Most people who have financial issues do not have a budget and this is a common theme that comes up during the credit counselling sessions every bankrupt has to attend during their bankruptcy.
Making a budget is perceived as a difficult and time consuming task. Initially it can be but once you get a system in place it can run very efficiently and work really well to let you know when you are in trouble.
A couple I met in London wanted to file a consumer proposal with us. We had requested they bring in proof of income and a list of their monthly expenses. They dutifully provided their paystubs so I could confirm their income and when we started on the expenses list they quickly became confused and admitted that they really didn’t know how to do a budget.
Here are some of the problems we had confirming numbers:
- Rent was easy to give a number for, but utilities were more difficult. The monthly bills fluctuate up and down, and while we pay them most of us don’t really know how much we are spending on hydro, water, phone and other utility costs.
- While everyone might know how much gas costs at the station or how much it costs right now to fill up a tank, surprisingly many don’t know how much they are spending on gas in total. And while we might know how much our car payment is, we might not know how much we are spending on repairs. So how can we give one number per month?
- You might think you don’t spend much on restaurant costs, but do you buy pizzas on the way home or purchase a coffee each day? Then your food costs might be higher than you think.
- And as for insurance costs for vehicles or your home, life insurance or other annual type expenditures we often don’t really know how much of our paycheque is consumed by the need to save for these expenses.
The end result is often a reliance on credit to pay bills that come up when we are short. Is it any wonder so many Ontarians end up with more debt than they can handle?
There are a lot of tools on the internet that can help you budget. The Hoyes Michalos website even has an interactive budgeting spreadsheet you can use.
If you don’t like fancy spreadsheets, try a different approach. Doug Hoyes recommends that you pay your bills as you go:
No matter what approach you use, the first step is to track what you are spending. Get receipts for everything you spend money on, write them down for each day, then total them at the end of the month. Do this for a few months and see what the averages are. Can you afford them? If not, look for ways to cut back. And if debt is the problem, consider talking with a licensed bankruptcy trustee about your options to eliminate debt so you can balance your budget.