Debt. Savings. Investing.
All our experts agree that communication with your partner and paying off debt are both vital recession-prooﬁng strategies. Sara Dimerman, a relationship and family therapist, advises that when it comes to being on the same page about money, having an understanding of your partner’s background is key. For example, if your mate lived at home with her parents until you moved in together, they may not have learned to be responsible for expenses like rent and groceries. Dimerman says couples need to identify ﬁnancial differences and work through them, even calling on a therapist if they need help doing so. “Along with understanding your partner’s personal history, it’s critical that you discuss how to handle money as a couple.”
For long-term debt reduction, Sandra Foster, fellow of the Canadian Securities Institute and author of Who’s Minding Your Money? Financial Intelligence for Canadian Investors, reminds couples of a very basic rule: “Don’t use credit cards unless you can pay them off every month. If you have a card charging 28 percent interest, look at moving to a lower-interest card with nine or 10 percent.” (Compare credit card and bank rates at Bankrate.ca.) But if you’re really serious about cracking down, Robert Abboud, certiﬁed ﬁnancial planner and author of No Regrets: A Common Sense Guide to Achieving and Affording Your Life Goals, advises cutting up your cards altogether: “Most people aren’t used to living within their means,” he says. “Live on cash! Stop using plastic; it isn’t real.” As Alison Grifﬁths, host of Maxed Out on the W Network, adds, “The very best debt-reduction strategy for recessionary times is to live lean and learn to live with less.”
As for recession-prooﬁng your bank account, Foster says couples should have an emergency fund to cover three to six months of living expenses. If you can’t manage that, save as much as you can in a high-interest account such as those from ING, ICICI or President’s Choice Financial. In a ﬁnancial emergency, you can remove funds from your RRSP, but try and avoid it if you can. Money taken out of an RRSP will be subject to taxes, so it’s best to check with your ﬁnancial institution. You may be better off with a loan.
Once you’re working well as a team in an effort to get your ﬁnances in good shape, it’s time to look into solid investment strategies. Grifﬁths suggests that young couples invest in low-fee, diverse, index mutual funds or exchange-traded funds (ETFs) over a long-term basis. “This kind of investment will help to recession-proof your portfolio,” she says.Mortgage
Ever been privy to this piece of guidance: “Buying a home is the biggest purchase you’ll ever make”? In light of this truth, a looming recession and growing numbers of foreclosures in the States, it’s wise to take the time to conduct research and to be conservative with your ﬁnances before making the leap into buying or selling a home. If you want to take advantage of low interest rates by buying now, Grifﬁths has a few words of advice: “Don’t over-mortgage, and put as much down as possible.” Adds Foster: “When it comes to ﬁnancing a home, couples should aim for 20 percent down payment and stick with a 25-year mortgage, but the reality for many couples is that the down payment may be as little as ﬁve percent, requiring them to pay the fee from the Canada Mortgage and Housing Corporation.”
For current homeowners, Abboud recommends looking into mortgage payment options to prepare for hard times ahead. “In some banking institutions you can make extra payments ahead of time, then, later on, you may be able to skip a payment or two,” he says. Another option to consider is altering your mortgage payments. “There are usually no penalties when changing payment frequency, and downgrading from biweekly to monthly will be slightly beneﬁcial as your overall payment will drop a little,” he adds. Bear in mind, though, that you’ll be paying more interest and less principal if you switch to monthly.
If you’re looking for wheels, do not lease, cautions Grifﬁths. “You’re better off buying,” she says. With leasing, you’ll own nothing at the end of the term, but with buying, you’ll end up owning the vehicle. Lease-to-own may seem like a better option—payments may be lower than buy-out payments—but don’t be fooled: “Purchasing always wins as the most cost-effective method of acquiring a car,” says Grifﬁths. She recommends saving up for a down payment on a new or used car and then bargaining hard to buy. You’ll save even more by switching to a hybrid: “If you add in the savings on gas over a standard vehicle—as much as $200 a month for those who are commuting—and use it to pay down your new hybrid, you will save on interest payments, plus gas,” she says.
For those who require a vehicle only occasionally, a great option is to go the car sharing route. For a small membership fee ($20 to $55 a year) and low per-hour rates, you can borrow a car for a designated period and then return it when you’re done—like renting but more economical. Visit CarSharing.ca and Zipcar.com for more information.
Food & Entertainment
When it comes to your food bill, Grifﬁths urges couples to take a look at their take-out restaurant budget. “I’m talking about the coffees, lattes and lunches—chances are, couples spend $350 to $700 a month on those items alone,” she says. “Take a look and see what you can do to cut it in half.” As for your groceries, if you haven’t already, now may be the time to switch to generic brands and bulk at the store.
If all this cost-cutting has you down, keep in mind you can still have fun without pricey nights at a club or concert hall. “There is so much free entertainment; you don’t have to pay $100 to have a good time,” says Foster. Search your local newspaper for inexpensive and original ideas.
There’s no need to cut out vacations either. Foster suggests couples do their research and look for last-minute specials on-line at lastminuteclub.com and Tripcentral.ca, or book with a travel agent. House-swapping is a great, economical alternative to traditional hotel stays, and with the Canadian loonie at par with the American dollar, heading south of the border is now more affordable than it has been in years. Also, one-tank holidays, involving short (day or weekend) trips, are an increasingly popular option among gas-bill-wary travellers. Pull out your regional map, mark your target and stay at a B & B in town.
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