Financial Literacy – Key Skills for Preventing Debt Accumulation
Financial literacy is having the knowledge and skills to make informed decisions related to effective money management. It involves acquiring, developing and using the information and skills acquired in such a way that one becomes accustomed to handling money in a way that helps you avoid debt, live within your means and be financially stable.
Effectively managing money in your everyday activities is one of the most valuable things you can give to yourself. Not many people receive very good financial education. A recent Yahoo Canada survey has revealed that only 21% of adults think they have strong financial literacy skills, while 50% believe they are somewhat financially literate and continue to learn, and 24% admit they know some basics but not much beyond what they need to.
The lack of understanding of the fundamentals is what leads many people to issues related to money, such as poor spending decisions, uncontrollable credit card debt, multiple lines of credit, home foreclosure, bankruptcy and other negative consequences.
Here are some skills and concepts that are very important to acquire when building up financial skills:
1. Budgeting and Expense Tracking
Budgeting involves tracking how much money you earn, how much you’re spending and where you spend it. Mastering this fundamental skill enables you to identify unnecessary expenses, cut back on overspending and set aside funds for savings and emergencies.
How it Prevents Debt – Tracking where your money goes makes you aware of what you can afford, helping you to live within your means and reducing the need to use credit to meet daily expenses.
2. Understanding Credit and Loans
Credit and loans are ways to borrow money. It’s important to understand how each works and learn how to match your financial goals with the loans and lines of credit that are right for you. This includes knowledge about interest rates, terms, and repayment schedules as well as credit scores and how they affect borrowing power and loan costs.
Credit refers to the ability to borrow money with the promise to pay later. Examples are credit cards, lines of credit, or store credit.
A loan is a specific amount of money that is borrowed and must be repaid with interest over a set period of time. Examples are personal loans, mortgages and car loans.
How it Prevents Debt – Knowing when to use credit responsibly and understanding the long-term consequences of high-interest loans can prevent you from taking on more debt than you can manage. It can also help you avoid borrowing high-interest loans, such as payday loans, which can quickly put you in an uncontrollable debt situation if not managed properly.
3. Emergency Savings
Putting money aside for unexpected expenses, such as medical emergencies or car repairs, is another essential skill for effective money management.
How it Prevents Debt – An emergency fund acts as a cash reserve which cushions you from borrowing money to pay for unplanned bills that are not part of your routine monthly expenses and spending. These financial emergencies can include car repairs, home repairs, medical bills, or even a loss of income. With savings set aside, you are less likely to rely on credit cards or loans in times of need which can easily lead into uncontrollable debt if not paid on time.
4. Managing Debt
Another key part of financial literacy is understanding how to manage existing debt and also knowing when and how to avoid taking on additional debt.
The more money you owe, the more you increase the risk of not likely being able to repay your debt. Skipping payments or paying late, especially on high-interest debt, can quickly lead into a debt trap that is difficult to escape from. This can negatively impact your credit score, making it difficult for you to get approval for bigger loan amounts.
How it Prevents Debt – By managing existing debt wisely, which includes prioritizing high-interest debt, making timely payments, and using debt consolidation or refinancing options when appropriate can help avoid excessive interest charges and other penalties which can quickly lead to debt accumulating and spiraling uncontrollably.
5. Understanding Taxes
Tax literacy is an important component of financial literacy, as a significant portion of personal income is allocated to paying taxes. Knowing how taxes work involves tax brackets, deductions, credits, exemptions and tax liabilities.
How it Prevents Debt – Boosting your understanding of taxes can help you plan your finances more effectively and meet tax obligations on time. This helps you avoid unexpected tax bills at the end of the year, which could result in the need for you to borrow money to pay off any outstanding taxes in order to avoid hefty penalties or interest charges.
6. Setting Financial Goals
Setting clear, realistic financial goals (short-term, medium-term, and long-term) helps to give you guidance as you work to make your financial dreams a reality. Tangible, well-articulated goals provide financial direction by helping you track your progress, stay accountable, and stay focused and motivated to reach milestones.
How it Prevents Debt – By having specific goals, you stay focused and avoid impulsive spending. This ensures that your money is going to where you plan to use it effectively and also helps you avoid using credit for non-essential purchases.
7. Seeking Financial Advice
Another important part of financial literacy is seeking professional advice when you need it. This could include working with a licensed insolvency trustee, financial advisor, credit counselor, or debt management expert.
It is worth noting that in Canada Licensed Insolvency Trustees (LITs) are the only debt advisors that are federally regulated by the Office of the Superintendent of Bankruptcy to give advice on all debt relief solutions, including budgeting, debt consolidation, counseling and DMP’s, consumer proposals and bankruptcies. LITs are the only advisors who can administer the formal insolvency programs in Canada such as consumer proposals and bankruptcies. Anyone can offer debt relief advice or services but not all debt advisors are licensed by the federal government to act as a Licensed Insolvency Trustee. LITs undergo a rigorous licensing program that takes years of study, exams, articling, and an oral exam.
How it Prevents Debt – Seeking professional advice is a proactive approach you can take to prevent debt from spiraling out of control. Expert advice and guidance can provide you with tailored strategies to effectively manage or reduce debt.
LITs can help with debt problems by:
- Reviewing your financial situation.
- Advising you on all debt relief options so you can make informed choices.
- Guiding you to the best solution for your unique situation.
- Guiding you through the process of the debt relief program that you choose to enter into.
Find Debt Relief Now
You may be just starting out with one of the most important financial basics– spend less than you earn, and keep on top of bill due dates—and that’s terrific, you’re on the right track, keep on going. Keep reading books, listen to podcasts, subscribe to financial content, or talk with people whom you think are financially literate. As you go through life, stay committed to your financial education. Be a lifelong learner and continue to seek out new information and strategies that you can apply to your life to help improve your financial well-being and help you be confident in the financial decisions you make.
At Richard Killen & Associates, we’re here to assist you with your debt problems. Whether you want to brush up on your financial literacy and money management skills or you’re currently facing uncontrollable debt and need guidance to get back on track, we are here to help you. We at Richard Killen & Associates have assisted thousands of people like you to become debt free. Contact us today and speak to one of our Licensed Insolvency Trustees.
How to Get Tax Debt Relief in Canada – Step-by-Step Guide
Taxpayers have several avenues for seeking tax debt relief in Canada, each tailored to different circumstances and financial situations. Tax debt is not insurmountable despite how it may feel. Keep in mind that the CRA does not intend to punish you or to go after you for money you don’t have. In fact, the agency offers some financial relief solutions for people who can’t pay, and it’s wholly possible to make a payment arrangement with the tax agency to help pay off your taxes over time.
Whether you’re a small business owner, a self-employed freelancer or are facing unforeseen circumstances and find yourself having personal tax debt, it’s not uncommon for individuals and businesses to find themselves owing the Canadian Revenue Agency (CRA). Facing overdue tax bills can be a daunting burden, and anyone can need support especially if you’re facing an overwhelming bill and the possibility of added interest and penalties.
If you’re struggling with tax debt, don’t panic. This step-by-step guide will walk you through the process of obtaining tax debt relief in Canada.
Understand your Tax Debt
The first step in resolving tax debt is to understand its nature and scope. Take stock of all outstanding tax liabilities, including income tax, GST/HST, payroll taxes, and any related penalties and interest. Review your tax assessments and correspondence from the CRA to ensure you have a clear understanding of what you owe.
Evaluate your Options
Once you have a clear picture of your tax debt, it’s time to determine your options for relief. In Canada, there are several avenues available to pay off overdue tax bills, including:
- Payment Arrangements – Taxpayers can negotiate payment arrangements with the Canada Revenue Agency (CRA) which could involve monthly installment payments to spread out the payment of their tax debt over time. This can help alleviate immediate financial burdens and make it easier to manage payments.
- Taxpayer Relief Provisions – The CRA has discretion to waive or cancel penalties and interest in certain circumstances, particularly if you can’t pay due to events beyond your control such as financial hardship due to loss of employment, extraordinary circumstances like a serious illness or a natural disaster, or administrative errors on the part of the CRA.
- Voluntary Disclosures Program (VDP) – The VDP allows taxpayers to voluntarily disclose previously unreported income or correct inaccurate information without facing penalties or prosecution. This program can be beneficial for individuals or businesses who want to come forward and rectify their tax situation.
- Consumer Proposals – If your tax debt is part of a larger financial problem, you may consider filing a consumer proposal under the Bankruptcy and Insolvency Act. A consumer proposal is a formal agreement between you and your creditors to settle your debts for less than the full amount owed.
- Bankruptcy – In extreme cases where other options are not feasible, bankruptcy may provide relief from tax debt. However, bankruptcy will be considered by most people as a last resort.
Gather Documentation
Regardless of which tax debt relief option you choose, gathering thorough documentation is crucial to support your case. This ensures transparency and accuracy and will help you present a strong argument. Documentation may include financial statements, bank statements, tax returns, any correspondence with the CRA, and any other relevant paperwork. Make sure to keep all records organized and readily accessible for reference whenever needed.
Communicate with the CRA
Once you have assessed your options and gathered your documentation, it’s time to contact the CRA to discuss your situation. Be prepared to provide detailed information about your financial circumstances and explain why you are unable to pay your tax debt in full. Keep in mind that it’s more important than ever to have an open and honest line of communication with the CRA rather than avoiding or ignoring the situation. This will help you save a lot of legal hassle and a lot of money. Being proactive and cooperative can often result in more favorable outcomes for both parties involved.
Negotiate with the CRA
Depending on your circumstances, you may be able to negotiate a favorable outcome with the CRA. This could involve negotiating a payment arrangement, requesting taxpayer relief, or exploring other options for resolving your tax debt. Keep in mind that the CRA will work with you to resolve your tax obligation. If you pro-actively reach out to the CRA to discuss payment options and propose a reasonable payment plan that you can realistically commit to, they are more likely to be accommodating. The agency generally prefers to work with taxpayers who demonstrate a genuine effort to resolve their tax obligations.
Formalize Agreements
If you reach a resolution with the CRA, be sure to formalize any agreements in writing. This is essential for clarity, assurance and accountability and to protect the interests of all parties involved. A formal agreement will help ensure that both you and the CRA understand the terms, rights, and obligations laid out in the resolution, and provide a tangible record of the agreement in case there are any misunderstandings or disputes in the future.
Follow Through
Once you have obtained tax debt relief, it’s important to follow through on your commitments.
Make timely payments as required under the agreed-upon payment arrangement and comply with any other obligations outlined in your agreement with the CRA. This demonstrates good faith and reliability, which can help maintain a positive relationship with the CRA and prevent any further complications or penalties. Consistently meeting your obligations also helps to ensure that you remain in compliance with tax laws and regulations, which contributes to your financial stability and peace of mind in the end.
Seek Professional Advice
Keep in mind that if you have tax debt you can’t afford to pay, you have options available for debt relief. However, finding the right resolution to resolve tax debt can be complex. The first step is to always seek professional advice from a tax professional or financial advisor such as a Licensed Insolvency Trustee (LIT). They can help you explore your debt relief options, navigate the process step by step, and ensure that you achieve the best possible outcome. A Licensed Insolvency Trustee can also provide relief from all collections activity and help you eliminate your tax debt through a consumer proposal or with filing bankruptcy.
Dealing with tax debt can be stressful, but it’s important to remember that you’re not alone. Many Canadians are carrying tax debt. In fact, the total amount of tax debt in Canada is currently at $29 billion. There are several options available for obtaining tax debt relief in Canada. With careful planning and persistence, it’s possible to regain control of your finances and move forward with confidence. By understanding your options, gathering the necessary documentation, negotiating with the CRA, and seeking professional advice from a Licensed Insolvency Trustee, you can take decisive steps towards resolving your tax debt and achieving financial peace of mind.
Understanding Voluntary Car Surrender in Canada: What You Need to Know
Voluntary car surrender in Canada in general can be a viable option for individuals facing financial difficulties, or those looking to get rid of a vehicle they no longer need or afford.
Owning a car is often perceived as a symbol of independence and convenience, providing individuals with a sense of personal safety and security, the freedom to travel at any time and generally making life easier. However, circumstances can change unexpectedly, and car owners can fall behind on their car loan payments and be forced to reevaluate their transportation needs and decide to part with the vehicle. In such situations, voluntary car surrender will be a potential solution. There will be others, such as selling the car, but returning the car may be simpler and more effective. It will depend on a lot of different factors.
Surrendering your car can be a difficult decision and the process can be complex, but it’s essential that you understand all the implications before proceeding.
Here’s what you need to know:
The Basics of Voluntary Car Surrender
Voluntary car surrender (AKA voluntary repossession) basically requires you, the borrower, to willingly return the vehicle to the lender. The process involves choosing to inform your lender that you can no longer make payments and intend to return the vehicle.
The decision to voluntarily surrender the car generally arises when you find yourself unable to afford the monthly payments, or when you wish to terminate a loan or lease agreement. Unlike involuntary repossession, where the lender seizes the vehicle after loan payments have become delinquent, voluntary surrender is initiated by you, the borrower.
How Does Voluntary Car Repossession Work?
Most car loans are secured by the car itself. This means that when you take on the loan the lender will require that the vehicle to be put up as collateral (or security) for the loan agreement. When you default on the loan by falling behind with the monthly payments or by letting the insurance on the car lapse, it will put the car at risk of repossession, meaning the lender can claim the vehicle without notice. Mind you it usually doesn’t happen until you fall more than one or two months.
If you can no longer make the payments, you can choose to initiate a voluntary repossession and pro-actively contact the lender to discuss options and consequences, as well as work out the arrangements to deliver the car to the lender. There are potential complications.
As soon as the vehicle is returned to the lender they will attempt to sell it and apply the sale proceeds against what’s still owing on the loan. However, it’s important to know that even if the car is returned voluntarily you will still be responsible for the balance owing if the loan didn’t get paid off in full by the sale proceeds.
In fact, the vast majority of these situations results in you owing something, sometimes quite a lot, to the lender – and the car is now gone!
To add insult to injury, so to speak, you will probably also be responsible for repossession fees, storage fees, and other costs incurred by the lender when the vehicle is sold at auction.
Impact on Credit Score
A significant concern associated with voluntary car surrender is its potential impact on credit scores. While surrendering the vehicle may seem like a responsible proactive step to benefit all concerned, it will damage your credit score.
The surrender is usually reported to credit bureau as a “voluntary repossession”, the key word being repossession. Depending on your previous credit history, it can drop your score from between 60 to 240 points and take your credit rating down to an R-8, which is just above the rating for a bankruptcy filing. A repossession also stays on your credit report for up to seven years. This can have negative repercussions on your future ability to secure another car loan, or other loans or credit cards. It can have a large impact on your future financial flexibility.
The Importance of Communication with Lenders
Before proceeding with voluntary car surrender, it is essential for borrowers to communicate openly and transparently with their lenders. Lenders may offer alternatives to help borrowers through financial difficulties, such as loan restructuring, payment deferral, or refinancing options. Exploring these alternatives can potentially mitigate the negative impact on the borrower’s credit and financial situation while maintaining a positive relationship with the lender.
Understanding Legal Implications
Voluntary car surrender in Canada is governed by Federal, provincial and territorial consumer protection laws and the terms outlined in the loan or lease agreement. It is crucial for borrowers to familiarize themselves with these laws and terms to understand their rights and obligations fully. Seeking advice from legal professionals specializing in consumer rights or debt management can provide valuable insights and guidance, ensuring that borrowers navigate the process within legal boundaries. Make sure you talk to a Licensed Insolvency Trustee.
Evaluating Vehicle Condition
The condition of the vehicle plays a significant role in determining its value and any potential deficiency balance owed by the borrower. Returning the car in good condition is advisable, as it can maximize its resale value and minimize any additional costs associated with repairs or maintenance. This includes removing all personal belongings from the vehicle and addressing any necessary maintenance or repairs before surrendering it to the lender.
The Importance of Documentation
Keeping thorough documentation of the voluntary surrender process is essential for your protection and to avoid problems. This includes maintaining copies of all correspondence with the lender, agreements reached, confirmation of the surrender, and any paperwork related to the transaction. Documentation serves as evidence in case of disputes or discrepancies, providing a clear record of your actions and communications throughout the process.
Planning for Future Borrowing
Borrowers should also consider the long-term implications of voluntary car surrender on their financial future. While it may initially impact your credit score, you can recover from it by taking proactive steps to address your financial problems and responsibly taking on smart strategies that can help to rebuild credit over time. These strategies may involve establishing a solid payment history, reducing any outstanding debts, keeping credit utilization low and demonstrating responsible financial behavior to lenders.
Exploring Alternatives to Voluntary Surrender
Before opting for voluntary surrender, you should first explore alternative solutions that may better suit your financial circumstances. These alternatives may include selling your car privately, trading it in for a more affordable option, refinancing or seeking assistance from credit counseling agencies. By exploring other alternatives, you may be able to modify your loan terms to help you keep up with future payments as well as find a solution that addresses your other financial needs to keep you from further defaulting while also minimizing the impact on your credit report and overall financial well-being.
Seeking Professional Advice and Guidance
Given the complexities and potential consequences of voluntary car surrender, seeking professional advice is advisable. Financial advisors, credit counselors, and experts such as Licensed Insolvency Trustees can provide personalized guidance based on your specific circumstances. These debt professionals can help you understand your options, navigate the process effectively and make informed decisions that align with your financial goals and priorities.
Empowering Decision-Making
Voluntary car surrender in Canada can be a complex and challenging decision for many borrowers. Before proceeding, it is essential to thoroughly understand the process, implications, and available alternatives. By communicating with lenders, seeking professional advice, and exploring all options, borrowers can make informed decisions that best suit their financial situation and goals. Ultimately, voluntary car surrender in Canada should be approached thoughtfully and responsibly, with a focus on minimizing the impact on credit and securing a stable financial future.
If your debt levels have become unmanageable and you are sure that you can no longer afford to keep your car, the first step to take is to speak to a Licensed Insolvency Trustee (LIT) who can help you get a clearer picture of your financial situation and what debt management solutions are available to you. It may be possible for a Licensed Insolvency Trustee to help you work out a few adjustments on your budget and your overall debt obligations to make it much easier to make your car repayments so you can avoid a voluntary repossession altogether.
Do Not Cash IN RRSP’s To Pay Taxes Owed In Ontario
Hi it’s Richard Killen it’s tax time again and some of us when we file taxes are going to owe money. And some of us who owe that money have RRSP’s.
I want to suggest to all of you if you’re in that position where you have RRSP’s and you owe money on your taxes this year, don’t cash them in until you’ve talked with us. There are options that would allow you to keep your RRSP’s and still get your taxes taken care of.
I invite you to give us a call.
Do You Owe Taxes Based ON CERB Benefits?
Hi I’m Richard Killen, you may be like a lot of people who received CERB benefits last year.
You were surprised to find out how much income tax you owe this year on all those benefits.
I’m trying to tell people for quite a while now, that shouldn’t be a real problem for you.
Give us a call at Richard Killen and Associates and we’ll discuss all the options that you can use to resolve that problem.
Facebook Live Webinar: “Getting debt help: Where to go when you face financial difficulties”
CAIRP is hosting a Facebook webinar on Wednesday on how to get help with your debt. You may find this interesting. If you find yourself in debt, watch the webinar, then give us a call. We would welcome helping you to overcome any debt issues you may have.
After watching, Please join us and help spread the word about CAIRP’s free Facebook Live panel discussion being held on November 25th, as part of the FCAC’s Financial Literacy Month.
This webinar is a great opportunity to help educate the public on what Licensed Insolvency Trustees do and how we can help them to better manage their debts. Our speakers will be sharing their views from an industry perspective. We would like to thank those of you who have already shared this event within your network. If haven’t had a chance to do so, we encourage you to:
- Invite your clients and people in your personal and professional networks who you think would benefit from attending the webinar
- Like and share our promotional posts on CAIRP’s Facebook, Twitterand LinkedIn pages
- Put us in touch with your marketing/social media teams to further promote this webinar
Webinar details:
Topic: Getting debt help: Where to go when you face financial difficulties
Date and Time: Wednesday, November 25, 2020 from 2 – 3 pm ET
Speakers:
- Nathan Sugeng, MBA, CIRP, LIT, Managing Partner, Fontaine & Associates, Ontario
- Bridget van Wyk, CPA, CA, CIRP, LIT, Regional Practice Leader, A. Farber & Partners Ltd., British Columbia
- Andre Bolduc, CPA, CA, CIRP, LIT, Senior Vice President, BDO Canada LLP, Ontario
- Tania Daher, CIRP, LIT, Licensed Insolvency Trustee, Ginsberg Gingras, Quebec
Venue: Facebook page of Canadian Association of Insolvency & Restructuring Professionals
How to view the webinar?
To view the live webinar on CAIRP’s Facebook page, please follow these steps:
- Log into your personal Facebook account
- Visit CAIRP’s Facebook page
- Click the ‘Like‘ button
- Tune into the live webinar on the page on Nov 25 from 2 – 3 pm ET
To add the webinar to your calendar, please click here.
This webinar will also be recorded and made available on the CAIRP website. If you have any questions about the webinar or how to view it, please contact jovita.dsa@cairp.ca.
We look forward to seeing you there!
CAIRP Press Release
Fewer Canadians seeking debt relief during COVID crisis, those struggling urged to seek help from licensed professionals.
According to a press release by the Canadian Association of Insolvency and Restructuring Professionals (CAIRP) they suggest that many people who should be seeking the services of a Licensed Insolvency Trustee are not. It seems that between government relief programs and creditors offering payment deferrals many do not feel the urgency to deal with their debt problems. Read the release below.
TORONTO – May 11, 2020 – After consistently climbing higher over the last year, the number of Canadians who filed for insolvency in the first quarter of 2020 was down 5.5 per cent compared to the previous quarter, according to the latest official figures released today. In March alone consumer insolvencies decreased by 8.5 per cent compared to the same time last year.
The decline is largely the result of increased payment flexibility among creditors, landlords and administrators coupled with temporary income supports provided by the government. While these measures have allowed many to make ends meet, bankruptcy professionals agree that consumer insolvencies will spike in the wake of the coronavirus pandemic.
“For those who were already overstretched with more debt than they could reasonably afford, the government relief and short-term payment reprieve have allowed many to stay afloat. But their underlying debt is a gaping hole in the lifeboat,” says Mark Rosen, Chair of the Canadian Association of Insolvency and Restructuring Professionals (CAIRP). “The pandemic will magnify the debt problems Canadians were already facing and insolvency will be the way out for many.”
Prior to the widespread income shock and economic uncertainty brought on by COVID, consumer insolvencies were already on the rise in Canada. In spite of the dip in the first quarter, the total number of insolvencies for the 12-month period ending March 31 increased by 8.4 per cent compared to the same period last year.
With no clear end to the pandemic in sight, Rosen says that severely indebted Canadians should seek professional advice now from Licensed Insolvency Trustees before they find themselves even more in over their heads.
Licensed Insolvency Trustees are federally regulated debt professionals who can offer guidance regarding all of the debt-relief options available to Canadians. With solid accounting expertise and extensive knowledge of governing legislation, they are empowered to provide protection from creditors and can discharge people from debt. They take a customized approach to determine which restructuring option is most suitable based on individual circumstances.
If it is determined that bankruptcy or proposal is the best course of action, the dual role of the Licensed Insolvency Trustee is to ensure that the debtors’ rights are not abused while protecting the rights of creditors.
“For individuals and families in financial distress, the insolvency process is really about moving forward after hardship to focus on a brighter future. For creditors, the process formalizes negotiations and cushions losses,” says André Bolduc, executive board member of (CAIRP) and Licensed Insolvency Trustee.
He points out that as soon as an individual files for insolvency, they are protected from creditors, which can also include protection from collection agency calls and wage garnishment.
“It’s so easy to become paralyzed with fear or shame and let the bills pile up even more but that is the absolute worst thing you can do right now. You do not need to tough out this crisis on your own. Help is available,” adds Bolduc.
In an effort to maintain social distancing measures while continuing to support those in need of financial assistance, many Licensed Insolvency Trustees across the country are providing free contactless consultations virtually or by phone.
You may read the press release here.
If you are in debt, we are here to help you with a debt solution whether it be a consumer proposal or a bankruptcy. Talk to us. We offer a free consultation by phone or by video chat. Call us at 1-888-545-5365
How to Create a Budget with Irregular Income
Following a budget can be challenging enough when you have a steady job that pays you a regular basic income, but can you imagine how extremely difficult it can be to create a budget with irregular income?
With a regular income, you can predict exactly how much money you’ll have coming in each and every month and you know exactly how much money you have to cover all your expenses. However, with an irregular monthly income, you have to contend with fluctuating income levels and commissions. It’s tough to plan when:
- You don’t know how much you’ll earn,
- You don’t know when you’ll get paid, and
- You don’t know how much you’ll make the following month.
This is a common scenario for people who are:
- Self-employed
- Freelancers
- Contractors
- Working on hourly rates like bartenders, waiters and waitresses, custodians
- Working on a commission basis like salespeople
- Have side gigs that change up their income every month
- When your income is reduced temporarily, for instance, because of COVID-19
If your income varies wildly depending on the day or season, here are some strategies to help you effectively budget.
Determine your baseline
Start by adding all the money that you are certain of for the month as income. This can be money you have coming in from your side hustle or business, plus unemployment benefits you may be receiving under the COVID-19 Emergency Response Act.
Your baseline is the minimum amount you want to focus on regardless of whether you make more or you earn less, for month by month. This is the amount you will work with to cover the bare minimum expenses you need to pay for on a monthly basis.
Track your monthly spending from previous months
The next thing to do is make a list of your spending and bills. This step is crucial to help you know what you absolutely need to earn monthly in order to pay your bills and get by.
Itemize each expense. For example:
Create a category for Necessities — essential, ongoing monthly expenses:
- Rent or mortgage
- Utility bills
- Food and groceries
- Medical bills
- Transportation and fuel and car maintenance
- Daycare
- Taxes
- Loans and debt repayments
- Savings, investments
Create another category for Discretionary Expenses:
- Cable/television bill
- Entertainment
- Expenses for fitness, sports or hobbies
- Take out or dining expenses
- Shopping for clothing, toiletries
During COVID-19, it may be easier to cut discretionary expenses completely. Expenses for dining out, entertainment and travel won’t be necessary due to social distancing measures. This means you may have more money to assign to debt repayments and savings for the month.
Allocate every penny
Once you’ve created your budget for necessities and added up your unnecessary expenses, you’ll know exactly how much money you need to make it through the month.
Expenses under the Necessities group are things that you couldn’t reasonably live without. So, more or less this amount is fixed. Those under the Discretionary group are the expenses that you’ll need to cut if you’re trying to make your budget fit your income.
The goal is to adjust your discretionary expenses until you’re back to living within your means.
Make sure you divide every income that comes into your necessities before anything else, otherwise you are going to run the risk of spending half of your income on discretionary items and not having enough left over for food and groceries.
Each month, repeat the process and make a new budget based on that month’s income and expenses, assigning each dollar in your budget to a particular expense.
Build your emergency fund
When you are living on an irregular income, it’s crucial to have ample savings to help fill in the gaps when bad months come along. Make sure to allocate a portion of your income into an emergency fund. If you are just starting out, it would be best to put any extra money that you may earn towards emergency savings first. Do this until you have at least three to six months of expenses on hand.
Create financial goals
If there is any extra money after expenses and emergency savings, make sure you carefully plan out what you’re going to do with it. Is it going towards paying off debt? Is it for savings for your children’s college education? Will it go towards your retirement savings? It’s important to set a goal for any excess money you may have so that you avoid the risk of blowing it.
A simple, stripped-down budget where you can see just your essential expenses, and nothing else, can be helpful in managing your spending if you have irregular income and also if you’ve experienced a job loss or if your income is reduced temporarily because of COVID-19. It can help you see exactly where every dollar is going each month and it can help you avoid unnecessary spending. When you budget with irregular income, every penny counts and there’s no room for money to slip through the cracks.
If you have trouble doing this and would like to discuss it we would be very happy to do so. Just call us at 1-888-545-5365 or email us at info@killen.ca.
If things have gotten troublesome with your debt situation, especially with this Covid-19 virus don’t hesitate to contact us for a telephone or Skype interview. We can help.
More Ways to Cut Spending During the COVID-19 Lockdown
As you go through this COVID-19 emergency, you’ve probably already trimmed your budget and cut spending to the bone in an effort to save money and stretch that much needed dollar. You’ve probably already done some of these:
- Deferred mortgage and credit card debt payments,
- Postponed payments for utility bills,
- Trimmed down your subscriptions and forsaken online shopping.
- Chances are you’re eating out less often and also aren’t spending any money on gas or public transit.
So what else is left to cut?
Here are some more money-saving ideas to slash your budget:
Reduce Car Insurance Costs
If your cars are in your driveway more than usual because of the coronavirus lockdown, you might want to consider ways to save money on your auto insurance policy.
One option to save money is to suspend your auto insurance coverage. This essentially pauses your policy but doesn’t cancel it. It will give you two advantages:
- You won’t have to pay for insurance while your car is out of use
- You can avoid a coverage lapse, which could increase your future rates
Not all companies allow customers to suspend coverage, some might allow it only in certain situations. It’s best to check with your insurer to see if this can be applicable to you.
Another way to save money is to reduce your coverage. Consider cutting back coverage that you aren’t using right now, particularly on most of the driving-related insurance like travel coverage or roadside assistance.
Cutting back coverage is a good alternative instead of cancelling completely:
- You don’t have to pay for unneeded insurance while your car is out of use.
- You can avoid a coverage lapse, which could increase your future rates.
- If you keep a comprehensive insurance policy, your car will be covered for non-driving problems like fire, animal damage, vandalism and theft even with reduced coverage.
To start, check coverage requirements mandated by your city or province. This will determine what coverage you can consider reducing on your auto insurance.
Many insurers are also giving refunds to customers because of premium reductions. If you’re driving less often now on a daily basis or you’re no longer commuting, this lowers your risk exposure and could result in a cheaper policy and a lower premium. Be sure to reach out to your insurance company to inquire about these possible savings.
Make That Switch
If you have the time to shop around, it’s possible to get better deals that can let you save money on household bills. Start with your energy bill. You may be able to save money on your energy bill simply by switching energy providers. Some provinces, such as Alberta, Ontario, British Columbia, Manitoba and Saskatchewan, allow you to switch suppliers. It’s easy, find out how to switch energy suppliers.
LowestRates.ca is a great resource where you can compare rates on auto insurance, home insurance, mortgages, credit cards, loans, and even loans to help you save money on most common household expenses.
Take Advantage of Free Apps & Services
Many paid apps, which usually have a seven-day trial period, are offering coronavirus discounts and free trials for the duration of lockdown. So while we’re stuck at home due to stay-at-home orders, we can download these apps and keep our mind off of coronavirus with free movies, TV, music apps, concerts, internet, fitness sessions, classes, etc. – without breaking our budget.
Check out some of these:
- ca – Watch TV and movies including HBO, Starz, Super Ecran and Letterkenny for free for 30 days. Sign up for the extended offer directly on the Crave apps for Apple and Android devices.
- Down Dog – The highest rated yoga app for practicing yoga at home is offering some of their wellness routines completely free.
- Headspace – This meditation and sleep app is offering a collection of free plans to non-paying customers to help ease the stress and fears caused by COVID-19.
Just make sure to cancel once free trials are over if you don’t want to continue with a service so you won’t be charged any money.
In this time of uncertainty, with so many people losing jobs and we are all worried about our budgets, we need to be proactive and explore ways in which we can save money, not just for now but for the long-term. We may need a complete change of spending habits and living below our means, a new way of living that we can stick with once we get on the other side of the pandemic.
If you need help with your money and debts, take the opportunity to speak with us about your financial situation. We will review your monthly budget and provide you with information and guidance to help you make informed decisions about your finances.
N.B. Whatever you do, make sure you do not deplete your savings or cash in your TFSA or RRSP without talking to us at Richard Killen & Associates first.
You can contact us by telephone at 1-888-545-5365 for a free consultation now. Or you can email us at lawrence@killen.ca or brampton@killen.ca , or simply check out our website at www.rkillen.ca. We are committed to fully serve you in this time of uncertainty.
Best and Worst Ways to Get Money Quickly in a COVID-19 Financial Crisis
The coronavirus pandemic has already cost over a million Canadians their jobs, leaving many in a tight spot and wondering how to pay their bills. Many were caught unprepared for the swift financial blow. Nearly 40 per cent of Canadians under the age of 55 who have lost their job have almost no capacity to pay for their bills without an income and have only one week or less of savings to cover emergency costs like food and rent, according to this Global News Ipsos poll.
With many people filing unemployment claims since the pandemic lockdown, we’ve seen how cash is vital in these unprecedented times. Money — that is, liquid cash — is what enables many of us affected by this global health crisis to survive when our income or savings have been drastically reduced or totally wiped out. In crisis situations like this pandemic, even a small amount of cash on hand could actually save lives.
The Canadian government has put out a full range of tools to support the flow of credit to households and businesses in response to the COVID-19 crisis. However, we need to keep in mind that there are pros and cons to nearly every type of loan. So, when you’re searching for ways to come up with cash in this emergency, you’ll need to weigh your options carefully and also think about your future financial health when this crisis is over.
Kelley Long, who is a Chicago-based certified financial planner and CPA, offers this advice,“You want to try to protect your credit and make it as easy as possible to recover once things get back to normal.”
“That can mean selling possessions you don’t need instead of taking out a payday loan, or using a zero-percent credit card instead of withdrawing from your retirement account,” Long adds.
Let’s look at some ways to get money quickly in this economic crisis and weigh in the best and worst points of each:
Avail of Unemployment Benefits
Apply for EI and COVID-19 emergency benefits right away if you’ve been laid off. Employment Insurance (EI) is for permanent residents and citizens who recently lost their job. The COVID-19 Emergency Response Act includes emergency benefits for those who don’t qualify for EI, such as CERB payments which will provide unemployed workers with $500 a week for up to 16 weeks.
- Apply for EI here
- Apply for COVID-19 emergency benefits through either Service Canada or the Canada Revenue Agency (CRA). Do not apply to both.
Be prepared for long hold times and include some room in your budget for any delays or glitches in receiving these support payments. Also, watch out for scams such as fraudulent texts and emails or calls asking for personal information or account details. Banks and government agencies will never send emails, texts, or call you asking for personal information or account details, or advise you of your benefits particularly if you have not applied for these benefits.
One important thing to be aware of: Government benefits like CERB are taxable. So, be prepared in future tax seasons.
Tap Into Your Long-term Savings
There’s no shame in withdrawing money from a long-term savings plan like your Tax-free Savings Account (TFSA) or your Registered Retirement Savings Plan (RRSP) to deal with a short-term crisis, especially if you have no emergency savings or have no savings at all.
If you’re going to withdraw, keep in mind:
- Money in a TFSA can be withdrawn at any time with no cost and that money will be tax-free.
- You can withdraw from your RRSP anytime as long as your funds are not in a locked-in plan.
- Money withdrawn from an RRSP is taxable. One, you’ll have to pay an immediate withholding tax upon withdrawal and, second, when filing your taxes at the end of the year, you must declare the full amount as income and it will be subject to income tax at your marginal tax rate.
- You can save on taxes if you withdraw from a spousal RRSP or a Group RRSP.
Both are ways to get cash without incurring potentially expensive debt, however RRSP money may cost you a lot in taxes.
Unsecured Line of Credit
A line of credit or LOC, also known as a revolving credit, is a good source of emergency funds. It’s like having money in the sense that you can use a predetermined credit limit at any time and you can continuously borrow from it provided you do not exceed the limit allowed.
In an unsecured Line of Credit there is no collateral required, so you’re not putting anything of value at risk.
An unsecured LOC has several advantages to personal loans and credit cards:
- Compared to a loan, you only pay interest on the money you actually use.
- An LOC is reusable, and you can borrow any amount again and again when you need it as long as you stay within the limit.
- You can use as much or as little as you want while staying within limit.
- The rate of interest on LOCs is much lower than on credit cards and those of personal loans.
The biggest disadvantage is if you don’t regularly pay it off, interest will pile up and add up to a large amount and this may get you into serious debt and financial trouble.
Home Equity Line of Credit
If you are a homeowner, this can be a lifeline.
A Home Equity Line of Credit, or HELOC, is a revolving amount of credit that is guaranteed by your home.
- Interest rates are considerably lower than that for unsecured lines of credit because your property is there as collateral.
- You can borrow large amounts of money depending on the equity in your home.
- HELOCs can be used for anything just like cash.
Term Loans
Unlike lines of credit, term loans have to be repaid over a set period of time with interest charges. The interest rate is somewhat similar to an unsecured line of credit. A term loan is a good option to consider if you need to get a large amount of cash up front and repay it in smaller amounts for a longer repayment term.
0% APR Credit Card
Many credit card companies are offering 0% APR periods of one year for new purchases to help their customers get through these difficult times. The advantages:
- You don’t have to open a new credit line
- 0% APR for a year is a huge help and might be enough to get you through three to six months of unemployment or emergency expenses
Call your card provider to ask if this is something that can be right for you.
Delay and Defer
Preserving your cash is a top priority during these financially struggling times and even if that can affect your plans to pay down your debt, that’s okay for now. Make use of deferral payment provisions set up by your bank, credit card provider and mortgage lender. These were created especially to help those who have been financially harmed by the coronavirus pandemic. If you have student loans, the COVID-19 Emergency Response Act includes a provision on deferral of student loan payments for six months and you will not be charged interest or penalties for this. Contact each of your creditors and find out which payments you can defer and for how long.
If you don’t have cash and you’re worried, stop paying that loan for the months that you can and be sure to talk to your financial institution first. This gives you some available cash that you can use to meet your urgent basic needs. In normal times it’s not something we would recommend you do, but in times of survival it can be a big advantage as you won’t have to worry about being charged interest, penalties or fees for the months you skip payments. The drawback is the payments pile up and may become due all at once, so make sure you make repayment arrangements with your lender if you need more time to pay.
Payday Loans
If you have been laid off and have no more paycheck for the next months, this may no longer be an option for you as lenders will require you to provide proof of employment, like a paystub to avail of this.
If you still have regular income, we recommend making this option your very last resort even in a difficult financial situation.
Some things to watch out for:
-
- Payday loans are short-term loans which you have to pay back from your next paycheck.
- The loan is an unsecured loan, but you’ll have to provide a post-dated check for the total loan amount including fees or you’ll have to fill out a form that will allow the lender to withdraw the total loan amount directly from your bank account when it becomes due. If you can’t pay when the loan is due, the lender can help itself to the contents of your bank account.
- Payday loans are an expensive way to borrow money compared to other ways of borrowing money. You can only borrow up to $1,500 and can be charged bi-weekly interest rates of up to 25% or 652% in Annual Percentage Rate (APR).
The biggest disadvantage is that payday loans are a debt trap with extremely high fees and interest rates. If you can’t repay on time you’ll face more fees and interest charges and it can put you in an unending cycle of debt.
Try to find an alternative, and if you can’t, make sure you borrow only as much as you can afford to pay with your next paycheck.
Credit Card Cash Advance
Like payday loans, a credit card cash advance comes with high interest and high fees. Additionally, if you max out your card, it could negatively affect your credit score. If you have a credit card with a low or 0% promo rate, you can make use of this to make a cash advance instead of a regular credit card.
These are scary times and millions of Canadians are in dire need of cash. Although there are many ways to get money quickly to help get you through this COVID-19 crisis, you still have to exercise some control in using any type of credit as this is money that you’ll still need to pay back with interest. Take time to research each way to borrow money and carefully weigh the pros and cons of each so you can avoid short-term decisions that can hurt your future ability to get credit.
To sum it all up.
As you can see, there are many, many ways of dealing with the financial problems resulting from Covid-19 and the government lockdowns. Probably at least one of them will be available to you. But there is one important point I’d like to make: before you go using up your savings or depleting your RRSP or cashing in your TFSA or even incurring additional debts, please consult with a Licensed Insolvency Trustee like Richard Killen & Associates and inform yourself of the complete picture. It may be one of the smartest moves you ever make.
So call us. We’ll be happy to answer all your questions and provide you with information you need during this difficult time. Contact us by telephone at 1-888-545-5365 for a free consultation now. Or you can email us at lawrence@killen.ca or brampton@killen.ca , or simply check out our website at www.rkillen.ca.
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