Have you ever reached that time of the month when you pay your bills, only to find you’re totally broke?
You’re not alone.
According to a Manulife Bank study, nearly two of every five homeowners have been short on cash in the last year, meaning they couldn’t meet their expenses. One in ten even said this shortage happens a few times every year.
Contributing to the problem are mortgage and debt loads. The average mortgage debt is up $6,000 from last fall to $181,000. Because rates are near their all-time low—near 2.5% for a 5-year fixed—homeowners may be caught off-guard if interest rates begin to rise. And it doesn’t help that real estate in Vancouver and real estate in Toronto are both selling for more than ever, meaning larger mortgages to manage.
If you’re saddled with a heap of monthly expenses, it can be difficult to find places to cut back. But with some small changes, you should be able to save a few bucks here and there that can really add up.
Make a (real) budget
While this may seem obvious, writing down all of your expenses and income so you have a visualization of your input and output goes a long, long way. Without a visual budget, you may not know exactly where your money’s going.
To start, print off the last few months’ bank statements and detail total costs for different categories of monthly expenses, including
- Mortgage payments
- Bill payments
- Credit card and loan payments
- Eating out
Then, side-by-side with what you’re actually spending, write in what you’d like to spend. Some of the categories won’t change, like mortgage payments and bill payments, but entertainment and eating out should be reduced. If you’re not able to meet all your expenses every month, your non-mandatory costs should be reduced first, before you look at other options.
For example, if you go to the movies four times a month, scratch that expense and watch movies on Netflix. These small sacrifices can add up quickly and make a real difference.
Consolidate debt and switch to low-interest credit cards
You may have multiple sources of consumer debt, meaning student loans, lines of credit, secured or unsecured loans, and credit cards. If possible, you should be pushing for all of these to have the lowest interest rates available.
For example, there are balance transfer cards that have 0% (or low) interest for the first year or two, allowing you to pay down your balance faster.
You can also speak with your financial advisor about your best options in consolidating your debt onto lines and cards that have the lowest rates. If you have multiple products with your bank, especially your mortgage, they may be willing to increase your line of credit so you can throw the balance of a high-interest credit card on there to more easily pay it down. (It doesn’t hurt to ask!)
Cut back on daily expenses
Monthly expenses are the important ones. If you miss bill or credit card payments, your credit score can take a serious hit. The daily expenses you think about less are the ones you should be looking to cut out.
For example, I bought my lunch every day for the last year. I thought, in my head, that I was spending about the same amount, give or take a few bucks, in eating out every day as opposed to packing a lunch. Once I wrote it down and saw the difference, I immediately switched. I’m saving at least $200 each month, and that’s only one daily change.
Look at all daily or on-the-go expenses you can reduce, with easy alternatives:
- Gas money: Try walking or taking public transit
- Starbucks: Buy tea for the office and drink that instead
- Eating out: Pack your lunch, or buy frozen lunches and keep them at work
- Weekend drinks: Rather than going out, buy and make drinks at home with friends (or don’t drink at all and try something with no cost!)
These choices can be tough
In order to manage your finances, some of these decisions can be difficult to make. Starbucks or drinks or any expense can feel like part of your routine, and routines are hard to break.
Without getting overwhelmed, keep some perspective: your expenses have to be paid. While you may mourn your morning latté, it could save you from some financial heartbreak (and stress) later on. Be honest with yourself, land on your feet, and you’ll be better off for having had that conversation with yourself.
Unsplash: Fabian Blank