Sometimes, debt is just a matter of bad luck due to illness, an accident, job loss, or another unexpected event. But it can often be traced back to personal habits.
If you’ve already gone through bankruptcy, a consumer proposal, or used another strategy to get out of debt and set your finances straight, the next step is to implement an action plan to avoid falling back into the vicious cycle of debt.
We’re here to share a few tips, but nothing beats a personalized meeting with an expert whose goal is to help you develop better habits.
Step one: create a realistic budget
Before diving into tips and tricks, you’ll need a clear overview of your finances. That’s usually where things get murky.
Most budget goals fail because they’re too optimistic. You might say to yourself, “This month, I’m only going to spend $300 on groceries,” whereas you’ve been spending $450 for the last few months. The result? You won’t make it past week one.
To create a realistic budget…
Base yourself on what you actually spend, not what you want to be spending.
- Look at your last three bank statements and make note of everything: groceries, cafés, lunches, and small expenses that tend to slip through the cracks.
- Include a buffer for unexpected expenses. Putting even 50$ per month aside is better than nothing. If you don’t, your budget will crumble at the first sign of trouble – car repair, birthday gift – and won’t recover.
- Be honest with yourself about your habits. If you’ve been going out to eat twice a week for the past year, don’t plan to spend $0 on restaurants this month. Cut down to once a week instead.
Once you know where your money is going, you can start making informed choices. Does your budget already have some savings baked in? Great. You may be able to increase the amount you save if you modify your habits. Is your budget too tight for savings right now? Move on to the next step.
Free up space without sacrificing too much
With your budget in hand, you can identify opportunities for optimization that will strengthen your personal finances. The goal isn’t to live like a monk – it’s to find a balance that will allow you to save money and cover unexpected expenses without restricting your lifestyle too much.
Audit your subscriptions
Those little $9.99 monthly expenses can pile up like lone socks in a drawer. Netflix, Spotify, gym, apps you’ve forgotten about…
Here’s a gentle approach: instead of cancelling everything at once, pause some of your subscriptions. That will help you understand which ones you actually miss. You could even resubscribe on a one-off basis – just long enough to binge a show you wanted to watch. Who said we need to keep all of our services active at the same time?
Don’t stop “going out” – just rethink it
Going out and having fun is important for morale. But you can redefine what it means to do so. Having 5 à 7 at a friend’s house can be just as fun as a restaurant. A movie night at home with some popcorn can be even more fun than heading to the theatre.
The 24-hour antidote to impulsive behaviour
Here’s a strategy that’s simple but highly effective: wait 24 hours before making any non-urgent purchase above $50.
This waiting period gives your emotions time to cool off and lets logic take the wheel. You’d be surprised how many purchases lose their shine after a good night’s sleep.
Negotiate with service providers
So many people avoid negotiating their bills, but plenty of companies would rather give you a better deal than lose you as a customer.
Here’s how: call your phone, internet, or insurance provider and tell them the truth. “I want to continue doing business with you, but I need to cut down on my spending. Do you have any cheaper plans or promotions available?”
Learn to identify “false economies”
As you explore the world of savings, beware of “deals” that can actually cost you more in the long term.
Free phones
When a provider offers you a “free” phone, it’s never actually free. The cost is simply integrated into your monthly plan, often over a 24- or 36-month period. Do the math: sometimes, buying a used phone and signing up for a lower-cost plan will be the cheaper option.
Buying in bulk
Buying in bulk can be cost-effective, but only if you’re really going to use everything you buy. Getting three jars of peanut butter on sale is a great idea if your family eats tons of the stuff. If not, it’s money wasted.
Rewards credit cards
These cards can earn you benefits, but only if you pay them off in full every month. If you pay interest, the rewards will never outweigh the actual cost of having the card.
Questions to ask yourself before you lock in a “deal”:
- Do I really need this?
- Am I actually saving, or am I spending money I wasn’t really prepared to spend?
Finally, create systems that help you along
Here are a few ideas to help you stay disciplined!
Set up automatic payments
Once you’ve freed up some money, the next step is to put your finances on autopilot. The idea is to reduce the number of decisions you have to make each month.
Schedule transfers to a savings account that will be automatically deposited the day after you get paid. That way, you’ll never forget to do it, with the added bonus of avoiding the temptation to spend it elsewhere.
Visualize your goals – literally
Seeing your progress tick upwards every day is super motivating. It might be a paper on the fridge that tracks your goals or an accountability app on your phone. The important thing is to see your efforts paying off in real time. It’ll really help when you feel like giving up.
The most important piece of advice: trust the experts
Sometimes, seeing things more clearly is simply a matter of getting a sympathetic perspective from a third party. The experts at GInsberg Gingras can help you optimize your budget, identify savings strategies, and change your habits to avoid falling into debt.
Want to connect with someone who gets it? Book a free appointment.