How To Manage Debt While Saving For The Future

MNP's TAKE: As the Canadian economy continues to struggle and the cost of living continues to soar, many Canadians are struggling to keep up with the costs of day-to-day living, let alone manage debt or save for the future. Sound familiar? 

If you're pinching pennies to make ends meet, it's understandable that planning for the future seems out of your reach. In reality however, setting yourself up for a strong financial future might be more feasible than you think. If you take the time to sit down and evaluate your personal or household income, you can then start creating a detailed budget that takes your future into account. Strategically paying off your debt while also finding ways to cut costs (skipping that daily $5 latte for instance) could help you put cash in the budget for both your short- and long-term financial goals. 

If debt has already started to take hold and you feel trapped, you have options. Depending on your unique position, there may be several options available to help get you on track to achieving a fresh financial start so you can get back to planning for your future  comfortably. Contact Grant Bazian, CIRP, LIT, President of MNP Ltd. at 778.374.2108 or grant.bazian@mnp.ca for information on what debt solutions are available to help you.

BY JACQUELINE KOVACS FROM THE TORONTO STAR

Confused about your personal finances? No wonder: mixed messages abound. On any given day, we're told to grab a piece of the hot real estate market, save for our retirement, tuck away money for our children's post-secondary education, get out of debt, and shop, shop, shop. How can you plan for a secure financial future and still enjoy your life now?

"It's the heart of financial planning," says Ian Collings, a financial planner with Vancouver 's Modern-Advisor, "how do you get the most out of your money to achieve your personal objectives in life? There are people on very modest incomes who are able to do exactly what they want with their lives, and there are people with very large incomes who get that wrong."

So how can you get your financial planning right? Here's what the pros have to say.

Separate good debt from bad

Is there really such a thing as good debt? You bet, says David Trahair, CPA, personal finance trainer and author of The Procrastinator's Guide to Retirement.

"Good debt is any debt that results in a related asset that might appreciate," says Trahair. "So you take out a mortgage, you buy a house, you live in the house and the house appreciates." In the bad corner, meanwhile, is revolving debt where payments don't cover any of the principle, such as credit cards or an interest-only line of credit.

"People don't pay down the debt and in fact keep increasing it as long as the bank will allow them to do it," Trahair says. It's an all-too common practice: according to the Canadian Bankers Association, only 60 per cent of Canadians pay off their credit cards every month.

Pay off bad debt

It's easy enough to say, but actually getting rid of debt can seem impossible. From student loans, to car loans, to credit cards, mortgages and lines of credit, it's not surprising many of us can feel overwhelmed by the amount of money we owe. But there is a way to manage, reduce and even eliminate debt.

Attack the worst first, say the experts. That often means credit cards where interest rates can be in the high teens and minimum payments don't even scrape the surface of the principle. You can make paying them down more manageable by switching to another card that offers a lower rate on balance transfers, says Trahair.

You could also consider a low-interest line of credit, based on the equity of your home, and use it to pay off your credit cards. Wh at you don't want to do, says Collings, is carry a balance. "It's far too expensive. The need to get rid of that kind of massively expensive loan dwarfs everything else."

Track your spending

You can't manage your money if you don't have a clear sense of where it's going. If bookkeeping and financial spreadsheets aren't your strong suit, Trahair suggests downloading a money tracker app.

"Everybody's financial situation is as individual as their fingerprints," says Trahair. "Everybody is different, so rules of thumb don't work and can be dangerous. You need to look at where your money is going to be able to make improvements to it."

Try to save - but don't stress about it

Depending on your life stage, saving money can seem impossible. And that can be worrying - especially since many of us don't have company pension plans to help carry us in retirement.

"Most people aren't able to start saving for retirement early because they're getting married, having kids, paying for a mortgage, paying off student loans," says Trahair.

"So they become procrastinators. But there is a lot you can do in 10 years or less - such as maxing your RRSP contributions - but it requires work and tracking."

Collings adds that spending less than you make and saving the difference, even a small amount, is important.

"Future you is you," he says. "It's not like saving should be viewed as a tax or a hardship. It just means that you'll be able to do things in the future rather than do them right now."

Get more financial planning insights at thestar.com/sponsored_sections/financialplanning.html.

This article was written by Jacqueline Kovacs from The Toronto Star and was legally licensed through the NewsCred publisher network.