Part 2: Three simple tips to keep debt in check
November is Financial Literacy Month, a good time to take stock of your financial situation and work on ways to improve it. One big concern most people have is the level of debt they have and what they can do to keep it under control, and even get out of debt.
Patricia White, executive director of Credit Counselling Canada, suggests the following three techniques for keeping debt in check.
1. Track expenses
It all starts with tracking your expenses, says White. If you have a good understanding of where your money is going, then you have a better idea of where you can cut back. This is something anyone can and should do – whether you’re in debt or not. Here’s how to do it:
- Keep receipts – for everything. Always ask for a receipt if it isn’t offered, and if it’s a purchase for which a receipt is not available, record it on your phone in an expense tracking app or on a wallet-sized notepad.
- Keep receipts in the same place. This is crucial, otherwise they’ll inevitably get lost. White keeps all her grocery receipts on one magnet holder on her fridge.
- Keep or record bills – even the ones you pay online.
- Tally all those receipts and bills at the end of the week and the end of the month. This will give you an immediate picture of where your money is going and also how expenses can add up quickly over several weeks. This will show you what, if anything, you need to cut out.
It’s often the little things that throw expenses out of whack – it could be your morning double-double from Tim Hortons, your Friday ice cream cone, or the gym membership you’re not actually using.
White encourages sticking with this system. Even if you slip up and throw out a few receipts, don’t worry, she says. Just keep going.
2. Calculate your net worth
This is something White says many people have never done, but it’s extremely helpful in determining where you stand financially. What you do is compare how much you own with how much you owe. It’s that simple.
Make a list of everything you have, such as a savings account or pension, and if you own any assets, like a house or car, note what they would sell for. Then make a list of everything you owe, including any amounts owing on those assets. Do this on a monthly basis. Then ask yourself, “Am I progressing the way I should be progressing, or am I falling behind?” White says.
There are templates and tools that make this very easy to do, such as easyfinancial’s net worth calculator.
3. Talk about money
White can’t stress this point enough. “Budget,” like “diet,’ is a reviled word, but talking about financial challenges is a crucial step in getting control of them. Talk to your partner, your parents, your children. Don’t just ignore problems and hope they will go away. And if you’re concerned about anything to do with your finances, seek help from professionals who can help you get back on track.
Besides peace of mind, there are other benefits to keeping your debt level in check. White cites as an example a former client, a young single man with limited income who did not have good financial examples set for him. His goal was to buy and fix up a car for himself – but it seemed like an impossible goal, given his financial situation.
She took him through the steps of tracking his expenses and discussed a timeframe for him to achieve his goal. When the cost of the car was broken down into weekly or monthly amounts he could realistically save, White says, “the light bulb just went off in his mind.”
“He was like, ‘I can do this.’ He went from something that was totally inconceivable to completely doable.”