Spend Less Time Managing Your Finances

clock-650753_640This is a guest post from Pauline of InvestmentZen.com

I used to spend a ton of time managing my finances. I would sit down every week, and because I was too messy to keep receipts or write down my expenses, I would log in to every account I had with online banking, have a look at the transactions, and write down my balance. Then I would put the whole thing into Excel, and vaguely track my net worth every month. I was afraid making automated transfers into savings would make me overdrawn, so I would do these manually every time I had a little money left over.

I then read it was the worst thing you could do. Because you would wait until the end of the month to put whatever was left in savings, chances were there would be less than expected, since you left the money there, available to spend as you please. On the other hand, if you set up a wire transfer on pay day to send $100 to your savings account, you would be guaranteed to save at least $100 that month.

Our brains are lazy, and will always follow the path of least resistance. If you see money on your account, you know you can spend it. Like you can’t really be on a diet with your cupboards stocked with junk food. You know you’ll succumb sooner or later. And then regret it. Don’t trust yourself to save or invest your money.

The best way to spend less time managing your finances is automation. It will save you hours every month. You just need to define where you want to be three months from now, then adjust your automated debits. Review three months later, and see if you need to fine tune anything. You can set longer term goals as well.

For example, I want to set away $200 every month for retirement. I will fund my 401k and take advantage of my company match to get the tax savings on top. I also want to have $500 ten months from now to go on holiday. So I will set up a debit to send $50 extra into savings with every paycheck.  Because I will need access to the holiday money pretty soon, I will send the $50 to a high yield savings account. And because I am no professional investor, and even if I were one, beating the markets would be a tough full time job, I will simply invest in low cost index funds via a low fee robo-advisor. That should take care of savings for the vast majority of us.

Set a monthly amount, invest regularly so you can dollar cost average, forget about it for a couple of decades. The markets will go up and down, but you can still expect a 7-8% annual return over the long term. Taking your hands off your finances also prevents you from selling in a panic and regretting it down the road. We all get emotional when it comes to money. That is perfectly human. But if you want to be comfortable in retirement, you can’t afford to get emotional. In a crisis, you will want to sell low, and then when the markets go up again, you might buy back higher than what you sold for. That is disastrous to your nest egg. Add to that the management fees and all your hard earned cash will have an abysmal return. The less time you spend on your finances, the more your money will work for you. If you need proof, look up the average S&P500 returns over the past 50 years, and try to find an actively managed fund that consistently beat that.

Spending less time managing your finances will also free up some valuable time in your schedule. Time you can use to earn more money, or simply do something that is important to you, such as spending time with your family or working on a hobby. Right now, I have gone from obsessing over every line of expense to reviewing my finances every quarter, and my net worth had been growing much faster.

If You Want Change, Don’t Expect All to Remain the Same.

Source: Free Digital Photos

Source: Free Digital Photos

In the last few months I’ve had a few frustrating moments with our budget. I’ve added a few changes, like a second car, a pregnancy, or even an air conditioner yet, I haven’t taken the time to address these changes within our budget per se. For example, we did pay cash for the car, and have adjusted our monthly insurance premium but I haven’t yet taken time to change things like how much extra gas money we’d need every month so you can imagine, our spending has changed (some categories more, some less) yet I’m surprised that our numbers aren’t working out at the end of the month.

I do this to us every few years. We get a budget/money monitoring system/whatever going well, I throw in a change and just expect the numbers to work themselves out and act surprised when they don’t. All of these changes are things we wanted, for us, all good change, and if it’s change we’re after I can’t expect it all to remain the same.

I feel like a lot of budgets fail because people aren’t honest with themselves and this is exactly what I’ve done to us. I kind of assumed that we’d get the second car and the decrease in gas consumption with overusing vehicle #1 would offset #2 when that hasn’t been true. We’re still getting one full tank per month with vehicle #2, and we are using less in vehicle #1, but I still need to add something more in terms of gas. I also think I’ve been a bit over eager in terms of what we won’t need to buy with baby #2. While yes, we do have a lot more starting out than we did with our first, there are still some things that we’ll need and I can’t deny it anymore.  We need to set up a list and budget soon or we’ll be caught with me off work, on my cut back maternity income, and a list of unmet needs.

I remember watching an episode of Till Debt do Us Part with Gail Vaz Oxlade once and the couple was whining about not making progress fast enough and Gail simply pointed out that their unwillingness to do anything beyond what they were currently doing (in terms of earned income from 9-5 jobs), was holding them back. They weren’t willing to earn more, give up anything more or sell anything so how could they possibly move any faster than they were? Once this was pointed out, they were able to see the light, pick up extra shifts and start selling off some insane designer purse collection or something to help pay down their debt.

I feel like sometimes people are eager for change, they want to get out of debt, retire early, or reach some personal savings goal yet do nothing different with their finances to reach those goals. Unfortunately as I have learned, unless you are willing to get uncomfortable and take time to implement these changes, all will remain the same.

Sometimes You Just Need to Spend a Little Money

13895564_10100858377507339_8185050889799056385_nIn the personal finance community, I find one of the less discussed topics is about actually spending money. We’re all too proud to talk about our savings goals or to a larger extreme, things like shopping bans, and by all accounts these things should be congratulated. Saving money, and though I have never done one, something like a shopping ban, isn’t easy. Arguably one of the hardest things one could do with their money but at the same time, we’re all human and we all enjoy different experiences. Sometimes those experiences cost money.

Given that we experience very few hot summer days here (though this year has been stellar in terms of weather!), when they’re around we want to soak up everything they offer. This past weekend I woke up early (not optional with an early rising four year old), and decided we’d head into the city for the day with my sister and sister-in-law. I had heard some rumors of a new playground and thought it might be fun to let Maria run around for a bit while we all got a nice walk in.

We took the ferry over early in the morning (for free since it’s a holiday weekend perk) before it got too busy and walked most of the length of our beautiful waterfront before making a quick stop at our farmers market and eventually, the playground. Maria had a ton of fun and we got a little exercise in. On our walk back, the waterfront was getting very buys as it’s a long summer weekend and the international Busker festival is in town. With the festival brings all kinds of vendors.

Maria had her face painted (professionally) for Halloween last year and has been talking about it since. When she spotted a face painter on our walk yesterday she asked if we could do it. At $10 for a 5 min procedure it wasn’t cheap but you better believe we did it anyway. She was the happiest kid all day until we washed up at bedtime that night. We also spent money on a completely unnecessary lunch and a huge bag of cotton candy. None of which was necessary but per my main point, it’s OK to spend money sometimes and enjoy yourself. To some, the paint was literally setting a $10 bill on fire. It was on her face, and washed off a few hours later but know what? I don’t care. She was so happy and couldn’t wait to show everyone her beautiful sparkly unicorn. We enjoyed sitting on the waterfront eating our lunch together and cotton candy was a treat that we all enjoyed and rarely get.

I have had a lot of frugal fun and to be honest most of my favorite activities cost little to no money but sometimes even the most frugal people want to spend a little money on an experience, and that’s ok. I could get into the whole ‘’balance’’ argument but honestly I think it’s a crock. If I tried to balance my spending and saving all the time, I’d never make headway with anything so really, be smart about your financial goals but know that it’s ok to enjoy our money from time-to-time as well. I find, especially in the personal finance community, can make you feel bad about spending money on whatever it is you may enjoy but since I’m just an ‘’expert’’ as the other person in this community I give you full permission to spend money guilt free!

When was the last time you enjoyed your money?

How I Plan to Travel the World for Free

How I Plan to Travel the World for Free
When I was a child (around three or four years old), my family took me on my very first road trip. We drove from Charlotte, N.C. to Orlando, Fla. for a vacation at Universal Studios with my grandparents. Ever since then I have had a yearning for travel and as I get older I realize how difficult it is to curb that urge. That is why I have decided to research ways to travel the world for extremely cheap.

You’ve probably heard of people receiving free cruises or free trips through some sort of contest. That isn’t the only way to travel for cheap or free though. In fact, upon doing my research, I have found that traveling is extremely affordable (if you’re flexible). Here are a few tips and ideas that can help you travel for really cheap or free:

Change Your Job

If you are in the position to do so, you should find a more flexible job if your heart is set on traveling the world. I always knew that I wanted to do an extensive amount of traveling so when I graduated college, I sought out positions that I could work from anywhere. You can find a plethora of work-from-home jobs online on sites like Indeed. My current position is done 100% remotely so it is easy to travel with it. I work my regular hours but I simply work them from the hotel or friend’s house that I am staying at.

If working remotely isn’t something that interests you, you can also find a position that pays you to travel. Travel journalists, for instance, make a living at traveling and writing about their experiences. Travel journalism jobs can be hard to come by though. If you’re not a writer or having a hard time coming across a travel journalism job, there are numerous other options available. One of my personal favorite options for getting paid to travel is MindMyHouse. People post their homes on MindMyHouse and provide a time frame for how long they will be gone and they need someone to watch their home. This eliminates the need to pay for a hotel and, in some cases, people offer to pay for you to mind their home. The best part of it all is that you get to visit a new area and explore while you’re there.

Airbnb is a Good Option

Some people want to travel but don’t want to live their lives on the road like a travel journalist or a professional house sitter. Don’t worry, there are options for you as well! If you have the money to plan a trip, whether it be in the United States or abroad, Airbnb is a great way to save money on your lodging costs.

Airbnb is a service that allows people to open up their homes and rent a room, or the entire house, as a bed-and-breakfast. My best friend and I used an Airbnb in New Orleans and the experience was delightful! We rented the top floor of the woman’s home. When we got there, she offered a warm welcome and was able to provide extremely useful information about activities to do in the area. The primary benefit of staying with Airbnb is the savings. Instead of spending over $100 per night at a hotel in New Orleans, we stayed just outside the city in her home for $50 a night.

Couchsurfing is a Great Option

Couchsurfing International Inc. operates Couchsurfing.com. It is a hospitality service as well as a social media platform that allows members to “surf” on couches by staying as a guest at a host’s home, host travelers, meet other members or join an event. It was founded in 2003, launched in 2004 and has progressively gained popularity throughout the years.

Registration for the site is free. You can pay to become a verified member, however, payment is not necessary to access all of the benefits of the site. Members create profile pages that include information about themselves along with photos of themselves and the accommodations that they provide. Homestays, as the site calls them, are a based on a consensual agreement between the owner of the home and the traveler. The duration of the visit and terms of stay are usually worked out in advance. Couchsurfing is an absolutely free option for lodging and a great way to get to know people in the area as well as explore the true culture of the region in which you are visiting.

Win Free Trips

We all dream of winning an all-expense paid vacation but unless you’re slated to be a guest of “Wheel of Fortune,” it seems unlikely that you’ll win a trip anywhere. This may be because you aren’t looking into the right kind of contests. You may have seen Facebook “contests” that claim with a like, share and comment you will be entered into a contest for a free trip. There are far too many people entering these types of contests to have a fair chance at winning. Not all hope is lost though.

A friend of mine has been on FIVE cruises this year alone. Cruises aren’t necessarily the most expensive vacation in the world but they are certainly not the cheapest. He has only paid for one of the five cruises he’s taken this year though. How? Well, the first cruise he went on this year, he went into the casino and gambled a bit and won a free cruise. This continued to happen each time he’s been on a cruise since then and departs on his sixth cruise of the year this week (it’s sickening how lucky he is).

Work-to-Live Programs

Many countries have what are called “work-to-live” programs. Essentially, you apply for a work visa in said country and go through the work-to-live website to get placed in a job based on your given skill set. For instance, if you are good with kids, you could get placed as a nanny in the country that you visit. While you will have to front the initial cost of the trip, you can hold a job there and live in the country for up to six months. Most work-to-live programs also provide you with a first month’s rent as well as a phone card for the first month that you live there. I’ve been checking out Australia’s work-to-live program most recently and it provides these two things during your first month in the country and helps get you placed in a job.

In short, if you are looking to do more traveling this year, next year, in the next 10 years, you don’t have to let money stop you from doing so. You can travel for cheap, stay for free and work your way through your next adventure.

Do you have any tips on how to travel cheap or free? 

Photo: Flickr: fdecomite

Preparing for Baby 2.0

Source: Free Digital Photos

Source: Free Digital Photos

It’s hard to believe that we’re halfway through growing this little baby and that in a few short months our lives will change significantly. It was about this time with my first pregnancy that I was freaking out about, well, just about everything. Having a baby, the money, having a baby, the money…you get my point. We had no idea what to expect. Part of my anxiety stemmed from that fact that with pregnancy #1 we were not in a great spot financially. I mean, our bills were getting paid but we paid very little attention to the ins and outs of our finances. We didn’t have a budget, let alone any emergency fund and I really had no idea what to expect when I started claiming my maternity benefits (and losing over 60% of my income…).

Thankfully a few months into my maternity leave I discovered an online niche I came to know as ‘’personal finance’’ and my life changed for the better. Not only were my eyes opened to so many things (like the beloved ER fund), it changed my relationship with money and allowed me to take control. In the last four years I’ve learned a lot, and it’s through these lessons I can blissfully take a second maternity leave, stress free. Here’s how we’re prepping financially for baby #2.

Use What We’ve Got and Fill in the Blanks

We were in a weird spot for a long time about if we would have more kids, but because of our uncertainly we held onto quite a few things. Given the lack of storage at our house, a lot of smaller/cheaper items like infant and children’s clothes we donated (keeping maybe the equivalent of two totes only) but we did hold onto all larger items like the crib, pack and play, tub, swing. Pretty much everything outside of clothes if very gender neutral which helps too since we don’t yet know what we’re having. The only things we really need this time are a car seat since our infant seat had expired (we scored one already for almost 60% off!), a diaper bag (I used my first one religiously until Maria was out of diapers/not changing her outfit four times per day due to mess, and it fell apart behind repair. Again already purchased online for $36.00 down from $215.00), and a new monitor since ours was always terrible and we just never got around to replacing (still need to buy).

The fact that we have so much starting out is a huge help. I did need to buy a few maternity clothing pieces since we’re in opposite pregnancy seasons and despite my effort looking second-hand, I eventually gave up when it was forecasting 30 degrees (Celsius) and I had no shorts that fit my ever-growing belly. I didn’t pay full price though and may have made three trips with the same discount coupon to save me the 50% on the outrageously expensive maternity clothing items.

Budget Better

As I said we’re in a much better spot financially, not only have we paid off tens of thousands of dollars in debt in the last four years and have a decent ER fund set aside, in general we manage our money better. We’re in the process now of looking into how things will change when I go off and what we need to prepare. We’re fortunate that our daycare situation is so flexible and willing to do whatever works for us too, a huge help since as it looks now, due to my professional licensing requirements for work I’ll be off five weeks earlier than I’d like and will probably pull her out of daycare for two full months then resume in the new year part time (I can’t justify paying a whole years’ worth of fees to work for 5 weeks, financially it makes zero sense).

Shifting Debt for Savings

Until I go off work and we have an idea of our finances, we’re going to temporarily suspend our extra debt payments and stash everything in savings instead. Once my maternity leave money starts coming in and we have an idea of how much we can budget, we’ll then throw it all on debt but in case something happens I want to know we have a cushion to fall back on (though having gone through the process once I don’t foresee anything major happening).

I’m genuinely looking forward to the next half of this pregnancy and meeting our new baby, just as a pregnancy should be. I’ll be honest, getting pregnant when we did certainly derailed a few of our financial goals temporarily but honestly, such is life. I know some people would be torn apart about it, but something I’ve definitely learned in the last four years is that defining your relationship with money is important, and for me, I never want to allow my relationship with money to take away from actually living my life, babies included.

How did you/will you prepare for kids?

Having Fun When You’re Broke.

TTRI admit that a lot of the things I enjoy doing for ‘’fun’’ involve spending money. I love eating out, I love going out for coffee with friends, I love farmers markets, I enjoy going to the gym, I love going on road trips, I enjoy concerts and theater…all of these things cost money. There was a time (multiple, if I’m being honest since the inception of my money-earning days) that I was broke but was still looking to have a good time.

I actually love(d) these days though. I mean don’t get me wrong, people don’t enjoy the feeling of being strapped for cash or not having an emergency fund in place, but given the opportunity you can learn a lot about yourself and really understanding your wants and needs when money becomes an issue. It was during these days that I learned how to have a good time without spending much, if any money at all. Even though money isn’t an issue anymore, these are things I still love and regularly practice today.

Board games

Growing up, cards was something I always enjoyed but I’ll be honest, playing board games wasn’t a big part of my childhood. As an adult though, when I was trying to plan an evening in (because going out was not an option!), I decided to ask friends to bring some games that that had, with them. I wanted something to do that wasn’t watching a movie or sitting around doing nothing. I loved them. It was that year that my husband and I really got into games. My husband’s family had always played games so he already owned a few, we just hadn’t done much together or with friends. Over the years we have acquired quite the board game collection. A few we’ve bought new, some in great shape at second hand stores and a few as gifts. We have our favorites (Catan and Ticket to Ride top the list) but we’re always looking to expand.

Having a game-night in is not only uber cheap, it’s incredibly fun. I can honestly say I would rather spend an evening in with friends playing games than out at a restaurant eating and drinking our bank account dry.

Walks and Hiking

Most of my life I’ve had access to a rec center membership. I really enjoyed going to the gym but a time came when we had to give the membership up, it just didn’t fit in our budget anymore. I relied mostly on walks and hikes to get my exercise in and guess what…I really honestly enjoyed it. I would usually go with my sister or a friend, we’d meet up and go for a decent 4-5km walk a few times per week. When I was on maternity leave, my daily walks were the key to me losing weight. I love finding new places to explore and enjoy getting caught up with friends or being with my own thoughts for a little while. Best of all, it’s free to walk, and it satisfied that ‘’I want to be in a coffee shop drinking coffee with you’’ itch.

Cooking

I have a funny relationship with cooking. I actually don’t enjoy cooking for just two adults, but love preparing a meal for a crowd. When going out to restaurants regularly wasn’t an option, not just for us but many friends too (babies, wedding and new homes do that to you), I started offering to cook in much more. I have become pretty good at feeding a crowd on a budget and really enjoy it. Combine with a few board games and you can have a pretty decent time for minimal cash spent. You can easily turn it into a potluck style meal as well to save even more.

There was a time where I really thought I needed to spend money to enjoy myself. I’m appreciative of the times when spending money wasn’t an option though, as I’ve really learned what it was I wanted out of those situations and can easily replicate for little to no actual money being spent.

What’s your favorite way to have fun without breaking the bank?

How Much ‘’Extra’’ Money Did You Need When Buying a House?

Buying a house is likely one of the biggest purchases you will ever make. After a conversation with friends over the weekend as we visited them in their new purchase, we started to discuss just how expensive those first few weeks post-move actually are.

When we bought our house, we were somewhat prepared for additional costs but like our friends, were totally unprepared for how much the bottom line actually ended up being.

Things we Remembered to Consider

Outside of costs associated with the actual house buying process, we were also prepared to buy the following:

  • Paint for rooms
  • New locks
  • Various furniture
  • Lawn mower/rake/shovel
  • Garbage can
  • Some home linens (more towels, hand towels for bathroom, sheets for new bed etc)

I say prepared but in all honesty we hadn’t done near enough homework on what exactly these things were going to cost us, just that we needed them. We set aside some money and hoped for the best. We were more than a little shocked when we went to buy new locks for the house and came to find out even cheap exterior door knobs could be close to $100 and paint quality and price is hugely variant. It was a big wake-up call to go to our first store, spend close to $700 and still not have everything we needed.

In the first few weeks there were many other things that crept up and we ended up buying, putting us well over the budgeted amount we set aside. Things we needed which didn’t factor in were:

  • Vacuum (not sure how this got through the cracks)
  • New broom/mop
  • Window treatments (the previous owners left some (which were hideous) but not all rooms were equipped)
  • Light fixtures and CFL bulbs
  • Paint supplies (over and above what we previously considered)
  • Our first Costco visit….we may have been a little overzealous with this one.

It was so long ago now that I honestly forget just how much more everything was but I know we spent way more than anticipated and this past weekend our friends were explaining their same experience.

Preventing it From Happening Again

If all goes well, we will be moving in the next two to three years. We were initially aiming to place our house on the market for late 2017/early 2018, but with baby 2.0 on the way it will likely delay us until end of 2018/early 2019 as I will be spending a year on maternity leave, but we haven’t yet figured the numbers out yet so we’ll see.

When we move, not only will we be much, much, more financially savvy, we will do way more homework to prevent another huge budget buster from happening again. It will also help that we will be moving from one house to another house with most things a house would need, where in move number one we moved from a small apartment to a house and were hugely unprepared.

When we look to buy our next house, we will have much more knowledge which will help. I plan on spending a few hours walking through the house before we even put an offer in, itemizing everything that we will want or need. I will do this with every house we consider since initial money needed may be the deciding factor.

Houses are expensive and sometimes I wish we didn’t have one but at the end of the day I really do love having a home of my own where my family can put permanent roots down and create some great memories.

Were you unprepared for your first home purchase?

Explaining How Maternity Leave Works in Canada

Since announcing our pregnancy last week, I’ve had a handful of people ask me about exactly how maternity leave works in Canada (minus the province of Quebec- things are slightly different). A lot of the world seems to be under the impression that we’re entitled to a full year off work at 100% of our income which isn’t (exactly) true. So I’m here today to try and set the record straight.

I am so grateful for the basic benefits which we are entitled to. Having already been through a maternity leave once, I do not understand how people handle these 8-12 week leaves. By 12 weeks you’re still very much bonding and getting into what should be a natural groove. I certainly didn’t have breastfeeding mastered until around then either, it just seems so unnatural to be away from you baby at such a young age. Maybe you’re used to it, or simply tolerate it out of necessity but it makes me sad.

In Canada, according to the government of Canada website, you qualify to receive federal Employment Insurance (EI) maternity or parental benefits if you meet the following:

  • you are employed in insurable employment;
  • you meet the specific criteria for receiving EI maternity or parental benefits;
  • your normal weekly earnings are reduced by more than 40%; and
  • you have accumulated at least 600 hours of insurable employment during the qualifying period or, if you are a self-employed fisher, you have earned enough money during the qualifying period.

How it works is that your employer deducts EI premiums from your wages (this is NOT optional, if you have a job you must pay into these benefits). Again, directly from the site, in 2016, for every $100 you earn, your employer will deduct $1.88, until your annual earnings reach the maximum yearly insurable amount of $50,800. The maximum amount of premiums to be paid in 2016 is therefore $955.04.

Either biological parents or adoptive parents can claim the benefits. The 52 week period starts after the child is born or placed with you. On top of the maternity/parental benefits, if required, you are entitled to 15 weeks of sick leave should you be placed off work due to pregnancy related complications. The benefits can be claimed by either parent. Though it is most common to have the mom claim the benefits there’s no reason why dad can’t. Though you are allowed 52 weeks you do not have to take the full year off, you can take as little or as much as you want within this timeframe.

Should you meet the above criteria you can expect to receive 55% of your income to a maximum of $50,800. I earn more than this, so will receive the maximum benefit. Conversely, if you have a very low income (less than like $25,000/year) you qualify for more. Some employers will then ‘’top up’’ what you’re missing. Where I work for a private employer, I receive nothing in terms of additional top up, but some larger cooperation may offer something. A few examples are:

  • A friend of mine works for a major bank, she gets a ‘’top up’’ to 75% of her income for 6 months. After the 6 months she won’t receive any more top up and will just have the 55% federal EI benefit.
  • Another friend works for a hospital and will receive 90% top up for 6 months, then decrease to 75% for remaining time off.
  • I used to work for a large pharmacy chain and know they used to top you up to 85% of your wages for the full 12 months.
  • A friend of mine wanted to be off for 6 months with their baby but her job didn’t offer any top up but her husband’s job did, so she took 6 months at the 55% max and her husband took the remaining 6 months off also claiming the 55% plus his company topped him up to 80% for his 6 month leave. Though she would have loved to be home for the year, it didn’t make sense financially.
  • Some employers will top you up to the full 100% for all/partial time off.

So you can see, it really depends, but basically if you’re employed in Canada you’re likely entitled to the basic benefits of 55% of your income to the annual max (which is recalculated every year). Another huge part of having these benefits is that your job cannot be terminated while you’re off on maternity leave. They have to guarantee you will return to a job when your time is up.

I hope this helps explain a little more about how it works here. It’s not perfect but it’s better than a lot of other parts of the world. Scandinavian countries for example offer phenomenal parental benefits!

How did you manage time off when having kids?

Good Debt vs. Bad Debt

Good Debt vs. Bad Debt
When you hear the word “debt” it sends a chill up your spine. However, debt does not always have to have that affect on you. While no one wants a crippling amount of debt, having no debt may be negatively affecting you. Everyone has heard of “good debt” and “bad debt” but what does it really mean?

Well, in the most simplest of terms, not all debt is created equally. There is good debt, bad debt and really bad debt. Not all of these are clear when you enter the loan or credit card agreement. Because not all kinds of debt are clearly labeled, many people have begun to avoid debt altogether, according to Get Lenny.

Where is the distinction between good debt and bad debt then? Well, if you speak to billionaire Warren Buffett, all debt is bad debt. Warren Buffett, however, can afford to not have any debt. Most of us will encounter some type of debt in our lifetime though. In fact, eight in 10 Americans are in debt but that doesn’t mean it is out of control and it doesn’t mean it is all bad.

What is Bad Debt?

Bad debt is generally debt that you’ve racked up buying things you didn’t necessarily need or things that would not serve you for the amount of time you’d be paying for them. For instance, if you and your friends hang out on the weekends and you always charge the expenses of your hangouts on your credit card. Normally this wouldn’t be a problem and wouldn’t be considered bad debt (as long as you can pay it off). It becomes bad debt when the credit card bill does not get paid in full one month. You begin paying interest on your credit card at that point and your hard-earned money is going out the window.

Another example of bad debt is a purchase that will not maintain or appreciate in value. These are loans for things like vehicles, technology purchases or furniture purchases. By the time you are done paying the item(s) off, they have depreciated in value so you’ve paid the upfront price, plus interest on items that will never be worth what you’ve paid for them.

What is Good Debt?

Now that we’ve established what bad debt is, what is good debt? Well, for some people, there is no such thing as good debt. However, there are some lines of credit that can actually increase your wealth. The best example of this is purchasing a home. If you are able to watch the real estate market and list your house during a time when the national benchmark annualized appreciation is higher than your interest rate, you will be able to sell your home and make money on it. This means you’ll be able to pay out the remainder on your loan and potentially walk away with tens of thousands of dollars.

Educational debt is also considered good debt to many people. This is because, in theory, you will be able to pay for your entire life’s expenses with the career you will have from going to school for four years. You will not only be able to pay your debt with your salary but you will also be able to pay your bills, save and build a life for yourself from your educational debt.

Though it can be hard to decipher between the two, debt has a place in 80 percent of Americans’ lives. Be careful where you choose to have your debts lie.

Do you have any “good” debt?

We’re Preparing for Another Big Change…

There are some big changes coming our lives…I already mentioned that selling the blog was change number one, change number two and the biggest reason behind me needing to let things go is that we’re expecting again!

ultrasound

Though not totally unplanned, we were both totally shocked to be honest. I was not planning on being pregnant until sometime in May/June but I guess we can’t always have full control over these things. I was actually pregnant before our trip away in March though we didn’t find out until the week after we got home. I’m due the third week of December and selfishly praying I’m not in the hospital for Christmas (explaining this to my four year old won’t likely go over well!).

I started this blog while on maternity leave with Maria and I can say with 100% certainly that this blog, and community, is the reason why we can now plan for a second, much less stressful maternity leave. Since starting this blog 3.5 years ago, we’ve paid off tens of thousands of dollars’ worth of debt and are now in a position where we will be able to have me take an extended leave from work. Though I will be getting some money from our federal employment insurance program, I’ll be without about 60% of my income for a year and it’s ok.

This is only possible because of the debt we’ve managed to pay off (though still have some to go), the fact that we have an emergency fund, and a budget with some flexibility. I’ll talk more about how exactly we’re going to adjust to the changes later but for now I’m just happy we can be excited about this pregnancy and not worrying mostly about the financial side of things as we did with pregnancy #1.

So far this pregnancy has been less stressful for many reasons. Finances aside, my pregnancy with Maria was anything but stress free or ‘’normal’’. Every appointment left us with something new to worry about and it was overall a very unpleasant experience. I’m thankful that just over 15 weeks in and everything is looking great. I realize there are still 25 more weeks to go but it’s nice to know your OB is happy so far and not sending you to the high risk floor for bi-monthly checks at this point.

One of the big things with Maria was that aside from her developmental concerns in utero, I ended up suffering from literally debilitating carpal tunnel syndrome. Like most all pregnant woman, I held extra fluid but not in my feet and legs, all the fluid was being held in my hands and wrists which, combined with my job as a dental hygienist, led me to experience some of the worst pain I’ve experienced in my adult life. The round-clock sharp, shooting, pain in my hands and arms ended up forcing me off work almost two months before my estimated due date. It was an added stress in our lives since we were not planning on me being off without pay for an additional two months.

Though I am praying it doesn’t happen again with this one, if I was to be put off two months early we’d be fine financially. Such a good feeling to have.

In Canada I am entitled to 15 weeks ‘sick time’ (i.e. my OB putting me off work prior to due date) and a combined 52 weeks parental leave. I plan on using all 52 weeks and look forward to being home with our new addition, as well, being home to see Maria start school next year.

I’ll update with more detail of exactly how things are going to be changing for us on the financial side of things but for now I just wanted to share the news with you all and would love any advice on going from one to two kids!