5 steps for getting your financial house in order this year

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Now that we are well into January, you’ve probably had many possible new year’s resolutions running through your head…lose weight, quit smoking, exercise more, spend more time with family…the list goes on. Where do you start?! My belief is that “getting my financial house in order” should be on, if not at the top of, most Canadian’s new year’s resolutions lists for 2017, and here is why.

As Canadians find themselves dealing with ever-increasing debt levels, a greater and greater portion of their monthly paycheck goes towards servicing this debt.  With grocery and gas bills on the rise, it’s predicted that the average Canadian family could spend $1,600 more in 2017 than 2016. So, now is the perfect time to review your financial health and set a plan for the coming days, weeks and months.


Step 1: Determine your personal net worth.

Review your current financial situation by creating a personal net worth statement. This should be done annually so you can see if you are gaining ground or not. List all your assets (e.g., home, car, investments) and give a realistic value for each. Then list all your debts (e.g.,mortgage, car loan, credit cards, lines of credit, etc.). File this away for next year so you can review your progress year over year

Step 2: Plan to pay down debt.

Review your list of debts from your personal net worth statement and create a debt reduction strategy.

Higher interest unsecured debt should be attacked first.
By reducing this debt first, you will free up more of your monthly income to be used to reduce other debt, or create savings. Paying down high interest, unsecured debt is a two-pronged approach:

  1. Stop (or limit) the future use of the unsecured debt.
  2. Pay more than the minimum the lender requires.

This seems simple in theory but can be difficult in practice because “life happens”. The budget you create should have some provision for unexpected expenses which can help with reducing the tendency to use the debt for such unexpected expenses.

Use cash on a go forward basis
Plastic (credit and debit cards) is very convenient and can lead to unanticipated or overspending. Leave the cards at home (in a safe place) to limit your access. Get receipts for everything you spend. Remember you are now using cash and without the receipts you have less ability to track where the cash went.

Step 3: Create a budget.

A budget is not a four letter word and it is not something to fear. A budget is merely a plan for how you want to spend your money. There is the old adage: If you fail to plan, you plan to fail. Nothing could be more true!  A budget is key to improving your financial health. If you already have a budget, pat yourself on the back. If you don’t, the beginning of the year is a good time.

The best way to create a budget is to review your spending patterns over the previous months because where your money has been going is probably a good indication of where it will go in the future.

  • As a starting point, look at your bank statements, credit card statements, etc.
  • It doesn’t matter what form your budget takes (pen and paper, Microsoft Excel, software, online), as long as it done in a method that you are comfortable using regularly.
  • It doesn’t matter what form your budget takes (pen and paper, Microsoft Excel, software, online), as long as it done in a method that you are comfortable using regularly.
  • Some resources to check out include the online budget calculator offered by the Federal Consumer Agency of Canada, and the budget tool and free mobile apps at Mint.com. Software for purchase such as Quicken can be useful, however, they come with a cost to purchase.
  • Look to online tutorials to help you create the best budget for your situation.
  • For your budget to be most effective and to be most successful achieving it, be sure to involve your spouse and your children (they will need to learn this as they get older) in the process .

Step 4: Create savings.

Pay yourself first.
Your budget should also have a monthly savings amount built into it. An effective way to do this is through payroll deduction. This way you aren’t tempted to dip into any savings you planned for at the end of the month.

Piggy bank_lavendarAutomatic Money Transfer
Another method of “forced” savings is to have your money automatically transferred from your checking account to your savings account according to your pay schedule. Start small and after a few months if you can handle slowly increase the amount. Out of sight is out of mind – over time you won’t even miss it!

Use a piggy bank
Collect your loose change. Loonies and Toonies can add up quite quickly!.

Step 5: Track spending.

An often overlooked step, you need to track your actual spending and compare it to your budgeted amounts. Review your budget at least monthly to see if your spending compares to your budget. If you find you are spending more in a category then the budgeted amount, you either need to increase the budgeted amount or decrease the amount you are spending.


Getting your financial house in order an important resolution. Create a plan and work towards achieving your plan. Don’t try to change everything overnight as you are more likely to give up and return to your old ways. If you find you are in over your head reach out to a professional such as a Licensed Insolvency Trustee for help.

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Rob McLernon is a Licensed Insolvency Trustee (LIT) and a Chartered Insolvency and Restructuring Professional (CIRP)  with our Nova Scotia Grant Thornton team. He’s been working primarily in the consumer insolvency area since 2003. In addition to being a LIT, he is a Certified Insolvency Administrator and Counsellor. Rob has extensive background knowledge on debt restructuring and brings this to his current role.

 

 

8 ideas for a fun & frugal festive season

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The holiday season can be a time of friendship, laughter, and holiday cheer… and a time when you feel the expectation to spend a lot of money that you may not have. This is why it can be an especially difficult time for many people: the pressure to keep up with those around us, the fear of disappointing those we typically buy presents for, the stress of not being sure how you will afford food for the table let alone presents for under the tree.

Our debt solutions counselors at Grant Thornton Limited have shared some of their tips for trying to refocus this holiday season so you can make it more about enjoying the time with the people around you. Hopefully using some of these tips will help you feel refreshed in the New Year, as opposed to wondering how you will recover from the spends made in December.

  1. Talk to family / friends about the cost of gifts. Sit down and make decisions about a dollar limit for gifts. If money is tight then consider doing a secret Santa with the family. Remind everyone that thoughtfully chosen gifts are more important than expensive ones.
  2. Take advantage of the sales. Shop the sales throughout the year by making a “Christmas closet” that you can add items for people that you find throughout the year , or after Christmas and by discounted Christmas decorations. This is also useful if you have a drop in guest who brought you a gift and if you wanted to give them something in return.
  3. Have the kids make a list.  Ask them to pick 3 items that they want: 1. One that is a real want, 2. One that is a need, and 3. One that is a small / inexpensive.item.  Let them know that they will likely only get one item off of the list – this helps teach children that Christmas is about more than presents, they put real thought into what they want, and your pocket book gets to save by not buying them gifts they don’t really want or need.
  4. Cut out unnecessary items.  This could include ribbons, bows, and fancy tape. Use brown paper bags as a fun alternative with colorful marker to write the “To” and “From”.
  5. Sell old toys / clothing.  Find a local consignment store and get extra cash for new gifts.
  6. Do Christmas baking instead of gifts.  This helps cut costs, and has the added benefit of spending time with family to make the bake goods.
  7. Take advantage of the free events to get into the spirit. Santa Claus parade, craft fairs, outdoor concerts and tree lighting ceremonies are usually offered at no-charge.
  8. Hold a “Catch up Christmas”.  This one is great if you overspent last Christmas and your budget is super stretched. Consider not spending for one Christmas. Instead, focus on a nice family meal, taking in the Christmas parade, driving around seeing the Christmas lights, and really devoting your holiday to your family by giving your time. It enables you to spend quality time with your family and no one will be stressed because the focus is on time and making memories, not spending.

Other fun free activities include: a hot chocolate and Christmas movie night, ice skating at the river, or sliding in a park, take a drive around / walk around the neighborhood for Christmas lights. Center this Christmas on family activities instead of gifts and goodies.

We put a lot of pressure on ourselves to spend money at this time of year. Let’s try to take some steps to break that cycle, enabling us to end the year and start a new year with a fresh, positive, less stressful approach. Enjoy the loved ones in your life and the memories you can make rather than worrying about the debt we can incur.

If you have money-saving gift-ideas, we’d love to hear them.  If you are finding this holiday season particularly stressful because you feel your debt load is overwhelming, please reach out to us and let us present you with some options for your situation during a confidential, no obligation consultation.  Sometimes just knowing you have options can help relieve the stress you are feeling.

krististuart
Kristi Stuart is a  Licensed Insolvency Trustee (LIT) on the New Brunswick Grant Thornton team. In becoming a trustee, she won the 2015 Jack Biddell Gold Medal for finishing the Canadian Association of Insolvency and Restructuring Professional’s 2015 National Insolvency Exams with the highest standing in the country.

 

 

 

…and the tax man cometh — dealing with tax, the CRA, debt help and bankruptcy

Every year, without fail, just like snow and temperatures will eventually fall in the winter, mosquitoes will pester us in the summer… every April, the tax man comes. With the deadline for Canadians to pay their personal taxes (by April 30) lets explore the issue of when you OWE money to CRA (Canada Revenue Agency).

Currently we (the trustees at Grant Thornton) are seeing about 50% of our clientele dealing with with some amount of tax debt that is owed to the CRA . While this may seem like a relatively high number, tax debt is not unusual.

One of the major trends we continue to see is people not filing their taxes for fear of owing money – this is not only a mistake, but failing to file your taxes does not get you out of paying the taxes for the year, if you owe, it can actually lead to larger amounts being owed through fines and penalties. We have seen tax debt to the extent where 50% of the amount owed is a build up of fines, interest and penalties over multiple years.

Here are the most common reasons people fall behind on paying (or filing) their taxes:

  • High costs from relationship breakdown – separation or divorce has caused people to incur costs associated with legal bills and support payments, distracting them from focusing on tax filing and remittance requirements
  • Lack of knowledge – this is more common among self-employed people that have been making good money in their respective trade. Often these people may fail to recognize the need to maintain compliance with CRA – they often put aside the matter until it’s too late, or underestimate the amount they need to set aside to pay tax which ends up causing them trouble. Some small business owners simply do not know what is required and have been soo busy working on the profit side of their business, they neglect to care for the compliance side.
  • Procrastination – some people are born procrastinators and just put off dealing with their taxes until they have completely forgotten about them all together. Then one day they are forced to deal with many years of unfiled taxes.

“The biggest mistake we see people make is neglecting to file their taxes year after year, and letting costs build up to insurmountable amounts – frequently, the penalties and interest from either not filing or not paying becomes as much as the tax owing,” says Freida Richer. “People are eventually pushed to resolve their tax debt because of the following reasons:

  • the CRA begins to garnish their wages to a point where they have no choice but to deal with their taxes,
  • the CRA threaten to file writ on the property of their home,
  • they get pressure from family or have a change in their life (birth or marriage) and want to get their finances in order.
  • their is a freeze put on their bank account.

Whatever the motivation, people should know that only a Trustee can help negotiate tax debt with CRA.”

With tax season approaching, now is the time for people to be especially mindful of their taxes and keep in mind that filing them, even if you owe, is still better than neglecting them all together.  CRA is more inclined to work with you if your taxes are filed and up to date than if they find out you have not filed your taxes in years.

On another note, keep your receipts and all tax related documentation for seven (7) years, you never know when/if you will be audited and its much easier to save the information than to try to hunt it down later.

If tax debt has become a challenge that you are ready to deal with, contact one of our trustees where we can review your options. Consumer Proposals allow people to make a fair and reasonable proposal to their creditors, including the CRA, for a revised repayment plan. Often times we are able to consolidate and reduce the overall debt owing and provide and interest-free repayment schedule for up to 60 months.

With multiple locations across Canada, there is sure to be an office near you.

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Take a ‘staycation’ . . . and other creative ways to have fun and spend less.

It’s summer and thoughts turn to fun ways to spend time and . . . (unfortunately) money. Whether it’s a family vacation, home improvements, backyard parties or out-of-town visitors – the impact on your wallet can be significant.

If you are already struggling with a worrying debt load, it’s likely time to change what you do this summer.

A recent BMO travel study found that more than half of all Canadians plan travel within their home province this year (in Albertans that number is an outstanding 81 per cent). This scaling back on vacation plans is due in part to cost-conscious Canadians who also see the impact of rising gas prices and are seeking to build savings; all positive news—and even more relevant if you need to address debt.

Paying off debt doesn’t have to be viewed as a burden, in fact, it should be viewed as an accomplishment. Reducing debt brings a sense of relief. Focusing on paying off your debt can provide an opportunity to explore cost-cutting alternatives to many summer activities.

Consider these ways to spend less and have fun:

  • ‘Staycation’: plan a ‘holiday’ in your own province. Be a tourist in your own City of one nearby. Load up on traveler information and see the sites you often overlook because they’re close to home.
  • Host a backyard ‘drive in’. Set up your TV outside for an evening video-fest and make it a pot luck BBQ or picnic with friends and family. (Maybe invite your close neighbours too, if it’s likely to get noisy!)
  • Camp in your own back yard. Adults and children alike can enjoy a night star gazing or reading under canvass. The bathroom and fridge are nearby and if it rains: enough said!
  • If you’re game to try crafts or Do-it-Yourself to save money on entertainment or home improvement projects, social sites like Pinterest and Houzz can be fun tools to get your creative ideas flowing.

 Remember to use the money you ‘save’ for debt repayment first—and start with high interest rate credit cards:

If you are facing financial struggles or would like some help with managing your debt—one of our professionals is available to discuss your situation. There are many options available to help and you may not need to go bankrupt. Contact us for a confidential, no-obligation, complimentary consultation. Call us toll free from anywhere in Western Canada 310 8888.

You can’t take it with you… but—what CAN you keep in a bankruptcy?

There’s a lot of confusion and misconceptions about what you ‘lose’ or have to ‘give up’ through a bankruptcy and what is ‘exempt’ – meaning what you get to keep.

When you enter into bankruptcy (with the assistance of a Bankruptcy Trustee) this legal option will address your insolvency, provide you immediate protection from you creditors and an opportunity for a fresh start. (Remember, while most debts are covered by bankruptcy – not all are, talk to a Trustee for specifications.)

There are some assets you may not be allowed to keep if you file for bankruptcy. These are sold to pay as much as possible to your creditors against your debt. However, there are assets you are legally allowed to keep, these vary by province.

Some of the items you are generally able to keep, in Alberta, are:

  • Clothing up to a value of $4,000
  • Household furnishings and appliances to a value of $4,000
  • One motor vehicle not exceeding a value of $5,000 (equity)
  • Medical and dental aids required by you and your dependents
  • The equity in your principal residence up to a value of $40,000. If you are a co-owner of the residence, the amount of the exemption is reduced to an amount that is proportionate to your ownership interest
  • Personal property (i.e., tools, equipment, books) that you require to earn income from your occupation up to a value of $10,000
  • Social allowance, handicap benefit or a widow’s pension if the proceeds from the payment are not intermingled with your other funds
  • For farmers where your principal source of livelihood is farming: you may be able to keep up to 160 acres and personal property that you require for the proper and efficient conduct of your farming operations for the next 12 months

In BC:

  • Home equity in Greater Vancouver and Victoria up to a value of $12,000. In the rest of the province up to a value of $9,000
  • Equity in household items up to a value of $4,000
  • Equity in a vehicle up to a value of $5,000; The vehicle exemption drops to $2,000 if the debtor is behind on child care payments (to facilitate the enforcement of Maintenance Orders)
  • Equity in work tools up to a value of $ 10,000
  • Equity in essential clothing and health aids is unlimited

Keep in mind, if you chose instead to do a Consumer Proposal as your debt solution—you get to keep all your assets. A consumer proposal may also reduce your overall debt (by up to 75%). A Proposal isn’t bankruptcy but rather a means to explore other ways to address a variety of debt problems.  With the guidance of a Trustee you negotiate to pay creditors all, or a portion, of your debt over a specific time period or to extend the time allowed repaying the entire debt.  You need the majority of creditors to agree to the proposal—then all unsecured creditors are bound by it.

With a Consumer Proposal you keep control of your assets and it has shorter-term – and less significant – impact on your credit rating than bankruptcy.

More on bankruptcy exemptions in Canada.

If you are facing financial struggles or would like some help with managing your debt—one of our professionals is available to discuss your situation. There are many options available.  Contact us for a confidential, no-obligation, free consultation. Call us toll free from anywhere in Western Canada: 310 8888 or visit us online for more information and videos on this and many other topics: (AB) www.gt.alger.ca or (BC) www.gtdebt.ca

See us on YouTube: https://www.youtube.com/channel/UCwhtdNlBzwmnMsATvelc3cQ



RRSPs proteced if you file bankruptcy in Canada

In a final act of desperation, many consumers resort to the one last asset they have left but fear losing if they have to file a bankruptcy…their RRSP account.  People end up tapping into their future retirement savings to pay creditors or subsidize their living expenses if no money is left after debt payments. But consumers have told me that one of the main reasons why they felt the need to deplete their accounts is the fear that the bankruptcy Trustee will take their RRSPs and so the thought is, why not clean out the account first before the Trustee does.

 

Before you dip into your retirement savings, you need to know that bankruptcy has no interest in your RRSPs.  People are surprised to hear that there is protection given under provincial and pension legislation for RRSPs, LIRAs and pensions which prevents the seizure of these funds.  Knowing this vital information ahead of time can prevent the depletion of retirement savings that has, for most people, taken years to build.  I am seeing more and more people who’ve cashed out their RRSPs before filing a bankruptcy which not only resulted in eliminating their retirement plan but created a tax liability to Canada Revenue Agency. Don’t add to your debt load…keep your RRSPs for retirement since that was the intention, and still must be, of banking your hard earned dollars.

 

Start planning a way to deal with your debt…but plan to keep your RRSPs. 

 

 

This post written by Freida Richer

Trustee at Grant Thornton Alger Inc.