Tommy: Money time, talking about your money. Spring time, time for Spring Cleaning. Besides getting your house in order, also perhaps a good time to get finances in order. My next guest is here to help you spring clean your finances. Lama Farran is a personal finance expert, a certified money coach. Great tips by the way you can find at her website, maxworth.ca. Again tats maxworth.ca. Good morning Lama, welcome back.
Lama: Thank you, thank you for having me.
Tommy: Alright if someone’s listening they say that’s a good idea, I’m going to get my finances organized, where should they start?
Lama: Well, it’s the same thing as you mentioned the house cleaning. It’s very important to be financially organized because you know the saying, buttered space is a cluttered mind. It’s the same thing, cluttered financial paper, it’s a financial fog. The first place to start is with the physical papers. Very often when I go to the people’s houses, when I’m having a session with them or something, they go pick up a paper from here a paper from there, it is literally all over the place. The first place to start with, is to dedicate one place in your house for you money appears. I’m not saying it has to be a room or even a desk, for me personally all my papers are in one storage box. That’s it, one storage box. And you might think, yeah but how do all your papers for in one storage box? That’s’ because I don’t keep papers forever. I do a clean up regularly, every 3-4 months I shred the papers that I don’t need. Everything I need, I fit in that box. This is what I call the permanent storage space, and you can have a temporary one. The temporary one is just a paper tray that can sit on your desk, where if you get a bill during the week you just put it on there until you actually sit down and deal with it. The reason that people don’t think all their papers won’t fit in that storage box, is because they keep their papers for way too long. You know I’ve seen, even my mom, she had cell phone bills or hydro bills from like ten years ago. I’m like you don’t need them anymore. So there are some rule of thumbs that you can follow on how long to keep papers for. For example utilities, is one year. You really don’t need to keep your Hydro Quebec bills for more than one year. Unless you work from home, you have a home business, and it’s a business expense that you are claiming on your taxes then yes you have to keep it in case the government audits your corporate taxes, you business taxes. But if you have a 9 – 5 job, you really don’t need your hydro bill for more than one year. Same thing for you cell phone, same thing for the you know the cable and things like that.
Tommy: You also mentioned keeping it all in one place. I know that as tax time comes down people are having a tough time, they have some of their receipts on their cell phones, some are printed, some are not printed. Isn’t the best thing to do once you get a receipt is to print it up right away, otherwise you forget. It’s there, and what I do, tell me if this is a good idea, I have a file accountant, anything the accountant may use at one point goes in there. Sometimes it’s too many, sometimes if it’s not needed you throw it out, but when he, I have the appointment with him I don’t have to look anywhere in the house because it will all be in one place.
Lama: That’s right. I have a similar folder which is anything that I am accumulating during the year which I know I’m going to use for my taxes next year. Like I make a donation, i keep a receipt and I put it right there. My kids have a certain sports activity I get the recipe for their fitness tax credit, I put it in there. So it’s accumulating during the year, so I don’t have to think about that again. And you mentioned printing, really if you know you’re going to need it, you don’t need to print anything. And that’s the number one way to get financially organized, is to get everything on track. All your bills, all your statements, everything because the company or financial institution are going to keep everything on file for you forever, well not forever maybe seven years. So, most probably you’re not going to need them, but they are always going to be there. Even your notice of assessment, if you have an account with Canada Revenue Agency or Revenu Quebec, you can log in online and see your notice of assessment for the past seven years. So even those in theory you could get rid of them.
Tommy: This texter is saying, how long do I need to keep a bank statement?
Lama: One year. Because you can after that, if you have to dispute something on it, anyways it’s going to be too late for the bank. When you receive it look at it, if there are any charges that you want to dispute. After that it’s useless.
Tommy: Now where you have this so file or this box, this is called the money corner.
Lama: Yes, I call it my money corner.
Tommy: What else is in your money corner?
Lama: It’s pretty much the tax returns and my money corner is shrinking because everything is electronic these days. I have a copy of the will, so I have one copy at home and one copy in the safety deposit box, I have the car insurance, the home insurance, again, like when i receive one I compare the rate to last year, and then I throw away the one from last year. Actually when I say throw away I mean shred. You can never just take a paper and put it in the recycling or garbage. It’s very very important to shred any of these documents that you are getting rid of it.
Tommy: How do you keep your finances in order after you have everything set up? Do you check in every day, every week, once a month?
Lama: Personally for myself I check in every 2-3 days, for my clients I tell them to check in once a week, so it’s going to be your money date uh it’s your fate with your money, you sit down and give it some attention for thirty minutes.
Tommy: It’s like you take it out for dinner.
Lama: Exactly. So you bring a glass of wine and you sit down, and your start talking to your money. This is the time, I mentioned the permanent storage box and there is also the temporary one which is the tray. The tray is really just the bills that you might have received during the week. During the money date this is when you sit down and scheduled these payments. And if you have a spouse, please invite them to you rmoney date because even if you are the one who is responsible to pay the bills it’s still good if they know what’s happening, and it’s also the perfect time to sit down and discuss what expenses that are coming up that are a bit tricky, to discuss how to deal with it in term of budgeting.
Tommy: With your clients as a certified money coach, do you also find that with couples that uh one uh partner is aware of absolutely everything that is going on, where all the money is going and the other one has no idea.
Lama: Yeah, that’s very very typical. And this is where I force the other person to sit down with the person who is responsible usually and do it together. Because what if something happens to the other person, you know. I mean you, I mean the rates of divorce are very high. You’re assuming you’re in the relationship today, but it doesn’t mean anything. It’s really really important to be aware of things, so when a crisis happens you’re not lost. And you’re not there wondering how did he pay this bill, or where did he put that paper. So it’s very important to start doing it together,
Tommy: Your questions for my guest, personal finance expert, certified money coach Lama Farran. Her website is maxworth.ca. This texter wants to know whether a money coach charges and if your fees are tax deductible.
Lama: My fees are not tax deductible, and what I charge is really dependent on what he needs. So it could start wot a few hundred dollars to a few thousand dollars depending on what he needs, how much work he needs.
Tommy: This other texter want to know, don’t all banks charge for accessing old electronic bank records?
Lama: Maybe that are very very old. Older than seven years,but anything less than that you can find it online.
Tommy: And once you’ve done the the check on your finances every week, um if you do it every week, what are some of the advantages of doing it that way?
Lama: Well really nothing falls in the cracks, it’s as easy as that. I see so many so often, you get a bill and then you get forget to pay, and people don’t like to pay bills in advance which I completely understand, I don’t like to pay my bills in advance but I schedule them in advance, so if I get municipal taxes and it’s due in June, well i receive it in February and I set up the automatic payment, the post dated payment in February so I don’t have to think about it again, so it’s done. It doesn’t mean that the city is going to get their money early, it’s just out of my hair.
Tommy: Do you have a filing system?
Lama: I have that box as I said like some, like maybe 80% of my stuff is electric right now, so I barely get anything. So is everything is really online, the electronic bills, the automated debit.
Tommy: Your questions for certified money coach, Lama Farran. Text your questions to 514-800. Your change consult right here right now with certified money coach Lama Farran, founder of maxworth,ca. The texter wants to know about emphasizing,what should they emphasize, reducing debt or making an emergency fund? How many months of operating expenses should be in the emergency fund?
Lama: Okay, so there’s multiple steps that he can follow. One, I would say have a mini emergency fund. A mini emergency fund is one thousand, two thousand max. So have that first, and then start paying off your debt. Once your debt is paid off then you can go to fill up your emergency fund to make it a real one, and that should be between 3-6 months of essential expenses. So look at what you’re spending today and pick out the essential, you know the restaurant is not essential, let’s say you need two thousand of just to pay rent and pay gas and all that, so multiply that by 3 to 6 times.
Tommy: Is it’s a good exercise, is it worthwhile to try and find out, or ascertain your net worth?
Lama: For sure I mean, it’s an exercise that I do with my clients all the time, calculating your net worth is going to make you dig out your statements, the latest statements that you have lying around, and what net worth is its very simple, it’s everything that you own, so all your assets, so that’s your bank accounts, your investments, your home value, your car value minus your debts. Minus all the balances on your credit card, your mortgage, your car loan, your student loan, so you list them all, and these two numbers are your net worth. So it’s because it’s going to give you the opportunity to know how much you actually weigh financially today, so you can compare yourself redo the exercise in a year from now. And the reason it’s good for your spring cleanups because you’re going to be forced to dig up your statements on everything.
Tommy: Oh, I think you’re going to like this one this text Lama. This texter says I’m 33, no debts with $50 000 of savings. I earn about $60 000 a year. My question is what would be my smartest financial move at this point?
Lama: Well, I don’t know if he owns a house already, if he’s debt free if that’s one of your goals. Really it depends on his goals. Maybe if it’s buying a rental property, that could be his down payment. But really it depends on his goals. But real estate could be definitely a good option.
Tommy: And not having debt is a pretty good option.
Lama: But that’s the thing, does he not have debt because he already paid off a mortgage, or because he doesn’t have a property.
Tommy: Well, maybe he will text back. This texter says, when you go in to get a consolidation loan, to lower your interest on your credit card, does that affect your credit score?
Lama: Not necessarily, but it depends. The one through the bank, no. If you go for one of those credit consolidation companies, then what you’re really doing is a consumer proposal then yes it will affect. But if you just walk into the bank and you cancel a whole bunk of credit cards, then it shouldn’t affect that.
Tommy: Tell me about the consumer proposal, what exactly does that mean.
Lama: Well that’s really one thing behind bankruptcy. It’s as easy as that. You still have to pay your debts, it’s just that the company is going to negotiate your interest rate, so it’s going to be lower it’s going to be one amount. So it’s really not bankruptcy, so on your credit report it wont show bankrupcy but it will show R7 which shows you had a consumer proposal. So it’s really, it’s if that option doesn’t work for you, you go for bankruptcy.
Tommy: Now if you have the R7 you’re still able to get credit? How soon before the credit card companies start sending you the cards?
Lama: Well, knowing them the day after. But the thing is it’s going to stay on your credit report for a while. So the bank is going to be more hesitant than more aggressive companies.
Tommy: Money questions, we’ve got the answers. This texter is saying, Tommy that debt free guy that’s texting every time Lama is on the show, I hate him.
Lama: He should be inspired by him.
Tommy: Yes, it’s signed negative worth. This other texter is saying that I have 250k put aside, should I pay off my mortgage of 110K or invest the 250?
Lama: Well, what’s the rat eon his mortgage? If the rate on his mortgage is 2 – 3% and if he can invest it and make 5%, I would invest it.
Tommy: This other texter is saying, I read that buying real estate is not a smart move at this point considering that the Canadian market is inflated.
Lama: Well, it’s a long term strategy right, and depending on where else is he putting his money if he’s not putting it in real estate.
Tommy: What happens if you have a bad credit rating. What will do that to your ability to get another credit card.
Lama: Well it will affect it definitely,but you can also work on improving it, and that’s by paying your bills always on time, all the credit cards on time. You can start decreasing what is called the utilization rate so decreasing how much you’re using out of the limit available. So there is different, you can subscribe your credit score regularly you can see it going up while you’re doing all this. Paying on time is definitely important and using your credit cards less.
Tommy: Is it possible to negotiate the actual percentage of interest you pay to a credit card company?
Lama: For sure and there’s a lot of credit card sout there that can trade better interest rate for the points. Meaning that if you let go of the reward points they will give you a better interest rate. So it’s worth it to call the company and ask them what they can do for you rate, and the may suggest another card for you.
Tommy: Take out your crystal ball Lama, this texter want to know, he’s 56, wants to know if it’s a good idea to invest in the Montreal Condo Market.
Lama: I’m not a real estate specialist, I’m sorry.
Tommy: I love this question, should I sell what I’ve invested in the stock market and how much tax do I need to pay on it? One hundred and eleven dollars and fourteen cents. I think that’s the answer. We have to know a lot more detail than that. Always a pleasure, Lama Farran, personal finance expert certified money coach, she’s the founder of maxworth.ca.