With the latest reports out from various sources such as The Globe and Mail, Canadians have been borrowing more and racking up their credit card debt in 2015. This trend is expected to continue with interest rates at record lows. However, what happens when interest rates increase and consumers are left with significant debt and difficulties affording to refinance into a higher interest rate? Whether we’re referring to a car loan, mortgage, or even a personal loan, this exposes consumers to having future difficulties managing their finances and paying their bills.
So what is the answer to all of this debt and what are Canadians to do in order to keep their debt levels manageable? Unfortunately there’s no easy answer…
Educating ourselves is really the only thing that we can do together as a society to ensure finances and debt is properly managed. It is OUR responsibility to do this, as we all know that our education system and the lending companies won’t be any help here. And with Canadians household debt ratio hitting a record of 163.3%, we should all be concerned.
So what is it that we do?
Education has been an ongoing debate for years with several parties and advocates having opinions, policies, and guidelines. The issue is that we don’t learn how to properly manage finances in school or even afterwards in the workplace. It’s a self-taught skill set that can only improve if you have the education and knowledge.
First thing to do is to have a clear picture of where your finances are at and being honest with your current situation. It’s about your NEEDS and not about the WANTS, which understandably can get mixed up between one another. For example, you may say that you need to move out of your small condo and into a detached house because you need more space for your growing family – definitely understandable and an absolute need. But then your needs can start to become wants without you even knowing – you may want a kitchen island so you can host better parties or you want a backyard with a pool and you truly believe you NEED it because your kids will be much happier in the summer time. It’s important to identity these changes between needs and wants, and before you go out shopping for that home make a list of true needs and ‘nice to have’ but not necessary.
Educating yourself through the web, books, and even asking people who seem to be financially sound can always help.
The trick is you need a process, and when you feel the need to spend then that spending needs to align with your process.
But what about budgeting, right? Well there is A LOT of resources out there on how to properly budget and spend X percentage of your income when you buy a house or car, yadda yadda… That’s all fun and games until you get to the real world situation and find yourself in a ‘pickle’. You should no doubt have a budget in place so you know how much money you have coming in, how much of that goes to expenses, and what’s left over as your disposable income.
In all honesty, that’s kind of the easy part of it. The challenging thing is to develop a system that works for you and sticking to it.
When creating and implement your financial system, it will be difficult at first. It’s kind of like riding a bike, once you get on and do it a few times you begin to get more comfortable with it. Everyone’s finances are different so you will need to develop your own system that works for it.
Your system will never be perfect and will constantly change and evolve, so be diligent in looking at the numbers and determining what’s the next step.
Practice, Practice, Practice
This goes without saying, but you can’t get better at anything in life, including your financial standing, without practicing. The more you do one thing, the better you become at it. The same goes for your financial situation.
Be frugal, save your money up to a limit that you’re comfortable with – say 1 years worth of income saved – so if or when those rainy days come, you’ll be covered. If those rainy days never do come, then all the better – keep saving and planning for the future, maybe putting some of that money into an investment, whatever it may be. Then all of a sudden you have cash on hand and you now don’t have to rely on credit cards or personal loans – you can buy that car, put a considerable down payment on your house, or even go away on vacation – all interest free.
It’s important to know when to spend and when not to spend. Be patient and again save money then spend, not the other way around.
Good luck to you and your families! come back soon for more detailed advice and trips regarding bad credit and debt.