Eating In or Out?

Grocery bill $32 total purchased without coupons in 2012:

Kidney beans, soup, crackers, frozen baguettes (pkg. 2), dozen eggs, pineapple, 2 pkg. fresh blueberries, leaf lettuce, 750 g. yogurt, 2 pkg. brussel sprouts, frozen peas, bananas, pie filling, Caribbean spices, 2 pkg. grape tomatoes, chicken drumsticks, bacon.

We easily spend $200 a couple on dinner with wine when out with friends in the city.

For exactly thirty-two dollars, shopping January 25, 2012 in Toronto, I bought all the groceries you see in this picture.

If you're trying to pay down debt, or save for a house, car or vacation, think about how you're eating up your cash.

How to Save a Million Dollars for Your Retirement

According to TD Canada Trust, if you start at age 25 and contribute monthly to an RRSP account that earns a 6.8 per cent annual rate of return, compounded monthly, you'll have a million dollars for your retirement.

Every month, you must save, depending on your age:

• 25-30: $100
• 30-35: $250
• 35-40: $500
• 50-65: $750 

Analysing this savings strategy, financial writer Alision Griffiths points out in today's Toronto Star "Me and My Money" column that saving this amount could be very difficult for many people.

Griffiths says that according to statistics, 22 to 34 year-olds have less income than in previous decades and higher debt due to the increased cost of education and higher cost of living.

She points out that middle-aged parents trying to help their young adult children with education costs are facing increased debt as many turn to using lines of credit.  In addition, "boomerang kids," who return to the home (and grown children who remain at home) deplete their parents' savings potential.

For adults in the 50 to 65 age group, Griffiths says saving $1000 a month might be possible "if you've got a good job, aren't still supporting children or looking after elderly parents and have little or no debt. That's a lot of ifs."

That's not to say you shouldn't try.  Griffiths and her colleagues offer lots of ways to keep within your budget and increase your savings on the http://www.moneyville.ca/ site.  Check it out.

How Much Money Should You Budget for Rent?

Ready to look for rent your first--or a new--place?  Not sure what you can afford? 

Any debt payments (including student loans) plus your rent plus the cost of utilities (including cell phone bills) shouldn't total more than 30% of your income before taxes and other payroll deductions. So if your salary is $3000 a month, you should spend $1000 or less on rent, utility bills and any loan payments combined.

Spend more than that, and you'll find it hard to save any money. You want to save 10% of your income ($300 a month on a salary of $3000 a month) until you've established an  "emergency fund" of a minimum 3 months rent.

Ideally, you should have a minimum of 3 months gross salary in emergency savings (for example, you want to have $9000 saved for emergencies if your salary is $3000 a month.  In Canada, you can put $5000 a year in a tax-free savings ccount.)  Don't touch this money unless you lose your job and need it to survive.

Once you've saved 3 months gross salary, consult a financial advisor on the best way to invest additional savings for your retirement or to buy a home.

To make a workable budget for your remaining income, keep track of your spending for at least a month.  How much do you actually spend on groceries, coffee and snacks, clothing, personal care (hair, cosmetics, fitness, education, drugstore items), clothing, socializing and entertainment, transportation, medical/dental insurance?  How much do you really need to spend?

How much will you need to spend on furniture, household items, paint and supplies, tools and repair items, and moving?

If you have or want to buy a car, you need to figure in the cost of a car loan or lease payments, gas, parking and car insurance.

Do the homework now and figure out how much you can actually afford to spend, so you don't have to figure out how to get out of debt later.

Pay with Cash

Paying by credit or debit card makes it more likely you'll impulsively buy grocery items like cookies, doughnuts and ice cream, according to marketing researchers at Cornell University and the State University of New York. People who pay with cash are more likely to limit choices to healthier necessities.

My 91 year old mom doesn't have a credit card and always pays with cash and exact change if she can.

Paying with cash  is a strategy for avoiding over-spending when shopping for holiday season gifts. Create a cash limit for each person on your list, and don't go over that set amount.

If paying by credit card to collect points on a reward plan, set a spending limit and stick to it.

Shopping and Saving Money

• If there is a certain item you need and have been waiting to buy on sale, subscribe to sale alerts from the store's website.  Unsubscribe after you've purchased the item, or mark the e-mails as "spam" so you're not tempted to buy more.
• Scan sale flyers from the newspaper or online.  Make a list of items on special that you need.
• Go only to those stores that have advertised sales on the items you need--and when you go, buy only those items (leave the credit card at home and pay cash.)
• Resist "dropping in" at nearby stores.
• If you tend to pick up things you don't really need on impulse, delegate shopping to another member of your family who will "stick to the list".
• Do an online search for a money-saving promotional code before ordering from a website.
• When shopping online, save your chosen items in a "wish list".  Return to the site later--do you really need these things?
• Put a "no junk mail" sign on your mail box so you're not tempted by advertising flyers.
• Throw unsolicited catalogues in the recycling bin--don't be tempted to spend money you're trying to save.
• When shopping for sale items at retail stores, look only at the front (where sale items are placed to tempt you in) and at the back (where clearance racks might be).
• Don't try on anything you can't afford.
• Don't buy sale items just because they're cheap.
• If you're on a strict budget, leave your credit and debit cards at home. Pay in cash.
• Some people "need" to "go out and get something new" to feel good--go get a library card, and borrow a new book, magazine or DVD every week, for free.

How to Save Money

My parents paid off the mortgage on a nice home in the suburbs and sent three kids to university on a factory worker's income. This is how they did it:

• Determine a family budget. Add up all sources of income. Add up all expenses (groceries, mortgage/rent payments, utility bills, entertainment expenses, medical/dental expenses, charitable donations, transportation (public transit, car maintenance and insurance, gas), etc. Subtract expenses from income. The money you need to pay for housing, utility and other bills goes in a chequing account. Withdraw only the what you need for daily expenses (food, spending money, transportation) each week and deposit the remainder into a savings account.
• Pay credit card balances in full each month.
• If that's been hard, put credit cards away and pay for expenses in cash. Put the grocery money in one envelope, transportation money in another, spending money in a third. Once an envelope is empty--that's it, no more till next week.
• Do not buy "on time."
• Save for what you predict you will need. If you will need a new car in five years, or you want to go on a vacation later in the year, figure out a savings strategy and pay in full when the time comes. Or don't buy a car or go on vacation.
• Keep the equivalent of 3 months mortgage/rent payment plus utilities in a savings account in case of emergency. Ideally, you should have 6 months worth of savings for all expenses in a high-interest savings account.
• If you have a pet, save for unexpected accident/illness veterinary bills. $50 a month might not even be enough.
• Once you have enough money to support your family for six months in a savings account, don't touch that amount. Start putting savings into retirement savings plans and  education savings plans for your children.
• Shop with a purpose and buy only what you need. Make lists, use the weekly flyer and get what's on sale.
• Replace "recreational" shopping with other forms of entertainment. Replace going to the mall with going to the park or the library.  Replace "emotional" shopping (buying things to make you feel better) with something that might actually make you feel better than going into debt--visit a friend, clean out a closet, take a walk, do a favour for someone who is worse off than you.
• In order to have food on the table and money in the bank, think hard about ways to economize. What can you live without? Cut out or cut down on everything that will make you unhealthy first: cigarettes, alcohol, and junk food.
• Prepare your own food. My parents didn't "stop for coffee" or buy us drinks when we were out. Thirsty? Mom would say, find a water fountain (hard to find today!) or wait until you get home. Take refillable water bottles.
• Support public education in your own community. Send your kids to local schools and government-funded colleges and universities. Working in the summer to save for college education helps kids take their schoolwork more seriously. Our parents paid for the first year's tuition. We knew living away from home, in residence, was out of the question. We all worked summers and part of the year to pay for our expenses, books and tuition.
• Trade services if possible--I once looked after a toddler in my home and in return, his dad installed my new kitchen in his off-hours.