The end result is that it’s even harder today to make ends meet. For many Canadians living paycheque to paycheque means more credit card debt, not less. And too many households are a week or two away from resorting to payday loans and high-cost installment loans.

So how do you control your debt when your budget is stretched? Read on for some personal finance tips that can help you deal with debt when you can barely manage to keep up with living costs.

Avoid going deeper into debt

One of the most common concerns I hear when talking with people on our helpline is “I’m not even living paycheque to paycheque, I’m going deeper in debt every pay period.” If this sounds like you, you are not alone. This is the most common path to bankruptcy for most of my clients.

While I know it’s hard, if you are struggling to balance your expenses with your income, my number one piece of advice is to put away your credit cards and live on cash (or cash equivalent like your debit card).

This is especially true if you owe money on your credit cards. Most credit card companies charge interest daily if you carry a monthly balance. In other words, if you don’t pay your balance in full each month you lose the grace period for new purchases. So if you have credit card debt, stop using your cards until they are paid off.

Using credit to pay bills is a temporary money fix. Eventually, your credit cards will be maxed out and you will be tempted to turn to high-cost payday lenders. This creates a cycle of debt that is hard to stop.

Be prepared for unexpected expenses

Living paycheque to paycheque is even more stressful when you lack financial control to deal with unexpected expenses that arise.

The first financial goal I recommend to most of my clients is to set aside a small emergency fund of $500 to $1,000 in a separate bank account. This is not money you turn to when you run short at the end of the month. Try not to use this money to pay for everyday costs like groceries and gas. It’s money meant for surprise costs like a car repair, medical bill or visit to the vet. The objective is to have a small amount set aside so you don’t turn to your credit cards or other debt to pay for emergencies.

Pay your bills as you get paid (it’s easier than budgeting)

I’m not a fan of formal budgeting because I know it’s not sustainable for most people. What I generally recommend to anyone starting fresh with money management is to pay your bills as frequently as you get paid.

The general idea is to pay a portion of your next month’s bills and set aside enough money for future bills, every payday before you spend any other money. What is left after doing this is money you can spend on extras, put towards debt payments or savings. You are using your paycheque cycle as a budgeting tool.

There are many benefits to this approach to budgeting:

• you don’t need to keep track of anything or use any spreadsheets
• it prioritizes necessary bill payments over wants helping you avoid overspending
• you won’t have any late payments which can harm your credit score.

So here’s how this works.

If your cell phone bill, for example, is $120 a month and you are paid weekly, every week set up a bill payment for $30 to your cell phone provider. This way, if the bill comes in you don’t need to scramble to find $120 in an empty chequing account.

For bills, you can’t pay periodically, like your rent, you can use separate holding accounts to accomplish the same thing. Let’s say your rent is $1,800 a month and you are paid weekly. Simply set up an automatic payment to transfer $450 each week into your ‘rent account’. When your rent is due, use this money to pay your landlord.

The key here is to know what bills you have coming in over the next 30 days, and what money you might need to set aside for future bills like your car insurance, Christmas gifts etc. You carve money out of each and every pay to cover these costs.

Any money left over the day after allocating to your bills is yours to spend as you wish. As long as you don’t spend more than this using credit cards, you have a balanced budget and stop living paycheque to paycheque.

Protect yourself from income loss

Losing a job, or income loss is the most common cause of the primary causes of insolvency in Canada.

As many people found during the pandemic, no job is secure. That means you should always be prepared for the possibility that your income will drop. As the saying goes, hope for the best but plan for the worst. Here are some tips to help you be prepared:

1. Keep an up-to-date resume (and on your home computer not your work computer).
2. Update your skills to improve your employability, both with your current employer and for a possible future employer.
3. Know where you might find your next job. You don’t have to be thinking about quitting your job but it’s always a good idea to know what else is out there in case your company lets you go unexpectedly. This can also help you negotiate for more money come raise time.
4. Network with people in your industry or with people who work in an area you might want to move to.
5. Take pride in what you do. It doesn’t matter what your skill set is, an employer is most likely to retain or hire someone with a positive attitude, and who is willing to learn and improve.

Other things you can do to ensure you have a steady, or better monthly income include getting a side gig to earn extra money if this makes sense for your lifestyle. I’m not suggesting everyone get a second job or another part-time job. I’m talking about looking at ways to use what skills or hobbies you have to create a side hustle that can help you generate a little extra cash.

And don’t be afraid to reinvent yourself. If there is not a lot of job security or room for growth in your current job, take a chance on yourself. Go back to school, build a new skill set, or start your own business.

If you want to learn more about my thoughts on employment, you can hear more on our Podcast Debt Free in 30.

Change your money habits

I’m not here to tell you where to spend your money but there is value in reviewing your spending habits if you are constantly running short of cash before payday.

Look over where you are spending money and ask yourself is this a need or a want. If it’s a want, that’s fine, but weigh that want against putting that same amount of money towards your debt. It’s your choice, your priorities, just make sure you are making a conscious choice each time.

Second, look at how you pay for items. If you are using debt to buy non-necessities, this should definitely stop. As I mentioned before, if your debt is increasing, you may be better off leaving your credit cards at home and paying by debit instead to control the bleeding.

Paying down debt

OK, so what about the debt you already have. I hear from families who were financially devastated by the lockdowns and business closures during the pandemic. Many were forced to take on debt because they couldn’t work. Now they are back at work and it’s time to pay it all back, yet their income isn’t necessarily high enough to pay the bills and pay down that debt.

How do you deal with current outstanding balances when money is tight?

Pay more than the minimum payment

One of the most important facts to learn about credit card debt is that the monthly minimum payment is designed to keep you in debt. It’s enough to cover the interest charges for the month and typically only 1% – 2% of what you actually owe. So if you only pay off 1% of what you owe each month – guess what – it will take 100 months to pay off your balance. And that’s assuming your spending habits don’t cause you to use your card for more purchases each month.

As I mentioned above, if you carry a balance and put new charges on your credit card be aware that you are paying interest on those purchases from the date of purchase.

So begin by paying more than the minimum where you can.

This can be easier if you make a small micropayment towards debt every time you get paid. There is no rule that says you can only make one payment on revolving credit like credit cards or lines of credit every month. You may even be able to pay your car loan in small micro installments if the payments have not been automated already.

Use the debt avalanche method

There are two common approaches to debt reduction: the debt snowball method and the debt avalanche method.

The debt snowball method is where you pay off balances in order from the smallest to the largest. The main, and in my opinion only benefit, of this method is the psychological motivation you get in knocking some debts off your list.

A debt avalanche is a system of debt repayment where you break down your monthly debts by total owed and their interest rates. The loan with the highest interest rate becomes the priority for repayment.

Begin by making a list of all your debts including student loans, payday loans, credit card debt, bank loans, installment loans and any other personal financing. Every debt must be paid on time, with at least the minimum payment. Money that is not budgeted for necessities (or left over each pay when you use my ‘pay your bills as you go’ method) is used to pay down debt.

Imagine you have three loans and $250 available after expenses:

• $500 owed on a credit card with a 20% annual interest rate
• $625 due for monthly car payments at a 6% interest rate
• $2500 on a line of credit with an 8% interest rate

The monthly car payment would need to be met, and budgeted for, as this amount is the minimum. Imagine, the minimum payments on the credit card and line of credit were $50 each. Out of your $250 available, $50 would be put towards the line of credit and $200 on the credit card, since it holds the highest interest rate.

If you didn’t add any new debt to the credit card, you could pay it off in full in two and a half months. The full $250 would then go towards the line of credit. After the line of credit is paid, any extra income can be added to the car loan to pay it off faster or put towards savings or other financial goals.

Benefits of dealing with a high-interest debt first

One of the main advantages of the debt avalanche system is it reduces the amount of interest you’ll pay while paying down debt. And focusing on clearing the most expensive debt will lessen the time it takes you to get out of debt.

I know that debt is emotional and stressful, and most Canadians don’t fully realize how interest rates add to their overall burden. Paying off your debt with the highest interest will give you more financial control and eventually increase the amount of disposable income you have for other things.

Savings vs. paying off debt

As I said earlier, I believe an important priority when financial planning is to have a small emergency fund. After that, your goal should be to reduce revolving high-cost consumer credit.

Once your credit cards and other high-interest debt is paid off, the most common question I get is should I pay down my mortgage or car loan or should I start saving money.

The truth is it’s up to you and should be based on your income stability and future financial goals.

If your employment is at risk you might want to build a larger rainy day fund in a separate savings account to cover maybe three months of necessary expenses. These monthly expenses include rent or mortgage payments, groceries, basic utilities, and car loan payments.

But it’s just as reasonable to start setting aside money for a down-payment to buy a house, to put money in an RRSP or TFSA as long as your high-interest debt is paid off. It all depends on your financial priorities.

Other options for high-interest debt

If the monthly payments for your debts are far beyond your means to pay every month, there are other options to get out of debt. Using a debt calculator can help you explore the options that are right for you.

There is no shame in seeking help to get your finances under control. Speaking with a qualified Licensed Insolvency Trustee will provide you with options for debt relief but here is a brief summary of potential debt solutions that can help you become debt free.

Debt consolidation loan

A debt consolidation loan is a way to combine multiple monthly debt payments in one and potentially lower the interest rate you are charged on your total loan balances.

To be approved for debt consolidation loans, you’ll need to meet these requirements:

• a sufficient and reliable source of monthly income to support the payments
• a good credit score
• collateral or a co-signer is sometimes required

The advantages of consolidating debt into a single new loan are easier to manage payments, a potentially lower interest rate than on your current debts, and you will have a known end date when all your debts get paid off at the same time.

The major disadvantage of this system is the total amount of your debt stays the same. All outstanding loans are simply transferred under one umbrella, and if you have poor credit, the interest rate on this singular loan will likely be high. Also, if you opt for a long amortization to lower your monthly payment, you will be in debt for longer and pay more total interest over time.

Consumer proposal

A consumer proposal is a popular option for dealing with large and problem debt. Consumer proposals include non-secured debt, such as credit card debt, lines of credit, payday loans, and some student loans. By working with a Licensed Insolvency Trustee, you can negotiate up to a 70% debt reduction. This is an alternative to filing personal bankruptcy and will stop creditors from contacting you.

Repayment amounts are determined based on what is realistic for you to pay and what the debtor expects to receive. Settlements are often drastically less than previous minimum payments, carry zero interest and you will be free from debt within five years.

Bankruptcy

If personal debt has reached the point where you have no hope of repaying, and you cannot afford a consumer proposal, your next alternative is to consider bankruptcy.

Personal bankruptcy is legally binding and clears your debts to give you a fresh start. There are stipulations and requirements that must be met, including making required monthly payments, reporting your income and attending two counselling sessions, but calls from creditors will stop and your debts will be wiped clean when your bankruptcy is complete. If this is your first time filing bankruptcy, and your income is below the government threshold limit, you can be eligible for an automatic and full discharge in as little as nine months.

Professional financial help is available

Perhaps, the debt avalanche system sounds like a way for you to pay off high-interest-rate loans and save for emergencies on your own. Or, maybe it’s time to learn more about loan consolidation. If debt payments are a reason you are living paycheque to paycheque, reach out for professional financial advice.

The Licensed Insolvency Trustees at Hoyes Michalos are here to help you. We’ll ask some questions about your finances and unique situation and help you decide which debt solution will work for you. If you don’t need to file a bankruptcy or proposal, we’ll tell you that too and provide some insight into how to go about other options.

Call us today at 1-866-747-0660 or book online for a no-obligation chat.

The post Dealing with Debt When Living Paycheque to Paycheque appeared first on Hoyes, Michalos & Associates Inc..

What is zero-based budgeting?

Zero-based budgeting means that every dollar of income you have coming in must be accounted for in your budget. Every dollar is given a purpose by being allocated to specific expenses, savings, or debt repayment. The idea is that every month your budget is balanced to zero.

Before you get excited, no, that doesn’t mean that you get to spend all your money. It’s not continuing the current cycle you may be in of living paycheque to paycheque. It means that you decide at the beginning of each month exactly where you are going to allocate your hard-earned cash, and then you stick to it.

Why use zero-based budgeting?

Humans are notoriously bad at planning for the future. It’s in our genetic make up to live in the here and now – which makes impulse spending a common challenge for most of us.

A zero-based budget is an effective budgeting method for those who struggle to save or pay off debt because they lack focus. When you use zero-based budgeting, you force yourself to spend within your means, save money and pay off debt. By ensuring that you don’t skip any priorities, you are much more likely to meet all your financial goals.

How do you make a zero-based budget?

A zero-based budget follows this one simple formula or rule:

INCOME minus SPENDING minus DEBT REPAYMENT minus SAVINGS equals ZERO.

In other words, it’s a zero-sum budget.

A zero-based budget is no harder to create than any other form of traditional budgeting.  

Start by analyzing your incoming and all outgoing cash flow demands

Your income is relatively simple to list. It should include your net paycheque, social assistance, child or spousal support, pension income, business income, rental incomes, and any other cash you bring in.  If you earn commissions, estimate on the low side. If you earn more or get a bonus, our recommendation is to exclude this initially.  This provides some buffer in your planning and ensures that you don’t go negative right off the bat.

Your outgoings may be harder to nail down at first. If you don’t know where you are spending your money today, start with a 30-day spending journal. Look through all your past credit card and bank statements and utility bills for on-going expense items. In addition to the big three – rent or mortgage, food, and transportation – be sure to include all memberships, an amount for personal care, prescription medications, anything you spend money on. Don’t forget to include periodic or seasonal expenses like insurance premiums, property taxes or gifts.

Zero-based budgeting accounts for all cash outlays so you also need to list all the money you spend each month either paying off debts and any amounts you wish to set aside for savings. And of course, I highly recommend allocating a small amount each month towards building up an emergency fund.

Subtract your outgoing spending from your income until you balance to zero.

Once you have a clear picture of exactly what money you have coming in and out each month, it’s time to balance them to equal zero. Your initial budget might reveal that you are spending way more than you have coming in.

To get your budget to balance you can:

• increase your income
• find cost savings to decrease discretionary expenses
• increase or decrease debt repayment. Remember however that you must keep up with all minimum payments.
• increase or decrease your savings

Ultimately, it’s your zero-based budget. Your rules.

The key advantage of zero-based budgeting is that it mimics what you must do in real life to achieve your financial goals. If you want to allocate more money to savings goals or debt repayment, you need to cut back on expenses somewhere. All that matters is that you clearly assign your money somewhere – otherwise, you may spend it on a whim on who knows what.

How do you know how much you should save or spend? 

Keep in mind your initial goals. Do you want to eliminate debt? Do you want to increase savings?  When choosing where to spend your money, make sure you meet your very specific financial objectives.

You can use rules of thumb to distribute your money like the 50-30-20 rule, which means that:

• 50% should be spent on things you absolutely need (rent, groceries etc.)
• 30% should be the maximum you spend on things you want (gym memberships, vacations, clothes, fancy food etc.)
• 20% should be immediately saved (goals or retirement) or put towards paying down debt.

However, these rules of thumb are not realistic for everyone. If you have a lot of credit card debt, then you may want to allocate more than 20% to pay off high interest debt sooner. If your income is high you may not have an extra 30% for discretionary spending. Your rent or mortgage might take up more of your income, limiting how much disposable income you have to allocate.

The zero-based budgeting approach makes sure you allocate money first to the most important items like necessary expenses and debt repayment or savings. For your budget to work, it must be realistic. If your living costs are high or you have a lot of debt, meeting your goals may mean making some hard choices to reduce discretionary spending for a while.

Track your results

All that’s left to do now is to track your progress. You can do this with an app, on a spreadsheet or simply automate your bill payments and savings, so they align with your zero-based plans.

A zero-based budget works very well alongside the envelope method or reserved bank account method. Once you balance your budget to zero, you move money into these envelopes or separate bank accounts in accordance with your overall plan. I often recommend against leaving your entire paycheque in your checking account. It’s too much of a temptation to spend. If you’ve earmarked monthly income to cover certain future expenses, move the money out into a separate account you use only for that purpose.

Don’t worry if you have a few slip-ups. Looks at your line items again to see what you can reduce to make up for where you overspent – your budget should still total zero at the end of the month.

Does zero-based budgeting mean zero flexibility?

No, absolutely not. At any time, you can tweak how and where you allocate money throughout the month. Priorities and situations change, and your budget can and should adjust accordingly.

The best thing about zero-based budgeting is that you get to spend your money guilt-free. If you have allocated $100 to your restaurant fund for the month, then by actually spending that money you are simply sticking to your budget. Rather than feeling guilty, you can spend your money stress-free, safe in the knowledge that you’re only ever spending within your means.

Creating a zero-based budget is a powerful way to put you in control of your finances. You consciously decide exactly where and how you are going to spend every cent you make, which in the long run will help you to achieve your financial goals.

Zero-based budgeting is absolutely not about taking away your financial freedom. It’s about putting you in charge of your budget so that you can enjoy more of the things you love, without worrying about a nasty surprise at the end of the month.

The post Zero-based budgeting: How to Give Every Dollar a Purpose appeared first on Hoyes, Michalos & Associates Inc..

While most people think of budgets as constraints, we like to think of a budget as nothing but a plan. We gave you a plan to be debt free; now you need a plan to stay that way.

However, budgeting can seem daunting, especially if you’re a beginner. This article will answer some key budgeting questions and will hopefully help you create your first budget. Follow these tips to create a budget and learn more about how budgeting can help you move from struggling to pay expenses to setting aside some savings.

What is the first rule of budgeting?

A budget is a plan of how you will spend your money. It helps you identify your expenses before the month even begins so you can spend your money more responsibly.

The first rule of budgeting is to give every dollar a purpose. This isn’t the same as spending every dollar that comes in on your paycheque. It means you allocate all your income to something specific. That might be paying for living expenses, building some savings or making a debt payment.

A budget helps you avoid the temptation to overspend. It makes sure you don’t run out of money by payday, so you don’t use your credit card to pay for things.  Your budget should never be balanced with debt.

Basic elements of a budget

Before creating a monthly budget, it is essential to understand the different elements of a budget, including monthly income, fixed and variable expenses, discretionary expenses, and savings.

Monthly income

Your monthly income is how much money you have coming in that is available to pay bills and save. When creating your budget, you want to record your net income. If you are employed, simply record your net pay from your paycheque.

If you are self-employed, you may want to create a separate business and personal budget. After deducting your business costs, move your net business income to the income line in your personal budget.

Fixed expenses

These are expenses that stay the same month after month and include mortgage, rent, and insurance. If you have a fixed phone plan, this also counts as a fixed expense. Generally, these are expenses that are easy to identify but hard to alter.

Variable expenses

These expenses change every month depending on use. For example, your electricity bill changes from month to month. Variable expenses include utility bills, transportation, and groceries. While these are ever-changing, you can account for them in your budget through approximation. Do yourself a favour and over-estimate these expenses, so you don’t get a negative surprise at the end of the month. It’s better to over-plan than run out of money.

Discretionary expenses

These are expenses that aren’t necessary – they’re wants rather than needs. While groceries are a necessary expense, entertainment is not. Examples of discretionary expenses include dining out, hair treatments, streaming services, video games, and gifts.  You don’t have to give all these items up. That’s not what budgeting is about. But knowing what is discretionary spending is how you can find things to reduce if you have more money going out than coming in.

Unplanned expenses

Emergencies are inevitable, and it is important to plan for them when making your budget. Unplanned expenses include replacing damaged items, unexpected healthcare needs, and emergency travel.

Savings

Saving for a rainy day is what keeps people out of debt. Even a small emergency fund is helpful. Long-term savings is what you set aside to spend in the future – a vacation fund, your retirement plan or an RESP for your children.

Organize your budget

An organized budget allows you to see everything for what it is without any clutter. Income and expenses are usually grouped together in categories.

Categories and line items

Categories and line items are useful since they group expenditures and make it easier to track. This organization clearly shows where your money is going and can be extremely helpful when trying to change spending habits.

Categories differ from person to person and depend on spending habits and lifestyle. Common budget categories include housing, food, transportation, medical costs, personal care, clothing, and entertainment. Adding a “miscellaneous” category is useful since you may have spending that isn’t budgeted for in other categories.

You can break these items down further if you want, but don’t feel pressured to have a thousand categories. Too much detail is going to frustrate you and make keeping track a chore. Budgets often fail because people get tired of maintaining them. Keep it simple, and you are more likely to continue.

Common expenses you shouldn’t forget

You can be as thorough as possible looking through bank statements and old credit card bills and still forget to budget for some expenses. Make sure not to forget these common expenses when creating your budget, which is easy to do as they often come once a year:

• Home & car maintenance costs
• Annual insurance premiums, licenses, and registrations
• Holiday and celebratory gifts
• Vacations

Choose a budgeting method

There is no one right budgeting method that will work for everyone. Some people will love tracking on a spreadsheet; others are comfortable with online budget apps. Others won’t want to track at all but do want to manage their money better.

Here are some budgeting methods that work well for someone just starting out with their first budget and who may be working with a limited or stretched income.

Paying yourself first

This budgeting strategy treats savings and investments as bills. By putting money for savings aside, you’re essentially paying yourself before paying any of your other bills. This prioritizes your savings goal by getting it out of the way first.  This is not about paying yourself before your rent, but it is about setting aside even a small amount before spending on discretionary items.

You can start out small – $5 or $10 a week. Increase this slowly as you get comfortable with how much you can save.  Set this money aside into a separate bank account to make sure you don’t tap into it except for its planned purpose.

Paying yourself first is a very good budgeting system for those who want to focus on building savings.

The modified ‘envelope’ system

Relying on credit cards to pay for things can quickly lead to overspending. That’s why a cash-only budgeting approach is popular for those starting out on a new journey of building better spending habits.

It’s true we don’t live in a world where we can pay for everything with cash today. No problem. With so many online banking options, you can use separate bank accounts as your envelopes. Just make sure these accounts have no banking fees for anything, including money transfers, debit transactions, and withdrawals at a bank machine.

Different bank accounts stand for different categories in the modified envelope system, and these accounts are each filled with specific amounts of money. The money can only be used for those specific purchases. Once the money is gone, you have to wait until the next month or paycheque (depending on what time period you choose to replenish your accounts).

The modified envelope system is a good budgeting approach for those who want to avoid overspending.

Pay your bills as you go

This is the opposite of the paying yourself first method of budgeting. With the pay your bill as you go budgeting system, you prioritize bill payments by making a small payment towards your monthly expenses every time you get paid.

If your cell phone bill is $120 and you get paid every week, you pay $30 each week.  For items you can’t pay online, you can set aside money each pay period. For example, if your rent is $1,100 a month and your landlord prefers a cheque, set aside $275 each weekly pay in your ‘rent’ account so the money is there come the first of the month. 

You can do the same for large annual costs, setting aside some money from every pay to cover these when they come due.  Once you have your non-discretionary costs and any planned savings set aside, everything left over from your paycheque is yours to spend however you like.

The pay as you go budgeting method works well for those who do not like to do a lot of tracking but want to stay on top of their bills.

What is a realistic budget?

When budgeting, it is important to remember that this should be true-to-life. If you have student loan payments and credit card debt, it will obviously take you longer to save. If you are closer to retirement, you may need to focus harder on saving for retirement. All these factors should be taken into account when making budgeting plans and adjusting your spending.

A realistic budget is honest and considers all expenses carefully. When making your first budget, it can help to look through previous bank statements and credit card bills to learn about your spending habits. Another approach is to do a 30-day spending plan. This can be done manually or with the help of software such as Mint and GoodBudget.

Most importantly, a realistic budget is one that works for you. Only you can decide what your future financial goals are. Set a first budget that’s reasonable and creates the future you want to build. See how it goes, consider it a draft budget, adapt and change as you learn.

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I’ve pulled together a round-up of 7 common reasons why budgets fail along with tips and tricks to help you succeed at budgeting no matter what system you use.

You don’t have a ‘fun’ category

This may seem like a strange item to put at the top of a budgeting blog by a firm that focuses on debt reduction, but it is often the number one reason why budgets don’t succeed. You can be too strict with your spending. If you don’t allow yourself some room to enjoy life and have a few little extras, you are more than likely going to give up. As long as you live within your means and meet your savings goals, it’s up to you to decide how you want to spend your money.

Every person in your household should have a ‘fun’ budget that allows them to spend money however they choose whether it’s to purchase the odd café latte at Starbucks or to pay for a favourite streaming service. The budget amount can be small but make sure something is allocated for everyone.

You don’t plan for unexpected expenses

Cars break down. Your hours can be reduced. If you don’t have any savings to fall back on, you won’t be able to pay for an unexpected expense without turning to more debt.

I’m not talking about enough money to live for three to six months in the event you lose your job recommended by most financial planners. I’m talking about a small slush fund to help you pay for an emergency vet bill, house repair, medical expense or childcare cost. Many people I meet use payday loans in these situations, which is a sure-fire way to ruin your budget. When you first start your budget, setting aside even $20 a week will help you build this small emergency fund in no time.

You are missing expenses

One of the most common reasons why budgets fail is because you don’t have a good starting point. If you don’t know where you are spending your money, how can you plan your bill payments or balance your budget without running out of money at the end of the month?

How do you overcome this type of budget failure?

Watch out for annual expenses. Not all expenses happen monthly. Be sure to include a monthly amount to fund annual expenses like your car insurance, property taxes, school fees, etc.  Do a thorough check of your bank statements and old bills. This is where an online expense tracking app can help you find all the ways you spend money.

Avoid underestimating what you spend. A great way of doing this is by tracking your expenses for at least 30 days. A 30-day spending plan forces you to learn how much income you have coming in and what your expenditures are. Most people are very surprised to find that their actual spending habits vary quite a lot from where they think their money goes.

You don’t have a miscellaneous category

Every budget needs a little wiggle room. Sometimes prices increase, you need to buy an extra birthday gift, or you have an opportunity to upgrade something in your home at a good price. 

This is different than your family fun category. This is for life necessities you may have forgotten to include in your budget. Even if you maintained a spending journal and carefully reviewed all of your old bills and statements, you may have missed something. A miscellaneous budget category can help with that. If you don’t need it, don’t spend it. Put the difference in a savings account for the time you may need it. At the end of the year, if you haven’t used this money, you’ve now got some bonus savings to allocate where you wish.

You don’t have a focus

Budgeting isn’t hard but it can be frustrating and demotivating. If you don’t have a clear financial goal in mind about exactly why you are doing it, it’s very likely that you’ll lose steam and give up.

How do you stay motivated to stick with your budget?

Write very specific goals and set reminders. Before you start trying to execute on your budget, spend some time writing down exactly what it is that you hope to achieve including setting a target date for you to want to achieve it by. If you want to reduce debt, write down your target balance for every month over the next twelve months and check-in. If you made it, you’ll feel motivated to keep going. If you didn’t, don’t get discouraged – revisit and revise – to a better target date.

Don’t try for too much detail. While you want to track all your expenses, you don’t need to plan down to the dollar. A category for groceries is fine – you don’t need to plan out by meal or by week.  If you try to capture too much detail, you will quickly become overwhelmed with record keeping. Make your budget as detailed as you are willing to track.

Don’t set unrealistic goals. If your plan is to reduce credit card debt, allocate as much in your monthly budget towards debt payments as you can afford but recognize if you are currently only keeping up with the minimum payments, it will take a while. When looking for expenses to cut in your household budget, don’t overestimate how much you are willing to sacrifice. A successful budget is one you can realistically achieve.

All of these add up to a SMART goal: specific (what), measurable (how much), attainable (a realistic goal), relevant (what you want) and time-based (when).

You’re using the wrong budgeting approach

We’re all different, and what budgeting system works for one person won’t necessarily be suitable for another. Because of this, an ongoing budget process can involve some trial and error to find what works for you.

Some people like to track their details and record things. Others don’t want to record every dollar they spend. They just want to stay on top of their bill payments, pay down debt and start building some savings.

That’s why, at Hoyes Michalos we recommend two possible budgeting approaches:

• using our traditional free budgeting spreadsheet or
• automating and paying your bills as you get paid.

You’re using the wrong payment tools

It’s also important to use the right payment tool. If you don’t have control over your spending, it’s time to hide the credit cards. Use cash for spending or set money aside in separate envelopes or accounts designed for a specific purpose.

Automate bill payments so you don’t forget to pay them on time.  Paying a portion of your bills every time you get paid even if it’s before the bill is due, ensures you pay for necessities before wants.

What happens if you fail?

Don’t beat yourself up if you slip up from time to time. It’s normal, and it happens to the best of us. The key is to spot the behaviours that are likely to steer your budget off track, and consciously try to curb them. If they happen once in a while, it’s OK. You’re already actively changing your behaviors so that they don’t become the norm, and that deserves a high-five.

Remember, budgeting is a learning process. Commit to learning from your mistakes and making adjustments along the way. If you do, you will achieve your financial goals before you know it! Good luck!

The post 7 Reasons Why Budgets Fail and How You Can Succeed appeared first on Hoyes, Michalos & Associates Inc..

Needs

Needs are things that are necessary for you to be able to live and work. They are your basic expenses. Needs are the things that keep you warm, dry, fed and mobile. Some of the most common basic needs are:

• Rent and mortgage payments
• Car expenses or public transport costs
• Home and health insurance
• Food and grocery items
• Clothing
• Utility bills
• Medical expenses

Wants

Wants are the little extras that bring fun or comfort into your life. Wants are what we desire. You might think you can’t live without them, but if push came to shove, you’d survive if you cut them out. Some typical examples of wants are:

• Vacation expenses
• Gym memberships
• Entertainment
• A portion of your clothing budget
• Coffee and lunch budgets

Wants aren’t bad. They don’t mean you are living a frivolous lifestyle. But wants are the first place to look when you are trying to balance your budget.

How do you distinguish between needs and wants?

It’s very hard to separate needs from wants. One person’s need might be another person’s want. For example, you’re an uber driver. You need a decent car to succeed. Your neighbour works at home and can take public transit. For him, a vehicle is a want.

Wants vary from person to person. They are tied to our personality, culture and economic position, so not every person has the same wants. Our wants are influenced by marketing, social media and the people we have around us. That’s why it’s important to look at your wants with a critical eye and in relation to what you can afford. It’s OK to include a few extras in your budget, but keeping up with the Joneses isn’t a good want.

Wants are also sometimes a matter of degree. For example, you need a functional coat for winter, but you want that high-cost designer coat. We do need an internet subscription today. But you might want the highest speed, most expensive package. Our daily choices can move a portion of our spending from a pure need to a partial want.

Wants can vary in intensity. Streaming is great, but subscribing to Netflix, Crave, Prime Video, and Disney+ might be something you can rethink if you are looking for cost savings.

Look out for wants that turn into a demand. You can think of this as lifestyle creep. When we can afford things, wants can turn into needs. You get used to having them, so you can’t see living without them.  It’s not always true, but that is our perception.  We think we need that gym membership to stay healthy. But the truth is you can work out at home or outside if need be.  Turning something from a want into a need permits us to overspend.

Why credit increases our wants and needs

Money itself isn’t a need or a want; it’s what allows us to pay for things. We don’t need money – we need food, housing, clothing and healthcare.

Be aware that credit helps us turn wants into needs. If you have room on your credit card, you think you can afford it, so you feel the need to buy.

Good debt can help us pay for needs. We can buy a house with a mortgage and can pay for education with a student loan. But bad debt is when we borrow more than we can repay or use credit to buy more than we should. Credit gives us the illusion that we have extra money. Buy too big a home and take on a supersized mortgage, and you’ve turned a need (shelter) into a want (a mansion), all on debt.  Using credit to buy big wants can limit your ability to pay for financial needs down the road.

Create a budget that balances needs and wants

The 50-30-20 rule

To create a budget that has room for both your needs and wants, you need to prioritize all your spending. Look at your current spending and divide all your outgoings into two categories: needs and wants. Put every single one of your expenses into one of the two categories.

Be honest with yourself when you do this. Your rent, car insurance, and grocery spend are all definitely needs, but you can likely categorize some costs as non-essential. 

Is what you want really what you want? Here are five questions you can ask yourself to see if you truly want something or can do without it.

1. What would happen if I didn’t buy it at all?
2. Would I pay to move it?
3. Is there something I want more?
4. Is there a cheaper alternative?
5. Will it help or hurt me in achieving my financial goal?

Creating this distinction doesn’t mean that you will have to cut out all the stuff in your want pile – that would be no fun. Rather, it gives you the overview you need to make a balanced budget that makes room for some wants while still allowing you to save or put more money toward other financial goals like saving money or paying down debt.

Once you have created your need and want lists, it’s time to create a budget that creates room for both.

A good rule for distributing your money is the 50-30-20 rule, which means that:

• 50% should be spent on things you absolutely need (rent, groceries)
• 30% should be the maximum you spend on things you want (gym memberships, vacations, clothes, fancy food)
• 20% should be used to save, invest or pay down debt.

Using this rule, you get to spend on your wants guilt-free. There’s absolutely no issue with buying a fancy winter coat rather than a more budget-friendly one, so long as it fits in within the 30% bracket of your overall budget. The key is to be honest about the difference between your needs and wants to make more conscious choices about how you spend money.

And remember, this rule only works if you have room in your budget. If you have limited cash flow, paying for needs should always come first.

Debt repayment is a need

One of the most overlooked necessities is debt repayment. If you have any outstanding debt, then you should be budgeting for debt reduction. To avoid late payment charges and negative hits to your credit score, you must keep up with all minimum monthly payments. However, if you want to pay off your debt sooner, you should put as much as you can afford every month towards your debts. Paying off your debts should be a conscious need.

If you have any debts, allocate as much as you can afford to pay them off. This will make your ‘need’ pile take up most of your available budget each month for a while, but in the long run, it will free up money you are spending on interest today to be able to afford more of the things you really desire.

How to find expense reductions among your wants

Here are some additional tips to help you look for ways to target items for savings:

• Nothing should be off the list. If you are serious about cutting back, you have to look at everything.  Live in a city with good public transit?  Even getting rid of your car may be something you want to think about.
• Get competitive quotes for everything. Taking a little time to compare insurance premiums, cell phone plans, and other costs can result in tremendous savings.
• Comparison shop. Don’t always assume the sale price at one store is the best deal. Look at alternate brands. You can often get comparable quality merchandise for a lower price just by switching stores or switching from the name brand to the store brand.
• Eliminate impulse buys. Last-minute shopping decisions almost always a want and not a need. Make a list and set priorities.
• Save ahead for big-ticket items. You don’t have to do without every wish or extra item. You just have to be sure you can afford it.  Put an amount in your monthly budget to save up for large cost items like a vacation.

The bottom line is to learn the difference between needs and wants if you want to have a balanced budget, stop living paycheque to paycheque and achieve your financial goals.

The post Needs vs Wants: Create a Budget That Balances Both appeared first on Hoyes, Michalos & Associates Inc..

Chris explains that many people in the creative world avoid thinking about money because they believe they are just bad at it; they just don’t get it so they think managing their finances is something they can’t do. As ‘money misfits’ they don’t feel they are part of the financial conversation. The terminology around money is foreign so they don’t connect with the language.

I think this lack of understanding the words around finance probably applies to most people and goes a long way to explaining why personal finance is so hard for many Canadians. But for someone working in the gig economy, the practical challenges of managing their money are doubly hard. They often work multiple jobs and have multiple income streams. Or, their work is seasonal, and so they have to stretch their dollars over the months that they don’t work. Using a traditional approach to budgeting and spreadsheets just doesn’t work. You can’t just take last years income and divide by 12 for a monthly budget when you worked one project last year and may have a different project, movie or contract next year and maybe a big gap in between.

Budgeting on a variable income

If you are self-employed, work in the gig economy or work on commission, you can’t accurately predict what income will be coming in each month. That means starting with your personal expenses, something you do know. You know how much your rent will be, your food and other personal costs. Add all this up and figure out how much ‘income’ you need each month to cover these costs.

Next, build a cash flow system that involves paying yourself a salary, regardless of what your business or project income looks like. Since you don’t have a regular salary, you have to create one for yourself.

Take the 25, 25, 50 approach. 

If you’re not sure how to start organizing your cash-flow, Chris recommends a strategy of allocating all your cash inflows into 3 different buckets:

1. 25% to cover your potential tax liability,
2. 25% for your business costs,
3. 50% towards your personal and living expenses like rent, groceries, gas, and other bills.

Obviously these percentages can be adjusted based on your personal situation. If you have higher business costs to earn your living (like flights costs and purchased services like Chris does) then you might need to put away more to cover business expenses.  If your personal expenses are higher, you’ll have to allocate more there.

Chris even suggests opening a different bank account for each of these groups. That’s the concept of paying yourself a salary. You put money aside for taxes & business costs, the rest goes to you to cover your living expenses.

What about debt repayment?

If you do have debts you need to repay, Chris recommends that your first step is to stabilize your cash flow using a system like the one above. You need to find out why your debts keep growing so you can take steps to stop debts from growing even more. Chris suggests it’s OK to keep paying the minimum on your debts until you get your cash flow in balance and then you can start planning on paying off more of the balances each month.  It’s better than living on the borrow-repay-borrow cycle that doesn’t address the underlying problem which the need to restructure your life (and money) so debt doesn’t keep coming back.

Read More: Self Employed: Dealing with Business Debts

For more details on how to handle variable income and to hear Chris’s story, tune in to the podcast or read the complete transcript below. 

Additional Resources

• Chris Enns’ Website
• Chris Enns’ Twitter
• Full Video on YouTube

FULL TRANSCRIPT – Show 237 Managing Money on a Variable Income

Doug:                Before I have a guest on the show I arrange an introductory phone call with them so I can explain what the show’s about so we can pick a topic to discuss. So I did that and today’s guest said he would be out of town so it would be easier for him to phone me so I said fine and he called me and I asked where he was calling from and he said Paris. And I said oh that’s cool I live close to there, I’ve got an office in Brantford, it’s only a few minutes away. And he said no, Paris France. And I said what are you doing there? And he said he was working. And I said but I thought you were a financial guy. And he said yeah but I’m also an opera singer.

                          So today for the first time ever we’re going to talk money with an opera singer who I am pleased to report jumped on a plane and is now sitting in my office here in downtown Toronto. So let’s get started. Who are you and other than being an opera singer, what do you do?

Chris:                Other than being an opera singer I’m Chris Enns and yeah, I’m an opera singer and I split my time kind of between the opera stage and financial planning. So advice only financial planning, specifically for people like me, for creatives for people that are kind of outside the norm a little bit, whose finances or way they think about money may seem a little bit different but I’m Canadian, I grew up in Manitoba on a farm. So farm boy opera singer, financial guy, classic track.

Doug:                That’s right, I’ve never had that exact person on this show.

Chris:                It’s strange you haven’t found somebody, we’re everywhere.

Doug:                So this is cool and I was going to get Chris to sing the theme song in opera but we don’t actually have a theme song so next episode that’s what we’re going to do.

Chris:                I’ll work on it, yeah.

Doug:                So tell us the story then because I don’t have a lot of farming, opera singing financial guys. I know you’ve got your level one certification in financial planning from FPSC, which of course is the financial planning standards council and you’re working towards your designation as a certified financial planner. We’ve had a number of CFPs on the show in the past, you know, Sandy Martin and others. But obviously you’re also working as an opera singer. So tell me the story, how did these two things come together?

Chris:                So opera singing is my background and I started taking school, going to school for opera singing oh yikes, never count the years, right? It always feels – want to say 10 years but I know I’ve been in Toronto for 10 years and I was studying before that so that’s not the answer but so for a long time.

                          So I did my undergrad and my masters work in opera and was nothing to do with money. I hated, I didn’t even hate thinking about money I just didn’t. Like many people in the creative sphere I avoided thinking about money as much as possible and so I only started thinking about money when I started making mistakes. And, you know, some of them you could kind of sweep under the rug for awhile but eventually the mistakes pile up.

Doug:                They come back and get you.

Chris:                They really do. And so they kind of got to a point where I really had to look at the monster under the bed and actually face those things. And the big surprise for me was that these basics – because so many of the words, especially for artistic people oh, you’re just not good at money or money’s just – you just don’t think that way. And you get really used to this idea not only will you never have money but you’re just not responsible for thinking about the financial side because it’s just not for you. It’s not something that you need to worry, not need worry about but your brain isn’t – it doesn’t work that way.

                          And I found when I started facing it, it was the exact opposite, that learning the basics was really empowering and getting a sense of my basic cash flow and starting to pay off my tax debt that was the thing that kind of broke the camel’s back, was really something I could do and something that I could take over this thing that was really scary for me and make it something that was in my control and that I could actually, you know, drive the boat.

Doug:                Well and that’s why I wanted to have you on the show because I think you’re an example someone who’s, you know, I guess the word today is the gig economy. So you don’t have a standard 9-5 job at a big corporation that you’re going to be there for the next 30 years. You’re not going to get benefits and a pension and all the rest of it. So you’re in Paris for a couple of months, you’re back here, you’re going back out on the road, whatever.

                          So I mean there’s obviously a lot of specific challenges you face in that environment. You mentioned taxes, that’s an obvious one. So what are the challenges that someone who, like both in the gig economy but also someone who is I mean a creative because I guess there’s different sides of our brains, right?

Chris:                There’s at least two of them that they tell us about.

Doug:                Right so I guess the I love spreadsheet side is different than the artistic I’m good at music and art and that sort of side. So what specific challenges do you see in your world either on the creative side or the gig economy unstable employment, sporadic employment side when it comes to money?

Chris:                So there’s a couple of things. On the practical side I think that anyone who has multiple employment streams or works in the gig economy or balances a couple of careers, has unpredictable income streams, and that can come in a whole bunch of different faces. Income streams, it’s interesting because you put it under one big umbrella like variable income but variable income can look so different for different businesses.

Doug:                That’s why they call it variable.

Chris:                Exactly but, you know, you can’t – I can’t explain opera. We often book two years in advance or a year in advance so that’s different than working with clients my other side where you’re bringing people in and the cash flow looks totally different. And so you put it under one spectrum but that’s really practical, the idea of dealing with taxes, the idea of running, you know, a small business, even if you’re not aware you’re running a small business, so business inflows and managing that and separating that out from your personal inflows and just kind of the alchemy of that. But I think those are the practical kind of things that we all have to deal with. On the creative side, and for lots of, you know, I deem the word sometimes money misfits,

Doug:                Money misfits.

Chris:                It’s kind of a bigger umbrella for people just don’t feel like they’ve been part of the financial conversation. And I think that one of the biggest issues that they face is the communication’s problem. They don’t connect to the language that – the language of money and the way we talk about money in the financial sphere or just generally they don’t connect to that, they don’t connect to the acronyms, they don’t connect to the spreadsheets. But they don’t necessarily also connect to some of the underlying words like wealth and, you know, the idea that oh, I need to get as much money as possible. Lots of creative people just don’t think about their finances that way.

                          So if you’re always framing things through the accumulation of wealth, as we often do in the financial sphere, that’s going to say well, that’s not for me. If that’s what that is, investing in different things and making as much money as possible, I’ve made different decisions in my life. But it’s not, money is just a tool that we use to build the lives we want and so the communication issue is a big part of it.

Doug:                And why is that? I understand you speak English, I speak French, we’re talking a different language, you’re opera, I’m rock and roll kind of thing. I get that. Is that what is it, we’re just using different words or is it something deeper than that?

Chris:                I think that your opera rock and roll thing is a metaphor that I really like. You know, in the arts we’re telling the same stories.

Doug:                And I look like a rock and roll guy don’t I? Come on, there’s nobody more rock and roll than me, that’s absolutely right? So what is it then?

Chris:                It’s – I think that’s one of the interesting problems to solve. And I don’t think we’re trying to solve it in the financial sphere enough. I think that too often we say the same words over and over and then say if you don’t understand this you have to change or, and people hear this whether it’s being said or not, and it is being said sometimes, you’re dumb if you don’t understand this. You’re bad at money if you don’t understand this.

Doug:                So is there an example of a word that is – I mean I know in my world I never use the word creditor when I’m talking to people. Because if I ask someone on the street what’s the difference between a creditor and a debtor, it’s like I don’t know. Okay, well a creditor is someone you owe money to, the debtor is the guy who owes the money. But I never use those words I just say tell me about the people you owe money to, which is better than saying the word creditor. So it’s making it yeah in simple easy to understand language. Is that what you’re talking about or is it something more than that?

Chris:                Not only that. I think that’s part of it. I think it’s also just about trying to – what I tell people a lot is that in order to be good at your money you don’t have to change everything about who you are. Especially I talk to people who are incredible at their crafts, you know, they’re dancers, they’re writers, they’re singers. They’re incredible at something; they know how to develop a technique to be great at something.

                          What they don’t know is how to develop a financial technique. And so what I talk to them about is saying okay, especially I love working with singers because I understand that technique so well. I can express in that words being this is what you do here, it’s the same in money, this is what you do here, it’s the same in money. And when I’m talking to, especially for story tellers, which is a big umbrella of all kinds of people who are communicators and trying to communicate things and trying to say okay, what’s the most important thing? It’s not the words and the grammar, it’s knowing what story you’re telling and to making sure when I’m talking to clients always working first from a point of what are you trying to do, what is your money for?

                          Before trying to solve debt problems, before trying to figure out retirement, we’re spending a lot of time talking about intention and this is something we do in the financial industry all the time, I’m not making – this is not revolutionary idea from Chris. But making sure that people are grounding that sense in themselves and relating saying okay, this is just like your technique, this is just like something you do well already and this is how we’re going do it and then we’ll add a spreadsheet, versus starting with the stuff that they’re not good at and getting overwhelmed by that. We add the acronyms to what you want, we add finance to the personal, not the personal to the finance. And I think that’s what kind of I’m talking about.

Doug:                Yeah, you’re not trying to fit a square peg into a round hole I guess. So your website it’s called ragstoreasonable.com and I’ll put a link to that in the show notes and like you just said you help creatives and as you said money misfits, so what – how do you define a money misfit then, what does that word mean to you?

Chris:                I think it is around this miscommunication. It’s just people that feel left out of that financial conversation for whatever reason, whether it’s they Googled how to make a budget and the first line was take your income and divide it by and they go I don’t know how much income I’m going to make. So whether it’s that or I remember the first time I went into a bank and I wanted to invest in my TFSA, I was feeling really confident, I was starting to get control of my money.

                          And the woman across the desk wanted me to invest my tax fund, the money that I had set aside for taxes for the year. And she was like oh, just no but you’ve got $6,000 here and you can put that in your TFSA as well and I was like I don’t think – I didn’t have the confidence yet and I was like I don’t think that’s what I should be doing. It’s not, I’m not saying it as a fault, although I do think the financial industry should try harder to find new ways to communicate with whoever’s in front of them, but they just have not necessarily clicked with what’s being put out there.

                          So trying to create a space for the people on the outside that aren’t engaged in the general financial conversation, they’re not asking the questions that everybody else is asking and they’re not – they don’t have a place to go for support. And so trying to create a place for people like that to come and start a conversation.

Doug:                So you’re saying that banks and maybe traditional financial planners start with the tool well this is a TFSA, this is a budget and we try to ram it down your throats rather than the other way around. And I guess this is the difference you see dealing with, you know, creatives or money misfits, is start with the person, what language do you speak, what you understand and then work from there. So really what you’re saying is, you didn’t use this, you didn’t use this word but you’ve got to start with the goal, the plan, something like that is that really what you’re saying?

Chris:                I think that’s a big part of it. I think that’s such a great – this is what I found in the advice only financial planning world, is that’s the kind of financial planning that a lot of people are doing for a lot of different voices. And so, you know, people are doing it for engineers and doctors. And, you know, I like working with engineers and doctors, I don’t speak their language as well. I always have a hard time working with engineers because I’m more likely to talk about how do you feel about this and how are you connecting to this? I’m more of a feelings, emotions guy, I care about that and they want to make sure that decimal is in the right place and I don’t care about the third decimal place. So there’s places where I don’t speak the right language either. I think that so much of the financial industry is product driven, right?

Doug:                That’s where they make all their money.

Chris:                And so that’s a big problem.

Doug:                So what types of careers do you see that you’re helping people? Obviously you probably have a few opera singer clients but what are some of the other, you know, non-traditional careers, non-traditional job paths that you’re helping people with?

Chris:                Lots of actors. I’ve been involved with a partnership with ACTRA Toronto for the last year and so there’s been lots of actors and people in the film industry because it’s not just the acting side, the tech side, anybody who’s connected to that, the stunt side, that whole world. I work with some fitness professionals who have, you know, not necessarily that creative sphere but their income is more client based. I work with some more self-employed client based people that run, you know, online business, kind of the connections that – but it’s amazing how putting that title money misfit opened up to a lot more people, writers, dancers.

Doug:                Yeah and there are so many more people who don’t have a traditional job.

Chris:                What is a traditional job?

Doug:                What is a traditional job, yeah that’s a very good question. They are few and far between. The number of people out there in the world who have – are going to be at the same job for 30 years, are going to move through the ranks and have a pension when they are done, is okay I don’t know 5% of the economy, maybe if you’ve got a government job or something and that would be about it.

                          So, what then is the approach for somebody who has either multiple streams of income or more likely many different streams of income, so all those people you just talked about, you know, anybody in the entertainment business? You’re right in this office, we’re at Yonge and King and for people who are just watching we’re using a different room than we’ve used before, just trying that out. But here at Yonge and King we get a lot of you just described. I didn’t realize how many different layers there were to the entertainment word. Because yeah, we all see the actors but they’re a small percentage of all the people, the technical people and writing and all the rest of it.

                          So what is your advice for people in that world who I’m going to be working on a project for two months and then I’m going to be off for two months and then I’ve got another one and back and forth, back and forth. You can’t do traditional budgeting where every two weeks you do this, so what kind of big picture advice do you give people for very sporadic or untraditional sources of income?

Chris:                Yeah, it’s harder. The truth is it’s harder

Doug:                And maybe that is the simple answer it is harder.

Chris:                I think it is. It seems unhelpful but at the same time it is helpful for a lot of people to know that they’re not missing something. You’re not bad at your money. This is something I tell to lots of people. You know why this feels hard, because it is hard. And because there’s a lot of language around finances, which is just make a budget, just sit down and make a budget like it’s a really easy thing. And it’s not easy when you have normal income either. It’s a difficult process that people white wash over far too quickly.

                          But when you’re income is variable it’s even harder. I think for me what I always start working with the clients here not only making sure you’re really set in what you want but the second big question we deal with is not income, it’s expenses. It’s the better you can know your expenses, you know you can understand your income side. You can’t start budgeting when your variable income from an income perspective. I know that the conventional advice often for self employed people is take your last two years and divide that by 12 and use that as a starting number, if your business works that way and is pretty consistent, great. If you work in the film industry maybe you were on a big show last year but you don’t have any potential work this year, don’t do that unless you have a reason to do that. Start from a place of what do you need?

Doug:                So I look at my expenses and I see well my rent and my groceries and it cost $2,000 to live and then what do I then do with that information?

Chris:                For sure. So what I work with people one of the biggest things I work with people is coming up with a cash flow system so that involves building a system so that you’re paying yourself a salary. So it’s basically you’ve got an extra step, you don’t get a regular salary you make a system so you’re paying yourself a regular salary. There’s no just in the sentence because it takes some time but the biggest piece of that puzzle is what do you need to pay yourself to make that work?

                          A lot of the work we do there too is separating out business and personal expenses so you can start seeing lots of sole proprietors don’t see any separation between who they are personally and who they are as their business and start putting those in two different piles. So you can start to make a structure so that when money comes in, whether it’s a big month or a low month you can start smooth that out so you’re getting the same amount that hits your personal account every month.

Doug:                So let me see if I understand what you’re saying here then. So I’ve decided to go into acting, I’m going to give up this whole accounting thing.

Chris:                I think you’re a natural.

Doug:                Oh yeah, I’d be great at it. And singing too, you all want to hear me sing that’s for sure. And so I get a job working on that big show at the Ed Mirvish Theatre, whatever that show is and I’m going to be on it for three months, okay? And so I’m going to make I don’t know how much you make on the show but I’m going to make good money. And then for a couple of months after that I’ll, you know, I’ll take a break I guess and then get the next whatever.

                          So I know that it’s going to cost me a couple of grand a month  to live because I’m an actor now so I’m bunking with four other actors and keeping my cost down and all the rest of it. So I assume what I need to do is take the $6,000 a month I’m making and put it into an account because each $6,000 I make I know buys me three months of runway.

Chris:                It does and it doesn’t right because we don’t – we’re making gross instead of net. So we’ve got another layer. So when $6,000 comes in, this is what I’ll set up with my clients, $6,000 comes ins and we’re breaking it up into three pieces. We’re putting 25% away into a tax account, we’re putting 25% away into a business account because you need to spend a certain amount to spend of every dollar to make the next dollar. And then we’re putting 50% into your personal account.

Doug:                So as an actor what expenses am I going to have?

Chris:                This is one of the most frustrating things, especially as an opera singer I’ll speak to being an opera singer.

Doug:                Let’s say I’m going to go into opera.

Chris:                Just because I know the expenses really well and because it’s a really high input business. When I want to do an audition as an opera singer, nine times, I shouldn’t say nine times out of 10, often it’s in New York I have to fly myself down there, I have to put myself up, I need to hire a pianist to play for me for that audition. So I can be putting out between 500 and $800 to do an audition that 100 other people are going to.

Doug:                So I fly to New York and how long is the audition like 10 minutes, 15 minutes, an hour.

Chris:                If they like you, five minutes if they don’t.

Doug:                So I phone around, find someone to play the piano for me, I guess I probably have to learn the music.

Chris:                Yeah, all that prep work you don’t get paid for.

Doug:                Yeah, unless it’s some opera I’ve done 15 times. And I’ve never done an opera so I probably have to learn it.

Chris:                You probably have to train a little bit.

Doug:                So I may – yeah, I may go on, well I will go on many auditions.

Chris:                Voice lessons because you need to get ready, you need to work with a language coach as well opera is not in English, or some opera is in English, most of opera is in Italian, French, Germany, Russian, Spanish. You need to learn that, you need to get that work, you need to be going to school, you need to be networking with people, you need to be going on a ton of auditions that you don’t get because this is just the same as networking in business. You don’t get the first job that you go for.

Doug:                Yeah, any sales person has to make many pitches to get one sale.

Chris:                Exactly.

Doug:                And so when you’re singing in French or Italian opera, do you actually understand what you’re saying?

Chris:                You have to understand what you’re saying at a certain level. So what they teach us to do is even if you’re not fluent they teach you how to cheat. So we take diction courses and we break down the language into the international phonetic alphabet so that you can learn the sounds. And then you translate every word and you know, even if you don’t speak French or you don’t speak German, you know this German and you know what you’re expressing.

                          You know, if you want the kind of analogy I make with my clients all the time this is exactly like finances you don’t need to figure out the whole language, you need to figure out the sentence that you know how to speak. So it’s like this is the language in front of you, you don’t need to know every acronym, you don’t need to know every investing strategy, you need to understand your investing strategy, you need to understand the RSP that you have. That’s all. You need to understand why you’re doing that. That makes you good at money.

Doug:                Got you. Now you hit on a key area, which was taxes. And so what you said was so I’m making $6,000 at this show I’m doing and it only costs me $2,000 to live but I didn’t really make $6,000 because at the end of the year when I file my taxes I’m going to owe money. So your strategy for dealing with that is –

Chris:                Right off the top right away.

Doug:                Literally have a separate account and that’s where I dump it into.

Chris:                Often in a separate bank.

Doug:                So it’s totally out – so I can’t touch it. Would you ever recommend to a client just send the money to Revenue Canada?

Chris:                Some people do, yeah.

Doug:                So in effect you’re making instalments.

Chris:                Some people do, some people – I’ve had clients just kind of sending it straight there all the time. It depends on the personality, some people if they see that money in their account they’re going to raid it so you put it in a separate account. Some people don’t want to – you know, I think the majority of people want to spend as little time thinking about their money as possible.

Doug:                Yeah and I don’t want to be giving Revenue Canada money early and if I work six months and then I don’t work six months maybe I don’t owe as much in taxes.

Chris:                This is why I don’t get along with the engineers because in my mind I say I don’t really care about giving money early to the tax debt if it’s going to mean you don’t have tax debt come tax time. I think that that cost, I think it’s something that you need know about but I think that that can be worth it. I don’t have a lot of stress about that.

Doug:                I totally agree and anybody who’s self employed, and I’m much more likely to be working with people who are in the construction industry for example, so very busy in the summer, not so busy in the winter. And I say to them look you know that over the course you’re going to make this much, that puts you in this tax bracket so every dollar you make, that’s how much you’re going to have to give to the government.

                          So why not every pay you get during the summer if you’re self employed and it’s not being withheld, just send it right to the government. And then it’s gone and if you overpay they’ll give it back to you. And yes, I understand if you put it in your own TFSA you could earn interest on it at .5% and, you know, you’d have an extra 50 bucks at the end of the year but this way nothing can go wrong. So I’m a big believer about that.

                          Okay, so let’s think this through here. I mean obviously I’m a chartered accountant, a CPA, which is the most traditional kind of job there is. Since graduating from university, I was thinking about this the other day, which was like 32 years ago, of course I was a child prodigy, graduated at the age of 7, I’ve had exactly three jobs, three jobs. I was at KPMG for 10 years, big accounting firm, then I spent less than two years at PWC and I said forget this and then started Hoyes Michalos, which was about 20 years ago.

                          I have had zero firsthand experience at juggling multiple jobs and income streams and all the rest of it. So, number one is it stressful and number two is it, you know, kind of better than a traditional job because you’ve certainly got lots of stuff going on or is it oh no, everybody if they had a choice would love to be an accountant working at the same big accounting firm for 20 years?

Chris:                I think yes, it’s stressful but I don’t think that necessarily means that it’s bad. It’s like anything else, there’s so much nuance in what you want your working life to be. I think that it’s very interesting right now. There’s a couple of things happening, I read something the other day that was just talking about how much we romanticize this idea of working for yourself a lot. And so that’s definitely a factor. Oh freedom, you can do whatever you want, you can work from home in your pyjamas every day, the whole day because you don’t have set boundaries on yourself and that’s really difficult. And enforcing that structure on yourself is really hard. It’s not as simple as that.

                          And it’s – but at the same time it’s not as simple as saying 9-5 or stable of whatever that looks like, is the answer, is the preferable for most people. I think that people are really thinking about what they want from their work. I think that in the same way that people are rethinking what they want to kind of spend on as far as wanting to connect with the rise of socially responsible investing, just making more conscious choices about what they want their money to go towards.

                          I think people are thinking about how they want to earn and I think one of the most important words that is kind of bouncing around is the idea of flexibility and that’s worth a lot. That being said that doesn’t have to be found in a self employed world or in a multiple income world and often that’s not flexible at all. You know, you’re just kind of juggling to make ends meet.

Doug:                So if I said to you I’m starting this new opera and it’s going to run for 10 years, like I don’t know, Cats, that was a think it wasn’t an opera but it ran for a long time or Come From Away with probably be going forever. So, would you rather be on that show for the next 10 years you know exactly what you’re doing, exactly what show you’re doing, you could live in the same place, not change or would you say you know what, I kind of like three months in Paris, a couple of months in Toronto, like what would you pick?

Chris:                I like the variability. That’s what I want but I know artists that would love that kind of stability. It comes with a trade off, it always comes with a trade off. In finances aren’t we just talking about tradeoffs all the time? I think that what we need to get better at is getting clear about what the trade off is. Because I think that it’s really pitched this idea of oh, just do this, you know, just be on your own, this is so much better than going into that job every day. And it’s not that clear, it’s getting a clearer sense of what that can look like.

                          The problem is, is that it looks really different when you’re balancing four restaurant jobs so that you can audition and maybe get an acting job versus balancing three careers – three kind of things that you own, that you’re more in control over and more in control of your shifts but that’s still stressful because you’re more in charge of kind of bringing in that income and making sure you’re hustling to have things – keep the lights on, right?

Doug:                Yeah there’s pros and cons to each. So okay this show is called Debt Free in 30, we talk about debt. So when someone comes in to see you, you know, one of your opera singer buddies or whatever, and they’ve maybe incurred a bunch of debt because maybe I’m going on auditions and doing all this – but now I’ve got some kind of money coming in, how do you advise someone on how to make a plan to get out of debt when you only know for the next couple of months what your income is going to be, you can’t project it months and years forward? Is there any kind of structure you can put to that or how do you do it?

Chris:                Completely and it’s something that I work with a lot of people with. It’s a combination of two things. One stabilizing your cash flow, it’s exactly what we were talking about before, the idea that you need to figure out a lot of the time our debt comes from not accounting for the costs that we know about. Sometimes it’s a surprise thing, a tree falls on your car, you know, you can only do so much. But you can do things to prepare for auditions, putting away money for business. You can do things to prepare for Christmas, it’s not business but it’s the thing that hits you every time.

Doug:                And I can tell you December 25th, that’s when it’s going to be this year so you can mark it down. Okay, so number one, stabilize cash flow.

Chris:                Stabilize cash flow is a really big reason but that’s really a symptom of the most important thing which is stop looking at the number, look at what caused the debt. And your first step is not to pay off this debt, it’s to stop more debt from happening. And so it’s about looking at the – $20,000 of debt, $30,000 of debt isn’t the same for everybody.

                          And so it’s not just about coming up with a payment plan, it’s about trying to figure out how you can restructure your life and restructure the way you do things so that debt doesn’t happen again because people – so many people, you must see this all the time, they’re caught in the cycle. And this is so bad for variable income earners because you have a $10,000 month and you put $9,000 onto the credit card. Amazing, I’m paying off things and you’re using it next month again and so it goes back up, back up, back up.

                          You need to stop the cycle first. So that I would rather, I tell clients all the time be like we’re going to pay minimum payments on your credit card for awhile while we stabilize things and then we’re going to start making payments one way. I would rather $25 goes on your debt over and above your minimum payments and doesn’t come back, than this thing that you’re doing right now.

Doug:                Giving $200 and then borrowing 175.

Chris:                It’s so – not only from a financial point of view it doesn’t help, it’s so demoralizing. It’s so hard if you feel so trapped versus slow, steady sustainable progress. That’s the only solution. And what comes from who you are and where that came from more than, you know, the numbers and the interest rates it’s important but, you know, that’s the last step.

Doug:                You’ve got to stop the bleeding first.

Chris:                Stop the bleeding first.

Doug:                And then you can work on stabilizing the cash flow. And obviously as you go through that process, if it turns out well, I’ve got $50,000 worth of debt and I have no hope of paying if off, that’s when you’re coming in to see me.

Chris:                That’s when I’m sending people to see you.

Doug:                Yes because that’s all you can do but at least you’re realistic about what it is you can do. People in your line of work well, I might end up getting up a really big show and I may end up having this all cleared up in six months. So I guess knowing where you stand is critical.

Chris:                But that hope can be really – that’s a difficult place to be in because people push it and people push and people push it because tomorrow I could get a movie and I could pay off this debt in one go. But the truth is people always think things will change when they get more money but more money doesn’t change behaviour, it amplifies current behaviour. And so you have to change your habits now, you have to setup an infrastructure now so that that’s why that $25 debt payment is so important because then if you get the movie you can add two zeros to that debt payment.

                          But if that pathway isn’t there you’re not paying off your debt and if you are, you’re not taking care of your life. And so you’re going to end up at risk for more debt. And at a certain point the biggest cost of debt in so many people’s lives isn’t the financial cost, it’s the weight that they’re carrying all the time. They’re carrying around that shame, they’re carrying around that guilt. And it’s affecting the way they do their jobs, it’s affecting the way they live their lives. And sometimes it’s like go through the consumer proposal now. If you get a great gig, okay.

Doug:                Pay it off then.

Chris:                Pay it off more quickly, exactly. Just start moving this needle forward and stop having the spectre looming over every audition. You know what makes an audition go well, going into a room and saying I need to get this otherwise I won’t be able to make my rent next month.

Doug:                Yeah and you almost for sure won’t get it then. It’s a karma thing. And I see that in every line of work, that okay I’ve been laid off so I’m applying for that job at the accounting firm or the engineering company or the construction company or whatever. If I go in there in the good frame of mind I get the job. I have had tons of clients over the years who have been down, they do the proposal, they do the bankruptcy, whatever, they get rid of the debt and then three days later they get a job. And they’re like I don’t get it, I’ve been trying for six months. Yeah, but you finally took the weight off. I think that’s excellent advice to end it. How can people find you?

Chris:                You can find me at ragstoreasonable.com. All my information’s there about the kind of people I work with, what that work looks like. There’s a blog, I’m even part of a podcast called Because Money.

Doug:                And how can they find that?

Chris:                becausemoney.ca. With Sandy Martin and John Robertson and you can find me on Twitter and Instagram at @ragstoreasonable. My big focus really is providing accessible one on one help and so I run monthly free office hours, three hours of free office hours on my site. You can sign up for those for free. They’re all online, my practice is online so I can talk to people all around the world. Those are no strings attached, I’m not going to try to talk you into anything, just for a chance to talk out any things that are on your mind.

                          I also do pay what you can financial planning for lower income people where I’ll subsidize the remainder of what you can’t pay. Sometimes there’s a bit of a waiting list but when that can happen – because in my practice I also donate 10% of everything that people pay to a fund that helps people who can’t afford financial planning, afford financial planning. So you can find all those details on my site at ragstoreasonable.com.

Doug:                Excellent, perfect. Chris, thanks for being here.

Chris:                Great to be here, thanks so much for having me.

Doug:                That was awesome. That’s our show for today. A transcript for today’s show notes, including a link to Chris’ website and twitter profile and everything else can be found at hoyes.com. Thanks for listening. Until next week, I’m Doug Hoyes. That was Debt Free in 30.

The post Managing Money on a Variable Income appeared first on Hoyes, Michalos & Associates Inc..

Look at your current resources

This may include severance, savings, family income, child benefits, unemployment insurance and so on.  Although your severance is paid to you after your employment has ended, it is still considered to be personal earnings. Your severance could affect the amount of EI benefits you receive, as well as the starting date for those benefits. Be careful not to deplete your severance too quickly and see how you can make the most of your resources.

Take inventory of your spending habits

Start by looking at your credit card and bank statements. Think about your daily cash habits and cut out anything you don’t need or don’t use. Typical areas where people cut back are:

• Cutting that gym membership when you hardly even go
• Paying for a landline when most of my calls/texts are come through to your cellphone
• Opt for one streaming service, not 3 or 4
• Reduce the amount of time you eat out and pack a lunch instead
• Plan your meals and shop with a grocery list to help eliminate food waste
• Say no to the newest clothing trends when your current wardrobe can last you another year
• If you have any unused items or clothes at your house – sell them to supplement your income

If you’re looking for help with this step, read our post on how to plan a simple and realistic budget.

It’s substitution, not starvation

It is important to remain socially supported during this time. Don’t deny yourself the social interaction with friends, but perhaps choose an alternative. Try a potluck dinner, movie night in or a games night at home. You may find that your friends are also relieved to have options that are less of a financial burden. The same principle applies for spending on items such as your morning Starbucks. You can still enjoy that ritual cup of coffee every morning, just make it at home.

Run the numbers

After factoring in these changes, list all of your monthly income sources and all of your monthly expenses. Make sure you’re including your debt payments into your list of expenses. Check to see if you have a surplus, are breaking even or running a shortfall (deficit). Deficits can only be run for a temporary period of time before they start to add up and become a significant problem.

If you have extra money left over after paying everyone, pay extra on your high interest rate debt. Paying off your high interest debt first will help you in the long run.

Avoid high interest debt

Using a quick solution like a payday loan may seem like a good idea, but that’s because payday loans are not very well understood. In fact, repeat payday loan users are more likely to say their debt load increased after turning to the payday loan for help. If we actually calculate the annual rate of interest of payday loan, it is well over 500%. If you’re struggling making ends meet, try one of these methods of debt management instead of turning to a payday loan.

The good news is that once you find a new position you can choose to maintain these changes. This will help you recover more quickly, pay down debt and save for the future.

However if you find that these steps are not enough, and you are continuing to feel too much pressure, please feel free to contact us for a free consultation. Our licensed professionals will meet with you in a respectful and confidential manner and help you determine the best possible solution to deal with your debt.

The post Budgeting During Job Loss appeared first on Hoyes, Michalos & Associates Inc..

I may get mixed reviews about the advice that I share on today’s episode, but for many, budgeting is a waste of time. Budgeting takes discipline, it takes time and it takes some skill to use a budgeting spreadsheet or app. Because it’s difficult, for some people it can actually have a negative impact on their finances. They lose motivation or interest, and eventually discouraged, stop paying attention to their finances all together.

I’m not advocating that people shouldn’t manage their money, but I am suggesting that you need to find a solution that will work for you and your finances.

It’s very important to know where you’re spending your money because if you don’t know where it goes, you can’t make adjustments to pay down debt and build your savings.

I’m joined once again by money expert, Gail Vaz-Oxlade who is an advocate for having a system in place that will help you to pay off debt, save money and spend wisely. Gail is well known for her magic jar concept; the idea that you should allocate a specific amount of money to a number of goals (i.e. bill payments, savings, entertainment, groceries etc.) to keep yourself on track each month.

Why Budgets Fail

However, many people fail to budget because they’re not committed to the idea of budgeting. In this episode we talk about why budgets fail and I give a few tips for managing your money without a budget.

“I’m Too Busy To Make A Budget”

Both Gail and I have heard this line too many times to count. But Gail put’s this statement into perspective explaining that

the reality is that we work really hard for our money. Hardly any of us just has a dump truck that just backs up to our houses and beep, beep, beep, dumps money in. We actually have to bust our butts to make money. Anyone who says they’re too busy to budget, they’re in denial. What they’re trying to do is they’re trying to not have any system in place so they can buy what they want, when they want.

I ask Gail how much time she spends budgeting her money in a month and her answer is 1.5 hours a month. That’s a realistic time frame if you have a system in place to keep track of where your money is going and let’s face it, we all have an extra 1.5 hours to spare a month to manage our money. The hard part is staying motivated to actually use whatever system you decide to use.

My Super Secret Budgeting Advice

Want to know my secret to managing your money without a budget? It’s not really a secret and it’s certainly not rocket science: pay your bills as frequently as you get paid.

Sounds easier said than done right?

Consider automating your payment plan so that your budget becomes pre-programmed. Let me explain. Every time that you get paid, put a portion of that money away to pay your bills at the end of the month. Better yet, pay your bills in chunks as your money comes in.

For example,

If you get paid every week and you know that your hydro bill is going to be $100 at the end of the month, set aside $25 (or pay that $25 toward your bill) every week. By the end of the month, you’ll have the money needed to pay the bill in full. Do this with all of your bills including rent/mortgage payments and car payments. You can even have your bank transfer those funds automatically on payday to a savings account dedicated to your bill payments. That way, the money that’s left in your account becomes spending money and you’re less likely to spend more than what you’re making.

The concept here is that budgeting is about matching your inflows with your outflows. As Doug says:

[Budgeting is] looking ahead to the future, seeing what’s coming in, seeing what’s going out, matching it all up so at the end of the month you’re at worst even and hopefully you’re building into savings into that budget as well and then you’re good.

Listen to the full podcast for more information on how to make better choices about your money, how your going to spend it and what your financial future will hold.

Read the full transcript below.

Resources Mentioned in the Show:

• Debt Free Forever: Take Control of Your Money and Your Life by Gail Vaz-Oxlade
• Money Talks: How To Say Yes & When To Say No by Gail Vaz-Oxlade
• Free Budgeting Worksheet

FULL TRANSCRIPT show #72 with Gail Vaz-Oxlade

Note: Best of Series rebroadcast as Episode 97

Doug Hoyes:  Today I’m going to get myself into a lot of trouble. I’m going to upset a lot of people because I’m going to disagree with one of the most basic concepts of money management. Today I’m going to tell you that I think for many people budgeting is a waste of time. Yes, today we’re going to talk about budgeting right here on Debt Free in 30.

So, why do I think budgeting is a waste of time for some people? Well, three reasons first it takes discipline to remember to track all of your expenses, second it takes time to budget and third it takes some skill to use a spreadsheet or a budgeting program or even to summarize all of your expenses on paper. Many of us don’t see the need to have discipline over our money. We don’t want to make the time and we’ve never learned the skills necessary. For those people, budgeting is a waste of time because they won’t stick to it, they’ll get discouraged and they may be worse off than not budgeting at all.

Have you ever wanted to lose 10 pounds so you go on a diet and you don’t stick to it and six months later you realize you weigh even more than when you started your diet? You would have been better off if you had never even attempted that diet and that’s how it works with some people and budgeting.

So, am I saying you don’t need to actively manage your money? No, I’m not. It’s very important to know where you’re spending your money because if you don’t know where it goes you can’t make adjustments to pay down debt and build your savings. All I’m saying is that for some people budgeting isn’t the answer.

In the second segment of the show I’ll tell you what I think is the answer. But first, to help me explore this issue I’ve asked one of our most popular guests ever, Gail Vaz-Oxlade to return to the show and talk about budgeting. If you’ve watched any of Gail’s T.V shows or read any of her books, you’ll know that she is a believer in taking responsibility for your money and she believes that budgeting is a way to do just that. Does that mean I disagree with her? Not necessarily. Let’s listen to my conversation with her on budgeting to get Gail’s perspective.

I’m joined now by Gail Vaz Oxlade whose new book is Money Talks: When to Say Yes and How to Say No. And Gail, Chapter 19 is called “Too Busy To Budget”. Is that a problem people have?

Gail Vaz-Oxlade:   [laughter] It’s a problem they claim to have, Doug.

Doug Hoyes:  They claim to have.

Gail Vaz-Oxlade:   Absolutely. The reality is that we work really hard for our money, hardly any of us just has a dump truck that just backs up to our houses and beep, beep, beep dumps money in. We actually have to bust our butts to make money. Anyone who says they’re too busy to budget, they’re in denial. What they’re trying to do is they’re trying to not have any system in place so they can buy what they want when they want.

Doug Hoyes:  I see so, it’s not I don’t have the time to budget, it’s I don’t want to budget because that will put the brakes on me.

Gail Vaz-Oxlade:   Yeah, they don’t want to have to do the detail of money management. Whenever I describe how I manage my money, I call it the Gail way, so I use a spending journal and then once a month I take all the interest from my spending journal and I post it into my cash flow budget so I’m keeping myself on track. When I describe that to people they, you know, some people put their fingers in their ears and some people accuse me of being anally retentive and some people say well, you know, that’s because you like doing that kind of thing. Oh please, get a grip, nobody likes doing it. I do not like doing it. I do it because it’s good for me and I do it because I worked really hard for that money and if I don’t know where it’s going, I am an idiot.

Doug Hoyes:  And so, how much time in a typical month would you spend either managing your money or budgeting, whatever you want to call it?

Gail Vaz-Oxlade:   It takes me about an hour and 15 minutes a month.

Doug Hoyes:  An hour and 15 minutes a month.

Gail Vaz-Oxlade:   You don’t have an hour and 15 minutes a month to manage your money on the daily then you are truly delusional.

Doug Hoyes:  And how – that hour and 15, is it like an hour at the end of the month and 15 minutes throughout the month?

Gail Vaz-Oxlade:   It’s about an hour during the month. So, what happens is every time I spend a penny, I bring home my receipts and I enter them into my spending journal and I keep a running track of how much money I have left. And then it takes me about 15 minutes to post that information into my cash flow budget at the end of every month to make sure I’m staying on track.

Doug Hoyes:  Got you, and then you can adjust it. And I guess when you think about it that hour and 15 every month is probably saving you over the course of a year thousands and thousands of dollars.

Gail Vaz-Oxlade:   Absolutely, because I know exactly what I’m doing with every single penny and it’s also about making choices. You know, people like to use the word sacrifice when they talk about budgets. It’s nothing to do with sacrifice, it’s about choices. I can choose to go to the movie or I can choose to take the cab on the rainy day. If it’s pouring with rain and I think to myself, okay you know what? I’ll forgo the movie so I can take the cab home, that’s a choice, it’s not a sacrifice.

Doug Hoyes:  I can make my own coffee in the morning or I can go to the coffee shop.

Gail Vaz-Oxlade:   Absolutely, we’re always making choices about what we’re doing with our money. Sometimes we’re doing it unconsciously and all I’m trying to do is say to people get out of unconscious. I want you back into consciousness so that every decision you make is one that is actually serving your needs.

Doug Hoyes:  So again you want people to think, that’s the whole idea.

Gail Vaz-Oxlade:   Totally, I want you to think and I want you to accept responsibility for the decisions that you make, stop playing the martyr.

Doug Hoyes:           And so, when I talk to people I have the exact same discussion with them. Well, you need to keep track of where your money’s going. Oh, I don’t have time, I don’t have time. And I understand exactly what you’re saying, yes you do, you just don’t want to or you don’t want to see what it’s going to reveal.

One of the things that I say to people and you tell me if I’m way off base here on this ’cause maybe this is the easy way out, is I say to them okay what I want you do is set up all your payments to match your pay cheque. So, if you are one of those people who gets paid every week at work, your pay cheque automatically gets deposited into your bank account every Friday, well pay your hydro bill every Friday. Take your monthly amount divide it by four and automatically set it up for your bank to send the money every Friday. So that, in effect, it becomes a one week budget. The money comes in and I buy my groceries, I pay a quarter of my hydro bill, a quarter of my phone bill, I put a quarter of it into a separate bank account to pay the rent at the end of the month, is that cheating do you think?

Gail Vaz-Oxlade:   No, I don’t think it’s cheating. One of the things that I tell people to do is to match their bill payments with when the money comes in. So, I tell them to get a calendar and plot where their pay cheques come in and plot when their bill payments are due on the calendar. And make sure that they have a matching amount so they’re not running into overdraft problems. And a lot of people don’t realize it, but if you have more bills coming in off your first pay cheque then you can pay, you can move one of those billing dates by calling the company and moving it.

So, whether they do it your way and do it on a weekly basis or they actually match their cash flow to the calendar when the money’s coming in and when it’s going out, what they’re doing is they’re taking responsibility for making sure they’re only spending as much as they have.

Doug Hoyes:  Yeah and I agree, you match it with your income. If you’re a pensioner and you get your pension at the end of the month, well okay, then it doesn’t make sense to be paying things weekly you have to manage on a monthly basis. But that’s really what budgeting is, then; whatever word you want to use. It’s looking ahead to the future, seeing what’s coming in, seeing what’s going out, matching it all up so at the end of the month you’re at worst even and hopefully you’re building into savings into that budget as well and then you’re good.

Gail Vaz-Oxlade:   Absolutely, and then so when I try to, in this book, in Money Talks, try to tell people about how to help other people budgeting, one of the points I try to make is that there are lots of people out there that are very concrete; talking about money in the abstract, talking about budgeting in the abstract doesn’t work for them. So, you need to get yourself a big piece of cardboard and some red kidney beans and make those kidney beans be worth a certain denomination of money. Hand them their money in beans and then make them allocate the beans to the various segments of their budget so they can see the beans going away. Because in the abstract, they can’t relate, but make it concrete and suddenly it makes sense.

Doug Hoyes:  And that’s why a lot of people like to spend cash as opposed to using a debit card or a credit card and I mean you’re the popularizer of the jar method, I believe.

Gail Vaz-Oxlade:   Money jars.

Doug Hoyes:  The money jar which is exactly the same thing, you can see through jars. You can see the money and then I don’t get into trouble. So, the new book is called Money Talks, which of your prior books delved more into the pure budgeting area, then?

Gail Vaz-Oxlade:   Debt Free Forever. Debt Free Forever was the process book that talked about things like making sure you understand where you have been spending your money, so how to do a spending analysis. Creating a budget that’s realistic that you can actually stick to, getting a debt repayment plan in place so that you’re not just making payments, you’re actually making payments with a view to an end. And doing things like setting goals and making savings happen.

Doug Hoyes:  Excellent. So, if people would like to understand the process, Debt Free Forever is a good book and that’s available at bookstores everywhere on Amazon and so on. And if they want to know how to talk to people, their family members, friends, whatever, about some of the money issues they’re having, then Money Talks: When to Say Yes and How to Say No, that book is what they should pick up.

Gail Vaz-Oxlade:   Absolutely.

Doug Hoyes:  Thanks very much, I appreciate that Gail, thanks for those insights.

Gail Vaz-Oxlade:   My pleasure.

Doug Hoyes:  So, there you have it. Gail Vaz Oxlade’s view is that the reason we don’t budget is not because we don’t have the discipline, time or skill to do it it’s because we don’t want to limit what we can spend. If we have a budget and we decide in advance where to spend our money, it becomes very difficult to spend on impulse. Some of us love impulse spending so we don’t want to budget because we know it will curb our spending or at the very least make us feel guilty if we don’t follow our budget.

I think the key point Gail made is that it`s not a sacrifice to forgo spending, it’s a choice. As I always tell people you can only spend that Loonie once, so decide in advance where you want to spend it. Make a conscious choice. Gail also said that it only takes her one hour and 15 minutes a month to budget. She spends an hour during the month and 15 minutes at the end of the month to pull it all together. That’s not a big time commitment when you consider how many hours a week you work to earn that money.

So, as I said at the start of the show, I think budgeting is a waste of time for some people. What do I recommend instead I`ll give you my complete plan to manage your money without budgeting right after this quick break.

Doug Hoyes:  Before the break I said that budgeting is a waste of time for some people. Notice that I said some people. If you`re disciplined and have the skill and patience to work with numbers, great. I run a large business with dozens of employees and there’s no way I could run a business without a budget. I need to know where our money’s going and I need to make plans for the future, that’s a budget. It`s a list of where your money has gone or will go, by putting it in writing you can see where you may be spending too much and you can make changes. That’s the point of budgeting.

So, if you want to budget, it’s conceptually very simple: keep track of everything you spend.

Carry one of those small golf score pencils in your pocket with a scrap of paper and write down every penny you spend or keep every receipt. At the end of the day, bring them home and put those scraps of paper and receipts in a folder or on a bulletin board. You can sort them by category and then once a week or once a month transfer the totals to your main budget to see where you’re at. Of course if you have a computer and a spreadsheet or you use a budgeting app you can do all this electronically.

But here’s the question: are you going to do that? Will you keep track of all of your money? Will you write down every purchase? Most people have good intentions when they start out but they get busy and after a week or a month they get behind and they get discouraged. That’s why I believe for some people budgeting is a waste of time.

So, what’s my solution? What’s my secret to not budgeting? Here it is: pay your bills as frequently as you get paid. That’s it, that’s the secret. So, if you get paid every week, pay your bills every week. If you get paid every two weeks, pay your bills every two weeks.

So, what am I talking about? How does that work? Well, let’s take typical bills like your hydro bill or your cable bill. You get a bill every month from the hydro company and it says on it your bill is due on the 17th of the month. So, what do you do? Well, you have a calendar, you try to remember to pay that bill on the 17th of every month or maybe you send them a post dated cheque or maybe you set it up to pay it on the 17th through your online banking, through your internet banking. Okay, that makes sense.

But what happens if you get paid twice a month on the 15th and the last day of the month? Okay, I guess paying a bill on the 17th of the month isn’t a big deal because your pay cheque comes in on the 15th. But what if your hydro bill is due on the 13th? Well, it’s two days till payday, but my bill is due today. Well, now I’ve got to start doing some fancy budgeting. So, my solution is pay your bills as frequently as you get paid. So, let’s go back to your hydro bill. Let’s assume it’s $100 a month. Yeah, it’s probably more than that but it makes the math simple if we use that number. And let’s assume you get paid every week. Well, it’s pretty simple you want to pay hydro $25 every week. At the end of four weeks you’ll have paid them $100, that’s what your bill is every month, you’re good.

So, here’s how I do it. I go into my online banking and I would program a bill payment for every payday. So, if I get paid every week and my hydro bill is $100 a month, I would program it in to send hydro $25 every payday. So if payday is Friday, I’d set it up to send them the payment every Friday. Pay your bills as frequently as you get paid.

Now I know you’re sitting there going okay that works fine for something like hydro or cable because I actually send the payment to them, either by cheque or by electronic banking, but that’s not going to work for something like my car insurance or my rent. Because that’s a payment once a month and the way my landlord works, they want to take the payment out of my account on the first of every month. I can’t say to my landlord, hey look I’ll send you a certain amount every week or every two weeks. If your rent is $1,000 a month you can’t say to your landlord, okay here’s the thing I’ll send you $250 every Friday. Your landlord’s probably going to say no, no that’s not the way we work, I don’t want to be having to figure out if you made your payments. I want all the payments the first of every month, that’s how it works.

Now maybe your landlord will let you pay every week or every two weeks, fantastic do it that way then it works out great. But if they won’t do it then there’s a solution to that, too, in fact there’s a couple of ways to do it. One way would be to simply leave the money in your bank account so that it’s there on the 1st of every month. So, if your rent is $1,000 a month and you get paid every week, in your brain or on a piece of paper you just have to say to yourself, okay every pay cheque I have to leave $250 in my bank account. So, after my first pay cheque of the month there’s got to be $250 in there, by the second $500, by the third pay cheque $750, by the time my fourth pay cheque comes in there’ll be $1,000 there, which will cover me for the first of the next month. That works, it’s a good solution.

The other way to do it would be to actually set up a separate bank account for your monthly bills so things like rent, car insurance, anything that only gets paid once a month you could set up a separate bank account. And if you use one of these online banks, a lot of them will let you set up as many bank accounts as you want. You want to make sure you’re not paying huge service fees by setting up extra bank accounts, but that’s a way to do it. So, you set up a monthly bill paying bank account and every week when you get paid, you electronically send the appropriate amount of money into your monthly bill paying bank account. And again it sounds complicated when I explain it but it isn’t because once you set it up on the computer, it just happens every month automatically.

So, with my rent, I need to put $250 every week into that bank account. With my car insurance let’s say that’s $200 a month, okay every week I’ve got to put $50 into my monthly bill account. Or if I get paid every two weeks, I put $100 every two weeks into that bill account. And then it doesn’t matter what day the hydro or the insurance company or my landlord is going in to take the payment out, as far as I’m concerned every payday the money’s being transferred over so by the time the payment is due on the first of the month, let’s say, it’s already there. And again, because I have extra pays during the year if I get paid weekly or bi-weekly by the end of a year, I should have an extra month’s rent, an extra month’s car insurance sitting in that account.

And the same system works perfectly well for any expenses that aren’t every month. For example your license sticker renewal on your car, well you only do that once a year. Okay, well if your renewal is going to be $120 a year you need to put aside $10 a month. If you get paid bi-weekly you need to put aside $5 every pay cheque, so, again no problem when you’re setting up that transfer into your bill payment account. I’ve got to put this much for rent, this much for car insurance and then this much for things that don’t happen every month – things like the license sticker for my car for example or birthday presents of Christmas presents or summer vacation or anything else that I want to save for. And of course you can set up a separate savings account purely for savings as well. That works perfectly well.

So again, my point is pay your bills as frequently as you get paid and that way the money is gone from your account, right away, immediately. And so, whatever’s left in your bank account after payday, that’s what you’ve got to live on between now and your next payday. That’s your grocery money, your gas money, your spending money, anything else you need. There may not be a huge amount of money left in your bank account at the end of payday, but all of your bills are paid so you’re not racing around trying to figure out what needs to be paid and when it needs to be paid. That’s a simple easy system.

Now is that what you should do? Hey, that’s up to you. If you know how to budget, if you like to budget, if you want to budget, fantastic do it that way. But if you’re one of those people who say you know what? I’m just not going to be able to do it then my secret to not budgeting, pay your bills as frequently as you get paid. It works for a lot of people. That’s how I would avoid budgeting, I’ll be right back to wrap it up. You’re listening to Debt Free in 30.

Let’s Get Started Segment

Doug Hoyes:     It’s time for the Let’s Get Started segment here on Debt Free in 30. In the last segment I said that in my opinion the best strategy to manage your money if you don’t want to make a budget is to pay your bills as often as you get paid. So, if you get paid every week, you pay your bills every week. I give this advice because it makes your life easier.

For example, let’s say my cable and internet and home phone bill is all bundled together and it’s $200 a month. If my Telco sets my due date on the 14th of the month and I get paid on the 15th, I’ve got a problem because my bill is due before I get my pay cheque. With my approach of paying your bills as often as you get paid, instead of trying to come up with $200 on the 14 of every month, I split the bill based on the number of pay cheques I get in the month. If I get paid every week I pay $50 every week. If I get paid bi-weekly, which is every two weeks, I pay $100 every two weeks. The main benefit of this approach is that I’m spreading out my monthly bills over all of my pay cheques so I don’t have to take the hit on any one pay cheque.

But there’s another hidden benefit to this approach. If you take a monthly bill and divide it by four to pay it weekly or divide it by two and pay that amount bi-weekly, you end up making an extra month’s payment every year.

Here’s how it works. If you get paid every two weeks there are two months every year where you get three pay cheques instead of two. The exact months change every year but you get paid 26 times a year, so every year you have two months with an extra pay cheque. It’s the same concept if you get paid weekly, except there are four months every year where you get an extra pay cheque.

So, if you pay $50 every week towards your $200 cable bill, every month where you get five pay cheques, you make five payments on your cable bill so you’ve actually paid $250. That means that at the end of the year you’ve made a full month’s worth of payments and you didn’t even notice it. At some point the cable company will phone you up and say hey dude you paid us too much you have a $200 credit on your account. Wouldn’t that be great? Imagine what it would be like to have the bill collector phoning you and saying we owe you money. That would be pretty cool.

Now of course you may have an unexpected expense one month that puts you behind, but if you have a credit built up on your cable bill and your hydro bill and all of your other bills, you can skip a payment with no worries. That’s peace of mind. It’s like a forced savings plan. And it gives you peace of mind knowing that you’re always ahead on your bills.

And if you never miss a payment and you do get a month ahead you can take a month off from payments and use that money for something else. You can decide that if you’re a month ahead on your bills at the start of December you don’t need to pay your bills that month so you can use that extra money for Christmas. Or you may decide that you want to skip a month in the summer so you’ve got some money for your summer vacation. Or maybe one month of the year you use that extra money for savings. Perhaps that’s the month you make an extra contribution to your kids RESP or your RRSP or your TFSA.

Imagine that, extra money. Wouldn’t it be great to not have to play catch up? That’s the beauty of not budgeting but instead paying your bills every time you get paid. Give it a try.

You may be thinking okay this is great for bills where I send in my payment like my hydro bill but what about monthly payments that automatically come out of my bank account like my rent and car insurance? No problem, this approach still works. You either leave the money in your bank account each month or you set up a separate bank account for your monthly bills and just transfer the appropriate amount to your bill paying account every payday.

I remember meeting with a woman a few years ago who had over 20 bank accounts. She banked at one of those online banks so there were no service charges. So, she could open as many bank accounts as she wanted and that’s exactly what she did. She had a separate bank account for every expense she had every month. She had a bank account for groceries and for haircuts and gas for the car and every other expense. Every payday she would transfer her budgeted amount for each expense into the appropriate bank account. So, if her food budget was $100 per week, every week she would transfer $100 to her food bank account. Then she would use her food bank account debit card, which was attached to that bank account, to buy groceries. Once the money was gone from the card, that was it, she couldn’t spend anymore. Now personally, I think having 20 different bank accounts is a bit excessive, but I guess it’s the electronic equivalent of Gail’s spending jars method so maybe it’s not quite as crazy as it sounds.

Here’s my final piece of advice, there are lots of different money management systems out there and no one system will work for everyone. Pick a system that works for you. If you want to have 20 different bank accounts and if you think that will actually simplify your life, great, do it. Start simple and only make it more complicated if the increased complexity gives you a greater benefit. Pick a system that works for you.

That’s the Let’s Get Started segment on our special budgeting edition. I’ll be back after the break with a final wrap up right here on Debt Free in 30.

Announcer: You’re listening to Debt Free in 30. Here’s your host, Doug Hoyes.

Doug Hoyes:  Welcome back, it’s time for the 30 second recap of what we discussed today. On today’s show Gail Vaz-Oxlade said that the reason we don’t budget is not because we don’t have the discipline, time or skill to do it, it’s because we don’t want to limit what we can spend. We think of a budget as a sacrifice, but Gail says that’s the wrong approach. She says it’s not a sacrifice to forgo spending, it’s a choice. And if we choose wisely we can be financially successful. That’s the 30 second recap of what we discussed today.

Normally at this point in the show I give my take on what we discussed today but I spent the entire second segment of the show giving you my take on budgeting. I said that budgeting can help you manage your money, but only if you’re willing to take the time to actually do it. Gail said it takes her one hour and 15 minutes a month to keep track of her money. She’s an expert with lots of experience so it may take you longer when you’re first starting out.

So, my advice is pretty straight forward: start with an easy approach first. Set up all of your bills to be paid as frequently as you get paid. If you get paid twice a month, pay half of each of your bills twice each month, easy. Then once you’ve got that up and running, that’s when it makes sense to start a budget. By that point you’ll already have a good handle on your monthly expenses so budgeting becomes an exercise in fine tuning your income and expenses. You’re not starting from scratch so it should be easier to get going.

That’s our show for today. Full show notes are available on our website, including links to Gail’s new book and also the previous book she mentioned where she discusses the “Gail way of budgeting”. And we’ve also got links to two videos I recorded about my approach to not budgeting. So, please go to our website at hoyes.com, that’s h-o-y-e-s.com for more information. Thanks for listening. Until next week, I’m Doug Hoyes, that was Debt Free in 30.

The post Is Making A Budget A Waste Of Your Time? appeared first on Hoyes, Michalos & Associates Inc..

Budgets are like diets: they are hard to do, and after a week, or a month, you give up, because it’s too difficult. Think about it: are you really going to carry a pencil and paper with you and write down every penny you spend? Will you write down each cup of coffee you buy at the coffee shop? Will you go home every night and punch the numbers into your computer, and then create graphs and spreadsheets to analyze everything? Perhaps you will but many won’t.

To successfully manage a budget you need to be very disciplined. You need to stick to it. If you are very disciplined and love that phone app that helps you manage your budget, great. But what if you are not highly disciplined? What if you don’t know how to work a spreadsheet, or if you don’t have time to record every penny you spend? I have a solution:

That’s it. That’s the system. If you get paid bi-weekly, pay your bills every two weeks, on payday.

Here’s an example of how you might pay your hydro bill.

You get paid on January 13 and January 27, and your hydro bill is due on the 30th of every month. Normally your plan would be to use $100 from your January 27 paycheque to pay your hydro bill. That makes sense, but your rent is due on February 1, and your car insurance is due on February 2, so you know your paycheque won’t last that long.

Here’s a better plan:

• Use internet banking to pre-program a $50 payment, every payday, to hydro. If you send $50 on January 13 and $50 on January 27, by January 30 you hydro bill is paid. No worries.
• Even better, in May you might get three paycheques, on May 1, 15 and 29, so your May hydro will get three payments from you. By the end of May you will be $50 ahead with hydro.

Think about that: You will be ahead on your bills. Instead of always “playing catch up”, you can get ahead and stay ahead.

Read Transcript

Why paying your bills every payday works better than a budget.

No worries: You get paid on Friday, and all of your bills automatically get paid on Friday, so when you go to the bank on Saturday you know exactly how much money you’ve got to live on for the week.

No budgeting: You don’t have to set money aside for your hydro bill in two weeks, because it’s already paid!

You are always ahead on your bills, never behind: In an extra pay month, you pay extra. If you get paid weekly, four times a year you get five paycheques in a month. Great! That means you’re making an extra weekly payment to hydro that month, and you won’t even miss it. A year from now, if you don’t miss any payments, you’ll be a month ahead with hydro, and everyone else! So now, if you get laid off, or need to skip a payment, no problem! You’re a month ahead!

What about bills I can’t pay every payday?

Paying your bills every week is easy if you can pay your bills online, but what about bills you can’t pay on line? You probably pay your rent by giving your landlord post-dated cheques each month. Your landlord probably doesn’t want a cheque every week, because it’s a lot more work for them to deposit a cheque each week. And what about expenses like your car insurance or holidays that come up once a year?

The secret to monthly bills: The PLAN account

For bills that you can’t pay weekly, open a second bank account for your monthly planned payments.

For monthly bills, deposit the money each payday in your PLAN account.

If your rent is $1,000 per month, and you get paid every week, have your bank automatically transfer $250, on payday, from your main bank account to your second or PLAN bank account. You then give your landlord post dated cheques from your PLAN account, dated for whatever day they want to get paid. Your landlord is happy because they’re getting their rent cheque once a month, and you’re happy because you are paying your rent every payday. This PLAN system works for every bill that you don’t pay every payday.

Use your PLAN account for annual bills

The PLAN account works great for annual bills. You renew your car license sticker once a year, so instead of trying to find $120 on your birthday when your sticker renews, put $10 per month, or $2.50 per week, in your PLAN account on payday.

This works great for other annual expenses, like Christmas, birthdays, and your annual vacation.

What about saving for the future?

Your PLAN account works for savings and emergencies. You know you’ll have some car repairs in the future, so start putting $10, or whatever, in your PLAN account each payday for future car repairs.

You want to save for you children’s education? Or retirement? No problem, put what you can afford in your PLAN account each payday. Even better, start an RRSP or RESP and contribute to it every payday. The money will be invested before you see it, so you won’t be tempted to spend it.

Simple.

And if you really like the traditional method of budgeting we’ve go something for you too. Download our free Excel Spreadsheet Budget Planning Worksheet. It can help you budget your way out of debt or to more savings.

What if your paycheque just doesn’t go far enough?

But what can you do if there isn’t enough money to pay your bills and save? If your cash flow problem is caused by too much debt, we need to talk. At Hoyes Michalos we can help with budgeting, but we can also explain all of your debt relief options to help you deal with debt and get back on track.

The post Why Budgeting is a Bad Idea appeared first on Hoyes, Michalos & Associates Inc..

This is part one of our no budget approach to budgeting. Watch this video or read the extended post on the non-budget budget. 

Read Transcript

Pay your bills as often as you get paid.

Today I’m going to tell you the secret to budgeting. We all know we should have a budget, but budgeting is hard and takes a lot of time, so we don’t do it. So here’s the secret to budgeting. Don’t do it. That’s right. Just don’t budget. My name is Doug Hoyes. I’m a chartered accountant and I’m the co-founder of Hoyes, Michalos & Associates and over the last 25 years I’ve been a trustee and I’ve personally helped more than 10,000 people file personal bankruptcy or a consumer proposal.

And here’s what I’ve learned, people get into financial trouble when they lose their job or get divorced or get injured and can’t work. The people with savings and good budgeting skills can survive as shock like that, but if you don’t have savings and don’t know how to manage your money, you may end up having no choice but to go bankrupt. If you don’t know where your money goes, you get into trouble. So why am I telling you not to budget? Because budgeting is hard. You don’t know how to work a spreadsheet and we don’t have time to keep track of everything, so we fail. I could tell you to write down every dollar you spend and categorize your expenses on a spreadsheet, but that takes a lot of time and after a week or a month you probably give up.

So how can you manage your money, but not budget? Here’s the secret. Pay your bills as frequently as you get paid. That’s it. That’s the secret. If you get paid every week, then pay your bills every week. Let’s say your hydro bill is $200 a month. You get a bill every month so you pay it every month, right? Wrong. You pay it every week because you get paid every week. You send the hydro company $50 every week on payday. By the end of the month you’ll have sent them $200 so they’re happy.

Now you’re sitting there watching this video saying, “Well, that’s stupid. Paying four times a month is a lot more work than paying once a month and it’s more complicated. Wrong again. Here’s what you do. You go online and do everything through Internet banking. You know that you get paid every Friday so you go to your computer and program a payment for $50 every Friday for the next six months. Done. Your hydro bill is paid for the next six months. You don’t need a budget to figure out how to pay your bills because you’ve already paid your bills.

Here’s the payoff for you. No more worries. You get paid on Friday and all of your bills automatically get paid on Friday. So when you go to the bank on Saturday, you know exactly how much money you’ve got to live on for the rest of the week. You don’t have to set money aside for your hydro bill in two weeks because it’s already paid.

Now I know you’re sitting there saying, “Okay, I get it. I spread out my hydro bill over the whole month, but I can’t do that with my rent. My landlord wants his check once a month, not once a week. What do I do about that? And what about saving for the future? Isn’t that the whole point of budgeting? I want to save for my kid’s education or for a new car or a house. Paying weekly is fine for bills, but what about savings? Those are all excellent questions, but I’ve talked long enough in this video so I’m going to record a second video to answer those questions. For now, try it. Don’t budget, just pay your bills as frequently as you get paid and I think you’ll see that your life will be simpler and a lot less stressful.

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