(7 minute read)
Financial health is a combination of ongoing assessment & evaluation, the capacity to spend when you need or want to, to save when you need to, and the ability to make an income that supports the framework for the life you design. This post ties together three points: recognizing when you're over committed financially, how to tighten short-term savings, and how to bridge a gap in additional income generation when you need it.
Recuperating your financial well being is not unlike nursing your body back to health after over indulging. The healing process does not happen overnight and it takes conscious, active commitment to achieve and maintain the results you desire. Immunity in overspending is unto no one and assessing financial reality (especially après December) is unto everyone.
The cashmere mittens, holiday makeup palette, business class plane ticket, extra gifts for family and the organic juice cleanse subscription were all worth it. But how do we make up the difference in excess spending without excess income?
As of December 2015, the ratio in Canada of household debt relative to income is 163.7%. Meaning, households are 63.7% overspent. You've made $100, you've spent $164, now you're in debt and likely paying interest on it. Borrowing from your savings account is one thing, repaying the principle and interest on high interest credit card debt is another. Cringe. The USA and UK aren't far lagging behind in overspend.
IF THE FOLLOWING RING ANY BELLS, IT'S SAFE TO SAY YOU'RE OVER SPENT:
- You have refinanced your home or taken a second mortgage out to pay down debt.
- You are taking cash advances out on your credit cards to pay for every day expenditures (rent, food, gas).
- You are only making the minimum payments on your credit cards and loans.
- You are falling behind on your payments.
- You are borrowing from your registered savings accounts.
- Your savings are depleted.
- You're borrowing from family and friends.
- You are living paycheck to pay check.
The sooner you acknowledge the need to repay debt you've accumulated, the sooner you can commit to a strategy in paying it off. Become familiar with making sacrifices in the short term.
This will help you better prepare your spending habits for the long term and help you repay short-term debt. Below are a few short-term strategies to help you scale back on your spending and speed up retiring your debt.
SHORT TERM SAVING STRATEGIES
Dine at home and brew your own coffee. Pack a lunch and bring a to-go mug of whatever your morning poison with you as you head out for your workday – instead of spending $15 combined on both. Making your own meals will also likely end up unintentionally shedding a few pounds (not that that is the intention). You know what you're eating, can control portions, and I'm sure you won't be cooking with MSG or hidden preservatives. The power to control these variables is in your hands – and save money in the process! Double win.
Now that you're not spending $25/week on coffee and $50/week on eating out, you've gone ahead and saved yourself $75/week and $300/month.
Cut your grocery bill by 10%. You're eating at home more often and no, you don't have to kick up your spending. Shop smarter. You normally spend $500/month on groceries. Shaving off 10% of that $500 is another $50 saved. Your total savings is now $350/month just from eating at home and shopping smarter.
Scale back socializing in public. Spend time at friends and family's homes and have them over to yours vs. going out. Remove yourself from the opportunity to spend money you don't have when you are trying to repay debt.
Get rid of your cable, buy an Apple TV and invest in Netflix. For a one-time payment of $99 (Apple TV) and a whopping $8/month for a Netflix subscription, the world is your oyster. You've now saved (likely) between $30-60/month as a result of getting rid of your cable. You really can't get kick the habit of 101 channels should you wish them? Shop around to other providers and choose only the channels you need. Many providers offer a buffet style package to choose where you can hand pick single channels to add to your package.
Shop your bills. I hope you're not locked into a mobile contract in this day and age. It's 2016, for crying out loud! Even if you are in a contract with your mobile carrier, paying out the contract and paying off your phone could be a better financial decision in the long run if you're significantly cutting your bill.
Exhibit A: In 2013 I was a loyal Telus customer for 12 years (and technically still am). I bought out my contract with Telus, paid for my phone in full, and traded my $120/month bill for a $63/month bill with Koodo, who is actually owned by Telus. It took me 10 months for the difference to balance out payment-wise (paying off my Telus contract I paid out and morphing into my cut in half mobile bill). Worth it in the long run: yes, and every penny counts.
PART-TIME INCOME GENERATING STRATEGIES
The time has come to pimp yourself out and offer the world your skills in addition to your regular “40 hour work week”. You can easily multitask during evening and weekend hours and do a little extra work. Present day, there are endless opportunities at the reach of one's fingertips without getting off one's ass (or computer). Literally plagiarizing Fiverr's about: “Fiverr is a global online marketplace offering tasks and services, beginning at a cost of $5 per job performed, from which it gets its name. The site is primarily used by freelancers who use Fiverr to offer services to customers worldwide.”
This, my friends, is an opportunity for you to put your services out there, do some portfolio building and get paid. You're making money, gaining valuable experience, and upgrading yourself to the next level of entrepreneurship or advancement within the organization you belong to. Skills to shop out on Fiverr range widely including everything from graphic & web design, to business planning, to legal services.
Serving and retail. Neither should ever be below anyone. My first year in the financial services industry as a licensed broker was great. My compensation model moved from being paid a flat salary to a nominal base plus percentage compensation (based on my performance). Little did a fat performance-based income 2007's bull market know, that come 2008, the market (and consequently my income) would swing significantly for the negative volatility? At that time, I worked as a broker during the day (6am-4pm), and served during the evening (6pm-10pm) 3-4 nights/week. This only lasted 4 months, but it definitely bridged the gap between the market's uncertainty (and my income) until things stabilized again.
The additional pro to serving or retail – you're socializing in public while you're making money. Rather than holing up at home while you're to be saving, get out and make some money while building new relationships. Your brain will thank you for the change in pace. Should you just want to get out of the house when you're in saving mode though not make money, choose volunteer work.
Commission sales. Any position your income is based on commission, the sky is the limit. Get an evening job doing telemarketing or surveying online. If you are paid on selling subscriptions, completing survey's, or whatever have you, the harder you work they more you'll make. These companies too, often allow you to choose how many hours and when you want to work.
DON'T GET CARRIED AWAY
The moral of the story is, check your financial situation ongoing, plan for extraordinary expenses when you know they're bound to arrive; Christmas, vacations, weddings. When you can't plan or you do get a bit carried away, quickly devise a solid strategy to get yourself back on track and in the green.
There is more integrity in picking up the slack to pay down debt by cutting your spending or cranking up your income than there is wading in debt. Be proud you have the ability, strength, and capacity to carry out these strategies and get back to where you want to be.
The above are by no mean's exhaustive in short term saving strategies nor in recognizing exactly where you're overspent, a budget breakdown and assessment is required in order to tackle that. A general awareness of your reality and your options is what I hope to have shed some light on.
On a debt, set yourself a savings target and reward yourself once you've hit it. It's easier to continue on the path to victory with small (within reason and within budget) rewards along the way. I hear that organic cold pressed juice subscription calling again . . . .