December 27, 2016 – Issue 49
Photo: Savings and Budget © www.flickr.com
Recently at work, our Leadership group got onto the topic of spending money and paying off bills. It was interesting to see how some people love to spend money and are in constant debt. Often they are acquiring things they don’t necessarily need but simply were in a certain mood and decided to make a purchase. And sometimes these purchases included a car.
“It’s not your salary that makes you rich; it’s your spending habits.
~Charles A. Jaffe
This may explain why the average Canadian now owes $22,081 in consumer debt, which does not include any mortgages as per Equifax. Consumer debt now stands at more than $1.7 trillion which increased by 3.6 per cent in the third quarter of 2016 compared to the same period a year ago. (http://www.cbc.ca/news/business/equifax-debt-loads-1.3884993) Do you fall in that same finance boat as the average Canadian consumer, hopefully not?
“A budget is telling your money where to go instead of wondering where it went.”
Why not make 2017 the year on working to improve your spending habits and drastically reduce your consumer and mortgage debt. Here is a list of questions to help get you started and identify if you are a spender or a saver.
- How do you make your choices as to how you spend your money?
- Do you look at an item and if it strikes your fancy that you want it then you simply buy it without thinking of the consequences as to how you will pay for it later?
- Are you making purchases to keep up with your friends, co-workers, neighbors, other business owners etc?
- Are you someone who needs to have the latest gadget / technology?
- Do you look at your purchases and ask yourself is it a Need or a Want?
- If it is a Need can it wait a little longer or is it is something you must get now?
- Do you have the funds to pay cash or do you charge everything to your credit card?
- Do you always pay off your credit card amount each month or do you just pay the minimum amount?
- Do you tend to regularly use more than one or two credit cards for all your purchases?
- Have you overextended yourself and are now tapping into your overdraft protection or line of credit on a regular basis?
- Are you making any headway in getting your debt paid off or does it continue to grow?
- Are there things you purchased this year that you have never worn or ever used?
- Are you living from payday to payday?
- Do you have to borrow money from others?
- Do you regularly put away funds into your savings account, TFSA, RRSP on a monthly basis?
- If interest rates substantially went up next month, would this have a major impact on you financially i.e. when it came time to renew your mortgage or how much you own on your consumer debt?
- If you lost your job or business today, would you be unable to pay your bills and possibly lose your home or do you have at least 3-6 months of savings to get you through this difficult time?
After answering these questions and if you are seeing a pattern in which you are more often spending money you don’t have, you may need to seek out help before you end up having a situation which could cause you to be in a more serious financial trouble if not worse, bankruptcy.
“Beware of little expenses; a small leak will sink a great ship.”
I challenge you to make a list of what things you need to PURCHASE for 2017 which includes any clothing, things for the home, travel, schooling etc. Then highlight only the items you feel you really NEED to purchase. This will then help you to plan to save the funds on the items to plan and need to purchase either with cash or if you are using your credit card for the points that the following monthly you have made the purchase, it is then totally paid off. You can also include in this column as part of monitoring your budget all the regular expenses you need to deal with on a monthly and yearly basis.
In the second column, list all the things you need to PAY OFF which includes your consumer and mortgage debt and in the third column list SAVINGS which include your savings account, TFSA, RRSP’s, bonds etc. Then, PLAN to use this table to determine for each payday where your money will go. If you are fortunate to have a partner/spouse in which one of your cheques can just deal with this list by making the purchase for things you only need, paying off your debt and adding funds to the saving section then you will begin to see a drastic improvement in your overall financial situation.
Update this list monthly and put a copy on the fridge and with your bank book. As you see the total sum of your bills go down and your savings go up this will be a motivator to continue with this system and improve your financial situation. If you are married and have a family, then the list and this activity needs to be discussed as a family unit so everyone is onboard with where the money is going and how it is going to be used. Of course, life happens and you may have to make an unexpected purchase, however, you will be better prepared for the unforeseeable by using this set-up or something similar to make that purchase and still keep your financials under control.
“If you wish to get rich, save what you get.
A fool can earn money;
but it takes a wise man to save and dispose of it to his own advantage.”
In fact you may find that with some planning, controlling how you spend your money and identify your spending habits you could plan for having the funds to do things that in the past you couldn’t seem to have because of your past spending habits. Such as having your travel holiday totally paid off before you actually go. By actually planning, preparing and organizing how you spend and save your money you could improve your finances considerably by the end of 2017.