Category Archives: Carnival

A Review of My Holiday Spending

I had a question from a reader, Jordan, about how I handle my holiday spending. By an odd twist of fate I had several of my old Christmas budget files still on my hard drive, so I in the position of being able to analyze how much I’ve spent in the last four years.

First let me explain how I handle my Christmas shopping. I plan really far in advance. We normally set our total budget amount a year in advance. That way I start saving in January for the following Christmas. Then in October I sit down with my wife and we check out our list of people we bought for last year and updated as required. We also set limits for each person at this time. Typically limits are $50 for an adult, $40 for older kids and $20 for babies.

So over the last few years our total budget has been between $1150 to $1500 for 22 to 24 people. After we buy a present we enter it into a budget spreadsheet. This allows us to track each year how under budget we are doing, since we have yet to ever break our total budget. Our actual spending has ranged from $900 to $1350 total or $40 to $56 per person including shipping.

If we go over budget on a individual present, we then reduce our spending on someone else. This way the overall budget stays below its limit regardless of what we spent on a single person.

This entire system works well for us partly because we have set limits on our spending that we don’t go over as a whole. To help you reduce your holiday bill I suggest the following:

  1. Don’t buy gifts for people you barely have a relationship with. In my mind presents for teachers, mail carriers, babysitters and office co-works is insane.
  2. If you insist on doing something for your office bring in something that everyone will like such as a sample tray of your Christmas baking.
  3. Setup a gift exchange to reduce costs. A few years back my siblings got together and setup a gift exchange between our spouses and us. The idea was to let everyone focus more on the kids. It’s worked great so far.
  4. Homemade is fine as a present. Actually when we first got married, my wife and I made gift baskets, which featured mostly homemade items such as candles, hot chocolate mix, cookies and then some assorted dollar store items like mugs. They went over very well because everyone realized the effort we put into them (not to mention our hot chocolate mix is better than any store bought one I’ve ever had).
  5. Start shopping early. This allows you a stress free week before Christmas and also allows you time to find most of your presents on a good sale. Just because a present looks like it cost $50, doesn’t mean you have to actually spend anywhere near that amount.

So that’s my method and ideas around Christmas shopping. If you have an idea that has worked for you please share.

This post is part of the Canadian Tour of Personal Finance, check out the other blog posts here.

How Much Do You Need to Retire? – Part I

Welcome to my post for the first ever Canadian PF Blog Tour. I hope you enjoy it and I encourage you to check out the other participating posts.

Over the years you most likely have heard numerous ‘rules’ about the amount of income you are going to need in retirement (For example, 70% of your pre-retirement income). The problem with many of these ‘rules’ is they don’t account for what your retirement is going to be like personally so in the end they are useless.

So how do you come up with how much your going to need? You do some math and a little soul searching.

First find your last couple of pay stubs and figure out how much money you took home last month after taxes, CPP and EI (if you have a spouse you can do this together).

Then minus anything you were saving for retirement, after all when your retired you don’t need to save for it anymore.

Then minus any directly work related monthly expenses. For example you won’t need too many suits when you retire or that parking space downtown. Also your bill for the gas to commute is likely to drop. Don’t forget about dry cleaning or the fast food for supper that you keep buying since you don’t have time to cook.

Then minus your mortgage payment (don’t forget to leave your property taxes in if they are combined into your mortgage payments). We are going to assume that you were smart enough to ensure your home is paid for when entering into retirement.

Then minus what you spend on the kids every month on average (after all they should be out the door or close to it when you retire) and don’t forget about that RESP contribution you’ve been making.

Then take that monthly amount and times it by 12 to get a yearly amount. This is your base number. Now we have to start adding a few things.

Add $1000/year for each property and/or car you plan to own in retirement. So if you have the house, cottage and a car you add $3000 to your base amount. This is to cover maintenance and depreciate costs for your home and car, respectively.

Then think about what hobbies you want to do in retirement and add in an estimate on the yearly cost for those. Keep yourself from going crazy here as this might make your total look way higher than it needs to be. Also I don’t recommend including travel here. I’ll get to that in a minute.

If you have an ongoing medical condition which you spend money treating regularly you want to also add an estimated yearly cost for that as well.

When the math is all done you now have an estimate figure of yearly costs in retirement.

For example your numbers could look like this:

Take home pay $3850/month
– retirement saving $700/month
-work expenses $130/month
-mortgage $1020/month
-kid $270/month
= $1730 Base Amount

Base Amount $1730/month * 12 months/year = $20,760/year
Add in one house and one car + $2000
Add in hobbies + $2000
Add in medical + $0

Total amount to live in retirement $24,760/year.

Now once you have your number you can divide that by two if your doing this with your spouse. So that would be $12,380/year/person. Now take your new yearly income and do an estimate to determine your tax bill. So let’s use some rough numbers.

If the basic tax exemption is around $8000 that would mean only $4380 a year is taxable. Let’s assume a 25% combined federal and province marginal tax rate. So the tax bill for each person would be $1095/year. So add that back in to your total amount to live. $1095*2 + $24,760 = $26,950.

This amount represents how much you need to live for your desired retirement lifestyle. It will not be a perfect estimate, but it should at least land you in the right ball park. As I mentioned early I do not suggest including travel money in this amount. Why? After your 75 birthday you are likely going to start slowing down a bit and not traveling as much. So if you include a set yearly travel amount your going to end up with an artificially high number because your assuming your traveling until your assumed death age which isn’t all that realistic.

Instead your better off just starting a slush fund for travel. Take your yearly estimated travel spending and times it with the number of years you expect to be traveling. For example, if you want $3000/ year for travel from age 75 to 45 you would need $90,000 ($3000 * 30). When calculating how much you need to retire early you just add this amount to your total.

Come back tomorrow as I start into revisiting my first try of retirement calculations (Part I, Part II, Part III, Assumptions) to see if I can really save enough money to stop working at 45.