If you lost your job tomorrow, would there be a list in your head right away of things you could do to hang on or would you just be at a complete loss?

Financial knowledge will allow you to better assess your options and create a plan without getting overwhelmed. However, even with the best laid plans and all the financial literacy in the world, it’s impossible to completely eliminate financial stress — so how do you cope?

1. Have a clear picture of your financial situation.
Do you know your average monthly spend? Do you know how much you owe, the interest rate on your debts, and how much you pay each month in interest charges? Have you ever tracked and categorized your expenses to identify areas (car? dining out? home improvement?) where you could cut back if required?

Avoiding these questions is understandable because the answers may lead to some hard lifestyle choices but turning a blind eye to your real situation will only lead to never-ending financial stress. You need to clarify your situation, collect and analyze your data, and then start creating a plan of attack.

2. Accept your mistakes.
Move on from any emotional reaction and learn to live with any poor financial decisions from your past. Regret and anger won’t make that beach vacation you took on your credit card disappear! That beach vacation is long gone, just focus on your plan to channel more money towards paying for it!

If you need to pass on a night out with the gang because you want to put that $75 towards your card, then just come out and tell them. More than 50% of Canadians live paycheque-to-paycheque, so you won’t be surprising anybody!

3. Set small, achievable financials goals to bolster confidence and measure progress.
If you have credit card debt, try adding $100 to your monthly minimum credit card payment. If you have no credit card debt, open a TFSA and contribute a $100 a month. A hundred bucks might seem like a modest amount, but it is a realistic goal that will get you started and will help a lot more than you think.

Did you know that a $100 monthly deposit into your TFSA ($1200 year) from age 18 to 65 with will grow to almost $400K based on historical stock market returns?

Adding $100 monthly to the minimum 3% payment on a $5K credit card debt will cut the time required to pay off the balance from 251 months down to 38 months and save you $4500 in interest charges!

4. Get inspired and stay motivated.
Follow a personal finance YouTuber or blogger that you really connect with, hang a goal chart or progress tracker on the wall, talk with a friend or relative who has the same issues and work together — there are lots of methods and resources available to help you, even with a limited budget.  It’s critical to maintain a positive attitude and don’t beat yourself up — there are plenty of others in the same boat!

The ultimate goal is to completely eliminate financial stress by building passive income, so you don’t have to go to work everyday to pay the bills. Achieving this goal will take time and there is bound to be some stress along the way. Learn to cope and stay focused on your goals.

The worst financial mistake you can make is believing that a Registered Retirement Savings Plan (RRSP) or Tax-Free Savings Account (TFSA) is something to look into when you are a little older and more able to set some money aside. The fact is, you don’t use these accounts for saving at all, you use them for investing. Your retirement fund could grow to seven figures, even if you only contribute a fraction of the allowable yearly maximums. They also come with huge tax-saving benefits.

A lot of people get discouraged by the sheer amount that you are allowed to contribute to these registered accounts and the mere pittance they may be able to come up with — don’t fall into that mindset!

If you make 60,000/year from your job, you could contribute over $10,000 to your RRSP and another $6000 to your TFSA every year. Considering you are only going to have about $45K in your jeans after taxes, finding a spare $16K would require more than 30% of your take-home pay!

The good news is that your yearly contribution limits can be carried over and as you grow older (and theoretically have more disposable income) you can catch up. The bad news is that playing catch up isn’t going to happen unless you are very disciplined with your spending. Sure, you may earn more, but you will spend more… kids, cars, vacations, even the cat is going to cost you $800/year!

That extra disposable income you were envisioning may not materialize until you are in your mid 50’s, if ever! You need to scrape together whatever investment savings you can now, even saving just 5% ($200/month) of a $60K salary would make a huge impact.

Putting off getting started is going to cost you way more than you ever imagined in lost investment returns. Ignore the pitiful interest rates you see on bank savings accounts, holding cash will actually cost you money at current interest and inflation rates. However, the average annual return on many stock indexes (S&P, TSX, DSJ) over the past 40 years is around 7%. If you do a little math, you are soon going to realize that even on a relatively small investment of $200 month, the difference between starting when you are 18 versus starting at age 28 is jaw dropping.

Investing $200/month from age 18 to 65 at 7% would give you $790,139. The same $200 at the same rate from age 28 to 65 would yield just $384,810. Sure, you would be contributing $24,000 more over that extra 10 years, but your nest egg at 65 would be double — more than enough to keep you poolside at a nice resort every winter while those late starters are stuck in the snow!

There are plenty of rules, regulations and strategies to consider and every angle of the TFSA vs RRSP debate has been extensively written about. While you do need to understand the basics of how they work, the simple goal for the vast majority of us should be to put something, anything, into one (or both) of these accounts on a regular basis and start investing — you can’t go wrong!

Published by DLC Marketing Team