31 Jul

What Are The Right Kinds Of Debt?

General

Posted by: Roberto Pelaccia

This is a great question!

In today’s day and age, there is an idea going around that having debt is bad. That when you have it, you’re not in as good of a place financially as people who don’t have debt. What some people don’t know is that not having debt can actually be a bad thing. However, there are certain kinds of debt that help you when it comes to applying for a mortgage, but they can also work against you.

In this article I am going to discuss some of the right kinds of debt as it relates to applying for a mortgage.

So, like I said, there are certain kinds of debt that actually work in your favour. Why? The simple explanation is that when you go in to apply for a mortgage, you’re asking for a quite a bit of money. And, whoever you are borrowing from needs to know that you are going to be able to consistently pay back this loan. It’s like if you wanted to redo your kitchen, you want to see someone’s portfolio of work before you hire them. It’s similar when you apply for a mortgage. They need to see your debt payback track record.

Car Loans

Receiving a car loan is obviously much easier than receiving a mortgage loan. However, banks, among other places, will hand out loans to first time buyers in hopes that you will come back and apply for your mortgage through them as well. By taking out this smaller loan and successfully paying it back each month will allow lenders to see that you have the ability to manage your finances and pay back what you owe.

Primarily, a car loan gets you into a car. This vehicle will get you to and from work, transport your family, and all around help facilitate freedom as it relates to your comings and goings. However, one of the cons of a car loan is that it’s very easy to get yourself into a car that you actually can’t afford. This means you end up with a car loan that is higher than what your budget allows, which can get you into trouble. So, the key is to remove the emotion from your car purchase. Once you do that, you will realize that a car is just a car, and you will simply buy what you need.

Credit Cards

Consistently making purchases with your credit card and then paying it off is key. Lenders like to see a $2,000 limit or more and they want to see that you can make smart purchasing decisions, by not needing balances to sit on the card for months in order to be paid off.  Keeping it simple, such as purchasing your groceries with your credit card and then paying it off when it hits your account is what goes a long way.

In this day and age, credit cards are required though. Try renting a car or reserving a hotel without one. Also, they can be used to automate other payments like your car insurance, so you know you will never miss that payment. Not to mention that there are many credit cards on the market that accumulate points or even a dollar value. The con of using a credit card is that it’s easy to overspend. I think we’ve all done this at one point or another. A credit card should not be the main source of payment for your life. Having a proper cash flow plan would help resolve this problem completely.

Lines Of Credit

This is a great way to show that you can manage a larger amount of debt because lines of credit are typically larger than credit cards and can often only require monthly interest payments. This shows that you are choosing how much to pay back every month and are consistently able to manage your finances enough to make those payments.

Some of the pros of credit lines include that they are a great way to help you complete larger projects projects such as a kitchen renovation. They can also help you ride through a time of financial hardship. Lines of credit can be very important in both these roles. However, the major con when having and using lines of credit is that it’s easy to use it to payoff overspending. This is something you should avoid doing at all costs. If you’re using your line of credit to compensate for overspending then you need to have a look at your budget and potential seek out some help to create a cash flow plan.

 

All of these debts are essential to live a full life these days. Especially when you want to take the big step to own your own home, which requires a huge loan in the form of a mortgage.

Lenders will assess how well you have been able to handle the debts mentioned above.  In fact, if you do not have any forms of debts, especially revolving debts, you are essentially not credit worthy. You have not demonstrated you have the character to consistently payoff a mortgage.

Owning a home is the easiest way for the average Canadian to increase their wealth through equity. You can use that equity and turn that into more wealth through investment or business opportunities, or more real estate. This opportunity starts with demonstrating you can handle debt. Debt is your friend, your road to opportunity, but you have to control it.

6 Jul

Practical Tips To Keep Your Cash Flow Plan Working For You

General

Posted by: Roberto Pelaccia

Maintaining a cash flow plan can be difficult at times. While your plan might be simple enough to follow, there are also a lot of distractions out there that can keep you from sticking to your cash flow plan. This is something that can happen to absolutely everyone.

That’s why I have compiled some reminders that will help you keep moving forward and not fall back into your old habits.

1. Start Using Cash Again

The first thing we need to do to either get you back on track or keep you from falling of the cash flow plan wagon is to get you back to using cash. This is key! You need to go back to using cash for all of your active spending cash flow. This will allow you to see how much money you actually have in your hands, and recognize when it’s dwindling down. You will find that you are second guessing certain spending habits and are once again starting to think more about the things you’re purchasing. Maybe this is the time you actually see how money you’re spending on Starbucks everyday!

So, even if you have had a couple of weeks of overspending just get back to using cash, and it will all smooth out again.

2. Celebrate Your Successes!

Make sure you celebrate the successes that you have had while using your cash flow plan. If it’s working you then celebrate that win! Just take a look at how much you were actually able to save over that given month or even the last few months. Perhaps that is the money you have earmarked for that vacation, the new boat, or simply saving up an emergency fund – which we all need!

Remember your priorities. Remember you are more than just a mortgage or loan payment. You may make some mistakes along the way, but in the grand scheme of things you are winning! Learn from those mistakes and continue on making the best life out of the money you are earning today.

3. Leave Your Cards At Home

Are you going to the store to grab eggs, milk, and green onions? LEAVE YOUR CARDS AT HOME! Don’t help distractions get the best of you. Walk in to the store looking for what you need and have the cash with you to pay for it, and then leave with only those things. You didn’t need the extra stuff before you went to the store, so why all of sudden do you need it once you’re at the store? It’s simply a distraction. Someone did some good marketing and they caught you!

Bringing your cards will suddenly make you will feel that you are limitless in your needs, but really all you needed was eggs, milk and green onions. So, do yourself a favor and leave your cards at home.

4. Plan And Communicate About Your Weekly Spending

Plan and Communicate every week about what kind of spending you are expecting to happen and plan for the next. Dave’s party is Saturday and Susan’s wedding is in two weeks. So what kind of spending are you, or we, looking at as a result. Don’t leave anything to chance or surprise. Plan, plan, plan! So, think about what you need to buy for upcoming events. Share your intentions and needs with your partner and plan to do it the right way.

Also, by planning ahead will allow you to ensure that you’re not overspending, or putting yourself in a situation where you had to put yourself in overdraft or put more money on your credit card that you won’t be able to pay off right away. Knowing how much more money you need and taking that from your working cash flow is a much better option then just overspending and not knowing how much you over spent by.

5. If It Isn’t “HELL YA” Then It’s A “NO”

This is by far my favorite tip and  I encourage anyone to use this for anything that will cost you time and/or money.  If what you’re looking to spend money on isn’t a “HELL YA!” right away then it’s a “NO!” You need to make tough decisions sometimes on what you may want to spend your cash flow on. If you spend money on the wrong items you may be left with not enough for things that you really want or need. A simply thing to do is ask yourself “Is this something I want to buy or do?” If the answer isn’t a overwhelming “HELL YA!” then it’s simply a “NO.”

You don’t want a pile of things that you were sort of, kind of wanting or needing. Do you want to live with no regrets then apply the “HELL YA!” test and you will never need to look back on any of your decisions.

It’s 2018 and online shopping is part of almost everyone’s lives. They make it so easy don’t they?! It’s understandable why more people are doing it more for everyday items. So, if you’re someone who shops online, make sure you apply the “HELL YA!” test to all your potential products and services. If something is sitting in your cart and you think, even just for a split second, “Do I need this?” Then remove it!!

If you do choose to make an online purchase, consider them PAYABLE NOW! As in, you close your Amazon app and immediately make the transfer on your banking app from your account to your credit card! Or, on your next trip out of the house, take the cash in your hand and stop in to you local ATM and deposit the cash for the purchase on to your credit card!  It’s the only way to avoid the credit card hangover at the end of the month. We’ve all experienced that stomach dropping feeling when we look at out credit card statement at the end of the month. It’s not fun!

 

Those are my practical tips to help keep you moving forward and in control of your cash flow, because your cash flow is the key to reaching your goals, and living the life you want. Remember you can achieve more than you think because, you’re more than just a payment!