Are You Managing Or Damaging Your Finances

The money relationship is often a turbulent one. When things are going well, money represents opportunity, freedom and comfort. When they’re not, it’s a massive source of stress, worry and frustration. This stomach-shaking rollercoaster ride often leads to numerous unhealthy, unproductive and sometimes destructive financial habits.

The difference between effective money managers and everyone else is their ability to bring predictability to these up and down patterns and address them with effective, realistic and productive behaviours. While it’s not always possible to get off the ride completely, the following mental shifts are extremely effective at smoothing out the road ahead.

Damaging Habit #1: Thinking Money is To Blame

The cost of living is constantly rising, and incomes don’t always match inflation. We try to make sense of our stress and frustration by pointing the finger at money – the common denominator and apparent cause of all our problems… But not so fast.

Everything you spend money on – from rent to food to vehicles – is your choice. You can’t dictate your rent, but you can choose where to live. You don’t determine the price of lettuce, but you do choose whether to buy it.

Managing Tip #1: Create a Spending Plan

Money may be a limiting factor in some of your decisions. But at the end of the day, you’re still the one making the decisions. Regardless of your situation or income level, you always have the choice to spend less. Take charge of your finances by setting clear monthly boundaries around how and when you spend it.

With a budget, you gain a comprehensive view of how much money is coming in and where it all goes. And with a budget, you can plan around certain unavoidable expenses like rent, utilities and groceries – while also pinpointing what optional expenses (e.g. shopping, dining out, etc.) you can reduce or eliminate to create breathing room.

Damaging Habit #2: Not Tracking Expenses

It’s not fixed expenses like rent and automatic payments you need to track, although it’s advisable to review these periodically. It’s variable expenses that can make or break your budget.

Do you know how much your car insurance payment is? What do you spend on rent, groceries and gas each month? Variable expenses, which also includes things like shopping, household maintenance and dining out, are where spending can quickly get out of hand. When you track these purchases, you may be shocked at just how much you spend each month.   

Managing Tip #2: Track for One Month, Diet the Next

The only way to stop damaging your finances is to know what your true expenses are. It’s time to grab a notebook and an envelope and become the best receipt collector ever.

Track everything you spend – from a $2 coffee to a $400 grocery trip – by either putting the receipts in the envelope or jotting it in your notebook. Spend like you normally do, then add everything up at the end of the month.

Ask yourself:

• Did my actual spending match my spending plan?
• Did I spend more in one area than another?

Once you know what you’re truly spending, you can adjust your boundaries to better fit your life.

Do the opposite next month and put yourself on a money diet. Stick to your plan and don’t spend anything extra at all; not for a pack of gum or a quick drive-through treat. Now compare the difference.

Ask yourself:

• How much did I save?
• Have I spent thoughtlessly on unimportant items?
• Can I carve out savings opportunities I didn’t see before?

Damaging Habit #3: Getting Too Much Credit

Once you start relying on credit, it gets easier to accumulate more and more of it. Mainly because:

1. The more you use credit cards, the less likely you are to pay with cash. If a store you frequent offers you a new card (potentially with points or cashback incentives), the apparent ‘opportunity’ can difficult to resist.
2. Regular credit card use and a consistent payment history will qualify you higher limits and additional cards. As your credit score grows, so will the temptation to increase your limit.
3. Retailers often offer financing incentives. It’s hard to say no to discounts or ‘pay no interest for six months’ offers. Stores purposely design these to seem like the financially responsible option.

While any single credit expense (i.e. credit card payments, furniture financing, home repairs, etc.) can often seem affordable on its own, these all add up quickly. And several inexpensive minimum payments can quickly become one massive strain on your monthly budget.

Managing Tip #3: Keep Your Limits Low and Your Balances Lower

The more credit you have, the more you’re likely to use. Keep only the credit accounts you absolutely need and be strategic about your credit portfolio.

1. Get rid of high interest cards
2. Pay off (or at least significantly reduce) your current balances – then lower your limits to prevent spending more than you can afford
3. Decline all new credit cards and turn down all credit limit increases

Set a limit for credit card spending each month and track all your spending. Never charge anything to your remaining credit cards or lines of credit that you can’t pay off right away – or at least until you’ve considered both the purchase price and potential interest costs.

If you do carry a balance on your card, keep it below 35 percent of your limit. Not only does this help keep your minimum payments low, it won’t damage your credit – provided you always make your payments on time.

Damaging Habit #4: Not Saving Money

Not saving money is like not insuring your vehicle or home. In the event something unexpected happens, insurance offers peace of mind that you can repair or replace anything that becomes lost, damaged or destroyed. Savings serve the same purpose.

The fear of not having money in case of emergencies causes stress and anxiety. It can force you to overuse credit and / or borrow money from a high interest lender. Escaping the debt hole can negatively impact your monthly spending plan and damage future savings goals.  

Managing Tip #4: Treat Savings Like a Bill Payment

Treat your savings like your monthly insurance payments. Build saving into your spending plan and set up a regular (monthly / semi-monthly) automatic transfer into a specified account.

Every little bit each month will protect your spending plan. It will reduce your credit card use. It can get you closer to a financial goal. It will give you a sense of stability. And it will reduce stress and prevent you from stealing from another area of your budget when the unexpected happens.

Life-Changing Debt Solutions

If you worry your finances are too damaged for any of these tips to change your course, reach out to a Licensed Insolvency Trustee for a Free Confidential Consultation today. During this no obligation meeting, they will review your entire financial history, listen to your challenges and seek to understand your goals. They can also identify opportunities for you to eliminate your debt for good.

You may quality for a Life-Changing Debt Solution, such as Bankruptcy or a Consumer Proposal, which can halt collections action and help you become debt free in as little as nine months from your initial filing. They may also be able to connect you with other helpful resources to improve your financial management skills and change your relationship with money.

No matter which direction you choose to go, a Licensed Insolvency Trustee can help you find the right back to a permanent financial fresh start.