Conquering the debt mountain
“If you have the courage to begin, you have the courage to succeed.” – David Viscott
One of the biggest challenges facing Canadians today is the amount of consumer debt that we are carrying. If you look at a graph showing the average household debt over the past 40 years you’ll notice that debt levels have been rising steadily since the 1980s. Debt is incredibly profitable for financial institutions (which is why it’s so heavily promoted) but incredibly damaging to personal wealth building and financial security. Too often when we are carrying consumer debt, it negatively impacts our ability (and our motivation) to save. If we are to conquer the debt mountain and put ourselves on the path to financial freedom then we need to make a dramatic change. The New Year is synonymous with fresh starts and new beginnings so, with one week to go, I thought it might be a good idea to explore a variety of good financial habits that could set us on the path to success.
Related article: Is record debt levels a bad thing?
1. Stay out of the stores!
When it comes to resisting temptation, sometimes the best strategy is to avoid the source of your temptation. I know that the best way for me to avoid eating cookies, chips and muffins is not to bring them into the house because I can’t stop with just one. Similarly, one of the best ways I’ve found to cut back on my “spontaneous spending” was to simply stop wandering through the mall or my favorite stores whenever I had time to kill and to resist the temptation to surf online shopping sites whenever I found myself aimlessly wandering through cyberspace. The human brain is hard-wired for pleasure and human beings are visual creatures and this is a dangerous combination when it comes to shopping. Just seeing something beautiful/cool/desirable is enough to get our brain fired up in a frenzy of wanting and all those handy dandy credit options mean that we can satisfy the desire even if we don’t actually have the money in our bank account. Staying away from as many sources of temptation as possible is a simple strategy to keep more money working for us and less working for our favorite retailer.
Related article: A disciplined spending plan
2. Make saving automatic
There’s a reason why the majority of Canadians are not doing well when it comes to saving; we tend to spend first and save last. Despite having great intentions to save, somehow unexpected expenses always crop up and there never seems to be quite enough left. This struggle is reflected in the fact that the average savings rate in Canada is now less than 3% but happily, there are two groups of Canadians who are doing well when it comes to saving; natural savers and those who have some sort of workplace savings plan in place. Natural savers are people whose innate need for financial security drives them to save and makes it hard for them to spend. In our consumer-driven society, they are a rare breed but the good news is, you don’t have to be a natural saver in order to be a good saver, you just have to make the process as automated as possible so you can save without even thinking about it.
If you have access to a workplace savings plan, it makes sense to sign up (especially if your employer will match a percentage of your contributions) because the amount you decide to commit to savings will be deducted automatically from your paycheque before it even hits your bank account. If you don’t have access to a workplace savings plan then you can create your own automated savings plan by setting up pre-authorized payments through your financial institution or investment advisor so that your savings are deducted automatically from your bank account on payday. It’s a simple strategy but an extremely effective one, especially when you consider that you can start investing with as little as $25/mth. Building savings as you work to reduce debt can also help you stay committed to your debt-free goal because seeing your savings build is a tangible sign of your success and it will often inspire you to work harder.
Related article: Pay yourself first
Limiting spending and increasing savings are two cornerstones when it comes to building a strong financial future. Next week I’ll look at more strategies and habits to help eliminate debt. In the meantime, if you have strategies and stories that you’d like to share, I’d love to hear them!