Resolutions for 2023: Take charge of your finances!
It is no secret that financial difficulties are a huge source of stress for families who experience them. Numerous polls in the past have stated this. What we learn from them is that one of the main causes of stress is the inability to cope with an unexpected expense. This is the case when there is no money set aside to deal with a sudden drop in income or a significant car repair, for example.
Every week in our offices, we meet people who are out of solutions, and in 6 out of 10 cases, it’s due to an unforeseen event that significantly disrupts the budgetary balance (loss of job (25%), separation (25%), and illness (10%)).
As in many situations, one unfortunate event creates a domino effect. The increase in your monthly mortgage payments is an example. For a mortgage of $300,000, we’re talking about an average payment increase of about $700 per month!
In this situation, in the absence of an emergency fund and a reduction in expenses, it is almost impossible to keep up with all fixed expenses (mortgage, car payment, food, etc.) and not to be late in paying our consumer debts (credit cards, personal loan, line of credit). However, a delay of more than 30 days can leave marks on your credit file that will stay there for… 6 years! And our repayment habits (paying on time or not) are the factors that most affect our credit score.
Once our credit file is tarnished, the solutions available to us are more limited. Indeed, consolidating your debts through a line of credit or, failing that, a consolidation loan can reduce the interest rate and group payments into one payment, and is often the last solution before considering a consumer proposal.
As we can see, the domino effect of not being able to keep our payments up-to-date in case of unforeseen events can lead to an inability to consolidate our debts, reduce our interest rate, and prevent part of our future income from going up in smoke.
In addition to allowing us to sleep better, an emergency fund, representing at least one month’s expenses (ideally three months), can thus avoid affecting our credit file and therefore our borrowing capacity for several years.
To compensate for all these unexpected events and their consequences, there are not many solutions. Automatically setting aside a sum of money every week, however small, allows us to learn to live without this sum of money and creates good saving habits. Just like we should do in a weight loss plan, it is better to set less ambitious goals but pursue them over a longer period than to set aside a large amount of money that leaves you no breathing room.
Once your emergency fund is well-stocked (ideally 3 months of monthly expenses), your good saving habits can be used for medium and long-term goals such as a trip, renovations, and retirement.
So here are some simple tips and tools that we give to those who consult us:
- Find out from your payroll service if they can set aside an amount from you pay. If so, open a savings account and deposit an amount that you believe you can live without. Otherwise, ask your financial institution each time your pay is deposited.
- Make a budget to know where your money is going and ask yourself if savings are possible. In general, some small savings can always be made.
- Take an inventory of your debts and calculate your debt ratio using online tools.
• Discuss with your financial institution or a personal finance advisor at Jean Fortin a repayment plan for your consumer debts (credit card, line of credit, personal loan) over a maximum of 60 months.
In conclusion, you do not have all the control over your income that you would like to have, but you can work on some of your expenses. It may seem a bit complicated at first glance, but those who tackle it reap the benefits. Small sacrifices over a long period can yield big results. So take control of your finances now by starting to build up an emergency fund. Peace of mind is priceless!