Learning to distinguish an RRSP from a TFSA at the advanced age of 35

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How I learned to manage my cash flow

One of the main reasons I got into financial trouble in the first place is that as a freelancer I had a variable income that I didn’t know how to manage. I would think of money as mine as soon as my work on any given project was completed. But sometimes the cheque wouldn’t come for six, eight, ten weeks. Sometimes the cheque wouldn’t come for years, as in the case of one rather major client who unfortunately declared bankruptcy after having hired me for four weeks straight.  An entire month!

I got into the bad habit of happily, naively borrowing from my line of credit for the amount coming to me, secure in the knowledge that I was “owed” money, even if I didn’t quite have it in my possession yet.

This is a very backwards way of doing things.

In other words, don’t try it at home!

Since taking control of my finances, one of my goals has been to learn how to successfully manage my cash flow.

Here are some tips that have helped me so far.

  1. Declare a temporary moratorium on all non-essential spending. This will re-set your financial clock.
  2. Don’t buy anything until you have the cash in hand.
  3. Figure out how much money you need to make, and try to make it. Freelancers often struggle with how much to ask for as pay. This is a good way of figuring it out! What do you need to live and how many hours are there in a day?
  4. Offer incentives to clients who pay early.
  5. Ask for a deposit on large contracts.
  6. Remember that it is possible to pay for some expenses such as insurance or gym membership in instalments, even if this option isn’t advertised. For example, I have a year-long membership at a yoga studio, which translates into the lowest possible amount per month. It’s advertised as being payable  in one lump sum, but I pay for it in monthly instalments. When I renewed recently, the person at the cash couldn’t believe what a good deal I was getting, comparably. Sometimes all you have to do is ask!
What tips have helped you get a handle on your cash flow, freelancers or not?

How PearBudget saved my marriage

My husband and I hadn’t been getting along, so we went to see a marriage counsellor, who drafted a list of 60 things we needed to work on to improve our relationship.

“How about we begin with finances,” he said. “It seems to be a thorny issue for you two.”

Our first “homework assignment”: make a family budget.

A budget? As far as I was concerned, this was an extremely frightening word that my husband sometimes threatened me with. I saw it as a reining-in, a limitation. And I didn’t have the least idea how to go about making one.

I turned to a friend, in the early stages of the divorce process, a process I myself was hoping to avoid. She’d had to make a budget for mediation, to arrive at a fair number for child support. She recommended using a budgeting website, PearBudget, for people who were afraid of budgeting. She described it as a “budgeting software for people who don’t do Excel.”

At first, I didn’t know what to enter into the budget. I really had no idea of how much money we made, or how we spent it. So I erred on the side of caution and tracked every single expense for the first few months. I even had a category for phones calls from phone booths (expected monthly expense, $0.50).

Then something magical happened. Just by virtue of entering our everyday expenditures into a website, our expenses started to go down. We realized that we did not want to spend $150 a month on alcohol. Or $300 a month on take-out. We started to think in terms of percentages: if I spend all of my disposable income (and then some) on food and drink, what kind of person does that make me? For the first time in years, my husband and I were talking about our values, about where we were heading, about where we wanted to go. Our budget was bringing us closer together.

Suddenly, money – the topic that had been the biggest taboo in our relationship – was the framework on which all new plans were based. Whereas before we had fatalistically assumed that we could never afford new clothes, or a vacation, or a new house, we were now thinking about what steps we would have to take to get what we want. It was revolutionary. It got to the point where talking about money was not only stress-free, it was also fun.

We enjoyed coming up with a strategy to the the $6,000 we owed to family and credit cards. We enjoyed coming up with less expensive ways to have fun. We enjoyed switching to a jar system for groceries, transportation, etc. We felt like a team again, but for this time, with RRSPs, TFSAs and an RESP firmly in place.

As for marriage counselling, we never did get to those 59 other points on the list. Number one had taken us further than either of us had every expected. Just over a year later, we are debt free and our net worth has increased by more than $40,000.