It was panic time.
Elementary school teacher Meghan Donat and her husband Morgan, a self-employed massage therapist, had just moved into their $275,000 dream home on three acres outside Bridgewater in southern Nova Scotia.
It was February 2013, shortly after the big Christmas shopping season.
And the Donats were finally in that 3,000-square-foot, two-storey house on its quiet cul-de-sac with their two young daughters.
Everything was great.
Except the bills.
The couple had moved into their new place before selling off their other house and were still carrying a $140,000 mortgage on it. Their new home also came with a mortgage that, with the interest payments and fees on it, would cost them $308,000.
It was a lot of debt for the couple whose combined revenues were just a shade under $120,000 annually.
“We started freaking out,” admitted Meghan. “We panicked.”
Faced with that mountain of debt, the Donats did exactly what financial experts advise. They sat down at their dining room table and began to put together a household budget in earnest.
Debi Peverill, a chartered accountant who teaches a course called Budgeting Essentials at Saint Mary’s University in Halifax, says many people are quite simply unaware as to where their money goes.
“The biggest mistake most people make is they don’t keep track of their expenses,” said Peverill.
The Donats broke down their expenses into 17 categories, including groceries and the mortgage but also gifts, investments, entertainment and even lottery tickets. Going through that exercise gave them a certain amount of relief.
Things were not as bad as they seemed.
“We were pleasantly surprised when we got the real numbers,” said Meghan.
Since she made extensive use of credit cards to collect points, Donat was able to get a good sense of her spending by going back over three months of credit card statements.
In her course, Peverill advises students to track every expense for at least a week. A month of tracking expenses is even better.
According to financial experts, everyone should budget and have enough in savings to cover at least two months of living expenses.
“It is hard to stick to a budget,” said Peverill. “They have to have a goal to forego what they’re giving up.”
For the Donats, that goal was to be mortgage-free in five years. It was an ambitious target.
But they did it.
Admittedly, it wasn’t easy. Meghan used so many money-saving tips — and tricks to make a few bucks — during those five years that she was able to write a book about her household budgeting know-how. It’s called A Penny Saved Is A Mortgage Paid and it’s available as an e-book on Amazon.ca for $5.
None of the strategies the couple used is particularly difficult to understand.
“Everybody can do it if the why you’re doing it is very clear,” said Meghan.
By watching every cent and carefully budgeting — something that takes Meghan about five hours every week — the couple was able to plunk down an additional $3,000 or so every month for five years on top of their regular mortgage payments. That’s $36,000 in extra mortgage payments every year or $180,000 over the five-year period.
Add to that the roughly $10,000 in appreciation on the sale of their old house and the about $60,000 they had in equity built up over years of paying that mortgage, and the Donats were able to be completely debt-free this year.
And they did it while installing a 26-foot, above-ground pool with a deck in their backyard.
The pool, they bought. The deck, Morgan built himself using wood recycled from his father-in-law’s old pool deck.
Goals, budgets: Secrets to savings success
Being frugal not a bad thing: Donat
It’s all about setting goals and making budgets, says a Nova Scotia chartered accountant who teaches a budgeting course at Halifax’s Saint Mary’s University.
Debi Peverill says household budgets are crucial to avoid frittering away money on inconsequential things and missing out on those dream vacations, debt-free homes or exciting life experiences.
“You want to have a budget to save money for the things you want. You have to see if where you spend money is where you want to spend it.”
After setting those goals and tracking expenses comes what may well be the toughest part of budgeting: determining what needs to go.
“If they’re saving for a down payment, are they going to pack a lunch and see if they’re ready to do that four days a week to save $80 (on meals in restaurants)?” said Peverill.
That $80 per week, even after allowing for two weeks off work every year for vacations, adds up to $4,000 in savings over the course of a year. That can be a very nice vacation abroad or a trip to Walt Disney World with the family.
Bridgewater, N.S., residents Meghan Donat and her husband Morgan have managed to become debt-free by establishing a budget and goals. Among the many things they do to save on expenses is eliminating the daily spend at the local coffee shop. Instead Meghan makes herself coffee at home and brings it with her. Even just one small coffee shop beverage every day adds up to almost $600 per year.
But developing a realistic household budget can be challenging for many people. Peverill, whose firm is based in Sackville, advises most people to consult with an accountant, pay about $200 for the service, and get the job done right.
“They’re better off seeing a professional than flailing around and trying to do it by themselves,” she said.
There are, of course, online resources. Digital Citizen is one such website which offers up spreadsheets users can fill with their expense data to keep track of spending.
One of Meghan’s favourite strategies is to get deals on top of deals.
“I stockpile coupons,” she said. “I went online and joined Facebook groups of products I like. Then, I go to Superstore. They have a coupon board and I go through the store and find coupons in front of the products and I pick those up.”
By using her credit card to pay for her purchases, she also amasses Air Miles that she uses to get other things.
What kinds of things? Well, three years ago, Meghan’s Air Miles went towards a family vacation to Walt Disney World at Christmas time.
Taking the boredom out of saving money
Even for highly motivated couple like Meghan and Morgan Donat, there were times when sticking to the budget has been tough.
The family buys most of its clothes at second-hand stores and yard sales. Donats drive used cars to save money.
The temptation to splurge on new and cool things just because other people have them, though, is never far away. It’s is hard to battle the urge to keep up with the Joneses, she admits.
“There are times that I had budget burnout … when I saw people driving new vehicles or going away for March break … when you see people with the trendy clothes,” said Meghan.
And, admittedly, emotional support for the budgeter during those tough times is often almost completely absent.
“It is boring, and there is absolutely no glamour in it,” Meghan wrote in her blog.
Battling that boredom and lack of support, the Donats decided to motivate themselves by making photocopies of a $1,000 bill, one for each $1,000 of debt they had, and placing them on Bristol board inside their closet. Every time they cleared $1,000, they coloured in one or those photocopied bills to show themselves what they had gained.