Personal Finance

Creating Financial Stability

Creating Financial Stability (2)

Recently I wrote about starting over from scratch… and doing it with significant debt!  I do not in any way shape or form suggest that I am an expert at this… but I do want to share what I have been doing.  My financial advisor and my Trustee, think I am doing a great job 🙂

“Financial health is re-stored in two ways – first by doing the inner work of changing how you think and feel about money and then by doing the outerwork of practical money management.” – Marianne Williamson

Step 1 – Spending Log

What have you been spending money on for the last 3 months?
Present: Write down everything you spend for the next 2 weeks, yes it is a pain in the butt! But that is the point, connecting your brain and your habits together, but actually writing them down.

Past: Go through all your bank statements and put everything into categories, then do some adding!  I have used Mint.com for some time, so it was very easy for me.  I did an audit to ensure everything was categorized correctly and quickly reviewed accounts/expenses that were not listed. I had to do this during the Consumer Proposal process but I was still living with my ex, so things are totally different now.

This is  an excellent practice to start the whole, gets your mind into the game. I review every month to ensure things are getting categorized in Mint properly.

Step 2 – Create a budget

Look at what you have been spending in each category, decide if you can lower the spending.  Start with just a few categories to get you started.  Once you have done it for 5-6 months, you can review,  you can also make the decision to eliminate the entire category, I did this with cable tv.  There are some areas that you can not change, like your mortgage, and some areas that you might be able to lower, like your food and utilities.  Don’t forget to keep a small entertainment budget, you do need to enjoy life a little.  I track and budget using Mint.com.  I recently set to change my spending in a few categories, like restaurants and groceries, ie less junk food!  better for my budget and better for my health!

  • Home {mortgage/rent, furniture, appliances, maintenance & improvement}
  • Transportation {insurance, gas, repairs, and any payments}
  • Food {groceries and eating out}
  • Medical {insurance, copays, and prescriptions}
  • Utilities {gas, electric, water, cable, internet, and phone}
  • Personal Care {toiletries, hair, makeup, clothes, etc}
  • Gifts {Christmas, birthday, and cards}
  • Other {pets, kids, entertainment, hobbies, and miscellaneous household items}

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Step 3 – Emergency Fund

Even if you can only add one dollar per week, start the emergency fund.  I recommend having a bank account not attached to a debt card(too easy to “borrow” from then) but still easily accessible within 24 hours when needed.  Minimum amount to start with $1000. Then work up to 3 months worth of rent/mortgage and utilities, this is a barebones “keep a roof over our heads” amount for me this is $4500. After that 3 months of all expenses, this would be everything in your monthly budget for me this is $6000.  Currently I am sitting at 1 months in quick access savings, another 2 months in mid level access, 24-48 hour access.

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Step 4 – Create a plan eliminating the debt

Your plan might not include a financial advisor or a trustee, but you need to decide.  Do some research!  I recommend the snowball plan, this is where you pay your lowest bill first while making minimum pays on all the others. Once the first one is payed you add the amount of that you were paying to the first one to the second one and continue paying until the second one is complete.  Then move on to the next and so on until they are paid.  You need at least one credit card for your credit score, but I do recommend that during this payment plan you freeze the cards (yes literally freeze them). For the first 6 months of recovery, I did not have a credit card.

My biggest change in my debt was going through the Consumer proposal process, this cut my debt to about 30% consumer debt and I had some additional personal loans.

Step 5 – Savings, Retirement fund & InvestmentsCreating Financial Stability

 Once you have your first $1000 in your emergency fund, it is time to start thinking about long term savings and or RRSP of some kind.  It is nice we have a job that pays into a pension, mutual fund or RRSP of some kind, that just doubles up what you can plan.  This is something you are really looking at from a long term prospective and that is a “can’t touch” protected space(or a lot of trouble to get to).  I started 2 things when I was about 6 months in, 1) Canada Savings bonds directly paid from my pay cheque and 2) automatic savings/RRSP payments on pay days.

Canada Savings Bonds are low interest but a super safe investment, my employer makes it easy to pay right off my pay cheque, so I do not even notice it.  I started with $100 a per cheque.

With my bank I set up automatic payments for my pay days, that go into my savings and into my RRSP, this is $50 each.  Recently started a new savings account for a special trip that my significant other and I are planning for roughly 3 years from now.  We are doing a special savings plan for this that I will write about in another article, stay-tuned.  I have a long ways to go to hit my limit on my RRSP, so I will keep adding to that. Next step would be invest in a mutual fund that would be a higher return.

Start small!! if $10 is all you can do, do IT!! and slowly increase as you can.

Step 6 – Repeat and Increase

Keep going until everything is paid, until you are comfortable living within a budget (so you break the cycle and don’t go back again) and start investing.   I am always up for a challenge, so I am going to be increasing my monthly automatic payments to savings/RRSP.  And I am going to be experimenting with different ways to work within my budget, things like a 30 day “buy nothing” freeze or a work on living on 50% that would be a big challenge.

All while continuing to have a fun and amazing life!   Stay with me on the journey, sign up to the newsletter to get updates.

To help you get started… here is a printable for you! Download Here: eliminate debt

Here is a Black and White version that is easier to print : Download here: eliminate debt BW

Another Printable to help you on your path! DebtWorksheet BW DebtWorksheet

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