Managing Debt
Debt is a fact of life. Debt comes in many shapes and forms including mortgages, personal loans, overdrafts, credit, debit and store cards, and hire-purchase (HP) agreements. Even if you manage to avoid any of these necessary evils, you are likely to be in debt to the telephone company, the utility companies etc. Each time you require new credit-to secure a mortgage or if you request a new credit card, for example-the provider of the finance will want to assess what kind of risk you represent, and whether you will pay off your debt. To help make their decision, they will try to find out as much information about you and your money as possible.

Handling Arrears
It pays to take control of your debts before they become unmanageable, and to take action sooner rather than later. If your debts are mounting up, take a look at both sides of your finances (income and expenditure) and try to draw up a plan. Then put it into action. You may be able to:

• See whether there is any scope to earn more money.
• Do additional work at weekends or in the evenings.
• Rent out a spare room.
• Sell anything you do not need.

Controlling your expenditure
It should go without saying that you must cut out all luxuries, but see whether you can go further. You will need to be ruthless, but the quicker you clear your debts, the better. If you have goods on hire purchase and have made half the payments, return the items, since if you are up to date with your payments, you will not owe any more money.

Dealing with your creditors
Show all your creditors your budget and plan of action, and make them an offer. Ask them whether they will accept reduced payments for a period while you put your affairs in order. See whether they will delay charging interest while you clear the debt. Make regular payments, even if they are smaller than demanded. This shows evidence of your intent, and is more likely to gain sympathy from the creditor than paying nothing at all. If you come to agreement with one creditor, write to others with details. They may also agree to a compromise about payments, or freeze interest for a period. The golden rule is not to hide from your problems and to be proactive-draw up your own budget, stick to it, and always make small payments, even if the company does not agree to your plan.

Getting your priorities right
Some debts are more important than others are. Try to maintain mortgage payments, as failure to pay will hit your credit ratings for years afterwards, and prevent you from obtaining a mortgage again. Water and electricity are essentials, so negotiate with the utilities. Provide your plan of action to all other creditors, making sure that you stick to it. Finally, make sure that you keep copies of all correspondence.

What not to do
Do not borrow more money at higher rates of interest to clear debts that you cannot afford. Do not draw up an unrealistic budget. Try to avoid bankruptcy.

What to do
Draw up a budget, and stick to it. Keep your creditors informed in advance of any changes to your plans or agreed payments. Get advice.

Some debt is good.
Borrowing for a home or college usually makes good sense. Just make sure you don't borrow more than you can afford to pay back, and shop around for the best rates.

Some debt is bad.
Don't use a credit card to pay for things you consume quickly, such as meals and vacations. There's no faster way to fall into debt. Instead, put aside some cash each month for these items so you can pay the bill in full. If there's something you really want but it's expensive, save for it over a period of weeks or months before charging it so that you can pay the balance when it's due and avoid interest charges.

Get a handle on your spending.
Most people spend thousands of dollars without much thought to what they're buying. Write down everything you spend for a month, cut back on things you don't need, and start saving the money left over or use it to reduce your debt more quickly.

Pay off your highest-rate debts first.
The key to getting out of debt efficiently is to first pay down the balances of loans or credit cards that charge the most interest, while paying at least the minimum due on all your other debt. Once the high-interest debt is paid down, tackle the next highest, and so on.

Expect the unexpected.
Build a cash cushion worth three months to six months of living expenses in case of an emergency. If you don't have an emergency fund, a broken fridge or damaged car can seriously upset your finances.

Get help as soon as you need it.
If you have more debt than you can manage, get help before your debt breaks your back.

Creating a positive credit history
When it comes to credit history, there are three types of people:

• Those with a good credit record that has been established over a period of time.
• Those with no credit record, usually young adults and widows who have had no credit in the past.
• Those with bad credit history.

Pay your bills on time. Without question, this is the very best way to create a positive credit report. This means all your bills, including rent and utilities.

Don't bounce cheques.
If you don't have money in your account to cover a cheque, don't write it.  Bad cheque fees can often exceed the amount of the cheque.

Think long term.
Don't be impatient. It takes more than a month or two to establish and build a solid credit history. If you are rebuilding a positive credit history, it may take some time before lenders are willing to give you a second chance. During that time, your financial dealings will have to be as clean as a whistle.

Apply for a secured credit card.
With a secured credit card, you have to deposit a certain amount of cash into a savings account and pledge that amount as collateral against any balance you have on your credit card.

Avoid switching employers.
Lenders like stability in employment. Being with the same employer for five years or more is a real plus when it comes to considering a loan application.

Avoid moving from rental to rental.
Again, stability counts.

Set up a savings account as well as a chequing account.
It's one thing to have a chequing account. It is quite another to have some money in savings. Save something every paycheque, even if the amount is small.

Work hard to decrease your debt.
Lenders like to see a decline in total debt as well as consistent, on-time monthly payments.

Try This Activity
Read over the list below. Put a "1" beside the things that are MOST IMPORTANT to you.  Put a "2" by the things you consider SOMEWHAT IMPORTANT and a "3" by things that are NOT IMPORTANT to you.  After you've completed the list, ask your partner to do the same.
_____ religion
_____ education
_____ vacation
_____ saving money
_____ your own business
_____ jewellery
_____ family
_____ health
_____ cultural events
_____ sports
_____ job success
_____ food
_____ insurance
_____ lots of money
_____ friends
_____ new car
_____ pay off debts
_____ clothes
_____ entertainment
_____ own house
_____ other?

• Now that both you and your partner have completed the list, take some time and compare.
• Do you both value the same things? Do you want more new clothing when your partner would prefer to go on a fishing trip?
• It's hard enough for one person to decide which is more important, but even harder for two people to agree on the same things.
• Do you and your partner agree on your spending values? Are you spending money on the things that are really important to both you and your family? Take some time to compare your actual spending to your rated priorities to see if they really do match.

Let's Talk About Money
Money is often a source of conflict in families. It is a difficult topic to discuss. This worksheet will help you learn more about your values and feelings about money.  You will also want to include other family members in some of these discussions.

• You've just won $100,000 in the lottery. What will you do with the money.

$__________for_________________________                         $__________for__________________________
$__________for_________________________                         $__________for__________________________
$__________for_________________________                         $__________for__________________________

• You have just been laid off of your job. You must make a major cut in spending. What would you cut first?
  
• I'd like to spend more money on­­­­­­­____________________ and less money on________________________.
  
• Do you know how much money is spent monthly on the following?
  Rent or mortgage payment: $ ________              Groceries: $________
  Car payment:         $ ________                             Utilities:   $________
  Entertainment:      $ ________                             Clothing:  $________
  
• What money problem is the most frequent cause of arguments?
  
• What is the most foolish thing you've spent money on?
  
• What is the most sensible thing you've spent money on?
  
• How do you feel about buying on credit?
  

Do you agree (A) or disagree (D) with these statements? Circle your answer.

Why people overspend
There are as many reasons that people. Here are eight of the most common reasons.

• Keeping up an image.  Many people feel like if they fall below a certain image that the neighbours set, the neighbourhood will think less of them. This is known as "keeping up with the Jones". The truth behind this is that the neighbours are thinking and feeling the same way.

• Avoidance
  When people spend too much for lunch out with friends, shopping, etc., it is easier to pay than to admit that they cannot afford to pay the bill for the whole table. If your friends drop you because you cannot afford to buy them lunch, are they really friends?

• Immediate gratification.  When you can go into a store, see something you think you need now, then get credit in five minutes or less, you get this sense of accomplishment.  After all, you get what you want now -- but think of how you are actually going to pay for it later, when the bill arrives. This is when you have your awakening of the additional bill.

• Lifestyle maintenance.  After a person has lived a certain way for a while and suddenly they find themselves in a bad place financially, it is hard to give it up. The lifestyle they have become accustomed to, they feel, must be maintained, even if it means more debt.

• Poor as a child.  Some people who are poor as a child feel the need to spend everything they can get their hands on as soon as they can. Perhaps there is a fear of someone taking the money away if it is not spent right away. These people must realise that once it is yours, it is yours.  It is okay to save it for a rainy day.

• Sense of power.  Spending money actually makes many people feel more powerful. Whether it is handing over a wad of cash or out a gold card to charge money, the simple act of spending a large amount of money gives them a rush of false power.

• Prove self worth.  Spending $40 on a haircut, $500 on a designer dress, $200 on a new pair of shoes and maybe $100 on a facial every other week sounds outrageous to most people.  However, for many people, it makes them feel like they are someone.  We are worthy, and a little splurge once in a while is good, although too much can be bad.

• Just can't say "NO!"  This one the one that I have heard the most.  Whether a child asking a parent for the newest fad toy or a spouse wanting the newest computer game, some people just cannot say "no!"  Even if they cannot afford to say "yes," they feel like a failure to some degree if the money is not there to meet the wants of the other person.  No matter what, these people will make it happen, even if it becomes a dead end.

• Pay all bills on time. Avoid late payments and skipped payments. Some consumers find that arranging for direct payments, makes it easier to stay up-to-date.
• Don't max out your credit cards or lines of credit. Credit scores look at the total amount of debt you have. Plus they compare that debt to the total amount of credit available to you (for instance, the total of the credit lines on your credit cards). Carrying too much debt relative to your available credit will usually affect your score negatively. Moving debt around from card to card, won't help improve the picture, nor will closing unused credit card accounts or opening new accounts. Paying down debt is best.
• A history of established credit is good. A track record of managing credit over a longer period works in your favour. But if you are just starting out, your payment history and low balances can offset your lack of a record.
• Get help if you experience or anticipate financial difficulties. If a financial crisis has struck or you see one looming, taking steps to manage the problems responsibly can help you avoid greater financial difficulties. Appropriate credit counselling can help.
• Act responsibly. Know your financial limitations. Understand how your monthly income relates to your monthly bills and debts. Don't spend out of your bounds.
• Open a chequing account. This can be your first step in establishing a positive financial history.
• Begin your credit history by applying for a major credit card, such as Visa, MasterCard or American Express.  If you've been rejected for a major credit card, try applying for a secured credit card, which is a great "starter" card. With a secured card, you put a predetermined amount of money in an account to secure your card.
• Don't overdraw your bank account. This is not a good start to your credit history and it will reflect negatively on your credit report.
• Keep your purchases low enough so that you can pay off your bill in full each month.
• If you move, be sure to change your name from all the utilities. Don't let others take over your payments. These accounts are in your name so any late payments will be recorded on your credit file.
• Like your job and where you live. Stability is a good thing for credit. If you've been in your current home for four years or longer, and with your current employer for five years or more, you rack up points.
• Keep at least one account in good standing. Even if you have had to file for bankruptcy or have a bad credit history, don't lose hope. Stop spending for six months and then concentrate on keeping at least one of your credit accounts in good standing. If you don't have any credit cards left you can still get approved for a secured credit card. This is a great way to start building your credit again.

Financial Planning Basics: Where to begin?
Money problems affect us all, no matter how much or how little we have. That's why financial planning is so important. It's hard to think about the future when pay day is a week away and the chequebook is empty. You can make your money stretch further if you learn to manage it carefully. You can make your money stretch if you:

• Know what you want to do with your money.
• Know where your money goes.
• Know how to keep your money longer.
• Plan your spending in advance.
• Know and keep within your credit limits

What's Important to You?
Why do you spend your money the way you do? If ten people were given a $100 bill, they would most likely spend it in entirely different ways. Why? Because people are different and value different things. The deep rooted beliefs you have about what is desirable and good are known as values. Values grow from personal experiences. You have, and will continue to make choices based on your values. Values are not necessarily right or wrong; they express what is most important to you.  Families set goals based on their values. A major reason why many couples argue about money often involves differing values and goals between partners.

• own my own home
• pay off all debts
• university for my children
• take a family vacation

Think About Your Goals
A listing of goals could go on and on. It just depends on your family's needs, wants and desires. Financial goals are the specific things you want to do with your money within a certain period of time. They will give you a purpose for the way you will spend your money today and tomorrow. You should plan for goals that are:

• Short Term Goals: Things that can be done soon. Perhaps in a week, or a few months, but no longer than a year. For example: Buy new clothes, save for a vacation.
• Intermediate Term Goals: Things that can be accomplished in 1-5 years. For example: Buy a new car, pay off debts.
• Long Term Goals: Things you would hope to achieve in 5-10 years. For example: Buy a house, put children through university.

As you set your financial goals, remember these three basic ideas:

• Set realistic goals. Ones that are set too high may frustrate you and cause you to abandon your plans. Maybe it is impossible to save $ 100 a month right now. Why not try for $25?

• Be specific. State your objectives concisely. If goals are vague, they may never be met by you, and others in your family may have a different idea of what the goal really is. An example might be: " If we save $100 a month for the next 12 months, we can afford new carpeting for the living room."
  
• Be flexible. Plans may require adjustments as your income and life cycle change. Don't be so rigid that you have to start over with an entirely new plan. For example: An unexpected expense comes up. You can't save the entire $100 that month. Don't let that get you off track. Continue to set aside something towards your goal no matter how little it might be.

More thoughts:

• You and your family probably have some ideas about the things you want in the future. An advantage of setting goals is that you know you have something to work towards. All too often you can get so caught up in day-to-day problems you end up accomplishing very little. While this may not be a problem in the short run, in the long run (whether it is college or retirement) a lack of financial planning can mean real problems.
• Some goals require resources other than money to achieve. In order to reach some goals you may decide you need to earn more money; and in order to do that you may need more training or education, which requires time and other talents.
• Reaching long term goals may depend on achieving several short term goals along the way. It may be hard to give up things now to have something in the future, yet short run sacrifices may be needed to provide for the future.
• Take time to prioritise your goals. Of the ones you have listed, which are the most important to you as an individual? Which are the most important to your family?

To avoid debt in the future:
Make a weekly or monthly spending plan. As part of this budget, identify your basic costs and potential extra expenses. Don't forget to include your savings. Avoid impulse spending. Try to limit your purchases to necessities. If you have credit card bills, do your best to pay the bills in full each month. Do your research before you buy anything. You can save money if you know where or how to get the best deal.

There has never been a bigger need than there is today for families and individuals to establish personal budgets. In the long run, increased life expectancies have raised the average levels of retirement income that is now needed to survive. This translates into a need for increased retirement savings at a time when many people are living paycheque to paycheque. In the short run there is a greatly increased temptation to become ensnared in a trap of easily accessible credit card debt. The best way handle both of these factors (as well as many others) is through the establishment of an effective personal budget.

Why You Need a Personal Budget
In today's world there are very few people who take the time to create a personal budget. Some people do not see the value in doing so; other people simply have no desire to restrict their spending habits. People have reached a point in our society where they buy on impulse with no thoughts to the consequences. In order to reverse this trend people need to become more responsible with their patterns of spending. One of the best tools to help an individual accomplish this behaviour is the personal budget.

A personal budget is a financial plan which sets limits on the amount of money that will be spent on each category of expenses in a given month. A good budget will take into consideration such factors as: the amount of income being received, outstanding debt to be retired, retirement savings, and an emergency fund.  Many people have no idea exactly where or how they spend a good portion of their money. How many times have you taken money from the ATM only to realise a couple of days later that it is gone? Many times it is difficult to remember how exactly you spent the money, and often times this money is wasted on frivolous purchases. A budget will help prevent this from happening by making a person accountable for the money that they spend. If a person only has $50 left for monthly food expenses then they may decide to forgo purchasing that fancy $3 drink.

Another great benefit is that a budget portrays an accurate idea of how much an individual can actually afford to pay for various consumer items. Whether it's a house, a car, or a new TV, a person will be able to determine whether or not a certain purchase will fit within their monetary constraints. This acts as a safeguard against getting in over your head financially.  It is important to realise that simply creating a budget is not enough. This in and of itself will do a person absolutely no good if he does not discipline himself to stick to it. At times this will very difficult, particularly if a person has established the habit of freely spending without a second thought. However, the long-term benefits of financial freedom, debt free living, and a comfortable retirement far outweigh any potential difficulty.

5 Pitfalls That Could Destroy Your Budget
With all of the advantages that are associated with living on a personal budget it is no wonder that many people are beginning to implement this system into their own lives. For a great number of individuals the results over time have been nothing short of amazing. People are beginning to work their way out of debt while at the same time meeting their expenses, and placing money into savings. However, it is important to realise that there are potential pitfalls that may be encountered along the way. If people are aware of these hazards then they are far less likely to be negatively affected by them.

• Credit Cards. These little pieces of plastic can often cause a great deal of temptation and trouble. It is not uncommon for a person to make an unwise purchase, which they would not otherwise make, because they had a credit card handy. The solution to this problem for many people is to get rid of their credit cards and begin paying by cash or cheque. Some prefer to keep one card for emergency situations but it is best to keep this out of reach, and not in their wallet or purse.
• Impatience. Problems often arise when people set financial goals but do not have the patience to complete a savings program. For example, let us say that an individual begins setting money aside for a new car. However, after a couple of months they happen to find a car that they love, and instead of waiting, they go ahead and make the purchase. This could potentially create some serious financially strains. It takes real discipline to prevent impatience from breaking your budget.
• Lack of adjustments. A budget is created using a set of expenses and income figures that are current at that time. As these figures change it is important that the budget is adjusted to reflect these changes. A failure to do so could lead to some major deficits.
• Holidays. Unfortunately, many people do not consider holidays at the point that they are creating their budgets. As a result, a proper amount of money has not been set aside for presents, food, etc. These items should be factored in and saved for throughout the entire year.

5.  Vacations. Many people accurately factor in the transportation and accommodations, but underestimate the amount of money needed for food and entertainment. Keep in mind that at any kind of "touristy" or resort destination, the prices can easily be 2 to 3 times what you would normally pay at home.

Budgeting For Retirement
The process of preparing for retirement presents a bit of a paradox. The longer interest is allowed to accumulate on a sum of money the larger the sum will grow (particularly if additional amounts are added) Consequently, saving for retirement is the most effective when started early in life, but this is the time when people are generally the least interested in doing so. Saving for retirement is the least effective when started later in life, but this is the time when people have the greatest amount of motivation to do so. Once a person is convinced that it is to his advantage to begin investing for the future then the next step is to revise their personal budget to include a retirement fund category. Let's take a look at how a person might go about incorporating this in with their monthly expenses.

• Determine when you wish to retire. This will help an individual know how long he has to save, and in turn, roughly how much he will need to put aside each month.
• Calculate retirement expenses. It is impossible to project completely accurate totals; however, a close ballpark figure should be attainable. This is done through a careful examining of all current expenses to determine if they will still be applicable, as well as, adding on any additional costs. For example, many retirees experience an increase in "entertainment expenses". Since they have an increased amount of free time, they spend more money on hobbies, travel, etc.
• Adjust for inflation. It is important to realise that 10, 20, or 30 years from now the cost will be higher in accordance with inflation. Failing to adjust for this factor could lead to a severe shortage of funds.
• Do the math. Once you know how much you need and when you need it you can calculate how much you will need to save between now and then.
• Don't be overly optimistic. When calculating how much you will need to save each month, resist the urge to assume that you will average a 18% (or any other number on the high side) annual return. This may happen occasional, but chances are very strong that you will not average this return over the course of the investment. Choose a more conservative percentage because it truly is better to be safe than sorry. If it turns out you make 18% then great, you'll have extra money in your account.