Savings and chequing accounts. If you hold your money with a Canadian financial institution that is a member of the Canada Deposit Insurance Corp. (CDIC), you’re covered for up to $100,000. Foreign banks with branches in Canada may also be members of CDIC and if they are you are covered. If not, you’re SOL, so check here before you put your money on deposit.

GICs and term deposits are covered too, as long as the term of the deposit is five years or less. The $100,000 limit is for all your non-registered accounts with a single bank. So if you have $80,000 in a savings account and another $80,000 in a chequing account, you are covered for only $100,000 — not the $160,000 total.

Joint accounts are covered separately so if you have $100K in your savings and chequing accounts and then open up a joint account with your son, partner or best-friend, the joint account is covered for another $100K.

TFSAs are also covered separately, but only for those products that are CDIC insurable like savings accounts and GIC with terms of 5 years or less. Investments like mutual funds would not be covered by CDIC.

RRSPs and RRIFs are also covered separately so you can have $100,000 in GICs or savings accounts (but not in mutual funds, stocks, or other investments ineligible for CDIC coverage) and yet another $100,000 in RRIF accounts. While RRSPs and RRIFs are specifically named in the legislation…

RESPs are not. However, since The Act does cover eligible deposits held by the trustee of a trust for another person as long as the trust disclosure rules are met, an RESP structured as a trust may qualify for separate coverage. You should check with your RESP provider for clarification.

If you have a life insurance policy with a Canadian insurance company, your benefits are protected by Assuris, (www.assuris.ca) which is a not- for-profit organization funded by the life insurance industry. Deposits are covered for up to $100,000.

Stocks, Bonds, Mutual Funds and the like may be covered under the Canadian Investor Protection Fund, which will cover you for up to $1 million in cash and securities, provided the dealer is a member of the Investment Industry Regulatory Organization of Canada. (www.cipf.ca.)

If you’re a member of a defined benefit pension plan and your company goes bankrupt, you may have reason to worry. Most pension plans come under provincial jurisdiction and provinces vary widely on their rules. If your pension plan is underfunded, your monthly payments may be less than anticipated. Ontario is the only province to insure the pensions of bankrupt companies through its Pension Benefits Guarantee Fund (PBGF), which backstops the first $1,000 per month in pension benefits per plan member if a company goes bust.

Could you and your family survive if you became a one-income family? Do you have a good enough handle on your money that you could respond to changes in your circumstances quickly enough to cope? And are you managing your expenses so that should the axe chop away at your income, you’d be okay?

Some people have been living as a one-income family for some time; one partner works while the other stays home to take care of the kids. These are the people who are at greatest risk – as are single parents – when the ax starts flying. For them, risk mitigation becomes the most important thing to focus on. “Risk mitigation” is the elimination of as much risk as possible.

Risk mitigation means having a big fat emergency fund so that if the worst does happen and your income goes away for even a short period of time, you have the wherewithal to keep a roof over your family’s head. But an emergency fund is only the beginning. Minimizing the risks to your family’s stability also means making sure you have enough insurance to protect the family’s income should you no longer be able to work. Life insurance and disability insurance are the two prongs of this tool.

It would be swell if you could know ahead that you’d be moving from two incomes to one. Some people get the warning when the pregnancy test comes back positive. They can then start living on one income, banking the other to build their emergency fund, and learning a lot about self-discipline in the process.

For people who have a double-income household who suddenly face living on less, here are a few ideas to think about.

1.   To figure out where you can chop back, look over your last six months’ worth of expenses. I’m not talking about “glancing” at this; look hard. Add it up so you know where your money has been going. You’ll be better able to make a new budget for living on one income if you have a solid picture of where you can cut back.

2. Since living on one income may mean less taxes overall, it’s time to look at how much is being deducted at source. Its also time to become very familiar with all the deductions to which your family may be entitled so you minimize the amount of money you’re handing over to the tax man. Get busy doing your research.

3.  The biggest barrier to transitioning to one income will be the high interest debt you may be carrying. While y’all have heard me rant on and on and on about why debt is bad, this is where you’ll feel the pain. If you’ve already spent money you haven’t made buying STUFF, and if those purchases also come with big-time interest, you will have made the “unexpected set-back” worse because you are a slave to credit card and line of credit payments. To get out from under, or at the very least give yourself some wiggle room, it’s time to sell everything you don’t absolutely need. Whatever you can put towards paying down or eliminating your debt will be worth it.

Whether you are living temporarily or permanently on one income, resist the urge to suspend your savings.  Spending every cent you make is never a good idea. Doing it when you no longer have the safety net of an extra income is really short-sighted. Yes, I know things are tough. But they can get tougher. Having money in the bank gives you options.

Keep in mind that while your first instinct may be to chop everything out of your budget that isn’t a day-to-day expense, it’s a bad instinct to follow.  If you don’t plan for the expenses that are part of a whole life – auto repair, home maintenance, annual insurance premiums, property taxes, the kids’ soccer fees – you’re planning a financial disaster when the bill finally does come in.

Moving from two incomes to one means you have some choices to make. Your housing costs may be out of whack and downsizing or moving to a less expensive area may be your solution. You’ll likely have to cut back on eating out, drive your car a little longer, and learn to bargain shop for clothes for the kids. (You already have enough clothes!)

Focusing on the joy of “more time” may let you see the bright side of the picture.  And if you’re willing to think outside the box you can create new ways of making money.

Life offers no guarantees. The key is to be flexible and willing to make choices that are different from the ones with which you may have become very  familiar.

Over and over I meet people who are battered by emergencies. Their tires need to be replaced. Couldn’t see that coming, right? Their 15-year-old microwave gives up the ghost. Totally out of the blue, eh? Their roof is leaking. Gosh, you mean a roof has a life expectancy too?

Most of the emergencies people site are actually events that could be predicted and planned for, with a little insight and a willingness to set some money aside for a planned expense. Truth is, most people would rather spend the money NOW! So they close their eyes to the inevitable arrival of an “unforeseen expense”, and then claim it’s an emergency.

Then there are the folks who turn their little “emergencies” into big expenses. Sure your fridge isn’t working and you need a new one. Might as well upgrade if we are getting another one. But heading out to find a shiny stainless-steel job where a less expensive fridge would do without having the money set aside isn’t an emergency, it’s an excuse to go shopping on credit. Now you’ve turned your small NEED into a big ol’ WANT and you can’t wait to scratch your itch.

People love NEW. And they love BIGGER too. They are loath to look for the less-expensive way to do things when the “emergency” has supplied them with the perfect excuse blow a wad of cash credit. When my air-conditioning in my car went recently, I headed to my local car doctor to figure out the problem. He replaced my freon, which promptly re-evaporated. He could replace the whole system or cap the sucker before the leak but I’d only have air in the front of the van. Cost difference? About $1,000. I said, “Cap the sucker!”

Sometimes the fix makes more sense in the grander scheme of things. Yes there are times why buying new is the right solution, but it isn’t in an “emergency,” it’s when you’ve made a plan to replace whatever it is you need, done your research and saved the money you’ll have to spend.

It makes no sense to label every financial setback an “emergency” and then panic as you search for the quickest solution. Panic leads to irrational acts. Irrational acts are expensive. It makes far more sense to look at your stuff and think about it in the context of when it will likely need to be replaced. I know I’ll need another car in about 150,000 or so kilometers.  So I’ll make allowance for that in my planning. If it comes a little sooner than I expect, I’ll still be well on my way to my planned spending. If it comes a little later, all that extra time is gravy!

If you find you just can’t get ahead of all the little “emergencies” that keep cropping up in your life, you need to build a “contingency” fund into your budget.  This is a good alternative for people who just can’t seem to plan ahead. Hey, you are who you are and it’s better to accept your shortcomings as a planner and have an alternative than continue to be jolted by surprises. Setting aside some money to deal with the unexpected will not only give you the wiggle room in your budget, it’ll stop you tapping your emergency fund. Now you have a way to deal with all the unexpected expenses that keep cropping up in your life while you continue to build a safety net for the really big caca that may come along.

Your emergency fund is meant to hold you through the toughest of times, not scratch every replacement itch you get. Leave it alone so it can grow. In the mean time, take an inventory of what you have and when it’s likely to expire. Start planning to eliminate all the “emergencies” that have been draining your just-in-case fund.

BTW: While I do not give suggestions on where you can invest your money, people continue to ask. I suggest you check our today’s blog by Canadian Capitalist in which CC gives his pick of the top 5 investment deals going.

I’m divorced and raised three amazing articulate well-educated, self-sufficient children, sadly my adolescent child died from Cancer after a ten-year battle. I used all my RRSP and savings to keep her at home and provide the extra medical help required (family) was non-existent. I sold my modest home, downsized and paid off all my bills and funeral costs. I went back to work, now several years later I was injured at work and I’m now classified long-term disabled with a very meager WCB income with WCB Annuity pay out at age 65 years. Happily several years ago I bought or shall I say mortgaged a little 700 sq foot home out side the city. $300.00 PTI is still cheaper with the commute and gas than paying $800-1,000 a month rent. Everything in my home is paid for no flat screen TV’s or fancy stuff, disconnected the internet to keep Star Choice.  How do you save when everything is fixed, all your shows are about couples with 2 incomes? I’ve never seen any shows on baby boomers or seniors rebuilding lives on fixed incomes or disabled. Please help the deserving poverty income citizens find a better way to survive and thrive. Yes I know there are people worse off then me… My mottos are “It Is What It Is” & Transform Frustration Into Motivation

Wow! Talk about multiple whammies! While most of us blissfully shuffle through life with the odd hiccup, here’s a woman who has been buffeted by ill winds, and she’s still holding on to a positive attitude. Wow!

So what are the lessons for us from this letter?

First, crap happens. And just because you’ve been hit by crap once doesn’t mean you’re in the clear.

I had a girlfriend who died of cancer – my Cookie was my bestest friend – and there seemed to be no UP in her life for the longest time. A diagnosis of MS was followed by breast cancer was followed by brain cancer. All this after a not-so-happy childhood, a still-born baby (at 8 months) and the disintegration of her marriage. Whenever I hear people talking about how “alarmist” I am when I talk about the importance of individual disability insurance, I think of Cookie and how much easier her life would have been with a solid and steady income. I have never, for one minute, regretted my disability insurance premium!

It doesn’t just have to be something bad that happens to you. As in this woman’s case, (we’ll call her Bonnie) her child’s illness was enough to wipe out all her resources. Bonnie coped. She did what she had to do, and then came out the other end with nothing but her future income potential. That, too, was side-swiped (which a good disability plan would have helped with) and Bonnie is now left wondering what to do next.

The thing about Bonnie’s situation is that, as she says, it is what it is. There’s not too much one can do in her circumstances: limited income, fixed expenses eating all the money. Sure, she could cut back on her TV, but is a person not entitled to anything “entertaining” in their lives?

Her focus now has to be on how to make the most of what little she has. Saving may not even be an option given her very limited resources. Squirreling away $5 here and $10 there for emergencies may be possible if she’s a very, very conscientious shopper.  And if there’s a way to exchange some of her energy for a little extra cash (babysitting a friend’s children for a evening, or helping an aged neighbour with grocery shopping or schlepping to an appointment), that might give her a little wiggle room.

Bonnie never actually says how much she lives on, but with a mortgage payment of just $300 a month, I expect her resources are very limited. And for those people whose resources are as limited, I can only say that you need to find ways to make your life full that don’t involve spending money.

I’m turning this over to y’all now. What would you tell Bonnie, and how do those of you who live on a very restricted budget cope with all the demands with which you’re faced?

Experts have been touting the importance of having an emergency fund since Moses was a lad. So why is it that so many people still don’t have enough (or any?) money set aside just in case? Reasons and rationales abound.

“I’m paying off my debt. That’s the most important thing.”  With the amount of debt people are buried in, it’s no wonder people want to get rid of it as fast as they can. But having a single focus is never a good way to create balance. Money in the bank gives you options – ways to deal – so that you can stay on track with debt repayment even when the caca hits the fan. Having no cash at the ready means you’ll no doubt be forced to use your credit to deal with a broken furnace, unexpected medical bills, or replacing that tire you blew on the highway. Accessible cash means you can keep to your debt-repayment plan and deal with whatever crisis – large or small – that has come knocking on your door.

“I can’t see the point of letting money sit earning next to nothing.”  While it can be a really sad thing to watch thousands of dollars languishing in a savings account, return isn’t the priority with an emergency fund. Access is. Stick that money into the market and it may not be there just when you need it most. Stick it in a high-interest savings account and while you may be irked by the pittance you’re earning in interest, the emergency fund will be at the ready when you hit the wall. The point is to have some wiggle room when the unexpected happens.

“I have $1,000. That’s enough.”  $1,000 may be enough of an emergency fund if you live under a rock. Yes, you’ll need less of a buffer if your home is paid for, you have no debt, you walk everywhere you go, and you’re happy eating ketchup soup three nights a week. If you want a realistic emergency fund – one that actually gets you though the rough – figure our your monthly essential expenses and multiply by six. That’s how much you need.

Unemployment insurance may help fill the gap if you lose your job, but it doesn’t go far. And unemployment isn’t the worst emergency you may face. Get sick and watch your money evaporate. Even if you have good health and disability insurance plans, your cash flow will still take a kicking until your benefits click on.

“Who needs an emergency fund when you can use a line of credit?”  The people telling us to get an LOC is an emergency fund are the same people who let us buy houses without enough money down, offered us ways to satisfy all your whims while spending money we hadn’t yet earned, and continually raised our limits until many of us had enough debt to bury an elephant.

A line of credit is not an emergency fund… it is debt waiting to happen. If you hit a wall and end up racking up tens of thousands in debt on an LOC, how was that diverting disaster?

Perhaps the problem with the whole emergency fund thing is that people don’t like to think they’ll have to deal with “emergencies.” It’s not unlike the folks who won’t make a Will because they don’t want to contemplate their demise, or who won’t buy disability insurance because they can’t imagine becoming disabled.

Maybe we’re just calling it by the wrong name. The whole idea of having to deal with “emergencies” can be a real downer. Maybe what we need is nomenclature that sounds far more proactive and positive. We’ll stop predicting disaster and instead focus on the fact that when you have money at the ready, you also have ways and means to deal with whatever life pitches at you.

Hmmm… a Ways-and-Means Fund… cash in the bank that gives us the means so we can figure out ways of dealing with life’s lumps. Your son breaks his arm playing in the yard, and you have the means – the money – you need to take a day off work, get him to the hospital, and cope in whatever other ways you must. Your partner is downsized and you have the means to pay the mortgage and keep food on the table until he finds new ways of bringing home the bacon. You bang up your car, watch your shingles blow off in a wind-storm, or find yourself in the throes of a divorce, and you have the means to keep the financial boat afloat while you find ways to cope with all the other stress in your life.

Convinced that having The Means offers you more Ways of smoothing out life’s bumps? Now it’s just a matter of coming up with the dough. It takes effort to knead intent into action.

To best way to create your Ways-and-Means Fund is to set up an automatic deduction from your regular account to a high-interest savings account. If you don’t have much to save, it doesn’t matter — the important thing is just to start… to convert your intent into action. As long as you haven’t started, you’re not creating the means for dealing with what life will inevitably throw at you. Commit $25 per pay to your Ways-and-Means Fund. Once you’ve begun, you’re on your way and then it only becomes a matter of how to boost the amount you’re setting aside to grow your stash of cash.

Most people have expenses they can trim to boost the money going to their Ways-and-Means Fund. Do you buy coffee every day on the way to work? Calculate how much you’re spending, cut it in half, and send the difference to your Ways-and-Means Fund. Smoke? If you smoked half as much, how much would you be able to sock away? Pick up the latest magazine at the checkout counter? Subscribe to premium cable? Go out for a drink with your friends after work? Buy your lunch at work? Pick up your favorite “stuff” whenever it’s on sale even though you already have 30 pairs of shoes, white shirts, handbags, DVDs, name your vice here. How quickly could you build your Ways-and-Means Fund by focusing on being safe as opposed to being satiated?

If you’re determined to keep all your small indulgences, try the Tit-for-Tat approach to building your Ways-and-Means Fund. Each time you satisfy a WANT, contribute an equal amount to your Ways-and-Means Fund. Not only will it make you really think about whether you’re going to spend the money –in essence whatever you buy is going to cost your cash flow twice as much – you’ll be giving yourself options for the future while you enjoy yourself today.

Now that the economy has gone to hell in a hand-basket and people are losing their jobs left, right and centre, it seems that the whole idea of an emergency fund has come full term and is ready to be born into people’s reality. Wow! I’ve been preaching the importance of an emergency fund and 25 years later I’m in style.

An emergency fund is a key component of any sound financial plan. The huge barrier for most people is how intimidating the process of saving up six months’ worth of essential expenses has been. Six months’ worth? In a savings account? OMG!

I’ve been battling The Easy Way Out solution most financial institutions offer: the line of credit emergency fund. Bah! How is going into debt on a line of credit during an emergency a sensible solution? It’s not. It’s the excuse people use for not saving! Plain and simple, it’s the lazy man’s solution. And it’s expensive, soul stealing and bad planning (or would that be “no planning?”)

People who don’t see the point in having an emergency fund are either really, really short-sighted, or completely unwilling to stop spending all their money. They are so averse to taking a little bit of what they are blowing on crap and setting it aside that they’re willing to brave the terrors of an emergency (and it’s only a matter of time) without any kind of safety net.

How good would it feel to not have to panic when the car breaks down and you need to come up with an unpredictable $2400? How much safer would you feel if your baby, your mom, your partner gets sick and you must take time off work (without pay) to see to their needs? How much smarter would you feel if you got laid off from work and had enough money set aside to keep a roof over your head and food in your belly until you could get another job?

An emergency fund is CASH you’ve accumulated so that you can you have the money you need to keep things in balance when the crap hits the fan. Most of the time, it just sits there earning a pittance in interest, waiting to be called into active duty when The Worst happens.

Some people have a problem with the concept of the money just sitting there. Once they’ve built up a couple of thousand dollars, they start thinking of that money as spendable. The vacation becomes a “sanity emergency.” The replacement windows become a “home emergency.” They run up their credit cards and that becomes a “debt emergency.” They find a way to rationalize spending the money because the idea of having that money sitting there is so foreign to them.

People, anything you can predict having to spend money on should be a line item on your budget and become a planned spending category. Vacations, new windows and whatever you blew money on your credit card to buy are all predicable expenses. Even on-going vehicle maintenance is a predictable expense. It only becomes an emergency when the cost exceeds what you’ve managed to accumulate.

When you add up what it costs to keep your family going for six months, you might be intimidated by the amount you have to accumulate in your emergency fund. Six months of essential emergency expenses can be an enormous goal. So start small. Make your initial goal $500. Once you reach that benchmark, set your next goal.

Make your savings automatic. If you decide to save $100 a month, have that amount auto-debited from your main banking account to your high interest savings account every month. You’ll get used to living without that money in no time flat.

Gail, where am I going to find $100 a month? You might be surprised if you just put a little thought into it. If you’ve got car and home insurance, combining the two with the same insurance company could save you up to 20% on your policy. Better yet, shop your policies around to see if another company is prepared to give you a better deal.

Cut $25 a week out of your grocery budget, do some meal planning, shop with a list, and watch your emergency fund grow instead of your thighs.

Swap eating out for a fancy dinner at home and you’ll not only save money, you’ll learn to be a better cook. Invite friends for a pot-luck, and watch the evening turn into a night of laughter and games.

Combine your errands, car-pool with a co-worker, or hop on your bike and bank what you save for an emergency.

Go over your monthly auto deductions and see what you can trim or eliminate completely. Do you really watch that much TV that you’re willing to drop $100 a month on satellite or cable? Cut it in half and you’re half-way home to monthly emergency fund amount. Ditto your cell phone, long-distance bill, gym membership, and anything else you buy routinely that you’re now taking for granted.

The key is to actually save whatever it is you’re “saving.” Leaving it where you can spend it on coffee or a new sweater is self-defeating. Moving it somewhere you can’t touch it means it’ll be there when you REALLY need it.

I got an email from a woman who lost her wallet last week. I thought you might all want a heads-up on what to do if this happens to you… it takes some prep.

Time is crucial. As soon as you discover your wallet is missing, you need to contact your credit card companies, your bank, the credit bureau and the police. Since you don’t want to waste time searching for all the phone numbers you need, you need to have a file ready. Photocopy your credit cards and all your other identification, both front and back, and write the contact information you need on the photocopy. Include the phone numbers for your bank (with your bank account numbers) and your credit bureaus (all of them) in your file. Hide the file in a safe place in your home.

While the police won’t do much, it is important that your loss is on record in case credit-card companies investigate fraudulent purchases or you must prove the date of your loss.

Call your bank and notify them if you’ve lost a chequebook and/or bank card. Some people even take the extra step of transferring their banking to a new account so that if hucksters try to use the old account information, they can’t. Your bank should be able to reassure you by talking about fraud prevention steps you and they will take.

While it’s a no-brainer to cancel all your lost or stolen credit cards, most people don’t think about the other cards in their wallet – loyalty cards, their car club membership, their health club card – that can be used as ID or is linked online to personal information. How happy would you be to find out someone else was using your video membership card and never bothered to return the videos?

Don’t forget you’ll have to replace your driver’s license. Here’s a link to all the provincial ministries of transportation. And since you’ll likely need two pieces of ID to get a new provincial health card, you’ll have to make a note to do that once you’ve received replacement ID. Here’s a link to provincial ministry of health sites.

Your credit bureaus can place a fraud alert on your file that will stop thieves from using your personal information to secure a line of credit or even a mortgage. The fraud alert doesn’t stop you from obtaining credit; creditors will call the phone number you put on the alert to ensure it’s you seeking the credit. You need to call all the bureaus to be sure you’re covered. Here are the numbers again:

• Equifax 1/800/465-7166
• TransUnion Canada 1/866/525-0262
• Experian Canada 416/593-7906 ext. 225

Monitor your credit report over the next few months to make sure there’s no stuff going down you need to know about. If you have to pay a couple of times to get your credit report, believe me, it’s worth every penny.

Everyone has days when their attention is on too many things. I know several people who have walked out of stores without their wallets, without their cards, only to have salespeople come running after them. I’ve been derelict myself. The problem is that it only takes one slip to sink your ship. Don’t leave your wallet, your handbag, your briefcase in open view in your office. Don’t leave your purse sitting in the grocery cart while you turn your back to pick out some nice fresh apples. Don’t leave your wallet or purse in your car, ever. If you’ve gotten away with it so far, you’ve been lucky. The next time, your whole financial identity could become unraveled.

My husband was just downsized out of his job. I have a well paying job but it does not cover our costs. Daycare is our biggest expense right now, but even if he chose to stay home my income would not be enough. He will be receiving 6 months severance pay. We do not have any savings to speak of but have money available on a line of credit and do not owe on credit cards. We own our own home. I want to plan around the scenario that he may be out of work for a year. He is more optimistic. What strategies would you suggest? I don’t know where to start. Several industries have shut down here so many people are struggling. Thanks for your time.

Job loss comes with two big stressors. First, there is the financial stuff that you need to figure out. Second, there is the emotional misery that you must wade through. Either piles of poop can sink you so above all else it is very, very important that you keep a cool head.

When you lose your job, apply for Employment Insurance benefits right away. Since it can take several weeks before you see a penny, the faster you do this, the less amount of time you’ll be  scrambling for cash. If you have received a severance, this will affect when you EI benefits will start coming. A delay in the start of the claim will result in an extension at the other end of the same number of weeks and your EI claim can be extended by up to one year. However if you receive a severance payout of two years or more, you won’t be entitled to EI. Severance or separation pay is paid out in a number of different forms and each is handled differently by the EI system. You need to speak to your HR department to get the lowdown on how you’ll be affected.

Speaking of what you may get from your employer, check how long your benefits will stay in place and if you’ve got any vacation/sick pay coming. And if you’re entitled to reimbursement for expenses, file an expense report right away. While your employer is feeling rotten at having to let you go, ask for a glowing letter of recommendation.

Now it’s time to sit down with your fam to discuss what’s going to be different. This should include your immediate family AND extended family. No point in pretending everything is A-OK. Brave and strong you might be, but accepting help when you need it the most from people who love you the most is exactly what family is supposed to be about.

Yes, you should tell the kids. You’ll have to tailor your communication to your children based on their ages. But they’ll overhear the adults talking, they’ll feel the stress and they’ll internalize it if you don’t address it directly. So tell ‘em. Just reassure them that while some things are going to have to change, you are going to do whatever it takes to make sure the family is safe.

Since you’ve been counting on the income just lost to make ends meet, you’ll need to look for ways to reduce your expenses so that you can live within your means until you find another job. This may mean making several budgets. The first may include your severance. Once that ends and you’re relying solely on EI, you’ll need a second budget. If you find work quickly – maybe not the bestest job, but one that keeps food flowing – then you may need yet another budget. 

Find as many places as you can to trim back. Cut your clothing budget completely, except for kid essentials. Ditto your entertainment, gifts, and all other non-essential expenses. Trim back on food. Trim way back on communication (telephone, cell, internet, and cable or satellite). 

Remember, a budget isn’t something you make and then try to squeeze yourself into. Nope, a budget is your plan for how you’re going to use the money you have. Now that you have less, you must get creative. Is daycare still an option with one partner out of work, or will you swing-shift to take care of the kids at home while upgrading skills and job-hunting? Or will you both take on part-time work to keep the kids in daycare so you don’t lose your spaces?

At this point, I bet you’re really glad you started that emergency fund. No emergency fund? Ooops. Are there things you can sell to make one? The motorcycle? The ATV? The second car? Well, your severance can pick up the slack. No severance? Ouch. I guess you’ll just have to get your butt out there and find a job, two jobs, three jobs… whatever it takes… to keep it all together. And, NO, a line of credit is NOT a good emergency fund, no matter what you’ve been told. If you think coping with unemployment is hard, try doing it while making debt repayments.  Sure, sure, you’ll eventually get another job. But if you’ve dug yourself a hellovahole in the meantime, you’ll be waaay sorry. So it doesn’t matter what you have to do to keep a roof over your head, that’s a better alternative to using a line of credit.

The same goes for using your credit cards to fill the gap in your cash flow. Don’t do it. In fact, you should take your credit and debit cards out of your wallet and hide ‘em, freeze ‘em, bury ‘em so that you don’t have the wherewithal to buy things on impulse. There is no time when you’ll be more tempted to spend money on crap than when you’re feeling deprived. And don’t go to a payday loan company.  With costs ranging from 300-900% annually when you include the set up fees, interest, services fees and loan repayment fees, this is a hole you’ll never climb out of. Don’t go there.

If you’re already walking around with a bunch of debt, time to call your creditors. Explain that you’re out of work and need a) and interest rate reduction, and b) a repayment plan that’ll work with your new budget. Take a trip to your bank and see if a consolidation loan will help ease your cash flow. Do whatever you can to reduce your costs and ease the pinch.  This is no time to let pride get in the way of common sense.

Tell everyone you know and everyone you meet that you’re looking for a job. Since many jobs are found by word of mouth, telling people exactly what kind of work you’re looking for is a good way to start.  While lots of people are tempted to stop their job search efforts at this point, resist the urge. You need to have an overall job search strategy that includes a daily job search schedule. Getting a job IS YOUR JOB right now, and you should do it with all the energy and enthusiasm you used to spend working. Schedule your day as if you were going to work, make sure you include some socializing time – unemployment can be horrendously isolating – and keep on truckin’.

Yes, it is hard. Yes, the rejection can be soul numbing. But you can’t just give up and hope something will come along. You have a family counting on you. YOU are counting on you. So get busy. Your next job isn’t going to find you!

There are federal, provincial and municipal services that may be able to help. Get out there and find out what they are. Use the internet to find opportunities for you to throw yourself at prospective employers. Update your resume. Post it everywhere. And tell everyone to tell everyone. You need a job!

If you hated your last job, then now is the time to start thinking about a career change. Can you use the time you’re not working to upgrade your skills or take some night courses to retrain for something new? Would this be a good time to turn that hobby into a business?

I am not recommending you remortgage your house and buy a business because you’re desperate. Hey, people do this. What I’m suggesting is that if there is something you’ve always wanted to do – be it landscaping, web design, freelance writing, or small engine repair – now may be just the time to start making some money doing what you love. If you can turn it into a viable full-time business, good for you. If it brings in extra money while things are tight, that’s good too. And if you find a full-time job and can keep doing your biz on the side, hey, that’s alright  too, isn’t it? 

As we round out of 2008 and into 2009 the newest new thing is the Tax Free Savings Account. The TFSA was announced at the beginning of 2008 for release in 2009, but some FIs have been quick off the mark in introducing the product.

Canadian residents 18 and older can save up to $5,000 every year in a TFSA. You can have as many TFSAs as you wish, but the $5K contribution limit applies across all accounts.

While the contributions aren’t tax deductible, all the income earned in a TFSA is tax-free. If you can’t save $5,000 this year, don’t sweat it. Your contribution room can be carried forward to future years. So if you can only stick $2K in for 2009, in 2010 your limit will be $8,000 ($5K for 2010 and $3K carried forward from 2009.) And, by the way, those limits are going to be indexed to inflation in $500 increments, so watch for increases in limits over time.

The bestest thing about the TFSA is its flexibility. You can take money out of your TFSA at any time for any purpose, without losing the contribution room, which makes this account the number one choice for socking away an emergency fund. So even if you take money out in one year, you can put it back the next, without affecting that year’s $5,000 contribution limit.

Since neither the income earned or withdrawals from a TFSA affect a body’s eligibility for federal income-tested benefits and credits, the TFSA may become a great way for lower-income Canadians to set something extra aside for retirement without having to worry about how it’ll impact on their government benefits.

People saving to buy a home will also love the TFSA since it never has to be repaid, and you can re-use the contribution room for something else once you’ve accomplished your home-buying dream. And people looking for a way to income-split will love the TFSA because a higher-income spouse can contribute to the TFSA of a lower-income or stay-at-home spouse, without the income earned by attributable back to the higher-income spouse.

The TFSA is also the perfect place to park that money you’re eventually going to use to buy a new car, repaint your house, or go on a splendid vacation… any kind of planned spending for a big-ticket item.

You can hold any investment you can buy for your RRSP inside your TFSA, including stocks, bonds, GIC, and mutual funds. But you should probably stick with interest-bearing investments. Why? Well since all the capital gains inside TFSA is tax free, it also means any capital loss can’t be claimed to be offset your other capital gains.

The big thing to watch for is the fees levied by the FIs offering the new TFSA. Don’t be so blinded by the tax-free income that you buy your account from some provider who then gouges you with admin and withdrawal fees. They’ll try. It’s up to you to make sure they don’t succeed on your back.

I routinely meet people who do not have an emergency fund. And I hear from hundreds more; sad souls who have hit a wall and have no money to help them over. I’m not sure what else I can say to influence them to get this very important part of their financial safety net in order other than this: Caca Happens. If you have some money available to help you through, things will be a lot less stressful than if you’re dealing with Caca and No Money at the same time.

It doesn’t really matter how well you think things are going. Like the economy, life is a cycle. Sometimes you’re on your way up the positive side. Sometimes you’re on your way down the negative side. That’s just the way life is. And it really shouldn’t come as any surprise at all since it has always been thus.

Building up an emergency fund is an important part of your Risk Management. But you already know that. It’s pretty standard advice from anyone who knows anything about money and life. You’re mother gave you a version of this lesson when she encouraged you to tuck a twenty somewhere safe when you were going off on a date so if things didn’t go well, you had the money to get home under your own steam. Your mother didn’t tell you that? Hmmm.

Sticking a twenty somewhere safe is still good advice. Except a twenty doesn’t really cut it when you have a $1200 mortgage payment, a $300 car payment, kids to feed, a home to heat, and medical costs that have to be covered

The biggest problem with not having an emergency fund is that when the caca does hit the fan you’re going to go into debt, or deeper into debt, just to meet your most basic needs. So an emergency fund is also a safety net against more debt. And an emergency fund can help you smooth out your budgeting because when unexpected expenses hit your doorstep, you don’t have to constantly be rejigging your budget to make it to the end of the month. You can use some of your emergency fund for the emergency, and keep your budget on track.

But Gail, I can hardly manage on the money I’m making now. Where am I supposed to get the money for an emergency fund?

Start small. If you don’t have much to save, it doesn’t matter — the important thing is just to start. Even if it’s only $20 per paycheck, start. As long as you haven’t started, you’re not building your emergency fund. Once you’ve started, you’re on your way and then it only becomes a matter of how to boost the amount you’re setting aside.

To create your emergency fund, set up an automatic deduction from your regular account to a high-interest savings account. Whether you go with ING Direct, The President, or your local credit union, find the account with the highest interest you can. Don’t settle for some pathetic savings account being touted as an “investment account” from your local bank. You work hard for your money, and your money should work just as hard for you.

One of the best ways to establish an emergency account is with a payroll deduction at work. This is particularly true for all of you people who have no discipline! Employers often offer the option of deducting some money from each of your pays and putting that money in a savings bond. There. You won’t even miss it since the money never hits your bank account. Of course you have to treat that money as sacred. If you pull the money out every time you Create A Stupid Emergency – gee honey, we really do need a new front door – then you’re playing a game with yourself, and you will LOSE!

Okay, once you’ve started your emergency fund, sticking away your $20, $30 or $50 a pay, you’re on your way. But you can’t pat yourself on the back just yet. Since the rule of thumb is that you need at least three months of Essential Emergency Expenses set aside, you must find a way to boost your savings to reach your goal in a reasonable period of time.

One way is to reduce what you’re spending in one category of your budget and send that money to your High Interest Savings Account. Most people have things they can cut back on. Do you buy coffee every day on the way to work? Do you smoke? Do you pick up the latest magazine at the checkout counter? Do you subscribe to premium cable? Do you go out for a drink with your friends after work? Buy your lunch at work? Pick up your favorite “stuff” whenever it’s on sale even though you already have 30 pairs of shoes, white shirts, handbags, DVDs, name your vice here.

One great tip I picked up from a regular visitor to the site is the Tit-for-Tat approach to savings. Each time this woman buys herself something she considers a WANT, she contributes an equal amount to her savings account. Not only does it make her really think about whether she’s going to spend the money – because in essence whatever she buys is going to cost her cash flow twice as much – she’s saving for the future while she enjoys her todays.

Assuming you’ve been working like a dog to get your debt paid off, once it is, don’t just incorporate all that money back into your spending plan. Take 30% and use it to boost your emergency fund. (If you’ve already hit your emergency fund goal, use that 30% for long term savings.)

Debt free with a safety net? Rock-on!

The unemployment rate in Canada hit 6.2% in July, despite record high employment rates in Alberta, Manitoba and Nova Scotia. With all the crap happening south of the border, unemployment is likely headed up in the short term as we deal with the credit crisis. Often, when we find ourselves out of work, we duck and hide, embarrassed at our change in circumstances. And we spend. Unwilling to admit that things have changed, and with time on our hands, we spend and spend and spend. Well, if you’ve seen my show, you know where that leads.

In my last blog, I talk about the unemployment rate in Canada and the potential downturn we may experience. I thought I should give you some world figures to put things in perspective.

The credit crisis is causing rising unemployment in the UK, with official unemployment figures for last month the worst since 1992.  The UK unemployment rate is 5.2%.

In the U.S. people are cheering because their unemployment figures seem great compared to elsewhere, but July’s rise in unemployment was the seventh straight; the current 5.7% is the highest rate since March 2004.

According to Eurostat, the Statistical Office of the European Union, unemployment sat at 7.3% in the euro area in June 2008.The lowest unemployment levels were recorded in Denmark (2.7%) and in the Netherlands (2.9%); the highest were in Slovakia (10.5%) and in Spain (10.7%). Poland sits at 7.3%, Bulgaria and Ireland are at 5.7%.

The Organization for Economic Cooperation and Development (OECD), which is made up of 23 European countries and Australia, Turkey, New Zealand, Canada, Mexico, the United States, Japan and South Korea, is predicting an average rise in unemployment in 2008 and 2009.

So what do you do if you find yourself out of work?  Here are 9 Things to Do if You Lose Your Job:

1. Tell your family not to panic. Yes, things are going to be different for the short- or medium-term, but you’ll weather this together. You need to have a clear sense of what your priorities are so that you can work together to get through this without fighting, bitching, snarking, crying, or being a’feard.

2. Tell everyone you know that you need a job. Many jobs never make it to the advertisement pages since people in a company will be asked if they want the job, or if they know of anyone they could recommend for the job. The more people you tell the better your chances are that someone will put forward your name. Be clear about what kind of job you are seeking and what your skills are, and someone may be able to help you get a new job. But also be open to experiencing something new, and using your skills in different ways. If you hated your last job, don’t get another one just like it.

3. Apply for employment insurance benefits. While this is usually barely enough to keep body and soul together, it’s still better than a kick in the teeth. If you find employment before your benefits begin you can always cancel the claim.

4. Start looking for a job. Dust off your resume. Hit the web. Some part-time work that supplements your income while you’re looking for a full-time job will help to keep you busy and focused on making things happen. One of the biggest problems with unemployment isn’t just the lack of money, it’s the abundance of time and the sense that this will never end. Get busy.

5.  Cut your expenses. First, you need to cut back to the bare minimum so that you can make your emergency fund (you have one of these, right?) last as long as possible. Ditto your employment insurance benefits, your severance, your partner’s income or whatever else you may have that you can use.  Cancel the cable, decide between the home telephone and the cell phone, don’t buy anything that isn’t food, and consider your quarters your entertainment budget. Second, since you may not find a job paying the same money, you need to decide what your Basic Costs of a Good Life are so you know how much salary you can live without.

6. Talk to your creditors. Don’t ignore your bills. Contact your creditors and explain your problem. Offer to make regular smaller payments that you can afford for a short period of time. Ask for an interest rate concession. Get those credit payments in line with your new income.

7. Embrace change.  In all likelihood if your industry is in retreat you’re not going to find a similar job for similar money easily.  Two part-time jobs may be as good as one full-time. Contract work may be a good option for rebalancing your life. Business opportunities may present themselves and you’ll have to have your eyes open to take advantage of them. Don’t be closed to a relocation if that’s what it takes to get you back on track.

8. Take care of yourself.  Don’t climb on the couch and hide. Don’t dig into a big tub of cookie-dough ice-cream. Don’t stop exercising, socializing, empathizing. If you find yourself becoming really sad about your situation, find someone to talk to about it. Don’t let yourself go into a nose-dive. Keep to a schedule and keep your focus. Volunteer so that you can keep meeting new people, widening your network, and putting more people into the job-hunt on your behalf. Take a course to update your skills or learn new ones.

9. Keep your sense of humour. When things get tough, our funny bone is the first to go. Don’t let it. You can do so much when you’re smiling. Your interviewers will see you differently. Your family will be reassured. Your friends won’t run and hide when you call. Hang on to that funny bone!

There’s no longer such a thing as a Job for Life. Gone are the days when you retired from the first company that hired you. The new reality is that you can expect to have up to eight – count ‘em EIGHT – careers over your working life.

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Now, one would think that maturity would help to reduce the incidence of divorce. I mean the longer you wait to commit, the more sure you’d be that you’d made the right choice. And people are waiting longer. In 1950 the average age for first marriage for men was 28.5 years and for women was 25.9 years. By 2000, the average age at first marriage was 30 years for grooms and 28 years for brides. By 2001 the ages had jumped to 34.3 and 31.7 years for grooms and brides.

For all our maturity, the likelihood of divorce hasn’t gone down. In 2003, almost 40% marriages ended in divorce.

The fact that we don’t measure the ending of a common-law union is making our divorce figures look better than they are, since we’re not measuring with any accuracy the number of “committed relationships” that are ending. The 1981 census was the first to record common-law unions and at that time about 6% of couples were forgoing marriage for an “alternate lifestyle option.” Twenty years later the rate of common-law unions had more than doubled to 14%.

With only the General Social Survey to go by, the Stats Man reports that couples who choose a common-law relationship as their first conjugal union have a greater probability of in separation. Yup, more than 60% of people who choose common-law relationships are expected to separate.

Sadly, whether married or living together, there’s a lot of garbage to clean up, both emotional and financial, when a relationship comes to an end. And no matter how hard you work to protect yourself, when the relationship ends, is can be a miserable experience.

People do all sorts of things to prepare for the end when they see the train heading towards them. With three kids, MT has set aside money her significant other is unaware of. She wants to know if she has to disclose this money.

Yup, eventually, but not know. When it comes time to fill out the financial paperwork, MT, you’ll need to fess up. But for now, if you think you’re going to need money you won’t have access to as you work through the separation and divorce, then I believe you’re doing the right thing to protect yourself and your children financially.

Paula wants to know what she need to consider in terms of her long-term financial security. Well, m’love, let’s start with the fact that statistically, you’re going to live longer than your ex and if you don’t have some pension money for when you’re no longer working, you’re not going to be living very well. So make sure you get your fair share of the pensions: company pension plans, RRSPs, and government benefits should all be split fairly.

JP wants to know if his ex-wife will be entitled to half the house even though the downpayment came from his parents. Well, Jack m’boy, if you and your wife signed an IOU to your parents for the downpayment, then that money won’t form part of her settlement. If not, she gets half of the equity in the matrimonial home, regardless of who paid the mortgage or made the downpayment.

Divorce is hard. Not being prepared for divorce is dumb. No matter how smoothly you think your parting is going to go, you need to be prepared for some bumps. Optimism is great. Delusion is costly.

We are planning to produce two special episodes of the show this year featuring couples who have made the decision to split up. Couples cast in these episodes would get all the same great information about managing their money, paying off debt and planning for the future – as well as some practical tips to help them start the process of building a new life. If you know anyone planning to separate who could benefit from my help, please send them to www.themoneytest.com to fill out the application. They should note the status of their relationship clearly in the application.