Debt is Scary

I refuse to owe people/companies anything (other than the mortgage). I've gone out of my way to make sure that I paid for my $6000 roof all at once in a cheque, and that I don't charge to my credit card more than I have in the bank. I think interest is a completely avoidable expense. 

I know for some people though this isn't possible. If you're living from pay check to pay check, then a big sudden expense might have to go on a credit card. I have a friend going through this right now. Below were my suggestions and discussions with them. 

1. If you can't afford to pay for it, you shouldn't be buying/charging it. This might mean you don't get to go out on that fancy dinner, or go to that theme park with friends, or even afford gas that week. In all situations, try to change the plan so you spend what you can afford. If it's gas, there's public transit. If it's an event, it's an apology and a rain check. 

2. Sit down and figure out your budget. What comes in is ALL you have. If one pay check pays all bills, then you have the second pay check as what you could spend all month on food and gas. This is what you should make your max credit card amount as. When you charge it up and have no more room to charge, then you at least know you can pay it. And get rid of any other credit cards, lines of credit or etc temptations that might make/allow you to charge more than that second pay check amount. 

3. DON'T just transfer your balance to different cards/line of credit. Yes the interest rate might be better on one, and this is a bandaid for maximum a month as you'll still get charged the interest, but it's bad all around. You need to pay it off, not just move it. And DONT'T get tempted by those pay check advance loan places. Those are best described as you on a treadmill where they just keep pressing the up button on speed. 

4. DON'T just pay the "minimum" charge on your credit card. This is usually $10, and will not even partially cover the interest charged on that month. No, pay as much as you possibly can. Scrounge every penny and pay everything you can each payment and as many times a month as you can too. On the bottom of each credit card bill is a handy little line that says "if you only pay the minimum each month it will take you __ months/years to pay it off". This is a horrifying number to look at as it also factors in interest. 

5. Remember, interest is charged on the WHOLE balance.. This includes last months interest. So if you owe $1000 and don't pay for 1 month and get the 22% interest charge, your balance is now $1220. Okay so next month if you don't pay, you're now going to owe (1220+22%) $1488. So you can see how a minimum payment of $10 won't be a drop in the bucket. 

6. If you have ANY savings, pull that out and pay the balance. Yes you might lose money because it's one of those "lock it in" deals, but you can't afford to be in debt or paying high interest when you have money sitting there. I tried to explain it as "don't be worrying about your future when your present is in trouble". 

7. So you need a lump sum to help knock off a bunch of what's owed? Ok. You know that jar of spare change in your room and car cup holders.. Start there. No word of a lie, any money is good. Now you want to keep enough money in your account to cover the "auto-charged" things so you don't incur a bounce/insufficient charge, but anything else should go to debt repayment for a few months. 

8. Live on nothing! Eat out of the freezer and pantry. Buy $1 rice meals and coupon/price match every single thing. You can't afford anything other than spare change meals for a little while! Walk or carpool instead of filling up with gas, or do an in-home movie night with candles and dollar popcorn instead of a date night out. This is also a good time to use your gift cards or to sell them to friends. Get creative!

9. Side hustle and call in "favours". If every friend you have can find you something to do for them for $10, you'll easily have a nice chunk to throw at your debt. Move a fridge, paint a bathroom, the first step is simply asking if anyone has any odd-jobs. Make sure to weight the cost of getting to the project doesn't zero out the amount you'll get. If no friends have anything on the go, post on Kijiji or with some flyers at an old folks' home.. Just ask for any odd jobs paying cash!

10. Sell stuff. Unused DVDs, trinkets, clothes.. People will buy anything if it's priced right, so throw up some ads on Facebook and Kijiji that are priced well and be willing to take anything people offer. Maybe you can promote a friends' business in exchange for something, try negotiating? Try something like Bookscouter to see if you have any books to sell too. Ask your family if they have anything they want to sell and if you do all the legwork can you get half/25% of what's made?

11. If all else fails, consider a second job. Yes this is the "ugh" option but if you are in debt and you can't see the light, then you need to do this. For a short period of time, every waking hour should be making you some money until you can get the debt gone. Remember, anywhere that's hiring is a good option.

12. If everything fails and it's the 11th hour, see if a family member or friend can bail you out. Can you have them pay if off and remove the interest and you pay them back every week/month? This is a question for good family members like parents that you immediately write and sign a contract for. Commit to pay them what you know you can afford a month and then pay back more. I'd still do all of the above items as it's still debt, but it's a last-ditch effort to remove the ever climbing interest amount. If this is the route you go, then seriously do not buy or charge anything until you've paid it back. It can be seen as insulting to some generous family members if you buy something instead of paying them back first. 

Making a Budget - pt 2: The Emergency Fund

Part of your budget needs to have a healthy chunk going towards an emergency fund. My parents have a couple names for this bucket including "Mad Money" (which must be a movie reference or something), I call it my "high interest account", but whatever you want to call it, this is money you never touch. It is the just-in-case money that pays for a new roof (and allowed me to pay for mine all by cheque at once and get a hefty discount), it is the money to pay for a sudden pet's illness, and it should be one of your first major focuses if you don't have one yet. 

Even if you have consumer debt with high interest you need to pay off, you STILL need to put money into this locked and no-touch account though. Money should go into this account and basically never come out, so allow for it in your budget at whatever amount you can actually afford. Before you cut the savings allowance in your new budget, cut the clothing budget or substitute two meals a week for canned soup from the back of the pantry!

If you have debt, hunkering down and holing up to spend every penny possible on this high interest oopsie is even more important. Still save, but instead spend 3 committed months to eat out of the freezer, watch Youtube tv shows instead of going to the movies, use those gift cards you got last Christmas for entertainment/food, and spend every penny getting rid of that useless and ever-growing debt. I read a great blog entry I should have saved which was basically a couple who "disappeared" for 3 months in order to pay down $8000 of debt - they didn't eat out, they sold whatever they could, they picked up odd jobs, and they actually paid off all that debt with just 3 months of being absent from the social world. 

I mentioned eBay moments and side hustles in my first budget blog, and above in that couples 3 month dedication... So you've made a budget that is based on your fixed income, what do you with all the extra money (hopefully!) that is above and beyond?Instead of taking any extra money and spending it on a home decor item or a dinner out to celebrate, put it towards your future (I know, I'm a killjoy). Boost the savings account that month or pay a little more on the credit card. You can never have enough savings!

Now there are a bunch of Pinterest "schemes" of how to save money without realizing it - such as the "every $5 bill you get you save away instead of spending", or the "week 1, put away $1, week 2 put away $2", and you can read a bunch of blogs and stuff with other examples to get the idea. These might work for some people, but to be honest, they are hard to maintain, remember, AND budget for. If you are just getting started with budgeting, start squirreling away a set amount each week and month for your savings account. You can plan around this far better, and if you set it up as an automatic transfer on payday you won't even notice (which is what I do and strongly suggest).  If you want to do one of these other saving schemes, feel free, but it should come out of your after-savings budget if that makes sense (so outside of that automatic transfer). I do this too with any change that is in my pocket by the end of the day, and at the end of like 6 months I have enough to get a great dinner out (at like East Side Marios where I can get 2-3 meals out of one order with their unlimited soup/salad and bread!), or enough to buy a souvenir at my next little mini vacation. It's not much, and I don't notice it daily, but since this is already after my $25 automatic transfer to my savings account, I feel like I can "splurge" a little with this "found money". 

The moral: Don't skimp on your savings. Make this a number you are proud of, and feel safe with, should anything go wrong. 

Making a Budget -part 1

"You're telling your money where to go, not wondering where it went" - BudgetGirl on YouTube

So my mom sent me links to watch this lady on YouTube, and I invite everyone to watch a few of her videos. She covers food grocery trips, meal plans, general spending and general questions. She has student loans and a tight budget (plus she's funny). Or.. Check out Youtube while you're there for millions of other budget videos and tips. 

Before watching her, I went to a new bank to take advantage of a 3% 90day GIC they have available for a limited time last week (since extra money is better in my pocket than my other banks), and the advisor I got was really impressed with how financially secure I was at my age. Both BudgetGirl and this bank interaction has led to this post. 

Make a budget. Everyone. Know where you have the money to spend, so you know when you shouldn't be spending any more. 

This topic came up with my best friend who wanted to get a car. His current budget didn't really allow for a car (it did, but basically only for the yearly insurance cost and nothing else). In order to afford a car, he needed to rework his budget and his numbers. Does he cancel his gym membership or his soccer team playing fees? Does he cut out eating out completely instead? Does he get a second job instead? All of these and more were things to consider. 

While I'm giving some back stories, let me say that I have no debt other than my mortgage. This for me is an accomplishment at only 26. I have a car, a house, a dog, completed renovations with a new roof+furnace+air conditioner+water heater+finished basement, a fiancé.. And I am able to eat, drive, work and play without debt. It is all thanks to budgeting (and couponing in part). 

My dummies guide to budgeting is a simple starting point. Read and Google all sorts of others, because having more to work with can never hurt. When I was getting started, I read everything I could and researched researched researched. 

Another good tool for me was Gail Vaz-Oxlade and her "life pie" I think it's called. This is a great guide for everyone, not just people who are in debt like her shows suggest. Her life pie tells you what percentage of your income should be going where at max.

 If your numbers in one area are out of whack, you need to adjust the other areas to balance. She's a huge promoter of the budget binder and the jars/envelopes method. She has a TON of resources on her website and she's a great first stop 

http://www.gailvazoxlade.com/resources/interactive_budget_worksheet.html

http://www.gailvazoxlade.com/resources.html

So, a budget? A budget is simply a way to manage your spending and not go into debt. It takes your income and divides it into quadrants of life to make sure that you can eat, drive, live and save, without spending money you don't have. 

Start with tracking your spending for 2-3 months. 1 month of spending might not get every bill you have for the house, or every expense like shampoo you don't need that month. Write everything down. Literally. Just write down what every single penny of your spending is going to. And don't just say "$2.00, gas station" write down what it was. There are a lot of apps that you can track this info in, but even just opening your notepad on your phone might be easiest. At the end of this time (or the end of each month), sit down with either an Excel spreadsheet or a big piece of paper, and start transcribing all of that info over into columns:   Food/drink,  fixed housing costs (you can't change them like the mortgage amount),  variable housing costs (like the electric bill),  transportation (from the CAA card to bus tickets),  entertainment (eating out tends to go here),  baby/child/pet costs, home decor/Reno,  savings (generic saving, retirement savings, automatic deductions),  and you can change these depending but I usually call them Bath & Body (like hair products, soap, shavers) and Home Essentials (toilet paper, cleaners, tin foil, etc). 

Total up your columns and then look at anything else you haven't figured yet....  For me I literally went through item by item what I would need. Like a car, in a year I would need wiper blades, oil changes, tire rotations, new tires every few years, new lightbulbs every few years, car cleanings, gas weekly, windshield washer fluid, CAA emergency roadside, insurance, license plate renewals and stickers, replacement parts/fixing/just in case fund. I googled the numbers for these items and wrote them in my budget. I did the same thing for the house, outdoor maintenance, the dog, myself, my health (what is and isn't covered by my work), gifts and birthdays, what I normally spend at Christmas, vacations, work-sponsored donation days, etc. 

Look at other website budgets too for anything you might have missed. A good starting point was this post. http://www.midgetmomma.com/2015/01/15/20-things-you-are-forgetting-to-put-in-your-budget/

Take your $ numbers and scale them up to show a year. If you buy gas weekly, x52 weeks. If you buy shampoo once every three months, x the number by 4. If you need tires every 3 years, take the cost and divide by 3. 

Once you have a final number in every category, divide it by 12. This will give the average cost of that column by month, and this is what you should be squirreling away each month to afford that item later. 

There is a TON of work that can be done here, so make sure you budget (hah, get it) a bunch of time to do it right. 

Then look at your income. Is it fixed? Variable? Different income types will call for different budgets in some cases, but I always suggest you have some sort of fixed income portion - maybe that's a paper route or a couple evenings burger flipping, but at least have some sort of predictable every month income budget amount. Write down the "take-home" pay, this is after the government takes their cut and the employer takes out the employee benefits information, and is what you actually have to work with. Maybe you have side jobs and eBay moments, great! But for the budget I would suggest sticking with some sort of concrete number you can bank on, so to speak. 

Add up all the columns in your tracking sheet, and compare that against your take home income. How far out are you? Look at Gails life pie and calculate the % numbers to see where you are spending too much money. She divides stuff into fixed expenses (things you can't change the payment amount of ) and variable expenses (everything else). If your fixed expenses are too high, then you have a hard decision to make of either generating more income or changing where you live/what you drive. Typically, everyone's variable expenses are way over budget too when you first make the budget. 

Work with the life pie idea and your income. How much should you be spending in each area? Work backwards if it's easier and then compare against your current spending. 

Then.. Cue the couponing aspect. If your variable transportation costs are too high, consider asking for CAA or wiper blades for your birthday. Think about carpooling options, buying gas in the middle of the week, home washing and cleaning. Where can you save money and eliminate it from your budget?

I know this was a long post so I'll leave it here for now. Get creative, do the research, ask for help. Especially if you have debt, you absolutely need to budget to be able to pay it off and avoid paying all those extra and unnecessary interest fees. Feel free to post any other good tips you have :)