Almost half of all Canadians spend more than they earn every month, and continue to sink further into debt with no plan of getting on top of their finances.
The statistic comes from a recent Canadian Payroll Association survey – 47 per cent report they would be in financial difficulty if their paycheck was delayed by even one week. I believe that number is even higher from the work I do as a money coach. That not only includes an inability to pay credit card balances, it’s adding to debt each and every month.
What does this mean for people? Stress, lack of sleep and arguments with your significant other are some of the issues that can arise. The bigger more intangible result is forfeiting a decent retirement in the future because of your money habits today.
You can take steps to change your habits, get in control and get rid of debt.
The first step to getting on track with your money is to stop adding to your debt every month. That’s the success formula – the secret to getting rid of your debt is to first stop adding more debt. Monthly cash flow (what’s coming in and going out of your account) must be a balanced amount. Live within your means; don’t try to keep up with the Jones.
It starts with making a plan for spending and saving. Make your plan enjoyable by including positive and rewarding goals to work toward to keep you motivated.
Don’t forget to plan for those bills that only come up annually or a few times a year – like property taxes or the kids’ hockey fees. Break the cycle of paying down your line of credit with a bonus or tax return, only to dip into it again for these types of bills that crop up. This is a depressing cycle many people find themselves in.
Determine how much you need each year for these less frequent payments, divide by 12 and set up an automatic transfer to an eSavings account and start growing the money.
This works great for your goals as well – whether it’s a vacation in a warm climate or saving for a special guitar you want. Open a free high interest savings account and nickname the account for your specific goal. Automatically transfer money to your savings account each payday and watch it grow. Even transferring $25 per paycheque to your “Mexico” account is very motivating.
Unfortunately, if we don’t have anything good to save for, we tend to spend our money frivolously.
Now that you aren’t adding to your debt each month, make a plan to pay down what you owe. Set a debt free date with an online debt payment calculator. Include the debt repayment in your spending and savings plan and automatically transfer some money to your debt with every pay period. Many people have dreams of what they will do when they are debt free. But unfortunately, with no plan or focus, these people never get out of debt or achieve their goals.
They are on the “never-never” plan, but with just a little planning, living within your means, paying down your debts and saving for a fun goal you can start to prosper.
Kathi Bridge is a money coach and educator, helping professionals with active families who want to stop running out of money at the end of the month.