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Canadians and Debt. Living beyond our means.

Manulife Bank’s 2019 Debt Survey results give us a snapshot of Canadians behaviour around debt and waves a warning flag to living beyond our means.

According to survey results, 38% of Canadians living with debt admit it was because they lived beyond their means, and 12% directly correlate it to the result of too many costly social outings with friends or family.

With nearly 40% of Canadians living beyond their means and carrying debt as a result, this can have serious long- term consequences on family finances.  Managing an increasing debt load can be extremely difficult to recover from.

Furthermore, 48% of indebted Canadians carry credit card debt which comes at a staggering cost.   The predicament of trying to keep up with interest rate payments alone is a tough hole to dig yourself out of.

1 in 4 indebted Canadians admit to making poor progress on paying down their debt.  Having a budget and debt repayment plan can go a long way to reversing this trend.  

The first step is to pay attention to where your money is going.  You may not even realize how much you are spending.

The first step is to pay attention to where your money is going.  You may not even realize how much you are spending.  9% say they have no clue how much they spend, on average, every month. Taking a lesson from debt-free Canadians is valuable.  According to the survey, debt-free Canadians are most likely to know every dollar and cent going in and out of their bank account.  While this may seem extreme, it’s what you need to do to get a handle on your spending if you feel it is spiraling out of control.

Some people are doing just that. 37% of millennials report having started tracking their household budgets this year.  Many people are surprised when they do a budget to see where their money has been going.   

In addition to the reported splurges on costly social outings, people often think about large expenditures when they consider how they may have gone off track. The survey reports 33% of indebted millennials often make purchases on impulse.  This is the easiest place to start.  Did you buy new family room furniture when you didn’t need it?   Did you buy a top of the line vehicle when the mid-line one was within your budget?  Did you take on a mortgage too big to handle?

Beyond the large purchases, you might be surprised to see how much the little ones can also add up to trouble for your budget.  One of the first places I recommend people look is at their food consumption and eating out.  This can be a big drain on the budget.  We all enjoy a nice dinner out sometimes, but many people are spending more on eating out than they realize.   Even if it’s to order delivery to your home, you may get to skip the dishes but recognize there is a cost associated and you are still paying for restaurant food which is usually more expensive than groceries and cooking at home.

Coffee and specialty drinks are another big budget draining culprit.  Specialty drinks can be a wonderful treat once in a while but if you’re buying these daily you may be spending more of your pay-cheque long term on this frequent splurge than you think.  

A couple years ago I had a conversation with my son and daughter, a teen and tween, who were inquiring about why we seldom go to a popular specialty coffee store, “like everyone else” according to them.

We did some quick math and I explained if the three of us went twice a week and each purchased our drinks of choice, after four years or so we will have spent enough money on specialty drinks to have purchased a hot tub.  It was important to equate it to something tangible for them to understand.

“So,” I asked them, “Do you think we should we make frappuccinos and smoothies at home and save money so we can still get the hot tub?”  It was a simple answer; yes absolutely, they both agreed.

That’s just one small example in our household, but there are many other examples unique to families all over the place.  Everyone enjoys certain splurges which are worth the cost to us, and there are other places where we can make different choices.  

Whether it’s buying groceries to make dinner at home, packing your lunch for work, making your coffee to go, a lower cost social outing, or keeping your vehicle for a couple more years there are certainly many savings opportunities to consider.  

According to the survey, some people are making progress and employing some good personal finance habits.   Since last year, Canadians who have focused on paying off debt believe their non-mortgage debt has declined by 11% which is great news. 52% of indebted Boomers say they pay credit cards on time and in full.  Take a lesson from these folks; this is the right way to manage a credit card if you choose to own and use one.

40% of indebted millennials regularly put aside money into savings and 3 in 10 say they feel their debt is under control.  These are some positive results, but we need to see the trend swing more this way for the majority.

If you are living beyond your means and trying to get control of your spending, start by tracking your expenditures.   It doesn’t need to be fancy, but it does need to be accurate.  Track each purchase.  Every single one.  Seeing where your money is going will help you know where to start.  You may be surprised.

Column appeared in the October 2019 edition of This Month In Elgin

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Stephanie Farrow, BA., CFP., Stephanie has over 26 years' experience in the financial services industry, a diploma in Financial Planning from the Canadian Institute of Financial Planning and Certified Financial Planner designation.  Stephanie has been writing a financial column for local business magazine Elgin This Month/This Month in Elgin since 2010.  Stephanie and her husband own Farrow Financial Services Inc.  About our Farrow Financial Team.

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