Module 2: How do I live within my means?

From: Financial Consumer Agency of Canada

Transcript

How Do I Live Within My Means?

Narrator: How do I live within my means?

Big idea: "Small changes will result in big savings over time"

Narrator: It is worth it to make an effort to reduce your costs. Small changes in your spending habits will result in big savings over time.

SMS conversation (on screen):

Wassup Theo? Bad news. I'm short until next paycheque... again!

Max dude, that sucks! I guess our lunch plans are cancelled? yeah, man... unless you're treating... ;)

Narrator: Today we'll discuss how to live within your means. In other words, how to change your habits to fit within your financial resources. We'll help you understand how minor changes in your spending habits can result in major savings, how to identify ways to save, and how to cut back on expenses.

Twitter conversation (on screen):

Max: Don't know what I'm doing wrong. I never have enough money to last the month!

Theo: @Max - it sounds like you're living beyond your means. @FCACan Can you help my friend learn to make ends meet?

Track your SPENDING

Narrator: Living beyond your means can be a costly and sometimes lifelong mistake. By identifying ways to reduce your spending, you can quickly and easily get back on track. Once you know what you spend and where you spend your money, you can begin to take action to control your expenses.

Here's an easy exercise to help you figure out where you spend your money.

Every day for a month or two, keep track of everything you buy or spend money on, from your daily cup of coffee to groceries, lotteries tickets, and gifts. Use an expense recording system that works for you, such as a notebook, mobile app, spreadsheet, or software. Or ask your financial institution if it has ways to help you categorize your expenses. At the end of a couple of months, you'll get a clear picture of how you're spending your money and where to cut back.

How much do YOU spend?

Narrator: Most people who do this exercise are surprised at how much they spend on things like coffee, eating out, and impulsive purchases.

Look for SAVINGS

Narrator: Now that you've recorded and better understand your spending habits, you can look for areas where you may be spending too much and you can cut back. There are always changes you can make to save money.

Remember, small savings add up quickly. Here are some ideas to get you started.

1: Check your bills and statements. Look for any errors or overcharges. Many people don't read their bills carefully each month and don't call their service provider to ask about items or charges they don't recognize. Also, pay on time every month to avoid costly interest charges.

2: Negotiate better plans. Call up each of your service providers regularly to ask questions about your account. Find out how much you're spending on your plans and how you can lower your charges. Shop around to find out what other vendors are offering and make sure you are getting the best deal possible. If you're not, call your provider to see if it will match the competition. Don't be afraid to ask for a discount or a better deal.

3: Lower your banking fees. Banking fees can often be lowered by knowing your options and choosing the right banking package. There are no-cost and low-cost account options available. Try the Financial Consumer Agency of Canada's Cost of Banking tools to find the right banking package for you.

4: Consider bundling your services. Find out if you can get several of your services from one provider. Then ask if there are any discounts for getting all your services with them. Try to negotiate with the provider. This usually works well with telecom providers who offer several services like cable, internet, and phone.

5: Reduce impulsive spending. Always use a list when you shop and stick to it. Before making any unplanned purchases, ask yourself if you really need these items. Bring only enough cash to buy what you planned to buy. Sleep on it and see if you still want the item the next day.

6: Plan ahead. Taking a few minutes to plan your day or week can help you reduce your spending too. For instance, plan your meals for the week. This will help you create your grocery list and encourage you to bring your lunch instead of buying it. Carry a refillable water bottle with you to avoid buying bottled water or other beverages. Plan your day the night before to make sure you have time to prepare coffee at home, pack your lunch, and take public transit – all money-saving activities.

Twitter conversation (on screen):

Max: @Theo - good news! Saved some cash just by watching my spending this week. I can do lunch today! Theo: @Max Sweet! Burgers?

Cutting back on EXPENSES

Narrator: If you had to, how would you save $100 this month by cutting back on your spending?

Let's try an activity to put what we've learned into practice.

Create a table with five columns. In column one, list all the categories where you could cut back on your spending. In my case, I listed Food, Transportation and Cell Phone Plan.

In column two, list what you would do differently to save money. For instance, I will try to pack a lunch three times a week.

In column three, list the daily savings. Packing a lunch will save me $5 a day versus eating out.

In column four, list the weekly savings: $5 a day times three days a week. That's $15 a week in savings.

And finally, in column five, list the monthly savings. Assuming four weeks in a month, that is $60 a month in savings! Fill in the rest of the table and add up all the savings in column five to reach your $100 goal. If not, go back and see where you can cut back to achieve this goal.

You can even add a sixth column if you want, to see the potential annual savings. Using the same example of packing a lunch three times a week, I could save $720 a year. That's a small effort for big savings!

What did we LEARN?

Narrator: Let's summarize what we've learned today.

We've talked about tracking your spending to understand what you spend and where you spend it.

We discussed how to look for savings.

And finally, we did an activity to find ways to cut back on your everyday spending. Living within your means is a reachable goal. You need to know what you're spending, have a plan to cut back, and have some discipline. You will face challenges from time to time, but keep at it and you will see the results in no time.

I wish you financial success.

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