If you’ve attempted a budget and tossed it in the trash because you hated the feeling of constraint, maybe you’re doing it wrong.

Budgeting isn’t about obsessing over your money. And it shouldn’t feel like you’ve been put in a straight jacket. A budget is a plan for how YOU want to use your money. It’s your decisions, your priorities, your desires. Having clarified those, you’re free to use your money to achieve what you really, really want. It does require that you become conscious of your decisions, but is that really such a bad thing?

Using a budget like a sledgehammer to beat yourself or anyone else in your family into submission means you’ve turned a budget into something it is not. If you end up thinking that everything is too expensive, if you regret every penny you spend, that’s an attitude problem, not a budget problem. Almost everyone can afford the occasional splurge.

Feeling like you’re a prisoner of your budget will only want to make you (and everyone around you) want to break free, bust out, dump the sucker. So resist the urge to eliminate all the fun stuff. Living on a budget doesn’t mean you can’t have fun. It just means you’re deciding ahead of time how much you’re going to spend on that fun. Cutting out all the fun will make you resent budgeting and that’s not the point. The point is to decide how YOU want to spend your money.

Sometimes people over-commit to a goal to the point where it strangles their budget. Honey, we’re going to have this debt paid off in three months even if it kills us. Hey! Wake up! That’s no way to live a life. And if your goal is very vague – hey lets spend less – then your target will always be moving and you’ll never have a sense of having reached it. Having a well-defined goal that you’re working towards consistently will go a long way to making your budget feel like a guide and your efforts feel worthwhile.

When you do achieve a goal, reward yourself. It doesn’t have to be huge. And it shouldn’t throw your budget off track. But if you spend a little more on fun for one month as a reward for achieving your goal, that’s a good thing.

And don’t expect too much too quickly. It takes time to get used to living on a budget. If you fall a little off track in those early months, correct your course and keep going. It’s easy to underestimate how much you’ll spend on categories like food. Sure you thought your family of five could live on $500 a month, but your partner is always bemoaning the fact that the fridge is empty and your teenagers are gnawing on the couch. If the numbers you’ve picked are too hard to live with, go over your budget and carve out some room. You must give yourself enough time, adjusting your income and expenses as you need to. Giving up only proves you’re a wuss.

Imagine for a moment that life has taken a chilling turn and the crap has hit your fan. Hey, I’m not trying to be a downer. This is in the name of “preparation.” It’s kind of like those fire drills they run at school so the kids know exactly what to do if there is an actually need to get the hell out fast.

You’re going to remake your budget as if your primary breadwinner has just lost his or her job. It’ll mean knowing exactly how much money you have, and how you’ll spend it. It’ll mean knowing immediately which categories can be eliminated and which must be cut back to the bone. And it’ll be a blueprint for what you can do, so you know you can cope.

One of the biggest problems people have when they find their financial circumstances have changed is accepting and dealing with their new circumstances. People hate change. They want to pretend it’s temporary or that it won’t have any impact on them at all. They dive into denial and by the time they surface they’re deeply in debt and can’t see any way out. Having a plan for how you’ll cope with a set-back is one way to make like a boy scout and Be Prepared!

You’ll start by considering all your sources of income. If you have another income earner in the family, that’ll help. If you’ll receive employment insurance or other forms of government support, that’ll help too. If you have an emergency fund, you’ll be able to see just how much you’ll need to use each month, and how long your EF will last.

You’re also going to have to prioritize your expenses. Clearly housing and food will take priority. But even within these categories you may have some room to maneuver. If you have a mortgage that let’s you skip a payment, you’ll have to decide if you’re going to use your skip right away, or save it for down the road. If you’ve been eating steak and sea bass, you’ll be stocking up on pasta and sauce and looking for 37 ways to cook ground beef. You’ll want to inventory your cupboards and your freezer to see just how much you could trim back on your food budget given your usual storehouse of supplies.

Some categories can be eliminated completely at least in the short term. Phones, cell phones, cable or satellite, entertainment, clothes (except for essential kids’ stuff) and gifts can all be cut out completely. What else can you trim? Where else can you shave a couple of bucks off to make the money you do have last longer?

It’ll be important that you track any big expenses that may be coming in so they don’t blow your plan out of the water. If you usually pay your house insurance annually, and the bill comes in during your dry spell, you may want to switch to a monthly payment so that you can scoop the money you’ve been saving for your home insurance into your emergency fund.

This is going to be your plan for how you’ll use your money while things are tight. With time and a plan, you have the flexibility to think of a variety of strategies to cope. And you’ll be prepared with alternatives just when you may be least able to think  clearly because of the panic in your belly. Hopefully you’ll never have to use your plan. But if you do, you’ll have a clear idea of what comes next.

• Left-brainers are logical and detail-oriented, facts rule their world, they like math and science, make lists, are great at pattern recognition and love order.
• Right-brainers like to see the “big picture”, are more perceptive, have great imaginations, are more impetuous and are willing to take more risks.

Have you ever considered how your dominant style may be influencing how you deal with your money?

If you’re a right-brainer with a big-picture perspective, doing the detail of daily tracking would be anathema to you. If you’re a left-brainer, being able to see beyond the minutia may be too much to ask. Fact is, if you want to be successful at managing your money, not only must you be able to create a vision for yourself, you have to be able to do the detail to make the vision a reality.

Let’s take figuring out a budget as an example. If you’re a left-brainer, working out a budget on paper make sense to you because you like to look at things sequentially and solve problems logically. If the budget doesn’t balance, you can see how going back and trimming expenses can bring things into line.

If you’re a right-brainer, making a budget the traditional way – balancing it on paper – may not work for you because right-brainers are highly experiential.   Instead, you may have to grab a pile of “play” money you can use to make the experience more real for you.

1. Find an amount of “money”, (be it computer-generated dollars or money raided from your child’s Game of Life or Monopoly box) in a mix of denominations, that matches what you earn every month. This is your “income.”
2. As you work through your budget, take the money out  of your “income” and set it aside with a note that says what category it’s going into. So if you’re planning to spend $400 a month on food, write $400 on your budget worksheet and take $400 out of your pile of “income”, label it ““food”  and set it aside.
3. Work through every category of your budget like this until the money runs out. If you have categories with no money, you’ll have to decide if you’re going to eliminate those categories from your budget or take money from the other piles to put something into those piles.

While the tendency of a right brain thinker may be to duck and hide because numbers that represent money make them freeze in terror, giving in to that tendency isn’t the grown-up thing to do. Figuring out how to make your right-brain happy is. And while dealing with taxes, retirement, debt repayment may feel overwhelming, not dealing leads to dire consequences.

Left-brainers don’t have it made just because they love detail and are better at controlling their feelings. With a tendency to sequential thinking, they need to get outside their comfort zones and imagine the future. After all, if you can’t imagine what your retirement might look like, how can you create a plan that will see you joyous at a time when you should be. No imagination leads to a pile of money (maybe) and absolutely no idea what to do next!

If you don’t buy the left-brain/right-brain “science” because you believe it to be more pop culture than well-researched theory, hey, you’re missing the point. Don’t argue with the metaphor. Think instead about how you like to process information and then use your strengths to get you to where you want to be next. Throwing your arms up and saying, “I just can’t do the detail,” is a cop-out. Sure, it may not be your first choice, but I don’t enjoy washing the kitchen floor either. I do it because if I don’t, it’s gross!

In the best of all worlds, you can find yourself someone who has strengths that compliment yours.  If you are a left-brainer and your mate is a right-brainer, try working together instead of fighting each other’s styles. And if you don’t have a mate with the opposite skill set, find yourself a friend, an advisor, or a Gail Club where you can bounce ideas and learn new strategies that’ll work for you.

I have two systems that I use together to keep track of my money. They’ve worked for me for years, so I’m sticking with them. First, I have a cash flow excel spreadsheet.

In the first column is my monthly budgeted amount, and then across the page are each of the months of the year. This excel sheet does two things for me:

1. It allows me to see if I’m on budget for the month overall and within each category, and
2. At the end of the year it shows me what I’ve averaged in each category.

There are some numbers that I fill in right across the board for every month like mortgage payments, for example. I just fill each month’s mortgage payment amount in right off the bat. Ditto my other fixed expenses. If something changes, I can change the amount, but that seldom happens so copying it across all the months saves time.

The category that sees the most action on my budget is “groceries.” Each time I shop, I bring home the receipt and enter the amount in my grocery category so I have a running total of what I’ve spent.

There are some categories that don’t get spent very often: home insurance, property taxes, home maintenance, clothes, gifts. These are auto transferred to my ING account called “budget overflow” so the money earns some interest. Then, when I need that money, I transfer it back to my transaction account.

My savings and emergency fund money are auto transferred every month to their respective savings accounts so I don’t even have to think about them.

The other system I use is a notebook and pen. I put my balance at the top of the first page and every cent I spend is tracked manually so I always know exactly how much money is in my account. Whether I use a debit card or a credit card, I deduct it from my balance in this book so that I’m not tempted to spend the same money twice. When the credit card bill comes it, I check it against my book, label all the transactions covered by that statement with a letter of the alphabet (I’ll only need 12 for the year) and when I pay the bill, I make a note of the letter of the alphabet I’ve used. So when I pay my March bill, it’ll cover all the transactions on my credit card that I’ve labeled “C”. If something didn’t come through on my March bill, I know it’ll be on my April bill. But the money has already been deducted from my balance, so I won’t delude myself that I have more money than I owe.

I have a list of auto-deductions at the front of the notebook so that I can enter those each month without worrying about forgetting one. I also have a list of all the bills that I get each month so that if one doesn’t arrive (like the hydro bill last month) I can call and see whazzup.

I’ve had more than a few people tell me my system is anal. “Button down” is how I like to think of it. And I’ve had more than a few people tell me there’s no way they have the time for such a complicated system. Really, you have time to watch TV, play hockey, go shopping, entertain family and friends, schlep your kids to their events, but you don’t have time to manage your money? Hmmm, must not be that important to you. I’ve also had people tell me that they can’t: can’t remember, can’t keep track of their receipts, can’t deal with all the numbers. Grow up! You bust your butt making the money that’s leaking out of your hands. “I can’t” is a cop-out. “I can’t” is a lie. It’s not that you “can’t”, it’s that you “won’t!”

There are loads of ways to keep track of your money. I’m not about to tell you what you MUST do. You’ll have to figure it out for yourself. My way works for me. Other people have ways that work best for them. As long as you have a system that works, you go with that system. If your way isn’t working, you can whine about it, or you can make the effort to come up with a better system.

Okay, it’s your turn. What are your best ideas for tracking your money on a day-to-day basis?

I have to admit I’m of two minds on the whole issue of adult kids moving home. Termed “Boomerang kids” by the media and these are adult children who have left home only to return to the nest. Whether the cold hard reality of life on their own was too much to take, or they’ve suffered a significant set-back like unemployment, divorce or some other relationship malady, kids are coming home in record numbers. Some stats hold that the Kids-Moving-Back-Home phenomenon has doubled in the last half-century. And according to the National Survey of Households and Families in the U.S., 10% of all children over the age of 25 live with their parents.

Yup, I’m of two minds:

On the one hand, I think it’s terrific that parents are willing and able to help their children, particularly if the set-back those kids are facing is a result of crap happening. Who could foresee that your daughter’s lovely fiancé would turn into a drinking, gambling fool who couldn’t hold a job? Or that the lovely girl your boy brought home from college can’t keep her hand out of his wallet? If divorce happens, and you can help ease the burden by offering a roof and some emotional support, good for you as parents. Ditto kids who find themselves unexpectedly out of work, or dealing with an illness no one could have foreseen.

On the other hand, I think it’s downright dumb the way some parents let their kids move home, do little or nothing to pull their own weight, pay no rent, and still live high off the hog. There are adults living in their parents’ home who think it’s perfectly fine to eat out four nights out of seven, who don’t lift a finger to do anything to help out around the house, and who won’t cough up a penny to help with the costs of living. There are adults living in their parents’ home who get pregnant when they don’t have the money to put a roof over their own heads. There are adults living in their parents’ home who have no plan for how to get the hell out.

I received a letter from a young lady recently bemoaning the fact that she and her husband are still living in her parents’ basement. After moving home with him because she got pregnant and they didn’t yet have their crap together, they proceeded to have four children! Now she wants to know what she should do? Gosh, if you can’t take care of yourself, why would you think it’s okay to have four kids? What ever happened to “grow up” first?

If you have adult children who are planning to move back, you’ll do them no favours if you let them live the life of a teenager: sleeping late, taking no responsibility for themselves, and expecting everything to be done for them. While this is barely acceptable from a kid, it is totally unacceptable from an adult.

I don’t care how much you love your son or daughter. Adults do not have the right to mooch off their parents because the alternative is hard. If your kids have chosen to stay in school for a decade, why do they get to have all the benefits of your (hard working) life while they are students? And if they’re old enough to bring another life into the world, they’re old enough to put a roof over their own heads, and food in that baby’s belly. Enough with the coddling.

That’s not to say that you should turn your children away with a cold shoulder. But if you’re going to let a young adult move home, then you should at least have some rules about what’s what.

Make sure you have an end game in mind.  How long will they live with you? What’s their move-out date? Failing that, when will you sit down again to assess how they’re doing and set the move-out date? Establish a time line up front so your adult children don’t get the idea this is a permanent arrangement. Your kids shouldn’t have to worry about being kicked out on a whim. Nor should they get so comfortable that life at “home” becomes the status quo.

Talk about the money. If your kids are trying to save the downpayment on a home, have them pay you “rent” that not only covers the increased costs of having them under your roof, but sets aside the amount for the downpayment every month. Ditto kids who are paying off debt; make sure the money is going where it’s supposed to go. Unless your child has absolutely no income, they must accept responsibility for some of the household expenses.  And for those who have very limited incomes or who are busting their butts to get debt paid off, exchange what you have to offer for their skills as garbage collectors, cooks, cleaners, laundresses, snow-shovellers, drivers, and whatever else they can do to make your life easier.

One way or another, your adult children need to pay their way to keep their self-respect and not turn back into your “babies.” Let them off the hook on rent and other financial responsibilities – let them spend their income any ol’ way they want – and you’ll be teaching them to live on a disposable income they’ll never again have.  And let them live at home with no expectations for when they’ll leave and they won’t. Why would they? They’ve got it good and they know it.

 Back to the young lady who wrote me…

Sweetie, if you want to have a life, you’ve got to be prepared to pay for it. Life doesn’t come cheap. And it doesn’t come easy. Independence is a sign of maturity. If you’ve finally reached the point where you’ve recognized the importance of becoming independent, then you’ll do WHATEVER IT TAKES to make it so. Thank your parents and get the hell out of their basement!

APPEARANCE ALERT: I will be speaking at the Sudbury Women’s Show on Sunday, June 14, 2009. For more information, click here.  Come on by and get a hug!

If there’s one thing I’ve learned over my experiences with people and their money it is that it doesn’t matter how much you make, you can be broke. I often get letters from people who are living on significantly reduced incomes because of illnesses, changes in life circumstances or job loss. (Hey, that’s why emergency funds were invented, right?) My heart goes out to them because they’re trying to do their best on very little income. But I get just as many letters from people who make gobs of money and are still up to their eyeballs in debt.

One of the reasons people making lots of money can’t seem to make it last is what I like to call We-Make-Lots-of-Money-So-We-Don’t-Have-to-Worry Syndrome! Clearly if we’re bringing home The Big Bucks, there’s no way we can spend it all. Really? And if we have way more money than it takes to cover our nut, then we can buy whatever we want whenever we want too. Hmmm.

Part of this stems from the fact that most people never bother to figure out what their essential expenses are, convinced they make “enough,” there’s no need to watch the money. Unaware of how much of their money is being eaten up by their overheads, they are willing to blithely whip out their cards and charge it whenever they see something they’d love to own because there will always be more money.

As one lass I worked with put it, “I know I can always make more money. There will always be more money.”

WMLOMSWDHTW Syndrome leads people to act like children, satisfying their desires for candy, unaware of the cumulative effect. Later, when the major tummy-ache sets in, they wonder what they did wrong and whimper as they suffer. As soon as the ache passes, back into the candy bag go those fingers, only to create another major tummy ache.

If you’re spending money without keeping track of where the money is going, if you whip out that credit or debit card for everything you see that you want, if you don’t think twice about the money, you’re a tummy-ache waiting to happen. And if after, once you’ve realized you can’t pay the balance off in full, you resign yourself to anything less than a full payment, but keep using the credit card anyway, you’re the kid who just won’t learn the lesson.

Children can come up with all kinds of reason why they should have just one more piece of candy. And most kids will make themselves sick if they feel they can get away with eating the whole bag. People who shop using credit are doing exactly the same thing.

It doesn’t matter how much money you make, if you don’t keep your eye on the bottom line, you’re suffering from WMLOMSWDHTW Syndrome. You can say you don’t have time. You can say you have more important things to do. You can say it’s because money isn’t important to you. Those are all just excuses that will allow you to stick your hand in the candy-bag unfettered by reason or the need to prioritize.

Money is a limited resource and we can run out of it. If we don’t choose wisely, we can find ourselves in deep doo doo without any reserves to help us dig ourselves out. And if there comes a time when the money supply runs a little low, we’ll be kicking ourselves in the butt for having “wasted” all that money when we had it.

According to a recent report called “Where Has the Money Gone: The State of Canadian Household Debt”, one in four of us is $5,000 away from financial disaster, and one in ten of us couldn’t deal with a $500 emergency. OMG!

Save yourself the butt-kicking. Decide today that, regardless of how much you make, you’re going to start watching where your money goes. Get yourself a notebook and every time you spend a penny, write it down. At the end of the money, add it up by category – coffee, lunches, utilities, communication, etc. – to see where your money went.

You might be surprised at just how much candy you’ve been eating!

Everyone wants to know how I come up with the amounts I put in people’s budgets.  Even though I’ve put the interactive budget worksheet and instructions on this site, people are still writing to me, burying me in numbers and asking me to make them a budget. Or they’re asking me for guidelines on what they should be spending on things like food.

Making a budget is a bit like doing a puzzle… you have all the pieces, and you just have to get them all in the right place. Maybe that’s why I enjoy it. But making a budget doesn’t always mean getting it right on the first go. Sometimes you have to move those pieces around to make it work.

The first place to start is just to throw the numbers on to the budget worksheet and see where they all settle. That’s what I ask couples to do when they’re sending me their info (for the show)… I want to see how they think they’re spending their money. In every single case but one (Nicola from Season 1), people haven’t had a clue where their money is going. That’s why I tell people to do an assessment of how they’ve been spending their money. You can do it one of two ways:

•  Track your spending for a month or three, or
• Review your spending for the past six months. This is my preferred method since six months’ worth of info is far more revealing.

Okay, so let’s say I’ve got some numbers to work with.  I plop ‘em into the budget. Then I set to work making it balance. 

When you compare the Original budget with Gail’s budget you’ll see some significant differences. Here’s my process.

When I look at the bottom on the Original budget I can see the over-spending problem in black and white. So I start by dropping in all the Fixed Expenses, keeping them the same.

Next, I add in the money this couple should be saving for emergencies, their long-term retirement needs, and their two kids’ educations. These “savings” amount aren’t after-thoughts… they go into the budget right off the bat.

I also look at the amount going to debt repayment, and if it isn’t enough to blow off the debt in 3 years or less, I up the amount until there’s a light at the end of that tunnel.

Next, I drop in the Variable Expenses, adjusting the amounts down until the budget balances. Some things I kill completely. If you’re in debt, you can’t afford booze, cigarettes, chips, coffee, lunches out. You will have a very limited entertainment budget, and you’ll have to have all your fun (sports included) out of that money. Food gets chopped back, but not to an unreasonable amount… it’s important that everyone eat well. But that means no one gets to eat out!

When I look at the bottom line, if the budget still doesn’t balance, I go back over it looking for other places to cut back. This is when the Fixed Expenses come under the knife. Cut your cable. Cut your phone bill. Cut your utilities. Consolidate your car and home insurance, raise your deductable and cut your insurance premiums.

There’s no such thing as “cash” anymore since that’s not a real budget category. Some people like to give themselves a “cash allowance” that they can spend any way they want, but that’s a license to shop unconsciously.  If you’re spending the money, you should be thinking about it. You had to work hard for it and no unconscious spending is acceptable, particularly when you’re in debt.

There are some categories people cut back on so the budget will balance, knowing full well that they’ll have to spend the money even if it’s not in the budget! They create a budget they know won’t work because they don’t believe any budget will work. So they leave out categories like clothing, home maintenance, fun, family gifts, medical, and car repairs. People, crap happens, and some things you need to spend money on just because you do. It makes much more sense to make a plan and stick to it, than to make a plan you know won’t work. Yes, you may need to adapt on the fly if your “car repair” money hasn’t built up enough to cover the cost of the new tires you had to buy.  But it’s unlikely that you’ll have to buy new tires, repair the roof, buy the kids new shoes, and cover a birthday all in the same month… so as long as you have enough of a “float” in those we’ll-spend-it-eventually categories, your budget will work.

Okay, so that’s how I do it. There are no formulas… it’s a matter of what each person or family needs. While one family may be able to survive spending just $100 a month on gas, another may have to spend three or four times that… so there’s no Right Amount Rule for any category… it’s a matter of need and the amount of income available.

The bottom line is that you can’t spend more money than you make. If you can’t get the budget to balance you either cut costs or make more money. Debt has to be repaid. And you have to save something both for emergencies and for the long term.

Once this family is debt free, the $1,400 used for debt repayment can be reallocated to increase savings, plan for bigger purchases – new furniture, bikes for the kids, a vacation – and to create wiggle room in the budget. Upping categories like maintenance and entertainment by 25-50% means more money available to take care of problems and have some fun.

The excitement of moving into your first home, or a new home, is something that just can’t be described. There’s a flutter in your tummy, a sense of OMG that just wraps itself around you. And when you finally get the boxes unpacked and you walk around your castle, you’re often pinching yourself that you’ve done it. More OMG moments.

I distinctly remember looking out my kitchen window and wondering how I’d managed to make the life I had. I was living in the city at the time, the weeping mulberry was shooting pollen into the air, and the kids were romping, laughing and shouting. I did pinch myself.

The warm fuzzy feelings of owning your own digs eventually give way to the what-the-hell realization that when you own a home, there is always something that needs doing. Each time I’ve bought, I’ve had a home inspection that identified what was good and what was not-so-good about the home I was buying. And each time I’ve been told that there was stuff that would have to be done to fix or keep the house in good shape.

The rule of thumb for budgeting home maintenance costs is that you can expect to spend between three and five percent of the value of your home holding the sucker together. Older homes require more financial investment. Brand new homes require almost nothing initially, often lulling home-owners into a false sense of what things really cost.

People screech when I tell ‘em they need to budget for home maintenance. “What!?” they bellow at me when I tell them that on a $350,000 home, they need to set aside between $875 and $1,460 a month, depending on the condition they got the sucker in. Are you kidding me? That’s the equivalent of rent!

Home ownership is a big responsibility. And it can be very expensive. Let’s take a new roof as an example. A new roof on an average sized house costs between $6,000 and $8,000 if you go with a reputable roofer and use good quality materials. If you buy a home that’s brand new, you can expect to get 10 to 15 years out of your roof. Let’s be optimistic and say you’ll get 15 years; that translates into socking away just $39 a month to have what you’ll need when the time comes. But if your home is already 12 years old, you only have three years to come up with the money, so it’ll cost $194 a month. And that’s just for the roof.

There are furnaces to be replaced (a good gas furnace should last 15 to 20 years), windows and doors to be updated (window glass usually has a 10-year life span), and appliances to be fixed or replaced (anywhere from 6 years to 15 depending on the appliance). You have to paint inside and outside, repair asphalt or interlocking brick, and lay new carpet or other flooring periodically. And then there’s the stuff you must do seasonally – like clean the chimney, open and close the pool, maintain the garden, clean the eave troughs, – to keep the place in working order. Never mind the stuff you choose to do: painting or wall-papering, changing window coverings, putting down new flooring, adding storage or living space in a basement, upgrading bathrooms and kitchens, planting a garden.

When we bought the house in the country five years ago, our home inspector was fabulous (get a reputable one so you can trust what he/she says, it’s worth every extra penny you spend) and gave us a list of what would have to be done, along with a timeline and an approximate cost. And he was dead on. The chimney liner had to be replaced the second year we were there, the appliances in the kitchen in year five, and the roof soon after.

You can skimp on your home maintenance, ignoring the cracking foundation, the rotting deck or the fence that’s falling down only so long. When it finally MUST be done, no doubt it’ll cost three to five times as much as it would have if you’d simply maintained it. Out of the U.S. comes the statistic that for every $1 spent on home maintenance, you’re likely saving $100 on repairs. Pay now or pay big-time later. It’s your call.

I get a lot of emails every week, and while most of them are about debt and how to get out of it, I’ve noticed a growing number of people are trying to figure out how to live on less. Whether they’re retiring on a fraction of the income they had, moving to a single income because they’ve had a baby, forced to simplify because of a job loss, or living in reduced circumstances because of divorce, widowhood or disability, heaps of people are trying to figure out how to make it to the end of the month on a whole lot less money.

There are a few things you need to do to prepare for living on less. The first is to find a way to significantly reduce your housing costs. If you’re headed to retirement, a good goal would be to manage your mortgage down, so that your total housing costs represent 35% or less of your lower income. If your income is falling through no choice of your own, downsizing or moving to a cheaper area or cheaper digs may be your best bet.

Having an emergency fund is extremely important when you have to live on less. Even a small emergency can be devastating to a budget that’s so tight it squeaks.  Make sure you have stash of cash set aside just in case the worst happens so you aren’t forced to use credit and incur interest costs when you can least afford it.

Just as important is ensuring that you know the difference between the things you need (must have to keep body and soul together) and want (would like to have.) I’m amazed at the people who can’t tell the difference: the people who, despite not having the money in the bank, see no problem buying booze, take-out and a new set of threads, putting it all on credit. Wake up! If you’re living on limited resources, putting your must haves at risk for dumb wanna haves is not only short-sighted, it can be very painful because it leads to higher costs and lower cash flow.

If you’re living on reduced income, you can’t do it and keep up with debt repayments. Paying interest is hard when you have a good income. On a limited income, it’s the difference between keeping the lights on or not. It doesn’t matter what you can’t have… what you must do without… don’t go into debt. And if you have debt, you’ve got to find some way of ridding yourself of the burden. So, sure, working three jobs may suck for a while, but since you spent the money, it’s now time to earn it.

While people who don’t make a lot of money love to say that they don’t have enough money to make a budget; that’s just an excuse. At no time is a budget more important than when you’re living on a small income. It’s also a good idea to build up a bit of a “slush” fund when you’re living on a small income. Setting aside your change, or taking $2 a week out of your budget and setting it aside until you’ve accumulated $100 or so means you’ll have money available to take advantage of sales. If chicken goes on for 99¢ a pound, you can stock up.

Learning to barter is another good strategy. What do you have or what can you do in exchange for something else you may need. Offer to weed a neighbour’s vegi garden in exchange for a dozen zucchini. Offer to sit a friend’s kids in exchange for a home-cooked meal. Give a foot rub to an elderly relative in exchange for stuff she no longer needs that you can sell second-hand.

Learning to do for yourself will also save you money. If you can learn to repair what breaks, do your own maintenance, make your own goods, you’ll save gobs of money. While I had neither the tools nor the strength to remove a dead tree from my yard, I did have the skills to cook a lovely meal for the Sub-Hub (substitute husband) who did it for me. Ditto if you learn how to shop second hand and develop other strategies for getting more for less. Find free fun. Learn to love your library. Make friends with people who also live frugally, and take their tips to heart.

You may not be able to live large on a small income, but that doesn’t mean you can’t have a good life. You need to get your priorities straight. And you need to stay focused on what’s really important.

I get a lot of letters from people describing in detail their dire financial circumstances and asking me what they should do to make the problems go away. I know I’ve said this before, but apparently it bears repeating. If you get to the end of the money before you get to the end of the month you have two choices:

•  You can spend less money, or
• You can earn more money.

Them’s your options. It’s that simple. One isn’t better than the other. And sometimes it takes doing both to fix what’s broke.

Routinely, when I work with families, I cut their spending by 60%, 75%, 80%. That means I give them a whole lot less than they were living on a month in their jars. And you know what? They get to the end of the month. Yup. I haven’t  had anyone so far call us up and beg for more money. Quite the contrary. It’s become almost a personal quest among my fams to see how much they can keep in their jars.

How come? How come I can cut their spending from $4,000 a month to $1,000 a month, and they still have money left? How is that possible?

Could it be as simple as they fact that now they’re watching their pennies, they’re prioritizing, they’re making choices? Hmmm.  And because their budgets are so tight, sometimes those choices are pretty easy. After all, if it’s $40 at the pizza palace or a box of diapers, what do you think’s gonna win?

The whole point of a budget is to figure out what you can afford to spend. I see families spending $1200 a month on food and I cut them back to $600. I tell them to get rid of that stupid truck that’s guzzling $500 a month in gas and cost $300 a month to insure. I tell them to swap bad habits like smoking, gambling, and partying for good ones like meal planning, exercise, and the building of fond (if cheap) memories.

This website has the Interactive Budget (with instructions) that not only helps people build budgets, but shows them how they’re doing on the percentages and allocates the money to the jars on a weekly basis. All people have to do is use it. And yet I receive stacks of emails from people who won’t even try. Gosh darn it. That’s what it’s there for. Try. And if the budget seems not to work, jiggle the numbers around. There’s no magic to this. It’s a trial-and-error process.

If no matter how hard you try you can’t get to zero at the bottom then it may simply be a case that you don’t make enough money.

When I first started doing the show, I’d ask people to make an extra $100 a month. Maybe $200. Wait until you see what I ask people to do in the later seasons. OMG. Make another $500 a month, say I. Make another $900 a month, say I. Double your salary, say I. And you know what? My fams step up to the plate and do it. They take on more hours at work. They get a second job. They start a side business. They get a different job. They do whatever it takes, and they earn more.

Ultimately, if you want your life to change, you have to do something differently. For those who can’t figure out what to do, there are tools here, and all over the web, on TV and elsewhere that can help. But YOU have to be committed to doing something differently.

Throwing up your arms in resigned desperation won’t get you out of a pile of poop. Nor will going over and over and over how you got into the mess you’re in. It’s irrelevant. You’re in a mess and you want out. So now it’s time to take action.

First decide what’s really important to you. The guy who prioritizes the kind of truck he drives over how much money there is to feed the family isn’t ready to change. The chick who would rather shop herself out of a funk than pay the hydro bill isn’t ready to change. The family who thinks spending money they haven’t yet earned while leaving themselves open to crises because they have no savings, no emergency fund, or insufficient insurance, isn’t ready to change.

If you’re ready to take control of where you’re going financially (and probably in other ways too), then you have two choices:

• You can spend less money, or
• You can earn more money.

So, what’s it gonna be?

“People, you’re in denial. You can justify spending money like a pro. And you refuse to accept that you’re spending more money than you make.”

There’s something you’re not surprised to hear come out of my mouth, right? But how often can a girl say the same thing without starting to sound like a broken record? And yet, even though season six of Til Debt Do Us Part is airing this Friday night, I’m still getting loads of questions from people who just don’t have a clue about how much they are spending. Sometimes they don’t even know how much they’re making. Really? You can’t see the money going in and out of your account? 

Denial doesn’t just assert itself because people don’t make enough money and don’t want to admit it. (Hey, you know my cure for that right?) It doesn’t seem to matter how much people make, they manage to spend it all… and more. Even while they know they’re slipping further and further into debt, they won’t look at the details.  They are always paying late fees, chronically short of cash, and bouncing cheques like basketballs. Yet they refuse to get out the paperwork, do the math and figure out where the holes are.

Even people with only a small amount of debt are in denial if they are spending everything they’re bringing in because they are “denying” the potential disaster that’s just around the corner. Just one small slip, one tiny emergency, and their just-in-time system unravels and they fall behind.

Then there are the people who refuse to file their tax returns because they think they owe money but would rather deny their obligation to pay than just pay up and be done with it. People, the tax man can go into your bank account and take his money… leaving you short for your mortgage or rent payment. Yup, he can do it! And he does. So if he hasn’t gotten to you yet, consider yourself lucky that you have the time to fix what’s broke.

There are the folks who find themselves financially stuck, unable to reduce your debt because they’re only making their minimum payments. Whazzup with that? Are you so committed to spending money on crap that you’re willing to pay double (when you add in the interest) and carry the debt for a decade?

There are the people who having paid off a horribly high balance, rush out and run their card right back up to the limit taking a vacation, shopping, doing whatever they’ve not been doing while they paid down their debt because they’ve “earned” it. How much of a masochist are you?

If you find yourself behaving in ways you know you shouldn’t – buying another outfit when you’ve said paying off your line of credit is the most important thing, or eating out when you promised yourself you’d cook at home, then you’re in denial. If you can’t resist spending money even when you know that means you’re going home to juggle bills, you’re in denial. If you haven’t told your family and friends that you’re in hock up to your eyeballs so you can pretend everything is “fine, just fine”, you’re in denial.

And if you hear yourself saying things like:

• Everyone else is doing it
• I work hard, so I deserve it
• I don’t care. I’ll figure it out later

you are definitely in denial.

Tired of living with the spectre of disaster looming? You have to find someone to talk to about whatever it is you’re in denial about. Talking about it is the only thing that will help dissolved the denial. That’s one of the things I do for the couples I work with: I open up the cupboards of their financial lives and air them out. We talk about why they’re acting like dopes, and what they actually want to achieve. Then we make a plan.

So, what are you in denial about? And who are you going to fess up to, so you can get the Denial Monkey off your back?

Hey, I’m listening.

As y’all know I answer a lot of questions from people about their money and how to deal with it. There’s a wealth of info over in the Your Questions section. Sometimes I get a lot of the same questions, and then I do a blog so everyone will read the answers. Here’s a new crop for you to take a gander at.

I keep getting letters like these from people who are desperate:

We need help from a professional … we cannot do this on our own. We have tried (very unsuccessfully). We’ve been bankrupt once and are in loads of debt again. We make close to $200,000 a year but live paycheque to paycheque (we even get advances on our paycheques). Where do we go to find a professional??

I’m very sorry, but I can’t give recommendations to professionals because before I could do that I’d have to make sure they were up to the job, and there’s no way for me to know that. It is frustrating for y’all who need help and don’t know where to turn, I know. I’ll reiterate that I think you should start with your local branch personnel and see if there’s anyone there who can help you. It doesn’t matter if you’re a client or not YET, just open up a savings account and then use it as your “in” to have a chat or three with various people who may be able to help. Ask friends and family if they have a good advisor. Make sure you ask lots of questions and understand everything you’re being asked to do BEFORE you do anything. 

Angelina wrote:

Hi Gail I love your show. I wish I could have my husband watch your show. I really have a lot to ask but I try giving you one thing at a time. What is the recommended amount of Groceries a month for 2 adults a 2yr ( potty training in progress) & 7mth. We probably spend $400.00. I only go out once a moth and I do the cooking at home, but I would run out of bread, milk, eggs, butter diapers and have to do $100 extra always. My husband thinks it too much. What can we do?

Angelina, I can’t tell you how much to spend on food for a bunch of reasons: I don’t know how much you make and I don’t know what your other expenses are. I can tell you that according to the Stats Man, before food prices started going through the stratosphere, the average family with kids was spending about $800 a month. I think you can do better than that with some focus on meal planning and shopping the sales. If I were doing your budget, I’d give you $600 for food and personal care.

J wrote:

I’ve heard that some collections agencies are bogus, how do I know if they’re really collecting money on behalf of someone else? And is it true that if they can’t contact you and you don’t make a payment that in a certain amount of years (I heard 6 or 7) it disappears off your credit report? Thank you! P.S. Love your show! It’s been very helpful.

J: some collections agencies are indeed bogus, and you should take a name and telephone number and verify the company before dealing with them. As for stuff falling off your credit report, most information only has a life of about six or seven years, but you better not want to borrow any money during that time!

LM wrote:

I’m in over my head and I need your advice so that I won’t require a slap if ever I meet you. My question for you stems from an episode of ‘Til Debt’ Do Us Part that aired a few weeks ago but alas I missed it. Do you recall the storyline when the husband, who was in the entertainment industry, had not paid his taxes in several years and had not been caught? I’m very curious as to what your advice was to take care of this situation. Did he represent himself and go the Tax Amnesty route through CRA or did you have him go through an accountant or lawyer. I have met with a tax amnesty lawyer and got his opinion and his potential bill, not including accounting services but I was hoping that you knew of a better way. You can only guess why I’m asking this…I look forward to hearing from you.

LM: I’m sorry, hon, I don’t know of a better way. I think the tax amnesty route is the best option. Since The Tax man allows “no-name” disclosure to enable discussions to take place anonymously until a deal is reached, only a lawyer can protect the client’s identity if a deal is not reached.

J wrote:

Dear Gail, I LOVE your show! It is truly inspiring and I so wish i can get it together and start saving. My problem is that whatever money comes in, goes out immediately! My husband is a self employed photographer and makes a decent salary. He grossed about USD$180,000.00 last year, but we do not have more than $500 in our account as we speak. Money comes in and it goes to pay rent, utilities, suppliers, etc. I am so tired and worried about our financial state. We are always short of cash. On top of that, we have credit card debt of about USD$20,000. What can you suggest for me to get on the road to saving!!? It seems so hard when you’re self employed. I have a small business and that’s not been helping either. I live in Singapore by the way

J: if you have an income of more than $180,000 and you don’t have anything saved, and you have debt, you are really, really dumb. The place to start is with a budget. I don’t care how often the money comes in, that’s just an excuse. Go read my blog about living on a variable income. And then get yourself on a budget girl.

J isn’t the only one I’ve gotten this kind of letter from. All over the world people are throwing up their arms and whining, ‘I just don’t know how’ as they continue to shop themselves into a hole. Ya know what, it’s time to stop whining and start doing. Hope and wishes won’t get you anywhere you want to go. Belief in yourself and A FRICKEN PLAN will. So, people, if you think you want to get out of debt, learn to live on less, know where your money is going, use the tools on this site to make it so. I can’t possibly do budgets for y’all. Besides, I’ve made fams on the show do their own budgets and they used the tools on this site to do it, and it worked just fine. So now it’s your turn to DO IT!

I’m a-wonderin’ sumthin’: Would y’all consider creating Gail Clubs — kinda like book clubs — where those of you who actually get the whole idea of budgeting and money management get together to share your wit and wisdom with those who are in need of some more targeted guidance? It would be a little like an investment club, but more about money management, getting debt free, and sharing tips. If you want to create something like that, I’m happy to let the community know where your group is set up so that those who are interested could come and partake of the groups’ company and knowledge. You could ask a well-trusted financial mentor to be a guest or a regular guide. And you could grow the group over time to include all aspects of money management. Let me know if you see value in sharing your ideas and learning from each other. Then I’ll create a blog on how to set one up, and once I have a few group locations, I’ll post some contact names and locations for those who may be in your area and looking to connect. (I could also do a blog on how to set up an investment club, if you’re interested.)

That’s enough for now. I have plenty more, so I’ll do another blog like this soon.

TTFN