2011: still under construction

You’d think if a person started drafting their 2011 budget months ago, they’d be done by now. Perhaps most are. I’m not convinced mine is done – at least not yet.

In my wrap-up of 2010, I took the opportunity to take stock of went well last year, and what needed improvement. In the past, I think I drafted my budget in haste. Figured I had all the answers, and pushed ahead like a bulld0zer. This year, I’m being a bit more reflective, and taking some time to really think about what needs to be done.

Add to that, a couple change-ups in 2011 that will have a financial impact.

One of the biggest changes is this: I will wrap up my small business, because the company that I’ve contracted my services to over the last couple of years has given me an offer of employment. This offer comes with the same compensation, although I’ll have all the appropriate taxes and other deductions taken off at source, like most people do. The offer comes with no additional benefits. What’s it all mean? Like anything, there are pros and cons. After weighing both, I see this as being very positive.

In the “pro” side of the column, my new employer will be a partner with me in contributing to CPP. This alone should save me about $1200 a year. I’ll also be eligible for EI, should, heaven forbid, I’d need to tap into it. I’ll also be able to stop fretting throughout the year about whether or not I’ve tucked away enough money to pay the CRA when I file my taxes annually. Finally, I’ll not have to worry about the collection and filing and reporting of HST. Hooray, less paperwork.

On the downside, I will lose the opportunity to keep the HST on the purchaes I make for the office. Those expenses will now be office expenditures, rather than business expenditures. While I’ll still be able to claim legitimate home-office expenditures when I file my taxes, I’ll have to eat the HST. It doesn’t add up to a bundle, but it’s something. I’ll also lose the opportunity to deduct the mortgage interest (the portion pro-rated to my home office) as an employee. Although my mortgage interest is a hefty sum, by the time I pro-rate a portion, again, it isn’t a fortune.

So, while it will all likely net out to a similar amount in the end, it means that I have no clear idea right now, what my take-home pay will be month to month. I know my deductions will be heftier at the beginning of the year than the end, but I’m not sure what number to plug in for revenue. I’ve used a CRA calculator to come up with a best estimate. A few months down the road I’ll be smarter.

The next  “ah ha” moment happened only a few days ago, is that I will only contribute $1,500 to my youngest’s RESP this year, rather than the $3,000 I originally budgeted. After talking with her Dad and understanding how much he had invested in an RESP for her benefit, I realize that together we need about $30K for her post-secondary education. After my $15,000 contribution this year, and his saved $12.5K, I think we’ve officially arrived. I’ve calculated this knowing there are 4 years at $6K per year ($24K in tuition), then add another $1K/year for supplies ($4K in supplies), and another $2K for those unexpected things. I would predict that my daughter can also make a contribution here, which will help bring up the rear on the savings for the final year. It’s highly possible that she’ll be in a good position for a bit of scholarship money.

Yesterday, the eldest and I took a look at the state of her TFSA, and discussed what she could contribute over the next 9 months to her account. With her current earnings at the grocery store, she’s reasonably confident she can contribute $1K/month to her TFSA. This would max out her TFSA in September to $15K. If she’s able to do that, she’s got her first two years of post-secondary paid for. Therefore, I’ll stop contributing to her TFSA for her education, because between the two of us, we’ll over contribute. Instead, I’ll take the $3K I’ve earmarked for her, and contribute it to my TFSA, but for her education. By the time she’s in her third year, I should conceivably have $6K she can use for her third year. In her fourth year, I should be able to continue to provide another $3K, and she can either see if her Dad can help out, or save through summer work, or a combination of both. Her marks are pretty good too, perhaps there’s a scholarship in her future too! This was another great moment, and I’m really proud of her for saving what she’s saved so far, and keeping her eyes on the prize.

She also revealed, as we were speaking, that she’s a regular reader here, and she felt I’ve misrepresented how her previous post-secondary education was paid for, which is true. She was a big contributor the first time around as well. For the record, she worked hard then and put many thousands toward her College Degree as well. Her Dad and I didn’t pay half of the total cost, we paid half of what was left over after her contribution. I’m just so darned proud of her. I owed just over $10K when I graduated from University. If the girls play their cards right, and if we’re able to stick to our plans, they should owe just about nothing when they graduate.

Finally, after a question from Jacq at Single Mom, Rich Mom about whether or not I should contribute more to my RRSP than my TFSA, I thought some more about my plans to contribute $3,600 to each savings vehicle. I had wondered about this myself, and Jacq’s smart question gave me the confirmation that I should be thinking more about it too. As I thought about the question, I realized pretty quickly that I still operate day to day with a little bit of fear, and a heaping tablespoon of caution. For me, putting some money in a TFSA means if something goes wrong, I’ve got money available fast, without dipping into my line of credit any further. As I pondered this for a bit, I realized that in 2010, I never touched a cent of the credit available to me through my line of credit. I only paid it down. I also realize that I don’t have an emergency fund yet, and if the stuff REALLY hits the fan, a balance of $3K in my TFSA may not save me.  I’ve decided to plug away at putting some liquid cash in my TFSA for 2011, but not $3,600. I’ll shoot for $1,000 this year (in addition to the amount that I’ll put in to go toward school for Daughter No. 1), and the remaining $2.6K will go to RRSP. That is smarter. Thanks Jacq.

I will, however, commit to the extra $1,000 toward the mortgage. I want to have a mortgage burning party when I’m 60. Although, when analyzing my net worth with the girls, I realized my equity in this place is $197K, not $155K as I’d reported previously. I love an error in my favour. (I just watched a local real estate show, and the ‘experts’ are projecting a 5-6% increase in the Toronto market for detached and semi-detached homes for 2011. I’ll totally accept that. The condo market, however, is projected to cool in the latter half of the year. Too many speculators a couple of years ago, and they’re feeling the cash flow crunch now. Add to that lots of new condo projects to hit the market in the fall and we’ll have a supply and demand conflict).

Finally, and although it has nothing to do with my budget, I’ve got a couple of books about WordPress, and I’d really like to spruce things up ’round here a bit. Some of you have these cool widgets and fancy things. Heaven forbid I could actually learn something about the platform here!

All that to say, I’m still working on the budget. The goal, however, is to continue to be diligent, change it when it needs to be changed, and finish a lot fewer months in the red in 2011.

Are you confident your budget for the year is wrapped up?

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4 responses to this post.

  1. I think it’s wise to take your time with you budget, after all one of your goals was to be more prepared for the unexpected. When it’s finally done it’ll be a masterpiece. I’ve revised many times also and it’s still not done because, like you, I don’t know what my net pay will be this year, so I’ve made a budget just for Jan. and then will make the changes I need to for Feb. I hope by March I’ll have things sorted.Bravo to your daughters – saved $$ AND perhaps scholarships:)

    Reply

  2. So if you’re moving towards employee status, what about benefits? Do you need to get disability on yourself, or do they have that? I’d be surprised if they didn’t.

    One way that I sometimes look at RRSP’s is as a guaranteed return on taxes vehicle – and to look at timing them to optimize your money back. (I’m not sure if you’re thinking of working less in the future or not?) So if you had the choice between $1,000 going towards the mortgage or the TFSA or RRSP’s, with the mortgage, you’d make a guaranteed 4.1% (think that’s your rate), TFSA you’d make say 5% – maybe, no guarantees – and the RRSP you’d “make” about 20% (for sure probably more since my guess is you’re making over $100k) plus your same rate of 5% in investments (maybe). Then you turn around and put your refund to your mortgage or your TFSA or whatever (if you want – I used to put them straight into the RRSP too).

    A couple of years ago, I over-over contributed to my RRSP by about $500 (my calculations were off – oops) and the bank moved them back into my account immediately upon my request (no tax taken off since it was under the limit). So I wouldn’t worry about the timing if you needed the money ASAP.

    I know what you mean about having the fear-based feeling though. I don’t manipulate money to get the best returns sometimes either because of that. Like right now for instance as I look at the almost $40k sitting in my high-interest savings account that made a whopping 1% – woohoo $40 / month! Meanwhile I’m watching my mutual funds gain like gang busters and kicking myself for having no cojones… Must. Read. Kelsi’s. Blog. More. Sleeping well at night is good too though. 🙂

    Reply

    • Hey Jacq, I’ll continue to carry my own disability insurance. Trust me, there are no benefits. Perhaps some time in the future, but I’m making plans as if there will never be (just like I’ve lived for the past couple of years).

      You’re continuing to give me good stuff to chew on regarding RRSPs. I do appreciate that. And about Kelsi – yes, I know what you mean. I need to learn more too. I have a chat with my portfolio manager tomorrow, and perhaps he can help guide me toward some better learning too.

      Reply

  3. I couldn’t imagine having to wrap up my small business,since it is such a big part of my life. If you post more about it, I will be reading with great interest, to get a handle on how that’s done. Having that knowledge may be useful to me someday.

    Reply

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