You’ve finally put a savings plan together.
No more DVD’s and concerts or weekend trips.
Then you open your mail…
The credit card balance is a little bigger than expected. That weekend trip turned out to be a bit more expensive than planned. It seems you owe some taxes this year? That’s right you took out that mutual fund to buy a computer. Plus that balance is still there on your other credit card.
The room suddenly feels a little bit smaller.
Don’t let the panic set in. Breathe. Re-prioritize your plan. Make the necessary sacrifices. Cancel a few subscriptions. Take out the HD for a couple of months. Well…maybe cancel a few more subscriptions instead. The point is, when new costs come up, or ones you forgot about, you can’t ignore them. They will show up at the worst possible time, and probably a few at the same time.
Sometimes its better to clear out those debt balances first before enacting your savings plan. Its very easy to get caught up in the worry of not saving with every pay check. But it is not worth it to continue to carry debts in order to save. The hole will just grow, but at a slower pace. It is the slow growth that you will not notice until the suprise bills roll in.
Clear balances, get back to square one. Build some savings so when the extra costs due occur, or you decide to spend a few more days at the tropical resort, you won’t be spending the next 6 months worrying every time the mail is delivered.
{ 4 comments }
Thanks for this article. It is heartening with good sound advice.We work really hard to stay ahead of debt but the real temptation is to do something fun to give our family some pleasure. Instead we do not go on big holidays or little else. We are considering buying a 2nd hand car as we both have recent raises and our current car is 20 years old! Any ideas for giving your family something pleasant to splurge on within reason? The HST has hit BC and we are hunkering down but no summer holiday in sight. Sigh.
I don’t see where Colin mention a RRSP. If it is implied by the reference to the mutual fund then my take is that it means the mutual fund was liquidated or partially liquidated to buy the computer and that created some extra taxes owing. The point is do you pay down debt before saving or try to save and pay debt at the same time. Depends on the cost of credit and your cash flow.
Most banks will give you an RRSP loan at a very reasonable rate (since it is basically a secured loan). You would be much better off getting a one-year loan and paying it off early with your tax refund. Carrying a balance on your credit card is an expensive way to borrow money.
I wonder about letting cc bills ride for a couple of months in order to have funds for RRSP contributions. The tax refund would be 38%, so maybe its worth it just for January and February to just make minimums and then play catch up until the refund arrives?
Thanks Al
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