Sunday, 4 May 2014

It's Not You, It's Me - Chapter 3



Taking Care of Business

"My problem lies in reconciling my gross habits with my net income." - Errol Flynn
Credit Cards are great. You think I'm joking, but I'm not. They are great if you treat them with respect, all relationships need that special ingredient after all. Without respect, things get out of control as I know all too well. The thing with owning a credit card is that if it's not being treated fairly, and by it's own terms, there will be hell to pay. The real problem, however, is the user, at some point we just have to admit to ourselves that we are just not the right person to be in that sort of relationship, we can't commit, we don't keep our promises, and we often find ourselves leering at other cards.

We learn from our mistakes. If only that were true. I mean, for the most part it is true, but not when it comes to money. That is why we continue to overspend on credit cards when we know we shouldn't.

Keeping Up With the Joneses
We didn't have a lot growing up with five kids in our family. My father worked in the smelter and my mother was a custodian at my school. Apparently our neighbours coveted anything that we had because they always seemed to have to do us one better. My parents picked up this old used tent trailer one summer and parked it in the backyard for us to use as a clubhouse, it was awesome, and within just a few weeks, there was a big fancy boat parked in the neighbours yard. Same goes for any new (always used) cars my Dad would acquire, before long there was a shiny new vehicle right off the lot gleaming at us from next door. This went on until the day that we noticed the boat, the car, and the massive BBQ were all gone. I overheard my parents saying that the neighbours had to claim bankruptcy. Years later, we did some renovations on our home, I guess that was enough to send them reeling because they moved shortly after to a nicer part of town. My parents still live in that house, still by their means, and they are two of the happiest and most down to earth people I know.

Great Expectations
I have fallen many a times into this mind trap, I spend money before it reaches my bank account. Especially if I know I have some money coming, like say a tax return, or my birthday is coming up and I can always count on the hundo from Mom and Dad in the mail. The problem with this is another psychological conundrum - when spending anticipated money, we tend to spend more than what's actually coming, as though spending the extra is like getting some sort of ethereal discount. For instance, as I said, I know that birthday money is coming, so I go shopping for a new birthday dress. I find one I love that costs $150 and rationalize that really, it's like I'm only paying $50 for it since that other hundred is on it's way. The big red beacon of a problem with this is that I had exactly $0 left in my budget for clothing this month. Doing this throughout the year will throw off your budget and set you back.

We Want Our Kids To Have What We Didn't
I will never forget the day that I realized I was being spoiled by my mother, who could not afford to spoil me. I was around thirteen, I spend most of my weekends roaming around the mall with my friends and dreaming about boys. My mother had a very different upbringing, she was literally raised in the harsh Canadian back woods with five brothers. She went on to have four boys herself and then a girl (me). So I guess she might have been living vicariously through me a little bit because I was feminine and wild, and she grew up under strict parents with no access to make-up, hair products, or malls. She started buying me gold jewelry, necklaces, rings, whatever I wanted when we were out at the mall. We picked up this awesome suede tasseled jacket with a cinched waste on one visit into town and I felt like a movie star in that thing. She gave me a glorious gold watch (that I still have) for Christmas that year, I remember feeling very important wearing it and not understanding why she would give me such a lavish gift. I knew fully well that we were on the bottom rung socio-economically in our little town, it didn't bother any of us kids, we were taught from a young age not to take stock in what others think, we were happy with what we had. One day we were out at the mall and came across these cowboy boots that made my heart stop, I was in love. They would go perfectly with my suede tasseled jacket, they were also a hundred dollars. This was the first time my mother said no when I asked her to buy them for me. The younger me, would have accepted the no and moved on, but the recently spoiled me challenged the no. To be honest, I had a hissy-fit right there in the store. I would not let up. I remember her saying that she just couldn't afford them. But I had to have them, and eventually she relented and bought the damn boots. That night I was racked with guilt, her words 'we can't afford them' playing over and over in my mind. I realized that we couldn't afford any of it - the boots, the jacket, the rings. I felt terrible. I didn't know back then that you could return items to a store, maybe I would have suggested returning the boots, I don't know, but what I did know was that I would wear them everyday forever so that the money didn't go to waste, and I never asked my mother to buy me anything again. I got my first job about a year later and bought whatever I wanted with my own money. Lesson learned right? Then why am I writing this book? Because, I guess I forgot that lesson until now.

Now that we've taken stock of our lives and know which direction we would like to see ourselves take, we need a plan. We need a budget to get ourselves on the right track and paying off our debt. Taking control of our finances will be tough, but rewarding in more ways than what are obvious. We are rebuilding ourselves with every month that goes by into a stronger, healthier, and happier person. We will have confidence in spades once we see that this mission is achievable and that we can do it. I know it sounds a little corny, but you'll see. Once you take control of one aspect of your life, change your habits, and start seeing results, every other obstacle in your life will shrink and fade away. Like keeping a food journal when dieting (which Dr. Oz agrees is essential), creating and keeping track of your budget daily is the financial equivalent if you want to succeed at your goal. It's not easy, it takes commitment and consistency to manage and stick to a budget. It's not something that you put together and then forget about, it's constantly changing, just like you, and needs adjusting to make sure you stick to your debt repayment budget which includes your debt repayment plan.
I can't imagine my life without my budget spreadsheet. I would never get my bills paid on time, and I would definitely never get my debt paid down. Checking my budget spreadsheet has become an obsession, I will update it every morning after reviewing my bank account, to make sure my bills are covered and to play around with my debt repayment options, dreaming about the day that my salary will actually belong to me again and not the Crappy Credit Card company. I can see why people might avoid using budgets, maybe they don't like spreadsheets or computers for that matter. Maybe they simply don't want to face the truth, or maybe they are so rich that they have their accountant worry about the silly little details while they are busy relaxing at the spa, which they have in their home, next to their movie theatre and indoor driving range.
Laziness, Denial, Pride, are some other reasons people might avoid using a budget. Ignorance is bliss, I've always loved this concept because it is true, until reality sneaks up and bites you in the ass. These people think that if you can't see it, it won't hurt you. Guess what, you can't see the poisonous gasses that could be emitted from your furnace, and that's exactly why we buy those detectors, to warn us if we're in danger.
They Are Hippies. I hate being told what to do. I'm a free spirit and restricting myself to a budget really impedes on my self expression. However, so does bankruptcy.
There is more than one way to create a budget. They can range from high level budgeting to tracking every dollar you spend. My budget is somewhere in between, but I will offer you up a few different types of budgeting ideas and you can choose whichever best suits your personality. For me, keeping a Corporal type eye on my spending, saving, and debt repayment is necessary to keep my financial goals top of mind, like the dieting journal I mentioned before.
If I haven't already convinced you to start a budget, take these things into consideration:
It builds character.
Your life will stop spiraling out of control because you will want to organize all aspects of your life as a result of creating a budget.
You will stop spending money like an out of control child.
You will actually be prepared for an emergency.
Others will envy your self-control.
You can watch your debt shrink and your savings grow.
Power is power - you will no longer be stressed over bill payments.
You will have a better quality of life, buy better quality items and pay for them in cash.
Here are a few high level budget approaches that do not require the use of a spreadsheet. I call these, the loosey-goosey budget planners.

The Government of Canada has an easy to follow guide on how to make a budget and stick with it. Here are a few other budget styles that I've researched, I've also included my own budget style. Use whichever one works best for you - and stick with it! You'll be back in the black before you know it.

The Bucket Budget
How it works:
You will have three bank accounts, two checking and one for savings. Your paycheck will go into the first checking account.
Speak to your bank about the best savings account for you, then setup an automatic transfer to this account of an amount that you can afford to put away.
Whatever is left over from your pay will go into the second checking account from where you will pay all your regularly monthly bills.
Calculate how much money you will have leftover after your bills are paid and transfer one quarter of that amount back into checking account number one for 'other' expenses like food and clothes etc.
The trick is that the weekly amount that you allow yourself is all that you can spend. You are forbidden to transfer more money into that account until the following week, and you can't use any credit cards either, so don't even think about it.
This budget seems reasonable, yet a little annoying with the three accounts. But hey, if it works for you, that's fantastic, don't forget to calculate your debt repayments, as outlined in the previous chapter, and include them in with your monthly bills.

The No-Budget Budget
Pay your bills as often as you get paid - weekly or bi-weekly for instance.
If you get paid bi-weekly, split your bills in two and arrange automatic transfers from your account on pay day for half of each of your monthly bills - actually pay half of each of your bills with every paycheck. The trick is to setup these automatic transfers for the next six months. Whatever money is left in your account the day after payday, is what you have to live on for the next two weeks. Again, don't forget to include debt repayment and savings in those bi-weekly transfers.

This budget plan also suggests that you setup a secondary account where things like, rent, car insurance and savings for Christmas presents will go. The idea is to make your budget at the beginning of the year and stick with it. Personally, I don't see how anybody can do this without a spreadsheet, maybe they just write it all down on paper, but you definitely have to keep track of what's going where and why, in my opinion. This approach can take off the stress of getting your bills paid on time, I'll admit, but I don't know about you, my bills fluctuate. This may have it's benefits though, in that after six months you will have a bonus month with lower balances on the bills you've been paying off religiously. Or not, you may end up owing more depending on your usage for say Internet or your cell phone. I don't know because I haven't tried this approach to budgeting, but it seems to be for old people with simple lifestyles. Again, just my opinion. If it's a jump-off point to get you budgeting - all the power to you and you have my full support. If you want to hear more about it, go to YouTube and search up The Secret to Budgeting - Part 2.

Gale's Way
My way, below, is my adaptation of Gale's way. Go to her website and use her budget worksheet to get started.

My Way
You don't have to have a fancy printout or even a template, just a blank spreadsheet to fill in. I colour code mine into the following categories, just to make it look pretty:

BLUE - Family
I use this category for the things your entire family uses or 'needs' such as Groceries, Clothes, Cable, Day Care, Cell Phones, and Entertainment including eating out, and Gifts. Why don't I have cable and cell phones under utilities? Because they aren't necessary to keep you alive, that's why, and these are the type of items which you could take a second look at if you need to save a few dollars by cutting back. Gifts is a savings marker for birthdays and holidays, start small and add a little more each month so that you aren't scrounging when little Timmy's birthday rolls around. Make sense? Great, let's move on.

GREEN - Transportation
Simply to budget for car insurance, gas, car loan payments, repairs, etc. For things like repairs, it's a good idea to start small and add a little each month, it's a way of saving for an emergency. Nothing is worse that the feeling when your car starts making strange noises and little cash symbols and question marks start floating around in your head. Be prepared.
PINK - Loan Repayments
Use your calculations from chapter two to fill in this section and create automatic monthly payments online so you have no excuses.

PURPLE - Survival
Here is where I keep track of my Mortgage Payments, Property Taxes, Hydro, Gas, the basic essentials for making it through the winter.
Now that we have our expenses listed in pretty colours use the following headings to further organize them: Due Date/Expense/Monthly Amount/Notes. Finally, use the sum function to calculate the total amount of your monthly expenses, your "Outgoing".

For expenses that are billed bi-monthly, quarterly, or yearly, just take the total average amount and divide by the appropriate number of months to know how much you should be putting aside to pay for the expense each month. For instance, my Property Taxes come out quarterly so I divide what the payment will be by four. Let's say that amount will be $400, to make this easy, meaning I will put aside $100 in month one that will not be spent, then $200 in month two, and so on until I've save up the $400 in time for the payment to be due.

You can revamp your spreadsheet each month or use the tabs to create monthly tabs, whatever you are comfortable with.

Great, so we have our expenses all sorted out, now what? Now we complete our budget by adding a tracker to the spreadsheet. In a free column, in another colour, if you like, insert your pay dates, net payment amounts (after taxes and any other deductions), any other income you may receive, and a line for your current bank balance. Insert the numbers and use the sum function to add them all up. This is what you have to work with for the month, your "Incoming". Now, go down a row and enter the word "Overall" in one column and beside it use excel to calculate the difference between your monthly Incoming and your monthly Outgoing. If this number is a negative, you will have to review your expenses, see where you can make sacrifices (without touching your loan repayments), and keep working at it until you are back in the positive Overall.
The key with keeping a budget is updating it, once you've paid a bill, remove it from your expense column. If you go out to the movies, take the amount spend off of what you have budgeted under Entertainment because that money has now been spent. Update your Account amount daily by reviewing your bank account online every day. If you do all these things, your budget will always be up to date, you'll always know if you have enough money to pay your bills and you'll keep closer track of your spending.

Your tracker should look like this:

Jan 1st       $1500
Jan 15th     $1500
Account     $  500
Incoming   $3500

Outgoing $3000

Overall    $500  

Now, stick to it. Watch your savings grow and your debt shrink. Right now is a great time, since you are looking at your finances, to take a look some other important and grown up things such as Life Insurance and Retirement Savings, these two items should not only be part of what makes up your budged, but they should be coming right off your paycheck as a number one priority.

So How Much Should We Be Saving?
According to Gale, we should be saving 5% of our monthly income. This is an absolute must and your other expenses should work around it. In other words, cut back on non-essential expenses to accommodate for your savings.

What Should our Expenses Look Like?
It's a good idea to compare these percentages to your currently budgeted expenses and make any necessary adjustments. This is another eye opening exercise to see how you've been living up until now. Here are the general recommendations for how much we should be spending on average per month.
Housing: 35% of Income (rent, mortgage, land tax, home insurance)
Food 15% of Income (groceries and dining out)
Utilities 10% of Income (electricity, water, gas, phones, cable - keep in mind phones and cable are not life sustaining utilities)
Transportation 15% of Income (car payments, gas, insurance, maintenance, bus passes)
Other Expenses 25% of Income (debt repayment, clothing, entertainment, savings)

I'm sure I've already mentioned this, but getting involved with the wrong kind of credit card will leave you broken hearted and in serious debt. Ever hear that you are who you go out with? Poor credit scores and minimum payments woes will have you reaching for the ice cream to drown your sorrows. And what's worse? If you spend too long making only minimum payments, your past can come back to haunt you, in other words, the bank will start forcing you to make monthly payments that you may not be ready to make because you haven't been budgeting for your debt repayment. That ends now. The days of ignorant bliss are behind us and we go forward with eyes wide open, fully aware of our interest rates, our debt repayment plan and knowing that we are finally looking after our own best interest, pun intended.

THIS MONTH'S MANTRA: You deserve better!

RELATIONSHIP ADVICE: Don't stress the big stuff - deal with it instead.
Do you want it or need it? The heart wants what the heart wants, right? That's all fine and good, but it doesn't mean that you need it, or even deserve it, until you've saved up your money for it, right? Right.  Walking away from something you love isn't easy, but if you don't have the money for it, then maybe it was never meant to be.
Now that you're free, make sure you know where you stand by checking your score and closing any old cards that have no balance. Just because they aren't being used doesn't mean that they aren't showing up on your credit score as money that you could potentially owe. As I mentioned before, you can get a free credit score through Equifax or Credit Union by going on-line or giving them a call. We are entitled to know what our credit score is.

Call up a Credit Counseling Agency and see what they have to say about your situation. They are there to help and will offer you guidance on which direction to take if your debt cannot be simply managed through aggressively tackling it with a budget plan. There are many trustworthy Agencies around, but do your homework and choose wisely, because there are imposters out there who like to take advantage of people when they are down.

When paying off your credit card debt, try to pay off the cards with the highest interest rate first to free up the money being wasted on interest every month.

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