By now, you should be all too familiar with how much you spent over the holidays. The time has come to execute your strategy for paying this debt off.
The RBC Post-Holiday Spending and Saving Insights Poll found that Atlantic Canadians spent $906 on average during the 2020 holiday season, a figure higher than the national average of $735. In this region, 27 per cent of survey respondents reported overspending.
So the question is: can you cash-flow your way out of this?
Do you need to undergo debt restructuring or consolidate your debt?
Or is it really just a matter of tackling your habits?
The only way to know is to create a detailed budget. This takes some work, admits David Moffatt, Debt Relief Specialist and Director, 4 Pillars Consulting Halifax. He recommends going over the last 12 months of your bank statements first.
“It’s really important to understand where your ‘leaks’ are, where you’re hemorrhaging money, what you’ve overspent on,” he says.
For most people, holiday spending is pretty impulsive. Moffatt is actually more concerned about the other categories in your budget that you might not be paying enough attention to.
“The big habits people have that oftentimes put them over the edge is eating out habits, coffee addiction habits and groceries,” he says. “People spend a ridiculous amount of money on groceries, and the cost isn’t decreasing either.”
One of the exercises Moffatt works on with clients is to identify a habit or category of spending they believe they overspend on and to really figure out why. Getting a handle on these expenses allows you to find where money can be saved. If you stop buying lunches out but overspend on groceries, only to end up throwing them out because you don’t really know how to cook, you’re not making any progress.
“The solution here isn’t to be perfect. It’s just coming up with some compromises that save money. You’re not going to be entirely perfect, but you’ll see incremental improvement every single month,” he says.
If you can budget your way out of your debt, that’s ideal. Just be really honest with yourself and make sure you inform other people of your plans. Write down your goals and your budget. Tell your friends and family that you’re trying to save money, so everyone is on the same page. “As humans we get influenced very often by others,” says Moffatt. “If friends and family aren’t aware of what you’re trying to accomplish, they won’t know they’re being unhelpful when, for example, they suggest going out for lunch.”
If the numbers don’t work and budgeting your way back isn’t an option, it’s time to reach out to a professional. “Now what level of professional you reach out to really depends on the circumstances,” Moffatt explains. “If you go to your bank for help, they’re going to try to lend you more money. If you go see a trustee, they’re going to say go bankrupt or file a proposal. If you go see a financial advisor, it will be, ‘Okay, so we’re paying off debt, let’s invest some money at the same time.’ It becomes really hard to understand what options are truly available for people as most professionals only cover options that are specific to their role. There is typically always some sort of bias or conflict of interest in the advice provided.”
That’s where consulting firms like 4 Pillars really shine. You can sit down with a friendly, unbiased professional and truly understand what options are available to you. They’ll advise whether you might benefit from selling assets or considering consolidation, or you should be looking at more invasive options like credit counselling, informal settlements, consumer proposals or bankruptcies. “We identify which solution actually solves the problem that the individual is facing based on their situation,” he says.
“One thing I’m always fascinated by is that Atlantic Canadians make less on average than the rest of Canada, our debt loads are almost the same—we’re slightly lower but not by much (certainly not by the degree to which our incomes are lower)—and yet our holiday spending is higher,” says Moffatt.
It’s part of the reason why he believes so firmly in budgeting. If you take the time to understand your spending habits, you will see what these infrequent expenses include and you can itemize them in your budget going forward. Setting money aside for them on a month-by-month basis may be easier said than done, but it’s a smart strategy if you want to avoid feeling the same way this time next year.
Look for some creative ways to save that money that works for you. Maybe that means withdrawing cash and putting it an envelope. It might mean opening up a separate bank account and putting money aside there. You could look to your employer to see if they have a group TFSA or savings plan that could be used for this purpose. “It’s about trying to save in the manner that’s most efficient for you,” he says. “I can’t really specify one method over another because we’re all very different. What works for one person doesn’t work for another.”
Whatever you do, don’t give up prematurely. Says Moffatt, “There’s a big difference between trying and the process not working, versus not really giving it the proper chance to succeed and giving up too early.”
If you take a good look at your spending before you create a budget, you’ll be off to a strong start.