Common Sense Money Management
November 21st, 2009 | by admin |We’ve culled some tips from Canadian financial advisors and financial planners on our favourite topic: good money management. They shared with us some of these vital skills that aren’t taught in school.
“It’s staggering when you consider how many North Americans are living just a paycheque or two from personal bankruptcy. Our over-reliance on credit and consumerism keep many people in a spin where they’re living well but struggling to make ends meet.”
What can we do? Keep it simple, and follow these three rules:
1. Live Within Your Means
Sounds blindingly obvious, but consider this: For every dollar of disposable income they have, Canadian households owe nearly $1.25, a record-high debt level, and nearly double the 67 cents per dollar of income they owed in the mid-1980s (source: CanWest, Jan, 2007). We’ve read all the news about the sometimes excessive risk that lending institutions have taken, but how about the risk faced by those who’ve borrowed? We seem to have forgotten the old fable about the ant and the grasshopper, with little or nothing stored away to weather a rough spell.
There will always be families that find themselves in dire financial straits, but for the bulk of households, family income is sufficient to support a growing family and a healthy lifestyle. The problem is we have become obsessed with keeping up with the perceived quality of life we see in the media and in our communities. We all want what the others have, and the more that others have it, the more we feel we deserve it. Don’t fall into the trap of believing you deserve more than you’ve earned. Hard work often bestows rewards gradually, and the trick is finding the right pace for rewarding yourself.
2. Know Where Your Money Goes
Ever get the feeling you’ve got a hole in your pocket? You can’t fix a cash flow problem without understanding where the money goes. A very simple form of budget tracking can go a long way toward helping you recognize where your dollars are spent. For some this is a paper ledger, for others an Excel spread sheet, and others prefer personal finance software like Microsoft Money or Intuit’s Quicken. Whatever works for you, do your best to ensure the majority of your income and expenses are accounted for. Tracking these over time will help you see how you can make relatively painless changes to your lifestyle to improve your financial situation.
3. Understand The Financial Reality
If you have a mound of debt beneath your lifestyle, you’re heading for a grim sense of reality. Why not pause now for a gut-check? Are you assuming you’ll get a big raise or bonus to offset your current debt? We tend to extrapolate trends with rose-coloured glasses, assuming things can only improve. Job losses are always a possibility, and so few Canadians have an adequate nest egg to cover an extended period without work.
History suggests that we should always be ready for adversity. As a generation, our grandparents didn’t take savings and debt issues lightly – it was viewed as vital to survival and independence. Let’s take nothing for granted, and benefit from a healthy sense of paranoia when it comes to personal debt.
These rules do require a different approach to money matters, but the end result will be a healthier financial picture and, more importantly, a wealthier perspective on spending and saving.