Has Canada’s Economy Affected Your Ability to Reduce Debt?Nov 28, 2016
Were you optimistic about your ability to reduce debt and improve your finances in 2016? How did your expectations translate into reality?
It’s hard to believe that a new year will soon be upon us. In the words of John Lennon, “Life is what happens to you while you’re busy making other plans.” Life gets busy, unexpected things happen, and before you know it, another year has passed. However, setting goals can help you better manage those unexpected challenges and stay on course. November is Financial Literacy Month and an excellent time to reflect on 2016’s financial challenges and triumphs while setting new goals for 2017.
Were your finances affected by Canada’s economy?
2016 saw the household debt ratio rise to $1.68 for every dollar earned, a level that could make it more difficult for families to get ahead. The beginning of the year also showed a sharp inflation in food prices, which caused $8 cauliflower to become a cause of much concern. And, most recently, in an attempt to cool the inflated housing market, the Bank of Canada has introduced a mortgage stress test to ensure potential buyers will be able to manage mortgage payments if interest rates rise.
In the midst of a difficult year, new stats show that half of working Canadians are living paycheque to paycheque with little wiggle room to accommodate any unexpected expenses. Were your finances affected this year? How did you manage? What will you do differently in 2017?
How can you protect your finances against economic or lifestyle shock?
Unexpected expenses and events are a part of life, but you can minimize the impact they have on your family and finances by planning ahead. Below are some strategies you can implement to be prepared:
- Keep a detailed budget of all expenses. This will give insight into your current spending habits and allow you to make positive changes. A financial app, such as Mint.com, is an easy way to get started.
- Pay yourself first by setting up an automatic savings account to quickly create an emergency fund. Experts suggest saving 3-6 months’ worth of living expenses in preparation for the event of a job loss, illness or other unexpected event.
- Reduce debt using the snowball method to see quick results, or consolidate debt by combining high-interest credit balances and transferring them to a low-interest card. This method works best if you’re able to pay off your debt balance at the lower rate. If not, you can talk to your bank about a debt consolidation loan, which typically offer lower rates and extended payment terms.
- Set specific, attainable goals that will keep you motivated, such as cutting out coffee shops or bringing your lunch to work. Both of these small sacrifices can save you between $20-$50 a week. Start small and celebrate successes!
- Include your family in financial goal-setting. Allow each family member to share ideas, plan the budget and work toward shared goals. This is a great way to teach kids financial literacy skills.
The importance of financial literacy in your home
By taking charge of your finances, you will model financially responsible behavior for your children. The best defence kids have against future debt and financial difficulty is learning how to have a healthy relationship with money from the start. Saving, avoiding debt and keeping a budget are three crucial steps toward financial responsibility. Look for teachable moments within the home and give kids the chance to practice responsible spending before they set out on their own.
If debt is holding you back from setting financial goals and you feel like you’re not making progress, now is a good time to find debt advice. The Financial Consumer Agency of Canada is an invaluable source of financial literacy content for all ages and life events.
With the holidays around the corner, there may be ample opportunities to overspend. Finding ways to reduce debt now can put you on the right track and help you avoid a “debt hangover” in January.
What financial goals will your family set this month? Join the conversation on Twitter and learn more about Financial Literacy Month by searching the hashtag #FLM2016 and joining the FCAC Facebook group.