Debt-Free Forever

Take Control of Your Money and Your Life

Gail Vaz-Oxlade

• Publisher: Collins
• Year: 2011
• Print ISBN:
  9781554685912
• eBook ISBN:
  9781443412827
• Topic: Personal Development
• Subtopic: Personal Finance

Revised and updated with new material!

Through Debt-Free Forever, more than 100,000 Canadian families have used Gail Vaz-Oxlade's brand of money management to dig themselves out of debt. Her strategy is straightforward—it isn't about neat tricks, hidden agendas and mysterious fixes. As Gail says, "Money isn't rocket-science, it's discipline." Gail has made it her life's mission to make money management something everyone can do. And she won't take no for an answer. Hers is a style that's unique, a voice that is demanding, an approach that is holistic.

Debt-Free Forever helps readers take back responsibility and control over their money. Gail's Rules are simple: you can't spend money you don't have, you must save something and if you're in debt, you must get the albatross off your back. That said, she knows that executing them can be hard. That's why Debt-Free Forever will serve as a roadmap to getting out of debt, with carefully detailed plans, and Gail's unfailing support to help readers get to the right destination.

PART ONE
FIGURE OUT WHERE
YOU STAND

1
ANALYZE YOUR SPENDING

Now comes the hard work!

Crap! Really? I have to do the math?

Darn tootin’. You’re going to have to sweat some before you can clean up the mess you’ve made of your money and your life. This is where you figure out what you’ve been doing wrong so you can stop. If you skip this step, you’re lazy, uncommitted, and looking for an easy way out. There is no easy way out. You’ve muddled up your money and now it’s time to do the detail work and sort it out. The numbers don’t lie, so you must get busy facing up to your reality.

Wait a second. Can’t I just start from where I am now?

You could, if you knew where that was. You don’t. You think you do, but it’s that fuzzy thinking that got you into a mess in the first place. The only way to truly know where you are now is to get completely familiar with where your money has been going. This is the step that separates the responsible from the immature, the committed from the wannabes, the successes from the failures. Skip it and you might as well just go shopping!

Ready? Then it’s time to get out all your bills, bank statements, credit card statements, a pen, a piece of paper, and a calculator, and get ready to do the math.

Every couple I work with has to send me six months’ worth of financial paperwork for me to do the analysis that shows them where their money is going. We enter all the numbers onto a spreadsheet to come up with monthly averages I use when I show them their details.

People are always shocked. The reason: most of us spend without a clue. A couple of dollars here, $10 there, $50 on this, $100 on that; in no time we’re in overdraft. How’d that happen? Here’s how you find out. Even if you simply take the last three months’ worth of statements and do the numbers, you’ll get a big ah-ha! Six months will give you a more realistic view. A year is overkill!

STEP 1: FIND OUT WHERE YOUR MONEY’S GOING

The next part of the process is going to take some time and some organization. It will help if you’re familiar with a spreadsheet program on your computer. But if you aren’t, it just means you’ll be doing a lot of pencil work. Make sure you have a calculator at the ready.

There are loads of people who tell me they “just don’t have a head for math.” I know that some people find the math challenging. If you can find a buddy to help you, great. If not, you’re going to have to suck it up, take your time, and work through the process slowly and steadily if you want to change your financial landscape. Holding your head and saying, “Oh, I just can’t” won’t cut it if you’re serious about becoming debt-free forever. It may be hard, but it’ll be worth it.

First, organize your statements. Put all your Bank of Zulu credit card statements in one pile, all your Bank of Make More Money statements in another. Get everything ready before you start so you aren’t chasing paper around once you’re into the process. A little preparation at the beginning helps the whole (miserable!) process go a little more smoothly.

Make a spreadsheet using the categories in the expenses column of the worksheet on page1221–23. You are going to be using this worksheet to record your spending so that you can see just what you’ve been doing with your money. We’ll call this your Spending Analysis Worksheet, and it must accurately reflect what you’re spending your money on. The idea is to make it as detailed as possible to begin with, so that you have a really good sense of where your money has been going. Resist the urge to lump together amounts or to round up. Lumping and rounding just makes it easy for you to hide what may be your problem-spending areas. Breaking everything down not only makes it clear where the money is going, but also helps you to see your weaknesses.

STEP 2: PLUG IN YOUR NUMBERS

Brace yourself. It’s time to enter every single transaction you made on your bank statement(s), credit card statement(s), and line of credit statement(s) onto the Spending Analysis Worksheet.

If you have one, choose a credit card statement to start with. Look at the transactions on the statement. The first one may say Big Chicken Delight, which is your favourite place to grab dinner when you’ve been schlepping the kids around all afternoon. Enter the amount you spent at Big Chicken Delight under Restaurants. Put a check mark beside the Big Chicken Delight transaction so you know you’ve entered it on your Spending Analysis Worksheet. If the phone rings or you have to get up to turn off the kettle, you’ll know where you are when you return to the process.

Go to the next transaction on the statement. Enter the amount you spent in the appropriate place on the Spending Analysis Worksheet. Keep going until you’ve finished entering all the transactions on that statement. Don’t forget to enter the amount you were charged for interest under Interest Costs. If there were insurance costs, over-limit fees, or any other type of charges, stick ‘em all under Interest Costs.

GAIL’S TIPS

While the interest rate on a credit card may be set at 19.99%, you may be paying much more than that if your card has additional fees tacked on each month. Let’s look at a credit card with an insurance fee of $28.44 on a balance of $1,623, along with an over-limit fee of $35. When you add it all up:

•monthly interest = $27.03

•plus insurance fee = $28.44

•plus over-limit fee = $35

•divided by balance = $1,623

•multiplied by 100 (to get a percentage)

•and then multiplied by 12 to get the annual percentage

the effective interest rate on this card is a whopping 67%. The fees are just as important as the interest rate when it comes to determining what your credit card is really costing you.

Once you’ve finished with one statement, start with the next month for that form of credit. After you’ve entered all the amounts from all the statements you have for that card, move on to the next set of statements.

I know, I know, it’s a lot of work. But hey, you’ve been sweeping dirt under the carpet for months, years, maybe even decades. Now it’s time to move the furniture, take up the carpet, and give the whole place a good cleaning.

If you ate out 12 times on one credit card, 6 times on another, and 10 times using your debit or cash card, you’ll have a total of 28 numbers to add up that would go under Restaurants. Coffee shops and drive-thrus count too. You have to account for every penny you spent.

This is going to take some time. Don’t rush through it. It’s a big eye-opener, and you need to go through every statement, line by line, allocating the amounts to their appropriate categories. Don’t lump too many things into a single category. The devil is in the details.

GAIL’S TIPS

If your batch of statements includes a big-spending month like December because of the holidays or a vacation, your numbers will be somewhat skewed by that spending. But this isn’t a budget. This is a spending analysis, so if you spent it, the amount needs to go into the analysis. You’ll be able to correct for these big-spending months and for things like house insurance, car insurance, and other periodic expenses that may not be reflected in the six months’ of paperwork you are using when it comes time to make a budget.

For every statement you have, fill in the various categories on the Spending Analysis Worksheet. Use your common sense to decide where to put things and what you can group together. Anything that you did to maintain or improve your home goes under Home Maintenance. Lottery tickets and football bets go under Gambling, I don’t care how benign you think they are.

If you have a bunch of transactions in department or discount department stores that you can’t break into categories, simply enter them into the Department Store category. It’s stuff, and the fact that you don’t know how much you spent or on what is telling you something.

All that money you took out as Cash Withdrawals or Cash Advances on your credit card or line of credit has to go under Cash. While you may not be able to figure out where that money went, it went, and it has to be on the Spending Analysis Worksheet. Monthly bank charges, ATM fees, and NSF fees go under Bank. Look carefully at your cash withdrawals. If there are amounts that end in $1.50 or $2.00, those are the ATM fees associated with having made the withdrawal at a machine other than your own bank’s, since banking machines do not dispense “change.” Enter those amounts under Bank and make sure you enter the rest under Cash.

Under Debt Repayment, put the minimum amount you must pay on all your forms of credit (except your mortgage and car loans) to stay on the right side of your lenders. (We’ll talk more about your debt in Chapter 2: Face Up to Your Debt.) You’ll have to deal with this category differently—not entering how much you’ve actually been repaying but using your minimum payments required—because so many people use one form of credit to repay another. They then feel very good about how much they’ve repaid when they haven’t actually repaid anything at all; they’ve simply shuffled the debt around. Using your minimum repayment amounts avoids a huge amount of confusion.

Under Savings, put the amounts you’re setting aside for your long-term retirement savings, emergency savings, kids’ educational savings, and whatever else you may be saving. If you’re accumulating money for a vacation or to buy a bigticket item, that’s not savings, it’s Planned Spending. Start a new category, PS Vacation, and put your amounts where they’ll be clearly identified.

GAIL’S TIPS

Can’t afford a vacation away from home? You can still have loads of fun while you save tons of money if you opt for a staycation. That’s when you stay home and pretend you’re on vacation. Imagine you’re in a foreign city and drum up the same excitement as you would if you were seeing local things in a place you had to pay thousands of dollars to get to. Pick a start and end date for your staycation to make it official. Declare a choratorium—no one has to make their bed, do the dishes, or vacuum. (Consider hiring a cleaning service for midweek to whip the house back into shape.) And pack your schedule full of fun and fabulous things to do.

Communities everywhere have productions ranging from high school musicals to community theatre to professional theatre. Plan to take in a night at the theatre, or go to the symphony, the opera, or a rock concert. With all the money you’re not spending on accommodations, you can have a ball.

Want to spend a quiet day sipping margaritas while the kids swim their hearts out? Find a local hotel with a swimming pool and book in for the day. Have lunch on-site and take a break with the kids for far less than it costs to zoom away to the tropics.

Try new restaurants. If you want to go with a theme, decide you’ll only eat in Spanish restaurants and eat your way through a good cross-section. It’s almost like being in Spain!

Chill out on the couch and read that book you’ve been longing to get into. Rent a mountain of videos for the evenings. And don’t forget to take lots of pictures of your staycation. After all, without photos to flip through, you might forget what a great time you had sticking close to home and doing all the things you love to do.

Do not leave anything off the Spending Analysis Worksheet. If you spent money on stuff and can’t figure out where to put it, make up a new category. It is important that every penny you spent be accounted for somewhere. And if you guesstimate, you’re wasting your time.

STEP 3: FIGURE OUT YOUR MONTHLY AVERAGE

Now that you have the total amounts you’ve spent in a variety of categories over a specific period of time, it’s time to break it down to a monthly amount. If you used three months’ worth of information, you’ll have to divide the total amount in each category by three to come up with an average. If you used six months’ worth, you’ll divide by six. The closer you are to six months’ worth of information, the more realistic a picture you’ll paint for yourself. Yes, it is easier to use less info, and you can always choose to use the statements for the months you didn’t shop all that much. Hey, if y...

Table of contents

• Cover
• Title Page
• Dedication
• Contents
• Introduction Get Ready to Change
• Part One: Figure Out Where : You Stand
• Part Two: Make a Plan
• Part Three: Change Your Habits
• Part Four: Prepare for the Future
• Part Five: Stay the Course
• Conclusion: Take Control … Really!
• Negotiate a Debt settlement
• Acknowledgements
• Index
• About the Author
• Copyright
• About the Publisher