RRSP’s vs. TFSA’s: Which One is Right for Me?

Should I contribute to my RRSP or TFSA? It’s a common decision faced by thousands of Canadians each year. Ideally, we’d contribute the maximum to both. Unfortunately, life has a way of being expensive. Many of us have other financial priorities, including mortgage payments, car payments, child care expenses, contributing to our children’s RESP and the list goes on. This means that although we’d like to contribute to both RRSPs and TFSAs, we might only have enough to contribute to one.

So how do you choose the right one? Let’s take a closer look at RRSPs and TFSAs to help you figure out.

RRSPs

RRSP short for “Registered Retirement Savings Plan” is a tax-sheltered account primary used for saving toward retirement. If you have earned income (you have a job), you can contribute to the RRSP. You’re able to contribute 18 percent of your earned income in the last year or the RRSP limit, whichever is less (unless you’re earning six figures, it’s most likely 18 percent of your earned incomed). If you’re fortunate enough to have a pension at work, please be aware that your RRSP room will be reduced to account for it. This is to help level the playing field between the pension have’s and the pension have not’s.

When you put money inside your RRSP, you’ll get an immediate tax break. Also, any money you invest inside your RRSP will grow tax-free until it’s withdrawn.

You can hold a variety of investments inside your RRSP, including savings accounts, GICs, ETFs, index funds and mutual funds. To find out your RRSP contribution room, refer to your notice of assessment you get after you file your taxes.

TFSAs

TFSA is short for “Tax-Free Savings Account” and is the newer of the accounts. TFSA started in 2009 and have been popular with Canadians ever since. In fact, Canadians now contribute more money to TFSAs than RRSPs. Unlike the RRSP, you don’t need earned income to contribute to a TFSA. You just need to be above 18 years old.

TFSA contribution room isn’t based on how much you earn. Everyone receives the same annual contribution room. In 2019, the annual contribution limit is $6,000.

Unlike the RRSP, you don’t get a tax refund up front, but similar to the RRSP, your investments grow tax-free inside. However, where the TFSA has a leg up on the RRSP is that when you withdraw your investments, you don’t have to pay any income tax (you do with the RRSP). Your contribution room is also restored January 1st of the following year after a withdrawal.

Similar to RRSPs, TFSAs can hold a variety of investments, including savings account, GICs, ETFs, index funds and mutual funds.

Deciding Between the Two

A lot of articles like to overcomplicate matters in terms of whether you should contribute to the RRSP or TFSA. I like to keep things simple. If you’re earning less than $50,000, you’re generally better off contributing to the TFSA. If you’re earning more than $50,000, you’re generally better contributing to the RRSP.

Other things to consider are your income in retirement. If you’ll be earning more in retirement than during your working years, then the TFSA can make more sense than the RRSP, since being in a higher tax bracket in retirement can lead to claw backs of government benefits such as Old Age Security.

Likewise, if you aren’t going to be earning very much in retirement, contributing to your RRSP often doesn’t make sense, since it would result in Guaranteed Income Supplement being clawed back.

These are just some things to consider when choosing between the RRSP and TFSA. My best advice is to choose one and make regular contributions to it. By getting into this good habit, you’ll reap the rewards later on in life.

About the Author

Sean Cooper is the bestselling author of the book, Burn Your Mortgage: The Simple, Powerful Path to Financial Freedom for Canadians. He bought his first house when he was only 27 in Toronto and paid off his mortgage in just 3 years by age 30. An in-demand Personal Finance Journalist, Money Coach and Speaker, his articles and blogs have been featured in publications such as the Toronto Star, Globe and Mail, Financial Post and MoneySense. Connect with Sean on LinkedInTwitterFacebook and Instagram.

So, You’re in Consumer Proposal – Now What?

Imagine this:

John is a 44-year-old father of three children, and he works in the technical sales industry in Toronto. His annual salary is $63,000, which – combined with his wife’s salary of $45,000 – provided them just enough to cover mortgage payments on their small Toronto home. After his father passed away, a series of challenges left John feeling like his life was falling apart: he faced additional financial stresses from funeral expenses, one of his children was getting in trouble at school and the hardships were putting strain on his already distressed marriage.

Things didn’t get easier once a divorce became imminent. There were lengthy court proceedings and high legal fees. John’s financial stresses became perilous and he had no idea how he was going to afford the required child support payments, let alone pay off his debts. John feared that he would have no choice but to declare bankruptcy, which would involve losing his home.

A bit of good news came his way when John learned about consumer proposals. This would enable him to retain his assets and clear his debts within a five-year period. He connected with a Licensed Insolvency Trustee (LIT) who negotiated manageable payments with his creditors. He no longer faced collections agencies and climbing interest rates on his debts. It was a situation John had never envisioned he’d be in, but he accepted it as his best option.

This situation isn’t an uncommon one. Financial hardships and debt loads can land on any of us – even individuals who enjoyed a high income or financial comfort. And, it’s ok. Although it can feel devastating, it is possible to bounce back.  

Here are 3 attainable and affordable ways to regain financial stability during a consumer proposal:

1. Seek Financial Guidance

Personal finances are complicated and require careful attention and knowledge to manage properly. This is even more so the case for those experiencing financial loss and hardship, including those in consumer proposal.

Most people are not equipped to manage complex personal finances, let alone maximize their financial opportunities. When in financial distress or consumer proposal, there is little room for error or financial mismanagement. Fortunately, there are professionals skilled at identifying strategies to help you optimize your financial health and plan for a secure financial future.

It’s very important to seek advice from a reputable source that’s not charging a hefty service fee or trying to sell you a product. This could be costly for you and cause you to buy into a financial option that may not be right for you.

The main takeaway here is that you don’t need to tackle your financial hardships alone and some quality guidance can give you the confidence and ability to improve your short- and long-term financial situation.

2. Understand Your Credit Score

Unfortunately, during consumer proposal, your credit rating takes a hard hit. The debts on your credit report are marked “9”, the same rating as those in bankruptcy while you’re in consumer proposal. The debts are updated to a “7”, indicating the debt has been settled, after you’ve completed your proposal. If you’re not too familiar with what makes up a credit score, check out this summary.

It’s also a good idea to regularly monitor your credit score. This enables you to identify increases and decreases in your score and spot any errors that can sometimes find their way into your report. You can request a free copy of your credit report once a year from Equifax and TransUnion, Canada’s two credit bureaus. Additionally, Canadian companies such as Mogo, Credit Karma, and Borrowell can send you free monthly updates on your credit score and rating.

3. Consider a Credit Accelerator Program

An excellent way to improve your credit score during consumer proposal is through the Climb Accelerator Plan, a program specifically aimed at helping you boost your credit score while in consumer proposal. It has the added benefit of helping you build savings for a rainy-day fund or to pay off your consumer proposal sooner, so that you can move on with your life.

Here’s how it works: Climb works with you to develop an early repayment goal customized to your budget, payment schedule and financial goals. You make pre-authorized weekly, biweekly or monthly payments that Climb reports to Equifax and TransUnion. In the meantime, your money is stored in a secure account and then returned to you as a lump sum at the end of your term.

The program is a great and affordable way to improve your credit and financial situation while in consumer proposal. There’s no upfront fee and you can customize the amount you’re saving based on your budget, with plans as low as $7/week. Learn more about it here.

Conclusion

As you can see, the consumer proposal is not the end of the line for you. There are steps you can take right away to improve your financial situation by rebuilding your credit score, undertaking careful financial planning and exploring your options to accelerate your progress.

Have any questions about the tips above? Contact us today and we’ll help you navigate your way to a brighter financial future.

Author: Climb

Building a Well-Balanced ETF Portfolio

Earning 1-2% in a savings account or a GIC just doesn’t cut it these days. If you’re looking to save for the long term, you need to make sure your money is earning a solid return. With inflation sitting at around 2% if you are earning anything less than that you are actually losing purchasing power on your money.

For many people, millennials especially, investing can seem incredibly daunting. All of us remember the stock market crash in 2008, but what many of us fail to remember is the rebound that happened in 2009. The average annual return of the stock market since inception has been 10%1 and while it might seem the only way to achieve that is by taking a lot of risks, with ETFs there is a less risky, and more sound way of doing so.

ETFs, or Exchange Traded Funds, are easily available to Canadians through an online broker. They are marketable securities that track stocks and bonds in a specific index. For example, an ETF that tracks the S&P 500 would invest in the 90 stocks in that indices to mimic their performance. When you buy an ETF, you are getting a little piece of each company for a reasonable price, and often with lower fees, than what it would cost you to purchase each stock individually. ETFs are a great way for new investors to get into the stock market because one unit of a fund typically goes for around $20-$40, making it very affordable to get your foot in the door.

Ensuring you are invested across many countries and industries is the best way to mitigate your risk when it comes to investing. Traditionally, when looking at an investment portfolio you’d be looking to have a portion in fixed incomes, a portion in Canadian equities, and a portion in International equities. How much you put in each type of fund is determined by your risk tolerance and the length of time you plan on investing for.

For example, a 30-year-old that is starting to invest has at least thirty more years until they retire, and when investing for the long term you would typically weight your portfolio more on the equities side. A good rule of thumb is 100 – your age = the percentage of your investment portfolio that should be in equities. The remaining amount should be invested in fixed income. As you grow older and get closer to retirement the fixed income portion will grow larger because you don’t want there to be annual fluctuations.

The Canadian Couch Potato has a great list of model portfolios that you can base your portfolio off of, depending on who you bank with and what your risk tolerance is. The ETF portfolio is the lowest cost option for new investors and a great way to get exposure across many industries and companies. To leverage this type of a portfolio you need to purchase three funds; ZAG, VCN, and XAW. These three funds will ensure you are reaping the rewards of Canadian and international markets. Below are two examples on how one might invest $10,000 with these funds depending on age.  

Age 30

ZAG – Fixed Income – 30% / $3,000

VCN – Canadian Equity – 30% / $3,000

XAW – International Equity – 40% / $4,000

Age 60

ZAG – Fixed Income – 60% / $6,000

VCN – Canadian Equity – 20% / $2,000

XAW – International Equity – 20% / $2,000

At the end of the day, it’s important to start investing as soon as you can so that you have time and the power of compound interest on your side. You have to do what you are comfortable with while understanding that the market will ebb and flow. Investing for the long term (more than 5 years) means you will benefit from the gradual increase of the stock market and ensure that your money is working hard for you!

1 https://www.investopedia.com/ask/answers/042415/what-average-annual-return-sp-500.asp

About the Author

Janine Rogan is a personal finance educator and CPA based in Calgary Alberta. She is passionate about sharing her financial knowledge with Canadians to help educate them to make money-smart decisions. Through her website, Youtube channel, and community engagement Janine shares solid financial advice that will make a difference in how you manage your money. Check out JanineRogan.com for more details.

Should I Give My Kid an Allowance?

You can’t really teach your child about money until they actually have some. Unless you wait until they’re old enough to get a job, that probably means giving them some form of an allowance.

But if you give a child money with no restrictions, conditions or caveats, chances are you’ll just teach them how to buy $5 worth of candy every week. An allowance should be part of a broader approach to financial education, with the aim of instilling responsibility and patience.

If you’re considering whether or not to give your child an allowance, here are some things to keep in mind.

It Can Teach Them Financial Responsibility

Children who receive an allowance get hands-on experience in money management. They’ll learn the consequences of impulse spending and how to save for what matters. Nothing teaches the value of a dollar more than… well, having a dollar.

When I was six, my parents took me to Disney World for the first time. I was enamored with the souvenirs and merch, and I kept begging them to buy me toys and stuffed animals. They got me something small, but not the oversized Minnie Mouse plushie I was hoping for.

When I turned seven, I started getting a small allowance every week and immediately started saving for our next trip to Disney. I was so excited to buy whatever I wanted without my parents saying no.

As soon as we arrived, I realized how expensive everything was and why my parents only bought me a trinket the year before. I walked away without getting anything, proving my parents right once again.

Don’t Tie It to Chores

In his book, “The Opposite of Spoiled: Raising Kids Who Are Grounded, Generous, and Smart About Money,” New York Times columnist Ron Lieber says parents shouldn’t connect a kid’s allowance to their household chores.

Just like an adult doesn’t get paid for taking out the trash, your child shouldn’t get paid for contributing to the household. Tying an allowance to chores can backfire when you ask your child to do something extra and they expect to be paid more. Everyone has to do thankless chores once in a while, and children should be no exception.

Explain the Rules

If you’re just starting to give your kids an allowance, make it clear what they should use it for. Will you still pay for their baseball gear or will they need to buy that with their allowance? Will you buy them books and video games or should they save up for those purchases?

Your child should clearly understand their new financial responsibilities. If you expect them to pay for a prom dress with their own money, don’t tell them a week before prom. Give them adequate time to save up. You should also explain if birthday or Christmas gifts will change because of their allowance.

How Much to Give

Finding the right allowance sum for your child depends on their age, your budget and what they’ll use the allowance for. Most children between the ages of 4 and 14 receive somewhere between $3 and $12 a week.

You can also ask friends who have kids the same age to see how much they give.

About the Author

Zina Kumok is a trained journalist and has covered everything from professional sports to murder trials. Now, she specializes in personal finance and has written for brands and publications such as Mint, Investopedia and Discover. She paid off $28,000 worth of student loans in three years.

Things To Know About Consumer Proposals in 2020

Even before the coronavirus pandemic hit, there were mounting concerns about personal debt levels in Canada. While borrowing money can be part of good financial management, debt becomes a problem when it starts piling up and outpacing income.

So, what does the debt situation look like in Canada? The Canadian household debt load has been steadily rising since the early 1990s. Debt levels have spiked more recently, due largely to lower interest rates. This has been especially reflected in high levels of mortgage borrowing. What’s important to note, though, is the ratio of borrowing to household income. A recent report showed that household debt is at $1.76 for $1 of disposable income. Furthermore, Canadians are spending a record 14.96% of their income on debt payments, half of which is being directed towards interest.

Insolvencies are also on the rise among Canadians, particularly among individuals. According to Statistics Canada, consumer insolvencies increased by 13.4% in the past calendar year. It may come as a surprise, then, that the number of bankruptcies have actually decreased by 1.2% during this same period. This downward trend in bankruptcies started in 2009 and can mostly  be attributed to more favourable global economic conditions.

But there’s another reason why bankruptcies have been continuing to decline: consumer proposals. More and more Canadians are pursuing consumer proposals over bankruptcy to deal with insurmountable debt. In fact, consumer proposals increased by 17.9% in the past calendar year, coming to a total of 83,703.  

Why are More Canadians Choosing Consumer Proposals?

Both consumer proposals and bankruptcy result from insolvency, yet consumer proposals enable individuals to keep their assets, more quickly pay off debt and do less harm to their credit score. This is often appealing to those with higher incomes and with valuable assets. The bankruptcy route can result in surplus income payments and loss of assets.

A consumer proposal is a debt relief program authorized by the government of Canada available to individuals looking to avoid bankruptcy. A Licensed Insolvency Trustee (LIT) works on an individual’s behalf to negotiate with the individual’s creditors a percentage of debts to be paid. This amount is distributed over monthly payments usually spread over a period of five years. You can see why this may be an attractive option for many overburdened by debt.

Situations of insolvency, however, still cost enormous amounts of stress, time and damage to your credit rating. In a climate of alarming debt rates and worrisome debt-to-income ratios – and significant societal consumer pressures – how does one avoid hitting the red?  

How to Avoid the Downward Debt Spiral

It’s important to approach financial trends, including the spending and borrowing happening around you, with a healthy amount of caution.

For example, low interest rates may make a mortgage suddenly possible, but does that mean it makes sense for you to buy that house? Make sure to be aware of what percentage of your household income will go towards mortgage payments and interest and how long you will be paying your mortgage. And continually analyze your spending habits. Are you spending an appropriate percentage of your income on rent or mortgage payments, loans payments and personal expenses? Is there enough left over for your slush fund and your retirement savings?

Even if you don’t think you’re in a financially precarious place, it’s a really good idea to seek some solid financial planning advice. Maybe you’re doing ok, but some ongoing habits – or an unexpected major event, like we’re currently seeing with COVID-19 – could put you in a tough spot.

If You Find Yourself in Consumer Proposal…

As we explored above, insolvency and consumer proposals happen to many Canadians. And, they can happen to anyone – even those with high incomes and those who are careful with their money. Major events can happen that cause a cascade of financial duress, and eventually, unmanageable debt.

If this is you, there is good reason to foresee a better financial future. You can take action to boost your credit, save for the future and improve your financial situation right away. Doing so will maximize your short- and long-term financial health and help you move on with your life.

Make Credit Climbing Your Goal

Your credit score is like your financial report card and affords you the opportunity to qualify for loans, credit cards, a house rental and sometimes even a job. The credit scores among those in consumer proposal, unfortunately, drop very low. Nevertheless, it’s especially important to make improving your credit score a top priority during consumer proposal. By building a positive payment history during your consumer proposal, you’ll be poised to maximize your credit score when you complete your proposal.

It’s important for everyone, and particularly those in proposal mode, to keep on top of their bill payments, including to your proposal. Ensure, as well, that you avoid making out cheques with insufficient funds. It’s also a good practice to monitor your credit score and rating on an ongoing basis. This way, you can detect upward and downward movements in your score, as well as identify any possible errors. You can obtain a free copy of your credit report once a year from Equifax and TransUnion, Canada’s two credit bureaus. Canadian companies such as Mogo, Credit Karma, and Borrowell can also send you free monthly updates on your credit score and rating.

Consider a Credit Accelerator Program

If you’re eager to pay off your consumer proposal in less than five years and are interested in improving your credit and building your savings, consider the Climb Accelerator Plan.

The plan is geared towards helping those in consumer proposal boost their credit rating, while building up some savings that can be used to pay off your proposal sooner. Climb works with you to develop an early repayment goal customized to your budget, payment schedule and financial goals. You make pre-authorized weekly, biweekly or monthly payments that Climb reports to Equifax and TransUnion. In the meantime, your money is stored in a secure account and then returned to you as a lump sum at the end of your term.

Conclusion

With consumer proposals steadily on the rise in Canada, and more on the horizon thanks to the devastating financial impacts of the coronavirus pandemic, it’s important to be prepared and know your options. A consumer proposal is a serious situation, but it’s one you can recover from with the right actions.

Still have questions? Reach out today and our team would be happy to provide you with a free credit consultation.

Author: Climb

Spring Clean Your Finances: 5 Helpful Tips

Spring has sprung, and the nasty cold winter is behind us. Many people choose to set financial goals at the beginning of the year, and then when the dark days with little light are upon us they find it challenging to stay on track. Who doesn’t want to be curled up on the couch online shopping with a glass of vino when it’s -30? But now that those days are gone, it’s time to freshen up those financial goals and spring clean your finances!

Here are five things you can do that will make a difference in your finances this spring!

1. Update your net worth

If you’re like most of us, you don’t check your net worth every month, and with the fluctuations in the stock market, that’s probably a good thing. That being said, checking it once a quarter is probably healthy to make sure that you are trending in the right direction. Your net worth is calculated by adding up all of your assets (what you own) and subtracting your liabilities (what you owe). Regardless of whether it’s positive or negative, you want this number to continue to trend upwards. Checking in once a quarter will help you stay on track.

2. Set your savings goals

Maybe you have a wedding to attend this summer, or perhaps you’re going to try and getaway in the fall for a family vacation. A quarter of the year has already passed, which means you have less than six months to save! It’s time to figure out how much these major expenses are going to cost you and break that up into bite-size savings amount you can automatically transfer a few times per month! That way you can stay out of debt while enjoying your life.

3. Pursue a side hustle

Cutting back is always hard, no one likes to feel deprived, and if done for too long many people will find themselves in a situation where they feel like they have to binge buy and end up racking up credit card debt. Instead of always cutting back it can be easier to earn a little extra to fund the fun in your life. Find something you can do to earn an extra couple hundred dollars per month and you’ll see that you’ll be in a much happier financial position.

4. Check your credit score

With the holidays passed, and the bills paid, now is a great time to check your credit report/score. You’re looking for any anomalies when it comes to accounts that are opened or balances unpaid that you don’t know about. If this happens it is important to contact Equifax and the financial institution right away. There are a number of free online services that allow you to check your score and make sure that it is trending upwards. Having a strong credit score means you’re more likely to be approved if you are applying for a mortgage or loan.

5. Make and extra debt payment

This may not seem like a fun one but making an extra debt payment in the first half of the year may motivate you to continue to throw extra money at your debt. Whether it’s student loans, a mortgage, or your credit card the faster you can get to debt free, the faster all of your paycheque will be yours again! Even if it’s only a couple hundred dollars, every payment towards the principal helps to reduce how much interest you will end up paying and how long you have your debt outstanding.

About the Author

Janine Rogan is a personal finance educator and CPA based in Calgary Alberta. She is passionate about sharing her financial knowledge with Canadians to help educate them to make money-smart decisions. Through her website, Youtube channel, and community engagement Janine shares solid financial advice that will make a difference in how you manage your money. Check out JanineRogan.com for more details.

The Best Way to Sell Your Things

With the growing popularity of minimalism and the KonMari method, spring cleaning has never been more in fashion. It’s invigorating to clear out the stuff you don’t need and make space for the stuff you actually care about.

So if you’re already getting rid of unused items, why not make a little money in the process? Here are some of the best ways to sell your things, from mint condition collector’s items to the junk you have laying around in your garage.

eBay

Still one of the most popular sites for online sellers, eBay is great if you have a lot of small, valuable items to sell such as electronics or video games. These will have low shipping fees and be easy to pack up.

You can sell items through the traditional auction format or through eBay’s “Buy It Now” feature. The latter lets you create a minimum price, but potential buyers can still haggle with you.

eBay takes a small portion of all proceeds, usually around 10%. Make sure to factor this in when deciding how to price an item.

Kijiji 

Sites like Kijiji are perfect for selling furniture, musical equipment and other heavy items that are too large to ship. Look for similar posts on Kijiji to decide how to price something. Posting on Kijiji is free for a certain number of ads

Yard Sale

Yard sales are perfect for selling things that aren’t valuable, like books, craft supplies or knick knacks. You won’t be able to make much on individual items, but it’s a great opportunity to clear out unused junk and make a few bucks in the process.

Advertise your yard sale ahead of time, particularly with signs pointing to your house. Post about it in your local online communities and be clear on what you’re selling, whether it’s baby clothes or home furnishings.

Pick a warm day, set up shop early and display your items so customers can pick through them easily. Keep your prices low and be prepared for customers to bargain.

Specialty Sites

If you’re getting rid of collectibles or unique items, you might be better off selling them on a specialty site aimed at specific buyers. These sites will have serious collectors and connoisseurs who will appreciate what you’re selling.

For example, if you have a large collection of Wedgwood plates, find a site for people interested in fine china. You can also contact local antique or vintage retailers to see if they’d be willing to buy or consign your items.

General Tips

Make sure to take lots of photos before posting an item. If you sell online, buyers can leave negative reviews if you don’t describe a product accurately or forget to note any damages. They can also request a refund, which usually means you’ll have to pay for them to ship the item back to you.

If you’re taking care of shipping costs yourself, find an accurate estimate before listing your item for sale. If you undercharge for shipping, you could end up wiping out your entire profit margin. Sites like eBay can calculate shipping costs automatically based on the dimensions of the box and weight of the object.

Decluttering your home? Let Climb declutter your finances! Click below for a customized plan to help get your finances in order.

About the Author

Zina Kumok is a trained journalist and has covered everything from professional sports to murder trials. Now, she specializes in personal finance and has written for brands and publications such as Mint, Investopedia and Discover. She paid off $28,000 worth of student loans in three years.

How to KonMari Your Finances

Marie Kondo has been marginally well-known in America since her book “The Magical Art of Tidying Up” came out in 2014, but her star has risen significantly with the release of her Netflix show “Tidying Up with Marie Kondo”. She’s helped people all over the globe learn to declutter their lives with the “KonMari” method, an organizational philosophy inspired by the Shinto religion.

The method revolves around choosing the items you want to keep by deciding whether or not they spark joy. The idea is to pare down and organize your lifestyle, while also developing a deeper appreciation for what you have.

That approach can also be used to take a closer look at your finances. Here’s how to do it.

Why You Should KonMari Your Finances

The financial decisions we make reflect our deeper habits. Our weekly manicure or daily take-out isn’t just an activity, it’s a subconscious reinforcement of the patterns we develop over time. Sometimes, those patterns are in direct conflict with our goals and priorities.

That’s the purpose of applying the KonMari method to your finances – it forces you to look at your budget with a curious mind. Instead of making financial decisions based on affordability or ingrained habit, you’ll learn to make them based on personal fulfillment.

Make a List of Your Expenses

You need to visualize your expenses before you can decide what to cut and what to keep. Print out your bank and credit card statements from the past three months and lay them out before you.

Then, go through each transaction one by one with a pen or highlighter and ask yourself if they spark joy. A $10 Spotify membership might seem unnecessary at first, but not if listening to music keeps you sane on your hour-long commute.

Let your gut reaction be the primary guiding factor here. Don’t think about the feelings you should have or how someone else might feel. Just allow yourself to react genuinely.

Pay careful attention to expenses that don’t get used often, like gym memberships or items that spark guilt or shame when you examine them. Chances are, you’ll be better off without them.

One expense I removed from my life was a subscription to The New Yorker and The New York Times. My journalism mentor recommended I read them to see examples of good writing and reporting, but I didn’t enjoy them as much as my other publications. I felt guilty seeing stacks of unread magazines sitting on my floor, so I finally canceled my subscriptions.

Create a Routine

People think the KonMari routine is something to do once a year, like spring cleaning. In reality, you can apply the KonMari method every time you buy something.

When you go to check out, take a minute to examine if the item will really bring you joy. Are you buying those cinnamon rolls because they spark old memories of Sunday brunch with Grandpa or because you’re feeling stressed about work? Are you buying a new notebook because you love to journal or because you think it will finally make you the organized person you want to be?

It’s hard to be mindful in the moment, especially if you feel pressure from a salesperson or you’re distracted from a hard day at work. That’s why it can be helpful to wait 24 hours before making any significant purchases, which will give you time to consider how important the expense really is. Coming to a deeper understanding of your spending habits will make you happier with your purchases and keep you from buying things for the wrong reason.

About the Author

Zina Kumok is a trained journalist and has covered everything from professional sports to murder trials. Now, she specializes in personal finance and has written for brands and publications such as Mint, Investopedia and Discover. She paid off $28,000 worth of student loans in three years.

How to Budget as a Couple

When it comes to important relationship milestones, moving in with a significant other gets all the attention. It’s true that sharing the same space with someone is a big deal – and a reliable indicator of a relationship’s future – but there’s an even more important step that usually comes shortly after: combining your finances.

Learning to share your money is one of the most intimate things you can do. By pooling and managing your resources as a team, you’re committing to each other in a deep and lasting way. You might be able to just move out if a relationship falls apart, but disentangling bank and investment accounts is another story entirely.

That’s why it’s so important for couples to learn how to budget together. Here are some of the ways you can make the process easier.

Craft Your Why

Budgeting is like working out. Some people genuinely enjoy the burn and sense of accomplishment they get after leaving the gym. Others may know it’s the right thing to do, but struggle to find any kind of satisfaction from doing it. The difference lies in finding the right motivation.

When it comes to budgeting as a couple, both parties should understand why it’s important. The reason can be something common like, “Have more money to travel,” but it can also be something emotional like, “Pay for our child’s college education.” The more specific and personal your reason, the more likely it is to stick. My husband and I budget so we can save for retirement and other goals, like remodeling our house and traveling abroad. Try to be honest with yourself and don’t judge your reasons too harshly, even if they seem petty or embarrassing. It doesn’t really matter what your reasons are, as long as you have them.

Choose a System

There are many ways to budget, and each couple should find a routine that works for them. These days, lots of people use apps and software like Mint, Tiller or You Need a Budget. Other people prefer a spreadsheet or cash envelope system.

There’s no perfect budgeting solution, especially for a couple with different personalities. The important thing is that the approach works for both parties. If one person has been managing the money by themselves for a while, they should consider switching to a new arrangement if their partner has a strong preference. Take some time to test drive various methods until you find one both of you like.

One thing that seems to work for most couples is to allocate a certain amount of discretionary money for each person. This is money that both people can spend on whatever they want, without judgment from their partner. My husband and I even use separate bank accounts for that money, so our purchases are completely private.

You should also designate a certain time each week or month to sit down and budget together. Some couples even incorporate this into a date night so it’s a fun activity instead of a chore.

Compromise and Communicate

Budgeting as a couple is like a lot of relationship activities – it can bring you closer together or expose your problems. Money reveals our priorities, so it’s important to keep an open mind and avoid getting emotional. When you disparage your partner’s spending, you’re saying his or her needs don’t matter to you.

Use budgeting as an opportunity to talk about your feelings and your dreams for the future. Compromise when you can and acknowledge what your partner does to save money, like batch cooking meals or taking public transportation.

Budgeting should be a team sport, but that only happens when both people realize they’re not competing against each other. It’s OK if it takes some time to find an approach that feels comfortable, as long as you get there eventually.

Find out how Climb can help you and your partner’s financial situation. Click Get Started below and receive a free Personalized Credit Prescription with recommendations to help you build a better financial future.

About the Author

Zina Kumok is a trained journalist and has covered everything from professional sports to murder trials. Now, she specializes in personal finance and has written for brands and publications such as Mint, Investopedia and Discover. She paid off $28,000 worth of student loans in three years.

What’s a Consumer Proposal and How is it Different from Bankruptcy?

You may have heard the term consumer proposal. But do you understand what it truly means? And do you know how it’s different from a bankruptcy?

Both consumer proposals and bankruptcies help you get rid of debt and assist from a monthly cash flow perspective. However, the way they achieve these outcomes is very different.

In this blog post, we’ll take a look at exactly what a consumer proposal is, how a consumer proposal works and why you might benefit from filing for a consumer proposal over a bankruptcy.

What’s a Consumer Proposal and How Does it Work?

A consumer proposal is a formal arrangement that’s negotiated with the creditors to whom you owe money. This legally binding agreement is negotiated and administered by a Licensed Insolvency Trustee (LIT). A consumer proposal is another way to handle debt besides filing for bankruptcy. It protects you from creditors who are seeking immediate debt collection, sometimes via legal action.

When filing a consumer proposal, you should work with an experienced LIT you can trust. Together, the LIT will work closely with you to come up with a proposal your creditors are likely to accept. At its core, the consumer proposal can:

  • Pay your creditors a percentage of what’s owed to them;
  • Lengthen your payment schedule (to a maximum of 5 years); or
  • A combination of both.

When filing a consumer proposal, instead of paying creditors directly, you’ll make the payments through the LIT you’re working with. The LIT will then pay the creditors based on the agreed upon repayment schedule and amount in the consumer proposal.

Creditors will usually accept a consumer proposal if they believe they’re likely to receive more money than they would under a bankruptcy.

What are the Benefits of Filing a Consumer Proposal?

Are you considering filing for a consumer proposal or bankruptcy, but you’re not sure which one to go with? Here three key benefits of filing a consumer proposal over bankruptcy:

1. Avoiding Bankruptcy. 

A major benefit of filing a consumer proposal is that you’re not filing for bankruptcy. A consumer proposal offers you short term debt relief, plus a better opportunity to rebuild your credit score over the long term.

For instance, the debts included in your consumer proposal filing will be marked as “R7” or “I7” on your credit report. An R7 or I7 means that you have compromised or settled your debts and it remains on your credit bureau report for 3 years after your proposal is paid in full. Bankruptcies, on the other hand, result in your debts being marked as an “R9” or “I9”, which is the worst possible status on a credit report. An R9 or I9 represents a bad debt write off, meaning you defaulted on your debt. And an R9 or I9 will remain on your credit report for 7 years from the last date of any activity or payment on your outstanding debt.

2. Better Cash Flow. 

Since the amount of time you have to repay your debts may be extended – or the amount of money you’re required to repay may be reduced – your cash flow will almost always improve. Interest also stops accruing when you’re in consumer proposal, helping you save on the total amount of interest you’ll pay.

3. Keep Your Assets. 

One of the biggest concerns many people have when they file for bankruptcy is that they’ll lose the assets they’ve worked so hard to acquire. Unlike a bankruptcy, where you may have to turn over the keys to your home and car, a consumer proposal typically protects those assets from being seized by creditors.

What Happens Once You’re in a Consumer Proposal?

There are several things that will happen when you enter into a consumer proposal.

First, your LIT will file your proposal with the Office of the Superintendent of Bankruptcy (OSB). Once your proposal is filed, you stop making any further payments to your creditors. Any collection or legal actions initiated by your creditors (including collection calls, wage garnishes or court actions) will cease immediately.

Next, your LIT will submit the proposal on your behalf directly to your creditors. The proposal will include a detailed report about your personal situation, as well as the source of your financial difficulties. Your creditors will then have 45 days to either accept or reject the proposal. If they accept it, you will begin making payments according to the terms you have agreed to.

Can You Get Out of a Consumer Proposal Early?

Luckily, if you have the ability to, you can make additional payments towards your consumer proposal to pay it off earlier.

At Climb, we’ve designed a custom program, called the Climb Accelerator Plan, that provides the option for clients in consumer proposal pay if off earlier, while also building their credit score.

If you’ve recently filed a consumer proposal, our plan may be right for you. Learn more about the Climb Accelerator Plan today.

Updated: March 27, 2020
Originally Published: February 12, 2019