My interest in personal finance evolved in a sneaky and surprising way. I started university at 16 years of age, allowing me a Visa card in my pocket before I was 17 (aren’t student loans a wonderful thing?). For whatever reason, I didn’t learn to handle money appropriately, my parents didn’t really discuss budgets, savings plans or financial goals with me. So even though I have been working since I was 12, with zero expenses for the formative years of my employed-life; the only things I saved for were personal spending money to use on family vacations and eventually a small down payment on a tiny car.
The nasty thing about a Visa card by 17 is that it inevitably means a portfolio of personally-engraved invitations to obtain a series of retail cards before the age of 18 and, in my case, a poorly-hidden stack of frightening collection letters by 21. At 21, $5000 worth of debt to try and keep up with minimum payments on is just brutal, and obviously leads to sleepless nights, secrets, bad decisions, and a total lack of confidence in the future.
Fast forward thirteen years, a few more mistakes, a few more university degrees, and a firm choice that I can do better at this. Being married and having a baby on the way is strong motivation to get things in place to do whatever we can to ensure that our child never has those sleepless nights.
My husband and I have taken to watching episodes of Til Debt do us Part online. If you’ve never seen it (and have an interest in finance and relationships), it’s a great show – really no nonsense, forces people to address their spending habits, work as a team, stop being slaves to their consumer debt and set financial goals. Every couple, regardless of whether they owe $5000 or $500, 000 ends up with a workable plan that resolves their debt issues in less than five years. Amazing, inspiring, and real.
Personally, we are in a situation where we do not have massive consumer debt, so nothing is compounding interest; our debt load is limited to a few personal loans and some taxes to Revenue Canada that my husband had in place before our wedding. Our challenge is that
while we’re not at all sinking deeper, we aren’t really getting any further ahead either.
As previously mentioned, there is a massive game-changer (in the form of a baby) expected to arrive in about five months. As you know, this has lead to an examination of personal spending habits (easily done by printing out three months of online bank statements and tracking spending patterns) and the subsequent realization that my Starbucks and lunches out during the work week are a serious issue. In the last 14 days, I have gone from purchasing a beverage from Starbucks every day to twice a week, and from purchasing lunch at a fast-food place every work day to two out of the last six days. With this amount of change, I have already redirected over $2600 per year away from disposable, forgettable purchase into something else. But where should that extra cash go?
Which brings us to this week. With major challenges in variable spending identified, where do we go from here? (and I suppose, where does this blog go from here?) Internet searches with terms such as “ideal budget”, “spending plan” and the like come up pretty sparse and often contradict each other depending on who the source is that is sponsoring the advice.
I finally get it: Earn More, Spend Less… but now what?
A quick scan reveals the following average budget recommendations:
- housing: 30% of income
- daily spending: 25% of income
- bills/debt repayment: 18% of income
- charitable donations: 10% of income
- short-term savings/emergency fund: 10% of income
- long-term savings: 8% of income
My immediate questions are:
- What about vacations, furniture, cars… where do you save for those from?
- What is the best product to use when saving for short-term and long term goals?
I find it confusing and I’m confident that i’m not the only one. My goal with this part of the blog is to work through these effort to get ahead, share what works, and spread the news of what doesn’t. Every week i’ll reflect upon the baby-steps forward (or backward) that we have encountered, and what habit we’re introducing into our budgeting next.
This week, the goal is to grocery shop once for the week. Research strongly suggests that this technique saves in the long run, meaning less likelihood of spontaneous purchases of giant bags of potato chips, $1.00/can soda, lunches and dinners out, etc. When we get home tonight we will plan out our meals for the week, create a shopping list, and make one trip to Safeway that will last us until next Friday. Wish us luck!