Debt-Free Forever by Gail Vaz-Oxlade (the beginning after the end read novel .TXT) 📕

rent or mortgage payment and taxes, utilities, maintenance, and home insurance. If you add up the amount you’re spending on these categories, divide it by your net income and multiply by 100, you’ll get a percentage. If the percentage is more than 35%, you’re house poor. Either you have to make more money or you have to spend less in another category to have the extra available for housing. Ultimately, when you add up all the pieces of the pie, the total can’t be more than 100% of your income.

Transportation consists of your car payments, whether a loan or a lease, insurance, licence, gas, repairs, public transit, cabs, highway tolls, and whatever else you may pay to get from here to there.

THE LIFE PIE

The category people have the most difficulty getting their heads around is Life. I’m always being stopped and asked about how much a body should be spending on food, clothing, and all the other stuff that goes into the Life category. I don’t have a definitive answer since it depends on what you can afford. If you make a little, you spend a little. If you make a lot, you can spend a lot. You have to prioritize. You have to make choices.

GAIL’S TIPS

I get letters from people all the time objecting to the fact that “child care” is a Life expense. Because child care can be very expensive, people find that it drives their Life category out of the acceptable percentage, so they want to put it somewhere else. Having a big child care commitment seriously cramps their ability to spend money on food, entertainment, and clothes (along with all the other Stuff they want to buy), which are also in the Life category. Hello! When you have a baby and must pay for child care, you should expect to have less to spend in the other Life areas. If you don’t want to have to spend less eating out, going to the theatre, buying snappy shoes, or acquiring the latest toys, make more money or don’t have children.

The percentages I give are guidelines. If you’re spending nothing on debt repayment—yeah!—that means you have 15% to stick in any of the other four categories. But if you’re over the top in one category, it means you’ll have to cut back on the others. So what if Life is 50% of your spending? As long as your budget balances, you’re saving at least 10%, you’ve got no debt, and you’re happy, you’re fine.

Let me take a minute to clarify a huge misconception that seems to have sprung up around the Debt Repayment category. The Life Pie guideline is 15% of your income. But what that actually means is if you are spending more than 15% of your income paying off your consumer debt, you have far too much debt. It does not mean you should only put 15% of your income to debt repayment. You need to put as much of your income into debt repayment as necessary to get all your consumer debt paid off in three years or less. And if that means your debt category is up to 25%, 30%, or even 40% of your income, so be it. You’ll just have to cut back elsewhere or make more money to have enough for the other categories. If you’ve dug yourself a deep hole by spending money you haven’t yet earned, it’s time to grow up, suck it up, and pay it off! More on this when you get to Chapter 5.

BALANCE YOUR BUDGET

As you work to create your first budget, don’t think that everything is going to fall into place tickety-boo. There’ll be a lot of tweaking required to get it right. And it may mean you have to put the budget down, go away and do something else for a while, and then come back to it to refine it further. When I am creating budgets for families, it takes me several tries to come up with something that I think will work. (It only looks easy.)

Having completed your Spending Analysis Worksheet (page6621–23), you know what you’ve been spending on average in each category, so start by plugging in those numbers into your budget. For any expenses that didn’t get caught in your spending analysis—things like house and car insurance that are paid annually, or perhaps property taxes—figure out what you pay in a year and divide by 12. That’ll give you the monthly amount for your budget. (Yes, even if you pay it annually, you have to put it in your budget!)

If you’ve been spending a ton of money in cash, you won’t be able to remember where it all went. To get a handle on how you spend your cash, get a notebook and write down every penny you spend in cash over the next month. At the end of the month, add the amounts to your budget averages that you took from the spending analysis you did in Chapter 1. So, if you ended up having coffee 37 times that month, you’d add the $90.65 to the Restaurant category on your budget sheet. And if you bought two new pairs of jeans and a couple of packs of skivvies, you’d add the $212.37 you spent to your Clothing category.

The previous exercise is a good one if you spend more than 15% of your income in cash, since it will give you a clearer picture of where you like to spend your money. If you’re currently dropping $700 a month in cash without a clue as to where it’s going, it’ll be pretty hard to see where you need to cut back to make your budget work. Track your cash and face up to the truth about how you’re blowing your dough.

As far as the Debt Repayment category goes, right now you need to stick a number in that gives a nod to your debt repayment plans. The number will very likely