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We’ve all heard the saying ‘money doesn’t buy happiness’, but it’s undeniable that financial security brings you peace of mind. For many, one of the biggest stumbling blocks for that peace is the looming shadow of debt.
Whether it’s the result of unexpected life events, like job loss, or simply a lack of financial understanding, being in debt can be stressful and overwhelming. Thankfully there’s a silver lining – no matter where you are on your financial journey, there are steps you can take to avoid debt all together.
Here at Harris & Partners, we have over 50 years of experience in helping Canadians solve their financial troubles. We’ve used this expertise to put together some simple steps you can take to keep your financial freedom.
How do you build an emergency fund?
If you’re finding your way through stormy financial seas, you’re going to want a lifeboat. When it comes to avoiding debt, that lifeboat is an emergency fund. This is a dedicated account used to cover unexpected expenses, like medical emergencies, sudden car repairs, or unexpected home maintenance. Essentially, it serves as a financial buffer against life’s curveballs.
Why do you need an emergency fund?
If you set yourself up with an emergency fund, you won’t have to turn to credit cards or loans when faced with unexpected expenses, helping you avoid accumulating debt.
While the amount of money in your emergency fund is up to you, it’s generally a good goal to cover between three to six months of living expenses. This might seem like a long time, but it will mean you are covered in the event of job loss or a prolonged medical situation. Here are some simple steps you can follow to start your emergency fund:
Building your emergency fund
Set clear savings goals
Begin with a modest target and once you achieve that, aim higher until you hit three to six months’ worth of expenses.
Automate your savings
Make it effortless, with an automated payment a portion of your paycheck will be saved before you even see it.
Reduce discretionary spending
When saving, you have to prioritize your needs over your wants – before you buy something, whether it’s a new outfit or phone upgrade, ask yourself if you really need it. Small savings like that can add up quickly.
How Do You Make a Savings Plan?
Having a plan for your money is a key part of keeping a firm grip on your finances. A well-crafted savings plan gives you a clear view of where your money goes every month. This helps you make sure you’re living within your budget and avoid the pitfalls of debt. Here’s how you can get started with your savings plan:
Crafting your spending plan
Start by tracking
Before deciding where your money should be spent, understand where it’s currently going. List down all your monthly expenses, from rent and bills to those occasional treats.
Try the 50/30/20 rule
If you struggle to keep a track of your spending, this simple way to budget allocates 50% of your income to necessities, 30% to wants, and 20% to savings. If these portions don’t fit your financial outgoings, adjust it to suit and then stick to that.
The envelope system
This age-old method involves putting cash in envelopes designated for different expenses. Once the cash is gone, that’s your spending limit for the category. Even the act of holding actual money can help some people to fully appreciate the amount they are spending on things.
How to Stick to a Savings Plan
When it comes to sticking to a savings plan, consistency is key. These plans not only ensure you’re preparing for the future but also keep you from slipping back into old spending habits.
Whether it’s setting aside a portion of every paycheck, investing in a retirement fund, or simply dropping spare change into a jar at the end of the day, find a method that resonates with you and keep at it.
Only Borrow What You Need
Borrowing can be an essential tool for many people to achieve financial goals, whether it’s to help you buy a home or to pay for education. However, the golden rule is to only borrow what is necessary. Borrowing too much is a surefire way to fall into unmanageable debt.
Why? Borrowing more than needed often means paying more in interest overtime. This can prolong the repayment period and squeeze your monthly budget. Whether you’re looking into personal loans, mortgages or other types of debts, always evaluate your actual needs.
Limit Your Number of Credit Cards
One way to make sure you only borrow what you need is to limit the amount of credit cards you have. While multiple credit cards might give the illusion of having more spending power, they can quickly become a heavy financial burden if not managed properly. Here’s how to keep on top of things:
Evaluate your usage
Review your monthly statements and take note of which credit cards offer the best benefits for your spending habits.
Cancel unused cards
If you have cards collecting dust, it might be time to cancel them – just make sure you do it gradually to avoid a sudden drop in your credit score.
Consolidate balances
If you have balances spread across multiple cards, consider transferring those balances to a card with a lower interest rate. This can simplify your repayments and reduce your interest costs.
Manage your credit card bills
Using credit cards can be a double-edged sword. While they offer convenience and rewards, carrying a balance can result in high-interest costs. Paying your credit card bills in full each month is your best defence against spiralling into credit card debt.
Why? Making only the minimum payment might seem enticing, but it can lead to ballooning interest charges. Moreover, carrying a balance can adversely affect your credit score, reducing your financial options in the future.
Avoid unnecessary balance transfers
Transferring your credit card balance can seem appealing, especially if there’s an offer of low or zero interest. Just remember to be wary and look before you leap.
Some offers may come with fees that reverse any interest savings. And, if the promotional period ends, the interest rate can skyrocket. So, before jumping on any balance transfer offers, read through the terms and fees. Ensure that the transfer aligns with your long-term financial goals, rather than being a short-term band-aid solution.
How to Eliminate Debt
If you’ve already found yourself with mounting debt, eliminating it starts with a clear and actionable plan. First, take a look at your whole financial situations – list all of your debts, noting their interest rates and balances.
Prioritize paying off high-interest debts first, as these cost you the most over time. Once you have a clear picture of how much you owe, stick to a budget that cuts unnecessary expenses and frees up more money for debt repayment.
We understand that this can become overwhelming, which is why our team is on hand to help. Give us a call today on 888-376-8488 and we can find the debt relief solution you need.
Take back financial control with Harris & Partners
At Harris & Partners, we understand how paralyzing the weight of debt can feel. It’s easy to be overwhelmed and feel trapped in a storm with no way out. But that’s why we’re here to identify the right debt solution for you.
We’re not just financial professionals; we’re your partners in finding your way out of debt. We’re here to support you through the entire process and make sure you never feel alone. So, if you’re seeking guidance or just need some help choosing your next steps – we’re just a conversation away.
Get in touch with our teams of Licenced Insolvency Trustees, and we can help you gain back your financial control.
