But Are You Financially Fit?
Eric Putnam, AMP, RQIC
Personal finance tips that will help you take charge of your finances to become financially fit.
Sue and Mark and their two children live an active, healthy lifestyle. Yet Sue suffers from insomnia and tension headaches and she’s had a series of colds over the past year. Sue visited the doctor recently. The diagnosis? Stress. Seems that anxiety about the family’s finances is making her sick.
Neither Sue nor Mark realized how worry about finances could impact their well-being. According to the Heart and Stroke Foundation, stress can contribute to a heart attack. In the Foundation’s 2000 Report Card on Canadians’ Health, almost one in two adults reported being stressed on a frequent basis. Among the top stressors: worry about finances.
Once Sue and Mark recognized how financial stress could affect their health, they started a new regimen to address it. Many Canadians may have to do the same because financial stress seems to be on the rise. The following statistics may explain why.
In 2005 the personal savings rate became negative: for each dollar of disposable income, we owed $1.16. Low interest rates and easy credit seem to be contributing to our spend, spend, spend way of life.
The amount of debt carried on consumer credit (personal loans, lines of credit, credit cards) ballooned from $6 billion in 1984 to $22 billion in 2004. Today, after taxes, the interest to service that debt is the second largest expense for most families.
Meanwhile, a 2005 survey by COMPAS Research sponsored by BDO Dunwoody revealed that four in 10 Canadians experience anxiety aboutbeing able to pay bills.
So, how do we reduce stress about finances? Follow Sue and Mark’s lead, and adopt a healthy regimen that includes the following exercises.
Focus on Your Own Personal Financial Situation
Nearly half of Canadians say that social pressure to spend more than they would like is a source of anxiety. It’s important not to compare your situation with others, because every family’s personal circumstances, goals, and needs differs from yours. Focus on building your own financial health.
Document Your Goals
Just like a fitness plan, setting financialgoals helps to motivate us. Think about what you’d like to achieve in the coming year and further into the future. For example, you might want to save enough for a family vacation by the end of the year, and, longer term, a university education for your children.
Prepare and Manage a Household Budget
Following a budget enables us to take control of our finances and guides us toward our goals. Once you’ve created a budget, stick with it. Save the receipts for everything you and your family members buy. At the end of each week, record these amounts inthe budget.
Look for opportunities to reduce spending; small changes can add up quickly. For example, making tea or coffee at home and bringing it to work rather than buying it every day can save up to hundreds of dollars a year.
Make it difficult to buy things impulsively; carry cash rather than debit or credit cards. Shop around for one all-purpose credit card with the lowest rate of interest possible and cancel any others you may have. When you use the card, make payments on time to avoid interest and late fees.
As well, review your monthly bank statements to track your spending; many people are surprised to find, for example, how much they withdraw using debit cards.
Save for “Just in Case”
You just never know…this is why it’s so important to start accumulating a savings reserve. At a minimum, try to save three months of gross income; six months is better.
Set aside a certain amount of funds each month and deposit them in a dedicated “just in case” savings account. This will give you peace of mind that you can cope should an unexpected situation arise. If, for example, you are laid off from your job, you may have to wait up to eight weeks for your first unemployment cheque.
Protect Your Credit History
A strong credit history enables you to secure credit when you need it, and at the lowest possible rate. Your credit history is essentially your track record in paying back funds you have borrowed, whether for a home, an automobile, or purchases on a credit card. Canada’s credit reporting agencies–TransUnion, Equifax and Northern Credit Bureau–collect information from creditors regarding consumers’ credit histories.
When you want to borrow funds or buy on credit, your prospective creditor will contact these agencies. If you don’t have a good track record, you could pay a higher rate of interest or be denied credit or a loan. Paying bills on time and in full will strengthen your credit history.
As well, secure your credit report, which summarizes your past and present financial transactions, from all of the agencies every year. There is no cost for this and you can review the reports for accuracy and also prevent identity fraud by being on the lookout for credit requests that you did not initiate.
Talk Finances With Your Family
People would rather discuss their sex lives than their finances. Sadly, when families don’t communicate about financial matters, serious conflicts can arise.
Work together with your partner to organize your budget, bank statements, bills, and receipts and ensure they are accessible to both of you. Discuss your financial goals, priorities, and progress every month. Include your children–especially when making decisions about major family purchases.
Adopting a healthy regimen will enable you to take control of your financial situation, reduce stress, strengthen your family relationships, and enhance your mental and physical well-being. It’s all about exercising good common cents.
Am I Financially Fit?
More than five “yes” responses: keep up your financially healthy lifestyle!
Fewer than five “yes” responses: adopt more financially healthy habits.