Opinion

D. Smith: Where does your money get spent?

Whether you are in debt and trying to become debt free, or you question on a weekly basis where your money goes, there are some investment strategies to get you started on knowing where you are financially.

Live within your means. What does that really mean to most people?

Determine the difference between a need and a want. Create a budget and stick to it.

Once you start to see the benefit of knowing where your money goes, a budget summary and cash flow projection turns into a positive way of tracking your finances.

A budget will help you determine your cash flow and net income on one side of the balance sheet, and on the other side you will have your expense summary.

With your budget sheet, you can determine whether the expenses are needs or wants of yours and your family.

Understand debt. Consolidate all your debt into the lowest interest rate possible on all your outstanding debt.

Moving all your debt to one loan with the lowest interest rate will reduce your interest rate costs substantially.

If you can replace 18 or 28 per cent interest rate costs typically charged on consumer credit cards with a four per cent line of credit, you will pay off your debt years earlier. It is easier to manage debt when it is consolidated.

Get an emergency plan in place. You have to plan for the unexpected because it happens.

A death or illness in the family, a car repair, an urgent home repair; these can all qualify as an unexpected emergency expense.

A temporary unexpected expense can derail the best intentions on your budget.

If you have an emergency plan in place, then you have access to some much needed cash.

When your emergency plan involves the need for short term borrowing, ensure you are able to borrow it at the lowest interest rate possible.

When the emergency is over, repay your emergency debt as soon as you can.

Then replenish your emergency debt in case you need to draw from it again in the near future.

Be proactive about debt repayment. If you want to be come debt free make it a focus in your life.

Debt reduction can come in many forms over a lifetime. You can choose to make extra mortgage payments on your home mortgage and pay off your mortgage years ahead of schedule.

Banks, credit unions, mortgage brokers all need you to continue with mortgage debt to make money for them, not you. Credit card companies encourage you to use their credit cards to make a profit for them, and prefer you to carry a balance each month.

Update your debt repayment schedule regularly to keep you motivated.

Less then 30 per cent of Canadians ask their certified financial planner to discuss debt repayment strategies.

It is an important part of your financial plan to make the best personal choices on debt management, and your CFP can help you select the right choices.

A budget can be compared to a diet. If you fall off a diet, the best advice is to get started again on your diet.

With a budget and you splurge on a want and not a need, then focus on getting back on track with your budget. Focus is the key to building wealth.

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