You may feel tempted to pay expenses to those who shout loudest; however, you need to prioritize. Rent, electricity, water and food. Without those things you do not have a functioning home, and you will find yourself in deep water for not keeping up with payments. Next, you have to consider the things that enable you to earn a salary, such as your car, travel costs or childcare; including child maintenance payments. All these expenses are absolute necessities, and you will find that out the first time you let your payments lapse. In short – unless an expense can put you out of your home, take food off your table or prevent you from earning money, it is not your first priority.
Now, that is not to say that your other expenses are unimportant. Keeping up all your payments, even if you are only able to pay the minimum, is of huge importance. Your credit cards, loans and other expenses may not be secured loans, however, neglecting them will only serve to perpetuate the cycle of debt. Once you have allocated funds to priority expenses, budget the rest of your cash flow to cover your other expenses. This will provide a template for how to best pool your financial resources. If you are having difficulty finding the cash flow to cover all your expenses, speak to your creditors. They would rather work with you to come to a payment arrangement, than not receive payment at all.
As tempting as it may be, never hide from your debts. Speak to all your creditors, explore the possibilities of reallocating funds and create a budget that is both realistic and workable. When you do prioritize your expenses, consider that money as gone. It is not available for juggling debts or tapping into it in the hope of securing future funds. If you have to seek additional disposable income, then do so; however, never stretch your budget beyond its means.
Automating payments presents a number of advantages. You can earn discounts, budget your cash flow better and forecast your financial requirements. When you get used to set amounts debiting from your account, you will eventually remove them from the equation. This takes away the temptation to tap into those funds, allowing you to create a workable budget that won’t leave you deeper in debt.
Remembering scattered payment dates throughout the month can become confusing. Your aim is to allocate money then forget about it – until such a time as you need to re-examine your budget. Depending on how often you get paid, you should set all your automated payments to come out on the same date, each month. To better manage your finances, there are various online apps and resources that can help you. Applications such as Mint, You Need a Budget and Mvelopes, are ideal. However, if you are not tech savvy, then keeping a calendar of your automated payments, when they reduce and completion dates, will suffice.
Another important point to remember is that automated payments do not only apply to regular household bills. You can set up regular payments for insurance policies, retirement funds, college plans and investments. Although many of these payments are not essential to everyday life, by budgeting automated payments, you are preparing for the future. Before you know it, that money won’t even exist in your mind. In fact, you will probably find yourself looking for other sources of income before even thinking about touching your monthly automated payment funds.
So you have decided to get married. No doubt you have planned everything with meticulous precision, right down to the smallest detail. However, there is an elephant in the room that no one wants to address. It’s time to have the debt talk – and how you approach the issue could make or break your marriage – before it has even begun. The good news is, with honesty, commitment and forward planning, there is no reason that debt should stand in the way of a lifetime of marital bliss.
They say a problem shared is a problem halved; but when it comes to debt, it’s not quite that simple. One partner may have significantly more debt than the other, for instance. However, that does not automatically mean that they are less frugal. Although a high debt amount should ring alarm bells, how that debt was accrued and the measures your future spouse is taking to address it, will paint a much more accurate picture of what you are getting into. This is why honesty is so important. When all the cards are laid on the table, you can assess where you are and how you want to move forward.
Marriage is all about commitment. You are not just committing to each other though, you are committing to each other’s debts as well. When having the debt talk, it is important to examine how each of you has addressed your own debts. Before you even think about marriage, both of you must prove a commitment to making regular payments towards debt, that won’t completely cripple your lifestyle. Approach the problem with the same precision that you would when planning your actual wedding. Make no mistake, debt is a big deal when considering marriage. Forward planning will prevent any nasty surprises; so make sure you are both prepared for the financial strains, before you say those vows.
Have you ever tried to perform mental gymnastics with your finances? It is no mean feat, and you are quite likely to forget at least one important payment. Creating a budget is one thing, but ensuring that all the funds in your bank account go where they should is not so easy. When you created your budget, you probably divided all your payments into categories. If you didn’t, then now is the ideal time to create a system that is both efficient and easy to manage. This will make life so much easier, once you split your payments across multiple accounts.
You would imagine that trying to manage multiple bank accounts would be a nightmare. However, nothing could be further from the truth. Separating your monthly expenses and savings across multiple accounts will help you focus on your budgets and goals. There are cost effective accounts like Tangerine Bank where you can have multiple accounts and even name the account the same as your budget category.
If you have financial goals that you are determined to achieve, focus on each one individually. Create an account where you can save towards specific goals. Once you have reached your target, you can use that account to work on your next goal. Keep all your regular payments in one account, where you can allocate a set amount each month, with the security of knowing that you will not overdraw. Next, create an account for your irregular payments. This account should allow for enough breathing room to accommodate ad hoc payments.
Should you be lucky enough to consistently have cash flow to spare, you may want to set up an account for luxuries. Filter your spare cash flow into this account, whenever you can. Once you have been using your multiple accounts for a while, you will find that management your finances becomes much less of a chore.
There was an encouraging note in recent financial news when CIBC released the results of a telephone survey taken earlier this year. Of the 2003 Canadians surveyed, 72% said that they had some form of personal debt – a mortgage, credit card debt or student loans. The encouraging news about those debt holders was the fact that 49% of the said that they had made a lump sum payment against that debt during the previous 12 months in order to help bring their debt load down.
With interest rates low, the temptation to borrow funds and go further into debt increases. However, it appears that the majority of Canadians are taking the wise track and developing strategies to lower their overall debt rather than add to it.
If you are among those who have made the choice to apply extra lump sum payments to your household debt during the last year, we applaud your efforts and the self-discipline that it takes to so so. The greatest means of reaching true financial freedom rests in the hand of each individual. As individuals and families take control of their finances and make the commitments and sacrifices necessary to reduce their household debt, they often find that their lifestyle improves and the decrease in finance related stress is one of the big bonuses that goes with it.
Preet Banerjee from the Globe & Mail explore what a 2.5% interest rate hike would mean to the average Canadian.
Learn how an increase could mean the difference between living the homeowner’s dream and having that dream turn into a cash-flow nightmare.
Click here to read the Globe & Mail article.
Get help with debt problems before they become a full-blown crisis. Here at Creditaid, our credit counsellors are compassionate and experienced individuals who are dedicated to helping you find financial security and stability. With over 50 years of experience to our credit, we’ve successfully helped many Winnipeg families and individuals overcome their debt problems. There isn’t a debt problem we haven’t dealt with, so come to us with all your questions and concerns.
The first step will be an initial review of your financial situation. Initial consultations are free, and you will get to sit down with our experienced credit counsellors who are trained to analyze your complete personal financial situation and offer advice that is both realistic and effective. They can help you navigate through complicated terms such as “Debt Management” and “Debt Consolidation” in a simple and easy-to-understand manner.
Creditaid has a strong reputation for providing sound financial advice to our clients and they come to us for help with debt problems. Many Winnipeg lenders, bankers and credit collection agencies often refer their clients to us because they know our staff will treat them equally and with respect.
Contact us for help with you debt problems before they become debt disasters.