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Archive for the ‘budget’ Category

In part I of this three part series we found that moving from Vancouver, BC to Corvallis OR hasn’t saved that much money despite moving to the supposedly “low tax” USA.  I have $166.11 less a year having moved here.

In Part II, I will tackle the big ticket costs of housing, car insurance and medical insurance.

First up, housing. Corvallis is a lot more expensive than I had expected.  Before we arrived I did some research and the city website indicated that the average one bedroom apartment was $500/mon, which is a lot cheaper than Vancouver, BC one of the most expensive cities in the world.   Therefore, I thought our total cost of housing would be around $700/mon tops.

Well, was I wrong. Corvallis has rental vacancy rate of under 1% .  The explosive  growth of Oregon State University and lack of corresponding growth in the rental units means that it is actually really hard to find a place to live.  Don’t get me wrong, you can get places cheap.  We saw a ‘bachelor’ unit that was in the basement with uneven walls, no windows and a shower that was in a concrete hallway all for just $400/mon.  There was a small two bedroom for $600/mon but it smelled of mold which was a problem with many of the units I saw.  For a week from my operation centre at the Days Inn through the worst rain storm of the last decade I must have seen every unit available in January and February. We even went to Albany(gasp!).

We eventually settled on a brand new one bedroom unit at this new condo complex which had been converted to an apartment complex.  On top of the rent, renters in Corvallis are expected to pay for everything else… sewage, water and garbage, electricity and even liability insurance.  The breakdown is below.

In Vancouver, we lived in subsidized student housing that included everything .. electricity, wifi, and even cable.   So instead of using our rent, I asked around and I think $1100/mon should get you a one bedroom in reasonable conditions.  Of course renters are required to pay electricity and WIFI.  The breakdown is below:

Canada US
Monthly after taxes and deduction $3,167.19 $3,181.04
Rent $1100.00 $921.00
Sewage/Taxes/Garbage $37.00
Insurance $8.83
Electricity $50.00 $50.00
WIFI $50.00 $50.00
After housing $2,067.19 $2,114.20

So after housing costs, it’s only slightly ($47) cheaper to live in the US.

Next I looked at car insurance.  In British Columbia we have government mandated car insurance through an agency called ICBC.  Their insurance is not cheap.  I qualify for the highest possible discount and annually it costs approximately $1300/year.  In the US my insurance is $606 for the year. So after car insurance I have $1958.86/mon in Canada and $2063.70/mon in the US.  So the US is still cheaper to live in by about $104 a month or around $1258 a year.

But we haven’t talked about health insurance yet.  In Canada we have national health insurance, although in BC we do have pay a premium.  The premium rate depends on the number of members of your family and your income level.  We pay $109 per month in premiums.  This covers all primary and hospital care.  We also pay supplementary health care for dental coverage, prescriptions, massage etc, but I’m going to ignore that and concentrate on primary care. In the US  we have to contend with a private system.  If you have a good employer, your health care is mostly paid for as it is for my husband.  However, if you do not have your own employment coverage or are not covered by your spouse then you have to pay for yourself.  If I get the same coverage as my spouse, our cost will be $306/mon with an annual deductible of $200.  A deductible is the amount you have to pay up front each year and only once you exceed that does your coverage start to pay portions of your care.   I also received independent quotes for healthcare and they ranged from $150 – $250/mon and have deductible $1000 – $2500.  Given that I probably will only go to the doctor twice a year at a cost of $150 per visit I’m likely not to need to take advantage of my plan that much beyond the deductible. So let’s say I take my husband’s work coverage:

Canada US
Monthly after taxes, rent and car insurance $1958.86 $2063.70
MSP premium per month 109
Husband’s monthly health premium 6
My monthly Health Premium 306
Monthly after Health Insurance $1,849.86 $1,751.70

Living in US has all of sudden became more expensive.  I understand now why people would choose to not get insurance. Even if I take the cheapest premium option which leaves me with a deductible of $2500 per year ( which means unless I have a real emergency, I’m paying for my own health care costs) :

Canada US
 MSP premium per month  109
Husband’s monthly health premium  6
My monthly Health Premium 150
 After Cheaper Health Care $1,849.86 $1,907.70
With 2 doctor Visits ea  $400
Money left over for the year $22,198.32 $22,492.40

So US still works out cheaper to live by $294 a year. Next we’ll see if the lack of sales taxes in Oregon makes up for one of the highest state income taxes.

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I’ve been meaning to write a follow up to my recent blog about how to analyze your spending history to help you avoid your spending triggers when I came across this article on shopping habits by Charles Duhigg.  While the article primarily focuses on how your purchase patterns can really betray you;  providing the companies with data that allow them to better target market to you, what I found most useful was the discussion on “habit loops” (on page 8) and how with a little reflection and tracking you can fight your bad habits and foster good ones.

First I think it is important to admit that we all have triggers in our lives that cause us to spend when we shouldn’t.  It may be a sale, a particular store, some particular item i.e purse, shoes, gadget etc., but we all have them.  Triggers tells us that we really need it and we need it now.

A trigger could also be something small like the obligatory 2-3 cups of coffee, lunch everyday, or drink after work.

Regardless what our trigger is,  spending on these “needs” leads us to overspend.  Even if you are not overspending, knowing the details of your habits can help you find more areas for savings.

So how do you start?  First you need to figure out what are the things you are overspending on (reward in the habit loop)  and then what are the triggers (cue)  causing you to want to spend and what routines you can change to break the loop.

So the first step is to identify the bad habits that are causing you to overspend. To just balance your budget you don’t really need to know this information. However, knowing it will allow you to target some specific habits (and break the habit loop) that may be the cause of your overspending.  I like to give the following exercise to many of my clients and the results have always been enlightening:

  1. Draw up what you think you spend in various categories in a month.  You can be broad or very detailed, but your list should at a minimum contain the following:
    • Housing
    • Phone
    • Transportation – including transit, gas, maintenance, insurance
    • Travel
    • Gifts
    • Food – grocery
    • Food – eating out, including alcohol. It may be helpful to breakout lunches and dinners
    • Clothing
    • Child care
    • Household items (sometime grouped with grocery)
    • Pet care
  2. Find your credit card and bank statements from the past year – pick at least 3 consecutive months, I like to use September to November because it doesn’t have too many holidays or vacations which skew your spending pattern.  Based on the categories you have came up in 1, total what you spent in each of the categories and then divide it by 3 to get your average spending per month.  Some credit cards and bank statements now helpfully divide the categories up for you so it won’t be such a chore and should only take about an hour or two to calculate.I suggest using old statements rather than tracking your spending going forward as it gives a real picture of spending, and does not allow your knowledge that the spending will be scrutinized to alter your behavior.

Now look at the difference between what you thought you were spending and what you actually spent.  They are not the same are they?

If you are not currently overspending (i.e spending more than your take home pay) this exercise will highlight areas that may lead to further savings and help you pay down your debt sooner or save more each month.

If you are currently overspending then this exercise will highlight categories where you need to change your habits.  So dig a little deeper.

Digging  Deeper

Are you overspending on small items like coffee?  These items are insiginicant individually but can have large cumulative effects.  $2 spent each day on coffee for the year is $500.  Would you buy $500 of coffee? Can you buy one cup of coffee instead of 2 cups a day?   Why is that you are buying coffee?  Is it a social need, or an excuse to get out of the office?  Dehigg’s article describes a simple exercise you can try to determine if there is another cause for you habit that you may not be aware of.

What about developing a new habit of bringing coffee from home?  Are there things you can do to create a new cue?

In an upcoming post I will list some tricks that I have used and those that my clients have shared with me that may help you develop a new habit and reduce your overall spending.

Put simply, the trick is finding a way to give yourself the reward you actually want just without spending as much and not making yourself feel deprived.

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My husband and I recently moved to the Corvallis, OR from Vancouver, BC. Everyone was happy for our new start and one of the things I constantly heard was that it would be cheaper for us.  All those thousands of cross border shoppers propping up Washington sales registers  can’t all be wrong, right?

Well, never a person to take common wisdom for fact, I thought I should run some numbers for our friends on both sides of the border.

First, we will assume a gross (before taxes) income of $50,000.  We will assume that the currency exchange rate is at par which is where it has hovered for most of the past few years.  This income is at a good average level, an easy even number and is nice because it doesn’t fall in either the lowest tax bracket or the highest.  For comparison, the median income for both the cities are:

  • Vancouver BC (2009) was $67550 data from Statistics Canada
  • Corvallis, OR (2011) was $74200 data from HUD

One reason that many Canadians assume that the US is cheaper is the often heard mantra that the US has lower taxes.  I don’t know how many times I’ve been told by our friends that Oregon has no sales tax and that it will save us a bundle. It seems to be the number one thing Canadians know about Oregon.  Of course, just because Oregon doesn’t have sales taxes doesn’t mean it doesn’t have taxes, there are state and federal income taxes and payroll taxes.

So here’s how $50,000 gets taxed on federal and state/provincial taxes.

To estimate the tax paid in BC I used the E&Y tax estimator which assumes no deductions. For an income of $50,000 in BC you end up with a tax payable of $8,847. That’s an average income tax rate of 17.69%. For the US taxes I use the take-home-pay calculator on calculator.net and tax payable for the year $8,981 assuming 2 deductions (I been told that’s average) or average rate of 17.96%.

Of course the actual tax rate could vary dramatically from the above given various deductions, but for simplicity’s sake and to make a fair comparison we assume that there are not any other deductions.

Then there are the social service payments – Canada Pension Plan/Social Security, Employment Insurance (as unemployment benefits are called in Canada) and Medicare etc.  After taking these into consideration this is how the two countries stack up for income taxes:

Canada US
Before tax income 50000 50000
tax payable 8847 8981.28
CPP/Social Security 2306.7 2094.12
EI 839.97
Medicare Tax 723
Worker’s Comp 29.16
After taxes and deductions 38,006.33 38,172.44

As you can see there isn’t actually that much difference difference and that it is actually a little bit more expensive to live in US.  In part II I will look at the fixed cost of living differences between these two cities and in part III the impact of the sales taxes.

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It is March, when many of us realize once again that we have failed in our new years resolution made in the heady, early days of Jan 2012. For many, that would be sticking to a budget.  As a financial planner I often hear “I can’t (save, pay off debt insert as appropriate).  I never have any money left over.”  Next I get the inevitable question “what’s the secret?” Of course there isn’t any secret.  You just have to spend less than you make.

If you can’t do that naturally, then you have to trick yourself.  For budgeting the trick is to make yourself feel poorer than you really are and track how much you spend.

Now how do you make yourself feel poorer you ask?

You are not richer than you think  – How much do you make?  It is not the number on your job contract.   It is actually the amount you take home, the amount that shows up in your bank account every paycheck.

Now take it a step further,  subtract from the net paycheck the costs in your life that are non-negotiable such as rent/mortgage, utilities, insurance (health, home and car), debt payments.  Now how much do you have left?  That is all that you can spend each month- your living allowance.  Your 50K a year job has now just become a 25k a year job.  You are not as rich as you thought.

Now go around shopping with that number in your head and you’ll find that you make choices differently. It sounds obvious but try it, the difference it will have on your choices will be profound.

Track, Track, Track – Now that you know how much your are actually worth (feel poorer yet?) you need to track your spending. Just like any good diet program you need to enter your daily calories.  There are lots of budget tools out there that will help you such as mint. com.

However, I prefer something much simpler … an old fashioned spreadsheet.  On a weekly basis subtract how much money you spent from your living allowance. You don’t have to keep receipts; you don’t even have to track daily, because that would be a chore and you won’t do it.  Spend 15 minutes weekly (Mondays?) and update your totals from your credit and bank accounts and subtract them from your living allowance.  For credit cards you should use your new balances.  For your bank account use your total cash out flows (called debit), usually your bank have a handy summary at the top or bottom of your account details page.  This way you will always know how much you have left to spend for the remainder of the month.

Now before someone says “what about setting your budget and the different pots of money…. ” I say it doesn’t matter.  While detailed categorization of your spending will help you understand your spending patterns, this level of detail doesn’t help if your goal is to avoid overspending.  All that matters is that your spending never exceed your living allowance.  Whether you spent $400 on groceries or on a pair of shoes is irrelevant if you don’t have $400 to spend.

If you do these two things and make them a habit, you’ll find that you will be able to keep your spending under control.  I have been doing this for years and have managed to do well on this system.  However, once in a while I stop tracking for a month to see what happens.  What happens is that I spend way too much.  Last time I experimented, I spent twice my living allowance.  So back I go to tracking.

And that leads to my third trick.

Don’t give up – we all know it takes multiple attempts to quite a bad habit before succeeding and living within a buget is the same. You need to keep trying. Just because you overspent one month doesn’t mean you can’t stay on track the next month.  Just think of each month as a fresh new start.

So now that it’s March and you haven’t been sticking to your budget … it doesn’t mean you have failed for 2012, it just means you get to try again for March.

Good Luck.

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