How to Get Out and Stay Out of Debt
Part 4–The Planned Reserve & Resetting the Expense Counters to Zero

Reactive ApproachThe problem with the combined paycheque-to-paycheque and month-to-month approach to personal budgeting is that you end up saying stuff like, “Oh, well a huge chunk of this paycheque is going to get eaten up by rent (or the mortgage)” and “This paycheque has to cover those bills that come due X number of days after payday but Y days before next payday.” It’s a terribly reactive, “putting out the fires” approach and, while it’s arguably a kind of planning, it’s too short-sighted.

What happens with this approach is that whatever is left over after you deduct those amounts from your paycheque is what you’re likely to fritter away because you’re incorrectly going to assume that’s your discretionary income. Combine that big mistake with another doozie, which is to exclusively trust what the bank tells you is the balance in your account without thinking carefully about what did clear your account and what will clear your account soon, and the only epithet that can be ascribed to your personal financial style is indeed “reactive.”

Indeed, that’s NOT your discretionary income and that’s NOT how much money you really have in the bank, and therein lies the problem. What’s left after paying the next bills is money you should be setting aside incrementally for later rather than spending now, and the balance the bank is reporting back to you is only a snapshot in time — a mere sentence in a story being told to you by a very accurate but uninspired bean counter. You need to break free from these two terrible financial trompe-oeils.

Putting Out Fires Without Seeming To Be Doing So
The question I really wanted answered when I began budgeting is, “How much money do I need to have at any specific point in time?” I wanted to know how much money comes in and when and how much has to go out and when so that the sums needed will be ready when they need to exit my account.

Ideally, what I wanted to make my life easier is to pay everything that needs to be paid in the course of the year on payday — 26 times a year.

— I need to pay you $X per year? Here’s $X / 26 today.
— I owe you $Y every year? Here’s $Y / 26 today.
And so on.

That ideal was just that: an ideal that could never be turned into a workable idea, because who I am to single-handedly change how the world does business just to cater to my quirky desire? Or could the spirit of this ideal be made to work in the real world?

So I started to think about having dividers in my bank account, an idea I freely admit was inspired by Gail Vaz-Oxlade‘s “magic jars” except that I visualized my jars as being electronic and I wouldn’t be filling them up front with the amount of the next payment in that category.

Indeed, I wanted to have something like “sub-accounts” within my account so that I would be able to say at any time, “This amount is how much I have set aside so far for the next rent payment” and “This amount is how much I have set aside so far for my next dentist’s appointment.” I wanted ONE number for each big category of needs as if I were able to make an installment on each on payday, but instead I would squirrel away each amount it its own divider so that it would be ready when the time to pay would come. If only I could figure out the amount I should have in each category right now and applied that theory going forward, none of my sub-accounts would ever go below zero, right?

There were only two problems with this idea as I pondered it for a little while.

  1. I couldn’t set up such virtual dividers in my account — at least at my bank and I doubt at any bank — and having a separate account for each need would not only be unmanagable but probably would also be disallowed by the bank.
  2. It seemed rather silly to have a “large” amount of cash sitting in a regular chequing account that returned no interest on deposits, not to mention that I could, in a moment of inattention, become a victim of the second trompe-oeil I mentioned above.

Those weren’t really problems, though. I would just have to represent my dividers on a spreadsheet, and the bank not only allows me to have a separate savings account that gives a bit of interest on deposit but also permits unlimited transfers back and forth between my chequing and savings account. So on each payday, I need to know exactly how much I need to set aside (the sum of all my needs) and exactly how much will be payable in the next 14 days. If the former is larger than the latter, I move the difference to my savings account, and I transfer in the opposite direction if the latter is larger than the former.

Thus that savings account, which gives me ridiculously-low-but-better-than-nothing interest on deposits, has become my “reserve” bank account, and I have a spreadsheet tracking it with all my wonderful “needs” category (see Table 1). Each category of fixed expenses has two columns: the first to enter money being deposited or taken from that category and the second for the balance within that category. Each payday has two rows: one to deposit the amounts and one to withdraw the amounts. And there’s an extra row for the first business day of every month to record the interest that the bank pays me, which goes into a “contingency” savings set of columns that I try to keep at $1,000 at all times. Despite what I’m about to tell you below, I recommend that you give yourself that float even if you’re in debt repayment mode.

The “Reserve” Account: Implementing the Yearly Approach to Budgeting
You need to find a point in time — normally a day or two before the payday when you want to start your budget to get out and stay out of debt — to set the counter for each of your need categories to zero — that is, make sure you have what you ought to have right now in each category.

To achieve this, you need to find out exactly how much cash you have on hand at this moment, excluding what should have cleared your account but hasn’t yet for whatever reason. That amount might be insufficient to reset your counters to zero but you’ll just have to borrow the difference. That idea might sound crazy on the surface but that’s exactly what you would have done before you embarked on the budgeting backwagon, except now you’re promising to yourself that this is going to be the last time you’re ever going to borrow from Peter to pay Paul.

As I mentioned in Part 3 of this series, if you have any accessible savings, namely those that aren’t tied up in an RRSP or non-refundable GICs, you need to count them as “cash on hand” because they have no significance when you owe far more than what you have.

So true is this statement that even if you do have a non-registered, non-refundable GIC, you should think long and hard. Isn’t it worth foregoing the interest for cashing it in before maturity if doing so will bring the date you’ll be reaching debt-free status closer, and by how much would you be delaying that date if you don’t cash it in now? How much more interest will you have to pay on your debt for not putting this GIC in the till now? Indeed, the odds are virtually nil that you’ll earn more interest by leaving that GIC mature rather than cashing it in now. If this non-refundable GIC is with the same bank as where you have (or are planning to have) your LoC, you might have more luck in being released from such a GIC, especially if the bank knows what you’re trying to achieve and understands that you’re not just being a flake.

Table 1–The Reserve Account
In this example, I’m pretending that I’m starting my budget on the period of 10 Nov 2016. I’m only showing 3 categories due to space limitations and I’m skipping the monthly row where I record the interest I receive and automatically move to savings.

I currently have 13 “needs” column set in my real spreadsheet. The last set of columns — with three columns instead of just two — allows me to manually enter whatever is left over from the paycheque that will go toward debt repayment (when you’re paying off debt) or savings (once you’re in the clear). Plus as I just mentioned, I also keep a loose $1,000 in this account as a contingency fund that I can dip into for unforeseen expenses, which I bring back to $1,000 as soon as possible even if it means less debt repayment (or real savings in my case) during the next period or two.

The first step is to go down the “+/-” column, one category at a time, to enter as a negative the amount that must go out (that is, be returned to your chequing account) in each “Amounts due” row — but leave it blank if nothing is to come out during that period. To do this, I found it helpful to map it out on a sheet of paper. On the page, one row represented a category and, next to it, I would list the due dates. For example, I had “Electricity: 17 Feb, 17 Apr, 17 Jun, 17 Aug, 17 Oct, 17 Dec,” but I simplified in cases like “Rent: 1st of month” or “Car Insurance: 19th of month.” I also had a perpetual online calendar handy to keep track of when those dates fell on a Saturday, Sunday or holiday so that I could advance the date of payment to the next business day, which sometimes meant that a payment due at first glance in a given period should be advanced to the next period. This is more likely to happen around end-of-year holidays.

Then, go back to the top and, in the same category column but in the “Reserve” rows, enter the amount that should have been contributed by paycheque (see Table 2). The further into the future you go, the better, although I don’t know too many people who are as compulsive as I am and will go 10 years ahead.

By the way, the “Floor” cell for each category has a formula to find the smallest value in that category’s “Bal.” column and you will use it to ensure you never go down below 0.00 in that category.

Date Description Account Rent Garage Electricity
+/- Bal. +/- Bal. +/- Bal. +/- Bal.
Floors >>>   0.00   0.00   0.00
09 Nov ’16 RESET TO ZERO 256.87 256.87 207.60 207.60 27.72 27.72 21.55 21.55
10 Nov ’16 Reserve 486.93 743.80 415.40 623.00 55.38 83.10 16.15 37.70
10 Nov ’16 Amounts due 0.00 743.80   623.00   83.10   37.70
24 Nov ’16 Reserve 486.93 1,230.73 415.40 1,038.40 55.38 138.48 16.15 53.85
24 Nov ’16 Amounts due -1,020.00 210.73 -900.00 138.40 -120.00 18.48   53.85
08 Dec ’16 Reserve 486.93 697.66 415.40 553.80 55.38 73.86 16.15 70.00
08 Dec ’16 Amounts due -70.00 627.66   553.80   73.86 -70.00 0.00
22 Dec ’16 Reserve 486.93 1,114.59 415.40 969.20 55.38 129.24 16.15 16.15
22 Dec ’16 Amounts due -1,020.00 94.59 -900.00 69.20 -120.00 9.24   16.15

For each category set, the “Floors” cell should show the lowest amount in that column, which is most likely a negative. Enter that amount as a positive in the cell at the intersection of “RESET TO ZERO” and “+/-“.

Then, if you notice that the balance in that category never goes back to 0.00 after the first time, you can reduce the amount in the “Reserve >>> +/-” directly above the smallest balance by the amount of that balance. Indeed, that means that you’ll occasionally set aside a bit less in some periods. It might only be a few cents or a few dollars, but it’s still worth the effort to assign it instead to debt repayment or savings, depending on what stage you’re at in your financial life. I’ve bother doing this for amounts as low as $0.95!

The result will be that the tiny balance will become 0.00 in the row showing when the payment gets transferred to your chequing account. You might detect a pattern and insert tweaks to the amount to be saved every Xth period to force a category’s counter to go down to 0.00 more frequently, as there’s no point in having a surplus locked into a category column when it would serve you better to pay off debt or in savings.

Of course, it’s a sad fact that prices tend to change — mostly upwards but occasionally downwards. Fortunately, they tend to change one at a time rather than all at once. You’ll need to update that category from the time of the price change (the amount due starting from the date of the increase onwards) and the amount to set aside going forward (per Table 2 below). This would be a good opportunity to reset the column’s counter to zero from the point of the increase. However, what you’ll find interesting is that even a substantial increase won’t seem so bad. In the span of a year when I went from owning an old car to a new car, the insurance on it went up several hundred dollars a year but this increase translated to only $14 per paycheque, which demonstrates very well the “shock absorbance” qualities of the yearly approach to budgeting.

After you will have repeated this exercise for each column set, the “Bal.” cell at the intersection of the “Account” column on the “RESET TO ZERO” row may show an amount that is greater than the amount of cash you have on hand. But that’s okay. Part of your debt consolidation plan might mean that you’ll have to increase your debt sligthly by borrowing from a line of credit or, if you must, a credit card cash advance, just to bring each of your “must pay” columns where they should be at this point.

Table 2–The Fixed Amounts Per Category
My fixed reserve categories are as follows, but yours could obviously be different (for example, if you have a student loan or a car payment). Notice how 2 times what’s in the period column doesn’t add up to the amount in the month column? That’s why I’ve been saying all along that taking a monthly view doesn’t work! If you get paid 26 times a year as I do, you’ll have to save a bit less each paycheque than the monthly amount divided by 2. THIS is how you get to see the effect of your two “extra” paycheques!

Description Amount Time / Yr $ / Yr $ / Month $/Period
Housing Rent 900.00 12 10,800.00 900.00 415.40
Insurance 35.05 12 420.60 35.05 16.18
Electricity 70.00 ¤ 6 420.00 35.00 16.15
Water Heater 26.07 6 156.42 13.04 6.02
Transportation Insurance 100.64 12 1,207.68 100.64 46.45
On-Star Roadside 700.20 0.33 233.40 19.45 8.98
Garage Rental 120.00 12 1,440.00 120.00 55.38
Permit & Registration 345.06 1 345.06 28.76 13.27
Telephony Cell Phone 45.37 12 544.44 45.37 20.94
Technology Cable & Internet 130.97 12 1,571.64 130.97 60.45
Web Hosting 45.00 * 12 740.00 61.97 * 28.46
Medical Dentist 150.00 3 450.00 37.50 17.31
Personal Haircut 46.00 9 ** 414.00 34.50 15.92
TOTALS 18,743.24 1,561.94 720.91
¤ Often a bit less than that, requiring occasionally adjustments to reset to 0.00.
* A service certificate for about $200 CAD is renewed once a year but the monthly fee is about $45/month the rest of the year. Amounts vary a bit due to the CAD/USD exchange rate, requiring occasionally adjustments to reset to 0.00.
** It’s really 8.77 over several years but I use 9 as the denominator and occasionally make adjustments to reset to 0.00.

I don’t know about you, but I find it very interesting that the amount I have to save each paycheque ($720.91) is considerably less (and less painful!) that my biggest expense each month (apartment and garage rents, $1,020.00). Plus I love no longer being among those who say, “Oh, well a huge chunk of this paycheque is going to get eaten up by rent.”

Note that my food allowance is not here because it’s part of the $400 per paycheque “allowance” I give myself that also includes my housecleaner and …uhmmm …yeah, smokes, all of which I’ll explain in next part of this series.

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How to Get Out and Stay Out of Debt
Part 3–Start Yearly, Not Month-to-Month

Balancing Wants and NeedsThe first tip for someone who meets the requirements I listed in Part 1 of this series is definitely to move away from living paycheque to paycheque. However, when mapping out a budget, you should definitely not take the month-to-month approach, either.

For those of you who get paid every two weeks like I do (i.e., 26 times a year), did you ever wonder why you never seem to get two “extra” paycheques per year? We think of a month as being four weeks and we know that a week has seven days, so why does 4 times 12 equals 48 and 52 minus 48 then divided by 2 not translate to 2 extra paycheques a year? Well, of course, it’s because months have 28 to 31 days. Only February has 28 days, three years out of four, with the fourth February having 29 days, four months have 30 days and seven months have 31 days. In other words, “one month equals four weeks” is a false axiom that needs to be avoided.

What’s more, while many expenses are monthly, most follow a different timetable. For instance, rent, car and apartment insurance, cable (a want I can afford) and telephony are billed monthly. However, I have to go to the dentist every four months (i.e., 3 times a year); I get my hair cut every 6 weeks (i.e., 8.67 times a year); my power and water heater bills need to be paid every two months (i.e., 6 times a year); my car registration and plates (the car being another want I can afford) are billed annually…

Necessary Outputs…
Start by making a list of every conceivable expense you must pay in the course of one year. I’m talking needs here, not wants, but I do mean EVERYTHING! Don’t leave anything out! Don’t forget bank fees or interest you’re having to pay on debt. Don’t forget haircuts. Don’t forget all types of insurance. Anything that comes back like clockwork! For food, have “groceries” and “eating out” on their own line but combine those two totals, and remember that this is not the time to put yourself on a food diet just to come up with a smallish but unrealistic number.

Now although I’m saying you should list everything, don’t go down to ridiculous details. Don’t have a line item for toilet paper and another for toothpaste! Most people buy their toilet paper at the grocery store, so there’s a wonderful bit of poetic irony in lumping it under “Groceries” since you use it mostly to wipe your ass as a result of what you ate.

Leave out savings for now. If you have some that are automatically deducted from your paycheque by your employer and placed into a pension or dividends-sharing plan, you’re already not counting it as take-home money (below) so you haven’t been getting that money into your hands to spend (although you might find out later that you should temporarily be contributing less to such a plan… but we’re ahead of ourselves at this point). However, like I just said, do include how much you’re paying against your consumer debt, although that number, too, might need to be altered soon (probably upwards this time) after you’ve done this exercise.

If you have been saving on your own — let’s call it self-directed savings, like automatically transferring 5 percent of every paycheque into a savings account — you’re probably wondering why I’m suggesting that you leave this line item blank for now. Quite simply, it’s because you’ll be adjusting that number real soon in that you might even be discontinuing this practice in the short term because there’s absolutely no point in socking away money that earns you a paltry 2% in savings interest (if that!) while you’re having to pay five to ten times that much interest (if not more!) on consumer debt. In fact, if what you have saved is not locked into a registered retirement plan (RRSP) or a non-refundable guaranteed investment certificate (GIC), I’ll be suggesting in Part 4 of this series that you take that money and plan on using it on your needs that are just around the corner. It’ll do you more good that way, because your savings are almost passive at this point while your debt is aggressively active and killing you financially.

A GIC is otherwise known as a fixed-term deposit. The amount you deposit becomes known as your capital which you’re guaranteed never to lose. If the GIC is refundable, you can cash it before the end of its term and you will get back your capital as well as the interest you’ve earned to that point. Typically, because of this flexibility, the rate of interest paid is lower on a refundable GIC than on a non-refundable one of equal duration. For having agreed to pay you more interest on a non-refundable GIC, the bank can refuse to allow you to cash it before it comes to term and, if the bank does allow you to cash it, it will only give you back your capital and maybe, but not likely, the interest that’s been merged into your capital on a multi-year GIC. As this type of deposit is non-registered when not under the umbrella of an RRSP or a Tax-Free Savings Account (TFSA), you will have to pay income tax on the interest earned, to be declared on your tax return for the year during which the GIC came to maturity.

In Part 2 of this series, I suggested that you self-consolidate your debt with a line of credit (LoC). However, the minute you decide to work your way out of debt, you should also work on making bank fees, including interest payments, your Enemy Number One. Right now it’s a need (because you have no choice but to pay it because at one point you chose to borrow) but it’s one of the few needs out there that can be converted into a want… and who WANTS to pay the bank anything?!

You should never, ever make evading paying taxes part of your budgeting strategy, as frankly it reeks of Trumpian immorality and risks to come back to bite you in the ass. But banks are not the State; they’re huge businesses. You should only pay for services they render AND minimize or outright refuse (if you can) that they render you the service of loaning you money.

If you must borrow money from a bank, as is likely necessary for a mortgage, don’t be lazy or a creature of habit. Shop around! “Loyalty” is a word that has meaning to banks only if it helps their bottom line, so you owe banks shit in terms of loyalty when it comes to your financial health. Once you do get out of debt, you should find ways of symbolically getting back some of the money you paid in interest and fees even if it’s not from the same bank that charged you those fees. But only once you’re out of debt can you transform banks into merely a safe place to store your money and, more importantly, a driver to EARN you more money, which loops back to the notion of how being out of debt is a means of opening up your array of financial choices.

When you finally do get out of debt, the number on that savings line will definitely change again because you’ll be reassigning a good chunk if not all of what you’ve been putting against your debt to savings. In fact, when you do reach that point, you should split that savings number into at least two categories (long-term versus short-term savings, including a smallish fixed amount in the latter that should be held ready for emergencies or spontaneous splurges and that you’ll replenish after dipping into it). In turn, those two categories will be divided even further but, yes, you’ve guessed it: we’re ahead of ourselves again.

Now I can’t say it enough: If your budget depends on starving yourself, then it will certainly fail, so don’t put a ridiculously small amount on that line. If you’re a smoker and your budget depends on you quitting smoking, it will fail if you fall off that wagon even though you know you shouldn’t be smoking in the first place and you’ll be beating yourself up for having failed at not just one but two things! Talk about self-sabotage! You might consider reducing your smoking with the goal of ultimately quitting, but in this first step of building your budget, you shouldn’t low ball. In fact, you should never low ball expenses on a budget — high balling a bit, on the other hand, might not hurt in that the difference can go toward your debt — and in this example, you should definitely be writing down exactly what your smoking is costing you. Yes, I recognize that smoking is a want, not a need, but a want like this one can’t be dismissed so easily and the point of this exercise is to identify exactly where every cent of your money is going.

…and Actual Net Inputs
Then you need to find out exactly how much money you’re taking home in the course of one year. Now I didn’t say “what you could be taking home.” I said “how much money you ARE taking home.” Winning the lottery cannot be part of this equation, nor can “I might get $1,000 if I sell these lovely little widgets I’ve been making in my spare time.” Selling those widgets might be part of what Gail Vaz-Oxlade calls your budget booster challenge, but again we’re ahead of ourselves at this point.

Pull out a year’s worth of pay stubs if you have to, but don’t eyeball this number. In fact, contrary to listing your needed expenses, here it’s better to low ball. That’s because when you’ll be constructing your budget later, you’ll be basing yourself on what you’re certain will be coming in. Then if you come across a few extra bucks once you’ve already made peace with counting only on expected income, you’ll just accept that this extra should go on debt repayment if you’re still at it. And if you’re not still at it, you should be so accustomed to this discipline by then that you could allow yourself to maybe skim off a few bucks as a little “reward” but put the lion’s share into savings.

See? Real choices will become possible!

Time to Start Doing Some Math!
After all of this tallying, most of you are probably going to find out that the sum of your needed expenses (outputs) is lower than the sum of your incomes (inputs) — unless you’re paying more than you can afford on food or housing — and that’ll seem counterintuitive at first because you never have any money left over. Surely you must have forgotten something, right?

In fact, that statement is so counterintuitive that many of you might dismiss it as impossible before even going through this exercise. But you really should go through this exercise of listing your outputs and inputs over a whole year because that difference is the amount that you’re frittering away on mindless micro-purchases.

That difference is made up of hundreds of little pieces that you can’t see anymore and that you long ago stopped appreciating. It’s the coffee every morning on your way to work. It’s the muffin during coffee break every other day. It’s that impromptu outing last week and the one two weeks before that. It’s the great item of clothing you just couldn’t leave on the rack, and the latest toy that everybody says is the best thing since the personal computer itself and that you couldn’t see yourself existing without. (First-world problems…)

You might be thinking that I’m about to advise you to cut out all the little pleasures of life, but I’m not. However, if indeed you’ve just found out that your expenses for your needs are lower than your real net income, you’ve just discovered what you’ve been doing wrong. Indeed, it means that you shouldn’t be in debt in the first place and there has to be a way of getting you out of debt and staying out of it.

You just need to come to terms with the fact that the multiplication of all those mindless micro-purchases has finally come to royally bite you in the ass …or more accurately, the pocketbook. You also have to come to terms with the fact that you’re currently not in a position, while you’re in debt, to have choices. And you have to come to terms with the fact that, when you’ll be out of debt, sometimes the choice will have to be to say No. But, thankfully, when you’ll be in a postion where you have choices, the answer won’t always have to be No. The answer can sometimes be a carefree Yes, and other times a well-pondered Yes …in a few months, after I’ve realigned my short-term priorities.

Depending on the size of the gap, you’ll probably find that you’ll have the choice to include more wants than you might think. For example, I could have been dogged and said, “I’m paying way too much for those haircuts! I’m going to start just going to a barber instead.” However, given that I don’t get out much, getting my hair cut by Gabriel every six weeks is a bit of an outing for me. So is $225 more a year in my expenses column going to make that much of a difference if, elsewhere, I cut out or cut down on that from which I don’t derive nearly as much pleasure? (Gosh, I’m almost making it sound like Gab gives me a happy ending for that money!)

Now don’t go overboard with rationalizations like the one I just made for my haircuts! Maybe you’re in such bad shape financially right now that $225 a year WOULD make a difference, small as it may be. But if you’re having trouble figuring out if something is a need rather than a want, ask yourself this: “Will I *DIE* if I don’t get this?”

Okay, maybe that’s a bit of an overstatement. Of course, if you don’t eat enough for sustenance, you’ll eventually die. If you forego shelter and start living under an overpass, you might die. If you don’t pay your taxes or your car registration, you might not die but you’ll almost certainly get in trouble with the law. And if you don’t get that prescription, your condition may worsen… and you may even die if your condition is serious enough.

In Part 7 of this series, I’ll elaborate on how you should go about paring down your expenses. At this point, however, we’re still trying to figure out what your overall needed expenses are so that we can later draw a big red circle around line items that you’re now considering needs but are really wants if you start being totally honest with yourself, and a delicate blue circle around line items that are needs (or ARE they?) but for which you might be paying unnecessarily or more than you can afford.

The next parts of this series will bring you to breaking down these large yearly numbers into functional parts of your budget, so please continue reading!

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How to Get Out and Stay Out of Debt
Part 2–So Did You Cut Up Your Credit Cards?

Cut up credit cardsMost people assume that the first thing I did when I decided to take the bull by the horns and get out of debt was to cut up my credit cards.

Well actually, huh… no. I can’t even say it crossed my mind. Instead, I thought I should take advantage of the fact that, through years of creatively taking from Paul to pay Peter but never getting ahead, I had built an excellent credit rating for myself that would help me get out of debt. Besides that, I’ve never been much of a compulsive shopper, so I wasn’t a danger to myself with a credit card.

So, I kept the cards and, more importantly, my line of credit. In fact, the latter was the centrepiece of my debt-elimination scheme. While I was lucky that I had the low-interest option on my main VISA — about 10 to 11 percent interest annually instead of the more standard 18 to 19 percent — the rate I had on my line of credit (LoC) at the time was even better — about 4.5 percent annually — plus, by that time, I had a pretty high limit (about $35K if I remember correctly).

I handled my LoC as “just another bank account” except that it works in reverse in that a positive number means that I owe that amount rather than have it. Therefore, my first step even before I started my serious number crunching was to take each outstanding balance on the credit cards and move it to this so-called account. In so doing, I self-consolidated my debt.

In Canada, a line of credit is like an open loan that’s always accessible to you. You don’t have to use any of it and if you don’t, it doesn’t cost you anything to have it. However, it’s money you have access to at a far lower annual interest rate than a credit card.

Every month you pay the interest on that balance, but instead of that amount being added to the outstanding balance (as is the case with credit cards, which is what gets you in trouble with them), it is taken directly from the chequing account to which your LoC is linked. The moment you pay off a bit of what you owe, you start paying the interest only on the new outstanding balance. A LoC can be recalled at any time but, in my experience, as long as the bank always gets its monthly interest from you, it’ll be happy (because it’s making money off you) and you’ll be happy (because you’re not letting the bank make AS MUCH money off you).

The balance on my LoC has been at zero for three years except for a 10-day period last year when I borrowed against it to meet the 2014 contribution deadline for my registered retirement savings plan (RRSP). I knew that I had that amount coming to me except it would only land into my main account a few days after that deadline, but the $35 or so of interest I paid for dipping into my LoC for 10 days was only a tiny fraction of what I got back in my tax return for having invested so heavily into my RRSP, so it was money very well spent.

My LoC became the one and only ball I had to keep my eyes on, with the objective of bringing its balance down to zero. If one day I had to use my credit card for car repairs or whatever unexpected event that got thrown at me, I would immediately move the outstanding balance to my LoC, for if a purchase on a credit card is paid off within 21 days of the date of purchase, you pay no interest.

In fact, today I use my credit card for almost all the purchases I make — there are a few for which I’m forced to use cash/direct debit or cheques — and I just pay it off every week. In so doing, I get a bit of money back every month that I use to replenish my gas fund. Indeed, when you budget and keep track of every penny you spend as you spend it, you never have to guess what the outstanding balance on your credit card will be on your next statement. In fact, because of delays in moving funds from my main chequing account to the credit card and for some purchases to clear, my formal monthly credit card statement often has a negative balance as if I’d overpaid.

During that period when I was getting out of debt, because the interest payment on my LoC was taken automatically from my chequing account every month, I treated that fee as one of my recurring monthly payments. As the amount kept going down from the amount I used to set my budget, I used the excess to pay down my debt even more. I built two sheets for this account in my workbook so that I would know, almost to the penny, how much interest I would have to pay on the 8th of the coming month.

When I started my budget, I was pissing away well upwards of $70 a month just on interest for the LoC, but by paying it down at the rate of about $225 per paycheque plus whatever extras I could scrape up, the monthly interest payment started to go down very quickly — as in, in the mid-$60s in only three months of effort. If you quibble that you can’t see how throwing an extra $5 here and another $10 there against a huge debt could possibly make that much difference, I refer you again to this posting to prove to you that it does.

What you need to figure out about yourself with regard to credit cards is whether you can view them — and thus use them — just as if they were cash or a debit card while always remembering that whatever limit you have on a card is NOT your money. It’s the bank’s money, and they’re lending it to you at a considerably high cost. So, during your debt-elimination period, you must view them as an emergency measure to pay for something your need, not want, but for which you don’t have the cash on hand in your chequing account at the moment.

If indeed you can view them like that and if you never, ever carry a balance on them — unless you’re in the situation described in Part 6 of this series, in which case this “never carry a balance” rule will become your objective once you’re out of debt — then they’re not the evil that many people say they are. Be careful about one thing, though: If you pass that 21-day grace period, you pay interest from the date of purchase. So a partial payment (or worse, a minimum payment) doesn’t cut it, because you’ll still pay interest on the full amount of the purchase, not just what’s left to pay on the purchase. (Yes, that’s in the fine print of your credit card agreement, so I can see why people assume that credit cards are inherently pure evil.)

If you don’t have a LoC as I defined above, you need to look into getting one. If your credit rating isn’t in tatters and you approach your bank and say that you want to use it to consolidate and eliminate your consumer debt, they’re likely to give it to you. (In Part 6, I’ll show you an alternative if the bank refuses you a LoC.) They might, however, want you to get rid of all but one of your cards and lower the limit on the one you get to keep, but that’s a good idea because you don’t want your pool of available credit to be too high. Remember that your credit card use will be limited to an equivalent of cash for emergencies when that cash isn’t available at the time in your chequing account, so be sure to ask for a comfortable but reasonably low limit on that card so that your total available credit with the LoC is equal to or only slightly higher than what you currently have. It’s up to you and your circumstances to define what that “reasonably low limit” should be, but the point here is to make the total amount you owe right now your Ground Zero from which you’re gradually going to crawl away.

So the bottom line is that if you’re willing and able to keep your wants in check and spend only when you have the money while you’re in consumer debt elimination mode, you can keep ONE credit card.

What about the debit card? Well, the jury’s still deliberating on that point but I say that it depends on the individual. For me, strangely enough, cash in my pocket is far more dangerous than using my debit card. Indeed, for me, if cash is in my pocket, it’s meant to be spent and I tend to do so mindlessly. However, if I have to pull out the debit card from my wallet, I’m very conscious of the fact that I’m about to spend on something. If in that sense you’re the opposite of me, then I suggest you look into Gail Vax-Oxlade’s “magic jars,” but do one or the other and don’t just carry on as you have been because that’s what landed you where you are right now.

That said, even if you’re one of those old-fashioned cash-and-cheques kind of guy or gal, I suggest that now’s the time for you to step fully into the 21st century and make arrangements so that all your recurring payments — rent, mortgage, power, phone, etc. — are debited automatically from your main chequing account. That way, you’ll always know the exact date the transaction will go through your account and you’ll never pay another late-pay charge in your life. Besides, it can be awfully tempting to “borrow” from one of your jars and then forget to “reimburse” that jar, and then that money won’t be there when you need it. As for those few remaining recurring expenses you must continue to pay by cheque (as I must for rent, for example), consider providing post-dated cheque and assume that it will always clear your account on the date written on the cheque even if you know from experience that it seldom does so.

Finally, if you don’t have an overdraft on your main chequing account, get one! That’s not to give you extra credit even though that’s theoretically what it is but to provide you a cushion in case of mistakes. If you’re the one who makes the mistake, like forgetting to move funds into that account when you were supposed to, swallow your lumps for having to pay for tapping into your overdraft and learn from your mistake. However, if a third-party makes the mistake or, heaven forbid, a fraudulant transaction goes through your account, you’ll be on firm ground to argue with your bank to have any fee incurred as a result of the mistake or fraud reimbursed to you. When my landlord made the mistake of cashing two rent cheques one month, the electronic trail was clear and obvious and the bank waived the bounced-cheque fee, the fee for dipping into the overdraft, and the interest I paid for each day I was in overdraft. It’s also not a bad idea to sign into your online banking every day just to keep an eye on things and immediately catch any mistake that might occur.

Now we’re finally getting to the point where you need to start building your debt-elimination plan, and this is when you really need to work on getting your shit in a pile. The centrepiece of my method is to make sure the money is always ready when you need it without having to think about it on the eve of a “payment due” date. It’s not going to be just a simple spreadsheet listing what you’re allowed to spend on this and that over a month and sticking to it! There’s a lot more to it than that, so hold on to your hats!

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How to Get Out and Stay Out of Debt
Part 1–Accepting That You Need to Go on a Diet

When I happen to tell people that three years ago, I managed in two years to clear $28K of debt and found a way of saving for my retirement while still enjoying life, they all ask me, “How the hell did you manage that?!” Well, I’ll tell you how in this series of postings that I’ll be writing over the coming weeks. My system took a lot of work on spreadsheets to help me map out what I kept visualizing mentally, but I’m sure it could be adapted for someone else in a lot less time now that I’ve ironed it all out.

Cat about to pukeWhen people get the advice that they should prepare a budget, they either roll their eyes or even feel a little nauseous. We tend to think of it as having to go on a diet, and the mere mention of the word “diet” can make anyone feel a little queazy. Trust me, I know: I’m having a dickens of a time trying to find the motivation to start a traditional one — of the food variety.

The analogy doesn’t end there, though. With a diet, if you stop following it or go back to your old eating habits once you reach your goal, you’ll gain weight again. (Trust me on that one, too.) Similarly, if you stop following your financial diet once you reach your goal of getting out of debt, you’re likely to eventually go back into debt.

Pushing the analogy further: a particular diet might work wonderfully for some people, moderately for others, and not at all for others still. Everyone’s metabolism is different, not to mention their appetite (pardon the pun) for physical activity. Well, similarly, everyone has different financial circumstances to deal with, and not everyone has the same appetite for belt tightening and deferring, nor the same definitions for needs and wants. Plus if your needs exceed your income, which is a situation I’ve known at one time of my life, getting out of debt is an outright impossibility. However, even there, by keeping wants to a minimum if not completely cutting them out when you don’t have enough to cover needs, you can limit the damage — that is, the debt.

The tips I’m about to share with you in this series of postings work best if:

  1. your income is enough to cover your needs and (preferably) then some;
  2. you receive a steady income at a steady interval;
  3. you don’t turn all “damsel in distress” on me when I tell you that you have to get used to using and moving around an electronic workbook with many worksheets;
  4. you’re willing to “balance your cheque book” almost every day and move funds frequently from one account to another, and
  5. you’re willing and able to accept what the numbers tell you and move on if they tell you that certain wants will remain wants foreover.

For instance, I need housing like everybody else but I would have wanted to own mine. However, I also needed a plan for my retirement and, after many hours of research and number crunching, I had to come to terms with the glaring reality that, given my age and where I live (and, yes, want to live), I couldn’t have both. Housing prices in Montréal have more than doubled in the last 15 years but salaries certainly haven’t, so my timing to enter the housing market was horrible to say the least. Therefore, I had to take a step back, put a cross on my want to own my home, and move on.

But coming back to the diet: Have you ever gone on one — of the food variety, that is — and had some success on it for a while? It might have only worked for a few weeks or a few months… maybe longer if you were lucky as I was when I managed to sustain it for more than five years. If so, do you remember how proud if not downright euphoric you felt?

Well, I’m anticipating the nay-sayers who say that diets never work by asserting that a financial diet can be just as uplifting, and if you sustain it after you climb out of that hell hole that is debt, you’ll be encouraged to sustain it so that you can see for yourself the array of choices that’ll open up before you. Think also of diets or restrictions some people have to impose on themselves due to food intolerances or allergies. If they start again to eat certain foods, they will become ill or, in extreme cases, might even die. Similarly, debt is an illness that robs you of long-term choices and, if you manage to finally climb out of it, you’re not likely to want to go back to feeling financially rotten.

In terms of needs, you’ll be able with my method to think about and plan for those that are years in front of you. As for the wants, you’ll find that you can allow more than you might imagine right now and, because you’ll have given them a lot of thought, you’ll apppreciate them much more than if you’d succumbed to them on a whim and quickly (and perhaps mindlessly) moved on to the next one to get that next hit of excitement.

So what kind of choices am I talking about? Some are small but some are huge.

Three years ago this coming November, just a month after I’d gotten out of debt, it became clear to everyone including myself that I was miserable in my old apartment. I found the one where I’m living now on Kijiji, but it was available the following January and, as I feared, the landlord at the old place refused to give me a break and let me out of my lease before April. On the surface, it seemed foolish to pay an extra $2,670 over three months to rent two apartments (not to mention the nearly $1,000 in moving costs on top of that). But it was a pity because I’d spent hours upon hours searching and everything I found was a compromise, a downsizing …until I found this one. It had my name all over it!

Sure, before my financial diet, I still could have chosen to rent both apartments, but with the head-in-the-sand approach I had back then, I only would have pushed my debt load well over the $30K mark with no realistic plan to lower it. However, with my diet and newly found debt-free status, on April 1 when the lease ended on the old place, I still had my first $2,000 in savings — the same amount I had when my double-renting period had started on January 1.

Choices… and a whole lot less stress. Now when life throws me a financial curveball, I may not like it — who does?! — but I can shrug it off. When a big annual bill comes due, I don’t even bat an eyelash. When dear friends come to town, I can pick up the tab and make everyone happy yet know that it’ll be paid off by the time I get home. When I decide to go away on vacation, I don’t always HAVE to stay with friends in order to afford to travel.

You get the picture.

And all it took to reach this enviable situation was to accept that I needed to go on a financial diet.

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“We Don’t Have the Priests We Used To”

Père Paul BreauMy father was sitting in the rocking chair and I at the kitchen table one day when I was visiting from Halifax, when he said to me out of the blue, looking blankly in front of him, “We don’t have the priests we used to.”

I have no idea what prompted him to say that. We weren’t talking about the many sex scandals that had plagued the Catholic Church in the decade or so to that point, or at least I don’t think we were. Maybe more allegations had recently come out on the news when he made that unexpected statement to me. However, I was struck by how he, who rarely expressed his feelings, was clearly feeling not just saddened but betrayed, for he was such a devout Catholic. Every weekday evening before his walk, he would go to mass at 6:30 or 7:00, for back then there were enough priests to go around in the Diocese of Moncton to allow such a thing. His attendance was by rote, but this routine clearly gave him so much comfort.

“It was a kindness that rendered him unable to understand why there is so much evil in this world.”

I distinctly remember writing that line in my eulogy to my father in direct reference to his declaration about not having the priests we used to.

My parents being so religious, I had no choice but to attend church every weekend. And truth be told, I was such a good little boy that it took me years to rebel against and reject the Church, although I think I got away with stopping going to church a year or two of age younger than my siblings. I was even an alter boy from about Grade 4 or 5 to Grade 9.

From 1971 to 1981, Père Paul Breau (pictured above) was the vicar in the parish where I grew up. He was very popular because he had such a no nonsense way about him. He wasn’t pompous like Père Maurice Léger, the asshat drama queen who caused me such grief a few minutes before my father’s funeral. In fact, Père Breau had an amusing ritual around Labour Day, which was like the beginning of the new year coinciding with back-to-school, where his sermon was about how he wanted things to run in the parish. For example, he had the reputation of holding the fastest weekend mass in Moncton: 42 minutes if attendance was average so that communion could be distributed as quickly as usual. So one of his demands one year went along the lines of, “I conduct the quickest mass in town, so could you please be respectful enough to let me get to the back of the church at the end of mass before you start spilling out of the church?”

Going back to Père Maurice for a second: I think one of the reasons that his quasi-refusal to let me do my father’s eulogy got so deeply under my skin is because I smelt the closet pedophile off him way before that incident. I realize I’m being slanderous as I can’t prove my intuition. However, when I learned that he had died somewhere in South America in 2009 and was shipped back to Canada in a casket, my immediate thought went to reports of how some dioceses would cover up but punish their pedophile priests by sending them to some godforsaken hole in Peru or Ecuador or wherever. My gut reaction upon learning the circumstances of his demise was the same as I had had when my mother told me about how one of my cousins had “cracked” following a minor fender bender: I immediately thought that he’d cracked not because of the accident, but because he was a closet queer. A few years later, my suspicion was confirmed when I bumped into my cousin at Moncton’s “fruit stand” when instead he was supposed to be at home recovering from appendicitis.

As a teenager thinking back to all the priests I’d encountered when I was a kid, I grew suspicious of all of them except one. There’s even one in particular, a missionary priest who spent a few months in our parish, that to this day I still wonder if he did or, more likely, wanted to do something shady with me. But until yesterday, I always, always thought that Père Breau was one of the good ones.

However, yesterday, one of my childhood friends with whom I still keep in touch through Facebook sent me a link to this news story on CBC. You could have knocked me over with a feather.

The allegations place the complainant’s repeated incidents at the parish where Père Breau was posted after our parish. Strangely, some 24 hours after hearing the news, I still can’t believe it, but that’s not to say I don’t believe the complainant. I think everybody who has known Père Breau are just as shocked as I am. He was one of the few good ones. And right now I feel immense guilt for wishing that the allegations against Père Breau weren’t true. I don’t give a rat’s ass about the other accused.

Thank god my parents aren’t here to witness this news. I might be in shock, but they would be shattered. Then again, given what I just wrote above, I’m probably not just in shock; I’m feeling betrayed, exactly as my father had felt.

As much as I’m agnostic as far as an afterlife goes, I just hope there’s something like “victims’ impact statements” over there for people like my parents who have been so betrayed by these awful men.

I initally posted this entry under “Gender & Sexuality” but quickly changed it because sexual assault is about violence, not sexuality.