The result: rising levels of consumer debt and declining household savings rates. But in 2008, this culture was hit hard by economic reality. As a result of the credit crisis and ensuing economic recession, savings rates rebounded. For those who had been living beyond their means for years, it suddenly got a lot harder to make ends meet. And, although the government tends to encourage spending during economic downturn and statistics may lead us to think that overspending is normal, it is often a risky choice.

Here we’ll take a look at the most common financial mistakes that often lead people to major economic hardship. Even if you’re already facing financial difficulties, steering clear of these mistakes could be the key to survival.

Mistake No. 1: Excessive/Frivolous Spending

Great fortunes are often lost one dollar at time. It may not seem like a big deal when you pick up that double-mocha cappuccino, stop for a pack of cigarettes, have dinner out or order that pay-per-view movie, but every little item adds up. Just $25 per week spent on dining out costs you $1,300 per year, which could go toward an extra mortgage payment or a number of extra car payments. If you’re enduring financial hardship, avoiding this mistake really matters – after all, if you’re only a few dollars away from foreclosure or bankruptcy, every dollar will count more than ever.

Mistake No. 2: Never-Ending Payments

Ask yourself if you really need items that keep you paying for every month, year after year. Things like pay television, subscription radio and video games, mobile phones and pagers can force you to pay unceasingly but leave you owning nothing. When money is tight, or you just want to save more, creating a leaner lifestyle can go a long way to fattening your savings and cushioning your from financial hardship.

Mistake No. 3: Living on Borrowed Money

Using credit cards to buy essentials has become somewhat normal. But even if an ever-increasing number of consumers are willing to pay double-digit interest rates on gasoline, groceries and a host of other items that are gone long before the bill is paid in full, don’t be one of them. Credit card interest rates make the price of the charged items a great deal more expensive. Depending on credit also makes it more likely that you’ll spend more than you earn.

Mistake No. 4: Buying a New Car

Millions of new cars are sold each year, although few buyers can afford to pay for them in cash. However, the inability to pay cash for a new car means an inability to afford the car. After all, being able to afford the payment is not the same as being able to afford the car. Furthermore, by borrowing money to buy a car, the consumer pays interest on a depreciating asset, which amplifies the difference between the value of the car and the price paid for it. Worse yet, many people trade in their cars every two or three years, and lose money on every trade.

If you need to buy a car and/or borrow money to do so, consider buying one that uses less gas and costs less to insure and maintain. Cars are expensive. You might need one, but if you’re buying more car than you need, you’re burning through money that could have been saved or used to pay off debt.

Mistake No. 5: Buying Too Much House

When it comes to buying a house, bigger is also not necessarily better. Unless you have a large family, choosing a 6,000-square-foot home will only mean more expensive taxes, maintenance and utilities. Do you really want to put such a significant, long-term dent in your monthly budget?

Mistake No. 6: Treating Your Home Equity Like a Piggy Bank

Your home is your castle. Refinancing and taking cash out on it means giving away ownership to someone else. It also costs you thousands of dollars in interest and fees. Smart homeowners want to build equity, not make payments in perpetuity. In addition, you’ll end up paying way more for your home than it’s worth, which virtually ensures that you won’t come out on top when you decide to sell.

Mistake No. 7: Living Paycheck to Paycheck

The cumulative result of overspending puts people into a precarious position – one in which they need every dime they earn and one missed paycheck would be disastrous. This is not the position you want to find yourself in when an economic recession hits. If this happens, you’ll have very few options. Everyone has a choice in how they live, so it’s just a matter of making savings a priority.

Mistake No. 8: Making A Payment Vs. Affording A Purchase

To steer yourself away from the dangers of overspending, start by monitoring the little expenses that add up quickly, then move on to monitoring the big expenses. Think carefully before adding new debts to your list of payments, and keep in mind that being able to make a payment isn’t the same as being able to afford the purchase. Finally, make saving some of what you earn a monthly priority.

Toronto Bankruptcy

Personal debt  and bankruptcy is on the rise in Canada. Here’s a brief overview of the personal bankruptcy process.

Between 1990 and 2006 business bankruptcies declined by 42 per cent – but consumer, or personal, bankruptcies increased by 85 per cent, according to Industry Canada statistics. And with Canadian household debt loads continuing to rise, it’s likely that individuals will continue to have to file for personal bankruptcy. Here’s an overview of the process and some things to consider.

Insolvency

When someone is unable to meet his or her payments on debts (known as debt obligations), that person is considered to be insolvent. The insolvency process is a legal proceeding that is dealt with under the provisions of the Bankruptcy and Insolvency Act.

You are considered to be insolvent when:
• you do not currently have an un-discharged bankruptcy
• you owe at least a $1000.00; and you are unable to meet your regular payments as they become due, or you would not be able to pay all of your debts if all of your assets were sold

At that point there are really two options:

• Bankruptcy: under the guidance of a trustee, most of the assets of that individual will be liquidated to sold the debt
• Proposal: where the individual makes an offer to debtors to settle the debt. (Companies have a third option, receivership, but this is rare for individuals.) To make a proposal the individual’s unsecured debts must total under $75,000.

A licensed professional can advise you on whether a proposal or a bankruptcy best fits your situation. Once you have determined that a bankruptcy is appropriate you will need to find a licensed trustee.

Bankruptcy Trustees

Trustees are chosen by the person filing for bankruptcy and paid by the bankrupt and the assets from the estate. These fees will depend on the individual’s debt situation, but are set under the Bankruptcy and Insolvency Act. However, it’s important to understand that a trustee’s first responsibility is to represent the creditors.

The trustee’s duties are to:
• Review your situation and inform you as to the alternatives available;
• Administer the proposal – that is, to sell any assets you have that are not exempt and to distribute the cash to creditors
• Administer the estate and file the paperwork from the beginning to the end according to the Bankruptcy and Insolvency Act.

A trustee is also an officer of the court, and is generally an accountant. Once chosen, a trustee cannot be discharged (or ‘fired’) without approval from the Court.

If your case is particularly complex or you have concerns, you may want to consult an insolvency lawyer as well. The Office of the Superintendent of Bankruptcy Canada regulates licensed trustees, and provides an online database of trustees.

Once you have a trustee, you have certain obligations that you must fulfill.

Your obligations

Once you enter into the process of bankruptcy you must disclose all your financial information to the trustee: income, expenses, debts, and assets, along with information about any property you have sold in the last year. You will have to turn your credit cards over to the trustee. You must stay in touch with the trustee during the process and advise them of any address or telephone number changes.

You may have to attend an examination before the Official Receiver. This examination takes place under oath and is designed to discover the cause or causes of your bankruptcy, look at any property recently sold, and the status of current assets. Your conduct is also examined.

You may also have to attend a meeting of your creditors, if one is requested. This is to confirm the appointment of the trustee, give creditors information about the bankruptcy, and to appoint inspectors to oversee the process.

And you will have to attend at least two counseling sessions that discuss issues around personal finance and bankruptcy.

Which debts are covered by bankruptcy? What do I keep?
Debts that are not secured, such as credit card debt, and in many cases debts to the Canada Revenue Agency (taxes) are dealt with through bankruptcy. Debts to family must be included in the bankruptcy process – you cannot continue to repay family members the full amount of a loan while settling with other creditors for less.

Secured loans, such as mortgages and car loans are not covered by bankruptcy. However your trustee may be able to help you in surrendering those assets and receiving a receipt.

Other debt not covered by bankruptcy includes:
• student loans, if it is less than 10 years since your schooling finished
• fine or penalty imposed by the Court
• alimony
• liability for dividend to an undisclosed creditor
• debt obtained by fraud
• liability for support or maintenance of spouse or child under an agreement or Court Order

Which assets remain yours (or are exempt from the bankruptcy) depends on your province.

Once you file for bankruptcy most wage assignments and garnishments will stop. The trustee will review your income and expenses and compare these to guidelines set out by the Superintendent of Bankruptcy. If you are considered to have extra income it may be assigned to your creditors.

Assets that you acquire during the bankruptcy period – for example, if you were to inherit property – become a part of the bankruptcy.

Discharge of bankruptcy
For first-time personal bankruptcies the bankruptcy is automatically discharged after nine months. There are however, several kinds of discharge:

Absolute discharge: You are no longer responsible for unsecured debts incurred prior to bankruptcy except for those which were not included (such as child support payments).

Conditional discharge: You may have to make payments to your creditors through the trustee for a specified period. You will not receive an absolute discharge until that period is over (and all payments have been made).

Discharge refused: The Court may refuse a discharge in unusual circumstances, such as:

• your assets are less than 50 per cent of the amount owed
• you continued to obtain credit while unable to pay your existing creditors
• you contributed to bankruptcy by extravagant living or gambling
• you failed to perform any duty imposed by the Bankruptcy and Insolvency Act

Once your bankruptcy is discharged it will take six years for it to be removed from your credit report.

For more information:
http://strategis.ic.gc.ca/epic/site/bsf-osb.nsf/en/h_br01545e.html

North Americans are a collection of spenders who must learn the hard way to practice what our grandparents have always known: A penny saved is a penny earned.

Consider that about 43% of North Americans spend more than they earn, according to estimates from the federal government, and the average household carries some $8,000 to $10,000 in credit-card debt.

To make matters worse, the average North American no longer saves money. That’s tumbled from a 10.8% average savings rate in 1984 into negative territory today. It’s no wonder that many of us have been living way above our means for some time.

But that is getting harder and harder to do. Available credit for people to finance their lifestyles has shrunk if not dried up altogether and many North Americans are standing by in shock watching their mortgage payments surge while the value of their 401(k)s / RRSP’s drop.

It’s clear we need to start spending less and saving more. That may sound easier said than it’s done. The key is to be aware of your where your money is going and take steps to stop the leaks.

Here are five simple tips that could save you hundreds of dollars a month:

1. Cash back at the pump

In the past five months gasoline prices have dropped 56%, from an average price of $4.11 to $1.80 a gallon or 72 cents a litre. Somehow, households found the money to pay the higher price and survive so now people should take that excess money they are saving and bank it.

Jean Chatzky, author and personal finance expert suggests using the money you were spending on gasoline to build up that rainy day fund or to pay some your holiday expenses instead of racking up more debt.

2. Dinner Savings

Another great way North Americans can cut costs each month is to eat at home, says Jonathan and David Murray, twin brothers who are financial advisers.

According to a recent Zagat survey, North Americans will spend an average of $34 this year every time they go out to eat dinner, that’s for one dinner, drink and gratuity; $76.00 if they live in one of the 20 most expensive cities. If a couple does that four times in a month the expense is close to $300 in low-cost areas and $600 in higher-cost regions, and if you have more than one drink or are treating family or friends, costs can add up quickly.

Plan a dinner or party at home and ask guests to bring a dish. If you’re big on getting together with friends, family and work associates, this could save you hundreds of dollars a month.

3. Renegotiate Household Bills

You may not be able to negotiate with the gas company or the electric company, but you can with credit cards, cable and phone services, among others. Do the homework and find out what competing cable companies, for example, are offering and ask your provider to renegotiate your bill. You may have to get through to a manager but Chatzky said she recently did this and got her monthly bill reduced by $50.

4. Smart shopping

Retailers are poised to have one of the worst holiday shopping seasons in decades and are offering deep discounts to move merchandise. But smart shoppers can save even more money by hunting down coupons. Before ordering online or going to a store, go to sites like Couponcabin.com and Ultimatecoupons.com or Google the name of a store and often you’ll get a coupon code to enter at checkout. You can save 10% to 20% or more on the total order or maybe get free shipping.

There are also coupons to print out and take to the store for deeper discounts. And don’t be afraid to pit one retailer against another by asking for a price match on sale items.

5. Keep the receipt

It is important to hang on to all your store receipts and keep track of sales. Savvy shoppers can possibly save even more on purchases by checking back to see if the retailers lower prices even further. If that happens within two weeks of your purchase, most stores will credit you the difference.

We hope that you can layer into your shopping habits the following tips as a means to start saving money fast and easy.

Toronto Bankruptcy Trustees

Unfortunately, one of the factors that will prevent many people from becoming financially successful is their false beliefs about money. In fact, widespread financial myths can negatively impact both your short- and long-term net worth. Throw away these top 10 money myths, and you’ll avoid the consequences of believing them.

1. If I get a raise that bumps me into a higher tax bracket, I’ll actually take home less money.

Thankfully, this isn’t true. Moving into a higher tax bracket only increases the rate of tax paid on the last dollars you earn. Suppose you’re filing single, your old salary was $30,000 a year and your new salary is $33,000 a year. According to the IRS’s 2007 federal tax rate schedules, when your salary was $30,000, your marginal tax rate was 15%. With a salary of $33,000, your marginal tax rate is now 25%.

The key to unlocking this myth is the word “marginal”. In this scenario, your first $31,850 of income is still taxed the same way it was before you got your raise. With a $30,000 income, your take-home will be $25,891.25. If you make $33,000, you will take home $28,326.25. This is because only the extra $1,150 above $31,850 is taxed at 25% – not the whole $33,000.

2. Renting is like throwing away money.

Do you consider the money you spend on food to be thrown away? What about the money you spend on gas? Both of these expenses are for items you purchase regularly that get used up and appear to have no lasting value, but which are necessary to carry about daily activities. Rent money falls into the same category.

Even if you own a home, you still have to “throw away” money on expenses like property taxes and mortgage interest (and likely more than you were throwing away in rent). In fact, for the first five years, you are basically paying all interest on your mortgage. For example, on a 30-year, $250,000 mortgage at 7% interest, your first 60 payments would total about $100,000. Of that you “throw away” about $85,000 on interest payments.

3. You get what you pay for.

Higher-priced items are not always higher quality. Generic drugs are medically considered to be just as effective as their name-brand counterparts. A million-dollar home that falls into foreclosure and is repurchased for only $900,000 may still have $1 million worth of value. When the price of Google’s stock drops on a random Tuesday because investors are panicking about the market in general, Google isn’t suddenly a less valuable company.

While there is sometimes a correlation between price and quality, it isn’t necessarily a perfect correlation. A $3 chocolate bar may be tastier than a $1 bar, but a $10 bar may not taste significantly different from a $3 bar. When determining an item’s value, look past its price tag and examine its true indicators of value. Does that generic aspirin stop your headache? Is that home well-maintained and located in a popular neighborhood? Then you’ll know when paying the higher price is worth it when it isn’t (and you’ll be on your way to understanding the venerable principles of value investing, too).

4. I don’t have enough money to start investing.

It’s true that some brokerage firms require you to have a minimum amount of money to invest in certain funds or even to open an account. However, if you wait until you meet one of these minimums, you may get frustrated and have a harder time reaching your goal.

These days, it’s easy to start investing with very little money thanks to the proliferation of online savings accounts. While traditional bank savings accounts generally offer interest rates so low that you’ll barely notice the interest you accrue, an online savings account will offer a more competitive rate based on how the market is currently doing. In 2007, it was common to find online banks offering 5% interest. 5% is a pretty good return on your low-risk savings account investment when you consider that stocks historically return an average of 9-10% annually. Also, some online savings accounts can be opened with as little as $1. Once you’re in a position to start investing in stocks and mutual funds, you can transfer a chunk of change out of your online savings account and into your new brokerage account.

Alternately, you could open a brokerage account with minimal funds through one of the online trading companies that have cropped up. However, this may not be the best way to start investing because of the fees you’ll pay each time you purchase or redeem shares (generally $5 – $15 per trade). While these fees have been drastically reduced from when you had to trade through human stockbroker, they can still eat into your returns.

5. Carrying a balance on my credit card will improve my credit rating.

It’s not carrying a balance and paying it off slowly that proves your credit worthiness. All this strategy will do is take money out of your pocket and give it to the credit card companies in the form of interest payments.

If you want to use a credit card as a tool to improve your credit score, all you really need to do is pay off your balance in full and on time every month. If you want to take it a step further, don’t charge more than a small percentage of your card’s limit because the amount of available credit you’ve used is another component of your credit score.

6. Home ownership is a surefire investment strategy.

Just like all other investments, home ownership involves the risk that your investment may decrease in value. While commonly cited statistics say that housing appreciates at somewhere between the rate of inflation and 5% per year, if not more, not all housing will appreciate at this rate.

In fact, it is perfectly possible for your home to lose value over the years, meaning that if you want to sell, you’ll have to take a hit. The only way you’ll avoid realizing a loss in such a situation is if you continue to own the home until you die and pass it on to your heirs.

Even in a less drastic situation, a job transfer, divorce, illness or death in the family could compel you to sell the house at a time when the market is down. And if your house appreciates wildly, that’s great, but if you don’t want to move to a completely different real estate market (another city), the profit won’t do you much good unless you downsize because you’ll have to spend it all to get into another house. Owning a home is a major responsibility and there are easier ways to invest your money, so don’t buy a home unless you are attracted to its other benefits.

7. One of the major advantages of home ownership is being able to deduct your mortgage interest.

It doesn’t really make sense to call this an advantage of home ownership because there is nothing advantageous about paying thousands of dollars in interest every year. The home mortgage interest tax deduction should only be looked at as a minor way to ease the sting of paying all that interest. You are not saving as much money as you think, and even the money you do save is just a reduction in the costs that you pay. Interest tax deductions should always be considered when filing your taxes and calculating whether you can afford the mortgage payments, but they should not be considered a reason to buy a home.

8. The stock market is tanking, so I should sell my investments and get out before things get any worse.

When the stock market goes down, you should really keep your money in. This way, you can ride out the dip and eventually sell at a profit. In fact, stock market lows are a great time to invest even more. Many seasoned investors consider a decline in the market to be a “sale” and take advantage of the opportunity to pick up some valuable investments that are only experiencing a temporary dip.

9. Income tax is illegal.

Sorry, folks. There are quite a few different arguments here, but none will hold up in court. One is that the tax code says that paying taxes is voluntary. Another is that the IRS is not an agency of the United States. The IRS considers all of these arguments to be tax evasion schemes and will punish so-called tax protesters with penalties, interest, tax liens, seizure of property, garnishment of wages – in short, whatever it takes to get tax evaders to pay the full amount due when they’re caught. Most tax protester arguments and the IRS’s rebuttals can be found on the IRS website. Don’t fall for this shenanigan - it will ultimately cost you much more than you were hoping to save by not paying your taxes.

10. I’m young — I don’t need to worry about saving for retirement yet. / I’m old — it’s too late for me to start saving for retirement.

The younger you are, the more years of compound interest you have ahead of you. Compound interest is like free money, so why not take advantage of it? Someone who starts saving and earning interest when they’re young won’t need to deposit as much money to end up with the same amount as someone who starts saving later in life, all else being equal.

That said, you shouldn’t despair if you’re older and you haven’t started saving yet. Sure, your $50,000 nest egg may not grow to as much as a 20-year-old’s by the time you need to use it, but just because you may not be able to turn it into $1 million doesn’t mean you shouldn’t try at all. Every extra dollar you invest will get you closer to your goals. Even if you’re near retirement age, you won’t need your entire nest egg the moment you hit 65. You can still sock away money now and make a considerable sum by the time you need it at 75, 85 or 95.

The Bottom Line

Just because a belief is common and widespread doesn’t mean that it’s true. So, if you hear something about money or finance, give it some thought before taking it to heart – financial myths will only stand in the way to your financial success if you believe them.

I just came across this valuable set of tips from AllBusiness.com.  As a personal bank customer today, you need to be cautious and pay close attention to activity in your account.

Bank errors and the potential of identity theft have made it imperative that you become proactive and follow simple safeguards. In addition, changes in bank policies can create confusion. Here are a few of the most common personal banking mistakes to avoid.

1. Not reviewing your bank statement promptly. The biggest personal banking mistake is not opening and looking at your bank statements when you receive them. This is the only way to know immediately if there is a mistake in the account or if the balance is below the minimum level for which you will be charged a fee. Take a few minutes to look over the bank statement.

2. Paying unnecessary fees and bank charges. Banking is a competitive business. There are banks that charge fees for various services and others that do not. Don’t pay unnecessary fees because you are too lazy to shop around. Likewise, don’t settle for lower interest rates if there are higher ones at another convenient bank.

3. Leaving a literal paper trail. Leaving discarded bank documents behind makes you an easy target for identity thieves and con artists. If you make a mistake on a deposit slip, for example, don’t just toss it on the counter or even into the bank garbage can without tearing it up first. All bank documents that you plan to discard should be treated in the same manner — shred them or tear them up into small pieces.

4. Banking online in public places. WiFi access allows you to go online from your favorite hangout. However, you should think twice before doing any online banking transactions over a wireless service from a public place. The level of security is not the same as it is when using your own router.

5. Using an easy password. First, don’t use an obvious password like your birth date. Second, change your password periodically. Third, do not write your password down, particularly anyplace outside of your own home.

6. Failing to take ATM precautions. ATMs can be lifesavers when you need cash. However, you need to be smart and not write down your pin number, especially on your ATM card. Also, do not carry money openly out of the vestibule or use the machine at all if you do not feel physically safe.

7. Signing and endorsing checks prior to entering the bank. People do this all the time to save time. However, if you lose a signed or endorsed check, you can lose the money. Do your signing inside the bank, even if it takes a little longer.

8. Leaving bank account numbers for others to see. If you are reviewing your bank statement at the office, put it in your pocket or purse when you are done. The same holds true for all bank related documents.

9. Assuming you must borrow from your bank. If you need a loan or are in the process of seeking a mortgage, it is not necessary that you give your bank the business. You can certainly include them in your search, but you should certainly shop around.

10. Not establishing a relationship. Whether you are banking online or in person, you should get to know the customer service staff. Meet the branch manager and establish a rapport with the people holding onto your money.

Toronto Bankruptcy Trustee