Personal Finance

Winnipeg Free Press - PRINT EDITION

Budget battle

Family's cash flowing in... and flowing back out

By: Joel Schlesinger

Posted: 12/17/2011 1:00 AM | Comments: 0 (including replies)

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(KRT)

Frank and Zoe's finances

INCOME

Frank: $62,735 ($3,400 net a month)

Zoe: $1,000 a month net

Canada Child Tax Benefit: $283.43 a month

Universal Child Care Benefit: $200 a month

EXPENSES

Monthly: $4,096

DEBTS

Credit card: $6,200 (three months behind)

Consolidated loan: $5,800

Family loan: $20,000 estimated (paying $200 a month at no interest)

Overdraft on bank accounts: $1,500

Utilities arrears: $790 (includes phone, water, power, gas)

ASSETS

None

Most days, Zoe and Frank feel as if they're in a boxing match with their finances. And with Christmas coming, they fear they might be hit with a knockout punch.

The parents of four children -- all under 10 years old -- are behind on multiple bills. From a credit card to utilities, if there's a bill to be paid, they are likely in arrears a few months.

All told, their debts are about $34,000.

"We don't go out and buy a lot of stuff we don't need. We drive an old van; we have handed-down furniture; my winter jacket is like six years old," says Zoe, in her early 30s. "I honestly can't tell you where the money goes because we don't have extravagant things in our home."

The couple pay about $1,400 in rent a month, and while they'd like to pay less, it's hard to find a rental that can house four kids. They say their goal is to buy their own home someday, but that's an impossible dream at this stage. Saving for a down payment is last on the to-do list.

Still, the couple do earn a combined income of more than $4,000 a month.

Zoe works part-time, earning about $1,000 a month, and Frank earns about $63,000 a year, bringing home about $3,400 a month.

So they know they should be doing better.

"Frank makes pretty decent money," she says. "There's no way this should be happening every month."

By the month, however, they are sinking deeper into the red. Two years ago, they thought they had turned their finances around, consolidating old debt into one loan. Today they still owe $5,800 on the loan, but they also have racked up $6,200 on a credit card, and they're three months behind in making payments.

"I almost feel at this point an emergency intervention is what we need," she says. "We've made budgets, but we seem to have no idea how to stick to one."

Debt counsellor Yvonne Neu says the couple's first step is verifying their monthly expenses and income because the numbers just don't add up.

"I estimated their total income net per month is $4,883, and their expenses are $4,096," says Neu, who works for the non-profit Community Financial Counselling Services in Winnipeg.

"They have a surplus of $787, which means something isn't right because if you have $800 extra a month, you shouldn't be behind on your utilities."

At the moment, they are about a combined $790 in arrears on water, electricity, gas, phone and cable.

Neu says while it may be tough to start tracking costs in December -- when spending is really out of line with the rest of the year -- they can't wait any longer because their situation will only get worse.

"At least if they keep all their receipts that they spend this month, they'll have a better idea of what they can expect for next year."

The next step is paying the bills on time. While they have multiple debts and bills in arrears, they should focus on paying the current bills as they come.

"Pay the bill for the month and then try to put a little bit down on what they owe in arrears," she says.

The utility bills are undoubtedly the first priority. Heat can't be cut off in winter months, but Manitoba Hydro can limit power usage in the winter for customers who are more than 90 days behind in payment.

Before the next bill comes in the mail, however, they should take a proactive approach: contact all of their creditors.

"It's just to let them know that they are struggling with their situation and they're not just avoiding them."

If they're not comfortable with calling, they can always send a letter explaining they're going through tough times and they are working to be able to repay the debt.

"This lets the creditors know what's going on and they're not likely to take legal action at Christmas -- hopefully," she says.

Besides taking debtors to court, creditors also turn over bad debts to collection agencies.

"They're more aggressive. The first phone call they're going to get is 'We want the $6,200,' " she says. It's generally unproductive, because if you can't pay $200, you can't pay $6,200. But it adds to what's already a stressful situation, and it's usually avoidable if they keep the lines of communication open with the creditors.

One positive for Frank and Zoe is that more than half of what they owe is to family.

They pay $200 a month repaying a no-interest loan of almost $20,000. Neu says they should talk to their family to suspend those payments until other bills are up to date.

Of course, once they get in touch with all of their creditors, they then have to make bill payments on time, and Frank and Zoe should have more than enough -- based on their numbers -- to do that.

In fact, Neu says they should be able to pay off their debts in a few years. But they won't know for certain if they actually have a $787-a-month surplus until they get a finger on the pulse of their cash flowing in and out of the household.

"They need to record every single penny that they spend."

After about two months' tracking their spending, they may realize they do actually spend more than they earn. In that case, they'll have to cut expenses and increase income.

"Zoe works part-time evenings and weekends, but is there a possibility for her to find additional work that she could do from home to increase their income without daycare costs going up?"

Neu says most people spend more than they realize, but they can cut expenses more than they realize, too.

For example, Frank and Zoe spend $200 a month on coffees and lunches at work.

"Do you want to spend $200 a month on coffee and lunches or would you rather cut it down to $50 and get out of debt faster and then use that surplus money toward a home down payment or a trip?"

She says balancing a budget is all about making choices where you can.

"Certain things are beyond our control," she says. "If gas prices go up, we're forced to pay, right?"

But other expenses we can control, such as clothing, entertainment and even food costs to a degree by using coupons and buying lower-cost items.

And if it does turn out they have a surplus, it's really only a matter of ensuring additional money goes toward getting the bills and debts paid in full.

"This couple has quite a few options," she says.

"If they do have a surplus, then it's only a matter of setting a spending plan and working toward their goals."

giganticsmile@gmail.com

Republished from the Winnipeg Free Press print edition December 17, 2011 B13

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