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Building Financial Resiliency

4 common money mistakes and how to avoid them


By Tara Tennant, BBA, EPC, Financial Advisor

Assante Financial Management Ltd.       


If there’s one thing I’m intimately familiar with, it’s feeling the regret of a bad financial decision. Of course, no-one ever sets out knowing that the decision they’re making is a bad one. It always feels like the right decision at the time. Sometimes it’s because we’re in a hurry, sometimes it’s because we’re caught up in what we think we “should” be doing and sometimes it’s because we’re desperate. Whatever the reason, rest assured, there’s always a way back.


My biggest money mistakes.

When I was in my twenties, I thought I was doing everything “right.” I had gotten into my university of choice and graduated with a degree in Business Administration. I worked in downtown Toronto at a Financial Services company. I worked hard and got promoted. By 26, I had met and married a passionate, exciting man. By 29, we were making great money and bought a house in the suburbs. At 30, I was pregnant with my first child! It should have been the best time of my life.


But it wasn’t.


Despite outwardly looking like we had it together, we’d made some decisions that had put undue stress on our finances. The home we’d purchased in 2007 was eating up a big chunk of our monthly income. To make matters worse, we had bought it at a time when you were able to buy with $0 down, so that’s what we’d done. At the time it seemed like a good idea, but it meant we had absolutely zero equity to start with. Equity is the portion of the value of the house that is above the amount that you owe. For example, your house is worth $600,000 and your mortgage owing is $450,000, that means you have $150,000 of equity. For us, we started at $0. 


We also thought it would be a good idea to stretch our mortgage over 35 years. This came about because the house we wanted to buy was a bit out of our price range. By extending the mortgage to 35 years instead of 25, it made the monthly mortgage payment “affordable” a.k.a. “we could pay the mortgage and still eat”. Although this was great for our monthly budget, it effectively made it even harder to build up equity. This is because nearly 95% of our monthly payment went to interest charges, instead of the principle. Still, it didn’t occur to us to worry because we knew that we would make more money in the future, and eventually, we would have enough money left over to start saving. 


We were so confident in our stable jobs, annual bonuses and ability to earn income that we decided to deck out our new home with $15,000 of “don’t pay till next year” home furnishings. 


What could go wrong?


The summer we bought our house was also the summer my husband lost his job. Neither one of us had seen this coming and we were fully unprepared. It didn’t take long for us to start sinking.


With half the income, we now needed to use all my income and my annual bonus just to keep us afloat. The “don’t pay till next year” financing came due and without a means to pay, it went on the line of credit. Desperate for a solution, I opened new credit cards (in my name only) so that I could transfer balances owing to a lower interest rate. 


I knew it was unsustainable. I knew that something needed to change, but I was so busy just trying to keep going, and so overwhelmed with not knowing what to do that I did nothing.


My first child was born in the autumn of 2009 and I went back to work when they were 4 months old. I had to because we needed to keep the income coming in. What I made on maternity wouldn’t cut it. To this day, it’s the biggest regret of my life. If I had known that the result of our money decisions two years earlier would lead me here, I wouldn’t have done it. We hadn’t fully understood the risks we were taking. 


Where did we go wrong? 


We certainly missed some red flags along the way. Looking back, and knowing what I know now, there are certainly other steps that we could have taken. Let’s take a closer look and see what other options we had.


Mistake #1 – The house purchase.

We bought a house that was out of our price range and hadn’t saved up enough of a down payment. 


Alternative Solution #1: It seems pretty simple, but we could have bought a less expensive house. Our incomes were good, and we didn’t have any debt. Although we qualified for more, we should have stuck to the rule of no more than 35% of our income going to housing expenses. This would have left us in a better position to continue to save, while living in the home.


Alternative Solution #2: We could have waited to purchase. We could have rented for a few more years or taken in a roommate and saved as much as we could toward the purchase before we made it. Not an ideal situation for a married couple, but this would have saved us when my husband lost his job because if we had built up equity in the house, we could have re-financed and used that to consolidate our debts. 


Mistake #2 – “Don’t pay till next year!”

We spent money we didn’t have assuming it would arrive within a few months.

Alternative Solution #1: Did we really need $15k in new furniture? No, we didn’t. The only thing we actually needed was a fridge, because the house didn’t come with one. And we could have saved up for that. We assumed that our annual bonuses at the end of the year would cover it. As it turned out, he didn’t get one, and mine was needed for other debt. 


Alternative Solution #2: We could have delayed the purchase. Assuming we were going to use our bonuses for the purchases, we could have just waited until the money was in the bank. Then we could have shopped with confidence and not used financing at all.


Mistake #3 – Assuming our income was stable and guaranteed.

We spent our money freely on the assumption that we had great jobs that would continue indefinitely. 


Alternative Solution #1: We made a lot of assumptions about our employment income and bonuses. The reality is that life happens. We don’t know when or where, so the best thing we can do is set ourselves up for the unforeseen by simply having an emergency savings account. Had we done that, we would have saved 3 months of expenses (6 if you are an entrepreneur) and that could have carried us through till my husband found another job. It wouldn’t have totally saved us, but it certainly would have helped. 


Mistake #4 – Paying old debt with new debt.

Alternative Solution #1: Instead of opening new credit cards and transferring balances or using a line of credit to pay for the furniture loan, I should have looked for a credit counsellor who could advise me on consolidating my debt. At that point, we likely could have qualified for a personal loan that we could chip away at. Unfortunately, I was so embarrassed about the whole thing that I couldn’t even fathom explaining it to anyone. What I know now is how brave and responsible asking for help is. As it was, I let it go on until it was much, much worse.


Turning things around.

After having been back at work for 6 months, I got pregnant again. Yay! Yay?? Oh crap.


Needless to say this news was bittersweet. I’d always wanted two children and I was so happy. But I knew we were in for trouble. I remember calling my Mom from the office and saying “Well, Mom, what’s the worst thing that could happen to me right now?” 


Always on the ball, my mother replied, “You’re pregnant.”


Faced with looking after two babies, I knew it was up to me to get us out of this mess we were in and  I was done making bad decisions. 


By the time my son was born in the spring of 2011, I was living back at home with my Mom. 


Did I feel like like the biggest failure that had ever walked the earth? You bet. But as I started putting one foot in front of the other, and slowly getting my ducks in order, I got stronger and stronger. 


I was working my resiliency muscles.


Resiliency Tip #1: Focus on what you have, not what you don’t have.

Even on my darkest days, I forced myself to have gratitude. I had an amazing family to support me, and amazing friends who helped me out in so many ways. Most importantly, I had two beautiful children that needed me to get up every day and put one foot in front of the other, and a mother who didn’t let me forget that. That’s all that really mattered.  


Resiliency Tip # 2: It’s not your fault, but it is your problem.

I really felt like a lot of what had happened wasn’t my fault. I blamed my ex-husband, the banks, the salespeople, the creditors, even society in general. 

The world we live in is DESIGNED to make us want to spend our money. Advertisers and salespeople have been studying human buying behaviour for decades upon decades. It’s never been easier to spend money!


The reality is that it’s our responsibility to learn how to effectively manage our income and expenses so that we don’t put ourselves in risky situations. We need to build our financial resiliency muscles so that we can face whatever comes our way. Step #1? Building up that emergency fund.


Resiliency Tip #3: Slow down and take small, deliberate steps.

There are many times in my life that I can look back on and realize the sick feeling I had wasn’t fear. It was intuition. I had just learned to ignore it. A funny thing happens when you learn to slow down and trust your inner voice - you tap into a spectacular power.


The hardest decision was admitting that things needed to change and that it was going to start “today”. Armed with that desire I made some new financial decisions. I drove a car that was given to me by a family friend. My mother let me stay with her for a year rent-free while I got back on my feet. I read a lot of Gail Vaz-Oxlade books and watched “Till Debt do us Part”. Giving myself the financial education I didn’t have before. I started keeping a notebook of expenses. I focused on all the things I COULD control. 


I finally went to see a credit counsellor.


Within two years I was building back to stability. I had a savings account and I had opened a Registered Education Savings Plan for the kids. I started it with birthday and Christmas money they received from family. Next, I bought life insurance to make sure that if anything happened to me, they would be looked after. Each little step built up those muscles and made me feel more and more in control of my financial future. 


BREATHE & own the win.

Cheesy, I know. Simple, yes. Effective? Absolutely. Just stop, breathe and celebrate making better financial decisions. Life is moving at such an outrageous speed these days, it’s hard to remember to stop and take stock of what we have. 

Building wealth is a long, slow process just like building muscles. There’s no instant gratification here so it’s important to celebrate your wins starting with the decisions you make every single day. If you don’t have one yet, get yourself a financial plan. It doesn’t matter what your income is, how much debt you have or what you have in the bank or investments. Everyone needs to dream about what they want in life and having a written plan will put the steps in place to get you there. 

My journey isn’t over. It never will be because I am a work in progress. We all are, and we all make mistakes. The trick is to learn the lesson and be kind to ourselves as we figure it all out.


 

A picture of the author, Tara

Tara Tennant is a Financial Advisor with Assante Financial Management Ltd. The opinions expressed are those of the author and not necessarily those of Assante Capital Management Ltd. Please contact her at (613) 547-1554 or email her at tara.tennant@assante.com to discuss your particular circumstances prior to acting on the information above. Assante Financial Management Ltd. is a member of the Mutual Fund Dealers Association of Canada.


 

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