New Baby and New Yearly Goal

frugala and I are pregnant! We formally announced it at our six month wedding anniversary on Saturday so I can talk about it on the blogosphere. With a baby on the way, for the next school year I am going to shift my plans from saving to paying off debt.

I got a new job at the Homework Help centre, which will pay me about $130 per week, and along with tutoring on the side, I should have more disposable cash this year. The plan will be to get my student loans paid off before the baby is born (or at least close to that time).

Right now I save $200 per paycheque and put $500 towards my mortgage and $400 towards my student loans (monthly). Out of my money from the Homework Help, all will go towards my student loans. I should get two raises this year, one from seniority and one from moving up to the highest category. I estimate this will be about $200, so I will take $100 from that. My mortgage will go up to $525 and my savings will go to $275. The shift will be that $75 will go to my RRSP and $200 going to my TFSA. Then every time my TFSA gets to $1100, $1000 will be removed to pay towards a student loan. In this way, lots will be paid off my loans. As well $200 x 26 pays per year is $5200 so I shouldn't get into trouble with the government over the $5000 cap on the TFSA (considering that I have undercontributed for the first two years).

In this way I am still making my regular payments, and the extras are coming out of my TFSA. I will comment on the effectiveness in the upcoming weeks (once it happens in September), as well as the price of having a baby and how the extra work on the side is going. It is a plan anyway...

More Buckets: Donations

Another bucket that I created for myself this year is my "donations" bucket. Everyone feels that they should give more (or at least I do), and when a good cause comes along that I feel I should donate (be it sponsoring one of my students, or at church, or just a worthy cause) I used to have major problems with this because of my lack of spare cash. This year I have begun putting $20 aside each paycheque towards "donations" and then one I need to, this money comes out of that bucket. From a personal point of view, it makes you feel good to donate, and from a financial point of view you get a generous tax deduction because of it so everyone wins!

My Most Important Bucket of 2010

I am somewhat of a spender. What I have to do to limit myself is not to bring my wallet with me when I go shopping (or to school in the morning), as well as only spend cash within a paycheque. My wife and I went for some snacks last night and I said to her "I think this is the first time in the last year that I have used my debit card".

Nonetheless, in order to manage my cash I have decided to create "jars" or "buckets" of money that I will contribute to each paycheque and then spend out of them from day to day. When the cash is gone, I have no money to spend. It is a great system to me and has allowed me to limit my spending.

My most important bucket that I have created for myself in 2010 though has been the "XMas Bucket". Now, you may be asking yourself, isn't it June? Why is Christmas so important to you in June. Let me clarify myself: this cash isn't just used for Christmas, although it was the original intent, it is used for gifts all through the year. So when people have babies, or it is Father's Day, or you go to a wedding or whatever, you don't put yourself in the hole because of it. It is also always good to have some spare cash laying around so that you can take part in these wonderful events as the year progresses.

On the negative side, my goal was to have Christmas entirely paid for before hand. For 2011 I will probably have to create another bucket for Christmas (because that is definitely my biggest gift giving time of the year) along with my generic gifts bucket, so I don't go into the hole around Christmas as usual.

Too Tight?

As you have read recently, the improvement in my finances has been slowing recently. There are two options to improve this: either spend less, or earn more money. I had been earning more money for tutoring, and this kept me moving in the right direction. Additionally, one of my biggest loans was recently paid off so that will give me a little more breathing space, but yesterday evening was an example to myself that I am far too tight now.

I received my HST cheque for $100 from the Ontario Government last night (the next coming in December 2010). I was fairly excited, because despite the fact that a lot of things will be more expensive because of this, I had just received a cheque for $100. I talked to "frugala" and gave her about five scenarios on what I could do with this money. She finally looked at me and said "It's only $100". At that moment I knew that my financial picture was far too tight...

My 2010 Buckets

Since 2010 is almost here, I will review what I do with my spending each paycheque. I call them "buckets" what I put my money into. What I will do is physically grab $300 in cash out and that is my spending money each paycheque. The theory is that this will minimize credit card use. Also it allows me to save for more long range things so that my one time spending is cut down.

Here are the buckets:

Groceries: $100 - pretty self explanatory. I purchase groceries every other week and keep it under $100. If we need something in the meantime (milk, bread, eggs, etc.) it comes out of this bucket as well.

Miscellaneous Spending: $80 - this is spent on whatever I want. I give myself $40 per week as "play money" to do what I want. I am budgeted fairly tight, but there has to be some wiggle room and this is it. As well, if I need to move this money to another "bucket", I can do so.

House: $20 - this are for fix-ups or maintenance on the house, along with any other furniture or purchases for the house. We hope to put new floors in the house this summer. It is much easier for me to save for 6 months than it is to take $600 from MasterCard to do it.

Clothes: $20 - me having a clothes bucket make my fiancee very happy. Coats, shoes, etc. will all come out of this bucket. It is much easier to buy $100 winter boots when the cash is sitting in front of you than saying "I can't afford those boots!"

Gifts: $20 - although this didn't work as well as I'd hoped, this bucket is for people's birthdays, and for Christmas, etc. I had only about $240 saved up for Christmas this year (as you will find out on Saturday when I update my net worth) and for next year I am hoping that all my spending can come out of this.

Video Games: $20 - this may get chopped as the year progresses (and its the first bucket that is emptied if I need the money for something else), but this is intended to limit my MasterCard spending if I need to rent a movie or purchase a new video game (which I would buy used of course).

Vacation: $20 - this is a new bucket. My fiancee is a traveller, so she likes the idea of saving up and going every year or other year to Hawaii (or somewhere else tropical and glamourous). For me, I need to save up for this and if I have the money in an account, I will unfortunately put it towards a loan of some kind, so this is the easiest way for me to do this.

Courses/Donations: $20 - I want to donate more. I am taking two courses this year (one starting in the next week and one during the summer) so I want to save some money towards those. After that, my courses will be done for a while, so I want to also increase my donations. Here is an excellent link on the tax benefits of donation, but now that my finances are coming together I want to try to help others when I can.

Planning and Spending and Back To School

This post will be a bit of a rant. In this morning's local paper, I read that it will be difficult for parents to send their children back to school because of the expenses related to the beginning of the year (notebooks, calculators, etc.).

I am a big believer in a few things when it comes to money. #1) if you realize that expenses will come up, you should plan for them. That is, Christmas, back to school shopping, birthdays, etc. I have a bucket dedicated to "clothing", so that when I need a new pair of winter boots this winter I won't need to go to MasterCard. As well, I am a teacher so I bought myself a new shirt and tie and pants for the school year out of this. I have another bucket dedicated to "XMas", so I will be able to comfortably give around the holidays and not feel financially burdened by it. I don't contribute that much to each bucket ($20 every two weeks), but it is nice to have that cash set aside so when I do need to make a purchase I can easily do so.

#2) If you aren't saving 10% of your income you are living beyond your means. What does that mean? Simply, if you paycheque is $500, you should save at least $50 out of it. If you can't afford to do it, you may have to make some changes in your life: another part time job on this side, finding a cheaper place to live, going down to one (or no) vehicle, cutting some discretionary spending. I try to do most of these things: I tutor, where all this money goes toward paying off bills, and I also worked summer school. I had renters for the last two years in my condo to help defray the costs. I have no vehicle, and knew this would be the case so I purchased my condo close to my school. As far as discretionary spending goes, I set aside $200 every two weeks that goes towards groceries, gifts, clothing, video games, courses and upgrades on the condo, and leave $80 for me to spend on what I want. Once I run out of money, I have to stop spending. My lifetime goal is to have my MasterCard at $0. Is it easy to do this? Not at first, but it gets easier every paycheque to do.

Budgets...who needs them?

I was sitting having a coffee the other day celebrating the end of summer school for another year when I overheard two people in the booth next to me talking about budgets. As I have a keen interest in personal finance, my ears perked up and I listened in.

One person was complaining that her husband was making her have a budget to track her spending for the month. She complained and said that "she felt like she was a kid having to do this". The other person, who was trying to sell her something, was sympathetic, but I thought to myself, "Everyone hates to budget for themselves, so what can be done".

Here is my philosophy on budgets: if you are able to save 10-15% for your retirement and on top of that spend less than you make every month and have no credit card at the end of the month, you don't need a budget. So the question is then, how do we accomplish this?

For most people, some planning is required, and that's why the budget is a good thing. But just by trimming your expenditures each month, or making some extra money on the side, you can do this. For myself, I need to track things electronically, so that is how I track my spending. As well, I now formally have a budget by only spending cash for items. As soon as I run out of cash, I can no longer spend.

The system works for me, but the point is that you have to determine what system will be successful for you. No one likes to be told what to do with your money, because it feels like some of your power is going away. If you can find a way to spend less than you make in a month without a budget, then great! Keep it up! But the reality is that for most of us, we need something to limit our spending.