Lifestyle | The importance of balancing your budget first

Travel, renovations, real estate investment: life is a world of possibilities and desires. But before embarking on big projects, it is important to make sure that your budget is balanced.

Posted at 7:00 a.m.

Martine Letarte

Martine Letarte
special cooperation

The situation

Hélène* and her partner Patrice* have two young children with whom they want to enjoy life. However, the couple bought a house with a mortgage and have little money invested in their Registered Retirement Savings Plans (RRSPs) and Tax-Free Savings Accounts (TFSAs). In addition, they have a Registered Education Savings Plan (RESP) for each child, but they did not get the maximum grants. Currently, with inflation, the couple has difficulty repaying their credit cards each month, which are used for living expenses.

The good news is that Hélène received $185,000 following the sale of a property in France. She already has several projects in mind: buying a hybrid car and renovations in the house this year, while next year it will be a family trip to Europe.

“In addition, people advise me to buy a condo because the stock market will go down, but that would force us to get another mortgage and a car loan,” says Hélène. I’m not sure that’s a good idea. I wonder if it wouldn’t be better to pay off the mortgage we already have, or to invest in our RRSPs, TFSAs and RESPs. We would like to have more flexibility each month and be able to rely on a good emergency fund. »

Numbers

Helen

Net annual salary: $29,400
RRSP: $34,000
TFSA: $10,300
Car: value of $4,000
Net amount received following the sale of a property in France: $185,000

Patrick

Net annual salary: $36,400
RRSP: $50,000
Car: value of $2500

In common

House: value of $268,000
Mortgage balance: $225,500 with CMHC bonus
Renovation needs: $25,000

Balance the budget

To analyze the case of Hélène and Patrice, André Lacasse, financial planner and financial security advisor at Services financiers Lacasse, asked them to provide him with a detailed budget. This made him realize that this family was living beyond their means. “They have about $10,000 in expenses a year more than their income,” he notes. It is therefore obvious that they have difficulty repaying their credit cards. »

Before thinking of making big expenses to carry out different projects, André Lacasse advises the couple to balance their budget. “It’s important, because otherwise the $185,000 will end up going to pay for living expenses and we don’t want that,” he says. We want the couple to be able to carry out beautiful projects with this sum… which may seem high, but which can still be spent very quickly if we are not careful. »

That’s just over $800 a month in expenses that would need to be cut, and the financial planner quickly sees things to address in the couple’s budget. For example, their telephone, cable and internet expenses are $3,516 per year, which is almost $300 per month.


PHOTO MARTIN CHAMBERLAND, ARCHIVES LA PRESSE

André Lacasse, financial planner and financial security advisor at Services financiers Lacasse

“It’s a lot of money,” says André Lacasse. Do these elements represent such a priority for them? Probably by reassessing their needs and shopping around a bit, they could reduce this budget item. »

The couple also pays $3,900 in life insurance per year. “This amount seems high to me,” says André Lacasse. I advise the couple to meet with a financial security advisor to redo their life insurance needs analysis to ensure that their protections correspond to them. »

Other budget items could also be assessed. However, the planner warns the couple against taking the easy way out, which would be to reduce their RRSP contributions, which are currently around $8,600 per year.

“Hélène and Patrice have an advantage in keeping them because, of course, they don’t have a pension fund at work,” says the financial planner. But also because these contributions reduce their taxable income, therefore bring them a tax refund, and increase what they get from various social measures, for example family allowances. »

Getting used to the new way of life

While the couple is working on reviewing their expenses to rebalance their budget, André Lacasse advises Hélène to deposit in her TFSA the maximum amount allowed of her $185,000.

Hélène and Patrice must take the time to get used to a new way of life and see if they can manage their budget well. It’s not easy, but it’s the priority.

André Lacasse, financial planner and financial security advisor at Services financiers Lacasse

“And the TFSA, because of its great flexibility for withdrawals, can be used as a contingency fund to help them adjust in the beginning,” he adds.

Then, the financial planner suggests that the couple have a retirement plan drawn up with the help of their financial advisor. “Hélène and Patrice need to know how much money they need to put aside each month to prepare for a comfortable retirement,” he says. Maybe they’ve fallen behind in recent years due to spending too much relative to their income. If so, they could take part of the $185,000 and invest it for their retirement. »

Prioritize

It will then be time to make choices with the money left over from the $185,000. “As for paying off their mortgage or buying another condo, it will depend on the priorities they set,” says Mr. Lacasse. But they cannot say that it is necessary to invest in real estate since the Stock Exchange is called to fall. We cannot predict the future. And buying another property when you’re already having trouble balancing your budget is risky. »

However, he notes that the trip is important for the family. “The renovations on the house too, because it will improve their quality of daily life and increase the value of their house. As for the new hybrid car, it’s to be seen. But the good news is that this couple will probably be able to complete several projects with the amount of money they received if they manage to balance their budget. »

* Although the case highlighted in this section is real, the first names used are fictitious.

Are you planning a project that requires a wise use of your money? Do you have financial problems?


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