DEBT?

DEBT?

Growing up watching my parents navigate their power of spending and living within their means is now a distant thought based on today’s immediate gratification of purchase within our society. Having debt was not something that had meaning to them 50 years ago there was only one thing that they were in debt for – that was our house everything else was paid by cash. If you did not have the money then you saved until you did. My mother would put stuff on “layaway” and make weekly payments until paid in full or if she used the Sears Roebuck credit card it was paid in full at the end of the month. 50 years ago, a mortgage was and still is today considered ‘good debt’, because your home is considered the biggest increasing asset that you own. A car was something of a necessity only and not a want. A Black and White television was the norm and if you could afford a Color Television you would have been considered rich. Fast forward 50 years and you will find the banks and credit card companies are big business empires now, the consumer is now encouraged to use credit cards, lines of credit and, a myriad of financing options because it has become increasingly acceptable and very easy to carry large amounts of consumer debt. The new generation of consumers requires immediate self-gratification and this has helped to shift the public’s perception about carrying debt which has been extremely profitable for lenders. Yes, society has changed drastically in 50 years. The reality is still the same you cannot continue to spend if you do not have the means to afford your need to spend so you can be accepted in society.

Acceptable or not, when talking about finances, people who are carrying large amounts of debt understand their reality but unfortunately without the understanding of basic budgeting this is a cycle that cannot be broken. Until we as a society accept and understand that we need to live within our means if we are to succeed in our future – If not we will continue down a path of certain self-destruction.  

What can you do to reduce your debt?

How much debt do you have?

To pay down your debt and create a plan to reduce or eliminate debt you must first understand how much debt you have. To build a plan to get out of debt you should create a budget plan which lists each of your debts on a spreadsheet this will show you who you owe, what you owe, and your total debt, the minimum payment is the interest rate you’re being charged. You will need to get past the minimum payments to get out of the debt cycle.

Once you can see it on paper you will start to understand the process and value of this exercise. When you have all your debts written down, you’ll know exactly what you’re dealing with. The next part of the exercise and this is the most important step, is to implement change. It’s important to remember the only thing you can change is what happens from this point forward what you have done in the past is in the past it cannot be taken away. There must be a change in spending habits, there is no point putting energy into starting a plan to move forward if you plan on making the same mistakes from your past. Take positive action to better your situation.

How much debt is too much?

If you’re not paying your balances in full then where will you find the additional money to pay down your debt? This is where your budgeting skills start to come into play. You have to determine exactly how much you have coming in and going out each month. The simple math will show you either a positive or negative number. Either way, change has to come if want to remove your debt. There are only two ways to change your balance sheet at the end of the month: either you have to figure out a way to earn more or you have to find a way to spend less. Take a close look at your monthly cash flow; if you can capture money from other expenses and repurpose it to attack your debt, you’ll be able to get out of debts a lot faster. The simple answer for how much is too much? When you can’t pay your monthly bills comfortably, you have hit your threshold and you now need to put a plan in place which allows you to spend less and repurpose funds to pay down your debt. 

Understand how you got here… 

Debt is not a problem. It’s a symptom of a problem. If you focus on fixing the symptom rather than the root cause of your financial situation there’s a good chance that you’ll end up facing the same issues down the road. It’s not uncommon for people to consolidate credit card debt with a loan or line of credit and then to run their credit card balances up again. Effective money management isn’t grounded in strong math skills; it’s grounded in our psychology. Understanding the psychology of money and how spending habits are created will help you create new patterns and new habits that will not only help you get out of bad debt but will also help you stay somewhat debt-free from the credit card companies in the future.

The plan moving forward…

Without a plan, you will never achieve success. Without a budget in place, you will find yourself back where you started in no time. Once you know how much you have each month to pay down your debt, then you can create a plan that will allow you to pay down each debt systematically, starting with the smallest balance of your highest interest debt. Keep your expectations realistic. Once you have successfully started to pay down your debt, removing any temptation to spend which is the cause of that debt in the first place is required. If it’s a credit card try removing the card from use until the debt is gone. One solution is to freeze the card in a zip lock bag full of water. When you want to use that credit card you will have to defrost it first giving you time to decide if you need what you are buying.

Implement your plan…

You have to start somewhere change will not just happen. Change involves stepping out of your comfort zone and into the unknown. Taking the first step to getting out of debt is usually the hardest. Be prepared for the fact that you’ll feel like giving up more than once. Don’t give up if you falter or get off track in the beginning; just remind yourself of what you’re moving away from and all the great things that lie ahead and then make the choice to get back on course. Always revaluate your plan make changes and refine your plan if necessary. Celebrate every step of your progress towards your end goal of being debt-free and by learning the power of self-discipline where spending is concerned.

WHAT IS FINANCIAL SUCCESS?

WHAT IS FINANCIAL SUCCESS?

We find ourselves in a position to reset some goals that may have slipped during a year of ups and downs. 2021, is a time to think about the things that went right last year and the opportunity to change the things that did not go so well. Some things that happened were out of our control but there are always some habits and activities that can help make a difference towards improvement. In some ways you have a chance to start over and do things differently. Think about how you can hone in on your own mental health, a healthy lifestyle, personal fitness, and your personal finances. While we are not personal trainers or health councillors, we can give you some tips to help you get financially fit. Please enjoy our thoughts below.

What financial success?

In personal finance, there are too many pieces of financial planning like net worth, investment assets, income, life insurance, estate planning, tax planning, income, budgeting, and banking that make it difficult to find an easy answer to financial success.

You can invoke change in your financial success but it requires a change in habits and lifestyle!

Have you heard of the acronym KISS (of course you have but we have modified it a little to suit our needs) see below… 

  1. KNOWLEDGE – Seek out professionals that are specific to your needs that can help you with a starting point and help to design an end goal. You need a plan and someone to lead you down that path to the success you seek.
  2. INTENT – There must be a need to change from your present plan if that plan is not working.
  3. SIMPLIFY – If your plan is too complicated, you will never succeed in reaching your own financial success.
  4. SUCCESS –It’s important to understand your plan and its goal. For example, if you want to reduce your debt, you have to come up with a realistic amount you can afford on a monthly basis and a realistic time frame for completion. If you try to do too much, it will not happen. We live in a busy world and the best way to make sure things get done is to plan for success and make that a priority. 

Make some financial changes this year

Here are some practical ideas for improving your finances and tips to help you find financial success.

1. CALCULATE YOUR NET WORTH

In order to asses your future progress of wealth accumulation, you will need to know your net worth. The calculation is this simple, take all the assets you own and subtract the debts you owe. If the answer is a negative one, then the first thing you will need to do is reevaluate your lifestyle.

As simple as this sounds very few people actually take the time to calculate their net worth. We should be aware of our net worth. We live in a society where we have become okay with increased indebtedness, material things and living for now have become more important than that of our own financial future. The lesson here is not that we have to do without and stop living in the moment but we must decide what is important as our future gets closer as every day passes. Your time is now, calculating your net worth will help make the changes necessary to create a positive financial future!

2. PAYING DOWN DEBTS

Now the holiday season is over, many of us may have accumulated a little holiday debt, and especially the high-interest credit card kind of debt. There are three rules for paying down your debt. First, pay off the highest interest debt first like credit cards. Second, continue to pay off the big-ticket items like Cars, Vacations, Lines of Credit, and Third think before you spend – Maybe this should be First! Do you really need what your buying? Debt will crush your net worth.

3. LIFE INSURANCE

One area of personal finance that is often overlooked is the area of life insurance. There are three basic reasons why you need life insurance. The first is to ensure your debts like mortgages, lines of credit, and cars will be paid off if you are gone. This way if something happens to you, your loved ones will not have the burden of debt payments. The another reason for insurance is for income replacement. If you were to unexpectedly die, would your family continue to need your income? If so, put life insurance in place to create future income. This is the area most overlooked for proper insurance coverage. Finally, insurance can be used to cover expenses like funeral costs, education, emergency fund, and taxes. Make sure you have the right amount of insurance coverage in place to protect your loved ones and their future.

4. FORCED SAVINGS PLAN

RRSPs are a great way to save for the future while also decreasing the amount of tax you will pay for your previous year’s income to the government. The unfortunate part of this equation is that 85% of those that file taxes have unused RRSP room. The reason for this is, we as a society are paying way too much to service our own debt. Just imagine if you could some how remove your debt with a solid plan, but continue to pay the same money out monthly that you are presently paying to service that debt into your future instead. would that change your financial landscape in the future? RRSPs are not the only place to save money besides the immediate tax deferred benefits, you can also look at TFSA’s – Tax Free Savings Account can be either a compliment or an alternative to your RRSP savings. Pay yourself first by maximizing your RRSPs/TFSA and your net worth will increase drastically.

5. ESTATE PLANNING

The most basic aspect of an estate plan is the Will the most underrated aspect of financial planning. The Will ensures that your assets will be distributed according to your wishes. Proper Will Planning will help you to minimize taxes and ensure that you maximize the assets that can be distributed to your benefactors. Make sure you have a Will and that your Will gets updated regularly.

It’s also a great idea to review your beneficiary designations on your RRSPs, TFSAs, and Life Insurance policies periodically to make sure they are up to date with your life circumstances. Avoid future Probate payment wherever you can.

6. LIVING BENEFITS

Living benefits insurance refers to insurance that protects against the risk that may occur while you are still living. Disability insurance protects you in case you get disabled and can no longer work. Another living benefit insurance is Critical Illness. Which was designed to help if diagnosed with cancer, heart attacks, strokes, and other major illnesses. Which in today’s society are on the rise and therefore the need for critical illness insurance increases. If you do not have critical illness insurance, be sure to look into some coverage. It may not be cheap but your chances of collecting are better than you dying first.

7. BANKING

High-interest banking. There are two key benefits to high-interest banking. First, you start earning a much higher interest rate than your conventional bank account. Secondly, most high-interest bank accounts have no fees. If you are not earning interest in your bank account and have monthly fees, be sure to learn about alternatives. We lose money willingly and unknowingly – losing money willingly is defined as credit debt, mortgages, lines of credit, we know this when we sign on. Losing money unknowingly is not educating yourself about things that could make you money. A penny earned is a penny saved – our parents loved that expression.

8. EMERGENCY FUND

We all know the importance of having an emergency fund.  If anything 2020 was a wake up call regardless of having savings on hand for that rainy day.  An emergency fund is liquidity, money that is easily accessible when needed.  There is lots of debate over how much you should keep in an emergency fund – truthfully no such amount could have been put away for 2020. But how much will depend on your ability to save for that unforeseen circumstance. Something saved is better than nothing!

9. FINDING BALANCE

It sounds so basic because it is. The formula is so simple – spend less than you make. With financial institutions so readily willing to give out credit cards and lines of credit, it is so easy for all of us to spend more than we earn. The problem is that spending eventually catches up with us to the point where we have too much debt. No matter who you are and how much debt you may or may not have, budgeting is an essential part of life. Take the time to track your expenses for at least three months and you’ll have a pretty good idea of where your money is being spent.

Coming up with a financial goal is one thing but sticking with it and making it happen is another. The results of financial goals depend on the habits and routines you use daily. We are all creatures of habit. In order for your financial goal to work, you need to become diciplined in your daily routine. These saving habits need to become second nature. The reason most financial goals do not work is simply that we fail to follow a plan. In order to follow your new plan, you need to understand the process. 

Where do you start?

Keep It Simple for Success – you need to set goals and stay focused on those goals! There’s something to be said about Keeping It Simple for Success!

  1. Change your lifestyle – To be successful, you must make everlasting changes and the only way you can do that is to change your habits. If it takes 21 days to change a habit, then how long does it take to change a lifestyle. In my opinion it’s a want not a need for change to happen, you must want to change in order to create change.
  2. Do more – The best ideas in the world are the ones that are put to work. You are better to do something and fail then to do nothing at all. You have to want to do more to create the change that is necessary for your financial future.
  3.  Take ownership – It’s much easier to blame other people or circumstances, but if you hold yourself accountable, the future is yours and yours alone! Stop making excuses, stop whining, stop blaming. Focus on the things that help you stay accountable for your own financial future. 
  4. Stick with the plan –The key is to have a plan in place. Once you have the plan, then you need to keep on track until it becomes a habit. Whatever that time frame is, the bottom line is changing your habits requires continuous effort, and significant discipline.
  5. Find Support – Most things we accomplish in life, we accomplish with the help of others. If you want to get ahead financially, it often helps to have someone with knowledge in that field that supports you. Some say knowledge is power but at the end of the day, it’s up to you if you want less debt, more money, more wealth or whatever your financial goal you desire. Find an advisor that can help you put together the plan that best suits your needs.