Every day, we encounter invitations to buy, buy, buy! Maybe you’ve just noticed that terrific new car in the driveway next door and you think, “Hey, if the Joneses can afford that, then I can, too.”
Next thing you know, you’re looking up from under a mountain of debt.
But that’s not you ? you don’t need to keep up with the Joneses and you want to keep your debt under control. To help avoid those expensive and financially crippling impulses and to help keep your debt under control, here are a few suggestions.
Start with a budget that makes a clear distinction between ‘want’ and ‘need.’ Make a comprehensive list of all your necessary and discretionary expenses. List your sources of income and, as much as you can, trim your expenses to fit your income. Try to include an amount ‘in hand’ to save and invest.
Organize your spending into three buckets ? ‘past,’ ‘present’ and ‘future.’ Past spending includes loans and purchases made with credit cards. Present spending includes your daily living expenses. Future spending includes education savings for your kids and retirement savings for you and your partner.
Know your TDS
When you apply for a mortgage, your lender is required to apply the Total Debt Service (TDS) ratio to help ensure an excessive amount of your cash flow is not eaten up by your debt load. The TDS ratio measures the percentage of your gross annual income required to cover mortgage payments, property taxes, heating and other household costs, plus other monthly obligations such as car and personal loans, credit card payments, spousal/child support, and so on. Generally, the highest allowed ratios are approximately 40 to 42 per cent of your gross income.
Use credit wisely
It’s easy to apply for credit ? but before you do, look critically at your current financial situation.
It might be better to tighten your budget for six to 12 months before making any major purchases ? and then you’ll be in a position to pay cash for them.
No, you don’t need to keep up with the Joneses, but if you want to make sure you’re keeping up with your own financial dreams, talk to your professional advisor today.
This column, written and published by Investors Group Financial Services Inc. (in Québec ? a Financial Services Firm), and Investors Group Securities Inc. (in Québec, a firm in Financial Planning) presents general information only and is not a solicitation to buy or sell any investments. Contact your own advisor for specific advice about your circumstances. For more information on this topic please contact your Investors Group Consultant.
Contact David Brown at 250-315-0241 or at email@example.com to book your appointment.