Looking to take charge of your finances? A plan is the key to your success
May 1, 2019
By Lucie Tedesco, Commissioner, Financial Consumer Agency of Canada
Do you sometimes wonder where all your money went at the end of the month? Are you stressed about when and how you’ll pay down your debts? You’re not alone. Many Canadians are in this tough situation, which is not surprising when you consider today’s rising interest rates and that household debt levels that are at an all time high.
But the news is not all bad. There’s a tried and true solution to help you restore your financial well-being. Are you ready for it? It’s to create a financial plan to be debt-free. Trust me, I’ve been down this road, too.
Now, before your eyes gloss over, consider the fact that people have been keeping track of their daily transactions for centuries. The practice goes back to ancient Egypt, at the very least. In those days, they used ledgers. Today, we use online calculators and apps. But the outcome is the same. Having a plan helps you take charge of your finances.
I also know what you’re thinking. The ability to have a financial plan and stick to it defies the realities of most people’s lives. This is especially true when the house pet suddenly needs emergency surgery. But this is hardly a good reason to avoid financial planning. The fact remains that, the more you keep track of your spending and debts, the easier it is to adjust when needed to meet all your financial commitments, such as paying for unexpected vehicle repairs or a new roof for your house.
So, what goes into a good personal finance plan? There are many ways to tackle this important household activity. For me, the following three common-sense steps have never steered me wrong.
Identify all your debts
First, start with identifying all your debts. For each one, list the amount you owe, the minimum monthly payment, and the interest rate. To help you with this, the Financial Consumer Agency of Canada (FCAC) has created a handy interactive tool called the Financial Goal Calculator.
Review your budget
The second step is to review your budget to figure out how much money you get, spend and save. Let’s be frank here. This can be a sobering exercise, especially when you realize how much you spend on coffee every month, like me. Again, allow me to plug FCAC by recommending our online Budget Calculator. It is a highly effective tool to help you get a handle on your cash flow and whether you have enough to cover your expenses.
Develop a repayment plan
The third and final step is to develop a repayment plan. As a starting point, commit to paying more than the minimum interest payments on your debts. Then use any extra money to pay down the debt with the highest interest rate, like credit cards. And, if you have a home equity line of credit (HELOC), avoid making interest-only payments. Today, more than three million Canadians owe an average amount of $65,000 on their HELOC, which is a major driver of household debt. As you can imagine, it is impossible to repay such a large sum in a reasonable time through minimum interest payments alone.
For more ideas to help you manage and reduce debt, check out FCAC’s tools and resources. We also share plenty of tips on our social media channels, including Facebook, Instagram and Twitter, so be sure to follow us.
Paying down debt is rarely easy. It takes good planning and discipline. You need to put your needs before your wants and look for expenses you can live without. But the benefits are well worth it. With a good repayment plan, you will not only find yourself on the road to being debt-free, but also closer to achieving your life goals and dreams.
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