16 – Budgeting Tips to Improve Your Finances

Wayne Kay  0:03  

Welcome to the Debt Matters podcast where we help Canadians find solutions to their debt with Licensed Insolvency Trustees from across Canada. I’m Wayne Kay and I’m excited about today’s show because we’re gonna be diving into the B word. Yes, we’re going to be talking about the best ways to create and stick to a budget. 

And to find out how –  joining me on the phone, I’ve got John Adamson from Adamson & Associates, Licensed Insolvency Trustees in Ontario. 

John, thanks for being on the show today. 

John Adamson  0:32  

Thank you for having me. 

Wayne Kay  0:33  

The last time you’re on the show, you mentioned right at the end – you said I wish people would learn about budgeting and money in high school. Oh, so true. It’s got to be so frustrating for somebody in your industry, where you see the same problems. And it’s nobody’s fault. We just don’t learn this stuff. 

John Adamson  0:55  

That’s true. That’s very true. You know, I think most people live payday to payday. And it’s a situation where we tend to –  we don’t think about the things that we have to pay. So we just make decisions. And it’s really hard. How do you make decisions if you don’t know what you have available to spend? Right?

Wayne Kay  1:15  

Yes. 

John Adamson  1:15  

So that’s one of the challenges. And by doing a budget, and knowing what you have got coming in, knowing what you have got going out – that’s the most important part. Then you know what’s left over, and now you can make decisions with what you have leftover. 

Wayne Kay  1:29  

This is gonna be great, because actually, when somebody does go through a Bankruptcy or Consumer Proposals, this is actually something you talk to them about, right?

John Adamson  1:40  

It is, yes. 

Wayne Kay  1:41  

And how does this go? How do you go about starting that? 

John Adamson  1:46  

Well, it’s that you get out of it, what you put into it. So there’s some people that it won’t matter what I say, they’re going to get nothing out of it, because they’re not interested. And it’s the old saying that you can lead a horse to water, but you can’t make them drink, right? Then there’s other people that will say, Oh, my God, this is so amazing. I wish I had known this 20 years ago. And it really comes down to which frame of mind you’re in. But it’s a tool that we all need to know. 

Wayne Kay  2:14  

Yes, absolutely. So we’re going to be diving into this budgeting – how do you even start? 

John Adamson  2:21  

You know, I was in university, and I said to myself, where’s my money going? I sat down, and at the end of the month, I thought I have got to do something different. And I wrote down every penny that I spent, and we had pennies back in those days. If you went for coffee, you wrote it down. At the end of the month, I tallied up where my money was going. And I think that’s the starting point for you to determine where you’re spending your money. 

You have to be honest with yourself – where am I spending my money? Then you look at it and say, Okay, what can I change – I can make some decisions. And that becomes the basis for making your budget. 

And you know what income you’ve got – everybody knows what they bring in. Everybody knows what their paycheck is. So you know, what’s coming in. Then you break it down into weeks. You say, Okay, what are my expenditures, and you break your expenditures into wants and needs, I need to pay my rent, I need food on the table. 

Lots of wants could be whatever, and you put the wants separately. Then you take care of the necessities first. You then look at it and – I think it’s important you kind of want to have some money left over for you. 

I’m a big believer that in your budget, you should have something in there for you. Savings – maybe I’m going to take a trip next year and I’m going to put some money aside for that, or for a rainy day. Because the car is gonna break down, I need to pay for car repairs. So you build that into your budget, and then it becomes a plan that you follow. And that’s kind of how I go about it. 

Wayne Kay  3:54  

And then you’re going along great, and all of a sudden, there’s those one time expenses that come up every year that may surprise you. Maybe it’s the car insurance, or maybe it’s the sewer, gas bill, or annual license plate renewal – some little thing that comes up. How do you incorporate that into that budgeting?

John Adamson  4:18  

You really want to try because it’s all about cash flow. So you really want to try, if you can , to get that on some sort of monthly billing. And luckily, the insurance companies now will do that on a monthly billing and they’ll take it right out of your account. 

Utilities –  I get a lot of times people would have high utility bills in the wintertime, but very little utilities in the summertime. You can get them to take extra in the summer months so your utilities are lower in the winter. 

You start to look at each of those and say, How do I make this that it’s almost an equal billing, so that I don’t have that huge bill that comes in and whatever month it is. You may still have that from time to time but you want to actually build that into your budget. 

If I know that I’m going to have a $1,200 bill 12 months from now, I’m going to build in my budget this month, $100 for that. And we’re going to leave money in the account so that when that comes up, or possibly, if you have that same amount transferred to a savings account, I’ve got money set aside for it. 

Wayne Kay  5:15  

So important. Once you learn the trick to this, don’t you find that people are just a little bit more relaxed? 

John Adamson  5:25  

Yes, it is. It’s peace of mind. How do you make a decision if you can afford that car payment or whatever it is? Can I afford that – If you don’t know what you have leftover. 

Wayne Kay  5:38  

Yes, and I’ve watched even lots of money TV shows – there’s always different resources around. And it’s shocking how many people have no idea that they have $2,000 coming in every month, but they’re spending $2,500. And they’re shocked. They have no clue that they’re spending that much money. 

John Adamson  5:59  

Yes. But you know, it’s amazing about this. And I go back to –  if you go back and look at the 80s when people would go to the grocery store. They would have cash and they would buy groceries. And now you go to the grocery store, and you buy patio furniture. And you go to every big box store, which is selling stuff – but really they’re a credit card company. 

So what’s happened is these companies are smart. They know how to get people to overspend. And they have created this machine where people overspend, and they know what they’re doing. Get our credit card and spend more. You swipe a card,  you’re not paying attention in the grocery store by spending $300 or $400. This is what they do. And they’ve engineered it so that people overspend. And having a budget and then sticking to it really protects you from them. 

Wayne Kay  6:48  

But I got 500 points. I got 500 points, if I spent $125 for groceries, 

John Adamson  6:54  

I know, I got a free cutting board the other day, and I just wish they’d reduced the price of my groceries. 

Wayne Kay  7:00  

I know but now that’s how we think. They’ve done a great job that is very impressive. So that’s something we need to all be aware of – and this happened to us. Okay, we’re at $23 we need $25 bucks, because we get a 50 cent coupon. So I spent $2 on something I don’t need to save 50 cents. 

John Adamson  7:22  

Yes. 

Wayne Kay  7:22  

Doesn’t make sense. 

John Adamson  7:23  

It then comes back to needs and wants. 

Wayne Kay  7:25  

Yes, exactly. So what about people that can’t balance their budget? What are their options? 

John Adamson  7:32  

So that’s a tough one. Because it comes back to – it’s not just a matter of doing math on a page, it comes back to making decisions. And you really only have two choices, you either have to increase the income coming in, or you have to decrease the expenditures. And so okay, what am I getting rid of? 

And a lot of times, that’s where we get involved – to say, well, do you need this? Is there a cheaper option? Or do I get a part time job? Do I take on a roommate or whatever, but somehow, it has to be on a budget – because there’s no tree out there to just go out and pluck some money off the tree, right? 

So it’s either you have to increase the money coming in, or you have to decrease expenditures. And that’s, that’s a tough one, because it’s a personal decision that you have to make. 

Wayne Kay  8:22  

And these days, it’s very difficult. I can see how so many families –  you hit a rough patch, all of a sudden, you can see how things will go sideways financially. But there’s expenses now as families that we have that weren’t here 20 years ago. An example will be the cell phone bills, which are ridiculously expensive when you add in the data plans. Then all of a sudden, the kids have to have a data plan. I’ve done the math on some of these things that we now have to spend money on that we didn’t spend it on years ago. And it could be $300 extra for internet –  add that into your home. We never had to worry about that back in the old days. 

John Adamson  9:07  

Correct. 

Wayne Kay  9:08  

Just like that. There’s $300 extra every month. It’s almost essential these days to have cell phones, right?

John Adamson  9:15  

Yes and no. I mean, I guess it depends on what you do. It’s one that I’ve looked at a lot and anybody who’s got kids – Okay, well, why does that child need that cell phone or that plan? And I think it’s, again, these companies are very good at overselling. 

So if you can say, hey, I want to do away with all this. Bell did this for a while with the phone services, right? You say well, do I need all this stuff? You have to go back to if it’s a phone, what do I use it for? And do I really need all that? 

Wayne Kay  9:52  

Yes, right.

John Adamson  9:53  

Do I need to have all this roaming stuff on there? If I can go somewhere that has Wifi and there’s lots of places that have free Wifi. Find out, am I okay with not having these services, 

Wayne Kay  10:04  

I just absolutely refuse. Personally, I’ve got my phone, and I can text  – then I use Wifi. And I’ve got pretty much the cheapest phone anywhere. I laugh at my kids, because they’ve got the latest. They’re older, they pay for their own, but I’m like, the amount of money, you’re spending extra on that. And we do the same things. Just that you can do it while sitting on a park bench. But, I guess that comes down to want-needs as you said, 

John Adamson  10:29  

Want and needs. 

Wayne Kay  10:31  

And they work. So if they’re lucky, they’re doing good. Let’s talk about the best ways to save for retirement. I wish I thought that through earlier, when you talk about learning back in high school. 

John Adamson  10:43  

Part of that depends on what age you’re coming into this. I remember I had a teacher in high school. And he said to me, if you just put 10% of every paycheque away, you’ll retire very, very wealthy. I wish I had listened to him. But it’s true, right? 

So it comes back to your budget, and it comes back to wants and needs. And that is a want. I want to be able to retire with money. It’s a need, I’m gonna need to retire, that day is going to come for everybody. But how much do I want to have? A few options that I think make a lot of sense because most people don’t have pensions anymore.  

If you can put money into an RRSP – and then at the end of the year, you get a tax refund. Take that tax refund and put it into your Tax Free Savings Account. Because all the money that’s earned in your Tax Free Savings Account, they’re not going to tax. So you’re building up money. When you take it out eventually, it’s tax free. And you’ve created those refunds from putting money into your RRSP, which is for your retirement.

Wayne Kay  11:47  

That’s a great way of doing it. How do you budget? I guess to start small. What’s your advice to people when it comes to budgeting?

John Adamson  11:56  

It’s planning, right? You’re looking at what you’ve got – your resources and you’re saying, these are things that I want to do. I want to put money into an RRSP,  or whatever it is. I want to go on a trip next year. So I’m not going to just run out tomorrow and finance a trip. I’m going to plan for it then I’ll have the money saved up. 

So that all comes back to the budget is the plan. And it’s all written down. There’s an old saying that if you write your goals down, it happens. So you’ve got it written down. And then you go back and you track. How did I do this month? Did I spend X number of dollars on groceries – or do they spend whatever. 

And there’s an old saying, I mean, there’s a lot of people that maybe didn’t make a lot of money, but they were very wealthy when they retired. And it’s what they didn’t spend. I think we’ve become a culture –  there’s a generational thing where it’s all about spending. But there’s a lot of people that had a lot of money by not – they accumulated a lot of money by not spending. 

Wayne Kay  12:58  

Yes. That’s great advice, and you can make a game out of it. And once you start seeing that growth, you start seeing those savings accounts – that money in that RRSP starts to grow, you start to want to put more in if you possibly can. 

John Adamson  13:16  

Yes, absolutely. That happens. 

Wayne Kay  13:18  

Right? It is my favorite thing, and this drives my wife crazy. But I get playing with those compound interest calculators – you can grab them online. I’ll say, Oh, just 6% this is what it will be compounded interest. And maybe we should get this when we have grandkids one day. Maybe we can put this in, and have it grown 5%. And then have it grow for like 80 years. I’m always laughing about the amount of money compound interest can actually grow into. 

John Adamson  13:46  

But it’s true. It’s true. The proof of that is that the mortgage companies aren’t suffering, are they? 

Wayne Kay  13:54  

Yes, very true. Yea, exactly. Is there a best way to track your expenses? 

John Adamson  14:02  

I think everybody’s different. Some people use envelopes, and that works for them. And they put the money in their envelopes and when it’s gone – they’ve tracked it that way. There’s other people that are computer savvy and have programs that they use. There’s other people that would just have some sort of manual book that they would write it down. I don’t think it necessarily matters. As long as you do it. 

Wayne Kay  14:26  

Yes. 

John Adamson  14:26  

Right. The key is to make sure that you do it. 

Wayne Kay  14:28  

Right. And one more question before I let you go. Is it important to have both chequing and savings accounts? 

John Adamson  14:36  

I believe so – if you can put money into a savings account and forget that it’s there till you decide to invest it. That’s great, because now you’ve got money. That can become your rainy day fund. Maybe you’re going to save up three months worth of pay for that rainy day or whatever you choose. But quite often, if it’s in the chequing account, you’ll spend it.

Wayne Kay  14:57  

Yes. 

John Adamson  14:58  

So if you can kind of  – you’re right – back to your comment about it becoming a game. Well, that money’s in there. I don’t want to touch it. So you segregate it so you don’t touch it. 

Wayne Kay  15:06  

Any final words of advice you want to share regarding budgeting? 

John Adamson  15:11  

Do it. Just do it. Make it part of the goal. And if you do it, you’ll be amazed. You’ll do really well, it’s just part of getting to where you want to get to. 

Wayne Kay  15:21  

John, thanks very much for being on the show today. This has been great information. 

John Adamson  15:26  

I appreciate being on Thank you. 

Wayne Kay  15:28  

You got it. That’s John Adamson from Adamson & Associates, Licensed Insolvency Trustees in Ontario. And if you want to contact John and the team, you can contact adamsontrustee.com. That’s the website and that is it for today’s Debt Matters podcast. 

Just make sure you subscribe wherever you get your favorite podcasts from and of course, if you want more information, you can always check out debtmatters.ca Thanks very much for listening.