by Lisa Thompson & Anna Roberts of Elk Valley Bookkeeping
December is a busy and often expensive time of year for most people with holiday parties, shopping for the perfect gift for friends and loved ones, doing last minute renovations for hosting guests over the holidays and buying and prepping food for all the events you are attending and hosting.
According to a recent survey by the American Research Group Inc. People in the US plan to spend on average $861 on gifts alone this year.
For those that are running a business at this time of year you are either fully stocked and prepared for the busiest time of year (retailers and restaurants) or making preparations to have some well earned time off to travel, host Christmas for friends and family or hunker down at home and relax by the fire with a good book.
I was watching TV last night and an advertisement came on with a guy who has a man dressed as an envelope who is his “holiday bill” following him around and throwing stuff in his cart which is full. The ad was for Interac and eluded to the fact that the enveloped man is a credit card bill who is following the poor guy around causing him grief after Christmas so maybe you should use your Interac card to avoid this situation. It’s too true – it is all too easy to get caught up in the emotion of the holiday’s and over-spend on gifts, decorations, food and events.
So my advice is plan and budget in both your personal and business finances. You can have a memorable holiday season without paying for it for the next few months. Here are a few points we hope will inspire you to be in control of your finances at the end of the year:
1. Budget: Sit down and figure out how much money you have and have coming in. What your monthly bills and expenses (mortgage, rent, phone, gas, hydro, insurance, debt payments, hobbies and sports) and then see what is left for spending. That way you can know exactly how much disposable income you have to cover the extra expenses. Write down all the events you have planned on a calendar and think ahead on what you may need to spend to attend or host (buying food or libations or a new outfit).
Getting a bonus? Great! what do you want to do with it? Tax plan for next year and your future by buying an RRSP, go on vacation, pay down some debt, put it in a savings account for a rainy day or something big you want or need in the future? Decide now so it doesn’t end up just getting spent because it’s there.
2. Cash: They say cash is king, but it’s also a great way to track what you are spending. Many budgeting guru’s say that once you have a budget that works get some envelopes or jars and label them eg. entertainment, clothing, groceries etc and take your budgeted cash from the bank put it in the jar. Once it’s gone then that is it. And no using the debit or credit cards (or if you do use a card, you take the cash out of the jar and put it back in the bank or make a payment). Start a Christmas jar today, decorate it with the kids and explain what you are doing. When you take your empties back or find some change while doing laundry throw it in there. My Dad always said take care of the pennies and the dollars will look after themselves.
It all adds up! Put away your credit cards somewhere you can’t easily access them, one idea is to put them on ice –yes that’s right you put them in water and freeze them, that way if you “need” them you have to defrost them. The idea is that it buys you time to think about a purchase. Taking some time to think and a step back can give us some perspective on our spending.
3. Lists: I love lists. They keep me focused and on budget. This year I started a Christmas list for each person I intend to buy for with a few gift ideas that are in their budgeted amount and I am now on the lookout for a good deal rather than panicking and buying something just for the sake of having a gift to give. In our family we also agreed to buy for one person only and spend a set amount rather than everyone buying for everyone which adds up quickly. This way we buy something of substance and are all saving money. I have also asked everyone to write a list of what they are looking for or needing too. Buying something useful is a good use of resources.
Grocery shopping lists are great for doing the same, I try to only buy what I need to saving on wasted food and money. It kills me to throw away rotting organic vegetables. We work too hard to just throw it in the garbage. Meal plan for the week or a few days ahead, make a list from your meal plan and then stick to it. You will have less garbage, more money and eat healthier.
4. Rebates and cash back: Do you have unused gift cards, check the expiry and make sure you redeem them. Or do yo have health coverage for physio, acupuncture, naturopathy etc? Make sure you claim back your expenses for the year and get the cash back in your pocket at this expensive time of year. You can call your provider or log in and get your claim history and find out if you have available room to take time and get a relaxing massage or see your naturopath about your wellness needs and goals .
The greatest wealth is our health according to Virgil, and this time of year can be stressful on so many levels. Maximize your claims in order to maintain or improve your health over what can be a month of over indulgence on your waistline and your wallet.
BUSINESS FINANCES :
If you own a business the end of year is a great time to check in on the health and wealth of your enterprise. Run your income, cash-flow and balance sheet statements to see where you are at and take it a step further and project where you will be after December. Make a budget for December and factor in any down time or busy period you have ahead for the next few months.
1. Spending: You still have a month left before the year end so have some time to make purchases for your business and capture the expense in this year. Remember your capital spending is amortized over it’s useful life so if you go and buy a new piece of equipment you won’t fully write it off in 2014. Furniture and equipment is done on a 20% declining balance method with the “half year rule” in the year of purchase which effectively only half of the cost is taken to calculate the 20% deduction. On a $1000 item that would equate to $100 of amortization.
Make a donation to a much needed charity and receive a tax credit as an added bonus. For a full list of capital cost allowance calculations see: http://www.cra-arc.gc.ca/tx/bsnss/tpcs/slprtnr/rprtng/cptl/menu-eng.html
2. Saving: Yes, the much dreaded tax time is looming and that usually means paying your taxes. The good news is that you still have 5 months until the CRA requires you to pay up in full without charging you interest so look ahead and see how much you will need to have put aside to pay your taxes. Too many people get a nasty “surprise” come tax time. If you don’t know what your tax bill is going to be then I suggest figuring it out. Knowing is always better, however good or bad the news is, you have time to plan and save, it’s never too late.
The personal income tax rates are tiered, I always get asked “which tax bracket am I in”? Well my answer is some or all of them. Our income is taxed at different rates both federally and provincially, the first $11,138 federally is tax free. After that $43,561 is taxed at 15%, then $43,561 to $87,123 is taxed at 22%, $87,123 to $135,054 is taxed at 26% and over $135,054 is 29%. Then there is provincial tax so $9,869 is tax free, then up to $37,606 is taxed at 5.06%$, $37,606 to $75,213 is 7.7% and so on. So add the federal and provincial rates together to get your tax rate. And don’t forget you pay your own CPP which on $45,000 of net income will be $4,108.50 of your tax bill.
For all personal income tax rates see: http://www.cra-arc.gc.ca/tx/ndvdls/fq/txrts-eng.html
3. Looking forward and behind: The end of the year is a great time to reflect on what worked and what didn’t work, take a step back and evaluate your goals. Where have your met and exceeded your expectations or goals? Spend some time patting yourself on the back and writing down your achievements however small or large you think they are, success breeds success so contemplate yours and share it with employees, friends and family.
Read and study your industry, what you can see as a possibility or opportunity this coming year and what you are expecting in the years ahead. Do a budget just as you would for your personal finances. Most software has the ability to put a budget amount for each of your income and expense categories, it allows you to see where you are at on an ongoing basis throughout the year.
Drive your business forward by knowing your numbers and stepping confidently forward with all your financial information at hand to make the best decisions for you, your staff and the future.
Working with a Bookkeeper, Financial Planner, Money Coach or Accountant can help get the wheels in motion and bring greater financial peace of mind.
All the best in your financial wellness throughout December and into the New Year!
Compliments of Lisa & Anna at Elk Valley Bookkeeping