Has Your Spending Changed?

Alberta and most of Canada had some pretty amazing economic years from 2001 through 2007.  With lots of jobs and low unemployment, there was a fair bit of money to go around.

Quite a few people invested the extra money they were making, some put it into much larger houses, a few paid down debt, and others used it as a down payment to buy boats, quads, ski-doos, RVs and other somewhat expensive luxuries.  Whether those actions were right or wrong is not the point of this article.  My point (question) is this:  With the drop in the economy, possibly a reduced income for you and your family, has your spending changed?

Budgeting basics

I’m sure everyone has heard the following basics of building financial security, but because they are the basics they are worth reviewing:

1.Spend less than you earn.
a.This can be a huge topic unto itself.  Canadians have been spending more and more of their income over the past 15 years, to a point where many are spending more than they take home.  In order to do this they are going deeper into debt.

b.What are they spending money on?

• The biggest house and mortgage they can afford, even when they don’t need one that big (5 bedroom house with only 1 or 2 kids).  Unfortunately this often also comes with more property taxes and high heating and electricity bills, making it cost even more.  These costs often make it difficult to cover other expenses.
• Brand new vehicles, bigger and with all the extras that jack up the price by 30 to 50%.  These large vehicles (SUVs, 4 by 4’s that never see gravel…) also mean higher insurance rates and often poor fuel mileage.
• Eating out or eating prepared foods.  I know most people are very busy, making it difficult to make meals at home, but when eating out costs at a minimum of $8 and easily up to $25 per visit it may be time to review both eating and spending habits.  This is a very expensive consumer habit that can change your monthly spending by $200 to $500 per month.
• The latest toys.  People are going into debt to have the newest TV or sound system, video games, newer washing machine…  Often people are buying new versions of these even when the old one still works just fine (replacing at 27” TV with a 47”).
•  Holidays.  I can’t believe how many people take at least one vacation to Mexico, Cuba, or Las Vegas every year, and put the whole thing on their credit card.  They believe they deserve the break, because they are working so hard.  The thing is they have to work so hard to pay for last year’s vacation.  When someone is having difficulty making mortgage payments, a $1,500 trip to Las Vegas probably isn’t the best thing to do.