A Community Of Canadians Living And Thriving Debt Free
You made a plan at the beginning of the month, and now a $200 bill came in at $192. What do you do?
Update it.
Reality has changed. If you update it while keeping a zero-based budget, this will force you to be intentional with ALL your money, including the money that randomly shows up.
Plus, there’s a major (maybe surprising) psychological benefit too!
Nick and Christine Mitchell (not their real names) are a normal couple: they have two kids (ages 11 and 9), and were making reasonable money, but in May 2020, Christine lost her job due to COVID-19. Now she is on CERB, and she always made more than her husband. It’s a bit of a wake up call, because, as you’ll see, Nick and Christine are normal – in some major debt – and not making much progress. Today we go through a budget to deal with this laid-off reality and try to figure out where to go next.
Want a video like this made with your real numbers so you can move forward powerfully with a working budget? Members get this done for free! Check out details of the membership by visiting www.wepayoffdebt.ca/membership
Did you see that the membership has relaunched? Be sure to check out the info about that here.
Making a budget isn’t rocket science, but it does take some intentionality, as well as some clarity on a financial plan that meets all your needs and allows you to move toward succeeding.
Last month I came up with this idea of a budget workshop, where I take someone’s real numbers and put together a realistic budget they can start moving forward with that will move them towards financial freedom in a short time (0-24 months). I anonymize it and release it as a YouTube video for the community to benefit from.
(it’s so much easier to slash a budget that is not your own, can you imagine? 😁)
I’ll be releasing these publicly in the weeks to come – the first one is released now! You’ll find it below ⬇⬇⬇
Like it? Hate it? Leave a comment here and let me know what you think of it! I’d love to hear some feedback!
But, THIS is one of the main new benefits of joining my membership! Everyone who joins will get access to a budget workshop video like this for their situation, going over all the details to help them immediately jump into a productive budget to start with. PLUS I’ve got some great instructions prepared on how to actually STICK to it, and making tracking it a BREEZE. Click below for more info on the membership and getting your own budget workshop!
The First Budget Workshop Video
Joseph and Maxine are a newly married couple. Maxine is self-employed and so we spend a good chunk of the video talking about how to separate business income/expenses from household income/expenses, and then get them a budget that puts them in an AMAZING place for the coming month!
When you’re in the middle of a mess, it can feel like it’s just impossible to get out. Here are 60 seconds that will bring some HOPE to you and your family – YOU CAN get out of debt. YOU CAN get control of your money. YOU CAN change your family tree and leave a legacy for your kids. YOU CAN DO THIS. YOU GOT THIS! GO WIN! Email me rob@wepayoffdebt.ca if I can help!
I used to feel like I needed to keep my budget the same as it was when I made it…and that’s silly.
The Buffer Zone. Not many people are paid daily, and even people less have their expenses set up in a way where a bill for $X is due only after you’ve received at least $X this month! We need a BUFFER ZONE to be able to pay the bills in between pay periods. This is NOT your emergency fund, just a buffer zone to keep the household running between income payments.
When you make a budget, and 3 days later your world has entirely changed, do you change the budget?
Is the budget some sacred document that can never change once it’s been made?
That’s what I used to think, and it crippled me from succeeding with my budget. In this video, I share the main paradigm shift that means you will change your budget (in fact often), and how this will really help accelerate your success with budgeting.
Watch the video below:
(Click here to watch on YouTube)
The ultimate goal of keeping a budget is knowing where your money is going. For instance, if in your job, you were given the authority to choose where to spend $10,000, THAT is not a budget. If even given this authority they expect you to tell them where you’re going to spend it, and then where you DID spend it, THAT is a budget. A spending plan. This is all they really care about if they’ve given you the authority to decide – where are you planning to put it, and where DID it go?
What if you told your boss that you’d spend $250 on this software package or this service or this new electronic device, but it actually came in at $300. What now? Well, first we can ask why did this happen?
All these are ways we make mistakes sometimes, and while we work hard not to make these mistakes, sometimes they are inevitable.
Sometimes they will care you made a mistake, sometimes they will care that you were undisciplined. But if you were in a circumstance where they gave you the authority to choose where the money was spent, odds are good they only care about the error in as much as it affects how much you spent. They just want your spending plan. Now that this error has happened, what is your new plan?
And that’s the important thing to notice: you need a new plan. There is little to no value in keeping the old plan. That old plan, expectation and potential reality has changed, and it’s not the truth at this point. We now KNOW that the item costs $300, so the company wants to know your NEW plan. Now that you overspent by $50 on this item, are you planning to take that $50 out of somewhere else? Or are you going to go over budget? Or maybe you’re going to bring in more income to offset that? WHAT IS YOUR NEW PLAN?
You are the Chief Financial Officer of a business called You, Inc., and you are expected to produce a spending plan for this business! If you make $100,000/yr, then essentially you are in charge of managing the finances for a business that makes $100,000/yr!
A budget is a plan; a spending plan. It’s what you’re planning to spend your money on.
When I first started making budgets, I felt like when you make the budget at the beginning of the month, it needed to stay that way. You would track it and track it, and eventually, you’re seeing how you were wrong and you’re over or under.
Is there any good reason to keep the budget you had at the start of the month? As I think about it now, the only reason might be that, as the month goes on, you actually know how bad a budgeter you were a month ago.
Who cares?
All I care about and all you should care about is how this month’s money is going to be spent. Here’s the paradigm-shifting thing that changes everything:
When your budget changes, when something changes in your budget, change your budget.
Imagine in your budget you planned to spend $100 on a particular event out with coworkers. But, at the end of the night, the bill comes, and you owe $115. What happened? How did this happen? These are great conversations to have: to discuss why this happened, and how you can avoid it in the future – was it because you were undisciplined? Stupid? A silly mistake? But that’s not my point here.
You’ve already bought (and consumed) the food. It’s done and you did it. You can’t choose to not pay the bill because it wasn’t in your budget. After the bill is paid, the next chance you get, you need to edit your budget to this new reality – the one in which you spent $115, not $100.
Don’t get me wrong: you don’t need to do it right then or anything (you can wait until you get home to pull out your budget app!), but it needs to be updated.
Now here’s where things get tricky: the only budget I would ever recommend making is what’s called a Zero-Based budget (watch more about how to do that here), and in this situation, every dollar in your budget had a job – a mission – before you overspent at this event. That means those $15 dollars you overspent were supposed to go to another mission somewhere else, and because you did this, they can’t do that other job now!
So, you need to up the budget for this event by the $15 extra you spent, and you’ll need to lower your budget somewhere else by $15. You actually need to consciously choose what you are spending $15 less on because of this event. This now points out how awful this situation is – you’re other mission won’t be accomplished because you didn’t follow through on your budget! This feeling sucks, and it’ll encourage you to stick to your budget in the future!
The key here is really honesty: what really happened. The key paradigm here is that
It may not get there all the time, but this should always be the goal.
There is an app I use for this: EveryDollar (www.everydollar.com). The app can be downloaded for iOS and Android, and it’s super easy to update when there’s a change to the budget.
Note: There is an issue the company is having right now where some Canadians are experiencing that the app is not showing up in the search, or it’s saying it’s not available in Canada. Please email me at rob@wepayoffdebt.ca if you’d like some help getting around this (as there is a way), and here are the links if can’t find it in the search:
This paradigm shift has been a game-changer in our family budget. We know, as accurately as possible, what our financial world looks like at every moment.
So what does this look like for someone paying off debt? What would this look like?
First, you make your budget for the month before the month begins and in this process, you decide how much is going towards debt. You feel great about it.
But then a bill comes in more expensive than you anticipated. Maybe you had budgeted $150 for your cell phone, but it comes in at $200.
The first thing you do is try to figure out what happened! Maybe you went over in your data usage (we do this unfortunately many months).
But, assuming there’s no error, we can’t change this now. But, we need to fix this in the budget somewhere now…but when you made your budget, you threw every extra penny you had at the debt? There are not many other places you can cut, so you may have to cut the debt repayment.
That said, if you can find a way to cut, for instance, your food or eating out or cable or something else, and you and your spouse are in agreement on doing so, great, but at some point, it’ll come down to taking it out of your debt repayment.
If it comes down to it that you decide to lower your debt repayment, this has a rather interesting of behavioral effect: when you lower the planned debt repayment you feel that, “BAH! That’s why I’m doing this! I want to get out of debt so badly!”
And, then it happens again and you lower it on your debt again and you change it again.
Then again. Don’t miss updating it. Not Even One Time.
It happens over and over and over three, four, five times you’ve lowered your debt repayment, now how do you feel? Frustrated and angry.
But now, 3 days later, you’re out at the store, and you’re tempted to buy that new nice pair of shoes, or that nice new purse or that nice new gadget.
At this point, you’ve lowered the dollar amount every single time you went over, and it’s been six times this month already and it’s only the seventh. This gives you the added push to say NO and to stick on your budget. I’m not gonna do this again, I’m not gonna purposely put me in a place where I have to again lower my debt repayment.
So as long as you hold to the commitment of updating your budget every time reality changes, you get an extra humph to stay on your budget.