Tracey Carroll is spending time these days shopping for the right real estate -- a well-located townhouse or condominium with hardwood floors and lots of space. When she finds it, she is ready to move. The down payment is set aside and her mortgage is pre-approved.
Her buying power is a big reversal from just a year ago, when Ms. Carroll was grappling with too much debt and too little cash.
Like many people who would like to feel a little more financial freedom, Ms. Carroll is trying to get a better handle on managing her money. In her case, she had taken on debt to help pay expenses at her small bachelor apartment in a central Toronto neighbourhood when she returned to university part-time.
Last year, that sacrifice paid off when she was promoted to a job she loves in human resources at Bell Mobility Inc.
She decided that the bigger salary that came along with her new job title provided a good opportunity to work out a plan that would help her reach her goal of paying down her loans and saving enough to trade that small apartment for her own more spacious condo.
"After about six months, things started to get better because I paid off the debt," she says. "Since that time, I've been able to save."
To many, the very idea of following a budget sounds fidgety, time consuming and -- ultimately -- soul-destroying.
But how else do you place a value on a $4.50 vanilla-bean latte? There are the intangibles -- a hot steaming mug when it's minus-10 outside, a chance to take time out and relax, or a place to get together with friends. But is it a luxury or a necessity? Can you really afford it? And how often?
And the same goes for just about everything else we shell out for: How much is the right amount to spend on a place to live, the prewashed mixed salad we toss in the grocery cart, a bus pass for getting around or a six-year-old's running shoes?
As the financial experts point out, if you're indulging in the small pleasures, you may be missing out on the big picture.
In Ms. Carroll's case, rather than spend the extra cash, she put more toward her debt. She also visited her bank to negotiate a better rate on her line of credit and began to track her expenses. After about six months, the loans were wiped out.
Then Ms. Carroll tightened her belt again. She cut back on vacations and gave up dining out during the week. She started making coffee at home in the morning and taking her lunch to work.
Now Ms. Carroll feels ready for home ownership.
"I want to have something I own," she says. "I want to build up some equity."
Patricia Lovett-Reid, senior vice-president at TD Waterhouse Group Inc. and author of Surprise! You're Wealthy, says that the strategy of zeroing in on a goal, then coming up with a plan and a timeline to get there, is a good one for most people.
"That's what's going to excite you to save for something."
She says that goal could be a first home, a big household item, or getting kids through university debt-free. People must set their own priorities and pick something important to them.
"You have to distinguish between the needs and the wants."
While the word "budget" is often associated with poverty and denial, Ms. Lovett-Reid says well-off people seem to have a knack for maintaining a good grasp on where their money goes -- down to the last dollar.
"Those people who have achieved true wealth . . . always know where they stand financially."
For many people, she says, totting up expenses can be an overwhelming experience.
But there's really no substitute for opening up a notebook or a computer program and tracking each expenditure.
"You've got to get real and confront the facts. You can't change what you don't acknowledge."
Ms. Lovett-Reid also recommends that householders take an eye-opening look at their own debt-to-equity ratios. Just as businesses tally their financial assets and compare them against their debts, so should individuals and families, she says.
According to the results of an Ipsos-Reid poll released earlier this year, the average Canadian household owed 94 cents for each dollar held in assets in 2002. That's a dramatic runup from 2000, when respondents owed 73 cents for each dollar in assets.
The survey found that 31 per cent of Canadians are concerned about managing their current debt load. Debt was defined as credit card balances, lines of credit, loans and mortgages.
Al Antle, director of Credit Counselling Canada in St. John's, Nfld., says he sees clients ranging from single parents on welfare to highly paid professionals. Often, he says, the more well-off people are, the more trouble they get into, because they don't think they have to worry about money.
Counsellors always recommend that clients analyze spending to answer the essential question: "How did you get here and how do you avoid being here in the future?"
Mr. Antle says clients are given guidelines for divvying up the pie: About 33 per cent of an individual's income should be earmarked for housing, including rent or mortgage payments, heating and power, and other bills. Then, 18 per cent goes to food -- both inside and outside the home -- 15 per cent for transportation, and 7.3 per cent for alcohol and tobacco.
"Clearly, if you don't smoke or drink, you have a ton of financial freedom," Mr. Antle says.
A slim 3.4 per cent is recommended for grooming and health care, and 8 per cent for clothing. That leaves just over 15 per cent for what Mr. Antle calls "love money," including birthday gifts, vacations, donations to charity, entertainment and food for the pets.
But if your mortgage is paid off and your housing costs are low, can you allot more to clothes? Absolutely not, Mr. Antle says.
"You don't cross over categories. Your savings come from the difference between 33 per cent and reality."
For people with debt, 1.5 to 2.5 per cent a month should go to repayment. Bigger, one-time purchases should be mapped out at the beginning of the year, Mr. Antle advises.
Some people won't even address the word "budget," acknowledges financial adviser Doug Macdonald of Macdonald Shymko & Co. Ltd. in Vancouver.
"The connotation for budgeting is that you don't have enough money to go around."
Instead, Mr. Macdonald urges clients to identify where the money is coming from and where the money is going. When he calls it cash flow analysis, experienced business men and women immediately get on side.
"Good cash flow management is a sign of a solid business."
Mr. Macdonald also recommends that people establish how much they are able to save, then live on the rest.
"Pay yourself first -- there's a lot of wisdom in that."
Without that focus, he says, money just vanishes.
"People end up walking through the park and spend $400 on a painting when they don't even have a place to put it."
Ms. Lovett-Reid agrees that people need to take a look at the small amounts they fritter away. Twenty dollars a week in purchases mounts up to more than $1,000 over the course of a year, she points out.
While many people look at groceries as a necessity, Ms. Lovett-Reid absolutely recommends that people have a food budget.
"Even in the grocery store, you've got to distinguish between needs and wants."
She also advises people to take note of the food that gets tossed from the refrigerator at the end of the week because discarding food is literally throwing money out the window.
Ms. Lovett-Reid acknowledges that getting real about finances seems like a tedious chore to many people. They say that tracking expenses and foregoing the simple pleasures of magazines, movies and dinners out leads to a diminished quality of life.
But she argues that people who take charge of their cash flow will find their lives enriched in other ways: They will feel released from money worries and find themselves with more money to spend on the things that matter.
"People feel much better and freer to focus on the things that give their life meaning."
The budgeting pie
Clothing: 8%
Health & personal care: 3.4%
Alcohol & tobacco: 7.3%
Transportation: 15%
Food: 18%
Housing (mortgage or rent plus utilities): 33%
Entertainment & discretionary spending: 15.3%
SOURCE: CREDIT COUNSELLING CANADA
© The Globe and Mail
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