How to Get Out and Stay Out of Debt
Part 5–Cash-Flow Time-Mapping

Spreadsheet Heaven or HellIn traditional accounting, cash-flow mapping is not a budgeting tool but an awareness tool designed to show you what’s left after you’ve taken care of all your fixed expenses (that I call needs) and how you then disburse what’s left.

What I needed after figuring out how much I have to put aside per paycheque for each of my need categories is my own cash-flow time-mapping method, which consists of chronologically plotting by pay period for an entire year exactly when sums of money will be coming in and when sums of money will be going out. But I still needed two amounts: How much would I putting on the debt each period and how much did I have to eat and live?

Beyond Needs: How to Distribute the Remainder
My situation was peculiar because only days prior to starting my budget, I had asked my employer to stop deducting an extra $225 per paycheque for income tax. I had made that request when I started working in mid-March 2006 under what was officially a one-year contract because I thought at the time that I would be able to continue work on my freelance business in the evenings and on weekends, but for two reasons it didn’t work out that way.

  1. The day job was far more intense than I imagined it would be and thus I didn’t have much energy left in me on weeknights to do anything but zone out.
     
  2. I didn’t charge clients for work I did manage to do on the side out some sort of weird sense of obligation that I had to complete, albeit late, stuff to which I’d committed myself prior to starting my day job (which demonstrates why I was a lousy freelancer).

At the end of the first year at the day job, I got renewed for another six months and, before that came to term, I became a permanent employee. By that time, however, I was no longer doing any work on the side but, thinking that I might still come back to it one day, I didn’t ask my employer to stop deducting that extra $225 per paycheque.

One thing I did do while I was still considered a contract worker is to fool myself into thinking that the job would remain a contract and would eventually end. So I came up with a crude budgeting method at the time that had me living as though my income had remained below poverty level and I would put every cent I didn’t spend on living toward my debt which, at that time, was about $33K. By living as a pauper with a decent salary, I got my debt down to the high $9K in a year and a half.

Alas, personal events in subsequent years, like getting married and divorced almost à la Britney Spears, permanently moved my eyes from freelancing, yet still that extra deduction kept being retained from my paycheque. Worse, I completely abandoned any semblance of budgeting and started getting back into debt. So when I finally got my employer to stop making the extra income tax deduction, that $225 that I never got to see, let alone spend, in over 5 years became my mental benchmark of the least I should be putting towards my debt every payday.

My situation was peculiar if not unique. However, your equivalent might be that 5 percent per paycheque you’re automatically stashing into self-directed savings or a percentage you’re voluntarily contributing into a non-registered shared-dividends savings program at work. (“Non-registered” would mean that you’re not getting a tax break for your contributions and the dividends your employer pays you are taxable on your tax return each year.) During your debt repayment phase, you should certainly discontinue the former and find out if you can temporarily opt out of the latter with little or no penalty until you get your financial house in order. This is all part of maximizing the impact of any savings you have. And if you’re allowed to withdraw part or all of what’s in that savings plan without penalty or tax consequence, you should in order to use that money as part of implementing your reserve account and possibly even put a dent on your debt if the withdrawn amount is sizable.

When I restarted to budget in late 2011, I was at an emotionally and psychologically low point of my life. Outside therapy, I asked myself when was the last time I felt really GOOD and, moreover, what contributed to that feeling. I realized that it was when I had become permanent at work in the summer of 2007, which coincided with the time I had just cleared a shitload of debt. I felt so proud of that achievement that I felt invincible and, more importantly, that I had a more certain future and some flexibility to make choices. Unfortunately, I hadn’t learned yet that flexibility only comes when you’re totally out of debt, not just partially.

Nevertheless, by late 2011, my state of mind was such that I had neither the energy nor the desire to cook at home. I lived on take-out and restaurants. But now I was confronted with this pesky matter of the cost of eating, one of several needs I hadn’t accounted for yet. Thankfully, my brush with poverty had instilled in me a way of eating cheaply, albeit not necessarily healthfully.

So I combed through several months’ worth of statements to try to find out how much I spent on average on eating, including the odd groceries I’d sometimes get. When I discovered, much to my surprise, that I averaged about $100 a week and considered that this was one area that I probably shouldn’t skimp or make contingent on always eating at home, I decided to keep that number — so, $200 per paycheque for food, whether groceries or eating out.

To that I added the bi-weekly cost of cigarettes while, at the same time, tried a new-to-me quit-smoking method. If that method worked, I would eliminate an expense; if it didn’t, I had planned for that expense. It turned out it failed, so the latter applied in my case and I didn’t beat myself up for having spent close to $1,000 on something that didn’t work.

Fine, but even with a number for food and cigs, there was no living in there — no occasional coffee on Friday night, no movie nights out, no bottle of wine to sip on while watching TV on weekends, no gas in the car, no nothing! Yet what I wanted most eagerly is to get out of debt. So thus begun an afternoon of working on two cells and two cells only in my then workbook. What was the most I could put on debt repayment without driving myself crazy, which would effectively sabotage my whole plan? By what date might I be out of debt if I put this much rather than that much? I knew that these were merely estimates, since I lacked a crystal ball to predict the unexpected which, indeed, did come. Should I stick to $225 per paycheque on debt and the remainder go on food, cigs and etcetera, or should I keep the latter as low as possible to attack the debt more aggressively?

I opted for a compromise. Again taking into account my state of mind at the time, I realized that I would feel resentful if I cut too close to the bone (for example, “Here I am, making good money for a single Canadian male, and I can’t even afford a cheap bottle of plonk!”). So I gave myself what I viewed as a generous allowance of $400 per paycheque. (Remember that I’ve known practically not having a pot to piss in, so that’s why that amount struck me as generous.) If I spent it, fine! It was planned in the budget. But if I didn’t spend it, whatever was left from this period’s $400 would automatically be added to debt repayment in the next period.

The only condition I imposed was that I was not allowed to go beyond $400 and, if I did go over a little bit, it would be deducted from the $400 for the next period. I only started using my savings account as “reserve account” a year later as part of an effort to understand why my budget had needed a few adjustments in its first year, so if I did go over in a period, the deficit was on paper only and there were funds in the account to cover it. (It turned out that the adjustments were necessary due to an error in the logic in my spreadsheet rather than a problem caused by not physically moving reserved funds into another account, but I figured that out only after I had convinced myself that the “reserve account” idea was cleaner.)

So I devised a spreadsheet to record day by day how I spent my period’s allowance and connected it to my cash-flow time-mapping spreadsheet below. Over the years I revised the detailed spending spreadsheet so that I can report exactly how much I’ve spent on about 75 categories of expenses — some needs, most wants. Compared to most people, I have a lot of wants on which I’ve spent nothing, but those are the choices I’ve been making and I haven’t felt in the least bit deprived.

One Period More or Less Like Any Other
The following excerpt showing my mapping for the period from 24 Nov 2016 to 7 Dec 2016 is an interesting example because there’s one expense (Dentist) that comes only 3 times a year while the others are monthly.

Cleared Date Description Amount Tally Real Balance Reserve*
24 Nov Paycheque 1,579.11 1,579.11 1,579.11
24 Nov Fixed Reserve -1,229.11 350.00 1,579.11
24 Nov Planned Expenses for Period 1,758.70 2,108.70 1,579.11 -529.59
x 24 Nov Long-Term Savings Account 1 0.00 2,108.70 1,579.11
24 Nov Long-Term Savings Account 2 -508.65 1,600.05 1,579.11
28 Nov Dentist -150.00 1,450.05 1,579.11
30 Nov Expense Reimbursement 50.00 1,500.05 1,579.11
01 Dec Apartment Insurance -35.05 1,465.00 1,579.11
05 Dec Apartment & Garage Rental -1,020.00 445.00 1,579.11
05 Dec Monthly Web Hosting Fee -45.00 400.00 1,579.11
07 Dec Cash flow (Food, Cigs., Housecleaner, etc.) -400.00 0.00 1,579.11
  • On 24 Nov and beyond, this spreadsheet automatically marks the first and last row as cleared.
  • * Reserve: When the amount is negative as it is here, that means I have to transfer that amount from the reserve to the chequing account in order to cover the coming expenses and my $400 period allowance. But had the amount been positive, that would have meant I would have had to transfer that amount from the chequing to the reserve account yet still get to cover coming expenses and my $400 period allowance.
  • I know I wrote previously that you should assume that a cheque will clear your account on the day that’s written on the cheque, but I’ve come to know my landlord well enough by now to know that 5 days into the month is the earliest he’ll probably deposit it. But on the reserve side of my ledger, I stick to the unlikely assumption that the cheque will clear on the first business day of the month.
  • The cell in the last row that current reads -400.00 is connected to another spreadsheet on which I keep track of each day’s spending. On 24 Nov, it automatically changes to 0.00 and then goes down each time I enter an amount spent on the other spreadsheet.
  • Each time I manually mark an entry as cleared, the corresponding number under real balance (in green) changes to the exact balance in my account, except the cell in that column on the last row (in dark red) always shows the exact amount in my bank account that I can freely spend from my per-period “allowance” (thus preventing me from spending money that’s already been earmarked for something else).

By this period, I’ve already maxed out my contributions to the Québec Pension Plan and Employment Insurance, but having looked a year ahead, I don’t spend the extra cash. Instead, I put much more aside into long-term savings than I normally can through the first 10 months of the year. And I even get to pay myself a $50 bonus over the period that covers Christmas, which I suppose I could also afford to do for my birthday period as well, for if I start doing that for the next 8 years, I don’t think the missing $400 will make much difference when I’m retired. Again, see how budgeting actually increases choices you can make?

This whole plan of using the year as my base and projecting far into the future worked like a charm! Even while I was attacking my debt, I knew I could still go out if I wanted to — and I did! — but the challenge to myself was to see how little I could spend in two weeks. The fact I set my start date sometime in early November 2011 helped, as I’m notorious for not going out more than I have to during the winter. But when I began to see the long-term effect of throwing an extra $20, $50, even sometimes $100 here and there on the debt, the game actually became fun! Seeing how soon (relatively speaking) the debt would go below $20K, $15K, $10K (!!!) only encouraged me to try harder. If I recall correctly, my initial projection of reaching debt-free status was sometime in mid- or late-Winter 2014, but by challenging myself at my game of “How Little Can You Spend,” I reached this status months ahead of schedule, namely on Thursday, October 17, 2013.

Since that date, I use this method for saving instead of paying debt except that I’m not as hard on myself — although, by managing on average from year to year to put aside 1 dollar out of every 5 I take home, I think it’s safe to say that I probably fall into the category of “super saver.” And that doesn’t even take into account how much I save by contributing to my employer’s pension and shared-dividends savings program, nor how much interest I’m earning on savings under both registered and non-registered plans.

When I say “I’m not as hard on myself,” I mean that if I finally go on that trip to Mykonos that I’ve long been promising myself, I won’t regret it when I’m a pensioner because I know I won’t be a starving pensioner due to going on that trip. Even the $400 100-ml bottle of that perfume I like so much is not even a dot on the radar! The number I’m staring at for Retirement Day is pretty sweet considering it doesn’t even take into account the pensions I’ll be getting when I retire.

I just KNEW that looking beyond the paycheque or even the month held the secret to successful budgeting! Of course, planning and some discipline is also part of the equation, but being a total cheap wad is not. My experience does lend some credence to Scotiabank’s slogan, “You’re richer than you think!” But there’s one important condition for that to be true. When you finally do climb out of debt, promise yourself to never, ever go back there. If you can’t afford something right now or in the very near future, or that getting that something will seriously compromise your so-called golden years, that means you can’t afford it, PERIOD. Suck it up, buttercup!

In a later part of this series, I’ll look at how you should consider dividing up your savings, because as much as it’s important to think of retirement, you probably have a whole lot of living before then, so you need not to put all your proverbial eggs in the same basket. However, this is quite enough for this part…

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