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Happy 2022 – Financially Speaking

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The good news: It’s a new year! The chance to start over, to resolve to do better, to do more, or in the case of your payments and all that interest – to do a lot less.

The bad news? You’re already broke! How is that? Well, our debts are more than 173% of our disposable income now, half of us have no savings at all (thanks in large part to the never-ending pandemic but now-ended government support), and almost 70% of us don’t make RRSP contributions. Why? Because every dollar we earn goes to make a long list of lenders really rich and there’s simply nothing left at the end of the month.

So when it comes to making some commitments about our debt, credit and all those bills, perhaps we should think small to make sure we set ourselves up for a win, and not a sure-fire let-down. But small doesn’t mean pointless, small just means some little steps you can actually keep, that’ll pay off big for 2022. These five are over and above the chapter in the Money Tools & Rules book “Do you have half an hour” – small things that you can change immediately:

 First – Annual bills kill your budget, but they’re not surprises. We know they’re coming – but we haven’t got the money to pay them. If it doesn’t cost you a bunch of interest or fees, set them up on a monthly payment plan. Whether it’s your property tax, car or home insurance, a monthly payment plan is a whole lot less painful than paying them by credit card or off your line of credit over the next few years.

 Second – Set yourself a credit limit. Pick a dollar figure below which you’ll pay by debit card or cash. Maybe $20 or $30 bucks – that’s it. But anything below that, you’ll spend with real money, instead of running up debts. It’ll become a great habit and will cut down your credit card balance in huge ways. After all, look at your statement. Almost all the charges are for pretty mickey mouse amounts that add up in huge debts – twenty bucks at a time..

 Third – Keep your vehicle for another year. If you believe a cool car is a status symbol and a must-have, you’re doomed to be in debt for decades to come. Not to mention that almost 50% of people trade their vehicle and STILL owe more than it’s worth – that’s financial suicide. The goal should be to drive a reliable vehicle that doesn’t have payments with it . Imagine a couple of years without car payments and the huge financial advantage you’ll create for yourself. And remember: Those $400 car payments are really over $600 in gross earnings. If you can’t get a $600 raise – here’s a way to get it – you’ll just be giving it to yourself!

 Fourth – Close your overdraft. I know – it’s like being hooked on drugs. It’s so convenient and always there and you can’t live without it any more. Well, that’s what the banks were counting on, and where they make a huge amount of their profit. But it’s killing you. Just a $1,000 overdraft will cost you between $200 and $300 in interest and fees. It’s a one-time pain to cancel the overdraft, but it’s worth it. Then zero in your account is actually zero instead of minus $1,000 or more.

 Fifth – Change to a credit card that isn’t a credit card.
For those with a card balance, it isn’t the $600 charges, it’s the dozens of $20 or $30 charges that really add up. Sure, you want to pay it off, but it isn’t a priority each month and you keep sinking deeper into debt at 20% plus. Get yourself an American Express Green card. That’s not a credit card – it’s a charge card. At the end of the month, there are no payments to make – the balance has to be paid off in full. Oh sure, the first month that’ll be painful. But after that, you’ll watch what you’re charging pretty carefully, and you’ll never ever have a credit card balance again. What’s that kind of financial freedom worth in knowing for a fact you will never have a credit card balance again?

And maybe you can have a detox for January? How about no shopping of anything for any reason that isn’t an absolute necessity such as food and gas?

More of Getting Financially Fit for 2013

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Last week I promised that we’d talk about some specific small steps you can take to change your finances around. Why small steps? If it’s too big, your sub-conscious mind will revolt against huge goals which seem impossible to reach.

You’re not going to lose 60 lbs, but you can lose a pound a week. You won’t run the marathon this summer, but you can go for a 15 minute walk each day. You also won’t be debt free by March, but you can start on that journey with one step at a time.

Resolve to say no: Whether it’s to yourself when it comes to spending, to your kids, people at work, or anywhere else. It’s the one word that’ll change your financial life and overspending.

Set yourself a credit limit for the next month. Pick a dollar figure below which you’ll pay by debit card or cash. Maybe $20 or $30 bucks – that’s it. Anything below that, you’ll pay with real money, instead of running up debts. It’ll become a great habit and will cut down your credit card balance in huge ways.

Take your credit cards out of your wallet for two weeks. You don’t need them just to go to work and home. That way the temptation and impulse spending is gone. Take a $20 bill and hide it in your wallet or purse for an emergency. If it’s really for an emergency you’ll still have it in there in six months. With credit cards we spend 12 to 18% more than paying by debit card or cash. When you don’t have them on you, you can’t overspend.

Keep your car for another year. If you believe a cool car is a status symbol and a must-have, you’re doomed to be in debt for decades to come. Not to mention that almost 50% of people trade their vehicle and STILL owe more than it’s worth. The goal should be to drive a reliable vehicle that doesn’t have payments with it, which are killing your chances to save, or to get ahead financially.

Annual bills kill your budget, but they’re not a surprise. You know they’re coming – but you don’t have the money to pay them. Open a savings account and add up what you’ll need for next years’ Christmas bills, your property tax and car or home insurance. Divide it by 12, and put that amount away monthly. A small amount each month is doable, a huge bill sets you back months.

Pay off one bill. Minimum payments buy you another month – nothing more, and it’s treading water. Credit cards and debts are not your friend. They’re financial dream killers, suck money out of your pocket, and add a ton of stress to your life and your relationship. Take your smallest bill and put every dollar you can towards it while paying minimum payments on everything else. When it’s gone, you know it’s not coming back. If you want – and you should – take the next smallest and focus only on it. This step-up plan will get you debt free in less than half the time. It’s an entire section of the It’s Your Money book and will change your financial life forever.

Test drive these six suggestions for the next two weeks or the rest of the month. It’s not overwhelming and it’ll be easier than you think. Then you can choose to carry on with some or all of them for another month. By that time, it’ll be habit and part of your life. If nothing else, at least resolve to make this the year where you spend more time planning your finances than your vacation.