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Whether your goal is to pay off debt faster or simply manage your regular expenses without relying on credit, you need a financial plan that works for you. Maybe it feels like your financial intentions are going awry each month? You may be going off-course because of common pitfalls that impact your household budget and debt repayment plans. Read on to learn more about budget troubleshooting and tips on how to get back on track financially so you can say good-bye to debt stress.

Budgeting Best Practices & Tips

Having a balanced household budget that’s working for your personal situation is a major foundation of having control over your finances. No matter what your level of income, without a monthly budget it’s next to impossible to meet your financial goals, let alone keep debts in check.

How to create and live within a budget is not something that anyone automatically knows, but it is a key financial skill with which everyone should get comfortable and confident. Money management concepts take time to learn and develop, and since finances are often a topic that people feel uncomfortable discussing (or feel they aren’t fluent enough in to teach) – many people simply don’t have detailed financial conversations growing up, resulting in a lot of trial and error in adulthood, often translating into financial stress.

The following tips are aimed at helping you implement some general budgeting “best practices” – whether you’re struggling to make your budget work or already have a personal budget that you want to take to the next level in paying off debt.

  1. Leave Room for Flexibility

It’s important to be realistic with your budget. While you should have a basic spending plan structure, your budget should also be flexible enough to let you have some room for a general spending allowance to cover a reasonable amount of unforeseen, but often inevitable, costs each month.

  • Much like a too-strict diet, telling yourself you can’t have any room for things like general entertainment or “fun spending” is likely setting yourself up for failure. Leave yourself some slack in your budget but commit to staying within the spending limit you’re allocating to this category.
  • If this is an area you find challenging you may want to try using cash for more discretionary categories such as ‘dining out’ or ‘entertainment’. It can be much easier to make discerning decisions when you can physically see how much money you have left.
  • Although staying on track will inevitably mean saying no from time to time, budgeting is intended to be a tool, not a punishment or restriction – use it to your benefit and allocate your funds where they will be to your advantage.
  1. Spend Windfalls Only Once (and Well)

Whether an extra injection of cash into your bank account may or may not be anticipated, many people often don’t have a clear plan on how best to use money from things like an employment bonus, working overtime, or credits like a tax refund – any funds that fall outside your “usual” income. Without having a clear plan, it’s possible to ‘over commit’ on these funds and even spend more than the windfall received, leaving you in a worse financial situation.

While you might decide to make a large purchase or perhaps use some of the money as a reward, it’s a good idea to at least allocate a portion of those unplanned funds for some type of long-term benefit (not to mention the fact that you’re more likely to avoid feeling regretful).

Be sure to carefully consider how to use these types of funds, remembering that this is generally not just “free money”, but rather funds you’ve earned. Avoid feeling guilty by spending smart – and above all, only spending it once!

  • Could you use this money to bulk up your emergency savings account, make extra progress on one of your financial goals, get prepared for an annual expense that’s coming up?
  • How about starting an RESP, making an extra debt payment or investing in yourself by taking a course or learning a new skill? 
  1. Break Down Annual Costs

Has holiday spending snuck up on you before? What about annual insurance renewals or semi-regular medical or dental costs? Vehicle maintenance or vet check-ups? Professional dues or other memberships?

Your monthly budget should incorporate setting aside funds for irregular expenses, helping to keep big yearly (or even semi-annual) costs a manageable expense away from your credit card.

Revisit your past spending patterns and, once you’ve got a clear handle on those annual recurring costs, simply break them into a monthly expense and set up an automatic savings transfer so that what you need to set aside is done without you feeling inconvenienced or being left short when the expense comes due.

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  1. Have Separate Savings Accounts (and Goals)

From the financial stress reduction of knowing you’ve got some cushion in case of emergency to the excitement of planning for big-ticket items like a vacation or new vehicle – there are countless reasons why saving money is beneficial. Take some time to come up with a few savings goals for yourself!

  • Make it easy to “pay yourself first” with automatic savings transfers arranged through your bank and be sure to keep your savings money separate from your day-to-day chequing account. Good intentions to put “leftover” money into savings can easily become overshadowed by other costs.
  • You don’t have to be restricted to just one savings goal or single type of savings account either. Depending on your goals you may find it advantageous to have multiple savings accounts to keep your earmarked funds separate.
    • Be sure to find a bank and account that’s working for you (and not the other way around) and that your accounts are suitable (and convenient) for how you bank. Unnecessary bank fees can really add up and free banking options are easy to find with a little research!

Even if you’re working on getting out of debt, you should still aim to have some money saved. Having savings can make a big difference both short and long-term if you can cover an emergency instead of needing to rely on credit.

  1. Keep Track and Check In

Be sure to track your income and expenses and measure these “actual” results against what you had “projected” in your budget. Mapping out a spending plan is an important step in keeping control of finances, but not every month will be exactly the same, and you need to know where your money is going. No matter how long you’ve been working with a particular budget, periodically check-in to see how everything is working for you – you can also anticipate needing to make adjustments from time to time.

For example, you might realize you spend more on transportation costs than you initially thought or find out that every month part of your grocery allowance is actually going to dining out. Remember, you’re the boss here, so modify allocations and categories as needed to keep your budget as accurate as possible. Evaluate areas such as:

  • Are there gaps in what you anticipated for income?
  • Are the expenses you’re paying on par with what you budgeted?
  • Is an expense you previously considered irregular coming up more often than you thought?
    • Do you need to add something to your list of “annual costs” to plan for?
  • What larger costs are coming up in the next 6-12 months?
  • Are your saving account balances where they should be?

There’s no right or wrong way to track your expenses, so long as you’re holding yourself accountable. You might keep it “old school” with pencil and paper, use a cash/envelope system, update a spreadsheet or opt for an app – whatever works best for you!

Particularly in the beginning, don’t beat yourself up or allow financial anxiety to take over if you’re off-budget. It could take a month or three to adjust to a new budget, especially if you’re looking at some major money changes or trying to change some long-entrenched spending habits.

If you have a spouse or partner be sure they’re involved in the household spending plan too. It’s easy for one person to become overburdened juggling the household’s financial affairs and paperwork alone.

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Budgeting Trouble Paying Off Debt

Debt payments can be a difficult (and frustrating) part of any household budget. If clearing credit card or other debt tops your financial goals, here are some key areas to watch out for when it comes to paying off debt and kicking debt-stress for good:

  • Only Making Minimum Payments

Getting comfortable only making minimum payments each month is risky. Although your accounts are being paid up to date it’s easy to fall into the false sense of achieving progress on paying off debts because you are making monthly payments. In reality, you might be on a 50/80/100 year payment plan without even knowing it. Do not mistake minimum payments for substantial progress in paying down debt.

  • Your minimum payments on a credit card could be contributing very little per month to reducing your debt load, with the rest of your payment going to (ongoing) interest charges and fees.
  • If you can, start paying more than the minimum monthly payment required each month ASAP.
    • You may want to start by adding the extra you can afford to the highest interest card, then once that is paid move the additional funds to the next, and so on.
  • Always avoid taking cash advances on your credit cards – immediate (often higher) interest and convenience charges make this some of the most expensive borrowing available.
  • Check your monthly credit card statement for a “minimum payment warning” section that provides information on how long it will take you to fully repay your balance if only minimum payments are made every month.
    • If you bank online you may need to download your official monthly statement to see this. Even relatively small amounts of debts can trigger decades long repayment schedules if only minimum payments are made each month.

You should always pay more than the minimum where possible but be careful that your budget is realistic about how much you truly can (and will) put towards these payments each month.

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  • Do the “Rule of 60” Math

If debt payments are part of your budget, try adding the “Rule of 60” math to your check-in process. This can help you gauge your progress and be an early indicator if debts start becoming unmanageable:

  • Divide your total non-mortgage debts by 60 – is the number a monthly payment you can afford in order to pay off your debts in the next 5 years?
  • If that 5-year figure seems impossible or would create a financial strain you can likely assume that assessing a professional debt solution that will consolidate and cut your debt is advisable.

If this is the case, your best plan is to connect with a Licensed Insolvency Trustee to explore your options for getting out of debt.  A Licensed Insolvency Trustee can help you access remedies that can help you get back on track and there is no cost to talk about your situation and get impartial confidential professional debt advice.

  • Expenses Outpace Income

Unfortunately, struggling to manage expenses can be a challenge many people experience. In fact, more than 1 in 10 people polled in a BC Consumer Debt Study said that problem debts that eventually led them to consolidate debt with a Consumer Proposal or file bankruptcy accumulated due to their costs of living outpacing their income.

When facing more costs than income, if you haven’t already done so, the first thing to try is to scale back on expenses as much as possible and evaluate whether it’s possible to increase your income. Spend time considering the below questions:

  • Which expenses are causing the most damage?
    • Interest rates often have one of the biggest impacts on how “affordable” a debt may be.
  • Is there any way to mitigate the effect?
    • Example: If one of your debts has a high interest rate consider asking the lender for a better rate or investigate whether it makes sense to move the balance elsewhere.
    • Compare how interest rates impact common monthly debt repayment options.
    • If you’re considering consolidation options a Consumer Proposal often has the most affordable monthly payments.
  • Do I have options to increase my income?

For many people debt needs to be addressed as a stand-alone issue to gain breathing room and stop an ongoing borrowing cycle. Debts can have serious consequences for more than our budgets – debt-stress can be one of the largest impacts on our emotional well-being, physical and mental health. If you are experiencing the burden of a debt problem don’t hesitate to connect with a Licensed Insolvency Trustee for professional guidance and debt advice.

No room in your budget for debt repayment? Connect with a caring Sands & Associates debt help specialist today and get started with a debt-free plan. Your confidential free debt consultation will take less than an hour and can even be done online from the comfort and privacy of your own home, book yours now.