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budgeting tips

 

Life is full of expenses: new car, mortgage, and schooling. And how do you afford this? Borrow, borrow, borrow – right? Well, maybe not always. If you have created a budget you know exactly what you have coming in and going out each month. You’ve set aside a little extra for those unplanned expenses and retirement. If you haven’t created a budget you likely don’t have a very good understanding of your finances… this is the behaviour that leads to overextending and consumer debt.

 

How Do You Get Back On Track?

Refinancing, although it means borrowing money against your home is a great way to alleviate the pressure of monthly consumer bills, free up cash, and start fresh. But don’t stop there… once your refinance is complete you need to plan. You need to ensure that you’re using your excess cash in a positive manner. Let’s take a look at an example:

Paul and Lisa currently own a home with a value of $325,000. They finance two vehicles (a total debt of $29,900, with a combined payment of $684). They have a total credit card debt load of $24,650, which carries a monthly payment of $739.50. Their mortgage balance is currently $199,426 with a monthly payment of $973.70. Each month they have a total debt payment obligation of $2397.20.

By adding this debt onto their mortgage, the mortgage increased to $253,976 and carries a monthly payment of $1,118.84 (same amortization: 25 years). This gave Paul and Lisa a total monthly savings of $1,278.36.

If this savings were split three ways (1/3 to savings, 1/3 added back to the mortgage, 1/3 to enjoy life) a significant savings is seen. By adding back a mere third of the savings to their mortgage Paul and Lisa are able to save a total of $29,186.70 in interest charges… and the best part is they will be mortgage free 8 years and 4 months earlier!

By refinancing not only are Paul and Lisa going to be mortgage free sooner, but they’ve also created a positive cash flow to budget from. Their goal now is to stay on budget.

Tips For Staying On Budget:

-  Focus on Saving. With a budget in place you know how much you can set aside each month for savings. Have this money direct  deposited into a separate bank account. If it’s out of sight you’ll be less tempted to spend it.

-  Use Cash. It’s easier to track how much money you’re spending when you have to physically take cash out of your wallet. It’s much easier to turn away from a new pair of shoes when it will take up the last $90 in your wallet.

-  Share the Responsibility. Make sure that your partner or spouse is on the same plan as you. It’s easier to budget together when you both have the same goals in mind.

-  Keep your receipts. Even after you’ve made a budget, keep your receipts. This makes tracking your finances easier, and you’ll be less likely to spend money when you see the receipts adding up.

-  Be Flexible. Unforeseen expenses do pop up, but don’t give up on your budget just because this causes you to go over.

 

If you need budgeting assistance, give us a call... we'd be happy to help.

 

 

 

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