Last week my daughter called me. She had been in a car accident on her way home from the gym. Fortunately she and her girlfriend were going to be fine, with the exception of a few bumps, bruises and some sore muscles. Her car did not fare so well! Now on top of paying for an upcoming wedding there is a new car to buy.
Planning our daily life sometimes can be overwhelming. Many families are busy with both parents working and children in day cares, schools and extra curricular activities. It can be difficult to find time to set the right priorities in life. Just as something like your child having the chicken pox and not being allowed to go to daycare or school can turn your plans around for weeks, a major life trauma can completely change your plans for several years or a life time.
Start with a plan
Despite the fact that we can’t predict what events are around the corner for us, we can set in place a sound budget and financial plan. Then when we come to those unplanned events we can make it through much faster and easier with sound planning and preparation. Our financial plans must be flexible and dynamic. As life changes our financial plans have to change especially in response to unplanned events.
I recently wrote about putting in place life insurance as the foundation of your plan. Life insurance is a way to deal with unforseen circumstances and prevent future financial disaster for loved ones. I can give many personal examples of unexpected accidental deaths and no life insurance being in place. We all hear on the radio of the benefit dances, fundraisers and bank accounts being set up for families to collect funds when something has happened.
I never planned to be single and starting my life over again in my late 40’s! I had planned, budgeted and invested my whole life. Suddenly on top of a divorce I ran into a major roadblock with a rogue company and an unplanned injury which left me unable to work for sometime. It was time to set a whole new financial plan in place and begin again!
The role of budgeting and saving
I keep budgeting simple. I get paid twice per month so I have set up half my expenses to get paid from one pay and the rest of the expenses from the other. My pay can vary greatly month to month so I know exactly what I need to make in order to meet my basic budget.
I also take advantage of the matching program I have through a Group RRSP. This is one of the best and simplest ways to save for anyone that is an employee. Anytime you can get matching on your money take advantage of it.
My bank also offers a save up account, so each time I use my debit card, they round up the amount to the nearest dollar and put these extra few cents into a savings account. At most banks you can also set up an automatic withdrawal from your chequing account to your savings every pay or every month. I use this as an emergency fund to deal with unexpected events.
I also take advantage of points credit cards, I use a WestJet card to collect WestJet dollars. I will make purchases then pay them off in order to get as many dollars off a flight as I can. My daughters live in Ontario and I live in Alberta so I will always make use of travel dollars.
Part of your planning is to simply get your finances organized. Here’s a few practical ideas and suggestions:
- List all your income, if you get paid weekly or bimonthly write down the amounts you actually receive (net amount).
- List all your recurring payments – mortgage or rent, car leases, student loans, taxes on home, life insurance, car insurance, tenant or home insurance.
- List all your variable costs – utilities, phones, internet, income tax (if you generally owe extra) food, gas for the vehicles
- List all your intermittent costs -(these you have to estimate what you generally have to pay throughout the year) medical, dental, clothing, gym, children’s activities, repairs to home, repairs to car
- List all the “Wishes” for the year – holidays and the cost for it, weekend getaways, home improvements, new electronics
- Total all the incomes and all the expenses including the wishes for the year.
- Then break down all the expenses into monthly or per pay period
- Now take a good look at this be sure that the incomes are above the total outlay
- If you have a gap it is time to take a good look at what can be reduced, sometimes it takes a few months tracking things
It can take several months or even years to get on course with the right plan, especially if you are carrying any large debts. The important thing is to keep working away at it. Protect yourself from these unplanned events by living within your means, building an emergency fund, having enough life insurance in place and tucking money away for your financial future so you can Retire Happy.