Managing Your Budget – Finding More Cash

March 2020

Managing cash flow requires commitment and discipline in tough times!

Be prepared to make a real commitment of personal effort, time and sacrifice in order to succeed. It other words, if things are bad, prepare to be uncomfortable until you fix things.  There are not a lot of possible solutions: increase income; decrease expenses ; sell assets to create immediate cash; and, look at some last resorts. Hoping the government will bail you out is a bad plan.  Sell any assets or property that you are not using, and look at selling and buying smaller, less expensive items for those you really need. Control your spending habits – you need to buy only what is necessary until you have your bills paid and an emergency fund set up equal to 3 to 6 months of living expenses. Look at government support.  Finally, say no to the family when you should do so – you cannot always be the “nice guy or gal”. When things get better, you need to do better financial planning, including setting aside a minimum of 5% to 10% of your net pay cheque each pay day in a savings account.  (15% is recommended if you have not employer pension or savings plans and you want to retire with the same lifestyle.)

Not all of the advice below works for everyone, and some suggestions will work for very few in a major crisis like Covid-19.  However, I hope this article gives you some ideas.

Increasing income means:

• Work longer – more hours at same job, an additional job (moonlighting), increasing your own work time if you are self-employed
• Work harder – work towards bonuses, raises and promotions, or to increase revenue if you are self-employed.
• Work smarter – be more efficient to earn incentives or to be more profitable as a self-employed person; increase your education to get a better job
• Work from home if you are self-employed, and can do so, instead of renting an office

Decreasing expenses means:

Generally, you should sell excess assets – generate immediate cash and cut down future expenses, e.g. second vehicle, boat, antiques, recreational vehicles. Discontinue or reduce non-essential expenses (question every expense) – private schooling, cell phones, telephone call display and other add-ons, cable TV, video rentals, Internet and email (use public access when necessary), use of debit cards and ATM’s with fees, etc. Avoid “up-selling” sales pitches – avoid extended warranties, up-sizing the fast food orders, and other unnecessary add-ons. learn to say “no thanks” – to your friends and relatives (including children) who want you to join them in doing or buying things you cannot afford.  Other suggestions include the following:

Shopping

• Look at those sales flyers – and stock up on products when they are discounted
• Compare prices between stores – some “sale prices” are higher than others’ regular prices, even at the big stores
• Make a list before shopping and stick to it.
• Shop at thrift stores, yard sales, etc.
• Shop for essentials ‘on sale’ or ‘in bulk’ – groceries, household supplies, personal needs
• Review recent grocery bills – what did you buy that you did not need? Adjust your shopping habits.
• Clip coupons for discounts, and buy generic brands
• Enroll in free loyalty programs offered by stores to obtain discounts and collect points for free merchandise
• Do not shop for groceries when you are hungry, and stick to a shopping list that you prepared at home
• Review your grocery receipt (and all receipts) as soon as you pay – pricing errors are more frequent than you think!

Entertainment

• Discontinue or reduce costly recreation, hobbies and entertainment events
• Eat at home, not at restaurants and fast food outlets
• Reduce the children’s extracurricular activities
• Exchange homemade gifts or give of your time to help out instead of buying gifts
• Create your own entertainment for the children – sports/picnics at the park instead of paying for movies and amusement parks
• Avoid the popcorn, snacks and drinks at the movie theatre, the hockey rink and other high priced locales.

Housing and household

• Downsize your accommodations – move to a smaller home or apartment (and a less expensive vehicle)
• Share your apartment / house with someone else
• Do it yourself – home repairs, planting a garden, changing the oil in your car, etc. (Many things are easy to do – look for help by buying a book, checking the Internet, asking your neighbour, and studying self-help resources)
• Impose on friends to baby sit, car pool, borrow tools, etc.
• Raise your deductible on your insurance (house and car); make sure you have enough but not too much insurance; shop for competitive rates (including house, health, auto and other insurance); if you have life insurance to provide a nest egg to your adult children, ask them to pay the premiums, or cancel the coverage.
• Compare cellular telephone, Internet and cable TV packages to get the best deal – look at bundles, etc.  Do you need both a landline and a cell phone?  Do you have a smartphone data package that is bigger than you need, or smaller than you use – both would result in you paying more costs than necessary
• Review telephone long distance packages – match the long distance package to your actual needs
• Enjoy home cooking and baking, cooking or baking enough for leftovers for another day
• Ensure you are minimizing energy usage at home, minimizing heat settings, particularly at night, filling the dishwasher before use, minimizing use of the laundry dryer (use the clothes line), etc.  Consider programmable thermostats to turn down the heat when you are away or asleep
• Check the insulation and weather seals around your house’s doors and windows
• Plant a vegetable garden

Vehicle

• Lease instead of purchasing your car (but this is a temporary measure to reduce your cash needs, not a long­-term solution; buying and holding for a long time is usually the best long-term solution)
• Walk, cycle or use public transit instead of driving
• When buying a car, instead of trading-in your old car, sell it yourself
• When buying, negotiate a price before you indicate that you may accept any special offers, such as low interest or cash rebates.  Then, ask about the special offers to see if you really are getting any deal at all.
• Organize / consolidate your shopping trips to minimize travel requirements
• Buy pre-owned vehicles
• Share one family car, instead of owning two or more
• Ensure your children drive carefully, and without using cell phones – insurance rates will be prohibitive after even a small incident.

Working

• Drink your own coffee and eat your own lunch, instead of buying and eating-out at lunchtime.  Cut back a little at a time.
• Travel by car pool (with co-workers, friends or spouse) or use public transit

Debt and Finances

• Pay your credit card monthly, or if in arrears, work to pay it off quickly – the interest rates are too high
• Extend your mortgage and loan repayment schedules to reduce payment amounts until times improve
• Avoid pay day loans and consumer finance loans (to buy furniture, for example)
• Consolidate loans and eliminate credit card balances (and maybe even the cards)
• Never borrow unless for essential needs, such as a car to get to work, living accommodations and education costs; do not borrow for new furnishings, computers, and “play toys.”
• Take advantage of government grants for children’s education savings plans.  Know that the Canada Education Savings Bond gives you a grant (part of a Registered Education Savings Plan (RESP) and requires no deposit by you if you are a low income family; also, Registered Disability Savings Plans offer grants also for disabled persons
• Try to avoid increasing loans, credit cards and debt of any kind, including home equity loans, because repayment may be too difficult in the future.  However, that may be easier for me to say than for you to do – just be careful and get some objective advice before doing so (see Last Resorts below)

Personal

• Cut back on the frequency of hair styling, manicures, and such
• Moderate your alcohol and cannabis consumption
• Stop smoking (programs to help you are available)
• Cut back on the clothing shopping, and consider good quality clothing from discount stores and thrift shops.
• Review all of your insurance coverage with an objective professional advisor to ensure it meets your needs but is not excessive (ask them to review their calculations with you, and do not use “rules of thumb”)

It is easy to tell you to do all of these things, but maybe you need to look at some “last resorts” until the above suggestions have a meaningful impact on your budget.

Last Resorts

• Speak with a financial advisor at a credit counselling bureau or local family services centre
• Ask for help from family members
• Investigate social assistance and government programs for low income families
• Speak with a trustee in bankruptcy, who may be able to negotiate with your creditors to help you avoid bankruptcy, or if necessary, help you through bankruptcy and give you a fresh start

Get control now.  The biggest issues giving people financial problems are spending too much on housing, too much on cars, and too much to keep company with rich friends.  Many people just spend on impulse without thinking about the future impact – sloppy spending adds up!! Other challenges include spending on addictions and having a financially reckless spouse (and note that you will very likely be held accountable for 50% of his or her debts in the event of separation or divorce).  Finally, if you face a marriage breakdown expect significant legal fees and a reduction in your standard of living (i.e. your expense budget) – the average decrease ranges from  20% – 40% based on Canadian statistics from the 1990’s.

Now, go make some plans, and stick to them – but get financial counselling if you need more help.

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Blair Corkum, CPA, CA, R.F.P., CFP, CFDS, CLU, CHS holds his Chartered Professional Accountant, Chartered Accountant, Registered Financial Planner, Chartered Financial Divorce Specialist as well as several other financial planning related designations. Blair offers hourly based fee-only personal financial planning, holds no investment or insurance licenses, and receives no commissions or referral fees. This publication should not be construed as legal or investment advice. It is neither a definitive analysis of the law nor a substitute for professional advice which you should obtain before acting on information in this article. Information may change as a result of legislation or regulations issued after this article was written.©Blair Corkum