Money: Learn How to Budget and Avoid the Debt Trap

Managing your money:

by FCAC

FCAC is a federal government agency that protects consumers’ rights, and provides useful and objective information about financial products and services.

Getting started in a new country is a scary thing to think about and it’s an experience that can lead you into debt. That is why it is important to make an accurate assessment of what life in
Canada will cost and take care to provide a forecast for unforeseen expenses.

How much does it cost to live in Canada?

Even if you have estimated what it will cost you to live in Canada, you will not be able to come up with an accurate figure until you are really living here. During your first few months in the country, start to keep your receipts and take note of all your expenses, from groceries to your daily cup of coffee. This will give you a starting point when preparing a budget.

It pays to create a budget!

It is difficult to control our spending when we don’t make a budget. By preparing a budget you will see exactly where your money is going and be able to achieve your short-term objectives, such as paying monthly bills, taking a course or paying off your credit card debt. By setting aside a fixed amount on a regular basis, you will also be able to meet your long-term goals, such as buying a house or a car, or paying for education and travel.

Plan ahead
No one is safe from unforeseen events such as car repairs or a health problem. That’s why it’s important to set something aside for a rainy day. Try to save the equivalent of three to six months’ salary to help you get through unexpected crises. This will also keep you from falling into debt too deeply.

Reduce your debt

It is important to stay in control of your loans, including the unpaid balance on your credit cards, lines of credit and personal loans, and to find ways to repay them as quickly as possible. Doing this will help you to establish a good credit record, so that you can borrow more easily when the time comes to buy a house or obtain another loan. The following advice will help you to limit and reduce your debt.

Wants or needs?

Before buying groceries, clothing, electronic items or toys, take the time to ask yourself whether the purchase is really something you need or whether it is just something you want. Do you really need the item in question? If the answer is no, then it is just something you want. Put the item back on the shelf, and tell yourself that you will be saving money that could be used for something more important.

Pay later?

If you have just arrived in Canada, you may need to buy furniture or a car. Many retailers offer “buy now, pay later” types of plans. Although these offers may seem tempting, they can become an additional source of debt if you don’t pay them off by the due date. In addition to paying your balance, you will have to pay high interest rates of up to 30 percent. It’s better to avoid this type of plan unless you can afford to pay off the balance in full before interest begins to accumulate.

Credit cards are not a source of unlimited cash

Remember that a credit card is a method of payment, not a funding source. If you want to use your credit card, make sure you have enough money to pay the full balance of your card by the due date. By keeping this simple fact in mind, you will keep yourself from spending money that you don’t have.

Change your habits

You can make substantial savings simply by cutting back on your regular small purchases. For example, you can save several hundred dollars a year merely by changing your habits.

  • Take public transit to work, instead of your car;
  • Make your own lunch instead of buying it near your workplace;
  • Take your own coffee to work; and
  • Buy clothing that does not have to be dry-cleaned.

Tools are available
To help you draw up a budget and avoid debt, the Financial Consumer Agency of Canada (FCAC) has created two new tip sheets:

  • Tip sheet on budgeting
    Provides information on budgets and includes a how-to guide and a detailed worksheet to help you set up your budget.
  • Tip sheet on debt
    Offers advice on how to better manage your personal finances.

To learn more about financial products and services, visit the FCAC website at www.fcac.gc.ca or call us toll-free at 1–866–461–3222. FCAC is a federal organization that provides consumers with information about financial products and services.

CNM