A. Farber & Partners

Prioritizing Your Bill Payments – How To Decide Who Gets Paid First

It can be very stressful to deal with financial obligations. That is why many of us choose to deny the importance of paying our bills on time and start to hide monthly bills out of sight (and out of mind!). But in order for most of us to get out of debt and subsequently build wealth, we need to gain control over our existing finances first. One way to do this is to prioritize bill payments each month. By doing so we can hope to achieve financial freedom and a life free from stress.
But how do you go about prioritizing those bills? There’s a huge pile of statements sitting on your kitchen table, so which ones get paid first? Here are a few handy tips for wrestling control over your bills:
Step One: List all the sources of your household income on a piece of paper. It is important that you use net figures (take home pay) that reflect the exact amount available to you each month.
Step Two: List your monthly expenses. You can “break them down” into different categories (for example, the vehicle category could include gasoline purchases, car insurance, parking costs and vehicle repairs). By assembling your expenses into a smaller number of categories you can effectively organize and analyze them.

You now have both a budget and a list of bills to pay; many of them fixed amounts you will be paying month after month. The balance of the debt will be such items as credit cards and discretionary spending – we’ll discuss those shortly.
Step Three: Time to start paying those bills! Begin by paying the most important bills first (such as your mortgage or rent, property taxes, utilities, phone and cable).

Step Four: Write down which bills are due on which day of the month. To keep from missing a bill payment, start by paying your overdue bills first and get caught up on them – this will also help you reduce your interest charges monthly.
Once the important bills are organized and paid, take a look at your transportation, insurance coverage costs and more “flexible” debts, such as the cost of groceries, clothing, and laundry – the items we consider “discretionary” and that you could cut back on a bit if necessary.
Some of those expenses are fixed amounts and will not change dramatically on a monthly basis. But by monitoring your spending within these categories you could determine if the amounts payable are reasonable or might require additional attention. Be willing to compromise and try to spend some of your time “shopping around” for more competitive deals so you can bring some of these expenses down.

Step Five: Then it’s time to calculate the costs of your debt repayment: Credit cards, line of credits, student loans, income tax debt, business debt, personal loans etc. Make a list of your creditors and the amounts owing and interest rates charged. You may be shocked to see how much of your left-over income each month goes to debt repayment and the interest charges on such debt.

Handy Tip #1: Start by paying down the highest interest rate creditor first and try to pay more than the minimum payment so you can “get ahead” of the debt.
Handy Tip #2: It is important that you make a room in your budget for child care expenses, Income tax, personal expenses and debt repayment.

Handy Tip #3: Do not spend money you don’t have! Make sure that your net household income is enough to cover all of the above-mentioned expenses.

Handy Tip #4: Cut up your credit cards or put them away somewhere safe so you can’t easily access them. If you want to pay down debt you cannot keep racking it up at the exact same time.
And finally, once you’ve developed a plan similar to the one I’ve described above, stick to it! Be consistent and you will see success quite quickly as your debt levels drop and your future begins to look a bit brighter to you.
Good luck!

What Is Your Priority? Your Children’s Education or Your Retirement?

One of the biggest dilemmas now facing parents is the question of whether they should be putting away funds for their childrens’ future university or college educational costs, or to begin placing money into an RRSP or TFSA for their own retirement planning. So, what is the right approach?

The easy and straight answer to this question would be for you to address both these goals at the same time, if at all possible. They are both equally important and require a regular and consistent savings effort in order to accumulate the target amount of funds over a long period of time.

For a majority of individuals, the requirement to finance their child’s education will occur earlier than their retirement years. It would therefore seem appropriate to focus all the savings towards funding the educational requirement initially and to turn to retirement savings only after the educational fund target has been realized.

But there’s a key drawback to this approach: A delayed start to retirement savings could deprive you of the tremendous growth potential of compound interest on your retirement savings. Even a heightened amount of savings hastily placed in an investment vehicle during your later years leading up to your retirement cannot possibly compensate for the lack of a minimal, albeit consistent, saving plan during your earlier years.

However, through careful financial planning you can save for both of the above goals even if you have limited availability of funds. A key strategy is to select an appropriate amount to contribute to the Retirement Savings Plan (RRSP) so as to lower your tax bracket and generate a tax refund. The tax refund can then be utilized within your child’s Registered Education Savings Plan (RESP) for the ultimate benefit of your child’s post-secondary education goals. The added benefit in contributing to this plan is that this would qualify for an additional contribution by the Government as per the applicable rules under this plan.

Some dedicated research and guidance as you develop your savings strategy can go a long way towards ensuring you achieve your long-range financial goals successfully.

Help, I Owe Taxes & I Don’t Know What To Do!

Have you:

• Filed and paid your taxes every year?
• Set aside a portion of your self-employed income for taxes?
• Set aside any HST collected or payroll withholdings for your business?
• Set aside tax on any RRSP or investment income you cashed in?

If not, you may have sizable tax debt that you owe to CRA (Canada Revenue Agency). Not only that, but even as you read this you are most certainly incurring more and more penalties, as well as  rapidly-growing interest charges. And once CRA catches up with you (and they WILL!), they can garnish your wages, freeze your bank accounts, instruct your customers to pay them directly or register liens against your business or personal property.

Obviously, the best way to avoid any of these serious consequences is to pay your debt to CRA.  But how?   You could negotiate a settlement with them directly (typically they will be unwilling to accept anything less than the full amount owing).  Instead, to ensure the very best possible outcome when dealing with CRA you must take control of the situation and get professional help to best determine how to proceed.

For example, we always recommend that you have your outstanding tax returns prepared and filed by a tax professional so you have a complete picture of the debt owing and you can develop a plan to deal with it.

If the tax and other debts become unmanageable, there could very likely be a formal option available to help you get a fresh financial start.  Proposal Administrators and Trustees in Bankruptcy are the only professionals trained and federally-licensed to deal with your tax and money problems.

To discuss your situation in detail, please call 310-1100 to set-up a free confidential face-to-face meeting in your area.   We are here to assist you and we know the law and the legislation that can be put into place to protect you from the tax man.

What Should We Teach Our Kids About Money?

When it comes to parenting skills, most of us aren’t doing a very good job of teaching our kids about money management and personal financial responsibility.  Some parents think kids will learn about money management by themselves when they get older.  Others simply want to shield their kids from what they consider the harsh realities of life.

The truth?  Kids learn by example.  They learn how to manage their money by watching how their parents manage money.  And the earlier they get exposure to proper money management, the wiser they will be with money later on in life.

What that in mind, here are some handy tips and simple principles for teaching your kids all about how to handle money in a responsible manner:

Money comes from work, not from an ATM:  There is no free lunch in this world; everybody has to work hard to earn the money they spend.

What we want may be different from what we need:   Toys and candy are not necessities, so buying those groceries and school supplies comes first.  That’s why Mom and Dad always pay for the rent before they book that expensive vacation.

Save money towards specific goals:  If your kids dream about purchasing something big (like an iPhone or a new laptop), they should have to save up for it.   Getting in the habit of saving for the future should be a priority in your household.   How to do this easily?  Place 10%-20% of your net monthly income into your saving account automatically when you get paid.  That process then becomes a habit, and money is put aside without stress.

Money can make more money:   If your kids have a long-term goal in mind (like a vacation or the purchase of a car when they’re old enough), they need to learn how to invest their money properly.  Obtain the services of a financial consultant to explain to them how to save efficiently and effectively.

A Credit card is not a fun toy — Use it wisely:   We all have to pay back the money we borrow eventually. If we only pay down the minimum amount each month it’s likely we will never pay down the balance owing for many years.  That also means a higher amount of interest must be paid just to use that credit.  Your goal should be to pay down the full balance on your cards each month.  If you get in that habit early on, your use of credit won’t exceed your ability to pay it off quickly.

And you’ll be setting an excellent example for your children.  Now — and when they grow up.

Canadian Consumers Continue To Amass Significant Amounts of Debt

Canadian consumers continue to build up significant amounts of debt.  A recent report by the C.D.Howe Institute found that “debt levels (in Canada) associated with consumer credit are higher that at any point in recent history”.  Even more startling?  These debt levels were even higher than those found in American households.

The biggest problem with high debt levels are they leave Canadians vulnerable to major economic shocks — either a sharp increase in interest rates or an economic downturn.  Canadians will find it harder to weather an economic storm when they carry too much consumer debt.

If you feel that you are part of this group and could be affected by these economic events, you should make every effort to take control of your situation by developing a plan to help you avoid financial ruin.

Taking control may mean seeking out some advice on how you can properly manage your high debt levels.  Take a closer look at how you might be trying to reduce your debt load.  For example, you should be realistic as to whether making just minimum payments each month on your credit cards or lines of credit is really impacting the debt you owe.  If the harsh reality is that with your best efforts your debt remains stubbornly high then you need to take further action.  An excellent way to consolidate and deal with your debts (as well as put the brakes on the ticking time bomb of compound interest) is to file a consumer proposal.  Another option could be bankruptcy protection, but this should always be your last resort.

If I have debts and I return to Canada, will I be arrested at the border?

One of the most frequently-asked questions our Customer Care team receives from callers living abroad are about what could happen to them if they wish to return to Canada but have debts owing to Canadian banks and financial firms, as well as student loan debt.

The chilling image many of these people have is of a Canadian Border Services agent detaining them as arrive back in Canada due to outstanding debts.

While we are not lawyers (and therefore, cannot respond specifically to these issues from a legal perspective), we can reassure you that being detained by a Customs Agent upon your return to Canada if you owe any sort of consumer debt (such as student loans and credit cards) is extremely unlikely.

Canada Border Services agents have, as their primary focus, the safety of Canadian citizens. They are expertly trained to help prevent such crimes as human trafficking, smuggling of goods and services, and other cross-border illegalities.  Your debts to a creditor (such as a bank or other financial institution) are a civil matter.  So unless a court order has been issued by a Judge to have you detained once you re-enter the country, you will not be held at our border when you attempt your return to Canada.

There have been cases of individuals with outstanding child support, spousal support and criminal fines who have been detained at the Canadian border once identified by border officials.  These individuals are the exception, however, and not the rule and their situations are far more serious than that of someone who owes money to several credit card companies or for outstanding student loans.  It is quite likely they were made aware (in advance) of the possibility of detainment if they attempted to return to Canada.

So, while you shouldn’t fear being arrested or detained when you attempt to cross back into Canada, you should plan ahead to ensure you are able to deal with your debt issues once you are back in the country.  That means either emailing or calling our offices as soon as you return here.

If you have been residing outside Canada for at least a year, and have debt of $1,000 or more in Canada, you have the legal right to file for protection from your creditors once you physically return to Canada.   Ready to return to Ontario?  Email us as soon as possible to discuss your situation in detail to info@afarber.com and one of our Customer Care team members will be happy to advise you on what might be possible to coordinate.

The Sandwich Generation Is Crushed By Debt From Many Sides

Much has been written recently about “the sandwich generation”, those of us at a time in our lives where we are caring for our children AND for aging parents.  While invisible to the general population, the financial pressures and debt load of this generation can be staggering:  On one side they must grapple with covering the costs of tuition fees and housing and food costs, as well as textbooks and other expenditures. At the other end they have one or more of parents with a host of financial, medical and emotional pressures.

This situation can become even more financially trying if a parent must leave their home and be placed in either an assisted-living or senior care facility (what society used to call an “old age home”).

That’s why I was moved by an email I received recently from someone enquiring about how best to tackle the financial pressures of this exact situation.

The writer mentioned that her mother was currently residing in a nursing home due to her inability to care for herself.  The mother’s Old Age Security and Guaranteed Income Supplement pension money was flowing directly to the senior’s facility. Unfortunately, these payments ended up covering only a portion of the monthly costs.  In just a few short years, the shortfall had risen to more than $30,000.  This writer could not longer cope with the pressures brought on by that rising debt load, as well as the compounding interest that continued to accrue on the unpaid balance each month.

On top of that debt, the writer had tuition and room-and-board expenses for two children currently attending universities in Ontario.

Between the debts being generation by her mother’s situation, and the debt load generated by her childrens’ education costs, this single mother’s debt load was staggering, and not likely to be reduced on its own. So, what to do?  She made it quite clear that she was terrified of filing for protection from her debts for fear the nursing home would toss her mother out onto the street.  And she could not take a leave of absence from her job to care for her aging parent either.

Here is a summary of my answer to this member of the Sandwich Generation:

“Thank you for your questions regarding your mother and her residence in a nursing home, and the additional debtload you are grappling with for your two children. I completely understand your concerns about a potential bankruptcy filing and what that might mean for your mother’s residence in the nursing home.

To set your mind at ease a bit, following the amendments made to the Bankruptcy & Insolvency Act (the BIA) on September 18th, 2009, a creditor cannot terminate a contract with a debtor if that person files for bankruptcy protection. This ruling primarily applies to such things as household utilities, car financing or leasing, a mortgage on a home, etc. But it can also be for apartment rent or nursing home residence fees.

The question we need to answer is: WHO is the debtor? You or your mother? Did you personally guarantee her debts to the nursing home? If so, you should be able to have that debt discharged in a bankruptcy filing (or, make a reasonable settlement offer to the nursing home through a consumer proposal).

If the debt is in your mother’s name AND your name, you would both need to file for protection in order for the debt to be discharged in a bankruptcy or consumer proposal.

I would strongly recommend soliciting some assistance on this issue from an independent authority, such as community-based social worker or social action agency specializing in caregiver and senior citizen issues.

You also need to sit down and crunch some numbers to best determine what might happen in the future, as ridding yourself of the existing debt will provide you with some relief now but new debt accrued at this nursing home will put you (and possibly your mother as well) right back into debt very quickly.

An alternative to continuing with the same situation might be for you (again, with the help of a social services agency or advocate) to search out a more affordable alternative housing arrangement for your mother. The goal here is to stop the generation of further debt that could continue to cripple you and for your mother’s pension money to cover most, if not all, of her monthly expenses.

As for your children’s expenses at university, the Government of Ontario offers a range of post-secondary school funding options, including interest-free loans and grant money. These funds are available for eligible students who are enrolled in an accredited institution (including a university or community college). Known as OSAP (the Ontario Student Assistance Program), it provides funding for tuition, living expenses, school fees and other post-secondary costs. You can find out more at their informative website by visiting:  www.osap.gov.on.ca

Each school break period (usually running from May until the end of August), you may want to encourage your children to help “pitch in” with the household expenses by holding down summer jobs.   A young adult could easily earn $2,000-$4,000 per summer working at any of the myriad jobs available to students (from the local movie palace to such popular attractions as Canada’s Wonderland).

If your children were willing to turn a portion of their summer income over to the household to cover their room and board at home it would allow you to stretch your budget a lot further, and give you some peace of mind. ”

 

 

We get letters…

Helping people when they are at one of the lowest points in their lives in what we do best at A. Farber & Partners.  All of our staff are dedicated to helping people alleviate the financial pressures they are experiencing and, most important of all, giving them a second chance.

So when we get testimonial letters like the one below, we like to share it with the world:

Dear Jennifer & Linda:

The day that I got to meet you two was such a blessing.  Hurrah, the consumer proposal is now over; however it still has a memory that I’m determined from which to learn. 

I feel very fortunate that timing was on my side. Thank Heaven for Family Services and for Heidi reaching you and you being available to see me.  That was the beginning.  Now, I may feel that this is the end but it’s just the next stage.

You two made my job so easy.  Once you explained everything to me and we finalized my paperwork all I had to do was get you my consumer proposal payment each month.  But you gave me so much more — and this is where not only your knowledge kicked in but your wonderful personalities.  Your utmost patience at my umpteen calls, small questions, big questions – you accepted them all and still managed to make me feel special. 

Thank you both so much from the bottom of my heart.

D. S. 

Make tax planning your New Year’s Resolution

Many of us are considering our lists of New Year’s Resolutions.  How about adding this one to the top of your list?   One of your major 2011 Resolutions should  be to clean up your unfiled and unpaid GST, PST, HST, payroll taxes and income taxes.

Trustees in Bankruptcy can help you avoid bankruptcy AND clean up your bad tax history without losing your business, house and reputation.

Many people have unfiled taxes  (sometimes for many years) because they  are not sure how to pay them, they’ve  lost the paper work, or are terrified of what the CRA will do once they DO file them.

Well, here’s the scary news:  Canada Revenue Agency will catch up to you.  And if you are an avoider and non-filer it will get ugly… Quickly.   CRA has the legal right to seize your assets and freeze your personal bank and business accounts.

Trustees in bankruptcy are the only professionals trained and licensed-Federally to deal with your tax and money problems.

So make the coming weeks a positive time for yourself and give a Trustee in Bankruptcy a call to schedule a free consultation so you can confront this issue without fear.

Our R Plan program has tools in its toolkit specifically designed to help you determine the right path. No bankruptcy.  No loss of your business, assets and reputation.   Call us at 310-1100 toll-free today for a confidential face-to-face meeting in your area.

Tax debt CAN go away and you CAN obtain peace of mind.  And make that New Year’s Resolution a reality.

The Perils Of Gambling – Thoughts from a Trustee in Bankruptcy