Poverty doesn't buy happiness.....

Once we established how much we were over-spending now comes the fun part of how to trim 39% from our current non-existent budget.  Using the budget percentage for after tax guidelines, which took me the better part of five hours to do, I came up with a budget that adds up to 100%. 

http://www.mymoneycoach.ca/_Library/docs/Budgeting_for_After_Tax_Income.pdf

The timing of us doing this comes when we are running out of options as to how we are going to pay the bills this month. We are at the point of needing to do something immediately to fix this or else financial disaster is around the corner. Anxiety attacks aside, I am feeling a little relief after going through this process and seeing that there is hope.

So how do you trim 39%? Or for the average Canadian families spending habits…… 63%?

I started with laying out the fixed costs, the ones that I could do nothing about renegotiating at this time. These are items like our mortgage payment, house and car insurance, fuel oil payment, electricity costs, car loan, cell phones and RESP loans for the kids. Some of these things could be negotiated down the road but they are not going to help us when dealing with immediate cash drain problems.

Then I dealt with each category based on the budget guideline percentages of after tax income spending to evaluate what needs to be trimmed.

For housing, we were actually in line with 31% of our income going towards the mortgage, taxes, insurance and fuel oil.

Next up was utilities, where we were overspending by 12% as opposed to the suggested 5%.  Our cell phones are locked into a three year plan (gah!) with 18 months more to go. I had already negotiated with fees last spring and had $70 knocked off the bill by reducing services and changing the package. 

Almost like a gift from the gods, I received a flyer for Fibre Op from Bell which would reduce our bundle for cable, internet and home phone for only $99 for a year, no contract. Initially, even though this seemed promising, I figured it would be more frugal if we just cancelled the whole damn thing, instead using our cell phones, skype and getting a basic internet package.

Yes, internet for our average Canadian family is a necessity. Our schools for our children don’t even communicate with us by phone or letters home anymore.  Plus, there is my blog, facebook and we live a million miles away from any of our family.

To get a cell phone long distance package from Rogers to cover our phone time with our two parents who have yet to embrace any form of technology beyond a home phone, it was going to be substantially more per month than what we are currently paying for our home phone. Frustrating! Yes, but I didn’t let that stop me from exploring what it would cost us for just having internet with Eastlink, and no bundle.

Guess what? It would amount to a savings of $15 per month. Well, whoopity-do, I’m gonna go buy myself a motorcycle with those savings. I explained to Eastlink that I was thinking about dropping them as a service and that for $15 more than what they were suggesting for only internet, I could have Fibre op cable, internet, home phone and a PVR for a year! I asked if they could offer anything better. They said, “Nope”. I said, “It’s been nice knowing you.”

We have the Fibre Op guy from Bell installing today. We saved $61 by switching companies which cut over 2% off the Utilities budget.  With some other trimming, we are now down to 9% which is over the suggested 5%, but my guess is that whoever made this guideline did so before technology became a necessity.

Food cost is something that I find really easy to manage in terms of trimming. That being said, it also the easiest place for me to spend since who doesn’t feel like anything that you put in your cart seems justified since it goes towards keeping your family healthy and well nourished….maybe sometimes a little too well nourished since both me and my husband are about 20 lbs overweight.

We are not huge eater outers but we did spend money on a couple of places last month that were completely over our non-budget. Definitely, no eating out! No rum or wine or beer….all the sobbing and crying aside, it is an easy expense to trim or so the experts say. J

Next trim the budget from 19% to 11%. That means for us, we go from having $1000 to spend on food (which is average…they say $200 per person and we have 5) to spending $600. I divided that further and left $500 for food, $50 for house stuff (paper products, ect.) and $50 for personal stuff (razors, pads, deodorant).

Transportation we were good with 15% of our budget going towards car loan, gas, maintenance and insurance. There’s not a lot that we can trim anyways, other than more stay-cations and less overall driving to avoid paying for additional gas. We are lucky that we live close to work but unlucky in that we pay higher gas prices than in other provinces or countries. There is no choice between companies since we get gouged no matter which station we choose.

Clothing was an easy one and I even further reduced it to 2% because we have always relied on used clothes, great deals and grandparents. There is no shame in second hand and often times I can find way cooler things than those that are in our standard big box boring stores anyways. I have this great looking leather retro 70’s jacket that cost me $5. I feel totally hot in it, way hotter than I would in a new $500 jacket that would make me feel guilty because I spent half our mortgage on a coat.

Personal and Discretionary Spending is where we completely drop the ball every month. I didn’t even realize that some of our current spending is locked in as a fixed cost since our daughters both have music lessons that cost $80 a month. Grandma pays for the other half, thank goodness, but when I looked at trimming this, I simply didn’t have the heart.

We have a family gym pass that costs us $60. We use it for skating, swimming, squash and exercising with equipment. Don’t know why we are still overweight but thank goodness we still get exercise! A family fitness tax credit at the end of the year helps me justify the expense. Lastly, we donate $10 to David Suzuki and have done this for more than 10 years, again a tax credit, but more fixed costs to consider.

After some discussion, we decided to keep these things for now, provided that we reduce our spending from a whopping 24% to 5%. Next month will be the ultimate test to see if we can stick to this, the consequence of not doing so will result in us losing the above.

Someone near and dear to us is watching our children in our home afterschool which we love. This was our toughest decision to make since we can’t get a better arrangement. After making a few phone calls, we find that we could cut our childcare budget by 5% if we used the afterschool excel program located at our children’s school. Tough call? You bet! This is a decision that affects someone we love and potentially our kids happiness.

We are fortunate to have not one, but two medical plans. Only thing is, we have been too stupid and/or lazy to use them properly. Really, how difficult is it to fill out paperwork? In our home, the only excuse we have is that we are too friggin’ busy……it’s a lame excuse when we realized how much additional revenue could be coming in to cover our month to month cost for dental, medical and optical expenses.

Through a few quick phone calls, I found out how to submit my paperwork for the remaining amount that my husband’s plan does not cover. In the process, I found out that the company I work for puts in extra flex dollars to cover any extras not covered by our medical plan.

Imagine my surprise when I found out that I have almost $2000 in monies that we could have been using over the past year! What an idiot I am! We set our medical budget  at 2% budget per month because we still need to pay for the damn cat, in case we have vet bills. (I love my kitty, don’t get me wrong, but they can be expensive. Her last vet bill cost more than what we paid to purchase her from the local SPCA. It’s ridiculous!)

This leaves us with the recommended 5% towards that ever evasive thing called Savings. We already have fixed costs going towards RESPS so hopefully our kids can have a decent education and be smarter than we are. Luckily too, our RRSPS come out of our income and don’t factor into the month to month spending, otherwise we would have nothing towards our retirement.  The remaining amount will, in theory, create a buffer of savings, if we stick to the budget. 

Last and we wish it was least, our debt. We currently have decided to spend the maximum recommended amount so that we can get as much paid off before interest rates change in Canada. That means that we will be spending 15% per month towards our existing debt on a roofing job and flood damage to our home.

The grand total 100% of our income.  Phew….see that wasn’t so hard, right?! Now comes the hard part….living the budget we just created. Trust me when I say that the fun has only just begun.

We are your average Canadian family and we have been spending our way into poverty.