The Learning Centre:
An education in summer spending (and how to avoid getting burned)
(Reading time: 3:30)
Summer spending without a plan is akin to a day in the sun without UV protection. At some point, you’re going to get burned.
Of course, how much money you end up having for said ‘summer spending’ likely depends on where you are in your education career (i.e. full-time or occasional / working or retired). Yet regardless of where you are on the pay grid or how much pension income you have coming in, there are a few summer spending guidelines you should follow to protect your finances from burning up.
The first of these is setting (and sticking to) a summer spending budget.
Having more ‘free time’ in July and August could potentially lead you to overspending, if you’re not careful. This is why, as an education member, you should always have a separate spending budget in place to keep your finances on track for the summer months.
Next, take that summer spending budget further by assigning every dollar, before you spend it.
By ‘assigning’, we mean deciding how much money will be going to each activity over the course of the summer. This will give you a spending guideline for each activity, making it much easier for you to stick to your budget and spend within your means.
Be sure to also include a bucket for the unexpected when dividing up your summer spending budget.
Because no matter how much you try and plan for ‘everything’, cars break down, home repairs come up, and family and friends drop by out of the blue. Working in a bit of financial wiggle room into your summer budget for the unexpected, however, will ensure you’re better prepared to handle whatever pops up in the spur-of-the-moment. Furthermore, you’ll also have a better sense of which plans you’ll be able to carry out and which ones will need to be sidelined, should a big unexpected financial emergency arise.
Relaxing at the cottage. Doing a bit of travelling. Enjoying a ‘staycation’ right at home. How are you spending this summer?
According to the Chartered Professional Accountants of Canada (CPA), a study of last year’s summer spending showed that 32% of Canadians did not set a budget, with 20% having to use credit to pay for their summer plans.
The 2019 version of the same survey contends that 47% of Canadians have even less money to spend on their summer plans this year.
If your summer spending budget is tight this year, be sure to mind your credit card purchases.
You might be tempted to turn to credit cards to fill the financial gap. While there’s nothing wrong with using credit as a means to realize your summer plans (particularly if you can rack up reward points), the trick is to always pay off the balance in full. Or at least, do your best to make more than the minimum monthly payment. Because let’s face it, interest charges add up and you don’t want those credit card purchases to end up costing you more than you bargained (or budgeted) for.
Feeling the heat of your summer credit card purchases? Here are 3 tips for taking your credit card debt to zero.
Have a credit card that offers rewards? Ensure you’re using one that works with your spending habits.
For example, if you tend to do a lot of driving during the summer months, consider using a card that earns you money towards free gas. If your travel aspirations are more ‘global’ in nature, you’ll want a card that earns you points you can then use towards flights and or hotels. This way you’ll be making those summer credit card purchases work in your favour (particularly if you’re paying off your statement balances in full).
However, don’t rely on credit cards as a means of covering the costs of all your summer plans.
Look ahead instead; then budget and plan accordingly. After all, your ultimate goal should always be to have the funds set aside well in advance so that you can be prepared for any sudden changes to your financial situation.
Let’s say you want to save $5,000 to put towards your plans next summer. That’s ten months away. This means you’ll have to save about $555 a month between now and then to reach that goal (which works out to roughly $18 a day). Putting together a budget helps you find the cash flow to fund that $18 a day—while a financial plan provides you with the strategy to reach your goal within your set timeframe.
Naturally, the more time you give yourself to save and prepare, the less you’ll have to rely on any type of credit to fund your way through summer (or any other time of year for that matter).
Other goals—beyond your summer plans—you may want to consider saving for:
- Emergency fund
- Down payment or renovations on a home
- 4 over 5 / X over Y leave
- Adding to pension income in retirement
Free up cash flow to put towards your summer savings goals by consolidating high-interest debt.
Regardless of your current income level, high-interest credit cards and loans have the potential to eat up a big chunk of that income. Consolidating your high-interest debt (into a line of credit at a lower rate, for example) can reduce monthly payments and free up cash that you can then use to put towards your savings goals.
Are you planning on taking a leave during the upcoming school year? Don’t forget to also factor in ‘pension buyback’ into your budget.
Generally, it’s almost always a good idea to buy back all eligible pension credit. The impact can vary depending on the length of the absence you are buying back. Overall, buying back credit helps you maximize the value of your pension and ensures that you stay on track to reach your 85 Factor at your earliest possible date.
Looking to get your summer spending back on track? We’re here to help with that, and so much more.
With over 40 years of helping education members with their finances, Educators Financial Group can help you uncover ways to spend less, save more, and put together a customized financial plan to work towards your specific dreams and goals.
Click here to have one of our financial specialists help you put your financial plan in motion.
Brokerage license 12185