If you have a negative cash flow (spending more than you are earning), if you are trying to cut back on expenditures to save more money and work towards your financial goals, or if you just want to be sure you aren’t wasting your hard-earned income, this section of the course can be very helpful.
Plug spending leaks
Strategy 1: Review and reduce variable expenses
Review your budget to find areas to cut back on variable expenses (expenses that vary from month-to-month and that you have some control over such as food, clothing, transportation, gifts, recreation).
How can you reduce your variable expenses? Here are some tips.
Food and clothing
- Shop for bargains and use coupons.
- Make a list before you go grocery shopping and stick to it.
- Buy generic products.
Insurance (e.g. car, home)
- Shop around for the best insurance rates (e.g. car insurance).
- Raise your deductible.
- Review your coverage carefully and make sure you are not paying for extras that you don’t need.
- If you get a tax refund each year ask your employer to reduce the amount of tax withdrawn from each paycheque (you will not receive the same refund amount, but throughout the year more of your money will be available for paying down debt, saving, etc.).
- Make sure you are getting all of the tax deductions you are eligible for. Educate yourself by reading financial publications, speaking with a tax advisor, visiting the Revenue Canada website, etc.
- Do minor home repairs yourself.
- Use your car less.
- Walk or bike.
- Take public transportation.
- If you have two cars, sell one.
- Look for cheaper accommodation.
- Rent out a room.
- Pay your mortgage bi-weekly (you can save thousands of dollars of interest payments and reduce your mortgage term by many years).
- Share video rentals, magazine and newspaper subscriptions with neighbours, friends, and coworkers.
- Borrow books, magazines, and DVDs from the library instead of purchasing them.
- Visit movie theatres on cheaper dates and times.
- Quit smoking. A two-pack-a-day habit can cost thousands of dollars per year.
- Cut back or stop drinking alcohol.
Review your budget and spending plan. For each item you spend money on during a month, what can you do to reduce that expense?
Strategy 2: Reduce bank service fees
Choose your financial institutions and your account type(s) carefully. Just as with any service you buy, you need to shop around for the best deal and make sure that you are paying a competitive price for only the services you need and use.
All financial institution have brochures that explain their service fees and account plans and packages. These are useful tools to compare accounts from institution to institution and many can be found online.
Tips for Reducing Service Fees (adapted from the Canadian Bankers’ Association)
- Carefully identify and document your needs before shopping for an account.
- If you make withdrawals at an ATM, use your own financial institution’s ATM to avoid paying extra fees and make larger withdrawals instead of several smaller ones.
- Set up pre-authorized payments to pay monthly bills.
- Consider a monthly flat-fee plan to reduce the cost of transactions.
- Consider consolidating your accounts if you have more than one.
Strategy 3: Stop impulse buying when you shop
Ask these questions before making a purchase:
- What am I doing here (e.g. did you have a specific purchase intent that motivated you to go shopping or did you go shopping because you had nothing better to do)?
- Is my purchase decision being influenced by my needs and research or am I here because of persuasive advertising messages?
- How do I feel (e.g. I am stressed, I am sad)? Don’t make purchases when you feel unsettled.
- Is this a “want” (an optional purchase) or a “need”?
- What will happen if I don’t buy this item?
- What will happen if I do buy this item?
Strategy 4: Avoid using credit cards
- Leave your cards behind. Impulse purchases are tempting when you carry credit cards. These add up and they basically destroy your budget and erode your commitment to responsible money management. Consider the cards as an emergency backup not a constant companion.
- When you pay cash or cheque you may significantly reduce the amount you spend. And you avoid interest rates that can add up quickly.
- Try to limit yourself to one or at most two credit cards.
- Don’t be lulled into thinking you need a credit card to establish a credit rating, you don’t.
For more information about financial well-being, the following resources may be helpful.
- MoneySense Magazine (Canadian resource). www.moneysense.ca
- Invest in your financial well-being. Government of Canada. https://www.canada.ca/en/financial-consumer-agency/news/canadas-financial-literacy-blog/invest-financial-well-being.html
- Canada’s Financial Literacy Blog. Government of Canada. https://www.canada.ca/en/financial-consumer-agency/news/canadas-financial-literacy-blog.html
- Canadian Financial Calendars. My Money Coach (From Credit Counselling Society). https://www.mymoneycoach.ca/resources/financial-calculators
- Credit Counselling Society. https://www.nomoredebts.org/
- Mortgage Affordability Calculator. Canada Mortgage and Housing Corporation (CMHC). https://www.cmhc-schl.gc.ca/en/finance-and-investing/mortgage-loan-insurance/homebuying-calculators/affordability-calculator