Common sense key in taking control of finances

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As the New Year begins, many of us make resolutions to change our lives for the better. And as the post-Christmas bills start to roll in, one of those resolutions often is to dig our way out of debt, and to stay that way.

There are, thankfully, some simple, straightforward ways to take control of your personal finances. With only a little foresight, planning and expert assistance, anyone can learn to better handle his or her money.

In today's world of instant gratification and readily available credit, one of the most crucial aspects to financial planning is the handling of debt.

"One of the problems that I see most often is with credit cards," said Larry Hackel, senior service representative with Saskatoon-based Many Nations Financial Services Ltd. "The major problem is when people have more than one credit card, usually what happens is that they max out the cards, then they either can't make the payments, or they make minimum payments but never get the balances paid down."

Credit card debt is so problematic and difficult to overcome because of the interest rates charged on outstanding balances. Whereas interest on other types of debt, like mortgages and bank loans, currently hovers around a very borrower-friendly 4.5 per cent, the majority of credit card companies offer rates in the mid to high teens.

"These companies charge high interest rates so they can capture more money. They're looking for you to make minimum payments," Hackel explained. "You've really got to employ common sense when you use a credit card."

A common sense approach means not using a credit card for impulse purchases, not charging items to the card if you don't think you'll be able to pay them off entirely within a month or two, and not getting into the dangerous juggling act of using one card to cover the charges on another. And despite the barely noticeable effect that minimum payments have on a card's balance, making this minimum payment is always better than making no payment at all.

Such a rule is, of course, applicable to all types of debt, from credit cards and mortgages to telephone and power bills. Following it ensures you are free from the hassles of collection agents, and even more importantly, that you maintain a good credit rating.

"A poor credit rating simply means you haven't been paying your bills in a timely manner. Virtually any type of loan or bill affects it," said Hackel. "The key is to keep in contact with creditors. If you have a difficult month, let them know, and alternate arrangements can usually be made."

Debt and credit problems have an immediacy that makes them one of the most critical aspects of financial management, and dealing with them should certainly be a top priority. However, a person must also look beyond the short term, and have a solid plan for their savings, investments, and eventual retirement income.

"The earlier you start planning for retirement, the better. There's more potential to set money aside, and more time for it to grow. An early start is especially important now, because a lot of people are retiring younger, before 65," Hackel explained. "As a rough rule, you need to be putting money away for 25 to 35 years."

Despite this guideline, it is never too late to start putting money away. If your planned retirement timeframe does not allow for 25 to 35 years of accumulation, you can compensate by making larger monthly or yearly Registered Retirement Savings Plan (RRSP) contributions. A qualified financial planner can be of great assistance in making a retirement plan that meets both your goals and budget.

In addition to the amount saved, and the length of time these savings have to grow, consideration must also be given to the type of investment. The number of investment options is far too great to adequately cover here, but stocks, bonds and mutual funds are all enduringly popular. Even today, with most of the world's financial markets either stagnant or shrinking in value, such inestments remain sound.

"Right now, we're not seeing growth (in investment value)," said Hackel. "When you have a market that's down, sometimes it's really hard to put money in, but this is a time when you really need to continue investing. You're buying shares at a low rate, and the market will eventually rebound. The main thing today is that individuals have to be more diversified. They shouldn't put all their eggs in one basket."

While the general information and tips presented here are meant to help people look at their financial situation with a more critical, thoughtful eye, they certainly should not be used as the sole basis for anyone's fiscal planning. Regardless of situation or specific need, the best piece of advice is always to consult with an expert.

"Financial planning really needs to be handled on a personal basis," agreed Hackel, whose company is one of many that offers this expertise. "A plan should be based on a person's age, where they are in their life, their goals, their debt level, their income, all sorts of things. It's difficult to generalize."

If any generalization can be made, it is that effective financial management requires careful consideration and planning. With such planning, debt loads can be reduced or eliminated, bank accounts can steadily grow, and a good retirement income can be assured.