Tag: budget

6 things worth going into debt for when you have a family – and 3 things that AREN’T

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First of all – apologies for not updating this blog for such a long time! I’ve had some major life changes (moved from Canada to New Zealand, pregnant with my 3rd baby, enrolled in a university course…) so it’s taken a while to find my footing again.

Anyway, I was talking about financial priorities with a friend recently and we were debating whether there are any purchases worth going into debt for. My first instinct was NO, there is NOTHING. I don’t like debt as a general rule.

But then I started thinking – I do have some debt (mortgage) and that’s worth it (more below). And I also know that there are somethings that really are more important than money. So, are there some things worth buying, even if they mean going into debt? Yes and here is my list:

  1. Life/Disability Insurance

Even if you are struggling to make ends meet, I really think that having adequate life and disability insurance is a MUST for someone who has a family. In my opinion, families should have life insurance coverage that would cover living and housing costs for 10 years at the very least.

If you earn a lot of money, you should also consider how much money your family would be missing out on if you died or became disabled. For some professions, the disability portion maybe even more important to look into. For example, if you are say, a dentist, you need your hands to be functional to make a living, so even a minor accident can devastate you if you are no longer able to perform your job.

Tip: The younger/healthier you are when you get it, the cheaper your premiums for a long time.

2. Health Insurance

If you live in a country like Canada, where there is universal health care coverage (i.e. paid for by the government), then additional health insurance is gravy – usually something that covers dental care, vision care, massages etc – and is something many employers provide. If you don’t get this extra health insurance, it’s not that big of a deal but still worth looking into.

But if you live somewhere where the isn’t universal health care, like the US, please, please get health insurance. Put it as a priority even above life insurance. Put your monthly premiums on your credit card if you have to. Because medical bills are the #1 reason people go bankrupt in the US. Just one adverse medical problem can devastate a family overnight.  And I’m not talking about a cancer or a major disease diagnosis, but normal life things like birth or accidents can end up costing hundreds of thousands of dollars. Unfortunately, even insurance is no guarantee that you won’t be faced with high deductibles or some out of pocket expenses, however hopefully the brunt of it will be taken care of by the insurance.

If you live in a country that has a two-tier system, like New Zealand, I’d still consider getting additional health insurance especially after seeing the benefits of having it with a family member who was diagnosed with cancer recently.

3. Marital/Relationship Counselling

Divorce/separation is expensive – not just the actual cost of divorcing (legal fees etc), but the aftermath as well. Going from two incomes to one income to support pretty much the same sized family is tough (or having one income support double the living expenses). Not to mention the emotional cost and psychological cost that a divorce has on the children.

As such, I highly recommend that couples seek counselling prior to officially separating and really trying to work on the issues the counsellor identifies. This may take more than one or two sessions so it is important to be patient. But you married/started a family with that person for a reason and it was likely very legitimate! Hopefully a bit of guidance can help you get back to the way you were.

Even if you still choose to separate afterwards, I think that attempting counselling can be good for closure (you tried everything) and you may get tips on how best to go forward to minimize the negative effects on your family (which can have a huge effect on your financial situation).

Counselling doesn’t have to cost a lot either – there may even be great free options at a church or community center.

Of course there are certain situations where divorce is really the best option. But I believe only extreme cases warrant a divorce without an attempt at fixing what is broken.

4. Mortgage

A mortgage is debt – make NO mistake about this. And it can be bad debt if you buy a house that you can’t afford. But it can also be good debt. Good if your mortgage (and other home-ownership costs) can be managed comfortably in your budget (see here for my recommendation on how much of your budget should be allocated to your housing costs). Good if you buy at a time when prices are on their way up (thus creating equity). And good if owning a home is an important life goal for you (it isn’t for everyone, so for those people, buying a home may NOT be the best idea) and you are at a point in your life where you are up for the responsibility.

5. Car loan

A car loan is debt. For some reason, I’ve met many people who seem to think that their car payment doesn’t count. Sorry, but yes, if you have an obligation to pay for your car – whether it is to the dealership, a family member or the bank, it is debt. And yes, a lease is debt too!

However, in this day and age, having a car is pretty important – especially if they need it to get to work (and especially if public transportation options are not available, very limited or plain inconvenient). So I think going into debt to buy a car is usually totally acceptable. That said, I don’t think going into any amount of debt is justifiable – and I discuss how to determine what a reasonable amount for car ownership/lease is in greater detail here.

There were some other things that I considered and things that I’ve seen mentioned on Facebook or whatever as worth going into debt for.

But I disagree –  here are some of the things that did NOT make the cut:

  1. Travel to make memories

Sorry, but going into a lot of debt to “create memories” is not a good reason. You can make memories with your family by organizing a great “stay-cation” and exploring your home town, choosing cheaper activities (camping vs going to a resort), cheaper travel methods (driving vs flying) and my favorite, SAVING for trips. These are the best way to really give your family experiences and creating memories because you will be doing so without the stress and burden of debt.

In my mind, the only exception for going into debt for travel is for something like visiting a loved one who is sick or dying or perhaps attending a funeral.

2. Once-in-a-lifetime experiences

OMG – the Rolling Stones/[Insert your favorite band or singer] are coming to your city! Tickets are expensive but it’s their LAST TOUR.  You HAVE TO GO.

No, no you don’t. If you don’t have the money saved, don’t go into debt. Its not worth it. Unless you can squeeze it into your budget or take away from an unnecessary category (for example, taking from your vacation budget or forgoing going out for dinner for your next three date nights), then sure, go for it. But if you really don’t have the money to pay upfront for those tickets, it’s NOT justifiable.

3. AH-MAZING sale or offer

Recently I went to the jewellers to get a ring I have fixed. It had a design flaw and the stones on it were always loose – I even lost the centre stone one time (luckily found it) and I was worried it would happen again. I had avoided wearing it for fear of losing a stone again so when I noticed that the jewellery store had a policy where you can “upgrade” your jewellery by trading in your older piece for a new one, if the new one was more expensive, I decided to look into it.

At first, this seemed like a great deal. Not only could I use the value of my ring as credit towards my new item, the manager at the store offered me a further discount. I’d be getting a way bigger stone ring, worth $3,500 and would ONLY be out of pocket $900.

Except $900 is a lot of money. And even though we actually HAD the money was this really something worth doing? Did I NEED a more expensive ring? A ring that I didn’t even know existed until that day?

No. I didn’t. Other than the opportunity to get a nice piece of jewellery for a great price (it really was a great price), there was no benefit. Especially when I did the math and realized I’d have to lose and replace the loose stone of my original ring like 6 times before I’d be out of pocket $900.

This applies to everything – whether it’s a handbag you’ve been coveting, a great deal on an appliance or whatever, if you don’t have the money saved for it, it’s NOT WORTH going into debt for. Because at the end of the day, if you are paying interest on it, you aren’t *really* getting a deal. And remember, these deals come around again and again you will have plenty of opportunity to take advantage of them in the future. My advice? If you really, really, really want it, start making it a priority to save for it!

 

Easy Money Saving Challenge

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Is one of your resolutions for the new year to get your finances under control? If so, the first thing I highly recommend doing is starting a budget. And I have a great series especially geared to beginners – but really, its totally applicable for anyone who wants to start a budget and get a control over their money.

Check out Part 1, Part 2 and Part 3. Part 2 comes complete with an Excel template to help get you started! Alternatively, I also have a template which is geared towards families for whom childcare is a big expense here.

But for something a bit more tangible, I’ve also created a quick and easy Money Saving Challenge to motivate you to start SAVING!

All you do is save the dollar equivalent of the calendar week we are in. You can set up an automatic transfer OR simply take the money in cash and put into a jar.

Here is what it would look like – check out how much you would have saved by the end of the year!

Easy Money Saving Challenge

Easy Money Saving Challenge

 

Obviously, this isn’t a life changing amount of money. But its still significant enough to do something special with – dropping a sum like that on your mortgage could take months off your amortization. You could use it for a family trip (or romantic getaway for you and your partner) make a big ticket purchases you’ve always wanted. Or you can just keep it for a rainy day and have that peace of mind that comes along with just having it there in case.

Up for a bigger challenge? Here is what it would look life if you doubled the amounts:

Accelerated Money Saving Challenge

So what are you waiting for? This week is super easy – start by saving just $1. 

 

 

Credit Card Do’s and Don’ts

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credit_card_hd_wallpaper

Credit cards have a bad rap. On the TV show “Till Debt Do Us Part,” (which I totally love) the host Gail Vaz-Oxlade often starts the show by having the participants cut up their credit cards. Indeed, having a credit card can be dangerous to those who don’t use it responsibly. Many people see credit cards as “free money” or think that they are on top of their credit card debt just by paying the minimum payment, when really they are just getting into debt faster.

But I’ve always been taught (and still believe) that credit cards are a useful tool.  And if you use credits cards responsibly, they are a great way to keep track of your purchases (excellent for budgeting), can earn you great rewards and many have added benefits, such as travel insurance and can help you establish a good credit history.

DO:

  • Have one credit card available for emergencies.

Even if you are uncomfortable having one, I think that having access to one for emergencies (say your car breaks down somewhere and you need a tow, or your suitcase gets lost when you go on holiday and you need to buy some essentials etc). Make sure you have clear rules about what constitutes an emergency and stick to them.

  • Research the different cards available.

Make sure that you are aware of any additional fees or costs to the card that you may incur. Some cards have a promotional low interest rate to start, but it might sky rocket after a few months or even by just one late payment.

  • Pay your balance off IN FULL every month.

This is extremely important, as you will be charged interest on your ENTIRE original balance, not just the unpaid part. So say you have a balance of $1,000. You decide to pay $900 off and leave a $100 balance. You will be charged interest on the FULL $1,000.

  • Pay your balance ON TIME.

Not only will you be charged interest on your full balance, but your credit score will take a hit.

  • Check your statement every month for errors or fraudulent charges.

I’ve had my credit card compromised twice and each time I was able to get a full refund because I alerted the company right away. Make sure you do this, because most companies will assume the charge is legitimate if you don’t address it within 30 days of the statement date.

  • Fight your interest or other fee charges whenever you can.

I once paid my balance a day late due to submitting the payment online after banking hours and was charged interest. I called the company and told them that I always pay my balance off in full and on time, and that I shouldn’t be punished for a timing error. They waived the entire amount of interest and all it took was a quick call. Another friend never pays his annual fee because he calls the company a month before it is due and threatens to cancel his card if they don’t waive it.

DON’T

  • Take cash advances on your credit card.

They will charge you interest from the MOMENT you take the cash out. I don’t even give myself the option to do this – I rip up the PIN the moment it arrives.

  • Only pay the minimum the payment.

Not only does paying the minimum amount usually so small that it doesn’t make a dent in the debt you owe, but it will trigger interest charges.

  • Own too many credit cards

Specifically store credit cards. It seem like every store nowadays has their own credit card. But unless you really shop at a particular store regularly, there is no point. Also you want to make sure you are on top of all the bills you have to pay, and it gets hard the more cards you have to remember.

  • Max out your credit card.

Maxing out your card (when you hit your limit or go over it) will cause your interest rates to sky-rocket and could affect your credit rating. This is why it’s a good idea to have a high limit. I always ask for as high a limit as I can get not so I can spend a lot but so I have a lot of buffer room. I like to keep within 30% of my limit.

  • Buy something that you can’t afford to pay off right away.

It’s always a good idea to save money in cash for big ticket purchases, like say a couch. You can still use your credit card to pay for it in the store (I always do) because you can get some great points but then just use the cash to pay it off right away.

 

 

The Family Car – How to make the smart choice

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car

When you have kids, you NEED a car. Having a car is probably second to only the washing machine as a possession that I would find it very hard to live without.

However, it can be very confusing to decide how to go about getting a car. Should you get a used car? New car? Buy it? Lease it? Take the one with a rebate or lower interest? And unfortunately, you can’t ask a dealer because they will tell you that you should do what will make them the most money at that time. All “free gas for a year!” promotions and “0%!!!!” have a profit margin built in to them so don’t be fooled that you are getting a “deal”.

At the end of the day you need to remember that a car is a depreciable asset and prior to getting a car you need to consider the following:

1) What kind of monthly payment can you afford?

This should include the cost of the car AND the insurance (and insurance will be different depending on the type of car you get). Most financial experts would recommend that a car should be paid off within 3 years, so it is a good bench mark to use when considering the price range of the car.

The best way to figure out what kind of car you can afford you should do the following:

Step 1 –  Take the price of the car and add all the applicable fees and taxes

Step 2 – Divide that amount by 3 to see how much you should be spending per year

Step 3 – Next, divide that amount by 12 to see what your monthly cost would be. Add the insurance premium you would expect to pay for that car.

Step 4 – Compare that to what you have allocated for your monthly car budget or stick it into the budget template and see what percentage of your overall budget it comes out to be. If the amount is higher, you most likely CANNOT AFFORD IT. Pick a cheaper car.

2. Should you buy or lease?

From a responsible financial standpoint, the general consensus is that buying is always a better choice than leasing in the long-run. The reason is that buying results in ownership and presumably you will have an asset at a time when you aren’t making a payment. If the average life of a car is 10 years and you pay your car off in 3, you will have 7 years of no car payments. That could be a HUGE savings, even if you factor in the higher maintenance costs associated with an older car.

Leasing means you will always have a car payment and nothing to show for it. Insurance is usually higher on a leased car, most leases still require a down payment (which you will have to come up with every time you get a new lease),  your payment has an amount for depreciation worked into the monthly cost AND when you return the car you can be hit with extra fees for going over your allowed mileage and “above normal” wear and tear on the car (and “above normal” is determined by the dealer). I had a friend who had to pay a $2,000 fee for above normal wear and tear on a leased Audi (apparently the rims were more scratched up then they should have been).

I think leasing makes sense if you relocate often and moving a car around would be inefficient/expensive. Also, leasing can sometimes be a better choice for those who are strapped for cash because monthly payments are often lower because they are often done over a longer-term. You also don’t have to worry about reselling it later on since the dealer takes that risk. Lastly, I guess if you are the type of person who always wants to have a new car than leasing is a good option but to me its in the same category as leasing a fridge or a TV and I think is just silly when you have kids.

3. Should you buy/lease the car with the rebate or the low-interest?

Again, its all about the math and the best choice is the one that has the lowest overall cost at the end of the loan. I recently read that zero interest, or a number close to zero, is “the crack cocaine of consumer financing, and automaker ads stress this to make the purchase of vehicles guilt-free”. And I know plenty of smart people who totally fell for this. “This car is ONLY 0.9% interest!” and then justify spending MORE money on a car because they think they are getting a better “deal”.

For example, say you are comparing two cars, each with a base price of $30,000.

Car 1 has a 0.9% financing rate for 5 years and Car 2 has a $5,000 rebate at 3.99% for 5 years – what is the better deal?

Car 1 vs Car 2

 

In this case, the car with the higher interest rate (but with a rebate) is actually the better deal.

But if you are buying and find that the two deals result in the same overall cost —say, choosing between a large rebate with a higher interest or no rebate but with a zero percent interest for five years—taking the rebate is the better strategy.This is because you get the savings right away via discount on the purchase price, whereas the interest savings on the 0% (or whatever the low interest rate is) are earned over the life of the loan. If the car is written off early or you want to sell it before financing is paid off, the customer with the rebate will be ahead.

4. Should I buy new or used?

This one isn’t as obvious. I’ve personally done both. My current car was purchased new. The one before was used.

Yes, used cars are often much cheaper (and have cheaper insurance) and if you get a good one, can save your family a lot of money. But they are also cheaper the older they are and older cars need more repairs AND you can never be sure that they were well maintained before you bought it. As a parent, this was very important to me – I wanted to make sure that the car I was putting my kids into was safe above all else.

The reason we ended up selling our used car (that we bought when it was 3 years old) was because we no longer felt it was safe (lots of trouble with the brakes and the engine spontaneously turning off) and the extended warranty that we had purchased (thank goodness, because a lot of the repairs would have been extremely expensive) was about to expire. I was disappointed because I actually really liked the car overall.

The reason we decided to buy new was that we just didn’t want to deal with that worry again and figured that the premium of driving a new car off the lot (that we would ensure was properly maintained) was worth it.

Happy car shopping!

Budgets for Beginners – Part 2: Creating a budget

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household budget cartoon

So you’ve decided to start a budget. Great! Creating a budget is primarily about math. You have an income which you have to allocate to various expenses – some essential, some not. The goal is to have a budget that balances – so that your expenses do not exceed your income, because otherwise you will go into debt. Pretty simple, right?

In theory, yes. In practice, not necessarily. It can get confusing and frustrating. So I wanted to share with you how I create a budget. This is what I’ve determined to be the best based on reading what financial experts say (I’m always reading financial advice books to learn new and better ways to manage my money) as well as my own personal experience (trial and error).

You CAN Start NOW.

One thing that I’ve read in many financial advice books is that you should track your spending for X amount of days before you create a budget in order to see where you spend your money. I disagree – unless you primarily spend cash, there is no need for this. In this day and age of electronic statements and real time updates, all you need to do is download the last 6 months to a year of bank and credit card statements and you will have a much clearer picture – one that is true to your actual spending habits and will catch all those expenses you don’t think about (bank fees, interest, any direct debits etc).

So here we go. I like to follow a monthly budget the most, since many recurring expenses are monthly (mortgage, car payments, insurance etc).

I’ve included a budget template below which can help you get started and where I go into more details on categories. When you are filling out the budget, I think its a good idea to start with what you REALLY spend in certain categories just to get an idea of what you are spending your money on and then tweak it afterwards. It might be eye-opening (those daily coffees may seem cheap at $3 a pop, but that does come out to over $90 /month and over $1,000/year) or you might look at it and say, yup that’s about right!

 BUDGET TEMPLATE –>Kasia’s Basic Family Budget – updated template

1. Determine your NET monthly income

So many people mistakenly take their annual salary, divide by 12 and think that is is their monthly income. Its NOT. What you need to do is use the cash you get every paycheque to determine your income. This is net of taxes as well as other expenses (your portion of health insurance at work etc).The best way to figure that out is to look at your bank statement. If you get paid bi-weekly, take that amount, multiply by 26 and then divide by 12. If you get paid twice a month, take the amount and multiply by 2.

Ex. You are paid bi-weekly $2,127 in to your bank account.

$2,127 x 26 = $55,302 –> this is your NET annual salary

$55,302/12 = $4,608 –> this is your NET monthly salary, and your starting number.

If you don’t have a set salary, but make commission or charge for services (say you are a massage therapist, real estate agent or photographer etc) then this is going to be more difficult – you need to determine what you actually earned net (after considering taxes, overhead costs etc) and what portion you want to “pay yourself” and what portion you want to keep within your business. However, you can figure this out by going over your bank statements and come up with what you take home on average (I think a year would be the best, but 6 months should be enough unless you have very seasonal work) after paying your taxes and business expenses. I will be doing a post on running your own business and will include a general business template to help you determine what your income is and how to manage your cash flow.

Next, add in any other steady income you get such as:

– government benefits (for example, disability, Universal Child Benefit)

– spousal/child support

– rental income (if you have a rental property or are renting your basement)

However, there are some things you should NOT include in income – anything you haven’t earned yet or that isn’t guaranteed (like a bonus) shouldn’t be part of your budget. If you do end up getting a bonus or gift of cash, use it to pay off a chunk of debt, boost your retirement fund or even put it towards a vacation or whatever you and your family want.

2. Determine your expenses

I have come up with four main expense categories and have allocated what I believe is a reasonable amount of my budget for each: Housing & Fixed, Utilities, Transportation & Food, Future and Life.

HOUSING & ESSENTIAL FIXED – 35%

Housing expenses are those expenses required to put a roof over your and your family’s head. They are mortgage/rent, property taxes, condo fees etc. Essential fixed expenses are expenses that don’t change month to month (like insurance, childcare) and that you are obligated to to meet and that you need. These you should easily get from your bank statement. Again, if you pay any of these bi-weekly simply multiply by 26 and divide by 12 to get your monthly average.

UTILITIES, FOOD & TRANSPORTATION – 25%

This is my category for essential variable expenses – things that you can’t get away with not spending money on though they are not all necessarily fixed. You should have a good idea of what your utilities are – just take an average of what you spend in the past 6 months to a year and use that as the amount. I include things like tv, internet and home security in this category.

Your food budget should be your groceries. I don’t include restaurants or any kind of eating out in this category.

Transportation includes car payments, gas costs, public transportation costs, parking, tolls etc. While car payments are a fixed cost, I put them with transportation to make it easier to see how much is going towards overall transportation costs.

FUTURE – 20%

The future category is for debt repayment and various types of savings. Most financial experts recommend having a few different types of savings – emergency savings, long-term savings, retirement savings and education savings for your kids.

Emergency savings should be for true emergencies – such as a job loss or medical emergency which would cause you to be unable to work (so not for expected or routine house maintenance, like replacing a leaky roof). This amount should be enough to cover your essential living costs, like housing, basic utilities (cable doe NOT count) and food for about six months. You should make this category a priority. Next would be retirement and education savings. Lastly, I would set up a savings account for long-term wants and needs (like a vacation, new roof, down-payment for a house etc).

The debt repayment category should go to pay off any credit card debt, line of credit and, if you have no other debts, additional mortgage payments. Now, this amount should NOT be whatever your minimum balances are – the amount you are paying should be 10 to 15% of your overall budget. If your minimum balances are greater than 15% of your total budget however, you have a serious problem – I’ll address what to do in this case at a later date.

LIFE – 20%

Once you deduct all the financial obligations from your income, the amount remaining is what you have left over for all those other expenses for life, such as entertainment, kids activities, clothes, gifts etc. You can further subdivide the Life category into smaller categories, such as if you want to make sure you have a specific amount allocated for your kids activities or recurring medical costs (prescriptions, orthodontics) or even a set amount for yourself and your spouse (so you don’t feel guilty about that manicure or expensive haircut and he can indulge in that movie collection). When my husband and I were doing a lot of home renovations, we also had a Home Renovation category to which we allocated a portion of our Life budget because we wanted to pace ourselves and not let the house renovation leave us with little to live on.

3. Analyze your budget – and tweak it

Once you have put your figures into a spreadsheet or done the math on paper, there are a few things you need to do.

YOU have to decide what is reasonable and works for you. Your grocery budget may be high but if you mostly buy organic, and that is a priority for your family, thats ok, as long as you aren’t skimping on savings or paying down debt.

That said, there are some things you should keep in mind though. If you are overspending, you need to cut back. Start with the stuff you can control and that is completely unnecessary – manicures, eating out and yes, organic food. See if you can get out of any commitments or lower your packages (reducing your cable to the most basic package, increase your deductible to get a lower insurance premium etc).

However, make sure its realistic – you need to be able to stick to this budget. If you have a family of 5, but budget $200 a month for groceries, you will very likely go over budget every month, which defeats the whole purpose of it. Also, you need to have some sort of budget for fun – this is your life and you should enjoy it – just make sure its reasonable.

Next see if you are saving enough. I can’t stress enough the importance of getting into the habit of saving. I hear from people “I’ll save once my debt is paid off” or “I have plenty of time to save later, I’d rather have fun now”. Getting into the habit of saving, even if you have debt, is always a good idea – if you wait until your debts are all paid off you may be much older than you expected and what, you’re suddenly going to stop wanting to go on vacation or to the movies? Your habits are suddenly going to change? Even putting aside $50/month is still $600 a year.

Its ok if your budget isn’t perfect.

Many people are shocked when they try to do a budget and the reality of their financial situation hits them. Your budget may not hit the recommended targets right away, and thats ok. If you are stuck paying a high rent and can’t get your savings up to the recommended amount don’t stress – but strive towards those recommended budget allocations. You may end up with an unexpected expense that blows your budget and that oks too. Following a budget should be a plan for life, so you need it to be flexible. If one month ends up not going as planned, just dust yourself off and start again.

Whew! Next I will be posting about “Sticking to Your Budget” – how best to track it, make sure you stay on track and tips on how to maximize it.

If you have any questions, feel free to contact me via my Facebook page: https://www.facebook.com/mommiesandcents

How to throw a child’s birthday party – without breaking the bank

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Image

Happy birthday to my little son!

I know I promised to post the next part of budget series, however I’m still tweaking it (and trying to figure out how to post a downloadable template), so thought I’d add this entry in the mean time about budgeting for certain very important events: namely, kids birthdays. I thought it would be fun, especially since it was my own little son’s first birthday this past weekend.

Its seems like nowadays birthday parties have reached the status of weddings when it comes to lavishness – largely thanks to sites like Pintrest, Facebook and Instagram which motivate (or pressure) people to show off how much they must clearly love their kids by showing the world how awesome a party they threw them. Back in my day, that was achieved by having your party at McDonald’s or Pizza Hut. But now there are just so many more options and ideas, it can easily get out of hand.

But I have to admit, I’M one of those people – I LOVE celebrating birthdays – especially my kids’ birthdays. Even though a part of me is a bit sad that they are growing up so quickly, I’m nonetheless so excited about the next phases of their life and I do want to make it special for them and create a fun memory for the whole family (and post the results on Facebook). But special doesn’t necessary mean expensive. So I’ve come up with some great ways to make the day special without going out of control and breaking the bank.

1. Set your budget and stick to it

Whether its $50, $500 or $5000, its always good to come up with an amount that you can afford and that you WANT to spend. This will also help you focus on the type of party you will have and the number of guests to invite (even having your child pick one best friend to take to the movies and for pizza afterwards could end up being much more fun than a huge and expensive party).

Now, I’m NOT one of those people who disapproves of throwing big birthday parties for kids. In fact, for my son’s 6th birthday last year, we threw him a pretty fancy Lego themed party, where we had a company come in and organize Lego based activities for the kids. But I was able to keep costs in control by following my budget.

2. Plan in advance

The sooner you start to plan your party, the better for your budget. Especially if you want to do a bigger party, planning ahead will not only help you spread the cost (all the better for your cash flow), you will likely get a better deal.

If you are on a tight overall budget, working a small amount into your budget every month for birthdays is always a good idea, especially if you are one of those people to whom a big party is important.

3. Do some research

If there is a specific theme or activity you  want for the party, make sure to do some research before you commit (i.e. tell your child) to avoid disappointment if it turns out to be too expensive.

I wanted to rent a large room for the Lego party because I just didn’t have the room at my house (and didn’t want to spend hours cleaning before or after). So before I sent the deposit, I researched various community centers in my neighborhood and found one where I could rent a large room for $20/hour. I did have to look around because costs varied and were as high as $75/hour.

4. Do it yourself (or as much as you can)

Doing things yourself will almost always save you money. For the party, I made my son’s cake (it was awesome). We opted out of the party organizers catering package and bought our own snacks and drinks. However, we did end up going with a pizza chain’s $5 pizzas instead of making our own because when we did the math, we realized that the cost would be pretty similar to making them from scratch (vs the cake, which would have cost upwards of $50 from a bakery). In the end we spent less than $50 on food for 15 kids. I also made the invitations and thank-you cards by printing out a template online and used plain envelopes  instead of buying them.

5. Consider the age of your child

Personally, I don’t make a big deal over birthday parties for babies and toddlers. They are too young to remember it, appreciate it and I doubt many of them even enjoy it. My friend, who did throw a big party for her daughter’s first birthday admitted to me that she thought it was totally unnecessary and looking back wishes she had made it more low key. For my son’s first birthday I decided I didn’t want to spend a bunch of money or exhaust myself on a party. But I did want to make it  fun for the family, so I took to Pintrest and found some good ideas for a cake. My mom offered to make dinner and I spent the remainder of the budget on some birthday hats, the present (a new crib sheet – he loved it, lol) and the photobook of his first year that I plan to make over the next few weeks. We had a wonderful (stress free) evening and got some great “cake smash” photos.

6. Don’t go overboard

It’s so easy to get carried away with the fun and excitement of a child’s birthday. But always remember its just a party and its not worth it to go over the top for (and blowing your budget). With the Lego party, I knew the organizers would be giving out small prizes to the kids so I decided to make the goody bags as cheap as possible. They were mostly full of leftover Halloween candy (don’t judge me, his birthday is early December and those candies have a very long shelf life) and some stickers from the dollar store. And the kids loved them (at least, they said they did to my face). I also totally skimped on the decorations. Other than a colorful tablecloth and cups/plates from the dollar store, the only traditional decoration I bought were some (dollar store) balloons (which ended up doubling as party favors, since each kids decided to take one home).

7. Skip a year…or two

Throwing a big party for your child every year can end up costing your family a lot over the years – especially if you have more than one child. Plus, I feel like it sets a precedent and perhaps a sense of entitlement of a big party every year. To avoid that, I’ve decided that we won’t do big birthday parties every year. The Lego themed party we threw our older son was for his 6th birthday. It was a ton of fun and he and his friends had a great time. But this year I plan to keep it low key (except for the cake, which, like always, will have to be fabulous), just like his 5th birthday.

 

Lego birthday party

 

Budgets for Beginners – Part 1: Why a budget?

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I love budgets. I find that they are the single best money management tool out there and everyone should use them. Especially whoever manages the family money.

The first budget I ever created was when I was off to university. I was incredibly lucky because my parents were paying for my tuition (hurray for RESPs!) and they were also going to give me an allowance to cover my living expenses. However, my dad made me create a budget for this allowance. He said the amount I would get would depend on how good my budget was. Obviously, it had to be reasonable, but he also wanted me to make sure I really thought about what I would need – and live with it. I remember cheekily adding a budget of $100 per month for Starbucks, arguing that I will need it to help me study. He accepted it.

It was a great lesson because I really needed to stick to it. It had to cover everything from my cell phone bill, to books, to laundry, to going out. I got a fair amount, but its crazy how quickly it went – especially when I wasn’t paying attention to my budget.

To put into perspective WHY budgets are so important – and not just for university students, but everyone: over 50% of Canadians don’t have a budget. So its no surprise that:

1. Almost 1/3 of Canadian families are living pay cheque to pay cheque. This means that they never, or almost never, have any money left over after paying for essential expenses, according to this article in the Globe and Mail,

2. 25% have never made a contribution to savings – which is scary, since almost 40% of Canadians feel they will need to have $1 million to $3 million saved for retirement and another 34% will need between $500,000 and $1 million. And yet of the Canadians who are saving, more than half are saving less than 5% of what they earn, based on responses from this poll.

3. Over 75% of Canadians surveyed have an average of $16,000 of consumer debt. Though I bet its actually higher especially if you consider things such as car leases or financing to be consumer debt, which I do.

Having a budget, on the other hand, can truly help avoid a lot of those problems.

I’ve been using some form of a budget ever since the one I started in university with varying degrees of strictness. I feel like it keeps me line and keeps me honest about what I can and can’t afford. And, speaking honestly, there have been months where we have been over-budget. Sometimes because something we budgeted for ended up being more than we expected and sometimes because we were lazy about monitoring the budget and spent money on stuff that perhaps we shouldn’t have.

But by reviewing our budget regularly, at least I KNOW where we stand and it gives me a signal if we should cut back a bit (such as buying a bottle of wine and hanging out at home instead of going out for drinks) or a lot (such as put off buying anything except necessities like food or gas – this would include haircuts, clothing for myself/hubby/kids or anything that we really don’t need) over the course of the next month.

I’m going to detail how to best go about creating a budget for a family in my next post, which I will be putting up in a few days. In the meantime, if you don’t already have a budget but will want to create one, start compiling all your financial data (bank statements, credit card statements, tax bills etc) so you will be ready to hit the ground running.