Budgeting – Review Your Spending Before You Create Your Budget
If you want to reduce your debt, then you need to have a budget. I know, you have tried this a million times and it is a waste of time. You see, the problem with a budget is that it only works if you know what you are budgeting for. If you sit down and pull numbers out of your head, what you are doing is the equivalent of wishing away your debt. First and foremost, a budget needs to be realistic; which means you will have to do the ground work.
The key to success is in reviewing your spending, before you create your budget. To do this you are going to have to be honest with yourself. The easy part is your recurring payments, such as mortgage, insurance, taxes and credit cards; so start with those. Next you will need to look at your outgoings for less predictable or fluctuating costs. Consider your groceries, clothing, travel expenses, entertainment and any other impulse purchases. Track what you spend on each area for a month to give a realistic view of what you are currently spending.
Now, once you have calculated your outgoings, there is a chance that you will be over budget. Don’t let this dishearten you. You have effectively listed the component parts of an overall formula; you now need to make those components work for you. This is where you budget really begins.
Look at your outgoings; especially those that are not essential or are adjustable, and consider how you can reduce them. Allocate higher amounts from your budget to payments which have high interest rates. If, after you have tweaked the numbers as much as you can, you are still in the red, it is time to speak to your lenders. You may be able to make further monthly reductions by changes to your payment plans.
Saving Commitment – Change Your Habit, Pay Yourself First
Whether you are saving for one big purchase or simply as a means of combating debt, you deserve a reward for your efforts. If you have ever played games on social media sites, where you effectively click buttons for six hours, you will appreciate this article. The developers of those games use psychology to keep you hooked. They are based on an effort and reward system, which keeps the player motivated to continue in order to receive their reward.
Saving is just like those games, except for most of us, it is often a long time before we see a reward. So why not have a little fun with your saving, by setting yourself challenges? It is difficult to appreciate the results of your hard work when the goal is in the distant future. By setting incremental goals, with a reward at the end, you will feel that your efforts are worth it and you will also notice an increase in your motivation.
So, let’s say that you set a target of $5,000 dollars and you reach it within your estimated time frame. Now you can reward yourself. Here’s a tip: create two dates; one is your reward date and the other is your ultimate deadline. If you reach your target by the reward date, you can treat yourself to a night out or a similar luxury. Obviously the reward should reflect the target amount, so if you are aiming to save $100 dollars, don’t splash out on a foreign holiday as your reward or anything else that will eat up a large chunk of the money saved.
This simple idea will make saving fun, rewarding and worth the effort. Get as creative with it as you like, as long as the end results are the same.
Pay Down Credit Card Debt
It may surprise you to find, that in an article about reducing credit card debt, we are not going to tell you to stop using your credit cards. Responsible spending, using credit, will actually help you keep a healthy credit score. This will make all the difference in the future if you need to take out a large loan for a new home or car. However, you do need to keep your credit card debt down, and to do that you have to keep up with your payments.
Whatever you pay, you need to be realistic about it, so create a budget to track your outgoings. Try to avoid paying the minimum on your credit cards at all costs. It may seem like you are chipping away at your debt, but really, all you are doing is paying interest. The next step is to compare the interest rates on all your credit cards. You want to allocate the highest payment to the cards with the highest rates. You may not have it within your budget to pay more than the minimum on all your cards; however, you can pay off the larger ones while maintaining minimum payments on the others.
A low-rate balance transfer is another option for reducing your debt. You can consolidate all your credit card debt into one easy to manage, lower rate payment. Be careful when choosing this option, and make sure to check the rates and how long they last.
Results are In for Top 5 – Winnipeg 2012 Debt Resolution
We recently asked you, our Manitoba readers, to share your debt resolution for 2012 for a chance to win an Apple iPad. Our iPad winner is Janice Margelino! We were very happy to meet and present the prize to Janice. We were extremely impressed by her dedication to good saving practices and determination to pay off her student loans!
Also, here are the Top 5 Resolutions we would like to share, as chosen by the contest participants. The choices are listed in descending order from lowest to highest votes.
Number 5. Commitment to save – By creating a budget and cutting your costs you will put yourself in the best position to save in 2012. You can use those savings in the future so that you don’t find yourself in debt again.
Number 4. Follow your budget – A budget is absolutely essential, if you really want to reduce your debt. The key to success is to make sure that the budget is realistic and to stick to it. If your budget comes in over your monthly income, it is time to start looking at where you can cut costs.
Number 3. Pay off student loans – Those students loans are not going to go away on their own. Commit to making regular payments on student loans as part of your overall budget. If you are struggling to meet your payments, speak to your lender to discuss your options.
Number 2. Pay down credit card debt – Credit cards are a quick and convenient way to pay for the things you want. However, they are also a sure way to increase your debt and put a huge dent in your monthly budget. Pay off your highest card balances first and work your way down.
NUMBER ONE. Cut frivolous spending – The top choice for debt resolution, and rightly so, is to cut frivolous spending. This does not necessarily mean going without. Look for cheaper alternatives to your favorites treats. For instance, retro clothing is fashionable at the moment, so why not check out your local thrift stores?
Gail Vaz-Oxlade on CJOB
Just one more day until the “You and Your Money” seminar series with Gail Vaz- Oxlade! The host of Princess and Til Debt Do Us Part will be in town for one day only and sharing her valuable insight on personal finances. The seminar will concentrate on debt and the problems associated with carrying debt. As well, Vaz-Oxlade will share some of her most effective and well-tested technique on managing finances and taking back control. Listen to this short interview of Gail on CJOB for a quick preview of what’s to come – http://www.creditaid.ca/en/resources/on-the-air.
The seminar series will be taking place Thursday, February 9th at the CanadInns Polo Park. Information sessions are being held from 2:00 – 5:00pm by financial professionals including Brian Denysuik from CreditAid. Come and get advice from the professionals. Gail’s presentation will take place from 7:30 – 9:00pm. Tickets are available at the door, or by phone 204-254-2595.
Money-Smart Kids
Where are the Money-Smart Kids?
If basic, yet essential, information on budgeting, borrowing, saving and investing isn’t learned early in life, most young people will have a huge deficit in this very important life skill when they leave home to live on their own.
Kids need to know the meaning of credit and debt before they get out into the “real” world and begin signing contracts on cellphones and credit cards without knowing the trouble they could be getting into. Too often they find themselves with an overdue bill and no money to cover it.
Parents and schools need to band together to teach our young people the basics (at least) of money management. According to comedian James Cunningham, who has set up a national financial literacy program that is sponsored by the IEF and the Investment Industry Regulatory Organization, young people need to know how to save, invest and spend their money.
Cunningham uses humor in his program “Funny Money” to give young people the following three tips regarding money management:
1) Know how much money you have and the sources of your income and write it down. Keeping track of your money allows you to see how much money you make, what you can afford and how long it will take you to pay back a loan based on this income.
2) Take control of your money; don’t let your money control you! This means that before you get a credit card and charge a bunch of purchases, make sure you have some income so you can pay that bill off in full every month.
3) Save some money with every paycheck. You will be surprised at how quickly your money grows and you will love the feeling of taking the money you have saved and buying something outright, rather than making payments on it for the next several months.
Tips to Help Kids Understand Debt
In order for children to fully understand finances and how money “works,” they have to learn about debt. The age of your child will determine how you define debt so they can understand.
Make sure you use terms and examples that they are already familiar with.
You can begin with the concept of borrowing something such as a toy from a friend. Explain the need to return the toy to its owner. And if the toy can’t be returned in its original condition then it needs to be replaced by a similar item of equal value. Your child should be able to understand that until that item is replaced, paid for, he is in debt to the person who owned the item.
For the “tween” set you can use real money items and examples. Set up a scenario where your child wants something, a new bicycle, for instance. Write down and discuss the amount of money the bike costs, the amount of money your child has, the amount of money he earns through allowance, or anticipates receiving for a gift, etc.
Talk about whether or not he can “afford” the bike right now, and if he can pay it off within a reasonable amount of time. This discussion will include installment payments where instead of paying back the “loan” with all of their allowance each week, they pay smaller amounts so as to keep some money for their usual “living expenses.” It’s important to work financial terms into the conversation as soon as you child is able to understand them.
Then, actually carry out a transaction. Keep it written down; sign a contract, have them make payments and even set up an amortization schedule so they can see how interest works. Going through this process will give your child an excellent opportunity to learn about personal finances.
New Year-New Beginnings – Financial goals
The beginning of a new year is a time to start fresh, make some changes and set some goals. Now is as good a time as any to evaluate your income, expenses and overall financial health and set some goals.
Here are a few things to look at when it comes to setting financial goals:
Retirement: Depending on your age, retirement can seem like a lifetime away, or it can be right around the corner. No matter your age, now is the time to look at what is available for retirement income, and if it is deemed to be not enough, now is the time to start saving towards that goal.
Insurance: get out your policies, health, life, auto, property, etc. Talk to your agent to see if you are appropriately covered.
Debt Reduction:Consolidate current debt and don’t create more- that means cutting up the credit cards and gaining control of spending.
Savings: Besides controlling spending, you’ll want to amass some savings; typically the interest rate on investments is considerably lower than the interest rate on your line of debt so by saving rather than paying down debt, you’re actually losing money. That’s where you need to strike a balance: you need to invest some, but at the same time reduce the debt.
Additional Income:Think about the possibility of getting a second part time job. If you’re living comfortably on your current income, the income from a second job can go directly on debt or mortgage or into retirement or another fund for education or a trip or an emergency.
Once you set your financial goals, it’s good to revisit them every few months. Six months from you will be motivated to continue your financial plan when you see how well it’s working for you!
Is money causing stress in your life?
Is your relationship with money causing stress in your life? If so, then it may be time for some financial therapy. Winnipeg-based psychologist and life coach Dr. Moira Somers specializes in financial psychology, an emerging field that explores people’s relationship with money (and why they may treat it the way that they do).
Dr. Somers maintains that our behaviour towards money may stem from our childhood experiences including exposure to money management beliefs and culture. These beliefs in turn causes many disordered behaviour in our adult lives such as chronic debt, overspending, under-earning and using money as a means (whether consciously or not) to exercise power, control or to fill a void.
You can read more about Dr. Moira Somers in the Winnipeg Free Press article by Carolin Vesely, or visit her website at http://www.moneymindandmeaning.com/.
Finance Minister kicks off Financial Literacy Week
Canada’s Finance Minister was in Toronto last week to kick off the Financial Literacy Week. This initiative is a nationwide campaign aimed at helping Canadians increase their financial knowledge so that they can make more informed decisions when it comes to their personal finances.
Many Canadians have taken advantage of the low interest rates since the recession and the government warns of the dangers of piling on too much debt, and especially at this time. With a clearer understanding of financial matters and stronger financial literacy, Canadians will have greater control over their own finances and collectively build a more stable economy.
Financial Literacy Week was started in 2009 with that aim in mind. Many resources are now available online, and events are being held across the country.