7 Tips to Recover from a Financial Setback


why-meBad things happen to good people. Overcoming financial challenges – in whatever form – takes dedication, patience and planning.

In life, you will have trouble, that’s a given. This can include losing your job, going through a divorce, or experiencing a serious illness. Then there are all those unexpected expenses life throws at you. A leaky roof, flooded basement, major car repair – any one of these could cost thousand, with no time to waste and room to negotiate.

And to add insult to injury, often times, more than one of these situations occur at once. It’s fairly obvious to think that these challenges often affect your finances – so how do you recover?

Here are seven tips for getting back in track after a financial setback, as recently published in “Solutions for Financial Planning”, a periodical publication from Manulife Financial.

  1. Get Professional Advice – A professional perspective can be invaluable, no matter the size of your problem. An financial advisor can help you assess the impact on both your short-term and long-term plans, adjust your goals, and develop a plan that helps lead to recovery. Getting advice first, will help you avoid making bad decisions like, racking up a large credit card balance that could only serve to prolong your troubles. Your advisor should help you gain perspective, relax a bit and offer constructive solutions to your problem.
  2. Tighten You Budget – Your budget probably has some slack. Regardless of the cause of your troubles, it’s time to eliminate that slack and get your budget back in balance. Take a hard look at your non-essential costs. I encourage all of my clients to play a little game call “Every Dollar Has A Name” in order to find the margin in their budget. Are there free or lower-cost alternatives to the things you do on a regular basis? Borrowing books, magazines and videos from the library, activities in a local park or at a community centre, or the ever popular staycation versus expensive vacation can all help save thousands. You could even take a look at negotiating a better deal on certain products and services without cutting back.
  3. changesExplore Big-Ticket Cost Savings – If things look as if they could have a lasting impact, and a high cost, it may be time to make some significant changes to your lifestyle. Changes that go beyond simple trimming and include some of the biggest line items in your budget. Consider moving to a smaller home a more affordable area and can you make do with one car? Major changes are difficult, but they may be the key to helping protect your future.
  4. Earn Extra Income – Spending less can only go so far, can you bring in more money? Can you sell something of value like art, an antique or a collectible? Maybe you can work more hours or even take a second job. Or course, working more takes time away from other commitments and might increase certain expenses like child care. And don’t forget the tax implications of earning more income. Ask your advisor to help you run all the numbers to ensure your extra income will more than pay for those extra costs.
  5. Talk To Your Mortgage Provider – If you have a mortgage, you may be able negotiate more manageable terms. You could switch from accelerated to more standard payments or if you’ve made lump-sum prepayments in the past, you may qualify for a short-term holiday from payments. It might also be possible to lengthening your mortgage’s amortization and add any payments you’ve missed to your balance. Lastly, if you are close to the renewal date on your mortgage, a full scale consolidation and change of provider may be in order.
  6. Talk To Other Creditors Too – Don’t letting bills slide, call your creditors, explain your situation and ask to lower your interest rate or reduce your payments. Most companies recognize the value of keeping you as a customer long term and are willing to negotiate rather than take a hard line and risk losing your as a customer forever. This can give you the breathing room you need to get through the worst of a setback and help protect your credit rating.
  7. Borrow Sensibly – If you simply can’t find any more savings or increase your piggywaterincome and you’ve run through your savings, check into the lowest-cost sources of borrowing. This can usually take the form of a secured line of credit or the aforementioned consolidation loan. Your advisor can help you identify the best solution for you.

 

Recovery from a financial shock is a journey. It will likely take several months or even years to get back to where you once were. But with a little determination, patience, planning and hard work, it can be done!

As things start to improve, make sure you stick to a streamlined budget and put extra money towards your long term debts. Start building a substantial emergency fund (three to six months of expenses) so you have resources on hand the next time you hit a financial speed bump.

Once you are in a stronger position, with more a bit more margin, look at other ways to help protect yourself from future shocks, such as various forms of personal insurance including, health, dental, critical illness and disability coverage. Start to set some money aside for the future too in one of the many government sponsored tax advantaged savings vehicles like a Tax-Free Savings Account (TFSA), Registered Retirement Savings Plan (RRSP) or even a Registered Education Savings Plan (RESP).

After enough time has passed and you have recovered emotionally from the stress, take some time to look back and think about what you might have done differently. Hindsight is 20/20 so use it to your advantage. Learn from the experience, without assigning blame and make sure you’re in a stronger financial position in case another difficult situation occurs.

balancingLastly, and I can’t stress this enough, go back to the very first tip and engage the help of professional financial advisor. Strong financial advice means a strong financial future. Households with an advisor are more likely to:

  • Have enough money to live the life they want (61 per cent compared to 31 per cent with no financial plan)
  • Be able to take an annual vacation (74 per cent compared to 44 per cent with no financial plan)
  • Have enough money for splurges (65 per cent compared to 31 per cent with no financial plan)

It doesn’t “just happen.” But it does happen if you have the right plan and support.

Lauren C. Sheil is a serial entrepreneur who has been in business for over 25 years. He has operated a small farm, a recording studio and a music manufacturing plant, and has written 3 books on Economics, Ethics and Spirituality.  He has presented his ideas to business owners and leaders from all over the world. His latest book “Meekoethics: What Happens When Life Gets Messy and the Rules Aren’t Enough” is available on Amazon.com.

Mr. Sheil is currently a Financial Security Advisor and Business Planning Specialist with one of Canada’s premier financial planning organizations.  He brings to his work a passion for people and a desire to teach everyone to live life to the fullest while Eliminating Debt, Building Wealth and Leaving a Legacy.  

He can be reached at themeekonomicsproject@gmail.com or by calling 613-295-4141.

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Quote of the day 11/12/2016


If companies were run just for the shareholder, it would be as disastrous to the country as if everyone saved during a depression. Perhaps more. – Joel Kurtzman; The Death of Money

4 Keys to Rock Financial Literacy Month


Financial freedom is available to those who learn about it and work for it. [Robert Kiyosaki]

flm2016So November is Financial Literacy Month in Canada.

To be honest, I’m not sure what that means. Personally I don’t put much stock in setting aside specific months, or days to talk about specific issues. Especially issues of day to day significance, like Financial Literacy.

We need to get better at teaching financial literacy in this country. That much is certain.

In 2009 Statistics Canada in conjunction with Human Resources and Skills Development Canada (HRSDC), Finance Canada and the Financial Consumer Agency of Canada, conducted a broad ranging study known as the Canadian Financial Capital Survey. The survey was conducted to shed light on Canadians knowledge, abilities and behavior concerning financial decision making. In other words, how Canadians understand their financial situation, the financial services available to them and their plans for the future. The results were sobering and as a result the agencies involved decided to sponsor Financial Literacy Month every November since 2011.

thumbsdownHow did we do? Overall, Canadians average 67% on the survey. But lower incomes meant lower scores, highlighting the need for financial education, especially in lower income demographics.  Canadians who earned less than $67,000 per year generally received a score of less than 60%, those with incomes of greater than $95,000 generally received a score of 70% or above. The vast majority of Canadians earn between $67,000 and $95,000 per year, making the scores in the mid 60s the most statistically significant.

In my opinion the fact that even so called wealthy Canadians rarely got better than a B on the survey says something not only about the state of financial education in this country but also our expectations about what constitutes financial literacy.

There are a few fundamentals I think everyone must learn in order to be considered financially literate enough to function in society:

1 – Start a Budget.

Budgeting does need to be fancy or scary. If you prefer, call it a spending plan instead because in essence that’s what it is. Start with figuring out how much money you have, spend it all on paper before the month begins and then stick to it. If you’re on a limited or variable income it helps to triage your money as well, break your expenses down into the 3 main categories – Food, Shelter and Transportation, everything else is luxury anyway.

2 – Pay yourself second.

thinkagainYou read that right. Conventional wisdom says pay yourself first but the conventional wisdom is just plain wrong. Instead, pay your highest interest debts first. By doing that, in a way you are still paying yourself first because every dollar spent on interest is a dollar you can’t spend on anything else. Once your debts are under control then paying yourself first makes sense, until then you’re putting the cart before the horse.

3 – Reduce, reuse, recycle

It’s not just a good slogan for environmental responsibility. In terms of financial literacy it could be rephrased as spend less, keep longer and re-purpose. We live in a throw away society. Not only is it hurting our planet, it’s killing our wallets. When done right, environmental responsibility is very economical. Start small, buy a reusable shopping bag and carry your own insulated travel mug, you’ll save anywhere from 5 to 15 cents every time you shop or go for coffee.

4 – Save, save, save

Save for a rainy day by building an emergency fund of at least 3 months of expenses, preferably 6. Save for retirement.  You’ll need enough to replace 70% of your pre-retirement income if you don’t want to take a major hit in your lifestyle once the pay cheques stop coming. And Save for major purchases like kid’s education, new cars and major repairs.

As part of financial literacy month I put together a little quiz of my own. This one focuses on the types of products and services I offer through my financial practice. Check it out here https://laurensheil.typeform.com/to/uC5wUu Add your email address at the end to be entered in a draw for a $25.00 Tim Horton’s Gift Card.

Happy Financial Literacy Month.

Why Some People Choose to Save And Others Don’t


The following is copied and re-posted from the Fall Issue of “Your Financial Security” The quarterly newsletter for clients of Freedom 55 Financial and my day job. For more information write to themeekonomicsproject@gmail.com

A recent report from the Ontario Chamber of Commerce noted Canada’s household savings rates has dropped steadily from 15 to 20 percent of disposable income in the 1980s to as little as four percent today.

piggybank

So what makes some people save while others choose to spend?

Research has demonstrated it’s at least partially (about 25 percent) ingrained in our DNA. The aversion to risk and the perception of time have both been shown to have some genetic basis.

In addition, the social preferences instilled in children by their parents affect their views on saving for the future. Perhaps past economic experiences have affected the willingness to save now.

The savers of the 1980s – those who were saving 15 to 20 percent of their disposable income – were young adults in the 1950s. The 50s were a time of prosperity and for many Canadians life was transformed by the economy which was booming. They watched their parents save when they could, not just for the future, but in advance for large purchases. The invention of the credit card in the 50s changed how North Americans lived. Shopping malls became part of the landscape and the current consumer society was born. Attitudes about saving started to change.

Thanks to the influence of their parents, these young adults continued to save well into the 1980s and early 90s. Along the way, they became the parents of the people who should be saving now.

The consumer society invented in the 50s may have influenced current lower saving rates. Today’s savers watched parents buy more on credit, rather than saving for large purchases, and experienced the booming economy of the last half of the twentieth century. As consumption grew, savings shrank.

Having the patience to save for the long term, and the discipline to live with a “don’t spend what you don’t have” mindset, sticks with some people forever. The big challenge for many parents is figuring out how to pass these principles to their children – not an easy task in an era of immediate gratification.

Researchers are discussing the impact of the parent-child dynamic on the decision to save for the future. Maybe you should be talking about it too. Your financial security advisor can help.