In the last blog post we talked about how summer can throw your budget off the rails. Now it's time to talk about getting your finances back on track.
There are two phases, and they assume that you rang up debt over the summer break.
Phase 1 - Decluttering
Start by organizing your credit card and other debt balances based on the interest rate. Those with the highest rate at the top, the lowest rate at the bottom.
If the rate on two products is the same, prioritize the one with the highest balance relative to its limit. High utilization rates, particularly on credit cards are killers for your credit score and a bad score can seriously hamper your future options.
If none of your cards have a high utilization rate and they're all at the same interest rate then prioritize the lowest balance first as this will eliminate a payment more quickly and be one less thing to keep track of.
Make a note of all the minimum payments for each product and add them up to identify your starting point.
Now you're asking: that's all great, but I'm barely keeping up with the minimum payments, what difference does all this make?
Mindfully approaching your finances is step one towards fixing them. Understanding where the money is going will help you take stock of what's important to you.
Phase 2 - You can't spend more than you make
At the end of the day you can't spend more than you make. It's a simple message. It means to improve your finances you either make more money or reduce expenses.
It means dusting off the resume, hiring a recruiter, and working the job market or trying for a promotion at your office. Have you researched a fair salary for your position? Is it time to ask for a raise?
Cutting expenses requires more willpower than earning more income, but arguably solves the problem more effectively because it's easy for expenses to creep higher as income increases. Start by identifying things you're spending money on but aren't using: Cable packages, home telephone, gym memberships, subscriptions. Cancelling these items are the low hanging fruit.
Next get a handle on eating out. At $10-15 a day, if both you and your spouse work and eat out, that averages $125 a week. Add in a weekly meal out for a family of 4 at $80 in a given month and that's over $800. If you kept the family night out but brought your lunch to work instead, you can easily save $250 a month.
Bank fees, insurance premiums and other financial products often have more inexpensive alternatives. You may sacrifice some service quality by going with a free option, so don't slash here without doing your homework (especially when it comes to an insurance claim) but there's likely $50 a month in savings to be found.
Extracurriculars, often seen as untouchable when it comes to our children, may have to be reevaluated. Start with the less regular events, like birthday parties, to see if there are cheaper alternatives. We hosted a birthday party for our four year old at a park, bought a bucket of chicken, made homemade cupcakes and games, and all of the parents couldn't stop telling us what a great idea it was.
If you're struggling to stay accountable to these goals, struggling to know where to start and need a more targeted action plan, contact Sunny@alacartefinancial.ca and ask her how she can help you clean the money clutter.