Worry Free: Wal­letFriendly How to achieve fi­nan­cial peace of mind

One key to a sound mind: elim­i­nate money wor­ries

ZOOMER Magazine - - CONTENTS - By Gor­don Pape

The sound body is the prod­uct of the sound mind. —Ge­orge Bernard Shaw

THE GUIDE­LINES for a sound body are com­mon knowl­edge: a bal­anced diet, proper weight main­te­nance, ex­er­cise, rest­ful sleep and reg­u­lar med­i­cal check­ups. The recipes for a sound mind are more com­plex and in­tensely per­sonal. Men­tal health is in­flu­enced by a range of fac­tors in­clud­ing fam­ily sit­u­a­tions, work pres­sures, sex­ual re­la­tion­ships and liv­ing stan­dards. I don’t pre­tend to be a psy­chi­a­trist, but it’s clear to me af­ter al­most 40 years of writ­ing about fi­nances that one of the ma­jor causes of men­tal stress is money – or the lack of it.

I be­lieve I can of­fer some help in achiev­ing the sound mind that Ge­orge Bernard Shaw be­lieved is so im­por­tant to a sound body.

Here are three tips I have learned over the years about how to re­duce or elim­i­nate anxiety over money.

SAVE A por­tion of your in­come should be de­voted to sav­ing. You’ll need to de­cide how much, based on your fam­ily sit­u­a­tion, but 10 per cent of af­ter-tax dol­lars is a good tar­get to shoot for. Set up an au­to­matic with­drawal plan at your fi­nan­cial in­sti­tu­tion so that the money is con­trib­uted reg­u­larly. Af­ter a short time, you won’t even miss it.

Sav­ings rep­re­sent wealth, which, in turn, trans­lates into fi­nan­cial se­cu­rity and peace of mind. In­vest the money in tax-shel­tered plans – we are for­tu­nate to have two ex­cel­lent choices, Reg­is­tered Re­tire­ment Sav­ings Plans (RRSPs) and TaxFree Sav­ings Accounts (TFSAs). If you ex­pect to need the money in the short term, use a TFSA. For longterm re­tire­ment sav­ings, the RRSP is the best choice in most cases.

PAY OFF DEBT I have met many peo­ple, in­clud­ing some mem­bers of my own fam­ily, who are so up­tight about their debt load that they have trou­ble sleep­ing at night. They wake up at 2 a.m. and spend the next few hours toss­ing and turn­ing as they try to fig­ure out how to meet the monthly bills. Sound like any­one you know?

Of course, the log­i­cal solution is not to get into debt in the first place. But that’s eas­ier said than done in to­day’s con­sumer-driven so­ci­ety. Re­mem­ber, the baby boom gen­er­a­tion, which is now ap­proach­ing or at re­tire­ment, were the masters of debt cre­ation. Un­der their watch, credit cards be­came a fi­nan­cial force, home eq­uity lines of credit were created and car loans be­came com­mon­place. You didn’t need a lot of money to live well, only a credit card that re­quired a min­i­mum monthly pay­ment.

So, it’s not sur­pris­ing that so many baby boomers ran up huge amounts of house­hold debt, es­pe­cially when mort­gages were added on top of all the rest. Sta­tis­tics Canada re­ported that in the fourth quar­ter of 2017, the av­er­age Cana­dian debt to house­hold dis­pos­able in­come was 170.4 per cent. That means that for ev­ery dol­lar of dis­pos­able in­come earned, we owed more than $1.70. The Bank of Canada calls it a sig­nif­i­cant risk to the Cana­dian econ­omy. Any­one who is in this sit­u­a­tion prob­a­bly calls it a night­mare.

The solution is dis­ci­pline and, I ad­mit, that can be tough. It means tighter bud­get­ing, sac­ri­fic­ing some of your small plea­sures, per­haps tak­ing a sec­ond job to gen­er­ate more in­come.

Fo­cus on pay­ing off the higher-in­ter­est debt first – the in­ter­est rate on credit cards is es­pe­cially oner­ous, usu­ally in the 20 per cent per an­num range. If you’re car­ry­ing card debt, switch to one with a lower rate – you can find a list at rate hub.ca.

Once the high-in­ter­est debt has been paid off, switch your at­ten­tion to low-in­ter­est loans like mort­gages and stu­dent loans. Your goal is to be debt-free by the time you re­tire al­though, sadly, fewer peo­ple than ever are achiev­ing that. Ac­cord­ing to a sur­vey re­leased by Sun Life Fi­nan­cial ear­lier this year, 25 per cent of re­tirees are deal­ing with a non-mort­gage debt bur­den. Shock­ingly, two-thirds of those are still pay­ing off credit cards. Don’t go down that road if you can pos­si­bly avoid it.

KEEP SOME CASH In March, the bull mar­ket in stocks reached its ninth an­niver­sary. That means it’s now been more than nine years since we have seen a 20 per cent cor­rec­tion in share prices. A lot of peo­ple have prof­ited along the way, to the ex­tent that some seem to be­lieve this is the way of the world: stock mar­kets al­ways go up.

They don’t. Think back to the panic in the fall of 2008, when it ap­peared the world’s en­tire fi­nan­cial struc­ture was on the verge of col­lapse. Or re­mem­ber the tech wreck of early 2000 when the in­ter­net bub­ble burst and mar­kets plum­meted. The NAS­DAQ Com­pos­ite, which was heav­ily weighted to tech­nol­ogy, lost 78 per cent of its value be­fore the car­nage was over. It took al­most 13 years for the in­dex to re­gain its 2000 high.

There is an­other crash com­ing. I can’t pre­dict when, but his­tory says it is in­evitable. So, for your own peace of mind, keep some of your money in cash – enough to get you through at least a year of tough times, two if you have the re­sources. Stock mar­ket drops and re­ces­sions are never pleas­ant, but you’ll rest a lot eas­ier and worry less if you have cash avail­able to carry you through.

If you achieve these three goals, you should elim­i­nate fi­nances as one of the im­ped­i­ments to the sound mind your body needs. I’ll have to leave it to oth­ers to deal with your other con­cerns.

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