The end result is that it’s even harder today to make ends meet. For many Canadians living paycheque to paycheque means more credit card debt, not less. And too many households are a week or two away from resorting to payday loans and high-cost installment loans.

So how do you control your debt when your budget is stretched? Read on for some personal finance tips that can help you deal with debt when you can barely manage to keep up with living costs.

Avoid going deeper into debt

One of the most common concerns I hear when talking with people on our helpline is “I’m not even living paycheque to paycheque, I’m going deeper in debt every pay period.” If this sounds like you, you are not alone. This is the most common path to bankruptcy for most of my clients.

While I know it’s hard, if you are struggling to balance your expenses with your income, my number one piece of advice is to put away your credit cards and live on cash (or cash equivalent like your debit card).

This is especially true if you owe money on your credit cards. Most credit card companies charge interest daily if you carry a monthly balance. In other words, if you don’t pay your balance in full each month you lose the grace period for new purchases. So if you have credit card debt, stop using your cards until they are paid off.

Using credit to pay bills is a temporary money fix. Eventually, your credit cards will be maxed out and you will be tempted to turn to high-cost payday lenders. This creates a cycle of debt that is hard to stop.

Be prepared for unexpected expenses

Living paycheque to paycheque is even more stressful when you lack financial control to deal with unexpected expenses that arise.

The first financial goal I recommend to most of my clients is to set aside a small emergency fund of $500 to $1,000 in a separate bank account. This is not money you turn to when you run short at the end of the month. Try not to use this money to pay for everyday costs like groceries and gas. It’s money meant for surprise costs like a car repair, medical bill or visit to the vet. The objective is to have a small amount set aside so you don’t turn to your credit cards or other debt to pay for emergencies.

Pay your bills as you get paid (it’s easier than budgeting)

I’m not a fan of formal budgeting because I know it’s not sustainable for most people. What I generally recommend to anyone starting fresh with money management is to pay your bills as frequently as you get paid.

The general idea is to pay a portion of your next month’s bills and set aside enough money for future bills, every payday before you spend any other money. What is left after doing this is money you can spend on extras, put towards debt payments or savings. You are using your paycheque cycle as a budgeting tool.

There are many benefits to this approach to budgeting:

• you don’t need to keep track of anything or use any spreadsheets
• it prioritizes necessary bill payments over wants helping you avoid overspending
• you won’t have any late payments which can harm your credit score.

So here’s how this works.

If your cell phone bill, for example, is $120 a month and you are paid weekly, every week set up a bill payment for $30 to your cell phone provider. This way, if the bill comes in you don’t need to scramble to find $120 in an empty chequing account.

For bills, you can’t pay periodically, like your rent, you can use separate holding accounts to accomplish the same thing. Let’s say your rent is $1,800 a month and you are paid weekly. Simply set up an automatic payment to transfer $450 each week into your ‘rent account’. When your rent is due, use this money to pay your landlord.

The key here is to know what bills you have coming in over the next 30 days, and what money you might need to set aside for future bills like your car insurance, Christmas gifts etc. You carve money out of each and every pay to cover these costs.

Any money left over the day after allocating to your bills is yours to spend as you wish. As long as you don’t spend more than this using credit cards, you have a balanced budget and stop living paycheque to paycheque.

Protect yourself from income loss

Losing a job, or income loss is the most common cause of the primary causes of insolvency in Canada.

As many people found during the pandemic, no job is secure. That means you should always be prepared for the possibility that your income will drop. As the saying goes, hope for the best but plan for the worst. Here are some tips to help you be prepared:

1. Keep an up-to-date resume (and on your home computer not your work computer).
2. Update your skills to improve your employability, both with your current employer and for a possible future employer.
3. Know where you might find your next job. You don’t have to be thinking about quitting your job but it’s always a good idea to know what else is out there in case your company lets you go unexpectedly. This can also help you negotiate for more money come raise time.
4. Network with people in your industry or with people who work in an area you might want to move to.
5. Take pride in what you do. It doesn’t matter what your skill set is, an employer is most likely to retain or hire someone with a positive attitude, and who is willing to learn and improve.

Other things you can do to ensure you have a steady, or better monthly income include getting a side gig to earn extra money if this makes sense for your lifestyle. I’m not suggesting everyone get a second job or another part-time job. I’m talking about looking at ways to use what skills or hobbies you have to create a side hustle that can help you generate a little extra cash.

And don’t be afraid to reinvent yourself. If there is not a lot of job security or room for growth in your current job, take a chance on yourself. Go back to school, build a new skill set, or start your own business.

If you want to learn more about my thoughts on employment, you can hear more on our Podcast Debt Free in 30.

Change your money habits

I’m not here to tell you where to spend your money but there is value in reviewing your spending habits if you are constantly running short of cash before payday.

Look over where you are spending money and ask yourself is this a need or a want. If it’s a want, that’s fine, but weigh that want against putting that same amount of money towards your debt. It’s your choice, your priorities, just make sure you are making a conscious choice each time.

Second, look at how you pay for items. If you are using debt to buy non-necessities, this should definitely stop. As I mentioned before, if your debt is increasing, you may be better off leaving your credit cards at home and paying by debit instead to control the bleeding.

Paying down debt

OK, so what about the debt you already have. I hear from families who were financially devastated by the lockdowns and business closures during the pandemic. Many were forced to take on debt because they couldn’t work. Now they are back at work and it’s time to pay it all back, yet their income isn’t necessarily high enough to pay the bills and pay down that debt.

How do you deal with current outstanding balances when money is tight?

Pay more than the minimum payment

One of the most important facts to learn about credit card debt is that the monthly minimum payment is designed to keep you in debt. It’s enough to cover the interest charges for the month and typically only 1% – 2% of what you actually owe. So if you only pay off 1% of what you owe each month – guess what – it will take 100 months to pay off your balance. And that’s assuming your spending habits don’t cause you to use your card for more purchases each month.

As I mentioned above, if you carry a balance and put new charges on your credit card be aware that you are paying interest on those purchases from the date of purchase.

So begin by paying more than the minimum where you can.

This can be easier if you make a small micropayment towards debt every time you get paid. There is no rule that says you can only make one payment on revolving credit like credit cards or lines of credit every month. You may even be able to pay your car loan in small micro installments if the payments have not been automated already.

Use the debt avalanche method

There are two common approaches to debt reduction: the debt snowball method and the debt avalanche method.

The debt snowball method is where you pay off balances in order from the smallest to the largest. The main, and in my opinion only benefit, of this method is the psychological motivation you get in knocking some debts off your list.

A debt avalanche is a system of debt repayment where you break down your monthly debts by total owed and their interest rates. The loan with the highest interest rate becomes the priority for repayment.

Begin by making a list of all your debts including student loans, payday loans, credit card debt, bank loans, installment loans and any other personal financing. Every debt must be paid on time, with at least the minimum payment. Money that is not budgeted for necessities (or left over each pay when you use my ‘pay your bills as you go’ method) is used to pay down debt.

Imagine you have three loans and $250 available after expenses:

• $500 owed on a credit card with a 20% annual interest rate
• $625 due for monthly car payments at a 6% interest rate
• $2500 on a line of credit with an 8% interest rate

The monthly car payment would need to be met, and budgeted for, as this amount is the minimum. Imagine, the minimum payments on the credit card and line of credit were $50 each. Out of your $250 available, $50 would be put towards the line of credit and $200 on the credit card, since it holds the highest interest rate.

If you didn’t add any new debt to the credit card, you could pay it off in full in two and a half months. The full $250 would then go towards the line of credit. After the line of credit is paid, any extra income can be added to the car loan to pay it off faster or put towards savings or other financial goals.

Benefits of dealing with a high-interest debt first

One of the main advantages of the debt avalanche system is it reduces the amount of interest you’ll pay while paying down debt. And focusing on clearing the most expensive debt will lessen the time it takes you to get out of debt.

I know that debt is emotional and stressful, and most Canadians don’t fully realize how interest rates add to their overall burden. Paying off your debt with the highest interest will give you more financial control and eventually increase the amount of disposable income you have for other things.

Savings vs. paying off debt

As I said earlier, I believe an important priority when financial planning is to have a small emergency fund. After that, your goal should be to reduce revolving high-cost consumer credit.

Once your credit cards and other high-interest debt is paid off, the most common question I get is should I pay down my mortgage or car loan or should I start saving money.

The truth is it’s up to you and should be based on your income stability and future financial goals.

If your employment is at risk you might want to build a larger rainy day fund in a separate savings account to cover maybe three months of necessary expenses. These monthly expenses include rent or mortgage payments, groceries, basic utilities, and car loan payments.

But it’s just as reasonable to start setting aside money for a down-payment to buy a house, to put money in an RRSP or TFSA as long as your high-interest debt is paid off. It all depends on your financial priorities.

Other options for high-interest debt

If the monthly payments for your debts are far beyond your means to pay every month, there are other options to get out of debt. Using a debt calculator can help you explore the options that are right for you.

There is no shame in seeking help to get your finances under control. Speaking with a qualified Licensed Insolvency Trustee will provide you with options for debt relief but here is a brief summary of potential debt solutions that can help you become debt free.

Debt consolidation loan

A debt consolidation loan is a way to combine multiple monthly debt payments in one and potentially lower the interest rate you are charged on your total loan balances.

To be approved for debt consolidation loans, you’ll need to meet these requirements:

• a sufficient and reliable source of monthly income to support the payments
• a good credit score
• collateral or a co-signer is sometimes required

The advantages of consolidating debt into a single new loan are easier to manage payments, a potentially lower interest rate than on your current debts, and you will have a known end date when all your debts get paid off at the same time.

The major disadvantage of this system is the total amount of your debt stays the same. All outstanding loans are simply transferred under one umbrella, and if you have poor credit, the interest rate on this singular loan will likely be high. Also, if you opt for a long amortization to lower your monthly payment, you will be in debt for longer and pay more total interest over time.

Consumer proposal

A consumer proposal is a popular option for dealing with large and problem debt. Consumer proposals include non-secured debt, such as credit card debt, lines of credit, payday loans, and some student loans. By working with a Licensed Insolvency Trustee, you can negotiate up to a 70% debt reduction. This is an alternative to filing personal bankruptcy and will stop creditors from contacting you.

Repayment amounts are determined based on what is realistic for you to pay and what the debtor expects to receive. Settlements are often drastically less than previous minimum payments, carry zero interest and you will be free from debt within five years.

Bankruptcy

If personal debt has reached the point where you have no hope of repaying, and you cannot afford a consumer proposal, your next alternative is to consider bankruptcy.

Personal bankruptcy is legally binding and clears your debts to give you a fresh start. There are stipulations and requirements that must be met, including making required monthly payments, reporting your income and attending two counselling sessions, but calls from creditors will stop and your debts will be wiped clean when your bankruptcy is complete. If this is your first time filing bankruptcy, and your income is below the government threshold limit, you can be eligible for an automatic and full discharge in as little as nine months.

Professional financial help is available

Perhaps, the debt avalanche system sounds like a way for you to pay off high-interest-rate loans and save for emergencies on your own. Or, maybe it’s time to learn more about loan consolidation. If debt payments are a reason you are living paycheque to paycheque, reach out for professional financial advice.

The Licensed Insolvency Trustees at Hoyes Michalos are here to help you. We’ll ask some questions about your finances and unique situation and help you decide which debt solution will work for you. If you don’t need to file a bankruptcy or proposal, we’ll tell you that too and provide some insight into how to go about other options.

Call us today at 1-866-747-0660 or book online for a no-obligation chat.

The post Dealing with Debt When Living Paycheque to Paycheque appeared first on Hoyes, Michalos & Associates Inc..

Sound familiar? The lack of emergency savings became obvious during the coronavirus pandemic when more than 2 million Canadians were thrown out of work. With so many Canadians a paycheque away from making their monthly rent payment, should more have had an emergency fund?

And for those with debt which comes first: saving money in your emergency fund or paying down credit card debt? If you don’t have a rainy-day fund, is it fine to use credit cards or a line of credit during emergencies?

The truth is the answer is not as cut and dry as many financial experts make this sound. Even for me, a hold no debt guy, the answer lies somewhere in the middle.

Redefining what an emergency fund is

OK, everyone knows why you need an emergency fund. In general, experts recommend you have a minimum of 3 to 6 months of living expenses to cover a catastrophic event like a job loss or sudden illness.

It takes a lot of savings to have this much money available in liquid assets. For someone with high-cost debt payments, saving up that kind of cash not only doesn’t make mathematical sense, it’s also next to impossible.

The math

High interest debt like credit cards is a killer. At an annual interest rate of 19-21%, you’re paying around $200 in interest annually for every $1,000 of balance carried. With our average client carrying almost $15,000 in credit card debt their cost of carrying that debt load is $3,000 a year. If their monthly living costs for housing, groceries, transportation, child care, and other expenses are around $3,000 a month, you are asking someone to set aside an amount equivalent to the total debt they owe. The opportunity cost is a close to zero percent interest rate for a savings account against a credit card debt cost of $3,000 a year, even assuming they have the cash flow to save that much, which they don’t.

Catastrophic event vs emergency expense

I meet with people every day who face this dilemma. They are living paycheque to paycheque, barely able to make their minimum payments. This is when the smallest unplanned expense becomes a financial emergency. I’m talking about a car repair, new tires, gifts for Christmas, broken dishwasher, vet bill. Not significant life changes but financial hiccups we face every day.

The wrong solution is to turn to a payday loan or high-interest installment loan to cover an unplanned expense, but that’s what happens when you don’t have any money set aside, and you’ve already maxed out your credit cards.

Unfortunately, borrowing with a high-cost quick cash loan is what many of my clients do in this situation. That’s why almost 4 in 10 insolvent debtors have at least one payday loan. Taking on more bad debt to cover a small, but necessary, living cost is often the final trigger that causes bankruptcy.

Having even a small cushion in the bank can prevent this spiral into more debt.

Create a small buffer account while paying down debt

Even if you carry debt, I recommend saving $500 to $1,500 as fast as you can to cover the small life costs that you know will come; you just don’t know when. If you drive an old car, you know that at some point something is going to break.

A small contingency fund is a financial safety net that you use for sudden small expenses. With this, you can better manage your bills even in the face of a financial crisis. It also helps you avoid taking on more debt. It’s not the same as an emergency fund, which is more about income replacement or a major financial disaster like your house burned down.

I’ve talked about the 80-20 rule of money management before where 20% of the effort produces 80% of the results. A planned $1,000 account for unplanned expenses is like that. You’re 20% of the way towards your full emergency fund, but that small amount can stop you from spiraling further into bad debt.

Yes, I know putting $1,000 in a zero-interest savings account could save you $200 if you put that money against your credit card. But in this case, what we are trying to avoid is toxic debt like a 390% payday loan or a 59% installment loan.

Even if you don’t turn to a payday loan and have room on your credit card, driving up your balances is demotivating.

Having an expense slush fund also reduces the risk that you’ll miss a payment on your credit card debt. There is nothing more stressful than deciding between paying your credit card or paying for a car repair. Having a small amount set aside eliminates the risk that you’ll not only have to deal with the extra bill but late payment charges on your credit card statement as well.

As you’re saving up, you should continue to make more than the minimum amount due on your credit card bills when you can. This helps to reduce your compounding interest payments. If you keep paying just the minimum, you’ll remain in credit card debt for a long time.

How can you fund this slush account?

• Setting aside just $20 a week will build a cushion of $1,000 within a year.
• Set up automated savings, so it doesn’t even hit your chequing account.
• If you are paid bi-weekly and hit a 3 paycheque month, take one pay and set that aside.
• If you get a tax refund, set some aside (and use the rest to pay down debt).
• Sell something. We all have a lot of stuff, much of which we don’t use. Sell off what you no longer need.

Once you have enough money in your slush fund, use the avalanche method to deal with the rest of your debt. Focus on paying off all high interest rate debt before setting aside significant savings in a rainy day fund. Once you have debts like credit cards, payday loans, and installment loans paid off, you can start building a larger emergency savings fund.

Is it ever a good idea to use credit cards as an emergency fund?

Unless it’s a life-altering kind of situation, it’s best not to rely on credit card debt or a line of credit in place of emergency savings. Convenient as they are, there are quite a few dangers of using credit cards for emergency funds.

Obviously, there’s the high cost of compounding interest. Rolling over your balances from one month to the next leads to more interest payments.

And, if you treat your cards as a source of available funds, like an ATM if you will, you’re likely to get into the habit of just charging it, and rebuilding your debt balances higher again.

You can use a credit card to pay for emergencies so long as you can pay off the entire amount before interest applies. That means paying it down before the next billing cycle starts.

Yes, I know that many bankers will tell you if you have assets like a home, you can use a secured line of credit or HELOC as an emergency fund. I still think it’s a bad idea. An emergency savings fund is for when you’ve lost your income. That makes keeping up with mortgage payments hard enough. Now you are going to be using debt to pay for all your other living costs. Once you return to work, you are facing much more debt.

Relying on credit card debt or a line of credit just means you can continue the model of spending today, rather than saving for a disaster tomorrow.

In summary

As I said, the answer is not as simple as pay off debt or save for an emergency. You need a balance between savings and debt repayment that protects your future finances.

If faced with the dilemma of paying off debt vs an emergency fund, my recommended steps would be to:

1. Create a small slush fund for unexpected living expenses, say $500 to $1,500 while paying at least the minimum on all your debts.
2. Put all excess cash towards paying down high-interest debt next.
3. Once your credit card balances are paid off, start building an emergency fund for catastrophic events that can lead to income loss.
4. Once you have 3-6 months in liquid assets (like in a TFSA), pay off other consumer debt like your car loan.
5. After that, save more, pay down your mortgage, and invest.

Again, every situation is unique. How long it will take and how much you can save will depend on your personal circumstances. But if you want to avoid the roller-coaster of being thrown deeper into debt, you need a plan that focuses both on debt reduction and disaster recovery.

The post Emergency Fund or Credit Card Debt? What’s the Better Choice? appeared first on Hoyes, Michalos & Associates Inc..

Our advice today is good for anyone struggling with debt or who want to be prepared financially for any unexpected life event including job loss, illness, divorce or the death of a spouse.

Discover your financial risks with the ‘What if?’ game

If you’re like most people, you likely don’t know how vulnerable you are. We go through life expecting things will turn out well – our marriage will last, our spouse won’t die at a young age. Playing the what if game, can help you and your family uncover your financial risks.

1. Could you lose your job? You might think there is just no way you could be laid-off from work. Even if that’s the case, it doesn’t hurt to ask yourself, “what if I’m let go tomorrow?” Do you have enough saved up to support yourself until you find a new job?
2. What would you do if your spouse dies? Could you handle being widowed or a widower? Could you maintain your lifestyle? What do the kids need?
3. What if your spouse left you suddenly? Do you fully understand all of your joint debt obligations? Could you survive if your were suddenly single and relying on only one income or no income, in some cases?
4. What if you or your spouse suddenly became ill or were injured? What if you got into a terrible car accident and couldn’t work? Do you have disability insurance? Can you cover medial costs and living expenses?

How to reduce potential financial trauma

Doris offers 3 minimum recommendations to ensure you are protected financially in the event of a loss:

1. Make sure you have a valid and up to date will, even at a young age.
2. Have sufficient insurance. Many people underestimate how much they will need.
3. Have a signed power of attorney to deal with assets.

These are good starters. To protect yourself even further create an emergency fund. If divorce is your worry, deal with any joint debts and think about if it’s time that you create a separate bank account so that you have some money set aside to help you through the process.

Find and eliminate your financial weakness

One of the reasons that women often find themselves in financial trouble is that they lack confidence when it comes to dealing with money. Doris points out that men are more willing to ask questions and take financial risks.

Its true women face unique challenges when it comes to money; women face an income gap – they earn less than men on average, they are more likely to take time off to raise a family.  Women also face a wealth gap (assets you could sell for money) – typically 36-50 cents for every dollar a man owns. This wealth gap has a much bigger impact on your long-term financial stability, and Doris believes this is what you need to address.

Begin by paying down debt. If you carry consumer debt like credit cards debt, paying this down should be your top priority.  When it comes to paying down debt, Doris recommends defining what your values are, what’s important to you. If you like your gym membership then keep it. But cut back on expenses in areas you don’t value. Doris paid off her debt by sacrificing everything for the first two years, a plan she wouldn’t recommend as it’s hard to maintain. She suggests growing your income as this will have a more significant impact on reducing your debt.

Have a budget and track where your money goes. Once you’re out of debt, automate your savings and think of where you want to invest. Join a coaching group like the one Doris offers in Ottawa. Read some personal finance books. But most of all, ask a lot of questions.

For more detailed information on how to protect your finances from life emergencies, tune in to today’s podcast or read the complete transcription below.

Additional Resources

• Doris Belland’s Book: Protect Your Purse: Shared Lessons for Women, Avoid Financial Messes, Stop Emotional Bankruptcy and Take Charge of Your Money
• Doris’ website, Your Financial Launchpad
• Follow Doris on Twitter

FULL TRANSCRIPT – SHOW 222 Protecting Yourself Financially from Unexpected Life Events with Doris Belland

Doug Hoyes:         My guest today has a fascinating story. She ended up, at the age of 32, with a business with $400 thousand in debt after the death of her first husband. She climbed out of debt, built a substantial real estate portfolio, and now she uses all of the lessons she learned during that period to help women, and men, create better financial options for themselves and their families. Her advice is great for anyone struggling with debt and money questions, male or female.

What exactly is her story? Let’s find out. Let’s get started. Who are you? And what do you do?

Doris Belland:       So, I am Doris Belland. I am a financial literacy educator and, in a nutshell, people say “What is that?” So, in a nutshell, I teach workshops and I run a women’s money group to help people rock their finances and feel a lot more confident about money.

Doug Hoyes:         Excellent. Well thanks for being here, Doris.

Doris Belland:       My Pleasure.

Doug Hoyes:         We’re in my Ottawa office recording this, which is where you are based out of. So, I encourage everyone listening to this to go to Amazon and get a copy of your book, “Protect Your Purse: Shared Lessons for Women, Avoid Financial Messes, Stop Emotional Bankruptcies and Take Charge of Your Money” which has, in my view, the most page-turning first eight chapters I’ve ever read in any personal financial book. It reads more like a novel than a personal finance book to me.

So, can you briefly summarize those first eight chapters? You know, how did you end up at the age of 32 with a business that had all of this debt?

Doris Belland:       Right. I was a doctoral candidate. I was working on my Ph.D. in my 20s when my first husband became very seriously ill. He had had cancer the whole time I’d known him, but it flared up and got much more serious at that time. So I took what I thought was going to be a one-year leave of absence to go support him, his business; it was having a hard time because he was so ill. And then the cancer just kept going. He just deteriorated. So in fact, I never went back.

Six years later he died and I found myself inheriting a business that required him to run it, the engine. So I had essentially no income, and I inherited mostly $400 thousand of his business debt. So that took my life… I was supposed to be a professor, right? Things were going so well. It was fully funded. And it changed everything, because now I find myself with nothing. I am bereft. I am $400 thousand in debt.

So what I did is I – at that moment I made a decision. I thought ‘I’m going to pay this off and I’m going to figure out what just happened to make sure it never happens again’. So I paid off all that debt in two years, and then have spent the intervening years studying how does money work. How do we prevent this kind of trauma from happening to anyone? And then how do we build a rock-solid financial foundation?

Doug Hoyes:         And so, it’s quite a story so that’s why I say, you’ve got to read the first eight chapters. You’ve done a very good job of summarizing it by this… And when you read it, you tell people what’s going to happen at the end, but it’s still a real page turner as you go through it. So what then led you to write this book?

Doris Belland:       You know, after the trauma had subsided and after I had started rebuilding my life, my husband – so I’ve remarried. I’m happily remarried. I’ve got two kids. It’s great. But my husband said “You have got to write this down. You’ve got to share the stories.”

And I’d been thinking for years, ‘What just happened to me?’ Because I was well-educated, you know I was capable, I had a fully-funded Ph.D. What happened to me that I found myself so insanely vulnerable? And I thought ‘Is it just me? Am I just one weird data point? Or is there something else more broad going on?’

So the researcher in me kicked in and I started interviewing widows and divorcees, because they find themselves in pretty much the same boat that I was in. Divorce is very similar to loss and it turns out that there’s a lot of commonality. So when I realized that there was something more at play, this isn’t just one woman’s sob story, that’s when I thought ‘I have to share this’.

And these women had terrific advice as well. I add that in the book. So I talk not only about what did I learn, so I, you know kind of stepping back as a researcher, which is what I am fundamentally, and saying “What did I learn here? What just happened?” sharing what I’ve learned and what I would recommend to others to set yourself up so that you can withstand those kinds of traumatic events. But these other women had tremendous advice as well, and it’s all in the book.

Doug Hoyes:         So you’re not just one weird data point.

Doris Belland:       I am not one weird data point I’m very pleased to say.

Doug Hoyes:         That’s good to know. That’s good to know, good to know. So, and I would agree with that because obviously in my work I’m dealing with people who have gone through life events. It could be divorce, could be a loss of a spouse. And when you’ve got two incomes, that’s a whole lot different than when you’ve got one, and that certainly leads to a lot of financial problems.

So in the book you talk about – or maybe this is one of the reviewers who mentioned this – playing the what-if game. And I know it’s not a game, but can you explain what you mean by that?

Doris Belland:       Yeah. I do talk about that in the book. It’s one of the things that I recommend. Part of what happened to me, and part of what I’ve seen in my work since then in working with families, I spent 10 years working as a financial repair specialist, and part of what I see is that people have no idea how vulnerable they are. And it’s not because they are uneducated. It’s not because they’re dumb. It’s just that we go through life and our biggest weaknesses are the ones we’re not aware of. That is a mechanism to try to uncover those vulnerabilities.

What you do is you simply say ‘What if? What if my spouse left with the barista from Starbucks around the corner?’ right? ‘What if I found myself widowed or a widower tomorrow? What would that do to my ability to earn money, to maintain our lifestyle, to deal with the kids?’ It’s a way of approaching your life and putting all sorts of, granted, not fun scenarios on the table and just saying ‘What impact would that have on me?’ And that’s a heck of a way to uncover the weak spots in your finances.

Doug Hoyes:         And that’s why people won’t do it, or don’t want to do it, because okay, so you want me to focus on all the bad things that could possibly happen.

Doris Belland:       Right. And in the book, the point that I make, I think the biggest lesson from all of these people that I interviewed, not one of them saw it coming, whether it’s a death… And people said “Well your husband had cancer. Didn’t you see it?” And at the time I absolutely did not see it, because I was so committed to his wellness, to his rehabilitation, to helping him out, I didn’t see it.

My case was more obvious, but there are so many stories in the book of women who blindsided, you know a divorce where suddenly you wake up and your partner you find out has been cheating for years etcetera. Meanwhile, there was no evidence of that in their life. There’s just a bunch of stories in there where I say nobody saw it coming. And that’s why, it’s not fun, but we have to do this.

Doug Hoyes:         Yeah, and I always say to people, “Okay, do you think you’re going to be at the same job you’re at 50 years from now?”

Doris Belland:       Right, right.

Doug Hoyes:         “Well I never really thought of that.”

Doris Belland:       Yeah, yeah, yeah.

Doug Hoyes:         Okay, well chances are no, you won’t be. Things are going to change.

Doris Belland:       Yeah, we’ve gone through 10 jobs in that time.

Doug Hoyes:         Yeah, probably. That’s how it typically is.

Doris Belland:       Yeah.

Doug Hoyes:         So you’ve got to think ahead. So, as a result of that then, and I totally agree with what you’re saying, I sit down and I go ‘Okay, what if this happens, this happens, this happens?’ And your book goes through a lot of examples of things that could go wrong. So what then are the planning points I need to put in place when I realize that? So you know, what if my spouse dies? Okay, so that’s a possibility, so what should I be doing now to prepare for that?

Doris Belland:       Right. When people ask me, “How do I protect myself financially?” I start with what for me are the three non-negotiables. So the very first document is a will that is up to date. So you need a valid will. It needs to be up to date. If you did it 10 years ago that’s great, but you need to revisit it whenever there’s something material that changes in your life. Or even your executor, maybe you’ve lost touch with your executor. You named them, you know, 15 years ago, you haven’t talked to them in 10 years.

Doug Hoyes:         Well 10 years ago you didn’t have kids.

Doris Belland:       Right, that’s it.

Doug Hoyes:         That’s a different thing.

Doris Belland:       Yeah, you know. Or you lose somebody. That changes things. So you need a valid will, that’s not negotiable. Sufficient insurance, and I say sufficient because everybody goes “Yeah, yeah I know we need life insurance”. What they don’t know is that they need sufficient life insurance. And everybody underestimates how much they actually need.

So the value is huge in sitting down with an insurance professional and starting to look at, okay what’s going to happen. And this is where the what if comes in, right? So your husband dies or your wife dies and now what do you do, because now you’re having to – are you going to go to work the next day? No you’re not going to go to work the next day. How are the kids going to deal with this? You know, what about college? Now you maybe have one income whereas before you had two. What do you do about the debt that you’ve just inherited with all the joint credit cards etcetera?

So there’s a lot of stuff you look at and you say ‘If somebody dies, I need to make sure that I have the space to heal’, because it honestly took me two years to feel human, right, after the death of my husband. And that’s quite apart from all of the trauma, the financial trauma that I had. So there’s a lot of stuff to consider. So, sufficient insurance is number two.

Number three is power of attorney for real estate. So you need to be able to make decisions if your spouse becomes incapacitated. Do you need to access money in your home? Do you need to, you know, re-mortgage the home? Maybe you’ve paid off the mortgage, now you need to slap another mortgage. If you’re both on title you can’t do that alone. Do you need to sell the house? So you need the ability to make those decisions in the absence of having your partner around.

So those are the top three. And then there are others if you want to swing for the fences; disability insurance is another one, huge for people who are self employed. Getting your name on as many assets as possible and getting them off as many liabilities as possible. So I go through in my book a huge list of things to consider, but that’s where I would start.

Doug Hoyes:         And that’s good advice. And I like the term sufficient insurance. Obviously an insurance agent is going to say “Well you need a billion dollars.”

Doris Belland:       Right, right.

Doug Hoyes:         Okay, well I guess if I’m suddenly single, I’m widowed, whatever, well I want the mortgage to be taken care of. Do I need a billion dollars? Probably not, so I think…

Doris Belland:       But you know what? I’m going to stop you right there because a lot of people talk about mortgage insurance and they say “Oh I’m good, I’ve got mortgage insurance”. It is not cheap to die. Let me just say that right out of the gate.

Doug Hoyes:         It is not cheap to die.

Doris Belland:       It is not cheap to die, right? It costs a whack load of money. And I put my first husband at his father… We talked about what would be appropriate for him, and we put him in a pine box and everybody drew on the box and it was deeply touching. That was about as cheap as you could go, which is what my husband would have laughed at and loved. Even that cost a small fortune for somebody who had no money at the time, right? I had debts.

So it’s not cheap to die. Don’t just think about the mortgage. You need to think well beyond the mortgage. Start doing the what-ifs. So okay, you’ve paid off the mortgage, now what? One of the women I talk about, Barbara, in the book, her husband, professional athlete, drops dead height of, like full health. She’s eight months pregnant.

So it’s not just the mortgage, now she’s giving birth to two kids who have no money set aside for anything, right? Because before they said, “Oh, well we just need to worry about the mortgage.” The mortgage isn’t enough. So I just want to make that point because a lot of people say to me “I’m good. I’ve got the mortgage covered.”

And I said, “Well first of all, start with all of the funeral, the burial, all those arrangements, and go from there.”

Doug Hoyes:         Well, and if you’re going to be giving birth to twins in a month, how are you paying expenses and all the rest of it?

Doris Belland:       Exactly.

Doug Hoyes:         You’re probably not working full time during that process.

Doris Belland:       And she’s self employed.

Doug Hoyes:         Yeah, so…

Doris Belland:       So this is someone I know who’s self employed. So when she stops working her income stops.

Doug Hoyes:         And that’s why – back to your original point, play the what-if game – you’ve got to think through these scenarios and actually play them out in your mind. So okay, now the book is “Protect Your Purse”, and a purse is something that women use more than men, so obviously this is a book…

Doris Belland:       Depends on the guy.

Doug Hoyes:         I know, nothing wrong with that. There’s nothing wrong with that. So this is, I mean, obviously directed more at women than men. So I guess question number one, like what do you got against men? Why are you focusing on women here?

Doris Belland:       I get so many men ask me that. They’re like “What?” Believe it or not, I get as many readers who are male as female, because I say money is money. It works the same way. Debt works the same way for everybody. Repaying debt, getting into debt is all the same for everybody.

The reason I focus on women is because my research from the time this happened to me has uncovered the fact that women are far more financially vulnerable than men, which is – before there’s an outcry from your readers – not to say that men are not also vulnerable. It’s just that there’s a huge gap.

And it boils down to two key things; they earn less and they have less. They earn less, and everybody knows about the well-documented income gap, which is sitting currently roughly 20%. Millennials have it a little bit better but still there is a gap. So right out of the gate women are earning less.

Of particular interest to me though is the wealth gap. So there’s a researcher in the U.S. that I found when I started doing digging about what just happened here and how does this work. Her name is Mariko Lin Chang and she wrote the book “Shortchanged: Why Women Have Less Wealth and What Can be Done About It.”

And she’s the one who demonstrated the wealth gap and why this is a much bigger deal for women. She showed that men have – for every dollar of wealth that men have… And by wealth, very simply, the stuff you have that you could sell for money minus the amount that you owe, that’s your wealth, whatever’s left, right? And she said that has a much bigger impact on women’s ability to be financially resilient, or everybody.

For every dollar that men have, women have a mere 36 to 50 cents. So at best, on average we have half the wealth that men have. And that has significant consequences down the road when stuff happens.

Doug Hoyes:         Do you know why that is?

Doris Belland:       So her book, this is an academic book. She does a great job of looking at many, many factors. She uncovers, some of them are built-in, they’re structural. She talks about the wealth escalator. So men for example, when a couple has a child, typically it’s the woman who stays at home with the child for some period of time, whatever that period of time is.

She talks about the wealth escalator. So guys are on the wealth escalator. They’re getting experiences. They’re involved in projects. They may be getting raises. They’re building RRSP – well she’s an American so she talked about it from American. But to translate that to Canadian, they’re building RRSP room. They’re having more investments. The women all this time are off. They’re not making the contacts. So that just compounds the whole issue of income and wealth.

Also, she uncovers the issue of confidence. And that’s something that’s come up over and over again in my own research. So last year I reached out, I talked to 78 women from all across every corner of the Canada, and I asked them, “Listen, where do you feel confident with money? Where do you feel good? You’re like ‘I got this’”, right? “But in what areas do you think, ‘Oh man, this is not cool. I need some help here’?”

And there’s an almost universal lack of confidence, not across the board. They feel pretty good managing money, but for all of the bigger stuff they have a tendency to either delegate to the men in their lives, or they simply don’t invest. Or when they do invest they will do stuff like GICs, which they perceive to be very safe, because remember, they’re terrified of losing money, right? They’re like, “Money’s a hard thing to get. If I lose it it’s gone forever.” right?

Whereas men tend to be a little over confident; they’re like “Oh I lost it, I’ll make it back.” right?

Women are like “That’s the end of the world. I’ve lost it. It’s gone forever.” So they’ll invest in GICs. They barely keep pace, and typically not, with inflation. So by the time you consider taxation on that interest income and then the impact of inflation, you basically have – they’re like, ‘Oh but my principal is guaranteed’. Yeah but the value of your dollar has eroded over time. So something that is in fact considered to be safe by them turns out to be very risky for their future health.

Doug Hoyes:         So, when you look at the difference between men and women then – so you just mentioned one, confidence. Men are over confident.

Doris Belland:       Right.

Doug Hoyes:         Women are under confident I guess.

Doris Belland:       And this is not me saying this by the way. This is the data showing this, yeah.

Doug Hoyes:         Yeah, and that kind of make sense to what you’re saying. Now you also said money is money. So what are the other differences between men and women? Is confidence the primary one?

Doris Belland:       Confidence is the primary one that I’ve seen. So, you know when you and I were talking you said “Is there any difference between how people handle debt?” Debt is debt. You know you get into it in the same ways. You over spend. You under earn. It’s the same thing for men. It’s the same thing for women.

Maybe the reasons differ a little bit. Women have a tendency to get into debt when it’s not consumer debt, it’s to protect their children or as a result of divorce, right? Now they’re having to mitigate cash flow deficiencies with credit cards. So maybe there’s a tiny difference in terms of the reasons. I won’t claim that that’s statistically significant. I’ve not studied it. But really, I don’t see a difference beyond that.

Doug Hoyes:         So what is the solution then? So you obviously advise women. You’re running workshops. You’ve written a book. So what is your advice for women then to, you know, bridge this gap as it were?

Doris Belland:       One of the things that came out of my research was the need for a safe space for women to learn. Because I’d say to women, “Why do you feel that you lack confidence?” Like, “What could you do?” And I say, “Well” you know “do you ask questions?”

And so when they’ve got their financial advisor there for example, their husband does all the talking, they don’t ask. And sometimes I was talking to C-level executives. These are highly-trained women, and some of them even in areas of finance, who feel stupid by what they don’t know, so they clam up. They don’t say anything.

So there’s a two-fold, I think, solution to this which is, one – and the reason I created in February a women’s money group which is exclusively for women, is ongoing education where we tackle different aspects of finances, where women can learn in a safe, non-judgemental environment. In fact, I say “Ask all your so-called stupid questions, because they are absolutely not stupid”.

So you give them a safe environment where they can ask their questions, start to build out their financial literacy, grow that depth. And then confidence is built one way and one way only, which is through action. You will never become confident just reading about people who are confident. You might feel more confident, but really the rubber needs to meet the road on that one. So that’s about doing.

And you need a supportive environment. You need people who are going to be there if you make a mistake to say, ‘Hey listen, it’s okay. We all make mistakes.’ You’ve got to get your hands dirty. So if investing is what you fear, learning about it and actually doing it is the way to become more confident.

And I can back that up by, you know, just the women I’ve seen since February who come every single month and we talk about different aspects of finances. And they’re doing stuff, because I follow it up with a webinar and they have goals, right, things that they, tasks that they’re off to do. And I’ve seen them. In just a handful of months you see the difference. You see the difference in how they feel and how much more they talk about money, and in what they’re doing. And the proof’s in the pudding, so it’s about doing.

Doug Hoyes:         And so if you were to do a seminar that just had men in it, or that had men and women in it, men would have no problem asking stupid questions?

Doris Belland:       My experience has been that men have no problem asking questions. So I’ve not led any seminars or any workshops to date that are co-ed. I’m offering the first one because I had flack from guys who said “Hey listen, we need this too.”

And a lot of women said “My partner needs this just as much as I do.”

What I did is I created a co-ed workshop. My first one’s going to be in February of 2019. I’ll get back to you on that. But what I have seen presenting in – so I’ve done a ton of presenting in the real estate world, the how to etcetera, and what I can tell you is men have no problem asking questions and the nitty-gritty, or even admitting that they don’t know something.

‘Listen, how would you do this? I’m just starting out’ right?

Women have a much harder time. They will come up to me privately and ask those questions. And that’s not to say all women, because some are certainly very confident. They’ll stand up anywhere, they don’t care. But there’s a huge swath of women who prefer to do this privately so that they don’t – I think they’re afraid of looking or sounding stupid.

Doug Hoyes:         Yeah, you’re right. I guess that’s probably a characteristic of men; ‘Ah, okay I look stupid’ you know, ‘whatever’, so…

Doris Belland:       I don’t think they’re worried about looking stupid. I don’t think that even crosses their mind. I think they’re just like ‘I want the answer.’

Doug Hoyes:         ‘I want the answer’ yeah.

Doris Belland:       Yeah, like just ‘I’ve got a question. I need you to answer this for me.’

Doug Hoyes:         So what you’re really saying is don’t worry about what everyone else thinks. Like, get on with it.

Doris Belland:       Hundred percent, hundred percent.

Doug Hoyes:         Yeah, you’ve got a question, just ask it, so…

Doris Belland:       But I acknowledge though that, if you’ve spent a lifetime feeling like you don’t have confidence in a particular area, having somebody say ‘Oh just get on with it. Stand up already and ask your question’, that’s not going to get the job done, right? That’s why I have environments where, for these women, they feel safe to stand up. And even then, in a room full of women, some of them, like the hand goes up, it’s like the micro movement, right? And I see that.

And it takes a lot of encouraging, and some women it took three or four meetings for them to finally pipe up and say “I have a question”. So it’s not enough to just say ‘All right, just get over it’, right?

Doug Hoyes:         Yeah.

Doris Belland:       Yeah.

Doug Hoyes:         It’s got to be a little more than that.

Doris Belland:       Yeah.

Doug Hoyes:         So okay, so let’s talk about a couple of other issues here. So in the title of your book here, “Shared Lessons for Women, Avoid Financial Messes, Stop Emotional Bankruptcies”. So, what do you mean by that? What’s an emotional bankruptcy?

Doris Belland:       In the world of finance, a bankruptcy is when you can no longer service your debt. You’re drowning in debt so you declare bankruptcy. The same concept holds emotionally. So when you go through a financial trauma, it is so overwhelming at times. And I know you’ve had clients who, or still have clients who are in that position. I get it because I’ve been there. It’s where there’s so much going on, the problems are so severe that you just think ‘I can’t handle this’. Like, you almost short circuit your brain.

My premise in the book is that, if you take care of building a strong financial foundation, what you do is you better prepare yourself for those moments when stuff happens in life. And stuff always happens, right, to varying degrees. But if you prepare for that, the emotional impact is far lesser. So you don’t have a bankruptcy. You don’t have a point where you go ‘I can’t handle this. I just can’t take this. My brain’s going to explode.’

It’s never fun to go through a bankruptcy or a consumer proposal or a divorce or whatever, a loss of job, an illness. But if you have that solid financial foundation you’re going to say, ‘Oh this is no fun, but I can handle it.’ And that’s the difference right there.

Doug Hoyes:         And again, going back to the what-if game then, that’s really a pretty key component of that as well.

Doris Belland:       I just want to share one story on that note. I’ve been working with a lady since the beginning of the group, when I first launched the group. And she at the time was about to leave her husband. It was an unsafe environment at home. And so she came up to me and she said, “What do I need to do to protect myself, to prepare myself?”

I gave her a list and I said, “Well first thing is you need to open your own bank account”, because they had joint everything. Anyway, so I gave her a list of things to do. Fast forward nine months later, she has been through – so they have separated. She has gone through some very unsafe moments for herself and her child.

But she came back to me and she said, “I was speaking with my counsellor.”

She has a counsellor and she has a divorce lawyer. And both of them sat her down initially down at their first meeting and said “You know what? This is not going to be fun, but here’s what we need you to do. This is going to be super hard.” And they gave her a list of things.

And she said, “I took one look at the list and I was like, ‘No, did that, did that, got that. I’ll have that for you by tomorrow.’” And she walked out of there, she said, “I felt like a million bucks.” So she said, “It’s been so hard to go through this, but I realize it could have been so much worse if I weren’t prepared.”

That’s the difference between an emotional bankruptcy and just an emotional impact, right, the trauma.

Doug Hoyes:         Yeah, it’s interesting, your point about bank accounts, because every single client who comes in to see us we say exactly the same thing. ‘Well, if you’re going to end up going bankrupt, you can’t – and you owe money to bank ABC, you can’t still be banking at bank ABC.’ And joint accounts are certainly an issue as well. So yeah, that’s kind of a basic procedure.

And it’s like ‘Well, it’s a bit of a hassle. I’ve got to do this and I’ve got to go there and I’ve got to have ID and they want to think I’m a terrorist’ and all the rest of it. ‘And it’s hard to…’

Doris Belland:       It’s going to be a bigger hassle if they don’t.

Doug Hoyes:         Yeah, but it’s going to be a bigger hassle if they don’t.

Doris Belland:       Yeah.

Doug Hoyes:         It’s pretty much as simple as that.

Doris Belland:       Yeah.

Doug Hoyes:         So, now we talked about the wealth gap and the income gap, and I think we’ve covered that, how in your mind the wealth gap is even a bigger problem than the income gap.

Doris Belland:       Mm-hmm.

Doug Hoyes:         And…

Doris Belland:       They’re both a problem. Let’s just be clear.

Doug Hoyes:         Yeah.

Doris Belland:       Yeah.

Doug Hoyes:         And I guess one kind of leads to the other.

Doris Belland:       Yeah.

Doug Hoyes:         Right, the income gap kind of leads to the wealth gap. And so, back to what the practical advice on that one was, can you state that again for us then? So if I’m sitting there and I’m worried that, you know wealth is a problem, income is a problem.

Doris Belland:       Yeah, yeah.

Doug Hoyes:         And so it’s not as simple as to say ‘Well, you’ve got to get a better job’ or something like that.

Doris Belland:       Right.

Doug Hoyes:         What are the practical steps then that can be taken to help alleviate that? Is it again what you said, you know, you’ve got to play the what-if game? You’ve got to take concrete steps, or…?

Doris Belland:       That depends. I’m not sure what your question is. Is your question about how to protect themselves financially?

Doug Hoyes:         Mm-hmm, yeah.

Doris Belland:       Yeah, so put those documents in place. But if they’re looking and saying ‘Okay, so I’ve got the documents in place, now the question is do I have debt or don’t I have debt’, right, because those are two very different scenarios. If you have debt, that becomes your most pressing problem.

And you and I were talking a little bit about is wealth really the bigger determinant of financial resilience than income. Listen, if you do not have enough income to pay for the necessities of life, what you physiologically need, that is your highest priority.

But assuming that you have enough income for that, the question becomes, okay, what now. So do you have money habits that are leading you and keeping you in debt? That’s your next biggest priority, because there’s no point saving if you’ve got credit card debt. If you’re paying 18 to 25% interest, no sane investment is ever going to yield that. And if your Uncle Bob comes and offers you that, walk away, right. No, run away. So you’ve got to deal with that first.

Doug Hoyes:         Yeah, you’re absolutely right. I get people come in here and they’ve got all this credit card debt but they’ve got $3,000 in a TFSA.

Doris Belland:       Right.

Doug Hoyes:        Okay, well you’re earning 0% on your TFSA but you’ve got 20% credit card debt.

Doris Belland:       I would argue, so here’s what I would do. I would automate something, a trivial amount of money to develop that muscle and that habit into the TFSA. So you know what? Twenty bucks a month is not going to kill you, right? Do that, if only to develop that muscle of saying, no, saving and investing is a priority. I would absolutely do that.

But if you’ve got credit card debt and consumer debt that is outpacing what you would ever earn in an investment, you have to tackle that first.

People say, “Okay, so I’m going to do that first and then look elsewhere.”

I was like, “No, but you need to make sure that you kick it to the curb”, right? This isn’t just pay off my debt. Because what I’ve seen happen with clients is that, you know I work with them for two to four years – I don’t do that anymore by the way, but when I worked with them, I would hold their hand, put together a plan, and they would pay off tens of thousands of dollars worth of debt, get into fantastic shape. I let go of their hand, I say “Hey, good job you guys, congratulations.” And then they revert back into the old patterns and they slide right back into debt.

So what I’ve realized, it’s not enough to pay off debt. You need to figure out what got you into debt in the first place, because it is those patterns, those beliefs, you know, that you need to root up and say ‘Okay, we need to change those’. Once you do that, then to narrow that wealth gap – narrowing the wealth gap starts with paying off debt, but then you need to learn how to invest. And that’s the critical thing to learn, how to grow your money. That’s not rocket science.

Doug Hoyes:         No, going on a diet for three months is great, but if you go back to doing what you were doing before then you’ve kind of defeated the purpose, so…

Doris Belland:       Yeah, exactly.

Doug Hoyes:         And obviously that’s why my firm exists. If you’ve got so much debt that you could never hope to pay it back off, then okay, you’ve got to do a proposal, a bankruptcy, something to clean it up.

Doris Belland:       Yeah.

Doug Hoyes:         So, now you say there are no stupid questions.

Doris Belland:       Right.

Doug Hoyes:         I could probably come up with some stupid questions, but –

Doris Belland:       Pretty sure they’re not stupid.

Doug Hoyes:         We won’t go there. How much should I put into bitcoin? That’d be a good question there.

Doris Belland:       Zero or zero.

Doug Hoyes:         Yeah, there you go. So what are the top questions about debt that you get asked?

Doris Belland:       The very first one that comes out of just about – so all of the women that I interviewed, I asked them, “What questions would you have me answer for you? If you had access to me full time, what’s the very first five questions?”

And the first one that came out of so many women was, “Should I pay off debt? Or should I save money?” right? That’s the number one question that I get asked.

And they’re paralyzed into inaction because they don’t know. They’re afraid of making the wrong choice, so they don’t do anything.

And I say, “Look, both is great”, right? Both are great. So you can save money, you can pay off, and nobody’s going to go ‘Oh, well that was a dumb thing to do’. But if you’re asking me which is most effective, then back to the debt. What is the debt? If it’s a 3% mortgage on your house, it may be worth it to you. Pay that off.

But invest, right, because that’s going to give you a much bigger bang for your buck, assuming you’re doing investing with a research-based approach etcetera. If you have credit card debt, it’s a no-brainer. That has to go. So you start there. But that’s by far and away the number one question.

The second question that I get asked is “How’d you pay off $400 thousand in two years?” Everybody wants to know that. I answer that question in my book. I go through the steps, what I did. And in a nutshell, what it is, I deprived myself of everything for two years, which I wouldn’t do that in the same way if I had to do it again, because that’s just a great way to bleed your soul dry. But I deprived myself of everything. I sold everything that I could.

But what really made a difference is cranking up the income. And I find that when people are dealing with debt, the easiest thing for them to do is to look at ‘How do I cut back on my expenses?’ Because cutting the cable bill, that’s fast. It may be painful, it may be annoying, but it’s relatively easy to do. Figuring out how to grow your income is not easy to do, but it pays off huge dividends on an ongoing basis.

So I got really creative, as you probably read in my book, about what I needed to do with what was left of the business. That, going for the big wins is by far and away what’s going to help you pay off massive debts in a hurry.

And then finally, the question I get asked is “How do I pay off debt?” People just want a blueprint for how to pay off debt. And now what I teach, knowing what I know after 20 years of dealing with this and researching this, start with your values. Figure out what do you really value. Because I find a lot of people who are, you know, debt-reduction specialists will just try a one-size-fits-all approach; ‘Well first you’ve got to cut back this and then you chop out that’.

No you don’t. You absolutely don’t. You can be perfectly successful, but you need to figure out what matters to you. What are your non-negotiable values, right? So maybe you keep the pedicure every two months because it makes you feel fabulous. It just it feeds your soul. But you cut mercilessly on those things that do not go into your values.

So people will say ‘Well cut out the gym membership.’ Maybe, but maybe not. So, if you start looking at your line items, all of your expenses, and saying ‘Is this congruent with my values, my top three to five values?’ You can very easily start to identify ‘You know what? No, that isn’t congruent with my values.’ And even if they all are, you might say ‘My house, it’s essential.’ But a $600 thousand house is not essential, right?

Then you start saying, ‘Okay, so these items here are congruent with my values.’ And then you start evaluating them and saying ‘Am I happy with the amount I’m spending in these different areas? Do they need to be increased? Am I not spending enough on my health?’ for example, ‘Or do they need to be decreased?’ I teach a values-based approach, and that has by far and away been the most effective strategy that I’ve ever seen or employed.

Doug Hoyes:         Wow, and I think that also still comes back to the what-if thing too. Okay, so ‘What if I gave up this and didn’t give up this? What’s most important?’ And I think a lot of the time there’s inertia; ‘Well I’ve always done it that way –

Doris Belland:       Right.

Doug Hoyes:         – ‘and so I’m going to keep doing it that way.’

Doris Belland:       I’ll just say that for a lot of the clients, when I said to them “What do you think that you could cut out?” If I had a dollar for every time somebody said “I honestly can’t see what I’ve cut out because I’ve cut back as much as I can.” We’re simply not aware of what we spend and where, so, one of the best ways to uncover that is to track everything. And it’s tedious, I know that. But if you track everything for three months you might say ‘I don’t spend that much on wine.’ I use wine as an example.

Doug Hoyes:         Mm-hmm, hypothetical example, I understand, yes.

Doris Belland:       Hypothetically, yeah, speaking about a friend here.

Doug Hoyes:         Yes, yes.

Doris Belland:       But you know, ‘I don’t spend that much on wine.’ And then when you actually start tracking it you’re like ‘Holy smokes, I actually do.’ Tracking reveals everything that we’re not aware of. Those little blind spots, that’s a great way to take a look and say, ‘You know what?’ Back to the values and back to the what ifs, ‘Is this the best use of my money? Is this going to get me where I want to go?’

Doug Hoyes:         Yeah, and a simple way to do that is pay for everything with your debit card. So it’s all on your bank statement. You don’t have to save every single receipt. So that’s one way to do it, so…

Doris Belland:       Yeah.

Doug Hoyes:         Well I think that’s fantastic advice. And we’re up against the clock here, so can you tell people how they can find you? What’s the website? How can they get the book? Where can they track you down?

Doris Belland:       Sure. So the book, the simplest place to go is Amazon. It’s available in Canada, Amazon.ca, Amazon.com in the U.S. and the UK as well. I am at yourfinanciallaunchpad.com. That’s my website. It’s being completely revamped so sometime soon it’s going to look fantastic. But they can find that there. I write a blog. And if they want money tips, I send out money tips once a week to my mailing list. So if they just shoot me off an email, Doris@yourfinanciallaunchpad.com, I’ll get them on there.

Doug Hoyes:         Excellent. Well Doris, thanks very much for being here.

Doris Belland:       My pleasure.

Doug Hoyes:         So, Doris is the author of “Protect Your Purse”. And as she said, it’s available on Amazon, I actually read it on Kindle so you can get it on Kindle as well.

Doris Belland:       Yeah.

Doug Hoyes:         “Protect Your Purse: Shared Lessons for Women, Avoid Financial Messes, Stop Emotional Bankruptcy and Take Charge of Your Money”. As always, I’ll post a full transcript of today’s show and complete show notes, including links to Doris’s website and her book, over at Hoyes.com. That’s H-O-Y-E-S dot com.

Until next week, thanks for listening. I’m Doug Hoyes. That was Debt Free in 30.

The post Protecting Yourself Financially from Unexpected Life Events appeared first on Hoyes, Michalos & Associates Inc..

In your 20s: Debt Repayment and Establishing Good Habits

Whether you’re dealing with student debt, or just have your first credit card, it’s important to start your finances off right. Clients we see in their 20s typically took on too much debt, too fast. They quickly accumulate an average of $29,000 in unsecured debt, forcing almost 4 in 10 to turn to payday loans. To avoid this nightmare scenario:

1. Learn to plan and budget. Set small financial goals, understand what you want your money to do for you. Explore different budgeting programs and find one that works for you.
2. Build good habits early. Track your spending and remember that every dollar should have a purpose. How you start is likely how you will continue.
3. Start an emergency fund. Even a small amount of money set aside can help you avoid relying on credit cards for unexpected expenses.
4. Establish good credit habits. Be sure to understand repayment terms and always repay your card in full to avoid interest charges and to establish a good credit history right from the start.
5.  Make a plan to pay down student debt. Once you’ve graduated, one of your biggest responsibilities will be to repay your student debt. Create a plan to repay it aggressively in order to avoid being burdened by student loans for many years to come. Making payments now can help you avoid thousands of dollars in interest payments over the next few years.

If you can, you might consider building a savings plan now so that you are better prepared for any large purchases like a car or even unexpected emergencies like a job loss down the road. Consider learning how to invest since time is on your side. You can afford to take more risk now than in your sixties. Put the benefit of compound interest to work for you.

What you should avoid doing at this age is taking on too much high-interest debt because it’s the number-one reason why people file bankruptcy in their 20s.

Download: Free Budgeting Worksheet

In your 30s and 40s: The Family Years

According to our data, this is the most likely age group to file for insolvency. Why? Because this is when expenses grow and we are most reliant on taking on large debts. You may still be repaying student loans, have a car loan and a mortgage. Debt repayment, on top of the high cost of child care and housing costs, can be a challenge to balance without using more debt to make ends meet. This is also when life throws in very expensive curveballs like divorce and job loss. Our average client in their 40s saw their debts slowly accumulate to roughly $59,000.

It’s crucial to be prepared so you can avoid accumulating more debt than you can repay:

1. Maximize your income and set career goals. If you need to gain any skills to upgrade your job and earn a higher salary, now is the time to make this investment in yourself. Recognize your worth and try to earn more than you need to spend.
2. Take advantage of employer savings programs. If your employer offers matching RRSP contributions, you should take advantage of this program. You’re unlikely to get double the return on your investments anywhere else, so be willing to put away 3% or 5% of your paycheque into this automatic savings plan.
3. Continue to pay down debt. If you have any non-mortgage debt, paying this off should be a priority. Budget to put any extra cash into debt repayment. The standard target for student loans to be paid off is 10 years after completion of studies. If you have other unsecured debts like credit cards, you should absolutely make a plan to pay them off to avoid getting trapped by high interest and fees.
4. Avoid joint debt. If you are in a serious relationship or are married, you might feel obligated to co-sign on your partner’s debts – whether to help him/her qualify for a loan or to help them make payments. We would strongly caution you to avoid joint debt, as you would be making yourself 100% liable for its repayment. A separation or divorce will further complicate your financial picture and lead you to face hardship that could have been avoided.
5. Build a bigger emergency fund. If you are gainfully employed in your field of work and not living paycheque to paycheque – that’s great news! In this time of financial stability build an emergency savings fund to last you 3 to 6 months to weather an unexpected downturn like illness, job loss, or divorce, and avoid adding to your debt load.
6. Save for retirement. If you haven’t already, now is the time to think seriously about retirement planning.

In your 50s: Peak Earnings and Pre-retirement Planning

Our average debtor in this age category has built up $63,000 in unsecured debt. This is often the result of years of only making the minimum payment on loans. Another contributor is unpaid tax debt that accumulates over time.

You should follow these steps to avoid having any financial issues at this point:

1. If you’re not already debt-free, make a plan to be. Whether this involves lifestyle deflation and putting cash regularly into debt repayment, or even going through with a professional debt relief plan, you should intend to eliminate any and all of your debts before you retire when you will be living on a limited income.
2. Avoid becoming the bank of mom and dad. Your children may ask you to lend them money. We would advise against this. If you can afford to give your children money, with no expectation of it being returned, then by all means, go ahead. However, we suggest you never lend money to family and friends if you cannot afford to part with it. You should especially avoid borrowing to lend.
3. Talk to a credible financial planner. Now is a good time to meet with a credible financial planner if you need help with retirement planning and to determine what your priorities should be going forward for the next few years. Consider questions like what you would need to do to be ready for a forced early retirement, illness, or job loss. Be sure to visit a certified and fee-only financial planner for advice and avoid financial advisors at your bank who may only be selling you investments, instead of a plan to prepare for retirement.
4. Plan for retirement. Ask yourself if, and when, you can reasonably afford to retire. If you have debt and retirement savings, think carefully about what to do with those funds. While you may think about cashing out your RRSPs to pay off what you owe, you may be risking your retirement unnecessarily.

Read More: Think Twice Before Cashing in your RRSP to Pay Off Debt

In your 60s: Post-Retirement

Retiring with debt is the true nightmare scenario. Our average client over the age of 60 has more than $64,000 they are trying to repay on a fixed, and lower, income. They are often forced to remain in the workplace just to keep up with debt payments.

As you are entering your 60s:

1. Understand your income and expense needs. Know that your income will drop in retirement, and cut back early. Don’t use debt to carry on a pre-retirement lifestyle.
2. Be prepared for long-term care costs. Illness and death of a family member are two costs which can break even the best financial retirement plan.

In summary, make good borrowing decisions early and you can avoid debt problems as you age. However, if you are facing debt problems, no matter how old you are talk to a licensed insolvency trustee about your debt relief options early.  There is no point in carrying debt problems forward from one age to the next.

For more details on how to prepare for and avoid debt at each life milestone, tune in to today’s podcast or read the complete transcript below.

Additional Resources

• Debt Problems? It’s Not Your Fault.
• A Guide to Student Debt Forgiveness
• How to Minimize Debt Before and After Retirement

FULL TRANSCRIPT – SHOW 217 Why You Want to Avoid Debt at Every Age

Doug Hoyes:    Debt problems happen at every age. While the average person who files bankruptcy in Canada is in their mid-40s, we’ve filed bankruptcy for people as young as 18 and as old as 93. In our most recent Joe Debtor Bankruptcy Study; 12% of people were between the ages of 18 and 29, 29% were in their 30s, 28% were in their 40s, 20% were in their 50% and 10% were over the age of 60.

In most cases the trigger for someone to file a bankruptcy or a consumer proposal is an event that was out of their control; a job loss, illness, marital breakdown or other personal catastrophe that caused extra financial hardship. As we said way back in podcast number 80, it’s not always your fault. Having said that though there are ways you can be better prepared to weather life’s financial ups and downs, and that’s our topic today here on Debt Free in 30; why you want to avoid debt at every age and how to do it.

Today’s show is all about practical advice, we’re going to go through each age group and give you our advice on how to avoid debt at each age. To discuss it I’m joined once again by Ted Michalos, so Ted, let’s start with the first age category, 18 to 29. What are characteristics of people in that age group?

Ted Michalos:   Hi, well the most telling thing about this group is that they are just starting out in life, so they’ve probably just finished high school or grade school, whatever they were going to, moving out of their parents’ home and they’re setting themselves up. So, they could be going to post-secondary, university or college, they could be going out to a job, it doesn’t really matter, they’ve got nothing, they’re starting at zero and they have to build something and building things always cost money.

Doug Hoyes:    And by the end of that age group as you get into your later 20s, by then you’ve finished school perhaps or –

Ted Michalos:   Well, a lot of those people transition by their end of their 20s. Maybe they’re into a serious relationship now and they’re, maybe they’re thinking about their first house, they’ve probably bought a car. I mean, there are all sorts of big purchases that come up in your 20s that you have to prepare for.

Doug Hoyes:    Okay. So, let’s go to the practical advice section, we’re doing practical advice on my show. So, what advice would you give someone, let’s say in their, you know, mid to late 20’s or, you know, in that age group.

Ted Michalos:   Yeah. Was it Knute Rockne, that people don’t plan to fail, they fail to plan?

Doug Hoyes:    It’s true, it’s true.

Ted Michalos:   You know, that certain things are going to happen in your life and you need to get ready for them and it’s just a matter of being in charge of your current expenses and income and planning for what you know your anticipated expenses are, and this is so easily said and so hard to do.

Doug Hoyes:    Yeah. And it’s great for us to sit here and say, well you need and emergency fund, you need a budget, you’ve got to do all those sorts of things.

Ted Michalos:   That’s right. We’re both in our 50s, so we can, you know, we can –

Doug Hoyes:    That’s right.

Ted Michalos:   We don’t remember what it was like to be 23 years old –

Doug Hoyes:    We’ll get to that age group and yeah, I mean, if I’ve just finished school, I’ve got a massive student loan.

Ted Michalos:   Right.

Doug Hoyes:    And I’m working at an entry level job, because that’s kind of what you do when you finish school.

Ted Michalos:   Yeah. And you’ve got your first apartment, that you’ve got buy furniture for, you’re driving an old beater or you’re using public transit, whatever to take, there’s, you don’t have anything and you need all this stuff.

Doug Hoyes:    Yeah. And so, it’s great to say start an emergency fund –

Ted Michalos:   Right.

Doug Hoyes:    But you know, you’ve got to be, you’ve got to be covering –

Ted Michalos:   How can you do that?

Doug Hoyes:    Yeah. So, I guess the basic advice would be things like, well you know, keep track of your money as best you can.

Ted Michalos:   Yeah.

Doug Hoyes:    And like you said, live frugally, because –

Ted Michalos:   Well yeah, go back to the wealthy barber, right. Live on less than you’re making, then you’ll always come out ahead, you may not be very entertaining.

Doug Hoyes:    Well, but you have no choice.

Ted Michalos:   Right.

Doug Hoyes:    It’s purely a math question. and of course, we’re big believers in getting out of debt, so if you are young and if you have student loan debt, well whatever you can do to blast away at that, the better.

Ted Michalos:   Well, tell people about the debts that the young people typically have, I mean it’s not the same as our average people, it’s less debt, but it’s more expensive.

Doug Hoyes:    Yeah, exactly right. The average person in that age category 18 to 29 –

Ted Michalos:   18 to 29.

Doug Hoyes:    Has about $29,000 in unsecured debt and as we see as we go through the ages your debt levels increase as you go.

Ted Michalos:   Right.

Doug Hoyes:    However, they are the highest users of payday loans.

Ted Michalos:   And why are payday loans bad?

Doug Hoyes:    Oh, high interest, high interest, high interest.

Ted Michalos:   548%.

Doug Hoyes:    Yeah. The wow –

Ted Michalos:   So, anyway –

Doug Hoyes:    Maybe not quite that, well it depends if it – Yeah, depending on how quickly you pay it back, they can be really high, so.

Ted Michalos:   Let’s not go there.

Doug Hoyes:    It’s, well we’ve done many shows on payday loans, but yeah. And it’s again, not surprising, I’m working at an entry level job, I’ve got my student loan debt, some other debts to pay and I’ve just established my new apartment, whatever, how do I pay the rent, well I’m tempted to go and use a payday loan to close the gap.

Ted Michalos:   You have no credit history, so you can’t get credit at affordable rates, and so you’re forced to the second, third, fourth tier, and the more you use these things the worse it becomes. And so, it just becomes, it’s one of those spirals that drives you lower and lower into trouble.

Doug Hoyes:    So, in a perfect scenario, great I’m starting a savings plan. I’m building an investment account, I’m paying down my debts. But in the typical scenario that we see that’s not the case, because I’ve got a bunch of debt, I’m having to resort to payday loans. So, what advice do you give someone in that age group?

Ted Michalos:   Well, so the most important thing is to be aware of your current circumstances and try to anticipate some of the problems that you’re going to have.

Doug Hoyes:    And so, if you have a bunch of debt and you’re let’s say 25 years old, is bankruptcy an option at that point or is it not an option at that point?

Ted Michalos:   Yeah. Bankruptcy is one of those things that you should always consider if you’re carrying more debt than you can handle, but it’s always the final solution. Probably it makes a lot more sense to talk to somebody about a consumer proposal, where you pay back a portion of what you owe or maybe it’s just you need some budgeting and counselling help. By the time people come to see us, it’s usually too late for that, so reaching out for help and advice, for education and guidance early would be excellent advice to give people.

Doug Hoyes:    So, let’s hit on student loans then.

Ted Michalos:   Yeah.

Doug Hoyes:    Because if I’m 25 years old and I graduated from school two years ago.

Ted Michalos:   Right.

Doug Hoyes:    A bankruptcy or a consumer proposal isn’t an option to deal with the student loans.

Ted Michalos:   That’s right, the law says if you haven’t been out of school for seven years we can’t do anything to settle on student debt. So, if it’s a Canadian student loan, Ontario student loan, whatever it is, you’re going to carry that debt with you even if you file bankruptcy.

Doug Hoyes:    And so, why would someone who’s 25 years old file a bankruptcy or consumer proposal then?

Ted Michalos:   Well, so the typical person probably has credit card debt as well, and in the worst-case scenario they’ve got those damn payday loans and if you have four or five payday loans, you probably owe two or $3,000 just in that, which is more than your take home pay at 23 years old.

Doug Hoyes:    And so, it may make sense to do a proposal or a bankruptcy to deal with all those other debts.

Ted Michalos:   Correct.

Doug Hoyes:    And we’ve seen that happen all sorts of times.

Ted Michalos:   It’s pretty common.

Doug Hoyes:    So, I get rid of all the other stuff, I’ve still got my student loans, but because I’ve gotten rid of the other debts I can service those debts.

Ted Michalos:   Yeah.

Doug Hoyes:    And that’s pretty much all you could do at that age range.

Ted Michalos:   Another segment of this population that I don’t think we want to talk about a lot is the single parents, because that, a number of the folks from 18 to 29 it’s a single parent looking after one or two kids. And I mean, and you know why it’s caused, but it’s not something you can do anything about.

Doug Hoyes:    Yeah. And it’s again, the finances become a very serious issue –

Ted Michalos:   Right, at that point.

Doug Hoyes:    Yeah. There are very few 70 years old single parents, this is obviously something that’s much more preponderance among the young, so.

Ted Michalos:   Right.

Doug Hoyes:    I said that as we get older our situation changes. So, let’s move the clock forward now and look at the 39, the 30 to 49 year old age group.

Ted Michalos:   Okay.

Doug Hoyes:    And so, I said at the start that the most common age for someone to actually file a bankruptcy or consumer proposal is around sort of 44 or 45 in that age range.

Ted Michalos:   Yeah.

Doug Hoyes:    Why is that?

Ted Michalos:   Well, statistically that’s the middle age that people are living to. So, if you’re going to, if the average population’s going to live till they’re 80, so the middle of that’s in their 40s, so that makes sense. But more importantly, because again, there’s likely to be some transition event, something has happened in your mid-40s that’s caused a serious financial crisis that you weren’t anticipating. It might be an unexpected child, it could be an unexpected illness, suddenly you’ve lost your job, a marital separation, I mean there are all sorts of things that can happen to you and when they do, it puts an incredible strain on your finances.

Doug Hoyes:    Well, if you think of someone who’s 45 years old, okay, I probably still have kids who are either living at home or –

Ted Michalos:   They’ll be school age likely.

Doug Hoyes:    I’m still supporting –

Ted Michalos:   Yeah.

Doug Hoyes:    Yeah. And they might be –

Ted Michalos:   One way or another.

Doug Hoyes:    Might be in post secondary, but I’m still footing the bill perhaps.

Ted Michalos:   Yeah.

Doug Hoyes:    My parents are possibly still alive, one or two of them.

Ted Michalos:   Yeah.

Doug Hoyes:    And so, it’s possible that I may even be helping them out if they’re not in great financial situation.

Ted Michalos:   That’s true.

Doug Hoyes:    You know, I certainly haven’t received an inheritance yet, because they’re still alive.

Ted Michalos:   Yeah.

Doug Hoyes:    And I’m not quite in my peak earning years yet.

Ted Michalos:   Correct.

Doug Hoyes:    Because you know, I haven’t risen to the top of whatever the food chain is at work yet, so.

Ted Michalos:   And you’re still carrying lots of debt.

Doug Hoyes:    Yeah. And I may still have not even finished paying off all my own student debt, I’ve, you know, perhaps bought a bigger house, got a bigger mortgage.

Ted Michalos:   Well, that the biggest single transition in that age group, is probably housing. Whatever type of house they have it’s going to be fairly expensive and they’re looking for a size for a family.

Doug Hoyes:    Yeah. Your peak housing needs are when you’ve got the biggest family.

Ted Michalos:   Right.

Doug Hoyes:    When you’re 70 years old, you don’t need a three bedroom house, but when you’re 40 and you’ve got three kids, well then that’s when it’s much more necessary.

Ted Michalos:   So, if you throw in a marital breakdown or you throw in or you throw in some kind of problem at work, you’re you know, your job’s gone to Mexico, you’ve got a real crisis on your hands.

Doug Hoyes:    So, let’s get to the advice portion then. So, for someone in that age range.

Ted Michalos:   Yeah.

Doug Hoyes:    What is the typical advice you would give someone, and not even talking about debt, we’ll get to that, but just, you know, practical advice, I’m in my, you know, my 30s, my 40s, you know. So, obviously continuing to pay down debt, I mean that’s an obvious one.

Ted Michalos:   Yeah. We tell people that all the time. But you need to, I mean we jokingly said you should try for an emergency fund when you’re in your 18 to 20 group, it’s more important in the 30 to 49 group, because you know life is going to throw you a curve ball. and if your solution is to put 20,000 bucks on your line of credit and hope for the best, well that’ll get you through the problem, but it’s created a second problem.

Doug Hoyes:    Well, and there’s more things that can go wrong, so.

Ted Michalos:   Right. And something else will, because they never go wrong at once.

Doug Hoyes:    Yeah. I mean, I’ve got three kids, well one of them is going to need braces, if I don’t have any kids, well none of them do.

Ted Michalos:   Right.

Doug Hoyes:    My car’s more likely to break, my house needs more repairs –

Ted Michalos:   Think of a more typical, you know, something happens at work and you’re either downsized or your position has changed, so now there’s financial stress. That causes pressures on your relationship and so, and in many cases the relationship can’t handle that pressure. So now you’re earning less, you’re in a separation or a divorce and you’re trying to re-establish yourself in a new home. I mean all, it’s a perfect storm of horrible things that can happen to a person and it happens to a lot of people.

Doug Hoyes:    Yeah. And so, obviously preparing for the unexpected.

Ted Michalos:   Yeah.

Doug Hoyes:    And what you’re saying is, it’s not really that unexpected, because when you’re in that age range this is when those kinds of things happen.

Ted Michalos:   It’s when it’s going to happen, yeah.

Doug Hoyes:    It’s when it’s going to happen, so be prepared for that. and like you said, having an emergency fund if at all possible, keeping your debt levels down. Even some basic things like taking advantage of, you know, employer savings programs.

Ted Michalos:   Yes.

Doug Hoyes:    So, if your employer offers to match your RSP contributions or has some other, you know, stock buyback plan or whatever.

Ted Michalos:   So, do it because, I mean if your employer’s matching your contributions, you’re doubling your money, you’re never going to get that kind of return on the stock market unless you’re buying cannabis.

Doug Hoyes:    Yeah.

Ted Michalos:   And you know, we’re not recommending that by the way.

Doug Hoyes:    We’re not recommending it. and the time to do that is when you’re in your 30s and 40s –

Ted Michalos:   Right.

Doug Hoyes:    Not when you’re 62.

Ted Michalos:   It’s too late.

Doug Hoyes:    It’s yeah, you know. And obviously speaking of retirement, well this is the time to really be getting into it, it’s kind of hard when you’re 18 to be worrying about it, but 30 or 40 the sooner you can get into it the more time it’s got to build up.

Ted Michalos:   People aren’t going to want to hear this, but quite frankly think of the word moderation, don’t try to keep up with the Jones’, have realistic expectations of what you need and what you purchase, don’t go out there getting the newest iPhone every week, you don’t have to have an iWatch, you don’t have to have the flashiest car it’s live within your means and some of these problems won’t be as bad when they happen.

Doug Hoyes:    Yeah. And if you, you know, grasp hold of all this stuff, well then in your later years you’ve actually got more money and so it’s, it ends up working out. Now let’s talk about the nightmare scenario here then.

Ted Michalos:   Right.

Doug Hoyes:    The scenario where we see with our clients. so, with our clients, so people who are filing a bankruptcy or a consumer proposal in their 30s, their average unsecured debt is around $47,000.

Ted Michalos:   And the minimum payments on that are about 1,500 bucks a month.

Doug Hoyes:    That’s a big number.

Ted Michalos:   Yeah.

Doug Hoyes:    And by the time they get in to their 40s it’s up to $59,000. So, you can see the progression, the older you are the more time you’ve had to accumulate debt, so therefore the more debt that you’ve got. So, what are, what’s the advice then for someone in that situation? Hopefully, by the time you’re into your 40s the student loan is less of a problem, although we still –

Ted Michalos:   Not necessarily, but hopefully.

Doug Hoyes:    We still see them. So, why are they a prime candidate for something like a consumer proposal at that age?

Ted Michalos:   Well, so in your 40s, you’re at a point where you’ve still got as much life ahead of you as you have behind you and what you’re trying to do is get a reset. So, clean up all of this debt that’s eating up your income every month, so that you can establish a safety fund, you can prepare for tomorrow. And it sounds counterintuitive, but what we’re suggesting is, deal with the problem we have with your finances today, so that you won’t have a problem tomorrow, and compounding interest makes tomorrow’s problem much worse.

Doug Hoyes:    Well, you and I did a podcast two or three weeks ago on joint debts.

Ted Michalos:   Oh, yeah.

Doug Hoyes:    Well, and this is the age group where that’s most an issue, because again you’re more likely to be married when you’re 40 than when you’re 18 or when you’re 80 and as a result, joint debts sometimes become a problem, you know, his debt, her debt, our debt whatever.

Ted Michalos:   Well, and lenders do that on purpose, they’re more likely to, if there’s two of you making money, let’s get both of you to sign for it, so that’s there’s a better chance we’re going get repaid.

Doug Hoyes:    So, let’s roll through then to the next age group, which of course is sort of the –

Ted Michalos:   Which is our age group –

Doug Hoyes:    Yes, that’s our age group.

Ted Michalos:   And nothing bad ever happens in this age group.

Doug Hoyes:    No, no, the 50 to 59 year old age group, which we both happen to be in.

Ted Michalos:   Right.

Doug Hoyes:    I mean, we’re remarkably well preserved I would think, so people probably don’t understand how old we actually are. But the number one priority I think for someone in this age group is, now is when you want to be getting yourself out of debt, you’re closing in on retirement and you’re not there yet, so that’s got to be your number one, your number one objective. What else is someone in that age group thinking about, what should their objectives be? And again, we’ll get to the debt piece in a minute, but just again, general financial advice?

Ted Michalos:   So, most people are going to think that this is the point where you need to be thinking about your retirement, but if you’ve left it this late it may be too late. You can’t be starting an RSP at 55 years old and expect to have any money in there, and in fact you might be penalized for it. So, what you want to start thinking about is, how you want to spend your retirement years and how you’re going to finance them. Are you going to have a pension, are you going to be living on government? Should you be downsizing your expectations on your living surround, maybe the kids are now out of the house, so you don’t need that 4,000 square foot anymore or the 2,000 square foot home. Are you going to need to replace cars before you retire or there? You’re trying to get your expenses in line with what your future is going to be, these are your best years of your life if things have gone well till this point, but things can still go wrong.

Doug Hoyes:    Well, and what you’re saying is you got to be realistic.

Ted Michalos:   Well that, and that’s again, now we’re back to the whole moderation thing, you have to be realistic at every point of your life.

Doug Hoyes:    Yeah. And so, if I’m 59 years old and I want to retire at 62, I’m probably not going to be spending my retirement years on cruises in the Mediterranean. But if I can be chipping away at debt, you know, throwing some money into the bank, then at least I’m setting myself up. Now the other, I think big category, big thing you see at this age and not so much for you and me, but for others, would be having adult children. You don’t have any adult children yet.

Ted Michalos:   I don’t.

Doug Hoyes:    You’re a very young 50+ year old guy, but when you have adult children, it’s very tempting to –

Ted Michalos:   To help them.

Doug Hoyes:    To help them, you know, they want to buy a house, everyone wants to buy a house and of course in this market they can’t do it on their own.

Ted Michalos:   Right.

Doug Hoyes:    What is your advice for whether or not someone should help their adult children?

Ted Michalos:   Yeah. You should, and this is going to sound harsh folks, but you should only help your adult children if you can afford to give the money away. So, you shouldn’t be incurring debt, putting money on your line of credit to lend to your children, who won’t be paying the interest on, but you’ll be paying the interest on. I mean, you’re, what you’re doing is you’re empowering them to live beyond their means and creating unrealistic expectations. So, if you’ve got, you know, money in a savings account that you want to give your children that’s fine, but you really shouldn’t be incurring debt to help your children or your parents for that matter.

Doug Hoyes:    Yes. and I believe that was –

Ted Michalos:   Yeah, a chapter in your book –

Doug Hoyes:    Yeah, and I’m looking page 185 in “Straight Talk On Your Money”, I address some of those very similar themes and I totally agree with you, if you have the cash in the bank and you want to give your kid X number of dollars, fine, so long as it’s not going to influence, you know, or harm your future unduly then why not. Where we see the problems happening is where the parents say, look I’ve got three kids, they all need to get a start in the real-estate market, so I’m going to go out and borrow $50,000 for each of them to give them some money towards a down payment. Okay, well now you’ve just taken on a whole bunch of debt.

Ted Michalos:   Right.

Doug Hoyes:    And if your kids aren’t able to pay you back, because one of those life events that we just talked about that are most common in the 30s or 40s happen, now not only are your kids in trouble, but now you’ve really harmed your future too, so.

Ted Michalos:   Right.

Doug Hoyes:    Frankly, I’m a big believer in what you said too, even though it is harsh, the answer is, you know, help people out with whatever cash you’ve got.

Ted Michalos:   Right.

Doug Hoyes:    And you know, if you want to help by babysitting your grandchildren and things like that, that’s fantastic too.

Ted Michalos:   Yeah.

Doug Hoyes:    But otherwise, don’t be throwing out, don’t be loaning out any money that you don’t have – In fact, my advice in the book is don’t loan money to friends or family at all, give them money if you really want to help them out.

Ted Michalos:   Right.

Doug Hoyes:    And then there’s no expectation of repayment. So okay, let’s get into the scenarios we see most commonly then with people in this age group then. So, the average debt of someone on their 50s that we help is $63,000. And again, I’m talking unsecured debt, I’m not talking mortgages, car loans; I’m talking credit cards, –

Ted Michalos:   Right, credit cards, lines of credit, payday loans –

Doug Hoyes:    Payday loans, income taxes, that sort of thing.

Ted Michalos:   Yeah.

Doug Hoyes:    And we’ve also in the past seen a lot of people who tap into their home equity.

Ted Michalos:   Oh I, yes.

Doug Hoyes:    So, HELOCs for example, well I want to loan money to my kids, so what do I do, my house has gone up in value, I’m going to get a second mortgage, a secured line of credit, something like that.

Ted Michalos:   Right.

Doug Hoyes:    And as a result, they’re putting themselves into debt. Credit card debts, lines of credit, we already mentioned what they all are. So, what is your advice then for someone in that situation, it sounds to me like once again this is a prime consumer proposal candidate.

Ted Michalos:   It is. the biggest mistake that we see folks in their 50s, you know, the 50s to 60 year old ages, is that they don’t clear up their debt so when they hit the retirement in their 60s, they’re carrying all this debt they can’t afford. So, even though it sounds drastic to be thinking about a consumer proposal or even bankruptcy, although that’s unlikely a proposal’s more likely, it’s better to clean up your debt now, so that ten years from now you can retire debt free and have a reasonable expectation for a lifestyle when you are retired.

Doug Hoyes:    And you already explained what a consumer proposal, it’s a deal where you make payments over a period of time; the beauty of doing that in your 50s is, you’re still working.

Ted Michalos:   Right.

Doug Hoyes:    You still have a job, hopefully, you still have an income, so it’s, you’ve got the most amount of debt, but it’s also you’ve still got the ability to actually make some kind of a deal.

Ted Michalos:   I mean, your 50s should be the time in your life where you’re in your best financial position and that doesn’t apply to everybody, because they’re, sickness comes in, you could lose your job, you could get divorced; things happen. But 50s, between 50 and 60 is when you’ve got to get your ducks in a row for between 60 and older.

Doug Hoyes:    Yeah. You’re setting yourself up for retirement. Well okay, so let’s talk about the 60+ years, which are leading into retirement and after retirement.

Ted Michalos:   Yeah.

Doug Hoyes:    So, the biggest change, well you tell me, what’s the biggest change when I go from working to becoming retired?

Ted Michalos:   Right. The biggest single change is that your income drops dramatically and you don’t adjust your lifestyle to compensate for it.

Doug Hoyes:    Yeah, because the amount of Cornflakes you eat in the morning is the same whether you’re going into work or not. Now, there’ll be some expenses perhaps, you know, I don’t drive my car as much, I don’t need to buy a new suit every year for work, whatever. But your basic living expenses; your rent, your mortgage isn’t going to change just because you stopped working.

Ted Michalos:   Right.

Doug Hoyes:    So, your income in most cases drops.

Ted Michalos:   Yeah, even if you’ve got a great government pension, it’s still going to drop 20%.

Doug Hoyes:    That’s what a pension is, and most cases, most of us don’t have a great government pension, so our income –

Ted Michalos:   That’s right, it’s all I have –

Doug Hoyes:    Yeah, it’s dropping considerably, so unless you’ve got a lot of savings you can draw on, your income goes down, but your expenses remain the same. And some expenses actually go up, maybe you’re not covered by the company health plan anymore.

Ted Michalos:   Well, and it’s worse than that, some people spend more, because now they’ve got more free time.

Doug Hoyes:    Take up a new hobby.

Ted Michalos:   That’s right, they’re looking, they’ve got to find things to fill their day and so they spend money doing that.

Doug Hoyes:    So, your advice to someone, and again we’re going to talk about debt in a minute, but your advice to someone in that age range is what?

Ted Michalos:   Well again, so we’ve said this repeatedly, you have to have realistic expectations of what your lifestyle’s going to be. Recognize that when you were working full-time, okay I can afford to go to dinner one night a week or two nights a week, whatever it was you and your family were doing, now that you’ve retired you’ve got a fixed income, it’s not going to go up very quickly and it’s less than you were making before, you have to adjust your expenses accordingly.

Doug Hoyes:    And maybe the answer is, great, I’ll learn to cook at home and bring lots of people over and it’s great.

Ted Michalos:   Yeah. I mean, part of the frustration of this is a third of Canadians retire with great money, they’ve got lots of assets, lots of wealth; a third are living paycheck to paycheck, so they’ve got a problem making the adjustment; a third are already in trouble and they’re going to end up talking to somebody like you or I.

Doug Hoyes:    And that’s what we’re going to talk about. And I guess the other thing when you think, okay I’m 60 years old, well if you live to 80 or 90 –

Ted Michalos:   Which you probably will.

Doug Hoyes:    Which you probably will, you’ve still got, you know, 30 40 years left on the clock.

Ted Michalos:   Yeah.

Doug Hoyes:    You’ve got to be thinking about things like, well what about long-term care, I mean at some point I’m not living in my house anymore, those are kind of things you’ve got to be thinking about as well.

Ted Michalos:   Yeah.

Doug Hoyes:    So okay, let’s talk about the people who come in to see us, again they’re 60 years and over, their average debt is over $64,000.

Ted Michalos:   And I don’t know if the people listening or watching have noticed, every decade the debt’s gotten larger, which is, I mean it’s not okay, but it’s understandable. 20 to 30 year olds, it’s so much, then 40, then 50 then 60, we’re now over 60. It’s the highest level so far, but you’re also now back to lower income levels. So, we’ve gone full circle with your income, you’ve built a career, you’ve now stopped making money, you’re on a pension or some sort of assistance and you’ve got the most debt.

Doug Hoyes:    Yeah, it’s a deadly combination. And you’re right, the 18 to 29 year old range was around 29,000 in debt.

Ted Michalos:   Yeah.

Doug Hoyes:    Then by your 30s it’s 47,000 and 50s it’s 59,000.

Ted Michalos:   Now we’re into 63 or 64.

Doug Hoyes:    Yeah, 63 when you’re in your 50, 64,000 by the time you’re 60 and over. And again, we’re talking about people who actually come in to file a bankruptcy or a proposal with us.

Ted Michalos:   Right.

Doug Hoyes:    You’re a third of the population has tonnes of money

Ted Michalos:   And that’s not who we’re talking to –

Doug Hoyes:    And they’re in great shape and that’s good.

Ted Michalos:   Yeah.

Doug Hoyes:    So, you’ve got lower income, but you’ve still got this massive debt, so are we still doing proposals for people over 60 or are we now into the bankruptcy scenario?

Ted Michalos:   Well, so now, it becomes a decision of what can you afford to deal with this problem. So, if your income when you’re over 60 years old supports paying back a portion of the debt, then we still counsel that you consider doing that. But it may be that a bankruptcy makes more sense.

Doug Hoyes:    Yeah. the typical senior who’s doing a proposal has an income obviously.

Ted Michalos:   They’ve got decent employment pension so some description, plus some government money, so bankruptcy might actually be too expensive. I know that sounds counter-intuitive, but the cost of bankruptcy is based on your income.

Doug Hoyes:    Yeah, the more you make, the more you’ve got pay.

Ted Michalos:   So, there are times where it makes more sense to file a proposal to pay less per month for a longer period of time.

Doug Hoyes:    And so, why is it that we see a lot of people who retired in the last year or two who have tax debt? they never had tax debt their whole life, they weren’t self-employed or anything like that, and now they’re retired and yet they owe the government money. How is that even possible?

Ted Michalos:   Well, and so in a lot of cases it’s because they have pensions from more than one source. And so, a pension plan naturally only taxes you at the lowest possible rate, because they want you to have as much money every month as possible. Well, if you’ve got two pensions and they’re both doing that probably they’ve jumped into a higher bracket.

Doug Hoyes:    Yeah. But pension number one only knows about itself, so it says, oh well, based on this income you’re in the 20% bracket, the other guy says the same thing. Maybe you got a little bit of a part time job, maybe you’re getting some CPP, some OAS whatever, you add it all up, no you’re actually in the 35% tax bracket.

Ted Michalos:   It doesn’t take much to bump you.

Doug Hoyes:    And you’re not paying enough.

Ted Michalos:   Right.

Doug Hoyes:    So, I think we’ll close with that piece of practical advice, that if you are a senior, before you retire crunch the numbers on what your tax liability is likely to be and make sure you’ve set aside enough to deal with that.

Ted Michalos:   Well, and take it a step further, so if you’re going to have multiple pensions, make one of them your designated tax payer. So, if you’ve got a government pension increase the amount the tax they’re taking off at source, so you don’t need to worry about this. And taking a little bit off every one of your pensions will drive you crazy, just pick one that is going to deal with this problem.

Doug Hoyes:    Yeah, and it’s not that hard to phone up either the CPP people as Service Canada or your company pension or whatever and say, okay I know the calculation says you’re supposed to be taking off 300 bucks a month, make it 450.

Ted Michalos:   Right.

Doug Hoyes:    And then I’m good and it’s not a horribly hard calculation to do, you just take last year’s tax return and punch in all the new numbers for this year, it’ll give you a rough estimate of where you need to be.

Ted Michalos:   And if you’re going to make a mistake, be conservative, add an extra 50 or 100 bucks, because you’ll get the money back.

Doug Hoyes:    Well, and also when you retire, it’s not totally uncommon to have some kind of retiring allowance or get some kind of severance or some extra little bump.

Ted Michalos:   Pay out your sick days, if you work for the government.

Doug Hoyes:    That’s right, yes, we won’t get into that discussion either, but there can be many things that can bump you into a higher category, so you’ve got to be –

Ted Michalos:   That’s right.

Doug Hoyes:    You’ve got to be careful about that. So, I guess your advice was kind of the same all the way throughout –

Ted Michalos:   You’ve got to have a plan, you’ve got to live with your means and you need to be careful, the only person who cares about your finances is you. If you’re expecting somebody else to look after you, you’re probably making a mistake.

Doug Hoyes:    Yeah, they’re not going to do it, so yeah, look out for yourself. And if you find yourself in serious debt problems regardless of what age you are, reach out for help

Ted Michalos:   That’s right, talk to a professional, it doesn’t have to be Doug or I, although we’d certainly appreciate that, but if you have a problem with your tooth you go see the dentist, if you have a problem with your money or with your debts you should see somebody specialised to deal with your debts.

Doug Hoyes:    Because that’s what we’re here for and we obviously are familiar with dealing with all different age groups.

Ted Michalos:   That’s right.

Doug Hoyes:    Excellent, thanks very much Ted, that’s where we will close it. So, here’s the point, you know, we face different challenges at different stages in life, that’s really what we’re saying. You know, as a young person maybe you’re more likely to be dealing with student debt. You know, in the family years you’re supporting your kids, perhaps you’re also helping your parents. Pre-retirement, your income hopefully is at its highest, but that’s what, you’ve got to also be focusing on eliminating as much debt as you can. And then as we said, by the time you retire your income drops, your expenses don’t drop by as much, so you’ve got the challenge of living on reduced income. And so, that’s why we went through each different age group and hopefully we’ve given you lots of practical advice to deal with each particular age and each of life’s stages. We’ve covered a lot of ground on today’s show, so please go to hoyes.com, that’s H O Y E S .com, where you can find show notes with a full transcript of everything we’ve discussed today.

So, until next week, for Ted Michalos, thanks for listening. I’m Doug Hoyes, that was Debt Free in 30.

The post Why You Want to Avoid Debt at Every Age appeared first on Hoyes, Michalos & Associates Inc..

An emergency fund is money that is available to meet unexpected expenses.  You may be managing your current budget, but life tends to throw curveballs. Emergencies like a job loss or illness can lead to a reduction in income. Unanticipated expenses like a car repair, house repair or a trip to the dentist put sudden demands on your finances. An emergency fund helps you pay for these unplanned costs.

Why is an emergency fund necessary?

The number one reason to have an emergency fund is to help you avoid unnecessary debt. Having a rainy-day fund helps you pay for these unplanned costs without using credit card debt, or worse taking out a payday loan.

Having an emergency fund provides several benefits:

1. You avoid accumulating unwanted debt.
2. You’re not forced to forgo needed items or postpone a bill payment when a financial emergency arises.
3. You have less stress and confidence that you can weather a short term financial crisis without creating new money worries.
4. You avoid any possible negative impacts on your credit report due to high borrowing or missed payments.

How much should you save for an emergency?

Many people wonder how many months savings they need in an emergency fund.  Most experts agree you need to be able to weather at least 3 to 6 months worth of expenses in the event of a job loss. However, how much you need is a very personal decision.

You will need a bigger emergency fund if your income is not secure.  If you might lose your job or expect your hours to be reduced then it’s even more important to have a larger emergency fund that will cover rent, food, utilities and living expenses while you look for work.

If you are more worried about unexpected expenses popping up, then having a backup fund of at least $1,000 is a good start.

You don’t need worry that you must set aside your full emergency fund right away. If your goal is to have $1,000 saved, then you will need to set aside $20 a week to build your reserve fund within one year.

Where should you keep your emergency funds?

Your emergency fund should meet two key criteria:

• It should be readily available cash that you can access easily
• It should be invested in an account that is safe from market risk

It also makes sense to seek out a good interest rate however this is not a primary concern. Your emergency fund is not investment savings, it’s a reserve fund for just that – emergencies.

Having your emergency fund at a bank in a saving account that is accessible by your debit card is the simplest approach.  A savings account (rather than a chequing account) will earn you a bit more in interest but access via your debit card ensures that you can get to the money when you need it.

If your reserve is larger, say you have 6 months worth of savings, you might want to put a portion of your money into a cashable money market fund.  Make sure there are no costs to closing the fund in the event you need to convert the fund to cash.

Can I use a line of credit for emergencies?

Yes, a line of credit or other available credit like a credit card is an option for meeting emergency expenses but using debt for an emergency fund comes with some risks. The advantage of a line of credit is that you have access to pre-approved credit for when you need money fast.

There are, however, some downsides to using credit as a form of emergency fund:

• You will pay interest on your borrowings until you can repay the amount your borrowed in full.
• You may be tempted to use your line of credit for non-emergency purchases.
• You may incur more debt than you can repay, adding to your financial problems down the road.

Generally, it is best to avoid using credit cards as an emergency fund.

How to easily build an emergency fund

The best way to build an emergency fund is to have a plan. Creating a goal and sticking to it will make it easy to meet your savings target. Here are 6 tips to help you build your emergency savings:

1. Review your budget for savings and transfer this amount to your emergency savings. Every little bit helps. Once you have your emergency fund built up, you can feel free to put this back into everyday spending (or apply it to other savings goals)
2. Automate your savings through online banking and you are much more likely to achieve that goal than if you rely on your memory or personal discipline.
3. Sell off extra or unwanted assets. Most of us have stuff filing up our closets or basements that we don’t use anymore. Have a yard sale or put some items up on Kijiji.
4. Take on a temporary part time job. If you are worried that you might hit a snag sooner than later, then take on some extra work, even temporarily to build up some extra cash.
5. Only use your emergency fund for emergencies. Once you start building your fund, don’t be tempted to dip into that fund for non-emergencies.
6. Set up a separate savings account helps you monitor your progress and ensures you protect these funds from being depleted for everyday expenses.

Avoid these common ways to pay for emergencies.

The purpose behind an emergency fund is to avoid using expensive debt or cashing in long term savings when you need money quickly.

Be careful using your credit cards. A cash advance may provide you with quick money but it’s an expensive borrowing option. Avoid using your credit cards for emergency funds if you can’t pay off your balance in full. If you bump up against your credit limit, or worse go over your credit limit, and can’t pay off the balance you will also see a negative impact on your credit score which can impact your other borrowing options long term.

Try not to drain your retirement savings. Withdrawing money from your retirement account comes at a cost. When you initially put the money into an RRSP, you received a tax deduction. Withdrawing the funds will mean you will have to pay tax on the amount withdrawn. Most institutions will holdback at least 10% of your withdrawal for applicable taxes, which means you will need to take out even more than the amount you need to cover your emergency.

Avoid payday loans and other quick money loans. It may be easy to walk into a payday loan store or apply for a quick loan online however these are very expensive borrowing options. If you use a payday loan, not only is the interest rate high but you will have to pay back that money our of your next paycheque creating a possible cash shortfall cycle that is hard to break.

If you don’t have enough set aside to cover your emergency consider asking friends & family for a temporary loan, selling off some assets or even asking for extra time to pay.

Having an appropriate emergency fund should be part of your overall financial strategy. Many of our clients find that once they have eliminated excessive debt they have the cash-flow they need to begin the process of building an emergency fund as part of their fresh start.

The post Why You Need an Emergency Fund appeared first on Hoyes, Michalos & Associates Inc..

Here are five types of debt you should never carry into retirement:

1. Credit card debt
2. Tax debt
3. Payday loans
4. Student debt
5. High-ratio mortgages

Dealing with debt

The closer you are to retirement, the higher priority you should place on paying off your debts. Here are some tips that can help:

• Prioritize your debts. Pay off the most expensive first – the highest interest rate debts. Eliminate revolving debt (credit cards, lines of credit) – they are difficult to pay off on a fixed income.
• Be careful of offering financial assistance to adult children. Avoid co-signing loans that will jeopardize your own retirement.

Credit score issues in your senior years

You may not need as much credit in your elder years, so look at your overall financial picture rather than your credit score.

Focus on eliminating your balances and lowering your credit utilization rate. Use less credit and more cash.

Downsizing your budget & your finances

Living on a fixed income, no matter the size, means adjusting your cash outflows to match.  Here are some ways to save:

• Downsize your home and take advantage of any equity to reduce your mortgage.
• Cancel extra credit cards, reduce lines of credit to remove the temptation to borrow more as your income decreases.
• Reduce your car costs. You won’t be driving for work and may only be driving occasionally. Avoid car loans on a fixed income, buy a smaller car for cash instead. Consider dropping down to just one vehicle to save on insurance and maintenance costs.
• Re-assess your insurance needs versus the cost. If your children are grown and you have savings, you may no longer need the same level or type of life insurance. You may want to switch from income replacement disability insurance to critical illness coverage.
• Get rid of your landline phone and cable TV. Consider a streaming service (Netflix or CraveTV) if it will save you money and keep you connected.
• Considering eating out for brunch or lunch instead of dinner. In most cases you get the same food, just at a lower cost.

Earning extra money

• Take advantage of any employer pension matching program (from a young age).
• Add a year or two at your job after you planned to retire & sock that money away as a buffer.
• Find a second career option. Add some cushion to your fixed income.
• Take into consideration employment and pension income, you could increase your personal tax debt.
• Consider taking a Victory Lap Retirement.

Saving & being prepared

• Have a power of attorney for property and your finances in case you fall ill.
• Ensure you have an up-to date will.
• It’s still useful to consider a TFSA as a savings vehicle even after retirement.

The financial preparedness plan

While your cost of living might drop in your senior years, you will still incur much of the same types of expenses you incurred before retirement. Being prepared to live off a fixed income means having money set aside for each of these purpose:

1. Emergency Savings: This protects you from costs like small home and car repairs.
2. Retirement Savings: How much you will need depends on your lifestyle expectations and how young you retire. If you carry debt into retirement, you will need more money to keep up with debt payments.
3. Personal Saving: Consider this your discretionary account and comfort cushion. It’s money you use to replace your car, take a vacation, pay for medical bills, etc.

The post How to Minimize Debt Before and After Retirement appeared first on Hoyes, Michalos & Associates Inc..

1. It might be on sale, but that doesn’t mean you’re saving if you don’t need it.
2. Buying on credit and keeping a balance eats up any sales discount you received.
3. Knowledge is power. Teach your teens about credit cards. Help them avoid the debt trap.
4. The debt trap: Never use payday loans to keep up with debt payments.
5. Avoid eating out. Make meals at home or brown bag it.
6. Learn to say no – to spending, to the salesperson, to yourself sometimes.
7. Shopping lists help you stay on track at the store.
8. Buying a car? Think beyond the monthly payment. Maintenance, repairs, it all adds up.
9. Save on interest. Put every extra penny towards debt.
10. Pay off high interest cards first. It’s money sensible.
11. Extra income should equal extra debt payments.
12. View dollars in hours. How many hours of work will it take to pay off this purchase?
13. Pay for the small things, like coffee, with cash not credit.
14. Never put a vacation on credit. Save first.
15. Once out of debt, build an emergency fund first thing!
16. Plan. Plan. Plan. Plan your spending, saving, and debt repayment.
17. Think twice about impulse online purchases.
18. Remember: if you can’t pay for it, you can’t buy it.
19. Carry only one or two credit cards and keep the limits low.
20. Make a 5% savings goal. You have to start somewhere.
21. Eliminate duplication. Do you need Netflix and Crave?
22. Don’t chase a credit score. Chase financial security = no debt.
23. Avoid unnecessary cash advances. Show yourself some tough love and stick to your budget.
24. What’s yours is yours. Don’t lend your credit card to anyone.
25. Pay the minimum plus some extra. The more the better.
26. Buy used. We live in a sharing economy where new doesn’t mean better.
27. Think long-term: $20 in credit card interest can quickly add up.
28. It’s OK to stay behind. Shop for clothes towards the end of each season while they’re on sale.
29. Think like Santa. Keep your holiday spending in check. Make a list and check it twice.
30. Give yourself a break. Don’t punish setbacks. Push ahead.
31. Read the fine print. Compare your options. You have a choice.
32. Purging pays. Sell your unwanted clothes, furniture, and books.
33. Debt is 90% behaviour. Encourage yourself to stay on track.
34. Take control. If you’re prone to overspending, reduce the limit on your credit card.
35. Eliminate unnecessary debt. Are you using that service plan?
36. Set priorities. 1- Necessities 2- Debt Repayment 3- Savings 4- Everything Else
37. Compound interest works for you if you save, and against you if you owe.
38. Meal planning: Saving you money along with your sanity.
39. Think big picture. Avoiding debt is the best way to save money for your future.
40. Big expense coming up? Make a budget and stick to it.
41. Be aware of your balances. Put a sticky note on the fridge.
42. Visualize yourself debt free. Tell your friends too.
43. Skip it. Friends like expensive dining? Join them afterwards.
44. Pay yourself first. Set aside a portion of each paycheque to your savings.
45. Say bye-bye to ATM fees. They add up. Plan withdrawals ahead of time.
46. Adapt, don’t break. Let your budget have some flexibility for life changes.
47. Be practical. If you have to put something on credit, put it on the card with the lowest interest rate.
48. Remove triggers. Unsubscribe from promotional emails.
49. Have weekly meetings to keep your budget on track.
50. Think long-term. Carrying some credit card debt might help your credit score, but it’s too costly.
51. Stay current. Review monthly and annual service plans for things you no longer use.
52. Know the score: Find out your credit score and see if there’s room for improvement.

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People frequently do not know the full terms and conditions of their credit cards, bank loan or line of credit.  Do you know what types of fees you have to pay if you are late? Do you know when interest starts if you take a cash advance?  Not knowing the answer to these questions can mean you pay more fees than you should.

Based on your payment pattern, what type of borrower are you?

Pay in Full Borrower

A 2015 survey by Abacus Data found that roughly 56% of Canadian pay their credit card balances in full every month.

Paying your balances in full, each and every month means you pay no interest or payment fees on your account. You purchase something for $125 and the cost to you is $125, no more.

Pay in full borrowers use their credit card as a payment convenience so they don’t have to carry cash but are not using credit cards as a source of borrowing. They don’t risk driving up their credit card debt because they know they are spending well within their means. They only borrow what they can pay off completely at the end of every month.

We recommend that everyone treat their credit cards and similar spending credit this way. If you pay your balance off in full each and every month you save money on interest charges and will never find yourself deep in debt.

Borrower / Saver

The same Abacus Data study found that for credit card users who typically do carry a balance beyond month end, 16% pay it off most months and 40% pay off more than the minimum payment required. Borrower/savers tend to carry credit card balances most months pushing to pay down those balances, only to see them increase again.

The disadvantage of this approach is that you will incur interest costs and fees which lower your ability to save money.

While sometimes the cause is an unexpected expense, like a car repair, it can also be a sign that you have a tendency towards impulse shopping.

Our advice is to keep track of your balances regularly and make it a goal not to charge more than you can safely repay at the end of the month.  Having an emergency fund can help reduce the need to turn to credit periodically.

Fee Payer

If you make only the minimum payments on your credit card bills, regularly incur late charges and over-the-limit fees or take cash advances, your borrowing and debt payment habits make you a fee payer.

The fee payer is using credit card debt as a substitute for a cash shortfall. Balances typically grow over time because you are not able to catch up.

It’s time to create a budget to help you balance your cash inflows and outflows. Include a debt repayment plan as part of this budget to reduce your overall balances.

Payday Loan User

According to a study conducted by Harris Poll on behalf of Hoyes Michalos, one-in-ten Ontarians have taken out a payday loan in the past 12 months. Almost half of all payday loan users agree they turn to payday loans because they already carry debt.

The high fees and costs of alternative lending products making getting off this debt cycle very difficult.

Seldom do our clients start out as a payday loan user. The typical scenario is that of a credit card user who, for one reason or another began to use credit cards as a borrowing tool, rather than a payment tool.  Having done so they became a borrower / saver. As debt increases, paying down balances becomes increasingly difficult – and soon these same individuals find themselves becoming a fee payer, with many turning to payday loans to continue to make ends meet.

Ask yourself where you sit on this scale?  If you are a heavy borrower and see no way out, take action. Contact us today to reverse the cycle so you too can become a wise, pay in full borrower.

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The key to keeping credit under control is to be prepared for upcoming life events, sticking to a goal centered budget and saving for what you want.

Dealing with milestones

1. Talk about money before getting married.
2. Be prepared for the financial impact of maternity leave, child care costs.
3. Run the housing numbers. Rent vs buy? Large or small? Now or later?
4. Prepare and stick to a budget that is goal-driven.
5. Let compound interest work in your favour – save, don’t borrow.

Merging finances

More than 1 in 3 couples approaching marriage do not discuss finances before entering into a permanent relationship. With more than 4 in 10 marriages starting out with pre-marital debts, that means many will be surprised by how much their partner’s debt obligations. While you do not, by virtue of being married, assume legal obligation for your spouse’s debts, it is better to deal with your financial planning, including debt repayment, as a couple.

Here are some tips on successfully merging your finances along with your relationship:

• Make a combined budget, together. Budgets are far more successful when both parties are given the opportunity to provide input.
• Set common goals but allow for personal spending.
• Let whoever is better at managing bill payments do that task. If someone is better at research, let them do the comparison shopping. Big decisions should be made together but that doesn’t mean the tasks can’t be allocated. Make sure each partner has enough information to step into the other’s role during times of emergency or life changing event.
• Be upfront about how much debt you bring into the relationship. Don’t hide any spending. Own up to past financial lessons.
• Communicate regularly about finances. This is key to preventing surprises and financial stress.

Should you have one bank account or two?

• A joint chequing account is easier to manage but can get complicated if you have pre-marital debts & personal obligations such as child support.
• Having a common joint account plus separate accounts for personal expenses can also work. Agree upfront about how much goes in each period & what get’s paid out of which account.
• Decide which option is best before you tie the knot.

Dealing with debt

• Don’t lay blame. Deal with your debt as a couple no matter where it came from.
• Faster is better. Pay off debt before achieving any loftier goals like buying a new car or vacation. The longer you are in debt, the more it costs.
• Make a plan. Tackle the debt head on, and together. Make a budget, find ways to cut back on saving and put everything you can towards debt repayment.
• Build an emergency fund. Your expenses are likely to go up, not down now that you have kids. If you’re living off two paycheques, the financial risk of an unexpected event is huge.

Keep separate credit scores

Having your own credit score is a good idea in the event of a divorce, financial mishap or death of a spouse.

• You don’t assume your spouse’s debts just because you are married.
• Keep separate credit cards so each of you builds a separate credit history.
• Pay off your balances together, but build your history separately.
• Talk about each person’s credit report and credit score before taking on joint debt. Make sure you understand your responsibility and the rights of creditors before taking on joint debt.

Buying the family home

Your home will likely be the largest purchase you ever make. The key to financial success is to take as much emotion as possible out of the decision making process.

• Start saving for a down payment long before your family grows.
• Be careful not to become house poor. Maxing out your mortgage may result in a very tight budget and cause financial stress.
• Buy a reasonably sized home. It not only reduces your mortgage, but cuts back on other costs including property taxes, insurance, utilities, maintenance, and furnishings.
• Consider all closing costs including legal fees before you buy.
• Consider renting as a valid option and invest the savings.
• Don’t feel you have to furnish every room right away.
• Go for the shortest amortization period you can afford. The faster you pay off your mortgage (paying weekly or bi-weekly instead of monthly), the less interest you will pay.
• Understand what your home insurance covers and doesn’t cover. Comparison shop insurance rates when it comes for renewal.

Embrace frugal living

As your family grows, so too will your expenses. Living frugally doesn’t mean you can’t take a vacation or enjoy an evening out, but embracing the concept of watching the small dollars can make the difference between a balanced budget or increased reliance on credit to make ends meet.

Look for ways to increase savings or speed up debt repayment:

• Do you need two cars? Can you buy a less expensive car?
• Discuss needs versus wants. Memberships, clothing costs, personal care can become luxury items too just as much as a vacation.
• Track all spending. Decide what to do with any savings together, deal with any shortfalls together.
• Cook and eat at home. Menu plan before your shop.
• Reduce (do without) Reuse (hand-me-downs are OK) Recycle (share tools and bulk buys)
• Stop the waste. Don’t buy what you can’t eat or use.
• Avoid fad or impulse purchases.
• Be creative with gift giving. Homemade items save money. A visit is better than a gift, draw names.

Teaching kids about debt

Children learn money habits from their parents. In addition to teaching them the value of money and how to save, here are six lessons kids should learn about debt:

1. It is MUCH easier to get into debt than it is to get out of debt. Never approach debt lightly.
2. Borrowers need to repay the amount they spend, plus interest. Interest can add up quickly and cost you a lot of money.
3. All debt has risk. Sometimes you lose your job, get sick or life throws you a curve. Make sure you always have a backup plan such as emergency savings.
4. Once you get behind it’s hard to catch up. Interest on interest adds up quickly when you miss payments.
5. Debt limits your freedom to choose. If you already owe money, you can’t afford something else. If you are stuck with a big car loan, you can’t take a vacation. Even ‘good debt’ like student debt and a mortgage limits your ability to move, or take a lower paying job for experience, reset your priorities.
6. Debt is easy to get, but can quickly get out of hand if you don’t keep track.

When it comes to money, the old expression “an ounce of prevention is worth a pound of cure” is true.  Taking some time now to discuss finances with your partner and children is key to building a financially healthy future.

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5 Money Lessons From The Previous Generation

1. 10% of Yours is Yours to Keep. A little tougher today but even setting aside 5%, from a young age is a good goal. Can’t manage 5% yet? Then start with 1%. Starting early, no matter how small, creates the mindset that you should be saving. Having an emergency fund to rely on means you’ll avoid credit, and related interest fees. Put the money in a separate bank account, one that you tell yourself you can’t use unless doing so meets your long-term financial goals.
2. Don’t Buy What You Can’t Pay For. Even your parents likely took out a mortgage for a home, and today it’s highly likely you will need a car loan. However, this saying still holds up well when it comes to anything except pure necessities. If you can’t pay cash for a new TV, boat, furniture or the like, do without.
3. Make What You Have Last Longer. Take care of what you do own, and keep everything well maintained.  Failing to change the oil in your car regularly or change the furnace filter might save money in the short-term, but you’ll end up having to replace things sooner or end up with a bigger repair bill. In today’s world this saying goes a little further than household fixtures. You don’t have to keep up with the latest trends like having the newest cell phone on the market. There is no crime in keeping your cell phone for six or seven years if it’s still working.
4. Vacations, and Life, Happens at Home. Previous generations saved a lot of money by spending time at home. They ate in more, dined out less. They vacationed at home or nearby. They watched TV at home or enjoyed the yard, went out less for their entertainment. While it’s great that we have so many more opportunities than our parents did to get out and enjoy life, practice moderation. So set a budget and live within it.
5. Live Modestly.  Those who look like they’re rich probably aren’t (those who don’t, just might be). This is an interesting take on the keeping up with the Jones’ syndrome. Stop worrying about how your financial situation looks to those around you. If you drive an old car but have savings in the bank you are better off than the neighbour who has a 48-month lease an expensive SUV. Your wardrobe or your electronics don’t have to follow the latest trends. Trends benefit the seller, not the buyer.

You are in charge of our money. Every time a modest millionaire chose to buy something, go somewhere or do something, they factored in the cost. Thinking about money shouldn’t consume your life, but it should be part of your decision making process. Your parents and grandparents knew this – you should too.

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