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How to budget for the new year

Personal finances can get complicated. Should I invest, save, or spend? How come I only have a few bucks to spend at the end of the month? Where did all my money go?

These are all very real questions people ask on a daily, sometimes hourly basis. A monthly budget will help you answer at least some of these inquiries — and if all else, it will help you save up for that much-needed summer vacation.

To help you out, I’ll go through the basics.

Find a mode of keeping track of your spending and income: If you don’t want to invest in a personal accountant, purchase Quickbooks or some sort of accounting software. You can also get started using an excel sheet. Whatever you use, make sure you are able to alter numbers as the month progresses. Keeping a firm track of your finances, no matter how depressing, is the only way to create a successful budget.

Fixed costs: Fixed costs exist and there is nothing you can do about it. The mortgage payment, rent, insurance — all of these things need to be paid promptly and on-time, so ensure they are a priority in your budget. If using quickbooks or an excel sheet, these payments would go at the top of your list.

Varied costs: This section includes cell phone bills, groceries, Internet, and cable. You have a little more control over when you pay these items and how much they are, but know there are always consequences for late payments. This should be the second section of your budget. When doing these calculations, make sure to note interest rates for late fees so you are aware of what happens if you don’t pay on time.

These varied and fixed necessary costs should, ideally, make up half of your monthly income. This may mean you have to adjust your Internet packages or change cell phone providers for a cheaper deal.

Calculate the small things: Toiletries, groceries, your morning coffee — anything that you purchase on a monthly basis needs to be in your budget. Don’t omit anything, even if you do drink an embarrassing amount of Starbucks. The point of this exercise is to see if you can decrease your spending while still ensuring you have the necessities of life.

A key tip for these calculations is to always over-estimate: If you think you spend $50 a week on groceries, say you are going to spend $70. If you think you spend $2 a day on coffee, double it! One day, you may get a pastry with your coffee and it will screw your entire budget up. If you overestimate and you have money left over, all the better! You can either spend it or put it into your savings account. Either way, it ensures your budget is more accurate. It’s always better to have money leftover at the end of the month than realize you spent more than your allowance.

Savings/Paying off Debt: It is imperative that you include a section for savings and debt in your budget. If you don’t, you will never save any money. Decide on a monthly amount you will put into a savings account of your choice, and count that money as already spent.  If you have loans or a credit card, use some of these funds to pay it parts of it off. Try to use 20 per cent of your monthly income to pay things off and save up.

Always put some money aside for “fun”: Let’s be realistic. At some point in the span of a month, you will go out to dinner with friends, see a movie, or  take a day trip somewhere. If you don’t set aside some cash for entertainment, a) you may go a little insane and b) you’ll end up spending more than you’d like on a spontaneous splurge. The remaining 30 per cent of your budget can be spent on these activities, although if your priority is paying off debt, swap the numbers with your savings. The idea is to give yourself a weekly or monthly allowance to spend on fun things — that way, you don’t feel deprived, but at the same time, you don’t overspend.

Keep your receipts and actually look at them: This is the hardest habit to break. Most people try to avoid those pesky small pieces of paper in their wallet, but it really is necessary. If you use quickbooks, this will allow you to keep track of all your payments by manually inputting your spending. If you use excel, it will help you reflect on what you spent money on, and where you can cut back. Not to mention you may find a lot more deductibles come tax-filing time.

I hope this helps you create a basic budget. Remember, keep track of everything — no matter how depressing it will be. Who knows? Maybe after a few years you won’t need such an intensive system, but for now, embrace it! Think of what you will do with those savings. Will you buy a house? Go on a vacation? The possibilities are endless — but only if you budget.

Mayor John Tory right on the money with revenue tools

Toronto Mayor John Tory announced Thursday that he would be proposing the use of tolls and a hotel tax to create extra revenue for transit and infrastructure projects in the city. Prior to that announcement, a report was released by the Munk School at the University of Toronto indicating the need for a multi-tax system to pay for services. The conclusions of the report back up Tory’s decision to actively search for more revenue tools to help pay for the much-needed transit system being built in the city.

The report was written by Harry Kitchen, a professor in the economics department at Trent, and Enid Slack, director of the Institute on Municipal Finance and Governance and a professor at the Munk School of Global Affairs. They argue that property taxes, user fees, and transfers from other levels of governments have remained unchanged as large cities continue to grow and expand. This is unsustainable and larger cities in Canada must adapt.

The authors’ argue that decisions on public spending need to be linked with revenue decisions. This is what the mayor was trying to say in his speech on Thursday — that Toronto can’t afford to keep building and providing better service unless there is a way to pay for this growth.

The report also makes mention of services that benefit people across municipal boundaries like roads. While the report suggests transfer of responsibility to the province, sometimes that isn’t possible. Tolls, for example, would be a good compromise, allowing people who often travel into the city on a daily basis to contribute in a way besides property taxes.

In terms of the property tax, something Mayor Tory refuses to increase by more than half a per cent, the authors’ say it’s a good way to raise revenue for infrastructure, but that a mix of taxes is recommended. Property tax is also more expensive to administer compared to income or sales tax. “The property tax is relatively inelastic (it does not grow automatically as the economy grows), highly visible, and politically contentious,” the report reads. “It may therefore be insufficient to fund the complex and increasing demands on local governments.”

“A mix of taxes would give cities more flexibility to respond to local conditions such as changes in the economy, evolving demographics and expenditure needs, changes in the political climate, and other factors.”

The report suggests charging user fees for services as often as possible, as under-pricing can result in over-consumption. Tolls were specifically mentioned as an example of a user fee that can be used on a major highway or arterial road running into a big city. While high-occupancy tolls, which charges vehicles for using a specific lane, can be effective on big highways, it’s much more efficient to toll the entire roadway.

Revenue collected from the tolls in place on the 407 in 2011 earned the provincial government an extra $675 million. The proposal set forth by Tory indicated an extra $200 million in revenues with a $2 toll charge on the Gardiner Expressway and the Don Valley Parkway. The other benefit is that it will reduce congestion and unlock gridlock while creating funds that can be dedicated for transit.

Other options presented in the report include a parking charge, an increase in personal income and sales tax, a fuel tax, hotel tax, and vehicle registration fee. The conclusion seems to be by increasing/implementing a number of these revenue tools, it won’t affect a singular demographic to harshly while still generating funding for a large Canadian city to grow.

It looks like our mayor was right on the money, so to speak.

How to raise your net worth

Often when asked, it’ll take me a few seconds of thinking to remember my shoe size, my dress size, or my home phone number. Never my net worth; that’s always top of mind. Is that backwards? Considering my priorities and measure of personal success, I really don’t think it is. Don’t get me wrong, I certainly don’t want to give off the impression that a person’s net worth is the be all and end all of how they should be valued and treated as human beings, but I do think it’s a significant qualifying factor to a person’s success in business. There are a thousand business people and entrepreneurs who can talk a good game, but at the end of the day, the numbers don’t lie.

Your net worth is basically how much money you’d be left with if you subtracted all your debts from all your assets. I put a substantial amount of thought and energy into increasing my own personal net worth, and the habits I’ve developed have proven to be beneficial, not only from a personal standpoint, but also for my business and for my family. The simplest ways to increase your net worth are to purchase assets and to pay off debts.

Purchase Assets

One of the first lessons I learned, however, was that not every asset purchase you make will actually help you build your net worth. For example, a new car, unless it’s a collector’s item or vintage automobile, will depreciate faster than almost any other asset you could purchase. Forty thousand dollars spent this year could be worth $10,000 less next year. Any assets you purchase need to at the very least remain stable or ideally increase in value over time. I prefer to increase my net worth by way of real-estate, artwork and silver bars (a bit of a gamble, but I’ve found still more stable than gold). Others may choose to purchase rare coins, and my mother is partial to handmade Persian rugs. All these things will help in building your net worth.

Pay Off Debts

Another way to build your net worth is to pay off your debts—even if you have to start off with the small ones. Pay off your car loans, your student loans and your credit cards. If you have to prioritize, start with the high-interest debt first, or any other debt where the interest is not tax deductible.

Invest

It may also be worth it to use debt to build your net worth. This is especially the case when it comes to investing in real estate, where the debt you incur with a mortgage is being used to purchase an asset that will appreciate in value. This is always a risk of course, since there’s no way to know for sure whether an asset will actually appreciate, but there are lower risks involved if you focus on assets that have a habit of increasing in value.

As a business person, your net worth is an important figure to consider in your financial goals. Decide what your net worth goal is, and then do whatever needs to be done to get there. Work hard, make the sacrifices and ultimately, you’ll reap the rewards!