Despite the effects of the current onslaught from inflation and ever-increasing prices, the basic concept of budgeting hasn’t changed. Dividing up your money into little piles for the various things you need (and want) doesn’t seem like such a difficult process, so why is a budget so hard to put into practice?

The simple answer is that no matter how small those little piles get, they still add up to more than you have! Yes, more money will certainly help, but also make sure it isn’t your budgeting process that is contributing to your failure. Here are eight things that can easily derail any budgeting system.

1) You didn’t start with the right number.
Your take home pay (AFTER all deductions) is the starting point.

2) You used the wrong time frame.
Some bills are monthly, but most of us get paid every two weeks. A two-week spending plan is much easier to follow and matches up with your cash inflows.

3) You had no idea how much you were spending when you made your budget.
Track your expenses for at least two pay periods and create your budget based on actual data, not your best guess. You can always tweak the amounts if it proves to be unrealistic.

4) You forgot to record all of your expenses.
Whether you use the latest app or a collection of post-it notes to track expenses, it needs to be quick, easy, and you need to make it a habit. Don’t forget expenses which are seemingly invisible but still need to be tracked, interest expense on credit cards or lines of credit for example. Leave your cash in the bank and use a credit or debit card for everything so you can easily view your bank or credit card statement to see exactly where your money went. Many banks now offer some expense tracking capability right in their online banking system.

5) You spend too much. 
Just because you had been spending $400/month on dinners and drinks doesn’t make it a reasonable or sustainable amount for your budget. List up your needs, analyze your wants, and set priorities… force yourself to make choices!

6) You didn’t contribute to a reserve fund.
Unexpected expenses like birthday presents, car repairs, or a trip to the dentist can all derail your budget if you don’t have an emergency fund to dip into. Makes sure to set aside some sort of contingency cash to give you a little wiggle room.

7) You didn’t ensure your spouse/partner/kids were on board.
It’s a household commitment with all-hands-on-deck. Take the time to explain to your kids that the actual supermarket cost of the food in a take-out burger & fries is likely around $2, and that by cooking your own burgers & fries you now have $5 more in your jeans (and arguably a much better burger!). Don’t be shy about telling your friends either– declining an invite for a night out you can’t afford is not a crime, and chances are they can’t afford it either.

8) You had no goal and lost your “mojo”.
Pick a realistic goal your budget will help you achieve and track your progress… paying off a credit card? topping up your RESP/TFSA/RRSP contributions? eliminating your line of credit balance?

Creating and maintaining a budget is a lot harder than it seems. Most of us will have to make some tough choices and rearrange priorities, so make sure you have a good process in place to evaluate those decisions and keep you focused on your goals.

written by DLC Chief Economist Dr. Sherry Cooper

If you have had to declare bankruptcy, you may be wondering what is next.

Bankruptcy is not a financial death sentence. In fact, there are a few things you can do after declaring bankruptcy to help reset your financial status and get a mortgage in the future.

While there is no wait requirement to apply for a mortgage after bankruptcy, it is important to allow your credit time to heal in order to ensure approval.

The first step to rebuilding your credit is getting a secured credit card. If you are able to show that you are responsible with this credit card by paying your balance in full each month and not overspending, it will help to improve your credit score.

Once you’ve re-established your credit, you can apply for a mortgage. What type of mortgage you can apply for, and whether or not you qualify, will depend on a few factors, such as: how long ago you declared bankruptcy, the size of your down payment, your total debt-to-service ratio (how much debt you are taking on compared to your total income) and your loan-to-value ratio (loan value versus the property value).

Depending on this, you will have three options for your future mortgage loan:

Traditional or Prime-Insured Mortgage

This is a traditional mortgage, which will typically offer the best interest rates. To apply for this type of mortgage after bankruptcy the following requirements apply:

• Your bankruptcy was 2 years, 1 day previous
• You have one-year of re-established credit on two credit items (credit card, car lease, loan).
• You have a minimum down payment of 5% for the first $500,000 and 10% for any additional amount over that
  • You have mortgage insurance – required for all down payments under 20%
• You have a total debt-to-service ratio of 44% maximum
• Your loan-to-value ratio is 95% minimum

Subprime Mortgage

This type of mortgage falls between a traditional and private mortgage, meaning you qualify for more than private but not enough for a traditional loan. To apply for this type of mortgage:

• Your bankruptcy was 3 – 12 months prior
• You have a total debt-to-service ratio of 50% maximum
• Your loan-to-value ratio is 85% minimum

Private Mortgage

If you don’t qualify for a traditional or subprime mortgage, you have the option of looking into a private mortgage. Typically, your interest rate will be higher on a private mortgage but there is no waiting period after bankruptcy and the requirements are as follows:

• You have a down payment of 15% of the purchase price
• You have obtained a full appraisal
• You have paid a lender commitment fee – typically 1% of the mortgage value
• Your loan-to-value ratio is 80% minimum

If you have previously declared bankruptcy and are now looking to start over and apply for a mortgage, don’t hesitate to reach out to me for expert advice and to review your options today!

written by DLC Chief Economist Dr. Sherry Cooper

Interest rates on savings accounts and GICs are climbing but they are having a hard time matching the rapid increase in inflation which is now over 8% — you are actually losing money by holding cash. Investing in financial markets can provide higher returns, but there are no guarantees and as we have seen lately, they can be volatile.  As someone who is new to investing, you may be asking yourself:

•   What do I invest in?

•   How do I evaluate and manage my risk?

•   Should I consult a financial advisor?

These are all great questions and we have compiled some basic advice below to help you get started.

DIY isn’t just for home repairs
There are lots of online options to invest in financial markets on your own without anyone required to facilitate the transaction. You can easily open a trading account and buy and sell individual stocks and various other investments (ETFs for example). This approach has become widespread because it is the cheapest investing option available and is very convenient, but only if you have the time and motivation to learn or a trusted mentor to help you get started.

Seek professional help?
You could choose to consult with a financial advisor. Many of them have professional accreditation and offer advice and can make transactions on your behalf. Make sure you understand how they will be paid as seemingly small annual fees can have a huge effect on how fast your investment grows over the years. Some investment advisors also require a substantial minimum investment before they will work with you, and they may offer only a limited range of investment products.

Rely on Technology?
A robo-advisor is an online investing platform that falls between the DIY approach and a financial advisor in terms of user-friendliness. Most banks and online investment firms offer this service. Robo-advisors use a live interview or online questionnaire to create, and then continuously manage a portfolio based on the information and risk preferences you provide. They require little sophistication on the user’s part, they have a small or no minimum amount to get started, and the fees are reasonable —usually around 0.5%.

Fees can take a real bite
We have mentioned fees for all three options above (DIY, financial advisor, robo-advisor) because most people don’t understand how a seemingly small annual fee can rob your investment fund over the years. A $100,000 in a mutual fund with a 2% annual fee (MER on a mutual fund for example) earning a 5% return will grow to $209,378 in 25 years. That same $100,000 invested in an ETF with a 0.2% annual fee earning a 5% return for 25 years will grow to $322,873. Mutual funds are a popular option for TFSAs & RRSPs, but you should investigate the fees and whether the returns they are providing justify their cost.

There are many options when it comes to investing in the markets and the choice is entirely up to you — make sure to do your homework and make informed decisions.

written by DLC Chief Economist Dr. Sherry Cooper