For most of us, budgeting isn’t a whole lot of fun—it can actually feel like a bit of a burden. However, the burden of debt is much heavier!
According to a Financial Consumer Agency of Canada (FCAC) survey, less than half of all Canadians live by a budget; perhaps that’s why many struggle with finances. (The average Canadian owes over $8,500 in non-mortgage debt.)So if you’re bucking the trend and doing some form of budgeting, kudos to you! But, if you’re budgeting and still finding it difficult to make ends meet, there are a few things you may want to consider.
Over the years, we’ve spoken with thousands upon thousands of people in dire situations when it comes to finances; I personally have spoken with hundreds. Here are the five most common budgeting mistakes we’ve seen:
1. Guesstimating Your Expenses
We all like to believe we have a pretty good idea on what we spend and where we spend it. So, rather than actually keeping track of expenses, we guesstimate. “Oh, I spend about $300 per month on groceries.” Sound familiar? The fact is, we tend to spend a lot more than we think we do. Sure, you stuck to your shopping list in order to buy only the necessities, but then you dropped ten more loonies on mints, gum, a Coke, and a candy bar for your kid in the checkout line. It all adds up, and it can leave you with less than you expected. To really get a grip on what you’re spending, try using our free expense tracker.
2. Planning Around Paycheques
Assuming you receive a bi-weekly paycheque, you may assign large expenses like your rent, mortgage payment or car payment based on your payday schedule. But this strategy might leave you struggling to cover your other not-so-big expenses, like groceries and gas, so to make ends meet you reach for the credit card to get by. Instead, consider dividing paycheques up to cover large expenses throughout the entire month and not just when they're due. Then the week(s) you don’t have a big bill to pay, set some extra money aside so that the following week involving a large expense doesn’t leave you short.
3. Not Starting an Emergency Fund
If this made you chuckle, you’re probably thinking, how can I set up an emergency fund when I can’t even pay my bills right now. I get that. But do whatever you can to set aside some cash. Keep a piggy bank—seriously, it adds up fast—or consider a round-up plan with your bank debit card. Round-ups, offered by many prominent banks, do just what they say; if you spend $4.50 on a 20-pack of Timbits, your statement reflects $5.00 while 50 cents goes into savings; drop $25.60 at Winners, and you’ll be charged a flat $26 with 40 cents going directly to your savings—you get the point. It seems insignificant (that’s what’s so great about it!) but it can really make a difference. Now, when something unexpected arises—car repair, medical bills, even something as “simple” as a birthday gift for a friend—you can dip into your personal emergency fund instead of using a credit card and paying all that interest.
4. Making Only Minimum Payments
First of all, if you’re making payments on time, high-five! You’re being responsible and keeping your credit score healthy. Unfortunately, paying the minimum doesn't do much to reduce your overall debt. Minimum payments mostly take care of interest, so very little of your money goes towards the overall balance. While it can be difficult to go above and beyond, it’s worth it in the long-run. Start by looking at the interest rates on each of your credit cards, and work on the one with the largest percentage first. (This is called the “avalanche method” of debt repayment; you can read more about it, and the “snowball method”, in our guide on How to Be Debt-Free.)
5. Not Working as a Team
If you have a spouse or partner, the two of you could be your own worst enemies. To stay on track, you both must agree to a budget and stick to it. Discussing your finances as a couple can get you on the same page, and prevent financial infidelity. (It may sound silly, but this is a real problem.) Working as a team, you can keep each other in check and support one another when things get tough. And always celebrate your wins together! Months of successful budgeting deserves a nice dinner or a bottle of wine; it’s okay to pat yourself on the back once in a while!
If you’re budgeting and still not getting by—or if you try these tips and still find yourself struggling—we can help. It’s not hard to get into a financial hole, but it is very difficult to get out of one. Credit Canada’s caring counsellors offer free support and advice, and may be able to set you up with a Debt Consolidation Program. Either way, know that you’re not alone and brighter days are ahead.