2010 Financial Plan: Q2 Update

Success is to be measured not so much by the position that one has reached in life as by the obstacles which he has overcome.

~ Booker T. Washington

Update: This article was included in the Carnival of Money Stories – Signs of Summer Edition posted at Suburban Dollar. Thanks!

If you’ve been following our money story and financial plans, you’ll recall that the last couple of years have been pretty tumultuous for us. Just to recap: We’ve more or less been a single income family since we had our children 15 years ago. My husband has earned a nice income, enabling me to take care of our kids, home and finances. I did have some self-employment income for a few years, but most of that was related to the work I did to help Mr. Cents run his business, so our income was definitely not diversified.

After spending 8 great years with the same company, Mr. Cents and I agreed that the economic writing on the wall meant that it was time to move on. He was on 100% commission and we saw that drying up based on the company’s business model and emerging economic conditions. It turns out we were right on the economy, but that didn’t make the next 2 years any easier, as Mr. Cents has moved from one unsatisfactory job to the next. His most recent job involved a salary (which wasn’t enough to cover our budget), commission (which he never received), and some excruciating company politics that made the work most unenjoyable.

When we last left you, things were getting pretty tight with the budget. We had made some cuts, but were quickly reaching a point where we might have to draw down on some of our emergency savings to make ends meet. We were also looking at deeper budget cuts that would hurt a lot more.

Second Quarter News

As of June, Mr. Cents started his 4th new job in 2 years. I’m cautiously happy to report that this one seems to have more staying power. In addition, the starting salary covers our annual budget nicely. There isn’t a commission or bonus structure yet, but that could come in the future. The benefits package and expense remuneration are great and it seems like this is a well-run company.

So we’re breathing a huge sigh of relief as this looks like a great opportunity. But we’re still cautious as this business is tied to the economy. If you’ve been reading Balance Junkie for any period of time, you know that I’m not exactly optimistic on global economic prospects. While things are better here in Canada than in many other parts of the world, we don’t live in a vacuum. The U.S. is still our largest trading partner, and we depend on economically sensitive commodities for its continued success.

Our kids are getting older, and while I’m continually surprised at how much time and maintenance they still require, I certainly have more free time than I used to – at least I did until I started Balance Junkie! I’ve recently received some interest from several quarters in my writing. Hopefully that will eventually provide us with some form of diversified income stream. So far, the remuneration for all of the work that goes into this website has been mostly of the intangible variety. But then again I have lots of experience with unpaid labour as a stay at home Mom and I’m very familiar with the all of the psychological issues surrounding the value of unpaid work.

While I love to write and it holds my feet to the fire on sticking with our financial planning, I do sometimes wonder if my time would be better spent on a “real” income-producing job. The new position for my husband will at least give me a little more time to see where some of these new writing opportunities might take us. So that’s the news of the quarter. Let’s move on to look at some of the more specific components of our 2010 financial plan.

Budget Plan

• Make sure basic living expenses are covered by the base salary: This wasn’t the case last quarter, but we can check it off now.
• Plan for 25% – 30% extra income from commission: There really isn’t any extra income that we know of yet. It’s a brand new position, so they’re playing that by ear. Still, we don’t expect much for the first couple of years. The expenses the company covers, however, will give us a surplus in our budget, which is much-appreciated after the past couple of years.
• Cutting Expenses: While we likely won’t cut anymore expenses, we won’t be reinstating any of the things we cut recently, such as our cable package, newspaper and magazine subscriptions, etc.. We’re keeping most of our austerity measures in place until the mortgage is paid off completely.
• Closely Monitor Grocery & Dining Out Expenses: Food in general is one of our largest, and most discretionary expenses. We like to have some kind of non-home-cooked meals twice a week or so. Having said that, we never visit McDonald’s and rarely frequent any other typical fast food joints. We order pizza a lot or bring home food from a nicer restaurant. It’s a lot cheaper than going out. So although I call that category “dining out”, it’s really not that accurate for us. As things have improved for us, we’re going to have to make sure that these expenses don’t start to inflate. The new HST here in Ontario won’t help!

Mortgage

The balance owing on our mortgage is down to about $27 000 now. It seems like we should be able to pay that off relatively quickly, doesn’t it? Well, if we just continue to make our existing payments it would be gone by the middle of 2012. That’s not soon enough for me. My mortgage vendetta continues. It’s our only debt and I can’t wait until it’s gone so that we can accelerate our savings.

TFSAs

We have been able to weather this period of lower income without tapping our emergency fund at all. If this new job had not come along, we would most likely have had to do that in the second half of 2010. Our emergency fund, kept in a TFSA savings account, now sits at about 3 months’ expenses. We have considered using some of that money to pay down the mortgage, but for now have elected to keep the emergency fund as is in light of the economic uncertainty we’re facing.

RRSPs

Thankfully, we never had to dip into our RRSPs at all either. That would only have been a very worst case scenario, but I’m glad it never materialized. All of our investments have been held primarily in cash – GICs and savings accounts for the past 2 years for two main reasons:

1. My lack of confidence in the financial markets.
2. The instability of our personal financial situation. We didn’t know whether we might need access to any of that money at some point.

So now that things are a little more stable for us personally, will I jump back into investing? No. But I can tell you that I executed my first trade in a couple of years a few weeks ago. I bought a little HIX, which is an inverse ETF that goes up when the TSX goes down. The position represents less than 2% of our portfolio, so I’m OK holding it for a while.

So I guess you could say that I’ve put my toe in the water. But I’m still not comfortable putting anymore body parts in as I’m not sure how likely it is that I’ll get them back. If things do get really ugly, I’m preparing a shopping list of companies and ETFs I might want to buy for the long term.

RESP

Our sons are too old for us to be at all aggressive with their RESP investments.  The money is currently earning zero in a brokerage account. I’ve recently discovered a couple of credit unions that pay decent interest on savings accounts under the RESP umbrella, but I’m not sure whether or not it’s worth it to pay the transfer fee (about $125 + 13% HST) and go through the hassle of moving the account.

We are certainly behind on saving for our kids’ education, especially considering that we will have a one-two punch when our 15-year-old twins hit the post-secondary scene. Still, once the mortgage is paid off, we’ll be able to save more for our retirement and for the boys’ education. We’re only using the RESP to get the 20% grant, so I’m not concerned if we don’t get a lot more in returns. We’re not going to risk a 20% bird in hand for 5% more in the bush.

Parachute Remains Packed

Last month, I talked about formulating a parachute plan in case the budget deficit became a reality. I did pack the parachute, but we’re very grateful that we didn’t need to pull the ripcord. Still, we’re anything but smug about our prospects and I’ll keep checking the integrity of our parachute each quarter to make sure it’s ready to go if we need it.

How’s your parachute? Are you doing any financial updating at mid-year?