TEN

It’s Never Too Late To Start Being Money Smart!

The time for action is now. It’s never too late to do something.

— ANTOINE DE SAINT-EXUPERY

TAKING CARE OF your finances is a lot like getting in shape. It’s easy to overeat and put on weight, just as it’s easy to overspend and rack up debt. You can get physically fit if you change your habits and eat less and exercise more. Doing a little bit at a time and doing it regularly can do a lot for your fitness.

Being financially healthy requires the same discipline. You can get financially healthy if you change your habits and spend less and save/invest more and reduce your debt. It takes hard work, discipline and tough choices, but it can be done and it’s never too late to start.

The 2018 CPA Canada Canadian Financial Study (CFS) survey found that Canadians are saving less, spending more and taking on too much debt. If this describes your financial habits, it doesn’t mean that you can’t change. Having read this Guide, you know that being money smart is within the reach of everyone who is willing to learn and wants to take control of their present and future finances.

The ideal moment to start your financial plan is right now! Seize the day and take control. You have the means in your hands today to take action for yourself. The following are three important areas you should focus on first.

1. Start by Saving More

Pay Yourself First

CPA Canada’s CFS survey found that 44% of Canadians save less than 10% of their monthly income and 17% nothing at all.

You really need to save before you spend! Do not look upon savings as something left over after you’ve spent everything else. Save first, then live and budget with the net amount. As of August 2018, Statistics Canada reported that Canadians had an average annual salary of about $51,000. If we suppose that is the average salary for 40 years of working life, $2,040,000 will pass through your hands. If you saved just 10% over your lifetime — not even allowing for investment growth — you’d have $204,000 by just skimming a little off the top. Plus, with some investment acumen, that number would be significantly higher.

2. Start Spending Less

Put Yourself on the “30-Day Budget Diet”

Focus your fiscal thinking on how to make the most of the money available to you. Tracking your spending will reveal how much of your income is spent on wants rather than needs. Just as we thoughtlessly consume empty calories by continuing to eat even when we’re not really hungry, we can carelessly create financial waste. You might be surprised at how much.

To manage your money better, you’ll need to start by counting your financial calories on the 30-Day Budget Diet (see Chapter 2):

Step 1: Track your spending for 30 days

Step 2: Categorize your spending

Step 3: Crunch the numbers

Step 4: Trim the fat

3. Start Managing Your Cash, Credit Cards and Other Debt

Canadians are carrying more debt than ever before and according to CPA Canada’s CFS study nearly 40% of them would be challenged to keep up with mortgage or debt payments if an increase in interest rates meant their debt payments increase by $250 or less per month. The use of credit card financing, often with double-digit interest rates, is on the rise. Almost one-third of Canadians have carried over a balance on their credit card in the past five years.

It has been said that if you want to curtail your spending, use cash, because paying with plastic happens so quickly you don’t feel any loss. However, it’s very difficult to get around in today’s world without a credit card — the goal is to minimize carrying a balance. So, become aware of the benefits (and dangers) of credit cards and ensure you always make your payments on time!

Try to Say “No” to More Debt!

According to CPA Canada’s CFS survey in the past five years 17% of respondents have borrowed to cover day-to-day living expenses, and nearly half still owe against these loans. If the only way you can afford things you want (not need) — such as a vacation or new clothes or a new TV — is to charge it on a credit card/line of credit/no-payment-no-interest offer without a means of paying for it in the near future, save up for it instead. You’ll enjoy your purchase much more and reduce your stress in the long-term.

Try to resist the temptation to take on more debt as no borrowed money is “free”; it always has to be repaid.

Jane was depressed; she was in her late forties and newly divorced. For the first time in her life she was on her own. She was also in a really bad financial situation — she had no assets as her divorce had followed the loss of a family business (caused by a prolonged economic downturn) and all their family assets had been sold to pay off both their business and personal debts. Her credit score was at an all-time low.

She found a steady job with some benefits and a pension plan, but was very worried about her future — starting again with no credit and no assets — so she sought the advice of a financial advisor at her bank. The financial advisor suggested she could start her recovery by being careful with her spending and to take out a small RRSP loan to help her re-establish her credit while starting to save again for her retirement. The majority of the loan would be paid off by her tax rebate and she could afford to repay the remaining amount monthly over the following year.

Jane carefully assessed all her expenditures, used only cash for several years (when her improved credit score enabled her to get a credit card, she made sure to pay the balance off monthly), started to save a small amount each month and continued to get an RRSP loan and repay it promptly to help her credit score.

Within a few years, Jane had saved a minimal down payment and was able to get a mortgage (with her good credit score) and bought a condo. Her mortgage and fees were no more than her rent had been. Whenever she could she added to her RRSP and used her tax rebate to pay down her mortgage.

By the time Jane reached 65, she could look forward to her retirement with confidence — her mortgage was almost paid off, she received a company pension (as well as CPP and OAS) and she had a healthy amount in her RRSP.

Ready, Set, Go!

I hope that this Guide will help you start to make improvements in your financial health and you will make it a life long goal to continue to do this. Keep this Guide handy and refer to it as your financial needs evolve. Be sure to visit cpacanada.ca/financialliteracy for information, tips, resources and bonus material.

Here’s to your financial success!