned out we were spending more than we should.  (Even accounting for maternity leave…)Anyway, I hadn’t realized how well things had gone until the past few weeks.  Over the holidays, we stumbled and neglected to withdraw cash and account for things the way we were.  Now, I suspect that in many respects, our spending had declined.  With all the visiting we did (probably 14 out of the 18-day holiday period) we weren’t exactly hitting the malls.What struck me was the feeling I got in my gut, not seeing the money we were spending, and not accounting for those purchases.  Even putting gas on my credit card was making me nervous.  And although we weren’t at each other’s throats - we never are, not about money or anything else - I certainly was starting to get a little more chippy.Funny when the show you direct hits so close to home.Thought you’d appreciate hearing that.  (And yes, we’re back on the jars.)

I think what I like most about his note is the sense that he has forever changed how he and his wife will handle their money. They are awake, fully conscious of what they are doing.

So often we sleep-walk through our lives, completing tasks by routine, keeping on keeping on. We slip, drift, slide into bad habits, but because we’re just doing same-old, same-old, we don’t even notice. Expenses creep up, and we fall out of touch with our own financial realities.

It’s a good idea to review your budget with your family at least twice a year. Look back at what you’ve spent, where your money went, what you didn’t notice when it was happening to you (like bank charges that snuck up, up, up). Make conscious decisions about what you’re going to do differently, how you’re going to live differently, and what you want from your life.

Now I’m not talking about wanting a new couch. I’m talking about what you really want… what will bring you closer to that place we all seek, that sense of contentment and satisfaction.

What one thing have you always wanted to DO?

How will you change one thing in your life to move you closer to your goals?

Who will you help this year?

When will you give something back for all the good luck, good health, good wishes you’ve received?

If, like my director, you live on the jars, keep track of what you’re spending, and make a commitment to getting in control of your money, you will. It’s that easy. All it takes is knowing what you want and having the gumption — the backbone — to make it happen.

You can do it.

You can.

One of the questions I’m always hearing is, “How much should I be spending on groceries?” I don’t know. How many people are you feeding? Do any of them have special dietary needs? Do you make a lot of money, or are you barely putting food on the table?

There are so many variables involved. People who are determined to eat organic will pay more for their food. People who survive on pasta will pay less. If you’re a big meat or fish eater and only like the best, your grocery bill would stagger the single mom of three making her own pizza at home.

According to Statistics Canada, the average Canadian family spends $9,630 a year on food, which would work out to be about $185 a week. And that’s just food. It doesn’t include personal care, household cleaning, tobacco, alcohol or lottery tickets - things we often add to our carts.

There are ways to trim back on your food costs. Here are some that I use:

• I know what stuff costs so that when I see a deal I can buy in bulk. So when salmon hits 99¢ a tin, when coffee goes on sale, when toilet paper is a bargain, I stock up. It’s not going to spoil so I buy lots.
• Since companies use different sizes and formats for their products, shoppers can get confused. Just think of all the different versions of diapers out there. Whew! If you don’t calculate the per unit cost, it virtually impossible to tell what is a deal and what isn’t. Just because the package is bigger doesn’t mean the cost is lower. (I learned that lesson the hard way.)
• If you go shopping and something you’re looking for that’s been advertised is not in stock, make sure you get a raincheck so you extend the sale and get what you wanted at the best possible price.
• I do most of my shopping in a discount grocery store. It’s been estimated that you can save up to 30% just by switching your supermarket. Hmmm. That would be $45 in savings on a $150 food bill. Over a year, that’d be over $2,300. That sounds worthwhile, doesn’t it?
• I don’t skimp on my food budget, but I like to get the best deal, so I shop where they don’t build the price of shopping bags into the cost of my food. I actually use bins most of the time. Since I can pack my bins by destination (one for the freezer, one for the pantry stuff, one for the fruits and vegis), I save time using them.
• I’m also a big believer in buying the stuff that’s just about to expire. Monday morning I picked up some lamb chops, a pork roast and a steak for half off. I cooked ‘em all (the lamb chops in a soya/marmalade sauce, the pork with a ginger/lemon marinade) and left them in the fridge for the fam to eat whenever this week. This is another way I save time: I batch my cooking.
• I take full advantage of the rewards programs offered by my grocery stores. That way I can convert food purchases into gifts or travel savings. And because I buy my gas at the station associated with my grocery store, I save 2¢ on my gas, which I immediately apply to my groceries so the coupon doesn’t disappear before I can use it.
• I use coupons. I’m not rabid about this, but I do collect coupons for the products I usually buy and them use them to save. I particularly like to use the coupon when the item is on sale since I feel I’m getting even more bang for my buck. 
• I shop with a list. This is the single best way to manage your food budget. Over and over I’ve assigned the “shop once and with a list” challenge to people on the show and they are gobsmacked to see how much they save.