Will a Lack of Budgeting in the Summer Lead to Increased Debt Problems in the Fall?Oct 14, 2015
A recent Ipsos Reid/BDO Canada Limited poll revealed that nearly one-third of Canadians did not set a budget for the summer, 22 per cent of those who did exceeded their budgets, and almost one third of Canadians are carrying more debt now than they were before summer began. These are not encouraging figures. What does this really mean – for Canadians’ ability to pay their bills, meet their debt repayment obligations and accumulate savings?
The reality is that many individuals are not facing their own financial realities. It seems a foregone conclusion that debt problems will be around the corner for many. What can the average Canadian do to avoid financial trouble? The answer for most families is really not that complicated, but it takes will power, discipline and motivation. The time to act is now. First of all, it is critical to take a very thorough and objective review of your personal finances. This will necessitate preparation of a budget and living within that budget.
There are many places to find budgeting tools online. The Financial Consumer Agency of Canada (FCAC) website has some excellent budgeting resources. The first step is to prepare your budget. If you are unsure of how much money you are spending and where you are spending it, the best thing to do is to track your spending. That may sound like a lot of work, but it is actually quite simple. If you keep a number of different envelopes and use each one for a major expense category, it will simplify the process. Whether you pay by credit, debit or cash, you will need to keep every receipt and put each one into the appropriate envelope. You may be surprised to learn that you are spending up to $20 a week on coffee or $50 dollars a week on lunches. When you add it all up, you may be spending hundreds of dollars a month on eating out or entertainment! This may come as a shock to you, but you can quickly get back on track. Once you know where you are spending your money, take positive steps to control your spending. The other side of your budget is the money coming in – all of your sources of income. Unless you have the capacity to take on extra employment, this number will be static. Quite simply, if the outflow is more than the money coming in you need to make cuts to your budget to avoid debt trouble.
It’s tempting to consider borrowing more money as a viable solution when expenses exceed your income. Many Canadians have been relying on this solution, but that is always risky. While a recent survey revealed that most of the increased debt that Canadians have been accumulating is good debt (mortgages, investments and renovations), the good debt still has to be repaid. If you do not build debt repayment into your budget, your debt can quickly spiral out of control. What’s more is that even “good debt” can turn bad. If you borrow for investments and they drop in value then you are paying twice. Home renovations add little value to your house five years after they are done.
The best advice a Trustee like myself can give you is: don’t take on too much debt and don’t mortgage your future. Insolvencies in Canada are on the rise and a solid financial plan can keep you from becoming part of the statistics. Make a wise financial decision, prepare a budget that takes into account all of your financial responsibilities, such as household bills, savings goals and debt repayment. Then, do your very best to live within your budget.
Have you ever tracked your spending for a month? What was your biggest spending surprise? Join the conversation on social media. #BDOdebtrelief #CountMeInCA