Christmas is just around the corner, and with Black Friday behind us and Cyber Monday upon us, we thought it fitting to revisit our tips and tricks that we used to help get us out, and keep us out, of debt. According to a article issued by Deloitte in October, an estimated $1 trillion will be spent by consumers in the US this holiday season, up about 4% from last year at this same time.
I will be delving further into the consumerism of Christmastime next week, but for this week, we wanted to provide some hope that debt is not a life-long sentence. It is possible to pay off all your creditors and live without the constant weight of debt hanging over you. We did it eight years ago. Though there have been tough times here and there, using these tips and tricks, we’ve managed to remain mostly debt-free throughout the years.
7 Tips to Staying Out of and Paying Off Debt
Stuff is Just Stuff
This is by far the most important thing I can tell you about getting out of debt. In this world of consumerism, please know that stuff is just stuff. What matters most in this world are the relationships we make, being the village for the next generation, being a good neighbor and a loving friend, and having faith in God. Material objects will never be able to give us what we need, physically or emotionally. The sooner we come to terms with that, the more content we’ll be. Always ask yourself whether the something that you want to buy is worth spending the money on.
Renting Vs. Owning
In certain circumstances, renting may be preferable to owning when it comes to living quarters. Most people will tell you that buying is more desirable to renting, as with owning there is equity. I’d like to play devil’s advocate and offer a different thought. Owning a house costs money – not only regarding the mortgage, but there’s also a myriad of other expenses involved – repairs and maintenance, property taxes, utility bills, insurance, and more. With a rental, the expenses go down significantly. Depending on your agreement, the cost of utilities may be rolled into the rental price, renters insurance is quite a bit less than homeowners insurance, and your landlord should be taking care of the repairs and maintenance of the property.
There’s also the cost of the mortgage to consider – you can rent a property, or you can rent money (the interest on the loan is the “rent” for the mortgage). In either scenario, there will be money that you will never get back. So, get out your calculator, and figure out which option will give you the more bang for your buck. If the price of renting is less than the amount you would be spending on home ownership, it may be better to rent a property, use the extra money you’re saving to pay off debt, and save up a down payment before buying a home. A quick aside. If the cost of renting is more than the cost of a mortgage payment, then it may be time to start looking at buying.
Stick to Your Budget
Make a budget and review it on a regular basis. Use the method you know you will stick with – either pen and paper, a software accounting program, or good old Microsoft Excel. You will never know where your money is going unless you have a record of it. Account for every penny (or nickel, as we’re in Canada and the penny is now obsolete). To help you get started, I’ve included a link to the Excel spreadsheet that we use to keep us on track. (Feel free to download and edit it for your own personal use.) Every payday I enter in all the receipts and payments we’ve made for the last two weeks. Until you’re used to keeping a budget, I would suggest entering in bills and receipts on a more frequent basis.
Use More than One Bank Account
We have three personal accounts as well as a business account (for Cinq Artisans) – a chequing account, used for expenses, a savings account for emergencies, and a second savings account to keep track of the money we save for future payments and maintenance (such as property taxes and car repairs). I call this one my Budget Allocation account. I keep track of what goes into each category on a second worksheet, and take the money out of this savings account when these expenses come up.
Save for Future Purchases
Don’t spend money unless you have it. I know things can come up that will deplete your emergency fund faster than you can blink an eye, but whenever possible, save for something you want or need before you buy it. For example, if you know you’re going to need a new (or new-to-you) vehicle in a few years, add to it your budget, and start putting money away each paycheck. Even if you don’t end up saving the whole amount by the time you need to use it, you’ll have significantly decreased the amount of the loan you’ll need to take out.
This one has been a marriage saver for us. No more complaining or getting upset about what your significant other is spending money on. Gaby and I give ourselves an allowance each payday in cash. When the cash is gone, it’s gone, and there won’t be any more until the next paycheque. We spend our fun funds on non-budgeted extras, such as going out for lunch or drinks with friends and buying craft and hobby supplies. We’ve even been known to save our fun funds for larger, more expensive non-budgeted purchases down the road.
Save for Retirement
This one doesn’t really fall into the category of getting out of debt, but I would be remiss in not mentioning saving for the future. It could be a pension or investments through work or something that you save for on your own. It’s always a good idea to plan and start saving for the future now. Even if it’s only $50 a month – find yourself a good financial planner, start small, and you’ll be amazed at how quickly your money can grow.
Getting into and sticking to a financial plan can be difficult, but once you make the decision to live debt-free, you’ll be amazed at how quickly the stress of money evaporates. We are now completely debt free (except for the mortgage) and have been for the most part of the last eight years, even through Gaby’s layoff in 2015.
You can read more about our financial history and how we got onto our road to success with the help of our financial planner here. And make sure you check out next week’s post, where we discuss how to combat the seasonal consumerism that erupts at this time of year.