Financial S.O.S. – 3 Steps To Getting You Out Of Debt and Into Financial Freedom

Finances. Blegh.
PERSONAL finances. Double blegh.

It seems that the subject of finance is a big elephant in the room for most people. Nobody wants to think about it, much less share or talk about it with anyone else. Heck, I’m sure if people could accomplish everything through their online banking app, bank tellers would be out of a job within the week.

But yes, the finance conversation avoiders… I was one of those people for a long time. Still am in a lot of scenarios, like when I’m bombarded by the nosy inquiries of distant aunts, uncles and cousins at family gatherings. *Cue excessive head nodding and blank dead-eyed smile*

So why, oh why am I going there now? Because as a twenty-something millennial living in the height of capitalism and debt in a consumer-driven society, we’re in some deep sh*t, and we’ve GOT to start talking about it.

According to statistics, 78% of American workers are living paycheque to paycheque. And while most of us are (for some reason) at least somewhat aware of the economic, financial and/or political states of America, when was the last time you sought out information about your local current economic climate?

Being that I’m a Canadian living in BC, here are some facts according to the CPA – Canadian Payroll Association’s tenth annual survey (2018):

  • 94% of survey respondents report carrying debt in the form of mortgage, credit card and/or car payments (no mention of student loan debt)
  • 49% of BC employees live paycheque to paycheque
  • 44% of Canadians report it would be difficult to meet their financial obligations if their pay cheque were delayed by a single week
  • 1 in 5 Canadians (1 in 4 BC employees) say they could not come up with CAD$2000 (USD$1500) within a month in the case of an emergency expense
  • 35% of Canadians (39% of BC employees) spend all of or more than their net pay
  • 34% of Canadians (38% of BC employees) report an increase in the amount of debt they’ve accumulated over the past year
  • 40% of working Canadians feel overwhelmed by their level of debt

And while 69% of Canadians (65% of BC employees) are putting money away for savings, 69% of working Canadians report saving only 10% or less of their earnings. You can read the full media release on these survey statistics here.

The numbers are not lookin’ good, people. Not only are most Canadians not adequately saving enough for retirement and only a couple paycheques away from potentially being homeless, but the chances of the average Canadian being able to afford a home here in BC are notoriously slim. But this is not a problem exclusive to BC residents. The growing millennial housing crisis spans around the world across multiple continents, from North America all the way to Europe and Asia.

Commonly shared advice on the internet, such as “Move out of the big cities if you can’t afford it!” are often inconsiderate and carelessly given. Advice such as this may somewhat make sense at first glance, but are overly simplistic, not at all sustainable, and can only serve as a temporary bandaid on the proverbial “economic bubble” that is set to burst.

So, umm, what are we to do?? I’m not going to sit here and pretend like I have the all the answers, or that I’m an expert on the economy, real estate/housing, banking, etc.

What I do know – and it doesn’t take a rocket scientist to figure this out – is that it does not matter WHAT or who comes in to correct the situation if one of the key factors contributing to the problem is not acutely addressed. That factor being our behaviour. Or more specifically, our current cultural mindset around financial debt and “Keeping up with the Joneses”… although these days, it seems more like “Keeping Up With the Kardashians on Instagram”.

Note that there are always a web of factors that contribute to any given issue, hence my emphasis on behaviour being only one of the key factors. I choose to focus on personal behaviour because that is at least 99.99999% in our control and therefore more immediately productive than sitting around complaining; blaming every-one and every-thing BUT the person in the mirror.

Here is the basic 3-part step to kickstarting your financial-health journey (make some snacks, get comfy, and roll up your sleeves):

SEARCH, ORGANIZE, SCRUTINIZE (S.O.S.)

1. Search and gather everything to do with your outgoing expenses from the past year – statements, bills/payments, invoices, debts, recurring payments on auto-withdrawal, all of it. If this feels too intimidating, or if you aren’t able to set aside the time to complete this in one session, divide the work up into 3-month increments.

DO NOT IGNORE, LIE TO YOURSELF OR OMIT ANY PAYMENTS. Everything that is outgoing counts. That includes food and entertainment, monthly banking account and interest fees, transportation, donations, contributions to savings, investments, etc. This ALSO includes anything you have late payments on, or that you haven’t been paying and is in debt collections.

2. Because this information is likely scattered between paper and online, I recommend you organize all of this data on paper or a digital file. I like to organize chronologically by month and date starting from January.

Next to the month, calculate and write down your take-home income for that month. Underneath that, list out all the dates and everything that is an outgoing expense from the first of the month to the last of the month. If you’re a details person like me, I like to add in extra info such as which account the expense is coming out of, and whether or not it’s an auto-payment.

This may start to feel a bit repetitive, but is extremely important in order to get an accurate and full representation of your financial status.

3. Now for the fun part – scrutinizing the hell out of your expenses. First thing’s first, you want to calculate your incoming vs. outgoing by subtracting your outgoing expenses from your income for every month.

Important questions to ask: Are you making enough money every month after taxes? Do you have a healthy amount of breathing room at the end of the month, or are you often going in the negative and borrowing more money from your credit card? Are you routinely making payments on time? Are you putting at least 20% of your take-home pay into your savings and retirement accounts? Do you have a 3-6 month emergency fund? Are you tackling your debt?

If your answer is NO to any of these questions, it’s time to reorganize and reprioritize (*read my suggested list of priorities below).

Start trimming the excess. Look at your non-essentials and see what you can CUT OUT until you’ve made some significant headway on your debts, investments and savings – until you’re no longer working your ass off with NOTHING to show for in your bank account and no future security.

This usually looks like significantly cutting down on entertainment (movies, concerts, eating out, meal prep/food delivery services, alcohol) and subscription payments (Spotify, Netflix, that random app you never use but still pay for monthly). If you haven’t set foot at the gym, yoga studio, etc. for longer than six months, cancel that membership!!

If you’re drowning in debt and payments, consider selling or downgrading your car. If your bottom line isn’t cutting it, you need to find a way to increase your income – charging more if you’re a freelancer, requesting a raise, getting a second or third job, selling off belongings you no longer need.

*List of suggested financial priorities in order:

HOME & FOOD – mortgage/rent, strata, gas, electric, water, BUDGETED groceries
NECESSARY EXPENSES & DEBTS – cellphone, health insurance/medical bills, basic grooming upkeep, credit card, car payments, student loans, any other debts you have
3-6 MONTH EMERGENCY FUND – accidents, unexpected expenses (especially if you’re a parent or pet owner), in the case you get fired, or are unable to work for an extended period of time.
RETIREMENT FUNDS – contributing to your retirement accounts; in Canada that would be your TFSA, RRSP, etc. In the US, you’re looking at your Roth IRA, 401K, etc.
INVESTMENTS (LONG-TERM SAVINGS) – investing money into stocks, ETFs, index/mutual funds independently through platforms such as Questrade, robo-advisors such as WealthSimple and WealthFront, or through a reputable brokerage or firm.
BIGGER SHORT-TERM SAVINGS – putting money into a High-Interest Savings Account (HISA) for anything you’re saving up for in the next few years to a decade, such as a downpayment on a home.
FUN FUNDS – putting money into HISAs specifically for the fun things you want to save up for, such as travel/vacation, a new cellphone or computer, going to a festival, etc. For this, I like apps like Mylo, or Qapital if you’re in the States.
ENTERTAINMENT & EXTRAS
 – these are your set budgeted allowances each month for going out to eat/drink, food delivery, to-go coffees, shopping, non-essential grooming, Uber/Lyft, etc.

How quickly you want to pay off your debts, or build up your emergency fund is 100% up to you. It is my belief that anything worth having in life takes some pain for long-term gain. I’m also a big fan of the Dave Ramsey’s baby steps method.

Need some extra motivation? Check out this awesome debt repayment calculator to see the ridiculous amount of money you’re paying companies in INTEREST. Seriously.

The bottom line is, the faster you accomplish both of those things, the sooner you will have not only financial freedom, but total freedom, and feel that heavy weight of burden lift off your shoulders.

By taking control of your finances, you will:

Build confidence, feel empowered in your choices, and in control of your life.

Sleep better at night knowing you no longer have looming debts and late bills to pay at the end of the month.

No longer have to worry about choosing between having a full stomach and making rent.

No longer have to awkwardly dodge questions or conversations revolving around finances.

Be able to enjoy life, shopping and experiences guilt-free!!

Building financial security through investments, savings, and eliminating debt means:

Having the FREEDOM to make powerful decisions that are true to YOU and your values.

Having the freedom to say NO to demanding employers, family members, clients who disrespect your boundaries.

Having the courage to walk away from jobs and relationships that are toxic or no longer serve you.

Don’t wait another day. Take the reins and be in control of your destiny. You are 100% deserving and capable of having financial peace. You are 100% deserving and capable of creating financial wealth and success.

Have any questions? Message me privately, or leave a comment below.

🌻 #WhereHappinessBegins
@WhereHappinessBegins_
Photo by Pepi Stojanovski on Unsplash

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