Live within your means
By Jane Rooney, Canada’s Financial Literacy Leader
November 7, 2016
Financial literacy is all about getting back to basics. One way to do that is to “live within your means”. In other words, earn more than you spend so you have money to set aside as emergency savings and longer term saving goals, such as retirement savings.
As I mentioned in last week’s post the first step is having a budget. Then you can start to manage your money and your debt. Getting your debt under control means less stress!
Canadians are burdened with historically high levels of household debt, according to Statistics Canada. Simply put, too many people are spending more than they earn. They are saving less and not saving for retirement. At the same time, people are living longer.
How to manage debt
- Spend less than you earn
This makes you more resilient to economic surprises. From our 2014 Canadian Financial Capability Survey research, we know, for example, that 43 percent of 35-44 year olds are struggling to or not keeping up with bills.
- Learn how to save
Automate it. Put money aside each month automatically through online banking. You won’t have to think about it or be tempted to spend it, and the savings will grow. It’s wise to plan ahead to your financial future.
- Understand credit
It’s important to know what something is really going to cost you if you use a credit card and don’t pay off the balance in full each month. FCAC has a credit card payment calculator that shows you how long it will take you to pay off the balance if you only make the minimum payment.
Living within your means is not always easy, but it is the best way to avoid excessive debt. If you do take on debt, make sure you have a plan to pay it back. A heavy debt load makes you vulnerable if you lose your job, have unexpected expenses or if interest rates go up on your loans.
Where to start
- Know the difference between your wants and needs. Put your needs first; your wants can wait!
- Think ahead to your retirement. Canadians are living to an average age of 86. If you retire at 65, that could mean you are living off savings for 21 years, or longer.
- Choose your credit card wisely and pay the balance off in full each month so you can build a good credit history and avoid high interest charges.
And, once again, remember that a budget is an indispensable tool for helping avoid excessive debt. Whether it’s paying for university, raising a family or helping aging parents, financial demands are always changing. Find the right tools to help you manage your money.
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