Category Archives: Control Expenses

How To Save More Money

Do you find that you’re not saving enough even though you have a plan to limit your spending? Let’s go back to the basics to see how to save more money. These tips should lead you to more savings and money in your pocket.

save money

First, we have this savings formula: Savings = Earnings – Expenses

It tells us that:

  • The more you earn, the bigger your savings can be.
  • The less you spend, the bigger your savings can be.

So, let’s think of ways to increase your earnings and reduce your expenses.

Increase earnings

Increase earnings through passive income

What’s exciting to lots of people is to earn a passive income. You can earn a passive income by investing and renting out real estate properties to collect monthly rent.

However, that comes with managing properties and dealing with tenants. It could turn out to be more work than expected and would defeat the purpose of a passive income, which should require less work than an active income.

Perhaps a simpler way to generate a passive income is through a portfolio of dividend stocks. Less money is required for an initial investment compared to a real estate property.

Let’s say a condominium costs $300,000 and you rent it out for $1,500 per month, that’s a return of 6%, excluding the mortgage interests, maintenance fees, property tax, strata fees, and so on.

Historically, the market has returned 7-10% per year. Theoretically, you can buy quality dividend stocks when they’re on sale. After the commission fee for buying, you can hold and avoid paying any more commission fees that are required for sales.

Then, you can just collect passive income from dividends. It’s common to find 3-4% dividend yields that can grow at least 5% per year and 5% yields that may grow 2% a year.

Eligible Canadian dividends are favourably taxed if received in a non-registered (taxable) account for Canadians, and likewise, qualified U.S. dividends are favorably taxed for Americans. Canadians can receive qualified U.S. dividends in registered retirement savings plans (RRSPs) without the 15% withholding tax.

The business growth, which eventually translates to capital gains, is tax deferred until you sell, at which time, only 50% are taxed at your marginal tax rate (if you’re Canadian).

If Canadians buy and hold in a tax free savings account (TFSA), they don’t have to pay any taxes on dividends and capital gains!

If your goal is to generate a passive income, then, you don’t even need to worry about the sell side. Just focus on buying quality, dividend-paying companies when they’re at reasonable valuations and collect their dividends forever.

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How To Reduce Your Monthly Spending

Are you not saving the amount you want each month? Or worse, are you running out of money at the end of each month? You can learn how to reduce your monthly spending with these tips.

save money

Track Your Spending

Knowledge is power. Start by tracking your spending. I track mine in a spreadsheet. Some people use mint.com.

Categorize your spending. For example, my spending falls under these categories: Food, Recurring Bills, Health, Transportation, Entertainment, and Misc.

  • Eating out, buying a coffee, and getting groceries fall under “Food”.
  • Rent or mortgage, utility bills, phone bills, and any other subscription fees fall under “Recurring Bills”.
  • Any expenses on sports activities, prescription drugs, Medical Services Plan fall under “Health”.
  • Expenses from refueling the gas tank, car insurance, and public transit fees fall under “Transportation”.
  • The “Entertainment” category is for any entertainment you do, such as going to the movies, or watching a Broadway show.
  • Anything else that doesn’t fit into the other categories, goes into “Misc”.

For each item, I record the date, amount spent, the location, and a description of the spending. Identifying which ones are necessities and which ones are wants, can help to reduce your spending. Read More