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June 11, 2018

Summer holidays are over. Even back-to-school is a thing of the past! Like many Quebecers, Emily must now pay off the balance on her credit card, encumbered with not only summer expenses, but also those due to her two sons' new school year.

Emily often finds herself having to shoulder these peak periods of the family expenses by herself. She would like some tips to establish a budget that would help her avoid the stress and the escalation of the interest because these expenses, place on her credit card, are reimbursed by minimum monthly payments of a span of 4-5 months.

Divide... to better rule!

The best trick? Our grandmothers' good sense! Back in the day, once a paycheck was cashed in, the money was distributed amongst the various expenses (groceries, rent, clothing, etc.), then placed in separate envelopes. When it came time, for example, to go grocery shopping, they used the relevant envelope and would make sure that the bill did not surpass the amount inside! They would thereby avoid going over-budget...

In Emily's case, it is obviously too late to put money aside for summer vacation and back-to-school expenses. Her priority? Quickly pay back the $2,000 amount accumulated on her credit card to limit the charges and interest rates, and then determine how much she should put aside for next year.

We determined this amount, with her help, to be $3,150 over a period of one year. She therefore has to put $120 aside each pay.

A simple and efficient system

Evidently, we don't keep our money in envelopes anymore, but the same system can easily be put into place by your financial institution by programming automatic transfers of each paycheck into one or two savings accounts. This automated system is good for all big expenses: important repairs to come, renovations, tire purchases, furniture replacement, parental leave, etc.

For smaller expenses, i.e. daily personal purchases, try this tip: at the beginning of the week, place a pre-determined amount in a separate compartment of your wallet. At the end of the week, if there is money left over, you can either treat yourself over the weekend or, if you are highly motivated, keep the extra amount for a special occasion.

A stop at the corner store here, a cappuccino there, a magazine while running an (unexpected) errand at the grocery store, can represent, at the end of the month, significant amounts. Therefore, by having, on our person, the amount that we have permitted ourselves to spend, our "pit stops" may be less frequent!

If you doubt the effectiveness of the system, try it for your personal expenses. You will see how our grandparents succeeded in raising multiple children with, more often than not, only one salary, and without the use of credit!

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