Gail Vaz-Oxlade's Blog, page 75

Forgive, but Don't Forget

We can be awfully hard on other people, can't we? But we are harder on ourselves by far. Every mistake we have ever made is firmly engraved on our consciousness, much more so than all the things that we have done right. And when life feels crappy, all those failures, things gone awry, silly or serious mistakes come back in gangs to taunt us.

You have to forgive yourself. Whatever you have done, you must say sorry to yourself, to the universe, to whomever you affected, and then you must forgive yourself.

Did you know that every seven years you are a whole new you? That's how long it takes for every cell in your body to die and be replaced. Are you still carrying around negative thoughts from years before all those cells in your current body every existed? Really?

Did you learn the lesson(s) that came from the whatever it is you're beating yourself up over? Our blunders reaffirm that we are only human. But learning from our mistakes is the only way to avoid falling into the same pothole again and again. So, forchrissakes, learn the lesson. And then move on. Constantly casting over your shoulder, self-recrimination and penance won't get you to the next place you want to be. Forgiving yourself, accepting that what is done is done, and taking steps forward will.

The old saying, "Forgive and forget" has got it wrong. Yes, you must forgive. But don't ever forget. To forget means you have not learned the lesson; you're so wrapped in the pain of your failure that you won't deal with it; instead you push it to a place where you don't have to think about it. That's not good.

Yes, the memory of your misstep may be painful. But you must deal with it, must get to a place where you can forgive yourself, before you'll really heal. Take that memory and wrap it in tissue paper and tuck it in a box in your mind. But don't just leave it there. Every now and then take it out, unwrap it, and have a good look at it. One day you'll unwrap it and the pain will be gone. You will have forgiven. You can move on.

If you find your mind filled with things like, "I'm such an idiot," or "I ruined everything," or "I'm so stupid," or "I can't," you are running the tapes of the unforgiven. Time to figure out what you're mad at yourself for – sometimes people don't know, they're just stuck with the tapes – and do some forgiving.

Are there things for which you need to forgive yourself? How are you doin'?

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This & That: Recovering from Debt Hell Edition

Sandra wrote: My husband and I watch your show everyday. You are my favorite "reality" person on TV! I love your no non-sense approach. In the last year we have taken the advice and tips that you gave other couples and dug ourselves out of $34,000 of debt. We set aside the cash jars (we used envelopes) and put a huge amount towards killing our debt. On Dec 31st, 2010 we made our last debt payment!!!! So this is my question: Because we were late on some payments for several months before we clued in and made our plan, our credit rating is really bad, how can we re-build or credit?

Gail says:  M'love it's going to take time and the consistent positive use of credit. While you may love living on cash, to get a better credit history you must use and repay your credit card consistently. So instead of shopping with cash at the grocery store, set the amount you would have taken in cash in stone. Then put it on a credit card. When you get home, pay it off online. If you have two cards, use one for groceries and one for gas. In a few months, your new record will push your old mistakes further into history.

J wrote: We have a $23,000 credit line debt at a variable 4.75% beside our $57,000 mortgage at 3.44% fixed rate. We have $6000 invested in non-RSSP that we usually turn into RRSP at the end of February. We have already $5200 in a RRSP for this year. My husband thinks that we should repay the credit line instead of putting the $6000 in a RRSP. I am not sure. This RRSP would give us an extra $2742 in Tax refund which would bring the amount to $7846. We will put the tax refund toward the Credit Line. What is the smarter move?

Gail Says:  You already know what I'm gonna say: save and use the tax refund to pay down the line. That way you're covering all your bases.

Jodi wrote: I wanted to write to let you know that I love your shows and that your advice made a big difference in my life. Watching you on TV really cheered me up and made me believe in myself.

I will try and make a long story short. A few years ago, in Sept 2007 I went to a bankruptcy trustee. I had been struggling to make ends meet and make minimum payments on credit card balances that just kept getting bigger and bigger every year. I thought I would be in debt forever and was very unhappy because no matter how hard I tried the debt just loomed larger. Even though bankruptcy was a painful decision to make and live with, I never looked back because ultimately it was a fresh start. I could finally sleep at night and not ponder my debt every waking minute of the day (and night).

About a year later, after my bankruptcy was discharged in December 2008, I started a wonderful job that changed my life financially forever. All employees were granted stock options in the company which became enormously successful. I now have in excess of 100k in stocks, cash and mutual funds, paid off my car loan and have a credit card I pay in full every month.  I also still hold stock options valued at 100k + which I have not cashed in yet.

My problem is that even with a significant down payment and assets, not one bank will grant me a mortgage, high interest or otherwise. One trust company offered a fixed rate mortgage at 4.99%, with 25% down (I wanted to put 20%). I declined. Obviously.

I also learned that even though I have the document from the court stating my discharge was in December 2008, Equifax did not post it until March 2010. I presented this document to my mortgage broker, and was smugly informed that it was not helpful to my cause. I have been snubbed, insulted and patronized by everyone from banks to my own real estate agent that "someone in my position" should be grateful for a lousy 4.99% mortgage.

I am not sure what I can do or if you can offer any advice to me. I am not arrogant to think that I will get off scott-free, but I have certainly busted my butt to get where I am and been prudent with the money I was gifted by my employer. I really turned my life around in the last 4 years and just want to buy a home…how can I make this happen?

*I also am writing this to let anyone else who is considering or in the bankruptcy process know that it is not that easy to rebuild your credit afterwards. Even with the money I have in the bank, TD laughed in my face when I asked for a SECURED card (Capital One is pretty good)….don't forget, the bank is NOT your friend!

Gail Says:  Jennifer, I am happy and sad to hear your story. I'm happy because you've done such a great job of turning things around. You should be very proud of yourself. I'm sad because things are going to be a bit difficult for you for a while. That's the reality of having declared bankruptcy. In today's much tighter credit market, you're catching the brunt of the blowback from all those bad lending decisions.

Equifax should post the date of your discharge so make sure that the relevant date shows up. Write to them and send them a copy of your discharge papers, and get the record clear. As for a 5% fixed rate mortgage, I wouldn't turn my nose up at it honey. A quick check at RateSupermarket.com shows [at the time I responded to this letter] the 5-year rate ranging from late 3's to early 5's so your offer isn't really terrible. Perhaps not the best, but you have to expect some consequence for the bankruptcy. I recommend you go and see a mortgage broker who has some experience working with bankrupts. If you're in the Toronto area, try www.mortgages4women.ca .

As for TD's refusal to give you a secured credit card, that's ridiculous, unless they were one of the companies who had to bite it when you declared bankruptcy. Whomever you were dealing with will likely never extend credit to you again. That's the usual policy.

Stay positive. You've come a long way and you're going to be fine. You should be very proud of what you've accomplished. You're strong and able, and you're going to have a great life. The stumble was just that. Walk tall now.

L wrote: We declared bankruptcy in Sept 2009.  We were told by our trustee in June 2010 (9 month mark) that we were through.  I asked her twice, are we done?  I don't have to send any more financial statements in?  She stated yes, however, after the fact we were told we were not finished and we were not out of bankruptcy and that we would not be until June 2011.  (21 month mark). They said: the rules changed in the fall of 2009 and that we fell under the new rules.  Can you please elaborate concerning this?  It feels to me like we have been misled. This is a reputable company, but I still feel uneasy.

Gail Says:  The bankruptcy rules did change, but your trustee should have known that and have told you about it before telling you you'd be discharged at the 9 month mark. There is a calculation that determines whether you'll be discharged at 9 or 21 months, and your trustee should have done this calculation before telling you in June 2010 that you were in the clear. However, that's moot, since you weren't informed and you haven't been discharged. I'm afraid you're just going to have to proceed through the bankruptcy under the new rules. But I'd kick up a big stink at the trustee office and see what they're prepared to do to help fix this problem. Go for a refund of at least 50% of your trustee fees as compensation for the misinformation.

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Borrowing for School

Considering using student loans to fund your way through college or university? Have you ever stopped to think about how much debt would be too much debt for you to manage when you finally get your first job?

If you're relying on the student loan system or the banking system to stop you from digging a hole that's too debt to climb out of, you're a dope. Students have been borrowing way more than they can afford to repay forEVER, which is why the bankruptcy rules won't let you discharge student debt with a snap of your fingers.

Deciding how much to borrow to get you to your career is a business decision. Treat it as such. Don't bother with all the yada yada about deserving an education or expanding your mind, or all the other bull crap people use as an excuse for digging a debt hole. Take the emotion out of the exercise and do the numbers based on cold hard facts.

How much money are you likely to make when you graduate? Sure, your field may pay gobs of money once you've got some legs under you. But when you graduate and go to work, you have to start paying that student loan off lickety-split on your entry level income.

If you were taking a business loan, the bank would want to know what kind of income the business is likely to produce to see if it can afford the loan repayments. Well, YOU are your business, and your income, once it starts, will play a big role in how long it'll take to get out of debt, and the interest you'll pay while you do.

Each career comes with it's own potential income stream. Don't let anyone tell you that a university or college education guarantees a better income. Every career choice has it's own income scale, and knowing your potential earning capacity makes sense so you don't end up over-paying for it. Teachers make more or less than lawyers, dentists, call-centre workers, engineers, writers, and nurses. Before you dive into more debt than you'll be able to afford to repay, figure out how much income you're going to earn in the early stages of your career … so in years 1 to 10.

If you haven't got a clue what you're likely to end up doing, you're not alone. Heaps of young people graduate with a degree and no clue what they're going to do with it. In your case, assume the worst: you're going to get a minimum wage job. Yeah, I know it's harsh, but suck it up. If that's the best you end up with, you'll be prepared. If you end up doing better, you'll have more money to throw at your debt.

You have to be able to afford to pay back those loans. Once you know what you average annual income will be, don't borrow more than one year's net salary.

Let's say you decide you want to be a pharmacist when you're all growed up, and you'll net about $52,000 a year or $4,3333 a month. Assuming your interest rate is 7.25% and you chose the ten-year repayment schedule, your monthly payment would be $663, which represents about 15% of your net income.

Do I have to say this? The less debt you have the better your life will be. If you hope to have a car, buy a home, have a family, go on a vacation, or do anything else that involves having a life during those years of student loan repayment, less debt is better.

Please, please, before you head off and borrow too much money, look at your student loan debt in relation to your earnings ability. That's common sense, right? But few people understand this relationship, which is why so many are buried in debt and unable to get on with their lives.

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7 Questions to Ask before You Say "I Do" (Part 2)

Okay, so now you know about your buddy's banking habits and savings plans. There's still more to talk about, like DEBT. Don't hide from this. Having debt is one thing. How he or she plans to deal with that debt will have a BIG impact on your future together.

3. How much credit do you use? This could be reflected in the number of credit cards she has added to that line of credit and the car loan. And don't forget the student loans she's been carrying around for the past six and a half years… so far.

A stack of plastic may mean your partner has a serious spending problem. Or not. It all depends on how much of that credit he's using, and whether or not he pays his balances off in full every month.

Use a story to open up this conversation: tell her about a friend of yours whose girlfriend is deeply into her cards and only makes the minimum payments. Then volunteer some info of your own. Then say, "I think we should sit down and list all our credit, figure out which ones are working best for us, and dump the rest."

If you're marrying a dope with a ton of debt, have you agreed to take on that debt by helping to repay it? (Whatever you do, don't sign for it!) If you expect your pal to clean up the mess before you get married, have you been explicit about it? Don't fall into the "he should know that" trap. If you have an expectation, state it clearly.

4. How much research does he do before a big buy? This is another of those observable questions. If he's about to drop a ton of money on a new vehicle, does he do some shopping around, or does he walk onto a lot and scratch his itch? Does she figure out what's really important before heading off to buy something? Can he tell the difference between a want and a need? How often does she make wants a priorities over needs like long-term savings?

5. Does she keep her paperwork in order? Again, an observation thing. If she dumps her bank and credit card statements without even looking at them, run for the hills. Not only should some receipts be saved for tax purposes, some should be saved for warranties. And all receipts should come home and become part of the monthly accounting of where the money went. Speaking of which, does he have a system for tracking his finances? If he's not on top of his money, are you willing to assume the role of financial gate-keeper so that the family finances stay on track?

6. Does he have an emergency fund? No. Is it because she hasn't thought about it or because she honestly believes nothing bad can ever happen to her? Or are you her emergency fund?

The same goes for insurance of all kinds: life, disability and health. You open this conversation by talking about your benefits at work and which ones you'll cancel once you're "legal". Talk about how much you each need to have stashed in a savings account to feel "safe".  If your sweetie feels safe because he has loads of credit, explain how that doesn't work for you since credit is just debt waiting to happen.

7. Does she have a budget? If he's of the opinion that everything is buyable as long as you have room on your credit card, he's not managing his money. If she thinks that as long a she makes her minimum payments on her debt it's okay to keep charging stuff, she's spending more money than she makes. Both are signs that there's no budget anywhere in sight. No budget means no plan. No plan means a crisis somewhere down the road. Are you ready for a crisis? And another? And another?

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7 Questions to Ask before You Say "I Do" (Part 1)

I think talking about money before you tie the knot is a no-brainer. I'm often surprised by the people who don't want to broach this subject with their partners. Whether they're afraid it'll ruin the romance or they would really rather not know, folks enter into what they hope will be the longest relationship of their lives without much information.

If you have a partner who seems reluctant to share, you may have to make like Sherlock Holmes to gather the information you need. Not knowing is far worse than implementing a little strategy to find out what you need to know.

Some of the questions you want answered you don't even have to ask. Let's take the issue of a pocketful of cash: If your soon-to-be-partner walks around with a wallet full of cash is it because he's flaunting his money or is she simply the type who likes to spends gobs without a second thought. Since debit and credit cards (when used correctly) help you track what you're spending, unless your buddy is also walking around with a notebook or keeping track of receipts, cash may leaking through fingers with nary a thought. And with your eyes wide open, you can see this for yourself.

Some things you do have to ask about. Here are the first 2 of 7 questions you should get answers to before you take the walk. Keep in mind you don't have to ask these all at once, leaving your pal feeling like a well-grilled wiener; a question here and a query there will get you all you need to know without scaring the pants off your honey.

1. Where do you bank and how long have you had your account? You can start this conversation off by complaining about your bank's service or by praising it. Bank-bashing has turned into a national pastime so this shouldn't raise any flags. Lenders often want to know how long you've had your chequing account because it speaks to your stability. You, too, should know if buddy has his accounts in order. While you're at it, talk about overdraft protection. If she has it as a precaution but never uses it, she's a smart cookie. If she lives in overdraft, that should be a red flag.

2. Do you have a pension plan at work, or are you saving for your own future? If your girlfriend has neither a pension plan nor any RRSP savings, what is she doing to take care of her future? If your boy has been blowing through his money without a thought to retirement, will you ever be able to convince him that saving is important? And if you can't, how will that affect your long-term plans together? You want a partner who is thinking about the future as well as living in the present. If she just hasn't given any thought to it yet, but is willing, you're one up on the poor sod who is marrying someone who thinks HE is the retirement plan.

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Teenager Syndrome

You can learn a lot from watching your teenagers grow up, y'know. I've been privileged because I've had a lot of them in my house. (Just check out my food bill before Alex left for university!) What's interesting is seeing how they evolve. So can we "adults" learn anything from our teenagers? I have.

Most teenagers are wrapped up in themselves… well for a while anyway. Psychologists call it "egocentrism." But I know more than a few adults who are so obsessed with their own careers, their families, their lives that they give very little thought to the bigger picture: their community, their country, their world.

If you're still not recycling, if you're drinking water out of single-use plastic bottles, if you can't remember to take those reusable shopping bags with you when you go to the store, Imma talking to YOU.

Another term often used to describe why teenagers behave as they do is "imaginary audience." Those poor sods are convinced the world is judging them and they spend inordinate amounts of time primping and preening. They so need to fit in that they'll bend over backwards to the peer pressure they feel (perceived or real).

I know more than a few grown ups who are so obsessed with impressing others that they'll blow the equivalent of a week's income on a pair of shoes (which turn out to be damn uncomfortable to wear). Just looking at our rampant desire to have the latest Shiny and New makes me think that this teenage phenomenon is alive and well and living in some 40-somethings.

Immortality fallacy – it can't happen to me – is common among teens. They drive fast, stay up for days on end, walk around without jackets in the dead of winter all because they believe they are impervious. They cannot foresee the consequences of their present actions. Hey, wait a minute. You… yes you… you without the emergency fund, you without the disability insurance or life insurance, you without any retirement savings whatsoever, could you also be suffering from immortality fallacy?

Most teenagers will figure out who they are and develop an identity. Most of the ones I know already have. But there are those who carry their immaturity through their entire lives. They fail to plan for the future, holding to the delusion that "bad things don't happen to good people." They dress to impress, buy cars they can barely afford to make payments on, and buy houses that are way more than they need so everyone will know how well they're doing. They stay focused on themselves, sometimes to the detriment of their friends and partners, sometimes even to the detriment of their children. They continue to live in a world of "It's All About Me!"

Learning how to balance your money and your life is an important part of growing up. Recognizing that there are things more important than "how things look" is a major step in shifting from the superficial to the substantial. And knowing that life and how we choose to use our money is about choice and about understanding that there are consequences.

So, are you a grown-up yet?

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The Lorax

Dr. Seuss' story of the Lorax is an environmental classic. Early elementary school kids are often introduced to the environmental issues of market-driven resource exhaustion and the failure to protect our environment through this very sad story. Yes, it's a very sad story. I remember (the first time I heard it read to my kids at school) how appalled I was that we were asking little minds and hearts to deal with something so grotesque and disheartening. I wanted to rip the book out of the teacher's hands and beat her over the head with it. Turns out the book had a much bigger impact on me than it did on my kids. The kids saw it for what it was: A cautionary tale.

In this dark tale the greedy Once-ler ignores the Lorax's warnings of environmental ruin as he turns truffula trees into thneeds. As the truffula trees disappear the animals dependent on the truffula for food must leave to find food elsewhere. Production increases and with it comes "smogulous smoke" which gives the Swomee Swans "sore throats" leaving them unable to sing.. Eventually the Once-ler cuts the last truffula down, and his entire corporate empire folds up and leaves town. The story ends with the Once-ler tossing a young'un the last truffula seed. He tells him to plant it and treat it with care, and then maybe the Lorax will come back. Maybe. But who really knows.

The Lorax is self-explanatory, the outcome obvious. Believe it or not, industries have petitioned to have the book removed from school curriculum. Wow! Talk about Goliath being afraid of David.

But there's more to this story than just the environmental issue. The Lorax is a story about the imprudent use of resources, which applies to money too. If you don't give any thought to the future, if you waste the resources that you work so hard to earn on nonsense, if you don't plan ahead, your Lorax – your peace of mind – will leave town and there's no telling when he'll come back.

It only takes a small truffula seed to make a big difference to your life and your future. A little savings planted now will grow through compounding. Your truffula garden, watered carefully and tended consistently, will produce more seeds. Eventually you can have everything you want… even if it isn't all at the same time.

It is only when we won't look ahead to see how today's actions impact tomorrow that we end up scaring off the Lorax and living in a world that's far less than it could be. If we're careful about nurturing what we have, if we make some effort to set aside some seeds for the future, life can be grand.

So, how are you taking care of your Lorax?

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Splitting Bills

You've heard me talk about how important it is that you work out how you're going to budget with your mate before you hook up. And y'all know that I believe a proportionate splitting of joint expenses is fairer than a 50/50 split. Here's a question from Renee on the topic:

I am looking for a simple way to calculate the ratios of how to set up a budget for all of our household expenses. My husband makes on average $90,000 per year (fluctuates with overtime) and I make $40,000 per year. I have a total of all our fixed expenses, plus our variable expenses- but I'm trying to figure out how much we each pay. If we split them 50/50- based on my income it's setting me up to fail. Can you help? Thanks! Renee

Renee, you're right, you should not be splitting the bills 50/50. A proportionate split is far fairer. But you've quoted me your income in gross dollars, and since your husband will pay more in taxes, using these numbers isn't fair either. You have to look at how much you each bring home a month — the money that actually goes into the bank account. Then split the bills by that amount.  First add your incomes together. Then divide YOUR income by this figure and multiply by 100. Ditto his income. So it would be like this:

If you make $2,000 a month, and he makes $4000 a month, when you add your incomes together you get $2,000 + $4,000 = 6000

Divide your income by that $6000 and then multiply by 100 to get a percent: $2000 ÷ 6000 x 100 = 33.33%

Do the same for his income: $4000 ÷ 6000 x 100 = 66.66%

This means you'd split the bills related to your joint living expenses with you paying 33.34% and him paying 66.66%. So if you have a mortgage payment of $1800 a month, you would pay:

$1800 x 33.34 ÷ 100 = $600

and he would pay:

$1800 x 66.66 ÷ 100 = $1200

This, of course, only applies to the bills you agree to split. If you've run up a whole bunch of debt he doesn't want to have anything to do with, or vice versa, then you're each on your own.

The same goes for individual expenses. If he chooses to drive a fancy car that costs $600 a month, and you choose a car that costs $200 a month, you should each pay your own car costs.

It is important that partners also talk about what they'll do if there's a change in circumstances that affects the budget. One of you may be out of work temporarily. How will you even up after? And if you decide to have children and one of you stays home, even in the short-term, how will your manage the bills and ensure the non-working partner has some money of his/her own.

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Kids & Money: Babies Edition

Much of what you do with your money when a baby comes into your life relates to you and your partner. But taking these steps are your first financial commitment to the new stage you're at in your life. And they lay the groundwork for making money something you consider as your children grow and you help to educate them in the ways of the financial world. Children, after all, will learn far more from what you DO than from what you SAY.

Get a social insurance number for your wee one. You can't open an RESP without one. Even if you don't imagine you'll have money to stash away for baby right off the bat, you should get a SIN card. For lower income Canadians, the Canada Learning Bond is available to help you save for your children's future. It may not be a lot, but why wouldn't you take advantage of free money if you're struggling on your own.

Several provinces (Alberta, British Columbia, Ontario, Nova Scotia and Québec) let you use their Newborn Registration Service to complete your child's Birth Registration and apply for your child's SIN card. Elsewhere take your application and baby's birth certificate to your nearest Service Canada Centre. If everything is in order, you'll get a Social Insurance Number in one visit and receive your baby's card within about 10 business days. Can't get to a centre? Then apply by registered mail.

Apply for all the tax benefits you can get. Why would you walk away from any financial break you can get? Make sure you apply for the Universal Child Care Benefit (UCCB), which will give you up to $100 a month for each of your children under the age of six. (Careful, this money is taxable in the hands of the lower-income partner.) Also check out the Canada Child Tax Benefit (CCTB), which is aimed at low- and middle-income families. The amount you may receive is based on how many kids you have, their ages, your family income, and your childcare expenses. Paid monthly, these benefits aren't taxable.

If you have a family income of $25K, two kids, and receive no other benefits, you're looking at a benefit somewhere in the vicinity of about $680 a month. At $30K your benefit would be about $550. At $35K, it would be about $420. And at $40K it would be about $290.

Remember, too, that you can deduct childcare expenses from your income when you're filling out your tax return. Keep your receipts. As an example, for 2010 you could deduct the LESSER of the amount on your receipts or $7,000 for each kid under age 7, and $4,000 for each kid over 7 but under 16 at any time in the year. If you had a child who was eligible for the disability tax credit, you cold claim a maximum of $10,000 per child for childcare expenses.

Open up an RESP. Not everyone feels the need to help their children save for their future, but if you want to help your kid graduate from post-secondary school without a ton of debt, an RESP is the way to do it since each child can earn up to $7,200 in grant money absolutely free. Can't find the money in your cash flow to come up with $50 or $100 a month for an RESP. Why not change your withholding tax amount to put more money into your cash flow.

Update your will. Now that you've got a babe, you need to update how you want your assets handled if you croak. Skipping this step is just plain irresponsible. While you're at it…

Name a guardian. This can be a tough step emotionally. Who would be good enough to raise your child? And it's not to say that once you name a guardian it's a done deal. The courts actually decide. But if you don't take this step they'll have nothing to work with when they are making the decision so your kid might be "given" to someone you loathe.

Review your insurance. If you don't have any, it's time to get some. If you have some but you're not sure it's enough now that you have more than yourself to be responsible for, check with an insurance specialist. It's also a good time to review the beneficiary designation on your insurance policies, as well as on things like your RRSP. Please, resist the urge to buy life insurance on your children unless your intent is to guarantee future insurability because you have certain types of diseases in your family.

Update your budget. Formula, diapers and daycare of a way of taking a big bite out of your budget. Try to keep living as you did before baby came along and you'll find yourself turning to your credit cards and lines of credit to fill the gap. This is not time to be going into debt for dumb stuff. You've got a baby now. This can be a particularly trying thing to do if you're living on significantly less money now that you're on maternity or parental leave. But ignoring your smaller income and pretending that everything will be fine is imprudent.

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7 Reasons You Want a Budget

People always seem to want to debate the validity of a budget. Second only to insurance, budgets are the most misunderstood financial tool around. People see them as constraining, like a too-tight pair of shoes that pinch and rub. People see them as rigid; think full body cast. People see them as impossible, as in, "I've made lots of budgets but they never work!"

Well, budgets do work, and here are 7 reasons to have one:

1. A budget is a plan. It's your choices for how you will spend your hard-earned money. Without the plan, you're diving down the road with a blindfold on and it's only a matter of time before you run into the ditch. Oops! Now that's gonna take some fixin'.

2. A budget is a gage. It lets you see if you are living within your means. Once upon a time, before credit was as common as the cold, people knew whether or not they were living within their means because they either had money left over at the end of the month or they didn't. With credit cards, lines of credit, and overdraft protection, it is much harder to see that you're not making ends meet because you can fool yourself into thinking you've got it covered. However, if you have a budget and you faithfully plug your numbers in, the budget will tell you the truth.

3. A budget gives you control. You have dreams of things you'd like to have, places you'd like to go, experiences you'd like to… well… experience? With a budget, you set money aside for specific purposes, be it accumulating money for your children's education, saving for that family holiday, or building a stash of cash to renovate the kitchen. Now those dreams and aspirations don't have to go ignored because you keep getting to the end of the month and the money is all gone.

4. A budget anticipates expenses. Without a budget, people think of most of their less regular expenses as "unexpected." Having forgotten about the car insurance bill that comes once a year, they're shocked and surprised when the bill arrives. With a budget not only would you know when to expect the bill, you'd have set aside 1/12 of the total each month so paying it would be no problemo.

5. A budget keeps you focused. It's a lot harder to spend willy-nilly when you're on a budget because you've accounted for where the money is going down to the last red cent. If you find a category isn't working because there's not enough in it, you have to cut from another category to make the budget balance. But every cent is accounted for. No surprises. Course, not everyone is prepared to be a grown up and spend money consciously. Some people like the rush of spending on a whim. They hate budgets. But they're the people most in need of a budget because they have no self-control.

6. A budget eliminates squabbling. If you're married to one of those people who have no self-control, a budget can be a marriage saver since it will reduce arguments about money. The budget serves as your guide so if you and your partner are having a squirmish over whether or not to buy something, you can always fall back on, "not until we put it in the budget."

7. A budget reduces stress. Perhaps the biggest benefit reported by people who finally get on a budget is that their stress is waay reduced and they find that they sleep better! Following a budget means you eliminate unnecessary worrying over money and debt. You're confident that everything is figured out, and as long as you follow the budget, you've created a plan that will get you to where you want to be.

Budgeting isn't just about tracking your costs, it's about making sure you're spending your hard-earned money in a way that works for you. While those off-the-shelf forms can be good guides, you need to have spending categories that fit your personal situation, your spending habits, and your income. Don't compare your budget with other people's budgets; you're not living their lives and they're not living yours. And make sure you review your spending patterns a couple of times each year to see if there are areas where you're overspending. There may even be things you're spending money on of which you weren't even aware.

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