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Budgeting your Monthly Payments

October 25, 2017

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Do you find there are too many payments coming out of your account(s) all at once or all at the wrong time? Do you catch yourself chasing your tail after paying for too many bills from one paycheque and not having sufficient funds to support the rest of your expenses till your next paycheque? Instead of worrying about how much money you are spending from each cheque towards your fixed expenses, try to have the same percentage of payments coming off each paycheque.

To help put this in perspective, we have come up with an example scenario:

Let’s say you get paid on the 15th and the 30/31st of every month. You are on a salary and your extended health and dental benefits come off your first paycheque of the month, in the amount of $100. As a result, your first paycheque of the month (15th) is $1,000, and your second (30/31st) is $1,100. Now let’s take a look at your fixed monthly expenses:

  • Rent – $800
  • Phone – $100
  • Cable/Internet – $100
  • Hydro – $100
  • Car Insurance – $120
  • Car Payment – $300
  • Total – $1520

Currently, you are paying your hydro bill, cable/internet and car insurance from the first paycheque of the month as that is generally when the bills start coming in. You then pay your rent, car payment and phone bill from your second paycheque of the month as they are generally all due within the first week of every month.

As it sits, you are using 32% of your first paycheque and a whopping 109% of your second paycheque on fixed expenses. Once this type of imbalance is created, you end up supplementing your fully-spoken-for paycheque with credit cards or payday loans to feed yourself or put gas in your car until your next paycheque. Not only does this increase your risk of getting into debt, it also puts unnecessary stress and pressure on you and your family.

We have come up with a solution to help you better manage your monthly finances. Here are some simple steps you can take to even out your bill payments:

Contact your Payees

Get in touch with your vehicle loan lender and phone provider and request that they change your payment due date to the 15th of each month. This will adjust your monthly fixed expenses so that you have got an equal amount of money being spent on fixed expenses from each paycheque. See example below that breaks down the costs of your first paycheque of the month (15th):

  1. Phone – $100
  2. Cable/Internet – $100
  3. Hydro – $100
  4. Car Insurance – $120
  5. Car Payment – $300
  6. Total – $720

To put this into perspective percentage wise, we have done the math for you:

$720 / $1,000 = 0.72 x 100 = 72%

This means that on your first paycheque of the month, 72% of your income is being used on fixed expenses, so the rest ($1000 – $720 = $280) can be used for groceries, gas, etc.

Save your second paycheque for rent

Since your rent is most likely your highest fixed expense, try reserving your final paycheque for the month (30/31st) to pay your rent. That way when it comes time to paying it on the 1st of the next month, you can be certain you will have enough. Once again, we have broken this down to reflect the percentage below:

$800 / $1,100 = 0.72 x 100 = 72%

As you can see from this breakdown, the percentage you are spending on payments have now balanced out at 72% and you are left with $300 to spend on groceries, gas, etc.

Now that you have balanced your bill payments across both paycheques, you have 28% of each paycheque available for spending.

In order to get yourself on track, you will likely have a few weeks or a month of hardship where payments will overlap or you will double pay a bill or two, but if you stick with the plan you will find that over time you will be on the road to financial freedom.

If you are experiencing financial difficulty or would like to improve your financial-management skills, our qualified insolvency counsellors can help. We will address money management issues, spending and shopping habits and the warning signs of financial problems. In addition, we also provide guidance and strategies to rebuild your credit and obtain a fresh financial start.

With ten convenient locations across the Lower Mainland, Fraser Valley, Vancouver Island and Sea-to-Sky Corridor, our team of Licensed Insolvency Trustees and qualified insolvency counsellors are here to help you get on the path to financial freedom.

 

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