Managing money isn’t easy at the best of times. When you’re deep in debt to credit card companies, utility providers, or the bank, you have even less room for emergency expenses and everyday costs, not to mention the fun stuff.
If you’re reading this, you’ve probably tried budgeting before. Keeping track of everything you buy and struggling to keep your spending down is a challenge. It’s boring and you constantly feel like you’re depriving yourself of something.
There might be a different way to think about and practice budgeting that doesn’t feel like such a challenge. It’s centered around the idea that once you know your fixed costs, you can create a simple spending budget and spend without worrying too much about it.
What If Budgeting Alone Isn’t Enough?
Before continuing, you should know that it’s not always possible to budget your way out of debt. Almost half of Canadians report being only $200 away from insolvency, meaning they can’t make all of their debt obligations and bills for the month. In British Columbia, 19% say they already don’t make enough to cover bills and debt payments.
In circumstances like these, more extreme measures may be necessary to clear your debt. Bankruptcies and consumer proposals are handled by Licensed Insolvency Trustees in Canada. Find out more information on debt relief in Canada at Debt Help BC. They provide bankruptcy help and consumer proposals in Vancouver Island, and can assess your eligibility for debt relief.
Step 1: Track Your Spend Automatically
You’re never going to stick to tracking your expenses manually. Even if you keep it up for weeks, eventually you’re going to let it slip. You’re busy and recording every little expense while you run errands isn’t a priority.
Instead, make it easy on yourself by using the single card method, where all your purchases go on one card. If you’re struggling with debt and maxed out credit cards, use your debit card. Otherwise, as long as you pay the full balance each month and you keep an eye on the balance, there’s nothing wrong with using credit.
Step 2: Create a Simple Spending Budget
How much you spend each month isn’t nearly as important as how much cash you actually have available. To figure that out, follow this formula:
After Tax Income – (Fixed Monthly Expenses + Debt Payments) = Spending Budget
Your fixed monthly expenses are everything you predictably pay each month: rent, mortgage, insurance, car payments, bills, etc. How big your debt payments are is partly up to you. When you make minimum payments, you can wind up repaying even relatively small balances for decades. The more you pay now, the less you pay in interest charges.
The rest is for everything else, from groceries to nights out to car repairs. Keeping an emergency fund or a bank account buffer for the irregular but necessary expenses can help out, and mean you don’t have to go hungry because you needed to pay for roof repairs.
Step 3: Automate Your Finances
Set automatic payments for bills, credit cards, tax payments, and savings contributions. That way, you don’t have to worry about late fees and penalties. Putting your money on automatic also gives you less room to make mistakes, such as spending money you were supposed to save or put toward a bill.
If you’re sick of tracking every single expense, try this new way of budgeting. Find an easy way to keep an eye on your spending, know how much cash you have, and automate the rest.