I have been thinking a lot about my finances lately- my current reality, my options, my concerns and limitations; I know many of you are doing the same thinking.
Finances are an intensely charged and personal topic. Fear is a natural response to a feeling of loss of financial security. Many of us want to deny there is an issue. Many of us feel overwhelmed and poorly prepared to make these “grown-up” choices. Many of us just put our heads down and hope it all works out. I would hazard a guess that all of us wish we were in better shape financially.
I do not write this to be “holier than thou” or to make you feel like I am patronizing you. I am writing this because I feel like at this point in my life, having dug myself out of some pretty deep holes, I may be able to offer some insight that can help you decide where to go from here. At the very least, I hope this blog gives you a starting point to feel more in control of your financial reality and financial future.
When I first faced the fact that I was over $21,000 in debt and was sinking fast, my gut reaction was to give up, declare bankruptcy and live with the consequences to my credit and my life. It was a very attractive option and I felt like it was my only choice. How could I possibly make all those minimum payments let alone get ahead on the principles? I had already given up my car to save on gas, monthly payments, registration, insurance… what more could I do?
Before I did that though, I needed more information about what other choices I may have. I was young and new at this whole financial independence thing. What if there was an option I had not considered? So, I made an appointment with the bank. I needed someone who spoke money to assess my options with me. I had no collateral- no house (I was renting), no car, no RRSPs, no investments…nada. I figured they would just laugh at me.
But they didn’t. And that’s when my life began to change.
I took all my outstanding bills- Wells Fargo, MasterCard, Visa, a line of credit- so we could see my total obligation monthly. We sat down and saw how much I paid in all my rent and utilities and how much I earned monthly. Then we looked at how much money I lost every month to interest on those payments. In the end, I agreed to give up the MasterCard, lower the Visa limit to $1000 and do away with the line of credit. I consolidated all my debt in one personal loan. I was able to get a MUCH better interest rate (9.5% instead of 12-25% on the other bills) and only had to make one monthly payment. And that payment was about 1/2 of what I was paying out to the bills individually. AHA! I had freed up some money monthly for food and expenses so I didn’t have to use my Visa for those things anymore.
As time wore on, I also made other hard choices to improve my cash flow. I saved about $100/month by cancelling cable and my landline phone. I switched my cell phone plan. I put a moratorium on clothes spending and a serious limit on going out expenses. I won’t lie- I felt the squeeze. But I kept my eyes on the prize. Over time it got easier and I kept looking for ways to save more money. Not spending any coin and using it to start a savings account, for one. Anticipating upcoming bills like oil in my bi-weekly budget and putting money aside in advance. I also kept a very detailed bi-weekly budget for myself in my day planner. I based this budget on all my expense due dates.
As many of you know (who are on my Facebook) all this hard work paid off just this year. After nearly a decade of changing the way I think and act about money (and even freeing up enough to buy a house!), I have paid off that consolidation loan. Now I am faced with the new challenge of keeping myself to the system that worked. I feel better able to manage this new challenge after what I have learned. I have already begun taking new steps to safeguard my newfound financial freedom.
Below I am going to list all the questions I asked myself and all the information I gathered that allowed me to create a strategic budget- and stick to it! I will also include a budget worksheet based on bi-weekly pays in case you want to know what my thought process looked like. Hopefully this may help some of you feel more secure and prepared. Maybe it will give you something new you hadn’t considered. Please let me know if there is anything else I can answer about how I got here. If you just want to toss some ideas around, I would be happy to talk. I care deeply about your success and happiness and wish someone had been available for me 10 years ago to help smooth this process out and lower my stress levels!
- What are ALL my financial responsibilities? (visa, mastercard, loan, line of credit, rent/mortgage, power, water, cable, internet, cell, home phone, car payment, car insurance, life insurance, bank fees, oil, average groceries, pet insurance, monthly vet bills for meds or food etc). Try to be as specific as possible. Where necessary look at billing history to get an average per month.
- What are all my sources of income? (payroll, pet sitting, nail trim business, secondary business income like Scentsy, Mary Kay, Avon, alimony, child support, GST rebates, shared rental expenses etc)
- When is each bill due? Get exact billing dates to determine when these bills need to be paid. This will help determine which of your two pays should cover which bills.
- What bills have the highest interest rates? These should be your first priority to eliminate where possible.
- What is my total outstanding debt in dollars? (Loan, LOC, credit cards, etc.)
- What luxury expenses can I reduce or eliminate to free up cash monthly to reduce my debt? (cable, internet, home phone, vehicle expenses, memberships etc.)
- Once you have all this information, book an appointment with a financial advisor at your bank. They will help you find lower interest rates where possible on credit cards, as well as reviewing your bank accounts to make sure you have the right account types to minimize administration fees.
- Consider asking for either a line of credit or personal loan to consolidate all outstanding debts on higher interest rate accounts to a lower rate and single monthly payment.
- Lower credit card limits and overdraft amounts- get rid of the temptation to spend money you don’t have.
- Reduce total number of credit products to perhaps one main credit card that maximizes your benefits like air miles, RBC points etc. and minimizes monthly fees.
Building your budget:
- Using your bill due dates, plot out which pay each bill should come from. Sometimes we overload one pay period and leave ourselves short causing us to use credit cards and overdrafts to get us through to next pay. This just increases the financial pressure to pay off those borrowed funds with the next pay.
- Divide your mortgage or rent into two equal parts and spread them between your two pays. This will mean a large sum is not taken all out of one pay. Either move this money to another account or save it as a minimum balance in your primary account until the rent/mortgage is due.
- Create a budget worksheet that has both pays and all bills due in those pay periods. This will let you see where your money HAS to go every 2 weeks and give you an actual amount of money you have available for extra expenses and entertainment.
- STICK TO THE BUDGET!! I know this is the boring and un-fun part. But if you have calculated this correctly, and done all the groundwork beforehand, this WILL WORK.
- Keep your budget bi-weekly. Add any unexpected expenses to your budget as they come up so you know how to shift your available funds where necessary.
- Try to budget a small amount for savings or RRSPs. This is your feel-good money. As the balance creeps up (even $10 at a time) you will see the personal benefit of your new thinking. It becomes measurable as your debt is reduced and your obligations are met.
The budget worksheet attached is an excel document with some active formulae in it. If you need help editing it to match your expenses, just let me know. I’d love to help