Family Financial Planning: The Basics

Spend less than you earn. It sounds so simple, so obvious, and yet for many of us, it’s perhaps the most difficult guideline to follow. For one industry expert, it’s the most crucial piece of advice he can give.

“I can’t say it enough,” says Robert McCullagh, president of Benefit Planners, a financial services and planning company based in Calgary.

“What I find is, people overspend, and then they under-save,” he adds.

Robert McCullagh’s Top 5 Tips for Managing Your Family’s Finances

  1. Spend less than you earn: Track how much money is coming in, and how much is going out.
  2. Become aware: Be aware of the spending choices you make and evaluate them. For example, would it be better to make coffee at home than buy a daily cup? Also be mindful of the fixed expenses coming your way – your phone bill, rent, taxes and car payments. McCullagh explains: People forget a lot of the money they earn is already promised to fixed expenses.
  3. Plan for the unplanned: In other words, be prepared for the expected. The first step is knowing what unplanned events could apply to your family. It could be a car breakdown, it could be a sick family member who you have to visit every day, or even an issue with your own health. A sick pet, however, seems to be the number one unexpected expense that catches people off guard.
  4. Start small: “Everybody seems to think they’ve got to start with some magnificent grand plan,” McCullagh says.  Start with a modest goal of saving $25-$50 a month.
  5. Take control, have a plan, seek advice: “That doesn’t mean you can control the outcome, but it means you can control how you’re going to respond, rather than react,” McCullagh says. Think about how you will pay for things like going on vacation, an anniversary lunch, car repairs, etc.  And don’t be afraid to ask for help, McCullagh adds. “People are not seeking enough advice.”

Make a Change Today

McCullagh, who has 30 years’ industry experience, offers the following four actionable items to improve your family’s finances today:

  • Build an emergency fund: This helps you prepare for the unplanned. Having a little bit of money set aside, McCullagh explains, allows you to respond so you’re financially prepared, gives you a sense of control over your financial decisions, and gives you a little extra money when you need it. Put some cash aside in a savings account, or an envelope at home or both. Use the method that works consistently for you so saving becomes a habit.
  • Minimize tax: Depending on your income bracket, an RRSP or a Tax Free Savings Account will be the better choice for your retirement savings. If you earn less than $35,000 a year, use a TFSA, as the terms of an RRSP might offset your ability to qualify for government support during retirement.
  • Protect yourself, be aware:  Think about life insurance, McCullagh says – it can be as low as 15 dollars a month. Similarly, be aware of long-term disability programs for you or your children, as a precaution to better prepare you for the unplanned. “People sometimes believe that if they don’t think about it, it can’t happen,” McCullagh says.
  • Get a professional will: McCullagh says anyone in any age group should create a will to ensure their prized possessions and anything of monetary value is left to the intended people. Remember, each province determines the process of the will and settling estates after people die, so make sure your will is valid in your jurisdiction.

Understand How Your Money Works for You

Lastly, McCullagh suggests keeping in mind that when you earn a dollar, that dollar has four jobs:

  1. Lifestyle Expenses – these purchases are today’s expenses based on choice, such as rent, gas and a movie ticket.
  2. Debt Expenses – these expenses are yesterday’s decisions, McCullagh explains. When you make a credit card purchase, don’t just look at the immediate sticker price – think about how you’ll pay that purchase back on your card, and how long it will take to do so.  
  3. Savings Expenses – this is where your emergency fund, piggy bank stash, RRSPs and TFSAs come into play. “Savings is about tomorrow,” McCullagh says.
  4. Tax Expenses – don’t forget the percentage of each dollar that goes toward your taxes.

It’s a helpful way to think of your income’s purpose, so you can spend – and save – your money wisely.

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