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By Sandra Fry
We’re halfway through January and if you’re like a lot of Canadians, you’ve heard enough about new year’s resolutions by now. To make matters worse, this is also the time of year when many people fall off the wagon.
But it doesn’t have to be that way. If you’re bound and determined to make 2023 the year you get a better handle on your finances, you’re my kind of people. Here’s my best advice to get you started.
Track where your money goes
In order to manage your money, you need to know where it’s going. You can do this by going back through your bank account or credit card statements to figure out what you’ve been spending. This is a crucial first step as it will provide insight into how much life costs as well as point out any habits that may be draining your bank account.
You will want to look at more than one month because your December spending, for example, is likely not a typical month. The more months you can review, the more detailed a picture you’ll get of your ongoing expenses.
Create a budget
Once you have a good idea of your living expenses, add up how much you pay towards debt and what you receive in income. Then you can build those numbers into a budget. If you don’t know where to turn, there are lots of free budgeting tools available online.
Whether your budget is electronic or on paper, the calculation of your income minus your expenses should give you a good idea of whether you are running out of money each month or have a surplus. It’s not uncommon for those I counsel to feel like their budget runs out of money each month, when on paper that doesn’t seem to be the case.
If your new budget indicates you should have a surplus, but you have no idea where that money actually is, then you may need to dig a bit deeper. Track your spending for a few weeks going forward, rather than look back at receipts and statements. It could be that a lot of little expenses, such as grabbing a daily $3 coffee, are contributing to the deficit.
Reduce your living expenses
A good budget should include room for all your expenses, debt repayments and savings. If your spending habits are causing you to have a budgetary deficit, prioritizing what is important and reducing expenses that aren’t necessities will help balance your budget.
If your discretionary spending is not causing the shortfall, it could be that your housing or transportation costs are to blame. Downsizing to reduce your overall housing costs can be beneficial in theory, but difficult in practice. If your vehicle costs are the culprit, try trading your vehicle for something less expensive. Or, if you are a two-vehicle family, discuss the possibility of parking or selling one car to save costs.
Increase your income
If you have already reduced all possible costs, you may have to look at ways to increase your income. Getting a second or part-time job is not your only option. You could consider renting out a room or space in your home or garage for storage. Maybe you can sell possessions you no longer need online. Clean out your storage locker and stop paying to keep things you don’t use. Just make sure that your source of extra income doesn’t interfere with your primary paycheque.
Reduce debt payments
The high payments required to service your debts can often cause a significant drain on your monthly cash flow. Do what you can to lower your payments. If you have some savings, pay down a portion of what you owe. If you can eliminate even one debt, that will free up money that can go towards another debt.
Apply for a consolidation loan to reduce how much interest you’re paying. This can make sense as long as the new monthly payment is lower than what you’re presently paying. As you weigh your options, a not-for-profit credit counselling agency can provide a free, no-obligation financial review, help you make a budget and discuss all your available options for getting your debts cleaned up.
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Even if your budget is tight, having some savings is an integral part of managing unexpected expenses. Savings can eliminate the need to use credit when your car breaks down or you experience a temporary reduction in income.
Even though experts recommend a savings goal of three months of expenses, start small and aim to save enough for six weeks. It often takes that long to receive employment insurance if you lose your job. It may not be enough to tide you over until you can find work again, but it can make enough of an impact to prevent a bigger crisis.
If these steps feel overwhelming, then focus on doing one thing at a time. Even just being aware of where your hard-earned money is going will help you be a better money manager than you were in 2022.
Sandra Fry is a Winnipeg-based credit counsellor at Credit Counselling Society, a non-profit organization that has helped Canadians manage debt for more than 26 years.
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