How Do You Allocate Your Money?

[wimbly11]

So DH and I are desperately trying to pay down our debt. It's quite hefty and we want it gone. That being said, every extra penny we have goes towards debt right now. It's still going to take us years to pay this off at this rate. However, my worry is because we're allocating all of our funds towards debt, we are not contributing to our savings, to RRSP, or savings for our daughters. I don't know if we should only concentrate on debt right now and leave this for when there's more money, or if we should be putting money towards these things regardless.

Does anyone have advice or personal experience to share? How did you get out of debt and still manage to plan for the future?

[maggiespice]

I assume you are talking about Consumer and not Mortgage debt?

[walkonby]

if it is CC debt, LOC that sort of thing and you are not referring to a mortgage debt then check out Gail Vaz Oxlades methods. She provides all the spreadsheets for a budget and if I remember correctly you try to get the higher interest CC's down to a better rate by either speaking to the bank OR applying for a low interest CC and using the balance transfer option, BUT these lower rates are usually only for a trial period so maybe only transfer over what you know you can pay off on that card??
When i have watched old episodes of Till Debt Do Us Part I believe putting money into ANY savings vehicle is done only AFTER the debt is cleared?

Anyone else remember if that is right?

[beckie.c]

Here's a couple of factors I think that should be considered when thinking about how to allocate towards debt/savings.

1) If an emergency were to happen such as a short time without a paycheck or an appliance breaking, would you be able to cover it without going further into debt? My DH has been off work for just over a month, and he's now going back part days until he receives a minor surgery. He doesn't receive sick pay from his employer, so we've missed 3 of his paychecks. Without having some savings, we wouldn't have been able to coast along without incurring any more debt during this time. I put $200 per month into emergency savings. It helps me to sleep so much better at night knowing that we have a small safety net.

2) When it comes to tax time, do you use your RRSP to reduce the amount of taxes you need to pay? Since DH and I don't have many deductions, we use the RRSPs to make sure we don't owe any extra on our taxes each year. We put about $200 a month into RRSPs between the two of us. You can always turn around and use any tax refund from this towards your debt.

I find that interest rates are fairly low right now on what a return would be for any long term savings, so paying down as much debt as possible is going to be the best bang for your buck. Just make sure you have any emergencies/large bills (like taxes) covered so that you don't have to dip back into the debt to keep going

[wimbly11]

We have a budget created but have nothing allocated to savings. I am talking consumer savings, a CC, and a few loans from DHs past We only have the equivalent of one pay check in savings, which worries me. We haven't started our RRSPs yet, but want to to save us some agony tax time (I'm on mat leave and will be getting hit hard next year) and to plan for the future as DH has no pension and no plan for the future. It's all a little overwhelming. We've cut our spending and are really watching our money, but I feel like we'll never get ahead and be in a good financial situation with savings for us and the kids....

[beckie.c]

I think one paycheck in the bank is a really great start to savings! That will probably cover you for quite a few different "what ifs". (I think Dave Ramsey recommends $1000 in his debt-free approach.)

Have you prioritized which debt payments you are going to pay off first? Another thing you could do is once debt #1 is paid off, you could put the minimum payment amount or what you were paying towards interest on that first debt, into a savings account. Then put the remainder of the payment towards paying down Debt #2, and continue to do the same for each debt. Then decide what to do with those 'savings' at the end of the year based on what you need, maybe you put it towards RRSP, RESP or maybe just use it to make a lump sum debt payment.

One other thing that helps me is to calculate our net worth every 6 months or so. It helps me to see on paper that we are moving forward, even when I don't feel like we are accomplishing anything. There are lots of printable on pinterest for this. It may help you to see that you are moving ahead, even if the steps are small to start My favorite saying is you eat an elephant one bite at a time.

I wish you all the best! I know it can be super stressful and overwhelming but you can do it!

[wimbly11]

We are focusing on the Mastercard right now because it is the largest and has the highest interest rate. I like the idea of doing our net worth to help see progress, because sometimes it feels like we're getting nowhere even though I know we are!

The plan on the CC is gone, that payement would be applied to the nesxt highest debt and so forth.

It's very stressful, I feel like breaking down some days!

[MortgageQueen]

I feel for you wimbly. I agree with beckie that one paycheck is a good start. Maybe try to add $20/$30 a paycheck and you will have a very nice cushion in no time. Another thought on that is you could convert some of it over at a later date (if it's not needed) into RESP's for your kids. Kinda hit 2 bird's with one stone kinda thing.
Baby steps for now. You WILL get there. Debt is the Canadian reality. As much as you want to save for your kids, getting out of debt and staying out of debt are what's best for your family right now. Money is not everything when it comes to kids futures. Quality time, expose them to volunteering, expose them to as many different sectors of life as you can. That is an education in itself and an excellent start to well rounded children. Very importantly. . . teach them how to budget and SAVE.

The fact that you're so concerned about this is a sign tthat you are responsible and will find a way out. As Beckie says. . .the only way to eat an elephant is one bite at a time. Keep up the good work!!

[wimbly11]

Thanks MortgageQueen! We went for a walk last night and were talking about it. We're trying to figure out the best plan and the best way to allocate. I'm going to get DH to call his CC and ask for a lower rate and see can that help.

[Frugalbigmama]

You can still have tons of fun as a family without spending money. If you don't already, always pack snacks and drinks when you going out (a lunch if you will be out longer) Teach your kids young that you don't just pull up to a drive thru everytime you are out and thirsty and hungry. Clean up the toys and equipment you have at home and use them. And if you don't use them then sell them and put the money towards stuff you will use. You have to make sure you and your family are still getting out and enjoying life while you work hard at paying your debt off but it shouldn't cost you money to do so. Good luck!

[Shwa Girl]

OP, good for you and your DH attacking this debt! WTG!
Good luck!

[jasperandchar]

Here's my speal again you need to find whatever works for your current circumstances and allows you to sleep better at night and be less stress free so that you are present for your kids and not checked out because of your debt. There is another financial guru that used to appear on Oprah Suze Orman anyways she said it's better to pay off your debts rather than focus on your children going to College/University as children can apply for bursaries, loans etc and the children won't feel badly that your are in a current state of debt because of them...which I believe makes sense. TO have parents that are trying to become financially fit and in a better state of mind (no worries, etc - of course we always worry about finances don't get me wrong) the end game is that you need to look after yourselves (parents) so that down the road you can take better care of your family ie eductation, etc when things are better.

Long story short say by the time your children are going to attend college/university in however many years you should be in a better place and perhaps able to contribute more then you could now.

I would contribute a set amount to your highest interest debt because it will save you the most interest in the end. And then the next and so on...

A year ago we owed 18K on our LOC and paid that off in a year by stopping all automatic contributions which were and of course by having a very fixed budget
son #1 college fund
son #2 college fund
vacation account
celebration account (Christmas birthdays)
anyways I had a total of 11 accounts which we were contribution anywhere from $100 to 250 a month and well I decide to take all that money and put towards our loc because it was a much larger debt repayment than the misely $150 I could allocate each month because of all the various accounts which were for savings for various reasons.

It's a year later and we are slowly starting to allocated funds to some accounts, we started this month to start to recontribute to my eledest son's education fund and no stress or worries because we now have the money.

It all takes time, patience, motivation and cash.

WIsihing you all the best in your decision and debt repayment.

[Frugalbigmama]

My sister loves Suzie Orman. She always said kids can take out loans for school. You can't take out a loan for retirement.

[annedougherty]

My sister loves Suzie Orman. She always said kids can take out loans for school. You can't take out a loan for retirement.

Yes! Her common sense approach is often better than what is shoved down our throats. Love her

[jasperandchar]

My sister loves Suzie Orman. She always said kids can take out loans for school. You can't take out a loan for retirement.

I prefer Suze because she's all about now where as Gail is about the future. They both have their own points of view but when you are in a financial crisis I feel Suze's approach is best.

On the retirement loan aspect my inlaws would disagree because they constantly borrow to contribute to their RRSPs with monies they don't have and can't repay and in the end they may have RRSPs but no way to repay the loan, it's quite sad in my opinion.