Whether you’re trying to aggressively pay off your debts or saving for some big goal (like buying a home), the principles of money management are very similar. In many ways, the way you live your life may seem the same because the key to long-term success is more about establishing good ongoing habits and making them a part of your regular decision-making process. In other words, all goals involve a plan, some structure, discipline in practice, the determination to stay on track, and faith in the process.
If you have debts, you can’t successfully pay them down without accepting and following these fundamental guidelines:
When you make a loan payment, a big part of it goes to interest and rest goes to the principal amount that you borrowed. The higher the interest, the harder it is to pay off the borrowed amount. Paying off the high-interest debts first will mean paying less interest overall. Credit cards are typically the high-interest culprits. Once you pay off your credit cards, be sure to pay off the full balance each month going forward.
You could reduce the high-interest debts by consolidating them into a low-interest loan such as a credit line with the bank. If you have student loans from the Canadian government, then you could be getting a tax credit back from the interest portion of your repayment — you may want to hold off on consolidating them with your other debts and pay these off separately.
If you’re not able to get a low-interest credit line, then proceed to pay off the debt with the smallest balance first (of course, while paying the minimums on your other debts). Once that’s paid off, then pay off the next smallest balance and keep going until you slay the rest of them. Some credit cards offer very low to zero percent interest for a limited amount of time (usually a year). If it’s realistic to pay the full balance off within those time constraints, you could consider transferring your other debt balances to such credit cards for a service charge. But please remember…
…just because you transferred your credit card balances to lower-interest options doesn’t mean it’s time to go shopping again. If you can’t take your own debt takedown seriously, then you can’t expect others to take your goals seriously. If the temptation is too much to handle, cancel those cards.
You must be ruthless when it comes to reducing your bills and expenses. There are endless ways to cut costs and the internet is bursting with budgeting tips. Paying off debts doesn’t mean enduring years of suffering. You can still have fun and reward yourself from time to time — you just have to spend wisely and get creative with low-budget options. I’ve created ‘Fun’ancial Tidbits to inspire wise spending and mindful money management. Additionally, it’s essential that you address any emotional spending habits that weaken your will (like gambling or a shopping addiction) because caving into these habits even just once will sabotage your efforts.
Some periods will be tougher than others as you tackle your debt. “Loan Payments” is going to be a major part of your budget for a while. If your budget is complicated, overly ambitious, and not realistic, you could be setting yourself up for possible failure. You should overestimate your expenses as it’s easier to end up with a surplus than it is to get blindsided by an unexpected deficit. It’s also a good idea to forecast your budget ahead by a few months to factor in upcoming events, birthdays, holidays, annual expenses, etc. That way, you can get more strategic ahead of time by reducing your spending further or picking up extra work to make up the difference or to catch up faster.
You might feel like your debt situation offers no hope. The folks at your bank are pros and have seen it all. If you’re shy about going in to talk to someone in person, you can call them and ask them for advice and they can provide service over the phone. They can advise you on your loan payment options and various strategies. These advisors can surprise you with helpful things you maybe never thought of. If you give them a chance to support you, you increase your chances of succeeding in paying off your debts.
It’s understandable if you want to keep your financial woes a private matter; you either don’t want to stress others out or be judged by your problems. You might feel alone and get stressed out as you work hard to unburden yourself of debts. It’s nice to get emotional support from people who really care about you. With team support, you can share stuff, exchange money-saving ideas, and have low-budget gatherings. Heck, you’ll probably find out who your real friends are!
The journey towards financial freedom can seem long and arduous. You have to know that there are many folks out there, just like you, who have worked through seemingly impossible situations to pay off their debts. They put their minds to it, created a plan, and learned a new set of money management skills that set them up for financial success later on. Overcoming a hurdle like this will give you the confidence and good habits to successfully tackle your future goals.
This week I had the honour of meeting my MP, Kim Rudd. She is a fascinating woman; you could write an entire book about her inspiring tenacity alone. She’s a true community leader, a successful entrepreneur, and a genuine, cool lady. She had been told about my book, Loonie to Toonie, and wanted me to meet with her in person to talk about it.
While in that meeting, I received some great tips on how to promote the book. I also got to participate in an open discussion of the challenges many Canadians face from not having their finances under control. This is a big problem that stretches across all the generations. The main question that came up was: Why don’t we all know more about money? There were many answers to that question. The solutions are simple, but not easy. My book is my own way of seeking an answer to that question, but it’s only one solution. I have no control over what people take away from my book. I can only hope to empower people with knowledge. But is that enough to transform a culture from spending to investing?
Imagine going to the mall and there was a store that sold all sorts of investments. Whatever you bought, you left the store with more money. How popular would that store be? I think we would all go to that store first before spending our money anywhere else. We would know all the features to investments like we would for the latest smartphone or pair of Jimmy Choo shoes.
The reality is, investing doesn’t offer the same instant feedback we get when we actually purchase an item. There’s a wait time for the payoff which sometimes take years. This means that we don’t have many chances to make corrections if an investment doesn’t work out. In general, the longer we have to wait for something, the more antsy and uncertain we feel about it. Then add to the length of time the element of risk, which is the uncertainty of the investment’s outcome. If an investment doesn’t work out like you expected it to, you can’t refund it or get all your money back. Thankfully investing doesn’t have to look like a scary game of risk, thanks to the strategy of diversification, which is having different financial assets of various risk levels. Similar to having a closet of clothes for different occasions, your savings should be comprised of different kinds of investments for various stages and goals of your life.
So how do we enhance our relationship with money? Divide your pay cheque up like this: bills, food, future goals, then the rest for fun. This way, you take care of your basic necessities now, your needs for the future, and you can still enjoy some instant gratification for your hard-earned money.
If you haven’t done so yet, go to your bank and just ask to speak with a financial advisor about what you can do about your future goals. Advisors are always friendly, helpful, informative, and they’re there to make the processes easy for you. Whenever I go to the bank, I look for reasons to chat with the advisors. Sometimes I’ll ask a question and suddenly there’s a bunch of us standing around the reception area chatting and sharing ideas. They always tell me of the different options available and they give me new things to consider. I recognize that I’m not shy to talk about financial stuff, but that comes with being empowered with knowledge, even if it’s just some knowledge. No matter how much or how little you know, these advisors are always there to help.
This week, the global markets finished in neutral / positive territory, still above the losses that began in January. On Wednesday, the “Feds” (the FOMC – Federal Open Market Committee – of the U.S. Federal Reserve who make decisions that affect their economy and markets) announced that they don’t expect to be increasing their interest rates as they previously thought they would. Lower lending rates encourage borrowing and spending to stimulate the economy. This makes the stock market go up because people anticipate further growth in business. This reaction could be temporary. If the oil sector’s recent rebound is short-lived, another plunge in oil could still take us all down. I’m not saying this will happen, it’s just something to keep in mind. All the major global economies are doing many things to boost and stimulate their economies–this could also mean these economies are on the weak side and need to experience actual growth.
Does my cautious sentiment mean not to invest? No. Whether the stock market is strong, the economy is weakening, or if we’re in a recession, there are always investment opportunities. This is why I try to be aware of my other options so that I can strike when the time is right. At the moment, I’m still waiting for a chance to get into the metals (see last week’s write-up on precious metals). I’m also thinking of getting a bond fund that’ll pay me interest for the very, very long term.