Budget Sense

Let me try and blend both the good news and bad news together: while  Canadian (and North American in general) food prices will continue to go up in 2012, the increases won’t be as large as the ones we saw in 2011. According to an article in the Toronto Star:

“University of Guelph economists predict that while food prices will continue to inch ahead, the rise will be modest compared with the spike in prices in 2011“

Compared to the average 4.9% increase we saw this year, 2012 will see an increase that is less than half of that; just about 2%!

Meat products will see a 3% increase compared to the 5% we saw in 2011. As for fresh vegetables, you will be relieved to learn that the increase will average about 1-3% compared to the dramatic-up to 10%-increases that we saw in 2011.

Thanks to various factors-weather, increased world demand, higher energy prices-food prices have been going up every year for the last 10 years. 2012 may be the first year in a long time where consumers will see less pressure. But like I mentioned earlier, let us not fooled by this: there will still be an increase, not a reduction in prices, albeit a smaller one than we have been seeing last few years and this year (2011). Some necessary items, though, will see a price decrease actually, notably core grains and sugar.

This is a much welcome news for families and individuals, especially those who have been struggling to make ends-meet or having trouble paying down debt.

In the last three years, dating back to the start of the global recession and the worsening economic conditions, we have been hearing a lot about bankruptcies. Both business and personal. Ignoring the ‘business’ side of things, when it comes to ‘personal’ cases of bankruptcies or being on the verge of sinking into one, a lot of people did find help, by using one of the many ‘debt consolidation services’ that have been popping all over the place.

What is a ‘debt consolidation service’ and when should you need one? better yet, is the service risk-free, and does it involve any ‘side effects’ so to speak?

What is ‘Debt Consolation Service’?

A Debt Consolation Service (DCS) is a method by which a mediator comes between you and your bank to ensure that you pay some of your debt, at a reduced interest rate, so as to avoid bankruptcy.  It is a process where your multiple high interest and unsecured debts are consolidated into a single manageable monthly payment, usually at a lower interest rate than what you were paying the banks.

The logic behind such an arrangement is that it is better if you (the consumer) pays some of the money owed to the bank than to declare bankruptcy where neither you nor the bank will gain.  When you declare a bankruptcy, your credit will be ruined and will take years to come back to normal and the bank will also lose on its own money that it lent to you.

So the DCS is sort of a middle man between you and the bank. Not to mention, it is a legal solution. But just because it is legal and viable doesn’t mean you should just run to use it. First, you have to know when you need to use it and what are some of its risks and side effects?

When should you need to use a DCS?

There are many signs that can help you in knowing when it is time to use a debt consolidation service. If you have lost your job yet still have to pay off multiple credit cards-and assuming your job search is not successful for a few months now-it may be time to talk to a conslidation service. If you are also noticing that you are missing your payments more often than usual, then that could be a sign that you are falling behind and need help. Getting lots of daily collection calls? that is another strong sign that things are getting out of control and in need of help. Finally, one other strong indication that you are in need of consloldating your many credit card debts into one is when when you start using your credit card to pay other credit cards or bills. If you start noticing some of these symptoms or similar to those, it may be time to consider DCS.

When are some of the risks and side-effects?

While DCS can be a great life-line, it wouldn’t come without some risks and side-effects. Where else in life could you get such sweet deals without having to pay for it some other way? First and foremost, your credit rating may be effected for the negative. As part of your repayment arrangement, you will also have to give up your credit cards and possibly other bank accounts.  Also, the service is only good for unsecured debts , those not secured by an underlying asset or collateral. In other words, you couldn’t use DCS to make your mortgage payments when you are not able to.

I noticed something about the way I pay for big purchases which may not be very obvious to people often: if I have budgeted for a big purchase, I will actually pay for it with a smile. In other words, I am not feeling a big pinch from having to pay so much money for something.

Reversely, when I haven’t budgeted for something or I am suddenly faced with an emergency purchase or payment, I do feel the hit to my pocket.

Yes, budgeting does make a huge difference when it comes to the psychology of buying or paying for something. It makes you pay with confidence and no regret or any financial pain.

The point is, if you budget for big purchases in advance, or if you have saved money for an emergency, you won’t feel a big hit from an unexpected emergency.

Certainly, for you to save for a big future purchase, you have to know about it in advance. The more time you have for it, the more you will be able to save. In other words, and unless your car is done or completely damaged in an accident, you can’t just wake up one day and decide you are going to buy a new car. Unless you are very rich or have already saved lots of money. Rather, you would would have a saving and budgeting timeline that starts at least 6 months to a 1 year in advance.

As for unexpected emergencies, such as fixing a leaky roof or replacing the furnace, you are expected to always have some money saved for an emergency. So it is not a matter of whether you will have an emergency or not, you should have money allocated for it regardless.

This of course is different from wasting money on something you don’t need just because you have the money. That is a totally different thing and nothing more than wasteful spending.

So, always budget for future expenses and emergencies even if you can’t predict them or see them in the horizon.