A Financial Survival Guide for Back-to-School Season
Myriam, a single mother of 2 children, with the eldest starting secondary school, is facing numerous expenses during this back-to-school season. With little wiggle room in her budget, she wonders how she will make ends meet. The answer? A budget!
A budget is the best way to assess your situation, understand where your money is going, and identify areas where you can tighten your spending. Although this exercise may seem straightforward at first glance, it does come with a few challenges. Unsure of where to start, Myriam decided to seek advice from an insolvency specialist online and received several helpful tips.
How much are you spending?
Fixed expenses (mortgage or rent payments, taxes, car loan, insurance, debt repayments, telecommunications, etc.) are the easiest to establish. The real challenge lies in evaluating variable expenses such as food, clothing, gifts, pocket money, and leisure activities. «When we prepare a budget for a client, we estimate the costs of food and clothing based on their family situation. Of course, the actual amounts vary from one family to another», explains Pierre Fortin, a licensed insolvency trustee and president of Jean Fortin et Associés.
«For example, for Myriam and her 2 children, we allocated $180 per week for food and an average of $1,600 per year for clothing», details Pierre Fortin.
To assist you, you can use free software available on the websites of financial institutions or try online budgeting tools. They will do the calculations for you and provide a list of expenses, helping you avoid overlooking any.
What to do in case of a deficit?
A budget takes time to finalize and often requires adjustments, especially regarding variable expenses. While some expenses are essential, such as food and clothing, others like vacations and leisure activities are not. Even within the essential expenses, there may be room for delay. «For example, Myriam could postpone buying clothes for herself until she has absorbed the costs associated with back-to-school expenses», advises Pierre Fortin.
Once basic needs are met, you can allocate funds for non-essential expenses. But in the case of a deficit, it’s these non-essential expenses that will need to be reduced: the bottle of wine on Saturday night, going to the movies, dining out, the latte at work, etc. It’s often easier to cut several small expenses rather than one significant expense. «It’s like a weight-loss plan: if you’re too ambitious from the start, you may not be able to sustain it in the long run», mentions Pierre Fortin.
Are you heading in the right direction?
Put your budget to the test because the only way to know if it works is to live with it! Keep track of all your variable expenses (groceries, meals at work, fuel, etc.) for at least 2 months. The longer the period, the more realistic the picture will be.
Then compare the results with your initial estimates. If they don’t match, change your habits and revise your expenses downward.
In the coming months, Myriam will face challenges in absorbing the costs associated with back-to-school expenses. With the holiday season and summer vacations, it’s the time of year when variable expenses are the highest. Hence the need to plan for them by setting money aside.
Furthermore, she had plans to replace her car, which she just finished paying off. «Instead, we advised her to keep her vehicle for at least 2 years. The repair costs that need to be budgeted will be lower than the $400 per month she would have to spend on a new car», suggests Pierre Fortin.
The budget is the oxygen of your finances. Thanks to it, you won’t be suffocated by debt.
People tend to underestimate variable expenses and forget about them. Don’t deceive yourself, because reality will eventually catch up with you.
Don’t forget the «Savings» category in your budget. It is recommended to save an amount representing 5% to 10% of your net income. If that’s not possible, start with small amounts automatically deducted from each paycheck.