Glossary of Terms
- Abysmal Black Hole
- Canada Revenue Agency (CRA)
- Chief Financial Officer (CFO)
- Cost Centre
- Cost Centre Manager
- Cost Centre Target
- Fixed Cost Centres
- Fixed Cost Centres: RRSP
- Fixed Cost Centres: Rent/Mortgage
- Fixed Cost Centres: Transportation
- Fixed Cost Centres: Loans
- Fixed Cost Centres: Phone/Cable
- Fixed Cost Centres: Toiletries
- Fixed Cost Centres: DryCln/Alt/Ldry
- Fixed Cost Centres: House Maintnce
- Fixed Cost Centres: Children
- For-Profit Organization
- Magic Number
- Method of Payment (MOP)
- Return on Investment (ROI)
- Employment Revenue
- Opportunity Cost
- Other Revenue
- The Leveraged Zone
- Total Cost of Ownership (TCO)
- Variable Cost Centres
- Variable Cost Centres: Savings
- Variable Cost Centres: RESP
- Variable Cost Centres: Baby
- Variable Cost Centres: Groceries
- Variable Cost Centres: Miscellaneous
- Variable Cost Centres: Clothing/House
- Variable Cost Centres: My Vice
- Variable Cost Centres: Gifts
- Variable Cost Centres: Entertainment
- Variable Cost Centres: Childcare
The spender profile for an individual that is uninterested or unaware of the repercussions of spending his money, the bank’s money, or the credit card company’s money. Typically characterized by someone who loves malls and upmarkets, this individual will use traveling as an excuse to visit at least one of these in order to purchase some over-priced insignificant trinket that will soon be lost or forgotten. This person spends every last dollar in his wallet regardless of the dollar amount on items he often cannot afford or recall at some future date. Is this you? Learn how to view your spending habits from a CFO’s perspective, set up Your-CO today.
One of Your-COs most important partners, similar to the mafia, CRA is the organization that will take up to 50% of your hard earned income with a smile, or garnish your wages if you don’t pay, or punish your employer with hefty fines if they don’t remit your fair share. The CRA will be the largest spender in Your-COs lifetime. Are you managing your CRA effectively or are they managing you?
Critical to the success of any organization, the CFO has stringent ethical standards and indisputable integrity. S/he is responsible for cash, credit card, bank account and bill management as well as monthly book-keeping, annual forecasting and a savvy knack to present all the information in a comprehensive informative format. If you are single, you are the de facto family CFO and although you may not possess any of these qualities today, Quinn-CO will provide you with the tools to help you become all of these and more. Isn’t it time you started managing Your-CO effectively?
A category of expenses defined by a set of comprehensive rules, attributes and management strategies.
The individual ultimately accountable for the management of a cost centre. For example, the grocery cost centre manager is responsible for meal planning and purchasing of product, however s/he is free to delegate these activities partially or in full, that is, provide the list to some other family member for purchasing or have another individual choose the menu or be responsible for “flyer analysis”. The cost centre manager is responsible to keep costs within the monthly target s/he sets up. Do you know how to manage Your-CO effectively?
The monthly target of a cost centre as set out by the cost centre manager. This target should take into consideration a number of key factors
- the target must be considerably less than Your-COs overall monthly net revenue. If you are single with a total monthly net income of $3,000, appropriating a $2,000 target to the clothing/household cost centre would be fiscally irresponsible given you still need to eat, get to and from work, and have some money left over to pay your land lord.
- the target must be in proportion to overall monthly revenue. If you are married/coupled/living together, have a total monthly net income of $4,000 and are considering a mortgage approval with a minimum payment of $1,500 per month on a variable mortgage, before you sign up for it, do some strategic calculations and create a buffer: when that rate goes up, you may not have enough money to pay your property tax bill or eat that month.
- the target must be created with careful market research: what do similar or identical items cost at various stores; and analysis of passed months’ spending.
Are you managing Your-CO's Cost Centres effectively?
These include cost centres whose target:
- would require a large amount of work to change,
- require some amount of money to change,
- is basically static month over month regardless of management is employed.
Rent would fall into fixed expenses. Moving takes work, planning, some amount of financial outlay and it doesn’t matter if you spend an hour at home or all day, the monthly target remains the same. Do you know how to categorize your spending to manage Your-CO effectively?
This is, for the purpose of the Quinn-CO Method, truly our only tax shelter. The key is to max it out every year by setting up an automatic withdrawal the first of every month: Rule #10: live within your ideal tax threshold, find your magic number and pay yourself first.
#1 goal: Ideally to reach the 20% annual target, the monthly withdrawal will be 20% of your monthly gross income.
Runner up: The next best amount would be a minimum of 8% of your net salary.
Third place: At the very least if you are hovering above one of the tax bracket thresholds, contribute enough to get yourself to that magic number.
In addition to reducing your taxable income, this will guarantee a tax refund the following April, a crucial time for those of us trying to hammer at holiday credit card purchases. RRSP is placed in the fixed portion of our monthly statement and right at the top for optics: this is your most important cost centre and you need to view it as a fixed expense.
If your current rent payment is more than 30% of your net income, or you’re spending the full $1,200 or more as a single individual, you need to know that:
- spending that kind of money paying someone else’s mortgage is not fiscally responsible, and,
- more importantly, it’s almost going to guarantee that somewhere along the way, you’re going
to end up in debt. Here’s why:
It is such a large portion of your after-tax dollars that if something drastic were to happen (like a job loss) or a purchase was made that considerably exceeded a variable cost centre target, your annual statement (remember, you are now running a business) would be devastated.
Rent is a “fixed” expense because changing this cost centre target would mean a substantial amount of action and further cost on your part: moving, getting a roommate, etc.
If you’re setting up Your-CO today, and own your home with a mortgage, you will have an additional House Maintnce fixed cost centre.
Note that if you rent and pay your own utilities, they are included in rent as well.
The transportation cost centre is set up to account for commuting. This includes bus fare, tokens, cab rides, car insurance, gas, parking, new tires, oil changes and other costs related to vehicle maintenance. It encompasses everything you spend on traveling or servicing your vehicle.
Most of us have a set commuting routine and rely on a constant mode of transportation, placing this cost centre in the fixed portion of your monthly statement. If you don’t own a vehicle and rely on yourself to get around (walking, cycling, skateboard), you don’t need this cost centre at all.
This is your monthly payment for all loans: school loans, car payments, and any debt consolidation loans. As with rent, unless you change jobs resulting in an increase of salary, or come into a windfall, this is a difficult cost centre target to easily make modifications to, especially if your minimum payments already have you stretched.
If your household information does not result in a Loans cost centre and you have a car loan, include it under Transportation.
All communications plans for the phone (local, long distance, mobile), cable and internet. Most of us are on some kind of plan with our communications provider and have little movement with this cost centre target (short of changing providers or plans that may come at a contract penalty) placing it in the fixed expense portion of your statement.
This cost centre represents every bottle of shampoo, bar of soap, contact lense solution, box of Tylenol, jar of cotton swabs, toothpaste, toilet paper, astringent, cleanser, sunscreen; every container in your bathroom. If you can swing it all for under $100 get your cleaning supplies in here as well. Determine whether “toiletries” is a fixed or a variable expense for you. Does personal hygiene tend to cost Your-CO the same month over month or did you spend $10 last month and $50 this month?
Dry cleaning and alteration services: buttons, hems, holes, heels, zippers, etc. Everything you spend for washing clothes: detergent, fabric softeners and Laundromat costs.
Because most of us have more than one outfit, this cost centre can typically be influenced one month over the next placing it into variable expenses.
If you own your home, the “House Maintenance” cost centre will include property taxes and all applicable utilities: heat, hydro electricity, water and sewer. If you currently rent, utilities are included with rent. If you rent and are interested in entering the real estate market, add your estimated future maintenance costs to your “Savings” cost centre today. This serves a dual purpose:
- it will allow you to save for a down payment for your real estate purchase and
- it will show you how to live with the actual expense of a home, because every home owner has to deal with “House Maintenance”.
Home ownership is expensive and your future residence will require monthly maintenance payments. In addition, unforeseen costs always crop up. Appliances break, infrastructure requires upkeep, landscaping, interior beautification, just some of the things waiting for you. There can be a whole host of other possibilities you couldn’t even imagine: critter removal (ants in the cupboards, raccoons in the attic). Or your worst nightmares become realized: basement leaks, mould, asbestos, insulation issues. All of these are real possibilities, even with brand new homes. This cost centre is every home owners reality, can have wild target fluctuations month over month and year over year and needs a spot in Your-CO’s monthly and annual statement.
This cost centre will grow as your children grow and start participating in extra curricular activities. There is no way to measure ROI for this cost centre. If you’re raising the next Wayne Gretzky, hockey is an absolute necessity but ballet may not be. If your child has an affinity for an instrument, music lessons are in order. If s/he can sing, it’s vocal. Gymnastics class is a fantastic way for a young child to experiment with physicality that can develop into a lifetime of healthy fitness.
All of these activities can impact your child’s life tremendously and some are as necessary for one particular child as the water s/he drinks. This is not the cost centre to be skimping: the ROI may just be priceless. That is the reason that “Children” is a fixed expense and “Groceries” is variable.
Every company whose goal it is to post annual profits: the bank, the car dealership, the leasing company, your landlord, every merchant you frequent, the seller of every good you purchase or see an advertisement for either in the form of print (magazines, newspapers), advertisements on the radio or commercials on television.
All these for-profit organizations are after you to watch, listen and ultimately purchase their product or service. And don’t be fooled by the marketing programs of these organizations. Just because one organization calls taking your money a mortgage “approval” and another calls it a “pay day loan” doesn’t mean there is any difference between the end result: you are adding to their coffers! Do you know how each of these companies views your finances? Isn’t it time you learned how to do a few simple calculations to properly manage Your-CO before you go into debt on someone else’s terms? If you’re already in debt, isn’t time you learned how to get out?
A Jones’er is an individual whose spending habits are based on someone else’s opinion. Let’s call that someone else Regina. What are you purchasing to impress Regina? Isn’t it time to find out who Regina is and how to manage her effectively?
The spot all for-profit organizations are working to put you: paying them as much of your hard earned after tax income as possible. When more than 50% of your NET INCOME is dedicated to minimum payments on fixed expenses as determined by some for-profit organization Your-CO is in The Leveraged Zone. Isn’t it time you learned how to manage Your-CO effectively and got out of that Leveraged Zone?
This is the tax threshold below the one you currently live in. There are eight in Ontario.
|Tax Bracket||Magic numbers (2008)||Federal tax rate||Provincial tax rate (incl surtaxes)||Total tax rate|
|1||up to $36,020||15.00%||6.05%||21.05%|
|2||$36,020 - $37,885||15.00%||9.15%||24.15%|
|3||$37,885 - $63,428||22.00%||9.15%||31.15%|
|4||$63,428 - $72,041||22.00%||10.98%||32.98%|
|5||$72,041 - $74,720||22.00%||13.39%||35.39%|
|6||$74,720 - $75,769||22.00%||17.41%||39.41%|
|6||$75,770 - $123,184||26.00%||17.41%||43.41%|
The reason that they’re magic is because moving down to the next tax bracket reduces the costs of all the luxuries you purchase. Think of it like a boxer trying to drop a couple of pounds to compete in a lower weight class. The same is true for Your-CO. If you earn $75k per annum, you need to earn almost 40% extra to pay for every dinner out, for every new outfit you buy, and for every bottle of water you purchase. This means that a $200 pair of jeans ($226 with taxes in Ontario) is actually costing you $226 X 1.3941 = $315 because that is what Your-CO needs to earn to purchase them. If you contribute just $24 per month into an rrsp, you will hit your magic number ($74,720), lower your overall tax burden, thereby lowering the cost of those jeans by 3%. If you make the maximum allowable contribution of 20%, you will lower the cost of those jeans by more than 8%. See? It’s magic. Learn how to effectively evaluate the cost of everything Your-CO purchases and start treating your disposable income like valuable revenue. Start up Your-CO today.
Cash, credit card, debit card, cheque or any other method you use to purchase a product. Did you know that the most effective way to keep more money in your bank account is to use your credit card for every purchase?
The amount of profit you will realize from an item you're about to purchase. The shirt you’re about to purchase has an ROI = ZERO. Why? Because you’ll have a hard time getting a dime for it after you’ve left the store. Do you know how to do effective ROI analysis on your purchases?
This is your take-home pay; your monthly employment revenue less any deductions such as income tax, EI, CPP and other deductions.
Every time you purchase or finance an item, you are making the decision to forgo the ability to purchase or finance something else in the future.
Other income includes any revenue not included in employment revenue such as child support payments, investment income, and mileage expense reimbursement.
There are many costs that require consideration before purchasing an item. The ticketed price of the item is just one. Another is the price of the item to Your-CO in terms of your gross income. If you earn somewhere around $60K in gross salary, the item you’re about to buy could actually be costing you 32% more than the ticketed price. Why? Because that's how much "extra revenue" you have to earn before taxes. There are other costs that require consideration. Isn’t it time you learned how to purchase like an effective CFO?
Cost centres whose target you have much control over: you can purchase exotic coffees daily on route to work or you can fill a thermos instead (miscellaneous cost centre). You can purchase for the skinny jean rack in your closet, the fat jean rack in your closet or get your six-pack and purchase for ONE rack in your closet (Clothing/Household cost centre). Do you know how to manage Your-COs variable expenses effectively?
Savings is a cost centre created especially for you. The money that accumulates in this cost centre will go towards a major purchase at the end of the year: a home, a car, a couch, a vacation, your RRSP or a mortgage payment top up.
Similar to RRSPs, you will be treating the “Savings” cost centre differently when performing year end calculations, and, just like RRSPs top the fixed portion of your monthly statement, Savings are at the top of the variable portion of your monthly statement. Optics and therefore placement is very important when you are setting up your cost centres and monthly statement.
You absolutely need a cost centre called “savings”, however, the target will be the one which will fluctuate the most throughout Your-CO’s fiscal year. You will find this target moving up or down throughout the year depending on how you’ve managed your cost centres year to date and during which month you choose to zero it out to apply towards your goal. For example, let’s say you are saving to purchase a sofa which costs $1,000 and you have a clothing/household cost centre target of $400, and a savings cost centre target of $150, one approach to take in managing your annual statement is to make no purchases in the clothing/household cost centre for two months ($800) and then zeroing out two months of the savings cost centre ($300). At year end, you will have two months of “$0” in both clothing/household and two months of “$0” in your savings cost centre. The money will accrue in your “running delta”. The subsequent month will have $800 in clothing/household and $300 in the savings cost centre.
Have you carved out a part of your hard –earned revenue for yourself or are you still playing with “disposable income”?
In addition to being debt free, a monthly contribution to baby’s future education is the next best thing you can financially provide for junior. Costs for post-secondary education are skyrocketing. In Canada, the government heavily subsidizes today’s university education to the tune of 80%. This means if young people are paying $10,000 per year in tuition today, your tax dollars are funding the other $50,000 - $80,000 per year for that individual student.
This is why university education in the United States is so much more expensive: there is no subsidy and students are expected to pay the full $60,000 -$100,000 per year themselves. You cannot apply ROI analysis to education. Education is one of the few things that no one can take from your child, so invest in it as much as you can and as early as you can.
The new baby cost centre, just like your clothing/household cost centre, is a variable expense. You need to add the new cost centre to track baby’s spending and because there are necessities required for baby (clothing, gear, etc). If you don’t have life insurance and are thinking about purchasing some, doing so when baby arrives is a great idea. Premiums can be allocated to baby’s cost centre.
The “Groceries” cost centre is for actual food: fruit, vegetables, meat, chicken, fish, canned goods (peas, beans, lentils, etc.) If it’s not in the Canada Food Guide, it does not belong in the grocery cost centre.
Gum, chips, pizza, tacos, “meal deals” and so on do not belong in the grocery cost centre. They belong in either miscellaneous if you’re dining alone or entertainment if you’re out with friends. One easy way to differentiate between food and some other thing you put into your mouth to chew and swallow is that food is typically tax exempt. The government has decided not to tax us on real nourishment and categorizing nutrients as essentials for life. If there is a provincial, goods and services or harmonized sales tax applied to an item in your shopping cart, chances are it is not food, and does not belong in this cost centre.
We have considerable choice over what kind of food we purchase and for how much: Groceries, very much a necessity, is a variable expense. Plan your meals ahead of time, use merchant collateral to make meal decisions (like the flyer from the grocery store), make a list before you venture out to make purchases for this cost centre and so on.
Do you know how to track and categorize your expenses so that Your-CO is running at optimum?
Miscellaneous expenses include gum, snacks, coffees, lunches at work, fast food, cigarettes, newspapers, magazines and sundry items you buy throughout the month. This is a variable cost centre that you have much control over, for example:
Miscellaneous Cost Centre sample decisions
|Miscellaneous Cost Centre||Daily coffee and lunch out||Coffee and lunch out three days a week||Coffee and lunch out one day a week|
|Monthly target||$200 per month||$120 per month||$40 per month|
|Year end spend||$2,400||$1,400||$480|
|$$ saved for RRSP contribution||$0||$2,400 - $1,400 = $1,000||$2,400 - $480 = $1,920|
|Tax refund next April||$0||$299.04||$598.08|
|How much it'll be worth after 20 yrs||$0||$33,842.69||$67,685.39|
|What you've "given up"||Nothing||2 hamburgers, 2 coffees||4 hamburgers, 4 coffees|
Would you give up 4 hamburgers a week for $2,000?
This is the spot for every non or semi-perishable good you purchase for yourself or your home.
This cost centre includes clothing, kitchen appliances, furniture, vases, flowers, shoes, purses, pictures, mirrors, carpets, towels, books, contact lenses, glasses and every single item that you see when you look around your home.
It also includes manicures, pedicures, facials, Botox, waxing, plucking, highlights, haircuts and other services we gals (or guys?) will purchase on occasion.
This cost centre also includes your gym membership, sports team fee and any equipment required for either. Another reason tracking is so important: the costs for these services come up bi-monthly, quarterly or ad hoc and it is imperative they appear in our projected annual statement at the outset so that paying for them is a planned activity. Clothing/Household is a variable cost centre. We have an enormous amount of choice around the target for this cost centre.
If you are a vicer, the best way to understand and manage the impact of your ‘issue’ is to create a cost centre specifically for it. Remember, we all live on some sort of fixed income (that would be your net revenue) and in order to avoid (more?) debt you must keep this in mind. EVERYTHING has an opportunity cost. When you setup your vice cost centre target, you must decide how to fund it. Will you be reducing Gifts for your loved ones to make room for your vice? Will your Miscellaneous spending be decreased? Effective revenue allocation is an important part of managing Your-CO.
Weddings, birthdays, showers, barmitzvahs, christenings, baptisms and all the parties in between. Typically, the last few months of the year have a higher gift target to account for the increased spending during the holiday season: another example of spending that only occurs in a given month or two but that you need to target for up front when you are building your annual statement at the beginning of the year or it’ll sneak up. There is a lot of option and choice for the Gifts cost centre target and so it also falls into variable expenses.
Movies, dinners, alcohol, lunches with friends, weekend trips away, theatre, ballet, opera, parties, and every event you spend money on during your leisure time.
Child care and outsourcing of other household help: cooking, cleaning, shopping, laundry. A portion of this cost centre may be tax deductible: check with CRA for child care cost and benefit thresholds.
A Vicer is an individual whose spending habits are based on an affinity for a specific type of item. Are you a gadgets, purse, belt, shoe, jewelry, or car junkie? Isn’t it time to learn how to effectively deal with your spending compulsions?
Every business in the country requires specific financial management. Doesn’t your family, your household, Your-CO deserve the same attention? Isn’t your revenue just as important? We are all running a business. Who’s managing Yours?