“How much debt do you have? How much do you have saved?” My Dad’s questions drudged up a familiar sense of dread and anxiety within me, and his eyes bore into mine with a distinct, unspoken sentiment:
I’m not mad, I’m disappointed.
Despite my parent’s valiant (and much appreciated) tough-love efforts to educate me on the subject, I felt more or less inept when it came to finances for most of my young adult life. After graduating from University, I was propelled straight into a full-time job at a bank as a Security Analyst. How adult of me, right? Except, living in Toronto is expensive. My rent ate up 1/2 my monthly income — let alone a daily Starbucks trip to escape the office, weekly groceries or a night out. I was also naive, granted an elite credit card with a limit that was much too high, and so began my slow decline into the murky financial territory. I wasn’t in trouble (yet), but my credit card balance kept getting higher, interest kept accumulating, and I still knew absolutely nothing about taxes.
Around the same time, I began my transition from the corporate bank world to the marketing and freelance world, while working as a boxing coach on the side. Although these moves were strategic and, ultimately, lead me to where I am today (a very good place), they didn’t come without a cost. Namely, financial stability and any small shred of savings that I had.
Over the next two years, every time anyone brought up savings, I felt myself start to squirm. Every time I moved, my rent increased. Every time someone mentioned mortgages or the real estate market, I realized I might never own a house. Sure, I was making good money at this point and had settled into a comfortable groove, but I knew damn well I had a lot of ground to make up. It was time for damage repair, and the first step was facing my own sh*t.
So, if you’re looking for a no-bullsh*t guide to becoming more financially fit as a millennial living in Toronto, well… here it is.
1. Face the Facts
This is arguably the most important (and obvious) lesson I’ll leave you with: When it comes to finances, it’s best to face things head-on. ‘Plan ahead, or plan to fail’ kind of deal. Don’t wait until the next job, or the next paycheque, or the next bill — cut the sh*t, sit down, assess your situation, get the help/counsel you need, and make a plan that you can commit to. The longer you wait, the deeper the hole will be that you have to dig yourself out of, eventually. Even if your situation isn’t particularly stressful, anyone who’s managed to create some financial cushion in their life will likely tell you that being pro-active and informed is one of the best tools in your arsenal.
2. Get Real About Your Debt, and Track Your Earnings + Expenses
Let me hit you with some scary facts. Millennials report owing an average of $27,900 in personal debt, and despite credit cards being the biggest source of debt for one in four millennials, about 22% don’t know the interest rate they’re being charged. Even further, the average debt per Canadian consumer (including mortgages) reached $71,300 in the first quarter of 2019. Yikes.
So, how do we get out of the debt trap?
First thing is first, start tracking your monthly income and expenses. I mean literally write down everything… every coffee purchased, every Uber, every bar tab, every online shopping spree — all of it. Much like keeping a “food diary” that is monitored by your trainer or nutritionist, simply writing things down often makes us more accountable and, more importantly, aware of our true habits. While you’re at it, make sure you’re clear on the interest rates and minimum payments that apply to your accounts, write that sh*t down too.
** Please note, I made each template ‘view only’ to avoid accidental edits, so to save it, click File > Make a Copy **
For an annual income and expenses tracker broken down by month, check out this 2020 template I’ve created. You can edit/re-format however you need, but let this shed light on what is coming into your accounts, and what is going out.
For a micro-level breakdown of each month, check out this template. The template attached is formatted for January, but you can use the same format each month. Here, you can really get a close look at your monthly spending to become more vigilant with your hard-earned dough. This will also force you to differentiate between spending which is necessary, and that which isn’t (ahem, those $20 smoothie bowls and exorbitant lattes). Ideally, you should use this tracker throughout the month, and plug the numbers into the annual tracker come the end of the month. And where do you go from there? You budget, baby. #MakeBudgetingSexy2020
For budgeting, here are some suggestions to get started:
– Set “spend allocations” based on category (groceries each month, etc.)
– Set a mandatory ‘debt payment’ amount
– Find free activities and services in your city (date night doesn’t always have to break the bank)
– Make coffee (and meals) at home
– No more fast-fashion shopping sprees
– Consider a side hustle, if your schedule allows
– Consider second-hand purchase options, where applicable
3. The Bare Minimum Isn’t Enough
When it comes to credit card debt and/or student loans, oftentimes just paying the minimum payment won’t cut it. Interest will continue to eat away at the progress you’ve made; not to mention, you might continue to add to the existing balance. One step forward, two steps back. Paying more than the minimum amount will help keep you ahead of the (interest) curve, protect your credit score, and will help to maintain some positive momentum.
In the case of an outstanding credit card balance, you also may be in a position to take out a loan to pay off the remaining amount. You’ll still have to pay back the loan, of course, but usually at a much lower interest rate. There are also plenty of (free) tools online to help you track these efforts. Additionally, you can speak with a bank representative to see if you’re eligible for a lower interest rate on your current accounts.
If you find yourself especially strapped and unsure of how to proceed, consider looking into a debt relief service. I have no personal experience with this, so I can’t make any specific recommendations, but there is plenty of information online.
It may also be helpful to apply the “snowball method” here. To do this, list all the debts you owe from smallest to largest. For example, if you have $10,000 remaining on your student loans, but only $1,000 on your credit card balance, dedicate the majority of your excess funds (after all necessary payments) to the smaller balance, first. This allows you to start with a win, so to speak, and steadily pay off debts one by one.
4. Cancel Unnecessary Subscriptions
Speaking of budgets, do you really need Netflix, Crave TV, Amazon Prime, Spotify, Apple Music, and a recurring Goodlife membership you haven’t actually used since 2016? Probably not. Decide what can stay, and what should go (and be realistic here). Good news: Apps like Truebill can help you identify and cancel unused/unwanted subscriptions, lower your bills, and help you reach your savings goals.
5. Don’t Neglect Your Credit Score
Listen, like it or not, your credit score matters. And, much like your social insurance number and that weird birthmark on the back of your neck, your credit score is with you for life. So, may as well try to establish an amicable relationship with it, right?
Ranging from 300 to 900, the average credit score in Canada is around 650. So, if the topic of credit stresses you out, guess what? You’re probably not alone. Now, first thing’s first. You can’t improve your credit score, without knowing what it is. While you can certainly go the traditional route and sign up for an Equifax or TransUnion report, there are also plenty of credit monitoring apps that are free and give you continued insight into your credit score (and what might be affecting it). My personal favourites are Credit Karma and Borrowell. Credit Karma pulls from TransUnion and Equifax, while Borrowell uses the Equifax Risk Score 2.0.
Now, here are the primary factors affecting your credit:
– Payment history determines 35% of your credit score
– Your debt level determines 30% of your credit score (credit utilization – how much of your CC balance have you used?)
– Age of credit is 15% of your credit score
– Types of credit (revolving accounts or instalment loans) determines 10% of your credit score
– Number of credit inquiries make up 10% of your credit score
Now, here are the best ways to improve your credit:
1. Be punctual with those payments: Set reminders in your phone/on your calendar or, even better, set up automatic payments for your credit cards, loans, phone bill, car lease… all of it. Slowly but surely, you’ll make your way back into lenders’ good graces — just be patient. If you’re behind on payments, get current as soon as possible. Remember that allowing accounts to go to collections, or declaring bankruptcy can devastate your score. Fortunately, late or missed payments do have less impact on your credit score over time (although they remain on your report for 7 years).
2. Keep balances low: Remember, credit utilization is a big factor in your credit score, so you should try to keep your credit card utilization at 30% or less. For example, if your credit limit is $5,000, your outstanding balance should (ideally) remain below $1,500. AKA don’t max anything out and use credit responsibly.
3. Limit your credit cards: I don’t care what the rewards are… don’t apply for four different cards if you only really need two. Unnecessary credit can result in an influx of credit inquiries, and more opportunity to over-spend and accumulate debt. While we’re on the topic, make sure to research your likelihood of approval before applying for a new card or loan, to avoid unnecessary hard credit inquiries or denied applications.
4. Be strategic with your accounts: If you’ve recently paid an account in full, don’t be so hasty to close it. If the account has a long history with a solid track record of paying bills on time, this actually helps your profile. After all, the age of credit impacts a portion of your score.
5. Enroll in a score boosting program: Experian Boost and UltraFICO are two options which help individuals to boost their credit profile with financial information like phone and utility payments, checking/savings accounts, and more. Disclaimer: I haven’t personally used these. They sound great, but as with anything, do your research first.
6. Apply for a secured credit card, if necessary: Secured credit cards require you to make a deposit that acts as “collateral” for the purchases you make using the card. If you default on payments, the lender is able to keep your deposit. As long as your account remains in good standing, you’ll get your deposit back. This is a good option for anyone with limited or bad credit, who may not be approved for an unsecured card. Use this to build your way back up and establish a strong track record, until you are able to transition back to a traditional credit card.
Look, this might sound corny, but it’s not. Give yourself a “debt-free” goal, write it down, and put that message somewhere you will see it frequently. This makes it real. You have a goal in place, it’s visualized, and you’re executing a plan to get there. This is far more powerful than you think. Also, check out books like: Rich Dad, Poor Dad, You Are a Badass at Making Money and The Total Money Makeover.
Honestly, I still have more advice to give (there’s a lot to cover here)… but we might have to save that for a Part II. Happy bank accounts, happy life… am I right?