With just a few days left in the holiday season, it arguably remains the most wonderful time of the year.
But the festivities are likely to be followed with a holiday hangover. And many Canadians will likely feel queasy, but not from eating too much rich food or drinking too much eggnog.
Rather, it’s the credit card statements that could make them feel ill.
Even before the new year, several surveys have illustrated just how many Canadians are already on the crazy train to financial ruin.
Among those is a recent poll by MNP Ltd. — which operates the country’s largest insolvency practice. It found 40 per cent of Canadians experience regret and anxiety about holiday spending.
As well, 21 per cent indicated they can only pay the minimum on their credit cards while another 15 per cent stated the debt would go on the line of credit.
No doubt many Canadians want this coming year to be different financially, says Brian Denysuik, president and CEO of the Winnipeg-based Creditaid.
"But debt reduction is one small piece of the puzzle," the financial counsellor says. "Let’s expand our thinking and incorporate a few other suggestions to not only tackle debt reduction but also prepare in 2019 for all the things that cause financial stress in our lives."
Then again, why wait a few days for 2019? There’s no time like now to get started on financial self-improvement — before things get completely out of hand, says John Silver, executive director of the non-profit Community Financial Counselling Services.
"Ideally, people should seek financial counselling as soon as they begin experiencing... stress with respect to their financial situation," he says.
But, "traditionally we see a falling off of calls in the weeks before Christmas with the exception of those who are desperate."
Usually, only when the credit card statements show up do the calls/cries for help spike.
So, consider the current moment — reading this story — the ideal opportunity to begin excavating your finances from the pit of insolvency.
Recognizing you have a problem.
Like a drug addiction, admitting to a problem is the critical first step to recovery. Otherwise, we can carry on for a long time ignoring the problem, making it worse. It’s like the Titanic, says Tim St. Vincent, a financial educator with Credit Counselling Society in Winnipeg. Only you know the iceberg is coming, but you don’t want to admit it.
"One of my favourite stats is that 51 per cent of people lie about their financial situation," he says, referring to a study from BDO in 2015.
"That includes lying to themselves."
All too often, they seek help after the shipwreck.
And many of us are closer than we realize to disaster. St. Vincent again points to a survey — this time a Canadian Payroll Association poll finding 44 per cent of us are one paycheque away from not paying the bills.
"Turning that around the other way, almost half the country is admitting they are one week away from going broke."
The silver lining in this is we’re not alone. You’re among millions, he says.
"The range of people we see are those relying on the food bank to people with professional designations... even accountants and bank managers — people who are making in excess of $300,000 per year."
How do I know I need help?
Feeling stressed about debt is an indicator. An even redder flag is when you can only make minimum payments on the credit card. You will likely never be debt-free without changing course, St. Vincent says. "A $3,000 debt on credit card will take you 50-plus years to pay off (by making the minimum payment)… and you will end up paying about $12,000 in interest."
Another symptom of money malaise is paying out more than you take in. You might have an inkling that is the case, but you can’t know the extent to which without engaging in the following activity.
Tracking the beast that is the sum of your spending habits.
Looking closely at spending habits is not unlike gazing at yourself naked in the mirror… from the worst angle possible. You’d rather not. But you must, because only after taking a good long look at the mangled carcass can you truly understand its grotesque nature.
In short, this is budgeting.
"I prefer ‘spending plan,’" St. Vincent says, adding "budgeting" makes people uncomfortable.
Names aside, "it’s about figuring out how to spend your money now so you can save to figure out how to spend your money later," he adds.
Of course, "budgeting" requires an honest accounting of spending habits, meaning reviewing at least three months of statements. Even better, do an entire year. That way you account for all costs like the upkeep of your home, insurance, birthdays and automobile(s).
The goal is coming up with a spending plan in which no money is unaccounted for at the end of the month.
"If you have $40 to spare, then you’ve made a mistake because that money should go to savings or against debt," he says.
"If you are $40 short, then you have a different problem."
You’re running deficits… now what?
Simply put, cut it out.
Slicing and dicing spending habits into smaller pieces is likely the best way to rectify a shortfall. But how do you cut without mashing your lifestyle?
Denysuik has an idea. "Call your internet/cable company and ask them for a reduced monthly fee," he says. "Point out that you are a loyal customer and don’t want to have to switch over to a new company." In the age of Netflix, you have leverage. He adds this is just one among many ways to get creative about cutting costs. Other ideas include taking on a roommate, carpooling to work, brown-bagging lunches and coupon-clipping. He even suggests going to cash only and cutting up your credit cards.
The main thrust of any functional plan is to keep track of spending, every day. Some use mobile apps like Mint. Others go low-tech: a small notepad and a pencil. The best part of tracking costs daily is it catches the little spends that kill slowly (financially speaking).
"If you lose track of just $5 a day, you will lose more than $1,800 a year," St. Vincent says.
Taking on the debt.
Coming out even at the end of the month is a major accomplishment. But your plan must also address reducing your debts. St. Vincent suggests a couple of techniques with wintery names.
One is called the "avalanche method" where you focus on repaying debts with the highest interest rate first, and when that’s done you move onto the next highest.
The other is the "snowball method."
"That’s where you first tackle the lower dollar amount debt, which can be a good psychological motivator because if you can quickly eliminate the smaller amount, you get a quick sense of success," he says. "It’s like the little engine that could: I think I can, I think I can, I know I can."
And for your next debt-defying act: saving.
One challenge with getting out of debt are unexpected costs. That’s why you must save while paying debt. Setting up bank accounts for different savings needs is a real smooth move. "Otherwise, if you co-mingle all your money into basic savings and chequing accounts, it’s hard to keep track of where money is going," St. Vincent says.
Also critical is forecasting future costs — like holiday spending — and then setting up a plan to save. If you’ve been tracking your costs, this should be easy, Denysuik says. Just take those figures, divide them by 12 and set aside those amounts monthly. If that’s a tall order, then cut back those sums. He also suggests online bank accounts as destinations for your money because they often have no fees.
"You can also set up an automatic transfer from your regular bank chequing account into these savings accounts on a particular date (like payday)."
Plenty of new fintech innovations can also help, including Mylo (mylo.ai) — an app that allows you to save every time you spend.
"You can have multiple goals, so people might be saving for a vacation while saving for retirement," says Philip Barrar, founder and CEO of Montreal-based Mylo.
"And each goal has different rules."
One rule may be rounding up to the nearest dollar on a purchase, essentially having spare change go into a savings account. Or it might be depositing $5 a week (or whatever amount). You can also add multipliers so a 50 cent roundup on a purchase becomes a $2 deposit to savings.
Barrar further notes Mylo allows for multiple goals to receive deposits from one purchase. So you could buy a coffee for $1.75 and 25 cents could go to emergency savings, another quarter to vacation and another to an RRSP.
A little help, please!
Technology aside, success boils down to consistency. That can be challenging, Denysuik says.
Seeking help managing your debt may be prudent. Try your financial institution, or one of the many debt management agencies in the city.
And there are many. It’s a booming business, after all.
Updated on Saturday, December 29, 2018 at 9:34 AM CST: Photo added.