House Rich, Cash Rich: You Can Have it All - Part 6
Eric Putnam
Burlington Post
September 2009
Dreaming of your own home? By doing a few smart things now, you can be house rich and cash rich.
Part 6: Keep Living your Dreams with Saving Strategy
Nadia moved into her new downtown condo last month and is having a blast painting and decorating. Already, she’s dreaming about what’s next – she wants to buy a house within five years.
What Nadia needs now is a saving strategy – a plan to guide her spending and saving so that she can reach her goals. Here’s how to put one together.
Document your dreams. Putting dreams into writing transforms them into goals. Think about what’s important to you and the other members of your household – what you’d like to achieve this year and in the future. For example, do you want a Caribbean vacation this winter? Or, like Nadia, to buy a larger house in five years ?
To achieve these dreams, you need to figure out how much you earn, spend and can save. Use whatever system works best for you – create your own planning worksheet or use an online form from a reliable source such as the Financial Consumer Agency of Canada .
Estimate monthly income, which is the amount of money coming into your household, including take-home pay, alimony, child support or any other regular earnings.
List “must pay” expenses – essential fixed expenses for housing, food and transportation to work. Write the approximate amount you pay for each one every month. “Must pays” might include mortgage or rent, condominium fees, property taxes, utilities, groceries, auto or public transportation costs, etc.
List “like to have” expenses – those that are not essential to living or working, such as vacation, restaurant meals, movies, fitness club membership, toys, takeout coffee, cigarettes, etc. Also include interest payments on loans or credit cards.
If you don’t know what you pay for certain items, track your spending for a month. Put a pad of paper and an envelope in a central location in your home and ask everyone in the household to put receipts for items they buy in the envelope and to write down absolutely everything they spend each day – even Loonie purchases like snacks. At the end of the month, put each expense amount into categories (such as house, food, clothing) and then total each category. Now you can see where your money is going.
Create savings. Subtract monthly expenses from income. If expenses are the same or higher than income, you need to do some trimming to start saving for your dreams.
Review “like to haves” and prioritize them according to what would be easiest to reduce or eliminate in order to save for your dreams. If some expenses include high-interest debts such as credit card balances, put some money toward paying off the debt with the highest rate of interest. Repeat with the next debt.
If you can’t find enough savings by trimming “like to have” expenses, then look at the “must haves” for possibilities, such as lowering grocery bills by buying in bulk or using coupons or even selling a car and using public transportation.
If you simply can’t find opportunities to save, get help from a qualified financial counsellor. A professional can offer valuable advice about other solutions such as mortgage refinancing, loan consolidation, creditor negotiation and consumer proposals.
But if you can identify areas to save, put the savings into an account each month and watch them grow. And keep tracking your spending. Getting into the saving habit will enable you to take control of your finances, and those dreams of yours will continue to come true….
Eric Putnam is a senior advisor with BDO New Beginnings (www.bdonewbeginnings.ca) and Joyce Brown is a counsellor with BDO Dunwoody Limited (www.debtworries.ca). Both help individuals resolve their financial problems. You can reach Eric at 1 (866) 926-4700 or eputnam@bdo.ca and Joyce at (905) 524-1008 or jbrown@bdo.ca.
