Debt | Our Family Budget

What Is Considered Bad Debt? : May 2019 Budget Update

bad debt in Canada

UNDERSTANDING HOW DEBT AFFECTS YOUR FINANCIAL HEALTH IS CRUCIAL

I believe Canadians will forever be reading about bad debt in the news because it’s the kind of debt that cripples us financially the most.

Although it’s nice to have ‘wants’ it’s also important to take care of ‘needs’ first and to avoid consumer debt at all costs.

Creating debt is simple but debt repayment is painful for anyone who doesn’t have the money to pay their bills.

I’ve been asked numerous times over the years what my thoughts were about bad debt vs. good debt and my answer is still the same.

Debt is Debt!

The only cancellation of debt is to pay it off or claim bankruptcy and even then it follows you like a bad smell.

Whether you owe money for your OSAP loan, Mortgage, Credit Cards or other personal loans they all equal DEBT.

It’s a simple mathematical equation in my opinion but ask yourself this,

Can I afford the debt that I have?

If the answer is no then you probably have a huge stress on your shoulders and struggle to make ends meet.

Bad Debt vs. Good Debt

Bad debt equals money you owe and when you are in debt your net worth is not increasing.

However, there is a difference between bad debt vs. good debt where good debt is considered valuable such as school loans, mortgage, retirement investments or non-registered investments.

These types of investments that you owe money for in order to invest in them will most likely offer you a return on investment.

This is good debt because you are improving your life in a meaningful way thus increasing your earning and savings power.

Understanding what bad debt and good debt will not only clear up misconceptions about debt but offer you a bit of solace when it comes to debt repayment.

What Is Bad Debt?

Bad Debt Canada

Using a credit card to fund your yearly holidays or to buy big kid toys, clothes, health and beauty treatments all of which are pricey and you can’t afford is bad debt.

Those are obviously only a  few examples but consider these three situations below as the Bad Debt Demons that you want to avoid.

  • Credit Card Expenses You Don’t Need
  • Using Credit For Depreciating Assets/or little to no return on investment
  • Using Credit For Things You Can’t Afford

Anyone who believes buying a vehicle whether new or not is an investment is sadly mistaken.

A vehicle will only depreciate in value which is why there are lots of people out there who would rather buy used than new.

The name of the vehicle game is to make it last as long as possible so you’re not constantly at the used car sales lot or mechanics shop.

Let’s talk about credit card debt for a moment since it is the top reason for consumer debt in Canada.

Credit cards are and always will be bad debt no matter which way you shake it.

Ideally, you’d want to pay your credit card debt in full each month but if you don’t you’re stuck with bad debt.

All of those deals you thought you were getting become expensive with interest and especially when credit cards are not paid in full.

Once you factor in the interest rate you have no deal at all.

Keep reminding yourself that and read the fine print on your credit card statement. It will tell you how many years it will take you to pay off the debt you owe when you only pay the minimum payment.

That alone should be enough to scare the hell out of you.

Do Canadians Fear Bad Debt?

I believe more Canadians are understanding the bad debt picture with the availability of personal stories and tonnes of online tips and advice. 

The problem is, are Canadians listening?

It’s more a matter of putting this knowledge into motion on a personal level by finding alternate ways to pay for things.

The notion of saving first or earning more money has to be on the table for all Canadians or you just don’t spend the money on credit.

What we need to do is stop enduring more bad debt and increasing net worth power via good debt investments.

Good debt investments are borrowing money to save or defer taxes or increase net worth such as a business venture or retirement savings.

The idea is over time the money you borrowed will increase your wealth hence the term, borrowing money to make money.

Even then, it’s all still a risk but one far greater than taking on bad debt.

Understanding the Consequences of Bad Debt

Not paying back debt on time means you’re spending more money than you need to be and possible bankruptcy.

You would think that all Canadians would fear bad debt but the reality is that there are always going to be people who thrive on it.

What I mean is that they either don’t understand budgets and debt and believe that they can fix their bad debt fast. 

That would be nice but any debt that we take on as consumers whether it’s considered good debt or bad debt must be paid back and often it takes months or even years.

For example. a mortgage which is considered by many to be good debt as it appreciates in value takes most homeowners many years to pay back.

Related: How we paid our mortgage off in 5 years

Bad debt such as credit card debt also takes many years for most people to pay back depending on how much money is put towards that debt.

Either way, they are both debts but one debt is better than the other.

Can you guess which one?

Debt Help Consolidation

There are some bad debts that can be consolidated which means all of your debts are rolled into one which makes it easier to manage.

Your monthly debt amount will be manageable and hopefully, get you out of the dark and into the light.

Talking to a debt advisor about consolidating your debts is ideal when you can’t pay them back or are struggling and are tired of it.

Another example would be taking your credit card debt and rolling it over using a credit card balance transfer option.

Nearing half, more people in eastern Canada are $200 or less from meeting debt obligations according to the MNP Debt Index put out in April 2019. (no affiliate)  (Debt Insolvency Trustees). 0160-19-CORP LTD - April 2019 Debt Index - EN-1
 

That’s 48% of people which is a huge number with 1 and 4 Canadians stating they don’t earn enough money to cover their monthly bills and debt obligations.

How To Stop Increasing Bad Debt

When your next credit card bill or bills come in the mail I want you to sit down with a pen and circle every transaction that is bad debt.

I think once people take a hard look at every expense and the costs involved with paying minimum credit card payments and jacked-up interest rates it may hit home.

In Summary, Bad Debt can only be controlled by spending less, earning more and paying off debt fast until it’s gone. 

That’s a fact.

Discussion: How do you avoid increasing the amount of bad debt you have? Share your comments below as I’d love to read your feedback.

Income Report May 2019

May 2019 Income report

Where did the money go in May?

In May more money was invested than normal and will be an ongoing increased expense moving forward.

We re-shuffled our investments to make the most of our money and also make the money work for us in retirement rather than against us.

This was based on the fact that we had a retirement calculation performed with our savings, investments, pensions and current financial position completed.

The calculation was favourable, however, it led us to some conclusions that needed to be addressed.

A good financial planner can point out these areas and what to do in order to make the most of your money.

There were also increased expenses for the renovation catergory and home maintenance due to continuing home improvements and outside planting, mulching etc.

For health and beauty Mrs. CBB has been going to the dentist for crowns which are costing us $500 out of pocket and still needs a few more.

She has some big fillings from years ago that we want to crown to protect them while we have the benefits.

A trip to Shoppers Drug Mart a few times meant we spent more money but we also earned lots of Shoppers Optimum Points.

We are now just under 5 million points which we plan to use for groceries in 2020. 

More to come on our full year of Free groceries.

Thta’s all for now friends. See you in June with a new update.

Mr. CBB

Budget percentages May 2019

May 2019 Household budget Percentages

Our savings of 42.72% includes investments as well as any savings for this month based on the net income of $10,975.04.

We put money away in our projected expenses for things that need to be paid for in the coming months.

All of the categories took 100% of our income which shows that we accounted for all of the income in the month of May.

Our Monthly Budget Expenses

Below is a breakdown of our expenses which helps us to understand where all of our money goes.

Since May 2014 we’ve been mortgage-free so much of our money will be directed at savings, investments, and renovations.

I appreciate that you enjoy this budget update each month but I do hope you view this as an educational tool rather than comparing your own financial numbers as our situations are all unique.

Spending less than we earn and budgeting our money has been the easiest way for us to pay down debt and save money.

It may be different for you.

May 2019 Income report

  1. Chequing– This is the bank account where all of our debt gets paid from.
  2. Emergency Savings Account– This is a high-interest savings account.
  3. Regular Savings Account– This is a savings account that holds our projected expenses.
  4. Monthly Budgeted Total: $5873.93
  5. Monthly Net Income Total$10,975.04
  6. (Check out our Ultimate Grocery Guide to see where our grocery money goes)
  7. Projected Expenses: These are expenses we know we will pay for throughout the year = $324.98
  8. Total Expenses Actually Paid Out$8822.92
  9. Total Expenses Actually Paid Out: Calculated is $10,975.04 (total net monthly income) – $324.98 (projected expenses) –$1827.14 (savings to emergency fund) = $8822.92
  10. Actual Cash Savings going into Emergency Savings: Calculated is $10,975.04 (total monthly net income) – $8822.92 (actual expenses paid out for the month) – $324.98 (projected expenses) = $1827.14

Our Monthly Budget Results

Time for the juicy category numbers and to see how we made out with our monthly budget.

Below you will see two tables, one is our monthly budget and the other is our actual budget for the month of May 2019.

This budget represents 2 adults and a toddler plus retirement investments.

Budget colour chart: If highlighted in blue that means it is a projected expense.     

Note: We’ve decided to keep our grocery budget at $410.

Monthly Budgeted Amounts

May 2019 Monthly Budget Amounts

Actual Budget Amounts

May 2019 Actual Monthly Budget

Our FREE 10 Step Mini Budgeting Series

Do you want to learn to budget as we do?

Please take the time to read through our budgeting series plus read Budgeting in the New Year.

I hope the information will help stop you from making common budgeting mistakes.

Our Ultimate Budgeting Guide from A to Z has everything you need to know about budgeting in one blog post.

  1. How We Designed Our Budget Step 1 Gathering All the information
  2. How We Designed Our Budget Step 2Budget Categories
  3. How We Designed Our Budget Step 3– Tracking Receipts
  4. How We Designed Our Budget Step 4- Note-taking
  5. How We Designed Our Budget Step 5– 5S Organization
  6. How We Designed Our Budget Step 6– Who Does What and When?
  7. How We Designed Our Budget Step 7– Balancing Our Budget
  8. How We Designed Our Budget Step 8– Knowing our Coupon Savings
  9. How We Designed Our Budget Step 9– Reading Our Bills
  10. How We Designed Our Budget Step 10 Projected Expenses

CBB Budget Updates Month By Month

Just in case you missed our budget updates and want to do a quick search I’ve compiled them all on one handy page: monthly budgets.

2019 Budget Challenge- 7 Monthly Budget Reports

2019 Canadian Budget Binder Budget Challenge

When I was looking for people to join the CBB 2019 Budget Challenge back in December I had over 20 people interested in joining.

It looks like we are missing 3 budget update reviews so we are down three people for the year although I will give them until the end of today to submit.

As our budget challengers ventures along you may see their budget reports increase in data which I expect especially because it’s a learning experience for everyone.

The more you do a task the better you get at it and the more you learn about what you are doing.

The budget reports below will remain anonymous unless the writer chooses to use their name and each one will be unique.

They get to choose how they report their budget back to us.

Here we GO!!!

Budget #1

Hi Mr.CBB,

May is time to have the pest control people come by for their first spraying of the year… to keep all the pests OUTSIDE where they belong.

I have an annual contract with them that I just renewed…thanks to our FUTURE PAYMENTS ACCOUNT.

Spring brings another round of health-related appointments for me…an Echo Cardiogram (completed), a dental cleaning appointment (completed) and a podiatrist appointment (completed).

We booked haircuts just in time to look spiffy for the Victoria Day long weekend.

May is also the month for hubby to start prepping the house for staining (the east side this year)…once we get some consistently dry weather that’s not too stinking hot. He does one side of the house each year.

That way, he never gets overwhelmed with the amount of work to be done…in addition to his working lots of overtime at the office this year.

Nor does the house ever get a chance to look poorly.

On the plus side, staining one side of the house per year amortizes the cost of staining the house over 4 years.

Everyone on our street keeps their home & gardens looking tip-top and we appreciate their efforts so at least in this one respect, we try to keep up with the Joneses.

We don’t spend a lot but we do keep the property neat, tidy and colorful.

We did a “bottle depot run” this month and brought in $33.50 extra cash by returning our empty bottles and cans.

That’s a tidy piece of change and well worth the time it takes to clean and bag all the various sized bottles and cans.

I think we’ll bag up the rest of our empties and take them in next month.

Although we paid the deposit at the time of purchase I always feel that returning bottles is like being given free money! LOL

We’re still on a roll with keeping the groceries to a dull roar.

This is what we bought this month:

May Shop #1

  • Meat Lover’s Pizza (30% off), Proscuitto and Arugula
  • Pizza (30% off)
  • Reser’s Potato & Egg, Macaroni and Coleslaw 1Kg containers @ $4 each

Spent: $19.00 (RCSS)

———————————————————————————————————–

Shop #2

  • Meat Lover’s Pizza (30% off), Proscuitto and Arugula
  • Pizza (30% off), Multigrain Buns – 24 (30% off)

Spent: $11.90 (RCSS)

———————————————————————————————————–

Shop #3

  • 8-pack Mini Cucumbers $2
  • 8 Beefsteak Tomatoes @$0.98/lb=$3.13
  • 2 pints grape tomatoes @ 2/$5
  • 2 bunches of green onions $1.34
  • 4 bunches radishes @ 4/$3
  • 1 dozen eggs $2

Spent: $16.47 (Thrifty Foods, Meridian Farm Market & No Frills)

Total for the month $ 47.37

———————————————————————————————————–

We have finished this month off with $1,059.30 in our vacation accounts towards the $4,500 budget we are trying to achieve before year-end. We’re getting there!

Remember me saying I felt broke and really, really hated the feeling?

Well, I re-worked our budget for June and July to get some extra money back into our savings accounts that I emptied and invested back in April.

We won’t be flush with cash but at least the balances will have a minimum of $100 instead of just pennies like they are now.

Then in August, I’ll make a good top-up on our vacation accounts when hubby has a 3rd payday in the month instead of his usual two.

I usually save this for his RRSP contribution but I think I can wiggle and jiggle some extra funds loose later in the year to cover the vacation redirection of funds and still meet his RRSP needs.

Thank goodness I have a GIFTS AND ENTERTAINMENT ACCOUNT because we have a Jack and Jill bridal shower for our nephew and his fiancé coming up in July and their wedding will be on the Labor Day weekend.

Having set aside $10 a month for the last 30 years means we don’t have to panic when we need to do some more expensive gifting.

This is the 1st of possibly three family weddings. Our 2 nieces remain single at this point, but I already have the funds in our account should they choose to get married.

Ever get the feeling that my hubby is right once I have money in my hot little hands, off it goes to one savings account or another and is not to be seen again until it’s actually NEEDED for the prescribed purpose of the account that it’s in?

I’m a tyrant about not spending our savings!

I should mention that saving for next year’s annual TFSA-RRSP-JOINT NON-REGISTERED long term savings transfer of funds to the broker has commenced!

As fast as I empty that account, the saving starts again!

We’ll see how much I can scrape together for the 2020 transfer.

I love challenging myself to either “meet or beat” the previous year’s transfer amount!

Budget#2

Hi Mr. CBB,
Here’s my budget for May…
Inline image

 

We didn’t have many extra expenses this month, which was good, so we were able to stay closer to our budget. 

Gas was higher this month, but we also went away one weekend, so we used more than usual. 

I bought my daughter a weighted blanket, so that put us over for our kid budget, however, I consider it a good investment as it is helping her sleep better. 

We went over our pet budget because we adopted a new cat! 

Fingers crossed she gets along with our other cat. 

We continue to chip away at our debt so that light at the end of the tunnel is getting closer!

Our ‘Everything Else’ category, this month, included some household items, clothing, books, and a little money for our trip. 

Again, we had some money banked from last month, so no credit cards were used this month either!

PROS:

  • We really enjoyed our little weekend getaway this month
  • We avoided using our credit cards while away
  • We got some quotes for our bathroom and thankfully it won’t break our budget
  • We have a new addition to our family – a cat!

CONS:

  • We went a little over budget in a few categories, by a total of $662
  • Gas prices are higher

Budget #3

Hi Mr.CBB,

Here’s my May Budget Submission.

Current Status: 106% to budget

May was an eventful month for my family, we welcomed our newest addition on May 20th and I’ve been focused on recovering from that the last two weeks.

We went over our budget by 6% mainly driven by food, mostly eating out.

My mom comes this week to help cook so I’m hoping we won’t rely too much on buying out, it’s so convenient.

Budget Wins:

We saved some on auto, mainly gas since I’m not going to work every day and we’re mostly at home these last couple weeks.

However, we saved a little bit in the child department, only because we get some reimbursement from the government.

I’m looking forward to when my 5-year-old goes to kindergarten we’ll be able to save over $500 a month and use that to pay some of our debt.

Speaking of, we did manage to pay off our credit card with the tax refunds we got and have some leftover for fun things.

Like signing up my son for soccer and dance later this year.

Budget Fails:

Again we’ve failed in the food department, I keep telling myself I have to be better at controlling the food spending but this last month with the new baby really messed that up.

My husband has been helping make dinner after he gets home from work so that’s been super helpful, but we’re still spending quite a bit of money on lunches.

We have a soft spot for burgers and fries, burritos, etc.

Our misc category was hit with a car service that I wasn’t planning for, I was looking for just an oil change but they mentioned I needed to change my air filters (with the new baby I figured I should probably change them) so that was an extra $150 I wasn’t prepared to spend.

Looking forward to June when my parents come to visit and get more help with my new baby.

Budget #4

Hi Mr.CBB,

Nothing much of interest happened in May worth reporting on. I had a higher than usual power bill – by A LOT!

It’s annoying that there’s no way to prove it’s right or wrong, but we did have a rough couple of months prior and it is possible that previous months the meter readers didn’t come up our driveway to read the meter and just guessed.

I guess we’ll see next time if it’s still crazy high if so, I don’t know what we’ll do.

(EDIT: I also forgot that I talked about dropping down to part-time hours in April.

That didn’t last long and I returned to work full time in mid-May, and since I was using my vacation and sick days rather than an EI sick claim, it didn’t impact my pay rate).

The big surprise of the month was that we got a kitten (in April, but expenses piled on in May).

He’s super cute but we saw a bit of a bill in April for buying him food/litter/toys/litter box, and for initial vaccinations.

June we’ll see the bigger bills for more vaccinations and being fixed. However, because of getting my tax return, I knew we could afford it.

I’m getting really close to paying off my house.

If everything goes according to plan our mortgage will be paid off by the end of October.

I think I’m having fantasies of grandeur now.

I keep thinking – maybe I can look at building a house, or buying a house on a lake – do I need that, NO, do I want it…maybe?

I seem to want a lot lately which is unusual for me.

I’m also thinking maybe once a year I could buy something nice for myself (kayaks, a pool, etc, etc) and put the rest to savings.

I know that one makes more sense, and is probably what I’ll end up doing, but I’m surprising myself by how much my ‘wants’ are showing.

I’m usually pretty frugal going with needs only, but I’m surprising myself lately. My biggest annoyance is my cellphone.

I pay $55 a month before tax for it.

Most people would call this a good deal, but I use maybe 5 minutes a month, and maybe 10 texts.

I feel like I’m really overpaying however my phone is almost dead and I have to decide will I keep this plan and phone until my phone dies and worry about it then.

The other option will be that I suck it up and get a new phone (with a higher rate plan) or buy a phone outright and drop down to a prepaid plan that fits my needs around $35 a month.

I guess that will be June’s dilemma.

So as mentioned I did go over this month. $330 for all things cat (so far) $427 was paid for my plumbing bill $225 for power bill (I paid 2/3 of it last month and kept the other bit for this month)

But all things considered, this month went okay!

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2 Comments

  1. budget 1: thanks for saying you call in pest control – maybe this is a weird comment but im super embarrased that I’m going to have to call in a pest control company, but unfortunately it seems to be a part of my rural life! I also like that you mentioned how much you got back from your bottle deposit – I have never added that on to my income! I’m extra anal about counting to the cent how much goes out, but I never thought to include that on my budget

    budget 2: congrats on the new cat – I’m in the same boat. I hope you have better luck integrating him/her into your family than I did. I introduced my cats slowly and it went perfect for the first week and then my existing cat decided he hated the kitten. There’s been yowling, howling and claws – it’s been great 🙁 Hopefully there aren’t too many upcoming expenses with vaccines and neutering!

    budget 3: congrats on the new baby – don’t be hard on yourself for eating out, Mr CBB may smack my fingers for saying this but I think having a baby gives you a little latitude to eat out and give yourself a little reprieve. I can’t imagine how much childcare must cost – it must be a huge planning event before hand, and a huge chunk of money to see each month go by, but hopefully when you’re child is in school you will be able to put money 90% into savings and 10% into fun (again, maybe Mr CBB would wrap my fingers on that one too 🙂 ).

    Talking about Bad Debt, and Mary’s comments above bring me back to what I was saying in my budget for May. I am struggling with what to do when I pay off my mortgage. It’s nice to have that option, but building a house would definitely have me paying off the home much later than I want in my life. So I need to figure out if this is good or bad debt, and get some realistic numbers of what it costs to build in our area.

  2. One additional comment that I have about debt is that your age is another factor in establishing whether a debt is “good” or “bad”. For example, if you are 20 and carrying a mortgage…it’s a “good” debt. On the other hand, if you are 65 and carrying a mortgage into retirement, it’s a “bad” debt simply because the time horizon you have available for settling that debt in full before you die has shrunk dramatically.

    Hubby and I made the decision when he turned 50, he’s younger than me, that we would shift gears and stop using any debt for the purpose of investment. Our new philosophy became that the only good debt for us is credit card debt IF we already have the money in the bank to cover our spending…not money coming next pay, money we have now! We use our cards to accumulate travel points and pay absolutely no interest for the privilege of doing so.

    It takes commitment to always pay your bill in full though…especially if other needs or little emergencies crop up. Hence, it’s not a strategy that I recommend unless you are sitting on a small pile of cash to handle all the other hiccups of life that could crop up and you are absolutely certain you can pay your debt in full each and every month that you use your card.

    I further recommend that you limit the number of cards that you use. Hubby and I each have a Visa, MasterCard and AMEX in our names as the primary account holder (to maintain individual credit ratings). We use his cards for 6 months, then we use my cards for 6 months. All of the cards remain active and we limit the number of possible cards that we use to a maximum of three in a given month. We use our AMEX everywhere that it’s accepted but if it’s not accepted then we use MasterCard and only if we are shopping at Costco in the US…we use a Visa. Most months I have 2 payments to make but a few times a year I have 3. Those months remind me why we limit our credit cards to three each. I have seen people with 10-20 different cards and it blows me away because just meeting the minimum payments on them all would add up to a horrendous amount!

    My final thought is on CONTROL. Either you choose to control your debt or it will control you. I’m too much of a control freak to ever let the later happen! LOL

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