THE ONLY WAY TO FIX FINANCIAL DAMAGE IS UNDERSTANDING WHERE YOU’VE GONE WRONG
Poor basic money management can be a large part of why people go into debt.
Today, I want to explain the reasons for common money mistakes including couples who simply can’t get it together.
Earlier this month I blogged about How Poor Money Management can affect your lifestyle which seemed to be a heavy-hearted topic for many readers.
Over the last 8 years of sharing our financial journey on this blog, we’ve realized that we have also practiced poor basic money management.
It wasn’t that we were spending more than we earned rather we weren’t managing our net income to full capacity.
For those of you reading this that feel you are struggling with basic money management skills understand that you have to start somewhere.
There is never a wrong time to get your finances in order and for many, the start of the new year triggers a reaction.
After the Christmas holidays and expenses associated with them, some people fear getting their credit card bills.
This is why I like to review debt management at the end of the year to kick-start financial priorities for the following year.
Basic Money Management
What causes poor basic money management?
Not managing your money can cause a ripple effect with your finances especially when you miss a bill or loan payment.
The costs involved with interest and missed payment charges alone can add up quickly snowballing into a disaster.
Once this happens your credit score may take a nosedive as any missed payments are reported.
This may limit the amount of credit you can get in the future or even securing a mortgage if you want to purchase a home.
Some people take the credit card balance transfer option but if you miss a payment you can flush that 0% interest down the toilet.
Unreal expectations when it comes to finances also can spike poor money management.
For those of you who buy things with the expectations that your next income deposit will cover the expenses find this often is not the case.
Budgeting And Basic Money Management
When I think of basic money mangement I consider that to be the bare bones of taking care of your money.
It’s better than nothing.
Household financial management has to start with goals followed by a monthly budget.
There was a time in my life where I thought I had managed money to the point that I was reaching my savings potential.
Every time I got paid from work which was bi-weekly I would pay my bills and anything left over went to savings.
The goal was to eventually sell my house and buy a better property somewhere else in the UK.
I had no goals or financial information written to entice me to reach my dream home at a faster pace.
I didn’t know where all of my money was going and how much of it was being spent.
It wasn’t until I got married to Mrs. CBB that we created a budget that blew us out of the water.
At the end of the first year in 2012 when we reviewed our yearly figures there were budget categories we knew we had to reduce.
Finding Hidden Savings
For example, our telecommunications budget was over $3000 a year or $256 a month.
That cost encompassed home phone, cell-phone, cable, and our internet services with Rogers.
I know some of you who are with Cogeco Cable might think that’s a bargain if you don’t have Rogers available in your area but it’s still outrageous.
My mother-in-law’s telecommunications bill with Cogeco was costing her $3840 a year and that’s with no cell phone included.
After we tool over her household expenses and made some phone calls to Cogeco we realized how sad the situation was for their customers.
You don’t get near the discount that Rogers will offer their customers although we managed to lower the costs by asking for a bundle discount.
Some customers may think that it is an automatic bundle discount but if you don’t ask they may not give it to you.
We’ve been living in our house for 10 years now and our Rogers bill is only $180 a month including Mrs. CBB’s cell phone.
Prices for telecommunications for our budget have dropped since we negotiate with the retention department which we never used to do.
At one point we were going to ditch our home phone and cable and stick with just the highest level of internet Rogers offers.
It sounded great until they told us we could keep all of our services including the internet for a few dollars more.
For now, we are holding on to what we have but the main point of all this is knowing where your money is being spent.
- Are you certain you are getting the best discount each month?
- Can you eliminate expenses that you are paying for?
Another example could be someone who is paying mortgage insurance on their mortgage yet has life insurance for far less.
You don’t need both in fact I’d never suggested anyone get mortgage insurance unless they are unable to get life insurance.
That’s just my opinion since mortgage insurance only pays out what’s remaining on the mortgage when you die.
Life insurance, on the other hand, pays your beneficiary the full amount of the insurance coverage that you have.
Another extra expense we noted when taking over the inlaws finances was that they were paying bank fees for having an over-draft they did not use.
All these hidden expenses add up so when someone says they are struggling I often suggest digging deep to see what they can uncover.
Basic Money Management For Couples
Managed money between couples is probably the hardest for anyone to blend together due to differences of opinions.
Household financial management, going to work, taking care of kids and maintaining a residence can be overwhelming.
Most often I find that couples who ask me for budget help put their money management aside because it’s the easiest to drop from the list.
Time and money management means you have to set time aside to budget or you don’t end up doing it at all.
I’ve seen it and heard it countless times where people feel they just don’t have the time to budget.
You Need A Roof Over Your Budget
I like to compare budgeting to living in a house without a roof.
What would happen if it rained?
That’s right everything would get wet and ruined which is why you need a roof.
A roof protects your real estate investment as well as the assets you have in your home.
The same goes for budgeting as it becomes a necessity to make sure your financial estate is in order.
Sadly, as time goes on expenses continue to burden couples as they spend more than they earn.
This puts them in a position where they only pay minimum payments on credit card debt or are using them to pay the monthly bills.
It’s crucial before you get married or get into any relationship that money be a topic that you discuss.
It the person you are potentially going to spend the rest of your life with has an issue with that, walk away.
That might sound like a cruel thing to do but money is the number one reason couples split up.
It may not be that they are broke but one or the other builds resentment due to spending habits or earning potential.
Basic Money Management Spreadsheet and Your Budget Binder
The best way to keep track of expenses is to use a budget which I offer free on CBB to all of my subscribers.
The reason I describe our excel sheet as basic is that you can edit the budget as you see fit and by your lifestyle.
I didn’t add anything fancy to the excel budget that you don’t need only financial information that will help you understand three things;
- Where your money is going
- How much money you are saving
- How much debt you have
I also have other free printables that will help you start to manage your money to help you get off the debt track.
Documents that you manage such as credit card debt, debt repayment tracking, money savings chart, daily budget expense tracking sheet and a monthly bill payment schedule are all available for free.
If you are looking for basic money management tracking forms these will get you on your way to making sense of your cents.
Creating a budget binder is not something that everyone does but it’s certainly a frugal way of tackling your debt.
You don’t need to buy expensive budgeting apps or any fancy online budgets created by other bloggers.
Stick to the basics and that’s all you need. Don’t fall for the hype. It’s nothing more than a money grab.
8 Signs You Are Struggling With Basic Money Management Skills
Sometimes the signs of failing at basic money management aren’t clear until you have no money left to pay your bills.
Understanding the root cause of your financial difficulties is more about taking responsibility than sweeping it under the rug.
Let’s have a look.
1. You Blame Everyone For Your Financial Problems
Blame-shifting always seems to come up when people are broke.
This could be anyone from the government screwing them over to credit card companies not sending the bill on time.
Whatever or whoever you think is responsible for your money problems means nothing to the person you owe.
Get your stuff together and instead of wasting time calling out people or organizations figure out ways you can get out of debt faster.
2. You Fail To Review Your Banking
If you are like most people and bank online and automate all of your bills and seldom look at your bank account, you’re in trouble.
This was a downfall of ours and we’ve been caught in the red by not having enough money to cover expenses coming through.
My advice is to review your bank accounts weekly and set up notifications on your phone or computer.
By doing this you can see when money is being charged to credit cards or taken from your bank account.
It also doesn’t hurt to go visit your bank or call up to see if you can find ways to save money on your monthly fees.
I know Simplii Financial is free and some banks offer free banking if you keep a certain amount of money in the account, but not all.
3. Credit Cards Are Used As Real Money
When you find your wallet empty and your bank account screaming to be fed, you have a big problem.
Basic money management suggests that you should always have savings as a back-up plan.
If you are using credit cards to get by month to month you must seek financial help.
This is no way to live and it will only push you deeper into debt.
For those of you who want to retire without debt, this isn’t a smart way to start that journey.
4. You Consume More Than You Save
We all know where most debt comes from, spending more than we earn.
If you are a shopaholic or can’t say no to spending money that you haven’t yet earned you’ll know about it.
Basic money management problems start with small debts that snowball into big debts and fast.
Stop spending, start saving and understand how important losing debt is and gaining financial confidence.
5. You Need To Borrow Money
Borrowing money is a big red flag when it comes to basic money management problems.
If you need to borrow this should tell you a few things;
- You don’t have enough money in the bank
- There is no money in the bank
- You can’t afford what you are buying
- Living on the edge financially is a sure-fire way of finding yourself without a roof over your head.
6. Not Accounting For Non-Monthly Budgeted Expenses
Those expenses that pop up once or twice a year that you don’t save for every month will catch you off guard.
I’ve blogged about projected expenses and how you need to be on top of these even with a basic budget.
Throughout the year you may accumulate new services or expenses that you don’t have to pay right away.
For example, you may pay for someone to prepare your income tax return at the cost of $100 a year.
If you don’t have that $100 come tax time you may have to find free services if available or complete your income tax return.
If you aren’t sure how to do it on your own you may miss valuable tax perks which end up costing you more in the long-run.
The idea here is you save whatever the expense is divided by 12 months in your monthly budget.
You’re saving money for something you have yet to pay for but you know you will have to pay for.
You set that money aside in a separate bank account and when the time comes that it is due you have the cash to pay for it.
Using a credit card, overdraft or a loan to pay for expenses that you should be budgeting for is a big no-no.
7. Pantry Runs Dry
When your refrigerator is bare and you must visit the food bank something is wrong.
The cost-of-living in Canada is high but so is the amount of debt that consumers are taking on.
If you find that you are paying too much for your bills and debts and struggle to keep food on the table perhaps review your budget.
No one should ever have to go without food and it’s hard to fathom but it happens.
Here is a quick example and I’m not saying this is everyone.
- Cell phone with data $120 a month.
- No money left for food at the end of the month
- Basic cell phone $30 a month or use a home phone for less.
Lots of non-essentials are where people are dropping their cash and unfortunately, have to be modified or cancelled.
In 2018 seniors using Ontario food banks jumped by 10% which is a staggering amount.
It’s a growth rate nearly three times faster than that of the province’s senior population, stated the Ontario Association of Food Banks (OAFB), and it marks the beginning of a trend that’s expected to continue.
I spoke with a woman the other day who’s mother drank so much that they never had food to eat and the electricity had been turned off numerous times.
Although this is heartbreaking addictions are costly and most times at the expense of family members.
If you are fortunate to have money to buy groceries always consider donating to the food bank or local charities for those in need.
8. Spending Money On Dreams
This is an area where many people have visited because it’s called a success trail.
What this means is that we get ideas in our heads to make more money or to become successful without a back-up plan.
If you want to go into business for yourself or plan to become the next entrepreneur of the year spend your money wisely.
Creating a vision and not following through on it because you lack the fund or have spent money on something that will never happen is bad money management.
I’m sure some of you can attest to doing this or having a partner who has or is doing this.
For example, Buying a second-house to flip but not having the money to pay for the renovations in full.
A dream to renovate and sell is a vision of lots of real estate investors but going in with blind-folds on is only asking for trouble.
Then you find yourself back up at number 5 above looking to borrow money or putting the debt on credit cards.
Find The Problem And Solve It
When you’ve gone through all of your money concerns and still find you are struggling with a basic money management plan it’s time to talk to a professional.
I don’t mean this in a bad way but having the stress of debt on your shoulders can cause a multitude of feelings including depression and health problems.
Finding a professional that can work with you to weed out anything you may have missed or perhaps suggestions for your situation is never a bad thing.
Discussion: What basic money management problems have you found and fixed in the past?
Share your comments below as I’d love to hear your experiences. I’ll be sure to respond.