Do You Know What Crisis You are Actually Preparing For? Panic buying vs. Emergency Preparedness - and Toilet Paper too!
It doesn’t matter where we live, chances are that sooner or later we’ll face some sort of a disaster or crisis that will leave us without power, water, or access to buy more. It could be a natural disaster like a snow storm, flood, tornado, or earthquake. Or it could be a health crisis like we are facing with a corona - virus that could require us to stay put in our warm and comfy homes for a few days or even weeks. The world can be a crazy place, but it's important to continue to think logically at these times. We can and should be prepared, but does it make sense to prepare for the end of the world vs prepare for the crisis we know is happening. Having enough food, medication, and basic supplies to last a few weeks or a month is probably a great plan and makes sense for everybody. Does breaking the bank or credit cards, so you have enough of something to last 6 months or more really make sense? Toilet Paper - enough said.
Our first step in emergency preparedness should be to find out what type of emergency situation we actually need to get ready for. If you live in Florida or the South East US coast, you should probably prepare for hurricane season, but in landlocked Alberta, preparing for a Hurricane does not really make much sense. What does, is preparing for what is currently happening with good information and facts. Here are a few from canada.gc.ca. And of course my comments!
In the event of a flu pandemic Healthcare services provided by doctors, nurses and hospitals may be reduced or unavailable, because of high demand.
Cheapo Jo - who may run out of toilet paper.
If you're like me, you work hard to earn a living. So it only makes sense to make sure you spend the money you bring home wisely. That’s where a household budget comes in. It’s a good tool to see at a glance what you have coming in, what’s going out (and what you're actually paying for or NOT PAYING FOR) and most importantly, if there’s anything left at the end of the month.
Before I dive into exactly what a budget can do for you, let’s consider for a minute, what happens if you're not tracking income and expenses. Let's say, you are spending $400 (or just $14 a day) more than you're making in a given month (or two, or three or 12). That can add up to over $5200 a year and can put you into some pretty hot water with credit cards and other debt. Most people also spend a lot more than they'd like to believe or admit on things like eating out, going to the convenience store, online shopping and even wasted groceries.
Having a budget gives us more control over where we want to really spend our hard earned money. Maybe that’s a fancy dinner and a movie, but maybe it isn’t. Maybe it's new shoes (my personal spending splurge) or a vacation (my other spending splurge), but maybe it's not. The point is - wouldn’t it just be nice to actually have a choice?
A Budget Tracks Where Your Money Is Really Going
A budget simply tracks your money, and is a financial roadmap. You record where the money comes from each month (your income) and then write out everything you spend it on, (YES I SAID EVERYTHING) starting with your regular monthly bills like mortgage or rent, car payments, utility bills etc. What’s left after all the actual household bills are paid is your discretionary income or spending money! For most people just this simple task will be a real eye opener! But here's the catch -you have to count everything, including what you're spending on your credit cards. Most people look at their spending and do not include what they charged on the credit card, which can cause a real snowball effect financially.
A Budget Identify's Things You Waste Money On
Having it all in front of you in black and white helps you identify things you’re wasting your money on, and sometimes allows you to see where you can spend or save for things that you really value - your lifestyle goals and dreams.
It makes you reconsider if you really want to spend that $14 a day on random stuff you probably don't need. Or how about that yearly subscription to something you no longer use? When you go through your expenses and reevaluate if this is REALLY how you want to spend your paycheck, it makes you think about what you are giving up by not tracking.
Budgeting Allows You To Be Proactive About Savings
Saving money without a budget is like dieting without willpower. We go in with the best of intentions at the beginning of the month, but then somehow with just one tiny bit at a time, there isn’t anything left. And then we find ourself frustrated, confused and even embarrassed that we are in the same place we started.
A budget gives you some willpower and a chance to be proactive rather than reactive. If you can set aside some money for savings at the beginning of the month, even if it’s just $150 a month - which is just $5 less spending a day. Put it in the budget as a regular expense, just like you do with your other urgent bills. If you need to, open a separate savings account so you’re not tempted to spend it or have it automatically invested in a Tax Free Savings account. If you could do that each month, just imagine what you could do with the that extra $1800 you would have each year. Yay, Vacation!
But most importantly, your budget will keep you on track and help you make sure you’re not spending more than you’re actually making - and that is truly the key to getting ahead.
It's time to think different and Plan Different - Good Luck Friends.
Cheapo Jo -who's still on a budget!
Today, it’s common to hear someone say they are doing a good job managing their cash flow or budget as long as they never let their chequing account balance drop below a certain level. I refer to this as False Big Bank Balance syndrome! False big bank balance people keep a minimum in their chequing account at all times for emergencies and pride themselves on never going below that level. I am not suggesting there is really anything wrong with this strategy, as long as we all recognize it for what it is. A spending strategy, not a savings strategy. Just to be clear, there is a significant difference between people who ACTUALLY have a big bank balance and those who have a False big bank balance. For starters, ACTUAL big bank balance people, have both a large chequing balance together with savings or emergency funds and no outstanding credit card or consumer debts. Often their account balance is actually growing each month. That would be a saving strategy!
A spending strategy on the other hand, is where you keep spending on non essential things until you hit your limit or till your account hits $0. The problem with the False Big bank balance syndrome, is that people have this false feeling of being financially better off than someone who actually hits a $0 balance each month. But in reality, if you don’t have an emergency fund in another account or have credit card debt, and are spending to the your minimum balance, you are potentially worse off financially than those that hit $0 each month.
Here are 3 examples of why this thinking is hurting Canadians.
1) If you have credit card debts of $10,000 @ 19% interest and you keep a minimum chequing account balance of $10,000 @ 0.25% you are actually worse off than your friend that has $0 credit card balance and $0 in the bank. You both technically have $0 saved, but you also pay almost 19% interest each month. That's just bad math my friends!
2) If you have $10,000 in your chequing earning 0% interest and your friend has $10,000 in savings they are potentially earning 1-3% more in interest ($10-$30 per month). This is not helping you get ahead!.
3) If you keep $10,000 in your chequing account and don’t have an emergency fund, and your friend has $10,000 in an emergency fund and $0 in their chequing account, they typically feel more pain about having no money left over each month, then your you do. But, who is more likely to try to start saving or changing their spending? Probably them!
My point here is not to judge, but educate and help! When I see clients who are NOT being honest with themselves about their financial situation and spending habits, it's not hard to see why even with a high income they are still feeling so financially stuck!
FINANCIAL THINGS PEOPLE SAY THAT HURT THEMSELVES AND OTHERS
LIE #1 - We pay off our credit card each month in full!
Have you ever noticed how many people use credit cards on a daily basis? In today’s digital age, it is almost impossible to not have some form of credit card. You need a credit card for most subscription services and to book or buy anything online. Have you ever tried to rent a car without a credit card? What about when you get a new cell phone, hook up your internet or need basic utilities -yep you need a credit card.
With all this usage, it always amazes me when I hear a room full of people claim they always pay off their credit cards in full each month! Really? Everyone? Always? Come on people, there is no way I only know people that are financial rockstars. Even I can admit that I have had months when I have carried a credit card balance. Not every month and not all the time, but life happens to all of us. Don’t get me wrong, I know there are people out there that actually do pay off their credit cards each month and use them for points, but they are definitely not the majority.
The truth is, Canadians have reached the “significant milestone” of having outstanding credit card balances exceeding $100 billion. This has come at a huge cost both financially and mentally for many people. In a society that is working so hard to improve the stigma around mental health. Why are we still not addressing the role that financial health is having on people's mental and emotional well being? The amount of stress, fear and shame that people already have around their debt is overwhelming. Then you add the social pressures of feeling like you are the only one that does not have it all together and you end up with the perfect storm for all the financial lies we tell ourselves and others.
So, here’s some advice. Next time you’re in a room full of self proclaimed financial rockstars. Instead of feeling bad or joining in on the I pay off all my debts conversations, maybe it's best to stay silent and sarcastically think - I sure hope someday I get to meet someone who actually contributed to this mysterious $100 billion credit card debt!
Signed Cheapo Jo - who actually has had a credit balance!
Jodie Stauffer, CFP is a wife, mother and Certified Financial Planner. "Being CHEAP has always been in my DNA. But let me tell you, juggling my business, household finances, financial goals with the needs or more accurately WANTS of my daughters, while staying on a budget has not always been smooth sailing." Cheap by Choice is about finding what's