Part 2 of Budgeting for that Big Life Change: The in-laws moving in
In our first issue, we had Part 1 of this story and financial journalist, Rubina Ahmed-Haq wrote about how to start thinking about financial changes to your life with a pending move by your in-laws to become part of your household expenses. In Part 2, we talk to a Financial Advisor, Sunil Chugh about specific areas of your budget that will go up and how to make small budget cuts that can result big savings — and peace of mind.
By Sunil Chugh
How do you prepare financially for your home bills going up?
Create a monthly budget or update the one you currently have to take into account the rise in expenses your in-laws will create. Make sure to take into account what their monthly contribution will be. To start, analyze your spending for the last couple of months and try to determine how much your in-laws will increase your expenses based on their past expenses.
How to decide where to cut costs? Where can you cut costs first?
Look at your bank account and categorize your expenses: utilities, mortgage payments/rent, taxes, credit card and loan payments, grocery bill, medical bills, memberships, entertainment, subscriptions, insurance, travel.
Do not look past small common items like snacks, coffee, small gifts or even ATM withdrawals. And, do not look past one time a year expenses: birthdays, Christmas, auto-registration, property taxes. Make sure these are factored into the monthly budge (make an estimate and divide it by 12).
Further categorize these expenses into essential items and non-essential items. If you need to make a monthly payment towards something, it is essential. If it is a want and not a need, it is non-essential.
Essentials: utilities, taxes, credit card and loan payments, medical bills, insurance, emergency savings, groceries, transportation
Non-Essentials: subscriptions, memberships, entertainment, dining out, non-work trips, gifts
Now that you have looked at expenses, look at your inflow of income. After all these expenses, how much is left over? If it is not a lot, you have to make some decisions. For example, if you golf two 18 holes a week, maybe cut that back to nine holes. If you go out for coffee 10 times a month, maybe make it on your own.
The goal is to make a realistic budget that will not detrimentally decrease your standard of living, which you will be able to follow and that will leave you with a positive inflow of money at the end of each month. That positive inflow of money will now go towards your investments be it your RESP, RRSP, savings for a down payment on a new home etc. Ensure to review your bank statements each month and make a reconciliation statement.
A few other things to consider:
1. If the in-laws are younger than 65, they could work and contribute to the family income.
2. Once the parents have been residing in Canada for 10 years and are 65 years or older – they will qualify for a Guaranteed Income Supplement based on their other income from other sources (if any).
3. Consider disposing overseas assets if there is no intention of returning to the country of origin.
4. Ensure that the parents have a Will and Power of Attorney in place. If in place, ensure that it is updated to reflect the new status.
Expect and accept that parents will grow old. Aging is not a disease; it is part of every life cycle.
Note: This article is for informational purposes only and is not meant to substitute guidance from your own personal financial advisor.
Sunil is a Financial Advisor with more than 20 years of experience. His practice is built on providing comprehensive financial planning. He maintains a one-on-one relationship with his clients. He is the founder of The Personal Prosperity Program (TM), which assists his clients in their multi-dimensional lives by providing them with on-going guidance to their financial wealth. Visit his website for access to one of Canada’s largest financial libraries.
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