In a recent blog, teacher, mother-of-two and Gen Squeeze supporter Julie Bond courageously lays out her family's financial squeeze and asks how families like hers can make ends meet. We turned to personal finance expert Preet Banerjee for advice.
From the surface, it looks like the angst is not due to income problems, but rather, expense problems. Julie is correct that they make more than a lot of households. Their income is well above the median household income in Canada. There are a lot of people feeling squeezed, but how much of that squeeze comes from external factors versus individual choices varies.
For example, long distance commuting in a truck doesn't seem to make much fiscal sense, and is quite a drain on cash flow. It seems like a relatively expensive truck given the loan payments. I imagine the fuel efficiency wasn't the initial selling feature, and the insurance seems high, too. While it might seem like a difficult trade-off, selling the truck to buy a less glamorous, fuel-efficient commuting vehicle may significantly ease the financial stress.
Editors note: Since writing, Julie and Noel have traded in their truck for a more fuel efficient minivan!
When it comes to budgeting, one of the things I noticed was that some payments that were made "bi-weekly" were converted incorrectly into monthly totals, and this can often catch people out. If you have a payment due once every two weeks, ten months of the year you will have two payments, and two months of the year, you'll have three payments. Those two months with the extra payment can make it feel like it's impossible to get ahead. So make sure to consider the exact timing of your income and expenses when using a budget.
Creditor-provided life insurance (where the lender provides the insurance) may be replaced with private life insurance to possibly reduce the cost, and increase peace of mind. Usually, with private life insurance, the underwriting is performed at time of application, as opposed to at time of claim (as is usually the case with creditor-provided life insurance).
Underwriting is basically the process of determining if you are insurable in the first place. Imagine finding out that you weren't insured after you tried to make a claim? Private life insurance is also more flexible as the death benefit can be used to pay off the mortgage, or not. You get a cheque and decide the best use of funds. Creditor provided insurance just pays off the mortgage - and remember, the mortgage goes down over time so the benefit is always decreasing.
This is by no means an exhaustive list of all the things the Bond family may want to consider but here are a few more items. Once you've got a detailed budget you need to do a line by line check to see where you could be saving money. I would spend some time getting online quotes for all the insurance policies they have. Ditto with all the services they are paying for such as cellphones, cable, and internet. You can also call up existing providers to ask about bundling, cheaper options, or better rates. Even credit card companies may lower the interest rate if you call up and ask. Every little bit counts.
Perhaps most importantly, I would set up a separate, dedicated short term savings account so they actually "save the savings". If they manage to lower their monthly expenses by $600 per month, then $600 per month should go into this account. Perhaps once per quarter then can then decide on the best use of this money. Perhaps it's accelerating debt repayment (most likely), or perhaps it's to set aside for upcoming repairs, or other non-monthly expenses like birthdays and vacations.
Preet Banerjee is a speaker, broadcaster, writer and personal finance expert.
Editor's note: Generation Squeeze believes individuals, businesses, communities and governments all have a role to play in easing the squeeze. A New Deal for Families would go a long way in helping people like Julie and Noel Bond.