Finance Debt No surprise to see this one at the top of the list. Despite its usefulness as a financial tool, debt is probably the most common cause of financial stress in people’s lives. Of course, the simplest way to gain control over your debt is to never get into it in the first place. But these days, that’s not realistic. Most of us would never have the opportunity to own our homes, for example, if we didn’t take out a mortgage. Instead of never getting into debt, we need to learn how to minimize and eliminate it as quickly as possible – this ability can lead to immediate control over our finances, freeing up our money to spend and invest, rather than ceding power to the bank, the credit card company or the finance corporation at the car dealership. Taking control of your debt can provide a tremendous sense of accomplishment, and a good deal of peace of mind, too. If you find yourself worried about your debt, there are three practical methods of taking back control over it: The “snowball” method – Pay off the smallest debt first, then allocate the savings to the next smallest, and so on. The benefit here is psychological: by eliminating the number of creditors one by one, you feel a sense of accomplishment and stay motivated to keep on reducing debt. The “avalanche” method – Start with the debt with the highest interest (usually a credit card); take the savings and apply it to your next-highest interest rate debt. The focus here is the interest savings, which allows you to minimize the total cost of your debt over time. The “swap” method – If you have several debts held by several different creditors, or if you have high-interest loans, it might make sense to swap out all of those little debts for a single, low-interest loan, such as a home equity line of credit. This immediately cuts down your interest payments and makes it easier to track your debt-reduction progress. Whichever method you choose, taking back control of your debt should be your most important financial priority. Your effort will pay off – both in terms of your finances, and your stress and worry levels. Spending This is another area that causes a lot of financial stress. And often, that stress is centred on not really understanding what you’re spending your money on. A very rough budget that outlines exactly where your monthly income is going is a pretty good way to take back a little more financial control. But to really tackle this issue, you’ll want to determine whether your spending aligns with your life priorities. There’s absolutely nothing wrong with spending money on things, experiences and causes that matter to you. But all too often, spending indiscriminately on things of little value (or of little lasting value) can lead to a buildup of financial stress and a growing sense of our finances being out of control. We spend because it’s a habit, not necessarily because we get enjoyment out of what we’re buying. Ask yourself: does boredom or a stressful day cause you to head to the mall or start online shopping? When things don’t go your way, do you treat yourself with expensive restaurant or takeout meals, rather than cooking at home? Is there intention or purpose to what you’re spending on? Learning a bit more about your spending patterns or emotional “triggers” can help you take back control over your spending. Financial records and transactions We live in an increasingly complex world. And managing our finances can be one of the most complex chores which we engage in – one that can soak up a good deal of time and effort and demand a good deal of “brain power.” No wonder many consider it to be a source of stress, as we feel that more and more of our valuable time is being eaten up by bookkeeping, filing taxes and keeping our investment records up to date. In order to take back control of at least some of that time, it makes sense to simplify and automate routine financial transactions whenever you can. Most utilities, tax authorities and banks allow you to set up automatic, preauthorized payments from your chequing account; take advantage of these and you’ll never have to worry about missing a payment again. The same goes for your investment account: most banks, brokers and wealth managers allow you to make recurring contributions or pre-scheduled withdrawals, so that you don’t have to spend time and effort on these routine transactions over and over again. If you’re a person who’s “collected” various accounts at various institutions over the years, you might consider extending this simplification effort by consolidating your accounts under one umbrella. It’s very simple advice, but you’d be surprised at how much less stressful your financial life can be when you have less financial paperwork and many fewer financial emails, texts, letters and other communications. 26 | www.snowbirds.org
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