Finances got you frazzled?

Keeping expenses under control can be challenging at any time, but the skyrocketing cost of living over the past year has made it more difficult for some Canadians to keep their finances afloat. Individuals and families are being forced to re-evaluate their financial habits in a new era that understandably has many feeling frazzled.

What some statistics say

A recent survey on stress, finances and well-being found that more than half of the respondents worried “a great deal” about at least one aspect of their personal finances. The top five concerns were:

1. Credit card debt
2. Not enough emergency savings
3. Inadequate retirement savings
4. Repaying student loans
5. Their overall financial situation

What’s more, 56 per cent of Canadian workers feel their level of debt is problematic, nearly four in 10 say that saving money right now is a challenge and 16 per cent have withdrawn money from their savings to afford daily life.¹

Facing up to today’s challenges may mean it’s time to adopt some specific strategies to improve your financial future. Let’s look at a few.

A financial blueprint

Increasing debt, sticky inflation and higher mortgage and lending rates can cast a long shadow on your efforts to keep pace with financial obligations. However, stepping back to take stock of all the things you pay for each month can reveal some items that can be cut back or eliminated altogether. This is what budgeting is all about. A budget is a financial blueprint that helps you track the differences between how much money you earn, save and spend. A budget can help you see where money needs to be allocated to improve the situation and identify problem areas that need more attention, such as debt. 

Down with debt

Even with a reliable, substantial income and some valuable assets, carrying too much debt can weaken an otherwise healthy financial position. Looking at it another way, reducing debt is comparable to giving yourself a future pay raise. By owing less money, you’ll have more income on hand to save and invest, or to spend on things you might normally have trouble affording.

The rapid rise of Canadian interest rates after years of near-record lows spotlighted how even small hikes can raise payment amounts on loans and mortgages to worrisome levels. The larger the debt, the more interest it will accrue, and the longer it will likely take to pay off.

Although simply meeting the required minimum payment on loans and credit cards can be tempting, aiming more money at debt reduction will be a benefit down the road (especially if interest rates remain stubbornly high). If your debt level appears insurmountable, it could be worthwhile to seek more targeted remedies, including consolidating debts into a lower-interest line of credit and getting professional advice on debt reduction strategies. Speaking to an advisor can help with saving strategies and, just as importantly, with preparation for emergencies.

In case of emergency

No one wants to come face to face with a sudden emergency, but we all know an unforeseen repair or incident can instantly cause financial pressure. Setting aside some funds for unexpected circumstances that only money can fix is a proactive way to avoid the pitfalls of deeper debt. Some experts set a goal of having three to 12 months’ worth of living expenses within reach at any time. Consider making regular deposits to a separate emergency account to ensure consistency. If, fortunately, no emergencies occur, keep saving bit by bit to give yourself a bigger cushion to rely on should the need arise.

Financial flexibility

It’s normal to encounter financial challenges from time to time. When you do, financial products that offer flexibility can help you work through them. For example, one of the biggest line items in most people’s budgets is their mortgage – but unfortunately mortgages aren’t very flexible. The rates and payments are generally fixed and are not easy to change if you hit a sudden bump in the road. This is one reason many homeowners are switching to more flexible all-in-one mortgages, which allow you to quickly and easily increase or decrease how much money you’re putting toward your mortgage as your needs change. You can even use your cash savings to reduce your mortgage debt without losing access to that money. Read more about the advantages of all-in-one mortgages below.

A healthy outlook

Focusing too intensively on the financial issues you might be facing can be harmful to your mental and physical health. The Stress, Finances and Well-being report found that the current state of the economy affected the mental health of 92 per cent of those in a poor financial situation, 77 per cent of those in a good financial situation and even 60 per cent of those in a very good or excellent financial situation.

Thankfully, you can reduce the effects of stress through better self-awareness and care. Embracing habits that enable you to step outside the seemingly endless cycle of working just to pay the bills can be liberating. Exercising, spending time in nature and dabbling in hobbies that you enjoy can brighten your days and increase your enthusiasm for enjoying life beyond your immediate concerns. Behavioural insurance programs, such as Manulife Vitality, can reward you with merchandise and discounts on the cost of your premiums for actively embracing a healthier lifestyle.

Income boosting

Historical data shows that markets fully recover after experiencing setbacks and go on to reach new highs in the right economic environment. This is why staying invested for the long term and rebalancing an investment portfolio to reflect current conditions can be more rewarding than watching and waiting for a pivotal moment to arrive – or worse, selling your holdings at a loss in a struggling market. Acknowledging the circumstances, waiting for the situation to change and using dollar-cost averaging to take advantage of the opportunity to buy more units at lower prices during a downturn can make for satisfying gains when the markets eventually recover.

Time is money

Despite spending a lot of their time working to make ends meet, many people can still come up short. This is one of the main reasons extra work and side gigs continue to rise in popularity. Part-time jobs, freelancing a specialty service or pursuing a passion that can generate income are all valid ways to beat the penny-pinching blues.

Added advice

Using effective strategies to budget for essentials and reducing your reliance on credit and debt may be enough to place you in a better financial position in the future. Additionally, many people find that working with an advisor to determine the best path forward is a critical component of their approach to finances. According to the Stress, Finances and Well-being report, people with a financial advisor are more likely to say they’re in a better financial situation, to have an easier time saving money, to be on track to retire and to feel good about their mental health.

When life gets hectic and complicated, and your financial goals seem like they’re drifting out of reach, readjusting to the circumstances and seeking professional advice can put you back in control. When things begin to settle down, it will be satisfying to know you survived the journey feeling less frazzled.

Comparing traditional and all-in-one mortgages

Historically, homeowners have typically chosen traditional mortgages that offer fixed timelines, payments and interest rates. However, life isn’t always predictable. When your life changes – in good ways and bad – a traditional mortgage can’t easily adapt. You still have to make the same payments regardless of what happens to your financial situation. An all-in-one mortgage, on the other hand, is designed to respond to changing financial needs.

An all-in-one mortgage treats most or all of your debt as a revolving line of credit, which means you can pay it down as quickly as you want, or you can slow down or even stop your mortgage payments, as long as you have borrowing room available. If your income rises and you want to tackle your debt more aggressively, simply deposit more money into your line of credit. In tougher times, you can reduce your deposits until things improve. When it comes to larger expenses, such as a major home renovation, you can draw on your line of credit – with no loan application required. The flexible nature of the account means you can even lock in a portion of your debt if you want to maintain some of the predictability of a traditional mortgage.

The advantage of an all-in-one mortgage is that by allowing you to adapt your payments to changing financial circumstances, it can reduce your stress and help keep your financial plan on track.

¹Stress, finances, and well-being: Driving behaviours that matter