Canada's Condominium Magazine
Debt is depressing and can be hazardous to your health. People who are seriously in debt often feel hopeless, ashamed, and isolated, which makes getting out of debt all the harder for them, as they give in to feelings of “what’s the use?” and lose control of their lives. That sense of failure and helplessness can lead to suicidal thoughts. Psychologists and credit counsellors agree about the link between debt and depression, and according to Credit Canada, it is becoming more common.
A sense of failure and its accompanying depression are not the most motivating of feelings when change is needed. Winning, and feeling like a winner, are. So Credit Canada Debt Solutions, a non-profit credit counselling service, along with Capital One, a credit card company, have made winning the theme of this year’s Credit Education Week Canada, November 7–11, part of Financial Literacy Month.
According to their research, a feeling of financial security is the most important goal for Canadians. This may appear to be at odds with the reality that consumer debt is at record high levels in Canada, but what we do and what we say we want are not always perfectly aligned. And despite the high level of personal debt, most Canadians (80 per cent) did report at least one financial “win” in the past year, from buying a home (25 per cent) to becoming debt free (15 per cent) to living independently (8 per cent) to buying a car (8 per cent). Those wins make people feel good, more confident that they can take care of themselves and their loved ones, says Credit Canada.
Being a financial winner, the credit counselling group says, is not a matter of how much money one has, but rather of being able to enjoy life while living within one’s means, and this principle applies equally to everyone, from college students to seniors on a fixed budget to multi-millionaires. The key is to know what one wants out of life, and then to develop a plan, a financial plan, to achieve those goals.
Debt is good when you invest in real estate that is affordable and promises to hold value in a boom or bust economy. Debt is good when it funds a university or college education with prospects for a happy, secure career offering a comfortable living. Debt is good when it builds a personal business or a retirement nest egg. With these examples in mind, if debt does not hold the potential for real benefits to you and/or your loved ones, then you ought to be seriously questioning what you’re doing with your money.
Does living within one’s means mean that we should never borrow money? Not at all. But the decision to borrow should be guided by the answer to one key question: does this debt hold the potential for real benefits to me and my loved ones? What matters is that we are “smart borrowers,” putting life needs ahead of life wants.
This is another way of saying that there is good debt and bad debt, though both involve some measure of risk. With good debt, the risk may be considered reasonable. As Laurie Campbell, CEO of Credit Canada puts it, “Debt is good when you invest in real estate that is affordable and promises to hold value in a boom or bust economy. Debt is good when it funds a university or college education with prospects for a happy, secure career offering a comfortable living.” And debt is good when it builds a personal business or retirement nest egg.
The principles of smart borrowing apply in every situation. Take buying a car. Do you buy the car you actually need for everyday activities and can afford reasonably comfortably, or do you put yourself into serious debt for a car that’s all about show and flash?
Buying a home is an even bigger step for most people, and Credit Canada advises that long-term planning is needed. Of course, every would-be homebuyer, especially first-timers, must qualify financially before a lender will give them a mortgage. Once the amount for which they qualify has been established, first-time buyers can take advantage of a number of programs to help finance a home purchase. One of these, the Homebuyer’s Plan, lets borrowers withdraw $25,000 from their RRSPs. A couple can take $50,000. This could be enough for a good down payment on a home. Other plans to assist homebuyers can be found at Canada Mortgage and Housing Corporation at www.cmhc-schl.gc.ca/en/co/buho/hostst/index.cfm.
Clearly, borrowing to help finance an education falls within the definition of “good debt,” but it still has to be paid back. Most students in Canada graduate with an average debt of $27,000, but student peer-to-peer support group YCONIC says it doesn’t have to be that way, with all the sources of funding available to students. YCONIC helps students find scholarships—$300 million worth each year in Canada—and offers advice about budgeting and keeping debt to a minimum. ScholarshipsCanada.com, for example, is a site where students and parents can find information about more than 80,000 awards worth $177 million.
Even seniors and those approaching retirement need to be reminded that they should plan and set goals “to ensure that your golden years are actually golden.” There are plenty of options these days, from active adult retirement communities to retirement condos to assisted living retirement homes to long-term care facilities.
One simple step in deciding which option one will choose is to visualize where, and how, one expects to live in retirement, being sure to prioritize needs over wants. The strategy for being a winner in retirement is also simple: save your money. The closer one gets to retirement, the more important it is to take stock of the savings plan, says Credit Canada.
Credit Canada offers these tips for achieving a personal financial win
- Set financial goals and an action plan, working with family, friends and a financial advisor
- Maintain progress by monitoring it on a regular basis, preferably with someone close to you who can hold you accountable
- Save every payday, even if only a little
- Celebrate each financial win and share it with others
- Set new goals each time you reach one to maintain financial growth and achieve a new financial win