Creating and Implementing A Budget
What I Wish My Parents Had Taught Me About Money
For many people, the thought of sitting down and talking about money is a huge source of stress. If you didn't learn good financial habits early in life, navigating the world of finances may seem like a huge obstacle to overcome. But the truth is, not everyone had the advantage of growing up in a financially sound household. This might be your reality, but it doesn't have to determine your future. Read on to learn the most effective steps toward financial freedom.
Plan a Budget - And Stick to It
The single most important thing you can do to start on a financially healthy path is to come up with a budget that works. First, plan out how much you need to spend each month on necessities like rent or mortgage, bills, and food. These are the parts of your budget that are non-negotiable - you can't go without paying them for a month unless you want to face serious consequences. What's left over after paying necessities should be split between "wants" and savings. Wants are things like dining out, seeing concerts or movies or shopping for items that aren't needs. Allocating money towards savings is a crucial part of budgeting. Even if you aren't saving for something in particular like a house or a car, having a chunk of money in savings will be a relief if you lose your job, your refrigerator breaks, or something else unexpected happens.
Many experts will advocate for a 50/30/20 budget, with 50% of your take-home income going to needs, 30% going to wants, and 20% going towards savings. Of course, depending on your income this may need to be adjusted a little, but this can be a great goal to aim for. It's helpful to lay everything out in a spreadsheet, or even use a budgeting app. Be sure to track every cent you spend - it can be easy to ignore spending $3 on a cup of coffee every now and then without realizing that it adds up to $50 or more a month! Once you get the hang of laying out your budget every month, it will start to come more easily and you'll know exactly where you can cut back if you need to.
Spend Only When Necessary
The latest cell phone or computer is nice, but it's important to realize that many of these things aren't absolutely necessary. Many of our clients who come to us looking for debt consolidation solutions tell us their financial downfall started with overspending as a consumer. This isn't to say that you don't deserve to have nice things, but many of the things you want can be obtained second hand or at a discount. There are second-hand boutiques that sell designer clothing - you can still have that chic wardrobe without spending hundreds. Sell your old cell phone or computer before buying a new one and look for a less expensive model that still fits your needs. Shop around before making a large purchase to see if someone is offering the item for less, or wait a few weeks to see if it will go on sale. Saving an extra $20 or $30 here or there really adds up over the course of a few months, and you can actually save hundreds or even thousands annually with these tips.
Watch Out for Interest
When you borrow money from any lender, be it a car loan, a mortgage, or a credit card, there will most likely be an interest rate associated with it. Know the interest rates of all your debts and pay off the ones with higher rates first - this will save you a lot of money on interest in the long run. Current Canadian interest rates can range from 19% to 29.99% with little hope of obtaining anything lower. We’ve seen time and again how easy it is to get caught in the cycle of only making minimum payments on credit card debt, simply treading water and paying atrocious amounts of interest. You owe it to yourself to see how much those minimum payments really cost.
Getting your finances in order doesn't have to be a nightmare. If you'd like more information from a Licensed Insolvency Trustee on debt relief and how to overcome financial hardships, please contact us today .