How to Get Out and Stay Out of Debt
Part 6–So the Bank Said “No Way, José,” Huh?

Oh Dear...So you asked your bank for a line of credit (LoC) but they looked at you and laughed, huh? Gosh, I’m sorry to hear that! It would have been helpful but either the bank rep you spoke to is an asshole or your credit is so bad that it was high time that you started doing something about it.

Well okay… *SIGH* No point crying over spilled milk. At least if you’re still reading through this series, it means you’ve done your homework and you know that there’s more money coming in than there needs to go out, so you’re not a candidate for bankruptcy …at least not yet. That’s if you told me everything, right? For if indeed your needs including minimum payments on your credit cards have you right up against the wall with no room to move, then yeah, maybe you came too late to the realization that you’re in deep financial trouble.

Maybe that’s why the bank laughed at you.

Oops! Sorry… Oh cheer up! Perhaps my method can be applied in the framework of a consumer proposal plan or, if it’s really bad, outright bankruptcy. If you’re well behaved, you’re likely to be given very limited credit in a year or two to prove you can be responsible with credit and at the same time start rebuilding your credit history while you’re still under bankruptcy (NOT under a consumer proposal, though), which typically last 7 years. And you’ll definitely be able to use my method to do that and stay out of debt afterwards.

Wait! What’s that? You’re not up against the wall? My method showed you that you DO have some manoeuvring room but it’s just that the bank didn’t buy into your idea for a LoC?

Well then, in that case, there’s a well-known tried-and-true alternative for you. I don’t like it as much as the LoC method because you’ll end up having paid a lot more interest by the time you finish getting out of debt, not to mention that you’ll have to keep your eyes on several balls at once. However, if those are the cards you’re being dealt, you’ll just have to grin a bear it.

The Debt-Stacking Method
Here I’m just going to point you to Wikipedia.

The debt-snowball method is a debt reduction strategy, whereby one who owes on more than one account pays off the accounts starting with the smallest balances first, while paying the minimum payment on larger debts. Once the smallest debt is paid off, one proceeds to the next slightly larger small debt above that, so on and so forth, gradually proceeding to the larger ones later. This method is sometimes contrasted with the debt stacking method, also called the “debt avalanche method,” where one pays off accounts on the highest interest rate first. (emphasis mine)

As you have guessed from what I’ve written previously, I prefer getting rid of the debt with the highest interest rate first, regardless of whether it’s the smallest or the largest. I understand that it might not reduce your number of debts quite as fast, but the interest rates are the real killer.

Before you even start, you should also see if you can transfer the balance from your high-interest cards to the lowest-interest card you have, effectively still attempting a kind of consolidation. In fact, while the bank may not have wanted to give you a LoC to consolidate your debt, it might accept to replace your current card with one with a low-interest option and transfer the balance onto it. Since this card will become your LoC substitute, you can only add extreme “contingency” spending on it, like a flat tire or something you couldn’t reasonably see coming because, from now on, that’s the only way you’ll ever be using credit.

The bank will probably try to talk you out of their low-interest option card if you’re the one who brings it up, though. They’ll say stuff like, “Oh, but there’s an annual fee of $20 on that one and yours has no annual fee, plus it doesn’t give you any air miles/cash back,” but just give them your best “Are You Seriously Kidding Me” look because $20 is a drop in the bucket compared to how much you owe and how much interest you’ll have to pay on your lousy current card. They’re making more money on your back in the pickle you’re in now, thus why they’ll resist the idea of the low-interest option card.

So here’s a simple illustration. Let’s say that you have 5 accounts to which you owe and $225 per paycheque to distribute. Instead of doing one payment per month, you’re going to use my reserve method which is every 2 weeks (assuming you get paid as I do). The most “expensive” debt (highest interest rate) is in the first column, the second-most “expensive” next, and so on. If two are as “expensive,” then put the smallest amount owed first so that you can get the kick of seeing that one fall off sooner.

Description Debt 1 Debt 2 Debt 3 Debt 4 Debt 5
Minimum Monthly Payment 45.00 27.00 160.00 9.00 31.00
Week 1 Minimium Payment 22.50 13.50 80.00 4.50 15.50
Week 1 Top Up 89.00 0.00 0.00 0.00 0.00
Week 2 Minimium Payment 22.50 13.50 80.00 4.50 15.50
Week 2 Top Up 89.00 0.00 0.00 0.00 0.00
Paid Over Two Periods 223.00 27.00 160.00 9.00 31.00

Assuming you’re not adding any more to these debts (ahum!), the next series of minimum payments should be lower, although the difference should be most noticeable for Debt 1. Repeat half the minimum payment per period on all cards and the remainder of what’s left to distribute on Debt 1.

Eventually the balance owed on Debt 1 might be the minimum payment plus a portion of the available “top up” amount, so in that case you’ll be in a transitional period when you’ll be able to put some extra on two debts. (The minimum payments below are for illustrative purposes only and could be higher or lower depending on balance owed, interest rate, time, and so on.)

Description Debt 1 Debt 2 Debt 3 Debt 4 Debt 5
Minimum Monthly Payment 5.00 24.00 145.00 5.00 28.00
Week 1 Minimium Payment 2.50 12.00 72.50 2.50 14.00
Week 1 Top Up 98.78 22.72 0.00 0.00 0.00
Week 2 Minimium Payment 0.00 12.00 72.50 2.50 14.00
Week 2 Top Up 0.00 124.00 0.00 0.00 0.00
Paid Over Two Periods 101.28 170.72 145.00 5.00 28.00

Be careful, however, with Debt 1! There might be residual interest to pay from the last month during which you had a balance owing, so you’ll have to throw a few final dollars on it before you can finally consider it really done.

It’s also possible that a debt like Debt 4 in the illustration above might be ripe to be wiped off by topping it up now rather than waiting for its time mathematically. I know that it would make me feel good to knock it off if part or the entirety of the Week 2 top up would be enough to do so even though that debt is not as expensive as Debts 2 and 3. So I leave that up to you!

There’s another thing you need to consider. Maybe the amount you can put toward your debt is so low that, although you can implement this debt-stacking scheme, it will take you more than 3 years to find yourself debt-free. If so, you’re risking debt repayment fatigue.

In that case, if I were you, I would use this scheme for one year and then go back to the bank and try again for a LoC so that you can benefit of the much lower interest rate it imposes. Always paying all your minimum payments for a year — and possibly having paid off a debt or two — will have done a remakable amount of good to your credit rating. And maybe — maybe! — the bank will see that you’re serious about restoring your financial health, so this time they might not laugh you out of the bank when you ask for a LoC.

If they do, change bank.

Your Credit Score = Your Profitability, Not Your Financial Health
Unlike what you might think, your credit score is not about your financial health. In other words, it’s not as much about your trustworthiness with credit as it is about your profitability to lenders. They WANT you to carry a balance. They WANT you to pay only the minimum balance. That’s how they make money on you.

Ironically, while you’ll be following this scheme for a while and pay all your minimum payments and then some in a few cases, your credit score might eventually become better than mine! That’s because lenders don’t like someone like me (and what you’ll eventually become) — someone who pays off his cards in full every month. I’m not profitable in the eyes of lenders. In fact I’m their worst nightmare because I make money off my main credit card!

Your credit score might even take a hit for a few months after you close an account you’ve paid off, so instead you might consider keeping those cards but sticking them under the fridge. However, when you get to be my age and reach not only debt-free status but also have real savings socked away, you won’t really care about your credit score because you won’t need credit that much anymore. Yet if you do need to get a big loan, you’ll be able to point to your assets instead of relying on that score which, quite frankly, is biased since it doesn’t represent what you perhaps always thought it represents…

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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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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.

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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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