There are five important pieces of financial advice that apply to every one of us, whether you're 18 or 80, and whether you're a millionaire or living pay cheque to pay cheque. For age-specific financial advice, see the October issue of Downhome.
• Always look ahead.
What do you want to be doing in five years? Ten years? Do you see yourself rocking your first baby? Travelling the world? Retired? Avoid making decisions solely for the here and now. Consider the path you'd like the next phase of your life to take. You'll thank yourself in a decade.
• Everybody's budget.
Whether you're 25 or 75, the rules for spending are the same. Al Antle of Credit and Debt Solutions, a Newfoundland-based credit counselling agency, breaks down how everybody's income should be budgeted:
No more than:
- 33 per cent of income should be spent on housing (including rent/mortgage payments, heat, light, phone, cable, etc.)
- 19 per cent of income should be spent on food (including groceries, take out and dining out)
- 15 per cent of income should be spent on transportation (including car payment, insurance, maintenance, registration, gas, parking, fines and financing)
- 15 per cent of income should be spent on fun
- 8 per cent of income should be spent on clothing
- 7 per cent of income should be spent on vices
- 4 per cent of income should be spent on health/personal care
• Operate on net income.
An individual's gross income is their total income, before taxes or deductions have been taken into account. Individuals should not base their spending habits on this figure. Instead, they should base their budget on their net income, the amount of money they actually bring home. And here's another piece of advice everybody should take to heart: our spending habits are driven by our income - not by our shopping list, says Al.
• The first sign of trouble.
The very first time an individual cannot pay his or her balance in full at the end of the month, a red flag should be going up. That red flag doesn't mean it's time to shop for another credit card or borrow money from a relative; it means it's time to stop using credit until the balance is paid in full. This can be tough, because it means you won't have the freedom you had last month. But readjusting your spending habits immediately after that first sign of trouble can save you years of grief.
• The root of the problem.
"Transportation is without question the largest root cause of financial problems," says Al. For a variety of reasons, those shiny hunks of metal on wheels take many people on a financial roller coaster ride. Think about all of the costs associated with owning a vehicle. Along with a car payment and the cost of financing your vehicle, you've got to insure it, register it, clean it, maintain it, park it, put gas in it, and pay fines and penalties when you've been irresponsible with it. On top of all this, unlike a home, "every day it's worth less than it was the day before," says Al. Consider all of this when deciding if or what you will buy when it comes to a vehicle.
Thank you for your comment, Doris - you certainly have a keen eye! However, the 101 is due to rounding. Al is an expert in this field, and has a great deal of financial advice on the Credit and Debt Solutions website: www.creditanddebtsolutions.ca
Doris Wagner (Tacoma, WA USA) says:
Al Antle of Credit and Debt Solutions, a Newfoundland-based credit counselling agency needs to use a calculator, as he just got everybody in debt. You can't spend 101% of your income.