Three years ago I didn’t have a clue what the difference was between a blue chip and a penny stock. It took a serious wake-up call and a lot of self-education to get us to where we are now – free of all personal debt. You can be too. Today I am sharing with you my complete guide to financial security, so that you can start working toward freedom for both you and your family.
When Reality Finally Sunk In
In our household, I have always been the one to manage our finances.
If I had learned anything at all when I was young, it was that I wanted to be secure financially and to have a means of generating income on my own.
I started working at a gas station when I was 13. I spent countless hours each night doing my homework and got into University. I worked in the summers and completed my degree, started my career in nursing, got married, bought a house, and became pregnant.
I was very proud of how our life was coming together, but they didn’t make up for the fact that I had no idea how to manage our money.
Throughout my extensive years of schooling, I was never told to pick up a book that would help me manage money when I grew up. The extent of my investment knowledge included a short class on compound interest in grade 10 and a stock my grandmother had bought for me when I was born.
We just kept throwing money at things until they went away.
Until one day, we didn’t have any left to throw.
Maternity leave came, and six months into it the extra top-up my company provided me with was complete. All of a sudden it was the middle of winter and we didn’t have the money we were used to having.
We quickly learned that our wood insert didn’t work properly in our newly acquired house, leaving us with soaring electricity bills each month from baseboard heat. We also had a big fat $10,000 renovation bill on top of our new house and car payments. To top it off we had thousands in taxes to pay off, our credit card was maxed from buying Christmas gifts and we had a destination wedding coming up that we so desperately wanted to attend.
Needless to say, reality had finally sunk in.
I couldn’t stand continuing to live in the mountain of debt that we had somehow accumulated in one short year. We had to do something and fast.
Perhaps others are going through something similar, so I thought I would share my complete guide to financial security in case it may help some of you out there!
Your Complete Guide to Financial Security
Become Knowledgeable in Finances
Just because our education system has completely failed our society when it comes to personal finances and investments, it doesn’t mean we are lost forever. It also doesn’t mean that a useful education in money management has to cost you anything.
- Go to your neighbourhood library and find every book you can find about personal finances and investing.
- Read them.
Some books that I highly recommend reading, include:
Go now! Become educated!
Look Back on Your Spending Habits
If you’re anything like us and primarily use debit, you can easily go on your banking website and print off all of your monthly records.
Go through your spending as a couple, and highlight the things that you could do better on. It is a real eye-opener when you calculate how much you spent on lunches for an entire month while you could have been bringing next-to-free sandwiches from home the whole time.
Pool Your Resources
This is completely up to you, but I found it much easier to tackle our debt payments and schedule our savings by combining all of our incoming money into a joint account. Some people are against this, but it really helped as we were able to hold each other accountable for the spending habits we developed.
As I was on maternity leave, it had made the most sense for us since I had a limited income and yet was in charge of paying all of the bills. Do whatever you and your partner decide, but this may be a great option, especially if you have one person that is a big spender.
Complete a Budget Worksheet That You Will Actually Be Able to Follow
You can start to figure out what to put in each section by averaging your previous monthly spending. If your budget doesn’t balance, you will have to reduce your spending in some areas (I know, I know it really sucks!).
This interactive budget template by Gail Vaz-Oxlade was my absolute saviour during these hard times. I could print it off and easily adjust it as needed. It gives you what percentage of your money you should be spending in each section compared to what you’re actually spending and how much money you will have each week to live off of.
Live on a Cash-Only Diet
Since our budget by Gail Vaz-Oxlade was separated into sections including Transportation, Food, Clothing, and Entertainment, we pulled out money from our joint bank account every week and put the designated amount into its own jar.
It was quite the wake-up call, standing at the grocery store check-out and knowing full-well that you may have to return some food if you accidentally put too much in your cart. It wasn’t a pleasant experience, but doing so made us so much more accountable in our spending. When that week’s money was gone, it was gone!
Pay Off Your Debt as Fast as Possible!
Another tool that you must try is the Own Up To Your Debt Worksheet, also found on the Gail Vaz-Oxlade website. It is interactive and provides you with spaces to put each of your debts and interests rates and it will automatically calculate how long it will take to pay off each one in 12, 24 or 36 months. Don’t even think of taking more than 3 years to pay off your personal debt or you will most likely become burned out and give up!
You can choose to pay down money on your debt in many different ways. I always decided to throw all of our available money onto the one with the highest interest rate, because I hate the thought of giving away money for free.
Save Some, Too
During this time we were living off of very little and paying thousands towards our debt each month. It would have been easy to forget savings, but if you don’t make space for savings now, then you may never.
We have built a nest egg within a TFSA (tax-free savings account), through a monthly automatic withdrawal that was included in our original budget. Throughout the years it has saved us countless times, especially during my husband’s six-week stand-off last summer and my most recent maternity leave.
It is recommended that you have enough money set aside at any time for your family to survive six months without an income (read: basic living expenses). We don’t have anywhere near that yet, but it is such a relief to know we have some money set aside in case of an emergency.
In addition to this savings account, we are investing in our RRSPs even though we have pensions/RRSPs set up by our employer already. Why? Because we don’t want to work forever, of course! The more money we save now, the sooner we can quit working for money and start doing what we love for the sake of doing it. In addition, we have been receiving hefty tax returns each year because of these investments, which we have put towards further savings or the occasional splurge.
If you have a very limited knowledge of stocks and bonds like I do, you may want to look into Index Funds. They are the “set it and forget it” option of the investment world, though few financial advisors will suggest them since they have a low MER (Management Expense Ratio).
When it comes to our children’s education, we have included a weekly automatic withdrawal into their family RESP savings account. If you live in Canada and haven’t set this up yet, do it today! There is nothing quite like receiving free money every year from the government so your kid can go to school without being buried in mountains of OSAP debt. With the government’s generous donation along with the miracle of compound interest, after 18 years of investing a simple $50/week your child should be set for school and you can rest easy.
Live Within Your Means
When I was on maternity leave with my first child, my TV was constantly set to the Home & Garden channel. Though highly entertaining, watching all of those renovation shows made me want to fix everything wrong with our house, even when we had no money to do so.
There will always be a bigger house and a nicer car to buy, but do you really need it? Will it make your family happier? Don’t get me wrong – if you have the money saved up and want to go buy something then by all means!
If not, you will need to decide whether that material item will increase your happiness quotient high enough to offset the giant debt-cloud that may ultimately consume you.
It Gets Better, With Time
That serious wake-up call was three years ago, and I can safely say that we are in a much better place now financially thanks to the little amount of reading my husband and I did, learning to live within our means and deciding to pay our debt off as fast as possible.
My husband is now the one teaching our daughter about shopping for sales at the grocery store. This has truly been a life-changing experience for our whole family.
I will tell you that these past few years have not been easy. We have had to say no to more than a few opportunities, and it can very tiring to always have to talk about your budget. But now that we don’t need to spend our money on paying off debt, we have so much more wiggle-room and rarely need to look into our finances. It does get better with time, and the relatively short struggle we had went through was well worth our future years of enjoyment.
We currently have no debt other than our 15 year accelerated mortgage. Our children’s educations will be paid for, we will be able to retire, and may even be able to enjoy a vacation or two without worrying about how much money we are spending.
I hope that my story will inspire others to find their own journey to becoming debt-free and financially secure. Money can be such a great tool for life, but if not used correctly, it can quickly paint families into a corner. I know how hard it can be to be living pay-cheque to pay-cheque, constantly trying to keep up.
As a debt-survivor please listen to me: Start right now.
Do it for your kids, your relationship with your spouse, and most importantly, for you.
Your three-year-older self will thank you for it!
What is your experience with personal finance? Do you have any tips to share or great books to read? Please share in the comment section below!