Part 2 – Work from Room to Room

In Part 1 we discussed how to get your Financial Deep Clean started by getting rid of your financial junk – regular expenses, usually relatively small, that add up over time. When deep cleaning your house, breaking up the work into manageable tasks by working on one room at a time will keep you from becoming overwhelmed with the overall task. The same is true with Financial Deep Cleaning.

Let’s focus on three financial ‘rooms’; the Kitchen (cooking), the Bedroom (clothing), and the Home Office (Insurance & Interest). But there are additional “rooms” in your household budget that you could also examine such as, vehicles, sports/recreation, and entertainment.

Kitchen

One monthly expenditure on which you can have an immediate and drastic effect is the cost of feeding yourself.

• Save money by developing good food prep habits that you can carry forward after the world returns to normal. For most of us, staying at home in quarantine forces us to cook for ourselves, more than we may have been used to.

• Save money by cooking from scratch. Every time you buy a pre-cooked meal or processed food you are paying someone else to do the work of preparing food for you. Obviously, it takes more time to cook from scratch and everyone must evaluate what their time is worth.

• The amount of savings will differ depending on where and how you buy your ingredients.  However, your food budget will look much better when making more foods from scratch.  Some big winners in this department are bread, roasted chicken, and soup stock, as well as a number of snacks.

Bedroom

First, get rid of deadweight and donate or sell clothes you don’t use or that don’t fit.

• Buy high-quality clothes. While it may seem counter-intuitive to spend more on clothes, higher quality clothing will last longer in the end. This goes double for footwear. Feel free to ignore this point in the case of young/fast-growing children.

• Buy clothing at the right time, i.e. out of season. A winter jacket will cost less in the spring and a bathing suit will cost more in early summer.

• Care for your clothes properly and don’t wash them too often. An article of clothing has a set number of washes before it begins to fade and look old. Obviously, undergarments (and face masks!) need washing after each use but sweaters and most pants can be worn a few times.

• Buy clothes that suit you and your needs. Buying an article of clothing because it was on sale was not a good deal if it doesn’t fit properly or match your style.

• Don’t be above browsing the thrift store. You’ might be surprised at what you can find.

Home Office

Insurance

• Shop around, especially if your broker has few options. Get quotes from at least three insurance companies, comparing them by holding certain variables constant; eg. deductible, coverage amount, and liability coverage – so you are comparing apples to apples. Once you have established which company you want to go with, you should be able to tweak the policy to suit your needs.

• Bundle your coverage.  Combining home (or tenant) and auto coverage together with one company should result in discounts.

• Look at your life & disability insurance policies. Find out if you are insured through your work and what that insurance entails. Are you are insuring your loans, credit cards, or lines of credit with a number of separate policies? Consider the cost of insurance per $1,000 of coverage. Speak with a broker to discuss one comprehensive policy that might accomplish the same coverage or more for the same cost or less.

Interest

Interest is the cost of borrowing money and it applies to credit cards and mortgages alike. Basically, there are three factors that will ultimately determine the amount you spend on interest:

1. the amount borrowed,

2. how long you borrow it for, and

3. the interest rate.

To reduce the number one factor, borrow only when you need to and only the amount you need and no more.

Pay your debt down as quickly as is reasonably possible. This will reduce how long you borrow.

To reduce the interest rate you pay:

• Shop around for the best rate when seeking new debt and ask for a reduction in the interest rate for existing debts. Just ask.

• If you have debt spread across different loans, lines of credit, or credit cards, focus on paying down debts with the highest interest rates in order to reduce overall interest cost.

• If your debts are out of control and have become too much to service comfortably, consider speaking with a Licensed Insolvency Trustee to discuss the options; consumer proposal or personal bankruptcy.

Working from room to room, making changes that save you big money and small, is more work than de-cluttering. It can be fun, though, almost like following an investigation or playing a game. Deep cleaning your financial rooms can save you a lot of money, significantly reduce your monthly “burn rate” and significantly reduce your stress. In the third part of this series, we are going to discuss getting organized and staying organized. Follow us for Part 3 next week.

Powell Associates Ltd. is a Licensed Insolvency Trustee. We are experienced, hands-on insolvency practitioners who understand the personal impacts of major financial stress;

• You won’t be stuck in an assembly line process.

• You will expect and receive prompt responses and resolution of issues from our supportive and experienced team.

• We will review your debt solution options, including filing a consumer proposal or personal bankruptcy.

• We help Canadians with overwhelming debt get fresh financial starts.

Once you file a consumer proposal or personal bankruptcy, we deal directly with your creditors on your behalf. Your unsecured creditors are required to stop contacting you or continuing legal proceedings against you. Contact us for a free consultation.

We offer free consultations to review your financial situation and practical debt resolution options. Contact us to discuss your situation over the phone, a video chat, or in person in Saint John, Moncton, Fredericton, Charlottetown, Dartmouth, or Miramichi.