Fixing Household Finances – The Thirty Day Challenge

For those who haven’t read any of my articles before, my name is Barton Goth. I am an Edmonton bankruptcy trustee with Goth & Company Inc. and a regular contributor to this Trustee Talks article forum. Now this article is significantly different than the typical ones I post, but it is an issue that I have been thinking lots about… the average Canadian household, the Canadian struggle with consumer debt and what can be done about it.

As people regularly come to my office to discuss their finances, potentially a bankruptcy or various alternatives to bankruptcy, there is a very common pattern. The typical person I meet with does not have a good sense of their financial status. This isn’t to say they have no idea, but they are often in the dark as to how bad things have been, and for how long this problem has been present.

So what is one of the issues at the root of this problem? Tracking! Too many people fail to pay attention to their finances, far too many people fail to track their spending, and as a result too many people end up far too close to the edge. Of course there is the easy availability or credit, the aggressive lending practices, the continually increasing cost of living, but those are all realities that we don’t have control over, so I want to focus on things that we can change.

I questioned whether this is a big problem with my clients, or is this reflective of a larger problem that is plaguing society? To answer this I quickly reviewed some of the most recent headlines that relate to personal finance and I found the following:

• May 11, 2023 – Consumer insolvencies spike to highest level since 2019: expert as reported by CBC News
• July 11, 2023 – Financial pressure building on several fronts for Canadians, poll finds, as Bank of Canada hikes rates as reported by The Financial Post
• March 6, 2023 – Preparing for recession, Canada’s biggest banks put aside $2.5 billion for loan defaults as reported by CTV News

Clearly the average consumer is in a precarious position, and something must be done. The general problem will only be resolved if we first understand what is happening in our own household. So here is my challenge.

The Challenge:

Keep receipts for everything you spend for the next 30 days.

Now before you start to groan, hear me out. The typical family, at least financially, is further in debt than it ever has been before. The question is why? Of course there are a huge number of factors that play a role in this – everything from the availability of consumer credit, to the dramatic increase in the cost of real estate, to inflation. But what I think is a bigger part of the problem is lack of awareness. Not awareness of the overall economy, not awareness of Canadians indebtedness, but self awareness.

This is one of the biggest problems facing the economy today.

As a group, we are not aware of where we sit financially. Now I talk to a lot of people about their finances both inside and outside of work, and regardless of who I am speaking with, it seems that few people kept track of an monitor their finances. Think about it – do you know what it costs you to live each month? Do you know roughly what percentage of your income goes to housing costs? Do you know how much money you need to set aside each month for irregular and annual expenses (those expenses that only come up once a year, like Christmas). If you do, that is fantastic, but it is remarkable how many people either do not know, or think they know and then after 30 days of tracking their receipts realize that they had no idea: hence the challenge.

Why keep receipts?

Fundamentally we need to understand where our money goes. You cannot begin to talk about a budget or any sort of financial plan without a solid understanding of where you are now. So it is time to take back control of your finances. Determine if the choices you are making every day with your wallet are consistent with your other goals. That all starts with keeping receipts. But remember, once you have the receipts, you must do something with them. I would encourage you use a simple spreadsheet to categorize these receipts throughout the month. This doesn’t have to be fancy, you can use something as simple as the following, but the goal is to be disciplined and record things regularly.

If this sounds overly simple, that is because it is. Everyone needs to know where their money goes each month and that becomes the fundamental principle that any financial plan must be based upon. In upcoming articles, I will discuss other steps we should all take to build upon this thirty day challenge and allow us to take back control of our finances. Whether you want to do a budget spreadsheet electronically, or using on-line budgeting software, or simply with pen and paper, the result will be the same. At the end of the month you will be able to sit down and review how much you spent and where you spent it.